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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: Hello, and welcome, everyone, joining today's TIC Solutions First Quarter 2026 Earnings Call. Please note this call is being recorded, and -- it is now my pleasure to turn the meeting over to Andrew Shen with Investor Relations. Please go ahead. Andrew Shen: Thank you, operator. Good morning, everyone, and thank you for joining the call. Joining me this morning is Ben Hard, our Chief Executive Officer; Kristen Chultas, our Chief Financial Officer; and Robbie Franklin, Executive Chairman. I would now like to remind you that certain statements in the company's earnings press release and on this call are forward-looking statements that are based on expectations, intentions and projections regarding the company's future performance, anticipated events or trends and other matters that are not historical facts. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. In our press release and filings with the SEC, we detailed material risks that may cause our future results to differ from our expectations. Our statements are as of today, May 6, 2026, and we undertake no obligation to update any forward-looking statements we may make, except as required by law. As a reminder, we have posted a presentation detailing our first quarter financial performance on the Investor Relations page of our website at ticsolutions.com. Our comments today will also include non-GAAP financial measures and other key operating metrics. The required reconciliations of non-GAAP financial metrics can be found in our press release and in our presentation. For the purposes of this call, we refer to our segments as Inspection and Mitigation, or I&M, Consulting Engineering, or CE and Geospatial or GO. Any reference to combined results reflects a non-GAAP combined view of legacy Acron and legacy NV5, where applicable for period-to-period comparability. More details on the calculation of the combined results are included in the presentation. It's now my pleasure to turn the call over to Ben. Benjamin Heraud: Thank you, Andrew, and good morning, everyone. Before I begin, I want to say how proud I am to lead this talented organization. Over the past several months, I've seen strong support from our leaders across the business and from the field and technical professionals who serve our clients every day. We have started 2026 with healthy momentum across the business. First quarter results reflect the strength of our combined platform, the resilience of our recurring and nondiscretionary services and the demand drivers that support tech solutions. This includes aging infrastructure, increasing energy demand, increasing data consumption and the digitization of the physical world. We believe these megatrends will continue to drive demand across our business and expand the need for technical services that enable us to turn data into solutions for our clients. These tailwinds inform our strategic priorities, winning in essential high-demand end markets and geographies, expanding our role across the asset life cycle and client relationships and driving higher value growth through technical differentiation and disciplined capital allocation. These priorities are supported by the breadth of our business. Through consulting engineering, we help clients plan, design and commission critical assets and infrastructure. Through inspection and mitigation, we help clients maintain asset integrity, reduce downtime and address reliability needs. Through Geospatial, we help clients capture, process and interpret asset and location data at scale. Together, these capabilities position Tech Solutions as a life cycle partner rather than a point solution provider. Our 2026 operating objectives are directly aligned with these strategic priorities. First, to win in essential high-demand end markets and geographies, we are focused on driving organic growth across the platform. This means expanding scope and market share and pursuing attractive opportunities to sell additional capabilities. Second, to expand our role across the asset life cycle and client relationships, we are strengthening organizational alignment and cross-segment collaboration. That includes improving how we manage accounts, deploy resources, support our field and technical teams and bring our capabilities together for our clients. Third, to drive higher value growth, we are focused on margin expansion and disciplined capital allocation. That means maintaining pricing discipline, improving utilization, managing costs, enhancing service mix and directing capital towards the highest value opportunities. In the quarter, we saw growth across transportation, infrastructure, utilities, manufacturing, midstream energy and data center end markets. We remain focused on converting these trends into sustainable, attractive and profitable growth. With that framework in mind, I'll walk through the performance across our segments and highlight where we are seeing progress against these priorities. Consulting Engineering delivered strong performance in the quarter with revenue increasing 9.5% year-over-year. We experienced broad-based revenue growth, offsetting pressure from timing in LNG engineering and power delivery. Adjusted gross profit increased 11% year-over-year and adjusted gross margin expanded 60 basis points, reflecting strong execution, improving mix and continued demand for high-value technical services. Data centers were the largest driver of growth in the first quarter, supported by hyperscaler and mission-critical infrastructure activity across both domestic and international operations. AI, cloud adoption and enterprise digitization continue to increase demand for data consumption storage and mission-critical uptime. Our focus is on capturing that demand where we have the right capabilities, client relationships and return profile. Consulting engineering also saw broad-based growth across several core capabilities, including civil program management, geotechnical and materials testing and buildings. Overall, Consulting Engineering's first quarter performance demonstrates the value of technical capabilities we offer across infrastructure and the built environment. The segment continues to benefit from durable demand trends tied to aging infrastructure, infrastructure investment and growth in key regional markets. Our performance also shows the operating leverage that can come from better utilization, focused execution and delivery of higher-value services. Geospatial also performed well, growing 4.5%, supported by strong commercial and utility demand, healthy fleet utilization and continued interest in geospatial digital transformation solutions. The team continues to pursue technically complex work across multiple markets and geographies. Recent examples include deep sea hydrographic survey work tied to rare earth minerals and advanced LiDAR and imagery opportunities internationally. These demonstrate the breadth of our capabilities and the ability to scale and apply specialized technical expertise across borders. We are also advancing our Geo AI efforts with a focus on improving processing efficiency, automating workflows and expanding higher-value analytics. We look forward to discussing these capabilities in more detail at our Investor Day, including how they support our broader Geospatial platform over time. Quarter end total backlog within Consulting Engineering and Geospatial was $1.12 billion, up approximately 14% from $983 million at the prior year quarter end. This backlog expansion, combined with the solid commercial execution supports our confidence in continued momentum and near-term outlook. Inspection and Mitigation delivered a steady result with revenue essentially flat year-over-year. While results were below our long-term expectations for the segment, the team remained focused on margin integrity, disciplined staffing and prioritizing higher quality, higher-margin opportunities. In the first quarter, our callout and outage activity increased moderately, helping offset lower sustaining capital work and continued pressure in certain regions. Performance was stronger in areas such as industrial road access, containment and in-lab services, and we're focused on replicating that execution more consistently across the I&M footprint through disciplined opportunity selection, stronger local accountability and a higher mix of high-value technical services. Inspection and mitigation demand continues to vary by end market and geography. Customer focus on throughput, uptime and critical integrity work remains intact, but broader market uncertainty is creating more variability in customer decisions around planned outages and scheduled maintenance, including timing, scope and duration. In the quarter, certain planned outage work shifted from the second quarter to the third quarter and some work was resized as customers remain selective on near-term spending. Performance pressure remains concentrated in the Gulf Coast, where LNG construction timing and several 2025 site losses continue to weigh on year-on-year growth. We are managing through these dynamics while expanding in areas we have a proven track record and pursuing new white space opportunities. We continue to execute on the operating model changes we outlined last quarter with a focus on regional accountability, cost control and more consistent opportunity sourcing. As discussed on the previous call, we have strengthened regional leadership in the segment and are adding both new and returning leaders in key areas to drive operational efficiency and commercial focus. As we move through the year, we expect I&M performance to benefit from normal seasonality, outage activity and stronger conversion of commercial opportunities while remaining disciplined on margin and work selection. To recap, Consulting engineering and Geospatial continued to benefit from strong demand and differentiated capabilities, while inspection and mitigation remains focused on improving execution, accountability, pricing and resource deployment. Across the platform, integration is improving how we manage accounts, expand services and control costs. Together, these actions position us to deliver durable growth, improved profitability and stronger cash flow over time. We are looking forward to hosting our Investor Day on Tuesday, May 19, in New York City. We plan to discuss the next phase of the TIC Solutions story, including our long-term growth framework, margin expansion plans, capital allocation priorities and how stronger execution can create additional value across the business. And with that, I will turn the call over to Kristen to review the financial results for the first quarter, provide an update on integration and offer more detail on our outlook. Kristin Schultes: Thank you, Ben, and good morning, everyone. In the first quarter, total revenue was $488 million. On a combined basis, total revenue grew 4.3% year-over-year or 3.1% in constant currency. Organic growth on a combined basis was 2.2%. Adjusted gross profit for the quarter was $180 million, up 3.8% from the combined adjusted gross profit of $174 million in the prior year period, driven primarily by revenue growth and margin expansion in Consulting and Engineering. Adjusted gross margin was 36.9%, roughly flat compared with the combined margin of 37.1% in the prior year period as Consulting Engineering margin expansion was offset by mix and margin pressure in Inspection & Mitigation. Inspection & Mitigation contributed first quarter revenue of $235 million, up 0.3%, driven by increased call-out and outage work and offset by lower sustaining capital activity. Inspection & Mitigations adjusted gross margin was 24.4% for the quarter compared with 25.2% in the prior year period, reflecting the impact of mix from less sustaining capital work. Consulting Engineering contributed first quarter revenue of $187 million, up 9.5%. Consulting Engineering's adjusted gross margin was 47.6%, up 60 basis points from 47.0% in the prior year period, driven by strength in infrastructure and building design and commissioning. Geospatial contributed first quarter revenue of $66 million, up 4.5%, driven by healthy demand from utility clients. Geospatial's adjusted gross margin was 51.0% compared with 54.2% in the prior year period, impacted by a pilot project that carries a higher proportion of subcontractor costs and a lower gross margin profile. We believe this work is highly strategic and supports higher value growth over time with a key client. Adjusted SG&A for the quarter was $123 million or 25.2% of revenue. This continues to be a critical focus area as we work to drive SG&A leverage through synergy realization as well as cost discipline in the business. Adjusted EBITDA was $57.7 million compared to combined adjusted EBITDA of $55.6 million in the prior year period, representing growth in line with the increase in combined revenue. Adjusted EBITDA margin was 11.8% compared with 11.9% a year ago on a combined basis, reflecting a path towards improved operating leverage. From a cash flow perspective for the quarter, operating cash flow was $10 million and capital expenditures were $6 million. The operating cash flow reflects the expected seasonality of the business, which includes greater working capital intensity in the first half of the year. Moving now to our balance sheet and capital resources. As of March 31, 2026, we had total liquidity of $537 million, including $427 million of cash and $111 million of available capacity under our revolving credit facility. Total term loan debt was $1.6 billion. Our capital allocation priorities remain unchanged. We remain focused on investing organically in the business and using free cash flow to provide additional flexibility for disciplined acquisitions while achieving lower leverage over time. Turning to integration. We continue to make great progress capturing the benefits and cost synergies associated with the NV5 combination. Importantly, we are ahead of schedule on synergy actions with approximately $17 million of the $25 million cost program now actioned on an annualized run rate basis. We now expect realized savings in 2026 to be roughly $15 million, modestly above the $12.5 million we discussed in previous quarters. These actions are intended to create lasting efficiencies in the combined cost structure and support margin expansion as our business scales. Now turning to our unchanged outlook. For the second quarter, our guidance reflects revenue of approximately $570 million to $582 million and adjusted EBITDA of approximately $90 million to $96 million. At the midpoint, this implies an adjusted EBITDA margin of approximately 16.1% for the second quarter, which would represent margin expansion year-over-year. We are reaffirming our previously issued full year 2026 guidance of $2.15 billion to $2.25 billion of revenue and $330 million to $355 million of adjusted EBITDA. At the midpoint, our guidance implies approximately 4% revenue growth and 10% growth in adjusted EBITDA against our 2025 combined results with an adjusted EBITDA margin of approximately 15.6% at the midpoint. By segment, on a combined basis, we expect CE and GEO growth to outpace growth in I&M for the full year. In Inspection & Mitigation, our outlook assumes a back half weighting supported by normal seasonality and the anticipated timing of certain outage and sustaining capital work. For 2026, we anticipate net interest expense of $95 million to $105 million, cash taxes in the range of $25 million to $35 million and capital expenditures of $55 million to $65 million. We typically see a working capital build as activity ramps through the first half of the year, followed by stronger cash conversion in the second half as collections catch up with revenue. We manage and evaluate free cash flow primarily on a full year basis, and we continue to expect healthy free cash flow generation over the full year. With that, I'll turn the call back to Ben. Benjamin Heraud: Thank you, Kristen. The first quarter reinforced the resilience of our business model and the benefits of our diversified platform. As discussed at the start of the call, the trends around aging infrastructure, increasing energy demand, increasing data consumption and the digitization of the physical world continue to support demand for the essential technical services we provide. As we move through 2026, we remain focused on the strategic priorities that define how we create value, winning in essential high-demand end markets and geographies, expanding our role across the asset life cycle and client relationships and driving higher value growth through technical differentiation and disciplined capital allocation. We are seeing progress against our top priorities while recognizing there is more work ahead. I want to close by acknowledging the strength of this organization and the leaders across our business. TIG Solutions has a significant long-term opportunity supported by a highly engaged team, strong cultural alignment and essential technical capabilities across resilient end markets. Our teams have continued to execute with discipline and focus while staying centered on our core purpose of delivering for our clients every day. With that, operator, we're ready to open the line for questions. Operator: And we'll take our first question from Chris Moore with CJS Securities. Unknown Analyst: So you exited some lower-margin customers contracts in inspection and mitigation in 2025. Just trying to get a sense if that process is still ongoing in '26. Benjamin Heraud: Yes. We're still maintaining discipline around our pricing and approach to the market. We're sort of seeing price increases amongst a number of our contracts, and we will continue to stay disciplined on our pricing model. Operator: Got it. Benjamin Heraud: Just to point out, no additional lost sites since last year. Unknown Analyst: Got it. In terms of the 4% organic growth that you're targeting in '26, maybe just from a big picture perspective, can you walk through the segments or subsegments and kind of rank those where you have the most visibility for the year and perhaps those where visibility is a little bit more limited at this point in time? Kristin Schultes: Yes, sure. I'll take that Chris. So if we look at our full year guidance at that midpoint, I think we haven't provided segment level guidance, but I would tell you that with the visibility that we have that our outlook for growth for Consulting Engineering and Geospatial is higher than I -- if we look at what drives confidence in our ability to deliver that, we have backlog within GO, which provides a lot of visibility. And as we disclosed that our backlog is up significantly. And also just with our internal flash and forecasting process within the I&M business, we also have good visibility. And inherently, things are moving, but we have good visibility to kind of what's to come. So this is our high conviction number and feel good about our ability to deliver in 2026. Unknown Analyst: Terrific. Very helpful. This one may be more for Investor Day. But just last one. Geospatial growth has bounced around a little bit, 4.5% this quarter. still sounds like lots of opportunities there. Just trying to get a sense for what a reasonable expectation is for a normalized annual growth rate for Geospatial. Benjamin Heraud: I think we'll continue to see good growth within it. We're pleased with the performance of Geospatial. We did have a little bit of margin pressure from that one project we pointed out earlier. But for the most part, there's a lot of digitization required around the world, and we have a very scalable platform that we're excited about expanding and growing. Kristin Schultes: Chris, you'll have an opportunity to meet the leader of our Geospatial business in a few weeks at our Investor Day, and he'll speak more to the long-term growth outlook of the segment. I think what you're seeing in the mid-single digits is the right way to think about it. Operator: We'll move next to Thomas Sano with JPMorgan. Unknown Analyst: I would like to ask about the IM business. Could you quantify the revenue and margin impact of each key headwind you talk about? Excluding these, like what do you see as the segment's underlying growth and margin potential? And what is your outlook for the recovery? And there any specific KPIs you are targeting in this business? Benjamin Heraud: Yes. Look, we're tracking a number of KPIs, and I would say, I would point to the Gulf has been an area of focus around improvement. We're seeing month-on-month improvement there. And with the leadership that we put in place earlier in the year, we're now just seeing a very aggressive commercial approach to that business. We talked earlier on the call about some shift with some outage work into Q3. That was known and sort of expected. Some real positive signs also around service line expansion. Our rope access group is up 9% and our in-lab work is up 20%. So also good indications of the business and its potential growth later in the year. Unknown Analyst: And follow-up on data centers in S business. What is your outlook for growth in data centers? What proportions of total revenue do you expect these segments to represent in 2026 and 2027? Benjamin Heraud: Yes. So use round numbers around 5%. We continue to see very, very nice growth within that business. We remain very excited about it. The U.S. business is starting to really -- the efforts that we've put in over the last couple of years are really starting to pay dividends, and that is growing at a really nice clip. -- now. So it's -- trailing 12 months was around $80 million in revenue. Backlogs of a similar amount. So we have a very strong line of sight into a strong year ahead. Operator: We'll move next to Kathryn Thompson with Thompson Research Group. Kathryn Thompson: Just first, big picture, you're approaching in June, first full year of NV5 as part of TIC Solutions. How is the integration as we approach the year mark? What has worked and what are areas for continued growth? Benjamin Heraud: I'll just sort of start at a high level and then let Kristen get into some more detail. I'd just say, and I've said this before, how pleased I am with the cultural alignment between the 2 organizations and the general level of excitement around bringing each company's services to their clients. And I think that that's really starting to show in some of the activity we have around service line expansion with our clients. I'll let Kristen dig into a bit more detail. Kristin Schultes: Yes. Thanks, Catherine. I'd love to talk about integration. So just a reminder, we closed in August, so that's when we'll hit the 1-year mark. From an integration milestone perspective, look, like I mentioned, we're ahead of schedule on and the actions. And we had a few million of savings in this quarter, and that's going to continue to ramp for the full year, and we expect $15 million of savings to flow through the P&L this year, which is really exciting. I'm proud of the leadership team that we have leading that integration for us. And in the quarter, we hit some key milestones. We exited or reduced 4 sites. We we've accomplished 13 to date. I think we've got 40 on our road map, and those are either reductions in footprint or exits of sites. We have added some key leadership additions to the team in different functional areas that are helping drive really creating scalability for this organization as we continue to grow and look to become an even larger organization and continue to grow. We have hit some internal system implementation milestones. We've stood up a shared services function within the finance organization and using technology. So lots of good exciting activity on the integration front. Kathryn Thompson: Okay. Obviously, a lot of focus on AI build-out, but also the energy build-out is critical and gaining more headlines. And really, the build-out includes generation, energy storage and transmission. When you think about those 3 legs of the stool, how does TIC solutions play in the energy build-out that's supporting not just only AI, but the broad reindustrialization of the U.S. market? Benjamin Heraud: Yes. I mean they're directly related aren't they, I mean the energy demand coming from AI and other areas. The 3 that you pointed out are areas that we're very well positioned for power delivery, the engineering work that we do around that right through from transmission to distribution to substation design. We actually just were awarded an energy storage project within the consulting and engineering group recently, a first of its kind, which is really exciting. And on the generation side of things, both -- it's an area that our NDT and inspection business works in, and it's actually quite an exciting opportunity we're working on at the moment, bringing together the data center expertise that we have in engineering and inspection and mitigation. So I think we're very well positioned for that growth in that area. Kathryn Thompson: So if I'm hearing correctly, you're there for the build-out, but also for the follow-on inspection work that one way to think about it? Benjamin Heraud: Yes. And also I would point to Geospatial, we fly 150,000 miles of lines every year. That's been growing, and that's recurring work that we do for utilities. Kathryn Thompson: Okay. Great. And when you look at say, 12 to 18 months from now, where do you see -- and you see kind of the end market exposure for TIC. What areas do you see growing the most as a percentage of total overall mix? And what may -- just by sheer growth in other markets may be shrinking. So it's broader because before, if you -- infrastructure with the mix was 25% in data centers were just 2%, but data centers obviously has grown a bit more than that. So high level, what are the areas of the greatest growth in terms of mix? And then speak to the margin profile of the growth areas. Benjamin Heraud: Yes. No worries. I mean I think if I were -- I wouldn't point to any areas shrinking, but there's obviously areas that we have more tailwinds and that we're more well positioned for. Energy, certainly, when you look at both generation and distribution, as I mentioned, we're well positioned for, and we do expect to continue to grow. The built environment in general is an area that is going very well for us, and we will continue to see. And then infrastructure across all segments is an area where just with aging infrastructure, the additional demand that is going on it, we just see a lot of tailwinds in that area, and we'll continue to grow. Operator: We'll move next to Jeff Martin with ROTH Capital Partners. Jeff Martin: I wanted to dive in a little bit on progress you're making with the initiatives on I&M. And are you seeing an expanding pipeline opportunity there, particularly given the chemicals business appears as though it has the potential to turn around here? Benjamin Heraud: Yes. We've actually had some positive signs on the chemicals side recently in our sales pipeline. We sort of talked about the reorganization efforts that we were doing on the U.S. and particularly the Gulf Coast I mentioned earlier, I don't want to bang on about it too much. But I'm just really pleased with the leadership that we have in place and the tone in the meetings -- we're definitely taking an aggressive approach to getting to new sites. And we have a nice pipeline of opportunities that I see. Once we get through this wrap effect of the lost sites into the second half of the year, we're expecting growth and very pleased with the progress that we've been making with the leadership there. Jeff Martin: Yes. And it's great to hear you have not lost additional sites since last quarter. I wanted -- my follow-up question was on GEO. I know contract renewals on the federal government level are always kind of a tricky point as we transition out of the end of the year. And I know there was a little bit of headwind exiting last year on contract renewals. Just curious if you could give us an update there. Benjamin Heraud: Yes. We haven't seen any major disruption there. They've sort of been coming in at the expected clip. So I think the bumps in the road that we had in Q4, we're not seeing signs of continuing at the moment. Operator: We'll take our next question from Andy Wittmann with Baird. Andrew J. Wittmann: So I guess I wanted to just ask a little bit more on the C&I segment. I heard that the call out in the lab testing work was good. That's about half of the segment. So I guess what I'm trying to understand is the -- obviously, when you lose a run and maintain, you got to go 4 quarters till the comps ease and you talked about how that gets better in the fourth quarter. How much of the kind of softness is just the fact that a couple of quarters ago or a quarter ago, you lost some of those contracts? And how much of it is really kind of systemic or uncertain demand? And can you talk about the uncertainty in the demand? Is that just because of volatile oil prices? Is it something else? And what does it take for better visibility to return to that market so that you can have a better sense of the timing and the scope of services that you're likely to do? Benjamin Heraud: Yes. I mean you're right. The run and maintain business is our most stable piece and it sort of drives some of the more higher-margin work, and we need to get back to winning new sites, which is sort of talking about the commercial discipline and focus that we've got. I'm confident we'll get back to, especially as we get past the ramp effect of these lost sites. Talking about uncertainty or volatility, where we're seeing that is with the outage work, and we called out the shift in some of that work from Q2 to Q3. This is nondiscretionary work that needs to be done. So they're going to need to do it at some point. And so we'll expect that work to start to flow in. Kristin Schultes: And Andy, I would just add that we certainly recognize the macro volatility that's out there right now. And I think the structure of our I&M business is fairly diversified compared to some of our other comps. We've got less than 10% of our I&M revenue is outage work, which is 5% of the combined business. Our refinery oil and gas exposure is less than 50% of our consolidated results as well. So we're potentially less impacted by timing and also less impacted by direct oil prices. we're focused on staying disciplined with regard to inflation pressures, whether it be with rates and fuel charges and whatnot. Andrew J. Wittmann: Yes. Just as an addendum to that question, what -- how has the competitive environment evolved against that volatility? Obviously, any time you're losing sites, that's a competitive dynamic. Has it improved or changed at all since late last year to what you're seeing this year for that? It sounds like then you've got some initiatives there, new leadership, talking about kind of motivating the team to get these new sites. What does it take? And what's it looking like right now competitively for those? Benjamin Heraud: Yes. In some cases, it's getting the culture right in the region, getting some of the leadership back that we had and that they bring work with them. So we've seen some really good initiatives around that. There has been some pricing pressure in the Gulf in particular. I think some of that's short-lived, and we're maintaining our discipline around that. And we've got a good line of sight on some pretty good opportunities. Andrew J. Wittmann: Okay. And then maybe just one last question. Just kind of looking at the cash flow statement, Kristen, it looks like -- obviously, the first quarter is always seasonally weak. I understand that. But just looking at the working capital here, your contract assets were a pretty big consumer of capital. Is that a result of -- you had a reference to like a larger contract where there was some subcontracted scope. Is that what we're seeing there? Is there like a percentage of completion projects that you're using a lot of subcontract labor? And is that why that contract asset is consuming capital right now? And when do you think that, that account can reverse and start giving you back some of that capital? Kristin Schultes: Yes. Good question, Andy. It was a big focus area of mine as well. I would say that there were a couple of larger billings that went out in early April that should have gone out in March, and that was the driver. We've got an isolated list of what those were. If you look at what else went through the cash flow statement in the quarter that was unusual, we did clear out some contingent payments for previous acquisitions, and that impacted the cash during the quarter as well. So the subcontractor cost by nature didn't drive the contract assets, but driving contract assets is a key focus of ours. Operator: We'll move next to Josh Chan with UBS. Joshua Chan: So maybe just a strategic one. I guess at the branch level, how would you say your combined company vision is being translated or proliferated at the branch level? Like how would you assess that at the moment? Benjamin Heraud: Yes. So we have a very -- like a commercial -- centralized commercial team that is absolutely focused on educating our branches on what the services they now have at their fingertips to take to their clients. So we have a very programmatic approach to that, that's driven from the top. We drive a very entrepreneurial culture throughout the organization. So the leaders at the branch levels are naturally very interested in what they can be bringing to their clients. And that's something that we really cultivate as a business, and that's what helps us drive our organic growth. Joshua Chan: Okay. I appreciate that. And then maybe on consulting engineering, obviously, a very good quarter. What's the right run rate for that business in terms of growth? I wonder if you can think about it from a matter of volume or hours plus price. Is that how you think about growth in that business? Benjamin Heraud: I mean, yes, volume and price, but I would say half of it is fixed fee, we really position ourselves at the higher value end of the work that we do to command solid pricing. And I would expect the growth path that we've got to continue. We have some really, really nice tailwinds with that business, point again to that backlog being up 14%. That's a very strong indicator of the strength of that business right now. Operator: We'll take our next question from Stephanie Moore with Jefferies. Stephanie Benjamin Moore: I wanted to maybe circle back to some of the commentary around data centers. Look, I think, obviously, you're seeing some of the benefits of that growth and those investments that are being made. But could you also talk about what this can mean from a longer-term standpoint and just remind us about -- obviously, there's the build-out opportunity, but then kind of the ongoing opportunity that we could expect to see where you guys would benefit because I think there's a little bit of a misunderstanding that there's certainly a long tail here. Benjamin Heraud: That's good, and I'm glad you asked that question because we are really focused on making sure that we're heavily involved in the ongoing operations of data centers. The services that we have position us really well for that actually. So only about 15% of the revenue we do in data centers is associated with ongoing operations right now. But if you think about that's growing. And if you think about what happens in these data centers, the technology is changing all the time. And so as they bring these new servers in, they require engineering, retro commissioning, CFD, computer fluid dynamics. These are all things that we do, and we're working with our clients ongoing. We also have a program management owners rep service that applies to data centers. So we are very, very focused on making sure that this isn't a one-off with all the work that we do and that we have a strong tail with each of these sites that we touch. Stephanie Benjamin Moore: Great. That's very helpful. And then maybe just thinking about -- I guess, just thinking about the underlying business, as you think about just what -- as you think about the cross-selling opportunity, I know you touched on this a little bit, but I think if we think back to the original merits of NV5, there were significant cross-selling opportunities. So maybe just help us focus on what might be the more immediate benefits that we could start to see and what actions -- and I guess, more importantly, what actions have been taken behind the scenes from either management or operations level that allow you to go and capture those revenue synergies? Benjamin Heraud: Yes. Great. We have a team that actually reports directly to me that's 100% focused on driving cross-selling through the organization. as you know, NV5 had a very strong cross-selling program, and we've extended and improved upon that for the FI Solutions platform. I would say as we're getting more mature with it, we are starting to see the trends in the areas that we can get more behind and focused on. Some examples is we're seeing clients really excited about the fact that we can do materials testing and quality assurance along with our NDT capabilities. So sort of a turnkey approach there. Pipeline and integrity, all segments have exposure there and bringing all the capabilities that we have sort of seamlessly is also something that we're excited about. And then around infrastructure and bridge inspection, that's an area where NV5 has very strong credentials, and we're bringing along our rope access and inspection capabilities and called out some specific projects last quarter. So just a few examples at a strategic level of where we're seeing opportunity. But I'm really pleased with the activity and the momentum that we're gaining around our cross-selling program right now. Kristin Schultes: And Stephanie, I would just add that we look at cross-selling more broadly even and see tremendous opportunity for service line expansion within the segment as well. So if you think about growth access opportunities in lab engineering, cross-selling within I&M as well as geospatial across to consulting engineering. So from a broad perspective, tremendous opportunity from a white space perspective within our existing customer base and also within M&A market. Operator: And it does appear that there are no further questions at this time. I would now like to hand back to Ben for any additional or closing remarks. Benjamin Heraud: Yes. Well, thanks, everyone, for your questions and for your continued interest in Tech Solutions. We remain focused on growth, execution and delivering on our commitments. We look forward to seeing you all at our Investor Day later this month, hopefully, and updating you on our progress next quarter. Thanks, everyone, and have a good day. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, and welcome to The GEO Group, Inc. First Quarter 2026 Earnings Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Pablo E. Paez, Executive Vice President, Corporate Relations. Please go ahead. Pablo E. Paez: Good morning, everyone, and thank you for joining us for today's discussion of The GEO Group, Inc.'s first quarter 2026 earnings results. This morning, we will discuss our first quarter results as well as our outlook. We will conclude the call with a question and answer session. This conference call is also being webcast live on our investor website at investors.geogroup.com. Today, we will discuss non-GAAP basis information. A reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and the supplemental disclosure that we issued this morning. Additionally, much of the information we will discuss today, including the answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall within the safe harbor provisions of the securities laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors contained in our Securities and Exchange Commission filings, including the Form 10-Ks, 10-Qs, and 8-Ks. With that, please allow me to turn this call over to our Chairman, CEO, and Founder, George C. Zoley. George? George C. Zoley: Thank you, Pablo. Good morning, everyone, and thank you for joining us on this call. I will conduct the entire conference call due to Shane being out for a couple of weeks. Our diversified five business units delivered strong financial and operational performance during 2026. Our better-than-expected performance reflects significant revenue growth from the contracts that we entered into throughout 2025. As we have previously discussed, in 2025 we were awarded new or expanded contracts that represent up to approximately $520 million in incremental annual revenues, the most in a single year in our company's history. In our Secure Services segment, we entered into new contracts to house ICE detainees at four facilities totaling approximately 6,000 beds, including three previously idled company-owned facilities in New Jersey, Michigan, and Georgia, and a management services contract in Florida. We also reactivated our company-owned Adelanto ICE Processing Center in California, which was already under contract but had been severely underutilized due to a longstanding COVID-related court case. These facility activations represent annual revenues of $300 million and increased our total beds under contract with ICE to approximately 26,000 beds. The census across our ICE facilities reached a high of 24,000 early this year but has since declined to approximately 21,000, still representing more than one-third of the national ICE population of approximately 58,000. We believe that this recent decline is likely due to several factors including the recent transition in leadership at the Department of Homeland Security and the 82-day partial government shutdown of DHS resulting in a lapse in annual appropriations for ICE. During this lapse in annual appropriations, we believe ICE detention operations have been supported with funding from the “one big beautiful bill.” As a reminder, under the budget reconciliation bill, ICE received approximately $45 billion for detention available through 09/30/2029, and this funding is not impacted by the partial government shutdown. Congress has approved legislation that reopened most of DHS, excluding ICE and Customs and Border Protection, through an annual appropriations bill while proposing legislation through reconciliation for $70 billion to fund ICE and CBP through the next three and a half years. Consistent with prior shutdowns, the services rendered under our contracts with ICE have continued uninterrupted as they are considered essential public safety services. However, the timing of payments and collections has been somewhat delayed, requiring us to carefully manage our liquidity and working capital needs. With the expansion of our revolving credit facility by $100 million earlier this year, we believe we have substantial liquidity. Our first quarter 2026 results also reflected significant expansion in our Secure Transportation services on behalf of both ICE and the U.S. Marshals Service. In 2025, we entered into new or amended contracts to expand secured ground transportation services at four existing ICE facilities and at our three newly activated ICE facilities, and the support services that we provide under our ICE Air subcontract have continued to steadily increase. In addition, in 2025, we signed a new five-year contract with the U.S. Marshals Service covering 26 federal judicial districts and spanning 14 states. Overall, these new and expanded transportation contracts are valued at approximately $60 million in incremental annual revenue. Importantly, in 2025, we also secured a new two-year contract for the ISAP 5 program. ISAP is the only ICE program currently in place to provide electronic monitoring and case management services for individuals on the non-detained docket. The program relies on several forms of monitoring, including GPS ankle bracelets or a wrist-worn device that provide real-time tracking, as well as the SmartLink phone app, which relies on facial recognition, voice ID, and GPS to confirm a person's location during predetermined check-ins. ISAP counts remained relatively stable during 2026 at approximately 180,000 to 181,000 participants. Consistent with the trend we highlighted last quarter, we have continued to see a steady technology shift to more intensive and higher-priced monitoring devices such as ankle monitors. The number of ISAP participants on GPS ankle monitors has increased to more than 48,000 currently from 17,000 in early 2025. Correspondingly, the number of ISAP participants on the SmartLink mobile app has declined to approximately 131,000 today from approximately 159,000 in early 2025. We also continue to experience a steady increase in the number of ISAP participants assigned to case management services, which involve staff interaction and monitoring for approximately 111,000 individuals currently. If this trend continues, the technology and case management mix shift would continue to increase the revenues and earnings generated under the ISAP 5 contract even if overall volume remains constant. Thus, we continue to be optimistic about the importance and growth potential of the ISAP 5 contract, and we believe that it is well positioned to scale up to higher overall counts. In the fourth quarter, we were also awarded a new two-year contract by ICE for the provision of skip tracing services valued at up to $60 million in revenues per year. We began providing skip tracing services under this new two-year contract in the month of March and are optimistic that the contract can ramp up to higher volumes later this year. Finally, at the state level, we were awarded two new management-only contracts in 2025 from the Florida Department of Corrections valued at approximately $100 million in combined annual revenues. They include the 1,884-bed Graceville facility and the 985-bed Bay facility and are scheduled to transition to The GEO Group, Inc. management on 07/01/2026. Moving to our updated guidance, we have increased our outlook for 2026 to reflect the strength of our first quarter results, and we believe there are still several sources of potential upside that are not currently included in our guidance. On the revenue side, sources of potential upside include additional growth in our Secure Services segment from the reactivation of additional idle facilities and/or higher overall populations across our active facilities; additional volume increases and/or accelerated technology service mix in our ISAP 5 contract; additional revenue from higher utilization of our skip tracing contract; and additional growth potential in our Secure Transportation segment. On the expense side, our guidance assumes more moderate contribution from labor savings in subsequent quarters. Moving to our outlook for new business opportunities in 2026, we will continue to be in active discussions with ICE and the U.S. Marshals Service regarding the potential reactivation of additional idle facilities. It is our understanding that the present ICE detention is approximately 58,000 distributed over approximately 225 separate locations, which are primarily short-term jail facilities. We believe the federal government is continuing to pursue the priority of increasing immigration detention capacity to approximately 100,000 beds or more and consolidating to fewer, larger facilities. As a 40-year partner to ICE, we expect to be part of the solution. We have approximately 6,000 idle beds at six company-owned facilities, which are primarily former U.S. Bureau of Prisons facilities and therefore high security, making them ideally suited for the current needs of the federal government. At full capacity, these 6,000 beds could generate more than $300 million in combined incremental revenues. Before moving on to a more detailed review of the first quarter results, I would like to highlight our continued progress towards strengthening our capital structure and enhancing shareholder value. During the first quarter, we purchased approximately 3.6 million shares for approximately $50 million, bringing the total number of shares repurchased to 8.5 million for approximately $141 million. Our current total outstanding share count is approximately 133.7 million shares, and we have approximately $359 million still available under our $500 million share repurchase authorization. We believe our stock continues to trade at historically low multiples despite the intrinsic value of our assets and our significant growth opportunities, and we recognize that this imbalance creates a unique opportunity to enhance value for our shareholders through share repurchases. Moving to a more detailed review of our financial results, revenues for the first quarter of 2026 increased to approximately $705.2 million, up from approximately $604.6 million in the prior year's first quarter, reflecting a 17% increase. For the first quarter of 2026, we reported net income attributable to The GEO Group, Inc. operations of approximately $38.3 million, or $0.29 per diluted share. This compares to net income attributable to The GEO Group, Inc. operations of approximately $19.6 million, or $0.14 per diluted share, for the first quarter of 2025, reflecting a 96% increase year over year. Our adjusted EBITDA for the first quarter of 2026 increased to approximately $131.4 million, up from approximately $99.8 million in the prior year's first quarter, reflecting a 32% increase. Looking at revenue trends, our owned and leased Secure Services revenues increased by approximately $70 million, or 23%, compared to the prior year's first quarter. This increase was driven by the activation of our three company-owned facilities under new contracts with ICE, which was offset by revenue loss from the sale of the Lawton, Oklahoma facility and the depopulation of the Lea County, New Mexico facility. Quarterly revenues for our managed-only contracts increased by approximately $33 million, or 22%, from the prior year's first quarter. This increase was driven by the joint venture agreement for the management of the North Florida Detention Facility, as well as certain transportation revenue increases that are reported in this segment. Quarterly revenues for our reentry services increased by approximately 5%, offset by a 5% decline in non-residential services revenues compared to the prior year's first quarter. Finally, first quarter 2026 revenues for our electronic monitoring and supervision services decreased by approximately 4% from the prior year's first quarter. This decrease was driven by the reduced pricing for our ISAP 5 contract, which was offset by favorable technology and case management mix shift and some modest skip tracing revenues. Turning to expenses, during the first quarter of 2026, our operating expenses increased by approximately 15% as a result of the activation of our new ICE facility contracts and increased occupancy compared to the prior year's first quarter. Operating expenses were favorably impacted by lower-than-expected labor costs compared to our prior guidance for 2026. Our general and administrative expenses for the first quarter of 2026 declined to 8.6% of revenue as compared to 9.6% of revenue in the prior year's first quarter. Our first quarter 2026 results reflect a year-over-year decrease in net interest expense of approximately $4 million as a result of the reduction of our total net debt. Our effective tax rate for the first quarter of 2026 was approximately 28.5%. Moving to our outlook, we have increased our guidance for the full year of 2026 and issued guidance for the second quarter of 2026. We expect full year 2026 GAAP net income to be $153 million to $166 million, or a range of $1.10 to $1.25 per diluted share, on annual revenues of $2.95 billion to $3.1 billion, based on an effective tax rate of approximately 30%, inclusive of known discrete items. We expect full year 2026 adjusted EBITDA to be in the range of $525 million to $545 million. We expect total capital expenditures for the full year of 2026 to be between $137.5 million and $162.5 million. For the second quarter of 2026, we expect GAAP net income to be $33 million to $39 million, or a range of $0.25 to $0.29 per diluted share, on quarterly revenues of $715 million to $725 million. We expect second quarter 2026 adjusted EBITDA to be between $130 million and $135 million. Moving to our balance sheet, we closed the first quarter of 2026 with approximately $80 million in cash on hand and approximately $1.61 billion in total debt. At the end of the first quarter of 2026, our total net debt was approximately $1.53 billion, and our total net leverage was below 3.2 times adjusted EBITDA. With the expansion of our revolving credit facility by $100 million, which we announced in January, we believe we have substantial liquidity to support our diverse capital needs as we manage through the current partial government shutdown. In closing, we are very pleased with our first quarter results and improved full year outlook. Our strong performance has been driven by the new growth opportunities we captured in 2025 and are normalizing in 2026. Last year was the most successful period for new business wins in our company's history, and we expect 2026 to be a very active year as well. We therefore believe we have upside potential across our diversified business segments. We have approximately 6,000 idle high-security beds that remain available, which could generate in excess of $300 million in annual revenues at full occupancy. The continued shift in technology and case management mix and potential increases in counts under our ISAP 5 contract could also provide additional upside through 2026. We are also well positioned to continue to expand our delivery of secure ground and air transportation services for ICE and the U.S. Marshals Service beyond the significant growth we have already experienced. Finally, as we discussed last quarter, ICE has purchased 11 commercial warehouses that were to be retrofitted as detention facilities while contracting with private sector companies for operations. These purchases were part of a plan to acquire 24 warehouses and retrofit them as detention facilities using funds from the $40 billion provided for detention in the “one big beautiful bill.” At this time, the warehouse project has been paused, and DHS is evaluating how to proceed with this initiative to increase and consolidate detention capacity. It has also been widely reported that ICE is considering the purchase of approximately 10 privately owned turnkey ICE Processing Centers. ICE uses approximately 40 existing detention sites nationwide that are owned and operated by private contractors. CoreCivic owns and operates approximately 15 detention facilities, while The GEO Group, Inc. owns and operates 23 ICE detention facilities. I can respectfully acknowledge that we have been in discussions with ICE regarding the potential sale of multiple facilities, subject to mutual agreement on price and our continued management of those facilities under long-term support services contracts. We consider ourselves primarily a support services operator and will place particular importance on our ability to continue our support services at any facility sold to ICE. There will also be a need to renegotiate select contracts so as to eliminate the ownership costs such as depreciation and property taxes embedded in our present contracts in the event of ICE ownership. At this time, there is no definitive agreement in place with ICE and no precise timeline for the closing of any such transactions, and of course, we can give no assurances that these transactions will take place at all. But if select facilities are sold to ICE, The GEO Group, Inc. would use the proceeds to reduce debt and continue stock repurchases as well as other corporate purposes. The potential sale of multiple facilities to ICE could represent a significant liquidity and shareholder value-enhancing event for our company. While the exact timing of government actions is always difficult to estimate, we remain focused on pursuing new growth opportunities and allocating capital to enhance our long-term value for our shareholders. Given the intrinsic value of our assets, including 50,000 owned beds at 70 facilities, and our current and expected future growth, we believe that our stock is significantly undervalued and offers a very attractive investment opportunity. That completes my remarks, and I would be glad to take any questions from our audience. Thank you. Pablo E. Paez: Thank you. Operator: We will now open the call for questions. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. The first question will come from Gregory Thomas Gibas with Northland Securities. Please go ahead. Gregory Thomas Gibas: Hey, good morning. Thanks for taking the questions, and congrats on the execution there. I wanted to follow up on the potential facility sales and maybe how we should think about potential valuations in relation to the Lawton facility sale last year at, I believe, approximately $130,000 per bed. George C. Zoley: Thank you for the question. I think the Lawton per-bed valuation is a good baseline, to be followed by several other factors that should result in a meaningfully higher valuation for our ICE facilities. First, the physical plant at an ICE Processing Center is much more complicated, with the addition of courtrooms and office space requirements for ICE personnel, which adds to the cost. Second, the ICE facility locations are in or near urban areas, which add to the land and construction costs. And third, several of the ICE facility locations are in blue states, which makes their development very difficult to establish and very problematic to replicate, thus adding to their value. So, again, the Lawton sale in Oklahoma is a good baseline, but there are many things to consider beyond that which would drive the price to a higher level. Gregory Thomas Gibas: Got it. That makes sense. Appreciate that. I know you mentioned it is difficult to predict the timing of these sales, but do you believe initial sales could still be realized or announced within Q2, or is Q3 a more likely time frame? George C. Zoley: I would guess late Q2, maybe early Q3, but that is just a guess. Gregory Thomas Gibas: Fair enough. And last one for me related to some reports that ICE was activating the Central Valley Annex facility in California, next to the Golden State Annex. Is that a transfer facility, or is that new? Any color you can provide there would be helpful. George C. Zoley: The Central Valley facility actually was under ICE to begin with in 2020, and it was lent to the U.S. Marshals Service up until only recently, and then ICE has taken it over since then. It is a 700-bed facility located in the McFarland, California area, next to another ICE facility, adjacent to it. So it is part of a complex that is entirely ICE controlled. Operator: The next question will come from Joseph Anthony Gomes with Noble Capital. Please go ahead. Joseph Anthony Gomes: Good morning, and thanks for the detailed overview, George, much appreciated. I wanted to circle back on the Q1 performance, especially given the decline in ICE populations over the period — they were down roughly from 24,000 at the end of the fourth quarter to 21,000 at the end of the first quarter or today. Maybe give a little more color on how that progressed through the quarter, and also some color on the ramp-up of the reactivated facilities. Is that going as expected, or slower than expected given the decline in ICE populations recently? And what that possibly means for getting those facilities up to normalized occupancy levels. George C. Zoley: Two very good questions. Let me take the first regarding lower populations, which actually promoted an increase in our EBITDA. With respect to lower populations, it required less intake duties, less housing assignments, less off-site travel, and less labor and overtime. At one point, these facilities were extremely active as to the intake and outflow of detainees, which was very costly, often bringing people in on an overtime basis to handle intake, housing, and off-site requirements. It has stabilized at this point, and we think it will be fairly stable through the second quarter as well, with a pickup starting probably in the second half of the year. Regarding the new facilities, we had very rapid intakes at one point, and that has slowed down because of the general scale-down of ICE populations nationally. We are in a holding pattern to a large extent because of the change in administration, the lack of specific funding for ICE, and the reevaluation of immigration enforcement policies and programs. Joseph Anthony Gomes: Thank you for that. You also talked about lower-than-anticipated labor costs. Can you provide a little more color on where that is coming from and what is driving it? George C. Zoley: As I said, it is the lower number of intakes and lower overall population that drive it, primarily in overtime costs — additional people in the intake area and additional people serving in special needs cases, particularly in mental health cases, require additional staff and, in many cases, overtime. We are seeing a population that is more sickly than we have historically had, and these individuals require more off-site visits, more staff involvement, and more overtime expense. With the pause in overall population levels and intake activity, it has given us a welcome breather from the very rapid intake and outflow processing that we experienced last year. Joseph Anthony Gomes: One more for me, if I may. Last quarter you talked about looking at additional opportunities in the mental health area. How are those efforts progressing? George C. Zoley: We do have a pending proposal with the State of Florida Department of Children and Families for a forensic facility in the state that we at one time developed, constructed, and operated for eight years. We expect there will be a decision on that procurement in the next 30 days, I imagine. Operator: The next question will come from Brendan Michael McCarthy with Sidoti & Company. Please go ahead. Brendan Michael McCarthy: Great, good morning. Thanks for taking my questions. I wanted to start off on the skip tracing business. You are only about two months or so into operations there. Can you give us any detail on the current volume in that program and the revenue model associated with the program? George C. Zoley: Our guidance reflects some modest improvement in that program. We received an initial contract assignment and delivered it very quickly. There are other contractors that were awarded similar contracts; they are still working on their assignments. We are waiting for them to catch up so we can get our next assignment. Brendan Michael McCarthy: Understood. On the updated 2026 guidance, the low end of the revenue guide was brought up, but there was a more meaningful uplift in adjusted EBITDA and EPS for the year. What is the read-through there? Is it really in line with your prior comments on a lower cost structure at these new facilities? George C. Zoley: It really is at this point. That is our view of what is taking place in the financials of these facilities. We have had one month of activity to reflect on, and we think we are on track as to our guidance and the underlying assumptions. We believe we have given you good guidance. Brendan Michael McCarthy: Got it. One more on the updated guidance for CapEx — it was up 10% to 11% at the midpoint. Any insight into that increase and which specific segment will consume that incremental capital? George C. Zoley: We have 6,000 idle beds, and some of those facilities need retrofitting to bring them up to date and revise them according to the updated needs of ICE. As we get these new contracts, ICE is typically asking for more office space and areas for their use for more staff, and we have to pay for those improvements to the capital structure of the facility. Operator: The next question will come from Raj Sharma with Texas Capital. Please go ahead. Raj Sharma: Hi, congratulations on the results and raising the guidance, and thank you for taking my questions. I wanted clarity on the $520 million of revenues from wins last year. They do not seem to be fully reflected in the increase in the revenue guidance. Could you please help bridge how much of these wins will be fully ramped versus still to come, and also comment on utilization at Adelanto and the three activated ICE facilities by year-end? George C. Zoley: A $100 million of the new $520 million was related to two facilities in the State of Florida. Those facilities have not yet been activated; they start 07/01/2026, so only half of the $100 million will take place this year. Then we had an offset of two facilities with the discontinuation of the Lawton, Oklahoma facility, which was approximately 2,400 beds, and the Lea County facility, which was approximately 1,200 beds. Raj Sharma: Got it. How soon do you see a pickup in ICE detention stats, and has your outlook on ICE achieving approximately 100,000 detentions changed with the change in the DHS administration and the laws? George C. Zoley: We do not have any special insight into how the administration is reassessing the initiative to convert warehouses to detention facilities. I think there is still an objective of trying to increase nationwide capacity as close as possible to 100,000 and to consolidate from approximately 250 locations now to fewer, larger-scale facilities. As I said, we have 6,000 beds that can be activated within a few months. I think CoreCivic has maybe 10,000 beds. Both of us have expansion capabilities on those beds — we could expand our 6,000 to maybe 10,000 — and the private sector with the two major providers can provide a very meaningful increase in nationwide capacity at a very favorable, comparable cost. Operator: The next question will come from Kirk Ludtke with Imperial Capital. Please go ahead. Kirk Ludtke: Hello, everyone. Thank you for the call. George, you mentioned the 100,000 beds and fewer facilities. Do you have a sense for how many of those 100,000 beds ICE would want to own? George C. Zoley: Probably as many as possible. But I think they are starting to look at the price tags of each of the facilities and doing comparisons as to whether the existing turnkey facilities may be a better play financially and operationally than some of these other locations, which have been politically problematic. All of the plans are being reviewed and assessed, and I am sure they will come up with some reasonable conclusions. Kirk Ludtke: Why do they want to own the facilities rather than contract with third parties? George C. Zoley: It has been reported that through federal ownership there are more protections from unwarranted litigation that infringes upon the activities of ICE Processing Centers. There has been litigation regarding oversight of medical services, food services, general cleanliness, etc. It is really unprecedented and, I believe, fundamentally unconstitutional. As some blue states are considering more active involvement in oversight of facilities, I think the logical solution to much of that is federal ownership of the facilities. They are federal facilities to begin with, in my opinion. It is the federal government that is paying for the operations of the facilities, but the ownership of the buildings will provide stronger credibility in the courts as to the Supremacy Clause in the Constitution — that these are federal facilities carrying out the congressional priorities of immigration programs and policies that Congress has passed — and that states can only have very limited involvement in those policies and programs. Kirk Ludtke: Interesting. Thank you. How many beds are in your 23 ICE facilities? George C. Zoley: We have 25,000 beds in those 23 owned facilities. Kirk Ludtke: Great. Lastly, you mentioned the $45 billion. Would ICE need any type of incremental approval to do this, or is the $45 billion at their discretion? George C. Zoley: The $45 billion is at their discretion. Operator: This concludes our question and answer session. I would like to turn the conference back over to George C. Zoley for any closing remarks. George C. Zoley: Thank you for being on this call. We look forward to addressing you on the next one. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Michael, and I will be your conference specialist. At this time, I would like to welcome everyone to the BorgWarner 2026 First Quarter Results Conference Call. [Operator Instructions] I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference. Patrick Nolan: Thank you, Michael, and good morning, everyone. Thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, borgwarner.com, both on our home page and on our Investor Relations home page. With regard to our Investor Relations calendar, we will be attending multiple conferences being now in our next earnings release. Please see the Events section of our IR page for a full list. Before we begin, I need to inform you that during this call, we may make forward-looking statements, which involve risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today. During today's presentation, we will highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes with prior periods. When you hear us say adjusted, that means excluding noncomparable items. When you hear us say organic, that means excluding the impact of FX. When you hear us refer to our incremental margin performance, incremental margin is defined as the organic change in our adjusted operating income divided by the organic change in our sales. We will also refer to our growth compared to our market. When you hear us say market, that means the change in light vehicle production weighted for our geographic exposure. Please note that we posted today's earnings call presentation to the IR page of our website. We encourage you to follow along with these slides during our discussion. With that, I'm happy to turn the call over to Joe. Joseph Fadool: Thank you, Pat, and good morning, everyone. I'm pleased to share our results for the first quarter of 2026 and provide an overall company update, starting on Slide 5. We I wish to begin by thanking our employees, our customers and our suppliers for all of their trust, efforts and continued support. In the quarter, we achieved sales of $3.5 billion. Excluding the decline in our Battery Energy Systems segment, our organic net sales were down approximately 3% year-over-year, in line with the decline in the market production. I am excited to report that our strong award activity has continued into the first quarter. To date, I'll highlight 12 business awards across our foundational products and e-products portfolios. These wins represent only a portion of the awards secured during the quarter. But I believe that they underscore the strength of our portfolio and the global demand for efficient powertrain technology. Our adjusted operating margin performance was strong in the first quarter, coming in at 10.5%. This strong underlying operational performance was once again driven by our focus on cost controls across our business. And we are taking steps to grow our product capabilities for the data center and other industrial markets. I will share 2 additional products with you in a few slides. At the same time, our turbine generator continued to make progress towards its 2027 launch. Lastly, we remain disciplined in deploying capital to drive shareholder value during the quarter, returning approximately $185 million to shareholders through share repurchases and our quarterly cash dividend. Looking back on our first quarter performance, I'm extremely proud of our team and our results. Once again, we executed at a very high level which gives us confidence that we are on the right path to achieve our full year guidance while also continuing to win awards across our portfolio to deliver sustained shareholder value throughout long-term profitable growth. Turning to Slide 6. I'd like to highlight several recent product awards that demonstrate both the competitiveness of our technology and the strength of our execution in key markets. First, BorgWarner has secured 3 electric motor business awards with Asian OEMs in South Korea and China. BorgWarner is broadening its electrification offerings in China by introducing S winding and ultra short hairpin winding technology for hybrid vehicles. In South Korea, BorgWarner secured a new state or assembly business for an electric vehicle program I believe these awards reflect the customers' confidence in BorgWarner's engineering capabilities, localized manufacturing footprint and product quality in Asia. Second, BorgWarner has secured a 7-year contract extension to supply 8 families of engine, machines, power module and battery management controllers to a leading off-highway manufacturer. The extension builds on decades of partnership with the OEM and spans a broad range of applications from construction vehicles and marine platforms, the stationary power systems. I believe this contract expansion validates our position as a trusted long-term propulsion partner that is agile enough to support them and provide tailored solutions as they expand into new and emerging markets. Third, BorgWarner has secured 3 turbocharger program extension awards and 1 turbocharger conquest award with a major European OEM. Our turbochargers will be utilized on a range of passenger car and fan applications. The awards include variable turbine geometry, twin-scroll wastegate and regulated 2-stage turbocharging technologies. These technologies are tailored to a range of engine and vehicle requirements, helping the customer meet demanding performance fuel economy and emissions targets across a broad range of applications. I believe these business wins reflect -- BorgWarner's strong turbocharging technology. Our competitive solutions and the trust we have built with this long-standing customer. Fourth, BorgWarner secured conquest business with a major European commercial vehicle OEM to supply both a variable turbine geometry turbocharger and an exhaust gas recirculation cooler for a Euro VII compliant heavy-duty diesel engine platform. The award expands BorgWarner's product portfolio in the on-highway commercial vehicle sector and further broadens our collaboration with this customer. Production is expected to begin at the end of 2028. And finally, BorgWarner continued to grow its drivetrain and engine timing portfolio in Asia with 2 new program overs. BorgWarner will supply a next-generation wet dual clutch for a Chinese OEM SUV platform. BorgWarner also secured a conquest win for a Tamtor-actuated VCT system for a Japanese OEM's next-generation hybrid ego. These new awards reflect BorgWarner's continued commitment to advancing efficient and competitive propulsion solutions across both transmission and engine timing technologies. I believe they further demonstrate the resilience and growth potential of our propulsion business in Asia as customers continue to value high-performance, cost-competitive solutions for both combustion and hybrid powertrains. Next, on Slide 7, I would like to discuss our expanding capabilities for the data center and other industrial markets. Let's start with an update on our turbine generator launch progress. I'm very pleased with the advancements we've made over the past quarter. First, strong customer demand indicators continue with ongoing end customer visits to our facility in Asheville. Next, I'm pleased to report that our first B sample turbine generators are now being delivered to our customer. This is a very important step to allow our customers to move towards field testing our product. In addition, our teams have continued their testing processes, which are performing as plan. And as part of our production readiness, I'm also pleased to report that our supplier nominations for production are now complete. Our UL compliance process is now well underway. We have completed our internal UL compliance requirement evaluation on our B samples. This is an important milestone toward our final certification which will take place with C samples later this year. In my opinion, these are all positive steps as BorgWarner continues to progress towards industrialization and production, currently expected in 2027. In the middle and right side of the slide, you'll see that BorgWarner continues to expand its portfolio to serve the data center and other industrial markets. I'm really excited that this portfolio now includes battery energy storage systems and bi-directional microgrid inverters. With this expansion, we have products that serve the market needs across power generation, energy storage and power conversion. First, I would like to highlight our battery energy storage system offering. You've heard BorgWarner speak about the possible application of our battery technology for various industrial markets, and we are now testing and quoting business for these markets. We believe our battery energy storage system will be well suited for deployment in multiple uses across the data center market, but we also see other commercial and industrial applications. Importantly, our battery energy storage system designed a cell chemistry, form factor and application independent. I believe this is important. Given the wide range of needs and potential battery cell technologies that could be deployed for these markets. Our product design is modular lean and scalable with redundancy in our design. We believe this design can be deployed for applications, including peak shaving, backup power and more. We believe our battery energy storage system will be production-ready in 2027 with ongoing customer validation and UL compliance and process. I look forward to providing you with updates as we receive customer feedback. Finally, we are also adding bidirectional microgrid inverter or grid tie inverter to our portfolio for these markets, and we expect this product to be production-ready in 2027. Our grid tie inverter features a power distribution unit, critical for efficient and flexible grid forming across microgrid applications. Our tie inverter is designed to enable the filing, significantly reduced weight and size compared to traditional systems, efficient bi-directional power flow for seamless charge and discharge. Why voltage conversion capability to support diverse energy systems and fast dynamic response for improved micro grid stability and controlling. Our UL compliance for this new product is already underway as part of our product readiness. We're excited to share that the first grid tie inverter B sample units are being shipped to 4 customers, a major milestone for the program and a testament to the work behind it. To summarize, there are 3 key takeaways from today's call. First, BorgWarner's first quarter results were south. Excluding the decline in our battery and charging sales, our sales performance was in line with industry production and is consistent with our full year outlook. Our adjusted operating margin expanded 50 basis points and adjusted EPS grew 12% compared to the first quarter of 2025, reflecting our continued focus on cost controls and growing the earnings power of the company. Second, we announced 12 new business awards across our portfolio in the quarter, which we believe further demonstrates our focus on product leadership across the propulsion market for combustion, hybrid and BEV architectures. And third, we plan to take steps to continue growing our capabilities for both our existing markets while also expanding into data center and other industrial markets. We expect this technology expansion will help ensure that our profitable growth continues long into the future. While the current environment remains challenging and uncertain, I'm confident in our team's ability to effectively navigate these conditions, which we clearly demonstrated in the first quarter. I also continue to firmly believe that we have the right portfolio decentralized operating model and financial strength to deliver our full year 2026 guidance and drive long-term profitable growth. With that, I will turn the call over to Craig. Craig Aaron: Thank you, Joe, and good morning, everyone. Let's jump into our first quarter financials. By turning to Slide 8 for a look at our year-over-year sales. Last year's Q1 sales were just over $3.5 billion. In the first quarter, stronger foreign currencies drove a year-over-year increase in sales of $167 million. Then, you can see the sales headwind from our batteries, which drove a year-over-year decrease in sales of $54 million. The remaining organic sales decline of $95 million or 2.7% was in line with the reduction in our light vehicle market production for the quarter. This decline was primarily driven by transfer case outgrowth in North America, which was more than offset by foundational product headwinds in Europe and a timing-related e-product sales decline in China. The sum of all this was just over $3.5 billion of sales in the first quarter. Turning to Slide 9. You can see our earnings and cash flow performance for the quarter. Our first quarter adjusted operating income was $372 million, equating to a strong 10.5% adjusted operating margin. That compares to adjusted operating income of $352 million or a 10.0% adjusted operating margin from a year ago. The exit of our charging business in 2025 increased operating income by $8 million year-over-year. Excluding this benefit and FX impacts, adjusted operating income decreased $4 million on $149 million of lower sales. This strong year-over-year performance benefited from ongoing cost reduction actions that our teams continue to take across our business. Our adjusted EPS was up $0.13 or 12% compared to a year ago as a result of higher adjusted operating income and the impact of over $650 million in share repurchases over the past 4 quarters. And finally, free cash flow was a generation of $13 million in the first quarter, which was a $48 million improvement from a year ago. Now let's turn to Slide 10 and take a look at our full year 2026 outlook, which is unchanged compared to our initial guidance provided in February. We continue to project total 2026 sales in the range of $14.0 billion to $14.3 billion. Starting with foreign currencies. Our guidance assumes an expected full year sales benefit of $200 million compared to 2025 due to the strengthening of the euro and the renminbi versus the U.S. dollar. We continue to expect our weighted end markets to be flat to down 3% for the year. We expect our light vehicle business, which comprises over 80% of our sales performed broadly in line with our weighted by vehicle market. However, we expect a sales decline in our battery business due to the lack of North American incentives and weaker European demand. This decline represents a 150 basis point headwind to our year-over-year sales group. Based on these assumptions, we expect our 2026 organic sales change to be down 3.5% to down 1.5% year-over-year, which is roughly in line with our market, excluding the decline in battery sales. . Now let's switch to margin. We continue to expect our full year adjusted operating margin to be in the range of 10.7% to 10.9% compared to our 2025 adjusted operating margin of 10.7%. On a year-over-year basis, we expect the exit of our charging business to drive a 10 basis point improvement in adjusted operating margin. Excluding this benefit, the low end of our margin outlook contemplates the business delivering a full year decremental conversion in the low double digits, while the high end of our outlook assumes we largely offset the impact of the organic sales decline through further cost controls, just like we saw in the first quarter. We view this as strong underlying performance with our first quarter results, providing a strong start to the year. Based on this sales and margin outlook, we're expecting full year adjusted EPS in the range of $5 to $5.20 per diluted share, which is unchanged compared to our initial guidance. The midpoint of this EPS guidance represents approximately a 4% increase versus our 2025 adjusted EPS and once again demonstrates our focus on consistently driving or expansion despite lower industry production, battery sales declines and potential cost inflation. And finally, we continue to expect full year free cash flow to be in the range of $900 million to $1.1 billion, building off a strong 2025. With that, that's our 2026 outlook. Let me summarize my financial remarks. Overall, we were very pleased with our first quarter results. Our sales performance was in line with our full year guidance despite a challenging first quarter production in market. We achieved a 50 basis point adjusted operating margin improvement on relatively flat reported sales. And our free cash flow performance represented a solid start to the year. Our Q1 results once again demonstrates the BorgWarner team's ability to deliver strong financial results and a declining production environment. As we look ahead to the balance of 2026, we intend to remain focused on expanding the earnings power of the company. At the midpoint of our guidance, we expect another year of adjusted operating margin expansion and adjusted earnings per share growth despite our expectations that market volumes and battery sales are expected to decline in 2026. Finally, with another year of anticipated strong free cash flow, we expect to have additional opportunities to create value for shareholders as we prudently evaluate inorganic accretive opportunities that grow BorgWarner's earnings power and execute a balanced capital allocation approach that reward shareholders. With that, I'd like to turn the call back over to Pat. Patrick Nolan: Thank you, Craig. Michael, we're ready to open it up for questions. Operator: [Operator Instructions] And the first question today comes from James Picariello with BNP Paribas. James Picariello: Good morning, everybody. So I'd like to hit on the company's non-auto industrial focus to start things off which is clearly gaining momentum in terms of the company's strategy. So for the battery energy storage product launch potential, how translatable is the company's competency regarding commercial truck battery packs to a proper energy storage system. How -- I mean, clearly, you're targeting the potential for production next year. Like is there additional investment that we should anticipate within that Battery Systems segment this year? And how rich is the quoting pipeline. . Joseph Fadool: Yes. James, so first of all, the battery energy storage business and our products are very portable to these types of stationary applications. If you think about the requirements in commercial vehicles and buses, they're pretty significant in terms of reliability and quality. So -- we are leveraging our existing capacity to pivot further into the data center space and other industrial markets. So from that standpoint, it's a really smart play for our teams and as we mentioned, the battery energy systems are cell chemistry and form factor independent. So we think we're well positioned for various types of applications that are out there. As far as the pipeline, we are actively quoting with a number of customers. So we're really pleased with the pipeline we're seeing. James Picariello: Got it. And then as a segue, my follow-up, is there a natural synergy for battery energy storage through your turbine generator partner endeavor? And -- as we think about the power generation business for data centers for BorgWarner, I know production starts next year, targeting $300 million plus in sales. It's early days. But -- are there any considerations to potentially expand your turbine generator capacity like beyond the North Carolina plant? I know Endeavor and its subsidiary edged have data centers, active data centers in Europe in addition to the U.S. So I'm just curious how the company might be thinking about that capacity potential international expansion element and then the synergy, the potential synergy on the energy storage piece. Joseph Fadool: Yes. Sure. So the first question on synergy, there's definite synergy. I mean, if you think about the 3 offerings we show on Page 7, turbine generator, battery energy storage and then power conversion. Those are highly related products in the system, and they're all solving a major issue, which is lack of power. So when it comes specific to Endeavor, definitely, we've got a great partnership with Endeavor. We see it continuing to grow over time even better news is these energy storage systems and power conversion have lots of opportunities outside of the strong endeavor relationships. So we're optimistic. There's a lot of applications and potential customers out there for both energy storage and power conversion. With respect to your question on the turbine generator, as we mentioned on the call, the progress is quite good, in our view, we're on track for a 2027 launch sometime this year, we will have to make a decision on whether we expand capacity further beyond the 2 gigawatts that we've installed in North Carolina, but we'll take that decision as we get closer to the second half. . Operator: And your next question comes from Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: Great. Just 1 follow-up on the power gen side. Obviously, it's still early days and a lot to learn there from customers, et cetera. Are you able to give us some color on how do you think about the value proposition that your solution offers. What unit economics look like? How does that compare with the existing established solution? Just trying to understand how the conversation with potential customers is going. Joseph Fadool: Sure. So a couple of things we're solving here for. One is time to market the backlog for power generation is pretty significant, sometimes up to 5 and 6 years. So our ability to leverage automotive scale and move quickly into the space is speed that's well needed in this market. That's the first thing. The second is the emission profile of these turbine generators raises the bar and meets even the car requirements in 2027 and beyond. So from an emission standpoint, very clean power. The third thing is the total cost of ownership is very attractive. So -- we feel really good about the value proposition of this into the space, especially right now. Emmanuel Rosner: Understood. And then the -- my second question would be on the capital allocation. So it looks like you have in front of you some opportunities to invest more capital into this industrial solution, you'll make a decision on the capacity for power gen. And then obviously, you're trying to get into energy storage, power conversion. Is there any change at all into how you're thinking about capital allocation, either within CapEx in terms of increasing that or just shifting that towards these solutions and away from autos? And then in terms of M&A versus buybacks, like if you have so many organic opportunities, you still need -- do you still have as much focus on M&A as you did recently? Joseph Fadool: So let me begin by saying our top priority will always be on driving organic growth, and we're able to show that we're leveraging our entire portfolio especially if you look over the last 18 months of win. So we want to continue with that winning strategy and the first priority then for capital would be to invest for those projects. Nothing has changed from our capital allocation process beyond that. I'll answer the M&A topic, maybe Craig talk more deep about the other way to serve shareholders. On the M&A side, we continue to open up the aperture and have a very disciplined process and flow of targets that we're looking at. But just to remind you, there's 3 main criteria here. One is really leveraging the core competence we already have. So it has to make some strong industrial logic. The second is we want any acquisition to be accretive. And third, we want to pay a fair price. So we're sticking with that disciplined approach. We continue to have a good flow of targets inside auto and out. And I would just say you can expect from Craig and I to stick to that game plan. Craig Aaron: Maybe just to add on to Joe's comments, what is our goal? Our goal is to create value with our cash. And I think we've done that very effectively over the past several quarters. Q1 was another great example of that, $185 million of cash deployed to shareholders between share repurchases and dividends. Over the past 5 quarters, we deployed over $800 million of cash, which represents about 70% of our free cash flow. Joe and I are focused on discipline, consistency and how we're allocating capital across the business, but it's through those levers for investing in the business organically. So we feel really good about the actions we've taken over the last several quarters. Operator: Your next question comes from Joseph Spak with UBS. Joseph Spak: Thanks. Good morning, everyone. Back on the best opportunity. I just want to be clear sort of what you're doing here. So you're -- it's similar to what you doing -- or we're doing on commercial trucks, where you're putting the pack together into a system with some software because it does say sort of chemistry and form factor independent, which leads me to believe you're still not doing the calls here. But I guess the reason I ask is I keep going back to this FinDreamsLFP announcement from 2024. And I know that agreement said it was specifically for commercial vehicles, but I'm wondering if there's any leeway in that agreement to be able to leverage that relationship as well. Joseph Fadool: Yes. Joe. So as you mentioned, we do have a strong partnership with FinDreams and our products are cell chemistry agnostic. So, we're in production today on NMC, but we're also working on future cell chemistries, like LFP, sodium-ion and others. The great part about the pivot here is we're leveraging both our technology that's existing that commercial vehicle and the current CapEx that's invested. So that's 1 of the reasons we can get to market so quickly. So we're moving forward with UL certification and quoting. As far as our content on it, it's very similar to CV or eBUS in terms of procurement of the cells, design of the entire pack, the system, the BMS and the final testing. The main difference is these will be for stationary applications versus mobility. Joseph Spak: Okay. That's helpful. And then just to, I guess, follow on to Emmanuel's question on capital. Look, these opportunities are super exciting, are still relatively small, but you can see how they are much, much -- are much more meaningful in the future. So is there any like just a rule of thumb for -- and I know you're using existing capital as you sort of just mentioned, but is there any rule of thumb about how you would advise investors think about incremental investment dollar per every pick your metric of revenue just so we can understand how the return profile looks going forward? Joseph Fadool: Yes. I think it would be Fair to say that the ROI and capital intensity will be similar to our light vehicle business. So if I look at our turbine generator, which we talked about over the last quarter, although we're putting a greenfield site in for the final assembly and test and Henderson Bill, we're leveraging 4 existing auto plants, broad components and subassemblies. So I think it's a great example of how we're leveraging our CapEx, our capability and our speed, so that we can move quickly into these new markets. Operator: And your next question comes from Colin Langan with Wells Fargo. Colin Langan: Just on the overall guidance to step back. I mean, production has come in a bit worse. Raw materials have gotten better. and the guide is being held. Are there any puts and takes within that we should be thinking about? Is there favorable mix or favorable FX? And any additional cost actions that may be needed to offset some of the inflation we've seen in the market? Craig Aaron: Yes. Colin, overall, we think we can manage the inflationary impact at this point. in our mid-teens decremental conversion. So let me start there. But I'll walk you through again the guide from a revenue perspective and a margin perspective at the midpoint. And really, it's unchanged from our view Q1 was a good start to the year. So when we think about sales year-over-year, we ended last year at $14.3 billion. We do see a headwind from industry production right around 1.5%. A decline versus last year. We see the battery business declining, but we see positive FX coming in as well as some modest outgrowth. And that's what gets us to $14.15 billion, when you think about the margin profile, we're excited that we're expanding margins at the midpoint and the high point of our guide despite some challenges from a market perspective. That's really coming from a couple of areas. First, the exit of our charging business, that's about 10 basis points of enhancement. Additional cost controls, just like you saw in Q1, that's another 10 basis points. And then again, we're holding that decremental conversion in the mid-teens, which includes the inflationary pressures that might, might happen in Q1 and throughout the year. So we're closely monitoring that, but we feel good that we can expand margins and expand EPS this year despite some macro headwinds. Colin Langan: Okay. So there's no incremental -- there's no cost or there's no -- you're going to offset those cost savings actions from a raw material side. Craig Aaron: At this point, we feel like we can manage that appropriately. Colin Langan: Okay. And then on the -- just on the data center and storage. I'm just trying to understand all this. One, just from the energy gen side. I mean, just to be clear, this is more -- at this point, you're just capacity constrained that looks like that market is just completely sold out. And then on the storage side, anything -- any way to size that market, is that potentially just as big as the turbine generator opportunity. And then lastly, as we think of these businesses together, does that actually help you market to customers? Because I believe hyperscalers are actually starting to actually have storage requirements as they build out data centers. Does the combo actually, is that a selling package that you could provide both and that created an added opportunity to win business? Craig Aaron: Yes. Colin, maybe I'll start with the second question. When you think about, again, Page 7 power gen, storage and power conversion, those are highly related and they're all towards solving this power availability issue. So yes, there's synergy between those 3, and we do find customers that want more of a system solution or at least someone that understands the complete system across these very complex product segments. With regard to your first question? The ability to bring storage to market fits well within the same data center growth that we see across all 3 platforms. So from our view, we're talking mid-teens CAGR for the next 10 years or more. So the backdrop and the demand very strong for these products, and it's actually increased over the last 12 months as many folks know. Operator: And your next question comes from Chris McNally with Evercore. Chris McNally: Thanks so much, team. And sorry, some of these will be really questions, I get the toner of the call on the industrial extensions. But I wanted to just kind of phrase it differently. I think the way I'm questioning the size of -- let's focus on the power gen opportunity over the next couple of years. Would you characterize it as -- are we -- is there a supply constraint, a capacity constraint or signing up customer by customer? I mean it's a new business, it's going to be deal by deal. But I would love to know is what is a capacity ramp look like? How does that occur? Is that the type of thing that you'll need multiple years lead time or as the deals come in, as the customer wins come in, capacity will follow. But that supply versus demand, what would be the bottleneck taking a couple of years out would be great for sizing the business. Joseph Fadool: Sure. Thanks for the question, Chris. So let's say this starts massively with demand. The demand for power gen, especially behind the meter, driven by the fact that many utilities have a 4-, 5-, 6-year lead time to get the power to serve these data centers. And on top of that, the growth of Gen AI specifically, it's creating a massive demand challenge. I would say over the last 12 months, what we've seen is the supply constraints of the existing turbine generators and other behind-the-meter solutions has made the challenge even bigger. So we're fortunate to come in at the time we are with a great product that has a lot of value to the customer. So I hope that answers that question. With regard to the capacity we have installed and how do we go about selling that. So as a reminder, we've installed at of capacity, the $300 million next year is the initial launch and revenue that we're planning. So it's a subset of this capacity. So we feel really good about the installation of the 2 gig. We wouldn't install that much if we didn't feel that there was going to be a backlog created. And as we mentioned earlier in the call, we'll likely take a decision whether or not we add additional capacity based on the demand we see in the purchase orders placed. And that capacity could be installed in this market, but we also see demand in Europe and other markets. So we'll also have to decide the location. Chris McNally: And I know we tried to do this last call, and obviously, we're not going to get specific pricing, but just ballpark like 2 gigawatts is multiples of $300 million of revenue. Is that fair to say? Joseph Fadool: Yes. We haven't provided pricing. So yes, multiples is a fair way to think about it. I think if you look at the pricing that's out there for power gen, especially behind the meter, you get a range that's out there. And it's only increased over time. So that might give you some indication of where we're at. Chris McNally: No, that ended. That was the check on the math. And is the last follow-up. I think someone asked right before -- it seems like with the behind the meter and the battery stores that also you could have great lead-in from some of the auto customers, right, on the battery restorage side, a lot of excess capacity we know in batteries. Is that helping on a cross-sell specifically on those 2 businesses? Joseph Fadool: Yes. I would say it's adding significantly to our play. Our play is more about serving these industrial markets directly, not with our automotive customers. Clearly, we have relationships with those customers and where we can work together, we will. But these plays are more about our relationships with the industrial customers. Operator: And your next question comes from Dan Levy with Barclays. Unknown Analyst: Thanks for taking the questions. I'll continue. The line of questions on the data center side. And more so just a supply chain question. I know you've talked about 2/3 on the turbine generator 2/3 of the content is coming from you and then you're heavily leveraging the automotive supply chain. But I think we've heard within the power gen side that 1 of the key sort of supply constraints out there is areas around [ blade, veins ] and very large lead times. So we know that generally, it takes maybe only 1 or 2 components to have a bottleneck. So maybe you could just walk us through your confidence that when you look across the supply chain, there won't be any issues getting what you need for the turbine generator system and that if you're going to expand capacity that the supply chain can keep up with you, even on the most supply limited component. Joseph Fadool: Yes. No, thanks, Dan. So a couple of things that I think may help address your question. So first of all, our turbine generator system, it does leverage not only our supply base, but our technology. So our turbo products are radial turbos many of the large turbines are more flow-through or axial turbos. So it's different technology, different levels of material selection for these are more consistent with what you see in commercial vehicle applications and sometimes pass car. So the requirements are different for what we're buying. Second point, -- it is true 80% of the supply base for the turbine generator is already in a BorgWarner is already a BorgWarner supplier. So they know how to work with us from developing those components to launching and producing those components. So we feel that's a big risk reduction, getting this product to market. I think the third important thing here is 1 of the things that we are experts on is global supply chain. I mean we have teams of people around the globe that manage suppliers in many, many commodities. So this is our wheelhouse. It's a core competence of the company and we're going to bring all that confidence to launch these products. So from time to time, you do see a constraint or you see an issue with the supplier. But as a global company, we get boots on the ground to address those constraints and make sure it doesn't impact the products to our customers. . Unknown Analyst: Great. As a follow-up, I'll give you a question on the core business today. I mean our reaffirming the guidance for the growth of the market to be flat this year, but you've given a sort of another slide of all these component wins. You've talked about really being this reacceleration of growth. Maybe you could just give us an update on where we are on line of sight to the rest of the portfolio seeing a reacceleration. Is it just content gains, new new program launches? What's going on that's driving that uptick in growth from the core portfolio in '27. Joseph Fadool: Yes. I think it's fair to say, in 2016, we're still living with the overhang from some of those programs on the EV side from a couple of years ago. but we're working through that. In '27, what we like to point to are the product wins across the entire portfolio. So if you just go back last 18 months I mean over 30 awards we've announced publicly. And it's not just 1 part of the world. It's not just a couple of product lines. The other thing to point to is if you just look at this quarter, we announced 12 wins, 3 of them were conquest wins. So what we've been sharing over the last 12 months that the strong will not only survive, they're going to thrive in this type of market, we're starting to see that in the program wins. And of course, as those launch we'll start to see the revenue beginning in 2027. Operator: And our next question comes from Luke Junk with Baird. Luke Junk: Maybe you could just put a finer point on how you're thinking about capital allocation is a way to maybe potentially accelerate the data center and industrial story in an inorganic sense. Is that something that you're looking at intentionally in terms of building the acquisition funnel and thinking sort of holistically and deploying capital towards these efforts? Joseph Fadool: Yes, Luke. So the capital allocation story hasn't changed. I would say, over the last 12 months, we've continued to open up the aperture of what we're looking at. So not only automotive and CV space, but also this new data center space, but I just want to bring us back to the 3 criteria. The first 1 is, it needs to make a lot of sense and leverage our competence. We wanted to be accretive, and we want to pay a freight price. We want to pay a fair price. So we want to stick to that discipline, and you can kind of Craig and I to do that. But we do feel more and more confident that our products and technology played really well into this data center space. So as you can see, we're leaning further into it with the R&D investment. And so I can expect we're going to look at some things that might help accelerate that journey. But you can count on us being disciplined about it. Luke Junk: Stay tuned there. And then second, maybe this is an unfair question, Craig, but I'll ask it. Just you mentioned that you're confident in the right path to achieve full year guidance, why not raise the display margins, especially, -- is it just too early in the year? Or is there something that we should be thinking about in terms of investments tied back to these incremental products that you're showing us this morning. Craig Aaron: Yes. I think we had a really good Q1. There's still a lot of uncertainty in the overall environment, but when you look at our performance, that's implied in the guide, and I'll walk through what we saw Q2 through Q4 last year versus this year. Q2 through Q4, sales were about $3.6 billion a quarter. Margin was about 11.0%. And -- what's implied in our guide is revenue is coming in a little bit lower, $3.54 billion per quarter, about $60 million loss per quarter, and that's really the contraction in our battery business. But our margin profile is staying right about 10.9%. So basically on top of the 11.0% and it's managing that decremental conversion right around the mid-teens, which is what we've communicated consistently. So from my perspective, I think, hey, solid Q1, a lot of uncertainty with higher energy prices around the globe, through Q4 looks pretty consistent year-over-year. We feel like we're on the right path to create value by executing our guide. So that's where we sit today, look. Operator: And your next question today comes from Andrew Percoco with Morgan Stanley. Andrew Percoco: I do just want to come back to the power gen side 1 more time. I know you're in an exclusivity with Endeavor for this turbo cell product. But as you mentioned, it's such a capacity-constrained market and you obviously have a decent amount of content and in-house capability there. I'm curious like whether or not you've evaluated if there is an opportunity to develop a product on either on a stand-alone basis or work through Endeavor to look outside of their captive universe of customers to deploy this product. Joseph Fadool: Sure. So Andrew, a couple of things. It is true. We're an exclusive relationship with Endeavor to bring that turbine generator to market. What we're hyper focused on is a successful launch next year in 2027. One of the things that's important to know, so Endeavor and the entity we're working through Turbocell, they sell internally for their own data center use, but they also are able to sell to other customers and users. So you need to keep that in mind. They understand the market. They've been in this market for a long time, the principals have -- and of course, they want to leverage those relationships and know-how. And we're more of the design and manufacturing house to help them deliver. So Hopefully, that brings some clarity. As far as the other 2 products, battery, we're actively quoting and I would say, with an outside of Endeavor inverters, the same. The exciting part about the inverters is the 4 customers we're shipping product to for their testing. So I feel real good about the overall momentum of these 3 product segments. Andrew Percoco: Okay. So that makes sense. So essentially, Endeavor could sell that turbo cell product outside of their own data center applications, if there was demand for it. So that's a helpful clarification. And maybe to follow up, on the battery storage for a second here. I think it was asked earlier about the content. Can we just double click on that. If you think about the current environment, I think battery storage on average, it's $225 to $250 per kilowatt hour. Is there a way to bracket what your content is as a percentage of that potential ASP? And as a follow-on to that, I think it makes sense that you guys are getting into this market, you have core competencies there. I think 1 thing that we've seen across this landscape is the service angle and the service requirements from some of these customers can be a lot different than maybe what you see in auto. So I'm just curious in terms of the investment needs maybe on the service side of the organization to make sure you're providing the level of uptime needed for some of these customers? Joseph Fadool: Sure. So the content of the battery energy stores, we want to think about it, it's very similar or maybe a little bit incremental to what we serve on the CV side. So we're buying cells. We're designing complete packs. We're assembling those complete packs. There's other value-add like battery management systems and control systems, software development, and then we test and ship those packs. Now the main difference is these are in stationary applications as opposed to mobility. So you would see a little bit different structure there. But in essence, it's a very similar type of product that we serve the CV market with. Operator: We have time for 1 final question, and that question comes from Mark Delaney with Goldman Sachs. Mark Delaney: One on the power gen business as well for me. Joe, you mentioned BorgWarner may need to expand capacity there, and you're going to have to make that decision soon. We've also seen several hyperscale guides now during earnings season, they've been pretty robust. So given that backdrop and based on your customer engagements and discussions with Endeavor, should investors think about BorgWarner shipping the full 2 gigawatts in 2028. Joseph Fadool: Yes. We haven't shared that level of detail. I would say as we get into early 2027, we'll start to provide more color on the sales and a longer-term view on the business. It is true. We've seen recent announcements with hyperscalers really growing their capital investments, which I think holds well for this entire data center space. So -- but we'll provide more details as we get into late '26 or early '27. Mark Delaney: Okay. My other question was specifically on the auto business and China, the company spoke about a little bit of growth in our market in China in the first quarter based on some program timing. Maybe talk a bit more on how you see the China market developing from here and your ability to get back to growth over market in part given some of the past wins you've discussed? Joseph Fadool: Sure, Mark. So first, it's important to note, generally speaking, we are really strong in the China market. We continue to win business there. It's a very important market for us. I think what you've seen in this last quarter, if you start with the market itself, the domestic market was down -- but overall, it was buoyed by a lot of export sales. And much of that export sales has put into content on it. So we continue to feel optimistic about that market. It's hard to read too much into 1 corner like we have in the first quarter. But generally speaking, the Chinese OEMs continue to grow their share globally and a lot of it has to do with the export markets, which we're very well positioned in as they eventually localize in those markets. Patrick Nolan: Thank you all for your great questions today. If you have any follow-ups, feel free to reach out to me or my team. With that, Michael, you can conclude today's call. Operator: This concludes the BorgWarner 2026 First Quarter Results Conference Call. You may now disconnect.
Mathew R. Ishbia: Thanks for joining today. I appreciate you all. Obviously, a little different format this quarter. Hopefully you like it. We would love to get feedback on it. This probably fits my style more. Hopefully, if possible, I would love to be able to see you too. I do not think we set it up that way this time; maybe next time. I appreciate everyone being here today. I have a bunch of questions, so I am going to go through them. I know last quarter we did not do Q&A and people missed that, so I am happy to do this and make it valuable to you in any way possible about the industry and about UWM Holdings Corporation. I have a whole variety of questions. I will try not to duplicate and will tie some together. I will read a person’s name, read the question, and go through it. If anyone has any follow-up questions, I know I cannot take them live this way, but our investor relations team, Blake and everybody else, will be able to handle your questions and help you with anything you need. Let us get started. We will jump into it right now. First question, I have Doug Harter from BTIG: What is the status of bringing servicing in-house? What is the latest timeline transitioning all servicing to our own platform? Status of bringing servicing in-house: it is going fantastic. We feel really great about where servicing is right now and how it is going. We have fewer than 100 thousand loans on today, but all new are going on, and we have moved a bunch of loans over from Cenlar already. We feel really good about that. The process will be this year. Over the whole year, we will bring all of our loans in-house so there will be no subservicers by the end of this year. UWM Holdings Corporation will handle it all. It is going really great. Our technology process is going great. We partnered with Black Knight, we partnered with BILT, and we have also built a bunch of stuff ourselves. We feel really good about how that is going. Our client service has been excellent. All the metrics that people look at are fantastic, so we feel really good about that across the board. So servicing in-house is great. Transition timeline: that is this year. Hopefully that answers your question, Doug. I know there are a lot of servicing questions. I am sure I will get to them as we go through it. Next one, Ryan Nash, Goldman Sachs: What are your thoughts on future gain-on-sale margins? What does the competitive landscape look like in a heightened rate environment? Rates went up in March from February. I think the 10-year finished at 3.95%. And so seeing rates go up, how does that impact competitive landscape and gain-on-sale margins? We are in a really great position from a margin and competitive position standpoint. The competitive landscape is very competitive right now. A heightened rate environment means purchases more than refi. However, you looked at our first quarter—we did a heck of a job on the refinance side. I see gain-on-sale margins in the range they are in right now being the right range, and I think that will continue: not significantly higher, not significantly lower. I actually think there is upside in the margins. Our margins were pretty strong in the first quarter. I expect them to be in those ranges again in the second quarter. If rates come down, you could see margins increase. The competitive landscape is very competitive out there right now. We had a great first quarter—you saw the numbers and what we did—and first quarter is usually the slowest quarter. Rates going up, the war going on, and uncertainty create issues in the rate environment, but we feel really good about where it is at right now. Ryan Nash also asked thoughts on the Knicks winning it all. They have a very, very good team. We just lost to Oklahoma City, who is an amazing team too. The East is open. The Knicks have a real good chance. Not really cheering for anybody—I am just watching and learning. Good luck to your Knicks. Next question, Mark DeVries from Deutsche Bank: What is the strategic value you see in Two Harbors, and what updates can you share regarding its progress or impact? The Two Harbors thing is out there right now; it is interesting. When we originally went to acquire the company, they had something really great: a pristine servicing book. When we originally agreed on the deal before all the work was done, we thought there would be a lot of synergies also—capital markets expertise, maybe some finance expertise, and their servicing platform we could learn from. As we went through due diligence, we learned there was a really great servicing book, and we still like that servicing book. We originally put an offer out there. Where that stands now: we do not see as much value in their management team. Their team members are very good, but their leadership team—we were not as impressed with. They went out and tried to get another bid, and they did. Whether it was appropriate or not, we can discuss that at a later point. If they would have engaged with us, we always planned on paying $12. Quite honestly, based on when the stock price went down, I would rather pay it in cash than in stock. I feel like I am giving my stock away at a really low price. They never engaged—they just went out to another offer. We made another offer; they basically ignored it. We made another one and said, okay, we will go to $12—what we originally planned on paying. I think it was maybe $11.95, but you can do the math based on when the stock was at $5.11 or $5.15 the day we cut the deal, I think. We still feel really good about that deal. It is very clear that their management team and their board, which has had its own issues in the past with lawsuits and such, may be playing some games because they realize that we do not see any value for them specifically. They have really great shareholders, which we are excited to bring on to UWM Holdings Corporation. But their board and their management team do not have any value to us. Now they are trying to do anything they can to potentially engage with someone else so that they have jobs and sustainability. It will play out. The strategic value is their MSR book. Their shareholders have some value because we got a chance to get to know them during that process and feel like they are really good shareholders; we would love them to be UWM Holdings Corporation shareholders. Whether they take cash or stock does not matter to me. We feel really good about that. For the shareholders of Two Harbors, they obviously would prefer taking $12 in cash or UWM Holdings Corporation shares than taking $11.30 in cash. That is obviously going to play out that way. We feel good about the strategic value. It is very clear to us that it is the MSR book and the shareholders; we do not have any value for their leadership team, which is obviously not what they like to hear. Next, Mikhail Goberman from Citizens Bank: How do you foresee the balance between origination income and servicing income evolving, especially given the post-war reversal of rates seen since February? We are an origination company. We are the biggest and best originator in the country. We feel great about where we are in origination. You saw an amazing first quarter. We have been the number one originator for four straight years and the number one wholesale lender for eleven straight years. Origination is our game. As we bring servicing in-house, we will have more servicing, and we will continue to retain the servicing. Are we still opportunistic if someone gives me a bid that we believe is more than the intrinsic value? I will sell the servicing. I have those options. With the lower cost of servicing by bringing it in-house and the better level of service, which will help retention, we feel like we have the best of all of it. We will see with the income levels—origination versus servicing—but origination is still our game. We will continue to build out the servicing book, but we are always opportunistic. People call us all the time. Even with Two Harbors—some of the “pristine” servicing book they have happens to be our old servicing book that we sold them. We feel good about the paper we originate every day and servicing the loans, but if someone wants to offer us a great opportunistic price, we will always look at that. Jason Stewart from Compass Point: Was there an increased number of high-producing brokers affiliated with UWM Holdings Corporation during the quarter supporting wholesale channel growth? Good question. High-producing broker shops affiliated with UWM Holdings Corporation—I always say the numbers roughly—there are about 12 thousand to 12.5 thousand brokers that work with UWM Holdings Corporation, and maybe there are 400–500 that are not all-in with UWM Holdings Corporation. So there are not that many high-producing shops to bring over. Almost everyone in the market works with UWM Holdings Corporation. That is why we have almost 45% market share—I think it is 44.7% or 44.8% market share for the year last year in the pro channel. Our big focus is to grow the channel, help brokers do more, and help more originators realize that broker is the place to go—whether they join a broker shop or start their own—and that has been a really big focus. As the broker channel grows, UWM Holdings Corporation will grow, even if our market share happened to go down. I feel great about growing the broker channel. Are brokers coming over to join UWM Holdings Corporation? Yes, every single day people see the value of what UWM Holdings Corporation does. A separate note on the “all-in” thing with brokers from years ago: one of the biggest adversaries of UWM Holdings Corporation was a guy named Mike Fawaz at Rocket who was saying negative things about UWM Holdings Corporation and about what we do and how UWM Holdings Corporation was not best for brokers. Recently, he left Rocket, started a broker shop, called me, and now he is working with UWM Holdings Corporation. Someone that knows every detail at Rocket came and learned about UWM Holdings Corporation, started a broker shop, and picked to work with UWM Holdings Corporation. That sends a message. There are not that many big broker shops left out there that do not work with us, but that is an opportunity. The bigger thing is to grow the broker channel and continue to grow. The broker channel is continuing to be very positive, and we are excited about the growth. I have a couple of questions on Mia and the AI initiative, so let me combine them. One person asked about Mia’s text messaging capabilities and customer response to Mia generally. Let me give you a Mia update. Mia has been fantastic. It has been almost a year—I rolled it out at UWM Live last year—and it has been amazing. I would say roughly in the range of 80 thousand to 100 thousand closings over the last year have come from Mia. The last report I saw was very strong with Mia’s initiation of refinance opportunities. If you look at our servicing book, people ask, “You have 2% or 3% of the servicing book, but you did 12% or 13% of all refinances.” Mia is a big part of that. Brokers do a great job with the consumer upfront; consumers want to come back to the broker. The problem was brokers did an average to below-average job of following up with their past clients. They would do the purchase and then would not talk to them again. Now, with Mia, she is keeping the broker in front of the consumer. When the consumer goes to refinance, they work with the broker because the broker offers a better deal anyway; they just know who to call. Mia leaves voicemails and sends a text message out. She calls, and about 40% of her calls get picked up, which is higher than we expected, so 60% go to voicemail and we send a text message also. A lot of those call the broker back: “Was that AI or was that real?” Then they connect and do a loan. On the 40% that pick up—on a 40 thousand-call day, about 16 thousand—borrowers talk to Mia and have two-, three-, four-minute conversations. Some of them know it is AI and some do not—it has gotten that good. We send a follow-up email to the broker: “You have a call scheduled at 3 PM with Jenny, the borrower,” and it has been very successful. We are continuing to enhance it and make it better. The scale we are doing with our IT team has been phenomenal. I do not know anyone in any industry doing it at this scale. It is going to get better next week at UWM Live and beyond. We have big enhancements coming. It helps brokers win. That is a big part of how with 2% or 3% of the servicing book we are doing 12%–13% of refis—Mia and great brokers staying in front of their clients. Kyle Joseph asked to review industry competitive trends, current broker share, and how we anticipate it evolving. Current broker share is about 28%. Five years ago, in early 2020, it was 14%–15%, so it has almost doubled. Will it double again? We are working on it. Our goal is to help brokers be the number one overall channel—50.1%—and we are on a path to doing that. Our share has been very steady—over 40% for years now, roughly between 40% and 45%. That has never been done in the wholesale channel. It is because we provide value: we help brokers grow, look good to real estate agents, do more business, make the process easier, and be successful. We train them, coach them, and give them tools to win more loans. We will continue to be the best and the biggest in wholesale and overall. Being the largest lender in the country for four straight years, we only have a chance at 28 out of 100 loans. Every other lender is competing for 100 out of 100. If that 72 out of 100 that is retail moves to 65, 60, or 50, that is growth for UWM Holdings Corporation. That is why we are bullish on our growth and the broker growth—we are all going to win together. I also got a couple of questions tied to expenses. You saw our expenses went down. We invested a lot for years, and now we are starting to see the harvesting or success of those investments—TrackPlus, free credit reports to help brokers grow, and more. You will see more of a leveling out of expenses. They went down. Our investments are starting to pay off. You saw a little in the first quarter. Compared to the industry, we had a great quarter. Last year’s first quarter was $32 billion; this year we did about $45 billion. That is significant. Our gain on sale was up and volume is up year-over-year. Expenses are flat or down. We feel good about where we are from an expenses perspective. I think of them as investments, and they are paying off. Mikhail Goberman had another question on the new VantageScore rating system for borrower credit. Kudos to the leadership of FHFA on rolling out a new way. FICO scores and credit reports have gotten really expensive. With a competitor in there, you have options. Options create better outcomes—that is why wholesale works. Now FICO and Vantage are both striving to be the best. There were very few companies put on the pilot; we were one of them. I think it rolled out less than two weeks ago from FHFA Director Sandra Thompson with the support of Fannie Mae and Freddie Mac. Four business days later—Wednesday of last week—we rolled it out. VantageScore has been an enormous success. Not just saving $50 a credit report, though that is possible too. We have both FICO and VantageScore and are making sure borrowers get the best opportunity because they have different models. Vantage looks at thinner credit differently, can add rent and other things so more people can qualify or qualify with a little bit higher score. Under current comparability, you take a 20-point haircut from Vantage to FICO. So if a Vantage score is 744, that is equivalent of 724 in FICO. If the FICO score was 719, I just got that borrower a better deal with lower LLPAs. That is a win for consumers. In five business days, the amount of emails I have gotten on loans we have helped brokers win and consumers grateful that they can qualify for a home or got a better interest rate and lower fees has been phenomenal. Kudos to FHFA, to Fannie and Freddie for getting it out. We rolled it out with VA loans today, and FHA will be soon. MI companies like Essent and Enact are on it too. FICO is still great in many ways. It is not one or the other—both are great. We want to help consumers qualify for a mortgage and have better credit profiles. The rollout was done in four business days and worked flawlessly—our IT team did a heck of a job. Others may have it out in May or June. We are rolling with it now—saving loans, helping loans, giving better deals right now because of Vantage. I have a couple of questions on the BILT partnership. Indications of the BILT card relationship, increased leads, status of the partnership, and infrastructure in place. BILT—Ankur Jain, the CEO—is phenomenal. Their vision is great. UWM Holdings Corporation is a servicer; we brought servicing in-house. We are controlling everything. We chose a platform on the front end that provides rewards points to consumers for making their mortgage on time without using a credit card—they can use ACH and still get points. That has never been done in our industry. Rewards points for making your mortgage on time. People love points. You can also link your credit card and get points—your American Express points and BILT points—and use them for flights and other things. It is really cool. Beyond that, the servicing platform is slick. We built this with them, because they had never done this before on the front end for mortgage. It is great for consumers. BILT has over 6 million consumers and, depending on the year, 8%–10% of them buy houses. Those are curated leads. They will want to stay on the BILT platform and work with a mortgage broker. That is a huge opportunity. We already had that in pilot. There is a concierge service that gives our consumers—our brokers’ consumers—an amazing platform to get things done and make their life easier. It is a cool neighborhood experience. Ankur is going to speak at UWM Live next week—if you are there, you will understand it better. The vision is awesome. The key is UWM Holdings Corporation has servicing in-house. We have been the best originator in the country for a long time; we are going to be the best servicer because we are focused on it. It will help retention for our brokers and make the consumer experience better, with ancillary benefits too. The partnership is launched, rolling, fully active, and getting better every day—as we do with everything at UWM Holdings Corporation. We do not have all 700 thousand consumers on it yet; those are moving on to it. I have shadowed the team. The servicing process has been really great. You asked in the past why we did not do it—I always said focus on originations. We still do. The cost/expense will be great on servicing, not outsourcing anymore. Better yet, retention and experience for consumers and our brokers will be even better. We are excited about that. I also got questions on what we see in the business for the next three to five years (and even ten). Here is my high-level view. Over a five-year window—call it 2027 to 2031—we are expecting to do over $1.3 trillion in mortgages. There might be one year in there with $400 billion, and a year with $150–$200 billion, but I believe $1.3 trillion is the north star over five years. While that happens, my expenses basically stay the same. With our AI initiative and our technology, the expenses you see today—call it roughly $600 million in the quarter (I think it was about $590 million)—I expect that to be the level even as volume more than doubles. On top of that, I see another roughly 20%–25% in other revenue coming into UWM Holdings Corporation starting to happen with some ancillary products that are picking up steam. So revenue growth outside of just volume and gain-on-sale. To summarize: $1.3 trillion over five years, gain-on-sale margins in these ranges (maybe slightly higher), expenses flat or down (I will call it flat), and other revenue tied to AI initiatives that are starting to produce margin and other revenues. If I did not answer a shorter-term detail, Blake Kolo and investor relations are happy to talk anytime. Kyle Joseph: How are you thinking about the Homebuyer Privacy Protection Act (trigger lead rule) and potential impacts on competitive environment and overall margin? The trigger lead rule (effective March 4) definitely changed things. When a consumer used to pull credit, 50 people would call them. Now it is the servicer, the original lender, original broker, maybe their bank—three or four. That has changed the competitive landscape and is probably a better experience for consumers (fewer calls). On the flip side, consumers may not get as many options. You might get offered 6.5% with $5 thousand of fees and not know you could have gotten 6.25% with $3 thousand of fees working with a mortgage broker—going to mortgagematchup.com. Trigger leads made people compete more. From a competitive landscape, you could argue it is maybe not as good for consumers on rates and fees, though experience is better. If you are only winning on rates and fees, you will not be around long in this business. I could argue it may increase margins a little because there is less “low-ball to win” with fewer calls. It has been about 60 days—still early—but that is what we are seeing. Brokers who used trigger leads are finding other ways to buy data. It is still competitive, just a lot less noisy. A couple have asked about debt ratios: Why did secured debt go up relative to other aspects of the balance sheet, and how do we look at the debt ratio? We look at the debt ratios every day. The debt ratio was really good a couple of years ago when volume was not as good. Now the business is really good, and the debt ratios are not as good as we would like. Some of those ratios and liquidity numbers are a little bit of an anomaly based on trades we have out there to help balance the MSR book, which can move around. At the end of the quarter, it was up; it has already come down a bit now. Those fluctuations can throw the ratios off a little; they are better than they appear. We feel really good about it. We watch the numbers closely. The key is earnings. You saw we had a good earnings quarter in the first quarter. There will be quarters with bigger earnings. We are monitoring and managing it. We believe in delivering value to shareholders—dividends, which we have been doing, and potentially buybacks or other things. Overall, our leverage ratios and debt ratio—we feel really good. We monitor and manage them, and there are a lot of levers we can pull to make those ratios better while still doing more business and having higher earnings. You will see some of those in the second quarter and beyond. Jason Stewart from Compass Point: During periods of heightened volatility at the start of the year, how do you manage lock duration and pricing cadence? Do you increase frequency of rate sheet updates? How much volatility is absorbed? And impact of things like Purchase Boost 50 and pricing initiatives? The market has been very volatile. We have an extremely experienced capital markets team. Yes, sometimes you have two or three different rate sheets in a day—maybe four or five on rare days. If rates get better, we put an improvement out there to ensure brokers have the most competitive opportunity. If pricing gets worse, we worsen pricing. These numbers move all day. We have thresholds that move pricing up or down; when we hit those, we act. Some days you put a rate sheet out at 10 AM and nothing changes all day, or not enough to change pricing—we want some consistency for our clients as well. That balance is why you saw really strong margins in the fourth quarter and first quarter, and you will see strong margins in the second quarter. Built-in rewards have nothing to do with gain-on-sale or pricing; it is just another benefit for brokers and consumers because they get rewards points through BILT. On Purchase Boost 50 and other pricing initiatives: all are designed to help brokers succeed and win. Our brokers are not “I need the lowest price” to succeed. If lowest price alone won, they would cut comp in half and all use Provident. That is not how it works. A lot of our price incentives are more strategic. They incent brokers with price to use a tool of ours. For example, we had an incentive tied to 40–45 bps if you used hybrid or virtual closing because it makes the consumer experience better. That makes the consumer more likely to like you and refinance with you in the future. We track borrower happiness on every single loan. A lot of those are investments and are reflected in gain-on-sale. We did some of that in Q4 and Q1, and gain-on-sale is still much higher than last year’s Q1—about 123 bps in the first quarter (about 122 in the fourth). We track it daily and understand where we are. We give a very competitive price to our brokers, add significant value to help them win more loans, and provide the best service in the industry. We come out with AI tools and technology; we invest with free credit reports to help brokers compete even more and help more consumers. Many of these decisions are strategic to help brokers win. Sometimes a broker has never done a virtual closing, and the extra 45 bps gets them to do it, and then they continue doing it because they realize it is best for the consumer and helps them build their business. If brokers win, UWM Holdings Corporation wins. When consumers realize the fastest, easiest, cheapest way to get a mortgage is through brokers, UWM Holdings Corporation wins. Real estate agents win. We are one team because it is best for consumers. When a consumer goes to a random commercial or their local bank, they usually pay higher rates. When a consumer goes to mortgagematchup.com, they will find a broker who will get them a better rate, better fees, and a better experience. Anything I can do to drive more business there is what I will do. UWM Live is next week. It is the biggest mortgage event of the year. Please come. I will be there all day. We have great speakers. It is really cool to see the broker community. I will meet with investors and analysts—happy to spend time. We have covered a lot of the questions. Let me know how you like the format. Maybe next month, I can see you too, and we can have more interaction. Hopefully you like the format. I know last quarter you did not like that we did not do Q&A, so I am here for it. I love this. I will do this anytime. I enjoy talking about our business and the industry. Please give us feedback—give our investor relations team feedback on the format. If I did not answer your question, investor relations—Blake and the whole team—will answer all your questions. We appreciate you. Thanks for being partners of UWM Holdings Corporation—shareholders, investors, analysts. Anything we can do to help make your life easier. We are going to keep winning together with our brokers. The broker community and UWM Holdings Corporation will continue to grow with my amazing team members here. Thank you for your time. I am excited about the future here at UWM Holdings Corporation. The second quarter is going to be great as well. We will do the same format again unless we get a lot of feedback that you did not like it. Hopefully you did, and hopefully it was valuable to spend this time with me. Have a great day. Blake Kolo: The video is not, but we can hear you. They can hear you. Okay.
Operator: Welcome to the GXO First Quarter 2026 Earnings Conference Call and Webcast. My name is Sachi, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements, the use of non-GAAP financial measures and the company's guidance. During this call, the company will be making certain forward-looking statements within the meaning of applicable securities laws, which, by their nature, involve a number of risks and uncertainties and other factors that could cause actual results to differ materially from those projected in the forward-looking statements. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings. The forward-looking statements in the company's earnings release or made on this call are made only as of today, and the company has no obligation to update any of these forward-looking statements, except to the extent required by law. The company also may refer to certain non-GAAP financial measures as defined under applicable SEC rules during this call. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial tables are on its website. Unless otherwise stated, all results reported on this call are reported in United States dollars. The company will also remind you that its guidance incorporates business trends to date and what it believes today to be appropriate assumptions. The company's results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic conditions and consumer demand and spending, labor market and global supply chain constraints, inflationary pressures and the various factors detailed in its filings with the SEC. It is not possible for the company to actually predict demand for its services, and therefore, actual results could differ materially from guidance. You can find a copy of the company's earnings release, which contains additional important information regarding forward-looking statements and non-GAAP financial measures in the Investors section on the company's website. I will now turn the call over to GXO's Chief Executive Officer, Patrick Kelleher. Mr. Kelleher, you may begin. Patrick Kelleher: Good morning, and thank you for joining our first quarter 2026 results call. Joining me today are Mark Suchinski, our Chief Financial Officer; and Kristine Kubacki, our Chief Strategy Officer. Before we get into the quarter, I want to take a moment to welcome Mark, who is joining us for his first earnings call as our Chief Financial Officer. Mark's decades of experience driving enterprise performance through labor productivity, contracting and pricing improvements as well as deep expertise in aerospace and defense, which is one of our most important growth verticals, is exactly what we need as we accelerate growth and expand margins. His track record of driving value creation aligns directly with where we're headed in this new era of growth. With Mark on board, we have the right team in place to deliver on our strategic priorities. A big welcome to you, Mark. Mark Suchinski: Thank you, Patrick. I'm truly excited to be part of the GXO team. Patrick Kelleher: And we are thrilled to have you. Now turning to the quarter. In the first quarter, we delivered revenue of $3.3 billion, up 11% versus prior year and adjusted EBITDA of $200 million, up 23%. Adjusted diluted EPS increased 72% to $0.50. Organic revenue growth was 4% in the quarter, with every region contributing, demonstrating the resilience and global strength of our business model in a dynamic geopolitical environment. We entered 2026 with strong revenue visibility, and we have continued to build on that momentum. In the first quarter, we added $227 million in new business wins across key verticals, including notable contracts in aerospace and defense, several technology wins, including further growth in AI cloud infrastructure with hyperscalers and an expansion with the NHS in the U.K. In consumer, we secured a meaningful new partnership with L'Oreal in Europe. We are also seeing encouraging momentum in North America with our largest win in the quarter coming from our rapidly expanding aerospace and defense business. These wins demonstrate strong commercial momentum and give us confidence in our ability to accelerate organic growth in 2026. We now have $870 million of expected incremental new business revenue already secured for 2026, up 19% compared to this time last year, giving a strong line of sight into the balance of the year, and we are already beginning to build visibility into 2027. Mark and Kristine will discuss our financial outlook and new business wins in more detail shortly, but I'm pleased to announce that after a strong start to the year, we are raising our full year guidance for adjusted EBITDA and adjusted EPS. We now expect a 22% increase in adjusted EPS at the midpoint of the range. Now let me walk you through what's driving that confidence. We're focused on 3 strategic priorities: sharpening commercial execution, strengthening operational discipline and leading in AI and next-generation automation. These are the levers that will accelerate growth and expand margins. To execute on these priorities, we brought in new leadership across commercial, operations and our Americas and Asia Pacific region. That team is now in place and delivering results. First, on commercial, we're diversifying into strategic growth verticals. Karen Bomber joined in January and is focused on 3 key areas: bringing an unified global approach to account management that mirrors how our customers operate, pricing that reflects the value that we deliver and faster, more consistent commercial processes, and we are already seeing momentum. Our total pipeline now stands at the highest level in GXO's history. And in the quarter, 40% of wins were in our strategic growth verticals, aerospace and defense, industrial, life sciences and technology, particularly data centers. Our sales pipeline is accelerating, up 20% from the fourth quarter, of which more than $0.5 billion is in our strategic growth verticals. We also saw positive year-on-year volume growth in these verticals, helping to offset softer volumes in retail and consumer. And we have seen the momentum building specifically in North America, one of the largest and fastest-growing logistics markets globally. Our new management team and targeted marketing investments are gaining traction. In the first quarter, win rates notably increased and the pipeline grew 35% sequentially, giving us increased confidence in the opportunity ahead. In the region, we continue to benefit from our leadership position in B2B verticals, particularly aerospace and defense and data centers, while also seeing broader momentum emerging in consumer verticals, including consumer staples. During the quarter, we launched the Defense Advisory Board in the U.S. and established the Taurus Defense Supply Chain Alliance in the U.K., a significant move that positions GXO as the leading supply chain provider to the U.K. defense industry, building on the expertise or relationships Wincanton brings to our platform. Second, in operations, we have begun to implement the GXO Way. Our new global framework for standardizing and scaling excellence across the full operational life cycle. This gives us the platform to drive more consistent, repeatable execution at scale, which will make GXO even more competitive as a growth partner for customers and drive margin expansion. Third, in technology, we are making clear progress on our automation and AI strategies. GXO IQ reached an important milestone this quarter as we began to scale the platform, launching several new sites with the rollout expected to accelerate throughout the year. We are targeting more than 50 sites by year-end. The deployment of automated solutions continues to advance as well, including a fleet of autonomous mobile robots in the Netherlands and our first auto load solution in Europe. This will not only enhance how we deliver, driving greater efficiency and productivity for our customers, it creates ongoing value and strengthens the durability of our partnerships. On humanoids, we will launch more pilots across the U.S. and Europe later this year. Our first-mover advantage is real, and we are building on it. In closing, GXO is off to a strong start in 2026. The underlying business is showing positive momentum. Our strategic priorities are beginning to gain traction, and our team is fully focused on driving long-term value creation. I look forward to sharing more on our long-term strategy and progress at our Investor Day to be scheduled after the third quarter earnings. With that, I'll hand the call off to Mark. Mark Suchinski: Thank you, Patrick, and good morning, everyone. Again, it's a pleasure to join you for my first earnings call as CFO of GXO. In my first 5 weeks, I've had the opportunity to meet with our site teams, our customers and colleagues across the business. My initial takeaways are very clear. We have a strong foundation and a significant growth opportunity ahead of us. GXO has built a formidable enterprise, one with significant global scale, a competitive advantage in automation and AI and a caliber of customer base that very few companies in the world can match. My priorities are fully aligned with Patrick's. To operate as a single connected global firm, powering our commercial growth strategy, leveraging the GXO Way to drive consistent global execution and optimizing our cost structure. We will also ensure disciplined capital allocation that drives long-term shareholder value. I look forward to sharing more on each of these areas in the quarters ahead. In the first quarter, GXO delivered revenue of $3.3 billion, up 10.8% year-over-year, of which 4.1% was organic. Every region contributed, a clear demonstration of our breadth and resilience of our contractual business model in a dynamic macro environment. We delivered adjusted EBITDA of $200 million, up 22.7% from this time last year. This resulted in an adjusted EBITDA margin of 6.1%, up 60 basis points year-over-year. We delivered net income of $5 million and adjusted net income attributable to GXO of $58 million, up 70.6% year-over-year. Adjusted diluted EPS was $0.50 per share, up 72.4% from the first quarter a year ago. We generated $31 million of operating cash flow in the quarter, while free cash flow was an outflow of $31 million, in line with typical seasonality. We are managing working capital efficiently and investing in the business at high returns. Turning to our balance sheet. We ended the quarter with $794 million in cash on hand and a strong liquidity position of $1.6 billion. Our leverage levels held steady at 2.5x. Our investment-grade balance sheet is strong and positions GXO for profitable growth. We remain focused on disciplined allocation of capital to enhance long-term value for our shareholders. The integration of Wincanton is progressing at pace. We remain on track to deliver run rate cost synergies of $60 million by year-end 2026. We also expect to capture significant revenue synergies in the years ahead. Turning to the outlook for the full year. We overdelivered versus our guidance for the first quarter. We saw strong underlying performance from our core business as well as benefiting from certain contract termination costs that had been anticipated in the first quarter and are now expected to be incurred over the remainder of the year. As a result, for our full year 2026 guidance, we are maintaining organic revenue growth of 4% to 5%, raising adjusted EBITDA to a range of $935 million to $975 million, raising adjusted diluted earnings per share to a range of $2.90 to $3.20, up 22% at the midpoint and maintaining free cash flow conversion of 30% to 40%. With strong operating performance, a record sales pipeline and solid financial foundation, we are well positioned to accelerate growth and expand margins in 2026 and beyond. With that, over to you, Kristine. Kristine Kubacki: Thanks, Mark. Good morning, everyone. The first quarter results again demonstrate the strength and resilience of our business model. I'd like to provide some more context on the drivers of that growth, the durability we see across our business and how we are positioning GXO for the next phase of value creation. Patrick has been clear about our strategic priorities, sharpening our commercial strategy, strengthening our execution and leading the deployment of AI and next-generation automation. Together, these priorities will drive long-term profitable growth. Commercially, we are making significant progress deepening our global relationships with blue-chip customers and expanding across geographies and into high-growth verticals. In the first quarter, we won $227 million in new contracts, and our pipeline grew to $2.7 billion, a record for GXO and a clear reflection of the momentum that has built since Patrick joined in August of last year. As Patrick and Mark both noted, we are deliberately leveraging our strong positions in aerospace and defense and technology, including data center infrastructure to capture the rapidly growing opportunities in these verticals. We are also continuing to build on our strong foundations in life sciences and the broader industrial vertical. In the first quarter, approximately 40% of our wins and 1/4 of our pipeline came from these strategic growth verticals, a direct result of our deep capabilities, technical expertise and strong competitive positioning. With supply chains continuing to grow in complexity and reshore, we have increasing confidence in the durability and resilience of our growth outlook. And with a combined TAM of over $200 billion across these verticals, the runway ahead remains substantial. Taken together, our recent wins translate to $870 million in incremental revenue already booked for 2026, up 19% from where we stood at this point last year. This gives us confidence in our full year guidance and provides a clear visibility into our long-term growth trajectory. The second priority Patrick outlined was strengthening our execution, leveraging our position as the leading pure-play contract logistics provider to drive better outcomes for our customers and improve profitability for GXO. Central to that is our leadership in automation, technology and AI. In the first quarter, we made meaningful strategic progress on this front as we began expanding GXO IQ into a scaled platform. We have moved from pilot to global rollout, launching GXO IQ at a large consumer product site with a seamless implementation. We are now accelerating deployment across North America and Europe with U.K. sites set to follow later in the year. As a reminder, GXO IQ is an AI-powered warehouse technology platform that improves start-up efficiency, accelerates productivity and enhances data security. GXO IQ simplifies implementations and makes our proprietary AI modules and automation capabilities truly scalable. We are targeting to expand GXO IQ to more than 50 sites by year-end. In combination with strengthening our operating model, in the quarter, we have begun to reshape our organization to drive sharper execution. Our new COO, Bart Beeks, who joined in January, is overseeing the launch of the GXO Way, our operating framework designed to turn proven excellence into a repeatable advantage. This means standardizing implementation best practices, accelerating frontline automation deployment and leveraging our global procurement capabilities to drive scale and expertise benefits for our customers. Overall, these strategic priorities are serving to diversify GXO's revenue base, making our growth even more durable and driving our profitability and cash flow. We look forward to sharing more at our Investor Day after third quarter earnings, where we'll provide more detail on our long-term strategy and financial framework. With that, I'll hand the call back over to the operator for Q&A. Operator: [Operator Instructions] The first question is from Stephanie Moore from Jefferies. Stephanie Benjamin Moore: Congrats on the strong quarter and obviously, a really good start to the year. I was hoping that you could address a topic that is probably clearly top of mind with investors this past week. So I think most have probably seen this, but I'm obviously talking about the announcement from Amazon of its expanded supply chain services. So I think, it would be helpful if you could just maybe speak to your competitive moat and differentiated service proposition and how that differs from other players such as Amazon or really any other well-backed company that would look to expand fulfillment or warehousing services. I think that would be a helpful place to start. Patrick Kelleher: Absolutely, Stephanie, and thanks for the question. I've been in this industry for 32 years, and I really viewed Amazon's announcement this week as a fantastic validation of the opportunity that's in front of you and of the contract logistics industry. This is a massive market. It's approximately $0.5 trillion and growing. Very exciting today, roughly 70% of the market that being contract logistics is in-sourced, which is a huge opportunity. So we don't view this as really changing the overall competitive dynamic. I would point out that we provide a fundamentally different offering. Amazon is selling access to its supply chain, whereas GXO, we build custom solutions for our customers, and that distinction means everything to our blue-chip customers. We're not a one-size-fits-all provider. What we do is bespoke, operationally complex and relationship-driven. The more complex the supply chain, the more bespoke really matters. There's a couple of differences to our model that I really want to point out. First is control. For enterprise customers, protecting their data is a top priority. Many companies are going to be reluctant to give a competitor deeper visibility into their inventory, demand patterns, sales channels, financials. #2, we offer a flexible tech stack that is vendor agnostic, so we're not beholden to a single technology solution. And #3, our capabilities extend way beyond retail into sectors like aerospace and defense and industrial, just to name a few. We see our moat as really deep. The combination of factors, our client-aligned customized solutions feature long-term contracts, cutting-edge technology, deep vertical know-how, high-quality execution, and I think those are all key differentiators. We're really focused on delivering value for our customers, shareholders and teammates with a focus on discipline in executing our strategic plans and executing for our customers. So we really feel great about how GXO is positioned as a leader in the contract logistics industry to continue to win and grow this year and into 2027 and beyond. Stephanie Benjamin Moore: One question on just the quarter itself. Maybe if you could just speak to, I think the EBITDA performance was better than we had initially expected. So if you think about that underlying performance, do you think that this is a testament of some of the cost actions that your team have kind of implemented more recently? Maybe talk through what this should mean in terms of the momentum of those cost actions as the year progresses. Just wanted to get a sense of your underlying confidence and the ability to really look for some of the productivity savings that you called out before? Patrick Kelleher: Absolutely. I'll ask Mark to answer that question. Mark Suchinski: Stephanie, thanks for the question. As you indicated, we had a really strong performance in the first quarter in our core business. We feel good about that. The initiatives that are in place, they're starting to take hold here. And so it's a clear indication that what we're doing, we're on the right track here. And so I think as we move throughout the year, we continue to win new business and focus on very disciplined execution for our customers, along with the initiatives that Bart Beeks, our new COO, is driving, we feel good about our ability to drive margins in the long term. And you're seeing it show up in the first quarter. And that's one of the reasons why we felt confident but prudent in our approach to raising guidance. Operator: The next question is from Ravi Shanker from Morgan Stanley. Ravi Shanker: Just on the current environment, can you guys clarify if you've seen any blips in customer activity or planning at all because of the conflict in the Middle East and kind of what the outlook looks like the rest of the year? Patrick Kelleher: Yes. First, I would say that for GXO, we have virtually no direct exposure to the region, and we are not seeing any material impact from the conflict. Our volumes for the first quarter overall were relatively flat, which is something that we had actually forecasted and saw coming into the quarter. B2B volumes in our aerospace, defense, industrial technology, life sciences sectors were slightly up and B2C volumes in retail and CPG slightly down, but netting out to being flat. We continue to see great energy from customers around the exploration of outsourcing and through our new business delivery in the first quarter, clearly, customers are continuing to commit to solutions going forward. I think a great testament to the health of the industry and the opportunities out there is the increase that we saw in our pipeline in the first quarter. So a record pipeline now up to $2.7 billion. We're seeing great conversion on that pipeline. And based on the flow of projects coming in week by week, we see that continuing in the medium term, long term as we look towards the end of the year. Ravi Shanker: Great. That's helpful. And maybe as a follow-up on the Amazon topic. Thanks for the clarification and kind of what you see as your moat there, particularly the point on custom solutions. Is there any part of your business do you think where you do not have the level of complexity or customization that you would like to have? Or any end markets or geographies, where you think kind of as a result of this development, you would maybe want to pivot away from and maybe towards others? Patrick Kelleher: Sure. So the area of the business where I do see us competing with Amazon going forward, and we have been in the past for a while is with Amazon's FBA product, which is very similar to our GXO Direct product offering, which is our shared use e-commerce offering. That business for GXO Direct grew in 2025. It grew 5% in the first quarter of this year, but it does represent just under 6% of our total business. So relatively small in the overall scheme of GXO's business in total. I think where we do competitively differentiate as GXO Direct is that we are servicing high-value brands that will leverage our value-added services in packaging, etching and really white glove type services for those very high-end brands. It's a high-touch customer experience. And I think we're well positioned to continue to compete as GXO Direct in that space. Operator: The next question is from Chris Wetherbee from Wells Fargo. Christian Wetherbee: Maybe one sort of shorter-term question and maybe a little bit bigger. I guess as you think about demand and maybe what the second quarter could look like, kind of curious to get a sense of what you think organic revenue trends look like as you go through the year. So you came in a little bit better than what we thought in the first quarter. I don't know if you see an acceleration as you move into 2Q. I know we're kind of in the range that you guys gave for the full year, but any thoughts on the second quarter and kind of what you're seeing from demand in the month of April? Mark Suchinski: Chris, it's Mark. Let me just respond to that. As you indicated, we had solid revenue organic growth in the first quarter of 4.1%. We expect the second quarter to be about the same that we saw in the first quarter. And with the pipeline and the wins that we've achieved and the line of sight that we have here in the second quarter, we're seeing the organic growth then accelerate in the back half of the year. So I think the first half of the year, it's going to be at the lower end of the range, whereas in the back half of the year, it's going to be at the higher end of the range based on the visibility that we have today. Patrick Kelleher: And that visibility is really reinforced by we're seeing the signings happening today, and it's really about the timing of the implementation of the business that we have sold and when that revenue is coming on in 2026. And then I think based on the signings we're seeing and particularly the acceleration of the pipeline and the conversion rates that we're seeing, we have a lot of confidence going into 2027 around the continuation of accelerating organic growth. Christian Wetherbee: That's super helpful and a great segue. I guess I wanted to ask a little bit about sort of building that incremental revenue wins for 2027. So at $168 million, I think you're a little lower than what you've been in the last couple of years there. Is it just sort of a timing dynamic? I guess, as you guys have sort of reconstituted some of the management team has not lost enough that there could be some transition dynamics that play out here. But how do you think that builds as we go through the rest of the year? Patrick Kelleher: Yes. I'd see that solely as a timing dynamic around when ink hit paper in the first quarter versus actually signing contracts in the second quarter and beyond. And I think it will really come down to timing of implementation in terms of how much lands this year versus how much carries into 2027. But as I said, we're very confident in our direction there. And maybe, Kristine, if you want to comment on a pipeline perspective. Kristine Kubacki: Yes. Chris, I would just simply state that we feel very good, of course, about the record pipeline that we have and the underlying trends that we're seeing in the business. I think simply, we plan to sign more this year as we move forward. And a large part of that will simply fall into 2027. We'll see that layering on. So we feel very good and have every bit of confidence that we'll see accelerating growth through -- in the back half of this year and into 2027. Operator: Next question is from Scott Schneeberger from Oppenheimer & Company. Scott Schneeberger: Patrick, I'd like to touch again on the sales pipeline, an all-time high, and you certainly highlighted the 25% from the strategic growth sectors, and it sounds like a lot of progress is being made there, and congratulations. Curious to hear on the other 75% of the pipeline, what are the -- the primary verticals that are building and where you're seeing conversion? Kristine Kubacki: Scott, it's Kristine. I think we're very encouraged about what we saw in terms of the wins that we had in the first quarter. So it was $227 million and 40% of those were in our new verticals. So we had good signings from across our technology. We signed 4 more contracts, including 1 internationally for data centers. Aerospace and defense was actually our largest contract win in the quarter. So despite that, we still have a great representation of the pipeline as we move into the second quarter. But I think, obviously, with 75% of the pipeline is in our core business. And so that just shows that we're continuing to see momentum in the core geographies and our core verticals, omnichannel retail and the like and consumer are very strong. Our value proposition is resonating with customers. And certainly, in a dynamic environment, our value proposition only grows. Scott Schneeberger: Great. And then considering it was first quarter and often the time of year where reverse logistics is quite meaningful on returns post the holiday season. Any update on that area of your business, what percent of revenue it presents, what that mix may be going to and maybe some of the profitability attributes of that business? Kristine Kubacki: Scott, it's Kristine again. No, great question. As you know, returns are an extremely complex operation for us and one of our skilled expertise that GXO does. And in fact, we've seen very encouraging trends across our reverse logistics business. It remains probably around about 10% of our pipeline and of our business today. But we did see high single-digit growth for us in the quarter. And obviously, because of the complexity of the operations, it remains a very value-added service for us from a profitability standpoint. Operator: The next question is from Ari Rosa from Citi. Ariel Rosa: Patrick, I was hoping you could comment just for some context because obviously, the market feels confused and we saw the stock get a bit hit, obviously, on the Amazon threat. Just help us understand when companies leave GXO or when they make the decision to -- to kind of not renew the contract. What are the typical reasons that, that happens? And then if you could also comment on how often you see Amazon in a competitive bidding process? And do you have any concern that it could -- they're kind of stepping up their presence in this space could lead to something of an erosion of pricing power or greater pricing competition in the industry? Patrick Kelleher: Yes. So to take the first question, our churn rate is less than 5%. That trend is continuing. When customers leave, it is typically because of rarely a bankruptcy, but we do see those. Typically, it's a restructuring of the supply chain. It is closing one warehouse node in order to open up a new node somewhere else and then a very, very small part, of course, in a competitive bid to our competitors. But our churn rate continues to be very healthy and we see that going forward and improving as we focus on even more account management. You would have seen that with the introduction of Ajit Kara into the strategic account management role that we announced a little while ago. In terms of Amazon's presence in the market, I think they've been very clear around selling into our existing infrastructure. Providing stand-alone bespoke solutions is very different from selling into existing capacity in standard solutions. Outside their platform, in selling stand-alone bespoke solution, the game is very different. The market is populated with very formidable competitors in that space, which GXO leading, in my mind, in that regard in the contract logistics industry. When I look at our customers, they are the Chief Supply Chain Officers. We have many chiefs -- former Chief Supply Chain Officers on our Board within our organization running our business. When you look at their job and the things that are most important to them, cost matters, service is critical. They can differentiate between transactional supply chain activity like air freight and parcel and making -- and establishing short-term contracts for great rates and buying capacity. The strategic decision associated with outsourcing and contract logistics requires an approach to long-term relationship of purpose-built supply chain warehouse operation, a focus on continuous improvement over what is a long term, particularly our average contract is 5 years. So the business is very different. The engagement with the customer is very different. The way in which our organization supports the delivery of those solutions for our customers is very different than if we were selling into a standardized solution as Amazon is putting forward. So I feel really confident that at the most senior levels within our customers' organization, we are the right answer for the strategic outsourcing aspect of their supply chain. And then certainly, there is a role to play for airfreight parcel and so forth. And the competitive dynamics there are very different from the competitive dynamics in contract logistics. And that's why I'm really confident that we're so well positioned to succeed in what is a very big market. And as I said in the beginning, I think it was really a great thing that Amazon called out what an incredible opportunity there is in supply chain, what a great industry this is to invest in. Ariel Rosa: That's helpful. It certainly seems like there's a lot of confusion out there. I was excited to see that you guys have loosely set a date now for the Investor Day. Obviously, still a while away, and I'm sure there's going to be a lot of work in terms of refining long-term targets. But at a high level, maybe help us understand how you think of the objectives for the Investor Day? And what is it that you'd really like to get across? Or what is it that you feel perhaps the market is misunderstanding or investors are misunderstanding about GXO. Patrick Kelleher: Sure. You can expect on Investor Day, GXO will lay out our 3-year strategy. We will go in substantially more depth on organic growth, where to play, how to win and how we see ourselves delivering organic growth over the next 3 years. We will go deeper on the operational levers in terms of productivity improvement, glide path on SG&A, insight into the investments that we will be making -- continue to make in driving performance of the business, both on top line and bottom line. And we want to do that with transparency. The reason for the timing after the third quarter is to give this management team opportunity to pull those plans together, make sure that we can articulate those at a level of depth that everybody can embrace and that we set the stage for our path forward and sharing how we are performing against our plan. We want to be aligned externally and internally around those key metrics and those key KPIs that underpin an assessment of our performance, so we move with even more transparency going into 2027. Operator: The next question is from Bruce Chan from Stifel. J. Bruce Chan: Mark. Maybe just want to follow-up on the demand comments in terms of what you're seeing in the various geographies and end markets. I know we've been in a pretty soft environment for a while now. You mentioned some sluggishness in retail and consumer. So just any broad color on recovery rate in Europe or, for example, by industry? And then maybe also some comments on what's embedded in guidance in terms of volume from existing customers, just in case I may have missed that. Patrick Kelleher: Mark, do you want to talk about what's embedded in our current forecast from a volume perspective and... Mark Suchinski: Sure, Bruce. As we've indicated, our guidance reflects organic growth of -- we're targeting between 4% and 5% for the year. And from an existing customer standpoint, from a volume standpoint, we're assuming about breakeven on the year. So we're looking at that sales, that organic growth clearly coming from new contract wins that we achieved in 2025 and the early part of 2026. And so that's what's reflected in the guidance. Patrick Kelleher: Yes. And I would just comment across the 3 geographies, North America, U.K., Europe, where the majority of our business lies. The consumer appears to continue to be very strong. So while volume is a bit softer, it's only low single digit, very low single digit in terms of year-on-year volume changes. As we've shared on the B2B side, certainly higher volume increase there, but that represents a smaller percentage of our business where that is netting out to being relatively flat. So we're encouraged as we look towards the end of the year in terms of at least volumes being flat year-on-year. And as communicated, I think, on our last call, we still maintain that, that is a prudent position right now, and we're hopeful for better, but no reason to think that right now that, that would materialize... Operator: The next question is from Brian Ossenbeck from JPMorgan. Brian Ossenbeck: Maybe, Patrick, can you give us a little bit more details around the new aerospace and defense wins, especially the bigger ones, it sounds like in North America, like how long was that in the pipeline? If anything different than what you've seen in terms of the conditions, contract length, anything along those lines? And to the extent you can give us a little clarity and the confidence behind the ramp, anything that you've signed or have really good visibility to signing here in April? Patrick Kelleher: Yes, sure. I can't go into any details on what's forthcoming in terms of specific deals on April and beyond. The opportunity that we signed in the last quarter is focused on parts distribution, which is a very strong capability of ours, not only in aerospace and defense, but in data centers and life sciences as well. So that really plays to our core. That was a relatively quick turn project in terms of design to decision-making, which is encouraging in terms of how customers are able to move at speed in that space. We're seeing great traction in the pipeline build, particularly through the engagement of our Defense Advisory Board. That team has met on a number of occasions already. And the individuals on that board are great advocates in terms of helping us build the pipeline there, getting our name known out in the space and being able to look at real projects there. So I'm super excited about the traction we're seeing there. That goes for the Defense Advisory Board in North America as well as the opportunities that we're planning for in the U.K. through the alliance that we've established there. Brian Ossenbeck: And then it sounds like we're going to hear more about the operational improvement and possibilities at the Investor Day. But just maybe give some context in terms of the GXO Way, which seems like it's just rolling out right now. How quickly can you see benefits from that? I mean you've got a lot of different sites, long-term contracts. Can you make smaller incremental change that just adds up? Or do you feel like this can actually have some bigger impacts without having to deal with changing contract terms or maybe the operating footprint. So realize we'll hear more in the back half of this year, but I'd love to hear just how to think about that until then. Patrick Kelleher: Yes, sure. So it's early days there. As you said, we'll share a lot more on Investor Day in terms of dimensioning the potential there, as Kristine said, we've had great success in rolling out GXO IQ. That is really foundational to the GXO Way and GXO IQ is the platform for us to enable AI deployment at scale in our sites. And we have good success on the AI front. We have 8 AI modules, which we've deployed at a number of sites. We've gone live with those first instances of GXO IQ, which really provides a more standardized distribution of AI across all of our sites, and we're building towards 50 sites being on GXO IQ by the end of the year. So we're excited about that progress. When you look at the productivity improvement opportunities that we have, even just from an AI perspective, we're focused on 2 dimensions. One is driving innovation in our customer warehouse and transport operations, and we're already seeing benefits from the new modules that we've rolled out there and more to come. The second is leveraging AI for overhead and functional efficiency. And we've got great initiatives in flight there in functions like HR, IT, finance and so forth. So we're coming at it from both perspectives and very, very excited about Investor Day, where we can dimension that in more detail. Operator: The next question is from Jeff Kauffman from Vertical Research Partners. Jeffrey Kauffman: Mark, congratulations. Look forward to working with you. One quick detailed question for Mark and then a bigger picture for Patrick. Mark, as you expand into North America, how does that change your tax rate? Mark Suchinski: I would say this, Jeff. I don't think it changes in a meaningful way. Obviously, the North American rate is a touch higher than the rates across the globe here. But I think it won't be meaningful year-on-year over time. I think we'll see a small tick up in that. But at this point in time, I wouldn't anticipate anything significant. Jeffrey Kauffman: Okay. And then for Patrick, bigger picture, I'm just kind of curious your perspective last 3 to 5 years. I mean we've had COVID, we've had this AI boom. We've had tariffs. It's really kind of changed how companies are thinking structurally about their supply chains. What are some of the big changes you've seen? And how is the business shifting? Patrick Kelleher: Yes. I talked about the contract logistics industry and the evolution there, and I've been in the industry for 32 years. The industry has grown every single year over those 32 years. Events such as the financial crisis of 2008, maybe even the European bond crisis 2015, COVID, various wars and conflicts that have happened throughout the years, the evolution of tariffs, which all be reminded, started to be a big deal in the '80s, not 4 years ago. These headwinds, these changes have always resulted in fueling additional growth for contract logistics and outsourcing. Our industry is a great lever for our customers. Our solutions are a great lever for our customers to take cost out, improve service to drive change at a faster pace within the supply chain. The time and attention being put to that as a lever only continues to increase. I talked about over the last couple of months at a number of conferences, tariffs being a catalyst to supply chain efficiency. So as additional costs are introduced to the supply chain, that creates opportunities for return on investment that maybe didn't exist before. And a great example of that is the free trade zones. So there's significant demand now for free trade zones. That's a great way to at least mitigate or delay the impact of tariffs. We have 67 free trade zones around the world. We're seeing great growth in that space. As these headwinds come, supply chain efficiency becomes more important and outsourcing becomes a very easy lever for our customers to pull in order to drive those supply chain efficiencies more quickly in their business. And I think if you look at the evolution of the contract logistics industry, it started in the '90s around labor arbitrage and really has evolved to an arbitrage of expertise. The thing that differentiates us the most is the people that we have in our organization who bring the supply chain expertise, the technology expertise. They understand how to stitch technologies together to deliver unique solutions. They know how to implement change and warehouse operations quickly and efficiently and deliver solutions. And I think the arbitrage of expertise now is going to be a very big differentiator going forward. So I think all sets up well for the contract logistics industry to be healthy, and I think all sets up for the market we're participating in to be healthy. And as a market leader, we are capitalizing on that. Operator: The next question is from Jason Seidl from TD Cowen. Uday Khanapurkar: This is Uday on for Jason Seidl. Patrick, on this competitive subject, could you expand on the data security and governance that you mentioned as a differentiator in winning those RFPs? Like would you say that being a pure play offers prospective customers a degree of comfort maybe that their data is not at risk from leasing to other business lines. I'm just wondering how big of an enabling factor that might be really just given a lot of your competitors are conglomerates. Patrick Kelleher: Yes. I think it is an enabling factor. It is certainly something important to us, something we're very respectful of with our customers. And so that is something that will continue to feature as part of our solutions going forward. I would say in terms of competitive differentiation. That's just one of many things that differentiates us. And I think really is important from an outsourced supply chain provider and customer relationship perspective. I think that -- remind me the second part of your question there? Uday Khanapurkar: No, that's helpful. That's clear. Maybe just a follow-up on some of the volume outlook. Are the tariff changes and refund dynamics creating any kind of new variability in customer volume forecast? And if so, I mean, is that influencing your approach to planning and capacity management? Like do facilities need to flack in the coming months or quarters in case there's stimulus effectively that drives some volumes? Patrick Kelleher: Yes. So I think it is resulting in changes in volume flows. And so that, I think, is completely accepted by folks. I think what we are seeing is from a volume perspective, those shift in flows are coming from acceleration of onshoring, particularly around manufacturing. I think that is very real. I think that plays very well to our focus on the B2B more industrial verticals and the support of that activity. And so I think net-net, volumes increasing. And that, I speak in the context of North America. When you look at the U.K. and Europe business, seeing increasing flows directly from China and Southeast Asia, trade lanes being impacted there in terms of where product is flowing. And I think we're so well positioned given our position in the countries that we operate in Europe and of course, U.K. and Ireland to capitalize on those changes in flow. I think just to close out the other part of your first question was do we feel advantaged as a pure play in contract logistics. And I think that is one of our biggest advantages. We are making directed investments in being the best contract logistics provider. We're not encumbered by investment decisions that have to be made across a conglomerate and multiple service lines. So we intend to go deep in terms of our investment providing the very best services around those solutions that we're bringing forward to customers. And so we think that, that is a strategic... Operator: The next question is from Harrison Bauer from SIG. Harrison Bauer: Following up on something earlier on GXO Way and executing a repeatable operating framework, implementing best practices. Is there a way to frame a range of gross profit margins across the portfolio at a site level, maybe what might be on the lower end even at a mature site or underperforming site? Or at the very least, what's driving operational underperformance at a site level? And then as you push deeper into A&D, industrial, high-tech in North America, are you encountering heightened start-up costs or implementation friction standing up those new verticals? Patrick Kelleher: Yes. So the latter question on implementation costs or friction, the answer is no. We are already deep in those verticals in terms of our operational expertise. And that expertise has come both through a number of acquisitions that have been made over the years as GXO and with the competencies that have come, especially most recently with the acquisition of Wincanton. And so we have been executing solutions in aerospace and defense, technology, industrial, life sciences for more than a decade. And so we have great people operating those businesses and the implementations that we're seeing there have been very successful. We have a lot of confidence in our ability to execute in that space. On the first part of your question, I'm maybe more anxious than you to give the answer to that question, but we're going to defer that to our Investor Day. Harrison Bauer: Understood. And then just a follow-up. Pricing has come up a couple of times from opening remarks as well as Patrick, your call out on Mark's contracting experience. Mark, this one is for you, I guess, drawing on your experience from your prior [ seat ] at Spirit, how is that shaping the way that you're thinking about pricing and contract structure for GXO, particularly in A&D in North America? And are you pricing the new verticals differently than the legacy book? Mark Suchinski: Yes, Harrison. It's interesting when we look at the types of contract pricing mechanisms that we have here at GXO, open book versus fixed, a combination of fixed and variable. And what I would tell you is there's a lot of similarities when we think about aerospace and defense, in particular, with the defense primes around what we call an aerospace and defense cost plus, cost-plus incentive, fixed price. And so when we think about tackling some of these new verticals and move up the food chain, I think there's a lot that we can think about as it relates to the services that provide, the value that we bring in the terms and conditions and how we can create a pricing proposal that creates a win-win for us and our customers. And I've got a lot of experience doing that both with the big defense primes and the commercial folks. So I'm excited to really roll up my sleeves and get into that. As I said before, I think there's some similarities on how we do that. I found it very interesting as I came on board here. But I think there's some sharpening that we can do and some real focus that we can provide that I think will create a win-win for us and our customers. Operator: The next question is from Kevin Gainey from Thompson, Davis & Company. Kevin Gainey: Maybe we can just touch on Wincanton real quick as you guys have kind of got layered in completely. I know one of the bigger things with it was synergy opportunities. I was curious, if you ran across any more of those. Mark Suchinski: Kevin, I would say this, we outlined -- GXO outlined a target of $60 million worth of synergies to be achieved by the end of 2026. I personally reviewed the plan. We're tracking well. We've made significant progress against those targets, and we're comfortable that we can achieve those by the end of the year. I would just tell you this, we're not stopping there. We continue to look and stretch ourselves. But first and foremost, our goal is to achieve the $60 million that we committed to. But with any acquisition, there are opportunities and risks that come associated with it. And I do think that on balance, there are some further opportunities as we look at integrating that business into the bigger GXO and for us to take advantage of that. So things are on track. I can't give you a specific quantification at this point in time, but we're working very hard at that. Kevin Gainey: That was good color. And then as you guys hit a sales pipeline record, how are you thinking about the team's capability in converting that? And then how should we think about GXO's investment that may be required with that conversion? Patrick Kelleher: Yes. So we are absolutely feeling great about the pipeline development, particularly over the past couple of months. That development is the result of the amazing team that we have focused on marketing and sales, especially in building that pipeline. And we're seeing very good conversion on that pipeline, especially in the first quarter of this year. So I feel very good about the trajectory that we're on moving forward there. Operator: Ladies and gentlemen, that is all the time we have for questions today. I'd like to hand the call back to management for any closing remarks. Patrick Kelleher: Great. Thank you, operator. So to close, we are very encouraged by the strong start that we've had this year and even more importantly, by the momentum that's building across the business. As I talked about, the market dynamics are increasingly favorable. Outsourcing continues to accelerate and the addressable marketing for advanced logistics solutions is expanding. Our unique value proposition is resonating with blue-chip customers. Our pipeline is strong, and our teams are executing with discipline. With the foundation of strength and leadership we've put in place, we're moving with greater clarity, alignment and speed. The decision to raise our guidance really reflects our confidence in both the strength of demand that we're seeing and the predictability of our operating model. We're very excited as we move towards the middle of 2026. Thank you for joining today. Operator: Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.
Operator: Good morning, ladies and gentlemen, and welcome to Perrigo Q1 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 7, 2026. I would now like to turn the conference over to Mr. Eric Jacobson, VP, Global Investor Relations. Eric Jacobson: Good morning, and good afternoon, everyone. Welcome to Perrigo's First Quarter 2026 Earnings Conference Call. A copy of the release we issued this morning and the accompanying presentation for today's discussion are available within the Investors section of the perrigo.com website. Joining today's call are Perrigo's President and CEO, Patrick Lockwood-Taylor; and CFO, Eduardo Bezerra. As a reminder, beginning this quarter, we are reporting segments aligned with our new commercial operating model. We have recast historical results under the new structure for comparability as provided in our 8-K filing, and this change had no impact on our consolidated financials or cash flows. Along with our new reporting segments, we have changed our main profitability measure to adjusted operating income. During this presentation, participants will make certain forward-looking statements. Please refer to the slides for information regarding these statements, which are subject to important risks and uncertainties. We will reference adjusted financial measures that are non-GAAP in nature. See the appendix to the earnings presentation for additional details and reconciliations of all non-GAAP to GAAP financial measures presented. Finally, Patrick's discussion will address only non-GAAP financial measures. Now to the agenda. We have several topics to cover today. First, Patrick will walk through the progress we are making with our Three-S plan and how first quarter results compare to our expectations. He will then provide the market overview and explain how our growth initiatives are expected to drive improved results. After which Eduardo will cover first quarter segment results, balance sheet and capital allocation and close with further details of our 2026 outlook. With that, I'll turn it over to Patrick. Patrick Lockwood-Taylor: Thanks, Eric. Good morning, good afternoon, and thank you for joining today's call. We are making steady progress in building a more focused, disciplined and consistent Perrigo. Challenging market environment impacted first quarter results. However, our Three-S plan to stabilize, streamline and strengthen the company is helping us navigate these conditions and positioning the company for long-term growth. The strategy is working as clearly demonstrated by our market share gains even in what we have highlighted as a transition year. Given these factors, we are reaffirming our 2026 outlook. Consistent with our prior commentary, results are expected to be weighted to the second half, supported by clear quantifiable factors, including stabilizing category consumption, the lapping of prior year manufacturing volume headwinds, benefits from cost-saving initiatives and delivery of our growth drivers. With those takeaways as a backdrop, I'll walk through how the Three-S plan is driving positive change. Our stabilization efforts have turned share losses in U.S. store brand OTC into a 100 basis point improvement in volume share during the quarter, six of seven categories gaining share. To further dimensionalize our performance, we have gained 270 basis points of U.S. store brand OTC volume share in the first quarter alone. Key brands in Europe also improved, gaining 20 basis points of value share in a challenging consumption environment. We have also stabilized results in Infant Formula with improved service levels and supply reliability. To streamline our business, we completed the divestiture of the Dermacosmetics business in April, an important milestone in further simplifying our operations and enabling debt reduction. Strategic reviews of our Infant Formula and Oral Care business are ongoing. Efficiencies are an important part of our streamlined pillar and our operational enhancement program generated more than $7 million of cost savings in the quarter and is on track for approximately $60 million to $80 million in savings for the year, with an additional $20 million to $40 million expected in 2027. To strengthen our business, we implemented a new category-led operating model and enhanced our commercial and category leadership, adding experienced talent with the capabilities and perspectives required for the next phase of Perrigo's evolution. These changes reflect a fundamental shift in how we operate. Our new structure aligns our decision-making, investment priorities and performance goals, enabling us to better leverage one of our most important competitive advantages, our scale. With more than 250 molecules, our deep retailer partnerships, a robust supply chain and our extensive regulatory capability, Perrigo is well positioned to be a leader in this category. And our new structure focuses our investments on fewer, bigger brands to target faster-growing categories where we have the greatest right to win. These changes are working as demonstrated by our strong market share performance. However, many of the benefits from these initiatives are not yet fully realized and are being somewhat obscured by the headwinds that we expect to ease in the second half of the year. Among those headwinds are softer cough and cold incidence and retailer inventory destocking. Those impacts, along with a $0.26 EPS headwind related to the carryover of prior year manufacturing volume headwinds weighed on first quarter results. As indicated last quarter, prior year manufacturing volume headwinds are expected to result in an unfavorable All In EPS impact of approximately $0.60 in 2026. Again, we believe those headwinds are largely transitory, resulting in 2026 itself being a transition year. As conditions evolve, consistent with our Three-S plan, we are focused on driving improvement in the areas within our control, streamlining our cost base while strengthening our top line growth. With that in mind, let's turn to the assumptions underlying our view of 2026 as a transition year, which largely played out as expected in the first quarter. Coming into the year, we anticipated market softness to carry over into the first half, followed by sequential improvement in the second half. In the first quarter, reduced cough and cold incidence and the impact of macroeconomic pressures, particularly in Europe, led to lower-than-expected consumption levels. We estimate soft cough and cold incidence was approximately a 3.5% headwind to CORE sales. In response to lower consumption, retailers in the U.S. and Europe reduced inventory levels, hampering sales further, resulting in an additional 3 points of CORE sales headwind. However, we, in line with other industry commentary, continue to expect sequential improvement in demand, led by stabilizing seasonal incidence of cough and cold. We also expect retailer inventory levels to positively adjust over time, in line with improved consumption. Our second assumption was our ability to build off our strong market share gains in 2025. We delivered on that expectation with solid market share performance in both store brand and branded products. Third, we expected to grow net sales through four key revenue building blocks: consumer-centric innovation, targeted geographic expansion, continued distribution gains and amplified demand generation. We've made progress across each of these areas in the first quarter, reaffirming our confidence in second half improvement. Turning to our financial results. The first quarter reflects category softness, partially offset by progress in our execution of the Three-S plan. CORE net sales declined 8.3%, driven primarily by softer category consumption in the Self Care segment due to reduced cough and cold incident and retailer inventory destocking. These impacts accounted for nearly 2/3 of the net sales decline. These impacts were partially offset by share-driven gains in the Specialty Care segment, particularly in the women's health category. All In net sales declined 7.2 points, reflecting similar pressures, partially offset by improved Infant Formula performance. Adjusted CORE EPS of $0.40 was impacted by prior year manufacturing volume headwinds and lower net sales volumes, primarily within our Self Care segment. Adjusted EPS results outperformed our expectations, benefiting from the net recognition of recovery of a portion of previously paid tariffs, a lower effective tax rate and benefits from our operational enhancement program. All In adjusted EPS for the quarter was $0.43. Turning to the market environment. Conditions remain challenging in the first quarter as expected. In the U.S., the OTC market declined 4.1 points in value, 2.1 points in volume, largely consistent with fourth quarter levels. European markets turned more negative, declining 3.7% in value and 4.4% in volume. Trends in both the U.S. and Europe were driven primarily by softer consumption demand in the cough, cold and pain categories within the Self Care segment. That weakness appears transitory, driven largely by challenging year-over-year comparisons and lower-than-normal illness levels as well as macroeconomic pressures, particularly in Europe. We expect the category to stabilize throughout the year as comparisons ease and more typical seasonal incidence patterns return in the second half of 2026. To mitigate category pressures, we are focusing on areas within our control. As I noted earlier, in the U.S., Perrigo grew volume share in six of seven OTC categories, and our store brand portfolio extended its streak to 12 consecutive periods of share improvement. Our priority brands gained value share in Europe, driven by strong performance from ellaOne up 200 basis points, Jungle Formula up 140 basis points and Physiomer up 50 basis points. Other areas of strength include Mederma Cold Sore and Opill, which increased 180 basis points and 40 basis points, respectively. Importantly, as we enter the summer period, momentum is building across our seasonal brands in several key European markets. Compeed is strengthening into peak season with impressive share gains and sellout trends supported by earlier activation and excellent in-store execution. For example, in Italy, Compeed achieved market share growth of 550 basis points to 35%. While in France, it is growing well ahead of the category, with Compeed up 160 basis points and our share approaching 36%. This was led by focused investment, improved activation, stronger retailer execution. And this strong performance gives us confidence in our ability to drive growth as demand builds through the summer. As category demand normalizes, we expect the increasing earnings power enabled by this brand strength to become increasingly visible. As we've discussed, we are driving share gains by scaling our CORE capabilities consistently across the portfolio. Nicotine replacement therapy is an excellent illustration of our approach to 360-degree innovation. Our process now develops claims, formulations and regulatory platforms once at the category level, then deploys them holistically across national brands and store brands across formats, geographies and price points. Importantly, this innovation expands the addressable market beyond traditional quitters to include vapers and dual users, allowing us to scale faster and unlock incremental demand without adding complexity. Store brand demand generation is another scalable differentiator for Perrigo. We are the only large-scale store brand supplier bringing national brand demand generation capabilities to retailers, allowing us to partner with retailers and elevate conversations beyond just the procurement price. Retailers are drawn to this program because it builds awareness for their business, it reinforces the perception of quality and equivalents, it drives household penetration and improved retailer profits. Retailers and more and more retailers are asking us to expand these programs across even more OTC categories. Demand generation is highly impactful for Perrigo. When we combine it with strong retail execution, we improve competitive takeaway and share gains. And these gains can be meaningful with a 1 point increase in U.S. store brand household penetration, representing incremental sales of more than $100 million of store brand OTC at retail. Targeted geographic expansion allows us to extend our existing successful initiatives into new areas. By selectively expanding priority brands into new markets, we can drive incremental growth with lower risk, achieve faster payback and higher returns. As a reminder, this is a long growth runway for Perrigo as today, we only serve approximately 5% of global households. Together, these capabilities form a repeatable and scalable growth model. 360-degree innovation expands our opportunity set. Store brand demand generation converts that opportunity into sustained consumption and targeted geographic expansion amplifies the impact, allowing us to scale performance across categories and regions. This is translating into early but significant in-market gains. This really is the outcome of what we have been working towards over the past 3 years, Perrigo sustainable growth model based upon a more focused portfolio that better leverages our core strengths, better leverages our unique asset base, underpinned by a much more effective commercial operating model. In summary, results in the first quarter reflect a very challenging market, but also demonstrates the effectiveness of our strategy. As we move forward, we are focused on building a more focused, disciplined and consistent business. By executing on our Three-S plan, we expect to mitigate current category challenges and drive long-term growth. We are reaffirming our full year 2026 guidance, which we expect to be weighted to the second half. That phasing is supported by clear quantifiable factors already underway. Our strategy is working. We are seeing market share gains. We've achieved a more focused portfolio. We have a more effective and scalable commercial model. I recognize that quarter 1 revenue and adjusted EPS are being driven by external factors that will need to be carefully managed. I'll now turn it over to Eduardo to walk through the financials in more detail. Eduardo Bezerra: Thank you, Patrick. Appreciate everyone joining us today. Before turning to the details of our first quarter financial performance, I want to provide an update on the goodwill impairment. As we discussed last quarter, the reallocation of goodwill following our move to the new reporting units was expected to result in an additional noncash impairment in the first quarter of 2026. And as expected, we recorded a noncash goodwill impairment charge of $331 million based on our goodwill impairment test as of January 1, 2026, which utilized the same underlying aggregate fair value of the business as the 2025 year-end goodwill test. This charge does not impact cash flows, liquidity or the ability to execute our strategy. From this point on, my comments will focus on adjusted non-GAAP results unless otherwise noted. As Eric said, beginning this quarter, we're reporting segments aligned with our new commercial operating model, and our new reporting segments include Self Care, Specialty Care and Infant Formula. Turning to our results, starting with the top line. CORE net sales declined 8.3% year-over-year, driven by softer consumption, primarily in cough and cold and retailer inventory destocking in the Self Care segment. Higher Specialty Care net sales partially offset that weakness driven by performance in our women's health category. On an organic basis, CORE net sales declined 11%. All In net sales declined 7.2%, reflecting the same factors impacting CORE results in addition to modest contributions from Infant Formula and Dermacosmetics business. Currency translation benefited both CORE and All In net sales in the quarter. Looking at adjusted operating income by segment, Self Care was the largest driver of decline due to lower net sales volumes, the carryover impact of prior year manufacturing volume headwinds and unfavorable mix. These factors were partially offset by the net recognition of recovery of a portion of previously paid tariffs and favorable currency translation. Specialty Care benefited from the lapping prior year Opill investments as well as favorable foreign currency, which more than offset the carryover impact of prior year manufacturing volume headwinds. All In adjusted operating income was primarily driven by the same factors as CORE, along with an $18 million impact from Infant Formula due to the carryover of prior year manufacturing volume headwind. These impacts were partially offset by operating income growth in all other segments. Turning to margins. Drivers of both CORE and All In margin changes were consistent with the segment results just discussed. CORE adjusted gross margin declined 160 basis points to 39.2%, primarily due to lower sales volumes, manufacturing volume headwinds and mix. These pressures were partially offset by the net recognition of tariff recovery and favorable foreign exchange. All In adjusted gross margin declined 340 basis points to 37.6% due to the same factors impacting CORE gross margin in addition to the manufacturing volume headwinds in Infant Formula we just mentioned. CORE adjusted operating margin decreased 110 basis points to 12.8%, reflecting gross margin flow-through, partially mitigated by lower advertising promotion spend, benefits from the operational enhancement program we announced in Q4 and favorable currency. All In adjusted operating margin decreased 240 basis points to 11.6% due to the same factors as CORE operating margin in addition to the impact from Infant Formula. First quarter CORE adjusted earnings per share was $0.40, coming in above our expectations primarily to the net recognition of recovery of a portion of previously paid tariffs and a lower effective tax rate. All In adjusted diluted earnings per share declined $0.17 to $0.43 due to the impact of lower sales volumes and the carryover impact of prior year manufacturing volumes in U.S. OTC and Infant Formula. Turning to cash flow. First quarter 2026 cash from operating activities decreased $49 million to an outflow of $114 million due to lower earnings and higher working capital in line with our previous expectations. As a reminder, the first quarter is typically our highest cash usage period amongst the year. Capital expenditures totaled $14 million, and we returned $40 million to shareholders through dividends. Turning to the balance sheet. Cash and cash equivalents were $357 million and total debt was $3.6 billion. During the quarter, we amended our $1 billion revolving credit facility, extending the maturity to 2031. Borrowings under the revolver were used to repay our $421 million Term Loan A, extending our maturity profile with no significant maturities until 2029. We expect to continue to actively manage and optimize our maturity debt profile going forward. After quarter end, we completed the sale of our Dermacosmetics business for upfront cash proceeds of approximately EUR 306 million, which we expect to use to support debt reduction. We remain focused on our disciplined capital allocation, balancing growth investments, deleveraging and shareholder returns. Looking ahead, although category dynamics were softer than expected in the first quarter, our guidance incorporates a wide range of outcomes and gives us comfort in reaffirming our 2026 outlook. We're closely monitoring retailer inventory changes, particularly the destocking activity observed in the first quarter, which we believe is largely related to the current consumption environment. As consumption levels improve, we expect inventory trends to stabilize. We're also actively managing the inflationary pressures related to the geopolitical developments in the Middle East and their impact on consumers and our cost base. To mitigate the estimated incremental in-year impact of $10 million on our cost base, we have implemented sourcing and cost management initiatives, and we will also evaluate pricing actions. As Patrick noted, we continue to expect results to be weighted to the second half of the year with approximately 30% to 35% of CORE adjusted earnings per share in the first half and 65% to 70% in the second half of 2026. This phasing is supported by clear quantifiable drivers, the majority of which are concentrated in the back half. The single largest sales growth contributor in 2026 is expected to be consumer-centric innovation. Approximately 60% of the benefit from innovation is expected in the second half, including the expansion of our Compeed portfolio and the introduction of new Infant Formula offerings. Several of our other 2026 drivers, including distribution gains amplified by demand generation activity with top retailers, targeted geographic expansion and benefits from our operational enhancement program are all expected to be back half weighted. In addition, we anticipate lower interest expense in the second half as we apply the Dermacosmetics proceeds towards debt reduction. In conjunction with those drivers, two of the most meaningful first half headwinds, the carryover impact of prior year manufacturing volume headwinds and a softer cough and cold season are transitory and expected to lap in the second half. As indicated last quarter, prior year manufacturing volume headwinds are expected to result in an unfavorable all-in earnings per share impact of approximately $0.60 EPS in 2026. We experienced roughly $0.26 of that impact in the first quarter. In summary, our outlook is based on clear drivers supporting our second half expectations, many of which are already underway while acknowledging the dynamic macro environment. As Patrick outlined, the Three-S plan is driving tangible improvements, and we're confident that we are positioning Perrigo to generate sustained growth of shareholder value over time. With that, I will turn the call back to Eric. Eric Jacobson: Thank you, operator. We're now ready for questions. Operator: [Operator Instructions] And I see our first question is from Chris Schott with JPMorgan. Ethan Brown: This is Ethan on for Chris Schott. Just to start off, and you touched on this during the call, but as we think about the operating margin recovery for the CORE kind of non-Infant Formula business in the back half of this year and into 2027, can you help level set how much of this is driven by working through higher cost inventory in the near term versus how much will require OTC volumes to rebound and normalize? And then my second question is just any updates you can offer on the Infant Formula strategic review and kind of latest thoughts on the timing more broadly? Eduardo Bezerra: This is Eduardo here. Thank you for your question. So as we highlighted, our operating margin in the first quarter, then as we provided our guidance in the first half of the year would be significantly impacted by the carryover volume variance that's impacting this first half. But also in the second half, we expect to see significant uptake on the market, right, in terms of the recovery of consumption that we're watching very closely, given some of the dynamics going on. And so we expect margin improvement because of the different activities we have. So innovation, continued distribution gains that we have there, also amplified demand generation as well as the opportunistic geographic expansion, and also the ramp-up of the operational enhancement program that will benefit our OpEx and operating margin. So overall, as we look into how we're going to see between the first half and the second half, we're going to see a very meaningful improvement on operating margin expansion because of these different factors. To your second question on the Infant Formula, right? So just giving a little bit of perspective, right? So the business, as we saw today, we had a very -- relatively good performance in the quarter with net sales growing about 2%, driven by higher contract manufacturing and also the store brand and branded formula were a little bit impacted by prior year comparisons, right? So from a market standpoint, we're seeing consumption to be in store brands is slightly improving versus what we had before. So the first thing to your specific question is we're keeping track of the business. And remember, we anticipated that margins would be significantly impacted by the carryover of manufacturing variances. From the overall strategic review that we're carrying and that we started, so the review continues. We're working with our advisers to assess all available options that we talked before between optimizing our network. And to that purpose, we've recently announced a rationalization of our capacity in one of our facilities that will help streamline the business and reduce our costs. But also, we're looking to the other options in terms of partnership and divestments. There's nothing more to share at this stage, and we continue with that, and we expect to provide further updates as we progress through the year. Operator: We have our next question from Susan Anderson with Canaccord Genuity. Susan Anderson: It's nice to see the volume share gains in the store brand in the U.S. I guess maybe if you could give some color on what's driving that share gain? What are you doing differently with retailers than you were doing before? And then also, I think maybe you said it was across most categories, but if you could talk about which categories you're seeing those gains across the portfolio? Patrick Lockwood-Taylor: Susan, this is Patrick. What's driving those share gains? So we're winning more contracts. So as you know, in 2025, I think it was about $100 million of net contract wins. Some of those are rolling out now. So we're taking a greater share of store brand contract volume. That's number one. Number two is not only do we want a greater share, we want to grow store brand share of the overall category. This basically is where we start to drive equivalents and the value proposition with end consumers, frankly, using brand-building marketing capability that we apply to our national brands. That grows consumer awareness and it grows household penetration of store brand. There's two critical things. You want a greater share of store brand and you want store brand to have greater share of the marketplace. That provides a double win for us. So that's really what's growing. In terms of -- I think I understood your question of which categories are growing. We compete in seven OTC categories. And I think in the presentation deck, we actually outlined which are growing. And I think -- so we're growing share in all of them with the exception of skin where there was some temporary supply disruption, but it's a very small business for us. The rest, which are the major categories, we're growing our share of store brands. So allergy is up 180 basis points, pain 110 basis points, digestive health is up 30 basis points, and probably the standout performance is in nicotine replacement therapy. And I heard this referred to by a competitor, where we're actually seeing a 540-point volume share growth this calendar year-to-date. So it's broad-based and it's substantial. Susan Anderson: Okay. Great. That sounds good. And then maybe if you could talk about how you're planning for cold/cough in the back half of the year. I guess, should we expect that to finally return to growth, particularly as we kind of lap some easier compares from last year calendar year? Or are you kind of thinking about it being more flattish? And then I guess final question, just are you thinking about any pricing for the back half of the year, particularly as we're seeing maybe some more inflationary pressures now? Patrick Lockwood-Taylor: Thank you. On cough/cold, I've been trying to predict cough/cold season for a quarter of a century, and I get it wrong as many times as I get it right. This was an abnormally weak cough/cold season, both in the U.S. and many countries throughout Europe and therefore, in totality. The rational forecast is always to take an average season. If we take an average season for '26, '27, that's going to be materially stronger than the season we've just been through. I think that's an entirely logical outlook and forecast. And the second part of your question was? Susan Anderson: Just on pricing, I guess, yes. Patrick Lockwood-Taylor: Pricing. We are -- so firstly, the inflationary pressures that we've seen from the Middle East have been very moderate for us, and we will just manage those through sort of normal operations. But we are starting to look at pricing depending on what happens with other commodity prices, et cetera. So yes, I would say we're in active consideration of that, both in the international branded business and our store branded business across both regions, yes. Eduardo Bezerra: I think the important thing as well, just to add to that point, Susan, is in times of inflation, et cetera, what we're going to be watching closely is the potential for pickup on store brands, consumption, right? So it's something that has been erratic over the past years, right, mainly because of the still strong, let's say, household wallet. Only the low-income consumers have been suffering the most. And usually, they are the ones that tend to have a direct correlation with store brand. But if that starts to impact further, the trade down could accelerate. And that's an opportunity that takes place, we're ready to take advantage of that. Operator: And we have our next question from Keith Devas with Jefferies. Keith Devas: Maybe just zooming out a little bit and just returning back to the macro picture as it pertains to consumer health. I know you called out some expectations for the second half to be better. Just hoping you can add more context on exactly what's driving that. I think we're seeing across branded and store brand consumption be a little softer than anticipated for longer than we would have thought. And so kind of just want to double-click on what's embedded in your expectations for the second half to be better? And is it maybe better visibility into the contract wins or the destocking easing. But just kind of unpacking that a little bit, I think, would be helpful. Eduardo Bezerra: Yes. Thanks, Keith. So remember, as we highlighted during our guidance, right, so incorporate a wide range of outcomes there. So as we look into that piece, so there are four key areas that we are driving a lot of consumption opportunities. So from the innovation side, right? So we mentioned a little bit about Compeed portfolio as well as on the Infant Formula side, bringing new offerings, including one focused a lot on the key competitor in the market right now with an organic formulation. Continued distribution gains. So we continue to focus a lot on that in the marketplace with further competitive take rate, and also the demand generation, right? So remember, we talked last year some of the examples like what we did on the [ Lifix ] in cough and cold and allergy. So we are seeing more and more retailers wanting to amplify that across their portfolio. And so we believe that's going to be a good opportunity to attract more consumers into our specific categories on store brand as well as the geographical expansion on our priority brands, right? But again, we acknowledge the recent developments, right? So we acknowledge some retailer destocking that took place in the first quarter. We believe that is mainly related to the soft cough and cold that they wanted to be more pragmatic on managing their cash in that sense and adjusted their inventory levels, but that's something we need to track closely. And the other thing as well is to what extent the Middle East geopolitical situation could further evolve into inflation and how could that impact consumption in the second half. So we still believe there will be a recovery because of the comparison last year was a significant decline, but we're watching that closely. I don't know, Patrick, anything you wanted to add as well? Patrick Lockwood-Taylor: Yes. I think that's right. I mean, fundamentally, there's not been a big shift in incidence across categories. Household penetration is quite stable from one -- for us, one small segment in an area of pain, but consumers are moving to alternate forms in pain from solid pill to creams, et cetera. So no radical change in incidence or household penetration. Plus, as we explained, the effects last year started to be seen in quarter 2. So we're very soon lapping the beginning of that category contraction. And therefore, just as a function of the math, it just stabilizes itself. There hasn't been a dramatic extraction of value that we can see that's going to continue into the remainder of the year. So again, the critical point, this is always going to be quite an unpredictable range this year. So we constructed guidance with a broad range of outcomes. You've seen what our sales guidance is for the year. And you heard last quarter how much of our demand generation activity and cost-saving activity is weighted into the second half. That helps insulate our outlook. So at the moment, we're confidently reaffirming our '26 guidance. Operator: We have our next question from Daniel Biolsi with Hedgeye. Daniel Biolsi: I was wondering if you could speak to the consumers' purchasing behavior in-store versus online for branded versus store label products in Self Care categories. Do you think there's like a notable difference with your largest customers? Are they doing a good job of highlighting store label alternatives in their searches? Because like when I look at the largest retailers, there's quite a big difference between them when I search for Advil versus ibuprofen, for example. Patrick Lockwood-Taylor: Good question. Some of our higher shares in store brand do tend to be on e-commerce interestingly. I think collectively, we can do a better job on store brand representation on e-commerce with some of our big traditional retailers in terms of landing pages, as you've just said, but also on some of the advertising. As you know, they buy equivalent and they can be a much better value at a time when more and more consumers are seeking value. I think that execution can be stronger. But -- so yes, I think the traditional e-commerce players playing -- doing it better, enjoy higher shares, actually seeing more and more competitive takeaway within that channel as well. Eduardo Bezerra: Yes. And Daniel, just to give you an important example like in women's health and Opill, right, in Q1, e-commerce grew like almost 30%. So that's an area where it's going very, very well. So we're seeing a very good uptake, while the sales on Opill were double-digit growth of plus 12%. So you see how e-commerce is taking a very important piece of that growth. Daniel Biolsi: And then can you share what the Board's thoughts are on the dividend currently? Eduardo Bezerra: Sorry, could you repeat that? Patrick Lockwood-Taylor: The Board's dividend. Eduardo Bezerra: Yes. So as we talked in the last quarter, we continue with our capital allocation plans, right, continue to invest into our base business as well as focusing a lot on debt reduction as well in keeping our shareholders' return, right? So we're going to keep that same focus going forward. And the Board will continue to assess that on a quarterly basis, what's our position to make sure we optimize our capital allocation and that they decided to keep that, and we're going to continue to have those discussions for the remaining of the year. Operator: There are no further questions at this time. I will now turn the call over to Patrick Lockwood-Taylor for closing remarks. Patrick Lockwood-Taylor: Thank you very much. And again, thank you, everyone, for joining us. So to close, I want to put this quarter into clear perspective. The work we've done over the past several years is driving meaningful change at Perrigo. We are a more focused, disciplined and consistent business, and that stronger foundation is enabling us to manage through a challenging environment more effectively than we could have done in the past. We are delivering on our promises. We completed the Dermacosmetics divestiture and applying those proceeds towards debt reduction. We are executing our cost-saving program in line with to slightly ahead of the expectation. We are simplifying our portfolio. We're strengthening our operations, including continued progress in Infant Formula. At the same time, we are delivering material share gains, reinforcing that our commercial strategy is working. But this was not a perfect quarter. Softer cough and cold demand, inventory destocking and European consumption pressures weighed on results. But importantly, our improved operating capabilities enabled us to mitigate those pressures and capitalize on opportunities where they emerge as demonstrated by the fact that both EPS and our share gains were ahead of our expectation. As we have moved into the second quarter, we're also encouraged by the continued momentum in market share and in-market execution that we are seeing across the portfolio. That progress gives us growing confidence as we move through the year and reinforces our conviction in our 2026 outlook and long-term trajectory. We remain focused on disciplined execution, controlling what we can and building enduring value over time. Thank you very much for your continued interest and support. Operator: Thank you, ladies and gentlemen. This concludes today's conference. We thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the conference call to discuss Holley's First Quarter 2026 Earnings Results. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Holley. And as a reminder, this call is being recorded and will be made available for future playback. I would now like to introduce your host for today's call, Anthony Rozmus, with Investor Relations. Please go ahead. Anthony Rozmus: Good morning, and welcome to Holley's First Quarter 2026 Earnings Conference Call. On the call with me today are President and Chief Executive Officer, Matthew Stevenson; and Chief Financial Officer, Jesse Weaver. This webcast and the presentation materials, including non-GAAP reconciliations, are available on our Investor Relations website. Our discussion today includes forward-looking statements that are based on our best view of the world and our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our SEC filings. This morning, we will review our financial results for the first quarter of 2026. At the conclusion of the prepared remarks, we will open the call up for questions. With that, I'll turn the call over to our CEO, Matthew Stevenson. Matthew Stevenson: Thank you, Anthony, and good morning to everyone joining us today. Before we get into the first quarter details, I wanted to provide some context for the quarter. As discussed on our last earnings call, Q1 began with a couple of temporary headwinds. Distributor inventories were elevated coming into the year as partners work towards their year-end rebate targets and stocked up in advance of our January 1 price increase. We expected this inventory to normalize through January and February, but more severe winter weather slowed retail activity and delayed that process, shifting some demand out of the quarter. That said, here's the key takeaway for Q1. Beginning in week 8, as weather conditions improve and channel dynamics normalize, we saw steady improvement in purchasing patterns. We exited the quarter with momentum and early Q2 trends are encouraging with healthier inventory levels across the channel and improving order activity. The spring selling season is building. More importantly, the underlying business performed solidly. Adjusted EBITDA remained essentially flat year-over-year at $27.3 million despite the revenue decrease, reflecting disciplined execution. Net income increased, margins expanded, and free cash flow improved. We are also making progress on key strategic initiatives, including advancing our new portfolio rebalancing efforts and closing the acquisition of HRX. While we're investing in innovation, deepening our connection with enthusiasts and competing to gain share, we're also prioritizing cost control and portfolio optimization. We believe that this combination positions us well for the balance of the year. Let's please turn to Slide 5. Net sales were $147.3 million, down 3.7% versus the prior year, reflecting the elevated partner inventory levels and weather impacts we just discussed. Adjusted EBITDA was $27.3 million, in line with the prior year period. Holding EBITDA flat on lower revenue reflects the progress we've made in our continuous improvement efforts, as adjusted EBITDA expanded 71 basis points year-over-year to 18.5%. Free cash flow was negative $6.3 million, an improvement of approximately $4.5 million year-over-year, still negative for the quarter, but trending in the right direction, and we expect meaningful improvement through the remainder of the year. We delivered $6.5 million in cost savings in Q1 through purchasing discipline, tariff mitigation and operational improvements. Three of the 4 divisions grew, and 12 brands performed positively across B2B and D2C. That reflects the breadth of the portfolio working as intended. Strategically, we closed HRX, and we are advancing our portfolio rebalancing initiative, which we expect to generate more than $15 million of proceeds to reinvest in higher growth areas of the business. Slide 6 provides additional insight into recent highlights across the business. Since our last earnings call, we've introduced several new products, including our engine swap solution packages and the Holley performance car care line, both of which have been well received by our enthusiast customer base. On the operational front, we continue to make solid progress. We maintained approximately a 92% in-stock rate on our top 2,500 SKUs and delivered $3.8 million in purchasing and tariff savings and $2.7 million in operational improvements during the quarter. We also reengaged our M&A efforts with the closing of HRX, -- in further slides, I'll provide more detail on its strategic importance and the broader approach we're taking to rebalance our portfolio. Slide 7 breaks out the Q1 divisional performance, and I think the story here is clear once you understand the context. American Performance declined 9.7% in the quarter. This segment saw the most impact from weather and some temporary inventory dynamics at a small number of key partners. As conditions improved over the course of the quarter, demand trends strengthened, and we expect the business to return to growth. Truck and Off-Road was up 3.8%, a solid result given the market dynamics. The truck category continues to have real momentum and the product introductions we've been building out over the past year are gaining commercial traction. Euro and Import was up 1%. This business would have been stronger, but some product availability constraints earlier in the quarter, which have since been addressed, limited performance. Safety and Racing grew 10.2%, driven by the Snell 2025 helmet certification cycle, strong demand for our Stelo brand and continued strength in motorcycle safety. There is a solid foundation here as we move through the year. Three of our 4 divisions delivered growth, with the fourth impacted by a defined set of weather and inventory-related factors that are normalizing and are actively improving. Our divisional operating model anchored in clear prioritization, accountability and resource alignment continues to support consistent progress across the company. Slide 8, which we have shared in the past, outlines our long-term strategic framework, which continues to guide how we operate and allocate resources. It's built around 8 pillars, starting with making Holley great place to work, then premier consumer journey, Trailblazing and trusted partner, product innovation and portfolio management, global expansion in new markets, transformational M&A, funding the growth, our operational improvements, all culminating with delivering results. The value of a framework like this is how it keeps the organization aligned and focused, particularly in a more dynamic environment. Through the first quarter, our teams remain disciplined, stay focused on execution and continue to deliver against our priorities. You'll see that reflected in our initiative progress. Slide 9 outlines some of the highlights for each of these initiatives within the strategic framework for 2026, which we introduced on our last call. There was solid underlying progress across these initiatives in the first quarter. This includes innovative new products such as our package engine swap solutions and the new car care line, along with continued momentum in national retail accounts and international markets. On the operations side, the team is tracking ahead of our 2026 targets, delivering meaningful material cost savings, mitigating tariff exposure and driving improved efficiency and productivity across our manufacturing facilities. Overall, these efforts position us well to continue execution against our plan and delivering on our objectives for 2026. With that, let's turn to the detailed initiative tracker on Slide 10. The strategic initiative tracker provides a clear view of our Q1 performance, highlighting both areas of progress and those impacted by temporary external factors. Trailblazing trusted partner was down $7.9 million versus the prior year, reflecting elevated inventory levels at a handful of larger accounts and slower seasonal sell-through due to weather. Encouragingly, roughly half of the B2B portfolio delivered positive momentum, and our national retailer channel grew approximately 10%, supported by improved SKU penetration, enhanced product data, expanded e-commerce presence and enhanced in-store placement. Now, as inventory levels are normalizing and seasonal demand builds, we are seeing growth in the B2B channel. Premier consumer journey was essentially flat to the prior year. Direct-to-consumer performance was impacted by weather early in the quarter, but improved as conditions normalized, returned to year-over-year growth in March. Third-party marketplaces led by Amazon delivered growth of approximately 3%. The improvement in March is a positive indicator as we move into the next quarter. Product innovation contributed approximately $3.6 million, driven by solid performance in safety with new motorcycle helmets and the Snell 2025 motorsports offerings as well as in modern Truck and Off-road with new tuning solutions. Global expansion in new markets contributed approximately $2 million, including $1.4 million from international distributor growth with continued expansion planned in Q2 and approximately $0.6 million from the globalization of powersports and safety categories, led by the Simpson brand and motorcycle helmets. Fund the Growth delivered approximately $6.5 million in savings, including $3.8 million from purchasing initiatives and tariff mitigations and $2.7 million from operational improvements. Our focus on managing input costs and tariffs continues to contribute positively to results. Overall, the tracker highlights our disciplined execution and strategic progress, effectively navigating near-term external pressures while delivering strong performance across new product innovations, expansion into new markets and cost reduction initiatives, all progressing as expected. Now Slide 11 outlines our new portfolio rebalancing initiative, which we view as an important driver of long-term value creation. The first step is to exit brands that are not meeting our growth, profitability or strategic criteria. These businesses tend to consume a disproportionate amount of time and capital relative to their returns. Second, these actions along with facility consolidations help simplify the portfolio, reduce complexity and improve free cash flow and cost structure. Third, we redeploy that capital into disciplined bolt-on acquisitions. Our focus is on businesses with attractive growth profile, strong margins and positive cash flow characteristics. The recent HRX acquisition is a good example of this approach in action. Finally, over time, we anticipate these higher growth additions will contribute to improved earnings and cash generation, supporting further reinvestment and balance sheet strength. We are targeting 5 to 10 bolt-on acquisitions over the next 24 months. While this is a focused goal, we believe we have the pipeline and processes in place to execute effectively. Overall, portfolio rebalancing is a key component of how we are positioning the business for sustained long-term growth. Slide 12 outlines our site and brand optimization program, which represents the operational component of our broader portfolio rebalancing efforts. As part of this initiative, we are in the process of exiting 5 brands and consolidating 5 facilities, and we are approximately halfway through this work. This includes reducing our warehouse footprint by approximately 100,000 square feet and streamlining our workforce by about 9%. We are also rationalizing roughly 11,000 SKUs, about 25% of our portfolio by count, reflecting a focus on reducing complexity while maintaining core capabilities. From a financial standpoint, we expect our portfolio rebalancing efforts to generate more than $15 million of one-time net cash, along with adjusted EBITDA margin expansion of approximately 75 to 150 basis points, including at least $1 million in annualized benefits. We also expect a modest improvement in leverage of around 0.15x and approximately a 5% improvement in inventory turns. Overall, we are creating a more streamlined and focused operating model, enhancing efficiency, strengthening margins and improving cash generation while positioning the business around its strongest opportunities for growth. Slide 13 outlines our M&A acquisition profile, reflecting a disciplined and thoughtful approach to bolt-on acquisitions as well as how these efforts connect to our broader portfolio optimization work. As we streamline the business through our site and brand optimization initiatives, reducing complexity and generating incremental cash, we are focused on redeploying that capital into higher growth opportunities that we can scale over time. Within M&A, we are primarily targeting founder-led businesses. These companies often bring strong brand equity, deep customer relationships and a proven operating capability. Our role is to support and accelerate that foundation through our distribution network, commercial infrastructure and broader customer reach. We structure transactions with alignment in mind, including shared business plans and incentives that encourage continued growth post close. Our financial criteria is consistent and disciplined. Typically, $5 million to $10 million in revenue at acquisition, established double-digit revenue growth and the ability to achieve EBITDA margins of 20% or greater post synergies with positive free cash flow. These are not turnaround situations, but rather businesses with solid fundamentals where we believe that we can help unlock additional value. Strategic fit is equally important. We prioritize businesses that align well with our existing portfolio, where we can leverage shared customers, channels and capabilities to drive incremental growth. Overall, we believe that this approach allows us to take the benefits of our optimization efforts and reinvest them in scalable, higher-growth brands. Slide 14 provides additional detail on the HRX acquisition, which is a strong example of the M&A framework I just outlined in action. HRX is based in Turin, Italy and specializes in premium racing apparel and safety equipment, including suits, gloves, shoes and teamwear. Product line is FIA homologated and the business has developed a proprietary digital platform that enables scalable customization, an important differentiator in a category where fit, performance and certification are critical to the customer. The company is founder-led with established double-digit revenue growth, strong EBITDA margin characteristics and positive free cash flow. It also has a growing international presence, particularly in Europe, with additional opportunities as we leverage Holley's broader distribution and commercial capabilities. From a strategic standpoint, HRX is a strong fit within our Safety division. It enhances our position in motorsport safety, adds premium manufacturing capabilities and expands our presence in the European market, an area we see meaningful opportunity for growth. More broadly, HRX reflects the type of disciplined strategic aligned acquisition we are targeting. It demonstrates how we can deploy capital generated through our optimization efforts into higher growth opportunities, and we expect to continue pursuing similar transactions over time. So stepping back, while Q1 was impacted by temporary external factors, primarily weather and channel inventory, the underlying business performed well. We expanded margins, improved cash flow and made meaningful progress on our strategic priorities. And as conditions normalized, demand improved, and we exited the quarter with momentum that's carrying into Q2. With that, I'll turn it over to Jesse to walk through the full financials and provide additional perspective on the 2026 outlook. Jesse? Jesse Weaver: Thank you, Matt. Picking up on Matt's comments, the weather and channel inventory dynamics played out as he previously described. And even with those factors, we delivered strong financial performance in the quarter. This result reflects our consistent commitment as an organization to our financial priorities. Let's take a look at these on Slide 16. Our financial priorities for '26 remain consistent: restore historical profitability, improve working capital discipline and continue to deleverage. On profitability, we continue to see tangible progress from disciplined operational execution. In the first quarter, continuous improvement initiatives delivered $2.7 million of benefit, supporting continued year-over-year adjusted EBITDA margin expansion for the quarter. These efforts are centered on optimized staffing, manufacturing and distribution efficiencies and targeted facility and network cost actions. For full year '26, we continue to expect $5 million to $7 million of additional operational improvements, reinforcing structural margin expansion. Turning to working capital. Inventory was up modestly in Q1, primarily reflecting Q1 sales performance. The actions we put in place starting in January around improved forecasting, right-sized safety stock and a more just-in-time approach on high velocity SKUs are starting to pay off in Q2, and we continue to target $10 million to $15 million in inventory reduction for the year. On the balance sheet, deleveraging remains a core focus. We ended the first quarter at 3.84x net leverage, down 0.48x from a year ago. Based on current trends, we expect steady progress toward our year-end target of below 3.5x. Our actions across operations, working capital and the balance sheet are strengthening the fundamentals of the business. We believe this positions us well to drive sustained profitability, generate free cash flow and further enhance balance sheet flexibility over the course of 2026. On Slide 17, we'll walk through our key financial metrics for the first quarter. Net sales for the first quarter were $147.3 million versus $153 million in the same period a year ago. Gross profit was $60.7 million in the quarter compared to $64.1 million in the same period last year. Gross margin for the quarter was 41.2%, a decrease of 65 basis points versus 41.9% in the prior year. Margin compression was driven by fixed cost deleverage, partially offset by operational efficiency gains. SG&A, including R&D for the first quarter was $39.4 million versus $40.8 million in the same period last year. The decrease reflects improved efficiency in legal and marketing spend as well as reduced outbound freight from lower sales volumes. Net income for the first quarter was $7.3 million, a $4.4 million improvement compared to $2.8 million in the first quarter of '25. Adjusted net income in the first quarter was $5.7 million versus $2.6 million in the same period last year. Adjusted EBITDA for the first quarter was $27.3 million, in line with the prior year. Adjusted EBITDA margin was 18.5%, a 71 basis point improvement versus 17.8% in the first quarter of '25. On Slide 18, we improved our free cash flow in the first quarter year-over-year by $4.5 million. Similar to last year, first quarter free cash flow is expected to be the low point in the year. And with the elevated inventory levels in the quarter anticipated to come back in line in the second quarter, we expect Q2 free cash flow to meaningfully improve quarter-over-quarter, furthering our progress on leverage, which I'll walk you through on Slide 19. Covenant net leverage ended the first quarter at 3.84x, down from 4.32x a year ago. We exited 2025 below the 4 turn target we set during the year, and we expect to be below 3.5 turns at the end of '26. This progress reflects a sustained commitment to margin improvement, working capital discipline and disciplined capital allocation rather than reliance on any onetime actions. I note that leverage moved up modestly from year-end, reflecting the seasonal working capital build in the HRX acquisition. We expect the trajectory to resume downward through the balance of the year as the team's initiatives on working capital are expected to begin generating incremental free cash flow. We ended the quarter with $33.1 million of cash on hand and $10 million drawn on the revolving credit facility. The revolver draw was taken proactively to fund the final [indiscernible] payment and the HRX acquisition. We retain substantial availability under the facility and ample liquidity to run the business, and we plan to fully repay the revolver in the coming weeks with cash on hand. Overall, we have come a long way in strengthening the balance sheet with continued progress expected during the remainder of the year. We remain committed to a conservative financial position using free cash flow to continue deleveraging while preserving flexibility to support disciplined bolt-on acquisitions. Turning to our '26 outlook. Our core business revenue range is unchanged. We are updating full year net sales guidance to $610 million to $640 million which reflects the net $15 million revenue reduction tied to the portfolio optimization actions that previously discussed. Importantly, our '26 adjusted EBITDA guidance is unchanged at $127 million to $137 million. The portfolio optimization is expected to be slightly accretive to adjusted EBITDA on a net basis while generating more than $15 million of incremental cash and reducing operational complexity through the SKU rationalization Matt outlined. Capital expenditures, depreciation and amortization and interest expense ranges are also unchanged. Q2 is starting out on a positive note with mid-single-digit growth in April, supported by winter being behind us and normalizing inventory at our distribution partners. We view that as a constructive signal for the balance of the quarter. And with that, we will open the line up for questions. Operator: [Operator Instructions] We take the first question from the line of Brian McNamara from Canaccord Genuity. Brian McNamara: Apologies if I missed this in the prepared remarks, but what was the gap in Q1 sell-in versus out-the-door sales? And what was the actual Q1 core sales growth? Jesse Weaver: So Brian, we didn't talk about the core because in this particular quarter, all the sales were core. We weren't rolling over anything in Q1. So what you're seeing reported in the down 3.7% is all core. I would say versus out-the-door sales, out-the-door sales were very strong within the quarter for our distribution partners. And we're probably in the plus 4% range. And I think that kind of gets to some of the remarks Matt and I had on the call, which is between the combination of weather, which we're estimating probably accounts for 3% and then the inventory kind of coming into the quarter a little stronger or heavier than we would have liked, that gets you to another 4% that kind of bridges the gap there. Brian McNamara: Great. That's helpful. And then on the portfolio optimization, I'm sure you guys consistently review the portfolio. But I guess what drove this decision in terms of the next set of brand and SKU exits? And what brands are you culling if you care to reveal them? Matthew Stevenson: Yes, Brian, thanks. This is Matt. Yes, we constantly look at the portfolio just to see where business has taken a disproportionate amount of resources compared to the contribution they offer. And there were some things on the bubble and just the changing environment relative to freight rates, tariffs, we monitor that closely. And these businesses do not fall in the bucket of performance or offer that true competitive differentiation and scalability that we look for in the market. So we've been looking at these. There was nothing previously that really stood out. But I'd say over the last 6 months, these businesses came more into focus as well as the growth opportunities on the other end to reinvest those proceeds into these higher-growth businesses. Brian McNamara: And then just finally on M&A. Your renewed commitment there is pretty noteworthy. I think HR was your first deal in like 3.5 years. I'm assuming that doesn't happen unless you have confidence in your base business? And is the sales contribution from HRX this year material and then I'm done there. Matthew Stevenson: Yes. On HRX, we're really excited. It's a great business and fills an opportunity in our portfolio. For competitive dynamics, we're not giving specifics into the size of that business. But generally speaking, Brian, in the prepared remarks that those types of businesses that are in that range, the $5 million to $10 million of top line revenue, double-digit EBITDA, high growth rates, et cetera, that it squarely fits in that bucket. Operator: We take the next question from the line of Christian Carlino from JPMorgan Chase & Company. Christian Carlino: You had talked about the difficult channel inventory position and the storms pressuring some of the orders from the distribution partners when you reported in early March. So I guess, could you talk through more, I guess, what drove the miss versus your expectations? Did you expect a more healthy ramp of orders into March that didn't materialize maybe due to the headline shock of gas prices and consumer sentiment? Just any further color on that. Matthew Stevenson: Yes. Thanks for the question, Christian. Yes, as Jesse mentioned on Brian's question there, I think it was the Q&A in the last call, we talked about, hey, we think about 2% to 3% of the growth in Q4 normally would have fell into Q1 due to more working days and some of our distribution partners leaning in to hit their rebate targets. That ended up being from what we surmised here, probably north of 4%. And although, as Jesse just commented, the out-the-doors were healthy, those weeks really impacted the sellout rates in late January and early February at some of our key partners based on the weather. You got to remember, there's a bit of a seasonality effect in our business. People start working on their cars a lot more earlier in the South that really had unprecedented weather conditions. And we saw that by state in our D2C business as well and of course, impacted our D2C business in those weeks. Christian Carlino: Got it. That's really helpful. And I know it's small, but one of the businesses you sold was Arizona Desert Shocks, -- and I think that's been a priority growth vertical in the past couple of years. So is it that maybe the vertical simply isn't growing what it was in the post-COVID days? Or is it still a priority, but there was something specific about that business that didn't make sense? And I guess more broadly, it seems like with the bolt-ons that you're planning, it's more about maybe filling in gaps in the portfolio versus expanding the TAM and growing into new verticals. So I guess could you just talk a bit more about the broader M&A philosophy and sort of what multiples are you looking to pay for these bolt-ons? Matthew Stevenson: Yes. So on Arizona Desert Shocks, I mean, great brand, great team. But effectively, what we found is the scalability of that business where they concentrated on really high-end racing shocks was just something that was not scalable. And so when we looked at that business and the great team down there, it just made sense to return that business back to its former owner. But that is a segment that the core more of OE replacement plus that you see in Fox and King and Bilstein and other things, it is a nice growing segment. We were just at the very upper end of that and we're just missing the meat of what that market truly is. Now when you take a look at HRX, I mean, you saw it in the numbers here, and you saw it in the fourth quarter of '25, our safety business is growing really nicely. And when you look at our portfolio, one of the things that was really an extension of it here was getting into more European kind of fit design racing suits that really are the preferred cut and look of racers around the world. We have, of course, racing suits with Simpson, and those are more of the Americana, NHRA, NASCAR-type suits and HRX filled an opportunity for us for FIA suits in that aesthetic around the world. So we're very excited about the business. It's growing really nicely. We've got a great team over there. We're happy to have part of the family. Operator: We take the next question from the line of Phillip Blee from William Blair. Olivia May Witte: This is Olivia Witte on for Phillip. First, I wanted to ask, could you talk about your exposure to rising transportation costs as well as changes in tariff policy? Do you have any concerns there? And are you embedding any price increases into your guide to help offset? Matthew Stevenson: Olivia, thanks for the question here. Yes, just based on what's going on in the kind of the macro environment, we're seeing some increases relative to freight and some other PPV coming through on resins and other components driven by some of the increases in oil prices. So we'll be looking to take a moderate price increase. We're still finalizing the exact number, somewhere around the mid-June time frame and give our distributors ample notice in advance. When we look at the tariff landscape, of course, there's been a lot of puts and takes over time on there. So some of the IPAs were reduced, of course, but that really was the minority of our tariff costs on an annual basis. Those got reduced. Other tariffs came in, ended up being somewhat of a wash overall when you looked at our overall tariff exposure on an annual run rate. Olivia May Witte: Okay. Great. That's helpful. And then could you also talk about -- obviously, the first quarter was choppy across the board, broader retail environment with weather and whatnot. But curious how you view your performance versus the industry during the quarter. Do you think you maintained the level of share gains that you saw during the fourth quarter? Matthew Stevenson: Yes. I mean, ultimately, the out-the-door is a true testament, our consumers preferring our brands and buying our products. And as Jesse commented there a few minutes ago, the out-the-doors, generally speaking, are pretty healthy when you take out the weather effect. So as we're -- we continue to maintain share in our key categories, we're seeing growth in other categories. So overall, we think that momentum we've built over the last 12 to 18 months is continuing. And just we had this temporary effect of the weather that, as you just commented, we're seeing in a lot of consumer businesses in the first quarter. Operator: We take the next question from the line of Joseph Altobello from Raymond James. Martin Mitela: This is Martin on for Joe. I just wanted to quickly touch on the weather impact. You've quantified around $3 million. I'm wondering if you view that as completely lost? Or could we see some recovery of it sort of in the second quarter? Matthew Stevenson: I think ultimately, Martin, we got to see how the quarter continues to play out. As we sit here in early May, April was over 6% growth, right? So it was a nice recovery going in the month of April, and we're seeing those demand trends stay consistent into May. So ultimately, we got to see if that demand washed out of the quarter completely or it's recoverable here as we go through the remainder of the year. Martin Mitela: And just really quickly touching on the guidance, you've taken down the sales guidance a bit. Is that entirely the product optimization? And just sort of have you seen any kind of retailer concern on consumer confidence because of the Iran war and the increased energy pricing? Jesse Weaver: Yes. This is Jesse. Good question. On the guide adjustment, that's purely the net impact of the portfolio optimization. So that includes both the businesses that we've identified that we need to find new homes for, offset by what we're getting -- picking up in HRX. And then on the question around retailers, can you restate that one? Martin Mitela: Yes. Just have you had any concern from retailers about consumer confidence? I think you've said at least ordering patterns have normalized, but are you hearing anything about consumer confidence concerns? Matthew Stevenson: Yes. I think our large customers and partners, they read the headlines and those like Michigan Consumer Confidence Index and such. But at the same time, they're reporting to us to sellout, generally speaking, are good. And the enthusiast customer base, this is a passion for them, right? This isn't something they do every 5 to 10 years or like some of these other consumer durables, like this is their thing. This is what they go and do in the evenings and the weekends. This is what they do with family and friends. They work on car modifications or they go race on the track or do they go road motorcycles, parts of our business. So we're cautiously optimistic. Of course, with the extended conflict in the Middle East, we've got to see how that plays out. But right now, our large partners aren't reporting outside of the weather impact, any negative impact so far. Operator: We take the next question from the line of Joe Feldman from Telsey Advisory Group. Joseph Feldman: With regard to the portfolio rebalancing, did any of that happen already in the first quarter? Did that impact any sales in the first quarter? And how should it impact, I guess, each of the next few quarters? Is it ratable? Is it all at once in the second quarter? Or how should we think about it? Matthew Stevenson: Joe, it's a great question. So for Q1, no impact really in Q1. I would say for Q2, Q3 and Q4 to kind of put to the $15 million on the top and bottom end of the guidance that was adjusted specifically for this activity. You probably see about $1 million in Q2 and about $7 million in Q3 and $7 million in Q4 the one caveat to that is, obviously, this is our current estimate of timing of when these transactions would take place. But right now, that's our current pacing. And we'll obviously update as we go forward throughout this year on an apples-to-apples comparison, which as you can see in our guide, that hasn't changed at this point. The range is still the 2% to 7% on the core business, which would exclude the impacts of those pieces. Joseph Feldman: Excellent. That's helpful. And then with regard to the bolt-on acquisitions that you guys are talking about, is that contemplated in the CapEx guidance that you gave? Or is that going to be incremental? Or I guess, how do we think of that portion of it? Matthew Stevenson: Yes. The CapEx guidance would not account for any bolt-on acquisition activity as it currently is laid out. I would say to Matt's earlier comments, these are businesses that we feel like have sustained long-term double-digit growth trajectory, and they're in the relatively small range. I mean, we're talking $5 million to $10 million with huge upside and things that we feel very confident we could fund with free cash flow. So they're not in the guide at the moment. But as they come along, we will absolutely be funding those with free cash flow. Operator: We take the next question from the line of Bret Jordan from Jefferies. Bret Jordan: Contribution year-over-year in same SKU price? Matthew Stevenson: Pricing was in the mid-single digits, Bret, from a price realization, similar to kind of how we were pacing more and more throughout the end of last year, so mid-single digits. Bret Jordan: Okay. And then I guess the 12 brands that you saw growth, could you sort of give us just as perspective, how many brands in total you are running, I guess, post the SKU cull here? Matthew Stevenson: The ones when we talk about the SKU rationalization, Bret, there are only about 5, relatively speaking, in that bucket. But when we talk about our lifestyle and power brands, it's roughly about 20 that we really concentrate across our 4 divisions and through our organization. And you saw nice growth in some of the brands. In my prepared comments, I commented Euro was a bit behind just for some product availability because Q4 demand was quite strong. So that limited some of the growth. You saw nice growth in safety and growth in Truck and Off-Road. And the decline there in American Performance was really just a concentration of inventory at some key partners that primarily focus on American Performance. So that's where you saw the differences across those 4 divisions. Bret Jordan: Okay. And I guess a quick question on HRX. I guess, international distribution, are there other brands that you have in your portfolio that you can lever into the HRX distribution? Matthew Stevenson: I'd say I'd look at it, Bret, in a broader context. International opportunity for our organization, we believe, is quite extensive. We're underpenetrated in Asia Pacific, Europe, South America, Mexico, a number of these areas that we're developing strategies for or executing on like we are in Mexico and Latin America. So we include HRX in our lifestyle and power brands, and they'll be part of this larger global expansion effort that we will coordinate. Operator: We take the next question from the line of Mike Baker from D.A. Davidson. Michael Baker: Okay. Great. I guess just a follow-up on a previous question. Because it seems like your sales guidance is just in line with the portfolio rebalancing both the positive addition and subtraction. Doesn't mean that you expect the lost sales from the first quarter to come back. Am I misinterpreting that? I know that was already asked, but I just wanted a clarification on that. Matthew Stevenson: Yes. No, it's a good clarification, Mike. I mean I think that is exactly what that would imply. I mean we're seeing pretty strong in April and what that would imply for the balance of the year is 6% to 7% on each of the subsequent quarters. It may not phase out exactly that way. But based on what we're seeing in April, we still feel like there's a lot of year left and reason to believe. I mean some of the things that we've spoken to in the past were pretty significant new product development that's rolling out in Q3 and Q4. I mean I think this -- we hadn't spoken as much until this quarter about the new Car Care line, but we've seen really positive feedback from consumers as we started to introduce that at LS Fest West. And that's just a really big TAM, something that we always knew could be big, but we feel really good about. In addition to that, you've got our CTS 4, which is one of our top products. We also have the continued growth in the Snell cycle, growth in safety and new products coming out within the EFI product line. So that is what's implied. Michael Baker: Okay. That's helpful. And maybe 2 quick related follow-ups. One, I guess with all the moving pieces of this -- the weather shift and the exits and acquisitions, et cetera, last quarter, you had said expect the year to be 51% in the first half, 49% in the second half, versus typically 52%, 48%. Can you help us sort of adjust that with all these moving parts? And then a related follow-up, the rebound in April and continuing into May, is that primarily on the American business? Has that improved from, I think, the minus 10% in the first quarter? Matthew Stevenson: Yes. Mike, I'll take the back half of that question, and I'll defer to Jesse for the first half. No, we're seeing a nice recovery across the portfolio here as we get into April into May. Like I commented, a lot of that concentration of that inventory is in American Performance in Q1, and we're seeing that turn around as that inventory has normalized in the weather and continuing to see nice growth across the board in all 4 divisions. Jesse Weaver: Yes. And Mike, to answer your question, after all the changes with the portfolio rebalancing just on the first half, second half, it probably is going to be a bit more of the -- closer to 50% to 51% in the first half versus the 51% guide that we gave before. So a little bit less in the first half as a result of these. Operator: Ladies and gentlemen, as there are no further questions, with that, we conclude the question-and-answer session. I would now hand the conference over to Matthew Stevenson for his closing comments. Matthew Stevenson: All right. Thank you. Let's turn to Slide 22. First quarter reinforced what we believe about this business. The fundamentals are durable. Despite temporary headwinds early in the quarter, we held adjusted EBITDA essentially flat year-over-year, a reflection of disciplined execution by our team and the resilience of our brand portfolio. With April showing mid-single-digit growth and channel inventory normalizing, we are entering Q2 with genuine momentum. We are managing the portfolio with intention, streamlining where it creates value, investing where we see competitive advantage. Adjusted for our planned portfolio optimization actions, our full year outlook for our core business is unchanged. We remain committed to the long-term financial targets we set out, at least 6% organic top line growth, 40% gross margins and greater than 20% adjusted EBITDA margin. That conviction hasn't wavered. The automotive enthusiast market is a near $40 billion space, driven by passion, loyal and a culture that extends generations. Holley's portfolio of storied brands sits at the center of it. We believe we are better positioned than anyone to serve that market and to grow in it through a combination of our brand heritage and the digital platform we are building. The path forward is clear: disciplined growth, margin expansion and sustainable free cash flow while continuing to invest in the innovation and experiences that keep our consumers at the heart of everything we do. In closing, I want to thank our team members for their dedication and hard work every single day, our consumers whose passion and performance drives everything we build, our distribution partners whose long-standing commitment has been essential to our success and all of you on this call for your continued interest in Holley. We look forward to updating you on our progress throughout the year. Thank you, and have a great rest of the day. Operator: Thank you. Ladies and gentlemen, the conference of Holley has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the HNI Corporation First Quarter 2026 Results 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, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Matthew S. McCall. Please go ahead. Matthew S. McCall: Good morning. My name is Matthew S. McCall. I am Vice President, Investor Relations and Corporate Development for HNI Corporation. Thank you for joining us to discuss our first quarter 2026 results. With me today are Jeffrey D. Lorenger, Chairman, President and CEO, and Vincent Paul Berger, Executive Vice President and CFO. Copies of the financial news release and non-GAAP reconciliations are posted on our website. Statements made during this call that are not strictly historical facts are forward-looking statements, which are subject to known and unknown risks. Actual results could differ materially. The financial news release posted on our website includes additional factors that could affect actual results. The corporation assumes no obligation to update any forward-looking statements made during the call. I am now pleased to turn the call over to Jeffrey D. Lorenger. Jeff? Jeffrey D. Lorenger: Thanks, Matt. Good morning, and thank you for joining us. Our members delivered solid first quarter results that exceeded our internal expectations in a difficult and dynamic environment. The momentum of our strategies, the benefits of our diversified revenue and profit streams, our ongoing focus on items within our control, and the merits of our customer-first business model continued to deliver strong shareholder value. The takeaway from today’s call is we expect a strong year in 2026, with a fifth straight year of double-digit earnings improvement and modest revenue growth in both segments. On today’s call, I will break my comments into three sections. First, our quarterly results. Again, we delivered solid results despite ongoing geopolitical and macro uncertainty. Second, the remainder of 2026. Despite softer-than-anticipated revenue patterns to start the year, we expect net sales to grow in 2026, with another year of double-digit non-GAAP EPS growth anticipated. And third, our outlook beyond 2026. We project double-digit EPS growth again next year as we maintain multiple years of elevated earnings visibility beyond 2027. Following those comments, Vincent Paul Berger will provide more details about the first quarter, our outlook, and our cash flow and balance sheet. I will close with some additional color commentary before we open the call to your questions. I will start with some highlights from the first quarter. Our members continue to focus on controlling the controllables through focused cost management and benefits from price/cost. This was despite demand softness to begin the year, especially in Workplace Furnishings, amid concerns related to the conflict in the Middle East, the U.S. economy broadly, and the impact of tariffs specifically. In our legacy Workplace Furnishings businesses, first quarter net sales were down about 5% year-over-year on an organic basis, with modest growth in our businesses focused on small and medium-sized customers. We saw weakness early in the quarter with large corporate customers as the impacts of global macro uncertainty were most prevalent during January and February. However, we saw organic segment orders turn positive in March with additional acceleration thus far in the second quarter. This supports our bullishness for the remainder of the year, which I will discuss more in a moment. As we finish the quarter, it is important to note the integration of Steelcase is going well. Synergy capture and accretion are on track, and our cultures are melding nicely. Including Steelcase, Workplace Furnishings segment non-GAAP operating profit in the first quarter totaled almost $49 million, nearly double the prior-year level. We continue to expect modest accretion from Steelcase in 2026, and we remain confident in our projected total synergy-driven accretion of $1.20 when fully mature. In Residential Building Products, revenue increased more than 2% versus the prior-year period. These are strong results given the ongoing weakness in the new home market. Our growth investments are bearing fruit, and we are outperforming the market. Our new construction revenue was down mid-single digits year-on-year, which compares favorably to single-family permits, which declined in the high single digits. Our remodel/retrofit revenue was up 13% on a year-over-year basis. First quarter segment operating profit margin expanded 190 basis points year-over-year, reaching 17.6%. Despite expectations of ongoing uncertainty, we remain encouraged by our opportunities, and we continue to invest to grow our operating model and revenue streams. In summary, HNI Corporation’s first quarter performance demonstrates the strength of our strategies, our ability to manage daily uncertainty through varying macroeconomic conditions, all while remaining focused on investing for the future. And we continue to expect strong results in the full year, driven by margin expansion and modest revenue growth. That leads me to my comments on our outlook for the remainder of 2026. I will start with legacy Workplace Furnishings, where we expect segment revenue to increase at a low single-digit pace for the full year, with high single-digit growth in the back half. Additionally, for the Steelcase business, we expect full-year revenue to grow slightly. Our outlook is supported by external industry metrics and by our internal pipeline data. Specifically, in addition to strengthening orders over the past month and a half, our order funnel, bid quotes, and design activity all improved later in the quarter. From an earnings perspective, we expect Steelcase to be net neutral in the first half and turn modestly accretive in the second half and for the full year. In Residential Building Products, our structural changes—organizing around the customer and consumer—along with our growth investments are expected to drive continued market outperformance. For 2026, we expect modest price-driven revenue growth in the second half despite expectations of ongoing housing market softness. From a profitability perspective, we expect both our Workplace Furnishings and our Residential Building Products businesses to expand margins in 2026. While we are optimistic about the year and expect another year of double-digit non-GAAP EPS growth, we will remain focused, conservative, and ready to adjust as required. Our earnings outlook is supported by the anticipated benefits of our ongoing visibility story and our proven ability to manage through changing economic conditions. Moving on to my third point, a few comments on our outlook beyond 2026. We project double-digit EPS growth again in 2027, driven primarily by expected synergies from Steelcase and legacy network optimization projects. Further, we continue to have multiple years of elevated earnings growth visibility beyond 2027. During the first quarter, we made certain key decisions pertaining to Steelcase integration that will have positive longer-term implications. As an example, we terminated Steelcase’s multiyear ERP implementation project. This move is part of a broader effort at Steelcase to streamline priorities to focus on profitable growth, while also avoiding disruption, eliminating substantial future ERP investment, and redeploying resources back into the business toward customer-focused initiatives. Also during the quarter, we began smartly managing costs across all our businesses in response to a softer start to the year, driven by the current geopolitical backdrop. These new actions are in addition to the previously announced $120 million of synergies associated with the integration of Steelcase, which, as I stated earlier, are on track. At the same time, our current synergy projections are focused on the Americas business only and assume no revenue synergies. Importantly, we remain laser-focused on minimizing any front-end disruption across our Workplace Furnishings businesses. Finally, as we discussed last quarter, we continue to expect an additional $30 million of savings from network optimization in our legacy Workplace Furnishings businesses over the next three years. The combination of our disciplined cost management, Steelcase synergies, and our ongoing legacy network optimization projects continue to strengthen our earnings visibility story. Now I will turn the call over to Vincent Paul Berger to provide more details about the first quarter, our outlook, and our cash flow and balance sheet. I will then provide a longer-term perspective on the opportunities surrounding our businesses before we open the call to your questions. VP? Vincent Paul Berger: Thanks, Jeff. I will start with some additional comments about the first quarter. GAAP diluted EPS totaled $0.55. On a non-GAAP basis, diluted EPS totaled $0.34, which was slightly ahead of our internal expectations. Our non-GAAP results exclude several items totaling $88 million, the majority of which was tied to the impact of purchase accounting associated with the Steelcase acquisition. While volume activity was negatively impacted by the geopolitical conditions, especially in the Workplace Furnishings segment, expense control, price/cost, and productivity benefits offset volume softness and continued investment in initiatives aimed at driving future growth. Total net sales in the quarter increased 125% overall, or were down 3% on an organic basis. From a Q1 orders perspective in our Workplace Furnishings segment, orders from small- to medium-sized customers were up low single digits. Orders from contract customers, including both legacy Workplace and Steelcase, were down mid-single digits versus 2025 levels. As Jeff mentioned, we saw order patterns improve late in the quarter. Orders in the Residential Building Products segment increased 4% compared to 2025. Remodel/retrofit orders outperformed those from the new construction channel. The year-over-year average order growth rate over the final five weeks of the quarter was in line with the rate for the quarter overall. Looking ahead, we expect second quarter 2026 net sales in the legacy Workplace Furnishings to increase at a low single-digit rate year-over-year. Including Steelcase, total Workplace Furnishings net sales are expected to grow approximately 155% to 160% versus the prior-year period. In Residential Building Products, second quarter 2026 net sales are expected to decrease at a low single-digit rate compared to the same period in 2025. The impact of the recent order strength includes increased long lead-time orders versus the prior year. These orders will ship in the fall and benefit the back-half results. Non-GAAP diluted earnings per share in the second quarter of 2026 are expected to decline modestly from 2025 levels. The addition of Steelcase is expected to be net neutral to modestly accretive to diluted non-GAAP earnings per share in the quarter. The year-over-year non-GAAP earnings pressure is expected to be driven by lower organic volume and continued investment. Our outlook for 2026 full-year earnings reflects expectations for mid-teens percent non-GAAP EPS growth from 2025 full-year of $3.53, with accelerating double-digit earnings growth in the second half of the year. Given the timing of synergy recognition and cost management savings, we now expect non-GAAP diluted earnings per share to be roughly equal in the third and fourth quarters. Productivity, cost management, network optimization initiatives, Steelcase accretion, and price/cost benefits are expected to more than offset operating profit headwinds associated with volume pressure and continued investments. As we look to 2027 and beyond, as Jeff mentioned, we expect double-digit non-GAAP EPS growth again next year, and we have multiple years of elevated earnings growth visibility beyond 2027. Steelcase accretion and legacy Workplace network optimization initiatives continue to support elevated levels of visibility. In total, these items are expected to yield savings exceeding $70 million in 2027 and more than $150 million when fully mature. These totals do not include the benefits of our new cost management saving efforts. Next, a few additional items to assist you in your 2026 modeling. Combined depreciation and amortization are expected to be approximately $150 million to $155 million, excluding purchase accounting impacts of approximately $105 million. Net interest expense is expected to total between $75 million and $80 million. Our tax rate should be approximately 25%. Finally, from a cash flow and balance sheet perspective, the benefits of the Steelcase acquisition, the strength of our strategies, and our financial discipline are expected to drive free cash flow, which will help us quickly deleverage our balance sheet over the next couple of years. As a result, leverage is expected to return to pre-deal levels in the 1.0x to 1.5x range within two years of the deal closing. Finally, we remain committed to payment of our long-standing dividend and continuing to invest in the business to drive future growth. I will now turn the call back over to Jeff for some longer-term thoughts and closing comments. Jeffrey D. Lorenger: Thanks, VP. In the first quarter, our members remained focused on our strategies. We managed our businesses well. We delivered a solid quarter that modestly exceeded our internal expectations. Looking forward, we remain focused on driving growth and expanding margins, and we will continue to invest for the future with confidence. As I mentioned, we saw a slower start to the year than we had anticipated, particularly in the Workplace segment, where demand activity was clearly impacted by the conflict in the Middle East and U.S. macro uncertainty. However, from a demand indicator perspective, the fact pattern we have discussed in the last couple of quarters is unchanged, and we remain bullish about the segment’s demand environment. Return to office continues to be a positive driver of activity, with levels of remote work expected to fall further in 2026. Office leasing activity grew for the third straight quarter in Q1, with annual leasing activity up more than 7% year-over-year. Net absorption of office space, which has historically been a good leading indicator of future industry demand, was also positive for the third straight quarter, with nearly 3.5 million square feet absorbed. Thus, while supply of new office space will remain a headwind, we see multiple cyclical drivers of growth outside of new construction. These encouraging external industry drivers are consistent with our recent order patterns and internal pre-order metrics in both legacy Workplace and Steelcase. Our funnel continues to expand, with quotes up year-over-year and with the number of large-dollar projects increasing versus the prior-year period. Design activity also strengthened during the first quarter, and jobs won but not yet ordered are up double digits as well. Customers remain engaged. Activity is robust with both dealers and end users, and our businesses are positioned to win. Moving on to housing, headlines continue to point to ongoing softness, especially in the new-build space. Interest rates remain relatively elevated. Prices remain high, and affordability concerns persist, and we expect continued new construction weakness in 2026. However, our structural go-to-market initiatives and growth investments will allow us to continue to outperform the market. In remodel/retrofit, we are assuming modest market growth in 2026. This is consistent with LIRA projections. In addition, we expect continued market outperformance in our R&R business, and we expect ongoing margin and cash flow consistency from this segment. In conclusion, as we discussed in detail last quarter, we are a transformed and fundamentally stronger organization. Upon recognition of all targeted Steelcase synergies, network optimization savings, and cost management benefits, HNI Corporation will have substantially higher earnings, stronger margins, greater cash flow, and a continued strong balance sheet. This will enable us to continue to deliver exceptional value to our shareholders, customers, dealers, members, and communities. I want to thank all HNI Corporation members and specifically the Steelcase employees, as they have engaged enthusiastically to begin their HNI journey. Thank you again for joining us. We will now open the call to your questions. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad. Your first question comes from the line of Reuben Garner with The Benchmark Company. Your line is open. Reuben Garner: Thank you. Good morning, everyone. Jeffrey D. Lorenger: Good morning. Reuben Garner: Maybe to start, the change in the Workplace outlook for the full year, it sounds like things actually got better later in the quarter and to start the second quarter. Can you just walk through the progression of orders through Q1 and what you saw in April? And if things are improving of late, what kind of other internal indicators are making you take that outlook down? Or is it just the slower start that is going to be hard to catch up? Or is it conservatism? Any thoughts there would be helpful. Vincent Paul Berger: Sounds good, Reuben. I will walk you through it. Jeff mentioned the actual order numbers. If we look at the first quarter overall, the legacy Workplace side was down 3%. The contract side was off a little bit more, both for Steelcase as well as the legacy HNI, closer to 5%. The important point is it was a slower start, which for sure is taking our full-year expectation down a little bit. But in March, it did pick up. As it continued to progress through the quarter, it actually got stronger. If I look at the last five weeks, that momentum has continued across the different segments. The way we are thinking about it, we are going to show this first quarter down about 5%, and then in the second quarter, we are going to pivot back to growth. We have got low single digits pivoted for the second quarter, which is supported by our recent order trends as well as how we finished the first quarter. As we think about the full year, we have enough indicators—and Jeff will talk to the internal metrics and some of the other external metrics—that say the back half actually has strong high single-digit growth. We think we caught an air pocket, and the order trends that are coming in now are supporting growth for the second quarter as well as even stronger growth for the back half. Jeffrey D. Lorenger: Yes, I think that is a good summary. The other thing, Reuben, with the Steelcase business, some of the larger projects are spaced out a little bit more. We are dialing in on when the revenue hits. I had mentioned that our order book is solid. Some of the ship dates are moving around. The other thing we noticed, once we got out of this air pocket, customers concluded they learned their lesson during COVID: they cannot wait. They have capital to deploy and want to get moving. That is really what we saw, but it definitely was a slower start to the year than we had anticipated. We think we are behind that now. Reuben Garner: Okay. Embedded in your second quarter outlook, how much near-term price/cost noise is there from the quickly rising transportation and energy situation? How quickly can you offset? Can you talk about what pricing tactics you are using to offset those costs? Vincent Paul Berger: Sure. Consistent with our goal, we aim to offset tariffs or general inflation over time. Specifically, there is about a $2 million headwind in Q2 that we will catch back up in Q3 and Q4 through price surcharges, similar to what we have done in the past. I know it is dynamic—things are changing. The AD/CVD piece came off, then we added the new Section 232s. Even with all that, we expect to offset it, and we will probably have a couple million dollars of headwind in Q2. Reuben Garner: Okay. Last one for me. The comments about the cost management efforts tied to the slower environment—can you elaborate on some of the moves that you are making there? And then if I heard you correctly, I think you used the word “terminate” for Steelcase’s ERP project—that was not delayed. A little more detail on what is going on there, why that move, and what the benefits of the change will be to the organization. Jeffrey D. Lorenger: I will hit the ERP, Reuben. A couple of things drove that. One, now that we are a combined entity, we wanted to step back and take a look at what the best program was going to be for the HNI network. Two, they had quite a ways to go in that project, and we felt like stepping back from that and resetting and reexamining was best for the business. Also, those take a lot of effort, and we have a lot in front of us where we can redeploy assets to grow the business, whether it be in product development or sales, or other network optimization across the network. We stepped back from that. We think it is going to be an unlock relative to being able to focus the business on customer-centric growth initiatives, and that is really without a lot of downside. Vincent Paul Berger: On cost management, similar to what we have done in the past, we want to control the controllables. We got out of the gate slow with some revenue pressure. It was in all areas of the business, actually, Reuben. In all the business segments, we looked at open headcount, discretionary spend, and, with the termination of the business transformation going on with Steelcase, we had some headcount adjustments. It is never in one spot. The whole idea is to still protect our goal and target of double-digit EPS growth. If you delever what is happening—if you are pulling sales down from mid single digits that were forecast for Workplace to low single digits—we adjusted our cost structure to ensure that we can still have double-digit non-GAAP EPS growth over the prior year. Reuben Garner: Thanks for the detail, guys, and good luck. Operator: Your next question comes from the line of Gregory John Burns with Sidoti & Company. Your line is open. Gregory John Burns: Was the impact from the war in the Middle East localized to that region, or did it create a more global impact for your office business? I want to better understand the commentary about how that impacted demand in the quarter. Jeffrey D. Lorenger: Yes, I think it is a little of both, Greg. We are watching the international businesses closely and monitoring those impacts. I think it was more of a general feeling where customers hit pause. But all our channel checks now are consistent that we are back in the game, and the optimism is there. It is hard to pinpoint exactly where it hit, other than it was broad-based across all our businesses. We play in most markets. We play in all the verticals. We play small, medium, and large corporate. With the small business side continuing on, everything else took a step back in January and February. We believe it was a combination of the war and uncertainty. Then, as I stated earlier, in engaging with customers, they said the boss told them to slow down for a minute, and now he or she is saying, let us keep this moving. That is the bottom line. It was a broad-based macro slowdown that now seems to be behind us. Gregory John Burns: Okay. Thank you. Operator: Your next question comes from the line of David Sutherland MacGregor with Longbow Research. Your line is open. David Sutherland MacGregor: Good morning, everyone, and thanks for taking my questions. During January and February, it seems like people, as you say, hit pause on releasing purchase orders. Can you talk about what you were seeing otherwise underneath that in the market? Was quoting activity continuing? Were people still doing mockups? Was it business as usual there that would give you a little more confidence in the longer-term view? Jeffrey D. Lorenger: Yes, David, that is right on. It felt a little like what we first saw when we came out of COVID. People were still active. The difference this time is they have been through that now and were ready to go. It was more of a slight delay in placing the PO, but quoting was rolling. Activity was high at dealers. Activity was high in the sales force. Optimism remained. It never really muted; the order book just did not flow like we had anticipated. That is why we are pretty bullish based on all the indicators and what we are now seeing start to flow for the full year. David Sutherland MacGregor: Right. Did you see any order cancellations? Was there much activity there? Jeffrey D. Lorenger: No. We really did not. We monitor that as well. If anything, we saw just a general slowdown and then the normal project delays with construction and things like that, but no cancellations. David Sutherland MacGregor: Okay. Great. Are you conducting any repricing of backlog orders? Vincent Paul Berger: We are not. We confirm the orders and let them flow out. That creates a little bit of the headwind of a couple million dollars in the short term, but our process has it covered, and we catch it back up. David Sutherland MacGregor: Okay. Are you far enough along now in terms of your thinking around Steelcase that you can talk about international and what actions you may be contemplating aimed at achieving higher levels of profitability from that business? Vincent Paul Berger: David, we are getting more and more up to speed on that business every day. We understand their go-to-market now. We are locked in with how we forecast their business. Key there is what we talked about before: they had already started some pretty significant profit improvement plans, which included restructuring and transformation. They were in the late innings of that, and we feel good about the overall profit improvement year-over-year that that business is going to drive for shareholder value. David Sutherland MacGregor: Okay. Thanks, VP. Last question for me is on the RBP business. Can you talk about the brand consolidation and how that is being received in the channels? Will there need to be any clearance of inventory? If so, how should we think about potential margin headwind in terms of magnitude and timing? Jeffrey D. Lorenger: Are you speaking specifically on the stove side, David? David Sutherland MacGregor: Yes, I am. Thanks. Vincent Paul Berger: We are in a three-year journey, and it is actually going really well. It began about 18 months ago to put an overarching brand called “Forn & Flame” over top of all of our biomass products. That was more of a digital way to get to the consumer. We are now in the journey to talk about how we will badge those different brands and then use their names as technology. We do not see any downside with this. We already were the industry leader; now we are clearly the industry leader from a digital standpoint. It will take us probably another 18 months to get all the way through, and we are not going to strand inventory. We are taking our time with it. That business is performing very well. Year-over-year, we continue to take market share. It is where a lot of our initiatives are. I think you will see this play out behind the scenes. Jeffrey D. Lorenger: Okay. David Sutherland MacGregor: Great. Thank you very much, and good luck. Jeffrey D. Lorenger: Thank you. Operator: Your next question comes from the line of Catherine Thompson with Thompson Research Group. Good morning, and thank you for taking my questions today. Could you talk a little bit more about what you are seeing in terms of demand trends for non-office verticals in the quarter, and break it down by end market and by geography, U.S. versus Europe? How do you expect this to shape through the year? Are there any ways where you can benefit more specifically as we look at the broad reindustrialization trend in the U.S.? Jeffrey D. Lorenger: In the office verticals, we are seeing positive trends in health and education. We are getting lots of higher-ed businesses that are leaning in to not only Steelcase but our Allsteel side. We are positioned well with the federal government on the Steelcase side and seeing positive trends there. As it relates to international, year-over-year, their orders are actually up, so they are hanging in there across both in-market/for-market as well as the global business accounts. The longer-term outlook is a little early to tell, but we are pretty disciplined in our thinking about where we shift resources. We have breadth and depth to cover all the verticals and core customers. We have geographies covered now and really strong distribution. We are monitoring enterprise networks and where people are making investments. Manufacturing is doing pretty well right now. We have strong research and strong ability to pivot as those markets develop. Right now, we are playing all the bases and have not overweighted any of them, but we will when the hot hand appears—that has been our history. With the Steelcase adder to the HNI Corporation network, it gives us a lot more geographic coverage and diversity to do that. Analyst: Following up on that, when you think about the different types of construction projects beyond traditional, we are seeing different types of players working creatively with builders and developers. Have you changed or thought about doing anything differently in terms of winning different types of business in this dynamic market? Jeffrey D. Lorenger: One way we get at that is co-development. We have teams that engage with customers and businesses early. You are upstream of that when you talk construction, but that sometimes leads to how people are thinking about how they want their workspace to be branded. We are seeing a lot more engagement from customers the last couple of years. It is less cookie-cutter and more dynamic around what they need—whether to get employees back in the office, what they want their brand to be, or the new ways of working. We have shifted resources to more dynamic co-development and set up manufacturing flows to be more versatile and agile around making product that is nonstandard. That is how we are evolving our business model to be more dynamic and play these different elements as they appear, because they shift and move fairly quickly. Analyst: That is helpful. Final question: Steelcase following up on their small/mid-sized business growth initiatives—can you compare how they are doing in that segment versus what core HNI Corporation is doing, and whether you are adjusting any Steelcase strategy to that end market? Vincent Paul Berger: Very similar businesses. We definitely are not adjusting strategy related to the Steelcase SMB and the legacy SMB, and they are both performing very similar. The SMB business has been resilient in both Steelcase as well as the legacy HNI Corporation if you look over the last few quarters. They are going to continue to win on those smaller projects. The main difference in the Steelcase SMB is they play, in some cases, on seat counts that are more than our traditional SMB plays on. Other than that, they are very similar in how they go to market and how they are performing. Jeffrey D. Lorenger: Long term, we will look for opportunities as we go. To clarify, their SMB metrics—size, type of job, order book, average order size—are a little bit higher than our traditional. They are both called SMB to start, but what it has done is stretch the coverage model so we have no gaps depending on how you define SMB. That is the benefit. That is why we are not making any sudden adjustments. We will see how it all flows and where there is leverage versus where it is simply nice new business that we did not have or that they did not have. Analyst: Thanks so much, and best of luck. Jeffrey D. Lorenger: Thank you. Operator: Your next question comes from the line of David Sutherland MacGregor with Longbow Research. Your line is open. David Sutherland MacGregor: Thank you for taking my follow-up questions. I want to think about the second half of this year. It seems as though there is going to be some push-forward benefit against some fairly stiff compares from last year, and that will help you. I am thinking about the government shutdown in 2025, and you should be comping against that. That should be a source of benefit as well. Is there any way to dimension that for us? Vincent Paul Berger: Yes, David. I do not know if we have specifically thought about it that way. If we think about how volume will play out, you are right—we will have some comps that, if I get into the fourth quarter, could see mid single-digit volume year-over-year versus just price in the third and fourth quarter. Whether it is through government, SMB, or large global/corporate accounts, we believe that sets us up for a strong back half and supports what we are saying with a relatively flat first half and mid single digits in the second half. David Sutherland MacGregor: That is helpful. Thank you for that, VP. Secondly, it is still early, but to what extent, if at all, are you seeing any cannibalization between Steelcase and Allsteel? Jeffrey D. Lorenger: Good question. We really have not seen that, David. Our premise going in—and it seems to have been playing out—is they both are in the contract space, but Steelcase plays with a certain type of customer and has strength in markets where we have maybe not been as strong. They are stronger with large corporate, big customers, global customers with large networks, and Allsteel and some of our contract brands are maybe a click down from that. We have not really seen cannibalization. I am not saying there is none out there on a project here or there, but on a macro basis, it is complementary, and that was the pre-deal premise and what we have seen so far. David Sutherland MacGregor: Great. Good to hear. Thanks very much, and good luck. Vincent Paul Berger: Thanks. Operator: I will now turn the call back over to Jeffrey D. Lorenger for closing remarks. Jeffrey D. Lorenger: Thank you for joining us today. We look forward to speaking to you again in July. We appreciate your time. Thanks so much. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
Operator: Hello, everyone, and thank you for joining us, and welcome to Cencora Inc. Q2 2026 Earnings Call. After today's prepared remarks, we'll host a question-and-answer session. [Operator Instructions] I will now hand the conference over to Bennett Murphy, Senior Vice President, Head of Investor Relations and Enterprise Productivity. Please go ahead. Bennett Murphy: Good morning, good afternoon. Thank you all for joining us for this conference call to discuss Cencora's fiscal 2026 second quarter results. I am Ben Murphy, Senior Vice President, Investor Relations and Enterprise Productivity. Joining me today are Bob Match, President and CEO; and Jim Mary, Executive Vice President and CFO. On today's call, we will be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website, investor.cencora.com. We have also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will discuss forward-looking statements about our business and financial expectations on an adjusted non-GAAP basis, including, but not limited to, EPS, operating income and income taxes. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change. For a discussion of key risks and assumptions, we refer today's press release and our SEC filings, including our most recent 10-K. Cencora assumes no obligation to update forward-looking statements, and this call cannot be your broadcast without the express permission of the company. And you will have the opportunity to ask questions after today's remarks by management. We ask that you limit your questions to 1 participant in order for us to get to as many as possible within the hour. With that, I will turn the call over to Bob. Robert Mauch: Thank you, Bennett. Hi, everyone, and thank you for joining Cencora's Fiscal 2026 Second Quarter Earnings Call. In our fiscal second quarter, we saw operating income growth in both our U.S. and International Healthcare Solutions segments and delivered adjusted diluted EPS growth of 7.5%. These results reflect the resilience of our business, and we remain confident in our full year fiscal 2026 guidance. Building upon that confidence, today, we announced the resumption of opportunistic share repurchases. Today, I'll focus on how our growth priorities and performance drivers support continued long-term growth. Specifically, building upon the critical role we play within the pharmaceutical supply chain through digital transformation, strengthening our position in specialty pharmaceuticals across channels. and optimizing our portfolio to focus on our pharmaceutical-centric strategy. I'll start with building on the critical role we play within the pharmaceutical supply chain through digital transformation. We serve as the backbone of the pharmaceutical supply chain, ensuring the safe and secure delivery of medications from the manufacturers who develop them to the sites of care supporting patients. Every day, our teams move millions of medications through the supply chain to thousands of health care sites, creating significant efficiency for our manufacturer and provider partners through advanced technology and a network of highly automated fulfillment centers we help simplify ordering and inventory processes, providing centralized access to products, ranging from over-the-counter treatments to highly complex specialty pharmaceuticals. Our services streamline the industry's logistics and working capital needs, provide data and insights and drive reliable patient access, ultimately lowering costs. Given our critical role, we continuously invest to strengthen our physical and digital infrastructure, driving enhanced customer visibility, accelerated issue resolution and improvements, depending on the value we provide. We are seeing positive impact from these efforts, recently launching AI-supported tools, improving consistency and quality across our customer support operations benefiting both our customers and team members. We're excited to continue deeply embedding these capabilities across our enterprise. Second, we are strengthening our position in specialty pharmaceuticals across channels. I've spoken extensively about the investments we've made in management services organizations that provide physician practices with the tools needed to thrive. But MSOs are just one example of how we're supporting the growth of specialty pharmaceuticals across Cencora. In our global specialty logistics business, the efforts we've taken to improve performance have yielded results and we're pleased to report our second consecutive quarter of operating income growth. We're winning new contracts in areas like cell and gene therapies and laboratory logistics as well as executing productivity initiatives to drive sustained success. As manufacturers increasingly develop products targeting smaller patient populations, our global reach and ability to support complex specialty products positions us uniquely as a trusted partner. Health systems represent another area where specialty pharmaceuticals have seen continued growth and our teams have worked to build comprehensive solutions designed to provide end-to-end support to these customers. Through our Accelerate Pharmacy Solutions portfolio, we offer services aimed at streamlining the complexity of health systems operations from specialty strategy enablement to freight management optimization. This offering has been well received in the market with health systems increasingly seeking to deepen and form new partnerships with us due to our differentiated consultative approach. The breadth of our specialty solutions and market-leading customer portfolio allow us to capitalize on the growing specialty pharmaceutical market. And finally, we're optimizing our portfolio to provide focus. During the quarter, we took key steps in our ongoing work to focus our portfolio, including the agreement to merge MWI Animal Health with Covetrus and the sale of our U.S. hub consulting services positioning these businesses for success with strategically aligned partners. Optimizing our portfolio supports focus on our investments in MSOs and ongoing integration efforts. While it's still early days, we are encouraged by our initial progress in building shared capabilities across OneOncology and RCA that will drive growth across our MSO platform. We've established joint teams to share best practices in key areas like research and clinical trials, back-office services and physician recruitment and retention, so we can leverage what is working well across the platform. Before turning to my closing remarks, I'll now pass the call to Jim for a discussion of our financial results and updated fiscal 2026 guidance. Jim? James Cleary: Thanks, Bob. Good morning and good afternoon, everyone. Cencora delivered solid performance in our second quarter, demonstrating the resilience of our business and our team members' execution to serve our customers and partners. In the quarter, we delivered adjusted diluted EPS of $4.75, reflecting growth of 7.5% and which puts us on track to achieve our increased EPS guidance of $17.65 to $17.90. During my remarks today, I'll provide an overview of our consolidated results before turning to our segment level results and updated guidance. As a reminder, unless otherwise stated, my remarks will focus on our adjusted non-GAAP financial results. For further discussion of our GAAP results, please refer to our earnings press release and presentation. Turning now to consolidated revenue. Consolidated revenue was $78.4 billion, up 4%, driven by growth in both reportable segments and in other, which I will describe in more detail when discussing segment level results. Moving to gross profit. Consolidated gross profit was $3.4 billion, up 16% primarily due to growth in the U.S. Healthcare Solutions segment. Consolidated gross profit margin was 4.31%, an increase of 45 basis points, largely driven by the February 2026 acquisition of OneOncology. Consolidated operating expenses were $2.1 billion, up 22.5%, which included the impact of the February 2026 acquisition of OneOncology, excluding both MSOs operating expenses grew 5% on a constant currency basis. In the second half of the year, we expect our core expense growth will moderate particularly in the fourth quarter with an easier comparison for the U.S. Healthcare Solutions segment, excluding OneOncology. Turning now to operating income. Consolidated operating income was $1.3 billion, an increase of 6% compared to the prior year quarter, driven by solid growth in both our U.S. and International Healthcare Solutions segments more than offsetting the slight decline in other. Moving now to our interest expense and effective tax rate for the second quarter. Net interest expense was $140 million an increase of $36 million versus the prior year quarter, primarily due to debt raised in February to finance the OneOncology acquisition. We expect third quarter net interest expense to be roughly the same as our second quarter interest expense. Our effective income tax rate was 18.9% and compared to 20.8% in the prior year quarter as we benefited from discrete tax items in the current year quarter. Finally, diluted share count was 195.4 million shares a 0.1% increase compared to the prior year second quarter. Regarding our cash balance and adjusted free cash flow, we ended March with $2.2 billion of cash reflecting $1.1 billion of free cash flow generated in the March quarter. Our full year adjusted free cash flow guidance of approximately $3 billion remains unchanged as we expect to continue to generate cash in the back half of the fiscal year. This completes the review of our consolidated results. Now I'll turn to our segment results for the second quarter. U.S. Healthcare Solutions revenue was $68.8 billion, up 3% and in the quarter, we saw continued volume growth, including specialty sales to health systems and physician practices and in sales of GLP-1s, which increased $1.9 billion year-over-year. Despite these trends, our revenue growth was tempered by 3 main factors, 2 of which were fully contemplated. The 2 factors that were fully contemplated were: first, manufactured list price reductions, which represented a $2 billion revenue headwind in the quarter; and second, the previously disclosed fiscal 2025 loss of an oncology customer and a grocery customer. The third factor, which was not fully contemplated was the speed of brand conversions for our large mail order pharmacy customer. These sales are low margin, which concentrates their impact to our revenue line. The increase in brand conversions is a meaningful contributor to our reduced revenue growth expectations for the fiscal year but results in higher margins for Cencora overall. Moving now to operating income. U.S. Healthcare Solutions segment operating income increased 6% to $998 million. In the quarter, we saw good trends across much of our business. However, there were a few items that impacted our growth. First, we have not yet lapped the loss of an oncology customer that began to hit our numbers in July 2025 due to its acquisition. This headwind was larger than the contribution we recognized from our February 2026 acquisition of OneOncology. Second, many physician offices had lower volumes due to missed patient appointments as a result of inclement weather across the U.S. And given our leading presence in this channel, we saw some lighter volumes in late January and early February. We were encouraged to see a rebound in patient appointments and specialty product volumes in March. Overall, we estimate that weather represented a $10 million headwind to U.S. segment operating income growth in the quarter. And finally, as we noted on our earnings call last May, we had a $15 million contribution from COVID-19 vaccines in the fiscal 2025 second quarter. This quarter, COVID vaccines represented a $10 million operating income headwind for the segment. Taking a step back, if we exclude the OneOncology acquisition and the 2025 loss of the oncology customer the U.S. Healthcare Solutions segment growth would have been approximately 7% in line with our long-term guidance in spite of the transitory weather and COVID items. Turning now to our International Healthcare Solutions segment. International Healthcare Solutions revenue was $7.6 billion, up 13% on an as-reported basis and up 7% on a constant currency basis primarily driven by growth in our European distribution business. In the quarter, International Healthcare Solutions operating income was $176 million, up approximately 14% on an as-reported basis and up 13% on a constant currency basis. In the quarter, our European distribution business benefited from the shift in timing of manufacturer price adjustments in a developing market country, as I called out last quarter and the continued rebound of our global specialty logistics business, where we saw a second consecutive quarter of operating income growth. We are very pleased with this rebound of our global specialty logistics business. Moving to other. Revenue in Other was $2.1 billion, up 5% and largely due to growth at Pro Pharma and MWI Animal Health, partially offset by an expected revenue decline in our legacy U.S. hub consulting services, which was divested on April 30. Operating income was $92 million, down 1% due to a decline in operating income in our U.S. hub consulting service business resulting from the fiscal 2025 loss of a manufacturer program partially offset by operating income growth at MWI Animal Health. That completes the review of our segment level results. I will now discuss our updated fiscal 2026 guidance expectations. As a reminder, we do not provide forward-looking guidance for certain metrics on a GAAP basis, so the following information is provided on an adjusted non-GAAP basis, except with respect to revenue. I will start with adjusted diluted earnings per share. We are pleased to raise our full year guidance range to $17.65 to $17.9 and up from $17.45 to $17.75. The updated guidance reflects our strong full year fiscal 2026 operating income growth expectations for the U.S. and International Healthcare Solutions segments and our updated expectations in other. I will now turn to updates to our revenue guidance. On a consolidated basis, we now expect revenue growth to be in the range of 4% to 6%, down from the previous expectations of 7% to 9%. This is driven by our lower expectations for revenue growth in the U.S. Healthcare Solutions segment, where we now expect revenue growth of 4% to 6%. As a reminder, our guidance for fiscal 2026 has always contemplated the impact of manufacturer WACC price reductions. However, our updated guidance reflects the faster-than-expected branded conversions at our large mail order customer and slower anticipated GLP-1 growth than we had been expecting. In the International Healthcare Solutions segment, we now expect revenue growth to be in the range of 8% to 10% on an as-reported basis to reflect changes in foreign exchange rates. Our International Healthcare Solutions segment constant currency revenue growth expectations remain unchanged at 6% to 8% growth. Our revenue growth expectations for other remain unchanged. Moving to operating income. We expect consolidated operating income growth to be in the range of 12% to 14%, up from our previous guidance of 11.5% to 13.5%. This is driven by our updated full year expectations for other to show operating income growth in the high single-digit percent range due to MWI now being accounted for as an asset held for sale and as a result, depreciation expenses suspended. Our full year operating income expectations of 14% to 16% growth for the U.S. Healthcare Solutions segment remain unchanged, but as you think about our second half cadence, we continue to expect to see our strongest growth of the fiscal year in the fourth quarter after we lapped the loss of the oncology customer that occurred on July 1, 2025, and as OneOncology accretion ramps. Our expectations for International Healthcare Solutions segment operating income growth remains unchanged at growth of 5% to 8%. Moving now to interest expense. We expect interest expense to be approximately $485 million compared to our previous range of $480 million to $500 million reflecting progress on debt paydown and incrementally better-than-expected rates on our senior notes that we priced in February. As you look at your models, in the third quarter, we anticipate net interest expense will be at a similar level as this quarter before modestly stepping down in the fourth quarter, given working capital dynamics. Finally, turning to share count. We expect our full year diluted shares outstanding to be under 195.5 million shares as we resume opportunistic share repurchases and -- as we indicated in our press release, we expect to repurchase $1 billion worth of shares by calendar year-end. That concludes our updated full year guidance assumptions. As it relates to quarterly cadence, I would point out that we expect third quarter adjusted diluted EPS growth to be in the high single digits, partly as a result of our net interest expense remaining at that $140 million level in the quarter. To close, I am proud of our teams who worked diligently to support our customers and partners guided by our purpose and pharmaceutical-centric strategy. As we continue to prioritize a balanced approach to capital deployment, we are pleased to be resuming opportunistic share repurchases that will support value creation. Despite noise today, given some transitory items causing our results to be below expectations, we remain on track to deliver strong guidance for fiscal 2026 and I'll now turn the call back to Bob for some closing remarks before moving to Q&A. Bob? Robert Mauch: Thank you. As Jim said, today's results are impacted by transitory items and our full year guidance remains strong. reflecting the strength of our business and execution to drive sustainable long-term growth. The critical role we play in the pharmaceutical supply chain and the investments we are making allow us to capitalize on growth opportunities. As we look to the balance of the fiscal year and beyond, our focused strategy guided by our purpose, growth priorities and performance drivers positions us to continue creating value for all our stakeholders. Before opening the call for Q&A, I want to take a moment to acknowledge that today is Jim's final earnings call before his retirement as CFO in June and from the company in December. On behalf of all of us at Cencora, I thank Jim for his many years of service. His leadership and expertise have shaped our company and performance, and Jim has been a terrific partner to me. I wish him all the best. Operator: [Operator Instructions] Your first question comes from the line of Lisa Gill at JPMorgan. Lisa Gill: Jim, I wish you the best in your retirement. I just really wanted to understand and Jim, I appreciate you kind of laying out that the core underlying growth was about 7%. But when we look at stripping out WAC, IRA changes, the lost business, everything you talked about. How do we think about the impact to operating profit from those changes as well as the shift in the mail channel that you talked about, generally, that's going to be lower margin. And how -- when we put this all together, how do we think about -- does this have an impact on your long-term growth rates on either revenue or operating profit as we see these changes, especially on WACC and IRA moving forward? . James Cleary: Sure. Thank you very much for the question, Lisa. And what I'll do is I'll go through our revenue and our operating income and the key drivers in Q2. And so as you know, our revenue growth was 4% during the quarter and in the U.S. health care segment, it was 3%, and I'll go through some of the growth drivers and the growth headwinds. First of all, with regard to growth drivers, we saw continued volume growth, including specialty sales to health systems and physician practices. We also saw $1.9 billion of growth from GLP-1s and we're still seeing growth in GLP-1s, of course, but at a slower pace than we expected, which is contributing to our lower revenue guidance. And then we saw some growth headwinds on the revenue front. For instance, we saw $2 billion from IRA WACC reductions. And so that had a 3% impact to U.S. revenue growth during the quarter. And then as previously disclosed, there's a loss of an oncology customer and a grocery customer that impacted growth in the quarter. And then there were also faster-than-anticipated brand conversions at a large mail order customer that meaningfully contributes to the reduced revenue growth. Of course, in international, we saw a 13% revenue growth, primarily due to Alliance Healthcare, but also saw growth in global specialty logistics. And then in other, we saw 5% growth driven by MWI and pro forma and so you ask kind of what is driving the operating income growth during the quarter. And so let me go through those factors. Operating income up 6% in the quarter and in U.S. operating income up 6%. And we continue to have the headwind related to the loss of an oncology customer due to its acquisition, and this headwind during the quarter was larger than the contribution we recognized from the February acquisition of OneOncology. And if we exclude the impact of the oncology customer loss and our February 2026 acquisition of OneOncology our growth would have been approximately 7% in line with our long-term guidance. And we were able to achieve this in spite of 2 headwinds. And the 2 headwinds where we saw a $10 million operating income headwind related to weather and specialty practices due to some patient visit cancellations and delays and we did see the business rebound in March and saw good trends in April as well. And we also had a $10 million operating income headwind related to COVID-19 vaccines. And as a reminder, we had $15 million of COVID-19 contributions in the second quarter of fiscal year '25. And then I'll say to address your question as we talk about the things that impacted operating income in the quarter, we haven't called out the faster-than-anticipated brand conversions, which are lower margin, and we haven't called out the IRA WACC reductions when we're talking about the quarter. In international, we had good growth of operating income in the quarter, 14% driven by growth in our European distribution business and also we benefited from a shift in the timing of manufacturer price adjustments in a developing market country, which was mentioned on our February call. And we also saw the second consecutive quarter at growth of our global specialty logistics business. We were very pleased to see this business continue to rebound. And so that's really kind of a driver of our revenue growth during the quarter and our operating income growth. And you asked about our long-term guidance, and we continue to have confidence in our long-term guidance, which is, of course, 7% to 10% organic operating income growth, another 3% to 4% from capital deployment and 10% to 14% EPS growth. So thanks a lot for the question, Lisa. Robert Mauch: So I'll just -- I'll follow on to Jim's excellent answer and just summarize by -- and reinforcing the last point that Jim just made, which is while there are times where there'll be revenue pressure. They are generally -- these are lower margin activities in the case of WACC decreases as you know, we've been able to recoup the value of those changes. And we guide on operating income for the long term, and it's for that very reason because there can be some variability in revenue, especially as we cycle through some of the policy initiatives and other things that we'll see in the U.S. market, but our confidence in maintaining our operating income growth is high. [Operator Instructions] Operator: Your next question comes from the line of Michael Cherny at Leerink Partners. Michael Cherny: And yes, I'll echo Lisa's comments, Jim. Congratulations and good luck in retirement. Lisa kind of hit on some of the longer-term dynamics, I want to dive in, if I can, on the second half of the year. As I understand, as I think through the moving pieces, obviously, you have some comp dynamics, you have some deals. But as we think about the acceleration of growth, can you kind of risk weight where you have the most confidence versus the most potential variability in terms of the U.S. AOI build, in particular, into the back half of the year, both because of comp dynamics, but also because of what you're seeing in the market relative to customer behavior and other key factors. James Cleary: Yes. Thank you very much for that question. And Michael, what I'll do is I'll start by describing our guidance update and some of the key drivers. And then I'll finish up with what really gives us confidence in our growth acceleration in the balance of the fiscal year. And so first of all, with regard to our guidance update and drivers, as you know, we are increasing our EPS guidance to a range of $17.65 to $17.90 up from the previous range of $17.45 to $17.75 and this reflects our strong fiscal 2026 guidance and growth in both the U.S. and International Healthcare Solutions segments, it also reflects the increase in expectations for other as a result of MWI being classified as an asset held for sale and excluding this asset held for sale benefit, our full year fiscal 2026 EPS guidance would have remained largely unchanged with the incrementally lower interest expense and share count moving EPS up modestly. Our revenue growth guidance for the fiscal year is now 4% to 6% down from the previous range. And in the U.S. Healthcare segment, growth is also 4% to 6% for revenue down from the previous range and this is driven by a reduction in growth expectations for GLP-1s. That's one of the few things that's driving it. And given the size of this product class, a 5% delta in growth year-over-year represents approximately $2 billion in annual revenue. It's also driven by the faster-than-expected brand conversions at our large mail order pharmacy customer and updated expectations for mix, including slower growth in lower-margin categories. In International, we're now guiding to growth of 8% to 10%, up from the previous range of 7% to 9%, and this reflects updates to foreign exchange rates and constant currency guidance remains unchanged. Now talking about operating income growth, we've increased our operating income growth guidance of 12% to 14%, up from the previous range of growth of 11.5% to 13.5% in and U.S. health care and international Healthcare Solutions guidance remains unchanged for operating income, and our guidance now calls for high single-digit growth, up from flat and this reflects MWI now being classified as an asset held for sale, as I previously discussed. So what's giving us confidence in our growth acceleration in the balance of the year, I'd really like to address that. And we do have high confidence in our full year fiscal 2026 guidance that contemplates operating income growth of 12% to 14% and strong growth across both reportable segments and other and there are a few factors that support the growth ramp in the balance of the year. In U.S. health care, there's the lapping of the loss of the oncology customer due to its acquisition in July 2025. We also see, as we talked about in the past, OneOncology accretion ramping over the fiscal year, and we also see an easier expense comparison for our U.S. Healthcare Solutions segment in the fourth quarter. Also in the International Healthcare Solutions segment, our global specialty logistics business is seeing continued growth, and it also has easier comps in the balance of the year. And then another, of course, we have the benefit of MWI asset held for sale accounting treatment. And so those are some of the key things that give us confidence in growth acceleration in the balance of the year and give us confidence in our guidance for the fiscal year. Thank you for the question. Operator: Your next question comes from the line of Glen Santangelo at Barclays. Glen Santangelo: I also have a longer-term operating profit growth question. it seems to me that investors, they're obviously aware of the increasing generics and biosimilar pipeline that is emerging here over the next couple of years. And -- and while I think the traditional generics opportunity is well understood, I think especially the biosimilar conversion is much less understood. And we saw it perhaps have an impact on revs this quarter with your mail order customer. But more importantly, we're hearing concerns from investors that the lower-priced biosimilars could potentially have a negative impact on some of the profit pools in your specialty. And so what I was hoping you'd do is just spend a minute and talk about these biosimilar conversions and maybe the longer-term impact do you think they'll have on your long-term operating profit growth in your distribution business. Robert Mauch: Thanks, Glen. I'll take that. Terrific question. And it's -- I think it's probably best to start by taking a step back just with a little context. And separating the biosimilar market in the Part D mail market and then the biosimilar market in the Part B space. And I think if we go down the Part D path for a second, I think that's where people would rightly assume that as a product moves from brand to biosimilar that it's very likely to move away from the wholesaler, which is exactly what happened in oral generics. And so that's part of the model that we have with our customers currently. So that's not surprise. And then on the kind of revenue and profit side, but again, just to reiterate that. So that's a revenue hit, but it's not a meaningful profit hit. So to the extent that the mail order pharmacies and PBMs have selection choice over the biosimilar, and that could go around the wholesaler. I think that is -- that's going to be true in many cases, but that's part of the model today. So that's not incremental pressure. And then next to that, it's important to talk about how the Part B space is not that. So the Part B space, which is where we have an important presence both with our GPO distribution and with MSOs and that as a product converts from the brand to the biosimilar in that space, it actually is incrementally beneficial to to the practice and to Cencora. So I think those are good things for us to watch over time. There are all things that we have contemplated in our planning. But again, there's not unknown pressure out there as biosimilars grow in the Part D space, and there is actually benefit as biosimilars grow in the Part B space. Thank you for the question. Operator: Your next question comes from the line of Elizabeth Anderson at Evercore ISI. Elizabeth Anderson: Jim, congrats on your retirement. My question is about U.S. oncology. I heard your call out about some of the transitory issues sorry, OneOncology. I heard some of your transitory issues about weather and stuff in the first quarter. My question is sort of how are you thinking about that business and its performance on a run rate business basis? Can you talk to us a little bit more about sort of the synergy acquisition? How is the rest of it tracking versus your expectations minus obviously, the transitory issues? Robert Mauch: Yes. Thanks, Elizabeth, for the question. We couldn't be happier with being able to acquire OneOncology in February. We have now full ownership of that business. And what's exciting is having the opportunity for RCA and OneOncology to now collaborate. As I said in my prepared remarks, we're really starting to see the benefits of that collaboration. And as we signaled over several quarters as we were kind of awaiting this full acquisition at some point was that we -- there are best practices that exist within both of those MSO platforms that are transferable to the other. So there are strengths within one that are different than the strength in the other. And now we're able to all get in a room together and those teams are formed and they're working on making sure that we can deliver the value to the practices, which is value to the patients, ultimately, and it's going really well. And as you mentioned, I think this is a new phenomenon for Cencora where a significant storm could have some pressure on office visits, but it's -- as Jim said, the volume comes back, which we've seen already, and we're very happy with the acquisition. We're very happy with the integration progress to date. And I would say most importantly, we're really happy that OneOcology and RCA are now able to work more closely together along with the expertise that we have within Cencora to make sure that we're driving long-term value. . James Cleary: Bob, and I'll just add one thing, if I may. And that's that OneOncology and RCA have both been significant contributors to our specialty growth for several years. And so it's, of course, wonderful to have the MSO presence now, which we're very pleased with both platforms. But I also wanted to call out that they've been significant contributors to our very important specialty growth for many years. . Operator: Your next question comes from the line of Eric Percher, Nephron Research. . Eric Percher: A question relative to some of the pressures that you faced from price reductions. And I'd like to better understand when you sit across from a manufacturer and you have a discussion whether it has been AMP or where we are this year with the price reductions and also as we think about GLP-1 reductions coming 1/1/2027. What is the basis for the discussion of value? Is it simply pick-pack and ship? Is it receivables or capital put to work? And how confident are you that you continue to be able to maintain absolute margin on lower prices? Robert Mauch: Yes. Eric, thank you for the question. It's an important question, and I'll begin with the end of your question, which is we're very confident that we can maintain that dollar profit through these discussions and it's really because of the scope and scale and quality of the services that we provide to the manufacturers and the providers. And you listed a few of them, and you know them well. But our ability to run provide the quality and efficiency that we do as an industry, frankly, with the massive investments that we have in the distribution networks. And so that's the technology for ordering. It's the highly automated distribution that's there. It's the secure handling of those products across the board that is very efficient, very low cost and very high value and frankly, would be impossible to replicate outside of the system that exists here in particular, in the United States. We often are able to talk about a study that the health care distribution alliance updates every few years, but it's probably worth mentioning that those services contribute about $80 billion a year to the health care system. In other words, without those services, the cost would be that much higher within the system. So Eric, it's not an automatic, right? And we do have to go in and we have to have a real conversation with a partner that has to see the value in what we do. But we are confident that manufacturers will continue to see the value in what we do for all of the reasons that I just described. And of course, those are -- that's the base case, and we're always working to innovate to create new services and new solutions and new data and analytics opportunities that provide value. So again, it's a commercial relationship. It's something that we have to demonstrate our value all the time, but because of the investments that we've made over decades, we feel confident that, that will continue. Operator: Your next question comes from the line of Charles Rhyee at Cowen. . Charles Rhyee: Jim, good luck to your retirement and best wishes. I guess maybe first to follow up a little bit on Glenn's question. Bob, I appreciate that Part B is the real focus, particularly when we think about specialty, but we -- and that in the Part D side, it's pretty much more of a revenue hit. But is it fair to think that we're still making some margin on these revenues. And certainly, when we think about your large mail order customer shifting and then moving that volume to their own sort of distribution business. When we think about sort of that impact in that faster conversion, was that -- how do we understand that kind of speed of conversion that might have been sort of outside your expectations? And then when we think about the pipeline of future drugs, is that something that you are contemplating when you're in your long-term guide of what products you think will continue to be through your channel versus what might go through some of your customers' own internal channels? And then secondly, just real quickly, Jim, you talked about sort of the lots of the big OneOncology contract last year as well as the grocery store chain. Were there any other kind of movements? I know there are some other M&A activity going on in the space over the last year or so, and some of that work oncology. Just curious if the ones that you called out is the only one that's been sort of a headwind for you. Robert Mauch: Charles, I'll take the biosimilar part of your question first. And so there's 2 or 3 things happening. One that we called out is the speed of conversion from the brand to the biosimilar was something that we hadn't necessarily planned for. So that's not something we'll always know. And as you know, traditionally, the speed from brand to generic within the PBML space hadn't always been quick. There have been products that, that transition took longer. So something that we weren't really aware that would happen that quickly. That's one. Two, is, yes, we would have a small part of the margin, if that biosimilar stayed with the wholesaler, but I think it's important to say that, that would not be the norm. That's not what would normally happen. And again, if you go back over the models between the wholesalers and the PBMs and mail pharmacies over time is when a product went from brand to generic that was then in-sourced. So the wholesaler wasn't then generally going to be providing that generic, whether that was an oral solid generic or a biosimilar. So what we're seeing is what would be expected within the model. What we've called out here was that the pace of conversion was faster than we had anticipated. . James Cleary: Great. And Bob, I'll take the last part of that question. And first of all, with regard to the brand conversion to the biosimilar at the large mail order customer. As you know, brand sales to this customer are low margin. And so the impact of the shift is impactful to the revenue line, but not a meaningful driver at all of operating income. And then with regard to the last part of your question, of course, we have called out the loss of the oncology customer in July of last year and then the grocery customer. And there's really nothing else size that would be meaningful for us to call out. And with regard to the oncology customer, of course, we've indicated that, that does have an impact on operating income. And of course, we disclosed that in the past. And then the grocery customer -- it's not something that we've called out as having an impact on operating income. . Robert Mauch: Yes, Charles, I would just add from time to time, there are smaller customers who would be acquired or who would move that wouldn't be material enough for us to call out. And that's exactly what Jim is saying. And so any of those smaller activities have been contemplated in our guidance, but not anything to call out. . Operator: next question comes from the line of Allen Lutz at Bank of America. . Allen Lutz: First, Jim, congrats on your retirement. A clarification question here. On the 7% U.S. Healthcare Solutions EBIT growth, excluding OneOncology and the loss of an oncology customer. Can you also mention that there's a 1% headwind from COVID-19 and another 1% headwind from weather. So is it fair to assume that the starting point, excluding those would be 9% and then more broadly on the GLP-1 growth, you said that grew $1.9 billion in the quarter. How much lower are GLP-1s growing relative to your expectations? And I know they're not a big driver of profitability. But as that mix shift changes from injectable to oral, are you seeing or expecting any change in profitability there? James Cleary: Yes, sure. So let me first say, the answer is yes to the first part of your question. We saw the $10 million operating income headwind related to weather and specialty practices due to some patient visit cancellations and delays. And as I said, have seen a rebound from that in March and April. So you're absolutely right. Our operating income growth would have been higher if it were not for that headwind and then the same thing as it relates to a headwind from COVID-19 vaccines That's, again, a $10 million headwind. And as a reminder, we had $15 million of COVID-19 vaccine contributions in the second quarter fiscal in 2025, and we were $10 million down from there. And so if you add back for both of those things, our operating income would have been $20 million higher during the quarter. And of course, our growth rate would have been higher. And so thank you very much for asking the question. Operator: Your next question comes from the line of Daniel Grosslight at CITI. Daniel Grosslight: I'd like to focus on the international business and really the solid quarter that you the World Courier. You mentioned some nice new contract wins. And it looks like the overall just the macro environment for biotech is a bit better. As we look to the remainder of the fiscal year, I'm curious how sustainable that growth is. And I get that comps get easier in the second half of the year. But on a sequential basis throughout the year, do you think you'll continue to see World Courier growth? Robert Mauch: Thanks for the question. Yes, we're really pleased with the progress that World Courier is making. And it's a combination of -- yes, I think the market is -- it's not getting significantly better, but it's not getting worse. And so I think that's a positive for us. And we've also been working hard at the business. We've been working hard at making sure that we're commercially rightsized. So that's sales process and pricing and making sure that we're as efficient as we can possibly be in the business. And as we said, we're really happy to see multiple quarters now of operating income growth and also volume growth within the business, which is an important thing that we track. So yes, we're excited and I'll pass it to Jim for the second part of your question. . James Cleary: Sure. And so I'll just say that we have good confidence in our guidance for the fiscal year in our international business. We've been very pleased as Bob talked about with World Courier and we've been very pleased with our distribution business and our 3PL business and the international market also. And so thank you. It is nice to see growth in that business and our optimism for future growth. Operator: Your next question comes from the line of Kevin Caliendo at UBS. . Kevin Caliendo: Jim, it's been a pleasure knowing you over all this time even back to the MWI Day. So good luck with everything going forward. I want to focus a little bit on -- you made a comment ex all the onetimers and weather and everything else. Your EBIT growth would have fallen within your LRP, it would have been roughly 7%. That's still a core sort of ex all one-timers, a pretty material slowdown in core growth from what we've seen over the last several years. And so I just wanted to know sort of what exactly changed this quarter that you saw? And two, these changes in pricing and changes in GLP-1s and everything else. We would have expected to see a decline in gross margin, but that actually wasn't the issue. It was more that the G&A leverage was worse than what we had anticipated. And can you maybe -- is there anything in that occurred? Anything that changed there? I'd just love to get some additional color on that aspect as well as the core growth. . James Cleary: Yes. Let me address both those things. First of all, to the first part of your question, and we were pleased to see the core operating income growth aligned with our long-term guidance despite the weather-related softness and despite the lower demand for COVID-19 vaccines. And so we were within that long-term guide rate before those headwinds. And so if you add back those headwinds, it would move us up within the long-term guidance range. And then with regard to your question about gross margin and operating expenses. We had high operating expense growth in the quarter. And it's important to look at our business, excluding MSOs so the shape of the MSO income statement is very different than the shape of the core distribution income statement. And if you back out the MSO business, our operating expense growth rate in the quarter on a constant currency basis was about 5%. And so that is a kind of -- it is important to think about the business that way also, and I did mention that in my prepared remarks. Now I'll also say that the MSOs really bring up our gross margin, and they bring up our operating margin also. And so you saw a nice increase in operating margin during the quarter. And the biggest reason for that was the MSO business. But I think it's important as you're looking at our operating leverage, gross margin to operating expenses to think about the business without the MSOs. Thank you for the question. Operator: Your next question comes from the line of Erin Wright at Morgan Stanley. Erin Wilson Wright: Great -- and Jim and I want to echo it's been great working with you. Yes, also going back to the MWI days, but appreciate all the support and insights over the years. On capital deployment, you mentioned you'll be back in the market potentially buying back shares. Do you still see the longer-term opportunities across the MSO assets that are out there I know you did the more recent South deal, but how do you think about that in the context of also the timing and magnitude of share repurchases? . James Cleary: Yes. So we'll continue to have balanced capital deployment, which will, as it always had, include investments in the business and CapEx, which always have very good returns for us. It will include strategic M&A. It will include opportunistic share repurchases, and it will include growing our dividend and having a reasonable growing dividend over time, which we've been growing within our long-term guidance range for EPS growth. And we really are getting back into opportunistic share repurchases, we had paused for a while because of the acquisitions, but we've been very successful in paying down some of the term loans. We paid down $500 million so far this fiscal year, and our plan is to pay down $1.3 billion of term loans during the fiscal year. And we've had good success there, and we anticipate that we'll hit our guidance of $3 billion in free cash flow. So that gives us the opportunity to do these important opportunistic share repurchases, and we're planning on doing $1 billion between now and the end of the calendar year. And with regard to the MSO business, we're very pleased to have announced the South acquisition, and we see very good bolt-on opportunities for our MSO businesses over time and feel that our strong platforms will be very attractive to physicians. So -- thank you very much for the question. Operator: Your next question comes from the line of George Hill at Deutsche Bank. . George Hill: And Jim, I will echo everybody's well wishes we've been great to work with. Mine's pretty simple, Jim. Just as we think about pro forma for the acquisition of iSouth, is there any change you would give us what portion of the AOI in the U.S. segment now comes from physician administered or I'll call them Part B businesses versus the key businesses? And just because if we look back at the last year, I mean, I always talked about the loss of the grocery customers. There's been some smaller losses. We talked about what's going on with the big mail customer just been lots of acquisitions. Just trying to get a good sense of the apportionment of the business from an earnings perspective at this point. James Cleary: And so I think what the question is kind of the earnings from Part B versus the earnings from Part D. And that's not the way that we present the financials now, but it's something that we're always evaluating what is the best way to talk about our business and present our business over time so that we can give the best visibility. So -- thank you very much for the question. . Bennett Murphy: Yes. And George, just to be clear, the current FY '26 guidance does not include any contribution from iSouth, as we stated in the press release announcing that deal -- and then we've given some of the pieces to disclose what the relative size of the different MSOs would be, obviously, we've lapped the RCA 1-year annualization and we're beginning on the OneOncology side, which will continue to ramp in the balance of the year. . James Cleary: Thank you, Bennett. . Operator: We've reached the end of the Q&A session. I will now turn the call back to Bob March for closing remarks. Robert Mauch: Thank you, everyone, for your thoughtful questions and continued interest in Cencora. As we've emphasized today, we have conviction on our fiscal 2026 guidance, reflecting the strength and resilience of our pharmaceutical-centric strategy powered by a purpose, we're executing on our growth priorities and performance drivers positioning our business to deliver sustainable long-term value creation. Thanks, everyone. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the Viemed Healthcare, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Trae Fitzgerald, Chief Financial Officer. Thank you. You may begin. Trae Fitzgerald: Thank you, and good morning, everyone. Please note that our remarks in this conference call may include forward-looking statements under the U.S. federal securities laws or forward-looking information under applicable Canadian securities legislation, which we collectively refer to as forward-looking statements. Such statements reflect the company’s current views and intentions with respect to future results or events and are subject to certain risks and uncertainties which could cause actual results or events to vary from those indicated in forward-looking statements. Examples of such risks and uncertainties are discussed in our disclosure documents filed with the SEC or the securities regulatory authorities in certain provinces of Canada. Because of these risks and uncertainties, investors should not place undue reliance on forward-looking statements. The forward-looking statements made in this conference call are made as of today, and the company undertakes no obligation to update or revise any forward-looking statements, except as required by law. The first quarter financial supplement and financial news release, as well as the related financial statements, are available on the SEC’s website. With that, I will now turn the call over to our Chief Executive Officer, Casey Hoyt. Casey Hoyt: Alright. Thank you, Trae, and good morning, everyone. Appreciate you joining us today. This past quarter demonstrated what consistent execution looks like across our entire platform. Our sleep business continues to scale and differentiate itself. Maternal health is performing ahead of plan. Our free cash flow profile has improved meaningfully year over year. Also, in ventilation, we are starting to see the operational trends that we have been envisioning. In aggregate, these results exemplify a business that is growing, diversifying, and becoming more capital efficient. And it is the direct result of the disciplined execution this team brings every single day. First quarter revenue was $75.4 million, up 28% over the prior year. Following what was a record fourth quarter for Viemed Healthcare, Inc., matching that performance low in Q1 is an achievement we are proud of and one that is consistent with exactly what we communicated as planned for the year. Q1 carries a predictable seasonal pattern, and the business executed right in line with our internal plan. As we move into the second quarter and the balance of the year, we feel very good about the current and future quarters. Sleep continues to be one of the strongest growth drivers in the business. PAP therapy patients grew 57% year over year, and the set of activity we have driven over the past several quarters is translating into a larger and steadily expanding base of resupply patients. We now have nearly 36,000 PAP patients on the platform. As that base expands, it brings greater visibility into future revenue and a more stable growth profile. Beyond those numbers are tens of thousands of patients who are sleeping better, feeling better, and living healthier lives because of the care we are delivering. As sleep continues to scale, it provides increasing visibility into future revenue and becomes a more meaningful contributor to the overall growth profile of the business. On resupply, quarterly patient counts were down from the fourth quarter, consistent with the seasonal pattern we see every year. Activity typically moderates as deductibles reset coming out of Q4, and we saw that dynamic play out again this quarter. Importantly, the underlying trend remains intact, with resupply patients up 47% year over year. The long-term demand picture for sleep remains very strong. Obstructive sleep apnea continues to be significantly underdiagnosed, and the broader focus on metabolic health, including increased use of GLP-1 therapies, is driving more patients into diagnosis and treatment. The PAP base we are building today is what drives resupply growth over time, and we continue to feel very good about that pipeline. Sleep is not the only place where our platform leverage is being realized. On our last call, we talked about the potential that excited us most about maternal health—not just in terms of Lehan’s offerings and capabilities, but what we could do with them within the Viemed Healthcare, Inc. platform. I want to update you all on that because the early results are exceeding our expectations. Lehan continued to perform well. The integration has been smooth, and the business has been accretive since day one. A more important development this quarter is what we are seeing outside of Lehan’s original markets. During the first quarter, we serviced just under 4,000 new maternal health patients under the Viemed Healthcare, Inc. contracts in markets where Lehan previously had no presence. That is a critical early indicator of how the model can scale. The payer relationships, intake and billing infrastructure, and compliance capabilities already existed. We were able to extend that existing platform into a new product offering, and the team delivered. This gives us confidence in our ability to continue expanding maternal health into additional Viemed Healthcare, Inc. markets as we move through 2026. Turning to ventilation, we are seeing a couple of important dynamics play out at the same time. First is that new patient startup momentum is building faster and stronger than we expected. Referral sources are getting more comfortable with the updated criteria, the documentation process is maturing, and the setup pipeline is responding in a way that is genuinely encouraging. This is the inflection point we have been working towards, and it is arriving ahead of schedule. March was a particularly strong month for ventilator setups with 759 starts compared to 692 a year ago. Our 100% ALJ success rate on Medicare Advantage denials continues to validate the appropriateness of the patients we serve, and we are seeing more of those denials resolved earlier in the process. Second is that the patient setup cohorts under the new NCD criteria are now reaching required compliance evaluation points, and the turnover rate for those patients is higher than pre-NCD. That is creating some near-term pressure on the net patient census number, which ended the quarter at 12,089 patients. However, I want to be direct: this is not a demand issue. It is not a competitive issue. It is a compliance dynamic that is a requisite of the new system, and it is something we advocated for, anticipated, and will become industry-best at under these new compliance standards. What gives us confidence that both trends are moving in the right direction: compliance among active ventilator patients has improved by nearly 20% since the NCD went into effect. That is a meaningful development and reflects patients and physicians adapting to the new standards. It also supports our view that, given our differentiated high-touch, high-tech model, compliance rates should continue to improve as the NCD matures. I also want to address an area where we continue to advocate on behalf of our patients. Under the current NCD compliance framework, a patient who experiences a noncompliance episode can lose access to their ventilator. In practice, these are patients with serious chronic respiratory conditions who rely on ventilation as a prescribed life-sustaining therapy. When compliance is interrupted—whether due to illness, caregiver changes, or clinical challenges—the current rules can result in a loss of access to that therapy. We believe this is an area where the policy can continue to evolve. The clinical need does not change because of a temporary compliance interruption, and the patient should have uninterrupted access to therapy when appropriate. While the compliance policy does not necessarily threaten our financial success as a company, it absolutely impacts the patients who are benefiting from care, and that is a problem that we will continue to lobby for in the name of our patients. More broadly, the regulatory environment outside the NCD is also moving in a direction that we support. On competitive bidding, as a reminder, the categories identified by CMS for the upcoming round do not include any of our current product offerings. As a result, we do not expect a material impact to the business and continue to view the reimbursement foundation of our core services as stable. On the enrollment moratorium announced by CMS earlier this year, I want to be clear that this has no impact on Viemed Healthcare, Inc.’s operations whatsoever. We are fully enrolled, fully operational, and continuing to grow in every market we serve. What the moratorium does do is restrict new entrants from attaining Medicare enrollment during this period, and for an established provider with our national infrastructure and existing payer relationships, it makes the competitive landscape more rational over time. Across these regulatory developments, the direction is clear. The shift toward more objective criteria under the NCD, the absence of competitive bidding pressure on our core products, and the barriers to entry that favor established providers all reinforce the position we have built over time. These are the kinds of conditions that support long-term sustainable growth. None of that happens without the team behind it. Managing the NCD transition, expanding maternal health into new markets, and continuing to scale sleep requires a high level of operational discipline and clinical focus. Our team of 1,387 employees delivered on each of those priorities this quarter, and the results reflect that work. Those results are built on capabilities we have developed over time. A clinical model, a technology platform, a compliance infrastructure, and a national network of payer relationships all work together to support how we operate and scale. That combination allows us to expand sleep into new markets, extend maternal health through the existing infrastructure, and manage the regulatory transition of ventilation with consistency. It is a foundation that supports continued growth. With that, I will now turn the call over to William Todd Zehnder to walk through our financial results and capital allocation in more detail. I would draw your attention in particular to the free cash flow results and the capital return activity we executed during the quarter. Those numbers reflect the execution we have been describing, and I think they tell an important story about the financial trajectory of this business. William Todd Zehnder: Alright. Thank you, Casey, and good morning, everyone. In reviewing the financial results, all figures are in U.S. dollars, and our full results have been filed with the SEC. I will be referencing information available in our quarterly financial supplement, which can also be found on our investor relations website. Starting with the top line, first quarter revenue totaled $75.4 million, representing growth of 28% over the prior year. On a sequential basis, revenue was essentially flat compared with the $76.2 million we delivered in the fourth quarter of 2025, which is right in line with the seasonal pattern we outlined on our last call. As we discussed in March, Q1 typically runs flat to slightly down sequentially, and that is exactly how it played out. The quarter reflects strong execution against the plan. Looking at the components of that revenue, ventilator rentals totaled $35.4 million for the quarter, up approximately 10% over the prior-year period. Our other home medical equipment rentals contributed $16.2 million, up 25% year over year. Equipment and supply sales came in at $17.5 million, more than doubling from $7.5 million in the prior-year period, driven by growth across both sleep resupply and our maternal health offerings. On the sleep side, our PAP therapy patient count reached 35,938 at quarter end, up 57% year over year and 4% sequentially. As that PAP base grows, more patients move into long-term resupply relationships, which creates a recurring and predictable revenue stream that compounds over time. The maternal health contribution reflects both the continued performance of the Lehan business and the early expansion beyond its original footprint that Casey discussed. From a mix standpoint, ventilator rentals represented approximately 47% of total revenue in 2026 compared to 54% in 2025. That shift matters for a few reasons. Sleep resupply and maternal health carry different capital requirements, payer profiles, and growth characteristics than ventilation, and as those categories scale, they reduce our concentration risk, broaden our reimbursement base, and improve the capital efficiency of the business. The Viemed Healthcare, Inc. business itself continues to perform well, but the overall revenue base is becoming more balanced, which is by design. The continuation of this diversification should help bolster our financial performance in the future. On the payer side, Medicare represented 35% of revenue in the quarter, down from 41% a year ago. As our sleep and maternal health businesses scale, a larger share of our revenue is coming from commercial payers, which reduces our concentration to any single payer and provides a more diversified reimbursement base. Gross profit for the quarter was $42.8 million, representing a margin of 56.8%. That is a modest improvement compared to 56.3% in 2025 and roughly in line with what we delivered for the full year of 2025. Sequentially, margins were down modestly from the 57.9% we reported in the fourth quarter, which is consistent with normal Q1 patterns. The sequential moderation from Q4 is largely a function of revenue volume. Q1 is our lowest revenue quarter of the year, and our labor costs in COGS carry some relatively fixed components, so lower sequential revenue naturally produces some margin compression at the gross profit line. In evaluating year-over-year performance, it is important to consider that 2025 included a $2.7 million recurring gain on disposals related to the ventilator buyback program with Philips, which has since concluded. That gain impacted both operating income and adjusted EBITDA in the prior period and creates a distortion in the year-over-year comparison. Adjusted EBITDA for 2026 was $14.3 million, or 19% of revenue, compared to $12.8 million, or 21.6% of revenue, in 2025. Excluding the prior-year gain, adjusted EBITDA margin in 2025 would have been approximately 17%. On a comparable basis, adjusted EBITDA margin expanded by approximately 200 basis points year over year, which we believe better reflects the underlying operational progress of the business. As expected, the reported 19% margin is lower than our full-year 2025 margin of approximately 22.7% given the seasonal nature of Q1. That quarterly cadence is consistent with prior years and does not change our full-year view on margin. We continue to expect adjusted EBITDA margin to be in the range of approximately 21% to 22% for the full year 2026, supported by operating leverage in SG&A as the revenue base grows. SG&A as a percentage of revenue improved to 46.1% in 2026 from 48.1% in 2025, a 200 basis point improvement year over year. That improvement reflects the operating leverage we continue to realize as we scale. In absolute dollars, SG&A increased by $6.4 million, driven primarily by employee-related costs to support our growth, including headcount added from the Lehan acquisition. We ended the quarter with 1,387 employees, up 14% from 1,222 a year ago. Net income attributable to Viemed Healthcare, Inc. for the quarter was $2.6 million, or $0.06 per diluted share, essentially flat with the $2.6 million reported in 2025. As noted, the prior-year period benefited from the Philips disposal gain that did not recur. On a normalized basis, the underlying earnings trajectory of the business continues to improve. Free cash flow is an area I want to spend some time on because we think it is one of the most important indicators of where the business is headed. Free cash flow for the quarter was $2.6 million compared to negative $5.7 million in 2025. That is an $8.3 million improvement year over year, and it reflects progress on both sides of the equation. We are generating more cash from operations, and we are deploying less capital to do it. On the operating side, cash flow from operations was $8.1 million in the quarter, up from $2.9 million a year ago. That is nearly a threefold improvement in a single year and is the most direct reflection of the earnings growth we are generating across the platform. On the spend side, net CapEx was $5.5 million compared to $8.5 million in 2025. As sleep resupply, maternal health, and staffing represent a growing share of our revenue, more of our growth is coming from service lines that require less capital per dollar of revenue than our ventilator business. This is an intentional and favorable structural shift in the capital intensity of the business, and we expect it to continue as the mix evolves. The result is a business that is growing revenue at 28% year over year while simultaneously becoming more capital efficient. That combination is what produces durable free cash flow at scale, and it is what we are seeing in the numbers. To put that in perspective, trailing twelve-month free cash flow was $11.6 million at the end of 2024, it was $23.3 million through 2025, and it was $36.3 million as of today. We believe that as the market better understands the free cash flow profile of this business, it will be an increasingly important driver of how Viemed Healthcare, Inc. is valued. We continue to fund our CapEx entirely from operating cash flow. Net CapEx as a percentage of revenue was approximately 7.3% in the first quarter. Based on that result and the continued evolution of our revenue mix toward less capital-intensive categories, we are updating our full-year net CapEx outlook to a range of 9% to 10.5% of net revenue, from our prior expectation of 10% to 11.5%. That update reflects the structural improvement in capital efficiency we are seeing as the business mix evolves, and we expect that trend to continue through the remainder of the year. Turning to capital allocation and the balance sheet, during the first quarter, we repurchased and canceled 150,000 shares of common stock under our 2026 share repurchase program at an average price of $9.29 per share for a total cost of $1.4 million. We authorized this program in March and began executing immediately. Our share repurchases are accretive to per-share value for continuing shareholders, and we believe that consistent execution on our buyback programs has been a contributing factor in the positive share performance we have seen over time. We also made $3.2 million in principal payments on our long-term debt during the quarter, reducing long-term debt to $8.3 million at 03/31/2026. We ended the quarter with $9.8 million in cash and $46 million available under our credit facilities. Our balance sheet remains in excellent shape. We are effectively at net zero debt, and we have significant capacity available under our credit facilities should an attractive acquisition opportunity arise. We remain disciplined on that front. Any acquisition would need to meet our return thresholds and fit within the strategic framework we have outlined, but the financial position to act is there. The ability to simultaneously repurchase shares and pay down debt while continuing to invest in the business is a direct reflection of the free cash flow generation we just discussed. That is exactly what we said we would do when we laid out our capital allocation framework, and the financial results this quarter reflect that execution. Our capital allocation priorities remain the same: invest in organic growth first, evaluate disciplined acquisitions second, and return capital to shareholders when appropriate. The share repurchase program reflects our confidence in the long-term value of the business at current levels, and we will continue to execute on it opportunistically. Turning to our outlook, we are updating our full-year 2026 guidance on two metrics. On net revenue, we are narrowing and raising the low end of our range to $312 million to $320 million from the prior range of $310 million to $320 million. We are reaffirming adjusted EBITDA in the range of $65 million to $69 million. On net CapEx, as I mentioned a moment ago, we are updating our full-year outlook to a range of 9% to 10.5% of net revenue from the prior expectation of 10% to 11.5%. The first quarter came in strong as expected. Revenue was consistent with the seasonal pattern we described on our last call, and the underlying business performed well in line with our internal plan. As we move into the second quarter, we continue to expect sequential revenue growth in the range of 3% to 5% per quarter through the remainder of the year. The operational signals Casey described, including improving new patient starts momentum in ventilation and the continued acceleration in maternal health, give us good visibility into that ramp as we move through the year. We feel good about where we sit relative to the full-year plan. Before we open up the line for questions, I want to end with a few key takeaways from the quarter. Revenue grew 28% year over year. Free cash flow improved by $8.3 million compared to 2025, driven by stronger operating cash generation and a more capital-efficient business. We ended the quarter with effectively no net debt and $46 million of available credit capacity, and we returned capital to shareholders through active execution of our share repurchase program. Each of those outcomes reflects deliberate execution against the plan we have laid out, and we enter the second quarter with good momentum across the platform. We will now open the call for questions. Operator: Thank you. At this time, we will conduct the question and answer session. A confirmation tone will indicate that your line is in the question queue. To ask a question, please press star 1 on your phone. Your first question comes from Dave Storms with Stonegate. Please state your question. Dave Storms: Good morning, and thank you for taking my questions. Great to see that you are increasing the low end of the range. You mentioned new patient starts, continued acceleration in maternal, and the like as drivers. Where could leverage push you to the higher side of that revenue guidance range? Is it more ventilator patients, is it the maternal integration, or something else? William Todd Zehnder: I would say that all of the product lines have the opportunity to push us toward the upside, Dave, and that is the great situation we are in. Vent new patient starts are exceeding what we originally thought, and the metrics that Casey talked about regarding compliance are extremely important for keeping patients on and getting that length of stay to where we want it to be. So ventilation has upside. The maternal health business is growing dramatically, and as we continue to operationalize it and scale, it probably has a very high likelihood of being a contributor to outperformance. And then the sleep side continues to outperform what we thought it would do a few years ago. So those three really have the ability to push us up toward that top end and, if everything works well, who knows—we may be able to increase it later on. But right now, we are very comfortable with where we sit. Dave Storms: That is great. Maybe circling in on maternal a little bit, you are seeing a lot of growth there. What are the potential limiters—headcount, education, new products, geographies? What could be limiting factors that you will focus on most? Casey Hoyt: Yes. I will start with complex respiratory, which is foundational for us. The NCD rules and really becoming the thought leader in them—having our clinical protocols laid out by the NCD already in place at Viemed Healthcare, Inc. gave us a leg up to be the first one inside of our referral sources’ offices to explain how the new world is going to work. We have been leveraging that and educating our referral sources so they understand what they are up against. Naturally, we are seeing our referrals spike as a result of being the educator of the new landscape inside of those offices. Beyond that, it is all of the above on what you laid out. We are expanding into new geographies. We have new sales reps who are clicking on all cylinders, and we have a new profile of reps we have been hiring that have been taking off as well. Lots of positive momentum with training, coaching, mentoring, and getting folks producing sooner rather than later. It becomes a land grab—getting into new markets with our program. William Todd Zehnder: And I will add—specific to maternal—people on the sales front are not the governor. It is really back office and fulfillment that we are staffing up. We have contracts in place, and we have marketing abilities around the country. It is about getting the mid and back office scaled up, and we have already increased that business dramatically. We are hiring as fast as we can and fulfilling as fast as we can. Finding salespeople is not a problem—although we have some we are layering in—it is really more digital marketing than anything. Dave Storms: Understood. Thank you. One more on margins: you mentioned operational efficiencies in vent and touched on SG&A. Over the next three to six months, is there low-hanging fruit left, or is it largely where you want it? William Todd Zehnder: There are always things to continue to do. We have been transparent that growth is going to come with some expenses, and we will continue to incur those. But we are extremely excited about the efficiency we are seeing. If you want to talk about AI or machine-based learning to help on the intake side or the logistics side, we have a lot of things we are implementing that should help with efficiencies. They should help with the cadence of setups and with the labor per order that we are processing. And as we continue to build these other business lines, corporate G&A is not having to go up in lockstep, so we will see efficiencies there as well. The most telling thing is the 200 basis point improvement in SG&A in one year. Our goal is to continue to drive that number down and improve margins over time. And as we have said on the call, this free cash flow enhancement is real, and we are very excited about it. Dave Storms: That is great commentary. I will take the rest offline. Thank you. Operator: Thank you. We have reached the end of the question and answer session. I will now turn the call over to management for closing remarks. Casey Hoyt: We appreciate everyone’s trust in our team. We are going to continue to double down on this growth and positive momentum and look forward to updating you in the coming quarters. Thank you, and have a good day. Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, greetings, and welcome to the Rand Capital Corporation First Quarter FY 2026 Financial Results Conference Call. At this time, all participants are in the listen-only mode. If anyone requires operator assistance during the conference call, please signal the operator by pressing star and 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Craig Mychajluk. Please go ahead. Thank you, and good afternoon, everyone. Craig Mychajluk: We appreciate your interest in Rand Capital Corporation for joining us today for our first quarter 2026 financial results conference call. On the line with me are Daniel Penberthy, our President and Chief Executive Officer, and Margaret Whalen Brechtel, our Executive Vice President and Chief Financial Officer. A copy of the release and slides that accompany our conversation is available at randcapital.com. If you are following along on the slide deck, please turn to Slide two. I would like to point out some important information. As you are likely aware, we may make forward-looking statements during this presentation. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ from where we are today. You can find a summary of these risks and uncertainties and other factors in the earnings release and other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. During today's call, we will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results in accordance with generally accepted accounting principles. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's earnings release. With that, please turn to Slide three, and I will hand the discussion over to Daniel Penberthy. Daniel? Daniel Penberthy: Thank you, Craig Mychajluk, and good afternoon, everyone. We view Q1 as a transition quarter for Rand Capital Corporation. Our results reflected the impact of nonaccruals and a smaller income-producing portfolio due to the repayment of several debt investments during 2025. But we have also made progress on several fronts that we believe are important as we move through 2026. Investment income for the quarter was $1.2 million and net investment income was $0.18 per share. Those figures were below the prior-year period primarily due to a reduced amount of interest income from our current portfolio companies as compared with 2025. At the same time, we generated a realized gain of approximately $1.1 million from the exit of Cybertz, or The Rack Group as it is commonly known, and we also deployed $5.1 million into new and follow-on investments during the quarter. This includes our new investment in AME HoldCo. From a capital position standpoint, we ended the quarter with net asset value of $17.16 per share with approximately 80% of the portfolio invested in debt investments, and more than $20 million of available liquidity, with only $0.5 million drawn on our line of credit at quarter end. So while the quarter's earnings reflect the lag from 2025 debt repayments and current portfolio nonaccruals, we believe the quarter also showed continued execution through capital recycling, new investment activity, and balance sheet flexibility. With that overview, let us turn to Slide four. Delivering consistent cash dividends remains central to Rand Capital Corporation’s strategy. During the first quarter, we paid our regular quarterly cash dividend of $0.29 per share, and in April, we declared another regular dividend of $0.29 per share for 2026. That consistency is important. Even in periods where repayments have reduced the size of the earning portfolio and nonaccruals have weighed on our current income, we have remained focused on supporting the regular dividend while rebuilding the portfolio. The nature of the GAAP versus tax or RIC-based accounting for our dividends has benefited us in 2026 as we work hard to rebuild the portfolio base supporting future dividends. Our dividend strategy remains disciplined and earnings driven. We want to preserve balance sheet flexibility, continue to support the portfolio where appropriate, and deploy capital selectively into investments that can contribute to income and create long-term shareholder value. Please turn to Slide five for a review of the portfolio. At March 31, our portfolio had a fair value of $51.5 million across 20 portfolio companies. This compares with $48.5 million at year-end 2025. The portfolio remained positioned toward income generation with approximately 80% in debt investments, as I previously highlighted, and 20% in equity investments. That debt-orientated mix continues to reflect our emphasis on structures designed to generate current income while preserving some potential upside through equity participation. The annualized weighted-average yield on debt investments, including PIK interest, was 9.43% at quarter end, down from 11.3% at 12/31/2025. That decline primarily reflects the impact of nonaccruals including such companies as FSS and MRES, both of which were placed on nonaccrual status beginning in 2025. These nonaccruals dragged down the total yield on an aggregated basis. However, keep in mind our individual transactions are more typically currently being priced with interest in the 13% to 14% range. More broadly, our strategy remains focused on expanding income-producing investments over time while preserving credit quality with a disciplined approach to underwriting and valuation. Please turn to Slide six. This slide summarizes our key portfolio actions in the quarter—both new deployment and follow-on capital, as well as the actions we took in a workout situation and, importantly, a strong full-cycle realization or exit for Rand Capital Corporation. We closed a $4 million investment in AME HoldCo during the quarter consisting of a $3 million term loan at 13% and a $1 million equity investment alongside it. AME provides auto center design and installation, and we believe it fits well within our lower middle market investment strategy. We also remained active with existing portfolio companies. During the quarter, we participated with a co-investor in the buyout of MRES' senior credit position, with Rand Capital Corporation’s pro rata investment totaling approximately $0.678 million. This positioned the investor group as a senior creditor in the situation. MRES is currently being restructured through a technical bankruptcy through the courts. We are optimistic that given our strong position in both the senior and subordinated debt tranches, we will play a key role in partnering with the company to execute a successful workout plan. We also funded a $0.4 million follow-on debt investment in FSS, bringing our total investment there to a fair value of $4.3 million at quarter end. And lastly, we completed a smaller follow-on equity investment of $0.05 million into KITECH. In addition to those investments, the quarter included the final monetization of Cybertz, doing business as The Rack Group, which we view as a strong investment outcome for Rand Capital Corporation. We had previously received full repayment of our original $7.7 million debt investment, and during the first quarter, we sold our remaining equity holdings for approximately $1.3 million in proceeds, generating a realized gain of approximately $1.1 million. The Rack Group is a good example of the way our model is intended to work: earning income through the life of the investment, providing follow-on capital to support growth, and participating in upside through equity components. More broadly, it also reflects the capital recycling dynamic that is core to our strategy and all BDCs, where repayments and realizations create capital for future deployment into new income-producing opportunities. Please turn to Slide seven, which shows our balanced industry exposure across the portfolio. Professional and business services remains the largest area of exposure, followed by manufacturing, and then distribution and consumer products. While individual weighting shifted during the quarter due to new investment, follow-on funding, and repayments and valuation changes, the broader portfolio continues to reflect a balanced mix across multiple industries aligned with our lower middle market focus. We believe maintaining this balanced industry exposure supports the portfolio resilience while preserving flexibility to pursue attractive sector-specific opportunities as they do emerge. Please turn to Slide eight. Our top five portfolio investments represented approximately $22.9 million in fair value, or 44% of the total portfolio, at 03/31/2026. These holdings include International Electronic Alloys, or INEA, KITECH, Highland All About People, BMP Foodservice Supply, and AME HoldCo. These investments form an important part of the portfolio and we are focused on working with the companies to preserve creditworthiness and the value in the Rand Capital Corporation portfolio as well as to preserve and maintain their income-producing base. Some also include equity participation or PIK interest income features that can contribute to additional return potential over time. Compared with prior periods, the top five also reflect the portfolio transition we have discussed. Cybertz is no longer in the top five, following the full monetization of that investment, and AME has now entered the group following our new investment in the quarter. With that, I will turn it over to Margaret Whalen Brechtel to walk through the financial results in more detail. Margaret Whalen Brechtel: Thanks, Daniel Penberthy, and good afternoon, everyone. I will start on Slide 10, which provides an overview of our financial summary and operational highlights for 2026. Total investment income was $1.2 million, down 38% compared with the prior-year period. The decrease primarily reflects lower interest income from portfolio companies following the repayment of five debt instruments over the past year along with lower fee income. Noncash PIK interest totaled $0.244 million in this first quarter, representing 20% of total investment income compared with 31% in the prior-year period. We continue to monitor PIK exposure closely. Total expenses were $0.642 million for the quarter, down 19% compared with $0.791 million in 2025. The decrease primarily reflects lower base management fees and no income-based incentive fee accrual in 2026. Net investment income for the quarter was $0.545 million, or $0.18 per share. Adjusted net investment income per share is also $0.18 per share. Please turn to Slide 11. The waterfall chart on this slide illustrates the drivers of net asset value change during 2026. We began the period with net assets of $52.2 million. During the quarter, we generated $0.545 million of net investment income and $1.1 million of net realized gain on the sale of our remaining equity position in Cybertz. These positive contributions were offset by $2 million of unrealized depreciation and $0.861 million of dividends declared during the quarter, resulting in ending net assets of approximately $51 million and a net asset value per share of $17.16. Now turning to the balance sheet on Slide 12. At 03/31/2026, total assets were $52.5 million and net asset value per share was $17.16, as I just mentioned. Our investment portfolio accounted for $51.5 million of total assets, or $17.30 per share, while consolidated cash was [inaudible] per share. Other assets and liabilities, net, reduced net asset value by approximately $0.919 million, or $0.31 per share. We ended the quarter with $0.5 million outstanding on our senior secured revolving credit facility and approximately $20.1 million remaining availability. This facility permits up to $25 million in borrowings, subject to borrowing conditions and portfolio eligibility requirements, and it does not mature until 2027. The Board of Directors also renewed our share repurchase program, authorizing the repurchase of up to $1.5 million of additional Rand Capital Corporation common stock. The combination of modest leverage, meaningful availability under the facility, and the renewed authorization provides flexibility as we evaluate opportunities to deploy and, where appropriate, return capital to shareholders. With that, I will turn it back to Daniel Penberthy for closing remarks. Daniel Penberthy: Thanks, Margaret Whalen Brechtel. If you would please turn to Slide 13. As we step back and look at where Rand Capital Corporation stands today, we believe the first quarter continued the transition we began in 2025. We are moving from a period where repayments and portfolio events dominated the narrative into a period where we are again deploying capital selectively into new income-producing assets while managing through a handful of challenged portfolio positions. What continues to differentiate Rand Capital Corporation is our flexibility. Across the BDC landscape, investors are focused on dividend sustainability, credit quality, and balance sheet strength. We believe our actions from a capital recycling and new investment deployment perspective while maintaining conservative leverage demonstrate that we are managing with that same focus. Looking ahead, our 2026 objectives are straightforward and aligned with the slides. First, we are executing a long-term strategy anchored in a resilient, income-focused investment model. We are seeing early signs of improved sponsor activity and deal flow in our segment of the market, and we believe we are well positioned to scale the portfolio prudently as attractive opportunities emerge. Second, we intend to use our liquidity and available credit capacity to support both new investments and follow-on capital where we see compelling risk-adjusted returns. We are maintaining underwriting standards and active portfolio oversight. Including in situations like FSS and MRES, we are working to protect and, where possible, enhance future value. Third, our goal is to support a consistent earnings-driven dividend while reinforcing NAV through disciplined capital allocation. We believe our current balance sheet, portfolio mix, and pipeline give us the flexibility to pursue growth from a position of strength rather than a need to chase volume. We believe the work completed in 2025 and the actions taken in 2026 have positioned Rand Capital Corporation to rebuild the portfolio thoughtfully from a position of balance sheet strength. We remain focused on the things we can control—prudent underwriting, disciplined capital allocation, and long-term shareholder value creation. As you all know, the broader BDC market is experiencing significant volatility and private credit has become more challenging for many of the newer public and private funds. Rand Capital Corporation is not immune to these dynamics. However, we are confident that our decades of experience and the strength of our management team will guide us through what we expect to be a relatively short-lived and intermittent period of market disruption. Thank you for your time today and your continued interest in Rand Capital Corporation. We appreciate your support and look forward to updating you on our progress next quarter. Have a great day. And go Savers. Operator: Ladies and gentlemen, the conference call of Rand Capital Corporation has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Welcome and thank you for joining the First Quarter 2026 Earnings Conference Call for Herbalife Nutrition Ltd. During the company's opening remarks, all participants will be in a listen-only mode. Following the opening remarks, we will conduct a question-and-answer session. As a reminder, today's conference is being recorded. I would now like to turn the call over to Erin Banyas, Vice President and Head of Investor Relations, to begin today's call. Please go ahead. Erin Banyas: Thank you, and welcome to everyone joining us. With us today are Stephan Paulo Gratziani, our Chief Executive Officer, and John G. DeSimone, our Chief Financial Officer. Before we begin today's call, I would like to direct you to the cautionary statement regarding forward-looking statements on Page 2 of our presentation and in our earnings release issued earlier today, which are both available under the Investor Relations section of our website. The presentation and earnings release include a discussion of some of the more important factors that could cause results to differ from those expressed in any forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995. As is customary, the content of today's call and presentation will be governed by this language. In addition, during today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or nonrecurring items that management believes impact the comparability of the periods referenced. Please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial measures and the reconciliations to the most directly comparable GAAP measure. And with that, I will now turn the call over to our CEO, Stephan Paulo Gratziani. Stephan Paulo Gratziani: Thank you, Erin. Thank you all for joining us today. We delivered a strong start to 2026, with first quarter net sales and adjusted EBITDA exceeding guidance as we continue to build momentum. Importantly, these results reflect the underlying stability of our business and reinforce our confidence in the strategy we are executing. We are building a more connected, personalized approach to health and wellness by bringing together innovation, science, and the strength of our distributor network to better serve customers around the world. On April 14, as part of our debt refinancing, we released preliminary net sales growth expectations that exceeded the high end of our guidance on both a reported and constant currency basis. We also indicated that reported adjusted EBITDA was expected to be at or above the high end of our previously issued guidance. Our final reported results are in line with that release. Let's review a few of the financial highlights from the quarter. We delivered net sales of $1.3 billion, up 7.8% year-over-year and up 5.4% on a constant currency basis, exceeding guidance on both measures. This was our third consecutive quarter of year-over-year net sales growth on both a reported and constant currency basis. India achieved record quarterly net sales for the second consecutive quarter. Adjusted EBITDA was $176 million and above guidance, and we generated $114 million of cash from operations in the quarter. In addition to our first quarter results, we successfully refinanced and strengthened our capital structure in April, which we expect will result in approximately $45 million in annual cash interest savings. We executed this transaction in a highly volatile market and geopolitical environment. We achieved our pricing objectives, extended our maturity profile, and meaningfully reduced our borrowing costs while also enhancing our financial flexibility. This outcome reflects the financial and operational results we have delivered over the past two years. As we build on this momentum, we remain focused on executing against our vision, with personalization at the center of our strategy. Personalization has always been a foundational strength of Herbalife Nutrition Ltd., with our distributors delivering tailored recommendations through direct relationships and a deep understanding of individual goals. What is evolving is the level of precision we can now bring, which is enabled by enhanced data insights and technology. This evolution is especially important as consumer expectations continue to rise, driven by greater access to AI, wearables, and at-home diagnostics, which are increasing demand for guidance that is not only personalized, but also more actionable and continuous. We are evolving from personally curated recommendations to an approach that combines both personally curated and formulated solutions, extending our ability to deliver individualized outcomes at scale through better tools, better data, and expanded manufacturing capabilities, all delivered through our distributors. This builds on four core actions that have long guided our business: what to measure, including key health metrics like weight and muscle mass; what to take, which is products from our expanding portfolio; what to do, including daily habits like hydration and exercise; and who to do it with, which is our distributors who provide guidance and support through a variety of DMOs as they go to market. These actions have successfully built our business over the past 45 years. Our global network includes over 2 million distributors, more than 60 thousand nutrition clubs, and millions of customers across 95 markets. This reach is our differentiator and superpower. Building on that foundation, our recent acquisitions are enabling a more connected, personalized, and data-driven approach that is enhancing these four core actions, making them more precise, scalable, and actionable. On March 26, we announced an agreement to acquire substantially all of the assets of Vionic's core personalized nutrition business, which we completed in April. Vionic is an established UK-based business with an existing supply chain. Its patented product personalization engine uses an individual's health background and a proprietary database of biomarker data to develop personalized nutritional supplement formulas. This acquisition further accelerates our pathway into personally formulated products. In late June, our distributors will begin offering Vionic's personalized nutritional supplements to customers across 11 European countries. The U.S. will follow in July, with additional markets later in 2026. I'd like to take a moment to explain how our recent acquisitions work together to support the four core actions I mentioned earlier, with Protocol as a central operating system. Each acquisition plays a distinct role, and combined, they create greater value than any one capability alone. Let me walk you through how each contributes. Link Biosciences is a formulation and manufacturing engine. It translates insight into products by enabling us to manufacture personalized nutritional supplements in a powder format at scale, directly connecting data and recommendations to the finished product. Vionic accelerates our speed to market with a personally formulated vitamin and mineral complex, in a granule format, while broadening availability through a more accessible price point. Prüvit provides the opportunity to expand our portfolio into the ketone category with a channel-exclusive offering aligned with growing consumer interest in performance, energy, and metabolic health. It is an exciting addition to the portfolio; we will have more to share this summer. And Protocol brings it all together by providing the experience and intelligence layer. It digitizes and scales the four core actions I mentioned earlier—what to measure, what to take, what to do, and who to do it with—bringing greater precision to how distributors support and engage their customers through a more connected, data-informed experience. It translates consumer inputs and health data into actionable guidance that supports more consistent behavior change over time. In March, we expanded the Protocol beta program to include select 10 EMEA markets. That broader deployment is providing valuable feedback that is helping refine the roadmap, platform capabilities, and the digital experience. To enable integration of Vionic into Protocol, and incorporate feedback from the broader beta group, we are extending the beta program, with the next release planned for the North America Extravaganza in July. That release will include a new user experience, enhanced features, and additional capabilities that support our broader strategy. Part of that broader strategy is a multiyear rollout of new packaging across our global product portfolio. The rollout began in March, and we expect it to be substantially completed by 2027. For context, slide 8 highlights our packaging currently in market, and slide 9 highlights our new modern packaging design. Grounded in consumer insights and analytics, the new packaging reinforces scientific credibility and trust at every touch point. At a portfolio level, a consistent science-led visual system simplifies navigation and helps distributors and customers confidently build personalized product combinations. The new labels also reinforce product purpose and efficacy, strengthening confidence and differentiation, which are foundational in a competitive global marketplace. In April, we kicked off our first Extravaganza events of the year, which started in India, where we hosted three consecutive events across Delhi and Bengaluru with approximately 46 thousand attendees. We saw firsthand the strong energy and engagement across the market. These events are a critical part of how we operate. It is where we communicate our vision, build skills, share best practices, and reinforce strategic priorities in ways that directly shape distributor execution. They also drive momentum at the local level, leading to stronger engagement, more consistent business activity, and improved retention. We look forward to that momentum continuing as we kick off our summer Extravaganza events in China, Eurasia, South America, Asia Pacific, Europe, and North America. Before I turn it over to John to walk through the quarter in more detail, I want to take a step back and reflect on what we have accomplished over the past two years. Herbalife Nutrition Ltd. today is a fundamentally stronger company than it was two years ago. We have stabilized net sales and returned to growth, expanded adjusted EBITDA margins, strengthened our balance sheet by repaying nearly $540 million of debt since 2024, reduced our total leverage ratio from 3.9x in 2023 to 2.7x at the end of the first quarter, completed our debt refinancing, unlocking approximately $45 million in annual cash interest savings, and completed four strategic acquisitions. Importantly, we have done all of this with a disciplined approach, improving operational efficiency while executing against our plan. We are about to reach a major milestone this summer—the launch of our next-generation personalized nutritional supplements. This further strengthens our confidence in the path ahead. Our continued progress reflects strong momentum and clear direction as we advance towards our vision to become the world's premier health and wellness company, community, and platform. With that, I will hand it over to John to walk through the financials in more detail. Over to you, John. John G. DeSimone: Thank you, Stephan. Turning to our first quarter financial highlights on slide 11, we delivered another strong quarter, with net sales and adjusted EBITDA both above our guidance ranges, led by continued strength in India. First quarter net sales were $1.3 billion, up 7.8% versus 2025 and above the high end of our guidance range of 3% to 7%. This was our third consecutive quarter of year-over-year growth and our strongest year-over-year growth since 2021, building on the momentum we saw in 2025. On a constant currency basis, net sales increased 5.4% year-over-year, also exceeding guidance. We have now delivered year-over-year constant currency growth in eight of the last 10 quarters. Our first quarter net sales outperformance was driven primarily by India, where net sales reached a record $275 million, up approximately 32% year-over-year, marking the second consecutive quarter of record sales. We believe demand in the market remains strong following the reduction in the GST rate on the majority of our products in late September 2025. I will provide more details on our regional performance later in the call. Adjusted EBITDA was $176 million, above the high end of our guidance range of $155 million to $175 million. Adjusted EBITDA margin was 13.3%, down 20 basis points year-over-year, but up 240 basis points on a two-year stacked rate, including approximately 70 basis points of FX headwinds versus last year. CapEx was $11 million for the quarter, at the low end of our $10 million to $20 million guidance range, primarily due to timing with some spending shifting into the second quarter. Capitalized SaaS implementation costs were $10 million. Gross profit margin was 77.9% in the quarter, down 40 basis points year-over-year. This reflected approximately 50 basis points of input cost inflation, primarily from lower absorption rates; 30 basis points of unfavorable sales mix; 20 basis points from other unfavorable cost changes; and 50 basis points of FX headwinds. These factors were partially offset by 70 basis points of pricing benefits and 40 basis points from lower inventory write-downs. First quarter net income attributable to Herbalife Nutrition Ltd. was $62 million, with adjusted net income of $69 million. First quarter adjusted diluted EPS was $0.64, including a $0.03 FX headwind versus 2025. Our adjusted effective tax rate was 27.3%, compared to 21.8% in 2025, which resulted in an approximately $0.04 unfavorable impact to adjusted diluted EPS. The higher rate in 2026 was primarily driven by a decrease in tax benefit from discrete events compared to 2025. For full year 2026, we continue to expect our adjusted effective tax rate to be approximately 30%, in line with 2025. We delivered strong cash generation in the first quarter, which is typically our lowest cash flow quarter in past years due to timing of our annual distributor bonus payments and employee performance bonus payments. Operating cash flow was $114 million, compared to relatively neutral cash flow in 2025. Consistent with last year, we paid approximately $75 million of annual distributor bonuses in the quarter. However, employee performance bonuses were paid in April, rather than in the first quarter. Credit agreement EBITDA for the first quarter was $194 million and our total leverage ratio was 2.7x as of March 31. Beginning this quarter, we are introducing net leverage ratio as an additional metric to provide greater transparency into our leverage profile and delevering progress. We define net leverage ratio as net debt divided by trailing twelve-month credit agreement EBITDA. At the end of the first quarter, our net leverage ratio was 2.1x, and we are establishing a target to reduce net leverage to below 2x by the end of this year. We believe this metric provides a more complete view of financial flexibility because it reflects debt relative to earnings while also incorporating cash on hand. For additional details regarding the adjustments between adjusted EBITDA and credit agreement EBITDA, as well as the calculation of net debt, total leverage ratio, and net leverage ratio, please refer to the presentation appendix and the earnings press release. As Stephan noted earlier, in April, we completed our $1.45 billion senior secured refinancing. I will provide more details on that in a moment. Turning to slide 12, reported net sales increased nearly $100 million in the quarter, or 7.8% year-over-year, while constant currency net sales increased 5.4%. Volume increased 4.1% worldwide, marking our third consecutive quarter of year-over-year volume growth. Pricing provided an approximately $40 million benefit in the quarter, while country mix was an approximately $26 million headwind to net sales. FX provided an approximately $29 million benefit, or a 240 basis point tailwind. Turning to slide 13, we have the regional net sales results for the quarter. As we noted in our April 14 pre-release, results were mixed across the business in the quarter. Strong growth in Asia Pacific and Latin America offset softer performance in EMEA and North America, while China continued to be a headwind. In Asia Pacific, reported net sales increased 17% year-over-year, while local currency net sales increased 21%, driven by approximately 22% volume growth and favorable year-over-year pricing, partially offset by unfavorable sales mix and FX movements. As I mentioned earlier, India delivered record quarterly net sales for the second consecutive quarter, with reported net sales up 32% year-over-year and local currency net sales up 39%. Growth was driven by a 37% increase in volume and favorable sales mix. Pricing was neutral, as we have not taken a price increase since November 2024, and FX was a meaningful headwind. We continue to believe market demand remains strong following the GST rate reduction on a majority of our products. Importantly, India has long been one of our strongest growth markets. While year-over-year reported net sales growth began to moderate in late 2024 to mid-2025, momentum began to build again, supported by distributor leadership training in 2025. We expect the GST tailwind to continue through September, with momentum extending beyond September although at a more moderate level. Latin America delivered its third consecutive quarter of double-digit reported net sales growth, with net sales up 17% year-over-year and local currency net sales up 7%. Results were driven primarily by favorable year-over-year pricing and sales mix, along with a significant FX tailwind, mainly from the strengthening of the Mexican peso, partially offset by a 2% decline in volume. Within the region, Mexico delivered another quarter of growth, with reported net sales up 22% year-over-year and local currency net sales up 5%, driven primarily by favorable year-over-year pricing. In EMEA, reported net sales increased 1% year-over-year, benefiting from FX tailwinds. Constant currency net sales decreased 6%, reflecting an 11% decline in volume that more than offset favorable year-over-year pricing. In North America, net sales declined 3% year-over-year, reflecting a 5% decline in volume, partially offset by favorable year-over-year pricing. As noted in our April 14 press release, U.S. net sales were negatively impacted by unusually severe weather in January and February, which led to temporary closures of distributor-owned nutrition clubs, disrupted distributors' daily consumption sales, and, in turn, reduced distributor product purchases from the company. Net sales were also impacted by higher levels of shipments in transit at quarter end compared to the prior year, with the related revenue deferred to the second quarter under our revenue recognition policies. Excluding these factors, North American net sales would have been slightly up year-over-year on both a reported and constant currency basis. We continue to expect full-year net sales growth in North America in 2026. In China, reported net sales declined 12% year-over-year, while local currency net sales declined 16%, reflecting a partial benefit from foreign exchange. The decline was primarily driven by an 18% decrease in volume, partially offset by favorable sales mix. Turning to slide 14, we see the key drivers of the $11 million, or 6.5%, year-over-year increase in first quarter adjusted EBITDA. Adjusted EBITDA was $176 million for the quarter, with a margin of 13.3%. On a constant currency basis, adjusted EBITDA was $180 million. Looking at the bridge, we first see the drivers of the year-over-year change in gross profit, including our third consecutive quarter of volume growth, along with pricing benefits, partially offset by unfavorable sales mix and input cost inflation, primarily due to lower absorption rates. Salaries were an approximately $2 million headwind, largely reflecting merit increases implemented in late Q1 2025. First quarter adjusted EBITDA included $5.5 million of China government grant income. Because this grant is typically received once annually, the year-over-year variance is timing-related, as the prior year grant of $4.8 million was recognized in 2025. Lastly, foreign exchange was an approximately $5 million headwind to adjusted EBITDA, and a 70 basis point headwind to adjusted EBITDA margin. Moving to slide 15, I will provide an update on our capital structure. We ended the quarter with $451 million of cash, up nearly $100 million from 2025. During the quarter, we made the scheduled $5 million amortization payment on the Term Loan B, and the revolver was undrawn as of March 31. At quarter end, our total leverage ratio was 2.7x, and net leverage was 2.1x. In April, we completed our $1.45 billion senior secured debt refinancing. We were pleased to execute this transaction in a dynamic market environment while achieving our pricing objectives, meaningfully reducing our borrowing costs, extending our maturity profile to more than seven years, and enhancing our financial flexibility. We also have no material maturities until 2028. The refinancing included $800 million of 7.75% senior secured notes due May 2033, a $225 million Term Loan A, and a $425 million revolving credit facility, with both the Term Loan A and revolver maturing in April 2031. At closing as of April 29, $200 million was outstanding under the 2026 revolving credit facility, with approximately $180 million available to borrow. As I noted, the refinancing meaningfully reduced our borrowing cost. The coupon on the senior secured notes was reduced by 450 basis points, and the spreads on the revolver and term loan were reduced by 300 basis points and 375 basis points, respectively, to 3%. Based on the total senior secured debt outstanding immediately before and after the refinancing, and current applicable interest rates, we expect the refinancing to result in approximately $45 million in annualized cash interest savings. Because the refinancing was completed during 2026, those cash interest savings will only be partially reflected this year. The $45 million represents the annualized benefit based on current conditions. That estimate may change as we pay down debt or as variable interest rates move, but it is reflective of our current expectations for the annual savings from the refinancing. Overall, these actions further strengthen our balance sheet and support our continued focus on deleveraging and financial flexibility. Looking ahead, we are targeting net leverage to be below 2x by 2026 and remain on track to reduce outstanding debt to approximately $1.4 billion in 2028. Separately, let me briefly touch on Vionic. As Stephan noted in his opening remarks, on April 30, we completed the acquisition of substantially all of the assets of Vionic's core personalized nutrition business, as contemplated by the agreement we announced on March 26. Base consideration was $55 million payable over five years, including $10 million payable subsequent to closing. The agreement also provides for up to $95 million in contingent payments tied to certain future Vionic product sales performance. We also obtained a call option to acquire Vionic Lab, a separate platform focused on small molecules and peptides. Importantly, this acquisition is consistent with our disciplined approach to selectively pursuing targeted capabilities that complement our business and can be scaled through our global reach. Turning to slide 16, I will review our outlook for the second quarter and full year 2026. We are continuing to provide net sales and adjusted EBITDA guidance on both a reported and constant currency basis, with reported guidance based on average daily exchange rates from the first two weeks of April 2026. Broadly speaking, since we provided our full-year guidance in February, overall FX impact has moved unfavorably, reducing the tailwind benefit to net sales. For the second quarter, we expect foreign exchange to be a modest tailwind to net sales and neutral to adjusted EBITDA due to timing. On a reported basis, we expect net sales to increase 1.5% to 5.5% year-over-year, including an approximately 50 basis point currency tailwind. On a constant currency basis, we expect net sales to increase 1% to 5% year-over-year. We expect second quarter adjusted EBITDA to be in the range of $150 million to $170 million on both a reported and constant currency basis. This outlook includes an approximately $10 million year-over-year headwind to adjusted EBITDA, or approximately 80 basis points of adjusted EBITDA margin, from two items. Approximately $5 million reflects the timing of the China government grant. We have historically received that grant once annually; in 2026, it was recognized in the first quarter, compared to 2025. The other $5 million relates to the September 2025 India GST rate change. As previously discussed, while the GST rate on most of our products we sell was reduced to 5%, the GST rate we pay on services remained at 18%, which created a mismatch between the GST we collect and the GST we pay, resulting in incremental G&A expense. We have partially offset that impact through a reduction in the sales commission percentage paid to our distributors, reflected in selling expenses. The net impact of those two items is an estimated $5 million headwind to second quarter adjusted EBITDA. Second quarter capital expenditures are expected to be in the range of $15 million to $25 million, above 2026 primarily due to timing as some spending shifted from the first quarter into the second quarter. For the full year, we are increasing the midpoint of our constant currency net sales guidance range while also narrowing the reported and constant currency net sales guidance ranges. The FX tailwind to full-year net sales guidance has been reduced to a 50 basis point benefit from 100 basis points assumed in our previous guidance. For adjusted EBITDA, we have narrowed the ranges on both a reported and constant currency basis, while increasing the constant currency midpoint. We are reaffirming our capital expenditure guidance. For the full year, we expect reported net sales to increase 1.5% to 5.5% year-over-year. On a constant currency basis, we expect net sales to increase 1% to 5% year-over-year. We expect full-year adjusted EBITDA to be in the range of $675 million to $705 million on both a reported and constant currency basis. Based on India's first quarter sales performance and our outlook for the balance of the year, we now expect India GST-related net incremental cost to be an approximately $20 million to $25 million headwind to full-year adjusted EBITDA and an approximately 40 to 50 basis point headwind to adjusted EBITDA margin. Our guidance also includes a preliminary estimate of the impact of higher oil prices. We continue to expect 2026 capital expenditures of $50 million to $80 million. In addition, we expect capitalized SaaS implementation costs of $35 million to $55 million, which are incremental to CapEx. Lastly, we continue to expect our full-year 2026 adjusted effective tax rate to be approximately 30%. Before moving to Q&A, I want to close my opening remarks with one final comment. As Stephan said earlier, Herbalife Nutrition Ltd. is a fundamentally stronger company today than it was two years ago, and we remain focused on driving shareholder value. We returned to net sales growth and expect year-over-year growth to continue the remainder of the year. We strengthened our distributor network through enhanced training and other targeted initiatives, including the Herbalife Premier League, which was launched in March 2024. At that time, we had experienced 12 consecutive quarters of year-over-year declines in new distributors. Since that launch, however, the trend has improved meaningfully, with new distributor growth up 13% on a two-year stack basis in Q1. And as we have now moved beyond the two-year anniversary of the Premier League launch, this metric becomes less relevant going forward. We have also expanded our Q1 adjusted EBITDA margins by 240 basis points since 2024, and we have reduced our total leverage ratio from 3.9x at 2023 to 2.7x at the end of the first quarter, driven by $540 million of debt reduction primarily through cash generated by the business. And lastly, as I have said, we completed our debt refinancing in April, unlocking approximately $45 million in annual cash interest savings. This concludes our opening remarks. We will now open the call for questions. Operator: Thank you. To ask a question, please press 11 on your telephone keypad. To withdraw your question, please press 11 again. Our first question will come from the line of Chasen Louis Bender with Citi. Your line is open. Chasen Louis Bender: Great. Thanks. Good afternoon, guys. Stephan, I wanted to first ask about Protocol. Now that the distributors and their customers have had some more time with Protocol in the U.S. beta group, could you discuss a little bit more the behaviors you are seeing from that group and how they are shaping up relative to your expectations? For example, are you seeing distributors able to sell more Herbalife Nutrition Ltd. product to their customers, and on the customer side, what are you seeing from the activity and the duration with which customers are interacting with the app and inputting their health data? Stephan Paulo Gratziani: Yeah, thanks for the question, Chasen. As you know, we launched beta last year, and the objective of beta is really to get distributor feedback and make sure that it is really fitting with their business flows and how they go out and talk to customers and engage with them. In terms of the distributors and their response, the amount of feedback that we get from different models and leaders that operate in different regions—especially now that we have expanded it to the 10 European markets—is helping us to formulate features, how people are coming into it, and how distributors will work with their customers. At the same time, there has to be enough there for the distributors to actually bring in the customers. We are really in this beta phase, and we did it on purpose. We have paused beta one, beta two; the phasing is because the more information that we have and the more people providing feedback, the more we can adjust it to make sure it goes across different DMOs with different leaders and the way that they operate. I would say that we continue this phase. For us, this was not a company that is going direct to consumer that has the relationship directly. Our entire business is based on distributors and their engagement with customers. So we are in the phase still, and we have enlarged the beta phase as we have gotten more countries in, to make sure that we bring the functions that are necessary to allow the impact and bring the value that we need to. So the beta phase continues. John G. DeSimone: Let me just chime in for a second. Like Stephan said, it is beta. We are seeing performance, getting feedback, enhancing it, and we have an enhanced version coming up with Extravaganza. What we want investors to know: this is an important part of our strategy, but we have not rolled into our forecast any direct revenue from this. So even though we are going to launch Vionic and we are going to launch Protocol, it is still going to be in the beta form. Any results end up being more opportunity to this year than risk to this year because we have not rolled that into the numbers yet. Stephan Paulo Gratziani: Let me just add: Protocol overall is not just a digital application to engage with customers. It really is designed as an end-to-end solution. We believe that the future is in the “what to measure,” meaning that people are going to want to measure more things like bringing their wearables in to inform blood biomarkers, which are going to get launched at Extravaganza, and those are going to come in. Then, personally formulated—or the next generation of personalized nutrition—through Vionic, for example. What ends up happening is it is the overall value proposition which gives it value. That is why we talked about all of the pieces individually being valuable, but it is all the pieces together that make it incredibly valuable. I think the most important thing—the core fundamental of our business—is distributors need to be able to go out into the market and have conversations, and the people that they are talking to, with what they are going to be offering them, say, “Wow. You can do all of this? I am interested.” If you were to ask 10 people on the street, would you rather have supplements that are more personalized for you, or would you rather buy supplements that are formulated for many, I believe that most people would respond, “I would be interested in the more personalized ones.” That is the opening of the conversation, but you also have to be able to deliver the products for it. We are really excited to get to Extravaganza and to be launching these 11 markets in EMEA in June and North America in July, to be able to bring this to market. The pieces are coming together, testing is coming. We are still in beta because there are still functionalities and features that we need to build in. But we are also launching this next generation of personalized supplements, so the pieces are there. This journey for us is really about making sure that our distributors have what they need in hand to go have conversations, bring more people into the company, keep them longer, increase LTV, increase the amount of people that are getting referred, and ultimately increase the amount of people who want to join the business and duplicate a business. Chasen Louis Bender: My second question is on India. Obviously very strong growth following the GST change. I am curious—given what you have seen—how has your thinking evolved on potential price reduction programs in other markets? And just as a housekeeping related to that, what are you assuming in guidance for India constant currency in the rest of the year? I know you mentioned you are expecting continued momentum, but should we expect that, or does your guidance contemplate the similar 30-plus percent growth in the rest of the year? Thanks so much. John G. DeSimone: Yes, Chasen. I will take this. Let me break it into pieces. There is a lesson in India. We had effectively a price decrease due to the GST reduction, and that created a lot of momentum. India had started building momentum just prior to that. A couple things I want investors to know. One is that momentum has been incredibly strong. We are going to annualize the GST in September, but we do not think that means we are not going to grow after. We think the momentum carries forward. Granted, we will be comping quarters that have the GST impact, so the growth rate will moderate, but that momentum we expect to continue. That gives you a little flavor of our thinking of India. India did beat our expectations in Q1. Going forward—if I may break this into buckets—for Q2 through Q4, so the rest of the year, we basically have not changed our sales expectations from where we were in February. They have come up a little, but we had some softness in the quarter in EMEA. We are going to run some tests based on what we learned in India, and hopefully that can work. We also had a price increase in Mexico, plus there was an incremental tax in Mexico, that had a little bit of a volume impact in Mexico on the negative side. That also supports the thesis we are working with the distributors on—that price matters. I think there is a lot of opportunity for us to affect volume in the future by modifying price and modifying the commission structure. So we are running tests. We have been running tests. We are now running more tests based on the results we have seen. Chasen Louis Bender: Got it. That is helpful. I will take the rest of my questions offline. Thanks so much, guys. Stephan Paulo Gratziani: Thanks, Chasen. Operator: Thank you. One moment for our next question. Next question will come from the line of Karru Martinson with Jefferies. Your line is open. Please go ahead. Karru Martinson: Good afternoon. You referenced higher oil costs. I was wondering how that is flowing through to the consumer, especially here in the North American market? John G. DeSimone: We are not flowing it through. We are absorbing it right now. At this point, for the rest of this year, that is what is assumed. We did say it is not material to the year, so we are going to cover it ourselves. We have not raised prices because of it. That does not mean it did not have an indirect impact—or does not have an indirect impact—on the consumer in general, but it does not have a direct impact on our price. Karru Martinson: Okay. So did you see a shift in the ordering pattern when the Iran conflict started and gas prices started going up, or is that too soon to tell? John G. DeSimone: It is too soon to tell, but we did have—as I said—the U.S., we can explain what happened. There were some timing differences, and there were some nutrition club closures during some really bad weather that we can quantify. We made that available to investors. I think the U.S. is on track. EMEA—Europe—had some weakness, and it is too early to tell if that was tied to the economics from the geopolitical situation or not, but there was definitely some weakness in Europe. Karru Martinson: Okay. And just lastly, when we look at China, it has been a work in progress for a while now. How should we think about that, and could you remind us where it stands today as a percentage of your sales? John G. DeSimone: It is really small. It is under 5% of sales—about 4%—so it is relatively small. It does not really contribute to profit in any meaningful way. What I have told investors over the last few quarters is we have a lot of strategies we are going to implement in China. I would wait and see. At this point, we are not rolling in the benefits of those strategies. We are going to wait until we see the benefits. Think of China long term as a huge opportunity for us. We are super underpenetrated. The model does well in China for some of our competitors. The products do well in China. We have not found our footing yet. We are working on it. I am confident over the long term we will. You will not see it rolled into our forecast until we see it coming through in results. Stephan Paulo Gratziani: And, Karru, on distributor leadership, we have spoken about it in the past. Historically, it has been really isolated, and we started at the beginning of this year to allow distributors and leaders from Greater China to come into the market. It is the first time they have ever had that opportunity. We see a continuing trend of more of them being interested, and at this Extravaganza that is coming up this month, there are a few hundred—approximately 500—that are looking at potential building business in China. We are seeing it as really positive from that standpoint, but as you said, it is a work in progress. We will update you over time. Thank you. Karru Martinson: Thank you very much. Appreciate it. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Nicholas Sherwood with Maxim Group. Your line is open. Please go ahead. Nicholas Sherwood: Hi. Thank you for taking my questions. Kind of going back to the Protocol launch, have you seen any use of the platform in nutrition clubs and any feedback of how it works in that space? Stephan Paulo Gratziani: Yeah, Nicholas. Super early. In nutrition clubs, especially here in the U.S., it is really a consumption-based business, and so it is one of the flows and integrations that we are working on because it is obviously a very large and important part of our business. There are millions of people walking in annually into a nutrition club to buy a shake or a tea, and we want to have an easy entrance into Protocol and getting exposure to being able to track and have physical results and move from a transactional to more of a transformational business. So it is one of the areas of focus for us, and it is a major DMO integration—early days. Nicholas Sherwood: That is helpful. And then looking at the packaging redesign, what sort of early metrics did you see coming out of testing the new design, and what have you seen from the early stages of the rollout of that new packaging? Stephan Paulo Gratziani: The first product was just rolled out in India, and it is very, very early. Overall, as we went through the process, distributor feedback and research were very positive. To see in the real world how it impacts is going to take time, but the initial feedback and research are very positive—again, very early. Nicholas Sherwood: Okay. And then my last question is, can you provide any color on the transition of preferred members to the new e-commerce platform, and how do you expect preferred members to interact with Protocol or get added to that platform in the future? Stephan Paulo Gratziani: I think you are referring to DS Commerce. That started to happen with a pilot group at the beginning of the year, and then it was just opened up. It is very recent, so very early to talk about it. John G. DeSimone: If I could step back for a second because we had a lot of questions—just to make sure we are aligned on where we are with a lot of these initiatives. We have launched them in beta form. We are getting the feedback. You get a lot of functionality, including the commerce app where people can buy on the app—or at least have the appearance of buying on the app if it takes us somewhere else. There is some functionality that we are launching where you will start seeing the benefits. Stephan Paulo Gratziani: Correct, John. One thing I think it is early to highlight, but we think it is quite a big deal, is that as a company, we have not really had a subscription business. Product purchases have been—some of them are continual—but we really implemented subscription recently. One of the early indications on the preferred customer on the new commerce platform is that the uptake on subscriptions is very positive. It is still early, but that is a very positive outcome from what we are seeing—early but exciting. It is also one of the things in terms of the launch of Vionic in Europe: we are going to be having a subscription product for the first time in the history of the company. So we are very excited about that. Nicholas Sherwood: Alright. Great. Thank you for answering my questions. I will return to the queue. Stephan Paulo Gratziani: Thanks, Nicholas. Operator: Thank you. One moment for our next question. Our next question comes from the line of John Baumgartner with Mizuho Securities. Your line is open. Please go ahead. John Baumgartner: Good morning. Thanks for the question—or, I should say, good afternoon. First off, going back to personalized nutrition, there is a lot of great detail here into the data expansion and products. I am curious—has there been any evolution in your thinking regarding segmentation, the levels of offerings, how you may tier those out, different levels of personalization? Have you heard any feedback from your distributors as to how they think the product-market fit is as you are going forward with this? Stephan Paulo Gratziani: Yeah, John. Thanks for the question. One of the reasons why we made the Vionic acquisition is for that reason. When we acquired Link, there is a manufacturing process to it: the equipment and the software take the inputs, create the formula, and then you manufacture the formula in powdered form. The price point for that is really more in a premium area. It also, quite honestly, has more functionality—because of the formatting, you can have other need states. Vionic gives us the opportunity—not only was it a company that existed with an existing customer base—but it had been in the business of formulating not only premium but also what we would consider a personalized vitamin and mineral complex at a lower price point, so a larger addressable market. That is part of the strategy: we want to hit different price points. We know our business around the world—from India to Switzerland—different demographics. The other aspect, besides making it more accessible to people—because this is a newer concept—is really what are the offshoots? Where can we go now that we have the capability of personalizing, and with all of the data and the customers for whom we have been personalizing, where does it lead us in the future? Specific product categories where personalization could make a lot of sense—for example, a probiotic that is more personalized than one you are buying off the shelf that has been formulated for everybody, or just for “men 50+,” for example. This is giving us more range and more demographics. I think where this leads in the future is that everything will become—and everyone will want—a more personalized version of whatever they are using today. It is absolutely part of the strategy. John Baumgartner: Thanks for that. And then coming back to EMEA, to drill down there a bit more, I am curious the extent to which there may be more structural change or softness in the direct selling market given the consistent declines you are seeing in sales leaders, or is it more of a productivity issue you think, or maybe some price adjustments can kickstart growth in that region? Stephan Paulo Gratziani: From a distributor lens—someone that worked in EMEA specifically, which was one of the areas that I spent a lot of time in—I think what has happened is the overall way people look at their health and wellness and make their decisions on what they are going to buy and where they are going to spend money is evolving over time. If you think historically, we started in 1980. The idea of a protein shake in 1980—and I will speak to myself—in 1991, when it came to France where I started, you had to convince someone that the idea of taking a shake instead of having breakfast was actually a thing. They would be like, “You are telling me I am going to mix this up, and I am going to drink this instead of having my coffee and croissant, and that is breakfast?” Today, we do not live in a world where a protein shake is novel and innovative. It is more of a commodity. It is an accepted form. I think part of what is happening is as the markets evolve and as technology evolves, the offer also needs to evolve. That is why I am very strong on, as a company, the superpower that we have of these 2 million distributors that are having conversations with tens of millions of people on a daily, weekly, and monthly basis—interacting and helping them with their health goals—that the conversation around personalized nutrition in this next generation is absolutely where the market is going, and we want to lead in that market. We can say, “How can you optimize your current product? How can you optimize with your DMOs? How can you bring more people and keep them longer and have them buy more and refer more people and want to do the business?” Fundamentally, if you have something novel and innovative to go to market with, and people are saying, “This is where things are going in the future. I want to be a part of it. I want to buy it. I want to use it. I want to tell people about it, and I want to sell it,” that is what we are building for. We do all the work in every area—train them, do everything we need to do—but we also work on the core offer. That is what we are doing. John Baumgartner: Thanks. And just a bit of a random question—looking at the U.S. market, I am curious to the extent to which you are seeing any benefits or traction from participation in the diabetes prevention program. I know it is not spoken about a lot, but just curious if there is participation and any learnings there thus far? Stephan Paulo Gratziani: We had started that as a pilot, and to be honest with you, I do not have the answer because I have not followed it that closely. My guess would be it has not had a material impact. Good follow-up. Thank you. Operator: Thank you. As a reminder, if you would like to ask a question, please press 11. Our next question comes from the line of Douglas Matthai Lane with Water Tower Research. Your line is open. Please go ahead. Douglas Matthai Lane: Yes, hi. Good afternoon, everybody. On the Vionic nutritional supplements being offered in Europe beginning in late June and then the U.S. in July, are they the same product offerings in both markets, and what actually are the product offerings that you are rolling out? Stephan Paulo Gratziani: They will be essentially the same. Obviously, different markets have different regulatory aspects to it. Essentially, Doug, think of this as your personalized vitamin and mineral complex stack. I do not want to get into too many details, but a man versus a woman, height, weight, age, objectives, personal conditions—then you put in biometrics, potentially blood biomarkers—and it would be clear that you probably would not need the same amount of vitamins and minerals in your individual compound as everyone else. That is the core offer of Vionic. The other thing—everyone is using supplements. If you ask how you actually buy supplements, even a vitamin and mineral supplement, most people are going down the aisleway at the grocery store or in the pharmacy, or their doctor said something, or someone recommended something to them—they buy it and use it. They might have been using it for a year, two years, three years, five years. We believe that personalization means not only should you have your formula as close to your individual needs as possible today, but also next month—when you have lost five pounds, when you have changed some things in your daily habits and in your diet—and over time as you age and your circumstances change. The capability to flex that on a monthly basis for someone and to personalize that is innovative and makes sense in the world that we live in today. No one is doing this at scale around the world, and so this is our opportunity. We also know that you can get people into the conversation and they look at Herbalife Nutrition Ltd. and say, “This is unique what you are doing.” We have an incredible portfolio—we are doing $5 billion in revenue currently—that is not Vionic. It is an opportunity to have people go beyond just this personalized vitamin and mineral complex. For us, this is not just a door opener. It is something that people are going to want, and we are going to be able to deliver it—especially through 2 million distributors that are having conversations with people every single day. More attraction to Herbalife Nutrition Ltd., a value proposition we think is unique, an opportunity in subscription, and an opportunity for the introduction to the entire portfolio so that we become that solution for people for their health and wellness. Douglas Matthai Lane: Now, Vionic has been around for a little while and has been producing product. Can I get Vionic anywhere else at this point? Stephan Paulo Gratziani: You cannot. As of the transaction, this is going to be sold through Herbalife Nutrition Ltd. distributors. Douglas Matthai Lane: So will it be rebranded under some sort of Herbalife sub-brand? What will that look like? Stephan Paulo Gratziani: We will do the reveal at Extravaganza, so I do not want to give it away, but the brand is definitely staying. Douglas Matthai Lane: Okay, fair enough. When can we see Link Biosciences product out in the marketplace? Stephan Paulo Gratziani: Link Biosciences will be Q1 of next year. Douglas Matthai Lane: Got it. And are you going to operate these four acquisitions as independently as is, or what is the plan structurally on how you are going to run these four acquisitions on personalization? John G. DeSimone: I will jump in. First, they all work together. I think you heard Stephan talk about Vionic and Link and the different versions of personalized nutrition, and they can work together. Protocol supports that—actually, it supports Protocol. The fourth acquisition, which is Prüvit, is a product line. Because there is a separate product associated with that, that may be a little distinct. But overall, those four are all connected. Douglas Matthai Lane: Okay, fair enough. And lastly, John, now that you have completed the debt refinancing, is there any change to your capital allocation priorities? John G. DeSimone: There is not. My number one priority is still to get our gross debt down to $1.4 billion by 2028, which would get our net debt below $1 billion. Douglas Matthai Lane: Okay, fair enough. Thanks. John G. DeSimone: Thanks, Doug. Operator: Thank you. I would now like to hand the call back over to Stephan Paulo Gratziani for closing remarks. Stephan Paulo Gratziani: Thank you, and thanks, everyone, for joining us today. We had a great quarter. We completed our debt refinancing. As Doug just mentioned, we have made four acquisitions. We are executing on our vision. Forty-five years of incredible history are behind us, but the future is even more exciting. As a company, we are evolving. We are advancing how we deliver what we do best—greater precision, greater scale, greater impact—and we are focused on the vision. We are well positioned to deliver what we believe is the next generation of personalized nutrition. Thank you for joining today, and we look forward to sharing continued progress next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
Operator: Good morning, and welcome to the Insulet Corporation First Quarter Earnings Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Clare Trachtman, Vice President, Investor Relations. Clare Trachtman: Good morning, and welcome to our first quarter 2026 earnings call. Joining me today are Ashley McEvoy, President and Chief Executive Officer; Flavia Pease, Chief Financial Officer; and Eric Benjamin, Chief Operating Officer. On the call this morning, we will be discussing Insulet's first quarter results along with our financial outlook for the second quarter and full year 2026. With that, let me start our prepared remarks by reminding everyone that we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and assumptions and involve risks and uncertainties that could cause actual results to differ materially. Please refer to today's press release and our SEC filings, including our most recent Form 10-K and Form 10-Q for a discussion of these risks. We undertake no obligation to update any forward-looking statements. In addition, on today's call, non-GAAP financial measures will be used to help investors understand Insulet's ongoing business performance, including adjusted gross profit, adjusted operating income, adjusted EPS, free cash flow and constant currency revenue, which is revenue growth, excluding the effect of foreign exchange. Reconciliations of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures are included in the accompanying investor presentation and are available in our earnings release issued this morning, both of which are available on our website. Additionally, unless otherwise stated, all financial commentary regarding dollar and percentage changes will be on a year-over-year reported basis with the exception of revenue growth rates, which will be on a year-over-year constant currency basis. During the Q&A session this morning, Ashley, Flavia, Eric and myself will be available to address any questions. Now I'd like to turn the call over to Ashley. Ashley? Ashley McEvoy: Thank you, Clare, and good morning, everyone. We're pleased to report a strong start to 2026 with continued growth momentum, robust margin expansion and disciplined execution of the strategic priorities we shared at Investor Day. Our first quarter performance clearly reflects the opportunity in our large and underpenetrated markets, the strength of our differentiated technology and compelling clinical outcomes, the scalability of our recurring revenue business model, and the deep expertise and commitment of our teams around the world to finding a better way for people living with diabetes. We also made notable progress on our strategic priorities, which are to accelerate innovation, that improves outcomes and unlocks new segments, develop our core markets as the category leader, strengthen our commercial capabilities, build a world-class team to enable our growth ambition, and leverage our financial strength to invest in and scale our business profitably. In the first quarter, we achieved 30% revenue growth, including 28% in the U.S. and 45% internationally. We continue to expand our customer base through new customer starts and enjoy strong retention and loyalty among our Podders globally. Leveraging our strong rent growth, we expanded adjusted operating margin by 110 basis points year-over-year. Adjusted EPS growth of approximately 40% was driven by our robust top line growth and margin expansion and the benefit of our first quarter share repurchase. This performance reinforces our confidence in the financial growth algorithm we laid out last year and in our strategy to capture the significant opportunity ahead of us as the market leader and primary driver of category growth in the fast-growing global AID market. As a result, we are raising our full year 2026 total company revenue growth guidance from 20% to 22% to 21% to 23%. Flavia will share more details on our performance and outlook shortly. But let me first walk you through how we are developing our key markets, driving performance and advancing our strategic priorities. Starting with the U.S., our growth this quarter was strong, reinforcing our market leadership. We grew new customer starts year-over-year led by strong momentum in AID adoption for type 2 and benefited from positive pricing. We did experience greater than normal seasonality, which we believe was driven by the annual reset of deductibles impacting patient co-pays and co-insurance. These factors contributed to what appears to be a slower start to the year across the U.S. diabetes category. Improving month-on-month trends over the course of the quarter and into April suggests this was a temporary headwind, and we remain confident in our U.S. outlook for the full year. Our upcoming integration with the Libre 3 Plus sensor this quarter will unlock the benefits of Omnipod 5 for the nearly 450,000 people with diabetes currently using the Libre 3 Plus sensor. In U.S. type 1, we continue to extend our leadership and drive increased penetration with solid growth in our customer base, both annually and sequentially. Commercially, we are upskilling our sales force to strengthen our messaging our clinical performance in the field, and we're deploying tools to optimize physician targeting and conversion while expanding reach and frequency. I remain confident in the opportunities to continue to move people with type 1 diabetes from MDI to AID and drive increased penetration. In U.S. type 2, we continue to expand the category and accelerate adoption from those using MDI. As expected, our type 2 customer base grew rapidly over the prior year. Supported by our prescriber education initiatives and the ADA guideline update, which established AID as the standard of care. We remain confident in the trajectory for U.S. type 2 AID adoption and in expanding our market leadership position. Notably, Omnipod's first-mover advantage gives us a head start in understanding the nuances of this market and in designing targeted initiatives to eliminate the barriers for adoption. For example, access and affordability are even more important for adoption in type 2 than in type 1. In fact, our ongoing efforts to increase access and remove prior authorization requirements generated a 4% net access improvement in the first quarter, benefiting an additional 16 million lives. We continue to see a vast opportunity to bring meaningful improvement in both clinical outcomes and quality of life to the millions of people with type 2 diabetes. Moving outside the U.S. Our international business delivered another standout quarter, driving significant profitable growth and recording our third consecutive quarter of growth above 40%. We achieved 45% constant currency revenue growth supported by continued strong year-over-year and sequential growth and new customer starts. As well as positive price/mix from the ongoing conversion from DASH to Omnipod 5. We are generating robust growth across our largest and most established European markets including the U.K., France and Germany, all of which delivered strong first quarter new customer starts, driven in part by our focus on new prescriber activation. In the U.K., we achieved record NCS 3 years into our launch, reflecting the success of our strategy to deepen penetration internationally. We also continue to expand access and reinforce the value of Omnipod 5. In Canada, for example, we secured improved reimbursement and new coverage for Omnipod 5 across four provinces further fueling our growth. We now have reimbursement approval for 85% of the Canadian market. Looking ahead, we remain on track to launch Omnipod 5 in Spain in the second half of the year. Spain has more than 200,000 people with type 1 diabetes, a high rate of CGM adoption and one of the lowest levels of AID penetration in our European markets. And in the second half of this year, we plan to launch Libre 3 Plus in Germany and Canada allowing us to bring Omnipod 5 to new populations as Libre 2 Plus is not available with a pump in either of these markets. Critically, our rapidly growing scale internationally continues to drive operating leverage and significant margin expansion. Our strategy to deepen our penetration and our largest and most established markets is working, and our execution continues to exceed expectations. We continue to see the AID category expand globally. While our success is attracting competition, this further validates and raises awareness of AID and Omnipod, the most recognized brand in the category. We believe this dynamic is good for the category and good for Insulet. We are uniquely positioned to meet that worldwide demand at scale, and we are investing in accelerating innovation, strengthening our commercial capabilities, developing our markets, building a world-class team and scaling our global operations to ensure we continue to benefit disproportionately from category growth. Let me unpack these priorities further. Innovation remains the core driver of our growth strategy. Beginning with this year's launch of our second-generation algorithm coupled with our Libre 3 Plus sensor integration, and the broader rollout of Omnipod Discover, our new data insights platform. First, let me walk through the specific improvements behind the meaningful Omnipod 5 algorithm enhancements we're launching this quarter. And our simulated analysis switching to target glucose setting from 120 milligrams per deciliter to our new 100 milligrams per deciliter option delivered an approximately 5% improvement in time and range. This is better performance through a simple setting change with no added user burden. Additionally, we improved the algorithm performance, so it now increases the amount of time users spend in automated mode with fewer interruptions during extended high glucose events. This has been a pain point for prescribers and Podders. We are pairing these two launches with an increased focus on clinical education to ensure prescribers understand the strong clinical efficacy and safety profile of Omnipod 5. Algorithm innovation will continue to be a key R&D focus. In fact, we are increasing investments this year to advance our next generation of products. We are making strong progress on our sixth generation Omnipod paired with our third-generation algorithm, which is planned to launch in 2027. We are sharing data from STRIVE, our Omnipod 6 pivotal study at ADA in June, which will demonstrate continued improvement in automation and clinical outcomes. This gives us confidence in the durability of our market leadership. Next up is our transformative approach to unlock the type 2 diabetes segment. We are making progress on what we believe will be the first of its kind, truly fully closed loop system for people with type 2 diabetes. We're encouraged by the results from our feasibility study that we presented at ATTD, which highlighted 68% time and range with no boluses. And I'm very pleased to share that just last week, we enrolled our first participant in EVOLVE, our pivotal study to support FDA filing next year and launch in 2028. These new product investments are designed to help us deliver better outcomes, enhance the user experience and unlock new market segments. Accelerating the shift to simpler, more intuitive insulin delivery and extending our leadership. We also recognize that as this category grows, innovation alone is not enough and we are investing in building a top-notch team and commercial capabilities to expand the AID market, fortify our competitive position and drive rapid adoption. As part of that effort, we recently appointed Mike Panos as Chief Commercial Officer to lead our global commercial organization. Mike brings a proven track record of building and scaling world-class sales team. Driving market expansion and delivering sustained double-digit growth across leadership categories. Our investments in our brand are also delivering unique commercial value. We have the most recognized brand in the category, which continues to bring in new users and generate traction with prescribers that our sales force doesn't actively target. We regularly activate our #1 brand to increase category and brand awareness. And this quarter, Omnipod's feature appearance on the TV show scrubs was a resounding success at raising awareness and amplifying representation. After the show, our inboxes were flooded with stories about how meaningful and moving it is to see people with diabetes show up like this. living their lives daily with ease. These moments also drive action like Michelle, who has type 1 diabetes and reached out to one of our support specialists online after watching the episode. Michelle had a script for Omnipod written 3 years ago, but never move forward. With this nudge, we successfully reengaged her and got her started on Omnipod. Market development remains a top priority. In addition to the progress on market-specific initiatives that I highlighted earlier, we are seeing strong traction with our global KOL engagement and professional education efforts. We doubled the size of our U.S. peer-to-peer education program in 2025 and expanded it by more than 50% year-over-year this quarter. In Spain, we are investing in key opinion leader education well ahead of the advance to accelerate adoption. As I mentioned earlier, our efforts to improve access, secure new coverage and strengthen our value to payers are yielding tangible benefits to our growth and sustaining our market-leading U.S. coverage of over 90%. These efforts also support the maintenance of our preferred position in the pharmacy channel amid increasing competitive activity, which validates the value of our pioneering pharmacy pay-as-you-go model. Notably, based on the pricing activity we have seen in this channel to date, we continue to expect rational and disciplined pricing and rebate behavior. We remain focused on educating payers on the clinical and economic value of Omnipod to ensure broad high-quality access in all markets. Finally, scaling global manufacturing and operations continues to be a priority. We remain focused on quality, reliability and customer safety. Our team rapidly responded to execute the voluntary medical device correction in March and implemented targeted fixes for the applicable manufacturing process. Manufacturing disposable, sophisticated electromechanical devices at consumer scale and medical quality is a complex process. We continue to believe that our ability to meet the unique manufacturing demand of tubeless AID remains a source of strategic and financial advantage. We have market-leading gross margins driven by our ongoing manufacturing productivity improvements. We continue to ramp our capacity and automation investments in Acton, Malaysia and Costa Rica to support future growth. In summary, we are executing on each pillar of our strategy: accelerating innovation, developing our markets, strengthening commercial capabilities, building a world-class team and scaling global growth profitably. Omnipod continues to be the market leader and the disproportionate driver of AID category growth in the U.S. and abroad. Our investments are focused on extending our leadership by deepening differentiation across our platform while continuing to lighten the burden for people living with diabetes. Our strong results this quarter are a testament to the strength of our position, our execution and our attractive recurring revenue business model. I remain confident in our outlook for the year. Our strategic path forward and our ability to deliver sustained profitable growth for shareholders and better outcomes for all of our Podders. With that, I'll turn the call over to Flavia. Flavia Pease: Thank you, Ashley, and good morning, everyone. As Ashley highlighted, the Insulet team delivered a strong start to the year. First quarter total revenues of $762 million increased 34% on a reported basis and 30% on a constant currency basis. And total Omnipod revenue grew 33% on a constant currency basis. In Q1 of 2026, our global customer base grew nearly 25% year-over-year, driven by increased adoption of Omnipod 5 across both the U.S. and international markets. Global new customer starts also increased versus the prior year period with growth both in the U.S. and internationally. MDI conversions continue to be the primary source of new customer starts, and we expect this to remain the case given the significant under penetration across our core markets including U.S. type 1, U.S. type 2 and international type 1 diabetes. Globally, utilization and annualized retention rate remained similar to the prior year period. Now turning to our performance in greater detail. U.S. Omnipod revenue grew 28% in the first quarter, exceeding the high end of our guidance range. Driven by continued demand for Omnipod 5 across both type 1 and type 2. The quarter included a benefit of approximately $10 million in revenue related to the timing of certain distributor orders which we expect to be consumed in the second quarter. Excluding this impact, underlying U.S. revenue growth was approximately 26% coming in at the high end of our guidance. First quarter U.S. new customer starts increased year-over-year but declined sequentially. As Ashley noted, we attribute the sequential decline to seasonality, driven by the annual reset of deductibles which impacts patient co-pays and co-insurance. This effect was less evident in 2025, given that we were in the earlier stages of the type 2 launch. Importantly, we saw U.S. new customer starts ramp through the quarter, and that momentum has continued into the second quarter. International Omnipod strength continued in the first quarter with revenue growth of 59% on a reported basis and 45% on a constant currency basis. Volume remains the primary driver of international Omnipod growth supported by customer expansion across both established and newly launched markets, along with favorable price/mix benefits from the transition of DASH. Continuing down the P&L, our first quarter GAAP gross margin was 69.5%, and included approximately $12 million of expenses associated with our medical device correction. Our adjusted gross margin was 71%, down 90 basis points year-over-year. During the quarter, we incurred some increased excess and obsolescence costs as we transition to new pod configurations that position us to support Libre 3 Plus sensor integration and upcoming algorithm enhancements. These costs negatively impacted adjusted gross margin by more than 150 basis points. After adjusting for this impact, gross margin performance in the quarter was driven by strong top line growth, continued manufacturing productivity gains and positive pricing. Turning to OpEx. We continue to invest with intention to both maintain and extend our leadership while remaining disciplined in how we deploy capital. During the quarter, we ramped R&D investments to support our innovation road map and advanced key clinical development programs, including Omnipod 6 and fully closed loop for type 2. These investments position us to continue delivering meaningful innovation over the long run. We also increased SG&A investments as we continue to prioritize market development initiatives to unlock AID penetration and demand generation efforts. We expect to continue ramping investments in sales and marketing as we expand our sales force during the second quarter and prepare for upcoming product launches including Libre 3 Plus integration and our latest algorithm enhancements. These investments expand our commercial capacity, broaden HCP coverage and enable us to drive additional new customer starts. First quarter adjusted operating margin expanded 110 basis points to 17.5%, driven by strong top line growth and SG&A leverage. Our financial strength allows us to continue to invest for future growth while delivering margin expansion. First quarter net interest expense was $9.8 million, an increase of $11 million primarily driven by our prior year debt refinancing activities and lower interest income. Our first quarter adjusted tax rate was 19.8%, reflecting a benefit from U.S. R&D tax credits and a favorable mix of earnings. First quarter adjusted EPS was $1.42, up approximately 40% from $1.02 in the prior year period. We are well positioned to continue driving strong earnings growth reflecting the strength of our durable recurring revenue model, our compelling top line trajectory and the operating leverage we are generating. Turning to cash and liquidity. During the quarter, we repurchased approximately 1.25 million shares for $300 million. We ended the quarter with $480 million in cash and the full $500 million available under our credit facility, and we generated approximately $90 million in free cash flow in Q1, reflecting our strong operating performance in the quarter. Now turning to our outlook for the second quarter and full year 2026. For the second quarter, we expect Omnipod revenue to grow 21% to 23% and total company revenue to grow 20% to 22%. On a reported basis, foreign currency is expected to contribute approximately 100 basis points of benefit to both growth rates. In the U.S., we expect Omnipod revenue growth of 18% to 20%. This guidance reflects approximately $10 million of revenue that shifted into the first quarter creating a 200 basis point headwind to second quarter growth. Internationally, we expect Omnipod growth of 28% to 30%. While growth remained strong, as we discussed last quarter, we expect the pace to moderate as we anniversary successful launches from last year. On a reported basis, Foreign currency is expected to provide a favorable impact of approximately 200 basis points on international growth. Turning to our full year 2026 outlook. We now expect total Omnipod revenue growth of 22% to 24% and total company revenue growth of 21% to 23%, reflecting our strong start to the year. We expect foreign currency to provide a favorable impact of approximately 100 basis points for the full year. For U.S. Omnipod, we continue to expect our revenue to grow 20% to 22%. We expect year-over-year growth in U.S. new customer starts for the year, positive pricing and similar utilization trends. We do expect retention rates to decrease modestly as our type 2 customer base continues to grow, which is why we're investing in programs focused on improving onboarding, engagement and long-term retention. For international Omnipod, we now expect 2026 revenue to grow 26% to 28%. On a reported basis, we expect a favorable impact of approximately 300 basis points from foreign currency. We expect year-over-year growth in international new customer sites for the year as we penetrate further in current markets and expand Omnipod 5 into new markets. Omnipod 5 is now available in 19 countries, and we will continue to broaden our reach and plan to enter Spain in the second half of 2026. While volume remains the primary driver of our international revenue growth, our guidance also reflects a benefit from positive price/mix realization. As customers continue to transition from Omnipod DASH to Omnipod 5. Overall, our international growth guidance assumes similar utilization levels and improved retention for 2026 relative to 2025. Turning to 2026 operating margin. We continue to expect approximately 100 basis points of operating margin expansion for the full year driven by strong top line growth and ongoing gross margin expansion while funding a meaningful step-up in R&D and continued investments in sales and marketing, assessed by leverage in G&A. I would note, this outlook reflects the E&O costs we absorbed in the first quarter as well as incremental raw material and shipping costs driven by the ongoing conflict in the Middle East. Looking at a few items below our operating income. We expect 2026 net interest expense to total approximately $40 million, an increase of approximately $15 million primarily due to lower interest income. We now expect our 2026 non-GAAP tax rate to be in the range of 21% to 22%, reflecting the lower Q1 tax rate, favorable mix of earnings and improved utilization of foreign tax credits. Based on these factors, we continue to expect adjusted EPS to increase by more than 25% in 2026. We expect free cash flow to be approximately flat from 2025 levels, supported by robust growth and continued margin expansion, partially offset by a ramp-up in capital expenditures to support our continued global manufacturing expansion plans. To close, we're executing against a clear framework focused on delivering top-tier growth margin expansion and increasing free cash flow. This approach underpins durable long-term value creation while enabling us to expand access to Omnipod for people living with diabetes worldwide. With that, operator, please open the call for questions. Operator: [Operator Instructions] Our first question comes from David Roman from Goldman Sachs. David Roman: Maybe I'll start with a strategic one and then go on to the financials. Ashley, I think you've been in the role now just about a year. Maybe you could help frame the past year, some of your observations here. What's gone in line with your expectations? What's gone better? Where are the areas where you're focused? And how are you kind of framing Insulet now that you've been in the role 12 months? Ashley McEvoy: Yes. Thank you, David, for joining. I was just last week, I'm on my 1 year, and I would say that I'm absolutely more confident now that influence potential than a year ago. You know us really as this high-growth medtech innovator doubling revenue over the past couple of years. So I would say, first and foremost, on preserving what makes us so special. It's this culture is remarkable and patient focused, entrepreneurial spirit, and really strong competitive moats and really just focusing around how we enhance our capabilities to really double the business once again. So maybe it's just helpful to share some of the areas that we've been getting after as a team to unlock more value. I would first start with innovation, and this is about doing things in parallel and at pace to continue our role as the tech leader. So let me give you examples. It's really about being first in line to integrate day 1 with sensors like we're doing with the Dexcom 15 day, and we will do with Abbott's upcoming dual analyte sensor. Algorithms. David, we were slow out of the gate continuously to improve our algorithms. We've addressed that now, and we have 3 algorithm improvements over the next 3 years. Second is really about international and driving profitable growth globally. So I I'm a big believer in going deeper in core markets that matter most versus going broader at this stage. And the U.K. is a great example of this. We're several years in the OP5 launch. This quarter, we posted record NCS. The third is about our commercial engine and being famous not just as a tech leader, but as a commercial engine. And so we have our second sales force expansion we've done in the past 12 months. It's happening this quarter. And as I've been consistently saying, it's really upskilling our force to sell clinically. The fourth is really about strengthening our unbelievable foundation on operations as we scale globally. Costa Rica is a really good example of this. We just put in the foundation this quarter. We'll be ready to have a water type building by year-end and go live in 2029. And obviously, it's all about people. I came here and there was a remarkably talented team -- and I'm just supplementing that team with some new leaders that have run bigger things and know how to scale. So collectively, we can get after doubling the business again. So this is what gives me confidence that we're going to continue to grow the category, serve more Podders and really importantly, continue to increase our earnings power. You had a second question, David? David Roman: Yes. I appreciate all the perspective there, and that does kind of segue to my second question. If you take kind of Q1 performance in the second quarter guidance into consideration, the outlook implies kind of high teens growth in the back half of the year. Can you help us unpack that a little further on a geographic basis and your confidence in the 20% LRT guidance as you exit 2026 potentially below that level and maybe perhaps there's some conservatism in the outlook given the time line where we are in the year? Flavia Pease: David, it's Flavia. I'll take that one. So to your point, yes, the midpoint of the guidance will imply second half growth in the high teens. I would first start by saying we're still seeing very, very strong performance in both the U.S. and internationally. And as you saw, we just raised our guidance for international and the total company right now. Last year, there were a different -- and you tried -- you asked me to unpack between the two regions. So in the U.S. last year, we saw the opposite impact with comps playing a role in how this year, first half, second half compared to last year, first half, second half. In international, we're going to continue having a favorable impact of price/mix realization. But it's going to be at a more moderate pace as we increase penetration of Omnipod size in our international markets. So when we look at the comps, I do think it's also important to look at dollars of growth. When you look at this year in total year, we're actually going to be in line at the midpoint of the guidance with the same level of dollar growth that we delivered last year. The first half, second half is going to be different. But the primary driver of that is actually currency. If you look at that and look at the numbers on a constant currency basis, we had the currency playing a role in the second half of 2025, that was a tailwind in the first half of 2026 again as a tailwind. So when you adjust for those things, the first half, second half phenomenon gets a little bit more smooth, I would say. But importantly, let me close where your question was leading to, which is how does this play out in terms of our outlook for next year and beyond that we share with all of you at the RRP. On the sustainability of our 20%, we feel very, very confident in our ability to drive that 20%. And what gives us that confidence, the innovation and commercial catalysts that we're going to continue to execute. This year, we're launching Libre 3 Plus, which as you saw in our prepared remarks, expands our TAM by another 450,000 people with diabetes. We have the algorithm enhancement. Ashley talked about the ones we're launching this year. We're going to continue with Omnipod 6 next year and then fully closed loop in 2028. And then commercially, in addition to leaning further on selling clinically and competitively, Ashley also just mentioned that we're going to be expanding our sales force this quarter and as you can imagine, the full benefit of that expansion is really only going to be felt mostly next year. So we do see that as another tailwind. And internationally, similarly, those new product introductions are also going to have a benefit. We're going to launch Libre 3 Plus in Germany and Canada. These are few markets where there's no Abbott sensor. And so that are compatible with our product. So that, again, is another expansion of our serviceable market. In addition to that, we're going to continue to execute on our playbook of increasing access. You saw us just get the benefit of that for Canada this year with expansion of coverage in additional provinces. We just launched in the Middle East. We're going to be launching in Spain in the second half. So again, we feel very, very confident that we have the right innovation and commercial levers to continue to support the 20% growth that we put out. Operator: Our next question comes from Robbie Marcus from JPMorgan. Robert Marcus: I want to follow up on that last question. Flavia, as we think about similar dollar growth this year, that does imply deceleration as the sales base gets lower. and you did mention you're going to be exiting sub-20% in the U.S. in the second half of this year. So I think the question a lot of investors have is, how do you maintain that 20% growth rate over the LRP if you're decelerating into year-end and dollar growth is not increasing year-over-year. Maybe just fill us in on the gaps about 2027 and how that improves? And then I have a follow-up. Flavia Pease: So Robbie, I think going back to what I just articulated, we will continue to drive the 20% with the innovations that we're launching. In 2027, we do have Omnipod 6 and the full benefit of the sales force that we're expanding this year that will be a tailwind. Ashley McEvoy: I think -- I mean, Robbie, just maybe what's helpful is kind of our philosophy of how we set guidance. A year ago, I came in and we got the team together. We refined our strategic plan. We racked and stacked a whole portfolio of growth opportunities. And this led us to really a strengthened conviction in the untapped market opportunity Flavia was talking about the high TAM, low penetration. And quite frankly, our proven track record of unlocking that growth. So this led us to really raise our ambition as a company, which we shared at our IR Day, which is the first one we've done in 10 years in November. And we shared our strategies, our financial algorithm, and then we set our financial targets accordingly. So our goal is to outperform and our quarter 1 results reflect this along with our increasing full year outlook for the year. So this is just really good momentum, and it gives us confidence in our commitments that we shared at our LS Base. Robert Marcus: Great. Maybe a quick follow-up. You talked about a slowing market on seasonality and new patient starts in the first quarter. I guess two parts. One, what do you think the market grew? And I know it's hard to give an answer without everybody else reporting yet, but what do you think it grew? Why was it more seasonal than usual? And how do you think your new patient starts U.S. OUS did in first quarter? Ashley McEvoy: Well, obviously, I don't have the market. I mean the market exit, I would tell you, '24 and '25 at an accelerated rate versus prior year. So we're encouraged with the continued momentum listen, quarter 1 started off slow because we had higher than usual quarter 1 seasonality. We attribute this to the reset of deductibles and potentially the ACA transition. But sequentially, every month, we've been getting better. And I feel really good coming out of April as we look to quarter 2 and for the full year. Operator: Our next question comes from Travis Steed from Bank of America. Travis Steed: I wanted to ask about the type 2 retention comps. Just kind of curious what you're seeing there, why kind of call it out slowing? And then when you think about kind of the type 2 opportunity, is kind of this next kind of 5 to 10 points of the penetration curve going to be harder to get the first few points that you've got of the last year? Just kind of curious how the type 2 ramp is going. Ashley McEvoy: Yes. Thank you, Travis. I mean our type 2 momentum remains strong. Our new customer starts in type 2 grew meaningfully both year-over-year in the quarter despite this Q1 seasonality that I spoke about. When we look at our customer base, we expanded both sequentially as well as year-over-year. We're very much, Travis, at the early innings of this. I'd say we're about 5% penetration and CGM is around 55%. And we are actively preparing for a highly transformative launch where we're going to be sharing our feasibility data at the upcoming ADA called EVOLVE. We've just enrolled our first patient last week. And this will be what I call the industry's first truly fully closed loop system for type 2. And like what do I mean by that? It's a CGM like as you can get and put it on, no bolus, no user interaction, no settings, which unlock the whole primary care physician audience and really Uber user consumer-friendly training. So we specifically designed our fully closed loop to unlock that huge TAM in type 2 where they need it to be a CGM-like experience. Travis Steed: And what about the retention piece? Ashley McEvoy: I would say, listen, we are -- have healthy retentions. We're not seeing any meaningful change of year-over-year. We're getting to know this market, and we're -- I would say we're innovating our customer experience model. But from an aggregate basis, our total company, we still have about 90% retention. Flavia Pease: Yes. And Travis, I would say, I think you were alluding to my prepared remarks, I talked a bit about a slight deterioration in the U.S. as we continue to expand into type 2. But this was very much in line with our expectations. It is a different population and the retention or attrition is exactly what we expected it would happen. And we are pleased also to see that internationally, the retention actually as we launched Omnipod in additional markets, has improved meaningfully. And so on a total company basis, as Ashley said, retention remains very stable. Travis Steed: Okay. And then what percent of the new starts were type 2 this quarter? I think I missed that. And then when you think about the seasonality comments, is there any impact on the seasonality from the type 1, type 2 mix or kind of the macro? Just kind of curious to follow up on the seasonality comments. Ashley McEvoy: No. I think, listen, Travis, we had really healthy, I told you, total year-over-year growth. We experienced some softness in Q1 is a slower start for NTS. -- customer base is strong. I often get asked the question about like type 2, and I told you, we've got really strong momentum. I often get asked about like the GLPs, is that slowing down the progress in type 2s, and we did not observe an impact from increased GLP use on type 2 NCS this quarter. I've always been sharing that we think that GLP-1s are very complementary to AID therapy, not competitive. It's in fact, what we studied in our SECURE-T2D trial. And we see diabetes as a chronic progressive disease and no date that no one has been able to show that you can reverse beta cell decline. So once you get on insulin, AID is really the standard of care for the ADA. And we look again at this huge TAM of 5.5 million people with type 2 diabetes using insulin and yet only 5% or less are using AID. So we really look to unlock this right now and really drive accelerated penetration when we have our fully closed loop launching in 2028. Go ahead, Eric. Eric Benjamin: And Travis, just to build on the numbers. The split of type 1, type 2 NCS was about 40% type 2 NCS in the quarter with similar seasonality seen in type 1 and type 2 ever so slightly more in type 2, but consistent across the two segments. Operator: Our next question comes from Larry Biegelsen from Wells Fargo. Larry Biegelsen: I'll just keep it to one, Ashley, and I'm going to try to ask the competition question a little bit differently maybe than it's been asked before. So we understand you believe it will be hard for competitors to manufacture to this pump or ramp the manufacturing. But I don't think you're saying that there won't be any tubeless competition in the future. So my question is, as your share of tubeless pumps declined from 100% today, I mean, just mathematically has to go down if there's competition, what offsets that to maintain your 20% growth goal? Is it faster overall pump market growth or is it a greater shift from tube to tubeless pumps or both? Ashley McEvoy: I mean thanks, Larry, for the question. The short answer is this is not a market share trading. This is about bringing new people into the category and the category expanding as a whole. I mean we're the market leaders, and we have a substantial distance versus the others. And I fully expect us to sustain share leadership. I was talking about we have no intention of ceding our tech leadership. Next year, we're going to be on our sixth-generation Omnipod while others attempt to come out with their first. And we know there's been a history of the competition trying to work on tubeless solutions for decades, which really underscores how hard it is, how complex it is to bring these highly disposable devices to market. There's really a graveyard of a lot of failed attempts. We have a head start of really mastering how to develop and manufacture at scale. And this has given us a remarkable cost advantage and scale advantage. And we've got the earnings power to keep growing. So I think what's really important in this category is to understand that when new entrants enter, all boats rise. this increased promotion and the increased awareness will accelerate category expansion, which is exactly what we're seeing in the type 2. When you look back from 4 years ago, we had about 60% of patients coming from MDI into the AID category, and that number is now 80%. So the category is expanding. Operator: Our next question comes from Matthew O'Brien from Piper Sandler. Matthew O'Brien: I'll ask them both upfront. I hate to beat this dead horse on new customer starts in Q1, Ashley, but I'm going to. You've got a bunch of new competitors in the pharmacy channel. I just want to make sure there wasn't any kind of disruption maybe early in the quarter as they were pushing on the pharmacy side to sort of made it more difficult for you to get patients through the pharmacy channel. and that's why you saw a little bit of softness. And then the second question is there's a lot of investor consternation around the recall. Can you just frame up what you're seeing in the marketplace or from your customers in terms of the recall and the impact it's had on the business and then ability to add new patients? Ashley McEvoy: Yes. No. Thank you, Matt. Let me first be very clear. In quarter 1, we don't think price had an impact. In fact, U.S. pricing for us was positive in quarter 1, and we expect this to continue for the full year. What we've been seeing as others have entered the pharmacy channel pricing, a rebate behavior has been really rational and disciplined. So we are not seeing significant discounting relative to the norm. Our -- like our strategy is about creating durable high-quality access with broad affordability. So we are not going to trade long-term value for short-term positioning. And I think what's really important to understand that maybe not fully appreciated is the significant size and scale that we benefit from. Our volumes are multiples larger than the nearest competitor. And we don't expect that dynamic to change now or in the foreseeable future. You put that, coupled with we're the number one prescribed brand and we are the number one requested and this is what gives us confidence for pricing going. So important, but we still lead with a competitive advantage there. Let me go to your second question, which is about quality and our recent medical device correction. I would say, hey, listen, in our industry, field actions are part of being in a health care industry, but it was an absolute tough moment for us. And patient safety is always our #1 priority. We're monitoring and we're investigating customer complaints routinely. I am proud with how our team rapidly responded to the voluntary medical device in March. We do not believe that the medical device correction did have an impact on NCS in the quarter. As I discussed, I believe the slower start was really due to the broader quarter 1 seasonality and the reset of the deductibles. Now last week was another tough week with the FDA updating its communication about our MDC to reflect our April 10 update and misreported MDRs as SAEs. And listen, I know this created a bunch of confusion, and we're really not happy about that. What's important to know, though, is no additional adverse events from the MDC have been reported since the April 10 update. And if anything, taking a step back, I think this really enunciates the high level of complexity of manufacturing sophisticated disposable electromechanical devices at scale. And in our industry, it's not possible to eliminate all risks, but what matters most is how issues are identified and addressed. And in this case, we got after it early. We've implemented targeted corrective actions, and we are going to continue to strengthen and invest in our quality systems and operating controls. Operator: Our next question comes from Jeff Johnson from Baird. Jeffrey Johnson: So Ashley, I just wanted to follow up on that pricing comment. You said net pricing was up in the U.S. in 1Q. I just want to make sure that's net. That's not a WACC comment that's actually net of rebates up in 1Q. It sounds like you're expecting that to be true for the year as well. And just wondering, we're hearing from a couple of our other companies that we speak with that they're expecting pharmacy pricing next year on a net basis to also be up again in '27 over '26. I know that's hard to predict at this point, and you won't know until you know later this year. But as we're kind of trying to set up our models for the next year or 2, would you still build in kind of flattish pharmacy pricing in the U.S. market over the next couple of years? Would that still be kind of how you'd guide us as we build our market -- our models over the next couple of years? Ashley McEvoy: Yes. I would say consistent with our Investor Day, Jeff, we expect pricing to be positive over the next 3 years. And quarter 1 is a data point, and we expect that to continue in full year '26. Again, it speaks to just the strength of the clinical and the economic value proposition that AID as a category has for payers and for PBMs. Jeffrey Johnson: Okay. And again, just to confirm, that's net, not WACC, you're talking? Flavia Pease: It is not, Jeff. Jeffrey Johnson: Okay. And then just on type 2, I just want to make sure I understand the retention and utilization comments you're making on the U.S. Utilization was stable, retention may be under a little bit of pressure. So is that to imply that if I'm a type 2 patient going on Omnipod 5, I'm using it every day or pretty much normally like a type 1, but just more of those type 2 patients are trying it for 3 months or 6 months and then saying, "maybe it's not for me." So utilization when I'm an 5 user is stable, but more of those type 2s may be dropping out after 3 or 6 or 9 months or whatever, not sticking with it. Is that the way to think about what you're trying to communicate today? Ashley McEvoy: No, thanks for the question. I think what we're learning in the patient journey of being type 2, again, we're sourcing the predominant amount from MDI is a little bit of the ongoing support. It takes them to get them on to pod and the reinforcing support that we need to do really early on. And then it smooths out, and really, there's a learning agility that has to happen early on. And then what we're finding is really good brand loyalty and really good retention over time. It is a bit of a current class in what we said in type 1. But overall, very encouraged with the progress that we've had about 18 months into this launch. Do you want to add anything, Eric, to that? Eric Benjamin: No, I think exactly as you described, we're seeing, as you laid out, utilization for type 2, stable, pretty similar to type 1 and retention that drop off, particularly early, getting folks accustomed to wearing the product as Ashley described, is a little bit different. And so we're learning and evolving our model and how we get folks successfully on so that they can stay enduring happy successful customers on Omnipod. Operator: Next question comes from Jayson Bedford from Raymond James. Jayson Bedford: Just on the 2Q international growth guide, it implies a bit more of a deceleration than I would have thought given it was obviously a very strong 1Q. Comps not too much difference. So I guess my question is, one, is there any stocking impact in 1Q that may be related to some of the new international countries? And then two, just outside of the comp, what weighs on 2Q international growth? Flavia Pease: Yes. Jayson, I'll take that. So in international, while as I said, price/mix realization will continue to be positive, the pace of it will moderate a little bit as we sort of anniversary some of these launches and continue the evolution of our installed base from DASH to Omnipod 5. The dollars will continue to be sequentially increasing quarter-over-quarter on a constant currency basis, but the growth rate, as you pointed out, will decelerate. Operator: Our next question comes from Shagun Singh from RBC. Shagun Singh Chadha: I just had a quick follow-up. The $10 million in revenue that shifted into Q1. Can you just elaborate on what the nature of that was. And then with respect to my question, Ashley, I was hoping you could talk a little bit more on the commercial front. You guys are looking -- you guys are strengthening your message around the algorithm, time and range. You've called out three algorithm launches in the 3 years, how meaningful are those upgrades and the U.S. sales force expansion, any way to think about the pace of that? And should we expect you to continue to do that throughout '26? Ashley McEvoy: Let me kind of start with your first one. We had about $10 million just from some inventory from -- that was coming in quarter 1. It went actualized. So it will come out of quarter 2. But you'll see -- I mean, quarter 2, we have a really strong call. We had 29% growth last year. So we do have a stronger comp, but we see momentum continuing in the U.S. I think it's important that I just spend a brief moment of -- you've heard me talk a lot about what are we doing commercially to strengthen our engine. And there's a couple of things that I would share, Shagun, to your point. Number one is investing in our field. It's our #1 P&L item and making sure that we are upskilling our force to sell clinically in addition to their beautiful passion of selling our disruptive form factor. We've just retrained and retested all of our reps. We actually have the largest sales rep force in the category. And then we are expanding our call points with improved targeting and segmentation and improving our reach and frequency with an expanding prescriber base. To your point about clinically, they've gotten really good momentum of selling our optimized setting, improving time and range. They're going to be out there this quarter talking about our new lower set point at 100 as well as keeping people more in automated mode. We're integrating with Libre 3 Plus, which brings with us 450,000 users from MDI that are on Libre 3 who are not on Omnipod into our portfolio. You can look at our website, Shagun, I would say, where we're listing all of our updated clinical evidence relative to what's available in the industry. So please take a look at that. And then obviously, maintaining our competitive advantage in market access and affordability is a second lever. The third, you heard me talk about this in my remarks, is really about getting our clinical performance out there. We've doubled the amount of our professional events in the past quarter. In fact, we've significantly invested in 2020, we were around 50 a year. We elevated that to about $100 to $1.50 a couple of years ago. We executed 500 peer-to-peer education programs in 2025, really all about clinical performance. And the last really is about this brand. It was really cool to see us kind of being dropped into culture on scrubs. We got a lot of feedback of making the category really accessible to a lot more people. And this is what we will continue to do to grow the category. So thanks for the question, Shagun. Operator: Our last question will come from Matt Taylor from Jefferies. Matthew Taylor: I wanted to ask one on the tailwinds that you called out in '27, specifically on Omnipod 6. Do you expect that launch, I guess, to drive just increased share gains and customer starts? Or could you actually get price mix benefits from the launch of Omnipod 6 as well? Ashley McEvoy: I mean, listen, this is going to be our sixth generation. It's really to sure -- to continue to extend our leadership and deliver our role of continuing to build the category and bring people in from MDI. It will have our third algorithm improvement. And again, I come back to the simplicity if you're on MDI, how to keep it really simple. And so this new algorithm is going to have greater automation, it's going to have less bolusing, it's going to have a reduced user interaction, it was designed exactly to bring more people into the category. We're going to have some of our data shared at the ADA coming up in June of our stride, which will show about our clinical performance. But the fun thing maybe underappreciated ads I would share is sensors have gotten really small and our Omnipod 6 also has dramatic improvement in what we call over-the-air improvement so that people can wear it on multiple places of their body. We get a lot of feedback on that. And importantly, we're also moving to a single-pod chassis, which allows prescribers to only write 1 script versus 2 scripts regardless of your sensor, and it clearly has a big impact on our supply chain and simplification. Thank you for the question, Matt. Listen, let me just thank everybody for your questions and engagement. And we are very encouraged by the momentum of the business that we're seeing, and we look forward to updating you on our continued progress. Thanks so much. Operator: Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.
Randall Giveans: Ladies and gentlemen, welcome to the Navigator Holdings Conference Call for the First Quarter 2026 Financial Results. On today's call, we have Mads Peter Zacho, Chief Executive Officer; Gary Chapman, Chief Financial Officer; Oeyvind Lindeman, Chief Commercial Officer; and myself, Randy Giveans, Chief Investor Relations Officer. I must advise you that this conference call is being recorded today. Now, as we conduct today's presentation, we'll be making various forward-looking statements. These statements include, but are not limited to, the future expectations, plans and prospects from both a financial and operational perspective and are based on our assumptions, forecasts and expectations as of today, May 6, 2026, and are as such, subject to material risks and uncertainties. Actual results may differ significantly from our forward-looking information and forecast. Additional information about these factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commission. With that, I now pass the floor to our CEO, Mads Peter Zaco. Go ahead, Mads. Mads Zacho: Thank you, Randy. Good morning and good afternoon and thank you for joining this Navigator Gas earnings call for Q1 2026. Before I get into the highlights of the quarter, let me again address the Middle East. As of today, we have no vessels operating in or transiting the Hormuz Strait. And just to be clear, we have experienced no significant negative operational or financial impact from the conflict, only commercial tailwinds. We are watching the developments closely. And we will keep our crew and assets safe. Please turn to Slide #4. The first quarter of 2026 was a quarter of resilient trading, and a quarter of record net income for Navigator Gas. And now in Q2, which is starting strong. In terms of our operations during Q1, TCE rates came in just below $30,000 per day, about $1,000 below Q4 and just below same period 2025. Utilization was slightly better than Q4 and within our guided range. Net income was $36 million or $0.55 per share and EBITDA was $80 million. All 3 are strong numbers. The balance sheet remains strong. Total liquidity less restricted cash was $241 million at quarter end. This is essentially flat versus year-end even after paying down debt and returning capital to shareholders and completing a significant share repurchase. On that note, in March, we repurchased and canceled 3.5 million shares from BW Group at $17.50 per share for a total of $61.2 million. This is a substantial transaction. And it reflects our strong conviction of the value in our company. We're also improving our capital return policy. From Q2 onwards, our policy will be to return 35% of net income each quarter, up from the 30%. The Board has declared a fixed dividend of $0.07 per share for Q1. And we expect to add $6.3 million worth of buybacks to bring the total to 30% of Q1 net income. Now, to what I consider the real highlight of the quarter. Our ethylene export terminal at Morgans Point delivered record throughput at over 300,000 tons. This is up 57% from Q4 and more than 2.5x up compared to the volumes from Q1 of last year. Both European and Asian demand for U.S. ethylene is growing. European crackers are undergoing restructuring and Asian producers are switching away from naphtha-based production given the elevated oil prices. Three new offtake contracts for the Morgans Point terminal were signed in the quarter and more are expected shortly. On vessel sales, in January, we sold the Navigator Saturn and the Happy Falcon, at attractive prices and generating substantial book gains as we communicated last quarter. In April, we also sold the Navigator Pegasus, for approximately $31 million, generating a book gain of about $15 million. As I've said a couple of times before, I view these asset sales as recurring income stream. We have been able to consistently sell well above book and at or above market estimates. The proceeds fund capital return and our fleet renewal ambitions. And then, there's the Unigas news. In April, we signed a letter of intent to sell our 8 gas carriers in the Unigas pool for an aggregate price of approximately $183 million. This is a significant strategic step. And I'd be pleased to discuss any of this in more detail during the Q&A. On newbuilds, financing is in place for the first 2 of the 6 vessels that we've ordered at an attractive margin of 150 basis points, equal to the best ever. Expect more good news on our newbuilding financings to come in shortly. Looking at the Middle East, the commercial angle, only 3% of global handysize volumes load in the Persian Gulf. These exports have been disrupted, but that creates demand for substitute product, U.S. ethane-based ethylene over Middle East and naphtha-based production and longer ton miles on ammonia. We also expect to see more LPG volumes from Venezuela that will come into the regular fleet. The supply side remains in our favor. The handysize order book is only 10% of the fleet, while 22% of the fleet is more than 20 years of age. Net fleet growth is likely to be flat or even negative. And then on to the outlook for Q2. This is where it gets exciting. Both TCE and utilization are expected to be above Q1 levels. April has already set some monthly Navigator records. Ethylene export volumes are also expected to set a new record in Q2. But I'll leave it to Gary to talk a little bit more about the financial details. So over to you, Gary. Gary Chapman: Thank you very much, Mads. Hello, everyone. As we entered 2026, we saw a slightly softer start to the quarter than we would have liked, but we ended with a resilient outcome overall for the quarter. And by the time we reached the end of March, supported by the strength and diversification of our platform. This was, of course, against the backdrop of ongoing geopolitical uncertainty, including continued disruption and risk across key global shipping corridors, which influenced and continues to influence trading patterns. However, many of these influences have turned into a positive tailwind for Navigator as we entered the second quarter and Oeyvind will talk more about this later. Turning back specifically to the first quarter on Slide 6. We're reporting an average TCE of $29,684 for this first quarter of 2026 compared to $30,647 in the fourth quarter of 2025 and $30,476 in the first quarter of last year. The slight softness in TCE this quarter arises principally from quarter end revenue recognition under U.S. GAAP due to having more vessels on voyage charters at the end of this first quarter compared to the end of the fourth quarter of 2025 or at the end of the first quarter of last year. And considering loading dates, revenue from a number of these vessels being recognized in the second quarter as a result. Utilization was above our benchmark at 90.6% for the quarter and was above 95% for April 2026. EBITDA for the quarter was $80.3 million, benefiting from strong terminal performance and fleet renewal gains on vessel disposals and adjusted EBITDA was $65.9 million, lower mainly due to the factors around TCE revenue recognition mentioned just now. Vessel operating expenses were down compared to the first quarter of 2025 at $45.8 million, but very slightly below in dollar per vessel per day terms due to timing of vessel sales, and there's more guidance for 2026 on Slide 9. Depreciation was slightly down compared to previous quarters, due to our now slightly reduced fleet size, and due to our remaining older vessel, Navigator Pluto, that reached the end of her 25-year accounting life during the fourth quarter last year and hence, is no longer depreciated. General and admin costs are higher in this quarter, primarily due to one-off project-related activities and associated legal and professional fees, which are not expected to recur at the same level. Randy will discuss more about our ethylene terminal. But as Mads mentioned, throughput volumes for the first quarter were a record high of 300,537 tons, up compared to 191,707 tons in the fourth quarter of 2025 and up from 85,553 tons in the first quarter of 2025, resulting in a profit to Navigator from our Morgan's Point terminal in this first quarter of $2.6 million. Our income tax line reflects movements in current tax and mainly deferred tax in relation to our equity investment in the ethylene export terminal. Net income attributable to stockholders for the first quarter of 2025 was $35.5 million or $0.55 per share, as Mads mentioned, and is the highest Navigator has ever reported. And in the quarter, we completed the sale of 2 vessels recording a gain of $12.1 million and completed the $61.2 million share buyback as part of the secondary offering from BW Group. The EPS figure also represents a significant increase versus both the prior quarter and the same quarter in the prior year. We continue to actively use, strengthen and build our already strong balance sheet, as shown on Slide 7. Our cash, cash equivalents and restricted cash balance was $199.6 million at March 31, 2026, and including our available but then undrawn revolving credit facilities of $91 million gave total liquidity of $291 million at the same date. Taking out restricted cash leaves a total available liquidity of $241 million. This strong liquidity position is despite paying out $29 million for scheduled loan repayments, $5 million under our capital return policy in respect of the fourth quarter of 2025 and over $61 million for the 3.5 million shares repurchased and then canceled as part of the secondary offering from BW Group. Our ethylene export terminal is currently unencumbered. And we also owned 9 unencumbered vessels at March 31, which gives us significant additional available leverage to tap when and as needed. Alongside this, we have paid from our own cash a total of $110 million as at March 31, 2026, towards the 6 vessels we have under construction. The difference of this figure to our balance sheet figure represents capitalized interest under U.S. GAAP. A significant part of these construction payments will be recouped as we fix financings for our newbuild vessels. And together with a still growing operational cash flow, this all helps to demonstrate our financial stability and strength. And to bring you up to date, we had around $310 million of available liquidity or $360 million, including restricted cash at the close of business on May 4, 2026. We continue to maintain a conservative and well-managed capital structure. And on Slide 8, across the quarter, where with a very supportive banking group and a strong underlying business, we were able to return capital to shareholders, raised funds for the construction of our newbuilds, reward our shareholders through buybacks and continue working on managing our debt and financing needs. We successfully entered into a new secured term loan, signing a 5-year post-delivery facility for up to $133.8 million, which will be used to finance up to 65% of the delivery and also predelivery installments for the construction of 2 of our new ethylene Panda newbuild vessels. As of March 31, we have partially drawn down $26.8 million of this facility to recoup some of our cash already paid out for these vessels. This transaction was executed at a very low margin of 150 basis points plus SOFR. And we would very much like to thank our banking group for supporting Navigator on this transaction. We believe the deal and the very keen pricing not only reflects the banking market today, but also the strong and stable credit position of the company. We expect financing for the remaining 2 of our 4 Panda vessels to be completed in May 2026 and financing for our 2 Coral ammonia vessels to be completed in June 2026. This would result in all 6 of our newbuild vessels being financed by the end of the second quarter this year. Then in terms of debt repayments, in addition to scheduled repayments of $29.3 million in this first quarter, we have only 2 relatively small debt balloons due before 2028, with payments due in 2026 of $54 million in total. And we expect to pay down an average of $128 million of annual scheduled pro forma debt amortization per year across 2025 through 2028. Net debt to last 12 months adjusted EBITDA stood at 2.5x at March 31, materially consistent with prior periods and remains at a level where we believe is comfortable for the business. Our loan-to-fleet value ratio was approximately 32% or below 30% when including a reasonable value for our Morgan's Point, terminal investment. Then finally, as at March 31, 2026, 56% of the company's debt was either hedged or was on a fixed interest rate basis with 44% open to interest rate variability. And this is another key metric that we keep under close review, particularly in today's economic environment. Hopefully, that you can see we continue to prioritize returning capital to shareholders, while maintaining balance sheet strength. And we'll continue to balance growth, deleveraging and shareholder returns in a disciplined and careful manner. On Slide 9, this slide highlights 2 of the core strengths of our Navigator platform, our ability to generate consistent operating cash flow and our structurally lower all-in cash breakeven. Starting with cash flow. Over the last 12 months to March 31, 2026, the business has continued to generate strong underlying operating cash flows with a pre-CapEx cash flow yield averaging around 15%. Whilst post-CapEx free cash flow has seen some variability, this is largely a function of CapEx timing and investment in our newbuild program rather than any change in the underlying earnings capacity of the business. Operating cash flow generation itself has remained quite stable. Our latest estimate for 2026 all-in cash breakeven shown below is $21,230 per vessel per day, which incorporates over $180 million of operating costs, $119 million of debt amortization and approximately $44 million of net interest expense. This level remains significantly below current and historic TCE levels, providing significant headroom for the business and should allow us to deliver positive EBITDA and cash generation even through more challenging market conditions. Our cost guidance for 2026 remains materially unchanged from that provided in the fourth quarter 2025 when adjusting for changes in fleet composition. And you can also see the expense guidance across vessel OpEx, G&A, depreciation and interest expense for both the second quarter and the full year. As noted, this guidance includes our 8 Unigas vessels. And of course, should the sale of those vessels complete, there would be a corresponding reduction in certain of those cost lines, particularly OpEx and depreciation, reflecting what would then be a smaller fleet. Slide 10 outlines our historic quarterly adjusted EBITDA, adding this first quarter's results. We now have 13 quarters in a row since the beginning of 2023 of reporting at least $60 million of quarterly adjusted EBITDA at an average of $71 million over that period. On the right-hand side, as we've highlighted previously, our earnings remain sensitive to TCE movements with approximately $17 million to $18 million of annual EBITDA uplift for every $1,000 increase in TCE rates, all other things being equal. As for previous quarters, an update on our vessel drydock schedule, projected costs and time taken can be found in the appendix, Slide 30, should that detail be of interest. So then overall, Q1 started a little more slowly than we would have liked, but accelerated well as we moved into March. And the resilience of our results and the flexibility of our fleet have again been shown with another very solid set of numbers and record net income. And with market tailwinds translating into improving second quarter conditions, we can look forward with confidence and from a position of strength. So with that, I hand you over to Oeyvind to provide some more details on Q1, but also on what we're seeing as we move forward. Oeyvind? Oeyvind Lindeman: Thank you very much, Gary, and good morning, everyone. Let me start with one of the big topics, the Strait of Hormuz on Page 12. The Strait has essentially been closed for over 2 months now. Since the 28th of February, we've seen commodity prices across the board, LNG, LPG, petrochemical gases and of course, oil moved sharply higher. And that makes sense because the Strait of Hormuz carries roughly 20% of the world's energy supply. When that gets turned down, prices goes up. Now there's still some traffic moving through, but it's a trickle. And most of what's moving are what we call shadow fleet vessels, ships that are sanctioned in one country or another. Many of them switch off their tracking equipment, so it's genuinely difficult to know exactly what is passing through. What we can say with confidence is that LPG flows have fallen from around 1 million metric tons per week down to about 1/5 of that. The vessels still moving these cargoes are largely Iranian flagged or ships that have specific permission from the Iranian government to discharge into places like India. For Navigator directly, our exposure is limited. As Mads mentioned, we do not have any vessels inside. And we do not have any vessels waiting to enter. Our last vessels actually loading LPG from Iraq passed through the Strait exactly on the 28th of February. So we got out just in time. But the indirect impact on our business has been very meaningful and very positive. With traditional supply chains disrupted, buyers around the world started looking hard at North America as an alternative to Middle East supply. And that shift in behavior has created a strong tailwind for us and I want to walk you through what that looks like. Turning to Page 13, which covers fleet utilization and our ethylene terminal. I'm pleased to say that our first quarter utilization came in about 90%. And April has continued building on this strength, reaching 95%. What happened is that when the Strait first closed, the market was a bit caught off guard. No one knew, if this was going to last a week or a month or longer. But once it became clear that this wasn't going away quickly, our customers moved decisively to lock in stable supply from North America and that drove our utilization higher as we moved into April. That same urgency showed up at our joint venture ethylene export terminal. From March onwards, the volumes have been at record levels, not just above normal capacity, but above the expanded nameplate capacity as well. That means the flex feature we built into the terminal is actively adding value today. More volume means more ship movements, which feeds directly into higher utilization and stronger rates. These things go hand-in-hand, and I'll come back to spot rates in a moment. Now, Page 14 gives you a really clear picture of the competitive position North America finds itself in right now. The chart on the left tracks the price of U.S. ethane and U.S. ethylene compared to international markets. And here is what's remarkable with every other energy commodity has been impacted by what's happening at the Strait of Hormuz. U.S. ethane, however, that price have barely moved. [ Technical Difficulty ] Mads Zacho: I think we will need to just hold off a second while Oeyvind is getting back on. And if he's not back in half a minute, then, we will take over and continue on his behalf. Randall Giveans: I'll keep going while we wait for him. So the chart on the left tracks the price of U.S. ethane, U.S. ethylene versus the international markets. And really, the more remarkable thing is while every other energy commodity was squeezed by what's happening at the Strait of Hormuz, U.S. ethane prices, as Oeyvind was saying, has really barely moved. So this is an extraordinary situation. So think about it from a producer's perspective. If you can buy ethane in the U.S. for under $200 per ton, cracking into ethylene versus dealing with oil at $100, $110 a barrel, there's really no contest. Now North America is, by a long way, the cheapest place in the world to make ethylene right now. And the gap to Asian naphtha producers is enormous. It's about $1,800 per metric ton in terms of a U.S. advantage. And the arbitrage, really the price difference between U.S. ethylene and markets in Europe and Asia, it's at an all-time high, a $900 per metric ton gap to Europe means much higher revenues for us as a shipowner and higher revenues for us as a terminal owner, which I'll get to in a minute. So you might ask, is this really a short-term bump or something more lasting? We believe it's the new normal, not just the situation in the Middle East, but the competitiveness of America, right? Yes, maybe the Strait of Hormuz reopen soon, but the U.S. cost competitiveness remains. Now on Page 15, we'll explain why. So the 3 major U.S. shale gas basins, they're all producing gas that is getting richer and richer over time, right? The crude depletion curve is much steeper than that of gas. So the gas streams are what we call wetter, right, meaning they contain more NGLs, which means more LPG and more ethane. That's really the raw material that underpins everything that Oeyvind and us have been talking about. So for the global handysize fleet, North America has really become the center of gravity. Around 45% of all of our handysize cargo is linked here to North America. Now 4x what it was back in 2017. So this is clearly a structural shift, not just a cyclical change. Turning to the supply side on Page 16. Picture really hasn't changed much since our last update. We're looking at around 10% of our order book in terms of potential fleet growth over the next 3 years. Conversely, 22% of the existing fleet is already over 20 years of age. So it's a pretty healthy setup from a supply standpoint. So what does this all mean for freight rates? Looking at the next slide, ethane and ethylene capable vessels are earning record daily numbers right now in the range of $45,000 to $750,000 that is not a typo, $1,000 per day for some spot voyage charters. Now to understand really what you're looking at, we want to explain something important. So this green line you see on chart, it's the 12-month assessment. So this is not the spot rates, right? In other words, what it would cost to hire one of our ships for a 1-year contract today. That number is assessed by third-party brokers to be around $33,000 a day. Now, that line is almost theoretical because the time charter market has really gone quiet. Customers don't want to really lock in rates at these very elevated levels at this time of uncertainty. And ship owners like us have really little incentives to tie up our vessels for a year long when the spot market is offering such strong elevated levels. So if you're trying to understand the real earnings power of the ships right now, look past the green line and focus on those spot fixtures. That's where the real premiums are. Now clearly, not all of our vessels are able to capture those spot rates. Some are committed to time charters. Some, frankly, aren't even capable of carrying ethane and ethylene on our semi-raps, on our fully raps. So Page 18 gives you a breakdown of our 2026 time charter coverage profile, again, with most of them being on time charters. Now our semi-ref vessels, they're around half and half. But the ethane and ethylene capable ships, those are the ones that are predominantly in the spot market earning those premium rates. So those are the ones capturing the upside right now. So bringing it all together, the gap between North American commodity prices and the rest of the world has widened dramatically. Buyers are chasing U.S. supply. Demand for ethane and ethylene shipping is strong. Our terminal is running at record volumes. Utilization is up. Rates are up and the underlying competitiveness of North American supply, driven by that shale gas that just keeps getting richer means it isn't going away. So April shaping up to be a record month. May is looking very strong as well. So with that, I'll turn it over to myself to find out what else is happening at Navigator Gas. So with that, we've made several announcements in recent months. We want to provide some additional details and updates on these recent developments. So starting on Slide 20. We've been saying how attractive we valued our shares are. And we've been putting our money where our mouth has been, right? In March, we repurchased and canceled 3.5 million shares of NVGS directly from BW for $61 million or $17.50 per share. Now a few things to note. This transaction was done at a discount to the prevailing market price at the time. It removed some of the overhang. It had no negative impact on our free float and has further increased our earnings per share and NAV per share. So importantly, our recent buybacks really answer 3 key questions. Do we have a strong balance sheet and ample liquidity? As Gary said, yes. Is the earnings outlook attractive? As Oeyvind said, yes. Is the share price undervalued? As Mads has been saying, yes. So for a quick recap, you can see on the bottom left chart, we had about 56 million shares outstanding for many years up until the merger with Ultragas in 2021, in which we issued 21 million shares in exchange for those 18 vessels. So since peaking at around 77 million shares outstanding in December 2022 and including the capital return here in March, we just continued to reduce this number. We've repurchased and canceled 16 million shares, totaling $236 million for an average price of around $15 per share. Additionally, we paid $41 million of cash dividends for a total of $277 million of capital return to shareholders over just the past 3.5 years. So this equates to around $4 a share, greater than 26% return during that time. Now as seen over the past few years, and you'll hear about it here in a minute. We want to reiterate that returning capital to shareholders will remain a priority for us going forward. Now looking at Slide 21, we recently celebrated the 5-year anniversary of the Navigator Gas Ultragas merger, a match made in handysize heading. So I want to show you 3 graphs that cover the past half decade. Now starting on the left, our share price has more than doubled from $11 to about $22. And thus far this year, we're up around 30%, but still trading at a 25% discount to NAV, which we do not think is warranted based on the positive outlook for our shipping business, terminal throughput, our strong balance sheet and our steadily climbing earnings. Now, focusing on the center chart, our ownership structure has had quite the transition during this time. Our shares are now 55% in free float that's publicly traded. Ultranav owns 34% and BW is down to 11%. Looking at the table on the right, this increased free float, coupled with many new shareholders coming aboard has led to much higher daily trading liquidity, right? We're currently averaging more than 7 million per day and that's year-to-date. Some days, we're doing 10 million, 15 million as you see there on the table. So that covers the past. But now let's look to Slide 22. Looking ahead. Our capital return policy, it includes a fixed quarterly cash dividend of $0.07 per share. And as part of that quarterly payout percentage of 30% of net income. So as a result, for the first quarter, we paid a $0.07 quarterly cash dividend totaling $4.3 million and repurchased over 50,000 additional common shares in the open market. And that totaled $1 million for an average price of around $19.34 per share. Looking ahead, we are announcing that we're returning 30% of net income, a total of $10.6 million to shareholders during the second quarter. The Board has declared a cash dividend of $0.07 per share payable on June 10 to all shareholders of record as of May 20, equating to a quarterly cash dividend payment of $4.3 million. And additionally, with our shares still trading below our NAV of more than $30 a share, we'll use the variable portion of the return of capital policy for share buybacks. As such, we plan to repurchase $6.3 million of our shares between now and the quarter end, so that the dividend and the share repurchases together equal 30% of net income, $10.6 million this quarter. But wait, there's more. Now starting next quarter, we'll be increasing our capital return policy to 35%, more than 1/3 of our net income. Now to fund this incremental capital return policy, the Board has also approved a new $50 million share repurchase plan authorization. So based on our current expectation of improved earnings in 2Q '26, coupled with a higher payout percentage. We expect to announce even more than $10.6 million of return to shareholders under our quarterly capital return policy next quarter. Stay tuned. Now turning to our ethylene export terminal on Slide 23. All of us touched on it earlier because it's pretty exciting news here. But ethylene throughput volumes rebounded to a record high of 300,000 tons during the first quarter. And that was including a monthly record high of 150,000 tons in March. And this was despite the domestic ethylene prices ticking up, but multiple European crackers underwing turnarounds and both European and Asian demand for U.S. ethylene also increased due to that recent surge in oil-based naphtha prices that Oeyvind was discussing earlier. Now, to even better news, as you'll see in the bottom of the chart, that strong demand for U.S.-sourced ethylene has continued into the second quarter, leading to another record high monthly throughput in April of around 151,000 tons. And we expect a third consecutive record high month in May with around 160,000 tons currently scheduled. To note, this is above the nameplate capacity of 130,000 tons per month. That's really proving the upside of the flex train that we've alluded to in recent quarters. So as such, we expect to report another record quarter of throughput on our next earnings call for the second quarter. Now, looking at the bottom right chart, despite that near-term increase in U.S. ethylene prices, the ARB remains wide open, and that's driven by the much higher international ethylene prices. So that's led to numerous new spot customers buying cargoes from the terminal. And longer term, the forward curve remains very stable at around $0.25 per pound throughout 2027. So and when it comes to contracting the expansion volumes, we recently signed 3 new offtake contracts for various quantities and durations. And the robust demand has resulted in multiple customers now in advanced discussions for take-or-pay contracts commencing in the coming months. So as such, we expect that additional offtake capacity will be contracted soon as new customers continue to request updated terms for the terminal and for shipping. So in the meantime, we'll continue to sell those volumes on a spot basis at very attractive rates. Now, finishing with our fleet and the fleet renewal on Slide 24. We're continuing to rightsize our fleet by selling our older vessels and our noncore assets. So on the same day in January, we sold both the Navigator Saturn and the Navigator Falcon. And then in April, we sold the Navigator Pegasus, a 2009-built 22,000 cubic meter semi-refrigerated gas carrier for $30.5 million. And that's netting a book gain of $15.2 million, which will be booked in our second quarter 2026 results. Furthermore, as Mads was mentioning, we announced the upcoming sale of 8 Unigas vessels for $183 million. We'll repay around $54 million of associated debt so that the net cash proceeds will be around $129 million. Now these 8 vessels will also result in a book gain of about $65 million, which we will book upon vessel deliveries throughout the second, third and maybe into the fourth quarter of this year. So looking at all 17 of our vessel sales over the last 4 years and including those Unigas vessels, the total proceeds are expected to be $342 million. And after all the associated debt repayments, total net cash proceeds of $288 million, which we'll be sure to use prudently. Now, our current fleet consists of 54 vessels with an average fleet age of 12.3 years, average fleet size of 21,000 cubic meters. Now excluding the Unigas vessels, our fleet would be a little younger on average at 12.2 years and a little larger on average of close to 23,000 cubic meters. So we continue to upgrade our vessels with some various energy savings technology. You can see that on Slide 30. And we continue to roll out new artificial intelligence AI programs to make our fleet even more efficient. So with all that, I'll now turn it back to Mads for some closing remarks. Mads Zacho: Good. Thank you, Randy. And it's great that you illustrate we have good redundancy, not only in our vessel operations and our financing structures, but also in our investor presentation. So that's great. The first quarter of 2026 was a quarter of resilient cash generation, continued structural tailwinds and once more a demonstration of our disciplined capital allocation. It was also a quarter where we delivered the strongest quarterly net income in the history of Navigator Gas. The strong net results include both tailwinds from vessel sales, but also some headwinds. Importantly, some of those headwinds that Gary just reviewed with us, they will translate into tailwind in Q2, which is a quarter that has already taken off to a good start. Our resilient earnings and strong cash generation are underpinned by the structural advantaged U.S. exports, particularly the low-cost ethane and a tightening supply fundamental. These effects will outlast the more cyclical effects that we are seeing from the war in the Persian Gulf. With record terminal throughput anticipated and improving fleet utilization and TCE and supportive macro dynamics into Q2 of 2026. We enter the remainder of the year from a position of strength and we are well positioned to sustain this momentum. A strong balance sheet and clear capital return policy continues to drive attractive shareholder returns. So with that, I'll round it off. Thank you for listening. And back to you, Randy, to open the Q&A. Randall Giveans: Thanks so much, Mads, and great to see Oeyvind. It looks like he's back. We missed his calm and strong Norwegian voice. Operator, we'll now open the lines for some Q&A. [Operator Instructions] Spiro Dounis: Spiro here from Citi. I want to start with the Middle East. Obviously, a very fluid situation, seeing some of that play out today. But you did note the disruption has been a net positive for you commercially. And so to the extent you do see a return to normal, however you defined it. It doesn't sound like you guys are expecting business to go back as usual. So curious to get your thoughts on maybe the durability of some of these tailwinds to last longer. Oeyvind, you talked about renewed interest in U.S. cargoes. So I kind of wanted to get a glimpse of maybe what you're hearing from customers? How those conversations are going? And when do you think this starts to convert maybe into longer term commercial success for you guys? Oeyvind Lindeman: I think the most important feature, what is happening now is what we mentioned at the boardrooms around the world when they're looking at the supply chains. They're looking for reliability. And what the issue in the Middle East have shown is that it is not reliable. So when you're running your multibillion-dollar production system crackers and so forth, you can't rely on that anymore. So that has highlighted that issue. And that is hurting many of those customers to the U.S. talking about ethane and ethylene. So I think that is a lasting change in the supply chain strategies around the different companies or customers. In short term, in terms of freight and so forth, et cetera, I think this is going to be if the Strait opens, there's going to be a long lag on the prices and to settle and so forth, et cetera. So I think long term, it's a structural shift. Short term, I think we'll see a strong market continue for the foreseeable future until things are settled. But when that happens, it may takes time. Spiro Dounis: Understood. That's great color. Second one, maybe just going to capital redeployment here. Liquidity getting pretty healthy, looks strong at these levels following these vessel sales. And just wondering if you guys provide a little more color on how you're thinking about redeploying that capital. Maybe where the best value is, if there's any obvious holes in your portfolio? And if some of that capital can maybe find its way to infrastructure development. Mads Zacho: Yes. There's still a continuation of the strategy we have communicated in previous occasions that we still see some opportunity for consolidating the markets that we are in. That goes for both the handysize market and also the midsized market that we're looking at. The midsized market is a little bit more fragmented and there may be more opportunities. And here, we just need to find the right deals at the right price at the right time. But we clearly see that there are opportunities for consolidation here. We also see opportunities in infrastructure. And that can be both export infrastructure out of North America and it can be import infrastructure into Europe. We have a pretty active business development portfolio. The infrastructure projects will tend to take a little bit longer before they materialize. Whereas you could say the secondhand consolidation on vessels could maybe happen a little bit faster. But we still -- we are a company that want to grow over time, nothing wild, but just gradually, as you've seen in the past, quite predictable in how we look at it. And that leaves also ample cash on hand to deploy both into repayment of debt and at the same time, in particular, capital return to shareholders. So it's a little bit the same story that you heard before that we think we can do all of the things at the same time, growing gradually, but also deploying gradually more cash over time to shareholders. Christopher Robertson: This is Chris Robertson at Deutsche Bank. Just wanted to start with the terminal. I think you're currently around 23% over nameplate capacity at these levels, around 160,000 tons for April. How confident are you in maintaining throughput at that level sustainably, I guess, across the year without periods of increased maintenance due to the increased throughput? Are there any technical or physical limitations that you could continue to optimize further on here? And is there any low-hanging fruit in terms of some minimal CapEx investment to continue to improve the total capacity number? Randall Giveans: Yes. I'll start there. A few questions. I was actually up there on Monday at the terminal. So back in February, you saw that dip. We did 60,000-ish tons. And during that time, we did some maintenance, did a few little capital improvements, added an additional pump, and that really bode well for us. Obviously, in the last few months, you're seeing us operating above nameplate capacity. Now this is our partner, the operating partner, enterprise products, more than Navigator turning screws. But all that being said, we can operate above nameplate for an extended period, not at the 160,000 ton level probably for multiple months. Once we get into the summer, June, July, especially August, you're here in Houston, you know very well, when the temps are over 100 degrees Fahrenheit, it's a lot harder to chill this commodity down to negative 104 Celsius, right? So there are some technical difficulties to keep going at these levels. On the commercial standpoint, right, the flex train does ethane and ethylene. So there's a balance there. So we have a contractual agreement that we're buying 1/4 of the capacity. There's upside above and beyond that when it's not being used for ethane. So it's hard to really say, yes, every month we'll be at x level. We have the kind of the throughput that we expect and hope 130,000 tons a month. But it would be hard to get above that continuously in the short term. Now, longer term, when some of those contracts roll over to the Neches River ethane export facility that Enterprise has, there will be some opportunities for that. But for the time being, yes, I think the 130,000 tons, 140,000 tons, 150,000 tons is a great level, probably not going to stay at those levels perpetually. But we're hoping for some strong throughput here in the second quarter and beyond. Christopher Robertson: Got it. Fair. This is a follow-up question. Just as it relates to the ethylene pricing we're seeing in both Europe and Asia have moved up. Obviously, Europe is still at an advantage here, but less so, let's say, from a ton-mile perspective as Asia is a further distance away. So as it relates to ethylene, are you guys still doing 100% of the cargoes to Europe? Is there any Asian buyers on that? Or is that more on the ethane side? Randall Giveans: Oeyvind, welcome. Oeyvind Lindeman: The ARB to Europe is the widest. So logically, most of the volumes will go there, because that's the -- those are the guys who pays the most for the product, which means that there's scope -- more scope for the terminal, which we're part owner and for the freight side to extract more additional value. So most of the ethylene is currently heading to Europe for those reasons. Some are starting to go to Asia as well. We believe that the Asian producers, the naphtha producers and so forth had quite large storage available in oil. Now those are dwindling and therefore, appetite for ethylene to Asia is coming on the scene. Ethane, however, have been flowing to both locations simultaneously. Climent Molins: Climent Molins from Value Investor's Edge. My first one, I think, is going to be for Gary. Considering that if the sale of the Unigas vessels goes forward, it will include the pool, will any working capital be included? Would the $183 million transaction price be adjusted for that? Or is it already accounted for? Mads Zacho: You're muted, Gary. Gary Chapman: Climent, yes, good question. The price that we've quoted for the vessels, there's a small administrative pool that we own 1/3 of. And there's a small couple of millions attached to the value of that pool entity. But the vast majority of the value here is on the vessels. I can go into a lot more detail should you want me to, but that's the crux of the answer, I think. Climent Molins: Yes, makes sense. And I also had a question regarding the ethylene export terminal. You may not be able to provide exact commentary, but pro forma for the addition of the 3 contracts you mentioned year-to-date. What percentage of the 1.55 MTPA are currently fully fixed? Randall Giveans: Yes. We won't go into the exact percentages. But the vast majority, we're still in some offtake discussions with additional customers. So we'll just leave it at that. Thank you. All right. It looks like that's all the questions we have. Mads, final thoughts. Mads Zacho: No, good. Thanks a lot. Thanks a lot for listening in. As you can see, we had a quite resilient first quarter. And it seems like the Q2 is going to be a pretty exciting one. And we definitely look forward to meeting same place, same time in about a quarter and just reviewing with you the Q2 results. So thanks a lot for all the good questions from the analysts and thanks for listening in. So have a fantastic day and evening, and see you next time. Randall Giveans: Thank you.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Palmer Square Capital BDC Inc.'s First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Jeremy Goff. Please go ahead. Jeremy Goff: Welcome to Palmer Square Capital BDC Inc.'s First Quarter 2026 Earnings Call. Joining me this afternoon are Christopher Long, Angie Long, Matthew Bloomfield, and Jeffrey Fox. Palmer Square Capital BDC Inc.'s first quarter 2026 financial results were released earlier today and can also be accessed on our Investor Relations website at palmersquarebdc.com. We have also arranged for a replay of today's event that can be accessed on our website. During this call, I want to remind you that the forward-looking statements we make are based on current expectations. The statements on this call that are not purely historical are forward-looking statements. These forward-looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including, without limitation, market conditions caused by uncertainty surrounding interest rates, changing economic conditions, and other factors we identified in our filings with the SEC. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements made during this call are made as of the date hereof, and Palmer Square Capital BDC Inc. assumes no obligation to update the forward-looking statements unless required by law. To obtain copies of SEC-related filings, please visit our website at palmersquarebdc.com. With that, I will now turn the call over to Christopher Long. Christopher Long: Good afternoon, everyone. Thank you for joining us today for Palmer Square Capital BDC Inc.'s first quarter 2026 conference call. On today's call, I will provide an overview of our first quarter results, touch on our market outlook and competitive positioning, and then turn the call to the team to discuss the current industry dynamics at play, our portfolio activity, and financial results. During the first quarter, our team deployed $109.4 million of capital and generated total and net investment income of $26.2 million and $11 million, respectively. We delivered net investment income of $0.35 per share and paid a $0.37 per share total dividend, which includes a $0.01 supplemental distribution above our base dividend and included approximately $0.02 of spillover income. Consistent with the sector, our earnings profile is reflective of monetary policy tightening over the last several quarters, in addition to experiencing a slowdown in new deal and refinancing activity given the macro backdrop. With this in mind, our dividend payout still represents an 11.1% yield on NAV and a 13.5% yield on the stock price as of April 30, which we believe is a compelling value proposition for investors. We also believe we are beginning to experience a pickup in activity in April, which we are hopeful continues for the remainder of the second quarter. As such, our Board has confirmed our second quarter base dividend of $0.36, with the supplemental to follow in normal course. We will continue to prioritize, to the extent possible, a distribution strategy that maximizes cash returns to investors. Our March NAV per share was $13.30. This mark is based on real actionable prices in the market and underscores our intentional commitments to transparency and accountability regardless of the day's market condition. This level of transparency is especially relevant in today's environment. With heightened scrutiny around BDC portfolio company valuation, we believe our monthly NAV disclosure delivers an added layer of confidence in the underlying value of Palmer Square Capital BDC Inc.'s portfolio while highlighting the uniqueness of our portfolio's positioning in liquid senior secured debt. We are pleased with the increased amount of positive feedback we have been receiving in this regard. 2026 presented another episode of volatility, induced by the software sell-off and credit cycle concerns in general, factors we discussed on our fourth quarter earnings call in February. These issues have continued to drive headlines in the months since, in addition to concerns and economic impacts resulting from the Iran war. As I did last quarter, I would like to spend a moment reiterating our philosophy around software and technology investments as it remains very topical. We continue to prefer deeply embedded mission critical software in areas such as cybersecurity, IT infrastructure, and ERP systems, which we believe will ultimately be net beneficiaries of AI advancements. Within these subsectors, we lend to large, highly scaled providers that have meaningful profitability and cash flow. We have found that these large enterprise platforms tend to be backed by sophisticated private equity sponsors and believe their capital structures provide meaningful equity cushion below our senior secured loans. In our experience, these providers also frequently benefit from significant incumbency advantages. We believe another advantage is the breadth and depth of their data collected across industries. This data positions incumbents to develop more effective AI and infrastructure than their more nascent peers, as data quality remains a foundational element of model performance and inference. To that end, we believe our portfolio companies are already realizing the benefits of AI advancements. Examples include one data analytics business that has over 60% of its top 50 customers using at least one AI-native product, while one of our large ERP software companies' AI application has seen adoption by 40% of its over 7 thousand customers. In the latter example, management expects that adoption to be over 75% by year-end 2026. Beginning in April, we started to observe a stabilization and, in some cases, a reversal of the mark-to-market prices on software and other AI-impacted loans, which we believe reflects the market's growing realization of the advantages incumbent providers hold amid the AI-driven disruption. To echo recent commentary from a large private equity sponsor, these incumbents are well positioned to win, but that position is not guaranteed. We believe that advantage is predicated on their long-term customer relationships, their ownership of critical data that underpins the day-to-day functions of their clients, and their ability to incorporate AI into existing software systems to improve services. With that, I will hand the call over to Angie. Angie Long: Thank you, Chris. Through the first quarter, Palmer Square Capital BDC Inc.'s portfolio faced many macro headwinds, but we believe it performed respectably given the degree of volatility across asset classes. Importantly, given this backdrop, we continue to see stability in our underlying credits, continued earnings growth in our software exposure, and minimal fundamental impacts from the Iran war. As the broader market begins to regain its footing, we believe Palmer Square Capital BDC Inc.'s portfolio will perform steadily as we look to capitalize on an improving opportunity set in what we believe should be better risk-adjusted spreads going forward. Stepping back, the first quarter was defined by significant macro volatility driven by the sell-off in software and technology credit, persistent headlines around redemptions in evergreen vehicles, and geopolitical uncertainty, most notably the situation in Iran. Within that context, our views on software remain unchanged. As Chris alluded to earlier, we continue to believe that deeply embedded mission critical platforms are well positioned to be net beneficiaries of AI advancements. As we are already seeing across parts of the market, these businesses are beginning to incorporate AI into their existing systems, leveraging long-standing customer relationships and differentiated data sets to enhance their offerings. Across the broader market, the dislocation has started to create more attractive entry points. In the secondary loan market in particular, we are seeing pricing that, in certain cases, reflects macro concerns more than company-specific performance. That shift is beginning to create a much better risk-reward dynamic than we have seen over the past several quarters. From an activity standpoint, M&A volumes slowed during the quarter as sponsors paused in response to the macro backdrop. However, with improving visibility, we are beginning to see activity return, including increased refinancing activity and select new opportunities across both the broadly syndicated and private credit markets. Importantly, spreads are now beginning to move wider across both markets. We are cautiously optimistic and believe the extended period of spread tightening is likely behind us. Finally, we must acknowledge that geopolitical developments remain a key variable. A timely resolution in Iran would likely be supportive of market conditions, particularly given the potential for elevated oil prices to have broader inflationary impacts across the economy. While the environment remains fluid, we believe the combination of more attractive pricing and a disciplined approach positions us well for the periods ahead. At the portfolio level, underlying credit performance continues to remain solid, and capital markets remain open for high-quality borrowers. We have experienced increased volatility in NAV, which is not unexpected given the market dynamics we have discussed thus far and the overall liquid nature of our underlying loans. We view this as a function of an efficient market attempting to price in perceived risks, rather than a reflection of any meaningful deterioration in underlying credit quality. To reiterate Chris' earlier comments, our monthly NAV is based on real, actionable market prices, providing more frequent transparency into how the portfolio is valued and eliminating perceived questions around the true NAV of the BDC. In terms of our balance sheet, we continue to believe the flexibility of our financing facilities is a core benefit of the BDC. The CLO that we issued in 2024 will exit its noncall period in July 2026, and we will likely be looking at potential refinancing options for that during the second quarter. During the first quarter, we remained active and disciplined with our share repurchase program. We bought back 140 thousand 149 shares for approximately $1.6 million and have remaining availability of approximately $4.2 million. In addition, Palmer Square Capital Management, our manager, purchased an additional 67 thousand 875 shares for approximately $800 thousand via its program. The Board will continue to evaluate share repurchases in the second quarter and beyond, given the attractive trading levels of our stock relative to NAV, and will consider future upsizes to the program if deemed appropriate. For added context, Palmer Square Capital BDC Inc. shares were yielding 13.5% as of 04/30/2026, a significant premium to the 11.1% yield on NAV. We believe this presents a compelling value proposition in the current environment, especially when taking into account the quality and conservative position of Palmer Square Capital BDC Inc.'s portfolio. As we look ahead to the remainder of 2026, we are constructive on the emerging opportunity set and believe the depth of our platform combined with Palmer Square Capital BDC Inc.'s flexibility to nimbly allocate across both public and private markets will continue to serve as a strong advantage in positioning the portfolio to capitalize on attractive risk-adjusted opportunities as they emerge. I will now turn the call over to Matthew to discuss our portfolio and investment activity in more detail. Matthew Bloomfield: Thank you, Angie. As Angie mentioned, Palmer Square Capital BDC Inc. navigated 2026 well despite heightened volatility facing the sector and broader markets. Relative to the fourth quarter, our net investment income per share decreased to $0.35 per share in the first quarter 2026, predominantly due to a combination of lower base rates as well as slower prepayment activity and the shortest quarter of the year. I would like to note that the full impact of lower base rates was felt more in 2026 than in 2025, due to how our borrower contracts are structured, and we believe the second quarter should represent a more normalized environment assuming no additional rate cuts in the near term. In recent weeks, we are beginning to observe increased new-issue activity and refinancings. While prepayment activity is difficult to predict, we believe it could reaccelerate as we move through the year. In addition, to reiterate Chris and Angie's comments, we also believe we are in a more reasonable spread environment today versus the past several quarters and are optimistic about the opportunity to reinvest paydowns into a higher-spread environment in the near term. Our total investment portfolio as of 03/31/2026 had a fair value of approximately $1.15 billion, diversified across 44 industries that demonstrate strong credit quality, industry and company-specific tailwinds, and a variety of end markets. This compares to a fair value of $1.2 billion at the end of 2025, reflecting a decrease of approximately 4.1%. In the first quarter, we invested $1.094 billion of capital, which included 42 new investment commitments at an average value of approximately $2.1 million. During the same period, we realized approximately $79.9 million through repayments and sales. Importantly, we remain focused on diversification as we allocate new capital across the portfolio, as we believe the recent market turbulence has refocused investors on the importance of risk management through diversification. To recap key portfolio highlights, at the end of the first quarter, our weighted average total yield to maturity of debt and income-producing securities at fair value was 11.73%, and our weighted average total yield to maturity of debt and income-producing securities at amortized cost was 8.26%. We believe our focus on first lien loans combined with diversification across industries and company size contributes to a strong credit profile, with exposure to 44 different industries. Further, our 10 largest investments account for just 10.64% of the overall portfolio, and our portfolio is 96% senior secured, with an average hold size of approximately $4.4 million. We view this as a key risk management tool for Palmer Square Capital BDC Inc. On a fair value-weighted basis, our first lien borrowers have a weighted average EBITDA of $452 million, senior secured leverage of 5.5 times, and interest coverage of 2.4 times. Additionally, new private credit loans comprised 22.3% of overall new investments at a weighted average spread of 486 basis points over the reference rate. While credit quality remains an industry-wide concern, nonaccruals continue to be low at Palmer Square Capital BDC Inc. On a fair value basis, nonaccruals represent less than one basis point, and on an at-cost basis, only 90 basis points. Our PIK income represents approximately 1.64% of total investment income, well below our peers and the industry average. We have maintained an average internal rating of 3.6 on a fair value-weighted basis for all loan investments. Our rating is derived from a unique relative value-based scoring system. We believe credit performance across the portfolio remains strong, continue to experience stable leverage levels and loan-to-value ratios, and our diversification positions us attractively within the dynamic markets we participate in. As we have discussed in the past, we believe larger borrowers are better positioned to deliver favorable credit outcomes over the long term, a dynamic we expect to continue as AI is advantageous to companies with the scale to invest in and leverage these technologies. As Angie described, in conjunction with the Board, we continue to evaluate share repurchases as a means of driving shareholder value given the discounts in the market. We will continue to evaluate share repurchases on a go-forward basis and will look to balance attractive investment opportunities in conjunction with those potential repurchases. Earlier in the call, we mentioned dislocations in the secondary market creating a better risk-reward dynamic than we have seen over the past several quarters. While we are actively evaluating new investments, we plan to approach these opportunities with balance. We are managing leverage carefully given movements in NAV, which Jeffrey will discuss in more detail, and we will be discerning in weighing the return profile of any new investments against that available through share repurchases to ensure we are making the most accretive capital allocation decisions on behalf of our shareholders. Now I would like to turn the call over to Jeffrey, who will review our first quarter 2026 financial results. Jeffrey Fox: Thank you, Matthew. Total investment income was $26.2 million for 2026, down 16% from $31.2 million for the comparable period last year. Income generation during the quarter reflected a mix of contractual interest income, paydown-related income, and select fee income from new deal activity. Total net expenses for the first quarter were $15.2 million compared to $18.3 million in the prior-year period. Net investment income for 2026 was $11 million, or $0.35 per share, compared to $12.9 million, or $0.40 per share, for the comparable period last year. During 2026, the company had total net realized and unrealized losses of $48.3 million compared to total net realized and unrealized losses of $21.3 million in 2025. This consisted of net unrealized depreciation of $52.8 million related to existing portfolio investments and net unrealized appreciation of $15.2 million related to exited portfolio investments. At the end of the first quarter, NAV per share was $13.30 compared to $14.85 at the end of 2025. Moving to our balance sheet, total assets were $1.2 billion and total net assets were $413.8 million as of 03/31/2026. At the end of the first quarter, our debt-to-equity ratio was 1.7 times compared to 1.54 times at the end of 2025. This difference is predominantly due to the change in NAV as well as the modest impact from share repurchases. Available liquidity, consisting of cash and undrawn capacity on our credit facilities, was approximately $325.3 million. This compares to approximately $311.3 million at the end of 2025. Finally, on May 6, the Board of Directors declared a second quarter 2026 base dividend of $0.36 per share in line with our dividend policy. Furthermore, our policy continues to be distributing excess earnings in the form of a quarterly supplemental distribution. And with that, I would now like to open up the call for questions. Operator: We will now open the call for questions. To ask a question, press star then the number one on your telephone keypad. Please pick up your handset and ensure that your phone is not on mute when asking your question. Our first question will come from the line of Kenneth Lee with RBC Capital Markets. Please go ahead. Kenneth Lee: Hey, good afternoon, and thanks for taking my question. Just one on the NAV. It sounds like a lot of the marks are driven by market and actionable pricing there. Could you remind us again how much input does Palmer Square have in terms of the loan valuations within the book? Or is it completely driven by what you are seeing on the secondary markets there? Thanks. Matthew Bloomfield: Ken, it is Matthew. Thanks for the question. It is completely driven by third-party marks. On the broadly syndicated side, those are real quotes, real levels, tradable in the secondary market. Those come from a third-party service provider that aggregates all those daily marks on the syndicated loans. On the private credit side, those are marked from a third-party valuation provider. Kenneth Lee: Okay. Great. Very helpful there. And one follow-up, if I may. I just want to get your thoughts around dividend coverage just given where NII is leveling out right now. Thanks. Matthew Bloomfield: It is obviously something we and the Board spend a lot of time on. The first quarter of the year is always the slowest from a prepayment activity standpoint and the shortest day count of the year, and the volatility that transpired predominantly in February and March slowed activity down pretty dramatically. As we moved into April, we do feel incrementally better about what we are seeing from new origination activity and conversations. We have had a couple of recent items that have already hit. So we feel very good about the $0.36 base dividend and the ability to pay a supplemental this quarter. That is the consideration. Base rates certainly play a big impact in that—obviously out of our control—but we are incrementally feeling better about where those are settling out, at least in the near term. We are not interest rate prognosticators per se, but as we look through things, look through the portfolio, and look through activity in April, we felt increasingly comfortable with where we are at here for the near to intermediate term. Kenneth Lee: Right. Very helpful there. Thanks again. Operator: Again, for questions, press star then one on your telephone keypad. Our next question will come from the line of Richard Shane with JPMorgan. Please go ahead. Richard Shane: Hey, guys. I need to queue in a little faster. Kenneth kind of asked my question, but I am curious as well about cadence of deal flow, both repayments and investments, and you largely addressed that. But any other color you want to add, I would be appreciative. Matthew Bloomfield: Similar to past years, coming into the end of last year, conversations and activity level felt pretty robust, and it was likely that would continue into the first half of 2026. With what transpired in the software space and then followed by the Iran war, as has been the case for the past several years, M&A conversations can grind to a halt pretty quickly. That being said, specifically outside of software, it feels like conversations have reengaged through April and into early May. That always takes a little bit of time to translate to actual deal activity. From what we are seeing, early looks on the broadly syndicated side have increased the past couple of weeks. Conversations and term sheets on the private credit side have marginally increased as well. We expect spreads to be wider. There is always a bit of digesting that from the borrower standpoint and from the sponsor community. I do not expect a huge acceleration, but I definitely expect it to pick back up from the very depressed levels we saw in February and March of the first quarter. Richard Shane: Got it. And then just one follow-up question, and thank you for that. One of the things we are hearing more generally is improved documentation, better covenants associated with deals, and more thoughtful opportunity for due diligence. Is that something, particularly in the BSL market, it is fair to extrapolate as well? Matthew Bloomfield: Yes, I think it is. Given the bandwidth we have across the firm from a capital deployment standpoint in the broadly syndicated market—outside of the BDC with our global CLO platform and private funds business—we tend to have meaningful relationships with those sponsors, so we get a lot of early access with management teams. The amount of time we are getting to spend has certainly increased. As that flows through to the credit documentation, in times of volatility and wider spreads it becomes a more lender-friendly environment, which we certainly welcome. It has been quite some time since we have been able to say that. We will use that to get as good documentation and as favorable levels as we can from a lender standpoint, and that has certainly come to our favor recently. Richard Shane: Got it. And then last question, and I apologize for so many, but we have asked most of the management teams in the space. When you think about where we are in the continuum in terms of structure and pricing, is it fair to say we are back to the middle? We have gone from tight, but we are not at distressed-type markets. It is more in the normal range right now. Matthew Bloomfield: The way we look at it—and we have been pretty vocal over the past year plus—is that spreads had been very tight relative to risk across corporate credit, structured credit, investment grade, and high yield. In a lot of ways, I would have expected spreads to be considerably wider given everything going on from a macro sentiment standpoint. We did see spread widening. I think spreads will stay a little bit wider. The markets we participate in feel more like fair value—certainly not cheap and not super wide to stress or distress levels. You are being better compensated than we have been in quite some time, but we view it as fair compensation relative to what we have seen over the past twenty-plus years. Richard Shane: Sounds good. I appreciate it very much, guys. Thank you. Operator: Our next question will come from the line of Derek Hewitt with Bank of America. Please go ahead. Derek Hewitt: Good afternoon. Could you provide some color on pro forma leverage as of April, since we have seen some recovery in the BSL market? And then secondly, are there certain sectors that have been significantly dislocated earlier this year, maybe even software, that you might lean into from a new investment perspective? Matthew Bloomfield: Hi, Derek. Appreciate the question. From April’s standpoint, we should be posting the updated NAV later next week. To your point, we have seen a modest rebound in prices in April, so we expect leverage to come back down, but we will disclose the updated NAV for April by the end of next week, which gives good directionality to where things are headed. Given the underlying collateral and credit facilities we have, we are able to manage leverage quickly. We even paid down about $14 million in total on the credit facilities in the first quarter to maintain appropriate leverage levels that we were comfortable with. There were a lot of moving pieces in the quarter, but that is something we have good control over and can manage effectively on a daily basis. To the second part of your question, undoubtedly software was the most disrupted sector in the first quarter, and that is predominantly responsible for the unrealized mark-to-market move in NAV as the whole sector traded off considerably. Our opinion is we want to be prudent in how we think about overall exposure there, but there are some really great companies trading at real discounts to par. When we have conviction, we will certainly look to take advantage where it makes sense. Outside of that, with the Iran situation, there have been interesting opportunities in the chemical space. That has been a very tough sector for the past two-plus years given supply-demand dynamics and the effective dumping by Chinese producers in some pan-European markets. With the closure of the Strait for the past couple of months, that has led to meaningful earnings tailwinds for some petrochemical producers. We have been able to see some benefit from a couple of tactical positions there. Over the last several quarters, there has not been as much interesting to do from a total return standpoint given how tight spreads had gotten. That dynamic has certainly changed with the moves across software and the geopolitical tensions. That said, we want to be prudent and make sure we have dry powder to the extent there are further dislocations, but we are certainly seeing more that is interesting to us now than we have in quite some time. Thank you. Operator: And this concludes our question and answer session. I will turn the call back over to Jeremy for any closing comments. Jeremy Goff: Thank you, operator, and thank you, everyone, for your time and all the thoughtful questions. We look forward to updating everyone on second quarter 2026 financial results in August. Thank you again. Operator: That concludes our call today. Thank you all for joining. You may now disconnect.
Operator: Welcome to the First Quarter 2026 Financial Results Conference Call and Webcast. [Operator Instructions] Please note this conference call is being recorded. An audio replay of the conference call will be available on the company's website shortly after this call. I would now like to turn the call over to Juliet Cunningham, Vice President of Investor Relations. Juliet Cunningham: Good afternoon, everyone, and thanks for joining us today. With me are Brian Blaser, President and Chief Executive Officer, and Joseph Busky, Chief Financial Officer. This conference call is being simultaneously webcast on the investor relations page of our website. To assist in the presentation, we also posted supplemental information on our investor relations page that will be referenced in this call. This conference call and supplemental information may contain forward-looking statements which are made as of today, May 5, 2026. We assume no obligation to update any forward-looking statement except as required by law. Statements that are not strictly historical, including the company's expectations, plans, financial guidance, future performance and prospects are forward-looking statements that are subject to certain risks, uncertainty, assumptions, and other factors. Actual results may vary materially from those expressed or implied in these forward-looking statements. Please refer to our SEC filings for a description of potential risks. In addition, today's call includes discussion of certain non-GAAP financial measures. Tables reconciling these non-GAAP measures to their most directly comparable GAAP measures are available in our earnings release and supplemental information on the investor relations page of our website. Lastly, unless stated otherwise, all year-over-year revenue growth rates given on today's call are on a constant currency basis. Now I'd like to turn the call over to our CEO, Brian Blaser. Brian Blaser: Thanks, Juliet, good afternoon, everyone. I'll start today with a brief perspective on the first quarter and then discuss details of our business performance more broadly. Our first quarter results were impacted by a significantly softer respiratory season compared to Q1 of last year, with influenza-like illness or ILI visits down approximately 30% as reported by the CDC in April. While ILI visits are one indicator, the season was also notably weaker across other key measures, including severity of illness, hospitalizations, and duration. Overall, the respiratory season was both significantly milder and shorter than in Q1 2025. We also experienced broader macroeconomic and geopolitical headwinds during the first quarter. In China, sales slowed in March ahead of the anticipated national IVD pricing guidelines as distributors exercised caution on inventory purchases in light of potential future pricing declines. While final guidelines have not yet been issued following the comment period, our updated full year 2026 guidance reflects the estimated impact based on the current draft. As is expected, this estimate may change once the final guidelines and implementation timeline are announced. Accordingly, we are preparing mitigation actions to help offset these headwinds. Moving into 2027, the proposed pricing changes would impact only about half our sales in China. Even with the new guidelines, that business certainly isn't going away and will continue to be a meaningful component of our revenues. Notably, even after these pricing changes are implemented, we believe our China business will continue to be accretive to the company margin profile. We don't think the changes will be fully implemented until the middle of next year, which gives us time to work on mitigating actions. Shifting back to Q1 results, we also saw delays in some orders and tenders due to the ongoing disruption in the Middle East. Assuming conditions stabilize, we expect these orders and tenders to resume during the remainder of the year. Importantly, our underlying business remains strong and durable. Our core labs and immunohematology franchises are performing well, and we are executing against our priorities. As a result, we believe we are well-positioned to deliver on our objectives to expand our adjusted EBITDA margin and improve cash flow in 2026. We are also making solid progress in advancing our strategy. We completed the acquisition of LEX Diagnostics in April, adding a highly differentiated, ultra-fast molecular platform that strengthens our position in point of care, an area we believe will be a meaningful driver of future growth and reinforces our ability to deliver integrated diagnostic solutions across the continuum of care. We are already seeing strong customer interest and have secured our first orders. Customer insights reinforce this opportunity. Approximately 90% of Sofia customers currently use both antigen and molecular testing systems, and many have indicated a willingness to switch to our more competitive molecular platform. Their priorities are clear. Better ease of use, faster time to result, and lower costs. LEX is designed to deliver all three. To support launch readiness, we are expanding manufacturing capacity at our site in the U.K. We expect to begin placing instruments this quarter with measurable assay pull-through and associated revenue beginning in early 2027. And turning to our labs business, we launched our high-sensitivity troponin assay in the U.S., strengthening our cardiac portfolio and enhancing our clinical value proposition. We are seeing strong demand. We are now shipping to more than 300 U.S. customers. We also began rolling out the VITROS 450 platform in select international markets, expanding access to our diagnostic solutions. As a successor to the VITROS 350, this platform is designed to meet the needs of emerging markets requiring low volume, cost-effective solutions. Initial shipments are targeted for JPAC, followed by LATAM and EMEA, where we recently received the CE mark. Importantly, the combination of VITROS 450 and VITROS ECiQ enables us to deliver a comprehensive solution across clinical chemistry and immunoassays in attractive international markets. We expect these product launches to support our mid-single-digit revenue growth expectations for the labs business, which represents over half of our revenue. In summary, we are navigating near-term headwinds, but our strategy is sound, our innovation pipeline is strong, and we remain focused on executing with discipline to deliver sustainable, profitable growth. Now I'll turn the call over to Joe. Joseph Busky: Okay. Thanks, Brian. I'll walk through the key financials for the first quarter of 2026. Unless otherwise noted, all comparisons are to the prior year period on a constant currency basis. Total reported revenue was $620 million. Of that, non-respiratory revenue was $552 million, or $544 million, excluding the Donor Screening business. Labs revenue declined 8% primarily to the factors Brian just discussed. In addition, the termination of our joint business agreement with Grifols reduced Q1 Labs revenue and created a difficult year-over-year comp. Immunohematology grew 3% driven by North America, China, and JPAC. Triage declined by $3 million, primarily due to slower distributor sales in China. Looking at our respiratory revenue, as was widely reported, the North America respiratory market showed an atypical decline versus the prior year period. This was an industry-wide trend, not unique to QuidelOrtho, and is supported by KOLs and competitor reports. As a result, our respiratory revenue was $68 million, down significantly, as noted in our pre-announcement, due to the approximately 30% lower ILI visits compared to Q1 '25. Keep in mind, though, that our large global installed base of the Sofia platform and QuickVue has demonstrated growth over time. Importantly, during the first quarter of '26, we saw no change in testing protocols and our market share remained stable. Lastly, on revenue, foreign currency exchange was favorable by 210 basis points during the quarter. Now moving down the P&L, non-GAAP OpEx decreased by 2%, primarily due to R&D efficiencies. Adjusted gross profit margin was 44%, a decrease of 630 basis points due to product mix with lower respiratory revenue contribution. Our adjusted EBITDA was $109 million, representing an 18% adjusted EBITDA margin and adjusted diluted loss per share was $0.04. We expect to continue to drive adjusted EBITDA margin expansion for the full year with targeted staffing reductions, procurement, and facility consolidation cost savings initiatives. Now turning to the balance sheet. At the end of March, we had cash of $140 million and borrowings of $130 million under our revolving credit facility. From a cash flow standpoint, operating cash flow was negative $33 million, and free cash flow was negative $67 million. While we expected cash flow to be negative in the first half, which is consistent with our historical seasonality, first quarter 2026 cash flow declined year-over-year, primarily due to lower EBITDA related to the weaker respiratory season and the timing of accounts payable and accrued interest. Inventory also increased due to the weaker respiratory season as well as in preparation for multiple upcoming product launches. On the positive side, we delivered strong accounts receivable cash collections of $54 million and reduced our CapEx by $22 million compared to the prior year period, which was the result of lower systems and manufacturing capacity spend. We remain focused on improving cash flow generation still expect positive cash flow for the full year, now expected to be in the range of $100 million to $120 million, with positive cash flow driven by higher revenue in the second half of the year. Lastly, net debt to adjusted EBITDA leverage was 4.1x, including pro forma adjustments allowable under our credit agreement. We continue to expect pro forma leverage under the terms of our credit agreement to be at 3.25 to 3.5x by the end of this year. To wrap up, first quarter results reflected the impact of lower respiratory volumes, macro and geopolitical pressure, and continued investment in our strategic initiatives, including molecular diagnostics. Now I'd like to cover our full year 2026 outlook at a high level. For a full list of assumptions, please refer to page 6 of our first quarter 2026 earnings presentation. Importantly, we are providing a new guidance range. As noted in our Q1 pre-announcement, we are tethered to the low end of our previously provided range, which was purposely wide to account for respiratory season variability. We now expect total reported revenue of $2.7 billion to $2.75 billion, which is driven by 2 changes: our first quarter performance and the expected lower full year revenue in China, which takes into consideration distributor reactions to the pending China National IVD pricing guidelines as currently drafted. In North America, first quarter respiratory revenue reflecting a weaker ILI trend. Looking back over the past 10 years and excluding pandemic years, of course, in periods where ILI declined in Q1 versus the prior year, trends rebounded over the remainder of the year, resulting in higher ILI on a full year basis. Despite this empirical data, to be prudent, we are continuing to plan for an average respiratory season and forecasting a flat second half without a bump up and an 8% decline in respiratory revenue for the full year 2026. These two revenue impacts flow from the top line to the bottom line. Therefore, we now expect full year 2026 adjusted EBITDA of $615 million to $630 million, still representing an adjusted EBITDA margin of 23%, which reflects a 100 basis point improvement over full year 2025. We expect adjusted diluted earnings per share of $1.80 to $2.00, and we expect to deliver free cash flow of $100 million to $120 million. Note that the second quarter has historically been our seasonally lowest quarter. Consistent with this pattern, we expect sequential revenue, adjusted EBITDA, and adjusted EPS to be roughly in line with Q1 '26, but still reflecting year-over-year growth across all three metrics. Our updated outlook reflects improving operating performance in the second half of the year, as well as continued disciplined execution and the ramping up of the LEX Diagnostics business. With that, we'll now open up the line for questions. Operator: [Operator Instructions] Your first question comes from Tycho Peterson of Jefferies. Your line is open. Please go ahead. Jack Melick: This is Jack on for Tycho. Thanks for the question. Could you just walk us through the guide for second quarter growth by segment and then also down to P&L, what margins are going to look like? Joseph Busky: Yes, as, hey Jack, as noted in the prepared remarks, we do expect that sequentially Q2 will be relatively flat with Q1, but will provide growth year-over-year. The growth is going to come from the core business, as you think about the labs business and the IH business and the Triage business, that growth versus prior year. Jack Melick: Okay, that's helpful. Now in China NHSA, can you tell us exactly how big of a headwind that is in 2026? What you're assuming in the guidance and just a little bit more detail on how you arrived at that number. Joseph Busky: Yes, sure. As you think about the updated, the updated revenue guide, which again, is tethered to the low end of the previous revenue guide, there's really only two changes that we made to the revenue guide. I want to be really clear with that. One is the respiratory season weakness we saw in Q1. Then the impacts that we're seeing in China from our distributors pausing on their purchases due to the pending new national pricing guidelines, which we expect to come out in the next couple of months. I would say if you look at the new revenue guide, Jack, it's down roughly $75 million at the midpoint, and it's probably split almost 50/50 between the respiratory and the China. Maybe a little bit less on China, a little bit more on respiratory. Maybe maybe 45%, 30 respiratory and 30 China kind of thing. That's where we're seeing it. We have pretty good visibility, as you would imagine, from our local team and the good relationships we have with our customer base. We feel pretty good about this new guide for 2026. Operator: Your next question comes from the line of Andrew Brackmann of William Blair. Andrew Brackmann: I wanted to pick up off of Jack's first question there with respect to Q2. If you're sequentially sort of flattish to Q1, I think that implies a pretty significant ramp in adjusted EBITDA margin in Q3 and Q4. Can you maybe just talk to us about some of the levers that you see there, not just on the revenue side, but also on the cost side as well? Thanks. Brian Blaser: Hey, Andrew. I do think that what we're looking at in the guide as you think about first half, second half, is that we are expecting the revenue growth to pick up quite a bit in the second half versus the first half. That's really a function of we expect that the China impacts that we've talked about in the prepared remarks generally are going to happen in the first half of the year and not so much in the second half of the year. In addition, as I said we are expecting continued growth with labs, IH, and Triage, and we are planning for an average respiratory season in the second half of the year. Joseph Busky: Not, again, we're not expecting growth in the second half for respiratory year-over-year, we are expecting it to be flat. I don't expect it to be a headwind. The all those, all those factors, including what Brian mentioned with the new products coming out, the VITROS 450, the high-sensitivity troponin, and you're going to have some less revenue in the second half. You know, all those things contribute to the higher revenue in the second half versus the first half of the year, which will drop down and drive higher EBITDA, EPS, and cash flow. Andrew Brackmann: Okay. Thanks. Thanks for all that. Brian, with respect to LEX here, it sounds like some folks in your customer base are pretty interested in this. Can you maybe just sort of remind us about the switching costs that might exist for this platform for customers? How big of that is a hurdle here? I guess, what are some of the things that you can do to maybe be a little bit more aggressive to get these share wins, be that on pricing strategies, bundling or anything like that? Thanks. Brian Blaser: Yes. Thanks, Andrew. We are excited about LEX and working actively, as I mentioned, to build additional capacity in our site in the U.K. to support the ramp up. You know, at this point, we're expecting to place a few hundred instruments this year, then followed by a more significant ramp up in 2027 that I think is really going to begin to create meaningful assay pull-through. We're doing everything we can to bring on additional capacity as quickly as possible, because I think more than anything, we'll probably be capacity constrained versus demand constrained given what we're seeing with the product. Most of these instruments will be placed in customers, meaning there's no real capital outlay from a switching cost standpoint. The ease of use profile, this is truly a plug-and-play instrument that requires sample in, answer out in 6 to 10 minutes. You know, your question about the switching costs really have very low barriers to customer objection to placing new instruments. We don't think that's going to be an issue, and we think the value proposition across speed, turnaround time, and cost are really going to position this platform well. Operator: Your next question comes from the line of Patrick Donnelly of Citi. Patrick Donnelly: Maybe one on the China side. You know, I'm sure you guys saw this morning a competitor of sorts kind of walked away from their China diagnostics business and sold it, which was rewarded just given that it's been an overhang on a lot of the companies. I guess, what's your commitment there on the China side and visibility given some of these recent changes? It just feels like a slippery slope over there. How are you framing up that risk and the comfort level going forward on that business? Brian Blaser: Yes. Thanks, Patrick. You know, clearly the reimbursement changes are a headwind there, but the way we're looking at it the reimbursement changes themselves will only impact about half our sales there. You know, we have no plans to walk away from China. Even after these changes are implemented, we believe the business continues to be accretive to our company margin profile. In time to address this, we think that the changes won't be fully implemented until probably mid-next year. We're going to be taking actions to offset that. You know, clearly, we will continue to monitor the environment in China after these changes are made. As long as the economics continue to be favorable of we intend to remain in that market, I think over the very long term, it continues to be an attractive growth market for healthcare and diagnostic testing in particular. Patrick Donnelly: Okay. That's helpful. Then, maybe just on the margin side, the EBITDA build, can you just talk about some of the actions you're taking on the cost side not only this year, but just the base heading forward? Obviously, you guys in the past have given some longer term targets. Just how you're thinking about the key levers there as we work our way through the year and into next year. Thank you, guys. Brian Blaser: Yes. You know, we continue to do a lot of heavy lifting on the margin side of the business. That's I think I've referenced that we've taken out close to 1,000 positions in the organization. A lot of that work pushed us into the low 20s adjusted EBITDA margin. We're going to start to see a 50 to 100 basis point improvement starting in the second half of '26 from our Donor Screening exit. We've got a really a rich portfolio of projects across our indirect and direct procurement efforts. We've got the shutdown of our Raritan facility in progress, and we've got a lot of opportunity outside the U.S. to optimize our profitability in our OUS regions. You know, I'd say additionally, we continue to benefit from this dynamic of placing more immunoassay volume that's at higher margin. You know, we see the benefit of that. I think what you're going to see moving forward is the benefit of LEX and the molecular margins being typically much higher than immunoassay margins as well. You know, I think we get into that mid-20s range solidly with our procurement initiatives and the Raritan footprint optimization and maybe some targeted staff reductions. I think we push into the higher 20s as LEX becomes a bigger component of the business over the next few years. Operator: Your next question comes from the line of Lu Li of UBS. Lu Li: Why don't you go back to China a little bit? I think you mentioned that, in the guide, you're assuming the China impact are basically happening in first half and not the second half. I'm wondering if you can provide a little bit more color on that, whether you're still seeing like distributors pausing sales maybe in April, May. Just a little bit more color in terms of like what they're saying as well. That's my first question. Brian Blaser: Yes it's still early days. You know, I think our distributors got a bit spooked with this change in the reimbursement coming. They got very conscious of their inventories. You know, we've been working with them on some rebates and discounts and other things to offset some of that pressure. I think over the next 2 months here, we're going to see that that sort of behavior in the first quarter starts to mitigate and that will stabilize over time. Lu Li: Got it. My second question, why don't you double confirm your margin target? Are you still hoping to get to like mid-to-high 20s% by mid-2027, or that margin target maybe get a little bit delayed just given the potential changes in China and then maybe other macro factors? Joseph Busky: Yes. Hey, Lu, it's Joe. I think Brian touched on this a minute in his previous answer. Just to reiterate we are confident in our margin, EBITDA margin goals and the timeline for them. There's no change to that. That's because we still have, as Brian said, all these initiatives around procurement and site consolidation in flight that we expect to complete as we move through this year and into early next year. On China we do have some time. You know, we don't think that these potential reimbursement changes will be enacted until you get more into mid-'27. We've got about a year, really, to implement cost mitigation actions to offset any potential price declines that we may see in 2027. And so because of all that, we still feel really good about the margin goals and the timing that we've communicated already in the past. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call back to Brian Blaser, President and Chief Executive Officer, for closing remarks. Brian Blaser: Thank you, operator. In closing and stepping back from the first quarter the headwinds that we saw in the respiratory season and China, this really doesn't change our direction. We are executing well, our strategy's working, and we are strengthening the business in the right areas. We do expect a stronger second half and remain focused on delivering consistent profitable growth. Thank you for your interest in the company, and we look forward to updating you in the quarters ahead. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Hello, and welcome to Ouster's First Quarter 2026 Earnings Conference Call. [Operator Instructions] The call today is being recorded, and a replay of the call will be available on the Ouster Investor Relations website 1 hour after the completion of this call. I would like to now turn the conference over to Chen Geng, Senior Vice President of Strategic Finance and Treasurer. Please go ahead. Chen Geng: Thank you, operator, and good afternoon, everyone. Thank you for joining our first quarter 2026 earnings call. Today on the call, we have Chief Executive Officer, Angus Pacala; and Chief Financial Officer, Ken Gianella. As a reminder, after the market closed today, Ouster issued its financial news release, which was also furnished on a Form 8-K and is posted in the Investor Relations section of the Ouster website. Today's conference call will be available for webcast replay in the Investor Relations section of our website. I want to remind everyone that on this call, we will make certain forward-looking statements. These include all statements about our competitive position, product advantages and growth opportunities, anticipated industry trends, our business and strategic priorities, our operating expense targets, the impact of our recent acquisition, the development and expansion of our products, our products' capabilities and performance and our revenue guidance for the second quarter of 2026 and long-term financial targets. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause actual results and trends to differ materially from those contained in or implied by these forward-looking statements are set forth in the first quarter 2026 financial results release and in the quarterly and annual reports we file with the Securities and Exchange Commission. Any forward-looking statements that we make on this call are based on assumptions as of today, and other than as may be required by law, Ouster assumes no obligation to update any forward-looking statements, which speak only as of their respective dates. In today's conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures discussed today is included in the financial results release. I would now like to turn the call over to Angus. Charles Pacala: Hello, everyone, and thank you for joining us today. Over the last 4 months, we have seen the culmination of over 10 years of Ouster innovation, strategy and execution. In February, we acquired Stereolabs, a pioneer in AI camera vision and perception solutions, creating a world-leading sensing and perception company for Physical AI. We are already seeing the strategic rationale transform into operational reality with a resoundingly positive customer response. And just yesterday, we launched Rev8, the world's first native color lidar and a paradigm shift in AI perception. To perceive the world in full context requires a combination of structure and color, and Rev8 is the first sensor to unify both. With native color across our entire product portfolio of cameras and lidars, we have further strengthened Ouster as the foundational sensing and perception platform for Physical AI as we provide unified products and solutions that accelerate customer innovation and unlock new applications that sense, think, act and learn in the physical world. Now turning to an update of our Q1 2026 results. Ouster had a strong start to the year, achieving our 13th straight quarter of product revenue growth with over 12,600 lidar and cameras shipped, reflecting robust demand for our expanded product portfolio. With $49 million in revenue, we achieved another record product revenue quarter on a strong 43% gross margin, overcoming headwinds from a continuing constrained supply chain environment. We ended the quarter with adjusted EBITDA loss of $7 million and cash, cash equivalents and restricted cash and short-term investments of $175 million. Our Lidar business grew approximately 44% year-over-year with strong contributions from our industrial vertical, where we secured several large deals to power industrial automation. We significantly expanded our long-term relationship with a large European industrial company for port automation. In another key win supported by our NDAA-compliant centers, we secured a deal with an autonomous earthmoving company to retrofit heavy equipment to support a project with the U.S. Department of Defense. Ouster's Smart Infrastructure Solutions business continues to validate our end-to-end system strategy. We saw continued momentum from our expanded ITS distributor network as we won contracts to deploy Ouster BlueCity across the United States, securing large million dollar deals to provide next-generation traffic actuation systems in Arizona, Michigan and the Northeast U.S. We were also proud to announce the expansion of Ouster BlueCity with the Georgia Department of Transportation to modernize the region's traffic infrastructure. The turnkey Ouster BlueCity traffic management solution will be deployed at more than 30 intersections across the Greater Atlanta area in preparation for the FIFA World Cup and beyond. BlueCity is bringing Physical AI to smart cities around the world with over 700 contracted site deployments across intersections, mid-blocks and highways, reinforcing Ouster's position as a leading solution for transportation departments, seeking to transition from legacy traffic solutions into dynamic digitally integrated 3D lidar-powered traffic management solutions for actuation and analytics. We also saw strength from Ouster Gemini in the quarter, recognizing millions of dollars of revenue from a significant customer renewal. Leveraging our unified platform and proprietary deep learning perception model trained on over 4 million labeled objects, Gemini empowers our customers to operate more efficiently and safely at over 550 sites around the world. In the months since the acquisition, Stereolabs has already proven to be a perfect complement. We're seeing benefits of our unified platform through the ability to immediately help customers, combine multiple modalities of sensors and AI compute, easing the friction of combining disparate technologies and accelerating our customers' go-to-market efforts. The rapid integration and commercial success of our expanded camera vision portfolio provided tailwinds during the quarter, and business momentum exceeded our initial expectations. We are seeing strong demand from companies building foundational AI models and advanced robotics platforms and leading companies around the world are relying on our expanded product portfolio to train, scale and deploy the next generation of autonomous delivery, advanced manipulation and precision agriculture. We continue to see large opportunities for Stereolabs to augment Ouster's perception road map to meet Physical AI's increasing demand for sophisticated multi-sensor fusion. By merging our proprietary AI models with Stereolabs neural depth capabilities, we are delivering the specialized perception logic and application-specific software required to revolutionize safety and efficiency across the global supply chain. Continuing the momentum and our leadership in cameras for Physical AI, we released the Stereolabs ZED X Nano, which is shipping this month. This product sets a new standard for wrist-mount stereo vision, delivering 2.3 megapixels RGB with neural depth, 0 copy capture data pipeline and ruggedized GMSL2 connectivity and a 40% smaller form factor. Like all Stereolabs cameras, the ZED X Nano comes with a purpose-trained neural depth model, specifically tuned for its capabilities and further highlighting Ouster's deep vertical integration from hardware to software. Engineered for robotic manipulation and high-throughput data collection, we are helping robotics teams scale imitation and reinforcement learning from manipulation tasks. Leveraging Stereolabs' industry-leading image quality and end-to-end capture latency, our customers can now overcome critical bottlenecks by capturing high-resolution RGB and stereo camera depth images at up to 120 frames per second for training data and manipulation learning. And now turning to yesterday's highly anticipated product announcement. I'm truly excited to introduce Rev8, the world's first native color lidar sensors powered by next-generation L4 Ouster Silicon. We are redefining the meaning of lidar itself with native color sensing implemented directly on the silicon. By fusing color and 3D data through physics and leveraging Fujifilm color science, our patented native color technology unlocks megapixel resolution and stunning image quality with ultra-low latency and perfect spatial temporal alignment. We work with industry-leading camera experts to ensure Rev8 delivers uncompromising industrial grade imaging. Delivering an exceptional 48-bit color depth and 116 dB of dynamic range, Ouster's native color data maintains performance in lighting extremes from 1 lux to 2 million lux. We live in a world where a machine's capacity to perceive is constrained by the capability of its sensors. Rev8 is built to generate the petabytes of rich, native color 3D information necessary to build the next generation of Physical AI systems and train new world models. Now for the first time, a single lidar sensor can understand road signs, interpret brake lights or simply capture the richness of planet Earth in survey-grade colorized maps. Featuring radically upgraded OS 0, OS 1 and OSDome sensors and the new flagship 256-channel OS1 Max, Rev8 delivers industry-leading resolution, range and reliability designed for functional safety, affordability and scale. Rev8 represents the culmination of years of research and development, innovative design and rigorous testing. It is the most advanced family of lidar Ouster has ever developed and sets a new standard in sensing. All of this is a testament to Ouster's digital-first approach, which starts with our proprietary system-on-chip. Rev8 is powered by our breakthrough L4 Ouster Silicon with up to 256 channels of resolution honed over years of development by our in-house silicon design team. The L4 architecture features both the 128-channel L4 and the 256-channel L4 Max, each embedded with Fujifilm color science, resulting in exquisite color data and hardware-enabled high dynamic range. The L4 boasts 42.9 gigamax of processing power, detection of up to 20 trillion photons per second, a 40-kilohertz measurement rate with picosecond timing precision and is capable of processing up to 10.4 million points per second and 22.4 gigabits per second of data bandwidth off chip. And we've paired it with a completely redesigned light engine, featuring all new custom VCSEL arrays and our most advanced driver topology ever. Enhanced by picosecond timing precision, this architecture delivers unprecedented levels of range, resolution and accuracy across the entire Rev8 OS family. The cornerstone of the new Rev8 family is the flagship OS1 Max, a sensor without compromise. With double the resolution of the Rev7 OS2 and 1/4 of the size, the OS1 Max packs an incredible amount of capability into a small ruggedized form factor. The OS1 Max provides best-in-class performance with 256 channels of high-definition sensing up to 500 meters in all directions with a 45-degree vertical field view. No other 360-degree spinning lidar comes close. Purpose-built for high speed autonomy, smart infrastructure and heavy industrial applications, the OS1 Max is capable of resolving the smallest objects at long range. And like all Rev8 sensors, the OS1 Max offers exceptional native color imaging. But we didn't stop there. We set out to build the safest family of 3D lidar sensors ever created. This took years of rigorous engineering work, testing and design validation. The result, Rev8 is life-saving technology made right, ruggedized for the real world with automotive grade reliability that can withstand the harshest production environments. Ouster now offers a set of products to break into the multibillion-dollar market for industrial safety sensors long dominated by legacy players by replacing outdated 2D laser scanners and cameras with high-resolution 3D native color lidars. Every sensor is auto-grade, cybersecure and designed for ASIL-B, SIL-2 and PLd functional safety certifications, ensuring continuous uptime and industry-leading reliability. Importantly, this is a platform built to scale. Rev8 was designed for low-cost, high-volume production deployments to support mass market adoption. With a planned 10-year production life, Rev8 sensors provide the long-term program stability and scalability required for global commercial rollouts. With Rev8, we are delivering the safest, most feature rich, secure and reliable family of 3D lidar sensors we have ever built, and we hit the ground running. Earlier today, we announced the integration of our new Rev8 family across the NVIDIA Jetson platform, bringing native color lidar to the NVIDIA robotics ecosystem for the first time. With dedicated support for Rev8 across NVIDIA JetPack, Isaac Sim and Jetson AGX Orin and Thor, we are ensuring rich high-fidelity 3D digital lidar data is fully harnessed by NVIDIA's accelerated computing and development tools. This builds on years of integration support for previous OS sensor generations as well as Stereolabs' own integrations across the entire Zed portfolio. Together, we are providing the essential building blocks for Physical AI, enabling machines to sense, think and act in the real world with more speed and precision than ever before. Rev8 is shipping today and is being adopted by some of the world's most innovative companies. This is a testament to our close collaboration with key customers over years to ensure Rev8 met their program needs. We're already seeing early traction with dozens of technology leaders across the industrial, robotics, automotive and smart infrastructure markets intending to adopt Rev8 OS sensors, including Google, Volvo Autonomous Solutions, Liebherr, Epiroc, Field AI, Flyability, Skydio, PlusAI, Constellis, Bedrock, Kassbohrer, Third Wave Automation, Burro, Seegrid, Gecko Robotics, Pratt Miller, AIM Intelligent Machines, Cyngn, Freefly Systems, ATI Robotics and SwarmForm, among others. Clearly, there is overwhelming customer pull for Rev8, and this gives us confidence in an incredibly strong back half of the year. We spent years developing these groundbreaking capabilities, and I am thrilled to finally introduce Rev8 to the world. With that, let me now turn the call over to Ken, who will provide more context on our first quarter financial results. Kenneth Gianella: Thank you, Angus, and hello, everyone. As you heard, our excitement over the acquisition of Stereolabs and our new product launches look to keep the momentum we built in 2025 continuing into 2026. In the first quarter, we are pleased with our continued progress against both our financial and operational goals, which are the cornerstones of our path to profitability. Our results demonstrate the resilience of our operating model and the disciplined financial management across the business as we continue to execute within our long-term financial framework. Turning to the first quarter financial performance. Operating results were strong with revenue of $49 million, which included approximately 7 weeks of contribution from Stereolabs. This represents an increase of 49% compared with the first quarter last year. We shipped over 12,600 sensors, which included over 8,300 lidar, a new quarterly record and over 4,300 camera sensors. Royalty revenue in Q1 was not material. As I mentioned in our March call, this year, we expect total royalty revenue in 2026 to be less than $5 million. The majority of this amount will be recognized in the back half of this year. Smart infrastructure vertical was the largest contributor to first quarter revenue, followed by industrial. GAAP gross margin was 43%, up 200 basis points from the same quarter last year. GAAP operating expenses were $40 million, an increase of 7% from the first quarter last year. The increase was primarily due to the addition of Stereolabs operating expenses, including $2.3 million of acquisition and integration-related charges in Q1. We continue to anticipate year-over-year operating expenses to be higher 5% to 8%, with the acquisition of Stereolabs. However, we continue to focus on our path to profitability and will remain diligent in managing our operating expense profile. Excluding the acquisition and integration expense of Sterolabs, our adjusted EBITDA in Q1 was negative $7 million compared with negative $8 million in the first quarter last year. Ouster remains one of the industry's strongest balance sheets, ending the quarter with cash, cash equivalents, restricted cash and short-term investments of $175 million and no debt. The strength of our balance sheet gives us the strategic and financial flexibility to operate our business and gives confidence to our customers who rely on Ouster as a key Physical AI partner on their long-term autonomy journey. Now turning to guidance. For the second quarter of 2026, we expect to achieve total revenue in the range of $49.5 million to $52.5 million. Beyond the revenue outlook for Q2, I want to reiterate the long-term financial framework I discussed last quarter, which includes revenue growth of 30% to 50%, GAAP gross margins of 35% to 40% and GAAP operating expense growth of 5% to 8% from our 2025 levels. With our acquisition of Stereolabs, the release of Rev8, our smart infrastructure solutions and our investment in foundational AI models, Ouster has one of the broadest range of perception and sensing products in the market. We remain confident that our innovation and go-to-market strategy will continue to bring us closer to positive operating free cash flow and profitability. I'll now turn the call back to Angus for his closing remarks. Charles Pacala: Thanks, Ken. To close out, we are off to a great start executing against our 2026 strategic priorities, revolutionizing our lidar camera and AI compute products, extending our leadership in Physical AI solutions and executing towards profitability. We kicked-off the year with strong momentum, delivering our 13th consecutive quarter of product revenue growth. We're executing on our strategy to provide Physical AI's first unified sensing and perception platform, and I'm excited by the transformative products we are bringing to market this year as we work to solve our customers' most complex challenges. Rev8 is redefining the meaning of lidar with fundamentally new capabilities that empower our customers to simplify their perception stacks, better train next-generation world models and scale their production deployments. On the heels of a successful first quarter, Ouster is better positioned than ever as the foundational end-to-end sensing and perception platform for Physical AI. With that, I'd like to open up the call for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Colin Rusch of Oppenheimer & Co. Colin Rusch: Congratulations on getting Rev8 out. I guess I have a 2-part question to start with that introduction. Obviously, you've been working very closely with a lot of customers. And I'm curious about 2 things. One, how many of them have been waiting for this product to move into series production with some of their products given some of the range and the functional safety pieces to this? And then the second part is really about which new applications are you seeing as material opportunities for you guys to move into, given the functionality improvements that you're seeing with this next-generation product? Charles Pacala: Colin, thanks for the question. So while we don't preannounce -- we held on to the Rev8 announcement until it was ready to ship this quarter. Behind the scenes, we worked incredibly closely with a set of key customers for more than 1 year to make sure that Rev8 met their needs, both their current needs and future needs to expand business with us over time. And so it's no surprise that we had a really compelling list of over 20 customers that I announced, and I'm going to spare reading through them again. But it spans the gamut of existing customers doing things that they've always done, but doing them much more capably with a colorized point cloud to all new applications. So a great example of that would be high-altitude drone surveying. The OS1 Max is the perfect sensor for simplifying a drone payload. And we have a great interested customer, Skydio, who is very interested in the OS1 Max and gave some great comments about how the combination of payload into a single platform makes it a game changer for their type of surveying application where weight is at a premium and quality of data is at a premium. So we absolutely have new applications with the OS1 Max for things like that, for high-speed applications and driving on the highway or heavy machinery where you need to see small things at long range. And then obviously, the multibillion-dollar opportunity for functionally safe devices is brand new area for us to expand in our customer base and start to finally capture some of that significant value with these sensors. So -- but if you step back, long-term I expect the vast majority of our customer base to adopt Rev8 over time and to be operating with native color lidar data. I think the entire industry is going through a paradigm shift with this, and we're going to end up on the other side with native color Rev8 lidars across the vast majority of customers. Colin Rusch: Super helpful. And I guess the second question is really now that you've got a fairly rapidly evolving portfolio of offerings, including the edge compute, I guess I'm curious about a couple of things. One, how we should be thinking about mix on a go-forward basis? And then secondly, how much leverage you're getting from that edge compute capability in premise given some of the escalating data transfer expenses that we're starting to see for things like intersections where it can be upwards of $800,000 or $1 million of expense just to transfer data back to a data center if you're transferring all of it? Just curious how you're seeing that play out as well? Charles Pacala: Yes, sure. So in terms of the product portfolio, that's ever expanding. I mean I also want to highlight, we released the ZED X Nano during the quarter, which is a big deal and also a brand new use case in these wrist-mounted robotic manipulation. So the -- on the question of mix going forward, the -- we haven't split out exactly how we see that long-term unit basis or revenue basis. But we expect both of our businesses to grow very significantly. And obviously, we had an incredibly strong quarter with 44% year-over-year growth for lidar-only business. And overall, we were up significantly year-over-year, especially with the Stereolabs acquisition. So we expect to have very significant and strong growth across all of our product lines over time. And to the question around edge compute, I do expect that to start to contribute more to our overall business. Right now, I mean, we're really fresh off of acquiring Stereolabs. The compute was something that had good traction and still has good traction within the customer base. We're going to invest more into the compute line that we -- that they started. But I can't say that it's having a significant impact on the Ouster customers at this point. We're still getting our feet under us on exactly how to position that compute line up with the other customers. But I do think it will be a big opportunity for Ouster going forward. Operator: [Operator Instructions] Our next question comes from the line of Kevin Cassidy of Rosenblatt Securities. Kevin Cassidy: Congratulations on launching Rev8 and continuing this high growth. So maybe along those lines of questions around Rev8, you touched on it slightly. I think would Rev7 continue to go in production? What's the transition look like for the 2 different lidars? Charles Pacala: Yes. Great question. So we are fully committed to continuing to produce and support Rev7 for our established customer base. I mean Rev7 has been out for 3 years now. And we have a lot of customers that have fully qualified and are in active production with the Rev7's lineup, and it's a great set of products. I mean they are -- they really established Ouster as a performance technology and reliability leader in the lidar space and we don't want to change any of that. So while Rev8 is designed to be a seamless upgrade for any customer that wants to, we want to make sure that customers that have qualified Rev7 can continue to operate their businesses with it. So this is -- we're being customer-friendly here and making sure that it's their choice when they transition. Kevin Cassidy: Okay. And yes, I remember when Rev7 came out, it was an inflection point for you, especially on ASP increases. Are they similar ASPs between Rev7 and Rev8? Or maybe even talk about the manufacturing and the gross margins between the two? Charles Pacala: Yes. That's another great question about -- so Rev8 was designed to be more affordable than Rev7 and more scalable than Rev7. We want to make sure that we're enabling our customers to continue to scale and to bring this technology to the broader Physical AI ecosystem. So the Rev7 was a different scenario where we were introducing a fundamentally new capability and ASPs went up. Here, it will be a little bit more of a mix because we have vastly more customers in production, and we can't disrupt the economics of their production. So yes, we have new products that are incredible like the OS1 Max, that probably will command premium ASPs in certain domains. But we also want to make sure that a customer that wants to upgrade to Rev8 can do so without having a significant economic disruption or commercial disruption to the end business that they've created around the Rev7 product. And just going back again, highlighting, Rev8 was built to be more scalable and more affordable than Rev7. Operator: Our next question comes from the line of Andres Sheppard of Cantor Fitzgerald. Anand Balaji: This is Anand on for Andres. Congrats on the quarter. It's really great to see an update on the L4 chip with the Rev8 announcement. And based on the customer interest, as I know you disclosed a really long list of prospects on the call, maybe what type of opportunities there do you see in automotive, especially with robotaxis ramping up with Motional as your customer, et cetera? Who do you see interested there? What type of opportunities? Charles Pacala: So Rev8 is a big deal when it comes to the automotive world because Rev8 is an auto-grade sensor. They're designed for functional safety. So the ASIL-B functional safety spec in automotive is incredibly important, whether you're -- whether it's a lidar going into a consumer car or into robotaxi or a robo truck. So Rev8, the OS1 Max, the OS0, purpose designed to be ideal sensors for that market. I'm expecting some pretty significant things there just because it's the first time that we'll have a full suite of lidars that blankets. You can outrig an entire car and Ouster digital lidars and be a one-stop shop. So -- and we obviously, we work in the background with a number of customers, many of which I couldn't name, around the Rev8 spec for the automotive domain. But yes, so a lot of things to come there. I think that just highlighting the long-range, high-resolution aspect of the OS1 Max and combining that with the colorized point clouds is pretty game changing in the automotive domain, where advanced AI algorithms go hand-in-hand with the kind of flexible Physical AI progress that's been made in the ADAS sector. So we think these are really good sensors for that domain, and I can't wait to get them in customers' hands. Anand Balaji: Got it. And I guess maybe a question for Ken. As we think about the gross margins and the EBITDA improving that, and as we go through the financials, what's the most important remaining steps to hit breakeven? Is it the revenue scale, the gross margins, OpEx? Or is it a mix of these things to improve the EBITDA? Kenneth Gianella: Well, I think, number one, the continued innovation that we've been doing is a great stepping stone to showing how our long-term model, the consistency that we've brought over the last 3 years, it's just another proof point of us as a company, Ouster, continuing to hit those proof points year after year after year. And that long-term model, the 30% to 50% growth obviously, with the acquisition, it was high. But even with ex acquisition, 44% growth year-on-year, that's just a proof point of our underlying innovation continuing to that long-term model. If you do the math on that and you look at our gross margins, even staying -- we had another strong tailwind that we overcame some economic challenges and constraints in the quarter for a strong GAAP gross margin quarter. That 35% to 40%, coupled with the growth rate and our discipline on the OpEx side, the innovation we've done with little to no OpEx growth, that 5% to 8% with Stereolabs and the $2.3 million acquisition in the Q1, that combined together shows that we're on a strong path for somewhere within '27, starting to hit that profitability stride. So the model is holding true. We're going to continue to execute towards that. It's a very important milestone for us to get to that. But this innovation is key to unlocking that continued long-term growth. Operator: Our next question comes from the line of Richard Shannon of Craig-Hallum. Richard Shannon: Apologies, I just jumped on the call. I got like 4 or 5 earnings here tonight and I have no idea if this question was asked, but I want to ask it anyway, which is the new Rev8 product is quite interesting in many ways, a lot of performance improvements here. But the interesting one here is the ability to do color. I'm curious, Angus, if you can tell us a little bit more about that, how you did that? I assume this is something in the detector. Wondering if this is a technology that's exclusive, inherent to Ouster or are you the first one to try to implement this? Just any ideas to help us understand how you're doing this? And then maybe if you want to follow on, what applications do you expect to be adopting that first? Charles Pacala: Absolutely. Thanks, Richard. So I mean, the Rev8 native color point clouds are a genuine world-first invention. This is a really significant milestone for the lidar industry in general. And it's a first-of-its-kind technology, no question. So, the core innovation happens at the silicon level, and this just goes back to Ouster inventing digital lidar, and we've continued to innovate at the silicon architecture level now by fusing in-silicon color and lidar data so that customers don't have to think about this and getting an absolutely incredible result for the end customer. So absolutely, this is a world-first direct innovation, basically the result of 10 years of pushing on silicon innovation at Ouster and building it into the L4 and L4 Max chips. In terms of the applications, I mean, the most -- the clearest opportunity here is simply more context to train the next generation of Physical AI models. The world truly cannot be described with just 3D information or just color. It really is a combination of those 2 attributes that allows you to both sense the position of a street sign and read what it's saying or sense the location of a car and knowing that it's just slammed on its brakes with brake lights. So training AI models with a colorized point cloud data set is the final frontier that so many of our customers have been trying to reach. It's literally -- they call it the Holy Grail. I've heard that many times from our customer base. This is the Holy Grail colorized point clouds, unified and trained for -- trained into new AI algorithms. So -- that's the most obvious use case, and that just gives better, safer, more capable AI systems. There's also one in 3D surveying. So almost all surveying applications require a combination of structure and color or texture to assess the quality and status of a bridge, right? If you -- if a bridge is degrading, you want to know that it's structurally stagging, but you also want to see that the concrete has cracked and so color and lidar data give you that. So there are obvious applications with a customer set that really span every single customer use case. It's hard to identify any customer that won't benefit from this, which is why I said I think every customer effectively will adopt a Rev8 colorized capability eventually. So yes, again, this just comes back to 10 years pushing silicon innovation into our products, and this is the end result. Kenneth Gianella: Yes. And Richard, I just want to point out to the last piece of it. This is over almost a dozen patents just on the RGB colorization alone. And then the underlying Rev8 technology building not just from the Rev7, but it's almost 200 patents underneath supporting the Rev8. So that technology and effort that we've put in to bring out there, is also covered with real innovation with those patents for the company. Richard Shannon: Okay. That's helpful perspective. And one quick follow-up again on this topic here. As you add in color to applications that are previously using lidar, how do we think about the upsize in the -- in value and price that you're able to charge these sorts of things? Charles Pacala: Well, I think that did -- that goes back to another question that was asked around ASPs and how this filters down into costs and value capture. And this here really depends on the application. We always try to price our products to be -- to enable our customers' commercial application. It's one of the key strategies that we've done really well with, maintaining strong gross margins, but also working with customers to make sure that the pricing works for their business at scale. And so I'm giving you an unsatisfying answer. Rev8, the technology and getting color into our customers' hands, the pricing depends on the customer application. We do want to make sure that customers don't have price as an impediment to adopting an incredible capability that actually enables their long-term viability as a company. So I think the key takeaway is Rev8 is a drop-in compatible replacement for Rev7. So the adoption can be quick and seamless to getting that value, and that's a huge benefit to these customers. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Angus for closing remarks. Charles Pacala: Well, I want to thank everyone for joining the call and really want to thank the Ouster team for the push that they made to get Rev8 out. This is a paradigm shift for the industry. We have incredible customer demand for the Rev8 product. And I can't wait to continue to update everyone that joined the call for the rest of the year on Rev8's adoption through the year. Thank you all. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Central Garden & Pet Company Fiscal 2026 Second Quarter Earnings Call. My name is Kate, and I will be your conference operator for today. At this time, we will hold a question and answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Friederike Edelmann, Vice President, Investor Relations. Please go ahead. Friederike Edelmann: Good afternoon, everyone, and thank you for joining Central Garden & Pet Company’s second quarter Fiscal 2026 Earnings Call. Joining me today are Nicholas Lahanas, Chief Executive Officer; Bradley G. Smith, Chief Financial Officer; John Edward Hanson, President, Pet Consumer Products; John D. Walker, President, Garden Consumer Products; and, last but not least, Jason Barnes, Executive Vice President, Garden Consumer Products. Nicholas will start by sharing today’s key takeaways, followed by Bradley, who will provide more details of our performance. After their prepared remarks, John, JD, and Jason will join us for the Q&A session. Before they begin, I would like to remind everyone that all forward-looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from what those forward-looking statements express or imply today. A detailed description of Central Garden & Pet Company’s risk factors can be found in our annual report filed with the SEC. Please note that Central Garden & Pet Company undertakes no obligation to publicly update forward-looking statements to reflect new information, future events, or other developments. You can find our press release and related materials at ir.central.com. Last but not least, unless otherwise specified, all comparisons discussed during this call are made against the same period in the prior year. Should any questions come up after the call or throughout the quarter, do not hesitate to contact me directly at ir@central.com. And with that, let us begin. Nicholas, over to you. Nicholas Lahanas: Thank you, Friederike, and good afternoon, everyone. I will start with highlights from the second quarter and then walk through how we are thinking about the rest of the year. We delivered a record second quarter and a record first half, with clear improvement across the board: higher sales, expanded operating margins, and stronger earnings per share versus last year. That performance reflects resilience across our key categories, the strength of our operating model, and the actions we have taken to sharpen execution. At the same time, we are continuing to simplify the business in ways that also strengthen our teams and execution. We have moved our DoMyOwn business into our Covington fulfillment center, which is improving speed, lowering costs, and increasing flexibility across the network. We are also consolidating the TDBBS manufacturing into our dog and cat platform in New Jersey, to better leverage scale and what we believe are best-in-category capabilities. And subsequent to the quarter, we formed a joint venture with the leading U.S. pet food distributor, Phillips Pet Food & Supplies, where we will retain a 20% ownership stake. This is a strategic step which creates a stronger, more agile nationwide distribution network, reduces complexity, and allows us to focus more directly on growing our Central-branded portfolio. These moves build on the cost and simplicity work we have been driving for several years. That work has fundamentally strengthened the business. Today, we are more efficient, more resilient, and a better-run organization. And that discipline is embedded in how we operate. With that foundation in place, our focus is squarely on growth and disciplined capital allocation. We are investing where we see the highest returns and, with our balance sheet and customer relationships, we are well positioned to execute. We also advanced our innovation pipeline this quarter. We are bringing forward new products—both branded and private label—that deepen retailer partnerships and connect with consumers. In Pet, that includes Nylabone dog chews made with real meat and Farnam’s Enduro Gold Killer Fly Mosquito Control Spray for horses. In Garden, our recently launched The Rebels Sun & Shade extension in grass seed and new private label programs are performing well and delivering above expectations. Turning now to our outlook. We entered the back half of the year with momentum and a clear focus on execution. Our diversified portfolio, operational flexibility, and disciplined approach to cost management and capital allocation position us well to deliver profitable growth as the macro backdrop continues to evolve. The retail environment remains dynamic, with consumers looking for value and performance and continued shifts towards e-commerce and, in some categories, private label. We are responding with targeted investments behind our strongest brands, innovation, and consumer insights while continuing to strengthen our digital capabilities. These are the right investments. They are gaining traction, positioning us to drive both growth and margin expansion. While we are still early in our journey, innovation will become a more meaningful contributor as we continue to scale a more streamlined and efficient operating model. M&A remains a key lever. We are taking a disciplined, value-driven approach focused on high-quality, margin-accretive opportunities that strengthen our portfolio. With our liquidity and flexibility, we are well positioned to act when the right opportunities arise. On the joint venture, as expected, it will reduce reported revenue in the second half by a low-teens percentage but with minimal impact on earnings, given the lower margin profile of that business. Based on our performance and outlook, we are maintaining our guidance for Fiscal 2026 non-GAAP diluted EPS of $2.70 or better. That reflects both what we have delivered and our confidence in the path ahead. As always, this guidance excludes the impact of future acquisitions, divestitures, or restructuring actions. Before I hand it over to Bradley, I just want to recognize our teams across Central Garden & Pet Company. Their execution continues to set the pace for the organization. We built a strong foundation and we are moving forward with focus, discipline, and confidence in our ability to deliver long-term growth and value. And with that, I will turn it over to Bradley. Bradley G. Smith: Thank you, Nicholas. I will take a few minutes to walk through how the second quarter came together and share what we are seeing as we move through the year. Net sales were $906 million, a 9% year-over-year increase driven by growth across both segments and reflecting solid underlying demand, the anticipated shift of shipments from the first quarter into the second, and the benefits of actions we have taken to strengthen the business. Gross profit increased to $300 million from $273 million, with gross margin improving by 30 basis points to 33.1%. The prior year included a one-time inventory charge related to the wind-down of our U.K. operations. Excluding this charge, gross margin was essentially consistent year over year, supported by productivity gains across both segments and a favorable mix in Pet, which helped offset higher manufacturing costs and a lower-margin sales mix in Garden. SG&A expense was $186 million, up 3% versus the prior year. As a percentage of sales, SG&A was 20.5%, down from 21.6%, reflecting the improved sales leverage, prudent cost management, and ongoing simplification of the organization while continuing to reinvest in key growth initiatives. Operating income was $114 million compared with $93 million, and operating margin was 12.6% compared with 11.2%. It is important to step back and look at the first half as a whole, which helps smooth out the noise related to the timing shifts between Q1 and Q2. For the first half, our sales were up 2%. Gross margin increased by 70 basis points and operating income grew 8% versus last year. Both segments contributed to that performance in driving growth in both the top line and bottom line, together delivering record operating income for the company—a clear reflection of the strong execution we are seeing across the business. Below operating income, the picture remains stable and consistent with solid underlying profitability. Second quarter net interest expense of $9 million was consistent with the prior year. Other expense was $351,000 compared with $744,000 of other income in the prior year. Net income totaled $79 million compared with $64 million a year ago. We delivered record second quarter diluted earnings per share of $1.28, exceeding both prior year and our expectations, reflecting strong execution and the underlying strength of the business. Adjusted EBITDA for the quarter was $139 million compared to $123 million. Adjusted EBITDA margin for the quarter was 15.4% compared to 14.8%. Our effective tax rate for the quarter was 23.5%, in line with the prior year. With that context, let me turn to the segments. Starting with Pet. Net sales for the Pet segment came in at $477 million, up 5% year over year, primarily driven by the continued strength in our core consumables portfolio along with the expected shift of outdoor cushion orders from the first quarter into the second. On a first-half basis, sales for Pet were up 1% versus last year. In the quarter, we continued to see healthy demand across our consumables categories, particularly in our higher-margin dog and cat, equine, and professional product lines, where innovation and execution are driving top-line growth. Across the Pet segment, we held share overall, with gains in key categories including rawhide, dog treats, flea and tick, pet bird, and professional areas—aligned with our growth and margin priorities. We were also encouraged by the distribution gains we achieved during the quarter across a range of categories. Operating income for this segment was $78 million in the quarter, compared with $61 million. Operating margin improved to 16.3% from 13.4%, reflecting sales leverage, mix improvement, portfolio optimization, and solid execution across the segment. Adjusted EBITDA for the segment was $89 million compared with $75 million, and adjusted EBITDA margin for the segment was 18.6% compared with 16.6%. Now turning to Garden. Net sales for the Garden segment were $425 million, up 13%. As expected, the second quarter benefited from the timing of initial retailer shipments for the 2026 season and relatively low retailer on-hand inventories entering the quarter. In addition, the quarter benefited from meaningful distribution gains, particularly in grass seed and fertilizer. That said, for the first half, sales were up 4% over last year. Overall, we gained market share in Garden in the second quarter, with strength across several key categories including grass seed, fertilizer, and wild bird. As we enter the garden season, our businesses are well positioned to deliver a solid year, supported by strong preparation and close alignment with our retail partners. We remain encouraged by the continued support of our customers across our garden categories and brands. Operating income for the Garden segment in the second quarter increased to $66 million, up from $59 million in the prior year. Operating margin was 15.4%, remaining relatively consistent with last year’s performance as strong sales volume growth and productivity improvements helped offset the impact of a lower-margin sales mix and higher manufacturing costs. Adjusted EBITDA totaled $76 million compared with $69 million, and adjusted EBITDA margin for the segment was 17.7% compared with 18.2%. Let me close with cash and the balance sheet, which remain a key source of strength and provide flexibility to invest in growth. Cash used by operations was $50 million for the quarter, compared with $47 million a year ago. CapEx for the quarter was $10 million and depreciation and amortization totaled $21 million, both consistent with the prior year. We continue to expect to invest approximately $50 million to $60 million in CapEx this fiscal year, with a focus on maintenance and targeted productivity and growth initiatives across both segments. During the quarter, we repurchased approximately 110,000 shares for $3.4 million, with $128 million remaining under our share repurchase authorizations as of quarter end. At quarter end, cash and cash equivalents and short-term investments totaled $653 million, an increase of $137 million despite the acquisition of Champion U.S.A. in the first quarter, reflecting strong liquidity and cash generation. Total debt was $1.2 billion, unchanged from the prior year. Gross leverage ended the quarter at 2.8 times, compared with 2.9 times in the prior year and below our target range of 3.0 to 3.5 times. Net leverage was approximately 1.3 times, supported by our strong cash position. We had no borrowings outstanding under our credit facility. Our fortress balance sheet gives us flexibility to continue investing in organic growth, pursuing value-creating M&A, and returning capital to shareholders while maintaining a strong financial position. Before opening for questions, I want to echo Nicholas and thank our employees. Their work is driving our performance and positioning the business for continued success. Operator, please open the line for questions. Operator: Thank you. We will now open the call for questions. Nicholas Lahanas: Thank you. Operator: Our first question comes from the line of Bradley Bingham Thomas with KeyBanc Capital Markets Inc. Please go ahead. Bradley Bingham Thomas: Good afternoon. Thanks for taking the questions, and nice quarter here. I wanted to start off with a question for Nicholas and JD, I think to some extent. In this all-important spring selling season, clearly you had a great quarter in terms of sell-in. Can you give us any thoughts on how sell-through is shaping up and how you are thinking about that for the third quarter? And then as a follow-up on guidance at a high level, if we do some back-of-the-envelope math, you have had a strong first half. If you were just to hit that $2.70 number, that would imply that the second half could be lower by about $0.25 from what you did in the second half last year. In broad strokes, how are you thinking about the ability to drive profit or earnings growth in the second half? John D. Walker: Hey, Brad, it is JD. Thanks for the question. I will start and then I will ask Jason to comment as well. From a consumption standpoint, going back to the second quarter, as the weather started to improve, particularly in southern markets, consumption was great. That pattern carried into April and we saw strong consumption throughout the month. When the weather is favorable, consumers are very engaged in our categories and our retailers are very engaged and excited about the categories. We have every reason to believe that if weather cooperates and is favorable, we will continue to see that strength throughout the season. I would say we are cautiously optimistic. Jason, do you have anything to add? Jason Barnes: The only thing I would add is that we see strength across the portfolio. We have a pretty broad assortment of categories we participate in. It was not one or two categories that showed strength in March; it was basically across the entire portfolio, and that has continued into April when the weather has been there for us. Nicholas Lahanas: Also, great work with customers. We have more points of sale compared to prior year, and that has played a role too. John D. Walker: It has. Some of that was timing, some of that was low retailer inventories, and some of that was a lot of new points of distribution year over year. We did a nice job of shipping in. The consumption piece is still going to be tied to weather to a large degree. Where we see the weather, we have seen robust consumption. Nicholas Lahanas: On guidance, sure, I will give it a crack. Your point is well taken—we have started pretty strong, and as JD alluded to, April so far looks pretty good. In terms of guiding, we still need to see the season play out. As everybody knows, we are very weather dependent, and that really means May. May is that critical month—April and May—with May very important to the live goods business. Before we can give the all-clear signal and take guidance up, we really need to see that play out. If you look at our history, we usually do that in early to mid-June once we are comfortable with May. We feel really good about the business. It started very slow in the first quarter, and it played out exactly the way we thought. A lot of those sales slipped into the second quarter, then we had some really nice weather, and that momentum has continued into April. We are cautiously optimistic that the momentum will continue, but we just do not know for sure to the point where we are willing to move on guidance just yet. John D. Walker: I would add that May is critically important. We still have a number of markets that have not come on board yet. A lot of the northern markets are just now starting; I was in Boston last week and it was still winter. As those markets come on, we will feel a lot more confident in making a call. As Nicholas said, we really need to see how May plays out. Nicholas Lahanas: And as you know, we give ourselves a very wide range by saying $2.70 or better. We like the momentum we are seeing and the teams are executing, so we feel really good. We just need to see it play out for a few more weeks. Operator: Our next question comes from the line of Brian McNamara with Canaccord Genuity. Please go ahead. Brian McNamara: Hey, good afternoon, everyone. Thanks for taking the questions, and congrats on the strong results. Three months ago, your comments sounded like Pet was at or near a bottom. The second quarter looks like your first quarter of growth in the segment out of the last five and second out of the last seven. Should we think about the back half—appreciating you guide to revenue—as growth continuing as a reasonable expectation, and what drives that? And then apologies if I missed this: what was the durables versus consumables mix for the quarter, and how did durables do? Cushions probably helped there, obviously. Lastly, on distribution and the JV: what drove the decision, and do you still get the benefits like consumer insights, stronger customer relationships, and access to emerging brands and M&A? Why is there an earnings headwind rather than net neutral for the back half? John Edward Hanson: I can take the first part. We feel really good about where we are. We showed 5% top-line growth, and as we said on the last call, from everything we can see—from household penetration and buy rate to even our live animal sales—we believe the category has stabilized. We still feel that way. We did have help in the 5% this time from some timing on our cushions business that slid from the first quarter to the second, but even if you back that out, we feel pretty good about the organic piece of the growth in the business. It is difficult to have a crystal ball on the balance of the year, but I would say we are cautiously optimistic. Bradley G. Smith: On the durables and consumables mix, given the timing noise, I would look at it on a first-half basis. Durables were 18% of sales for the first half in Pet. John and I continue to believe that is going to go down over time given the rate of performance in our consumables business, but durables were relatively resilient. John Edward Hanson: We feel good about consumables performance in the second quarter—it was up mid-single digits, which is a higher-margin piece of our business and a good mix play in our focus area. Durables were up quite a bit in the second quarter largely because of the cushion shift. Nicholas Lahanas: On the JV decision, we still own 20%, and the way we viewed it was access versus ownership. We still have access to the channel; we just do not own the whole business. There were a lot of factors: listening to investors and analysts regarding margins and the overhang of the lower-margin distribution business; our cost and simplicity program—we had roughly 26,000 SKUs, many ship points, trucks, and employees; we want to streamline and focus our energy on higher-margin products and businesses that really move the needle rather than managing a high level of complexity. The independent channel has been a challenge, and we knew that to give us the best chance of success it made sense to do a JV with another player strong in food, whereas we were more on the supply side. We think the combination makes a lot of sense. Bradley G. Smith: From a financial perspective, the business was making money when we sold it—not a lot, but a little—so we lose that in the back half. When you look at the equity that we record for our 20% of the joint venture in the back half, we are currently projecting some initial losses. They will not yet be in a position to start to unlock synergies, and there is going to be a fair amount of purchase accounting attached to it, which will have a non-cash impact that will flow through earnings. Our estimate on the back half in terms of the financial impact to Central Garden & Pet Company is conservatively $0.03 to $0.05 per share dilutive. As we get into next year and the following year, as synergies begin to be realized, we should start to see some positive results. Operator: Our next question comes from the line of Robert James Labick with CJS Securities. Please go ahead. Analyst: This is Will on for Bob. Congrats on the strong quarter. From raw materials and plastic sourcing, with the war, have raw material prices impacted the Garden segment at all so far? And how is pricing in the garden industry in general—are retailers raising prices? John D. Walker: We have seen some inflation, particularly as it relates to urea. One of the benefits we have is we prebuild a lot of our materials for the year, so we will see some impact late this year, but it will be a manageable, smaller number. For next year, as we start our prebuild for 2027, it will have an impact on our fertilizer cost, and that is something that is widely known and already discussed with our customers. It is fluid right now and we will have to see where this goes. We have not taken pricing for this year—no pricing planned for 2026—and the impact should be manageable. Most likely next year we will be forced to take pricing as a result. I would add on urea that it is a very small piece of the business—from a COGS perspective, about 1%—so our exposure is not like some of our other competition. From a fuel standpoint, it is similar. We are managing through it. A lot of our customers pick up product at our facilities right now, so that too is fluid. We will have to see the duration and depth and whether pricing is needed to cover costs. To date, we have been able to manage through it. Our cost and simplicity initiatives help us offset some of these impacts. On broader industry pricing, retailers coming into this year have not been taking wholesale price increases. For next year, depending on input costs, if manufacturers have to take price, then retailers will have to take pricing. For this year, pricing has been fairly stable. We are seeing a fairly promotional marketplace right now, which we anticipated and planned for. Operator: Your last question comes from the line of Andrea Teixeira from JPMorgan. Please go ahead. Shovana Chowdhury: Hi, this is Shovana Chowdhury on for Andrea. Thanks for taking our question. You commented that consumption stayed robust throughout April. Can you add more color on the health of the consumer—are they more value seeking, and are you seeing any trade down to private label? Also, what is the level of promotions that you are seeing? Nicholas Lahanas: On the Garden side, we are seeing really nice consumption when the weather is good. Across the board, consumers are value seeking. They want performance at a reasonable price. Our grass seed brand, The Rebels, has done really well because it strikes that balance of being affordable and a great product. Those areas are taking off. John Edward Hanson: On the Pet side, we are seeing a bit of a channel shift. Consumers are going into mass and club and e-commerce to get value pricing. The value seeking is there, but branded is performing pretty well—solid overall. It is more of a channel shift than a brand trade-down. John D. Walker: On the Garden side, it is very similar. Retailers count on lawn and garden to drive footsteps into the store at this time of year, so they have been very promotional and very engaged in the category. From a consumer standpoint, when the weather is good, we are seeing robust consumption. They are seeking value, and this was a good year for us to pick up meaningful private label business across many retailers. That business is performing extremely well. It is not just private label—our branded products are also seeing strong consumption across categories, which is encouraging. I am not concerned about the health of the consumer right now; when the weather is favorable, the demand is there and retailers are ready. John Edward Hanson: To John’s point about channel shifts, we continue to see e-commerce grow as a percentage of our business. We are well positioned there and believe we are gaining share online as well. One last comment: we had noted in previous calls that footsteps at retail—particularly in home centers—had tailed off over the last few years. We have seen that stabilize and start to increase again, which is encouraging for us. Operator: Thank you for all the color. We do have one additional question coming from Brian McNamara with Canaccord Genuity. Please go ahead. Brian McNamara: At Global Pet, it sounded like everybody was going after cat—that is a hole in your portfolio for lack of a better term. How would you characterize the current M&A environment relative to three months ago and maybe a year ago? It sounds like activity has been heating up. Nicholas Lahanas: Very much. We are seeing things really pick up in terms of conversations and deal flow. A lot of bankers were telling us a year ago that 2025 was going to be the year, and that ended up being a lot more talk. This year, the conversations are a lot more sincere. We are seeing processes kick off with some really nice assets and have several conversations going on right now. We are very encouraged by the M&A environment picking up. Brian McNamara: Great. That is all I have. Thanks, guys. Nicholas Lahanas: Thank you. Operator: Well, this was our last question. Thanks, everyone, for joining us today. Please reach out to us with any additional questions you may have. Thanks. Nicholas Lahanas: Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines and have a wonderful day.
Operator: Welcome to the Mineralys Therapeutics, Inc. First Quarter 2026 conference call. It is now my pleasure to introduce your host, Dan Ferry of Life Science Advisors. Please go ahead, sir. Dan Ferry: Thank you. I would like to welcome everyone joining us today for our first quarter 2026 conference call. This afternoon, after the close of market trading, Mineralys Therapeutics, Inc. issued a press release providing our first quarter 2026 financial results and business updates. A replay of today's call will be available on the Investors section of our website approximately one hour after its completion. After our prepared remarks, we will open up the call for Q&A. Before we begin, I would like to remind everyone that this conference call and webcast will contain forward looking statements about the company. Actual results could differ materially from those stated or implied by these forward looking statements due to risks and uncertainties associated with the company's business. These forward looking statements are qualified by the cautionary statements contained in today's press release and our SEC filings, including our annual report on Form 10-Ks and subsequent filings. Please note that these forward looking statements reflect our opinions only as of today, May 6, 2026. Except as required by law, we specifically disclaim any obligation to update or revise these forward looking statements in light of new information or future events. I would now like to turn the call over to Jon Congleton, Chief Executive Officer of Mineralys Therapeutics, Inc. Jon Congleton: Thank you, Dan. Good afternoon, everyone, and welcome to our first quarter 2026 financial results and corporate update conference call. I am joined today by Adam Levy, our Chief Financial Officer, David Rodman, our Chief Medical Officer, and Eric Warren, our Chief Commercial Officer. I will begin with an overview of the business, clinical programs, and recent milestones, followed by Adam to review our first quarter financial results before we open up the call for your questions. Our NDA acceptance in the first quarter has been the culmination of a massive effort by our team and our mission to provide more healthy days to patients with cardiovascular disease. From an operational perspective, we are focused on preparing lorundrostat for a successful launch in the United States while we continue to evaluate partnering opportunities and consider the next steps in the clinical development of lorundrostat. During the first quarter, the FDA accepted the NDA for lorundrostat for the treatment of adult patients with hypertension in combination with other antihypertensive drugs and assigned a PDUFA target date of December 22, 2026. This represents a significant regulatory milestone for lorundrostat that moves us meaningfully closer to our goal of delivering a potentially best-in-class therapy to patients with uncontrolled or resistant hypertension. The NDA is supported by a comprehensive clinical data package, including positive results from the Launch HTN and Advance HTN pivotal trials, TRANSFORM HTN, our open-label extension trial, and the proof-of-concept trials, TARGET HTN and EXPLORE CKD. Collectively, these five trials demonstrated that lorundrostat delivers clinically meaningful reductions in blood pressure, is well tolerated, and maintains a durable response across diverse patient populations. We believe this data package supports the potential for lorundrostat to be included in prescribing guidelines, the economic value of lorundrostat to the health care system, and lorundrostat as a differentiated novel therapy. Uncontrolled and resistant hypertension continue to represent areas of unmet medical need, affecting over 20 million people in the United States and contributing significantly to cardiorenal complications. Aldosterone dysregulation often plays an important role in resistant hypertension where patients on three or more antihypertensive medications fail to achieve their blood pressure goal. The launch of lorundrostat, if approved, will be initially focused on this population with the highest need. Our ongoing market research highlights the following three key factors. One, prescribers prioritize magnitude and consistency of blood pressure reduction and have stated a consistent willingness to prescribe lorundrostat in the fourth line. Two, payers recognize the high-risk nature of patients whose hypertension is uncontrolled on three or more medications and have expressed a willingness to provide coverage for lorundrostat. Three, patients are seeking meaningful and sustained blood pressure reductions that are tolerable and simple to integrate into their daily lives. They are very receptive to novel agents like lorundrostat that may help them achieve their goal. As we move towards our PDUFA target date, our operational focus will continue to be on preparing lorundrostat for commercial success. Our teams are working on early market access planning and payer engagement to ensure the value proposition of lorundrostat is clearly understood. In parallel, we continue to invest in physician advocacy with our medical communications capabilities, including broader education of the unmet need in uncontrolled or resistant hypertension through peer-reviewed publications, increased participation in scientific meetings, and the continued build out of our field-based medical science liaison team. We are also expanding our sales and marketing capabilities to ready lorundrostat for success. Together, these activities are intended to support awareness of the clinical profile and position lorundrostat for a potential commercial launch. We continue to evaluate partnering opportunities and engage in strategic discussions. The right partner could provide enhanced value and enable us to reach more patients who could benefit from lorundrostat. Our focus on preparing for a strong commercial launch is invaluable to potential business development partners. I will now turn the call over to Adam to review our financial results for the first quarter 2026. Adam Levy: Thank you, Jon. Good afternoon, everyone. Today, I will discuss select portions of our first quarter 2026 financial results. Additional details can be found in our Form 10-Q which will be filed with the SEC today. We ended the quarter with cash, cash equivalents, and investments of $646.1 million as of March 31, 2026, compared to $656.6 million as of December 31, 2025. We believe that our current cash, cash equivalents, and investments will be sufficient to fund our planned clinical trials and regulatory activities as well as support corporate operations into 2028. R&D expenses for the quarter ended March 31, 2026 were $24.4 million compared to $37.9 million for the quarter ended March 31, 2025. The decrease in R&D expenses was primarily driven by a $15.5 million reduction in preclinical and clinical costs following the conclusion of our lorundrostat pivotal program in 2025. This decrease was partially offset by $1.1 million of increased clinical supply manufacturing and regulatory costs and $800 thousand of increased personnel-related expenses resulting from headcount growth and increased compensation. G&A expenses were $21.0 million for the quarter ended March 31, 2026, compared to $6.6 million for the quarter ended March 31, 2025. The increase in G&A expenses was primarily driven by $7.9 million of higher professional fees, $6.1 million of increased personnel-related expenses resulting from headcount growth and increased compensation, and $400 thousand from other general and administrative expenses. Total other income, net, was $6.0 million for the quarter ended March 31, 2026, compared to $2.2 million for the quarter ended March 31, 2025. The increase reflects higher interest earned on investments in our money market funds and U.S. Treasuries due to higher average cash balances invested during the quarter. Net loss was $39.3 million for the quarter ended March 31, 2026, compared to $42.2 million for the quarter ended March 31, 2025. The decrease was primarily attributable to the factors impacting our expenses that I just described. With that, I will ask the operator to open the call for questions. Operator? Operator: Thank you. At this time, we will be conducting a question-and-answer session. It may be necessary to pick up your handset before pressing the star key. One moment please while we poll for questions. Our first question comes from Michael DiFiore with Evercore. Your line is now live. Michael DiFiore: Hey, guys. Thanks so much for taking my question. Two for me. Number one, in the scenario where Mineralys Therapeutics, Inc. launches lorundrostat itself without a partner, will you conduct any more significant R&D activity or business development, or will you preserve funds just to support the launch and focus on the launch? And separately, as you near the day 120 safety update, it may have already passed, I am not sure. Can you comment on whether safety remains consistent with the past and whether there are updated plans to publish data from the OLE? Thank you. Jon Congleton: Yes, Mike. Thanks for the questions. To the first one, in the event that we launched alone, we, from the beginning, have been focused on how we build value with lorundrostat and how we do that by extension for Mineralys Therapeutics, Inc. We have built this organization from the beginning thinking about our clinical development program with an eye towards how we generate the greatest value from a commercial standpoint launching, whether it is on our own, with a partner, or through someone else. And so I think it is fair to say we are going to continue to look at ways that we increase value for lorundrostat and Mineralys Therapeutics, Inc. If you think about the development program to date, we have done that. Launch HTN, obviously, spoke to the real-world audience. Advance HTN stands out on its own because it is a very distinct, complicated population that no one else has studied with an ASI. EXPLORE CKD provides information for prescribers looking at the complexity of resistant hypertension and nephropathy or CKD. So we have always had an eye towards meeting the physicians where they are, what they need with lorundrostat, and building the appropriate data around that. So we will continue to look at opportunities to build value from a clinical development perspective, and we will continue to look at opportunities to expand the value of lorundrostat through business development. To your second question around the 120-day safety mark, we continue to be very confident in the safety profile of lorundrostat. The TRANSFORM HTN trial, our open-label extension, continues to collect that data. We think lorundrostat is well characterized from a durable effect and safety and tolerability profile perspective. And as we have noted in the past, we will be looking to get that long-term data published in due course. Michael DiFiore: Great. Thanks so much. Operator: Thanks, Mike. Our next question comes from Richard Law with Goldman Sachs. Your line is now live. Richard Law: Hey, guys. Good afternoon. A couple of questions from me. Do you get a sense that you need to compete with AZ on preferred or exclusive access with payers based on some of the discussions that you are having? And, also, what is your confidence level on getting access to that 3L setting compared to fourth and fifth line settings? Is your 3L strategy based on broader use, or is it more on the smaller niche population? And then I have a follow-up. Jon Congleton: Yeah, Rich, thanks for the questions. As we have talked about in the past, our clinical development program looked at that third-line-or-later opportunity. Both Advance and Launch looked at that population failing to get to goal on two or more because that is where significant need exists. I think that is where an ASI can add significant value. From a market standpoint, in a launch, we think the focus will be fourth line. It is our feeling that in that fourth-line resistant hypertension setting, payers appreciate the risk that these patients are under and the lack of satisfactory alternatives that are currently available relative to what lorundrostat has shown in our clinical program. Eric, do you want to add some more? Eric Warren: Yeah, hey, Richard. It is all about sequencing. The fourth line is the entry point. But, obviously, there is that need for those comorbid patients that are third-line patients. The opportunity will be to gain that experience, gain that confidence, and then make that transition to the third line using that comorbid condition as a bridge. This has been well vetted with payers in research and advisory boards, and as our team is now out there engaging payers with our account executives. You also asked about whether we are going to try to position ourselves in a different way than baxdrostat. Obviously, there is an opportunity for both ASIs, and having parity access is something that is a focus for us. Richard Law: I see. Got it. And then a follow-up. We heard that AZ has been saying that baxdrostat can potentially achieve something like $10 billion peak if they can succeed in other indications beyond hypertension and CKD that they are developing. And I also remember, Jon, I think you mentioned that when you think about a partner, an ideal partner would be the one who would recognize lorundrostat’s potential. So when I hear that, I think you meant the potential beyond hypertension. In your discussion with potential partners, how many of them recognize the value of lorundrostat outside hypertension? And what are these indications that you believe partners are bullish on or not bullish on based on the unmet need and the drug's mechanism? Thanks. Jon Congleton: Thanks, Rich. As we noted before and in the prepared remarks, there are 20 million patients that are struggling to get to goal on two or more meds right now. We know the clear linkage of uncontrolled or resistant hypertension to poor outcomes, whether they are cardiovascular or renal. I think at this stage we can clearly say that what lorundrostat has demonstrated in reducing blood pressure is a clear surrogate for what we could expect as far as a reduction in cardiovascular risk. So I am not surprised by AstraZeneca's bullish position on baxdrostat. I would say we have shared that view given the fact that, just in the United States alone, there are 20 million patients at risk. We have talked in the past about having a partner that is more global in nature and has a holistic view of this asset. I do not think that view has changed. I cannot really opine on how some of those discussions have looked at different indications. But, clearly, we know that aldosterone is going to be a key target for the next several years into the 2030s as it relates to not only hypertension, but the related comorbidities. Operator: Thanks, Rich. Our next question comes from Seamus Fernandez with Guggenheim Partners. Your line is now live. Seamus Fernandez: So I guess I will address, or ask you to address, the elephant in the room, which is you guys have been talking about potential partnering for quite some time. You have had the data and now you have had the NDA firmly established in terms of the PDUFA date for some time. What is it that you are looking for at this point in a potential partner that perhaps you are seeking but has not quite matched up? Or should we anticipate that you are in active discussions along those lines? I think we are all just trying to metric what is the timing for either selection of a partner or a potential go-it-alone strategy in the U.S. Thanks so much. Jon Congleton: Yeah, Seamus, appreciate the question. And, as we have said in the past, we are interested in finding the right partner. In response to Rich’s question, I talked about the global nature of that. We are routinely evaluating those partnering opportunities. As you can imagine, and I think appreciate, we are not in a position to provide color or specifics around the level of dialogues, the timing, or the structure. But it is something that we are mindful of. We have, as noted, continued to focus on how we build value going forward, and that is why, operationally, we are focused on commercial readiness for this asset. I think it is an important part of those partnering dialogues. But, clearly, looking for a partner to build on that value continues to be something we are focused on. Seamus Fernandez: Great. Maybe if I can just ask one follow-up question. As you look at the opportunities to partner your asset with other mechanisms, specifically, what would you say are the core mechanisms that you are particularly excited about? We have a whole host of new cardiometabolic mechanisms that are advancing and potentially looking to emerge outside of hypertension. Which would you say would be particularly exciting from your perspective to partner with lorundrostat? Thanks. Jon Congleton: Yes, Seamus, it is a great question. I think what is key as an opportunity for Mineralys Therapeutics, Inc. is we have the core foundational molecule, that being lorundrostat as an ASI. Given the nature of aldosterone to be a driver of not only hypertension, which is the beginning point of many other cardiorenal metabolic disorders, but also the role that aldosterone plays in CKD and heart failure and other disorders, it begins with the fact that we have the core foundational molecule. There are other mechanisms. Certainly, the SGLT2s are what our competitors are looking at. I think the fact that dapagliflozin is generic at this point, given the data that we have generated to date within our pivotal studies and specifically EXPLORE CKD, gives us an entrée to put lorundrostat forward in a hypertensive nephropathy or CKD population. But there are other mechanisms that we are looking at from a cardiorenal standpoint. We are not in a position right now to opine on those. But I would come back to the fact that we have the core product that really addresses the key driver of pathology, and that is lorundrostat. Operator: Thanks, guys. Appreciate it. Our next question comes from Jason Gerberry with Bank of America. Your line is now live. Jason Gerberry: Hey, guys. Thanks for taking my question. As you are doing a lot of your prelaunch activities, how are you thinking about the physician segments that you think are going to be the most likely to drive early adoption, especially in that fourth-line setting where it sounds like maybe you will not be focusing on doctors that focus on comorbidities like CKD, but maybe more cardiology-driven hypertension? Can you discuss some of the learnings from the prelaunch activities and how you are thinking about the early adopter? Jon Congleton: Yes, Jason, thanks for the question. I would say that we have been thinking about this going back three to four years when we framed the pivotal program for lorundrostat. Clearly, there is a primary care portion of the audience that is key prescribers in fourth line. They would be part of a launch target. But cardiologists as well. That is why Advance HTN is such a critical, differentiating piece of our data story. These are the patients that a cardiologist is truly seeing. They are maximized with treatment. They have tried various alternatives and still cannot get to goal. That was the test that Advance HTN put lorundrostat through, and lorundrostat came through with flying colors. That is a key and distinct dataset that AstraZeneca, frankly, does not have. The cardiologist will certainly be a part of that target base. Nephrology as well. We know that nephrologists deal with uncontrolled and resistant hypertension with comorbid CKD. As we speak to those nephrologists, the number one goal for them to try to arrest the progression of kidney disease is to get their patients’ blood pressure to goal. We have been thinking about the target population, the prescribers and the use cases they have, and that is why we built out a very distinct and diverse dataset that provides information about how to use and where to use lorundrostat, and the expected benefits they can see in blood pressure control and beyond, such as proteinuria. Jason Gerberry: And as a follow-up, is there any one or two things you will be looking at in the first three to six months of your competitor’s launch that may alter your go-to-market strategy? Jon Congleton: I do not know if I would say it will alter it. Certainly, it will be informative. We have a view of the data package we have. Eric and his team have done a really nice job of identifying where the unmet need is, who the key prescribers are, where that beachhead indication is for fourth line, and what is important to them in prescribing. We will obviously be looking at AstraZeneca's launch, and we anticipate it is going to be significant given the unmet need here and the lack of innovation in the last 20-plus years. But given the data that we have generated, and specifically speaking to the different prescribers that your first question alluded to, we are very confident in our ability to tap into that, assuming approval and launch very quickly after that. Operator: Our next question comes from Annabel Samimy with Stifel. Your line is now live. Annabel Samimy: Hi. Thanks for taking my question. I would love for you to talk about who you think might be driving the process of guideline changes that would position the new ASI class as the next drug to try after third-line agents have failed. You have a tremendous amount of data across the spectrum of patients as well as safety, CKD, and OSA. How important is it to have that wealth of data to drive those conversations, or do you think that it is the first to market that drives the conversations? Just want to understand the mechanics behind that. Jon Congleton: Yeah, Annabel, thanks for the question. I think it is safe to say that we have been interacting with those physicians that are part of the guideline committees, appropriately sharing the information that we have. It is something we contemplated three years ago, and it is why we worked with the Cleveland Clinic and Steve Nissen and Luke Laffin with Advance HTN, because we knew there had been a lack of innovation in this space. This is a heavily genericized space, and the guidelines would be a critical component. Advance HTN becomes the study that addresses all of the questions guideline committees are going to have about whether it is apparent or truly confirmed resistant hypertension. That dataset is going to be an instrumental component of the argument for inclusion in the guidelines. Launch HTN is an important part as well. It speaks to the primary care physicians. EXPLORE CKD and EXPLORE OSA, as you alluded to, provide additional data that is informative and speaks to the unique complexities of the resistant hypertension population. We are in front of the right physicians who are part of those guideline committees, and we have the right data and dataset with lorundrostat to make a compelling argument. Annabel Samimy: If I could just follow on the physician segmentation that you are thinking about. Given the Launch trial and the fact that primary care is a big prescriber of hypertensive agents, do you expect the focus to be cardiologists and nephrologists and hope for trickle-down into primary care, or do you expect to include high-prescribing primary care physicians within that first set of physician targeting? Jon Congleton: I do not know that our view has changed. We are continuing to narrow in on those prescribers that control approximately 50% of that third- and fourth-line, predominantly fourth-line, segment, and within that there are primary care as well as specialists. Eric, you can add some more to that. Eric Warren: Well said, Jon. Cardiologists, nephrologists, but there are primary care physicians that function very well within this fourth-line state. They are actively prescribing. We have looked at the segmentation. We have looked at the deciling, and there will be primary care included in that initial go-to-market strategy. Operator: Great. Thank you. Our next question comes from Mohit Bansal with Wells Fargo. Your line is now live. Mohit Bansal: Great. Thank you very much for taking my question. One question I have is regarding differentiation. Do you expect to see any kind of differentiation when it comes to labeling between lorundrostat and the competitor here, based on your market research? What feedback are you getting from physicians that they see any differentiation between these molecules? Thank you. Jon Congleton: Yeah, Mohit, thanks for the question. On the label, I think there will be a level of uniformity, certainly within the indication. But I will step back to a point that I have been making. There is a distinct difference between the datasets that we generated with lorundrostat and that of baxdrostat. Launch HTN speaks to the real-world audience, but, again, Advance HTN is a very distinct and differentiated dataset that provides information to cardiologists specifically who are dealing with very difficult, confirmed resistant hypertension patients. Then EXPLORE CKD. We know that proteinuria and having a benefit on proteinuria is a key attribute in physicians' minds when they think about an antihypertensive and how they view its utilization. Certainly for nephrologists, having a benefit on proteinuria is a key signal, or surrogate if you will, for slowing renal progression. Launch HTN, Advance HTN, and EXPLORE CKD, as well as our long-term open-label extension TRANSFORM HTN, were all part of our submission in the NDA. Now, what language and what portions of those studies get into the actual label will be part of negotiations with the FDA. But having that data, whether within label for promotion or through medical information, is going to be very instructive and informative for those distinct prescriber populations. Mohit Bansal: And the physician feedback, the second part? Jon Congleton: The physician feedback has been very robust. Eric? Eric Warren: Two things I will highlight, Mohit. Number one, the absolute systolic blood pressure reduction. That is really what shines from a physician perspective. That 19 mmHg that we demonstrated in Launch, but also the diversity and the well-represented trial populations. I will call out the Black/African American population at between 28% and over 50% of our patients depending upon the trial. Physicians really appreciate the inclusivity of our populations. Mohit Bansal: Got it. Very helpful. Thank you. Operator: Our next question comes from Matthew Coleman Caufield with H.C. Wainwright. Your line is now live. Matthew Coleman Caufield: Hi, guys. Thanks for the updates today. You covered a couple of my questions, but I think overall the sense is that baxdrostat's possible approval mid-year helps overall ASI receptivity and awareness. At a high level, do you anticipate there being any headwinds with that approval, or do you see it only as a positive as we get closer to the December PDUFA? Jon Congleton: I think there is significant opportunity within this space. As I noted previously, Matt, the lack of innovation speaks to the high interest from physicians to have a novel agent or novel class of agents. I do think there is an opportunity to see this market grow as AstraZeneca launches six to seven months in advance of potential approval for lorundrostat. I think it is important to highlight that we will have a voice in the market during that six to seven month period. We have had national account executives in front of payers going back to Q1. We have our MSL team in place, going out and building advocacy within those top-tier and regional-tier KOLs. So I think it is really both companies out there progressively talking about the role of aldosterone, the importance of addressing it within the ASI class. That grows this market opportunity. Whether you look at it from a revenue projection that AZ guided to, or the 20 million patients that we target, this is a massive market opportunity. There is significant interest in the novelty of the class of drugs. So I think it is a net positive. Matthew Coleman Caufield: Great. Thank you, guys. Appreciate it. Operator: Our next question comes from Rami Azeez Katkhuda with LifeSci Capital. Your line is now live. Rami Azeez Katkhuda: Hey, guys. Thanks for taking my questions as well. Given that AZ will likely set the initial pricing benchmark for the ASI class with baxdrostat, are there any other market access levers that you can pull to differentiate lorundrostat? And then, secondly, I know there are not many recent cardiovascular launches, but what do you view as the most relevant commercial analog for lorundrostat at this point? Jon Congleton: Yes, Rami, thanks for the questions. Relative to AZ, presuming approval, they will be setting the initial price point. I have been asked whether that is an anchor point. I think it is a guiding point. I have no idea where they are going to price it at this stage. Clearly, they are bullish on the revenue opportunity, but it will be informative for us. Going back to differentiation and the payer discussions, we are seeing that right now. As we have dialogues with payers, the distinction of the dataset—whether it is Advance HTN, which I have commented on previously in a very distinct population that AstraZeneca cannot speak to, or the Black/African American population that Eric alluded to—we know that is a critical high-risk population. We believe we have the dataset that is very informative for payers from an access standpoint. The feedback we have gotten from payers to date is they are open and willing to create access in this fourth-line setting and potentially, in due course, third line. They are also interested in having two assets to evaluate. So it is not as if, from our perspective, baxdrostat will launch and secure all access from a payer standpoint. On commercial analogs, it is a fair question and hard to answer because there has not been a lot of innovation within cardiovascular for quite some time. An interesting analog for me, although it is a GenMed category and not cardiovascular, is migraine with the gepants, the orals. When you come out with something truly novel from a clinical profile standpoint and match that to a market with significant unmet need, you can see significant commercial uptake. That is an informative analog we think about as we prepare the commercialization of lorundrostat. Operator: Thanks. Our next question is from Analyst with TD Cowen. Your line is now live. Analyst: Hi, thanks and good afternoon. A follow-up from Mohit’s question. It was helpful to hear about label differentiation. Can you tell us more about how you will react to baxdrostat pricing, especially when it comes to your pricing strategy? We know how important access is to physicians, but we are curious about the strategy you are thinking there. Could you launch with a lower WAC price? Should we assume rebates would be the primary mechanism to drive access, or something else? More thoughts there would be helpful. Thank you. Jon Congleton: Yeah, thanks. I appreciate the question. I hope you appreciate that it is really early to opine too much on that. We will see where AstraZeneca comes in with pricing. We have guided in the past that thinking about Farxiga and Jardiance WAC, or list price, is probably a good barometer to work from. We will see where they go from a pricing standpoint and evaluate what makes sense for lorundrostat. The key for us at the end of the day is to ensure that patients that physicians believe could benefit from lorundrostat get access to it. There are a lot of different levers we could pull, from contracting to what we do with our patient assistance program, but it is too early to give you the level of color your question would require. Analyst: Okay, great. That makes sense. Maybe then I can ask a different question. As we are looking at this launch as a proxy to lorundrostat, can you talk about how you would think about the cadence of that launch? It is hard without recent hypertension proxies, but do you expect that there would be an initial bolus of patients within the hypertension population, or anything that could help us understand what a good first few quarters might look like? Jon Congleton: Looking at 2024 IQVIA data that shows, in third line or later, there are about 8.8 million patients that are turning over and trying new medications, and that is in the absence of any innovation—that is with existing treatments that have been available for 20-plus years. As an old marketer, to me, that tells me there is a market with a great deal of dissatisfaction. Physicians have not given up. They continue to trial existing medications to help patients get to goal. There is significant pent-up demand and appreciation of the risk these patients are under if they do not get to goal. Fundamentally, that is a proxy. How that translates to baxdrostat’s launch quarter over quarter, I cannot opine on that. I just know, looking at fairly recent data from 2024, there is a lot of movement within this marketplace, and that creates opportunities for novel agents like lorundrostat. Operator: We have reached the end of the question-and-answer session. I would now like to turn the call over to Jon Congleton for closing comments. Jon Congleton: Thank you. In closing, we remain encouraged by the FDA acceptance of our NDA based on a strong clinical data package that I have just spoken about through the question and answers. From an operational perspective, we are focused on executing on our pre-commercial readiness strategy, while in parallel evaluating partnering opportunities and considering the next steps in the clinical development of lorundrostat. We believe Mineralys Therapeutics, Inc. is entering an important next phase in its evolution. This reflects the dedication of our entire team, the physicians and researchers who have supported the lorundrostat program, and, most critically, the patients whose needs continue to guide our daily work. Thank you to everyone for joining us today. We appreciate the continued interest and support, and we look forward to providing further updates in the quarters ahead. With that, we will close the call. Have a nice day, everyone. Operator: This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.