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Operator: Hello, everyone, and welcome to Wallbox's First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the call over to Michael Wilhelm from Wallbox. Michael, please go ahead. Michael Wilhelm: Thank you, and good morning, and good afternoon to everyone listening in. Thank you for joining today's webcast to discuss Wallbox's first quarter 2026 results. This event is being broadcast over the web and can be accessed from the Investors section of our website at investors.wallbox.com. I am joined today by Enric Asuncion, Wallbox CEO; and Isabel Lopez Trujillo, Wallbox's CFO. Earlier today, we issued our press release announcing results from the first quarter ended March 31, 2026, which can also be found on our website. Before we begin, I would like to remind everyone that certain statements made on today's call are forward-looking that may be subject to risks and uncertainties relating to the future events and/or the future financial performance of the company. Actual results could differ materially from those anticipated. The risk factors that may affect results are detailed in the company's most recent public filings with the SEC, including the annual report on Form 20-F for the fiscal year ended December 31, 2025, filed on April 9, 2026. We will be presenting unaudited financial statements in IFRS format that reflect management's best assessment of actual results. Also, please note that we use certain non-IFRS financial measures on this call and reconciliations of these measures are included in the presentation posted on the Investors section of our website. Also, a copy of these prepared remarks can be obtained from the Investor Relations website under the Quarterly Results section, so you can more easily follow along with us today. So with that out of the way, I'll turn it over to Enric. Enric Asuncion: Thank you, Michael, and thanks, everyone, for joining us today. We will start today's call with an overview of our first quarter 2026 results, provide our perspective on the EV market and spend time discussing our operational improvement. Isabel will offer a closer look at our financial results, key financial metrics and our current financial position, including updates on the recently signed refinancing. After, I will close the conversation to highlight what we are focused on for the upcoming quarters. Q1 revenue was softer than expected. But overall, we had a solid first quarter as adjusted EBITDA improved sequentially due to continuous operational efficiency improvements. Total revenue landed at EUR 29.7 million, below guidance and down 12% compared to the previous quarter. The primary driver of the decline is DC sales, which are down 28% quarter-over-quarter. Although this is a disappointing result, customer feedback shows this is not product related, but rather the requirement to have clarity on Wallbox refinancing process. With the signing of the refinancing plan, we immediately secured EUR 11 million in interim financing and are now able to provide better long-term financial visibility to our customers, vendors and shareholders. The other business activities, AC sales and software, service and others also experienced a slowdown compared to last quarter related to the refinancing, but with a less significant impact. From a geographical perspective, the North American market due to a significant decline in EV sales, APAC and South America due to the shifting resources and priorities, all have been down sequentially. In total, during the first quarter, we delivered over 30,000 AC units and 79 DC units. It is important to note that although revenue declined quarter-over-quarter, the ratio of revenue to labor cost and operating expenses improved significantly compared to the same period last year. Gross margin was 37.3% in the first quarter, in line with the previous quarter, but landing below the 38% to 40% guided range. The main reason for the guidance miss relates to the lower-than-expected DC sales, resulting in a negative impact from the product mix. However, we have achieved another quarter with inventory improvement, which provides bill of materials cost improvement opportunities for the long term. Labor cost and operating expenses landed at EUR 17.1 million, improving 22% quarter-over-quarter and 31% compared to the same period last year. This is the result of the continuous efficiency efforts of the last quarters. It only reflects cost improvements, but also shift in resources and investment in sales and services. With optimized cost base, we believe there is opportunity to grow the top line while continuing to work on operational improvements in processes and systems. By centralizing certain activities and reducing the operational complexity, we are leaner and more flexible in responding to the volatile EV market, both to scale up in EV markets where there are opportunities and scale down in EV markets which experienced headwinds. Adjusted EBITDA loss for the first quarter of 2026 was EUR 6 million, missing our guided range, but improving 18% quarter-over-quarter. Compared to the same period last year, adjusted EBITDA loss improved by 23%. Softer-than-expected sales due to the refinancing process were the main reason for missing guidance this quarter. But considering this revenue level, the bottom line improvement is impressive. We continue to execute our plan towards profitability based on, one, continuous operational efficiency improvements; two, implementations of the restructured balance sheet for long-term financial visibility; and three, reestablishing our growth by leveraging our product portfolio with more sales and service capacity. The implementation of the refinancing is almost completed. We have made solid progress on the operational efficiency improvements and expect to see the results of our investment in sales and service soon. We have a more optimized organization with a stronger financial position and believe that operational profitability is within reach, assuming revenue improvement. For the first quarter of 2026, Europe or EMEA contributed EUR 22.6 million of consolidated revenue or 76% of total top line. This reflects an 8% decrease compared to the last quarter, which is in line with the market in the first quarter, which was down 9% in Europe after several strong quarters. In parallel, we continue to focus on recapturing market share by improving our capacity in the sales and service teams to better support our distribution partners and our end customers. We have started to see the initial effects but require more ramp-up time before we see the full impact of revenue. North America contributed EUR 6.7 million or 23% of the total revenue, reflecting a decrease of 41% compared to the same period last year. The drop can be attributed to a softer North American EV market, which was down 27% year-over-year and limited DC sales. However, we recorded a strong result in Canada, reflecting solid growth compared to last quarter. Looking ahead, we see opportunities to grow sales with Quasar 2, which is already commercially available and the CTEP certified Pulsar, which will be available soon for commercial applications. APAC and LatAm currently remain small region for Wallbox, consistent with the last quarter as attention and resources have been shifted to key markets. APAC sales were almost negligible this quarter and LatAm sales landed EUR 387,000 or approximately 1%. The shifting of resources is a conscious decision and part of our [indiscernible] improvement efforts towards profitability. We continue to sell through distribution partners, allowing us to potentially accelerate growth in this market in the future. AC sales of EUR 21.1 million, including ABL and Quasar, represented approximately 71% of our global consolidated revenue and down 8% compared to last quarter. Pulsar Max continues to be the best sold product with the Pulsar Max ABL, growing the fastest as we continue to support cross-selling. Other products, including Quasar 2 show a smaller contribution to our results than last quarter. In general, AC sales also experienced impact from the noise around the refinancing process as distributors and commercial partners stock up or less inventory that is typical. We aim to reverse this trend now we have the refinancing in place, assuming we receive required court approval and as we ramp up our efforts to complement then the strong value proposition of our products with improved sell-out support and service coverage. DC sales landed at EUR 2.5 million or 8% of sales and was down 28% compared to last quarter. In the case of DC, the refinancing process has had the largest impact as customers require long-term financial visibility and support from their suppliers. With the signing of the refinancing agreement at the beginning of April, Wallbox can now provide the required clarity and this resulted immediately in new orders. We have a strong [ DC ] charging product portfolio, which provides customers with a wide range of different and scalable charging configurations, including battery storage options. With the introduction of the Supernova PowerRing, we expand the product portfolio with a charger that can go up to 400 kilowatts per outlet. Our reliable and user-centric chargers proved to be a competitive option for charge point operators, and we believe we can establish growth in this category. Software, services and others generated EUR 6.1 million for the fourth quarter or 21% of the total revenue declined 16% quarter-over-quarter. The largest driver of the decrease was installation and service activities, which were down 19% compared to last quarter. This was compensated by a 6% quarter-over-quarter increase in software compared to the same period last year. Software, which includes the Electromaps Solutions, grew 91%. Looking forward, we expect this category to continue contributing in Italy, especially with a strong growth in software. In our addressable market, which we refinance all regions except China, 2.1 million EVs were sold during the first quarter. While this represents a 23% increase year-over-year, the market slowed down on a sequential basis, declining 2% compared to last quarter. Turning in our key markets, which are North America and Europe, we see conservative trends. In North America, the EV market remained soft due to the removal of incentive and tax credits discussed during the last quarter. Compared to the same period last year, the sales in the region decreased with 27%, but only 3% quarter-over-quarter, potentially indicating we reached a plateau. While we anticipate the North American EV market will remain challenging through the year, we are optimistic about the opportunities presented by our Quasar 2 and, particularly in states like California where vehicle electrification is continuing to grow. Growth persists within the European EV market, this quarter up by 27% compared to the same period last year. However, growth has slowed down sequentially and declined with 9%. The same trend where there is a year-over-year growth, but quarter-over-quarter slowdown was visible in almost every European country, except Ireland, Italy and the U.K., where growth remains strong across the board. The momentum in the region is expected to pick up for the remainder of the year as across the region, many countries continue to incentivize electrification and new affordable EV models are becoming available. The growth in the rest of the world, which includes APAC and LatAm was the strongest of the regions considered in our addressable market. EV sales in the region increased 79% compared to the same period last year. Considering our shifting resources to focus on our path to profitability instead of servicing all our addressable regions in the same way, we did not capture the market growth. However, we keep working with a wide range of distribution partners and key accounts. This will allow us to keep our footprint in the region and ramp up sales efforts in the future. Overall, EV transition continues to progress, but at the same time, volatility remains. The recent geopolitical tension and subsequent price spikes in oil shows again the importance, especially in Europe for energy independence and decreased reliance on fossil fuels. This provides an opportunity for Wallbox as a provider of smart charging products and energy management solutions. The future is electric. But in the meantime, it is important as an organization to remain flexible. We have made progress in creating a more lean organizational structure, which is better suited to respond to market volatility as we move towards profitability. Isabel, over to you. Isabel Trujillo: Thank you, Enric. Good morning and good afternoon to everyone. The first quarter revenue was softer than expected and landed at EUR 29.7 million, outside our guided range and down 12% sequentially. However, relative to our cost base, revenue grew both compared to last quarter and the same period last year. The main reason we missed our guidance was an unexpected slowdown in orders for both DC and AC related to the pending refinancing. We anticipated an impact on sales as we were in the process to finalizing the refinancing agreement and customers require long-term financial clarity. Although we can't provide this clarity now as the agreement recently has been signed, the impact in Q1 was larger than initially expected as DC customers postponed their orders and AC distribution partners decreased the size of their orders. We are confident that we can reverse this trend now and have already received additional DC and AC orders directly after the announcement of the signing. Gross margin for the first quarter was 37.3%. This was lower than anticipated and has a strong correlation with the slower DC sales. As our DC fast charger products have a higher gross margin, lower sales in this category results in a negative impact from the product mix. Shortly, I will comment in more detail on our continuous inventory reduction, but we have a positive impact on bill of materials costs in the long run as we rotate our existing components. Q1 labor costs and operating expenses totaled EUR 17.1 million, reflecting a 31% improvement compared to the same period last year and a 22% sequential improvement. This is a positive result and is a strong proof point that we can continue to improve our operating leverage. Also, in the upcoming quarters, we plan to continue streamlining the organization with additional efficiency measures, strategic capital allocation and introduction of the right processes. If you compare the historical development of our cost base compared to our revenue development, we believe we are on the right path to find the correct equilibrium between sales and cost. On top of that, with the shift of resources and investment in sales and service, we believe the cost base we are working towards allows for additional revenue growth, further enhancing the efficiency of the company. Consolidated adjusted EBITDA loss for the quarter was EUR 6 million, outside the guided range, but still a solid improvement considering the lower-than-expected top line result. Compared to the same period last year, the adjusted EBITDA loss improved 23% and sequentially improved with 18%. Also top line revenue growth is important to reach profitability, the Q1 result reflects the outcome of our plan to shift the focus from only growth to focusing on profitability as our core objective. We have worked hard on the disciplined transformation of the organization to improve operating efficiency. And now our focus can return to reacceleration of growth, but with the same discipline on cost. With the investment in sales and services, I believe we can improve our sales in the upcoming quarters, following our path to profitability. Now moving to key financial items. We have completed one of the most important milestones with the signing of the refinancing plan. The plan is submitted with the court for final approval. Additional large institutions such as HSBC and Citibank have now joined the plan, and we received EUR 11 million in interim financing. It has been great to be able to bring together all the stakeholders and align on a strong capital structure solution to provide financial stability for Wallbox and clarity for the upcoming years. We would like to thank our banking partners and shareholders for their continued support and recognition of the strategies ahead. Turning now to the results of the first quarter. We ended the quarter with approximately EUR 7.6 million in cash, cash equivalents and financial instruments. This is excluding the EUR 11 million of interim financing just mentioned as it was received at the beginning of Q2. Based on the operational improvements discussed, the execution of the refinancing plan and our ongoing actions to manage capital expenditures and working capital, we believe our current cash position is sufficient for our near-term needs. This assessment assumes the timely receipt of additional liquidity in upcoming quarters, including proceeds from the refinancing plan and anticipated carbon credit payments. Loans and borrowings totaled EUR 168 million, reflecting a slight increase of 2% sequentially, consisting of EUR 44 million in long-term debt and EUR 124 million in short-term debt. The increase in the debt position is related to use of working capital lines and accrued interest liabilities related to the refinancing process. Following the implementation of the renewed capital structure, long-term and short-term debt will be reclassified as a majority of the debt maturities will be pushed to 2030. CapEx was light again this quarter and landed at EUR 0.3 million, of which EUR 0.1 million was related to investments in property, plant and equipment. Consistent with the last quarters, we are limiting spending on CapEx and are focused on leveraging our existing assets. A clear example is the effort to simplify our existing product portfolio and further innovate this portfolio to continue to provide the latest technology and comply with the customer requirements in an evolving industry. Compared to the same period last year, CapEx investment decreased 55% Inventory landed at EUR 40.3 million, a reduction of 15% to last quarter and down 37% compared to the same period last year. This is consistently one of the most successful financial metrics and allows us to continue to release cash from inventories supporting the overall operations. In addition, we remain focused on our overall cash management related to working capital to better align ourselves with our suppliers and ensure our supply chain is organized efficiently. Wallbox's financial position has improved following the execution of the refinancing plan. In addition, we have made progress on operational initiatives that have contributed to a reduction in cash burn, including actions to optimize working capital and capital expenditures. Enric, I turn it back to you to provide some closing commentary. Enric Asuncion: Thank you, Isabel. Although the refinancing process impacted top line results in the first quarter of the year, we continue to execute our plan and take steps towards our objective to achieve profitability. Adjusted EBITDA result continues to improve. We have reduced our cash burn significantly, have clarity on our new capital structure and unlock significant operational efficiencies. If we look at the objective we need to complete as part of the plan for our new Wallbox, we achieved, one, the continuous operational efficiency improvements; and two, completed the refinancing plan. Now we need to move from disciplined transformation to reaccelerating growth again. We expect to see the results of our investment in sales and service in the coming quarters. It is crucial to improve Wallbox as a customer-centric organization and better support our commercial partners. If we can execute the third pillar of our plan well, there is significant growth opportunity as the new market continues to develop. With that, I would like to discuss next quarter guidance. For the second quarter of 2026, we have the following expectations: revenue in the EUR 33 million to EUR 36 million range, gross margin between 38% and 40% and negative adjusted EBITDA between EUR 5 million and EUR 3 million. Thank you for your time. Operator: Thank you, everyone. There are no questions in queue. We will be closing the call. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
Operator: Hello, and welcome, everyone, to the 1Q 2026 LATAM Airlines Group Earnings Conference Call. My name is Becky, and I will be your operator today. Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations and as such, constitute forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance or guidance are forward-looking statements. These statements are based on a range of assumptions that LATAM believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in the published 20-F 2026 guidance, earnings release, financial statements and related CMF and SEC filings. The company's actual results may differ significantly from those projected or suggested in any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. And if there are any members of the press on this call, please note that for the media this is a listen-only call. I will now hand over to your host, Ricardo Bottas, CFO, to begin. Please go ahead. Ricardo Dourado: Hello, everyone, and good morning. Welcome to our first quarter 2026 conference call, and thank you all for joining us today. My name is Ricardo, and I'm CFO of the LATAM Airlines Group. Here with me is Roberto Alvo, our CEO; Andres Del Valle, Corporate Finance Director; and Tori Creighton, Head of Investor Relations. And we will present the highlights and results for the first quarter of 2026. I'll hand it over to Roberto to share his opening remarks. Roberto Alvo Milosawlewitsch: Good morning, everyone, and thank you, Ricardo. Let me begin. LATAM began delivering a very strong set of results, which reflect the consistency of the execution and the structural strengths of the model built over the past years. During the first quarter, LATAM Group grew capacity by 10.4% and transported close to 23 million passengers, while maintaining a solid load factor of 85.3%, demonstrating once again its ability to grow efficiently and capture demand across the network. The strong operational performance translated into record financial results. Revenue reached $4.1 billion, adjusted EBITDA was $1.3 billion, and the adjusted operating margin was close to 20%. The highest quarterly figure in the company's history, resulting in a net income of $576 million, reflecting both revenue strength and disciplined cost execution. These results were supported by continued progress in revenue quality, driven also by solid execution, well-tailored product differentiation, strong customer preference and a continuous increase in the contribution of premium revenues. This reflects a trend that has been building consistency over the recent quarters as LATAM's business model is delivering on the expected results. Even though the conflict in the Middle East pushed up jet fuel prices sharply starting in March, given the timing of fuel consumption, price lagging mechanisms and partial hedges, this increase did not materially impact the first quarter financial results. LATAM expects, however, these higher fuel prices to be reflected in the second quarter of this year. As fuel prices increased, LATAM Group began implementing fare adjustments in most of its network as well as executing targeted capacity reductions. To date, the demand environment remains strong and stable, and these commercial actions are partially mitigating the higher fuel expenses. Looking forward, we face the upcoming months with a combination of optimism and caution. Optimism because over the last years, LATAM has built a very resilient model. Its passengers and cargo business integration, together with the presence of LATAM's Group has in most market it operates, the strength of the loyalty program, the design and delivery of the passenger experience, both on board and throughout the journey, the focus on premium traffic and less elastic segments of demand, its competitive cost, the strength of its balance sheet and liquidity and most importantly, the quality and commitment of its people are all features that are unique to LATAM in the region and provide a true advantage and a potential source of future opportunity. Caution on the other side, because the environment remains extremely uncertain and variables that significantly affect the business are outside of LATAM's control. However, LATAM's track record in navigating complex environments is well proven at this time, and the group really trusts its abilities. In this volatile context, LATAM has taken a prudent approach to its guidance as will be discussed in more detail later in the presentation. Extraordinarily, given the circumstances, the company has decided to replace its full year 2026 guidance with a more focused set of metrics. With that said, I'll hand it over to Ricardo, who will talk -- walk us through the performance of the first quarter together with a look into LATAM's group relative and absolute strengths. Thank you. Ricardo Dourado: Thank you, Roberto. So Roberto, with his opening remarks, just covered Slide 3, so we can jump to the Slide 4. LATAM started the year with a strong financial performance, successfully translating a healthy demand environment into tangible financial results. Total revenues reached $4.1 billion, representing a 21.7% increase compared to the same period last year, mainly driven by the passenger business, which grew 24.4%, supported by strong customer preference for the LATAM Group product during the higher summer season in the Southern Hemisphere. At the same time, cargo revenues increased 3.4%, highlighting once again the importance of LATAM's group business diversification, which in the current context continued to be a key lever for the group. As a result of this top line performance, LATAM achieved an adjusted operating margin of 19.8%, expanding 3 percentage points year-over-year, marking the highest quarterly operating margin in the company history. This reflects not only the strength of LATAM's brand, but also the disciplined execution of the strategy across the network. On the cost side, total adjusted expenses increased 17.3% alongside operational activity and capacity growth. Importantly, fuel cost pressures during the quarter did not have an immediate or material impact on the results, given the delay of approximately 20 to 30 days in price adjustments supported by regional supply structures. In fact, given LATAM's hedging position in this dynamic, there was a reduction of 3.3% in fuel pricing during the quarter on a year-over-year basis. That said, there was an estimated impact close to $40 million during the period, which is expected to become more visible in the following quarter as elevated fuel prices are progressively incorporated. At the unit cost level, passenger CASK ex fuel came in at $0.045. This is an increase versus the same period of 2025, mainly explained by the depreciation of the local currency, particularly the Brazilian real. Together with this, unit revenues increased at a stronger pace, rising 12.7%, reflecting a solid performance across all markets. All of this translated into a net income of almost $600 million for the quarter, an increase over 62% year-over-year and a net margin of almost 14%, enabling the consistent delivery of exceptional results from the top line down to the bottom line. Please join me on the next slide to take a deeper dive into revenue performance across different affiliates and business units. Now on the Slide 5. The first quarter was characterized by a strong demand environment across the region. In this context, LATAM Group was able to very effectively capture this demand and translate into revenue performance, supported by its value proposition and network. During the quarter, the group began navigating a context of increasing fuel prices and as a result, implemented target revenue management actions, though these are partly reflected in the first quarter given the percentage of tickets already sold for March at that time. In the quarter, the group increased capacity by 10.4% and transported 22.9 million passengers, a 9.1% increase compared to the same period of 2025, mainly driven by the International segment and LATAM Airlines Brazil domestic market. This was accompanied by a consolidated load factor of 85.3%, a 2 percentage point increase. At the market level, LATAM Airlines Brazil domestic market showed strong dynamics with demand growing above capacity, leading to higher load factors and a solid passenger RASK performance, increasing 17% in U.S. dollars and 8% in local currency, supported by a more favorable exchange rate than last year. In the domestic Spanish-speaking affiliate markets, capacity remained stable, while improved traffic translated into a meaningful increase in load factors and a very strong unit revenue performance with passenger RASK increasing close to 25% in dollars and nearly 19% in local currency. In the International segment, capacity and traffic grew at a similar pace, maintaining very healthy load factors close to 87%, while Passenger RASK increased 6.3%, supported by a strong performance across both regional and long-haul operations. Overall, these results reflect LATAM Group disciplined execution and capacity deployment in revenue management, which supported by a favorable demand backdrop, allowed the group to deliver strong unit revenues, all underpinned by a differentiated value proposition, both in terms of product and its ability to connect the region like no other player. Let's move to the Slide 6, talking about the LATAM Group value proposition, in particular continued development of its premium offering and the results this is delivering in the next slide, Slide 6. Product differentiation, customer preference and the growing relevance of premium revenues were key drivers of LATAM's performance during the quarter, underscoring the strength of the group's value proposition. These factors are all reflected in LATAM's recently awarded 4-star in the Skytrax World Airline Star Rating, making LATAM the only airline in Latin America history to reach this level. The premium segment continues to gain importance with LATAM's revenue mix and therefore, enhance the revenue quality. During the quarter, premium revenues increased 28% year-over-year and actually premium revenues are increasing at a rate 14% higher than non-premium passenger revenues. With this premium passenger revenues share reached 27% of passenger revenues, a significant increase compared to the pre-pandemic levels, which becomes particularly relevant in the current context of heightened volatility and macroeconomic pressures as premium travelers tend to exhibit lower price elasticity and more stable demand patterns. Complementing this, LATAM Pass remains a key enabler of loyalty and customer engagement with 55 million members, including 2.6 million Elite members, making it the largest airline loyalty program in the region. Beyond its scale, it also serves as a relevant revenue channel with close to 60% of LATAM's passenger revenues generated by LATAM Pass members, reinforcing the strength of the ecosystem and the group's ability to deepen customer relationships. And as LATAM continues to elevate the customer journey, the group has announced a series of initiatives aimed at further enhancing its premium offering going forward. These include the rollout of the Wi-Fi connectivity in the wide-body fleet, which has already begun with the first long-haul flight operated in last March and will continue expanding in the coming years. The expansion of lounge infrastructure in the strategic hubs such as Sao Paulo and Miami and the introduction of the new premium comfort cabin expected from 2027. Building on these developments, one of the most recent highlights is the incorporation of the Airbus A321XLR expected from 2027 onwards, which will feature the premium business cabin with full flat seats, suite doors, direct aisle access and onboard connectivity, reinforcing the group premium value proposition and ensuring consistency across the LATAM Group product experience. The continued development of LATAM's premium offering, together with its loyalty program and network strength allowed the group to capture more resilient and higher value demand, further supporting the sustainability of the financial performance even in the face of a complex macroeconomic scenario. Please join me on the next slide, Slide 7. LATAM's strong performance was effectively translating into solid cash generation during the quarter. At the start of the year, the company generated $858 million in adjusted operating cash flow, reflecting the operational strength already discussed. After accounting for CapEx net of financing of $291 million as well as financial expenses and other items, LATAM generated close to $480 million in cash. During this period, paid amount to $90 million related with the interim dividends distributed in December '25, which given operational payments timing, were partially executed in January, the $89 million you see in the column. As a result, LATAM closed the quarter with a net cash generation of $391 million. This cash performance remained consistent with what we've seen in the previous quarters, where strong operating results are effectively converted into liquidity, which is the current context becomes a key source of strength, allowing LATAM to maintain a position of confidence in its financial standing while navigating in an environment with higher uncertainty. Let's move to the next slide, Slide 8. In the current context of elevated fuel prices and ongoing macro volatility, having a strong and lean balance sheet drivers competitiveness, and this continues to be a key differentiator for LATAM. The group closed the quarter with liquidity of $4.1 billion and an adjusted net leverage of 1.3x, supported by consistent cash flow generation, which remains at the core of the financial strategy. Additionally, in a scenario of prolonged and heightened volatility, the group maintained significant financial optionality through its asset base with more than $1.5 billion in unencumbered assets, providing further flexibility to navigate the cycle and act on opportunities. Match with this, LATAM has proactively managed its maturity profile, resulting in no relevant short- and midterm maturities and a well-structured debt schedule. Importantly, all debt is now under market conditions with no remaining legacy from Chapter 11 process, further streamlining the balance sheet. This provides both visibility and financial flexibility going forward, which is also reflected in the group's credit profile with all major ratings agencies now assigning ratings in the BB+ category -- sorry, BB category with a positive outlook following Moody's outlook upgrade in March and Fitch's reaffirmation of its rating and outlook in April. Now on Slide 9. And given the recent increase in volatility, particularly in fuel prices and the more limited visibility in the current environment, the company has decided to replace its previous full year 2026 guidance with a more focused set of metrics. While the previous 2026 guidance assumed an average jet fuel of $90 per barrel in a context that remains highly -- the dynamic LATAM's new guidance is based on a very specific set of assumptions. Regarding fuel prices, the expected price for each of the remaining quarters on the year is provided in a stable demand environment, consistent with what we observed so far is assuming and both are incorporated into new guidance. The assumptions for the next quarter is going to be $170 for the Q2 and Q3 and $150 for Q4. Regarding passenger unit cost ex fuel, this has been updated to a higher range of $0.045 and $0.047 compared to the previous guidance, which is explained by the appreciation of local currency and in particular, the Brazilian real, now expected to be BRL 5.15 per U.S. dollar compared to the previous assumptions of BRL 5.5. On the adjusted EBITDA side, LATAM expected a range between $3.8 billion and $4.2 billion, which incorporates the estimated impact of higher fuel prices, supported by the levers already discussed, including the strength of the network, the ability to capture premium demand through LATAM's differentiated value proposition and its fuel price management strategy. LATAM's balance sheet strength is also reflected in the updated net leverage metric, which is expected to be somewhat higher than previously guided, but still at very healthy levels and well below the company's financial policy target limit, estimating the net leverage below or equal to 1.8x. Regarding liquidity, the new guidance is lower than the previous presented, mainly explained by the impact of higher fuel prices. Nevertheless, liquidity is expected to remain at or above $4.5 billion, once again demonstrating the company's strength in terms of financial flexibility and balance sheet resilience. In the near term and given the current level of visibility, LATAM expected additional fuel expenses of more than $700 million for the second quarter of 2026, assuming the jet fuel price, as I have mentioned before, of $170 per barrel. Despite the significant fuel impact, LATAM expected to deliver a mid- to low single-digit adjusted operating margin in the second quarter. Overall, while the environment remains dynamic, LATAM is navigating this context with a disciplined and measured approach, leveraging the strength of its business model. Let me conclude with a few key takeaways and messages on the last slide, Slide 10. The first quarter results reflect a very strong performance for LATAM achieved in the context of a healthy and resilient demand environment, particularly during the high season, which provides a solid starting point for the rest of the year. All of this finds LATAM in the strongest financial position in its history, allowing the group to face the current macroeconomic environment from a position of financial strength even as fuel price pressures begin to materialize in the coming quarters. In this context, LATAM benefits from both relative and structural advantages. At the core of this is a differentiated increasing premium offering, combined with a strong network, which allows the group to access a demand base that is structurally less elastic and therefore, enabling the group to pass through costs more effectively. At the same time, LATAM operates today with a lean and strengthened balance sheet with high liquidity, low leverage, no short and midterm maturities with assets and significant flexibility and optionality to navigate in a more volatile environment. LATAM approaches the coming months with discipline and confidence, supported by its experience in navigating volatility and the robustness of its business model while maintaining a prudent stance in light of a still challenging and dynamic macroeconomic environment. Thank you, and let's open the line for questions. Thank you. Operator: [Operator Instructions] Our first question comes from Guilherme Mendes from JPMorgan. Guilherme Mendes: The first one is on the guidance. Whatever you can share in terms of top line assumptions, thinking of -- you mentioned capacity adjustments, yield increases. So if you can provide a reference of how much even if a ballpark you are anticipating for the year? And the second point is on -- think about the price increases, if you can share how each of the different segments, think about leisure, corporate or different regions are performing following this increase on prices. Roberto Alvo Milosawlewitsch: This is Roberto. So first question, we're not providing top line and capacity guidance because we see those figures are slightly more volatile than EBITDA. At the end of the day, I think that the industry will adjust capacity to try to balance results going further. So that's why we are focusing on a set of metrics that we believe give a good picture of the resilience of the model without trying to forecast variables that are going to be difficult to forecast. Having said that, I think it's fair to expect that if high level fuel prices continue, we will see bigger capacity adjustments throughout the industry and particularly in the region. And I think that you can fairly estimate a potential revenue profile with that assumption having the other measures that we provided. In terms of the segments, so first and foremost, solid demand and stable demand environment throughout the network. We haven't seen particular places where the macro environment has affected demand. We see a strong and stable corporate segment in almost every country. International and domestic Brazil probably stand out as slightly stronger than the rest. But on average, everything looks very healthy. We have seen, of course, a little bit of a slowdown in the more elastic segments of demand. The good thing is that today, this is comprising less and less of the number of passengers of LATAM, and they're easily compensated with different point of sale -- points of sale origins that we have in the network. I think that large networks in this particular environment are, in general, much more -- what is the word in English, sustainable than smaller networks. But as the [ long AP ] in the beginning of the quarter, when fare increases, you could see an impact on [ long AP. ] As the quarter has progressed, you see the filling up of the aircraft nicely, even though from those initial lower levels. And this is, in my mind, a function of the diversification of the points of origin and the O&Ds that the LATAM network can provide. So in general, the picture looks stable. The forward bookings for the remainder of the quarter have not been affected by anything that we've seen outside of the industry. So in that context, we remain positive. Operator: Our next question comes from Michael Linenberg from Deutsche Bank. Shannon Doherty: This is Shannon Doherty on for Mike. Congrats on the record results. So maybe just a follow-up on your last response. You just mentioned potential slowdown in the more demand elastic segments. Can you dig in deeper there? And with premium revenue now at 27% of total, what is your long-term target? Roberto Alvo Milosawlewitsch: So yes, I mean, I think it's absolutely normal to see a slowdown in more elastic segments. On the other hand, I think that airlines that tailor to more elastic segments in general are decreasing capacity faster than airlines that don't have that exposure. So that balances out in a way, this slowdown in demand. And at the end of the day, I think benefits companies that LATAM that can fill their planes with higher quality passengers in the other moments of the curve and in the other segments. So it's a total manageable situation given what we have. And I think that what we're seeing here is very clear. Airlines that are more exposed to more elastic segments, airlines that have weaker balance sheet are going to probably be more exposed to the current situation. LATAM's absolute and relative advantages clearly stand out in this particular scenario. Second question was the long-term premium revenues target. So we don't provide a public target of long-term premium revenues. I think that the expectation we have is to continue to grow premium revenues faster than total revenues. Ricardo pointed out to that stat for the first quarter. We haven't seen at this point in time, any slowdown in this trend, and it's been already over several quarters that we have seen that outpacing of premium travelers vis-a-vis the rest. And I think that the delivery of our product, the way we're managing the network, the quality of the experience today, the FFP, all these features point out that we can continue seeing that different balance vis-a-vis the past going forward. Shannon Doherty: Great. And how much on the higher fuel costs are you capturing during the June quarter? Do you expect to fully capture higher fuel by the end of this year, like we've heard from some of the U.S. airlines? Roberto Alvo Milosawlewitsch: Again, we don't provide that specific information, but I think that with the mid- to low single-digit operating margin figure together with the fuel spend that we are telling you guys that we're going to have in the second quarter, you can estimate relatively well the impact of fuel and pass-through that we are seeing for the quarter. Operator: Our next question comes from Andre Ferreira from Bradesco. Andre Ferreira: So one quick question here. So if you could comment on the forward booking curve. I guess in a previous question, you commented on specifically for the second quarter. But in general, how are you seeing it? Is it shorter? And if so, do you believe it's more due to like a permanent price sensitivity? Or is it more due to passengers kind of wishing or waiting for fares to go down closer to the trip? Roberto Alvo Milosawlewitsch: Yes. Andre, again, I mean, significant amount of the passengers we fly are domestic passengers, which have relatively low APEs. So the visibility we have on the booking curve doesn't go too much further away than a couple of months, maybe international a little bit more. So in the visibility we have, which is the rest of the second quarter and probably the first peak on the high season in the July winter holidays for us in this part of the world, it looks healthy in general. July is an important month just as January are because it's holiday time in the Southern Hemisphere. And the first indications we have on bookings for July look healthy as well. But beyond that, it's still very early to get a sense on how the planes will feel. We'll see that in the upcoming weeks. Andre Ferreira: Perfect. And if I can just squeeze in another one. If you could comment on -- can you hear me? Roberto Alvo Milosawlewitsch: Yes. Yes, we can. Andre Ferreira: So if you -- if you could just comment on the competitive landscape across the region. So I guess in Brazil, we have Azul leaving Chapter 11, but with lower growth as per the plan GOL out for a while now. So just how are the rest of the competition in Brazil behaving and on the other markets as well? Roberto Alvo Milosawlewitsch: Thanks, Andre. So we normally don't comment on competition. I guess the two things that I can tell you, one is airlines publish their capacity, and therefore, you can see capacity changes week after week as this crisis has progressed. I think that what we are seeing in general is a trend in downward capacity on most of the airlines in the region, including LATAM, by the way, in the second quarter vis-a-vis what was published before February 27. I think that airlines or more than I think what we see because this is actually public information, what we see is ULCCs decreasing capacity faster than players that have a better revenue quality average, if I can call it like that. I personally think that with an environment like the one we are using for the guidance, capacity may -- decreases may accelerate to balance out the longer-term impact of demand. LATAM takes -- the way we have looked at this particular guidance, we call it guidance, but this is -- nobody knows where this is going to go. We'd rather put ourselves in a scenario that looks a little bit more conservative than the forward curves and prepare for that. Then we will see how we execute as the information goes through and the changes in the environment. But we're taking this crisis seriously in the sense that it can -- there's a chance that it can last longer. And in that case, the whole organization needs to be prepared. If it gets better and we have, I guess, positive news flows during the night yesterday, then we will adjust accordingly. But for the time being, I guess that's the assessment I can -- I can give you on how we see the dynamics of the market here. Operator: [Operator Instructions] Our next question comes from Gabriel Rezende from Itau BBA. Gabriel Rezende: So just following up on the impact into the second quarter talking about fuel prices. We're trying to understand here what is LATAM actually seeing in terms of fuel price increases just because we have seen some of the regions, particularly Brazil on which Petrobras is very relevant, kind of is smoothing out the international price trend for fuel prices into jet fuel. So just trying to understand whether the $700 million plus that you're estimating for impact into the second quarter is already incorporating the fact that Petrobras and policies for price pass-through here for jet fuel in Brazil were kind of smooth out as the crisis took place in late February. And also, if you could comment how is the company at this point? I understand there's a lot of uncertainty and their visibility is limited. But just trying to assess how you're weighting market share versus profitability when assessing the price increases that you need to implement to offset the higher cost that you're facing with fuel. Ricardo Dourado: Okay. Gabriel, it's Ricardo, and thank you for your question. Actually, regarding the Petrobras issue, I'm not talking about a specific provider in Brazil. It's relevant in Brazil, for sure. But it's not a question of price policy. It's just a mechanism in terms of the way that they capture the international price in terms of lagging. So we mentioned a range on the average of all providers to have between 20 and 30 days lagging in terms of the way that the average price from our suppliers are getting the impact from international prices, I mean, in terms of price commodities, right? So it's just the way that when we see these assumptions for the second quarter of $170, for instance, we are capturing everything on it. And like we have mentioned also, the most relevant impact from March, for instance, it's captured in the Q2 assumptions for price. Roberto Alvo Milosawlewitsch: But to be clear, we're not assuming nor forecasting any changes to the price that are not market changes to the price. So no subsidies or anything like that in any of the markets where we operate. Regarding the second question, thanks for the question on market share. Let me be extremely clear here. In LatAm, market share is not a goal. Market share is the result of what we do. So for us, we don't manage the business in terms of the market share we can achieve. We manage the business looking at the flows, understanding where we can win, executing upon where we see strength. And then the outcome of that equation is market share. And LatAm has improved almost in every market where it operates its market shares over the last 2 or 3 years. But this is not a function of seeking them. It's a function of the results of our strategy. So -- so I don't focus -- we don't focus in profitability vis-a-vis market share. We focus in long-term development of the network, delivering on the strength that we have built in the model. And then we will see what the market share outcome of that equation is. Having said that, we are a rational player in terms of how we want to develop the business going forward. We find ourselves in a place where we can grow profitably. You see this very clearly throughout 2025 and in the first quarter of 2026. And I think that the way we conduct ourselves and the business is pretty clear at this point in time. So no market share goals for LATAM. Operator: Our next question comes from Jens Spiess from Morgan Stanley. Jens Spiess: Yes. Just two questions from me. One, to clarify your jet fuel price assumption, just to make sure that that's market prices not considering any hedges, right? And if those market prices materialize, what would be like the effective hedged price that you would be realizing considering that you now have also incorporated additional hedging instruments for your hedging -- within your hedging policy? And my second question is on the XLRs that you will be adding to your fleet in 2027. Where do you plan to deploy those mainly? Will it be intra-South America or also like to the U.S. and other markets, just to get a bit more clarity on that. Ricardo Dourado: Thank you, Jens. And regarding the hedging policy and the assumptions we use for the guidance, yes, the reference in terms of the price of the commodity, it's not including any reference in terms of the impact that could come from the hedge. But yes, the guidance that we are providing or the guidance is capturing the contracts that we have disclosed that we have in our -- under the hedge policy that we are seeing. And we also made some reference in terms of the way that we see the collars and also the recent call options that are partially in the money right now. So as a reference and not giving any additional information regarding the conditions from these instruments, the guidance is capturing the contracts that we have until the end of April, okay? Roberto Alvo Milosawlewitsch: And on the XLR, so we are receiving in total 13 XLRs starting in 2027. There are several applications of the XLR in our network. Lima, Brasilia, Fortaleza are three good examples. We were initially going to deploy the XLRs in Lima, given the fact that there's a connection fee now imposed in Peru, which we believe it's a terrible and pretty bad public policy. We are evaluating where those XLRs will go. But as a general probably guide here, we bought these planes to fly long segments, particularly to the U.S. if it were from Lima or Brasilia, it would be probably Europe and the rest of South America if they were to be placed in Fortaleza. But we'll keep you posted on the deployment of them. We still are over a year away from the first delivery, so no decision made in terms of where they're going to finally go. Operator: [Operator Instructions] Our next question comes from Ewald Stark from BICE Inversiones. Ewald Stark Bittencourt: I have a question on jet fuel. Your jet fuel guidance for the coming quarters looks somewhat high relative to the evolution of the jet fuel futures curve. So I was wondering if you can provide any details on how the strategy was used to reach those expectations. Roberto Alvo Milosawlewitsch: Thanks for the question. I mean, forecasting future prices of fuel today, not even the pros, I mean we have seen just the second half of the forward curve moving something like $15 on average in the last 15 or 20 days. So the way I think that you need to read the assumption here is in two ways. One is we are wanting to be slightly more conservative in terms of this because we'd rather prepare for a worse scenario. In the case it gets better, fine by us, it will be great. It will be an upside to what we're seeing. But on the other side, I think that rather than just simply thinking that we're assuming something special with the market, we have absolutely no clue just as anybody does. I think that you need to read a set of metrics that we gave you as the proof of the resilience of the LATAM model. So you have the EBITDA, you have the liquidity, you have the leverage and you have the price assumption on fuel, make up your idea on how LATAM today is being built to withstand a moment like the one we're living. Operator: We currently have no further questions. So I'll hand back over to Ricardo for closing remarks. Ricardo Dourado: Thank you all for joining us today. And if you have any further questions, please let us know and reach out the Investor Relations team. Thank you, and have a good day. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Hello, and welcome to Vir Biotechnology, Inc. First Quarter 2026 Financial Results and Corporate Update Conference Call. As a reminder, this call is being recorded. After the speakers' presentation, there will be a question and answer session. I will now turn the call over to Kiki Patel, Head of Investor Relations. You may begin, Kiki. Kiki Patel: Thank you, operator. Welcome, everyone. Earlier today, we issued a press release reporting our first quarter 2026 financial results and corporate update. Before we begin, I would like to remind everyone that some of the statements we are making today are forward-looking statements under applicable securities laws. These forward-looking statements involve substantial risks and uncertainties that could cause our clinical development programs, collaboration outcomes, future results, performance, or achievements to differ significantly from those expressed or implied by such forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding the potential benefits of our collaboration with Astellas, the therapeutic potential of 5,500 and our PROXTEN platform, our development plans and timelines, financial terms and milestone payments, and our cash runway and capital allocation priorities. These risks and uncertainties and risks associated with our business are described in the company's reports filed with the Securities and Exchange Commission including Forms 10-K, 10-Q, and 8-K. Joining me on today's call from Vir Biotechnology, Inc. are Marianne De Backer, our chief executive officer, and Jason O’Byrne, our chief financial officer. During 2026, the Vir Biotechnology, Inc. team delivered meaningful advances across our T cell engager and hepatitis delta programs, underscoring our ability to execute towards key clinical and corporate priorities. The agenda for our call today is as follows. First, Marianne will share an update on our recent landmark global strategic collaboration with Astellas and our prostate cancer program. Next, she will provide an update on our hepatitis delta program evaluating tobevibart, an investigational neutralizing monoclonal antibody, and elebsiran, an investigational small interfering RNA. Then Jason will provide an overview of our first quarter 2026 financial results. And finally, Marianne will close the call and we will open the line for Q&A. With that, I will now turn the call over to Marianne. Marianne De Backer: Thank you, Kiki. Good afternoon, everyone, and thank you for joining us for Vir Biotechnology, Inc. first quarter 2026 earnings call. Since our last earnings call in February, we have remained highly focused on execution as we advance both our oncology and hepatitis delta programs with speed and focus. I will begin by providing a brief update on the current status of our recent collaboration with Astellas, a deal valued at up to $1.7 billion. In addition, in the U.S., commercial profits will be split 50/50 between the parties with Vir Biotechnology, Inc. having the option to co-promote alongside Astellas. As a reminder, on February 23, 2026, we announced that we entered into a collaboration with Astellas to co-develop and co-commercialize VIR-5500, our PROXTEN dual-masked PSMA-targeted T cell engager. Since then, the transaction successfully closed on April 15, 2026, marking an important transition from deal announcement to deal execution. With the deal closed, our joint teams are operational and partnering closely on a shared clinical development plan to enable rapid expansion and accelerate delivery to patients. This collaboration brings together Astellas’ global leadership in prostate cancer with our differentiated PROXTEN-enabled T cell engager. We chose to partner with Astellas because of their decade-long track record of successfully co-developing category-defining therapies, including Xtandi, the world’s number one prostate cancer drug. Metastatic castration-resistant prostate cancer, or mCRPC, remains a significant unmet need with a 5-year survival rate of only 30%, underscoring the urgency for new treatment options that can deliver even deeper, more durable disease control and improved quality of life. VIR-5500 is the most advanced dual-masked T cell engager currently under evaluation in prostate cancer. The foundational driver of the Astellas collaboration shaping our development strategy going forward is our Phase 1 data for VIR-5500. Johann de Bono shared an update from this study evaluating patients with advanced mCRPC as an oral presentation at ASCO GU in February. Today, I will highlight key takeaways from the data. For a more comprehensive update from the trial, please refer to our fourth quarter earnings call from February 23, 2026. Overall, the VIR-5500 data showed a favorable safety and tolerability profile with no observed dose-limiting toxicities. At the dose levels of 3,000 micrograms per kilogram and above, we saw mostly Grade 1 cytokine release syndrome, or CRS, defined as fever only. We did not observe any Grade 3 CRS at this dose, reinforcing the potential of the PROXTEN dual masking platform to widen the therapeutic index of our T cell engagers. We view the absence of high-grade CRS at our go-forward monotherapy dose, together with a lack of mandatory steroid premedication in our protocol, as a meaningful differentiator for 5,500. We believe that sparing steroids may help preserve T cell function and reduce treatment complexity for both patients and physicians. Collectively, these attributes support the potential for outpatient administration and could translate into significant clinical and commercial advantages over time. Importantly, this profile may support positioning 5,500 in both the pre- as well as post–radioligand therapy, or RLT, settings, offering flexibility across the treatment continuum and potential use in routine care settings relative to the specialized infrastructure required for RLT administration. Furthermore, the depth of PSA and RECIST responses we observed were particularly encouraging, with several patients sustaining responses for up to 27 weeks. Additionally, we saw emerging signs of durability up to 8 and 12 months, respectively, in patient cases with extended follow-up. One of the most compelling aspects of our data is that these deep responses were observed in heavily pre-treated patients with advanced poor-prognosis disease, including liver metastasis. This is historically the most difficult population to treat and resistant to immunotherapies, underscoring the clinical significance of the activity we are seeing. Additionally, we observed a complete response for a patient who previously relapsed on an actinium-based PSMA-directed radioligand. We view these findings as especially meaningful given historically poor outcomes and limited responsiveness of this patient population to subsequent therapies. Building on these encouraging Phase 1 dose-escalation monotherapy results, we have dosed a first patient in our Phase 1 dose expansion cohorts for VIR-5500 in late-line patients. This milestone represents an important step in evaluating VIR-5500’s best-in-class potential for people living with prostate cancer. In the monotherapy expansion cohorts, we are evaluating Q3-week 800, 2,000, and 3,500 microgram per kilogram step-up dosing. This study will measure safety and efficacy including PSA responses and objective response rate, or ORR, of VIR-5500 in patients with mCRPC who are refractory following treatment. These patients will have had exposure to multiple prior lines of therapy, including at least one second-generation androgen receptor pathway inhibitor and one taxane regimen. The expansion includes two distinct cohorts: patients who are naïve to prior RLT and patients who have previously received RLT in any treatment setting. Dose escalation of VIR-5500 in combination with enzalutamide continues in early-line mCRPC patients. We anticipate dosing the first patient in the combination dose expansion cohorts in both early-line mCRPC and metastatic hormone-sensitive prostate cancer over the coming months. Together, these cohorts highlight the potential of VIR-5500 across the prostate cancer continuum, including in the frontline setting. VIR-5500 has the potential to be a best-in-class T cell engager. We anticipate initiating our registrational Phase 3 program for VIR-5500 in 2027. These results provide validation of our broader platform, unlocking significant opportunities to develop next-generation masked T cell engagers in other solid tumor types. Turning now to the rest of our clinical-stage T cell engager programs. VIR-5818 is our PROXTEN-masked HER2-targeted T cell engager. We view this as a signal-finding study given the early stage of development and the basket design where multiple tumor types are evaluated in parallel. We expect to report preliminary response data evaluating VIR-5818 monotherapy and combination therapy with pembrolizumab in 2026. This update is intended to inform our understanding of dose and help identify which HER2-expressing populations may warrant further study, particularly in areas of high unmet medical need. For VIR-5525, our PROXTEN dual-masked EGFR-targeted T cell engager, Phase 1 study enrollment is progressing as expected. The study design incorporates learnings from 5818 and VIR-5500 to enable efficient dose escalation. We are evaluating both monotherapy and combination with pembrolizumab across multiple EGFR-expressing tumor types, including non-small cell lung cancer, colorectal cancer, head and neck squamous cell carcinoma, and cutaneous squamous cell carcinoma. We believe this program has the potential to address significant unmet medical need in these indications where existing EGFR-targeted approaches have limitations. Turning now to our hepatitis delta program. The hepatitis delta community is severely underserved, with approximately 180,000 actively viremic patients across the United States, UK, and EU based on a composite of high-quality epidemiology sources. In the U.S., the patient population is highly concentrated in major urban centers and can be supported by an efficient commercial approach with a targeted specialty sales organization focused on hepatologists, gastroenterologists, and infectious disease specialists. Overall, we expect our tobevibart plus elebsiran combination to have two clear advantages in chronic hepatitis delta versus our competitors. The first is that we are seeing potential best-in-class efficacy with a strong safety profile. The second is that our regimen is designed with once-monthly subcutaneous dosing with the potential for both at-home and in-office administration. For viral infectious diseases, clearing the virus is the key to improving long-term outcomes. KOLs in chronic hepatitis delta highlight undetectable virus as measured by “target not detected,” or TND, as the gold standard measure of viral clearance. Achieving undetectable HDV by this measure is the most stringent threshold available and means that the delta virus is completely cleared from the bloodstream. As the delta virus replicates so aggressively, patients need HDV to be completely undetectable for positive clinical outcomes and to avoid rebounds. Peer-reviewed evidence suggests that patients with hepatitis delta who achieve undetectable virus have significantly improved long-term clinical outcomes, including reduced progression to cirrhosis, hepatocellular carcinoma, liver transplantation, and death, compared with patients in whom virus remains detectable. These data support undetectable virus as a key clinically meaningful goal of antiviral therapy for patients with hepatitis delta. In January, we reported potential best-in-class efficacy in our Phase 2 SOLSTICE trial in patients with chronic hepatitis delta for a subset of patients at Week 96. Evaluable participants receiving the combination therapy of tobevibart and elebsiran showed increased and sustained viral suppression of HDV RNA versus treatment with the antibody alone. The data showed 88% of evaluable participants achieved undetectable virus, compared to 46% on tobevibart monotherapy alone. Additionally, we saw rapid onset of viral suppression, achieving 41% undetectable virus within 24 weeks. These results underscore the limited efficacy of hepatitis delta treatment with antibody monotherapy alone. In contrast, combining complementary mechanisms of action with tobevibart plus elebsiran raises the rate of undetectable virus to approximately 90%. Importantly, we see similar efficacy in cirrhotic patients, who will be a significant patient cohort at launch due to the delayed diagnosis of most hepatitis delta patients to date. The combination was well tolerated with no Grade 3 or higher treatment-related adverse events and no discontinuations. The second key differentiator is that tobevibart plus elebsiran will be administered only monthly, consisting of two subcutaneous injections administered at the same time. As a reminder, competitors’ lead regimens require either daily or weekly injections. For the hepatitis delta patient population, this frequency will be a significant challenge, so we see monthly dosing as an additional meaningful differentiator for our regimen. Additionally, due to the need for higher dosing frequency of competitive regimens, tobevibart plus elebsiran may have the potential to be the only product conveniently enabling both self-administration at home and physician administration in office. This is important because physicians have indicated that up to 20% of hepatitis delta patients might not be able to self-administer, so tobevibart plus elebsiran may be the only treatment available for this group of patients. Our hepatitis delta regimen has already been recognized by multiple global regulators with FDA Breakthrough Therapy and Fast Track designations, as well as EMA PRIME and orphan drug designation, underscoring both the unmet need and the strength of the data package. These designations provide ongoing engagement with both agencies and support a high level of confidence in our ability to achieve broad labels for our regimen. We are pleased to share that we will be presenting the complete 96-week SOLSTICE Phase 2 data in an oral presentation at the upcoming EASL 2026 annual meeting in Barcelona on May 29, 2026. We will also be presenting a poster of a 48-week subgroup analysis evaluating the impact of BMI on ALT normalization after successful viral control. As we look ahead to our ongoing registrational program, all three of our ECLIPSE studies are on track. ECLIPSE 1 enrollment is complete with approximately 120 participants randomized 2:1 to our combination therapy versus deferred treatment. The primary endpoint is a composite of undetectable virus as measured by HDV RNA TND plus ALT normalization at Week 48. We expect to report topline data from ECLIPSE 1 in the fourth quarter of this year. ECLIPSE 2 enrollment continues on track across multiple European sites. This study will enroll approximately 150 patients who are being randomized 2:1, evaluating the switch to our combination therapy in patients who have not adequately responded to bulevirtide. The primary endpoint for the trial is undetectable virus as measured by HDV RNA TND at Week 24. The strong enrollment momentum we are seeing in Europe reflects an important unmet need in patients previously treated with bulevirtide. For ECLIPSE 3, our Phase 2b head-to-head comparison, enrollment is complete, with approximately 100 patients randomized 2:1 to our combination therapy versus bulevirtide. The primary endpoint for the trial is undetectable virus as measured by HDV RNA TND at Week 48. In general, we view Gilead’s expected U.S. launch of bulevirtide as a positive for the hepatitis delta market overall and one that helps pave the way for next-generation therapies like ours. Hepatitis delta remains significantly underdiagnosed and undertreated, and the introduction of the first approved therapy in the U.S. should meaningfully raise disease awareness, expand screening, and establish treatment pathways among treating physicians. Complementing this, we have an experienced commercialization partner through our collaboration with Norgine, who holds an exclusive license across Europe, Australia, and New Zealand. Norgine’s established infrastructure in specialty pharma and hepatology positions us to maximize the commercial opportunity of our HDV regimen across these geographies. In summary, we have made exceptional progress across our entire clinical portfolio, and we believe these advancements leave us well positioned to deliver on our clinical and corporate objectives. With that, I will now hand the call over to Jason for our financial update. Jason O’Byrne: Thank you, Marianne. Before discussing the first quarter financials, I will share the latest news about our Astellas collaboration. We are pleased to report that the 5,500 global collaboration and licensing agreement closed on 04/15/2026 following expiration of the HSR waiting period. Upon closing, Vir Biotechnology, Inc. received a $75 million cash payment representing Astellas’ equity investment, and within 30 days of closing, we will receive a $240 million upfront payment. As a reminder, we are eligible to receive a $20 million manufacturing tech transfer milestone payment in 2027, will share global development costs 40% by Vir Biotechnology, Inc. and 60% by Astellas, and will split U.S. commercial profit/loss equally with Astellas. We are eligible to receive up to an additional $1.37 billion in development, regulatory, and ex-U.S. sales milestones, along with tiered double-digit royalties on ex-U.S. net sales. A portion of certain collaboration proceeds will be shared with Sanofi according to the terms of that licensing agreement. Overall, this deal provides immediate capital and significantly reduces our near-term development spend, preserving substantial long-term economic upside. The collaboration with Astellas can maximize the value of VIR-5500 through accelerated clinical development and global reach, potentially benefiting more patients and creating greater value for our shareholders. Shortly after announcing our global collaboration with Astellas and sharing updated Phase 1 data from the VIR-5500 program, we completed a follow-on equity offering. On 02/27/2026, the offering closed, and we received gross proceeds of approximately $172.5 million before deducting underwriting discounts and commissions and estimated offering expenses. We intend to use the proceeds from the offering to fund our share of the development costs for VIR-5500, to advance the broader T cell engager platform, and for working capital and other corporate purposes. Turning now to our balance sheet. We ended the first quarter with approximately $809.3 million in cash, cash equivalents, and investments, which includes the aforementioned proceeds from the follow-on offering. Subsequent to quarter end, we closed the Astellas collaboration; therefore, $315 million in proceeds from that transaction are not reflected in our 03/31/2026 cash position. Based on our current operating plan, and including the net effects of the recent Astellas agreement and capital raise, we expect our cash runway to extend into 2028, enabling multiple value-creating milestones across our pipeline. Now I will review our first quarter 2026 financial performance and overall financial position. R&D expense for the first quarter of 2026 was $108.9 million, which included $6.0 million of stock-based compensation expense. This compares to $118.6 million for the same period in 2025, which included $7.0 million of stock-based compensation expense. The year-over-year decrease was primarily driven by a $30 million payment to Alnylam in 2025, partially offset by hepatitis delta qualification batch manufacturing costs and, to a lesser extent, higher clinical expenses in 2026. SG&A expense for the first quarter of 2026 was $23.3 million, which included $6.1 million of stock-based compensation expense, compared to $23.9 million for the same period in 2025, which included $7.1 million of stock-based compensation expense. First quarter 2026 operating expenses totaled $132.3 million, representing a $10.3 million decrease compared to the same period in 2025. Net loss for the first quarter of 2026 was $125.7 million compared to a net loss of $121.0 million for the same period last year. Looking ahead, we will continue disciplined allocation of capital, prioritizing investments in those programs with the greatest potential for meaningful patient benefit and value creation. With that, I will now turn it back over to Marianne to close the call. Marianne De Backer: To close, we are exceptionally well positioned for long-term value creation at this inflection point. Since December 2025, the combination of our collaborations with Norgine and Astellas, together with a successful financing, has generated over half of $1 billion in capital, significantly strengthening our balance sheet. With the closing of our global collaboration with Astellas this quarter, we now have an established partner to advance VIR-5500 aggressively across the prostate cancer landscape while maintaining disciplined capital allocation. Overall, the combination of potent antitumor activity and a favorable safety profile underscores VIR-5500’s potential as a best-in-class T cell engager for the treatment of prostate cancer. Beyond our clinical programs, we are steadily advancing seven preclinical T cell engager assets that utilize the PROXTEN platform and broaden our pipeline’s optionality, positioning us well to generate the next wave of value creation. At the same time, our hepatitis delta program continues to generate compelling and increasingly differentiated clinical data with multiple near- and mid-term catalysts ahead across our ECLIPSE studies. Taken together with our progress in oncology, this momentum underscores the breadth of our scientific platforms and our ability to execute with focus, urgency, and discipline. Looking ahead, our priorities are clear: to deliver rapid, high-quality clinical execution, advance multiple expansion and registrational-enabling studies, and deploy capital thoughtfully in ways that maximize long-term value while keeping patients at the center of everything we do. With that, I will turn the call over to Kiki to begin the Q&A session. Kiki Patel: Thank you, Marianne. This concludes our prepared remarks. We will now open the call for questions. Joining me for the Q&A are Marianne and Jason. Please limit questions to two per person so that we can get to all of our covering analysts. I will turn it over to you, operator. Operator: Thank you. We will now begin the question and answer session. Star one to ask a question. We ask that you pick your handset up when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Our first question comes from Paul Choi with Goldman Sachs. Paul Choi: Good afternoon, everyone, and thanks for taking our questions. My first question is on 5,818 in the HER2 setting. Can you comment on your level of interest in future development, particularly in HER2-positive breast cancer? It is not listed among the tumor types in your quarterly deck here, and so I am just curious, given the number of available therapies for that particular tumor type, what is the criteria from your upcoming dataset for potential development in that tumor type? And then I had a follow-up question. Marianne De Backer: Thank you, Paul, for that question. We will be sharing data on our 5,818 program in the second half of this year, and this will be both for our monotherapy dose escalation and dose escalation in combination with pembrolizumab. As to future development, we will, at that time, be able to provide a better picture as to what future expansion cohorts could be. Specifically to your question on breast, I would say that obviously the bar is high, but do keep in mind that this drug class, for example like in HER2, has a 1% mortality rate, so there is certainly still prospect to come up with better treatments. Again, we will be sharing data in the second half of the year and will then give a prototype of where we see the program heading. Regarding your follow-up question on 5,500 and potential development in earlier treatment settings, we already have a dose escalation ongoing for early-line 5,500 combined with an ARPI. Together with Astellas, our collaboration partner, we are planning to start an expansion cohort in the same setting, a combination of VIR-5500 with enzalutamide. That is expected in the coming months. Paul Choi: Okay. Great. Thank you for that. Operator: Your next question comes from Roanna Clarissa Ruiz with Leerink Partners. Your line is open. Please go ahead. Michael Ulz: Hi. This is Michael on for Roanna. Thank you for taking our question. Regarding 5,500 late-line mCRPC monotherapy expansion cohorts, what would constitute a clear signal as a green light to initiate Phase 3 in 2027? Are you anchoring on PSA-50, PSA-90, or RECIST or PFS, something like that? And I also had a question about the underlying biology for PROXTEN protease cleavage. How tumor-specific is the protease activation profile across different tumor types? For example, are you seeing differential cleavage kinetics in prostate versus colorectal or NSCLC that might affect the therapeutic index? Marianne De Backer: We have dosed the first patient in the baseline expansion cohort for VIR-5500 monotherapy. In that expansion cohort, we are going to explore more in-depth both pre- and post–radioligand therapy; that will be additional data we will be gathering, as we only had a limited set of such patients in our initial cohort on which we reported data on February 23, 2026. It is going to be the totality of the data—PSA, RECIST, rPFS—and we will have a fuller dataset to decide on next steps. Our goal, pending data, is to start pivotal trials in 2027. Regarding PROXTEN biology and protease cleavage, one of the founders of the company that was acquired by Sanofi, from which we licensed the technology, has been working in this field for over 20 years. The protease-cleavable linker is really a promiscuous linker across different families of proteases to ensure activity across a broad set of tumor types. This design supports consistent activation and helps drive a favorable therapeutic index across indications. Operator: Your next question comes from Cory Kasimov with Evercore. Analyst: Hey. This is Josh Gazzara on for Cory. Thanks for taking our question. Maybe one on HDV. As you approach the pivotal HDV data, what are your latest thoughts on pricing there? And then a quick follow-up on 5,500: especially in the late-line castration-resistant setting, is there a minimum durability you and Astellas are looking for before you move into a Phase 3—a specific number or competitive threshold? Marianne De Backer: Thank you, Josh. Hepatitis delta is an orphan disease. There are a number of anchor points for price that we can point to. The first is the price of bulevirtide in Europe, which varies somewhere between $60,000 and $165,000 gross price. You could also look at the price of bulevirtide in Canada, which was set at, I believe, $115,000. Across your fellow analysts, I see estimated prices vary somewhere between $150,000 and $250,000. We think that is very adequate for a severe orphan disease where we would be delivering substantial patient benefit. On durability for 5,500, we will be looking at the totality of the data rather than a single threshold. Several T cell engagers have shown durable responses. Our dataset is still a little early, but we have observed a number of patients with confirmed partial responses beyond 27 weeks, and we have case examples of one patient on treatment for 8 months and another for a year and continuing. We will look for greater consistency across the broader expansion cohort. Operator: Your next question comes from Alec Stranahan with Bank of America. Your line is open. Please go ahead. Analyst: Hey, guys. This is Matthew on for Alex. Thanks for taking our questions, and congrats on the progress. Two for us on competitive landscapes. First, for HDV: just curious your thoughts on Mirum’s data that came out recently and whether that changes your thoughts on your opportunity or the competitive landscape. And secondly, for EGFR T cell engagers, a competitor recently discontinued development of their dual-masked program—what gives you confidence that your strategy will pan out where others have failed? Marianne De Backer: On your first question, as I laid out in the introduction, we and key opinion leaders in this field strongly believe that what really matters in a viral disease is to get rid of the virus, measured by HDV RNA target not detected. For our monthly regimen of tobevibart and elebsiran at 48 weeks—our primary endpoint—we achieved about 66% TND, increasing from 41% at 24 weeks to 66% at 48 weeks and then to 88% at 96 weeks. We did not see this increase for our antibody monotherapy, which was about 30% TND at 24 weeks and then plateaued around 50%. Mirum’s monthly therapy appears to show only 5% TND, which may not be viable; for their weekly 300 mg regimen, they are showing 30% TND at 24 weeks. From a viral efficacy perspective, we believe we have a potentially superior, best-in-class regimen. For ALT normalization, results across different regimens appear similar in the roughly 40–50% range; we had 47% at 24 weeks and Mirum reported between 40% and 45%. Again, we believe viral elimination to undetectable is what really matters, and there we clearly have superior data. As to EGFR, yes, Janssen discontinued their EGFR T cell engager. The musculoskeletal issues reported as dose-limiting toxicity were unexpected and something we will watch. We strongly believe our masked T cell engagers are differentiated. Our masking technology uses steric hindrance—the same PROXTEN mask across all clinical programs—so we do not need to redesign a new mask every time. We can translate learnings across programs. With VIR-5500, the masking technology allows dosing much higher, which can deliver a better therapeutic index. Our masking approach is fundamentally different. Operator: Your next question comes from Philip Nadeau with TD Cowen. Your line is open. Please go ahead. Philip Nadeau: Good afternoon. Thanks for taking our questions. Two from us. First on 5818: you referenced the dose-escalation data in the second half of the year. Can you give us some sense of what will be disclosed at that time—number of patients, duration of follow-up, measures that you will talk about, and what tumor types will be in the update? Second, on HDV, your presentation cites about 104,000 patients with HDV in the U.S. and Europe. How many of those do you estimate are diagnosed and under the care of a physician, so could be amenable for therapy shortly after launch? Marianne De Backer: For 5818, we will be sharing data from both the monotherapy dose escalation and the dose escalation in combination with pembrolizumab in the second half of the year. We will provide the number of patients at that time. The 5818 trial is different from our 5,500 trial; it is a basket trial with a wide variety of tumor types. We have already shown initial results, for example in metastatic colorectal cancer, where we had a 33% confirmed partial response. Where we have enough patients in a given tumor type, we will share information on responses and tumor shrinkage. Importantly, we view 5818 as a signal-seeking trial to inform potential expansion cohorts. On hepatitis delta, we estimate about 61,000 actively viremic patients in the United States. It is a hugely underdiagnosed disease; we believe only about 10–15% are diagnosed at this time. Once a regimen becomes available, that could change. Diagnostic testing is getting better and is relatively affordable: Medicare reimbursement rates are about $17 for an antibody test and about $43 for a quantitative RNA test. The current challenge is patients often need two or three visits: first for an HBV test, then an antibody test, then an RNA test. Streamlining can help. In Europe, reflex testing—immediately testing for hepatitis delta on the same sample when a patient tests positive for hepatitis B—has increased diagnosis rates substantially. If such guidelines are adopted in the U.S., it could drive a significant increase. Operator: Your next question comes from Etzer Darout with Barclays. Your line is open. Please go ahead. Analyst: Hi. This is Luke on for Etzer. Thanks for taking our question. For HDV, with the ECLIPSE 1 trial reading out in 4Q and then you have ECLIPSE 2 and 3 reading out in 1Q next year, assuming a positive ECLIPSE 1 trial, is that going to be enough to support a BLA filing, or do you need to wait for 2 or 3 to do that? And then on 5,500, the partnership announcement with Astellas said they will be responsible for all development activities after Phase 1. What kind of visibility will you have into those trials as they enroll? Marianne De Backer: On the collaboration with Astellas, it is a global co-development and co-commercialization agreement with significant joint governance. We have a joint development committee, joint steering committee, joint manufacturing committee, joint IP committee, joint finance committee, and so on, with equal representation and joint decision-making, with standard escalation paths. We will remain very intricately involved. We are running the Phase 1 trials now, with Astellas very involved as well. Operational ownership of a given trial matters less than pre-alignment on the clinical development plan and budget, and we are set up to make joint, swift decisions. Regarding filing requirements, our guidance is that we would need a combination of ECLIPSE 1 and ECLIPSE 2 for filing. We will have ECLIPSE 1 data in 4Q 2026, and ECLIPSE 2 in 1Q 2027. Operator: Your next question comes from Sean McCutcheon with Raymond James. Your line is open. Please go ahead. Sean McCutcheon: Hi, guys. Just one quick question from us. You talked a bit about competitor data in HDV, but could you speak to the component of a competitor running an all-comer study with a meaningful proportion of patients with elevated ALT above five times the upper limit of normal, and any potential read-through to how you are seeing the patient population? Marianne De Backer: The estimation is that maybe about 5% of delta patients have an ALT above 5x the upper limit of normal. These very high ALT levels can have a lot of different reasons. We and KOLs strongly believe that the real measure of liver damage is cirrhosis status, and that is why we have enrolled more than 50% of patients in our trial who are CPT-A cirrhotic, and we have shown really good results—similar to slightly better—in those patients. Operator: Your next question comes from Joseph Stringer with Needham. Your line is open. Please go ahead. Joseph Stringer: Hi. Thanks for taking our questions. For the Phase 3 ECLIPSE 1 trial in HDV, what is your current thinking on the bar for success on the 48-week primary composite endpoint? Would replicating the approximately 38% response rates that you saw in Phase 2 set you up for success here? Marianne De Backer: ECLIPSE 1 compares treatment with our regimen of tobevibart and elebsiran versus deferred treatment. It is almost like a placebo-controlled trial, which makes it very likely to be successful. The bar for success is really low given the endpoint is TND plus ALT normalization. For example, for bulevirtide 10 mg in Phase 3, the level of TND you can reach is about 20%, and it was 12% for the 2 mg dose. So the bar for success is not that high. We believe we have a combination of best-in-class viral efficacy and ALT normalization that appears similar across regimens. First, patients who will be on bulevirtide will have to inject themselves daily, and it is a chronic treatment. Chronically, every single day, they will need to inject themselves, and for bulevirtide 10 mg, the expected level of TND you can reach is about 20%. In contrast, our combination regimen of tobevibart and elebsiran is a monthly subcutaneous administration with a TND at 48 weeks of 66%. The chances of success for patients are much higher, and convenience is also much better. We are also running ECLIPSE 2, which looks at bulevirtide failures—patients who have not achieved adequate response—so we will be prepared at launch to have both options available for at-home and in-office administration. Kiki Patel: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Hello, and welcome to Alpha Teknova, Inc. first quarter 2026 financial results. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. I would now like to hand the conference over to Jennifer Henry. You may begin. Jennifer Henry: Thank you, operator. Welcome to Alpha Teknova, Inc.'s first quarter 2026 earnings conference call. With me on today's call are Stephen Gunstream, Alpha Teknova, Inc.'s President and Chief Executive Officer, and Matthew C. Lowell, Alpha Teknova, Inc.'s Chief Financial Officer, who will make prepared remarks and then take your questions. As a reminder, the forward-looking statements that we make during this call, including those regarding business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning these risk factors is included in the press release the company issued earlier today and they are more fully described in the company's various filings with the SEC. Today's comments reflect the company's current views, which could change as a result of new information, future events, or other factors, and the company does not obligate or commit itself to update its forward-looking statements except as required by law. The company's management believes that in addition to GAAP results, non-GAAP financial measures can provide meaningful insight when evaluating the company's financial performance and the effectiveness of its business strategies. We will therefore use non-GAAP financial measures for certain of our results during this call. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this afternoon, which is posted to Alpha Teknova, Inc.'s website and at sec.gov/edgar. Non-GAAP financial measures should always be considered only as a supplement to, and not as a substitute for or as superior to, financial measures prepared in accordance with GAAP. The non-GAAP financial measures in this presentation may differ from similarly named non-GAAP financial measures used by other companies. Please also be advised that the company has posted a supplemental slide deck to accompany today's prepared remarks. It can be accessed on the Investor Relations section of Alpha Teknova, Inc.'s website and on today's webcast. And now I will turn the call over to Stephen. Stephen Gunstream: Thank you, Jennifer. Good afternoon, and thank you, everyone, for joining us for our first quarter 2026 earnings call. It was a relatively straightforward quarter for us across the board, with revenue and operating expenses delivering in line with or better than our expectations. Revenue grew 13% compared to the same period last year, led by 85% growth in Clinical Solutions. Gross margin, operating expenses, and free cash outflow were in line with our expectations, including the planned incremental spend in sales and marketing. From a macro environment perspective, we continue to see stabilization across our end markets, and as we learn more about how our customers are planning for late-stage clinical trials and commercial production, we are growing increasingly confident in our ability to deliver long-term, sustainable, above-market growth. Building on that, I would like to provide a little more detail around our thoughts on the current macro environment. In the first quarter, we saw an increase in the number and total dollar value of orders over $25 thousand compared to the same period last year, which we believe indicates that some of our customers are shifting their focus from cash conservation to strategic execution. While there are still accounts focused on conserving capital, we believe this headwind has now been offset by an increase in customers placing orders to move their research and clinical studies forward. Notably, we are seeing growth in nearly every end market segment we serve, including life science tools, diagnostics, and biopharma. Moreover, some of our leading indicators, such as customer engagement and funnel health, provide us more confidence in a predictable market backdrop going forward. We are therefore encouraged that we began ramping our commercial investment at the beginning of 2026. As a reminder, the roughly $2 million annual increase in commercial spend is split between marketing and sales to increase lead generation activities, build lead qualification infrastructure, and onboard sales associates with experience in tools, diagnostics, and large pharma. I am happy to say that these initiatives are on track and that we should be able to see their impact on revenue by early 2027. We believe these investments, combined with the rebound in biotech funding and the progression of our customers' therapies and diagnostics towards commercialization, should position us for approximately 20% revenue growth in 2027. Operationally, we continue to focus on driving throughput, process improvements, automation, and software implementation. In the first quarter, we increased our high-volume bottle production by tripling our single-batch size and implementing an automated aseptic filling line. This project allows us to not only scale production volumes but also to reduce labor hours per unit. From a software perspective, we have now migrated 90 of our 3 thousand-plus paper batch records to digital, providing enhanced data analytics, increased visibility, better documentation quality, and improved standardization. We are fortunate to have dedicated engineering and software development teams on staff to lead these initiatives as we look to scale and achieve profitability. In the meantime, we remain focused on executing our plan by driving growth in Lab Essentials customer wallet share and increasing our active Clinical Solutions customer count. We are excited about the traction we are seeing so far in 2026 and believe the substantial investments we have made over the past three years have positioned the company to scale and generate significant value for our customers and stockholders alike. I will now hand the call over to Matthew to talk through the financials. Matthew C. Lowell: Thanks, Stephen. Good afternoon, everyone. As Stephen explained, revenue was up 13% for the first quarter of 2026 compared to the same quarter in the prior year. This was also the first Q1 in which we earned over $11 million in revenue in nearly three years. I am also very pleased with our progress on key profitability measures and cash usage. Overall, we delivered strong financial results for the first quarter of 2026. For revenue, Lab Essentials products are targeted at the research use only, or RUO, market and include both catalog and custom products. Lab Essentials revenue was $8.4 million in the first quarter of 2026, up 3% compared to $8.1 million in 2025. The increase in Lab Essentials revenue was attributable to higher average revenue per customer, partially offset by a decreased number of customers. Clinical Solutions products are made according to Good Manufacturing Practices, or GMP, quality standards, and are primarily used by our customers as components or inputs in the development and manufacture of diagnostic and therapeutic products. Clinical Solutions revenue was $2.1 million for the first quarter of 2026, an 85% increase from $1.2 million in the first quarter of 2025. The increase in Clinical Solutions revenue was attributable to an increased number of customers and, to a slightly lesser extent, higher average revenue per customer. We expect revenue per customer to increase over time when a subset of these customers ramp up their purchase volume as they move through the clinical phases. However, this metric can be affected by the addition of newer Clinical Solutions or GMP catalog customers, who typically order less. Just as a reminder, due to the larger average order size in Clinical Solutions compared to Lab Essentials, there can be more quarter-to-quarter revenue lumpiness in this category. Onto the income statement. Gross profit for the first quarter of 2026 was $3.8 million, compared to $3.0 million in the first quarter of 2025. Gross margin was 34.2% in the first quarter of 2026, up from 30.7% in the first quarter of 2025. The increase in gross profit was driven primarily by higher revenue. Operating expenses for the first quarter of 2026 were $8.1 million, and for the first quarter of 2025 were $8.0 million. The increase in 2026 was primarily driven by higher spending in sales and marketing resulting from higher headcount and increased marketing expenses, partially offset by lower general and administrative expenses attributable to lower stock-based compensation expense and professional fees. Net loss for the first quarter of 2026 was $4.6 million, or negative $0.08 per diluted share, compared to a net loss of $4.6 million, or negative $0.09 per diluted share, for 2025. Adjusted EBITDA, a non-GAAP measure, was negative $2.0 million for 2026, compared to negative $2.5 million for 2025. Capital expenditures for the first quarter of 2026 and 2025 were both $200 thousand. Free cash outflow, a non-GAAP measure which we define as cash provided by or used in operating activities, less purchases of property, plant, and equipment, was $3.6 million for the first quarter of 2026, compared to $4.3 million for 2025. This decrease compared to the prior year was due to lower cash used in operating activities. Turning to the balance sheet. As of 03/31/2026, we had $17.8 million in cash, cash equivalents, and short-term investments, and $13.2 million in total borrowings. 2026 outlook. Turning to our 2026 guidance and outlook, we are reiterating our 2026 total revenue guidance of $42 million to $44 million. At the midpoint, this implies approximately 6% revenue growth compared to 2025. As our underlying end markets continue to recover, we have seen improvement in orders of custom products from both biopharma and life science tools and diagnostics customers. Customer conversations about future 2026 custom product orders continue to be encouraging, and we have started to see more large orders, those greater than $25 thousand, but are waiting to see more durability before we consider changing our guidance for the year. As we have indicated before, due to the high percentage of fixed costs associated with our operations, we estimate that each additional dollar of revenue drops through at a marginal cash rate of approximately 70%, with some variability quarter to quarter in reported results due to GAAP accounting. We continue to expect gross margin in the mid-30s percentage range for the full year 2026. The company posted operating expenses of $8.1 million in Q1 2026, which reflects our scaled investment in sales and marketing, which we expect to be approximately $2 million for the full year 2026. Our expectation is that these investments will pay off as soon as the end of 2026, but more likely in 2027, in the form of double-digit revenue growth rates. At this higher spending level, we expect to become adjusted EBITDA positive in the range of $52 million to $57 million in annualized revenue. As customer end markets are stronger in 2027 and our stepped-up commercial activity bears fruit as expected, we should report a positive adjusted EBITDA quarter by 2027. The company continues to see a reduction in free cash outflow during the first quarter of 2026 compared to the same quarter in the prior year. While the company saw an increase in free cash outflow compared to Q4 2025, this is consistent with the company's expectations for the year and is higher due to certain larger payments typically occurring during the first quarter. We anticipate lower average quarterly free cash outflow for the remainder of the year. As such, the company continues to expect free cash outflow of less than $10 million for the full year 2026, even with the increased investment in our commercial capabilities. With that, I will turn the call back to Stephen. Stephen Gunstream: Thanks, Matthew. Overall, we were very pleased with the start to 2026 and the progress we have made against our strategic priorities. We believe the outlook for our end markets remains positive, and we are committed to executing on our strategy to help our customers accelerate the introduction of novel therapies, diagnostics, and other products that improve human health. We will now open the call for questions. Operator: Thank you. Please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile. Our first question comes from the line of Mackie Tau with Stephens. Your line is open. Mackie Tau: Hey. Good afternoon, and thank you for taking my questions. Great to hear about the updated macro outlook. I have heard some of your peers talk about maybe a little bit of bifurcation between earlier-stage biotech and later-stage biotech. I would love to get your sense of what you are hearing at this point from these individual customers and whether you are seeing a similar trend in your customer base. Thank you. Stephen Gunstream: Yeah, thanks, Ben. In some ways, yes, we are seeing some similarities. We had some nice large pharma growth in the quarter, but on the clinical side of our business, we did still see some of these earlier-stage phase one, phase two place some nice orders with us. A lot of that probably has to do with the work we have been doing with them for some time. In the very early stage, on the research in the Lab Essentials, there is a little softness there, but we have not seen it as much. It could just be some of the accounts that we are supporting today, but we are starting to get more customer engagement from these smaller biotechs, and it is looking pretty encouraging right now. Mackie Tau: As we think about your different end markets, it sounds like all of them are coming back together as one. Are there any that are leading the pack more so than others? Stephen Gunstream: Yeah. Like I just mentioned, we had some nice growth in large pharma in the quarter. We did get some nice growth on the diagnostic side as well and the tools and diagnostics, but particularly on the biotech side we had some nice orders come in there. We are seeing some growth there. I think, like I said, the biopharma as a whole is a little bit slower, but you are starting to see some growth there. There are certainly pockets where we expect that to increase throughout the year. Mackie Tau: I appreciate the color. Thank you. Operator: Our next question comes from the line of Brendan Smith with TD Cowen. Your line is open. Brendan Smith: Great. Thanks for taking the questions, and congrats on the quarter. Following up on the commentary regarding customers advancing through clinical development, do you have a sense, even broad strokes, what percent of customers are in that preclinical/phase one bucket versus those in phase three or approaching commercial? I am wondering how that funnel is looking at this point, especially if the funding environment continues to improve. Stephen Gunstream: Yeah, Brendan. It is not that different than what we put out in our slides for the 2025 full year. We are supporting approximately 70 therapies. There are five therapies in phase two or phase three that are nearing completion at the moment, and then 12 in phase one, and then the rest are preclinical. We would expect those numbers to increase as we go throughout this year. That is our strategy as you onboard more of these clinical customers, and certainly if biotech funding comes back, we would expect that to continue, and we have done that really since we started targeting these clinical customers back in 2020. Brendan Smith: Got it. And as a quick follow-up, we have started to see some increases in wet lab spending activity as a result of customers rolling out AI capabilities and needing to validate models and new targets. It feels early, but do you have any sense of this materializing in your customers' ordering patterns, and is there any reason why that would not be a notable tailwind for Alpha Teknova, Inc. over the coming quarters? Stephen Gunstream: Yeah. I think these AI data generation programs are significant, and it is lots of reagents. They are generating significant amounts of data. We are supporting many of the customers that are supporting the end users here to generate that data, or directly. So the standard products we offer in our catalog, products like LB broth for bacteria, or the buffers and things to purify proteins, I would expect that to be a tailwind for us. There are customers we are supporting that we are seeing pick up their spend with us for those reasons, but it is not yet significant or material. Operator: Thank you. Our next question comes from the line of Matthew Richard Larew with William Blair. Your line is open. Matthew Richard Larew: Nice upside in the quarter relative to the Street, but the guide was maintained. You referenced wanting to see more durability before changing the guide. It seems like more companies than normal have called out benefit from more days in the quarter that reverses later in the year. Was there any timing impact like that or any orders that got pulled forward into the print, or is it just an effort to be conservative given the broader macro picture? Matthew C. Lowell: Good question, Matt. We do have some of this phenomenon where we have business days impacts, particularly in the catalog portion of our business, which is about 60% of the total business. I would say that was not really a factor for Q1. It will be and usually is for Q4. We saw pretty typical ordering and delivery behavior in Q1, so I do not think that really impacted the quarter. As you noted, and I did as well, there is still macro uncertainty, and while we are off to a good start here, we are certainly optimistic, but not ready to increase our guidance range at this time. It is definitely something that we are evaluating each quarter, and it is encouraging to have this great start. Matthew Richard Larew: You brought up 2027 in your remarks and being in position for 20% revenue growth. If I look at TTM revenue, it has improved over a year ago, particularly on the Clinical Solutions side, and Lab Essentials has stabilized at least in the mid-single digits. From where we are today, what elements do you see improving the most to get to 20% in 2027? Stephen Gunstream: A couple of things come into play. First is an improving backdrop. We have seen biotech funding now two quarters ahead of where it has been. From past data, we think it is pretty similar this time that we will start seeing an impact with about a three- to four-quarter lag, and we are expecting to see that towards the end of this year. That will drive a portion of that growth, so the baseline is picking up a little bit. On the clinical side, we are supporting more customers, and more of them are moving later into the pipeline, including where we would expect either diagnostic or therapeutic commercial approval by the end of next year. Even moving from phase one to phase two or phase two to phase three or phase three into commercial will drive significant growth. That base is relatively small, and on the diagnostic side there are a couple in there, including on the leukocyte side, that we may be supporting larger volumes for next year. In addition, the investment we are making on the commercial side, both in marketing and in the field, will take six to twelve months to ramp up, and that will help us as well. Historically, Lab Essentials has grown 11% on average since 2008. I think we start to see that pick up a little bit, and combined with these other things, that should get us into that 20% range. Operator: Thank you. Our next question comes from the line of Matthew Hewitt with Craig-Hallum Capital Group. Your line is open. Matthew Hewitt: Good afternoon, and congratulations on the nice start to the year. Regarding Clinical Solutions, phenomenal Q1, up 85% year over year. Was there a larger order that drove some of that, or was it more broad-based as you noted several large orders? And how should we be thinking about cadence for that bucket over the remainder of the year? Stephen Gunstream: I will let Matthew touch on the cadence in a minute, but when you look at the customers we supported in Q1—and we have talked a lot about the lumpiness—the question is right: Is this just a lumpy quarter, or is this more broad-based? In this case, it is more broad-based. In fact, we had a fairly large customer last year order, and then we came over that, and we had a number of customers that we delivered for in Q1. I would say it is pretty positive that this one is not just a one-time lumpy piece for a quarter. I will let Matthew talk a little bit about the cadence for the rest of the year. Matthew C. Lowell: I would echo what Stephen said. We are feeling pretty good about the diversity in that part of the business in Q1 and also based on the discussions we are having now for the rest of the year. That is an area where we should continue to see results at these kinds of levels, let us say in the $2 million range per quarter or better, depending on how things go later in the year. That is definitely going to be an important component of growth this year. All to say that part is looking good, and we should continue to see good results there. Matthew Hewitt: Thank you. Switching gears a bit, with the investments you have been making—digitizing paper, creating larger batch sizes—as I think about your target 60% to 65% gross margins in a few years, how much of that comes from volume leverage versus these strategic initiatives? Matthew C. Lowell: That is a good question. I believe the single biggest driver, and it will continue to be, is volume growth. But we are not going to sit and rest on our laurels and wait for that to play out. There are lots of other things we can be doing and are doing. The example you gave is a good one, and they are meaningful. These are not trivial things. Sometimes they play out as productivity benefits where we see the benefit more as we grow than immediately in terms of cost reduction. It can show up as cost strength as we grow. We have that digitization and a lot of other projects always going on, and there is a never-ending set of opportunities. But I would still say the main driver is volume growth, and we are seeing that happen right now, and we are excited about it. Matthew Hewitt: Got it. Thank you. Operator: Please stand by for our next question. Our next question comes from the line of Matthew Moriarty Parisi with KeyBanc Capital Markets. Your line is open. Matthew Moriarty Parisi: Hi. This is Matthew Parisi on for Paul Knight. Congrats on the quarter, and thanks for the question. You mentioned the onboarding of new sales associates during the call. How long does that ramp period take? Stephen Gunstream: Typically, my experience is six to twelve months until you really start to see the impact. I mentioned that probably towards the end of this year we will be able to see it. We are starting to see some early indicators with more meetings and more engagement with some of the target accounts that we are after. It has been great to onboard them, and we are very happy we started in January. I think all is going to plan. Matthew Moriarty Parisi: Thank you. That is all for me. Operator: Ladies and gentlemen, I am showing no further questions in the queue. That concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Revolution Medicines Q1 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand it over to Ryan Asay, Senior VP of Corporate Affairs. Ryan, you have the floor. Ryan Asay: Thank you, operator, and welcome, everyone, to the First Quarter 2026 Earnings Call. Joining me on today's call are Dr. Mark Goldsmith, Revolution Medicines' Chairman and Chief Executive Officer; Dr. Alan Sandler, our Chief Development Officer; and Jack Anders, our Chief Financial Officer. Dr. Steve Kelsey, our President of R&D; Dr. Wei Lin, our Chief Medical Officer; and Anthony Mancini, our Chief Global Commercialization Officer will join us for the Q&A portion of today's call. We would like to inform you that certain statements we make during this call will be forward looking. Because such statements deal with future events and are subject to many risks and uncertainties. Actual results may differ materially from those in forward-looking statements. For a full discussion of these risks and uncertainties, please review our annual report on Form 10-K and our quarterly reports on Form 10-Q that are filed with the U.S. Securities and Exchange Commission. This afternoon, we released financial results for the quarter ended March 31, 2026, and recent corporate updates. The press release and updated corporate presentation are available on the Investors section of our website at revmed.com. With that, I'll turn the call over to Dr. Mark Goldsmith, Revolution Medicines' Chairman and Chief Executive Officer. Mark? Mark Goldsmith: Thanks, Ryan. It's good to be with you this afternoon to discuss the tremendous progress we've made in 2026. This is a pivotal moment for our organization and for patients worldwide living with pancreatic cancer who are in need of new therapeutic options. It is anchored by the top line readout for RASolute 302 last month, in which daraxonrasib monotherapy demonstrated an unprecedented improvement in overall survival compared with chemotherapy in patients with previously treated metastatic pancreatic cancer. RASolute 302 results represent a transformative advance for patients. They also firmly validate our pioneering RAS(ON) inhibitor strategy and reinforce its potential to improve outcomes in RAS-driven cancers. High investor conviction enabled an historic $2 billion dual tranche capital raise that will allow us to continue our important work broadly, advancing our current portfolio of four groundbreaking clinical stage, oral RAS(ON) inhibitors and bringing forward the next wave of innovation, targeting RAS-addicted cancers, including our new class of catalytic RAS(ON) inhibitors. On today's call, following my remarks, I'll pass the call over to Dr. Alan Sandler, who will provide an overview on the recent clinical progress we've made across our portfolio including the most recent data presented at the American Association for Cancer Research Annual Meeting. Jack Anders will then summarize our first quarter financial results before we open the call to Q&A. Let me first spend a few moments talking about RASolute 302, the global Phase III trial evaluating daraxonrasib monotherapy in patients with previously treated pancreatic cancer. The top line readout for daraxonrasib marked a major milestone in this disease, significantly raising the bar and the development of new treatments for patients living with pancreatic cancer, the most RAS-addicted of all human cancers. In RASolute 302, daraxonrasib demonstrated unprecedented impact, meeting its primary and key secondary endpoints and showing statistically significant and clinically meaningful improvement in progression-free survival and overall survival compared to standard of care chemotherapy. In the overall intent-to-treat study population, which includes patients carrying tumors with or without an identified RAS mutation, daraxonrasib drove a 60% reduction in the risk of death compared with chemotherapy and with a median overall survival exceeding 1 year. Daraxonrasib was generally well tolerated and no new safety signals were observed. These are dramatic practice-changing results and our focus now is on moving with urgency to bring this potential new option to patients. We intend to submit a new drug application to the U.S. Food and Drug Administration under the FDA Commissioner's National Priority Voucher Program, and we'll also execute our plan to file with other global regulatory authorities. And last week, we reported that the FDA issued a safe-to-proceed letter allowing us to initiate an expanded access treatment protocol or daraxonrasib in patients with previously treated metastatic pancreatic cancer. This will allow us to move as quickly as possible to ensure safe and equitable access to daraxonrasib for eligible patients in the U.S. We were also pleased to announce recently that RASolute 302 will be featured in the plenary session of this year's American Society of Clinical Oncology, or ASCO, Annual Meeting in Chicago. We and the investigators look forward to sharing detailed results with the scientific community at that time. I'll now pass the call over to Alan to walk through some recent clinical program updates. Alan? Alan Bart Sandler: Thanks, Mark. The extraordinary results from RASolute 302 validate our tri-complex inhibitor platform and give us increased confidence in daraxonrasib's potential in earlier treatment lines in pancreatic cancer. This confidence was reinforced at AACR, where we shared updated clinical data from the Phase I/II studies for daraxonrasib monotherapy and in combination with chemotherapy in first-line metastatic pancreatic cancer. Both the monotherapy and combination cohorts demonstrated encouraging preliminary durability data. In the monotherapy study, while median progression-free survival and median overall survival were not mature as of the data cutoff, the Kaplan-Meier estimate at 6 months were 71% and 83%, respectively. In the combination of daraxonrasib with gemcitabine and nab-paclitaxel the Kaplan-Meier estimates at 6 months for progression-free survival and overall survival were 84% and 90%, respectively. Across both studies, daraxonrasib safety and tolerability profile remained consistent with earlier findings in this patient population with no new safety signals observed. These compelling results strongly support our decision to rapidly advance RASolute 303, our Phase III study evaluating both daraxonrasib monotherapy and daraxonrasib in combination with chemotherapy in first-line metastatic disease. The trial is enrolling globally. In addition to our first and second line daraxonrasib registrational studies in pancreatic cancer, patient enrollment is ongoing in RASolute 304, our registrational trial of daraxonrasib monotherapy in the adjuvant setting in patients with resectable disease following conventional surgery and perioperative chemotherapy. We are also making progress in 2 registrational studies for zoldonrasib, our covalent RAS(ON) G12D selective inhibitor in first-line pancreatic cancer. We have initiated RASolute 305, a randomized, double-blind, placebo-controlled registrational trial, evaluating zoldonrasib in combination with investigators' choice of chemotherapy, either gemcitabine and nab-paclitaxel or modified FOLFIRINOX compared with placebo plus chemotherapy. And we remain on track to initiate RASolute 309, our first registrational study to evaluate the RAS(ON) inhibitor doublet combination of zoldonrasib with daraxonrasib in the second half of the year. Moving to non-small cell lung cancer, another focus with development for RAS(ON) with approximately 30% of non-small cell lung cancers harboring a RAS mutation, including 18% with non-G12C mutations, unmet needs in non-small cell lung cancer remain priority that we aim to address through several ongoing and planned registrational studies. Beginning with daraxonrasib, we continue to enroll patients globally in RASolve 301, our global randomized trial evaluating daraxonrasib monotherapy in previously treated patients. Based on the strength of the Phase I results for daraxonrasib monotherapy in non-small cell lung cancer as well as additional confidence from the recent positive RASolute 302 results, we are expanding the RASolve 301 study to increase the statistical power of the overall survival component of the dual primary end point. Enrollment is going well, and we anticipate substantially completing enrollment in the expanded study this year. We also expect to disclose our plans regarding daraxonrasib combination therapy in first-line non-small cell lung cancer this year. Turning to G12D non-small cell lung cancer. At AACR, we presented updated clinical data for zoldonrasib monotherapy in a subset of patients who had previously been treated with immune checkpoint inhibitors and platinum chemotherapy. Zoldonrasib was generally well tolerated and demonstrated a safety profile consistent with previously reported findings. Zoldonrasib demonstrated encouraging clinical activity with a confirmed objective response rate of 52%, disease control rate of 93%, and a median progressive-free survival of 11.1 months. Overall survival data were immature at the time of analysis. The estimated survival rate at 12 months was 73% while the median had not yet been reached, which is encouraging data at this early look. We continue to believe deeply in the potential of zoldonrasib given its compelling safety and tolerability profile and encouraging clinical activity, which strongly support our plans to advance zoldonrasib across monotherapy and combination setting in lung cancer and other RAS-G12D-driven cancers. Building on the strength of our monotherapy data, we are preparing to initiate in the first half of this year, RASolve 308, a global double-blind, placebo-controlled registrational trial evaluating zoldonrasib in combination with the KEYNOTE-189 regimen, which is the standard of care in first-line treatment for metastatic non-small cell lung cancer compared to the KEYNOTE-189 regimen with placebo. For patients with G12C non-small cell lung cancer, elironrasib, a RAS(ON) mutant selective inhibitor has demonstrated a differentiated and compelling clinical profile in both G12C inhibitor naive and G12C inhibitor experienced lung cancer patients. We remain on track to share an update on our elironrasib registrational strategy this year. Our third RAS-addicted cancer focus is colorectal cancer, which remains an area of high unmet need and interest for the company. We have a range of combination studies underway designed to better understand this genetically complex and heterogeneous disease, including studies to evaluate RAS(ON) inhibitor doublet combination and RAS(ON) inhibitors in combination with current standards of care and with other targeted drugs. We remain on track to share combination data this year as we work to prioritize registrational opportunities. I'll conclude with brief highlights on two of our early stage programs. We continue enrolling patients in the first-in-human trial of RMC-5127, our fourth RAS(ON) inhibitor. RMC-5127 is selective for RAS-G12V, the second most common RAS variant in solid tumors. We expect to identify a recommended monotherapy Phase II dose for this compound in the second half of 2026. Finally, AACR brought with it the opportunity to showcase our new class of innovative mutant targeted catalytic RAS(ON) inhibitors. These inhibitors are designed to promote the conversion of mutant RAS in its active GTP bound RAS(ON) state to the inactive GDP-bound RAS off state. Thereby mimicking the normal physiologic regulation of wild-type RAS. These preclinical data demonstrated that at well-tolerated doses RM-055 achieved robust and durable antitumor activity across KRASG12 mutant xenograft models of pancreatic cancer, non-small cell lung cancer and colorectal cancer. Notably, tumors that had escaped prior RAS inhibitor treatment were sensitive to RM-055, which drove deep and durable regressions. Its compelling, differentiated profile warrants clinical investigation of its potential to counter emergent drug-resistant and to extend clinical benefit and we remain on track to initiate a first in-human clinical trial in the fourth quarter. With that, I'd like to pass the call back over to Mark. Mark? Mark Goldsmith: Thanks, Alan. In addition to the substantial R&D progress we've made across our pipeline, we continue to be very gratified by the build-out of our commercialization infrastructure and operational capabilities to support the company's global commercialization ambitions. We've established the operational wherewithal required to move with speed and agility focused initially in the U.S. and extending into priority international regions. We are resourcing our efforts to ensure that we have the best strategies, tactics, operational capabilities and people to bring daraxonrasib with urgency to patients pending regulatory approvals. We expect to be launched ready under best case approval timing scenarios. We have experienced and talented executives leading our commercialization team across medical affairs, market access, marketing and sales. These groups are deeply engaged in market preparedness and assessment, planning, position and advocacy engagement, sharpening operational capabilities and conducting other launch readiness activities. We recently appointed several experienced leaders across the Asia Pacific and European regions, including Neil McGregor; as our General Manager for APAC; Tetsuo Endo as General Manager for Japan; and Martin Voelkl as General Manager for Germany. I'd now like to turn the call over to Jack Anders, our Chief Financial Officer, to summarize our first quarter financial results. Jack? Jack Anders: Thanks, Mark. We ended the first quarter of 2026 with $1.9 billion in cash and investments and further strengthened our financial position after the quarter with $2.1 billion in net proceeds from our concurrent upsized offerings of common stock and convertible debt in April. Before we dive into the income statement for the quarter, I'd like to highlight that our stock-based compensation expense for the quarter was higher than usual and explain the reason behind it. Stock-based compensation expense was $87.3 million for the quarter ended March 31, 2026, compared to $25.1 million for the quarter ended March 31, 2025. In the first quarter of 2026, the company updated its equity compensation program to introduce competitive retirement benefits for employees who meet specific minimum age and service requirements. The modification of this program resulted in an incremental $44.6 million in stock-based compensation for the first quarter of 2026. This incremental expense was primarily due to the accelerated timing of recognition of stock-based compensation expense originally scheduled in future periods for outstanding eligible awards. As a result of this timing pull in, we expect higher nonrecurring lumpiness in stock-based compensation expense for the first half of 2026 with stock-based compensation expense decreasing and returning to a more normalized trajectory in the second half of the year. As a result of this change, the company is increasing its estimate of full year 2026 stock-based compensation expense by approximately $80 million, and now expects full year 2026 stock-based compensation expense to be between $260 million and $280 million. Additionally, the company is also updating its projected GAAP operating expense guidance to reflect the expected increase in stock-based compensation expense and now expects full year GAAP operating expenses to be between $1.7 billion and $1.8 billion. Moving to expenses for the quarter. R&D expenses for the first quarter of 2026 were $344.0 million compared to $205.7 million for the first quarter of 2025. This increase was primarily due to higher clinical trial and manufacturing expenses for daraxonrasib and zoldonrasib due to acceleration of the pace and expansion of these programs. R&D expenses were also higher as a result of increased headcount costs and higher stock-based compensation expense as described earlier. G&A expenses for the first quarter of 2026 were $101.3 million compared to $35.0 million for the first quarter of 2025. The increase in G&A expenses was primarily due to higher stock-based compensation expense as described earlier: increased headcount costs, increased commercial preparation activities and higher administrative costs. Net loss for the first quarter of 2026 was $453.8 million compared to $213.4 million for the first quarter of 2025. The increase in net loss was due to higher operating expenses. That concludes the financial update. I'll now turn the call back over to Mark. Mark Goldsmith: Thank you, Jack. The remarkable start to 2026 is the result of years of unwavering dedication, relentless perseverance and hard work by our team and collaborators standing on the shoulders of others. With the unprecedented performance of daraxonrasib monotherapy in the RASolute 302 study, we believe we are in a position to change the standard of care for patients living with pancreatic cancer, subject to regulatory review and approval. The global response to the RASolute 302 data has been overwhelming. The news brings with it hope and possibility for patients, physicians, and the advocacy community that have all been waiting too long for new, more effective treatment options. We are now an important step closer to fulfilling our mission of discovering, developing and delivering innovative targeted medicines to patients living with cancer. We have an extraordinary opportunity, and we take very seriously the responsibility that goes with it. Before I close, I'd like to recognize our continuing partnerships with patients and caregivers, health care providers and investors as well as the remarkable dedication and efforts of Rev Med employees. It requires the ongoing support of all of our partners and constituencies to do revolutionary work on behalf of patients. With that, I'll turn the call over to the operator for the question-and-answer portion of the call. Operator: [Operator Instructions] Our first question comes from the line of Cory Kasimov with Evercore ISI. Cory Kasimov: Congrats on all the recent very exciting progress. So I wanted to ask, you recently noted you could share data at a medical meeting that supports the rationale for RASolute 309, the Phase III front-line PDAC trial, looking at zoldonrasib plus daraxonrasib versus chemo. Would this include durability data or just response rate as we've seen with some of your initial disclosures? And maybe more importantly, how much additive efficacy would you be looking for here to say it's clinically meaningful to justify the combination over the exciting monotherapy results we've seen with both of these agents. Mark Goldsmith: Thanks, Cory. I appreciate your comments and question. It's probably too early for us to lay out what that presentation would look like. We typically don't forecast it. We'll show what we have. We think it will justify our plans, and we'll provide that in due course. The second question, also probably and unfortunately, it can't be too helpful about what's the threshold for added value that justifies doing that I mean, of course, we look at the totality of the evidence. We look at the historical benchmarks. And ultimately, as you sort of implied in your question, durability is the most important parameter. Operator: Our next question comes from Charles Zhu with LifeSci Capital. Yue-Wen Zhu: [Technical Difficulty] Mark Goldsmith: Charles, we're not able to pick up what you're saying. Stacy, I don't know if there's anything you can do on your side to improve the audio quality. Operator: Charles, are you in a good position to speak with us? We'll get Charles back queued up. Our next call comes from Michael Schmidt with Guggenheim Securities. Michael Schmidt: Again, congrats on RASolute 302 data, looking forward to the full data presentation at ASCO. Yes, a question on the EAP program. I know this was just announced a few days ago. But Mark, I don't know if you could comment what you're seeing so far in terms of demand for the EAP program? And what do you think -- how many patients could particularly benefit from this prior to officially receiving FDA approval? And then maybe just if you could share your view of the size of the second-line pancreatic cancer opportunity based on your market research, how many patients in the U.S. do you think would be treatment eligible for the daraxonrasib based on the 302 study? Mark Goldsmith: Thanks, Michael. Nice to hear from you. On the first question, of course, we're working hard to get in a position to be providing drugs to those who need it. The demand has been very clear from the moment that it was announced. And we don't expect that to slow down anytime soon. And we're putting all the resources that we can on it to help meet that need. I can't really give you a projection as to the number. I don't know how we can make that projection. We'll just have to play it out. I think there is clearly a widespread knowledge of awareness of daraxonrasib and those calls started coming in within minutes after the announcement. The size of the second-line opportunity. Wei, you might want to talk about this. We can't characterize it for you in a great depth, but we typically think about roughly 60,000 new cases in each year, and then maybe Wei can comment on both what's historical attrition and then also whether or not daraxonrasib might affect that. Wei Lin: Yes. Happy to do that. These are obviously just estimates based on clinical practice. As Mark commented, about 60,000 Americans are newly diagnosed each year with pancreatic cancer. About 50% to 60% of those patients are diagnosed with metastatic disease. And so those patients are eligible to receive first-line therapy for metastatic disease. And typically, because of both the aggressive nature of the disease as well as the toxicity of chemotherapy, about half of the patients received first-line metastatic treatment and received subsequent second-line treatment. So that gives you a sense of the overall attrition as well as the size. Mark Goldsmith: And just to add to that, that could certainly change in the context of first-line treatment, but we don't have anything to address on that point today. Operator: Our next question comes from Faisal Khurshid with Jefferies. Faisal Khurshid: Just wanted to ask on the RASolve 301 upsizing. Could you clarify what exactly led to the upsizing? What were you powered for before? And what are you powered for now? And does this change the time line from enrollment completion to read out? Mark Goldsmith: Thanks a lot for your question. I'm going to answer the second question, and then Alan Sandler is going to talk about the first. We don't think it will change the timing of the readout given the high pace of enrollment and where we stand today. So we don't expect to impact our projection that we'll complete or substantially complete enrollment this year. But the more subtle question about the sizing of the trial, Alan can comment on. Alan Bart Sandler: Sure. Thanks. So an important point is we've realized the importance of overall survival and given the results that we've seen in 302 and also the Phase I monotherapy data, we have a very high conviction that on our ability to obtain overall survival benefit. So as a result of that, we're going to further prioritize overall survival in 301 by expanding the enrollment, as you've noted, going from 420 to 590 patients. That will increase the statistical power of that component of what is a dual primary end point and then again, as Mark has mentioned, we -- there's a great pace in terms of the patient enrollment, and we think that we will substantially complete the enrollment, even with the expanded study this year. Operator: Our next question comes from the line of Brian Cheng with JPMorgan. Lut Ming Cheng: Mark, during the call, you said the best case timing scenario for darax at launch across the globe. How should we think about the timing and the cadence then for the filing and launches specifically across APAC and European regions? And just on the NDA application towards the FDA. Can you give us a little bit more color, a little bit more granularity in terms of the things that are left to complete? Mark Goldsmith: Yes. Thanks, Brian. I can't really give you any specific timing with regard to the filings outside the United States. But just generally speaking, we are starting with the U.S. filing as the initial priority. There will be some sequential framework for filing in other countries, and we're already engaged with regulatory authorities outside of the United States in order to make sure that we can deliver what they need and in as timely a matter as possible. For the NDA, your question was what's left to deliver? Is that how you put it? Lut Ming Cheng: Yes. What are the things that are left to complete before you complete the NDA application? Mark Goldsmith: Yes. Well, we've been fully engaged with the FDA for a long time, as you know. And of course, with the CNPB and the breakthrough designation, we've had a high level of engagement than you might otherwise have and so we are providing them information as it becomes available, mature enough to provide to them. And ultimately, the clinical package is the thing that will be provided. I can't give you a specific timing on that. There's a full throttle effort to do it. We feel the urgency around it. Certainly, the question earlier about the EAP provides a pretty strong signal about how urgent that is, and we'll continue to move this forward as fully as we possibly can. Operator: Our next question comes from Marc Frahm with TD Cowen. Marc Frahm: Maybe following up a little bit on Cory's question earlier, just on the zoldonrasib plus daraxonrasib combo. Can you maybe speak to the 309 design, particularly in light of the 302 finding and the survival data, I mean looking better than anything we've ever seen even in first line. Just why is 309 comparing to chemo the right design and -- or would it -- should it really be switched over to consider daraxonrasib monotherapy as the comparator arm there at a minimum, one, to get the contribution of parts, but also just from a clinical execution perspective, where the ball is headed -- seems to be headed in pancreatic cancer? Mark Goldsmith: Yes. Thanks, Marc. That's a good question. It's a subtle one. Of course, today, standard of care is chemotherapy. And until there's a data set that moves the FDA to approve a different treatment and a different treatment at the level that people consider the new standard of care then chemotherapy is the standard of care. I think you're sort of inviting me to comment that, of course, we think daraxonrasib has a real potential in monotherapy, but also in combinations in first line. And among those combinations, chemotherapy is one that we've already provided some early-stage data on and we're quite excited about. And that combination is in the 303 trial, so we're already going into combinations. And it's really just a question of when that bar moves. But we have high confidence that the combination can deliver something that is differentiated from chemotherapy, but also even for monotherapy. I think the other thing to keep in mind is we do a lot of things where there's overlap in the patient populations that we might be able to serve in different ways. We don't shy away from that. As you know, we've discussed that before, because every patient has his or her own specific needs and giving doctors options even if the outcomes on paper may look fairly similar across broad populations, there still may be reasons why one particular patient would benefit or be perceived to benefit from one particular combination or monotherapy approach versus another. So providing the most fulsome set that we can based on the science and then ultimately on the clinical data, it increases the chance that we're the ones that are delivering the best possible options for patients. So that's the high level of comment. Operator: Our next question comes from Jonathan Chang with Leerink Partners. Jonathan Chang: Congrats on the progress. Can you talk about your latest thinking on getting to a chemo-free option in frontline pancreatic cancer? What gives you confidence in being able to achieve this? And what do you think is the best strategy for getting us? Mark Goldsmith: Yes. Thanks, Jonathan. Nice to talk with you. Well, we just talked about one of those strategies for a chemo-free frontline, which is monotherapy daraxonrasib. And I think the data -- single-arm data that we've shown so far are compelling enough that it just -- very much justified incorporating that into the Phase III first-line trial, and we'll see how that performs. But we have every expectation that it could deliver chemo-free regimen. And then the second option is also one we just talked about, which is combining a mutant selective inhibitor with daraxonrasib, that would be a chemo-free strategy. And that specific combination of zoldon plus daraxon of course, is for the 40% of pancreatic cancer cases that are carrying a RAS G12D mutation. We have other mutant selective inhibitors directed against additional mutations that are common in -- or can be found in RAS cancer, so we could and would likely fill out that collection of regimen. It just happens that zoldonrasib plus daraxon is on the vanguard of the work because of maturity of the compound and the data that we have so far. So I think those are two very compelling chemo-free regimen. There are others that one can consider. There are immunologic agents that could be combined. There are other targeted agents that could be combined. We're already exploring, as you know, PRMT5 combination, PRMT5 inhibitor combination, et cetera. I'm sure there will be other things to come over time. Operator: Our next question comes from Charles Zhou with LifeSci Capital. Yue-Wen Zhu: All right. Perfect. I believe a bunch of clinical type questions were taken. So I'll ask one a little bit earlier, but RM-055, Nice to see your presentation at AACR as well as some of the work you helped support over at [indiscernible] lab that was just published yesterday. But can you comment a little bit perhaps on RM-055's ability to potentially address daraxonrasib's resistance mechanisms that go beyond that of a KRAS amplification. And can you also talk a little bit about perhaps how you might be achieving what appears to be at least preclinically a wider therapeutic window for RAS mutants over RAS wild types over that, which directs daraxonrasib can achieve. Any color as to how you're accomplishing that mechanistically? And if you can also kind of see that in your preclinical models as you advance that into the clinic? Mark Goldsmith: Thanks, Charles. Sort of loud and clear. Yes, Steve Kelsey, I think, will comment on both of those important topics. Stephen Kelsey: Sure. Yes, I think the RAS amplification can be received as a stand-alone mechanistic basis for escaping daraxonrasib, but it also acts as a surrogate for increasing flux through the RAS pathway generally. And in most of the experiments that we've done, RM-055 is a better inhibitor flux through -- increased flux through the RAS pathway. Generally, particularly when it's going to go through G12 mutation. So I think there is a general principle of escape from daraxonrasib occurring through reactivation of RAS pathway signaling. It's not just amplification of the mutant allele that can do that. And I think there's every reason to believe that RM-055 may be effective beyond just pure RAS mutant amplification. Your point about therapeutic index, it's all to do with the relative importance of hydrolysis of RAS(ON) back to RAS(OFF) between cancer and normal tissue. Normal tissue, most of the RAS in normal tissue was already in the off-state anyway. But it's being catalyzed -- the active RAS is being catalyzed back to RAS(OFF) very effectively by the naturally occurring gaps. And the whole point of RAS mutation cancer is that, that just doesn't happen. The ability of the mutant RAS to withstand that catalytic hydrolysis back to RAS(ON) state is very different. And it varies from mutation to mutation. But what we've done is very selectively targeted the inability of particularly as a G12 mutant RAS to be hydrolyzed back to RAS(OFF) by forcing it to be hydrolyzed back for RAS(OFF). And it really has very -- this drug has almost negligible effect on normal tissue in that respect and a very significant increased deactivation of mutant RAS in cancer cells. Operator: Next question comes from the line of Michael Yee with UBS. Michael Yee: Congrats on the progress. Two quick ones. On the colorectal cancer data coming up, can you help guide expectations on how to think about combination with EGFR given overlapping rash and how to think about mitigation or how to interpret results given higher efficacy, but also trying to mitigate rash in that strategy. And then also in the first-line PANC study, which is enrolling, we definitely get huge feedback that it's going to enroll superfast in a number of different sites. Is it safe to assume that there's probably an interim in that study as well eventually once you complete enrollment? Mark Goldsmith: Thanks, Michael. Nice to hear from you. Who wants to address the CRC? Maybe I'll just make the comment that it is true that daraxonrasib itself has essentially overlapped with the eGFR antagonist from a perspective of suppression RAS signaling that drives the skin side effects. So that is a harder combination to contemplate. That really doesn't apply at all with mutant selective inhibitors and that's why the G12C selective inhibitors that launched the field essentially sotorasib and adagrasib and now others can be combined pretty readily. And it really fundamentally addresses the whole gap in the eGFR coverage that occurs in the RAS-mutant tumors and the whole reason why EGF receptor antagonism is contraindicated typically in RAS mutant tumors, you really need the RAS inhibitors. So that combination is in principle something that can be pursued. Stay tuned. We'll talk about it when we're able to do so. The question about the first line, I forgot the tail end of the actual question part of it. Jonathan Chang: Do you have an interim analysis? Mark Goldsmith: Do you have an interim analysis. Wei, do you want to comment on that? Wei Lin: Yes. At this current state, we don't mind to disclose the analysis plan. Mark Goldsmith: Okay. So you've heard it from our Chief Medical Officer. Operator: Our next question comes from Laura Prendergast with Stifel. Laura Prendergast: I was curious, what are some of the top variables still under consideration for daraxonrasib in first-line lung cancer as far as strategy goes, and then on the back of RASolute 302, showing such a unprecedented OS, what kind of pricing power are you guys thinking this could unlock? And are there any benchmarks for pricing that you guys are most focused on? Mark Goldsmith: Yes. Laura, nice to hear from you. I don't think we can really comment on the pricing. Of course, the OS impact is something everybody is interested in starting with patients and their families and all the way up to insurers and payers in other geographies. So it will be relevant to their considerations, but that's about all we could say about pricing today. And then your question on first-line non-small cell lung cancer. Which was what? Oh I see. With regard to daraxonrasib in first line. Well, we've alluded to it. We commented that there are a couple of things going on. Probably one of the most important is that we're now dosing patients with ivonescimab, which may become -- we're all waiting to see how that progresses. But it points towards potentially becoming the new standard of care for frontline non-small cell lung cancer, in which case, that's something we need to take into account, which we hadn't really taken into account before we had the real relationship with [indiscernible] that's now very much active and we're dosing patients. That's probably the main variable. I think the other thing just conceptually to comment on is the mutant selective inhibitors are already pretty well established simply because of the G12C inhibitors that launched the field. And that's sort of a paradigm that lung cancer doctors are now used to thinking that G12C as its own disease, which means G12D will be its own disease and G12B will be its own disease and pretty quickly you've covered most of the locations in RAS lung cancer. We happen to have a G12D selective inhibitor, which is performing particularly well. We happen to have a G12C selective inhibitor, which is quite differentiated and compelling. We have a G12V selective inhibitor that's in the clinic now, and we expect good things from that. So there are multiple ways to cover that. And it is in a field in which it's already broken down by genotype. That's one possible strategy. So those are kind of several of the major considerations. Operator: Our next question comes from Jay Olson with Oppenheimer. Jay Olson: Congrats on all the progress and thanks for providing this update. How would you like to set expectations for the upcoming ASCO plenary presentation in terms of where you'd like investors to focus their attention? Mark Goldsmith: I think my main expectation is it's just going to be crowded. I'm not sure really how to help you on that. I mean we'll be providing, I think, through the investigators of a full update on it. And the update will be consistent with what we've said so far, but provide significantly more information that the experts in the field needs to see and evaluate in that setting. Operator: Our next question comes from Kelsey Goodwin with Piper Sandler. Kelsey Goodwin: Congrats on all the progress recently. I think two quick ones for me. First, I guess, any additional color that you're providing on the sales force. And then secondly, I think, building on one of your prior answers in this question-and-answer session. I guess as we start to think about that front line to second line attrition rate once daraxonrasib comes on to the market. I guess, do you have a sense what percent of that 50% of patients that don't proceed to second line are unfit for therapy altogether versus ineligible or unwilling to take another chemotherapy just as we start to model that out a bit more refined? Mark Goldsmith: Yes. Thanks, Kelsey. Anthony, do you want to just comment on the sort of sales organization more broadly? Anthony Mancini: Yes. So thanks for the question, Kelsey. I think for the U.S. region, we're in the final stages of building out our field-based teams all across different functions in the field, med affairs, market access and sales. We've had an MSL team and a thought leader liaison team in place for quite some time. We also have a market access account team that's been in place, that's been engaging with payers and organized customers, really around the unmet need in pancreatic cancer, around the pipeline and the early clinical data for daraxonrasib through pre-approval information exchanges, and we're really pleased to say that we're in the final stages of onboarding our U.S. sales force. We're pleased with the team. They have deep expertise in solid tumors across GI malignancies and in oral oncology, and they'll be fully trained and ready to go with HCP engagements if we were to receive an FDA approval. Mark Goldsmith: Thanks, Anthony. And on the first line, the second line, it's a good question. It's an important question. It's a little bit hard to get a detailed and clear understanding of because in reviewing records and so on, it's not always clear. In fact, it's surprisingly how common it is that it's not clear why somebody hasn't gone on to second line. You don't always identify an obvious performance status issue or concurrent illness or disease status that would prevent somebody from moving on. And therefore, they might have decided not to proceed because of intolerability or they might have decided not to proceed because of perceived intolerability before they tried it or because they want to focus their life at this stage on family and not on chemo infusions. There's a wide variety of reasons. And then sadly, it's also true that patients who start chemotherapy in first line sometimes don't survive to second line. So it's a great devastating illness as everybody knows. So there are a lot of different reasons. Some of those could be addressed by a regimen that is more convenient, that is better tolerated. A once-a-day pill that really is generally well tolerated and safety issues are manageable, could sure impact somebody's decision. We don't know whether or not it will. We'll only know that if we get to the finish line with an approval and see how patients do in that context. Operator: Our next question comes from Kalpit Patel of Wolfe Research. Kalpit Patel: Congrats on the trial again. So for RASolute 303, how should we think about that study's enrollment ramp versus the second-line study that you just completed in terms of timing of enrollment completion. And then can you remind us if crossover is allowed in that RASolute 303 study? And separately, any comments on potentially starting a registrational trial with daraxonrasib and a PRMT5 inhibitor? Mark Goldsmith: Thanks very much for your questions. The timing of completion. We can't comment on that now. We're just not at a stage where we can project the time line with any confidence, but maybe the even more important point would be we know there's very, very high interest in this. And sites that have activated or enrolling, but there are plenty of sites that still are yet to be online, and there are patients lined up at many of these facilities. We're aware of that. So we expect there to be very high demand for this for a variety of reasons, not the least of which is the disclosure of the 302 key findings, which people do it. Crossover is not allowed in the trial design. As you know, of course, it's up to any individual patient, they can cross over on their own if there is an approved therapy to crossover too. But in terms of actual crossover design, we can't really provide it when OS is the standard, and that's the sort of conundrum of a Phase III trial for which overall survival is the endpoint. And where we're currently kind of in the process of transitioning from Equipoise to out of Equipoise and where we stand in that is sort of -- it's a matter of judgment and it's really a question for the regulatory agency. They have to make that determination. And as long as OS is required, it's very difficult to achieve that with the crossover design. Maybe you want to talk to those points, Alan? Alan Bart Sandler: The only additional comment I would make, again, because of the concern for overall survival being a primary endpoint is we've established a broad geographic footprint in order to mitigate the potential for impact of second-line therapy with daraxon moving forward. So smaller U.S. footprint, larger ex U.S. moving forward. Mark Goldsmith: Good comment. And then the last thing was with regard to PRMT5. We don't have any update to provide on that today. We're enthusiastically engaged in collaboration with several companies now who are evaluating PRMT5 inhibitors in combination with RAS inhibitors, and we're keenly interested in how that will go. Operator: Our final question comes from the line of Alec Stranahan with Bank of America. Alec Stranahan: I guess, two from me. First, I would be interested to hear from your experience whether the initial ORR with daraxonrasib was a good metric for predicting PFS and OS benefit in larger studies? Like does the higher numerical ORR translates to better survival or is duration of response or time on therapy, maybe more telling for this? Just trying to think through some headline numbers we're seeing from others in the space. And quickly, will you be allowing third line plus patients into the EAP as well? Mark Goldsmith: Thanks, Alec. On the last question, yes, the eligible population includes previously treated and it goes beyond the pure second line that are in the -- that were in the 302 trial. Is ORR predictive of PFS or OS, who wants to comment on that? Stephen Kelsey: We don't show analysis of that. The -- it's broadly correlative with PFS, ORR, it broadly correlates with PFS. It's not such a tight stoichiometric relationship that you can actually say that the ORR is 5 percentage points higher than the PFS is going to be 5 percentage points higher. But it is broadly correlated. There are better ways of predicting PFS, which involve multiparametric analysis that include ORR but are not restricted to ORR. We have not made those broadly available to other people because obviously, it's a competitive advantage for us to know that and not share it with our competitors. But definitely, ORR is a component of that framework for sure. So I think it's -- we're learning more. And you're right, I mean, we're learning a lot more now, now that we have decent drugs for pancreatic cancer. We're learning a lot more about the relationship between all of these outcomes. But I mean, in other diseases, like lung cancer, breast cancer, colorectal cancer, it took years and years and years to figure out these relationships, and they're still not totally clear. So yes, I think that you will see relationships emerging, whether they're causal or otherwise. But I wouldn't draw too many straight lines. Mark Goldsmith: Yes. That's -- I'll pile on that. There's obviously some relationship, but what you can do with that and how you should interpret ORR data and have vision for what that's going to translate into premature. Stephen Kelsey: And the other thing is, of course, with RAS inhibitors, the numerical value are at any point in time isn't very accurate anyway. Patients can take up to and sometimes beyond 6 months to fulfill the RECIST definition of response. So at any given point in time, there still be people who might become responders who have not yet become responders. And the RECIST definition of responses in a particularly robust endpoint in [indiscernible]. So there's a lot of wiggle room and uncertainty around all of these analysis. It's very tempting to believe that the overall response rate determined by RECIST is a pure and absolute accurate measurement, but it absolute -- I can tell you absolutely is not. If you look at those CT scans and trying to compute the unidimensional measurements of the target lesions then you'll realize just how broad uncertainty surrounds the whole thing. Mark Goldsmith: Also, I'm glad you answered. Operator: This does conclude the question-and-answer session. I'd now like to turn it back to Mark Goldsmith for closing remarks. Mark Goldsmith: Thank you, operator, and thank you, everyone, for participating today and for your continued support of Revolution Medicines. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Welcome to the IonQ First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Hanley Donofrio, Director of Investor Relations. Please go ahead. Hanley Donofrio: Good afternoon, everyone, and welcome to IonQ's First Quarter 2026 Earnings Call. My name is Hanley Donofrio, and I am the Investor Relations Director here at IonQ. I'm pleased to be joined on today's call by Niccolo de Masi, IonQ's Chairman and Chief Executive Officer; and Inder Singh, IonQ's Chief Operating Officer and Chief Financial Officer. By now, everyone should have access to the company's first quarter 2026 earnings release issued this afternoon, which is available on the SEC's website and on the Investor Relations section of our website at investors.ionq.com. Please note that on today's call, management will refer to non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information to investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. You are directed to our earnings release for a reconciliation of adjusted EBITDA and adjusted EPS for the closest comparable GAAP measures. During the call, we will discuss our business outlook and make forward-looking statements, including those regarding our guidance for 2026. These comments are based on our predictions and expectations as of today and are not guarantees of future performance. Actual events or results could differ materially due to a number of risks and uncertainties. Therefore, you should not put undue reliance on those statements. We refer you to our recent SEC filings, including our annual report on Form 10-K for the year ended December 31, 2025, for a more detailed discussion of those risks and uncertainties. We undertake no obligation to revise any statements to reflect changes that occur after this call, except as required by law. Now I will turn it over to Niccolo de Masi, Chairman and CEO of IonQ. Niccolo de Masi: Thank you all for joining us today. 2026 is off to a strong start at IonQ, and our results this quarter serve as a powerful validation of what we built throughout our transformational 2025. Financially, we have delivered the biggest quarter in IonQ history thus far, and our fourth consecutive quarter of record-breaking results. $64.7 million of GAAP revenue in the first quarter of 2026, is more than 8x what we delivered in the same period last year. Our strong momentum is a testament to the demand for our industry-leading quantum computers as well as the commercial impact of our entire quantum platform. As I outlined on our fourth quarter call in February, a key objective for 2026 is to drive superior financial performance by leveraging our scale and Quantum product families, combined with increasing geographic breadth and depth. We are executing well and have today raised our full year revenue expectations to $270 million at the high end. Our results were underpinned by accelerating global quantum computing system sales, increasing high-margin cloud utilization and deepening application layer partnerships with our enterprise customers. I am tremendously excited about IonQ's ecosystem progress, which was on full display at the New York Stock Exchange when we rang the bell with over 50 customers to celebrate World Quantum Day. IonQ is defining the Quantum technology market and establishing the leading hardware and software quantum industrial ecosystem. Our organic performance is a direct reflection of this leadership as we architect and deliver the Quantum platform for the next century of computation. We continue to widen our lead across commercial and technical frontiers. Our parallel gate architecture with electronic qubit control will allow us to solve problems at a scale and cost that we believe will be unmatchable. On April 14, we rolled out clear third-party validated benchmarks, showcasing the incredible time to solution and cost to solution advantages that our Quantum computers already possess. These metrics represent the speed and economics with which our systems deliver accurate solutions to the world's hardest problems. As you can see on Slide 6 of our investor presentation, we presently enjoy up to 10,000x faster time to solution on key quantum algorithms, including 1,000x faster for the Quantum [ Ferrer ] transform. The Quantum [indiscernible] transform, in fact, enables many critical use cases, such as cryptography, molecular drug discovery, advanced material synthesis and unlocking fusion energy, making this timely solution valuable today and into the future. It is not a coincidence that several of the key utility scale applications, described by DARPA's quantum benchmarking initiative could take advantage of quantum farer transforms under the hood. IonQ's time to solution advantage with Quantum ferrer transform and other benchmark algorithms today, underscores our fidelity and connectivity advantages that we expect to endure throughout the coming decades. I am proud to report that we have presold our first chip-based 256-qubit system in the first quarter. We are moving with conviction to demonstrate this technology by year-end with customer systems expected to begin commissioning by the end of the second quarter of 2027. While much of the industry remains in the scientific research phase, IonQ has been able to focus on delivering production-ready systems that are shaping the quantum market globally. We remain the first and only quantum company in history to have demonstrated the critical technology components at the performance levels required for full fault tolerance. The next critical frontier in our industry is the efficient use of quantum error correction to convert high-quality physical qubits into even higher quality logical qubits, unlocking new frontiers of scale and impact. This is the bridge to utility scale, fault tolerant quantum computing. And it should be no surprise that IonQ is leading here as well. Just last month, we published our complete architectural blueprint for our flexible modular framework that describes how our technology scales through to 2030 objectives of a fully fall tolerant system with millions of physical qubits and logical error rates as low as 1 in 1 trillion. Our walking cat paper described IonQ's end-to-end architecture for full fall tolerant quantum computing, spanning compiler design and error correction to hardware, control systems and ion movement. This historic paper outlines in manufacturable detail, how we will move from today's IonQ commercial systems to deploying and commissioning INQ's utility-scale quantum computers to customers. The level of detail and completeness in our blueprint is a global first and historic milestone for the quantum industry as a whole. Along with the academic community, there has been strong and broad recognition that this is the industry's first clear detailed manufacturable path to scaled fall tolerance systems. For those able to follow along in our investor presentation, please see Page 7 for details. IonQ's specificity sets a new standard and distinguishes IonQ with its tangibility resting on capabilities our hardware has already demonstrated including 99.99% 2-qubit fidelity and reliable ion transport. This historic work demonstrates precisely why IonQ is on track to be the first to unlock fully full-tolerant quantum computers as we published clearly in June 2025. Our level of transparency is only possible through our 30 years of innovation. Only IonQ has the operational maturity and engineering predictability of generations of deployed systems as we now accelerate into a new phase of manufacturing and scale. Moving on now to SkyWater and our merchant supplier activities. As most listeners know, in January of 2026, we announced our intent to acquire SkyWater, in order to accelerate the U.S. quantum industry and deepen our commitment as a merchant supplier. We expect the transaction to close in the second or third quarter of 2026, subject to customary regulatory approvals. Over the past quarter, our commercial collaboration with SkyWater has already yielded multiple test iterations for our 256-qubit chip. As we shared in February, we hit the ground running with multiple initial tapeouts. Today, I am pleased to report that we have already received some of the first ion trap samples back from SkyWater and have demonstrated on the sample chips the critical performance we need for the complete 256-qubit chips. To design, fabricate and test these chips with SkyWater within a single quarter has been a delight. Our commercial partnership with SkyWater is a demonstration of the kind of acceleration, we hope our investment will bring for all customers of our quantum merchant supply function. And we expect these benefits to grow even further once the combination is complete. We already act as a merchant supplier with our industry-leading atomic clocks, sensors and networking products being sold to other quantum companies. When the SkyWater transaction closes, IonQ will be the largest quantum merchant supplier in the world, but [ Thomas Sanderman ] continuing to lead SkyWater. We view this transaction as not only accelerating IonQ's commercialization of fall tolerant quantum computers, but also using our balance sheet to secure the scalability of the entire U.S. and allied quantum market. As it is a frequent question from our community, I will now walk through our application and quantum algorithm momentum in a bit more granularity than in prior quarterly calls. This work can be seen in our investor presentation on Page 8. Applications and quantum algorithms are another cornerstone competitive advantage for IonQ. We know that for customers, value is measured not just on a machines architecture, but by how that architecture ultimately delivers customer value and results. We are confident IonQ already delivers a potent combination of orders of magnitude faster time to solution. The most accessible cost solution, reliability and quality that customers cannot find anywhere else. We have more than doubled our quantum algorithm and applications team size in the past few quarters, in response to strong demand. We continue to grow internationally, adding both application engineers and field engineers to support customer appetite for implementing IonQ's Quantum solutions in their organizations. We are deliberately focused on early advantage verticals, pharmaceuticals, financial services, energy and logistics. Real-world examples from just the past few quarters include the following partnerships. In the financial sector, we ran the world's first large-scale portfolio optimization, quantum algorithm using real S&P 500 data. This showcased along with [indiscernible] Quantum, our systematic improvement in portfolio quality and execution time in a production environment. Our trapped ion hardware has a long-term structural advantage for dense portfolio optimization such as these, because of its all-to-all connectivity industry-leading single qubit and 2-qubit gate fidelities. With Synopsis, we demonstrated accelerated computer-aided engineering workloads through quantum enhanced graft partitioning. We achieved double-digit percentage advantage in end-to-end time for large-scale structural models such as the Rolls-Royce jet engine and automotive models also. Trucially, this demonstration was integrated into their existing cloud workflow with 0 new infrastructure required. Ion Ride is using IonQ to optimize shipment allocations and fleet orchestration for electric and autonomous freight, delivering measurable gains in real-world logistics efficiency. We have already demonstrated real-world commercial validation using anonymized logistics data and historical cancellation logs. By achieving an increase in shipments delivered, this work will underpin very significant revenue gains for our partner at fleet scale. With Quantum Basel, we are advancing hybrid quantum classical techniques to optimize large language models and reduce energy consumption. Our results show that IonQ quantum computer energy consumption scales approximately linearly with qubit numbers for shallow circuits. By comparison, classical simulation exhibits exponential scaling. We are on track to demonstrate significant energy savings with improved inference performance as we scale these capabilities. These 4 production-oriented applications are just some of the examples our customers are deploying to actively drive business advantage and growth. We are proud to announce in parallel that our work to positively and powerfully impact humanity itself has this quarter seen a step change. We are now working with participants from the welcome [ LEAP ] initiative out of the U.K., which is a program designed to accelerate human health to apply our quantum optimization to improve cancer research. Our work introduces new computational approaches for reconstructing difficult regions of DNA that are often missed or misread by existing methods. This could become a useful foundation for future studies of genetic changes that matter in human disease, including cancer. Last quarter, we also announced a commercial partnership with CCRM and which is 1 of the world's leading accelerators for advanced therapies. We are very excited about the work we are doing with them, which includes cell and gene therapies for cancer and immune system rebuilding. This work is truly world-changing offering a powerful new future for human health. We have also begun work on combining our quantum optimization technology with computational methods for gene therapies. That includes optimization of mRNA sequences that get delivered into cells. Long term, we anticipate personalized medicine acceleration. For those following along in our investor presentation, this can be seen on Page 8. Let us now turn to the rest of our unique and expanding Quantum platform. Building on the momentum of our recent deployments of Quantum Communication Networks in Switzerland, Romania and Slovakia, IonQ has now successfully deployed Poland's first national quantum communications network. This is 1 of the largest terrestrial quantum key distribution networks in Europe, and it cements our position as the partner of choice for sovereign quantum security. We are similarly expanding our Quantum platform leadership domestically by announcing a new statewide Quantum networking initiative in the great state of Florida and the first commercial sale of a quantum memory node into the Mid-Atlantic regional Quantum Internet hosted at the University of Maryland. These partnerships underscore that IonQ is proudly playing a central role in the development of our secure national quantum infrastructure. On the technical front, we continue to innovate and lead the market as the only public company with a scaled quantum networking division. Last year, in partnership with the Air Force Research Lab, we achieved the first qubit to telecom frequency conversion in a field deployable system, enabling real-world quantum networks on existing telecom infrastructure. Last month, on World Quantum Day, we announced that in conjunction with AFRL, we connected qubits from 2 separate systems. This is the first demonstration of connected commercial quantum computers, demonstrating the operationalization opportunity of Quantum interconnects and paving the way for distributed quantum computing that will underpin the future of secure global communications. Our contract with DARPA's [ HARC ] program is another testament to our leadership in Quantum memory, modular quantum computing and scalable networking architectures using quantum interconnects. IonQ is playing a critical role in enabling a new class of networked quantum computers that can combine multiple qubit types into an interconnected high-performance architecture. To our knowledge, we are the only industry player to win a hardware award as part of [ HARC ]. This contract is another powerful example of how IonQ is already serving as the leading merchant supplier to the entire quantum industry with key IP, including the world's most accurate commercial clocks that matter to any modality's long-term scaling and manufacturability. Turning now to Slide 9 in the investor presentation. Momentum remains strong at IonQ Federal. We continue to advance through DARPA's quantum benchmarking initiatives and are building out our capabilities to support next-generation GPS, alternative PMT and other mission-critical initiatives for our nation. We were awarded a $39 million contract to advance next-generation space communications on the Space Development Agency's halo program. This paves the way for mission-ready quantum space systems for national security. Just this week, we expanded our space mission and sensing capabilities with a new product launch delivering persistent change monitoring intelligence from space. We were also awarded a spot on the Missile Defense Agency's Shield contract, which is focused on the rapid delivery of innovative capabilities to the war fighter with increased speed and agility. Our technology platform represents a dual-use advantage for our nation and its allies underpinning both economic growth and national security. We are proud to be the partner of choice for U.S. and allied governments in this geopolitical quantum space race. In order to do this work with U.S. government agencies, high-technology readiness levels are an imperative. Our quantum sensors and clocks have reached TRLs for deployment on land, sea, air and space. At this very moment, we have quantum sensors currently deployed on a Navy ship and in space on the X-37B spaceplane. Our Quantum Security products similarly have already reached deployment-ready TRLs across critical infrastructure, telecommunications and national networks, providing mature deployable quantum security solutions today is vital to ensuring continuity for communications as quantum computers become ubiquitous. Before I close, I would like to touch on [indiscernible] and talk through Page 10 in our quarterly investor deck. Lately, Q-Day, the threshold where Quantum Systems render current RSA encryption obsolete has dominated industry conversation. We have been transparent in our assessment of Q-Day's time line since publishing our technology road map in June 2025. Based on our public road map, we expect to achieve the logical qubit count required to challenge RSA 2048 encryption in the 2028 to 2029 window. China's stated goal is 2029 and their government quantum efforts. It's worth noting that our peers have now recognized this accelerated time line with Google very recently bringing forward its expectation for Q-Day from the mid-2030s to 2029. As we continue to accelerate the time line toward Q-Day, we view it as a strategic responsibility to also provide the solution. We are not just identifying the future risk we are delivering mature field deployable hardware and software cybersecurity solutions that allow global governments and enterprises to both enhance cybersecurity today and ensure our nation's protection in the age of Quantum ubiquity. IonQ is uniquely positioned to deliver post-quantum security solutions precisely because we're the ones defining the offensive frontier. Our deep understanding of how advanced Quantum Systems challenge RSA and ECC encryption allows us to build superior defenses. This creates a powerful strategic flywheel, our hardware leadership informs our security and innovation and our security expertise derisks the quantum transition for our customers. As I said in our full year call in February, 2025 was a strategic and financial inflection point for IonQ. Today, I am confident that 2026 is in turn the year we move from platform building blocks to platform execution at scale. We will continue to deliver superior financial performance, unlock exponential value through applications and system-level breakthroughs and operate with both discipline and speed. IonQ's mission is to pioneer and globally commercialize the world's Quantum solutions, positively impacting every aspect of applied science while ensuring U.S. and ally leadership in this generational and geopolitically vital technology race. I want to thank my colleagues for their extraordinary efforts and the broader quantum industry for their partnership. With our strong capitalization, unmatched talent density and clear road map, IonQ is 1 platform, 1 team primed and poised to win. I'm now delighted to hand the call over to Inder Singh, our COO and CFO. Inder Singh: Thank you, Niccolo. We are very proud to report our strongest quarter in the company's history, delivering $64.7 million in GAAP revenue, which is 755% year-on-year growth. This is now our third straight quarter of record-setting revenue growth. These results exceeded our revenue guidance by over 30% and our own expectations. Importantly, our results are underpinned by strong organic growth, which we expect will continue through the remainder of the year. In fact, as we indicated last quarter, we are expecting organic revenue growth to be 100% for the full year even exceeding 80% that we reported for 2025. I'll now cover our financials in more detail, which you can also see in our investor presentation on Pages 12 through 18. Consistent with the additional color we started to provide you last quarter regarding the different areas of our revenue and the composition of our revenue I'm going to touch on 4 key aspects: One, is commercial. Two will be geography. Third, we're introducing a metric around multiproduct sales, and of course, I'll again talk about remaining performance obligation, also known as RPOs. Number one, let me address our commercial revenue. I'm pleased to report that approximately 60% of our revenue came from commercial customers this quarter, similar to what we reported for all of full year 2025. This demonstrates that we are firmly entering the commercialization of our quantum technologies. Commercial revenues consist of Quantum platform contracts with non-U.S. government customers. We are happy to see this metric remain high as our revenues grow. We are happy that our commercial sales have now become a major part of the business and importantly, a takeaway for us is that our Quantum solutions have moved well away from the lab and squarely into real-world applications and deployment, as Niccolo described. Number two, our global revenue mix. I'm also pleased to report that we are seeing demand for our products come from around the world and from more countries than ever before. In Q1, approximately 35% of our revenue came from international markets. We've now sold solutions in over 30 countries compared to a year ago when we had customers in just a few. As I said last quarter, we're working on pursuit and capture in a very methodical way, and it is now starting to pay off as we begin to see revenues come from many more parts of the world. Number three, we are providing you with an additional metric, a new view into our revenues, which you look at and I would best describe it as multiproduct sales. Multiproduct sales means what percent of our revenue came from customers who have now bought more than 1 product from us, for example, computing, networking, sensing, security, et cetera. I'm pleased to report that in Q1, over 1/3 of our revenue came from multiproduct sales. The reason this is important is consistent with the strategy that Niccolo laid out last year, we have become the go-to place for all things Quanta. Under the leadership of [ Scott Mallard ] who head global sales for us, we have created a methodical approach to our go-to-market strategy. This includes cross-selling across our business, very disciplined pipeline development and conversion, our land and can strategy and yes, an amazing group of sales leaders that we are deploying around the world. While we may or may not always share all metrics every single quarter, we want to provide you color that will help you look at our business. You should know that we are investing in growing our revenues across our entire suite of products. It was Niccolo vision a year ago to develop this Quantum platform company, and we are seeing that play through our financials now. This multiproduct metric represents how that platform strategy has turned into financial outcomes. Number four, let me spend a moment on our remaining performance obligations or RPOs, which is a widely accepted measure that companies use to gauge their visibility over several quarters. As of March 31, 2026, our reported performance -- the remaining performance obligations or RPOs stood at $470 million compared to approximately $72 million a year ago. That represents a growth of 554% year-over-year. From our lens, RPOs help us get context around the continuing growth of our company as well as provide visibility potentially beyond the next few quarters. As all of you know, RPOs turn into revenue as performance obligations are met and RPOs get replenished with TCV from new sales. In Q1, to give you some context, for every $1 of revenue we recognized, we added roughly $2.5 in RPOs. And again, some use this as a proxy for backlog. To summarize my revenue comments, this first quarter of 2026 was another record-setting quarter with a revenue profile of 60% commercial, 35% international, 35% multiproduct and RPOs grew 554% year-on-year. And yes, we expect 100% year-on-year organic growth. Let me turn to our investments and profitability metrics now. First, let me talk to you about R&D. As of last quarter, our biggest investment area continues to be R&D and GAAP R&D in Q1 grew 215% year-over-year to $125.7 million. For some context, last year, our R&D exceeded the entire reported R&D in the quantum industry. Our strategy is to accelerate our innovation deliver the most powerful quantum computing solutions to the market, connect all things quantum them and secure our customers in a post quantum world, as Niccolo described. As a prime example of our innovation leadership and the compute power we intend to deliver and are delivering. Today, we're deploying our fifth-generation compute system called Tempo. We are now well on our way to the 256-qubit sixth generation system, and we are starting to turn our focus also on the seventh generation 10,000 qubit solution. We will maintain this relentless focus on innovation and our financial firepower allows us to do so. Turning now to adjusted EBITDA. We recorded a loss of $96.8 million for the first quarter. In this quarter, adjusted EBITDA included approximately $12 million of expenses related to our commercial agreement with SkyWater for the fabrication of our industry-leading ion trap. This commercial agreement remains in place until the approval and close of SkyWater. Excluding the SkyWater, commercial agreement end of $12 million, adjusted EBITDA would have been $85 million. Turning now to net income. In Q1, we reported a positive $805.4 million in GAAP net income, which was mainly due to an approximately $1.1 billion mark-to-market warrant valuation. As in prior quarters, let me remind you again that this warrant mark-to-market is a noncash item and depends on the stock price at any given time. Therefore this net income, including the volatility does not represent the operating performance of our business. Let me now turn to our financial [indiscernible] as a company. Cash cash equivalents and investments as of March 31, 2026, were $3.1 billion. This provides us with the visibility in financial firepower to accelerate our R&D road map, invest in new product development, scale our go-to-market engine and also to acquire critical capabilities. In addition to supporting our investment capabilities, our financial firepower provides comfort to our customers as well that we will be there for them, not just today, but in the coming years. This helps us create stickier relationships with top-tier customers who want to align with our multiyear road map. With my COO hat on, let me highlight a few areas we are driving towards excellence in our execution. As Niccolo shared last quarter, that is 1 of our prime objectives for 2026. Last quarter, I noted that near-term demand for some of our products in compute was outpacing our ability to perhaps meet that demand. And so this quarter, I'm happy to report we've addressed that and already strategically accelerated our ability to address the demand by growing our deployment teams, forward deployed engineers, manufacturing capacity and field operations. For 1 small example, we have more than doubled our manufacturing over the Tempo to meet the demand that we are seeing. Looking into the future for our 256-qubit system. Last quarter, I shared that we had completed tapeouts A, B and C and have started working on tapeout D. This quarter, I'm pleased to update you that tapeout D has been completed. The designs have been handed over to the foundry and their chips are now progressing well through the fabrication process. As part of this process, we received the first fully fabricated ion intra prototypes. I'm happy to share that they're already beyond the critical quality metrics needed for 256-qubit devices. Not only that, but also these metrics are approaching what we will eventually need to our 10,000 qubit device and beyond. This is an important milestone, it means we're proving out the path for the 256-qubit chips that are in fab at this time as well as the generations beyond. Building on our progress at the chip level, I'm pleased to share that we are also now wrapping the first engineering prototype for the full 256-qubit computer. This means that we're now moving from component-level testing to system-level testing. These are very important strides towards delivering the full 256-qubit system to the market in the future. And we're not stopping there. As I mentioned, our team is already starting stride towards our seventh generation 10,000 qubit chips. The key to scaling into our 10K high cubic count system is the integration of active CMOS design where SpyWater really helps. By moving control functions directly on to the silicon with CMOS, we are taking advantage of the scaling techniques of the existing global semiconductor industry in a nutshell, we're executing on our strategy. Let me now turn to financial guidance. As you have heard today, we have built a strong foundation for what we expect will be another historic year for IonQ in 2026. With that in mind, we are pleased to raise our revenue guidance for the full year 2026 to be between $260 million and $270 million. For context, even the lower end of that guidance doubles the company's year-over-year revenues. For the second quarter, we are projecting revenues of between $65 million and $68 million. We are also reaffirming our projections for full year 2026 adjusted EBITDA, to be in the range of negative $310 million to negative $330 million. We look forward to the remainder of 2026 with confidence and believe that IonQ is well positioned with the talent density, the processes, the technology and the innovation investment to remain the trail basing and quantum leader that we're establishing and have established already. With that, operator, please open the call for Q&A. Operator: [Operator Instructions] Our first question comes from John McPeake of Rosenblatt Securities. John McPeake: Thanks. Nice work. So I think you've got 3 customers now for the 256. You just called out Cambridge. I think last call, you talked about Quantum Basel and also there's Horizon Quantum out there. Could you talk a little bit about the likely delivery schedule and how the -- how we should think about the revenues coming in from these? And then I just have a quick follow-up. Niccolo de Masi: Yes. Thanks, John. Thank you for the comments as well. Look, we are laser-focused on our fifth-generation machine because customers are laser focused on it. The demand that we're seeing is actually for many more customers that I can share today. You mentioned if you a few important, but as I look at the demand for our fifth generation machine, and in fact, customers will look at it and say, well, we might also want to look at your next and your [indiscernible]. That remains very, very strong. So we will continue to announce new wins. I mean, first quarter is obviously just the beginning. As I look at through the rest of the year, the demand is strong. The need for us to have the manufacturing and deployment capabilities was necessary, as I mentioned last quarter. And we've made those investments by bringing on board and deploying, frankly, folks that will be building these. You'll see many more announcements coming in the future. I mentioned, Scott and team are busy responding to some of the demand signals that we're seeing for Tempo. And importantly, early demand signals also for our 256. Remember, when customers buy something as unique as a computing platform they're buying the platform, meaning a multiyear view, not having to shift direction 12 months from now. So we're ensuring that we are in the right places with the right customers. who not only have the desire and interest in our solutions, yes, but also the long-term conviction to remain with us over multiple years. Quantum Basel is an excellent example of that. And there are many more we'll be announcing. Our focus is to make sure that 2026, we deliver on the guidance we've provided you and hopefully see and Tempo will be a big driver of that as well as the rest of our platform. But also 256 is just around the corner, looking into 2027 and beyond. So hope both of that addresses your question? John McPeake: It does. I just have a quick follow-up. The road map has 12 logical very respectable 10 to negative 7 2-qubit gate error rate. Will that be calibratable? In other words, could you have more logicals with slightly higher error rates? Is that in the cards because that's a very low error rate, but it's lower logical as a result. Niccolo de Masi: Yes. So I said in my script, this is Niccolo, that we're expecting 10 to the minus 12 error rates as our architecture matures. And so you're going to see even lower error rates in the coming generations of systems. The other thing that we are making progress on is reducing the ratio still further between the physical and logical qubit ratio. So I think there's probably some modest upside in the public road map that we published last June in terms of physical and large low qubit counts, accelerating a bit further, at least on the logical front. But as we've said consistently for the last year 2, if not 5, frankly, the advantage of our architecture is we have the highest fidelity qubits naturally. And that makes everything easier, right? It makes the ratio of physically lower as it starts out lower even before we start trying to optimize it. And it means their rates are lower, right? And you can see, particularly the advantages in having lower error rates on things like Page 6 in the investor deck, right, where we're talking about time to solution and the high fidelity 2-qubit parallel gate architecture we've developed. Time to solution is obviously a product of how many times you got to take what's called a shot and a certain algorithm and of course, how accurate the shops are. Our shots are all very accurate, so we don't have to take very many of them, right? And that's an advantage that we expect is going to endure throughout our entire architecture. And we're already obviously demonstrating in Grand style now. And obviously, with the walking cat architecture now all publicly available, you can see how we're going to hold that all the way through 2030. Operator: Our next question comes from Craig Ellis of B. Riley Securities. Craig Ellis: Congratulations on the momentum to start with your guys. I wanted to go back to the point that you made, Nicolo on the April 14 Photonic Interconnect announcement. And it's great to see something that I think some people are calling an Ethernet moment. But the question is, as you look at what that means and how customers are engaging what are the revenue implications of that either later this year or out on the road map as we look at that advancement in technology. Niccolo de Masi: Well, we're not going to give you a precise guidance on the revenue impact in out quarters. But I will say that the beauty of our lead in quantum networking and photonic interconnects, is threefold, right? So one, we think we can push our systems a long way vis-a-vis getting 2 million physical qubits on a single chip. At some point though, we may want even bigger systems. And so data center opportunities arise at some point in our architecture, whether it's 2 million per chip or it's 4 million per chip or even 10 million per ship. At some point, we may want 100 million qubits, right? I mean I'm very bullish on humanity's ability to take advantage of more compute power, and particularly more quantum computing power. And I think at some point in the future generations of quantum computers themselves will help us figure out how to optimize and take advantage of even bigger quantum computers. The second thing that does is it builds us an expanded merchant supplier capability. right? So I talked in my prepared remarks about the fact that our Quantum memory solutions and IP actually will allow multiple modalities to potentially connect together in a pretty seamless fashion and work together. And I think that's exciting vis-a-vis again, where the world will be in the coming years and decades. And then, of course, thirdly, we've talked a couple of times about the fact that we have multiple customers in the networked quantum computer category. Air Force Research Lab is obviously the first of those, and that continues to be a large contract that we prove out every quarter every year. My colleague, Inder mentioned a few other customers, both last quarter and this quarter is taking Quantum network computers. So in summary, there's really 3 great lever points for us, and we continue to invest and of course, protecting our Quantum networking and photonic interconnects because it's something that we've been working on, including from our founder, Chris Monroe early on. And believe it or not, Chris Monroe continues to work on that. So we're very excited that our lead there we believe, to be as prodigious as the computing one. The world is going to need, obviously, protected communications between quantum computers. And this is precisely why we expanded the vision of the company 15 months ago, 18 months ago from computing into networking. Inder Singh: Yes. And I'll just add, what Niccolo, I agree with everything you just said. So in Q1, we saw growth in every product line, Craig, year-on-year. And if you look at our guidance for the year without commenting on individual quarters, just look at the math, the company is doubling. Organic will be doubling. Therefore, it needs the rest of the company other product lines that we have also have a doubling effect on the company in total to get to the guidance that we've provided you. The interconnects, the ability to narrow our computers together, the ability to deliver hybrid compute. Those are the things that we are uniquely positioned. We can compute -- we can connect an ion tract type of quantum machine with someone else's. So we are, in that way, being very agnostic. We want the whole industry to grow. We want to become the networking and the compute leader in many ways in terms of our own innovation and we want the rest of the industry to succeed as well because that's how you make it the successful, durable industry. We have moved ourselves out of the lab into the commercial market. We want everyone else to do that as well, and that's how we grow. We are happy to see the results that we're delivering. We keep investing and Niccolo is all constantly getting calls in for, would you like some more investment and things like that. So I think there are ideas always that are in front of us. We are very happy with the portfolio we have. It was put together about a year ago by Niccolo strategy, become the first quantum platform company, and you will establish basically a critical mass that allows the industry to scale but also all set innovate and scale. So strong first quarter across every product line, a strong year. I think you can sort of do the math around the growth of the other products, not discontinued. Craig Ellis: That's really helpful, guys. And Inder, I'll ask a follow-up question that relates to the COO hat that you also were and it's directed that how go-to-market changes as you bring [ Scott Millard ] in from Dell. And you talked about wanting to be a service provider and span a range of solutions. You would seem to have just an ideal background for that. But how does go-to-market change as we think of the next few years in the company pursuing the road map that you laid out at Analyst Day? Inder Singh: Yes. Look, becoming a successful technology company is a team sport. You have to have the legal professional to do the commercial negotiations. So [indiscernible] you're seeing deployed around the world, working in partnership with Scott, my teams in the finance area, helping to Scott succeed at force. Scott himself developing a methodical pursuit and capture. These are not things companies do until they have critical mass. We think we're there, right? So that's where we're now investing not just R&D, but go to market. And some of the leaders that have joined the company would amaze you in terms of their knowledge of the market, the mindset of the customer. There's not a vertical that I think Quantum not touch eventually, it will touch everything. Some will be early adopters, some will lag. Areas like financial services, which needs protection now to the Q-Day comments that Niccolo made, life sciences companies that need faster innovation because they're competitive and they're trying to solve some of the most intractable problems that humanity faces and others. So we're happy to be the 1 that actually brings all that together, whether it's connecting our machine to someone else's or our's with interconnects, as you mentioned. But I'm happy to see kind of the flywheel effect starting to take over, Craig. Happy to follow up with you offline as well. Operator: Our next question comes from Troy Jensen of Cantor Fitzgerald. Troy Jensen: Congrats on the results and all the technical milestones. Maybe to start here with Niccolo. I agree 100% around the cusp of all your guys' quantum advantage, really helping to solve some commercial applications that we haven't done previously. But I was just curious, how do you think about like pricing the value that you guys are creating, because if you are enabling like new drug discovery and new material science, I mean, there are huge market opportunities. So can you just talk about how you kind of price and think through the value you're delivering here? Niccolo de Masi: Yes. So look, we obviously are innovating business models at the same time as we are building the Quantum ecosystem here. Inder as eloquently talked in the last few quarters about the platform strategy translating into real momentum. And so obviously, we are pricing things differently when there's a network Quantum computer and we're providing more value there than obviously just a single system that's not quantum networks. And there's going to be a fair amount of price exploration, frankly, on a global basis as our Quantum platform continues to mature. What I am excited about this quarter, in particular in this year really is that the market continues to come towards us. And Inder mentioned the fact that, at times, there is greater short-term demand and able to supply it. So we're very focused on improving manufacturing capacity at IonQ in total across the entire platform. We are working on both individual customer sales that can at times be multiproduct, but we're also working on some very large initiatives at the national scale. And I think it's safe to say that -- there is a fair amount of bespoke consultative selling that's going on. If you think about the breadth and depth of our product families as well as the geographies that we now have traction in. Now obviously, because of our cost advantages and because of the fact that we have always tried to forward invest in manufacturing capacities, I mean we did that obviously on both coasts in the U.S. years ago, for example, we have, we believe, the greatest power per unit dollar that's on offer in the marketplace. And that's, of course, our goal. I have talked in prior quarters about the fact that we do 3 things at IonQ across the company, right? We meet and beat financial expectations. We meet and beat expectations, and we continually refine our internal operating system. So as we see how market demand evolves, we will get more efficient about what we're bundling and how we're deploying configuring and delivering that. But right now, we're very much at the start of that S-curve, if you will. And I think there's orders of magnitude of growth to be had here and orders of magnitude of maturation to be had in our sales ops, manufacturing, deployment organization. We're proud of the fact that we believe we lead the industry right now in maturity, but we recognize that as revenue continues to grow, this organization will have to keep getting standardized and keep growing up. So we'll keep you posted as we standardize, but we're not quite at the point whereby we're listing rack prices on our website. Inder Singh: I think less about pricing to me, it's more about meeting the customer where they are. So a customer can choose to buy a system. They can choose to access it via the cloud, they can choose to ask us to provide them an edge device that connects them to something. So we meet them where they are. It's less about competing with price. It's more about ensuring that we give them what they want and frankly, can afford, and so cloud access is obviously cheaper than buying a computer device. So not everyone will buy a computer, not everyone will be happy with a [indiscernible]. Troy Jensen: Easy follow-up for you, Inder, did you report a number of 10% customers in size at all? Inder Singh: We did not in this quarter, Troy. Operator: Our next question comes from Quinn Bolton of Needham. Shadi Mitwalli: This is Shadi Mitwalli for Quinn. Congrats on the progress. I guess as IonQ transforms into a quantum platform company. Can you just talk about some of the solutions you've been bundling for customers, and then has the bundling been more IonQ driven or customer-driven? Inder Singh: Yes. Great question. The customer journey in Quantum is not very dissimilar than the customer journey in traditional networking and compute. I mean sometimes customers start in 1 area and expand it to another or vice versa. So we have claimed examples where we can say a customer started with buying a network from us and then saying, okay, please add a computer now and then maybe saying add security. On the other hand, somebody may start with the compute device sitting next to a GPU cluster or an AI factory. And what they want is to have hybrid workloads. The types of sort of like large-scale matrix multiplication that is required for LLM runs on the GPU. But where you need simultaneous analysis of all possible outcomes in a fraction of the time you need to give. So we're seeing both. And I think over time, you'll see the industry evolving into something that resembles frankly, networking. And I do think that we want to be in every part of that. And I think 1 of the really important parts to consider here is there's a Quantum Advantage Q-Day coming up and whether have as rapidly, whether we do it as a nation or someone else does it, there's a protection angle that has to be pursued as well. So we're finding some customers say, well, protect me first. Lock down my crown jewels, help me understand how I can protect what I value most and then go from there. So all those conversations are happening. They're starting from different places, maybe ending in other places. That multiproduct thing that we introduced and Niccolo and I introduced this quarter is around how many customers or what percentage of our revenue at least is now employing more than 1 product. And I think that's the network effect. Operator: Our next question comes from Richard Shannon of Craig-Hallum. Tyler Perry Anderson: This is Tyler on for Richard Shannon. I just wanted to first understand -- when does the architecture that you had recently published intersect into your road map? Like when do you have a -- what size QPU would that architecture be implemented? Niccolo de Masi: You're talking about the semiconductor road map, right? Tyler Perry Anderson: So yes, the most recent paper. Niccolo de Masi: Walking cat architecture, I think, is your question, right, for full fault tolerance? Tyler Perry Anderson: Yes. Niccolo de Masi: Yes. So I mean, look, we're going from 256 to 10,000 qubits out to 1 million, right? So this full-fault tolerant architecture kicks in every generation but obviously, 10,000 qubits is when you start to see all of the full benefits of the fault tolerant architecture. So next year and beyond. Inder Singh: And then basically use that as a jumping off point to go from 10,000 to 20,000 to 200,000, 2 million. And that just leverages a semiconductor ecosystem that is well tested, developed and we can just take advantage of. Niccolo de Masi: So we're working on like 3 generations of systems at the same time, right? So we're trying to obviously continue to accelerate here, as I said, every quarter. If we can find ways to go faster, we will. Tyler Perry Anderson: And then could you level set on how many satellites you have up in the space right now? And if you could what you think you would have exiting the year and whether or not you have a quantum memory in a satellite. And I presume that would be connecting Florida and Maryland, but any information on that would be helpful. Niccolo de Masi: Look, I think some aspects of our business are highly classified. We have a constellation of satellite is what I can say. I think that we look at the ability to connect things on the ground from ground-to-space, space-to-space space-to-ground under the water even. So we want to make sure that we can meet the customers' needs and not everyone needs everything. To your point, we're very uniquely positioned that we have the most accurate atomic blocks, the most accurate sensing. And yes, we have satellites, too. So I look at it as that platform story, not everybody needs everything. But some of the things that we invest in are ground-based and to your point, some are not. Inder Singh: All I'd add to that is, I think it's safe to say, I said in my script that we're focused on next-generation PNT, positioning, navigation and time. This is obviously dual-use. It's important for our Department of or it's also important for things like the future of autonomous driving and more precision and more reliability and robustness in GPSs, obviously vital. We're a very unique company in the sense that we have obviously, a leadership position in QKD. We have a leadership position in optical interconnection space and also leadership position in quantum sensing and space and atomic clock. So there's a good amount of I think both U.S. and allied enthusiasm for different configurations of what we're opting we'll update the market, obviously, as we can and as we make progress. Operator: Our next question comes from Antoine Legault of Wedbush Securities. Antoine Legault: Congratulations on the results as well. With regards the time line compression for Q-Day. I think, Inder, you mentioned it briefly, but are you seeing a shortening of the sales cycles within enterprise customers? Or put differently, is there more impetus for enterprises to migrate to PQC standards? And has that driven any acceleration in revenue growth recently? Inder Singh: Look, I can't comment on industrial customers before. We are seeing customers wake up to the fact not just because we're saying it, but Google saying it others are saying it, right? I mean there's an acceptance now that things are about to change in a very radical way in a very short time line. And if you look at our road map, our road map probably gets us there before many other companies. So when we look at the need for creating solutions that solve chemistry problems or, to your point, encryption as well. We also have to ensure that we are ready to secure our customers. And we're starting to see the conversations start around let's talk about security. So as I said earlier to a prior question, that has become more prevalent now than it was a year ago for sure. I'm not going to tell you that everyone is thinking, "Oh, I need to do something for tomorrow. I think people are realizing it's not 20 years away. So that's what they were hearing from some others in tech. We were saying quite the opposite, right? We were saying we're going to build the most powerful computing devices on the planet, and we are. So I think that the national conversation when you have the compute power that creates enormous amounts of exponential amount of compute, energy and power and then solutions that help guard us today so you can deploy the compute solutions you want and secure what matters to you. We're very unique in that mission. Antoine Legault: And just a quick follow-up. On the recent Florida [indiscernible] announcement, can you give us a sense of the scope of that engagement, what it means for the company? Or just more broadly, do you see that as a replicable model in other states or jurisdictions. Niccolo de Masi: Yes. So it's a phased contract. And obviously, it will connect a limited geography to start with, but there's ambitions from Florida's Secretary of Commerce to expand that to be a statewide initiative Universities are leaning in, obviously, in Florida. The state is also leaning in. And I think they recognize that as Q-Days coming earlier, the need to secure critical infrastructure for the state continues to climb. And it's now inside the planning horizon for both enterprise and government partners when we're talking about something that is 2 or 3 years away, not a decade away, right? And so all of a sudden, and there's broad agreements, we were the early mover and leader on this last summer, but there's now a very broad agreement, right, between geopolitical competitors through to large enterprise, non-Quantum enterprise and, of course, ourselves and Quantum enterprise that this is very much something that if you're a CIO, CTO, a CISO, you now need to plan in because the chances of your job, life expectancy running right through this have just skyrocketed, right, in the last year. So it has been a nice piece of momentum uptick for sure, Inder mentioned landing and expanding. And I think this is, for sure, part of that precise strategy. I think we're just getting started here, obviously. And so we will be growing in sophistication. As you can see in our presentation. We talk about security as a key tenet of what it is that we provide, and we've been investing in this as well. So I'm looking at Page 10 in particular, when I talk about the full stack of cyber for the Quantum era, right? And that stack is going to get deeper and broader itself also, and we intend to be the leading player here, obviously, as we are today. Operator: Our next question comes from [ Nehal Koski ] from Northland Capital Markets. Unknown Analyst: The $12 million impact from SkyWater, is that 100% realized in COGS? Would that have been 100% realized in COGS? Inder Singh: The expenses I talked about? Unknown Analyst: Yes. Inder Singh: Yes, it's more R&D tooling and things like that. Unknown Analyst: Okay. So then can you talk to the driver of gross margin being down about 600 basis points Q-on-Q. Inder Singh: Yes. I mean I've said this on prior calls, and I want to make sure that I make this very, very clear. This is a nascent industry. This industry in which scale will build over time. We are very focused on gross margin, obviously. We start with a huge advantage. Niccolo mentioned this earlier. We have a bill of material that is a fraction of the cost of any other modality. So you start with that and then you add capabilities on top of it. The better way to think about a business like this or frankly, any other high-tech business on the cutting edge, whether it's AI companies or sell to others, is EBITDA, and that's why we guide EBITDA because R&D is a big component as much as you're focused on COGS, yes, I am, too. But R&D is an important ingredient in our recipe right now, to maintain and accelerate into our road map. So that's what we look at. Yes, as our revenues are doubling this year and maybe more than doubling this year for the guidance, and continue to grow, we have the ability to then drive a cost margin across the goods sold focus as well. At the moment, it's a mix of things. It depends on what you sell more of in any given quarter. So I would not assess on the gross margin. I'd urge you to think more about a more fulsome view, which is EBITDA margin. Unknown Analyst: Okay. Great. Two more questions, please. Niccolo, the walking cat architecture, can you discuss what you see as the advantages relative to some other new relatively qubit architectures, specifically qubit architecture, specifically? Niccolo de Masi: Yes. I mean, look, the main advantage is ours is shop ready, and we're ready to go, and we've gotten there first as we have with everything else in more detail and more constructability, right? It is simple. It is all to all communication. It is parallel gate, okay? And we're going to have a lot more physical qubits, which means more logical qubits given our error correction ratio is very low on a single chip, right? So we'll be able to tackle problems in the fault tolerant era that simply will not be tackleable by other architectures because they won't have enough logical qubits. 100 large qubits will not do, what, 1,000 or 10,000 large qubits can do on a single chip where it can communicate quickly to each other and seamlessly to each other. The parallel gate aspect, I'll highlight because that's really quite unique. And I would also say that if you go through our BOM, or bill of materials, we announced last September, our Analyst Day at the NYC that our bill of materials in 2025 was under $30 million. That's truly astonishing. It's manufacturable. It is low. It is modest energy consumption. It is modest BOM. And because of the way architecture is built, it's really quite robust, right? We don't have a bunch of dilution refrigerator requirements that drives energy cost, space, and BOM up a long way quickly. What we have is something that can fit near the front line, can fit in your basement type thing, can fit in a normal data center, right, section of an office or a building. And because we also control a lot of the IP, I would argue all the best IP for networking and memory, we have extensibility to full data center offerings already being worked on already being built in. My friend Inder here mentioned hybrid workflows, hybrid data centers are coming. There's a recognition of that need. And IonQ, because we're networking forward and always have been, has thought about obviously how that component will fit into our architecture as and when we would like to roll out. You see customers beginning to obviously work on that, whether it's AFRL and others as early as last year, that's going to accelerate, obviously, an enthusiasm is my prediction. So built for scalability is really my summary here, right? It's modular, it's simpler, it's regular and it uses, of course, manufacturing techniques that are well proven, so we can move quickly and we can move at global scale. Unknown Analyst: One of the things that jumps out to me from the explanation that you just gave was the scalability. And I think that you're intimating towards a better error correction capability, lower physical to logical qubit ratios. Is that contemplated in the long-term road map that you guys had laid out a year ago where when you're talking about a 200,000 physical qubits, you're at 8,000 logical qubits, that basically implies 25 to 1 -- is that -- was that already contemplated that you were going to be moving forward with a walking cat architecture that enables the relatively low physical to logical qubit ratios? Niccolo de Masi: Yes, for sure. I mean this is -- we've been very clear on this, I think, in every meeting call and presentation we've done, right? Because we have the highest fidelity, 49s because we've proven ion transport and ion 49s and we -- yes, we've been working with architecture for a long time. I mean it's a multiyear effort, not a multi-week effort type thing. So yes, I mean, when we publish things in our road map, we have a very high, what I would call, do say or say do ratio, right? So end of the day, we do what we say we're going to do both technically and of course, financially each quarter and each year, and we're proud of that. And these are the goals that our entire team very much prides himself on delivering step 1 and then overdelivering against thereafter. So yes, I mean I'm very proud of the team. We're proud to be there first yet again. I'm not surprised because I said that we would get there last summer. First, and we continue to march right up this curve right on schedule. Unknown Analyst: Okay. Great. And real quickly, do you have the average duration on the RPO. Inder Singh: I mean -- but you can imagine that it's multiyear. In our [indiscernible] that will be filed, we'll break out for you what percent of that will turn into revenue in this year and then the rest of it turns into future years. What I like about it is we're talking years, right? I'm not talking about 1 quarter visibility. You start to look beyond a quarter, you can now focus on the long term. You can talk about R&D investment for the next 5 years. And you asked a really go question. And by the way, congratulations on launching coverage on the quantum sector and welcome to the party and the enlightened side. The thing that I would urge you to keep in mind though, and I know you know this, modalities that have lots of errors to start with, talk about error correction, modalities that have very few errors do not talk about error correction. Whether lucky or smart, the founders of this company 3 decades ago, [ victor ] modalities that have highest coherence, best fidelity, lowest error rate. 3 of the 4 ingredients that you absolutely must have. The fourth speed, so we are now trying to build the fastest, most powerful computing devices on, I think, the market today and probably in the coming years. We talk a lot about U.S. questions around cost of goods and things like that. customers think about total cost of ownership. Think about what it means to buy a superconducting based solution, which is great, no NOC. But then you have the operating costs after day 1. So we don't suffer from that. We don't suffer from the bill of materials issue. We are more around creating the best and most, I'll call it, app and App Store and iPhone analogy, which Niccolo talked about a lot. And if you think about that, as we build the next computing device, i.e., the next iPhone, we're also, at the same time, building the applications that can run on. That's really important. Keep that in mind just as much as we think about the power of the machine. That's number one. Number two, we're not just a maker of machines anymore. We are a maker of solutions, entire solutions end-to-end. So it's a platform company. And I think customers are starting to talk more around that and saying, let's talk about that other side of your portfolio, and then we'll come back to [indiscernible]. Operator: Our next question comes from Peter Pang of JPMorgan. Peter Peng: Just on the near-term question, you guys gave an updated annual revenue guidance. And just based on your second quarter guidance, it would imply a pretty flattish revenue through the remainder of the year? I know you guys talked about expanding capacity to accelerate the demand. To what extent are you still constrained as we look out in the back half of the year here? Niccolo de Masi: We're exercising proven look, it's a nascent industry, right, Peter. I mean, thank you for the question, by the way. It's a good one. Look, when we guided for Q1, a quarter ago, we guided for a number you saw. We beat that by $15 million. Not that we expect it to be the -- $15 million, but we knew we would work towards what we've been doing for 4-plus years, providing guidance on technology and financials, and trying to either meet or exceed on both. So I think stay with us on the journey. As we look at this company and the potential it brings, the total cost of ownership differentiation, which no 1 is really talking about yet. The fact that we can deliver the 10,000 machines and then the 20,000 beyond. And to someone's question earlier, it becomes a modular upgrades, modular upgrades, not a machine replacement at that point. So you get a sticky, very, very sticky relationship with the customer and the mutual dependence. So thank you. I appreciate your question. We are trying to be responsible stewards of investment, capital and what we say to investors with the hope that we can at least meet those expectations that we set out there. And last 4, 5 years would suggest we can actually even beat them. Peter Peng: Great. And then just for your next -- the 10,000 qubit chip, can you update us on the time line? Is that a calendar '27? Or is it calendar '28? Maybe just update on timing of that? Inder Singh: Yes. Look, I think we are focused this year on the Tempo, right? So 2026 when we last spoke, 2026, Tempo, 2027 in market 256 year after that in market 10K. Now because we have a team that is integrated across our compute now under leadership unified leadership, I would say, Matt, perhaps we can do things differently, perhaps we can do things more efficiently, maybe even faster. So we will invest in continuing to move our road map to the left. You've seen us do that twice. When we bought Oxford ionics, we moved our 5-year road map to the left. And when we announced the proposed acquisition of SkyWater, and we'll wait for the right approvals to happen, of course, and all that, we will be able to perhaps move, as you saw in our announcement, the road map yet again to the left. So the investment dollars that we have and the capacity to keep putting money into this business and delivering solutions faster and yes, financial outcomes also perhaps earlier and better, is what we're focused on. So 10k and this year, Tempo, next year, the 256 year after that 10k, my colleague, [ Chris Balance ] at Oxford who obsesses over this 24/7 and his entire team are making sure that they can execute with precision for more and more demanding customers. Our devices are not in the labs anymore, remember. Our devices are deployed in hybrid compute environments around the world, and those folks expect machines to work like turn on day 1, work, and provide the compute power that they need and the application development. So it's a continuing dialogue. We're happy to have it with you, Peter. It's an interesting evolving area. And when Niccolo and I joined the board 5 plus years ago, we didn't think the industry would be where it is perhaps 5 years from now, we'll look back and say, wow, so $3 billion of investment power, perhaps more singular focus on meeting the customer where they are, not trying to outcompete anyone else except ourselves, compete against ourselves, that's how you win, and that's our focus. Operator: Our next question comes from Vijay Rakesh of Mizu. Vijay Rakesh: Great to see solid guidance. Just 2 quick questions, 1 on short term and 1 on longer term. On the short term, as you look at that mix of hardware and platform services, should that mix be about the same going forward? Or do you expect 1 to accelerate? Inder Singh: Again, I think it depends on where the customer begins their journey with us, right? So again, #1 rule in business meets the customer where they are, meet their current need, understand what they need before they try to sell them something, and then do the land and expand and anything else in cross-selling that you want to do. So rather than worrying about which part, which product of our doesn't would be growing more than others. I look at the whole company -- that's how Niccolo looks at it, we look at it as 1 P&L, and we're trying to drive outcomes for our customers. The good news is the multiproduct sales that we just talked about, are demonstrating that customers are maybe starting with 1 and then adding more than one. And I hope that number will continue to grow over time. Our focus on 1 P&L, 1 R&D capability across the company, teams focused on the best efforts in terms of driving innovation. And our job is basically making sure that they succeed and create innovation to happen faster and faster. This is not about Moore's Law. This is way faster than Moore's law, right? You know. So that's how we look at it, Vijay. Vijay Rakesh: Got it. And then on your 2027 you have the ambitious plan of getting to 10,000 physical and 800 logical, how is that looking, I guess? Inder Singh: Yes. Early indicators, as we said in the prepared remarks on the 256, last quarter, we said we had already started to make progress on the tape-out. This quarter, we started to do system-level testing on 256. So when you get comfort with that generation of product, you can now turn your focus to the next, right? And it's always like a learning curve. Niccolo well. There's always an curve, but there's also a learning curve. And each learning curve helps you with the next one. Niccolo, I don't know if you want to add something. Niccolo de Masi: Well, no, I want to add to this is we're working on 3 generations in parallel. Obviously, we've talked in my prepared remarks about our success in the first quarter on the 256 tape-out with SkyWater. We expect continued progress, momentum, success there. Obviously, the difference between our architecture and what you might see in the marketplace is we've published the shovel-ready blueprints, right? We've been working on that for quite some time. We've published it. And our architecture is very scalable, very unique, very modular. And ultimately, it is something which is fully proven already in terms of what the components need to be, right? It's simple. It's regular. It has unified error correction, it's got parallel gates and execution. And ultimately, it's got subroutines with dedicated components tiled in the hierarchy on each chip. And so going from 10,000 to 100,000 to 1 million is not a particularly demanding leap. I think if you looked at what has been driven between generations of classical GPU architecture, I would argue that we are on parallel or simpler, right? And so we look at this scaling now, as we've said repeatedly last year as really an engineering challenge. Everything in our blueprint is extremely realistic in terms of the constraints and the specific details on the competitive design, the error correction, the hardware control systems, ion movement, parallel gates, the fidelities that we're acquiring are all less than what we've proven in the lab already, right? So I'm not saying that it's not hard. I'm not saying that there won't always be some things that sort of crop up when you move from a few systems to dozens or hundreds or even someday thousands or millions of systems. I mean that's all possible with this architecture. But nevertheless, it is all very digestible and it's been done many times in the history of humanity, right? So I think every -- of course, every year, it becomes yet more proven out. We sell more systems, and we prove out another generation. But the hard work has been done on this architecture on the components of the architecture that have all been demonstrated in the last year and years for that matter. This is really the culmination of 30 years of work. And the reason we're ahead is we've been thinking about it longer than everybody else. We built the first Quantum Longi gate in '95. And today, we have the highest 2-qubit gate fidelity. And of course, we also have the first shovel ready blueprint because we're not resting on our laurels. We can continue to put the pedal to metal and we keep pushing this. And we keep investing, and we will continue to do that. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Niccolo de Masi for any closing remarks. Niccolo de Masi: Thank you, operator. As I shared in our annual letter to shareholders last week, my personal journey with IonQ dates back to reading our founders seminal paper on the world's first phonologic gate as an undergraduate physics student in the 1990s. That moment was a shot heard around the world for anyone passionate about quantum mechanics and it cemented my commitment to this company's mission. Today, 1 year into my role as Chairman and CEO, IonQ has evolved from a quantum computing pioneer into the world's preeminent full stack Quantum platform and U.S. merchant supplier. We're the only company delivering integrated solutions across quantum computing, networking, sensing and security in all major and allied geographies and in all domains from submarines to satellites for the warfighter. We believe passionately in the importance of our merchant supply mission for the U.S. and allied quantum industry. We are investing and building a foundation to support the acceleration and commercialization of the entire quantum ecosystem as we have already done with our atomic clocks, sensors and quantum networks. Our North Star is the pioneer of Quantum Solutions and quantum applications that create durable value across global industries, and we are poised to transform sectors spanning pharma, finance, energy, defense, materials, logistics, GPS, cybersecurity and far beyond. Our revenue momentum underscores how we are already positively our global customers in these domains. We have 1,500 world-class professionals, comprised of over 300 PhDs and the deepest IP portfolio in the industry with over $3 billion of cash on the balance sheet. We are now moving from Quantum platform building blocks to Quantum platform execution at scale. IonQ is 1 platform, 1 team, primed and poised to win. I want to thank our shareholders for their continued trust and our colleagues for their extraordinary efforts. Thank you again for joining our call. We look forward to 2026 with confidence. Operator: Thank you. This call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Chegg, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. The question and answer session will follow the formal presentation. Please note that this event is being recorded. I will now hand over to Tracey Ford, VP of Investor Relations. Please go ahead. Tracey Ford: Good afternoon. Thank you for joining Chegg, Inc.'s First Quarter 2026 Conference Call. On today's call are Daniel Rosensweig, President and CEO, and David Longo, Chief Financial Officer. A copy of our earnings press release along with our presentation is available on our Investor Relations website, investor.chegg.com. A replay of this call will also be available on our website. We routinely post information on our website and intend to make important announcements on our media center website at chegg.com/mediacenter. We encourage you to make use of these resources. Before we begin, I would like to point out that during the course of this call, we will make forward-looking statements regarding future events, including the future financial and operating performance of the company. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important factors that could cause actual results to differ materially from those in the forward-looking statements. In particular, we refer you to the cautionary language included in today's earnings release and the risk factors described in Chegg, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission, as well as our other filings with the SEC. Any forward-looking statements that we make today are based on assumptions we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. Our GAAP results and GAAP-to-non-GAAP reconciliations can be found in our earnings press release and the investor slide deck found on our IR website, investor.chegg.com. We also recommend you review the investor data sheet, which is also posted on our IR website. Now I will turn the call over to Dan. Daniel Rosensweig: Thank you, Tracey, and thanks, everyone, for joining Chegg, Inc.'s first quarter 2026 earnings call. Q1 was a strong quarter. We exceeded our expectations for revenue, profitability, and free cash flow while still significantly reducing debt, and we continue to optimize our cost base and capital expenditures. These results reflect the deliberate work we have done to re-architect Chegg, Inc. Our financials, our corporate structure, and our product experience are all optimized around AI, and the results are showing. The business is leaner and better positioned for future growth with high margins. Leveraging artificial intelligence, we provide a differentiated experience as we personalize learning paths, identify where learners are struggling, and trigger targeted interventions from coaches or systems before a learner falls behind. AI also allows us to create and update curriculum fast enough to keep pace with how quickly skills, especially AI skills, are evolving. All of this allows us to deliver better outcomes without increasing costs. We continue to expect double-digit revenue growth in skilling for the full year 2026, with acceleration as the year progresses. We are seeing positive traction broadly across skilling, including the addition of new enterprise partners and channel partners and momentum in the global category leaders across manufacturing, consulting, professional services, and technology. Notably, we recently signed a partnership with Cornerstone, a leading learning and talent management platform. This is expected to open up a meaningful enterprise distribution channel for Chegg, Inc. Skills and connect us with customers at scale. And for the first time, we are expanding our skilling platform through accredited offerings. With Wolf, a partnership we announced last quarter, we are launching our first AI master's program, combining applied learning with recognized credentials. We take the same AI-first approach in our language learning offering, as we are moving beyond structured lessons towards real-time, in-workflow coaching, helping learners apply skills in the moments that matter the most. What differentiates our offering is that AI enables us to surface skills performance data that HR and learning and development leaders can act on, shifting the conversation from reporting on learning activity to demonstrating measurable language capability in the workflow. Skilling is a large and growing market, and we believe we are building the most credible, outcomes-driven platform in the space. In our 2026 Skills for Business Impact report, more than [inaudible] of graduates surveyed report applying their new skills immediately. 43% say they are working more efficiently, and 41% report improved quality of work. On AI specifically, 75% of graduates report increased confidence, and 43% are actively applying those skills on the job. The impact extends to employers as well. 80% of the graduates we surveyed report a positive career impact, and 92% remain with their employers six to twelve months after completing the program, with 62% citing employer-sponsored education as a key reason for staying. Our investments in skilling are funded by the strong free cash flow being generated by Chegg Study, which outperformed our expectations in Q1. While search headwinds continue to impact traffic for Chegg, Inc., retention remains strong, an indicator that students continue to find real value in our product. The financial foundation we have built is what makes everything we are building possible, and it reflects the kind of focus and discipline this team has. Six months ago, I returned to Chegg, Inc. because I saw a company with all the ingredients to win: a trusted brand, proven curriculum, outcomes data that demonstrated a real return on investment for our customers, and an expanding global network of enterprise and institutional partners. What we needed was focus and clarity to lean into the opportunities ahead of us. In the last six months, this team has removed approximately 40% of our costs, put us on a path to zero debt, increased our free cash flow, and retooled the business to be AI-first, giving us a strong foundation to grow from. As a result, I am confident about the category we are in, the momentum in our skilling business, and the strength of our balance sheet. I feel confident about the opportunity in front of us and our ability to drive value for our shareholders and our customers. I look forward to updating you on the next call. With that, I will turn it over to David. David Longo: Thank you, Dan, and good afternoon. Today, I will review our financial performance for 2026 along with the company's outlook for the second quarter. Building on the progress outlined in our last earnings call, we delivered a strong first quarter, which exceeded expectations. Our results reflect continued execution on our priorities and increasing momentum in our businesses. Our strategic focus on the large and growing skilling market positions us for long-term sustainable growth with strong margins, while we leverage AI across the organization to improve efficiency and drive meaningful improvements in profitability and cash generation. In the quarter, Chegg, Inc. Skilling generated $17.6 million in revenue, representing 9% growth as we continued to invest in the business. We also signed exciting new distribution deals which we expect to contribute in the second half and help drive double-digit skilling revenue growth for the full year. Academic Services revenue was $45.7 million. We continue to manage this business with a focus on maximizing cash generation, which exceeded our expectations this quarter. While traffic remained under pressure, monthly retention rates were very strong in the quarter, further extending the operational runway of the business. Turning to expenses, non-GAAP operating expenses were $36.4 million, reflecting a reduction of $44.1 million, or 55% year-over-year. These results reflect our disciplined approach to expense management. We will continue to identify additional opportunities, including enhanced use of AI, to drive further efficiency. Importantly, these actions are generating cash flow that we can invest in our future growth. Adjusted EBITDA for the quarter was $15.5 million, representing a margin of 24%. We also delivered positive net income in the first quarter for the first time in two years. First-quarter CapEx was $1 million, down 88% year-over-year. For 2026, we are targeting a 60% reduction in CapEx with approximately 90% dedicated to our growing skilling business. Free cash flow in the quarter was $3.1 million, which includes approximately $12.9 million of severance payments related to prior restructuring actions. We expect an additional $2.1 million of severance payments in the second quarter. Despite these items, we expect to generate meaningful free cash flow in 2026. Looking at the balance sheet, we ended the quarter with $67.9 million in cash and investments and a net cash position of $34.1 million, providing us flexibility as we execute on our priorities. Looking ahead to Q2 guidance, we expect Chegg, Inc. Skilling revenue of $17.5 million to $18 million, total revenue between $49 million and $50 million, gross margins in the range of 51% to 52%, and adjusted EBITDA between $5 million and $6 million. In 2026, our capital allocation priorities remain focused on maximizing free cash flow, strengthening our balance sheet, and fully repaying our convertible debt by September. Additionally, we will continue to evaluate opportunities to deploy capital, including through our remaining securities repurchase authorization, with a disciplined approach aligned to long-term shareholder value. In closing, we have taken deliberate actions to position the company for long-term success. We are leaner, more efficient, and well positioned for double-digit growth in our skilling business and meaningful free cash flow in 2026, putting us on a clear path to sustained growth, profitability, and increased shareholder value. With that, I will turn the call over to the operator for your questions. Operator: We will now open the call for questions. Ladies and gentlemen, we will now be conducting a question and answer session. Please note, for participants making use of speaker equipment, it may be necessary to pick up your handset before pressing the star keys. If you would like to ask a question, please key in star and then one. You may key in star and then two to leave the question queue. Our first question comes from Ryan MacDonald of Needham & Co. Please go ahead. Ryan MacDonald: Thanks for taking my questions. Daniel, maybe on the Chegg, Inc. Skilling business, the trends you are seeing there, can you maybe unpack the two segments a bit in Q1? What were you seeing across B2B language learning versus Chegg, Inc. Skills? And then as you think about the back-half-of-the-year acceleration in growth and getting to the double digits, what kind of visibility do you have, or do you get from the partners, as you add those and those additional channels throughout the year? Daniel Rosensweig: Yeah, great question. It is exactly what we look at. So the trend in the first quarter was very strong because there were three things that we wanted to accomplish. On the cost side, we reinvented the way we are able to build content utilizing AI and the user experience, allowing us to scale at a lower cost with a higher quality using AI versus necessarily using humans. And we applied that across both what you would call the traditional skilling and the language skilling. We combine those businesses because whether we sell through channels in the U.S. or directly to corporations or businesses—or “corporate,” they call them in Europe—they actually buy them both as skills. So we are working to combine package and offerings to be able to offer both of those things. What you will see going forward is some pretty exciting capabilities that AI allows us to have, which is real-time intervention inside the course or inside the use of language, which we think will make them extremely valuable, and we expect to be able to see increased retention and utilization of those products going forward. They are rolling out now. The question over how these accounts build: So before I came back, Chegg, Inc. had one channel distribution, which was Guild, and we still have Guild, and Guild is still a terrific partner. However, we needed to renegotiate the contract with Guild to allow us to work additional partners, which we did not have the ability to do before. So what you have heard from us from announcements is that since the beginning of the year, we were able to renegotiate that and sign on a number of distribution partners for the combined assets of our skilling. So whether it be the skills, the skills with the language, or the language—all of those have yet to launch. We have signed those agreements, and we are building the courses, and we expect them to launch somewhere around—some of them—somewhere in this quarter, and then to build over the course of the year. So the reason we feel very comfortable at this moment in time is because we have set each of those to build revenue over the course of the year and then really accelerate going into 2027. So we are excited about that. So the first step was redesign the products and services to be more AI-centric—lower cost, better quality of outcome for the students. Second one was liberate ourselves from a single deal to be able to sign more deals, then sign more deals, which we have. You heard the Cornerstone, which we signed and announced today. You heard us announce Wolf on the last call. We have others signed that are not yet announced because our partners would prefer not to announce them until they actually launch, because they do not want to confuse the people in their channel. So we feel good about the fact that we have signed a number of deals that should build over the course of the year. None of them have to build particularly large for us to achieve the 10% year-over-year growth rate target that we desire for this year, and we expect that they will roll out shortly and continually over the course of the year. So it is pretty exciting. Ryan MacDonald: Really helpful. And then a trend and theme we have been hearing in the enterprise skilling and learning market this year is more commentary about learning in the flow of work—essentially the concept of if I am in my day-to-day role and whether I am interacting with Salesforce or whatever system I am in, it is pushing more learning as I am going through and using those tools. As you think about your content catalog, are you shifting what type of content you are building or the format you are building in to meet this new kind of thematic demand, if you will? Daniel Rosensweig: Yeah, that is exactly correct. You have tapped into—you know, I am used to three-letter acronyms, but this is the new terminology in terms of what people want to do. What does it really mean? It means that whatever you are teaching them should be able to be used while they are actually using the capability inside their company, and agents allow for that to happen in particular. So I will give you an example on the language side, which may be easier to understand. Let us say you are using VUSU to learn a language to be able to negotiate deals because you are in business development or legal or business affairs or something of that nature. The capability that we are building in—which goes to exactly what you said—is something that we will call Pulse, and so you might be negotiating in real time, and Pulse will be able to prompt you, in real time and in the flow of work, what language or capabilities or techniques you might need to use. So it goes beyond just the language, but into actually not only what to say, but how to say it. So yes, it all has to be inside the workflow. And within Skills, even within our Academic Services, we are building some of those capabilities, which we think is some of the reason that we are able to slow down the decline and extend the length of time, which will generate more cash for us. It is because you can go right inside and say, “Listen, do you want to learn how to do this right while you are here?” So think of it as just real-time intervention at the moment for what the person needs, where the technology can blend into what you are doing and what it is capable of doing. And yes, that is exactly why we retooled the company. In addition to that, there are a couple of elements that I believe the AI era is ushering in. They all seem pretty common sense, which is speed—how quickly can you do something? So some of our partners are requesting content every two weeks now rather than every quarter or every year. The other one is reduction of friction, which is at least partially what you are talking about, which is how do you remove all friction from the experience—for the users of it as well as the creators of it, as well as the distributors of it, as well as the buyers of it. So every step that you could take out of the way, you can do for the person while they are in it, is what you do. And then quality—the ability to do consistency of quality at scale, which is something difficult for humans to do and less difficult for machines to do. So all of that is at the core of what we are building. We think we are ahead of most people, and at least our partners hear we are ahead of most people, which is why we have been able to sign so many deals so quickly. Ryan MacDonald: Awesome. Appreciate all the color there. Thanks for taking my question. Daniel Rosensweig: You bet. Great question. Operator. Operator: Apologies, sir. Ladies and gentlemen, with no further questions in the queue, we have reached the end of the Q&A. This concludes this event. Thank you for attending, and you may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Royalty Pharma First Quarter 2026 Earnings Conference Call. I would like now to turn the conference over to George Grofik, Senior Vice President, Head of Investor Relations and Communications. Please go ahead, sir. George Grofik: Good morning and good afternoon to everyone on the call. Thank you for joining us to review Royalty Pharma's first quarter results. You can find the press release with our earnings results and slides of this call on the Investors page of our website at royaltypharma.com. On Slide 2, I'd like to remind you that information presented in this call contains forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from these statements. We refer you to our most recent 10-K on file with the SEC for a description of these risks. All forward-looking statements are based on information currently available to Royalty Pharma, and we assume no obligation to update any such forward-looking statements. Non-GAAP liquidity measures will be used to help you understand our financial results and the reconciliation of these measures to our GAAP financials is provided in the earnings press release available on our website. And with that, please advance to Slide 3. Our speakers on the call today are Pablo Legorreta, Chief Executive Officer and Chairman of the Board; Chris Hite, Chairman, Partnering and Investments; Marshall Urist, EVP, Head of Research and Investments; and Terry Coyne, EVP, Chief Financial Officer. Pablo will discuss the key highlights, after which Chris will discuss the growing opportunity for R&D co-funding. Marshall will then provide a portfolio update and Terry will review the financials. Following concluding remarks from Pablo, we will hold a Q&A session. And with that, I'd like to turn the call over to Pablo. Pablo Legorreta: Thank you, George, and welcome to everyone on the call. I am happy to report a strong start to 2026 as we execute towards our goal to be the premier capital allocator in life sciences, with consistent compounding growth. Slide 5 summarizes our strong business momentum in the first quarter. Starting with the financials, we delivered 10% growth in portfolio receipts, our top line and 13% growth in royalty receipts, which are our recurring cash flows. The sustained double-digit momentum was driven by strength of our diversified portfolio. We also maintained strong returns in our business with returns on invested capital of around 14% and returns on invested equity of around 20%. By combining strong growth and attractive returns, we're confident that we have a clear path to drive shareholder value creation. Turning to capital allocation. We had a busy quarter with $1.25 billion of announced transactions on 3 attractive therapies, while capital deployed was in excess of $0.5 billion. We also repurchased 1 million shares for $50 million in the quarter and increased our dividend by 7%. Moving to our portfolio. We're thrilled to see a number of positive clinical and regulatory updates, including the extraordinary Phase III results for Revolution Medicines' daraxonrasib in pancreatic cancer and FDA approval of Denali's Avlayah in Hunter syndrome. We also expanded our portfolio through R&D co-funding agreements with Teva, which we discussed on our previous earnings call and recently with J&J for their autoimmune therapy 4804. Chris will highlight the growing market opportunity for R&D co-funding with global biopharma. Lastly, we were pleased to acquire a royalty on Jazz and BeOne's Ziihera, an approved cancer therapy with blockbuster potential. Looking ahead, we're increasing our 2026 full year guidance based on the strong business momentum I just highlighted. Slide 6 is one that I keep coming back to each quarter as it demonstrates our consistent double-digit growth on average since our IPO. We have delivered this impressive record year in, year out, regardless of the market backdrop. This speaks to the quality of our investment selection and our unique business model. In the first quarter, we also took major steps to strengthen our global platform and capabilities in partnering the Asia Pacific region and artificial intelligence. We have brought in exceptional new leaders to our team with Greg Butz, Ken Sun and Lucas Glass. Their expertise will support our long-term growth ambitions and help to strengthen our competitive moats as the undisputed leader in the biopharma royalty market. Chris Hite, who has served as our Vice Chairman throughout our journey as a public company, has moved into a new role as Chairman, Partnering & Investments. In this role, he will continue to expand our global relationship network and play a central role in transactions. Chris has been an incredible partner, and I'm delighted that he will continue to provide strong leadership and leverage his relationships in this role. With that, I will hand it over to Chris. Christopher Hite: Thanks, Pablo. I'm genuinely excited about the new capabilities we're building and the opportunity to forge even stronger, more meaningful relationships across the biopharma ecosystem. For my section today, I want to focus on the major opportunity we see for R&D co-funding with global biopharma. Beginning on Slide 9, we see R&D co-funding as a win-win solution for global biopharma and for Royalty Pharma. This market has enormous potential with over $1 trillion of cumulative projected R&D spend by global biopharma in the next 5 years. Co-funding arrangements allow biopharma to share risk at scale to enhance program return on investment to expand R&D capacity and to diversify pipelines. From Royalty Pharma's perspective, we see multiple potential benefits. These include unlocking a new market opportunity, gaining access to high-priority clinical programs, leveraging our partners' global development and commercialization expertise and the ability to conduct deep diligence to drive high conviction in our investments. Slide 10 illustrates the strong momentum for this funding modality. The demand by biopharma was impacted by accounting uncertainty last decade. But over the last several years, more clarity around contra R&D accounting treatment has resulted in a surge for co-funding deals. As an example, in the first quarter alone, we signed deals with J&J and Teva totaling $1 billion in announced value. On the right-hand side of this slide, you can see that the number of global biopharma companies that have utilized this funding modality has doubled since 2020, which underscores the growing acceptance of this form of funding. Slide 11 shows our capital deployment mix by funding modality and has -- and how this has changed over time and where we see it heading in the future. At the start of the 2000s, we were a business focused almost exclusively on acquiring existing royalties. Today, existing royalties remain a stable and important component of our capital deployment but we have evolved into a more diversified with a growing emphasis on providing capital through innovative funding structures, most notably synthetic royalties with emerging biopharma companies, which has been a key growth driver. While R&D co-funding with large biopharma companies has historically represented a smaller share of our activity, we see a clear opportunity to scale this significantly in response to increasing demand. Importantly, this shift creates meaningful upside potential. In addition, potential business from acquiring existing royalties that have originated in China, where we are actively building a platform represents another avenue for future growth that could drive the existing royalty market significantly. Slide 12 highlights a number of the R&D co-funding agreements that we have entered into since 2022. Together, these 5 highlighted deals at the time of announcement had the potential to provide up to $1.8 billion in capital to our partners, including up to $1 billion alone in the Teva and J&J transactions that we announced in the first quarter this year, as I previously noted. As you can see, these deals check the core elements of our investment framework. Specifically, each transaction involves a biopharma with deep clinical expertise and global commercial infrastructure and provides Royalty Pharma with royalty rights to a potentially transformative therapy covering a diverse range of indications. On Slide 13, I want to close by highlighting why we are so confident that Royalty Pharma is well positioned to scale R&D co-funding. Remember that we have been partnering with biopharma for approximately 30 years as we pioneered the royalty market. When we think about the depth of our relationships, our brand reputation, our responsiveness and our flexibility in structuring, Royalty Pharma is the clear leader. In addition, we take a long-term view with royalties and milestones paid over many years, and we have a cost of capital similar to pharma, so we can offer competitive pricing and win more deals. For these reasons, we expect to be able to capitalize strongly on this tremendous growth opportunity in the coming years. With that, let me hand it over to Marshall. Marshall Urist: Thanks, Chris. I want to focus today on several exciting updates to our portfolio. First, our recent royalty deal for Ziihera in approved cancer therapy; second, the incredible Phase III data that was recently disclosed by our partner, Revolution Medicines for daraxonrasib in pancreatic cancer; and third, a look forward to important upcoming events across our broad development stage portfolio. Beginning on Slide 15, we entered into a strategic funding agreement in March with Zymeworks, where we provided $250 million upfront in return for 30% of their royalty on Jazz and BeOne's Ziihera, which translates to a low to mid-single-digit royalty for Royalty Pharma. For those less familiar, Ziihera is a HER2-targeted bispecific antibody, which is FDA approved for a rare tumor, metastatic biliary tract cancer. From a patient and commercial perspective, the real excitement here is that Ziihera was recently submitted for approval in gastric cancer, which represents a particularly high unmet need with a 5-year survival rate of less than 10%. The pivotal study in this indication demonstrated an impressive 5- to 7-month or nearly 40% overall survival advantage over currently available therapies. In our view, this positions Ziihera to become the standard of care in this very tough-to-treat indication, supporting blockbuster potential. Consensus models include peak sales of Ziihera of greater than $2 billion. Based on this outlook, we expect the transaction to deliver attractive returns with an unlevered IRR in the low double digits. Moving to daraxonrasib on Slide 16. Revolution Medicines recently reported unprecedented results from the RASolute Phase III trial in second-line pancreatic cancer. On our last earnings call, I said that daraxonrasib has the potential to revolutionize this devastating disease, and these Phase III results certainly support this. The key headline is that daraxonrasib nearly doubled overall survival from just under 7 months with chemotherapy to over 13 months. These are truly remarkable outcomes for patients in the disease that has seen no true innovation for decades. The next step for Revolution Medicines is to submit for approval by global regulatory agencies, including the FDA under the Commissioner's National Priority Voucher that has the potential to speed the time to approval. In terms of the implications for Royalty Pharma, as a reminder, we agreed in 2025 to provide up to $2 billion in long-term funding to Revolution Medicines to help the company aggressively pursue clinical development and commercialization of daraxonrasib. With the positive data, Royalty Pharma has now invested a total of $500 million for a synthetic royalty that begins at 4.55% on sales up to $2 billion and then tiers down from there. Based on consensus peak annual sales of greater than $10 billion, we expect peak potential annual royalties to be in the range of approximately $180 million based on the currently funded amount and up to $340 million if they draw the additional $750 million of synthetic royalty funding. We are excited to see what the future holds for this incredible medicine backed by a phenomenal team. Next, I'll turn to our development stage pipeline and upcoming events. we're exceptionally well positioned for our next wave of value creation with a deep and innovative pipeline. Slide 17 shows that in addition to daraxonrasib, our portfolio has delivered a number of successful clinical readouts and regulatory approvals already in 2026. Just yesterday, we were thrilled to see the positive top line results for Myqorzo in its pivotal trial in non-obstructive hypertrophic cardiomyopathy. Other highlights include positive clinical trial results for Zenas' obexelimab in IgG4-related disease, positive Phase II results for Biogen's litifilimab in cutaneous lupus, FDA approval of Denali's Avlayah in Hunter syndrome and the filing of Nuvalent's neladalkib in ALK-positive non-small cell lung cancer. As you can see, there are plenty more events anticipated this year, and we expect these to lead to several new royalty-generating launches in 2026 and 2027. To highlight positive news on one of our pipeline products, last week, Teva announced the acquisition of Emalex for up to $900 million with regulatory submission planned for Emalex' ecopipam for Tourette's in the second half of the year. As a reminder, Royalty Pharma is entitled to royalties of 6% on ecopipam sales up to $400 million and 10% on sales of $400 million or greater. And we are excited to see ecopipam in the hands of Teva, a marketer with deep commercial expertise in neuroscience. Expanding on this theme, Slide 18 shows that there is much more to come from our development stage pipeline with multiple major pivotal readouts expected over 2026 and 2027. Over the remainder of 2026, we'll see the results of the outcomes trial for Novartis' pelacarsen. We continue to believe that the Lp(a) class can be the next major class of drugs in cardiovascular disease, and we're perfectly positioned with the 2 lead pipeline products in pelacarsen and Amgen's olpasiran. We'll also see Phase III data for litifilimab in systemic lupus. In 2027, we expect pivotal data from Sanofi's frexalimab in multiple sclerosis and from J&J's seltorexant in major depressive disorder. We also expect Phase III results from daraxonrasib in non-small cell lung cancer and litifilimab in cutaneous lupus. Each of these potentially transformative therapies would add significant royalties to our top line. So to close, we see tremendous potential for our pipeline to unlock substantial value in the near term. With that, I'd like to hand it over to Terry. Terrance Coyne: Thanks, Marshall. Let's move to Slide 20. This slide shows how our efficient business model generates substantial cash flow to be reinvested. Royalty receipts grew by 13% in the first quarter, reflecting the strength of our diversified portfolio. Portfolio receipts, our top line grew 10% in the quarter, which was strong performance considering a sizable year-over-year decline in milestones and other contractual receipts. As we move down the column, operating and professional costs were 3.9% of portfolio receipts in the first quarter. This is a clear reflection of the benefit of the cash savings we are delivering from the internalization transaction, which we completed last May. Net interest paid was $167 million in the quarter. This reflects the semiannual timing of our interest payment schedule with payments primarily in the first and third quarters. Moving further down the column, we have consistently stated that when we think of the cash generated by the business to then be redeployed into value-enhancing royalties, we look to portfolio cash flow, which is adjusted EBITDA less net interest paid. This amounted to $722 million for the quarter. Our net margin of around 78%, again demonstrates the high underlying level of cash conversion and efficiency in the business. Capital deployment in the quarter of $528 million mainly reflected upfront payments for the Ziihera and Avlayah transactions and a milestone payment related to Trelegy. Lastly, our weighted average share count declined by approximately 4% in the quarter versus the prior year period, reflecting the impact of our share buyback program. Slide 21 provides more detail on the evolution of our top line in the first quarter. Royalty receipts, which we consider our recurring cash inflows grew by 13%. Key drivers were the strong performances of Tremfya, Voranigo and Evrysdi. In the case of Evrysdi, on top of the underlying growth, we benefited from the additional royalties we acquired in December. I should also note that we were able to absorb a 3% headwind to royalty receipts due to the loss of exclusivity of Promacta and still delivered double-digit growth. Moving to portfolio receipts. These grew by 10%, reflecting the lower onetime milestones and other contractual receipts. Slide 22 updates our portfolio return metrics for the quarter. Return on invested capital was 14.1% for the last 12 months ending in the first quarter of 2026 and return on invested equity, which shows the impact of conservative leverage on our equity returns was 19.7% for the last 12 months ending in the first quarter. As I've previously stated, we are in the returns business, and these metrics show that we are continuing to invest at attractive returns that will drive long-term value for our shareholders. Slide 23 shows that we continue to maintain the financial flexibility to execute our strategy and return capital to shareholders. At the end of March 2026, we had cash and equivalents of $586 million. In terms of borrowings, we have investment-grade debt outstanding of $9.2 billion and weighted average -- the weighted average duration is around 12 years. Importantly, Fitch recently upgraded our credit rating to BBB from BBB-. Our leverage now stands at 2.9x total debt to adjusted EBITDA or 2.7x on a net basis. We also have access to our $1.8 billion revolver, which is undrawn. Taken together, we have access to approximately $4 billion of financial flexibility through cash on our balance sheet, the cash our business generates and access to the debt markets. Turning to our capital allocation framework. We deployed $528 million of capital on attractive royalty deals in the quarter. At the same time, we returned approximately $186 million to our shareholders, including share repurchases of $50 million and our growing dividend. On Slide 24, we are raising our full year 2026 financial guidance. We now expect portfolio receipts to be in the range of $3.325 billion to $3.45 billion, up from $3.275 billion to $3.425 billion previously. This assumes growth in royalty receipts of around 4% to 8%, which reflects the strong underlying momentum of our diversified portfolio. Our guidance takes into account the loss of exclusivity for Promacta as well as the launch of biosimilar Tysabri in the United States and the potential impact of IRA. It also reflects an expected decrease in milestones and other contractual receipts from $128 million in 2025 to approximately $60 million in 2026. Importantly, and consistent with our standard practice, this guidance is based on our portfolio as of today and does not take into account the benefit of any future royalty acquisitions. For modeling purposes, we would remind you that several of our largest royalties, such as the CF franchise, Trelegy, Evrysdi and others are upward tiering royalties, which means they reset to a lower rate in the first quarter. As our royalty receipts lag reported sales by the marketers by 1 quarter, this has the effect of decreasing royalties sequentially in the second quarter. Given these dynamics, we are providing guidance for the second quarter portfolio receipts, which we expect to be between -- sorry, which we expect to be between $740 million and $760 million. Turning to expenses. Payments for operating and professional costs are still expected to be in the range of approximately 5.5% to 6.5% of portfolio receipts in 2026, reflecting cost savings from the internalization of the manager. Interest paid is still expected to be around $350 million to $360 million in 2026. Based on our semiannual payment cycle, we anticipate interest paid to be around $175 million in the third quarter with de minimis amounts payable in Q2 and Q4. This guidance does not take into account interest received on our cash balance, which was $6 million in the first quarter. To close, we have had a great start to the year. We have again raised our guidance, and we expect to deliver another full year of strong financial performance in 2026. Now before I hand it over to Pablo, I want to provide a brief update on the timing of the arbitration with Vertex. Based on the arbitration panel's final schedule, we now expect the dispute to be resolved by around the middle of 2027. With that, I would like to hand the call back to Pablo. Pablo Legorreta: Thanks, Terry. To conclude, I am delighted with our strong start to 2026. We have again delivered strong growth and returns. We've continued to diversify our portfolio of attractive biopharma royalties, and we have strengthened our leadership team and capabilities. I want to close on Slide 26 with a reminder of why we believe we're well positioned to drive strong value creation. First, we're the clear leader in the rapidly expanding biopharma royalty market with strong fundamental tailwinds, reflecting the huge demand for funding life sciences innovation. Second, we have a best-in-class platform for investing in the most transformative and innovative products marketed by premier biopharma companies, and we expect to remain the undisputed leader. I am confident that the expansion of our global platform and capabilities that I talked about today will further strengthen our position at the forefront of our industry. Third, we expect to deliver strong low volatility top and bottom line growth through 2030 and beyond. Lastly, we have an incredible track record of delivering consistent and attractive returns, including an IRR and return on invested capital in the mid-teens and return on invested equity in the 20% plus range. With that, we will be happy to take your questions. George Grofik: We will now open up the call to your questions. Operator, please take the first question. Operator: [Operator Instructions] The first question comes from Christopher Schott with JPMorgan. Hardik Parikh: This is Hardik Parikh in for Chris Schott. I think you set, like, a portfolio receipt target for 2030 of approaching $5 billion. I was just wondering now with these recent updates you've had in your development pipeline, can you talk about how much of that 2030 target is derisked? And how much do you think it comes from investments that are already commercial? Pablo Legorreta: Terry, that's a question for you, if you can please take it. Terrance Coyne: Yes. So Hardik, we feel like we're really on track to meet or exceed that target. The portfolio is doing really well. We've had a lot of positive developments. We've executed some great deals. So we haven't gotten into specifics on that at this point but feel like we're very much on track, feel very confident in meeting or exceeding that long-term guidance. Operator: And the next question is going to come from Mike Nedelcovych with TD Cowen. Michael Nedelcovych: I have 3, if you allow me. My first is on the arbitration update you just provided. Can you provide any insight into the reason for the pushout? Then my second question is on Myqorzo. How much of an advantage do you think approval in the non-obstructive HCM setting could be relative to Camzyos? And did you assume success of the ACACIA trial in your internal valuation? And then my third question is on frexalimab. The multiple sclerosis category is evolving somewhat rapidly, especially with the prospect of oral BTK inhibitors gaining approval. Has anything changed relative to your initial assumptions around frexalimab's competitive positioning, assuming it succeeds in the clinic? Pablo Legorreta: Thanks for the question, Mike. And I guess, Terry, you can take the question on arbitration and then Marshall will take the question on Myqorzo and frexalimab. Terrance Coyne: Sure. So on the timing of the arbitration, it's just simply based on the availability of the arbitration panel. Marshall Urist: So on your other 2 questions. So first, thanks for the question on Myqorzo. There were, I think, multiple parts to it, but just to give you our thoughts, we were really excited to see the data yesterday. And I think it's clear evidence that by the strength of the team in a well-designed trial and a really good medicine in aficamten. So multiple parts to your question. I think the first one was, did we assume that in our base thesis when we made the investment. The answer to that is no. The base investment was really premised on the obstructive, or the currently approved indication and its potential there. And I think the early evidence that we saw from the early launch with Cytokinetics yesterday is evidence of that, that the team is doing a great job launching into that market, and we're really excited to see where that goes. The adding non-obstructive to the label can only be helpful, right? It gives a broader label. It provides another patient population for doctors to use the medicine in. And overall, we will certainly be helpful in the launch and certainly upside to our original estimates when we made that partnership with Cytokinetics. Your third question was on frexalimab and on the multiple sclerosis market in general. No real change. I think if you go back in our view, despite some of the changes that are going on with oral medicines there. What we said at the time of that investment was what really excited us and what we saw as an unmet need and what continues to be an unmet need in that market is novel mechanisms that aren't solely focused on B cells. And so I think that opportunity in the market very clearly still exists, and we're really excited about frexalimab and seeing those data next year. Operator: And the next question comes from Geoff Meacham with Citi. Geoffrey Meacham: I just had a couple. The first one, maybe for Terry. You guys had a higher level of capital deployment this quarter or last quarter looking forward. Are you at the upper end of the range leverage-wise? Or is there a capacity constraint or just status quo? And then the second one, I guess, maybe for Marshall. In deals like RevMed or Servier where the royalties could really ramp pretty quickly based on the strong launch. Are there considerations on some of these types of products where you could add additional royalty investments depending on the pace of the launch? I think that -- I don't know if that's been under consideration before, but that seems like you'd want to add capital to drugs that are launching pretty quickly. Pablo Legorreta: Terry and Marshall, do you want to go ahead? Terrance Coyne: Yes. So Geoff, so on your leverage question, we're actually have quite low leverage right now, 2.9x total debt to adjusted EBITDA. And so we have a lot of financial flexibility. If deal flow increases, we feel like we absolutely will be prepared to invest if the right opportunities come along. I think we laid out in our slides that we have $4 billion of financial capacity, and that grows every quarter, as you can imagine. So we feel like we're -- the balance sheet has never been stronger. We're in a really great position there. Marshall Urist: And Geoff, on your other 2 questions. So on launching products and opportunities to deploy additional capital. So nothing specific with respect to the ramp. But I would say that the Voranigo launch, as you pointed out, has gone incredibly well, and we're so excited to have that as part of the portfolio. As a reminder, there is a sharing component to that one. So we do share a portion of the royalty above $1 billion with -- back to Agios. And then second, RevMed, we are -- as we talked about in the prepared remarks, we are really excited about those data, agree with you that the unmet need is so great that this could be a really rapid launch. As a reminder, the RevMed deal, we've done $500 million of the $1.25 billion of synthetic royalty. There are additional opportunities that will come at FDA approval, which we expect to see this year and then with a certain sales milestone and then there's a label expansion later on. So there are other opportunities. However, the future tranches are all at the option of Revolution Medicines. So -- and it was one of the really, I think, attractive and exciting parts of our partnership with them that it gave our partner lots of flexibility in terms of access to capital going forward. So there certainly is that potential, and we will see what happens in the months and years to come. Operator: And our next question is going to come from Jason Gerberry with Bank of America. Jason Gerberry: First is the policy question. I'm just curious how you guys are thinking about forecasting underwriting value for OUS launches around MFN risk, just given that we haven't really seen how pharma companies' launch behaviors and pricing strategies are mirroring in those select OUS markets. So in the absence of that concrete information, I'm just kind of curious how you guys navigate that risk. And then on the R&D co-funding deals flagged in the slides, the 2 recent deals, can you help us understand do the IRR expectations meaningfully differ at all for the co-funding structure versus, say, a traditional royalty acquisition? And if those 2 deals have like royalty payment capping mechanism embedded in them? Pablo Legorreta: Sure, Jason. Marshall, I think both questions are for you, the one on ex U.S. launches and also on co-funding. Marshall Urist: Sure, Jason. Thanks for those 2 questions. So on your first policy question on MFN, it's certainly something that we, I think, like the rest of the industry is thinking through. Agree with you. There isn't a lot of precedent. So we've taken the approach that we always have, which is to think through a lot of different scenarios and make sure that given the wide range of possibilities in the future that we're still comfortable with the investment. So I think certainly something that we are taking into account and making sure that we structure and protect us and all of our shareholders appropriately when we think about all the ways this could play out in the future. It is still very new. So I think we're in the same boat with everyone else trying to think this through. Your second question on R&D co-funding. So the first part of your question was on IRR expectations. I think as Chris outlined, our -- the answer to your question is no. We have said that our return expectations for products that are not approved are kind of greater than the low double digits. And so we certainly see returns in the IRR co-funding is very consistent with what we've communicated publicly in terms of return expectations. And so that's one of the reasons that we're really excited about that opportunity. In terms of capping, you asked about some of the structural features. We haven't disclosed all of the structural features for these. So it's a little hard to comment generally. But I think our philosophy when we put these together is we're investing in a Phase III program, and we certainly want to have every opportunity to explore and benefit from the full potential of these products, both in the near term as the indications that are certainly being pursued right now play out. But then in the long term, as there's potential for label expansion, geographic expansion and general market expansion of what we invest in. So our philosophy and our discipline in terms of how we structure these and how we make sure that we're getting appropriate risk-adjusted returns for us and for our shareholders are very much consistent with how we've been operating. Operator: And the next question will come from Ash Verma with UBS. Di Zhao: This is Di, asking question on behalf of Ash. Congrats on the quarter. I have 2 questions. The first one, can you update us on your view on thoughts about like potential royalty stream from Myqorzo? So I guess with the positive result now on non-obstructive, do you believe there's a halo effect on their ongoing launch in the obstructive side? And then my second question is, what are your thoughts on the consolidation among the smaller royalty players like Ligand and then XOMA Royalty recently. Does this scale up in any way increase the competition for you in the smaller royalty transaction space? Pablo Legorreta: Sure. So maybe I'll take briefly your question on competition, and then I'll turn it back to Marshall to talk about the Myqorzo launch. And in terms of competition, we did -- I mean, we follow it all the time, and it's not news to us. And in fact, that consolidation might even reduce competition when you have Ligand acquired XOMA. There will be less competition, 1 entity consolidating 2 companies. But the reality is that if you just think of those 2 players in the market, we have very significant advantages versus companies that are in the royalty space. Obviously, we've talked to many of these advantages in the past. Scale is one. But also another issue that companies that are interested in acquiring royalties have is that they're taxpayers. And as you know, we have a very efficient tax structure. And then other things like access to capital, in our case, it's significantly lower cost of capital and access to a lot more capital than the smaller players. So it's no real big change in competition. And at the end, as we said in the past many times, we think competition is a good thing. We welcome it because it just expands the market. It makes a lot of the potential partners that we do business with have many alternatives, and it just gives them comfort to know that it's a very dynamic market. So I'll turn it back to Marshall now for the question on Myqorzo. Marshall Urist: Yes. So on Myqorzo, certainly, yes, we believe that the positive data yesterday provide an advantage to aficamten in the marketplace. Having a broader label, having experience in a broader selection of patients can really only help the medicine as Cytokinetics launches it. So we're excited about the way Cytokinetics is going to execute in the current indication of obstructive disease and then certainly, the broader label and the nonobstructive data is only a tailwind to that. Operator: And the next question will come from Nick Jennings with Goldman Sachs. Nick Jennings: It's Nick on for Asad and the Goldman team. We have 2 questions. First, Chris, congratulations on the new focus with global biopharma R&D co-funding. Our question is on the implications of this as a growing part of the portfolio. Should we expect the complexion of the overall portfolio to shift over time as more of these partnerships are done with global biopharma companies? And then second, how is the China market progressing? Any update on what types of assets you're looking at there? And when do you think we'll see the first deal? Pablo Legorreta: Sure. Chris, why don't you take both questions? Christopher Hite: Okay. Great. Thanks for the question. In terms of the first one around the R&D co-funding, we have been investing in development stage products since 2012. And for us, it's really just expanding the opportunity when we're now seeing more opportunity to co-fund R&D at the large pharma stage. If you look at our capital at work slide, and it's -- I think it's in the appendix, you can see that roughly 85% of our capital at work is in approved products today and 10% is in -- roughly 10% is in development stage. And roughly 3% of those in development stage has already had positive pivotal results. So that's exciting for us. I mean it's a huge opportunity. These companies need a lot of money to fund their R&D. So we certainly are excited about the opportunity, and that certainly could lead to a greater percentage of capital work but we're going to be very disciplined in how we approach that. In terms of China, I'd just remind you, BeOne, obviously, we did the transaction with them last year that -- for Imdelltra, which is roughly $900 million. Obviously, that caught the attention of a lot of companies in China that look at BeOne as a great company originally coming out of China. We hired Ken Sun. He starts actually next week. He was the former Head of Asia at Morgan Stanley. We're super excited to have him on board. He will hit the ground running. We've obviously been to China a lot, the existing teams here at Royalty Pharma. So we are monitoring all of the out-licensing that's ongoing from China to Western multinationals. We have tracking those very aggressively. And I think the B1 transaction evidences to those companies in China, what a great opportunity is to potentially monetize those royalties they've created over the last 5 years or so. So we're super excited about China. Ken coming on board will really catalyze that effort. Operator: And our next question is going to come from Terence Flynn with Morgan Stanley. Terence Flynn: I guess 2 for me. Maybe first for Marshall, you could just provide your perspective on the J&J DUET data and what this ultimately might mean for the Tremfya tail given the co-formulation approach there. And then on the use of AI, I think many investors view the company as a beneficiary here. Are you able to provide any kind of case studies of how you're implementing AI across your enterprise and in terms of your processes and what that means in terms of number of deals or efficiencies that you can comment on? Pablo Legorreta: Sure. I'll take the first question or the second question on AI, and then I'll let Marshall take the other one. But data is extremely, extremely important for our business and for this whole ecosystem. Everything is based on data, as you know. And Royalty Pharma has been making significant investments in data for many years, decades. And we had in our Investor Day, a slide that actually provided a perspective on what we really mean by investing in data. We have about 200 million people's claims data for 200 million Americans. And we have relationships with great data providers that are feeding us this data continuously. We have electronic medical records for 44 million Americans and about 9 years of longitudinal data. And the way we use this is for our own internal purposes to make better investments, understand better what's going on with the products and how we forecast them. But one of the very exciting things for Royalty Pharma is to actually use data with our partners and share insights that we gain as we do our analysis and as we follow the ecosystem. And we think that is a differentiating aspect that is important to us because we don't see ourselves like others as purely capital providers but we see ourselves as partners with the companies that we're partnering with, where we can provide -- we add value by sharing data and insights with them, and they appreciate that. And in some cases, that has led to better terms on transactions. And we do have case studies, actually, I'll refer you to our Investor Day deck, a couple of them, where we have through claims data and other source of information have been able to identify asymmetry of information where we see drugs that we believe could have much stronger launches or peak sales than what others see based on data. One of those is, for example, Voranigo, where we realized when we made that investment that in that form of cancer, there were about 1,500 patients being diagnosed each year. But on the sidelines, about 15,000 patients that were not recurring to treatment because the options were not attractive, drugs that were toxic safety issues and not that effective. And obviously, when Voranigo came to market, it gave patients the opportunity to be treated with a drug that was very safe and very efficacious. And it brought into the market this warehousing of patients that existed. And that -- as a result of that, we were able to forecast a much stronger launch for Voranigo than I think anybody was seeing and then higher peak sales. And that's a case study. But one of the -- I'll finish just by saying that we're very fortunate recently to have hired Lucas Glass as Head of AI for Royalty Pharma. And he's going to be responsible for developing and implementing AI capabilities across our business including automating all of our diligence processes and strengthening how we evaluate and invest in royalties and also support our partners. Lucas comes from IQVIA, where he was the Head of AI for this huge company that serves our ecosystem. As you know, it's the biggest CRO with quintiles and also IMS Health, that part of the business was one of the biggest data providers in life sciences. So we're very excited about where we can take the business now with Lucas and the team that we're building in addition to the team that we already had. And I'll turn it now to Marshall for the other question. Marshall Urist: Terence, thanks for the question on the J&J deal. So maybe just a general comment. I think this is a great example of exactly what Chris was talking about, right, that we get the opportunity to participate at scale in a first-in-class biologic combination blockbuster market that's backed by the world-class, one of the premier marketers in that space. And those are exactly the kind of opportunities that we're so excited about the biopharma creating -- the biopharma partnerships creating for us. Specifically on the data, obviously, that was something during diligence that we spent a good amount of time with. And I think our view is we're excited about the biologics combination opportunity broadly. 4804 is the first of those. And I think you see the potential in what was a very refractory patient population who had been heavily pretreated, which when we look to continue Pablo's comments, when we look into our claims data is a really rapidly growing part of this market is patients who have been treated through multiple lines. And I think we see that growing. And certainly, by the time 4804 makes it to market, will -- is a really substantial opportunity that we're excited about. And we think there will be other -- certainly other biologic combinations to come that will look at other patient populations and other combinations. And so excited to see how that continues to expand the market and we're excited to be partners with J&J there. The last part of your question on the tail. I think for our base Tremfya royalty, just a reminder there that our royalty there is based on a separate set of IP that we acquired from MorphoSys. And so we've communicated that, that IP will expire in the early 2030s, 2031, 2032 time frame. So given the likely time lines for 4804, probably won't have a significant benefit to the Tremfya royalty but I think we've created a whole new royalty on this product, and we'll continue to be able to participate in it through 4804. So thanks for the question. Operator: And the next question will come from Umer Raffat with Evercore. Umer Raffat: I feel like there's been a good amount of discussion today on a lot of the effort Chris has been leading on R&D funding side. And I guess a question I have, maybe first for you, Pablo, how are you thinking about the split going forward for your capital deployment between R&D co-funding versus the traditional royalty investments? And to what extent is that driven by your heavier emphasis on doing larger checks? And then maybe a quick follow-up to that also. My understanding or at least the feedback I've heard from some of the big pharmas on their late-stage pipeline programs is that when they go into these R&D co-funding conversations, they're really talking high single-digit IRRs, type of thing. Could you maybe speak to your experience working on the J&J-4804? I don't want to comp the Teva vitiligo in there because it's much earlier stage. So I think the 4804 is a good example of the type of IRR you guys got, and maybe you can expand on that. Pablo Legorreta: Umer, so thanks for the question on allocation of capital. And in reality, the way we approach things is with a significant amount of flexibility because our business has the capacity to invest a huge amount of money. And I think, again, during our Investor Day, we actually had a slide -- interesting slide that showed that from now until 2030, we have the capability of investing something like $30 billion, of which $12 billion or so are going to be -- is what we've guided to, the $2 billion to $2.5 billion per year. And then when you add to that, the share repurchases and dividends, it takes us to a higher level but there is an additional sort of $10 billion of capacity that the business has that we might -- if the opportunities are there, just increase the investments every year. And it gives us, as I said, a capability of deploying more like $20 billion over the next 5 years in royalty acquisitions. But I think at the end of the day, as we've said in the past, the critical thing for us is the product. And that's really what drives our excitement for investments if we find really attractive differentiated products that we think are going to do really well in the long term. And whether we end up making the investment because it's a royalty that sort of already exists, there's a license and a royalty holder, and we just acquired that royalty like in the case of Imdelltra with B1 or whether we create the royalty by funding a clinical trial. For us, it doesn't matter really where it comes from. Now I would point out just to finish that when we put together our guidance and our business plan, there were several things that were really not included in a major way in our sort of $10 billion to $12 billion capital deployment guidance. And those things are China. It was not in our minds, and we didn't see that as an important driver of capital deployment and growth. And that is definitely now a real market and one that we're very excited about. And then the second one is deals with big pharma. Again, we were super conservative and didn't really include in our forecast, our business plan guidance, much of any capital deployment with big pharma but that is definitely becoming a big opportunity for us and one that we're very, very excited. And I think as more deals like this get done, and you talked about the J&J one and also Teva and there's others. We did a deal with Merck several years ago. It actually is really starting to open that market. And we have noticed very significant excitement from many big pharmas that are now really looking at funding their trials with structures that we've developed R&D funding structures. And also what's helped there is the fact that we've been for years working with the accounting firms to make sure that we have the right accounting treatment for those transactions that they can be accounted for as contra R&D. But we have been proactive. There was a bad decision made years ago with one company going to the SEC and with an accounting firm that actually set back the field. But because it's important to us, we decided to hire an expert on accounting. And with him, we have completely turned the tide. And now it is something that is -- when you look at the accounting, it's accounted for correctly. So I'll stop there. But the reality is that we're super excited about the opportunities -- the universe opportunities, which is clearly expanding. Operator: Thank you. And there are no further questions in the queue. I will now turn the call back over to Pablo for closing remarks. Pablo Legorreta: Thank you, operator, and thanks to everyone on the call. And I'll just remind you that if there's any further questions or discussions you want to have, you should reach out to George Grofik and Dana, our IR team, and then we can get involved if it's appropriate. Thank you, everyone. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Laura Lindholm: A very warm welcome, and thank you for joining Cloetta's Q1 Interim Report Presentation. I'm Laura Lindholm, the Director of Communications and Investor Relations. Our CEO, Katarina; and CFO, Frans will first go through our results, after which we will move to the Q&A, where you either have the possibility to dial-in and ask questions live or alternatively post your question through the chat. It's already possible to add questions in the chat. Over to you, Katarina. Katarina Tell: Thank you, Laura. Today, I'm very proud to present our first quarter 2026 results. After a transformational 2025, this is our first quarter with execution and clear result from our strategy. As you will see during the presentation, we are making great progress and are moving closer to delivering on all 4 long-term financial targets. But first, over to the agenda. Today, it looks as following. I will start with Cloetta in a brief, then I shortly recap our strategic framework and our updated financial targets for the ones that have not listened to us before. After that, I move to our quarterly highlights. Our CFO, Frans, will then walk you through our quarterly and full year financials. And as always, we wrap up with a Q&A. For the new listeners on the call, let me start by introducing Cloetta. We were founded in 1862. And today, we are the leading confectionery company in Northern Europe. We strongly believe in the power of true joy and our everyday purpose is to spread joy through our iconic brands. We have grown a lot since the early days and now have an SEK 8.5 billion in sales last year, combined with an operating margin of 12.1% to be compared to 10.6% in 2024 and 9.2% in 2023. We have established a strong profitability uplift, which we also will talk more about today. Over half of our sales come from our 10 biggest and most profitable brands, and we call them our super brands. Despite the increased geopolitical uncertainty, we remain largely unaffected. This resilience is due to several key factors. First, we operate in a noncyclical market with stable consumer demand, which provides a solid foundation even in uncertain times. Second, our broad product portfolio allows us to offer a range of alternatives, helping us adapt quickly to shift in consumer behavior. And finally, we have, despite the current geopolitical uncertainties, still many attractive growth opportunities like expansion of our super brands, step-up in innovation and growing beyond our core markets. These strengths gives us the confidence to continue delivering solid performance, profitable growth and building further long-term value for our investors, our customers, consumers and for the people at Cloetta. I will now briefly walk you through how we bring our vision to life through our strategic framework and then in relation to this, also our updated financial targets. To learn more, please see the recording of our Investor Day 2025, which is available on our website. So let me start by talking about our vision at Cloetta because it's really capture what we are all about. Our vision is to be the winning confectionery company inspiring a more joyful world. And it's not just something we say. For us, this is a real promise to do great work, to keep innovating and most of all, to bring joy to people every day. This vision is what guides us, is what keeps us learning, improving and leading the way in our industry. I will today also show you 2 concrete product examples of the vision. We have created a clear strategic framework to guide us forward. And right at the center is our vision. Our strategy is about focus, clear choices that will help us scale, grow and make the biggest impact where it truly matters. We have 5 core markets. It's Sweden, Denmark, Norway, Finland and the Netherlands. And today, around 80% of our total sales come from these markets. Our first strategic priority is to focus on our 10 super brands within those core markets. These are the brands with the strongest potential. By leaning into an expansion strategy, we can open new opportunities, grow faster and build real scale. We are not stopping there. We're also looking beyond our core markets. We have identified 3 high potential markets that sit outside the core, and that is U.K., Germany and North America. Our third priority is to elevate our marketing and accelerate innovation. The market keeps changing, and we need to stay ahead, not just following trends, but also help to shape them. In our strategic framework, we are now also opening up to explore M&A, but only if it fits our strategy and when, of course, it makes good business sense. That said, any M&A would serve as an accelerator. It's not something we rely on to reach our financial targets. And to make all of this work, we need, of course, the right enablers in place. This means having a focused, efficient operating model and a structure that actually support our strategy and goals. During 2025, we aligned our structure with our strategy so we can move faster and strengthen our path to profitable growth. People and culture are, of course, the heart of everything. Without them, the rest is just a black box. Our culture is the foundation of how we work, and we have now built an organization that is strong, capable and filled with joy. So Lakerol is one of our super brands in the pastilles category. And this slide capture our launch of Lakerol more and how it delivers on our vision and fits into our strategy win with super brands. What we are introducing here under the Lakerol brand is a new texture and flavoring experience, softer, chewer and more indulgent, while we are staying fully within the sugar-free space. This is a successful multi-market launch in line with our vision and strategic focus. This launch is helping us recruit younger shoppers into the Lakerol brand as Lakerol more feels modern, sensorial and relevant without alienating our existing core users from the brand. We've seen a strong start across the Nordic markets where we have launched the 2 flavors with early results showing increased market shares in the pastilles category and what's particularly is encouraging is the repeat purchase rate, which is already above the category average, really confirming that consumers don't just try Lakerol MORE, they actually also come back to buy more. Moving on to our second example. And here, we are showing how we are scaling a winning pick & mix concept into branded packaged products. Zoo Foamy Monkey started as a pick & mix success within CandyKing, where it quickly stood out, thanks to its taste, foamy texture and playful shape. Consumer demand was strong, and this gave us the results we wanted to also scale Foamy Monkey into branded packaged format. Under the super brand Malaco, we are building on the iconic Swedish Zoo monkey shape and flavor that Swedish consumers already know and love and now translated into a soft foamy candy in a Malaco branded bag. Malaco Foamy Monkey is rolled out across major Swedish retailers as we speak and is available in 2 variants, sweet and sour. This is a great example of a smart brand leverage, proven products, strong emotional equity and high engagement, both in-store and on social media. These projects deliver faster growth, lower risk and stronger relevance, a perfect example of how we continue to win with our super brands and deliver on our vision. In March 2025, we updated our long-term financial targets to match our strategic priorities and our vision. With a clearer plan in place, we raised our long-term organic growth target from 1% to 2% to 3% to 4%. As reported, inflation has now stabilized. It's obviously difficult to justify price increases driven by inflation. This means that future growth primarily needs to come from higher volumes, exactly what our strategy is designed to deliver. Our long-term adjusted EBIT target is 14% with a goal to reach at least 12% by 2027. As many of you saw in the report, we're already above 12%. As Frans will explain later, both Q4 and Q1 got an extra boost, and we will wait to celebrate 12% EBIT when it's fully repeatable. Our EBITDA net debt ratio target is below 1.5% -- 1.5, sorry. Of course, if a strong M&A opportunity appears, we may go above that temporarily, but only if it clearly supports our strategy and with a clear deleverage plan in place. And finally, our dividend policy. We are now targeting a payout about 50% of profit after tax. And now a short quarterly update. As highlighted in the report, we delivered a very strong first quarter with profitable growth driven primarily by higher volumes. Easter sales fell into the first quarter this year, but even when we adjust for that effect, we still achieved our long-term organic growth target of 3% to 4%. I'm also proud to see solid growth across both of our business segments with particularly strong performance in the Nordic and North America. Inflation continued to ease during the quarter. At the same time, geopolitical uncertainty increased, and we, therefore, expect societal and political pressure related to food pricing to remain high. Our EBIT margin reached 12.9%. And even excluding the compensation related to the quality incident, we are in the quarter, exceeding our profitability target of at least 12% by 2027. After a transformational 2025, we are now fully executing and delivering on our new strategy. And with that, we are now also another step closer to reaching all of our long-term financial targets. And with that, it's time for the financials. I'll hand over to Frans, who is more than ready to dive into the first quarter's numbers. Frans Rydén: Yes. Thank you, Katarina. So just before looking at the details here, I'd like to tell you what I'm about to tell you, and then I'll tell you. So firstly, and it's worth repeating, strong organic volume-driven net sales growth in line with our higher long-term growth target set 1 year ago and then a favorable Easter phasing on top of that. So not because of, but on top of, and I'll come back to that. And then I'll talk about the continued significant margin expansion, delivering another quarter with an operating profit adjusted margin meeting the midterm target set to be reached only in 2027. And then I'll tell you about the continued improved leverage for yet another best ever at 0.6x net debt over EBITDA, further improving on our ability to secure resilience in a volatile world and importantly, financial strength to act on business opportunities in line with our strategy. And lastly, not Q1 specific, but Tuesday, I guess, 2 weeks ago, given our strong financial position, the AGM approved the Board's proposal, which was in line with our new long-term target to distribute for 2025, our highest ever ordinary dividend, so SEK 1.40 per share, a 27% increase versus last year. So let me then start with our net sales. So again, very strong volume-driven organic net sales growth of 6.9%. Now as you recall, in Q4, our slight volume decline from Q3 had turned to stable growing volumes. So now from the stable growing volumes, we are now in the territory of solid volume growth. In Q4, I also shared that we expected that quarter 1 2026 would benefit from the shift of Easter sales coming into Q1 from Q2 last year. And I can confirm that shift to SEK 40 million to SEK 45 million this year, which is in line with the earlier estimate I gave. This means then that even when adjusting for the earlier Easter phasing, Q1 2026 organic growth is at the upper end of the range for our long-term target growth of 3% to 4%. And we are, of course, very pleased with this and to be able to confirm that after a transformational 2025, implementing the new strategy and updating our organizational structure to support that, it all starts to come together in product innovation, marketing and sales and supported by a reignited supply chain organization. Naturally, given that the phasing was from quarter 2 into quarter 1, in the coming quarter 2, that quarter's growth will reflect also that shift. So the main point will be then to look at the first half of 2026. And given the strong Q1, so you can imagine, even if we would not grow at all in quarter 2, the first half of 2026 will still be growth in line with our long-term target. And I'm not trying to sandbag quarter 2 here. The main point is just to illustrate how strong of a quarter 1 really is. Now on the 6.9% organic growth, that's partially offset by currency effects of about 3.3% for a reported growth of 3.6%. And before looking at the segments, I want to repeat something mentioned also last quarter about the currency effect. So companies incurring costs in Swedish krona in Sweden to make products which are then exported and sold in euro, of course, will have a challenge when the Swedish krona strengthens. But at Cloetta, we largely sell our products where we make them. So products made in Sweden are mostly sold in Sweden and products made in euro-denominated countries are mostly sold in euro-denominated countries. So the real effect is really limited for us, and it's primarily a translation effect. Then moving to the regular page showing then the segment here side by side or over and under, I should say. In Q4, we could report that both segments were growing to stable again, while for Q1, both segments are now clearly growing and they are growing on volume. And for pick & mix on the bottom half, we are growing solid double digits. And also if one assumes the full Easter effect in pick & mix, then pick & mix is still growing at a very healthy 2x the long-term target for Cloetta. For packed, we're also growing a healthy 3.6%, which is also in line with the long-term target. That's against a softer quarter 1 2025, but then we also rationalized the portfolio at that time and volumes were also affected by pricing and especially on chocolate back then. That said, we are very pleased with this growth being of high quality. It's volume driven and it's profitable. So let's look at the profit. So in the quarter, we are reporting an operating profit adjusted of 12.9%, and we're very pleased with that. As we also reported about 12% in quarter 4 and for the full year 2025, let me unpeel that a bit. So you may recall, for the full year of 2025, the margin was 12.1%. But then that was aided by the receipt in Q4 of compensation for suppliers' quality deficiency back in 2024. Now in Q1, we have received the second and final part of that compensation. The total compensation over the 2 quarters is SEK 44 million, of which SEK 32 million was received in Q4 and SEK 12 million now in Q1. So doing the math on that, it means that in Q4 2025 and for the full year 2025, the margin, excluding the compensation were 12.4% and 11.7%, respectively. So 12.4% in Q4 and 11.7% for the full year 2025, which is why back then, we said we would hold the celebration of having reached 2027's profitability target of 12% in 2025. Now it does mean that our Q1 margin, excluding the compensation is 12.4%. And that, my friends, is above the 2027 target. So in line with what we flagged earlier, 12% is within sight for the full year 2026. Taking one layer down into this, and it's quite obvious from the slide that the profit is driven by volume as well as mix. On the volume, the mentioned Easter phasing drives further volume. And although we supported that with merchandising and sales activities, which will be visible in the SG&A, we're obviously making a healthy profit on those sales. And then for the mix, you do have an effect of the faster-growing pick & mix, but largely offset by favorable mix with respect to market mix and also product mix within the branded package side. And I mentioned the rationalized portfolio last year, but we also have a strong lineup of new products this year. Now these net sales are supported by marketing at similar levels as in Q1 last year. So the overall SG&A is flattish to up, and we look at that separately. But cutting back on investments is not how we are driving the stronger margin. And actually, before a view of profit by segment, a quick comment for those who wants to look at the gross margin. Remember, you need to look at the adjusted gross margin, and we have that commented in the report. Given that in Q1 2025, we released provisions related to the [indiscernible] the greenfield project. So that led to favorable items affecting comparability, boosting the gross profit that year. So on an adjusted basis, so like-for-like, the gross margin is up about 50 bps. Looking then at the segments over and under, you see that both segments margin improved in the quarter over last year with the Pick & mix segment on the lower half, reaching a quarterly margin of 12%. Now that is, of course, above the target to be between 7% to 9% obviously aided by the strong sales and the favorable fixed cost absorption as a result. And we believe that the targeted long-term range is the appropriate range to continue to drive profitable growth in the category as well as geographic expansion in line with our strategy. Then for the Branded package segment, the quarterly margin is 13.4%, aided, of course, by the second part of the compensation. But irrespective of that, it's a great recovery versus last year and again, bringing us closer to the sort of plus 15% pre-pandemic level margin we used to generate in this segment. And we will continue to seek to further strengthen the packed margin and over time, return to the levels we were before the pandemic. Then moving to SG&A. Here, stripping out the benefit of translating the cost incurred in euro to Swedish krona, which I'm showing separately here, it is an almost flattish SG&A. Actually, it's the lowest quarterly increase we've had in many years. And that is, of course, on account of the savings from the change to the operating structure in 2025. So I can confirm the upside of SEK 60 million to SEK 70 million on an annual basis. And that saving in Q1 is fully offsetting the investments we have for growth, including the investment in the geographical expansion beyond our core markets, mostly well-known is the CandyKing store in New York, but it's also on the organizational side. We're, of course, already profitable on that store, but it does generate SG&A. And then also in overall organization in North America and the U.K. as well as investments in product innovation. And then increased merchandising and sales activities on account of the Easter phasing. Again, obviously, a profitable sales, but it does incur additional SG&A cost. As mentioned, our advertisement and promotions are in line with last year, where we already made a big step-up for new launches and a further step-up will be phased more into Q2 given the already strong Easter performance. The net increase in SG&A shown then on the slide is mostly driven by the carryover effect of annual salary adjustments from April 2025 with the next round, of course, now in April 2026. So key takeaway is that the change to the operating structure in 2025 has not only aligned the organization better to execute on the new strategy as evident from the quarter's results, but also permanently lowered the SG&A baseline and helped offset the stepped-up investments beyond the core markets. So overall, costs are held in check. Then on cash. In Q1, we delivered a solid SEK 144 million in free cash flow, and the difference to Q1 last year is really driven by the working capital effect of this Easter phasing as we ended Q1 with higher receivables, only partially offset by lower inventories. This is in line with expectations. And for comparison in Q1 2024, when Easter was similarly phased to how it is this year, our free cash flow was below SEK 100 million. So we continue to see the favorable development on account of the focus on both profit and working capital. And then CapEx in the quarter, that's SEK 38 million that remains on the low side, in line with earlier communicated is expected to rise to between 4% and 5% of net sales over the next 5 years, and we will revert on that later this year. That brings me to my last slide on financial position. And here, you can see that our leverage as we closed the quarter is 0.6x as net debt over EBITDA, well below our target for the leverage to be under 1.5x. And it's also the lowest ever we've had. Now the result is a combination of the strong cash flow, resulting in a lower debt, lowest ever actually at SEK 820 million and then, of course, the improved earnings. Now with the low debt, we have plenty of access to additional unutilized credit facilities and commercial papers, which together with the cash on hand is just shy of SEK 3 billion. So coming back to where I started. One, we have secured resilience in a changing world and the financial strength to act on business opportunities. And two, in April now, of course, not shown on this slide, we distributed SEK 402 million in dividend, and we're, of course, pleased to have created the conditions for that dividend payment of SEK 1.40 per share, up 27% versus last year. And on that note, I conclude that our financial position developing in line with our set targets remains very strong and hand back to you, Laura. Laura Lindholm: Thank you very much, Katarina. Thank you, Frans. It is now possible to either dial-in and ask questions live or alternatively post your question to the chat. And I think, Vicki, we already have some questions on the line. Operator: [Operator Instructions] We have the first question from Stefan Stjernholm, Handelsbanken. Stefan Stjernholm: Can you hear me? Operator: Yes. Stefan Stjernholm: Stefan here. Congrats to a good start to the year. If you start with the gross margin, if adjusting for the SEK 12 million in compensation for the quality issue, I get the margin to 34.6%, i.e., flattish year-over-year. Am I missing something? Or is that right? Frans Rydén: Sorry, can you repeat that, the flattish? Stefan Stjernholm: If you adjust gross margin for the SEK 12 million in compensation, I am getting to 34.6%. Frans Rydén: Yes. Stefan Stjernholm: Yes. I mean, how should we think about the gross margin going forward? Is there room for improvement? I mean, you had a positive leverage on the strong growth in the quarter, and you're also highlighting positive sales mix. And in spite of that, the margin is -- the adjusted margin is flattish. Frans Rydén: Okay. Okay. Yes. So it's always a little bit -- the reason that we're focusing on the operating profit margin adjusted is because of the 2 segments and that it's difference between the branded side and the pick & mix side. So when we have really strong pick & mix sales, you would have an unfavorable mix effect on the margin as a result. But the reason that we get a higher profit at the end is because we have really good fixed cost absorption when it comes to merchandising and depreciation of the racks, et cetera. So our focus is a little bit further down into the P&L because of the segments are -- it plays out a little bit differently between them, if I put it that way. Stefan Stjernholm: Yes. I got it. Good. And regarding the Easter impact, good that you give the figure of SEK 40 million to SEK 45 million on sales. Is it possible also to quantify the EBIT impact if you get -- if you take the margin for the group, it's like 5% positive. I guess that's slightly more than that given the leverage on better sales. Frans Rydén: Yes, yes. So I would say that it is possible to do it, but we haven't done it. It's not a level that we want to disclose. But we're obviously very happy with the profit in the quarter. Stefan Stjernholm: Yes. But somewhere between 5% and 10% is a fair assumption, I guess, for the EBIT impact. Frans Rydén: Yes, yes. So definitely favorable, yes. Stefan Stjernholm: Yes. And then a final one for me, the pick & mix, the pilot with Edeka in Germany, how long is the evaluation phase? Katarina Tell: Stefan, this is Katarina. Yes. So as we wrote, we are now setting up in the report. We are testing in one store, and then we will also -- we have another try at another customers next quarter. So I would -- it's usually goes for a couple of months and then we evaluate. Of course, you can't drag it out too long. So it's a couple of months, then we do an evaluation. Stefan Stjernholm: Interesting. It would be nice to hear more about that later. Okay. These were my questions. Katarina Tell: Yes. We'll update for sure. Operator: The next question from Nicklas Skogman, Nordea. Nicklas Skogman: I have 3 questions, please. First, could you give some more flavor on the organic growth? You mainly highlighted the growth in chocolate, the Kexchoklad and the Tupla, but how did these new innovations that you mentioned like the Lakerol and the Zoo Foamy, how did they contribute to growth in the quarter? And also how did the rest of the sugar candy business do? Katarina Tell: Okay. I will start with that one. So as mentioned, the Lakerol more was a successful launch. We launched that quite early in the -- or I think it was week 7 or 8 or something in the quarter. And it's already taking market share. So that is, of course, a very positive signal. We also see that consumer already coming back to buy more in a double sense. So that is a very -- we have very positive signal. So that launch have, of course, contributed to the growth. The Foamy Monkey was launched a bit later right now. So it's too early to know the consequence of that one. But we have proof, of course, that the consumer already likes it because it's a client in CandyKing. So that is, of course, we really believe big in this launch as well. Nicklas Skogman: And the rest of the sugar candy business, how is that excluding Easter and the launches -- the innovation launches? Katarina Tell: It's performing well. So we have -- we are on a good growth. And as I said, we had a very strong quarter and on top, the Easter sale. So we really now get the strategy into action. And what we also see is the Nordic performing very well together with North America. Nicklas Skogman: Okay. Second question is on the inflation. You mentioned that it is slowing. Do you think we could see price being a net negative contributor for the full year, given the massive decline in the cocoa prices? Frans Rydén: So first of all, we don't want to comment on our prices in terms of price signaling. What we've said is that we have an established way of working with our customers, which is around fair pricing and where we adjust our pricing based on world market commodities. And now cocoa, which, of course, is only part of our portfolio has stabilized. And here, we have to think about when players who are as us sell chocolate products, if that would be at a lower price, how many consumers would then come back into the category, and that would drive volume to maybe more than offset that. And as Katarina mentioned in the CEO comments in the report as well that although from a market point of view, and I'm talking Nielsen here, the chocolate candy or confectionery chocolate category has -- looks like a little bit more promising now than it did before. We have really strong volumes. So you could have a rollback without dropping NSV. Nicklas Skogman: Yes. So volume could offset the potential price impact in short. Okay. Good. Last question is on the announcement yesterday from a competitor. They acquired a company called Aroma. Do you have any business with Aroma today via a pick & mix part of your company? And also from a broader market view, do you expect any changes to the market dynamics as a result of this acquisition? Katarina Tell: Yes, I can confirm. In the CandyKing concept, we have Aroma products. As mentioned in the interview this morning, it's not in line with strategy for Cloetta to acquire Aroma because we have a clear M&A strategy from that perspective. [ Fazer ] and Aroma are 2 well-known players today in the market. And of course, they will now have one -- there will be one set of competitors that we have to -- yes, play with, so to say, and see. I don't think it's too early to say what the key changes will be. But of course, this is a signal that Fazer will be more focused in the confectionery category. And that, of course, we need to take a position and manage. Nicklas Skogman: Could you share how much of the pick & mix business that is like how much is Aroma at the retail level? Frans Rydén: No, no, that's not something we would do. But if you think about Aroma is about 1% of the confectionery market in Sweden. So Aroma plus Fazer is less than half the size of Cloetta in Sweden. So it's not going to change -- impact our strategy this. But as Katarina says, we'll have to continue to see how this acquisition develops. And -- but it doesn't impact our strategy, and it would not have -- Aroma would not have been relevant for us with our focus on our super brands in the Nordic. Nicklas Skogman: All right. Good. Maybe I'll sneak a last one in. What's the latest on the North American business? Katarina Tell: Sorry, what is the latest update on the North American business? Nicklas Skogman: Yes. What's the last, yes. Katarina Tell: Yes. So as mentioned, North America grew well in the quarter. So it contributed to the growth. We launched the CandyKing store in Manhattan in the end of December. It's a profitable business. It's there to drive CandyKing and also to learn about -- learn the consumers and customers about our concept. We are also, as mentioned, we have recruited a business manager that's located in the U.S., all the packaging for what we can -- how we can drive the Swedish candy in the packed format are now approved from a legal perspective, both the design and the information on pack and recipes and so on. So we are progressing well, but we will share a more updated information about North America, yes, going forward. But we are progressing well and it's contributing to the growth in this quarter for sure. Laura Lindholm: Thank you, both. Vicki, it seems we do not have any further questions from the line. Is that correct? Operator: That's correct. No questions for the moment. Laura Lindholm: Thank you. We move over to the chat. We do have one question that was posted quite early on, but that's quite commercial and business driven in terms of promoting products. So we will come back to that separately. We will move to the second question, which is focusing on the agreement with IKEA. Assuming the IKEA contract has made your products available in more countries than you are already existing in and beyond the 3 identified markets, will you explore the opportunity to accelerate the expansion to new countries? Katarina Tell: Yes. So last year, we signed a global contract with IKEA. Today, we are -- we're having sale in 14 markets, and we continue to roll it out in more countries. We have planned for that in 2026 and 2027. The details of the agreement with IKEA are confidential. So -- but as long as we have the opportunity possibility, we will share information about the contract -- about the business within the details of the contract. Yes. Yes, it's 14 markets. Laura Lindholm: Good. We have no further questions in the chat. So should you like to post a question, please do so now. And I think also no further questions from the lines, right, Vicki? Operator: No questions from the phone. Laura Lindholm: All right. Let's double check the chat. It appears we have no further questions. It's time to start to conclude our event for today, but we take this opportunity to update and remind you of our upcoming IR events. Our next report Q2 is published on the 15th of July. But in addition to that, quite a lot is happening. Before the report, you can meet us in Stockholm and at our plant in Ljungsbro, Sweden as well as also New York and Dublin. You can see the details here on the slide. After Q2, we have so far have confirmed IR seminars and other events in Stockholm and in New York. And also there, you can find all the details on the slide and then also keep an eye out for the IR calendar on our website. We've updated it almost weekly. For those of you who are based in the U.S. or plan to travel there, our CandyKing store has been mentioned many times, and we extend a special welcome to that store. It's located in the West Village at 306 Bleecker Street. And do trust me, it is the perfect spot to familiarize yourself with our leading brand and concepts and to know what Swedish Candy is all about. It's now time to conclude the event. Before we meet again, we, of course, hope that you get the chance to enjoy our wide portfolio of confectionery products during many joyful occasions. Thank you for joining us today.
Operator: Good day, and thank you for standing by. Welcome to the Weyco Group, Inc. First Quarter 2026 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Judy Anderson, Chief Financial Officer. Please go ahead. Judy Anderson: Thank you. Good morning, and welcome to Weyco Group, Inc.'s conference call to discuss first quarter 2026 results. On the call with me today are Thomas W. Florsheim, chairman and chief executive officer, and John W. Florsheim, president and chief operating officer. Before we begin to discuss the results for the quarter, I will read a brief cautionary statement. During this call, we may make projections or other forward-looking statements regarding our current expectations concerning future events and the future financial performance of the company. We wish to caution you that these statements are just projections and that actual events or results may differ materially. We refer you to the section entitled Risk Factors in our most recent annual report on Form 10-K, which provides discussion of important factors and risks that could cause our actual results to differ materially from our projections. These risk factors are incorporated herein by reference. They include, in part, the uncertain impact of U.S. trade and tariff policies, which remain highly dynamic and unpredictable; the impact of inflation on our costs and consumer demand for our products; increased interest rates; and other macroeconomic factors that may cause a slowdown or contraction in the U.S. or Australian economies. Overall net sales for 2026 were $68 million, flat compared to 2025. Consolidated gross earnings were 44.2% of net sales compared to 44.6% of net sales last year. Earnings from operations were $7.5 million for the quarter, up 7% from $7 million in 2025. Net earnings totaled $6.1 million, up 10% from $5.5 million last year. Diluted earnings per share were $0.64 in 2026, up from $0.57 in the prior year. Net sales in our North American wholesale segment totaled $53.6 million for the quarter, down 1% from $54.3 million last year. Florsheim sales were up, but the increase was more than offset by lower sales of the Stacy Adams and BOGS brands. Nunn Bush sales were flat for the quarter. Wholesale gross earnings as a percent of net sales were 38.7% and 39.4% in 2026 and 2025, respectively. Gross margins continued to be negatively impacted by incremental tariffs, partially offset by selling price increases instituted in the second half of last year. Wholesale selling and administrative expenses totaled $13.8 million, or 26% of net sales, versus $14.8 million, or 27% of net sales, last year. The decrease in 2026 was largely due to lower employee costs. Wholesale operating earnings totaled $7 million for the quarter, up 5% from $6.6 million in 2025, mainly due to lower selling and administrative expenses. Net sales in our retail segment totaled $8.8 million for the quarter, up 2% from $8.7 million in 2025 due to increased sales of our e-commerce businesses. Retail gross earnings as a percent of net sales were 66.1% and 66.6% in 2026 and 2025, respectively. Retail operating earnings totaled $800,000 for the quarter versus $600,000 last year. Our other operations consist of our retail and wholesale business in Australia and South Africa, collectively referred to as Florsheim Australia. Net sales of Florsheim Australia were $5.6 million in the quarter, up 10% from $5.1 million in 2025. The increase was due to the appreciation of the Australian dollar relative to the U.S. dollar, as Florsheim Australia's net sales in local currency were flat for the quarter. Florsheim Australia's gross earnings as a percent of net sales were 62.9% and 62.7% in 2026 and 2025, respectively, and its quarterly operating losses totaled $200,000 in both periods. In February 2025, the U.S. imposed reciprocal and retaliatory tariffs on certain imported goods under the International Emergency Economic Powers Act, also known as IEPA. We paid a total of approximately $9.198 million in IEPA tariffs in 2025 and 2026. The IEPA tariffs increased the cost of our products by 19% to 50%, resulting in gross margin compression. On 02/20/2026, the U.S. Supreme Court ruled that IEPA had not authorized the president to impose tariffs, declaring the IEPA tariffs invalid. In April 2026, U.S. Customs and Border Protection, or CBP, commenced a phased process to accept claims for potential refunds of IEPA tariffs previously paid. The refund process formally opened on 04/20/2026, and on that date, we submitted claims covering our phase one entries totaling $18.6 million. The timing for submitting claims related to our phase two entries totaling $1.2 million has not yet been established. The timing and amount of any recoveries remain uncertain and subject to execution by the CBP. Following the Supreme Court's ruling, the president announced the implementation of a new across-the-board tariff under a separate statutory authority currently set at 10%, although the scope and rate remain subject to change. U.S. trade policies continue to evolve and remain unpredictable, creating near-term gross margin uncertainty. We have mitigation strategies in place and will continue to adjust as appropriate in response to future policy developments. At 12/31/2026, our cash and marketable securities totaled $93.9 million, and we had no outstanding debt on our $40 million revolving line of credit. During the first three months of 2026, we generated $17.4 million in cash from operations and used funds to pay $23.9 million in dividends. We also had $600,000 of capital expenditures. We estimate that annual capital expenditures in 2026 will be between $2 million and $3 million. On 05/05/2026, our Board of Directors declared a cash dividend of $0.28 per share to all shareholders of record on 05/19/2026, payable 06/30/2026. This represents an increase of 4% above the previous quarterly dividend rate of $0.27. I would now like to turn the call over to Thomas W. Florsheim, chairman and CEO. Thomas W. Florsheim: Thanks, Judy, and good morning, everyone. Our overall company sales were flat for the quarter, with wholesale segment sales down 1%. Given the uncertainty in the economic environment, we believe we are holding our position within our competitive market segments, with Florsheim continuing its strong performance streak. Our legacy business, which includes Florsheim, Nunn Bush, and Stacy Adams, was flat for the quarter. The Florsheim division was up 5%, driven by strong sales in the traditional dress category. As discussed in previous conference calls, while the overall dress footwear market has been trending downward over time, Florsheim continues to gain market share. Retailers see the brand as the go-to choice to meet consumer demand in this category. From a design perspective, we continue to invest in developing fresh shoe concepts and believe we can leverage Florsheim's heritage to expand our penetration in hybrid and casual footwear. We are making steady inroads in both categories and feel confident about our long-term growth prospects. Nunn Bush was flat for the quarter. We believe the brand is well positioned as a leading value option in comfort casual and comfort dress footwear in an economy where many consumers are feeling stretched to cover day-to-day expenses. In the current market, the biggest competition comes from private label footwear that retailers import to pursue higher margins. Nunn Bush provides a compelling alternative with a trusted brand name, proven comfort technology, competitive pricing, and in-stock inventory that retail partners can use to match demand. Our Stacy Adams division was down 9% for the quarter. At retail, Stacy Adams sell-throughs have been solid; however, retailers are not investing in fashion dress shoes as they have in the past. This is especially true in department store and family footwear channels. We are focused on diversifying the Stacy Adams product assortment to be less centered on dress shoes, with more casual offerings that align with today's lifestyle. Our BOGS brand was down 11% for the quarter. We anticipate a strong second half of the year as cold weather and precipitation last winter in the Midwest and East Coast helped clear excess inventory of weather boots. We are also encouraged by the launch of new, less-insulated spring footwear, which is selling well and paving the way for more year-round BOGS business. This spring, BOGS implemented a marketing reset focused on storytelling with an emphasis on user authenticity and real-world use of the brand's products. The campaign highlights what differentiates BOGS from a performance standpoint and is being featured across multiple channels, including social media, as well as streaming on YouTube. Net sales in our retail segment were up 2% for the quarter, led by strong Florsheim e-commerce sales. In 2025, we were still working through excess inventory across various areas of our branded portfolio. This year, we had less closeout inventory to sell through our websites, resulting in higher web margins as we sold more full-price footwear. We continue to invest in our e-commerce platform to better showcase our brands and drive long-term growth in direct-to-consumer sales. Florsheim Australia's net sales were up 10% for the quarter but flat in local currency. Consumers in these markets, including Australia, New Zealand, South Africa, and other Pacific countries, are facing many of the same pressures as in North America. As a result, sales remain somewhat soft. We are focused on keeping expenses in line as we work to return to a growth trajectory. Our overall gross margins were 44.2% for the quarter. Our first-quarter margins are down approximately 50 basis points compared to the same period in 2025. With all the remaining uncertainty surrounding tariffs, it is hard to know how the margin picture will play out for the remainder of the year. Our overall inventory as of 03/31/2026 was $50.5 million compared to $65.9 million at 12/31/2025. Our inventories are also down about $18 million compared to March 31 last year. The decrease in inventory was due to timing, and our inventory is expected to get back into the $60 million to $70 million range as we move through the year. This concludes our formal remarks. Thank you for your interest in Weyco Group, Inc., and I would now like to open the call to any questions. We will now open the call for questions. Operator: Thank you. And so at this time, again, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. And please stand by while we compile Q&A questions. Okay. At this time, we have David Wright of Henry Investment Trust. Your line is now open. David Wright: Good morning, everyone. Good morning. I commend you for a surprisingly good quarter given the environment, and thanks for raising the dividend. I also commend you for some really outstanding, clear disclosure about your tariff picture; that is appreciated. Judy, a question. If you receive tariff refunds, what is the tax treatment? Judy Anderson: We will be taxed on them. David Wright: Yes, right. So you had a deduction when you paid the tariff, and you have income when you get a refund. Judy Anderson: That is correct. It was part of our cost of sales last year, and so when we get a refund this year, it will be a credit in our cost of sales, and we will have to pay taxes on it. David Wright: Okay. Can you give any sense of the annualized run-rate tariff burden at the current 10%? Thomas W. Florsheim: Well, at 10%, if it was 10% all year, it would be about an extra $10 million over and above what we normally pay in tariffs, and those normal tariffs are baked in, but the tariffs in the shoe industry are actually high compared to a lot of other categories. The problem, David, is the administration has said that their intent is to get these tariffs back up to where they were under IEPA, and so it makes planning very difficult, but we are assuming that will happen. They are doing these 301 investigations, which they say are going to be complete by July, and then we are going to find out what the incremental tariff rate will be under Section 301 for the different countries where we import shoes. And so it is not a clear picture, which is why we did not really want to commit to where margins are going to be this year. We are happy to answer any additional questions about that because we are well versed. We have been studying it. David Wright: Well, just kind of big picture, I assume you are communicating somehow through a trade group or directly with, I guess, the Commerce Department. Does anybody in the administration really think that shoe manufacturing is coming back to America? Thomas W. Florsheim: We actually do have a very good trade group called the FDRA, and they have been holding regular conference calls about this. And they are trying to talk to the administration about exactly what you just asked about. I think they are aware that virtually no shoes—less than 1%—are made in the U.S., and we are really hoping that the 301 tariffs are going to be more targeted than these IEPA tariffs or the tariffs that they have in place right now under Section 122, which are just 10% across the board, all countries, on all products. It would make sense to have this more targeted in our opinion, and we are trying to get that message across to the administration. But we do not know if these 301 tariffs will be done in a more strategic way. David Wright: Okay. I just have a couple more. It seems like your price increases were pretty well absorbed because that is what the results suggest. Would that be your observation as well? Thomas W. Florsheim: We raised our prices 10% July 1, so it does not really cover what we were paying in IEPA tariffs. It does cover—right now, the extra tariff is 10%, so that is looking better. And so our margins have come back somewhat. We are still below where we were the last couple of years before the tariffs, and we have really been watching the expense side of the business. John W. Florsheim: The other thing that is going on, David—this is John—is our inventory is pretty clean. Last year, we had some heavy closeout inventory in a couple of brands, and it has been cleaned up, and that helps from an overall wholesale market perspective. Thomas W. Florsheim: That is a very good point. That definitely plays into this, and it impacts in a positive way both our wholesale margins and our retail margins. And we also have cleaner inventories in Australia, which helps our margins there. David Wright: Okay. And then last one would be on SG&A. I mean, you took $1 million out of SG&A year over year. That is a lot. You highlighted lower employee costs. Was that staff reduction or less compensation? How was that accomplished? Judy Anderson: The lower employee cost was really lower employee benefit costs, and it was a combination of a few different categories. For example, last year, we did not give out annual bonuses in the first quarter, and therefore we had less FICA expense. So it was just something as mundane as that. Our health insurance costs were down, the FICA cost was down. It was a few things that added up in the first quarter. Thomas W. Florsheim: In the warehouse, our overall costs are down because we used fewer temps. David Wright: Yeah, correct. So you have not reduced headcount here, though? Thomas W. Florsheim: We have not reduced headcount. David Wright: So your workforce flexes a little depending on your inventory level? Thomas W. Florsheim: Depending upon our needs, especially in the distribution center. We were able to operate more efficiently this last quarter versus a year ago. David Wright: Okay. Well, efficiency is a good word. You just continue to deliver great results, so great job, and thanks for taking my questions. Thomas W. Florsheim: Thanks, David. We appreciate your interest. David Wright: Thank you. Operator: And at this time, we are not showing any further questions. If anyone has a last question, please hit 1-1 on your telephone. Okay. This concludes the question-and-answer session. I would like now to turn it back to Judy Anderson for closing remarks. Judy Anderson: Thank you. I just wanted to wish everybody a great day and a good rest of your week, and we will talk to you next quarter. Thomas W. Florsheim: Thank you. Operator: Thank you. That concludes our program. You may now disconnect, and thank you for participating in today's conference.
Operator: Good afternoon, and welcome to AtriCure's First Quarter 2026 Earnings Conference Call. This call is being recorded for replay purposes. [Operator Instructions] I would now like to turn the call over to Marissa Bych from the Gilmartin Group for a few introductory comments. Marissa Bych: Great. Thank you. By now, you should have received a copy of the earnings press release. If you have not received a copy, please call (513) 644-4484 to have one e-mailed to you. Before we begin today, let me remind you that the company's remarks include forward-looking statements. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond AtriCure's control, including risks and uncertainties described from time to time in AtriCure's SEC filings. These statements include, but are not limited to, financial expectations and guidance, expectations regarding the potential market opportunity for AtriCure's franchises and growth initiatives, future product approvals and clearances, competition, reimbursement and clinical trial enrollment and outcomes. AtriCure's results may differ materially from those projected. AtriCure undertakes no obligation to publicly update any forward-looking statements. Additionally, we refer to non-GAAP financial measures, specifically constant currency revenue, adjusted EBITDA and adjusted loss per share. A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures is included in our press release, which is available on our website. And with that, I would like to turn the call over to Mike Carrel, President and Chief Executive Officer. Michael H. Carrel: Great. Good afternoon, everyone, and welcome to our call. AtriCure is off to a strong start in 2026 with worldwide revenue of $140 million in the first quarter, reflecting 14% growth year-over-year. We are building on the momentum we established in 2025 from new product launches with this quarter marking an acceleration in our worldwide growth rate from the preceding quarter and comparable quarter last year. Fueling this acceleration is our U.S. business, which drove approximately 15% in the quarter from expanding adoption of AtriClip FLEX-Mini and PRO-Mini devices, cryoSPHERE MAX probe and continued strength from our EnCompass clamp. In addition, we generated $17 million in adjusted EBITDA, nearly double the first quarter of last year. Our results this quarter once again demonstrate our ability to deliver durable, double-digit revenue growth and expand profitability. Beyond our financial results, we have made exceptional progress in our BoxX-NoAF clinical trial. Since initiating trial enrollment in the fourth quarter of last year, we have enrolled approximately 300 total patients. To date in this 960-patient randomized controlled trial, we are tracking well ahead of our original time line and now expect to complete enrollment around the end of this year, nearly 1 year ahead of plan. The pace of enrollment in this trial reflects an extremely high level of engagement from surgeons who experienced firsthand the impact postoperative Afib has on their patients. As a reminder, up to half of cardiac surgery patients without pre-existing Afib will develop postoperative Afib, which is the most common complication of cardiac surgery. Because there is no established treatment today, postoperative Afib is a substantial burden on the health care spending, with estimates exceeding $2 billion annually in the U.S. alone. We are confident that our BoxX-NoAF clinical trial utilizing our EnCompass clamp and AtriClip device has the potential to meaningfully change treatment outcomes for this patient population and address the significant unmet clinical need. BoxX-NoAF is also highly complementary to our LeAAPS clinical trial, studying stroke reduction benefit of left atrial appendage management in cardiac surgery patients without atrial fibrillation. We expect both of our landmark clinical trials to generate robust clinical evidence in support of preventative treatment for cardiac surgery patients, unlocking a massive global market opportunity for AtriCure while establishing new standards of care in cardiac surgery. We at AtriCure are well positioned to realize these significant catalysts for our business in the coming years. Now on to updates covering franchise performance in the first quarter. Pain management once again led our portfolio growth, increasing 28% year-over-year. The cryoSPHERE MAX probe continues to be the primary driver of growth, contributing roughly 70% of our pain management sales this quarter. Surgeons across both new and existing accounts recognize the significant time savings and clinical effectiveness it provides, leading to more patients having their postoperative pain managed effectively. Building on our legacy of innovation, we are also pleased that our cryoXT probe for amputation procedures is beginning to gain traction. We continue to receive outstanding feedback from each new surgeon that uses this device and through our registries are capturing clinical outcomes for this therapy. We are still in the early innings for cryoXT for the cryoXT therapy development and adoption. However, we remain confident in cryoXT contributing more meaningfully as we move to the back half of 2026. Within our cardiac ablation franchises, worldwide open ablation revenue grew 15% in the first quarter, led by steady adoption of EnCompass clamp in the United States and Europe. EnCompass is delivering growth from both new and existing accounts even as we approach the 4-year anniversary of our U.S. full market launch. As mentioned in our fourth quarter earnings call, our efforts to drive treatment of Afib in cardiac surgery patients was validated with a recent announcement from the Society of Thoracic Surgeons' Annual Meeting, including concomitant Afib treatment as a quality metric. There is strong precedent for the impact of quality metrics in cardiac surgery, and we believe this change will support increased adoption for surgical Afib ablation and appendage management, serving as a durable tailwind for growth for years ahead. Our minimally invasive ablation franchise continued to face headwinds in the first quarter. We believe there is a role for hybrid therapy in the current and future treatment landscape and remain committed to providing a solution for the unmet need for patients with long-standing persistent Afib. Finally, turning to our appendage management franchise, which saw 16% growth worldwide, driven by both our open and minimally invasive appendage management products. Our open left atrial appendage management business benefited from strong adoption of AtriClip FLEX-Mini in the United States, where we exited the quarter with FLEX-Mini contributing approximately 40% of our open appendage management revenue. More importantly, we believe our FLEX-Mini device has been impactful in driving share gains in this market. Surgeons using our trialing competitive devices are impressed by the small form factor of AtriClip FLEX-Mini, along with robust clinical evidence and superior product performance of our AtriClip devices. In minimally invasive procedures, AtriClip PRO-Mini is building upon that adoption in the U.S., providing a pricing uplift that offsets pressure of our hybrid AF therapy procedure volumes. It remains clear that differentiated innovation plays an important role in maintaining our position as the leader in appendage management in cardiac surgery, and we continue to prioritize investments in this platform. In our international markets, we are growing adoption across our legacy left atrial appendage management devices. Following the first quarter, we received CE Mark under EU MDR in Europe for both AtriClip FLEX-Mini and PRO-Mini devices and expect to launch both products in Europe later this year. New product launches in Europe, the United States, China and Japan, coupled with the future of LeAAPS clinical trial outcomes, provide a long runway for growth in our appendage management franchise. In closing, the performance we delivered this quarter underscores the power of our innovation and focus on execution. While the rapid progress in our BoxX-NoAF clinical trial reinforces the significant opportunity ahead at AtriCure. We remain committed to advancing standards of care, scaling responsibly and delivering durable growth with improving profitability for our shareholders. And with that, I'll turn the call over to Angie Wirick, our Chief Financial Officer. Angie? Angela Wirick: Thanks, Mike. Worldwide revenue for the first quarter of 2026 was $141.2 million, up 14.3% on a reported basis and 12.8% on a constant currency basis versus the first quarter of 2025. Our performance reflects substantial growth driven by the continued adoption of key new products in the United States and many regions throughout the world. On a sequential basis, worldwide revenue increased approximately 1% compared to the fourth quarter 2025. First quarter 2026 U.S. revenue was $116.2 million, a 14.9% increase from the first quarter of 2025. Open ablation product sales grew 17.3% to $39.1 million, fueled by the strong and sustained adoption of our EnCompass clamp across new and existing accounts. U.S. sales of appendage management products were $48.4 million, up 14.9% over the first quarter of 2025, driven primarily by increasing adoption of our AtriClip FLEX-Mini and PRO-Mini devices. U.S. MIS ablation sales were $6.4 million, a decline of approximately 25% over the first quarter of 2025. And finally, U.S. pain management sales were $22.4 million, up 29.5% over the first quarter of 2025, led by the cryoSPHERE MAX probe, which contributed approximately 70% of pain Management sales in the quarter, driving increased adoption in both thoracic and sternotomy procedures. International revenue totaled $25 million for the first quarter of 2026, up 11.5% on a reported basis and up 3.3% on a constant currency basis as compared to the first quarter of 2025. European sales were $16.1 million, up 13.2% and Asia Pacific and other international market sales were $8.9 million, up 8.4%. International growth was tempered by continued uncertainty in the U.K. as well as lower distributor sales in Asia. Offsetting these headwinds, we saw significant growth across franchises in other major geographies, largely driven by our direct markets. Gross margin for the first quarter of 2026 was 77.4%, up 246 basis points from the first quarter of 2025. The increase was driven primarily by favorable product and geographic mix with strong U.S. performance propelled by our new product launches and adoption. Transitioning to operating expenses for the quarter, total operating expenses increased $10.2 million or 10.3% from $98.6 million in the first quarter of 2025 to $108.8 million in the first quarter of 2026. Rapid enrollment in our BoxX-NoAF clinical trial, which offsets a decrease in LeAAPS clinical trial costs, along with increased headcount focused on product development initiatives, resulted in a 7.6% increase in research and development expense from the first quarter of 2025. SG&A expense increased 11.2% from the first quarter of 2025 as we continue to support growth while driving leverage across the organization. Completing the P&L, first quarter 2026 adjusted EBITDA was $17.1 million compared to $8.8 million for the first quarter of 2025, representing a 95% increase. We recorded net income of approximately $100,000 compared to a net loss of $6.7 million in the first quarter of 2025. Earnings per share and adjusted earnings per share were both breakeven at $0.00 compared to a loss per share and adjusted loss per share of $0.14 in the first quarter of 2025. Our results reflect a balanced approach to allocating capital towards area we believe will sustain and accelerate growth, all while continuing to improve profitability. Now turning to our balance sheet. We ended the first quarter with approximately $146 million in cash and investments. Cash burn for the quarter was slightly improved from the first quarter of 2025 and reflects our normal pattern of cash usage, driven by share vesting, variable compensation and operational needs. As we move through the remainder of the year, we expect positive cash flow, resulting in full year cash generation that is moderately higher than 2025. Our balance sheet remains healthy and supports both current operations and our investment in strategic initiatives that we believe will drive long-term value creation. And now on to our outlook for 2026. We are reiterating our expectations for full year revenue of $600 million to $610 million, reflecting growth of approximately 12% to 14% over full year 2025 results. Consistent with our first quarter results, we expect performance over the remainder of the year to be driven by our pain management, appendage management and open ablation franchises and partially offset by continuation of headwinds from our MIS ablation franchise, along with certain international markets. For the second quarter, we anticipate typical seasonality translating to mid-single-digit sequential growth. On gross margin, while our first quarter 2026 results were exceptional as a result of extremely favorable mix. We continue to expect modest improvement in full year 2026 gross margin over full year 2025. Product and geographic mix are expected to be favorable in the near term. However, we will bring our expanded manufacturing facilities online in the second half of 2026, which will increase manufacturing cost burden, moderating the full year gross margin outlook. Turning to operating expenses. As Mike mentioned, the accelerated timing for full enrollment in our BoxX-NoAF clinical trial has placed us significantly ahead of schedule, and we now expect full enrollment of the trial around the end of this year. As a result, over the next 3 quarters, we expect additional R&D investment. While the cost of BoxX-NoAF acceleration is incremental to our plan, we continue to drive strong gross margins and operating leverage, reflecting discipline across our business. With that in mind, we are reiterating our expectations for full year 2026 adjusted EBITDA of $80 million to $82 million and full year net income, translating to earnings per share of approximately $0.00 to $0.04 and adjusted earnings per share of approximately $0.09 to $0.15. Consistent with our 2025 performance, our quarterly outlook for adjusted EBITDA is largely informed by normal top line cadence and the timing of R&D spend. As a reminder, 2025 R&D spending included LeAAPS enrollment costs for the first half of 2025 only. Therefore, we expect a slightly higher increase in R&D spending in the second half of 2026. In conclusion, our first quarter results highlight the durability of AtriCure innovation and continued improvement in our financial profile while funding investments in growth catalysts for the future. We remain energized by the opportunities in front of us and the exceptional AtriCure team who will make 2026 a success. With that, I will turn the call back to Mike. Michael H. Carrel: Thanks, Angie. 2026 is off to a good start, and our team is fully committed to our patients, our partners and our shareholders. As we look ahead, we are confident in our ability to execute with discipline, sustain operational excellence and build on the momentum that we've created, delivering meaningful progress throughout 2026 and well beyond. And with that, I'll turn it over to the operator for any questions. Operator? Operator: [Operator Instructions] And our first question comes from Bill Plovanic with Canaccord Genuity. Zachary Day: This is Zachary. Can you talk about the progress you're making on PFA integration? Any milestones that we should be on the lookout for this year? And then can you talk quickly about the RF enhancements you're making to come with the next-generation catheter? Michael H. Carrel: Sure. I'll take that on. I appreciate the question. On the PFA, we're making great progress on that. We've done our first in-human over in Australia so far. We're now starting first in human in Europe as well. It's not really first in-human anymore, but we're going to be doing an additional 30 to 40 patients in Europe. And so that will obviously lead for our submission for the trial that we expect to start running sometime next year. And so we're on pace, doing great. No additional commentary at this point in time, but we're really pleased with the results that we've seen so far and feel like there aren't any specific milestones other than really submission to the FDA later on this year, acceptance of the IDE and then beginning to enroll as we kind of look into 2027 at some point in time. So we'll give more details as we kind of get forward on that. We really want to focus today's effort on, obviously, the great progress we've made on the BoxX-NoAF clinical trial because we're so far ahead of plan that we wanted to make sure that we got that out there. 300 patients in a very short period of time put us well over a year ahead of plan, and we thought that was just a big, big milestone for us as we kind of close out this year being able to finish up enrollment around the end of the year. That's something we're super excited about. As for the RF advancements, they are embedded in there. We've got both the RF and also the dual energy combined in some of those first-in-human playbooks, and that will all be indicated and looking forward to kind of seeing that in trials sometime next year. Operator: Our next question comes from Matthew O'Brien with Piper Sandler. Matthew O'Brien: The first one, Mike, I know you can't grow this pain management business 30% every quarter but just talk about what you saw in the quarter from a growth perspective in terms of new accounts, existing accounts with cryoSPHERE MAX? And then also on the ortho side of things, just maybe the contributions that you got from those different buckets and how do we think about the growth trajectory for that business? And then I do have a follow-up. Michael H. Carrel: Yes. I'll start and just say that the cryo business, the pain business, is as we talked about our Analyst Day about a year ago, this is something that's got -- it's multiple billions of dollars of opportunity. Obviously, thoracic is an area that we've been established in for a long period of time. We're now starting to see some traction on the sternotomy side, and we're just starting on this, obviously, below-the-knee amputation area. We're just scratching the surface in my mind in all the areas that people undergo surgery and have a lot of pain afterwards, both from other parts of the body and other types of surgeries to looking into and researching the impact that you can have on actually phantom limb pain, which affects over 3 million people. I mean these are big, big numbers when you look at it. So we've got decades worth of growth in my mind here. Whether or not we can grow 30% for decades, obviously, the numbers get bigger and that becomes more difficult. But the good news is we've got multiple places to actually grow this market for many, many years to come. And with that, I'll turn it over to Angie to give you some of the specifics on the numbers. Angela Wirick: Yes. Matt, from an account perspective, we are about 70% of our pain management accounts have adopted cryoSPHERE MAX, and we continue to see every quarter since we've launched, we continue to see nice uptake. It was about 10% growth in the cryoSPHERE MAX accounts within the quarter. So this is clearly becoming the dominant device that's being used. I think surgeons are very compelled by the quick freeze times that they're seeing and just exceptional outcomes for their patients. Matthew O'Brien: Got it. That's great to hear. On BoxX-NoAF, in my experience, Mike or Angie, when these things enroll faster, it's because doctors are seeing good outcomes. That's why they're doing more of these cases. Can you just talk about any kind of anecdotal feedback you're getting from the clinicians as far as outcomes here? And then kind of what's expected from these outcomes? And then given the time line for finishing enrollment, could we see -- because I think the follow-up is pretty short. Could we see data at ACC or HRS next year? Michael H. Carrel: Yes. Great question. I think you're right that, that is kind of what you said. We don't have any specific information because it's obviously a blinded trial. I don't know exactly what's happening within the trial relative to the individual patients or the randomization on that front. That being said, we do know sites that have utilized this technology for their postoperative pain. We've seen it in all the preliminary work that went into going into the trial. And what we saw was significant reductions as a result of that. So much in fact that we have several sites and even more. We've got 5-plus sites or so that have decided to adopt this and will not come into the trial because they're seeing such good results relative to using the EnCompass clamp plus the AtriClip to see significant reductions in that. If you look at the STS database, what you see is it's about 35% to 40% of all patients that undergo cardiac surgery go into postop Afib, sometimes you'll see up to 50% in some studies where you'll see it as high as that. And we're seeing in the trials in different areas that it's less than 10%. We don't need that to win the trial, though, and to have a meaningful clinical impact on it. So we feel really confident and really good about where this is going and the results that we'll wind up seeing. In terms of timing of results, you're correct. We think it's going to be around the end of the year based on the pace of enrollment we're seeing right now. I said around because it could be sometime at the end of December or early January time frame that we might have full enrollment in place. Then you're right, we've got about 30 days of follow-up from that last patient. And then we'll have to obviously adjudicate all of that data. So if you start to do the math, as you just described, probably not HRS, more likely a surgical congress that we would do some sort of late breaker. The surgical congress that is out that late is AATS next year. If we got the data earlier, STS is in the January, February time frame. Obviously, that is highly unlikely to make it that quickly, but we're hopeful that we can conclude the trial, get those initial results and get some data out there as a late breaker sometime at the AATS, which is around the same time as HRS next year. Operator: Our next question comes from Marie Thibault with BTIG. Marie Thibault: I wanted to spend a minute here on your international business. I think you called out some uncertainty on the U.K. side, which I know isn't brand new and also some lower distributor sales from APAC. So can you tell us a little bit more about what's going on behind the scenes there? And any visibility on when things might start to improve? And then it sounds like the direct markets, OUS have been healthy. So just any more color on those markets as well. Angela Wirick: Yes. Marie, you called out the 2 kind of headwinds that we're facing within our international business. The U.K. within Europe, we had anticipated that being a drag and talked I think, at length within our guidance that we've baked in a run rate that looks very similar to how we exited 2025. That held true for the first quarter of 2026 as we started the year. And then just with our larger distributors in Asia, inherently, distributor orders can be lumpy. We expect that pressure to be transient as we think about the rest of 2026. You mentioned it, but I'll remind everybody. I'd say outside the headwinds, we saw really good growth in our franchises in our direct markets in Europe, Australia and Canada. We continue to be excited about bringing new products into each of those markets and seeing the progress that the teams are making there and continue to focus on the NHS and making sure that our pain management device. And then kind of any other budgetary pressures, what we can control that we are addressing quickly to get this market to a rebound. So guidance does not assume any kind of recovery in the U.K. and then strong business in other areas within Europe and the distributors in Asia that that's expected to be transient again. Marie Thibault: Okay. Great detail. And then maybe my follow-up on the Convergent procedure side, just wanted to understand kind of how your view of that market has been evolving. Obviously, the PFA landscape has evolved quickly. So would just love an update on what you're seeing there on the ground. Michael H. Carrel: Yes. On the ground, we kind of talked about it very briefly during my remarks. There's definitely a continued headwind in that area. What we're seeing is the data is still incredibly strong and these patients benefit from using the Convergent platform. That being said, they're getting multiple PFA catheters first. They're trying one than another. Some are going up to 3. That's obviously delaying that pipeline and those patients coming through. That's why it becomes tough to predict exact timing for us on that. That being said, if you talk to most people that are actually using it, they actually do believe in it. They're just seeing fewer patients or they're trying to catheter out one more time before they actually send that patient on. So that's the reality that we're dealing with right now. That's why we've set the expectations as we have. But we really feel like those that are utilizing technology are getting incredible benefit, and we're having lots of -- we continue to have lots of good conversations with the EPs. And we do think that it's a solution that matters, and we have to continue to support. Operator: Our next question comes from Lily Lozada with JPMorgan. Unknown Analyst: This is Henry on for Lily. I just wanted to pivot a little bit to talk about the guidance. You were able to beat on the top line but you reiterated the revenue guide. Can you talk a little bit more about why that's not flowing through into the full year guide? And are there any headwinds in particular you'd like to call out for the remainder of 2026? Angela Wirick: Yes. I think on the top line guide, we came in ahead of our expectations, both top and bottom line, a positive start to the year, but it is still early in the year and want to see continued outperformance before we revisit the guidance. I think that's very much in line with our philosophy and track and impact years. We are guiding to numbers that we feel very confident that we can achieve and look to beat and raise throughout the year. The headwinds we just touched on is primarily within our international business and then in our hybrid ablation business in the U.S. and in the areas of outperformance, very similar to what you saw in the first quarter results. Expecting continued really strong growth within our pain management franchise, our open ablation franchise and appendage management as well. Operator: Our next question comes from Mike Matson with Needham. Joseph Conway: This is Joseph on for Mike. Maybe just one on international first, China and Japan. I was wondering if you guys could just maybe give a broad overview on where you are now with the portfolio in terms of approvals or launches and maybe where that portfolio could sit in China and Japan by the end of this year? Angela Wirick: Yes. Pretty comparable between both our China and Japan markets. You have the basic RF ablation devices. Neither market has EnCompass at this point in time. We just recently put China -- put our AtriClip in China. So that's a newer product launch in that market. And then within Japan, we've had different versions of our AtriClip on market and got expanded clearances for the mini devices more recently there and are working on other product launches. I think with any market that you enter into, you're looking at the product set and what the market can absorb given economic considerations, so on and so forth. But it is a subset of the overall products that we've got launched and are selling within the U.S. market. Joseph Conway: Okay. Great. Makes sense. And then one on appendage management. So obviously, a very strong year in 2025 and with new products, it's looking good as well. But with the increased competition, it's just, I guess, trying to get a handle on basically where they are, where your competitors are with trialing and incentives. Has that kind of steadied off? Are you seeing increased incentives for them to trial the product from your customers? Just trying to understand how these new entrants are affecting your sales or not affecting. Michael H. Carrel: Yes. And just right now, there's only one entrant in the market that's Medtronic. They do have a product that we compete with today. And as I mentioned in my comments, what we saw was they kind of peaked in market share back in the kind of summer time frame, late summer, early fall time frame. And we've seen with FLEX-Mini gaining more and more adoption at more and more sites that we're actually gaining some of that share back. We still have the predominant market share in the United States. We feel like the innovation that we put out there with FLEX-Mini, with PRO-Mini with obviously clinical evidence that we'll generate that will be very specific to our product that we're going to be in a very good place both in terms of who we're competing with right now and also if Edwards does come into the market. Obviously, they've mentioned that they're going to be coming into the market later on this year, and we will be ready for that. Again, the way that we know how to compete is to build the best products that are what the market really wants to meet those needs. We continue to innovate. On top of that, we've invested heavily in clinical evidence that's very specific to our product, both in the LeAAPS and in the BoxX trial, which both include the appendage, looking for the benefits that we can get for stroke reduction on that, that will be very specific to our product and our product only. And putting that level of evidence is something that none of the competition has actually started a trial down that pathway, and these are long trials. So it gives us a great deal of confidence in terms of the future for that. So. Continue with the innovation, continue with the clinical evidence gives us confidence that when competition comes in, whether it's the ones that are out there, the ones that are talking about coming into the market and there may be more in the future that we are going to be incredibly well positioned. We also believe, as I've mentioned on this call before, that competition coming into the market means it's a big market. It means that it is a multibillion-dollar market that can take on competition like this. All great markets in medical devices typically have several players in there, and we believe that, that's actually a really good sign that this is a big and robust market on the international scale. Operator: Our next question comes from John McAulay with Stifel. John McAulay: Just want to put a finer point on the 2026 guidance commentary you gave. So reiterating the top line range and adjusted EBITDA range. I just want to understand the intention there as you beat on both. Would you expect that we let numbers for the rest of the year sort of stay where they are to reflect the strength in the quarter or the hybrid and international headwinds you called out, you expect that those sort of offset the $2 million of upside as we look ahead to the rest of '26? Angela Wirick: John, no different from our philosophy on guiding. We are putting out numbers that we believe we cannot only meet, but that we've got a pathway to beat. I think with one quarter in, you're still early in the year. And specific to the top line, felt like the right and prudent thing to do at this point in the year was just to hold the guide and expect that we've got the ability to outperform no different than when we started the first quarter. On the bottom line, I'd say more of a shift in we are -- with the pace of enrollment on BoxX-NoAF, those costs are incremental, pulling enrollment in by a year into 2026, that is incremental to our plan in 2026 for the full year. We had a very strong margin -- gross margin in the first quarter, expect for there to be improvement over 2025. But that being said, some of the favorability on the margin side is transient, again, with the mix of the international business primarily. You take that kind of whole calculus and the diligence that we're seeing across the business to see improvement in leverage that positioned us really well to be able to absorb the additional trial costs and hold the bottom line guide where it's at. And again, no different are putting numbers out there, we expect not only to meet but to be. John McAulay: That's helpful. And just to make sure I'm understanding the dynamics OUS. So in the quarter, you highlighted 3.3% constant currency growth. Is that what we should be expecting for the year ahead? Or what are the drivers of acceleration or reacceleration we should be looking at in that business? Angela Wirick: Yes. Good question. I'd say the -- we are expecting our international business to grow on a reported basis closer in line to the overall company guide. So that would be kind of double-digit growth for our international business. You saw more favorability from a currency in the first quarter, expect for that to lean a bit as we think about the rest of the year. Strength in our direct markets in Europe, we expect for that to be a continued driver there. You've got newer product launches in that market. EnCompass is a big driver in our European market and then a bit of a rebound in our Asia distributors. Again, I think ordering patterns can be kind of lumpy there. So expecting that to rebound as well. And that's the calculus to get to kind of that mid-double-digit growth expectation for the year. Operator: Our next question comes from Danny Stauder with Citizens. Daniel Stauder: Just first one on pain management. Great to see the strong quarter. You noted improved market penetration in thoracic and sternotomy. But just on the latter of the 2, it's nice to hear you're starting to see traction. But I was just curious what was driving this of late. We've talked about sternotomy and that opportunity for a bit now. So I just wanted to see if there was any newer developments that's leading to this? Michael H. Carrel: Yes. Great question. I think what you're seeing here, Danny, is that you're seeing it works in sternotomy. It just takes a little bit longer to get there. With the MAX product that has reduced the time in half that really has improved adoption and the willingness of somebody to even try it. And then once they try it, they see really good results pretty quickly, and then it becomes a lot more sticky at that point in time. So I'd say that's really what you're seeing. It's not something that you'll ever get a hockey stick curve off of, I don't believe, but I think that you're going to continue to see nice robust growth within this area as we add more and more accounts. So we've got many accounts that are actually doing this now. It's no longer just a handful across the country. People are talking to each other. They're talking about the results, whether it's at trade shows or other places like that or peer-to-peer conversations, and that's really what's driving it. Daniel Stauder: Okay. Great. And then just one follow-up on the FTS quality metric update. Could you give us a little more color on this? First when will it start? And should we be thinking of this more as a longer tail growth over the next few years versus more near-term uptick? Just any more information on how we should think about this in terms of incremental adoption or just frame the potential revenue opportunity here would be really helpful. Michael H. Carrel: Sure. I'll start by saying just a reminder to everybody that in the U.S., about 35% of all patients that have Afib that undergo cardiac surgery actually get an ablation. And so that is obviously a very low number. You still have 65% left to go. The quality metric is meant to address that. It's meant to say that -- and what they put out there was that there'd be 70% of the patients actually get treated. That number will likely grow. That was the commentary that was at STS back in January of this year. They anticipate that they'll put some teeth into it. They wanted to roll out that this is becoming a quality metric. And that quality metric will go into effect sometime in 2027, at which point in time there will be some teeth in it in terms of they'll be measured on it. It will be recorded in the STS database. How that's all -- the specifics behind that are still not disclosed yet by STS, but that is coming out. To give you some perspective, I mentioned in the call that previously, the last time they did any kind of therapeutic view like this, it was the Lima to the LAD. And when they made it a quality metric, it went from about 10% adoption up to 99.8% adoption or so today. So quality metrics matter. They make a difference. People look at them, hospitals look at them, they affect their ratings. And so we do anticipate that on the Afib side of things, we should see some uplift relative to the Afib side in 2027 as they're kind of rolling this out. And obviously, that will continue into '28 and beyond. So we think that's going to be a big boon and positive for us on the ablation side to improve that penetration from 35% in the U.S. to hopefully obviously getting it closer to 80%, 90% or so at some point over the next 3 to 5 years. So we've got a lot of room for growth. This is a little bit of -- I don't know, you can call it care or stick depending on how you want to look at it, but it's an incentive either way for people to do the treatment. On top of that, obviously, we're going to have data that comes out on the non-Afib patients. And we believe you combine that with the quality metrics and the fact that the EnCompass clamp is so easy to use that we will start to see some really nice adoption overall over the next 3 to 5 years in a big way. Operator: Our next question comes from Keith Hinton with Freedom Capital Markets. Keith Hinton: I just have a quick one on AtriClip. Can you just talk a little bit -- and I apologize if I missed this, I'm jumping around a little bit. But can you talk a little bit about the use of FLEX-Mini versus the prior generations in open appendage? And then more broadly, can you just talk about the current ASP for AtriClip in the U.S. and how we should think about those dynamics going forward as uptake continues for FLEX and PRO-Mini? Angela Wirick: Yes, I'll take this one. The AtriClip FLEX-Mini, what we are seeing is a pretty steady conversion from our last-generation AtriClip device, the AtriClip FLEX fee, less so from the original AtriClip device, which is still on the market. But between the 3 products, you've got different price points, and you've also got the ability for a surgeon to choose depending on the approach that they want to take for managing the appendage. Exiting the first quarter 2026, we were up to about 40% of the revenue in the U.S. in open appendage management in the FLEX-Mini clip. We exited last year a little over 35%. So we continue to see steady share gains by that new product launch. And from an ASP perspective, we're well positioned by offering a range here as low as $1,100 with the original AtriClip device for accounts where pricing is a sensitivity and the FLEX-Mini clip up to $2,250. Operator: Our next question comes from Suraj Kalia with Oppenheimer & Co. Suraj your lines is open, please unmute your button. I am showing no further questions at this time. I would now like to turn it back to Mike Carrel for closing remarks. Michael H. Carrel: Great. Well, I just wanted to thank everybody for joining for the call today after an exciting Q1 and what's starting to be a great 2026 overall. So thank you for joining. We appreciate it. We look forward to talking to you again in July. Talk to you soon. Operator: This concludes the question-and-answer session. This concludes today's conference call as well. Thank you for participating. 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: Hello, everyone. Thank you for joining us, and welcome to Northwest Natural Holding Company's Q1 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Nikki Sparley, Director of Investor Relations. Nikki, please go ahead. Nikki Sparley: Thank you. Good morning, and welcome to our first quarter 2026 earnings call. In addition to the press release, a supplemental presentation is available on our Investor Relations website at irnorthwestnaturalholdings.com, and following this call, a recording will also be available on our website. As a reminder, some things that will be said this morning contain forward-looking statements. They are based on management's assumptions, which may or may not occur. For a complete list of cautionary statements, refer to the language at the end of our press release. Additionally, our risk factors are provided in our 10-Q and 10-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany today's call, which are available on the Investor Relations page of our website. Please note, our guidance assumes continued customer growth, average weather conditions, and no significant changes in prevailing regulatory policies, mechanisms, or assumed outcomes, or significant changes in local, state, or federal laws, legislation, or regulations. We expect to file our 10-Q later today. With us today are Justin Palfreyman, President and Chief Executive Officer, and Raymond J. Kaszuba, Senior Vice President and Chief Financial Officer. Justin will provide highlights from the first quarter 2026, a regulatory update, and a look forward. Raymond J. Kaszuba will walk through our financial results and guidance. After Justin and Raymond J. Kaszuba’s prepared remarks, we will host a question and answer session. With that, I will turn the call over to Justin. Justin Palfreyman: Thanks, Nikki. Good morning, and welcome, everyone. Overall, the first quarter results were strong and in line with our expectations, reflecting another quarter of solid execution, putting us on solid footing for the year. As a result, we reaffirmed our 2026 and long-term guidance. Our gas utility systems performed very well over the heating season. Our team delivered strong operational performance across all our utilities and we produced healthy customer growth. Importantly, the quarter underscored the strength of the Northwest Natural Holding Company platform and the stability of having three distinct regulated utility businesses, making our results more predictable. We are well positioned to drive durable long-term growth while maintaining our core commitment to providing safe, reliable, and affordable service to our customers. Our focus remains on disciplined execution, steady earnings growth, and attractive overall shareholder returns. Related to that, we made meaningful progress on our regulatory initiatives this year. Let me highlight a few of our recent filings. In March, Northwest Natural filed a multi-party settlement with the Washington Utilities and Transportation Commission resolving all the revenue requirement aspects of our multiyear general rate case. While it remains subject to commission approval, the outcome is constructive for both customers and shareholders. The settlement provides for annual revenue requirement increases over three years, including $20.1 million in the first year beginning 08/01/2026, $7.7 million in the second year, and $8.7 million in the third year. The settlement includes a capital structure of 50% equity and 50% long-term debt and a return on equity of 9.5%. In Oregon, we remain constructively engaged with staff and parties on multiyear rate case rulemaking. As we have seen in other jurisdictions, we believe multiyear rate cases could provide greater clarity and predictability for both customers and utilities. While we await the outcome of the multiyear framework in Oregon, which could extend into 2027, we filed an alternative rate mechanism to help recover certain safety, IT, and large public works investments. The proposal contemplates a modest 1.5% rate increase beginning 10/31/2026. We have had productive conversations with staff and continue working closely with parties to reach agreement on the docket. Until the multiyear rulemaking process concludes, we have the ability to recover our investments through additional mechanisms or general rate cases. In addition, we have made progress on regulatory initiatives in our other key businesses. On May 4, 2026, C Energy filed a general rate case with the Texas Railroad Commission. The filing consolidates C Energy and the recently acquired Pines Gas entities, simplifying both our regulatory structure and operations in Texas. We are requesting a $12 million revenue requirement increase over current rates. This increase is based on a 10.75% return on equity, a cost of capital of 8.73%, and a capital structure of 60% equity and 40% long-term debt, which is consistent with other Texas gas utilities. This request includes an increase in average rate base of $176.9 million since the last rate case, for a total rate base of $343.1 million. In addition to the existing beneficial mechanisms from Texas House Bill 4384 and weather normalization, we are requesting the factors necessary to file for the Gas Reliability Infrastructure Program, or GRIP. This mechanism would further align capital investment with timely cost recovery. Even after the increase, C Energy’s rates are projected to be competitive with peers in the state. Turning to our water and wastewater business, as it scales, we are beginning to see a more consistent regulatory cadence. In 2025, we completed seven rate cases. We currently have four open rate cases in Oregon, Texas, and Arizona. Foothills, our largest water and wastewater utility, has made substantial investments over the several years. That trend continues in 2026 as we invest in water storage and treatment to support growth in the region. In Q1, we received approval for our second certificate of convenience and necessity expansion, adding to our service territory in Arizona. We are excited to serve these growing communities and are committed to making the necessary investments to provide safe, reliable water and wastewater. We filed a rate case for Foothills last month that includes a request to use formula rates in the future. Formula rates are designed to support annual recovery of O&M and investments without going through a general rate case process. Blue Topaz, our Texas water utility, recently filed its first rate case in approximately 20 years. The filing consolidates several of our Texas entities, recovers capital investments made since our ownership of these assets, and incorporates fair market value rate base adjustments. As our first quarter actions demonstrate, we are taking a more coordinated approach to our regulatory strategy across the enterprise. Multiyear rate cases in Washington and Oregon, as well as the mechanisms we plan to use at C Energy and Northwest Natural Water, are all designed to reduce regulatory lag and produce a more balanced and linear consolidated earnings profile. These mechanisms also maintain affordability and predictability for customers. Moving to a quick review of our key business segments, starting with C Energy, our Texas gas utility delivered another strong quarter and performed well during the heating season. Results were driven by healthy 16% organic customer growth, and our backlog exceeded 250 thousand future meters at quarter-end, highlighting the long-term growth potential of this business. Looking ahead, we are continuing to see solid growth in the Texas housing market and expect 15% to 20% annual customer growth through 2030, with C Energy contributing approximately 10% to 15% of consolidated EPS in 2026. Moving to Northwest Natural Water, this business posted healthy overall customer growth of 4.1% in the quarter and organic customer growth of 2.2%. As a reminder, the seasonality of water complements our gas business, with the highest demand in the third quarter and lower demand in the first quarter. Even though results were consistent year over year, we continued to make progress on customer growth and regulatory execution. We also remain active in greenfield opportunities for water and wastewater in Texas. We now have signed agreements with developers that represent a backlog of over 10 thousand connections. Approximately 25% of these are in communities that have started development. This platform is driven primarily by organic customer growth, and we expect it to achieve 2% to 3% growth through 2030. Water is expected to contribute approximately 10% to 15% of consolidated EPS in 2026. Finally, turning to Northwest Natural Gas, our largest segment, this business continues to play a critical role in ensuring affordable and reliable energy for customers in Oregon and Washington. I am pleased to report that our system performed well this winter, reliably serving our customers during the heating season. We remain incredibly excited about our MX3 storage project that we announced last quarter. As a reminder, MX3 is a $300 million FERC-regulated gas storage expansion that will add 4 to 5 Bcf of capacity and is fully contracted with 25-year agreements. Since our last call, the project has continued to progress as we expected. Our timeline still contemplates receiving notice to proceed by 2027, with an in-service date in 2029. E3, a highly regarded energy consulting firm, recently updated a study reinforcing earlier conclusions that natural gas remains essential to system reliability in the Pacific Northwest, particularly as the region continues to add significant electric load. The latest study now points to an approximately 14-gigawatt shortfall in generation capacity by 2035. That is why our storage capabilities are so important. They are uniquely positioned, expandable even beyond MX3, and offer a cost-effective solution to our region's growing energy constraints. MX3 is not contemplated in our current 4% to 6% long-term EPS growth guidance. However, we do expect the project to have a sustained positive impact on earnings growth and plan to include the project in our guidance when we achieve notice to proceed, which would raise our long-term EPS outlook to 5% to 7%. Overall, we remain confident in our strategy, our execution, and the growth platform that we have built. The businesses are performing well, we are making progress on our regulatory initiatives, and the outlook across our company is strong. We are progressing through 2026 with solid momentum and remain focused on disciplined utility growth and long-term shareholder value. With that, I will turn it over to Raymond J. Kaszuba to walk through the financials. Raymond J. Kaszuba: Thank you, Justin, and good morning, everyone. Our first quarter performance was strong and in line with our expectations. Adjusted earnings per share was $2.33 compared to $2.28 in the prior-year period. To simplify our financial reporting and clarify the underlying drivers of the business, we have updated our segments to better reflect our current business mix. Northwest Natural Gas Company is now reported as a single segment, consolidating the gas utility and storage operations. This change does not affect our C Energy or Water segment reporting. Adjusted net income was up $5.7 million and EPS increased $0.05 in the quarter, driven by new rates, particularly at Northwest Natural Gas, and customer growth. This was partially offset by investments in our systems, leading to higher depreciation expense and financing needs. Northwest Natural Gas reported an increase in net income of $2.7 million reflecting new rates in Oregon, with EPS down $0.02 due to equity financing. C Energy's EPS was up $0.08, driven by a full quarter of operations from C Energy and Pines Gas, and strong organic customer growth of 16%. Northwest Natural Water's EPS was essentially flat for the quarter, primarily reflecting higher O&M and depreciation expenses. This was largely offset by higher operating revenues driven by continued customer growth and acquisitions. Please keep in mind that the first quarter is Water's lowest demand quarter. We are investing in the underlying business and, as Justin mentioned, we are executing on our regulatory strategy to recover these investments and earn a return in a timely manner. Overall, we are pleased with first quarter results, are on track for the year, and reaffirmed our full-year 2026 earnings guidance of $2.95 to $3.15 per share. C Energy and Water combined are still expected to contribute approximately 25% of consolidated EPS this year. Our long-term EPS growth target of 4% to 6% remains intact, and as Justin noted, our expected long-term EPS growth rate is projected to increase to 5% to 7% with the inclusion of MX3 once we receive notice to proceed. We still expect capital expenditures of $500 million to $550 million in 2026. Our funding plan remains disciplined and balanced, supported by strong operating cash flow, approximately $150 million of net long-term debt, and $40 million to $50 million of equity issued through our ATM. We currently have approximately $590 million of available liquidity. Over the five-year planning horizon, capital expenditures will be funded largely through operating cash flows, along with a balanced mix of long-term debt and equity. Through 2030, we expect to meet our equity needs through our ATM program. Finally, on shareholder returns, as our dividend payout ratio comes in line with our 55% to 65% target, we continue to expect to increase our dividend over time, consistent with earnings growth and cash flow generation. In summary, 2026 is off to a solid start, and we have strong momentum heading into the balance of 2026 and beyond. With that, we will open the call to questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Christopher Ellinghaus from Seaport Research Partners. Christopher, please go ahead. Christopher Ellinghaus: Hey, good morning, everybody. Justin, I think you quoted 16% organic growth at C Energy. I assume that means there was some acquisition in the quarter because the meters were up considerably more than that. Is there? I am sort of detecting some weakness in the economy that is maybe even accelerating a little bit across some industries, and you kind of see it maybe in your meter number for the quarter. Can you just talk about what you are seeing for economic conditions in Oregon? Justin Palfreyman: Thanks for the question, Christopher. On the C Energy growth, there are no acquisitions reflected in that because it is comparing Q1 of last year to Q1 of this year, so the 16% reflects organic growth at C Energy. Raymond J. Kaszuba: Economic conditions in Oregon have been challenged a bit for a few years now, and we have seen a slowdown over that time frame, both in housing starts and other macro indicators in the region. However, the customer growth that we are seeing is largely in line with what we expected for the year, and a lot of the growth opportunities we are seeing in Oregon relate to our gas storage facility expansion opportunities, as well as investing in the safety and reliability of our system here. Christopher Ellinghaus: Thanks for the segment update. That is helpful. So your guidance for utility net income growth, I presume part of that is a result of the cover of the Fair Act, which is pretty restrictive. Your rate base growth is considerably more than that 1% to 3%, and customer growth is on the lower side. It suggests that you end up with a bit of a bubble at the end of the period in terms of a catch-up, presuming you do not get some kind of great multiyear rate plan that keeps you on track. What are your thoughts about potentially ending up with an end-of-five-year period excess catch-up to make, which is counterintuitive to what the Fair Act was all about? Raymond J. Kaszuba: Christopher, I think you are picking up on what could be driving that delta from the rate base growth to the net income growth. Part of it is our current view of what the rate case cadence is between now and 2030, and you could be growing rate base but not fully reflecting that growth in earnings until rates are reset. That is going to depend on where things end up with the Fair Act and where we eventually land with our rate case cadence in Oregon. Of course, there is always some regulatory lag that comes into play as well. Between those two dynamics, that is driving the difference, and it is timing in terms of the specific five-year guidance range through 2030. So I think you are picking up on that correctly. Christopher Ellinghaus: The rate base increase that you quoted for C Energy—if I am not mistaken, the rate base number in the last rate case, and I might be confusing what the request was versus what was approved, but I thought the last rate case was something like $152 million. Do you know what that discrepancy is versus the $176 million you quoted? Raymond J. Kaszuba: Christopher, we will have to get back to you on that question after the call. I do not know off the top of my head. Christopher Ellinghaus: Alright. I will stop there. I appreciate it. Thanks for the color. Raymond J. Kaszuba: Thanks, Christopher. Operator: Your next question comes from the line of Alexis Kania from BTIG. Alexis, please go ahead. Alexis Kania: Hi, good morning. I have two quick questions. First, Justin, could you dive a little more into the evolution of the multiyear rate structure in Oregon? When do you think you might have more clarity on that, just as a precursor to finalizing the rate case plan in that jurisdiction? Second, given the growth in C Energy, do you have a sense of any potential opportunities for additional tuck-ins there? Do you feel like you need any, and what does the environment look like? Justin Palfreyman: Great, thanks for the questions, Alexis. On the Oregon multiyear plan, we have been engaged fairly actively throughout the process. From a timing perspective, we anticipate it could slip into next year before we have clarity around what the multiyear planning framework is. This is new to Oregon, and they are taking a lot of information in from other states that have successfully implemented this, whether that is Washington or California or others, and there are many parties involved and engaged. Our expectation at this point is that we will have some resolution on that next year. In the meantime, we have filed for this alternative rate mechanism in 2026, and we are in the middle of that process, which is moving along as expected. We also have, under the Fair Act, the ability to file for a general rate case in the interim period before the multiyear plans are established. In general, it is all moving along as expected, and we look forward to driving that to resolution. On your second question in Texas, there are other acquisition opportunities on both the gas and the water side. You have seen us make a number of acquisitions in water there and, with C Energy, we completed a bolt-on with Pines Gas. We continue to look at that, but the organic growth opportunity is so strong that we are very focused on it—investing in our systems. If you look at the C Energy rate case as well as the Blue Topaz rate case, our water utility in Texas, there is a fair amount of growth embedded, as well as mechanisms we believe are going to reduce regulatory lag going forward. For the C Energy filing, we are filing for the factors that will allow us to file for GRIP in the future, which is a helpful mechanism for reducing lag. Operator: Your next question comes from the line of Selman Akyol from Stifel. Selman, please go ahead. Selman Akyol: Just following up on your last comment about putting the pieces in place for filing for GRIP, can you talk about the time frame for that? And staying with C Energy, you previously talked about seeing opportunities for water as you grow in conjunction with C Energy. Are you actually executing on that—installing both water and gas as you go into these new communities? Justin Palfreyman: The time frame for the rate case itself is approximately six months, so we expect to have the rate case resolved and new rates in effect by later this year, sometime in Q4. Then the way the GRIP process works, in this rate case we get the factors defined in terms of ROE, capital structure, etc. We can then, in future years, file for rate adjustments under the GRIP mechanism for up to five years before we would be required to come in for a new general rate case. You have seen many other gas utilities in Texas execute on that successfully. In C Energy’s previous rate case, a few years ago before our ownership, they did a black box settlement that did not allow them to have those factors needed to file for GRIP, so we are taking a slightly different path to minimize regulatory lag going forward for that business. On the water opportunity, that is a great question. One of the reasons I highlighted the 10 thousand connections we now have in backlog for water in Texas in my remarks is that, about six months ago, we combined our business development teams in Texas to leverage the C Energy platform, which has strong relationships with developers and homebuilders. For the first time, we are starting to see communities where we could install both gas, water, and potentially wastewater systems. Specifically on the water side, our utility down there is relatively small but has the potential to grow significantly because of how we are approaching this. Of the 10 thousand in backlog, about 25% are already beginning development or construction on the water and wastewater portions of the projects. It is exciting to see that momentum in a short period of time, and we are highly confident that is the right strategy to pursue. With the overall amount of growth we see in Texas—on the residential side and also on the commercial and industrial side—we are excited about the opportunity. Selman Akyol: And just the last one for me—thinking about water—are you continuing to see a lot of acquisition opportunities in 2026? Justin Palfreyman: We continue to look for acquisitions, but we have seen the market slow down a bit, and there is data out there that reflects that. Where we are with our water strategy is a good position because we do not need acquisitions to grow. The organic customer growth of 2% to 3% excludes any potential future acquisitions, and we are not relying on that for growth. We now have opportunities to invest in the platform we have built, and there is a long runway of investments. We are optimizing the platform both operationally and from a regulatory standpoint to minimize the gap between earned and allowed ROEs across our platform, which is why you are seeing multiple rate cases filed each year in water. In addition, we are very focused on organic growth. I mentioned the greenfield in Texas, and in my prepared remarks, I mentioned the CCN expansion in Arizona. We have other opportunities like that to expand our existing footprint without going out and paying a premium for acquisitions. Operator: We have reached the end of the Q&A session. I will now turn the call to Justin Palfreyman for closing remarks. Justin, go ahead. Justin Palfreyman: Thank you, and thanks, everyone, for joining this morning. We appreciate the questions and your interest in Northwest Natural Holding Company. Just to recap, 2026 is off to a promising start, and we are continuing to execute on our growth strategy. We look forward to seeing many of you at AGA later this month. As always, do not hesitate to reach out to Nikki with any further questions. Thank you, everyone. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
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: Good morning, and welcome to the Fubo Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Ameet Padte, SVP, FP&A, Corporate Development and Investor Relations. Thank you. Please go ahead. Ameet Padte: Thank you for joining us to discuss Fubo's Second Quarter Fiscal 2026 Results. With me today is David Gandler, Co-Founder and CEO of Fubo; and John Janedis, CFO of Fubo. Full details of our results and additional management commentary are available in our earnings release and letter to shareholders, which can be found on the Investor Relations section of our website at ir.fubo.tv. Before we begin, let me quickly review the format of today's call. David will start with some brief remarks on the quarter and our business, and John will cover the financials and guidance. Then we will turn the call over to the analysts for Q&A. I would like to remind everyone that the following discussion may contain forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding our financial condition, our expected future financial performance, including our financial outlook, guidance and long-term targets, business strategy and plans, including our products, subscription packages and tech features, our partnerships and other arrangements, the benefits of the business combination, including expected synergies and integrations and expectations regarding growth and profitability. These forward-looking statements are subject to certain risks, uncertainties and assumptions. Important factors that could cause actual results to differ materially from forward-looking statements are discussed in our SEC filings. Except as otherwise noted, the results and guidance we are presenting today are on a continuing operations basis, excluding the historical results of our former gaming segment, which are accounted for as discontinued operations. During the call, we may also refer to certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also available in our Q2 2026 earnings shareholder letter and press release, which are available on our website at ir.fubo.tv. With that, I'll turn the call over to David. David Gandler: Thank you, Ameet. We appreciate everyone joining us for today's call to discuss our Q2 2026 financial results. We delivered the strongest second quarter in our history on an adjusted EBITDA basis. More importantly, on a trailing 12-month basis, we have now exceeded $100 million in pro forma adjusted EBITDA, an important milestone that reinforces our confidence in delivering against our long-term target of at least $300 million in adjusted EBITDA by 2028. We also achieved record revenue for the quarter, driven by continued expansion of our Fubo and Hulu + Live TV offerings, differentiated content and product innovation. The migration of our advertising business to the Disney Ad Server began in February, and we are pleased with the early benefits to date with both fill rates and CPMs experiencing healthy increases. The business combination fundamentally expands our strategic position. Fubo is now built to scale as a preeminent video player driven by flexible content packaging. We can aggregate and deliver a range of content packages at different price points, allowing us to serve distinct consumer segments rather than forcing a single package across the entire bundle. That flexibility is a durable advantage and a key driver of both growth and margin over time. We are already executing on this strategy. We now offer our Spanish-speaking customers 2 clear options. Fubo Latino, a lighter bundle without Univision and Hulu + Live TV Espanol, a more comprehensive package launched this quarter, which includes Univision. Fubo is applying the same approach across our broader service portfolio. We offer the Fubo Sports service alongside our core Fubo bundle as well as a more comprehensive entertainment offering through Hulu Live, which includes NBC and Versant. This diversified product set is designed to expand choice while reducing churn. Importantly, we believe we have successfully navigated the loss of NBCU on Fubo, even during a period when NBC held a dominant portion of February sports programming. Customers continue to access that content through Hulu Live and incremental churn at the combined business during the quarter was minimal. This provides a clear example that we are not reliant on any one programming provider as we segment our content strategy across our portfolio. At the same time, we are beginning to unlock synergies following our business combination. Over the last 12 weeks, we have been hard at work to explore, define and execute against a series of initiatives we've identified to power future growth. Let me expand upon a few of these. First, Fubo's aggregated storefront now offers the full Fubo and Hulu + Live TV content portfolios. Consumers can select the content plan that's right for them, whether that's an English or Spanish package, our Fubo Sports service, the Fubo virtual MVPD or Hulu + Live TV's complete cable replacement package. Second, through our integration with ESPN, fans looking to watch a live game will soon be able to seamlessly access Fubo via linkouts on ESPN's Where to Watch pages, creating a new acquisition channel. Third, we previously announced that our Fubo Sports service will be integrated into ESPN's e-commerce flow through a reseller and marketing arrangement. I'm pleased to update you that launch is expected in the first half of calendar year 2027. As a reminder, the ESPN ecosystem reaches over 100 million users every month. Through our progress on various cross-selling initiatives, we are building a powerful growth flywheel to scale our business. But this is just the start. We believe the next phase of aggregation will be the conversational layer, where discovery becomes the product. As content libraries expand, simplifying how consumers find and engage with programming becomes critical. This fall, we intend to launch our first AI conversational feature within the Fubo app, starting with sports. With Fubo's AI Assistant, customers will be able to use natural conversational voice to search their DVR'd content for game highlights and ask for recommendations. They can ask precise questions, such as give me all of the scoring plays by the New England Patriots quarterback in the past 2 games, but I only want to see passing touchdowns, no rushing. Or I'm trying to figure out who to move on to my fantasy team. Show me all of the Kansas City Chiefs defensive highlights from last month. We believe our AI Assistant is a fundamentally more intuitive way to interact with live sports and video than scrolling up and down or being fed algorithmic carousels. We expect this to drive deeper engagement and stronger attention over time. We look forward to adding the AI Assistant to Fubo's Roku, Apple TV and mobile apps to start. We also plan to extend the AI Assistant to news and entertainment talk shows, enabling the Fubo app to instantly retrieve any clip our customers are looking for. In closing, we are more confident than ever in the Pay TV category and in Fubo's growing position within it. Based on these and other initiatives, we believe there will be opportunities to drive growth and scale as we focus on our long-term target of at least $300 million in adjusted EBITDA. I will now turn the call over to John Janedis, CFO, to discuss our financial results in greater detail. John? John Janedis: Thank you, David, and good morning, everyone. The second quarter of fiscal 2026 marked our first full quarter as a combined company following the close of our business combination with Hulu + Live TV. As a reminder, to facilitate comparability between periods, we will discuss our results on both an as-reported and a pro forma basis, which gives effect to the transaction as if it had been completed at the beginning of the first period presented. Turning to results for the quarter. In North America, our revenue for the second quarter was $1.566 billion compared to $1.125 billion in the prior year period. Pro forma revenue in the prior year period was $1.556 billion, representing 1% growth year-over-year. In terms of our user base, we ended the quarter with 5.7 million total subscribers in North America compared to 5.9 million in the prior year period. Turning to our profitability metrics. Our net loss for the second quarter was $6.2 million compared to a reported net loss of $40.9 million in the prior year period. Pro forma net income in the prior year period was $120.6 million, positively impacted by a $220 million net gain related to the settlement of litigation. Earnings per share for the quarter reflected a loss of $0.07. We delivered adjusted EBITDA of $37.7 million in the second quarter compared to pro forma adjusted EBITDA of $1.4 million in the prior year period. From a cash and liquidity perspective, Fubo ended the quarter with $244 million in cash, cash equivalents and restricted cash on hand, and we continue to expect to finish the year with more than $200 million of cash on our balance sheet. I would also like to provide some additional commentary around the near- and long-term financial targets we recently released. For fiscal 2026, we continue to expect pro forma adjusted EBITDA of $80 million to $100 million and at least $300 million in fiscal 2028. We also expect to deliver positive free cash flow in fiscal 2027 and fiscal 2028 under our current operating plan. Our outlook is supported by elements of our business combination in which we have a high degree of conviction. As a reminder, for our commercial agreement, Fubo received a wholesale fee relative to Hulu + Live TV's carriage costs, currently at 95% in calendar 2026 and scaling to 99% by 2028. This contractual step-up provides strong visibility into our expected earnings profile and adjusted EBITDA expansion. Furthermore, the company captures advertising revenue from both the Fubo and Hulu + Live TV businesses. Together, these elements reinforce our expectations regarding the long-term earnings power of our combined entity. In summary, Q2 was a healthy quarter for our business, and we believe we are just beginning to realize the full potential of the Fubo and Hulu + Live TV business combination. As David noted earlier, we are excited about our new initiatives and the opportunities ahead. As we move forward, we remain focused on establishing a sustainable foundation for growth. With that, I'll turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] Our first question comes from Kutgun Maral from Evercore ISI. Kutgun Maral: There's a lot to talk about, but I wanted to actually focus on advertising. With Fubo's inventory having now moved over to Disney's ad platform, it seems like there's a lot of opportunity, but the broader streaming ad market has been choppy for some folks. So I'd be curious if you could talk about any of the early indicators you're seeing on whether the Disney relationship is creating real upside net of the 15% agency fee, perhaps, in terms of CPMs, filler rates or something else? And how much of the medium-term EBITDA plan that you laid out assumes a meaningful ad monetization improvement versus just stabilization? John Janedis: Kutgun, this is John. Let me answer this one. I would just say the short answer is yes, and we're already seeing that. It's been less than 90 days since we started the migration of the inventory to Disney's ad server. And we have seen improvement in both CPMs and fill rate. And as you know, those are the key components of that ARPU, and we think that can continue. The CPM improvement has come in faster than expected. I'd say in terms of timing, we expect the migration to be fully completed by the end of the year. And then at that point, the Fubo ad ARPU is expected to converge with Hulu Live. On the second part of the question, look, the largest component of the adjusted EBITDA improvement will come from the contractual increase in the wholesale fee from 95% to 99%. But I would say the ad monetization improvement is tracking in line to better as of now. And I'd say also the quarter came in ahead of expectations. Operator: Our next question comes from Matt Condon from Citizens Bank. Matthew Condon: I just want to ask, just given the combination with Hulu Live TV meaningfully expanding your subscriber base and with it sort of your content cost leverage, can you just help frame the timing of when that scale benefit really begin to show up in your content cost structure? John Janedis: Matt, this is John. I'll start with this, and David may want to chime in also. Look, I'd say cost broadly in terms of scale benefit to your question, first, on the content cost, we historically haven't spoken to the timing of specific deals. What I can tell you is that we've had a couple of small renewals come up since the close of the business combination. We're happy with that outcome or those outcomes. And I think what I've also said historically is that on the timing, but we've talked to medium, short and longer term in terms of seeing that benefit. On the content cost side, given that we typically have about 1 renewal per year, that will have a bit of a longer tail to show up in the numbers. Operator: Our next question comes from Drew Crum from B. Riley. Andrew Crum: So on your fiscal '26 adjusted EBITDA guidance, you've generated $79 million during the first half, which suggests a pretty meaningful step down in the second half, can you reconcile the 2 and address what's driving the deceleration? David Gandler: Yes. This is David. Why don't I start, and then I'll let John chime in. So just in terms of where we are, as you know, we are a sports-first cable replacement service and the seasonality of our business typically allows us to generate 40% to 50% of our gross ads in the last fiscal quarter. And therefore, we keep our powder dry until then. So we do expect to spend more in marketing. And also, given the initiatives that we just laid out for you in my opening comments, we want to make sure that we have the flexibility to not only focus on profitability, but also growth. So this really allows us to take a balanced approach. John Janedis: And I would just want to add one quick point in terms of a one-timer. We did have a $6.5 million above the line tax-related benefit during the quarter. David Gandler: Yes. And just one last thing I'll say is look, we provided guidance a few weeks ago. Our plan is really to focus on the at least $300 million of EBITDA in 2028. And so we're planning accordingly and working with Disney on a number of these initiatives that we -- again, of course, as we get traction, we'll look to double down on some of these efforts. Operator: Our next question comes from Tyler DiMatteo from BTIG. Tyler DiMatteo: I was hoping we could unpack some of the organic growth trends in the business, in particular, the subscriber trends. I was hoping we can kind of get a little bit more color about maybe the split between Hulu Live and Fubo and then also more importantly, kind of how you see that trending through the year? And maybe any comments on ARPU as well. David Gandler: Yes. Thank you. I'll start. So one, we don't separate our sub count going forward. This is one company, and we're focused on creating leverage for the business as a combined entity. In terms of where we are from an organic perspective, I laid out 3 initiatives that we're working on at the moment just to kind of reinforce those. The first is utilizing our storefront to drive sales for Hulu Live. I think you know the Fubo team has been very strong in driving growth organically and inorganically over the last few years. So we'll look to really attempt to drive growth on the Hulu side. Due to the array of products that we offer, it makes sense for us to be able to push people towards a bundle that includes a comprehensive portfolio of networks. And I think part of the opportunity here is we're the only company today that offers such an array of offers, everything from as low as $9.99 on the Fubo Latino package. Then there's the Hulu Español package, which starts at the $30 range, which is well below some of our competitors and really gives us an opportunity to drive growth across these packages. As you know, lower pricing typically yields greater subscriber growth and top-of-the-funnel conversion. So we're focused on that. From a product and technology perspective, we've built a pretty strong mousetrap, I would say. Today, we're really focused on continuing to enhance our product capabilities to drive engagement and to take advantage of what John was talking about earlier around the advertising. The more engagement that we can drive on the platform, the more Disney will be able to drive ad sales on behalf of Fubo Inc. John Janedis: And I would just add on seasonality given your question in terms of organic. Look, the Fubo service tends to have a bit more seasonality than Hulu Live. But when we look at the sequential change in subscribers from fiscal 1Q to 2Q over the past 2 years, the trends were nearly identical for both periods and for both services. Operator: Our next question comes from Brent Penter from Raymond James. Brent Penter: It's good to see some of the RSN deals ahead of MLB season. I just want to zoom out and get your broader view as that space evolves and some of those businesses face some headwinds. How do you maintain your advantage in local sports as that ecosystem changes? And then with Hulu Live now, any plans to push Hulu Live more into the RSN space? David Gandler: Yes. So obviously, we are working in an ever-evolving landscape. I think we've done a very good job navigating the different changes that the industry is dealing with. As you said, we've done a great job adding -- I think it was 14 local baseball teams in a very short period of time as well as the Dodgers, the Braves and the Mets before opening day, if I'm not mistaken. And that allowed us to really offset our losses from the subs that rolled off due to the NBCU drop. So we feel pretty good about where we are. Of course, we enjoy our position as a leader in local sports. But we'll be focused on football season next -- the World Cup and then football season after that at this juncture. So that's where our focus is, and we'll look to evaluate the situation as things change. But as you know, we've constantly been proactive about some of these decisions that we've made, and they've obviously worked out very well for us. Operator: Our next question comes from David Joyce from Seaport Research Partners. David Joyce: Could you just provide a little bit more color on what you said about the Olympics earlier and Super Bowl and NBCUniversal. What's your retention experience been like versus prior years? And then secondly, it seems like you're mostly integrated with Disney ad sales. Was there any technological work remaining on that front? David Gandler: Why don't I start with the first part of the question and let John touch on the technological side of the ads. Look, from a retention perspective, I think we've done very well. As I said, we've navigated the issues with the NBC loss in a particularly dominant month for NBCUniversal, which included the Super Bowl, the Olympics and let's not forget the All-Star game. So I think from January through March, we've experienced better retention across all plans, which is obviously very important, and we've seen growth on that front, which really translates into the, I would say, relatively flat sub base on a year-over-year basis, which I think is very impressive. In April, what we've already experienced is retention levels that are on par with 2024. Again, that's offset by local baseball. And the only year, I think where we may have experienced better retention was during the pandemic in 2021. Reactivations were also very strong, which really highlights the fact that people really enjoy the Fubo product during the baseball season. So again, we're very focused on continuing to drive growth across all of our plans and to ensure that we don't rely on any one provider of programming for our service. John Janedis: David, just on the tech front, look, I would just say that there was, as you'd expect, a fair amount of tech work that was done, and that's also largely complete. Operator: Our next question comes from Alicia Reese from Wedbush. Alicia Reese: And then moving back to onetime events or occasional events. I'd like to ask on the World Cup. And I have a couple of questions or a two-parter on that. If you could talk first about what level of subscription uplift is embedded in the guidance from the World Cup? And then also, if you could talk about any -- like how you're participating outside of subscriptions in terms of perhaps shoulder programming around the World Cup that you can advertise against, whether it's on Fubo or Hulu? John Janedis: Reese, this is John. Look, for World Cup, we do think there may be a good incremental opportunity for us, particularly on Fubo Sports, given the lower price point. I would say on previous World Cups, really haven't had a major impact on ad revenue. I'd say this time around, we do have several sponsorships that we haven't had in the past because we're now selling hubs. And so combined with that, given with the friendlier time zone, there could be more of an advertising opportunity this year. On subscribers, look, I'd say that we haven't shared a subscriber outlook specific in terms of our guidance, but I would say that our marketing team expects an uplift in trials. And so it could also be upside based on conversion. Operator: Our next question comes from Patrick Sholl from Barrington Research. Patrick Sholl: With your free cash flow expectations for 2027 or sooner, could you maybe outline some of your capital allocation priorities whether in terms of growth, investments, leverage targets and other areas of investment? John Janedis: Pat, it's John. Look, we're investing in several areas. David alluded to them in the letter. But I would just add again, we're investing in product and tech. I think we're seeing some of the fruits of that in terms of what we're seeing in retention and churn, content in terms of the RSNs, marketing, all in an effort to drive customer delight and customer growth. On the free cash flow front, look, I would say we are tracking in line to slightly better relative to our expectations. Look, on leverage, we don't have a leverage target, but more or less what we've said is that in terms of cash, we expect to have north of $200 million of cash on the balance sheet at the end of the fiscal year. Based on our debt outstanding, we have a very manageable net debt level, if you will. Operator: Our last question today comes from Laura Martin from Needham. Laura Martin: Okay. On AI, can you guys talk about how you're affecting -- AI is affecting cost and also whether it's accelerating revenue? And then on international, could you tell us sort of what's going on in the international subs and how those subs fit into your strategy now that you're a part of Hulu + Live TV? David Gandler: Yes. Thank you. Laura, this is David. I'll take both of those, I think. Let me start with the international question. I think post our business combination with Hulu + Live TV, we're very focused on driving domestic growth given the size of our subscriber base here. So we'll probably put that on the back burner given all the priorities we have, particularly with some of the initiatives that we are implementing in the relatively short term. As it relates to AI, I think you and I are sitting together on May 12 at your conference. I'm looking forward to it. This is a major topic. I think this is one of the most underrated topics within streaming video. On the back end, I would say, from a business perspective, about 35% of all of our code is now completed with AI. About 200 of our employees now use either ChatGPT or Claude to code to really drive more effectiveness and efficiency. Some of our top engineers actually don't code anymore. So there's still a learning curve here. We're still going through that. But I do think that there's opportunities for us to enhance across all of the various functions in the company. From an external-facing perspective, as I mentioned, on the technology front, we're going to start with our AI assistant. I actually think times are changing. Everyone has been so focused on the billing relationship. I think going forward, it's really the conversational layer that's going to really drive value for consumers and for companies. And our job really is to try and to compress the entire journey from discovery to purchase. And that means that there will be some level of graphic UI deconstruction where I think we're going to really start to experiment as we've done historically with 4K and MultiView and other capabilities that we brought to the forefront, which I think the industry has benefited from. So we're looking forward to implementing some of these features in the short term before the fall to start testing and looking forward to talking about these in the future. Operator: We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to the IBEX Limited Third Quarter FY 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session. Please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. There is an accompanying earnings presentation available on the IBEX Limited Investor Relations website at investors.ibex.co. I will now turn this conference over to Greg Bradbury, Investor Relations for IBEX Limited. Greg Bradbury: Good afternoon, and thank you for joining us today. Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinion as of the date of this call, and we undertake no obligation to revise this information as a result of new developments which may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission on 09/11/2025, and any other risk factors we include in subsequent filings with the SEC. With that, I will now turn the call over to IBEX Limited CEO, Bob Dechant. Bob Dechant: Thanks, Greg. Good afternoon, and thank you all for joining us today as we discuss our third quarter results for fiscal 2026. I am excited to report that our third quarter represented yet another period of outperformance, where we again extended the separation between ourselves and the rest of the traditional BPO market. We delivered record revenue growth of 17% to $164.4 million while adjusted EPS grew by 11% to $0.91. This was our fifth straight quarter of double-digit revenue growth, seventh of our last eight quarters of double-digit growth in adjusted EBITDA, and it was our eighth consecutive quarter of double-digit GAAP and adjusted EPS growth, all done organically. Put together, we have a proven track record of delivering strong results and are confident in the momentum we have going into FY 2027 and beyond. Our strong results were again anchored by our two key pillars of growth: driving new wins with key logos and market share gains with existing clients, driven by our continued ability to outperform the competition operationally. In fact, over the last five quarters, our growth within our top 10 clients, where we often compete against our multibillion-dollar competitors, has averaged more than 25%. We also had 100% client retention for the quarter and revenue retention for the year of 99.9%. This is the flywheel we have created that continues to drive blistering growth for IBEX Limited. In the quarter, we won another new logo and have since added three additional significant wins in the first few weeks of April, for a total of 11 year to date. These will set us up well for FY 2027. Growth within our existing customers continues to be strong and broad based, coming primarily across our strategic verticals. We continue to win big in our health care vertical, where growth was nearly 54% and represented the high watermark for the quarter. This vertical has been a standout performer, growing rapidly since we launched it in 2021, and now will far exceed $100 million by the end of this fiscal year. This success demonstrates our ability to build and scale new verticals from the ground up and validates our ongoing investment in India as a high-growth market for our business now and in the future. The IBEX Limited brand today is stronger than it has ever been. Our employee and client net promoter scores remain world class, and our focus on culture and operational excellence is reinforcing our position as a trusted partner and industry leader. And all this is before we factor in our landmark strategic partnership with Sierra AI that we formally announced earlier this week. Through this partnership, IBEX Limited will integrate Sierra’s market-leading AI technology with our best-in-class CX expertise, tech integration, and deep analytics to design and deploy scalable end-to-end AI-powered CX solutions. We believe we can stand up these solutions in weeks, not months or years. We are now uniquely positioned to provide a seamless solution that leverages the strengths of both leading AI and human-powered support. The volume and velocity of opportunities in just the first months since signing this partnership has been great, along with several decisive early wins. More to come on this in the near future. We believe this collaboration will be transformative for our business and set IBEX Limited up well for the future. Within that context of AI’s impact on our industry, I would like to take some time to share our thoughts on the current state of the market and IBEX Limited’s place in it. Today, there is a pervasive view that with the advent of generative AI, a lot of traditional call center work will be replaced by AI. The belief is that the size of the call center industry and volume of interactions handled by human agents will shrink over time, and as a result, BPO volumes will shrink as well. This is the perceived threat that is front and center in our industry, and for labor-arbitrage-only driven businesses, what I call BPO 1.0, I honestly believe this perceived threat is real and represents a big challenge for their businesses. However, for differentiated providers like IBEX Limited that are leaning into agentic AI, this instead is an opportunity. Let me explain. Clients today are looking for partners that are more than labor arbitrage, ones that bring culture, technology, and business insights to create a great experience for their customers. I call this BPO 2.0. They continue to rapidly move away from their BPO 1.0 vendors, shifting from bigger to better in the decision-making process. This plays well for BPOs that are faster, more flexible, and differentiated. For IBEX Limited, our land-and-expand flywheel—where we win trophy new clients and then take significant market share from the competition—has enabled us to post record results over many consecutive quarters and establish IBEX Limited as the best BPO in the industry. And we have done this as many of our clients are currently deploying agentic AI. In fact, one of our larger clients began deploying an AI agent solution last summer. Within six months, their call volumes decreased by 20% due to the containments of the AI solution. Yet, over the same time, we have been able to continue to grow our overall business at 17% while revenues with this client hold strong as we continue to take market share away from underperforming competitors. And now that we have established our partnership with Sierra, we have the opportunity to deliver on that solution ourselves, capitalizing on our deep understanding of the customer journeys and strong client partnerships. We believe these solutions will be accretive to our business as we add on the AI volumes on top of our BPO business and create another vector for highly profitable revenue growth. In summary, I am confident that this industry is extremely viable if you are a strong, differentiating BPO with the ability to deliver a great agentic AI solution. And I am even more confident in IBEX Limited and our ability to lead this transformation in the BPO industry. And now, as I look forward, adding this powerful new arrow to our quiver uniquely enables us to provide a truly seamless customer experience from AI agent to human agent. This significantly widens and deepens our already compelling competitive moat and supercharges our already powerful business and defines our leadership position in BPO 3.0. That is the importance of this announcement to our business. To this point, our AI agent solution is seeing early and fast wins. We are winning opportunities versus other AI technology companies, SaaS companies, and BPO competitors, leading them across the board in terms of deal wins, speed to deployment, and successful containment and resolution. As an example, in one of our early wins with a leading airline, we competed against all three competitor types and easily outperformed the various competitors in a bake-off, having our deployment with Sierra in place and delivering results far exceeding the targeted benchmarks before our competitors could even go live. And we did this solution in three languages. As a result, we have now been awarded all the business. We are also seeing exciting traditional BPO opportunities coming to us as a result of our Sierra partnership. As an example, we recently were introduced to a leading luxury activewear brand looking for the right partner to help them scale human agent support to complement their great AI solution as their brand experiences hypergrowth, and within 30 days, we signed and launched this new client in April. Our ability to respond and execute with speed and experience—and as I like to say, moving at the speed of AI—is setting IBEX Limited apart. Additionally, it is clear that AI is raising the bar for exceptional human agent customer support, which plays very well into our strengths. We are excited with the velocity of our AI pipeline. In summary, we are confident in our ability to outperform the BPO industry, but more importantly, we will continue to define and lead the new era of BPO 3.0 as we aim to make ourselves even more valuable and essential through our existing and new clients. I am proud of our team’s execution quarter over quarter and remain more optimistic than ever about our future. With that, I will now turn the call over to Taylor to go into more detail on our fiscal third quarter financial results and guidance. Taylor? Taylor Greenwald: Thank you, Bob, and good afternoon, everyone. Thank you for joining the call today. In my discussions of our third quarter fiscal year 2026 financial results, references to revenue, net income, and net cash generated from operations are on a U.S. GAAP basis, while adjusted net income, adjusted earnings per share, adjusted EBITDA, and free cash flow are on a non-GAAP basis. Reconciliations of our U.S. GAAP to non-GAAP measures are included in the tables attached to our earnings press release. Turning to our results, our third quarter results are once again among the strongest in our history—record revenue, adjusted EBITDA, EPS, and adjusted EPS. As Bob mentioned, this was our fifth consecutive quarter of double-digit revenue growth, it was our seventh in our last eight quarters of double-digit adjusted EBITDA growth, and it was our eighth consecutive quarter of double-digit GAAP and adjusted EPS growth. Our differentiated solutions and execution are clearly separating us from the pack. Third quarter revenue was $164.4 million, an increase of 16.8% from $140.7 million in the prior-year quarter. Revenue growth was driven predominantly by broad-based growth in our high-margin health tech vertical of 53.7%, technology vertical of 42.6%, travel, transportation, and logistics of 15.1%, and retail and ecommerce of 8.3%, along with continued growth in our digital acquisition business, partially offset by an expected decline in telecommunications, one of our smallest verticals, at 23.1%. We continued to win and grow in all geographic markets during the quarter. Our onshore region grew 36.8% compared to the prior-year quarter, driven by growth of our high-margin digital acquisition business and several clients in our higher-margin health tech vertical. Our highest-margin offshore revenues grew 13.9%, and our nearshore locations grew 3.7%. Offshore revenue comprises 50% of total revenue, as onshore revenue expanded to 27.9% of total revenue from 23.8% in the prior-year quarter, reflective of the growth in our digital acquisition services and onshore health tech delivery. Our higher-margin digital and omnichannel services continue to strengthen, growing 18% versus the prior-year quarter to 82% of our total revenue. We have structurally built IBEX Limited so that our growth vectors are our highest-margin regions, services, and vertical markets, and we expect that we will continue to be successful driving growth in these higher-margin areas as new client wins and growth in our embedded base continue to be focused in these areas. Third quarter net income increased to $13.3 million compared to $10.5 million in the prior-year quarter. The increase was primarily driven by continued revenue growth and operating leverage gained from SG&A expenses as they decreased from 19.2% to 16.7% of revenue, partially offset by $0.8 million of severance expense. The severance expense was incurred as one of our clients shifted their volumes from our nearshore to higher-margin offshore region. In the shift, we were able to pick up moderate market share. We expect an additional asset impairment charge related to this move in the fourth quarter as we adjust capacity. Our tax rate was 16.6% versus 19.2% in the prior-year quarter, primarily attributable to changes in revenue mix across our taxable jurisdictions and favorable discrete tax benefits in the current-year quarter. We expect our effective tax rate before discrete items for the fourth quarter to be approximately 19%. Fully diluted EPS was $0.89, up 22% from $0.73 in the prior-year quarter, with the increase driven by strong operating performance. Our weighted average diluted shares outstanding for the quarter were 15 million shares, versus 14.4 million one year ago. Moving to non-GAAP measures, adjusted EBITDA increased to a record of $22 million, or 13.4% of revenue, from $19.4 million, or 13.8% of revenue, for the same period last year. The 40-basis-point decline in adjusted EBITDA margin was primarily driven by the temporary impact of the work shifting from nearshore to offshore and a less positive impact from deferred training revenue, partially offset by lower SG&A expenses as a percent of revenue compared to the same quarter in the prior year. It is worth noting for the first nine months of fiscal year 2026, our adjusted EBITDA margin is up 50 basis points to 13%. Adjusted net income increased to $13.6 million from $11 million in the prior-year quarter. Non-GAAP fully diluted adjusted earnings per share increased 11% to $0.91 from $0.82 in the prior-year quarter. As a company, we are pleased with the client diversification we have established over the last several years. For 2026, our largest client accounted for 9% of revenue, and our top five, top 10, and top 25 clients, where we see many of our largest competitors, grew 22%, 19.3%, and 15.8%, demonstrating our ability to win market share. Concentrations for these same cohorts represented [inaudible] of overall revenue, respectively, as compared to [inaudible] of overall revenue in the prior-year quarter, representative of a well-diversified client portfolio. Over the past decade, we have done a tremendous job of not only retaining our top 25 clients, but also winning and growing new strategic clients. Two great examples of this are one of our signature client wins from fiscal year 2025 growing into a top 20 client, and one of our signature client wins from fiscal year 2024 growing into a top 10 client. Another signal of our ability to win and scale clients is the growth we continue to see in client counts averaging more than $1 million per annum in revenue, the count of which has grown nearly 20% from the prior-year quarter to 70 clients in the third quarter. Switching to our verticals, HealthTech grew 54% and increased to 20.8% of third quarter revenue versus 15.8% in the prior-year quarter. Technology grew 43%, an increase to 9.2% compared to 7.5%, and our Other vertical increased 27% to 14% of total revenue compared to 13% in the prior-year quarter. These increases were driven by continued growth in multiple offshore geographies and our continued ability to win significant new clients in these verticals. Conversely, our exposure to the lower-margin telecommunications vertical decreased to 8.6% of revenue for the quarter, versus 13.1% in the prior-year quarter, as we see lower volume from legacy carriers. Revenues from the fintech vertical were up 5% and represented 9.7% of revenue for the quarter, versus 10.8% in the prior-year quarter, and revenues from retail and ecommerce grew 8.3% to 23.9% of revenue, versus 25.8% in the prior year. Travel, transportation, and logistics grew 15% and stayed relatively constant at 13.8% of revenue. Moving to cash flow, net cash generated from operating activities was a strong $11.9 million for 2026 compared to $8.8 million for the prior-year quarter. The increase was primarily driven by increased revenue and profitability. Our DSOs were 71 days, down from 73 days at the end of the second quarter, which is consistent with our expectations. We expect our DSOs to remain stable in the low to mid-70s on a go-forward basis. Capital expenditures were $5.3 million, or 3.2% of revenue, for 2026, consistent with the prior-year quarter. Free cash flow was an inflow of $6.6 million in the current quarter, compared to an inflow of $3.6 million in the prior-year quarter, driven by the increase in net cash generated from operating activities. During the quarter, we repurchased approximately 0.14 million shares for $4.5 million, bringing our fiscal year share repurchase to 0.31 million shares for $10.1 million, leaving $3.2 million on our share repurchase authorization. We ended the third quarter with $15.4 million of cash and debt of $1.4 million, for net cash of $14 million, consistent with a net cash position of $13.7 million at the end of our last fiscal year. Our strong financial results in fiscal year 2026 are being driven by our differentiated strategy and sustainable growth trends with our clients, giving us confidence in continued outperformance heading into fiscal year 2027. Our third quarter revenue was again led by meaningful growth in our higher-margin services and vertical markets, particularly robust growth in health tech. This combination of drivers led to a record quarterly adjusted EBITDA of $22 million. As we head into the fourth quarter, our healthy balance sheet and cash flows are enabling us to make thoughtful investments to support increased capacity for anticipated growth, as well as further extend our current AI leadership position. Reflective of our outstanding performance thus far and our forward momentum, we are again raising our revenue and adjusted EBITDA guidance for the year. Revenue is now expected to be in the range of $638 to $642 million, up from $620 to $630 million. Adjusted EBITDA is now expected to be in the range of $82 to $84 million, up from $80 to $82 million. Capital expenditures are now expected to be in the range of $25 to $30 million, up from our previous range of $20 to $25 million, as a result of ongoing investment to meet increased demand in higher-margin regions. Our business is well positioned for today and for the years ahead. We are excited about the future of IBEX Limited as we head into 2026 and beyond. With that, Bob and I will now take questions. Operator, please open the line. We will now open the call for questions. Operator: Please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for questions. Our first question comes from David Koning with Baird. You may proceed. David Koning: Yes. Hey, guys. Congrats on another good quarter. Bob Dechant: Thanks, Dave. Yes, we are very proud of what we continue to do. David Koning: Yes, for sure. I wanted to kick it off with the new AI partnership. I had two questions around that. One is model, and then secondly, how do you decide whether to use some of your AI solutions or their AI solutions? And does this cannibalize some of your stuff? How does that all work? Bob Dechant: Sure, Dave. Let me repeat what I think I heard you say, because you were a little bit garbled from my end. The question was really around, with Sierra, how does that impact versus the stuff that we have built ourselves? I think it is very easy to describe that. The elements that we have built in the WAVE iX stack are in our internally focused business—things that can help our agents do their jobs better, things like training simulators for agents, things like agent assist, something at their side that they can use that is AI to help them resolve a complex issue quicker. Those are the elements that we have built internally. As it relates to AI agents, our philosophy was there is no way we could compete against the best in class out there that are creating that engine. For us, trying to build that, we would have fallen flat on our face in front of every CTO in the industry, and we therefore believed that we wanted to partner with the leading player in the industry. Sierra is clearly that leader, a cut above. From their standpoint, when they looked at us, they said, “What you are doing, how you have leaned in, you are a cut above.” So it really aligned very well with the two companies’ visions, philosophies, and positions in the industry. To your point, it does not impact at all. In fact, this gives us now the best-in-class engine with the best-in-class BPO. David Koning: Yes, okay. And I also asked about the economic model. How does the rev share work on that? Bob Dechant: Sure. The contracts that we are going to be doing are going to be IBEX Limited contracts that we will be billing our clients on, and then our teams will be working, building the implementation, etc. We have an arrangement with Sierra that we have negotiated a cost structure for those resolutions and all. With the combination of the two, we believe it is very accretive to BPO margins and, directionally, our BPO margins are in the 30% gross margin range. These are technology/software margins, which, as you know, are significantly higher. We feel this is a high-growth vector for us that will drive significant margin expansion for us when you put all that into the equation. Now, I think your last part of your question, Dave, if I got it right, was how do you see this cannibalizing your business? Look, we are leaning into that. Our clients are moving at AI, and we are growing our business the highest of anybody in the industry, as you can see, and that has been many quarters. We have been able to do that because of the flywheel—winning new clients and then taking market share from those clients. This accelerates that because it validates us as a cut above, as a differentiated player. As I mentioned in my remarks, they brought us opportunities that we have closed in AI speed, not BPO speed. We think that on the whole, this is going to accelerate our overall growth business. It will cannibalize some of our business as human volume gets displaced by AI, but if we have that solution in place, I can guarantee you that the model says it will be accretive for revenue. Having the AI solution and the revenues associated with that, plus what we have on the BPO side—the human side—add those together, it will be a growth factor for us. One of the real advantages is being fast, nimble, leaned in, where all of this is opportunity for us. David Koning: Yes, great. Maybe if I can just do one more. The 54% growth—how much of that was new clients? How much of that is existing clients growing? And is there any lumpy revenue, like unsustainable revenue, in Q3 because it was so strong? Bob Dechant: Great question, Dave. Over the last two years, we have brought in six new logos in the health care space that are meaningful new logos—players that are leaders in their respective spaces. It is a combination of that, and then we have a couple of, in particular, the largest payer in the world, and we have been taking a whole lot of market share. So our 54% growth is a combination: we are taking market share where clients have massive budgets north of $600 million, and we are winning a lot of very competitive new logos that are driving that growth. What is interesting is some of that is landing in the U.S., and I will just call out the beauty of that. Dave, you have been with us forever. You know that our U.S. business has, over the years, been a low-margin business where the majority of our margins were made outside the U.S. Over the last couple of years with our play in health care, we have done a complete transformation of the U.S. market. Now you can see it is actually not at a trough; it is growing, and growing well. It is growing profitably because we have taken what I would call legacy old telcos—where nobody ever makes money on them—and we have replaced them with leading health care companies. An amazing shift that we have done that you can see in the results on top line and bottom line results. Taylor Greenwald: And, Bob, just to follow up on Dave’s question too, none of that revenue was one time in nature, Dave. It is all sustainable, and this is the new run rate for health care. David Koning: Awesome. Thanks, guys. Good job. Bob Dechant: Yes, David. To that point, what Taylor just said is if you look at how our business flows now—historically, go back five years ago—our Q2, December, was always a big increase, and then our revenues would come down hard as a result of retail and some of the open enrollment in the early days of health care. Today, if you look at the last couple of years, we have been very smooth from Q2 to Q3 and beyond. That is how our business is structurally built now. To Taylor’s point, there are no real Q2 or Q3 one-time bumps that go down. It is sustainable and repeatable. David Koning: Gotcha. Well, thanks, guys. Good job. Bob Dechant: Thanks, Dave. Taylor Greenwald: Thanks, Dave. Thank you. Operator: I would now like to turn the call back over to Bob Dechant for any closing remarks. Bob Dechant: Thanks, Josh. And thank you all for listening today. I would like to close by once again thanking my entire organization, who is the best in the industry. They continue to deliver and execute, and we have built this amazing flywheel here. We love the trajectory of our business in the future. Now with our Sierra announcement, we believe our business is extremely future-proofed and will be strong over the long haul. Thank you all. We look forward to talking next quarter. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, and welcome to Ibotta, Inc.'s Q1 2026 Earnings Conference Call. With us today are Bryan Leach, founder and CEO, and Matt Puckett, CFO. Today's press release and this call may contain forward-looking statements. Forward-looking statements include statements about our future operating results, our guidance for Q2 2026, our ability to grow our revenue, factors contributing to our potential revenue growth, our key initiatives, our partnerships, and the capabilities of our offerings and technology, all of which are subject to inherent risks, uncertainties, and changes. These statements reflect our current expectations and are based on the information currently available to us, and our actual results could differ materially. For more information, please refer to the risk factors in our recent SEC filings. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures and should be considered in addition to and not as a substitute for our GAAP results. Reconciliations to the most comparable GAAP measures are available in today's earnings press release, our 10-Q, and our Q1 2026 earnings presentation, which are all available on our Investor Relations website at investors.ibotta.com. Unless otherwise noted, revenue and adjusted EBITDA comparisons to prior periods are provided on a year-over-year basis. With that, I will turn it over to Bryan. Good afternoon, everyone. Bryan Leach: Thank you for joining our discussion of first quarter results. We are pleased to report first quarter revenue and adjusted EBITDA that are both above the top end of the guidance range we provided on our fourth quarter earnings call. We continue to anticipate that our year-over-year revenue trends will improve sequentially, returning us to overall revenue growth in 2026, which is consistent with the outlook we provided in February. The improved trajectory of our business is mostly the result of our sales team's success in deepening and broadening the supply of offers available to us. Our core promotions product is demonstrating strong market fit, while our more recent offering, LiveLift, continues to receive positive early feedback. On the publisher front, we have added two new partners in quick succession, both of which have entered into multi-year exclusive partnerships with us. In late March, we announced the addition of Uber, meaning that later this year, Ibotta, Inc.'s digital promotions will appear within the Uber, Uber Eats, and Postmates apps. And today, we announced that Giant Eagle is also joining the Ibotta Performance Network. I will say more about the significance of these new publisher wins later on, but first I would like to provide a bit more context on our recent financial performance, and share additional details about the from-to pathway we see ourselves on. On a year-over-year basis, our redemption revenue performance has almost fully recovered. In the first quarter, it was down 1% year over year, compared to being down 15% in the third quarter of last year and down 5% in the fourth quarter. This gradual recovery has been partly driven by Redeemer growth, with 15% more Redeemers in Q1 than in the same quarter last year. That said, increased demand for offers alone does not move the needle unless we also source enough offers to take advantage of it. This is all about having the right team in place spending more time in market, multithreading our outreach to stakeholders at different levels within an organization, and being more immediately responsive to our clients' needs. Building trust in these ways is allowing our team to continue moving further upstream in our clients' strategic planning processes. We are also doing a better job of supporting our sellers and account managers with B2B marketing, training and enablement, and client-specific insights. Our product team is working hard to deliver new tools that make each step in the quote-to-cash process easier, faster, and more efficient. Encouragingly, our success has been broad based, which continues to increase our conviction in the path we are on. Our sales team is adding new clients, securing new—often larger—commitments from existing clients, and retaining the overwhelming majority of our clients. Our strategic partnership with measurement leader Surcana continues to generate sales and marketing momentum. We recently published a case study available on our website that independently validates Ibotta, Inc.'s ability to deliver successful results for our clients. Chomps, the fastest-growing meat snack brand in the United States, ran a campaign earlier this year to drive trial and household penetration. The results were outstanding and were independently verified through a sales study conducted by Surcana. Households exposed to the Ibotta, Inc. campaign spent an average of 15% more on Chomps than their unexposed counterparts. Even more impressively, the campaign outperformed Surcana's snack category benchmarks for sales lift by more than 4.5x and surpassed household penetration benchmarks by a staggering 9x. Stacy Hartnett, the SVP of Marketing at Chomps, summarized the impact well. She noted that achieving strong on-shelf presence was only their first milestone. Their strategy has now shifted toward winning new buyers through smarter promotional strategies. She stated that our partnership has become a key lever in that effort, and that the study reinforces that the IPN delivers impact well beyond a discount, helping them reach the incremental shoppers critical to their long-term growth. Turning to LiveLift, we continue to see positive signs of product-market fit even though it is still early days. We continue to limit access to those clients willing to spend a certain amount and run their campaigns for a certain duration. For this reason, the revenue contribution from LiveLift remains modest for now; we are not forecasting a significant ramp in revenue until we loosen those eligibility requirements. I will have more to say on what that will require in a moment. Actual re-up rates among clients that have completed a LiveLift campaign remain consistent with the approximately 80% level we have discussed in prior quarters. Those clients who have not yet re-upped are primarily smaller CPGs, which we believe reflects our eligibility criteria rather than any dissatisfaction with the product, consistent with what we have said previously. Repeat users represented approximately 60% of LiveLift in the quarter, with the remainder being first-time users running pilots. The average campaign size for LiveLift campaigns remains meaningfully larger than for our core product. The most common question I received after our last earnings call was, can you help me better understand what the pathway to greater adoption of LiveLift will look like? So let me try to shed some light on what that entails and why I believe we are making solid progress. Of course, as with any innovative product development process, it is impossible to know in advance everything we will learn along the way or exactly how long that will take. Our goal is to make it as easy as possible for our CPG clients to buy campaigns on the Ibotta Performance Network. Some will prefer to stick with managed service, while others may take advantage of our self-service tools, which we will continue to refine and improve. In the future, our clients may also rely on agents to make more autonomous media buying decisions. Whichever interface they choose, clients will start by identifying the goals of their campaign. Our LiveLift platform then takes this information and evaluates a wide range of possible campaigns and chooses the best fit for their goals, projects the amount of redemptions, incremental sales, and cost per incremental dollar we think they will achieve, tracks these metrics on an ongoing basis—providing profitability readouts at various points during the campaign—and optimizes the campaign as necessary along the way. Scaling LiveLift to our wider client base will require greater automation of these processes. With that in mind, we are focused on a few key initiatives. First, we are building a more sophisticated programmatic API layer so that our software, as well as any agents we create, interface with the various models and systems that power LiveLift, allowing our system to fully harness the power of AI to programmatically design, build, launch, optimize, and report on a campaign. This includes considering different scenarios and making the best possible projections and recommendations more quickly and at lower cost. Second, we are refining the underlying models that power LiveLift. These models become more robust as we train them on the data generated by running these early LiveLift campaigns, as we receive additional data from existing publishers, and as we expand the publisher network, gaining access to new sources of data. Widening the availability of LiveLift requires continued model training through repeated experiments, and those take time. We are building a novel capability in this industry, and that necessitates a disciplined phased approach to scaling. Third, we are working on what I would broadly call AI enablement. That means documenting processes to create additional context for AI, defining standard operating procedures, and simplifying our product catalog to reduce complexity. Creating this scaffolding takes time, but once we have a simpler set of products with the appropriate context, more reliable agentic AI flows become possible. We believe that the progress we are making along all these fronts will ultimately allow us to more meaningfully inflect the level of CPG offer supply. Switching to the demand side of the equation, we continued to see strong results this quarter, with healthy Redeemer growth driven by organic growth at our existing publishers and the 2025 launch of DoorDash. One of our top priorities has been diversifying our publisher base, and we have begun doing that with the recent additions of Uber and Giant Eagle, both of which entered into multi-year exclusive partnerships with Ibotta, Inc. Adding Uber to the IPN allows us to intercept consumers in high-intent commerce moments and solidifies our leadership position in the fast-growing and important e-commerce delivery space. Our partnership with Giant Eagle further validates the strength of our model and enhances our presence in the traditional grocery channel. As one of the nation's largest multi-format food and pharmacy retailers and a recognized industry thought leader, Giant Eagle chose to transition to Ibotta, Inc. in order to access a more robust and relevant offer gallery that moves the needle for their customers. We are pleased with the terms and the economic profile of both of these new partners. These partnerships demonstrate the extensive work of our business development and technology teams behind the scenes to enable these milestones. I will now turn the call over to our Chief Financial Officer, Matt Puckett, to walk through our financial results and guidance in more detail. Matt Puckett: Thank you, Bryan, and good afternoon, everyone. We are pleased to have delivered another quarter that was ahead of our initial outlook, further validating that we are very much on the right track. With that, let me jump into the Q1 results. We delivered revenue and adjusted EBITDA that were, respectively, 325% above the midpoint of the guidance range that we provided on our fourth quarter earnings call. Now to unpack our top line results for the quarter. Revenue was $82.5 million, a decline of 2% versus last year. Within that, redemption revenue was $73 million, down approximately $0.4 million or 1% year over year. Both redemption revenue and ad and other revenue trends improved on a year-over-year basis as compared to the fourth quarter. We continue to be pleased with the results our sales organization is driving and how both our core product offerings and LiveLift are resonating with our clients. As Bryan noted, the LiveLift re-up rate remains healthy, underscoring that clients are realizing the measurable benefits that these next-generation capabilities deliver. Third-party publisher redemption revenue was $54 million, up 12% versus last year and accelerating sequentially versus the prior quarter's increase of 8%. Direct-to-consumer redemption revenue was $19 million, down 25% year over year and similar to Q4's result, where, as anticipated, we have continued to see redemption activity shift to our third-party publishers. Ad and other revenues, which represented 11% of our revenue in the quarter, were $9.5 million, down 15% versus last year due primarily to continued pressure on ad revenue as a result of lower direct-to-consumer Redeemers. This reduction was partially offset by growth in data revenue. Turning now to the key performance metrics supporting redemption revenue. Total Redeemers were 19.7 million in the quarter, up 15% year over year. We saw another quarter of significant growth in third-party Redeemers across the IPN, including strong growth with our largest publisher partner, highlighting the continued health of the demand side of our network. In addition to organic growth with existing publishers, the quarter also benefited from the launch of DoorDash in 2025. Redemptions per Redeemer were 4.5, down 6% versus last year, a meaningful improvement in trend versus the second half of last year when redemptions per Redeemer were down 22%, but where the decline continues to be driven by both the quantity and quality of offers available to each Redeemer, as well as the growth in third-party Redeemers, which have a lower redemption frequency as compared to our direct-to-consumer Redeemers. Redemption revenue per redemption was $0.83, which was flat versus Q4 and down 7% versus last year, driven primarily by the mix of redemption activity. Summing it all up, total redemptions were 88 million, up 6% versus last year, driven by 15% redemption growth on our third-party publishers. This represents a more measurable return to year-over-year growth in redemptions for the first time since 2025 after being flattish in the fourth quarter. Now switching to the cost side of our business. As anticipated, non-GAAP cost of revenue was up $2 million versus a year ago, largely driven by an increase in technology-related costs along with a more modest increase in publisher costs. This resulted in a Q1 non-GAAP gross margin of 78%, down approximately 300 basis points versus last year. As we discussed last quarter, much of the increase in technology-related costs is a function of increased investment in product development, as well as a higher allocation of certain costs from R&D expense to cost of revenue. Before I review non-GAAP operating expenses, let me point out that we have made a change in how non-GAAP operating expenses are defined and shown on page 12 of the presentation that accompanies our earnings materials. You will notice we are now including depreciation and amortization in non-GAAP operating expenses. Now turning back to the results. Non-GAAP operating expenses were up 5% versus last year, and were 71% of revenue, an increase of approximately 470 basis points year over year. Within that, non-GAAP sales and marketing expenses were up 17%, driven by higher sales labor, the cost of third-party lift studies, and B2B marketing expenses. Non-GAAP research and development expenses decreased by 21%, primarily a result of higher capitalization of software development costs and a higher allocation of labor expense to cost of revenue. This is due to more of our investment in R&D being directly focused on product development. Lastly, non-GAAP general and administrative expenses increased by 5%, while depreciation and amortization increased by approximately $0.6 million or 60%. Similar to the last couple of quarters, while overall non-GAAP operating expenses grew year over year, our investments in areas related to our transformation—inclusive of both the P&L and what is being capitalized to the balance sheet—increased at a faster pace. This increase was approximately 12% and again was highlighted by higher labor costs in the sales organization and other technology-related costs. We delivered Q1 adjusted EBITDA of $8.7 million, representing an adjusted EBITDA margin of 11%. Non-GAAP net income of $6 million and non-GAAP diluted net income per share of $0.24. Our non-GAAP net income excludes $16.7 million in stock-based compensation and it includes a $0.3 million adjustment for income taxes. We ended the quarter with $164.6 million of cash and cash equivalents. In Q1, we spent approximately $45 million repurchasing approximately 1.9 million shares of our stock at an average price of $22.92. We had 25.6 million fully diluted shares outstanding as of 3/31/2026, and as of the end of the quarter, we had $90.3 million remaining under our current share repurchase authorization, which, as previously disclosed, was increased by $100 million upon authorization from the Board of Directors on March 11. Finally, we generated $23.3 million in free cash flow, an increase of 56% versus last year, largely driven by higher cash flow from operations as a result of decreases in working capital compared to 2025. Now shifting to Q2 guidance. We currently expect revenue in the range of $82 million to $86 million, representing a 2% year-over-year decline at the midpoint and at the same time a 2% sequential increase versus Q1 at the midpoint. We expect Q2 adjusted EBITDA in the range of $9 million to $12 million, representing about a 12.5% adjusted EBITDA margin at the midpoint. With that, let me provide a little more color on our outlook. First off, as both Bryan and I have mentioned, we continue to be pleased with the consistency of our execution with our clients and publisher partners, both with core product offerings and with LiveLift pilots. This has been the driver of improving revenue trends during the last couple of quarters and we expect that to continue. One other point to make on Q2 revenue: at the midpoint of our revenue outlook, we would expect redemption revenue to return to growth for the first time since 2025. Beyond our specific Q2 revenue guidance, we are confirming our expectation of a return to year-over-year growth in total revenue in Q3 in the low single-digit range. It is probably on your mind, so let me highlight the assumptions implied in our outlook specific to the two new publishers we are adding to the network. We have assumed an immaterial impact on Q2 during the testing and piloting phase, and expect a small benefit to revenue in the second half of the year as we ramp up with these partners. I will note that offer supply will be the governor on the near-term revenue impact of this expansion on the demand side of our network. As it relates to costs, our expectations are broadly unchanged from last quarter. We continue to expect to see a modest sequential increase in quarterly non-GAAP cost of revenue and operating expenses throughout the balance of the year. That continues to be a function of investing in areas that are critical to our transformation. Specifically within cost of revenue, as we said last quarter, we expect to have substantially less growth in publisher-related costs as compared to what we saw in 2025, and we do expect, similar to the first quarter, that the biggest factor driving an increase in cost of revenue will be higher technology costs, which is partially a function of where these costs are allocated in the P&L relative to last year. Lastly, with a healthy balance sheet and positive free cash flow, we will continue to prioritize investing in organic growth and the strategic priorities of the business while also returning cash to shareholders. We remain excited and energized by the opportunities ahead and look forward to returning to year-over-year revenue growth in the second half of this year. We will now open the call for questions. With that, operator, please open up the line for Q&A. Operator: For today's Q&A session, we will be utilizing the raise hand feature. If you would like to ask a question, click on the raise hand button at the bottom of the screen. Once prompted, please unmute yourself and begin with your question. We will pause a moment to assemble the queue. Thank you. Our first question will come from Ken Gawrelski with Wells Fargo. Please unmute your line and ask your question. Kenneth James Gawrelski: Can you hear me okay? Bryan Leach: Yes. Matt Puckett: Yes, we can. Thank you. Kenneth James Gawrelski: Okay, great. Thanks so much for the question. Could Brian, could you talk about how, as you move more to LiveLift over time and you get this sales process really humming, when you look into, you know, ’27–’28, how do you think the financial picture may change? What does it mean for the margin structure of the business relative to, you know, the kind of post-IPO? What fundamental differences do you see there? Maybe this is the first one. And then second, as you think about the progress you can make in the back half of this year and into early next year, how much of it is a change in the calendar year providing another opportunity to take another bite at the apple with some of those big CPG brands versus just getting your go-to-market strategy and process working? Thank you. Bryan Leach: Thanks, Ken. I will take those in turn. The first one I will answer at a high level and then let Matt provide additional detail, and then I will have him pass it back to me for the second question. For the first one, I would say, broadly speaking, we feel like we are in a good place with our expenses to be able to build the products we need to drive the increase in offer supply over the next few years. You asked about 2026, 2027, 2028, and so that should— in other words, we do not expect to have to continue to ramp expenses at the same rate that we are ramping revenue, and so that should be positive in terms of the margins and contribution to adjusted EBITDA over the next three years. We have ongoing innovation that is baked into the R&D that is part of our current effort. I think more time will allow us to get in front of our customers with the LiveLift message. It is an evolution in the industry that is moving from annual planning and annual allocation and annual measurement to more ongoing measurement and optimization using rule-based or outcome-based systems. That go-to-market takes some time to build the necessary trust and conviction and then have the cultural changes that need to happen on the client side. But I feel like the developments that I described in my remarks will put us in a position where there will be a greater variety of different ways that people can buy on our network, and those ways will be more sophisticated and allow us to meet the needs of our clients more often and allow us to earn our way into larger and larger budgets, which is what is really going to move the needle and drive revenue in this business. I will let Matt add any additional thoughts on that before turning to your second question. Matt Puckett: Yeah, Ken, just a couple of things I would add, without being precise regarding our financial algorithm. A couple of things I will say—one is kind of more medium term and then longer term, which is really reiterating Bryan's points. We have been talking for a couple of quarters now about the investments that we were making, first in the sales organization—restructuring, reorganizing, and really just leveling up the capabilities in sales—as well as the investments we have been making in our technology as it relates to the transformation of the business and the capabilities that we have been building. We are nearing lapping most of those investments. We are not fully there, but over the course of this year, we will lap all of those investments. That is factored into everything we have said about what the forward picture looks like. Once we have done that, then as we sit here today with what we see that needs to get done, we do not expect to have to add—there is not another step change in an investment profile from here. So as we see the top line stabilize and then we start to drive consistent, sustainable growth, we are going to see the opportunity to expand both gross margins and EBITDA margins over time. Hopefully, that helps answer. Bryan Leach: The second question, Ken, about the back half and the change in the calendar year, I would say that different clients have different fiscal years. Some of our clients reset in July, some of them reset in the fall, some of them reset on the calendar year. While that is definitely a factor in situations where we have kind of gotten through the budget that was allocated to us the previous cycle, we get a chance to demonstrate the effectiveness of that—the level of performance earns us into a larger budget. That is true. However, I think it is more a function just of being able to get in front of clients with our core product, demonstrate the scale that we have, that we are along the breadth of purchase in all these different places now, the addition of these new publishers—that allows us even intra-year to go back and make the case that this is where they should be spending more money at a time when they are aware that this is how they gain market share, by intelligently thinking about where they are pricing their products and how they are promoting their products. So I do not want to lean too much on that as some major driver. We are always selling both in the annual planning process and then within that year. Our whole goal here is to move the industry away from that mentality of annual planning and into a mindset of “I always want to buy this as long as these rules and constraints are being met.” I want every dollar of top- and bottom-line revenue and profit that I can get through this platform, and I will spend until I am no longer seeing that level of efficiency. That is ongoing, but I think it is safe to say that for now, we are still living in a world where we do participate in those annual re-up conversations—they are just thousands of brands happening all the time at different parts of the year. And Matt was going to add one more thing. Matt Puckett: Yeah, Ken, just one more thing to make sure we got to the essence of part of your question there on the margin profile. As we grow LiveLift over time as a bigger penetration of the business, that does not materially change the margin profile. Whether it is core product offering or LiveLift, we would not see a different outcome. It is really about the investments we have made to enable the growth that will flow through our business model. Kenneth James Gawrelski: Thank you. Operator: Our next question will come from Tim with Raymond James. Please unmute your line and ask your question. Analyst: Hey, guys. Thanks for taking my questions. I have a couple. First, if you could talk about some of the early progress with the Uber partnership and how that is tracking. Within that, on the initiatives surrounding LiveLift in terms of what it will take to ramp that a little further, any thoughts on what inning you are in and any progress made on those initiatives so far? Secondly, on the macro, are you seeing any impacts from energy prices, whether it be on CPG spend or on the health of the lower-end consumer? Thanks. Bryan Leach: Great. Thanks, Tim. First on the Uber partnership, we were pleased to have announced that a little while ago. Like all of our publishers, they do not just turn that on overnight to 100% of all of their customers across thousands of stores that they support. They do that in a stepwise function, and we are in the early part of that rollout. We will then begin working with them on other aspects of that partnership to make sure that we are able to do the most sophisticated forms of measurement and personalization, marketing, reactivation, and activation—those best practices. We are in a position where the technology to support this has been built, and we are early in the process of introducing that to different customers at Uber, and we are excited about that. As you know, we have a strong presence in that area, and that is something where we hope that it will also have the same level of uptake and high redemption rates that we have seen in that category more broadly. On the progress we have made on the ramp of LiveLift, I think we have made significant progress from the last time we had a conversation in late February. That is along all the different dimensions that I mentioned. AI is evolving very rapidly, and so we are investing heavily in AI enablement to take advantage of the efficiencies that are available to us through using tools like Claude Code, but also our ability to create this programmatic API layer. We are absolutely working on that around the clock, getting that to a place where we will be able to automate more of these processes, which will benefit our entire business—not just LiveLift, but also all of our core offers benefit from having it be easier to design, set up, revise, and so forth from beginning to end of a campaign. The models underlying LiveLift get better with more data, with more refinement of the model, and with more publishers you add. The addition of Uber and Giant Eagle will help us refine those models. That itself represents progress, but we also are seeing that as we get a second and third LiveLift campaign from some of these repeat customers—I mentioned 60% of LiveLift is from a repeat customer—they are able to test out different strategies and learn how the consumer responds to different structured promotions based on their goals. That then helps project the next campaign that much better. So those clients that are participating are gaining an advantage. They are all aware that doing that in this environment is important, which is a good segue to your last question about the macro. The news you are reading is the same thing we are hearing from our clients. The American consumer is looking for value. We are excited that we are an integral part of that. Whether that is driven by the war in Iran or gas prices or tariffs, or some other exogenous factor, there is a lot of focus on this topic. Even earlier today, the CEO of Kraft Heinz put out a message—Steve Cahillane—saying the new mantra is value. “Consumers are literally running out of money.” Those are the kinds of things that cause people to take a closer look at the product that we sell. We are making the case that there are smarter and less smart ways to deliver that value. We think the Ibotta Performance Network is a really good way to do that in a way that is also capitalizing on the latest technologies that are available. I also want to stress that this is nondiscretionary spending, so no matter what the macro environment is, people are looking for value on the things they have to buy week in, week out. If you look at the press release we put out today from Giant Eagle, they commented on why they switched to Ibotta, Inc. They switched because they wanted to see an 8x increase in value delivery for their customers, and they are hearing consistently that that is what makes the difference in why people shop at Giant Eagle versus somewhere else. So both on the CPG side, for example Kraft, and on the publisher side, for example Giant Eagle, being in this field right now is particularly important. Operator: Our next question will come from Stefanos Chris with Needham and Company. Stefanos Chris: Hey. Can you hear me? Bryan Leach: Yeah, we got you. Stefanos Chris: Awesome. Thanks for taking the question. Just wanted to ask on third quarter revenue reflecting positive. What are the assumptions in there? Are you baking in a certain ramp in LiveLift? Are you including Uber and Giant Eagle? Would love to go through the assumptions there and where there could be upside. Thanks. Bryan Leach: Great. I am going to hand that one to Matt. Matt Puckett: It is really what we are doing today continuing. We have seen sequentially improving results in our business, particularly driven by redemption revenue, and that is really the driver versus Q1, and the same to be true for Q3 versus Q2. We expect to see that get better in Q2, and that is all going to translate into growth. There is no step change assumed in terms of LiveLift adoption or us further opening the aperture to that. Where we are today is the expectation. We have assumed a very modest impact from the two new publishers in the back half of the year—that would be a little bit less in Q3, a little bit more in Q4, as a way to think about that—but it is really an ongoing kind of performance that we have seen to date driven by consistent execution, and the fact that our products, both core products and obviously LiveLift as well, are resonating with our clients. Stefanos Chris: Thanks. If I could squeeze one more in: on the monetization of Uber and Giant Eagle, I assume Uber is similar to a DoorDash, but how about Giant Eagle? Is that similar to a Dollar General, or are there any differences in these two partnerships? Thanks. Bryan Leach: Without going into the specifics of the economics of individual partnerships, broadly speaking, those are similar to how we have approached these in the past, and we are happy with the economics of those partnerships. As we get greater scale and more momentum and greater access to supply, we continue to see publishers more interested and motivated to deliver the best possible value for their customers, and we think that will continue to contribute to favorable economics going forward. Operator: Our next question will come from Nitin Bansal with Bank of America. Nitin Bansal: Thank you for taking my question. Bryan, can you provide some more details on your progress with the go-to-market transformation, specifically how the new sales motion impacted your Q1 results? And what additional changes are you making to the sales team that could impact your performance for the rest of the year? Thanks. Bryan Leach: Thanks, Nitin. Absolutely. There are a number of different things that have been going on since the arrival of Chris Reidy on our team. That started with taking a look at the team itself and making sure we have the right people in the right roles to help ourselves with the kind of selling that we are going to need to do, which is much more of a consultative sale where we have to be fluent in the businesses of our clients. We reorganized the sales organization to be no longer geographic, but focused on an industry-based approach. We have experts in beverage, for example, or in household products, and so on. We separated into enterprise clients versus emerging clients, with each having its own industry sub-verticals. We focused on a variety of support structures that were not in place that needed to be, such as bringing in an SVP of Enterprise Sales, an SVP of Business Marketing to help us with B2B marketing expertise, and we beefed up sales finance, sales operations, and training and enablement of our sellers. I think that was very important. We filled all those senior leadership roles by 2025, as I have said on previous calls, and we brought in excellent talent. That has helped us on a lot of different fronts. We mentioned on the last call the thought leadership and the ability to be proactive and get in front of our clients. The example I gave was the SNAP program—we had a playbook that was designed, we reached out, and that led to incremental dollars being committed to Ibotta, Inc. that were not in their previous annual plan, which were opportunistic and really valuable. We have talked about other things that we have done. “Multithreading” is a term we have used—meaning teaching our sellers to go in at multiple different levels of an organization at the same time to speak to different needs and pain points of the people in those organizations, using the language of their business. It is the simple fact of being on the ground more often, being in the room more often—the hustle factor—and continuity, so not handing people over between rep to rep. That is really about trust. Most of the structural changes were made last year, but we are continuing to build that trust. As we are doing that, we are getting invited into more important strategic conversations. We are getting clients that want to say, “Let us come out and spend a day with you,” and they are bringing significant senior members of their team to discuss where we think the industry is heading and how it is impacted by things like technology and AI. We are being embraced more as a thought leader and invited more into upstream strategic planning conversations. I think the introduction of Surcana and ABCS has allowed our sales team to provide third-party independent analysis. That has given them another platform. We have done a better job with event marketing—Chris Reidy has been on stage at Adweek, NACDS, and lots of different conferences. We are getting in front of all different parts of the CPG organization. It is not one thing; it is a variety of different upgrades to how our team sells. Of course, having something like LiveLift to discuss and having the ability to focus on incremental sales and really lead the conversation around rigorous measurement has given them a lot to talk about, and I am really proud of the work they are doing. Operator: Our next question will come from Tim Huang with Citizens JMP. Tim Huang: Hi. Thank you for taking my question. I wanted to follow up about the pricing changes that were talked about in the prior quarter's call with regard to pricing being more linked to AOV. Could you give any color on how that has been received, and further progress during the quarter on pricing and what has been flowing through? Bryan Leach: Thanks, Tim. Sure. You are right, and your memory is spot on. It is a question of moving from a flat fee that is applied based on the price band that a product falls within. The old system was: if your product was $3 to $4, you paid this cost per redemption; if your product was $4 to $5, $5 to $6, $10-plus, you might pay a different cost per redemption under the old model. The problem with that is that as you get to either side of that range, you get discontinuities. The ratio that your fee represents as a percentage of the overall product price—and the total economics available to the brand—varies, and that can create inadvertent inefficiencies. It might make it unnecessarily expensive, for example, to use Ibotta, Inc. with lower-cost products where our fee per redemption cuts a high enough percentage that it is hard to deliver a cost per incremental dollar that is attractive—meaning lower than the contribution margin of that product consistent with a goal of profitability. The solve for that is to shift toward a system where it is continuous—so it is a fixed percentage of the price itself. That way, whether you are at $1.01 or $1.99, you are equally able to take advantage of that structure. What we have been doing is introducing this transition in our pricing as part of a broader reset of some terms that we have in our preferred partnerships and agreements. That has been very well received. People view that as simplifying the system—dispensing with discrete fees for things like setup. It makes it simpler. Everything is wrapped into this one percentage-of-the-price fee. As I said, it is encouraging clients to promote lower-priced items. We are still very much in the middle of that transition because we did not want to just mandate that everybody turn on a dime. But as we come back through these conversations on our annual preferred partnerships, that—along with other conversations around things like payment terms—are a natural part of our conversation. Broadly speaking, that is going well. We are seeing success in that transition, although we are still very much in the midst of it. And Matt is going to add one more thing. Matt Puckett: I would just say—and you will see this in our results—our redemption fee metrics are going down a little bit in terms of the way to think about price. We pay attention to that and understand it, but it honestly does not scare us. In order to maximize revenue, in many cases it makes sense to lower fees. It allows our clients to have profitability objectives. Think about our business model: incremental revenue flows to the bottom line at a really high rate. So seeing revenue per redemption coming down as a result of fees, but then offset by higher volume, is actually a good answer for us in most cases. Bryan Leach: Broadly speaking, Tim, it is fair to say we have had a greater level of analytical rigor. Looking at that is one of the reasons why we arrived at this transition in our pricing. We had a lot of conversations with our clients before we settled on this, and fortunately we properly prepared for the transition. I am happy with how it is going. Operator: Once again, if you would like to ask your question, please use the raise hand button at the bottom of your Zoom screen. That now concludes the Q&A section. I would now like to turn the call back to management for closing remarks. Bryan Leach: Thanks very much, everyone, for your time today. We are pleased with the results that we have reported and the momentum in our business, and we look forward to speaking with you again soon. Operator: Thank you for joining today's session. This call has concluded. You may now disconnect.
Operator: Welcome to Adient's Second Quarter Earnings. [Operator Instructions] I'd like to inform all participants that today's call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Linda Conrad. Thank you. You may begin. Linda Conrad: Thank you, Denise. Good morning, everyone, and thank you for joining us. The press release and presentation slides for the call today have been posted to the Investors section of our website at adient.com. This morning, I'm joined by Jerome Dorlack, Adient's President and Chief Executive Officer; and Mark Oswald, our Executive Vice President and Chief Financial Officer. On today's call, Jerome will provide an update on the business. Mark will then review our second quarter financial results and our outlook for the remainder of our fiscal year. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Jerome and Mark, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. These statements are based on the environment as we see it today, and therefore, involve risks and uncertainties. I would caution you that our actual results could differ materially from these forward-looking statements made on the call. Please refer to Slide 2 of the presentation for our complete safe harbor statement. In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. And with that, it is my pleasure to turn the call over to Jerome. Jerome Dorlack: Thanks, Linda. Good morning, everyone, and thank you for joining us to review our second quarter results. Today, we will focus on the quarter's solid performance and provide an update to our fiscal year 2026 outlook. Overall, Q2 results came in line with our expectations, reflecting typical seasonality in China and some temporary production inefficiencies on a few key programs. Despite that, revenue was up 7% year-over-year, driven largely by FX tailwinds with underlying growth in both the Americas and Asia. Adjusted EBITDA was down modestly year-over-year, reflecting temporary mix, launch costs and customer-driven inefficiencies, partially offset by favorable FX and SG&A. Free cash flow in Q2 reflected the normal seasonality of the second quarter, and we ended the quarter with a cash balance of $831 million and $1.6 billion of liquidity. Given normal cash flow seasonality and the increased geopolitical uncertainty, we paused stock repurchases during the quarter, consistent with our approach last year. Turning to growth. We continue to aggressively pursue new business in all regions. In the Americas, more OEMs are announcing their intention to onshore production in the United States. We are working with our customers to capitalize on these opportunities as their plans materialize. We have also won significant conquest programs in South America and China. And in China, our growth over market remained strong despite the overall production volume challenges in the region. Finally, as we look beyond the quarter to the full year, based on what we know today, we are increasing our guidance modestly for revenue, adjusted EBITDA and free cash flow. Favorable volumes and strong business performance are being muted by $35 million of expected input cost headwinds, which Mark will outline further in his remarks. Turning now to Slide 5. While I just noted that Adient is raising guidance slightly for fiscal year 2026, we acknowledge that the overall macro environment remains volatile. The ongoing geopolitical conflicts, elevated energy and commodity costs, trade policy uncertainty and shifting consumer sentiment continue to influence the industry. While nobody can predict what will happen for the remainder of the fiscal year, what differentiates Adient in this environment is our operating model. We combine strong commercial discipline and pricing mechanisms with exceptional operational execution, flexing labor, controlling costs and launching flawlessly, supported by a strong balance sheet with ample liquidity. That allows us to execute at a high level even amid production volatility and supply chain challenges. Despite these external headwinds, our year-to-date results reinforce our ability to execute. We continue to drive positive business performance despite temporary disruptions and customer-driven inefficiencies. We continue to outpace the market in China as expected. And we maintain margin discipline across regions, while preserving a strong and flexible capital structure. This is how we manage what's within our control and why we continue to deliver on our commitments and maximize long-term shareholder value. Before I get into the regional update, I want to recognize our global team's exceptional performance year-to-date. We have received over 60 awards in the last 2 quarters, comprised of recognition from our customers, industry organizations and independent quality assessors across the globe, a testament to our operational excellence and the trust our customers place in Adient. In addition to these noteworthy accomplishments, Adient continues to be recognized as an employer of choice in the regions we do business, validating our commitment to our people and enabling us to attract and retain top talent worldwide, which strengthens our ability to execute. These recognitions validate that our strategy is working. We are winning with customers, investing in our people and delivering the consistent quality that builds long-term partnerships and shareholder value. Now, let's talk a bit more about the regions on Slide 6. While our business is global, each of our regional businesses is impacted by unique market dynamics, and each is facing its own set of opportunities and challenges. In the Americas, we are navigating a complex and dynamic environment, driven in part by tariff policies, which are manageable at current rates but continue to be fluid. Onshoring and growth remain a key focal point for the Americas team, especially as onshoring momentum continues. In addition, the teams are driving margin improvements through our continuous improvement programs, automation and optimizing our manufacturing footprint. The team is also focused on launch execution for multiple programs, including the Kia Telluride, Rivian R2 and the Toyota RAV4. In EMEA, market uncertainty and overcapacity persist and continue to impact not just Adient, but the overall industry. Our team continues to rise to these challenges. We are pursuing and winning new and replacement business and continue to strengthen our supplier-of-choice status in the region. Operationally, the European team is driving favorable business performance through commercial execution, cost discipline and restructuring actions that more than offset the current volume headwinds, all while successfully executing more than 30 launches so far this year. Turning to Asia. The market dynamics with shorter vehicle development cycles and innovation are a key differentiator. As we will highlight in a few slides, our Asia team continues to commercialize innovation products, which our customers are excited to invest in. Despite industry pressures in China, we continue to outperform the market through launches with local OEMs, which now represent about 70% of our wins. Our world-class JV structure further strengthens our local presence and expands our market. Beyond China, Asia outside of China is also positioned for above-market growth in the second half of this year as new launches ramp. While we do expect some manageable margin compression, the region is expected to remain accretive to Adient's EBITDA and cash generation. While each region is distinct, what ultimately defines Adient is that we operate as one unified company. Across every region, our teams are aligned around the common purpose, serving our customers, supporting our employees and delivering value for our shareholders. We do that through disciplined execution, seamless collaboration across borders, a strong culture of integrity and the ability to adapt quickly as conditions change. Turning to Slide 7. This page highlights how our growth strategy has continued to gain momentum. In the Americas, onshoring and conquest wins continue to drive meaningful volume gains. This quarter, we secured roughly 200,000 incremental units from the Chevrolet Equinox U.S. onshoring and conquest win, along with approximately 180,000 units from Volkswagen conquest programs in South America. These wins reflect the strength of our footprint and our ability to execute reliably as customers regionalize production. That momentum is showing up in our forward book as well. FY '27 booked business has increased to about $400 million and FY '28 to roughly $630 million, representing close to 700,000 incremental vehicles and market share gain. Importantly, that figure reflects what we booked to date. Onshoring trends continue, and we remain in active discussion with global OEMs on additional opportunities that extend beyond what's captured here. We continue to see ourselves as a net beneficiary of customer onshoring. In Asia, our team has done an exceptional job of competing and winning in a highly dynamic market. As I mentioned in the last slide, approximately 70% of our new business wins in China are with local OEMs, reflecting strong customer relationships, faster development cycles and Adient's ability to localize engineering and execute at scale. That execution is translating into above-market growth with China up 10% in Q2 versus a declining industry. Taken together, this reinforces the momentum we're building across regions as onshoring, conquest and localized execution continues to expand our growth runway. Moving to the next slide. After the quarter-end, we announced the completion of a tuck-in acquisition that expands our foam manufacturing footprint in the Americas. We acquired a foam production plant in Romulus, Michigan, which supports multiple OEM seating programs, expanding our Americas foam network to 10 plants and 30 plants globally. This is a strategic core business move that strengthens our vertical integration capabilities and helps improve supply assurance and responsiveness for our customers. Our focus is on a smooth integration with uninterrupted service, and we see opportunities over time from logistics advantages, operational flexibility and productivity improvements. This targeted acquisition strengthens Adient's operational model by further improving control over critical inputs, lowering execution risk and supporting more resilient margins. We are thrilled to welcome the Romulus employees to Adient and are excited about the capabilities and commitment they bring to our organization. Moving on to Slide 9. I want to spend a moment and talk about our recent launches and the new business wins because these are important proof points on how Adient is growing. These wins aren't about volume alone. They reflect higher content, more complex seating systems and deeper integration with our customers across the regions. In the Americas, Adient continues to be a net beneficiary of customer onshoring trends. We are happy to announce the recent conquest win with the Chevrolet Equinox, highlighting once again our world-class footprint, consistent operational execution and strong customer partnerships reinforce our supplier-of-choice status. We also recently won conquest business on several Volkswagen platforms in South America. This is strategically important growth for Adient as it deepens our footprint with a major global OEM, strengthens our regional manufacturing relevance and positions us for sustained revenue growth and incremental opportunities in the market over the coming years. In EMEA, program wins such as the new Porsche SUV and recent launch of the Citroen C4 demonstrate continued momentum with leading global OEMs. Importantly, these wins reflect disciplined, selective growth, where we are prioritizing programs that align with our operational strengths, higher value content and improved earning resilience in the region. In Asia, growth is being driven by domestic OEMs and EV platforms, including Xpeng, Leapmotor and Changan, where we are delivering advanced comfort features, high adjustability and multivariant seating architectures, often with Adient-led engineering development in region. Importantly, many of these awards involve premium comfort content, higher complexity and greater value per vehicle. When you look at this slide, I think it's important to step back and look at the balance of our growth portfolio. On one hand, programs like the Chevrolet Equinox represent disciplined growth on high-volume onshore ICE platforms, where Adient is winning complete seat content, taking share through conquest and leveraging our market-leading North American footprint, delivering strong execution and solid cash generation. At the same time, launches like the Rivian R2 and Leapmotor D19 position us on next-generation EV platforms, where higher complexity, tighter integration and engineering-led execution support higher content per vehicle and stronger higher-quality earnings over time. Together, these programs demonstrate that we're not making an either/or choice between legacy and next-gen. We're deliberately building a portfolio that balances scale and cash flow today with complexity-driven higher-quality earnings tomorrow. That balance is exactly what underpins the sustainability of our results and our confidence in the long-term outlook. Overall, this slide reinforces why Adient continues to be the supplier of choice, winning across regions, technologies and vehicle segments, while executing complex launches at scale. Turning to Slide 10. I want to highlight 2 recent innovation milestones that underscore how Adient continues to turn technology leadership and realize commercial execution. Most recently, we achieved an industry-first launch of our StepJoy foot massage system on the NIO ES9. This is a key example of how we're expanding seating comfort beyond traditional lumbar and back applications, while maintaining compact packaging, cost efficiency and automotive-grade reliability. Importantly, this is not a concept. It is in production today, validating our ability to industrialize differentiated comfort solutions at scale. In parallel, we're advancing our mechanical massage portfolio with ProForce Massage Flow, which builds on our already validated ProForce platform. ProForce Massage significantly expands massage coverage and gives customers the ability to offer premium seating experience, providing differentiation over traditional highly commoditized massage offerings offered by our competitors. The modular design and production validation allows this technology to be deployed across multiple seat architectures and vehicle segments within an OEM, enhancing scalability, and is already scheduled for production on 2 C-OEM models. The ProForce system is differentiated from what our competitors offer. Together, these launches demonstrate how we're leveraging innovation to drive higher content per vehicle, deepen OEM relationships and support higher-quality earnings over time. This is how innovation plays into Adient's operating model, disciplined, scalable, differentiated and commercially focused to help our customers enhance their overall in-vehicle experience. Before turning this over to Mark, I want to pause here on Slide 11 because this slide really connects the dots between our operating model and what it delivered this quarter. We speak a good deal about operational excellence, profitable growth, innovation and being a supplier of choice, but these are not abstract concepts. They are the foundation that allows us to execute consistently, especially in an environment like this one. In the second quarter, that execution showed up in very tangible ways. We delivered multiple complex launches as planned, continued to convert supplier-of-choice recognition into conquest and onshoring wins, and advanced innovation programs that are already in production and generating value for our customers. We also strengthened our footprint and reduced execution risk through a targeted tuck-in acquisition. Our teams have received more than 60 customer and industry awards across the region over the past 2 quarters, reflecting Adient's day-to-day execution and quality, launch performance, responsiveness and employee satisfaction. This recognition is translating directly into outcomes, key talent retention, deeper customer trust, conquest and onshoring wins, and the ability to launch more complex, higher-content programs consistently. That external validation reinforces why our operating model continues to scale in a challenging environment. These proof points are the direct result of how we run the business every day, and they're what gives us the confidence in our ability to convert performance into cash flow generation and sustainable value creation going forward. Now, I'd like to turn it over to Mark to walk you through the financials. Mark Oswald: Thanks, Jerome. Let's turn to financials on Slide 13. Adhering to our typical format, the page shows our reported results on the left side and our adjusted results on the right side. As a reminder, the prior period included a onetime noncash goodwill impairment charge of $333 million related to the EMEA goodwill impairment, which impacted our GAAP reported results in Q2 of fiscal year '25 and affects the year-over-year comparability. My comments will focus on the adjusted results, which exclude special items that we view as either onetime in nature or otherwise not reflective of the underlying performance of the business. Full details of these adjustments are included in the appendix of the presentation for reference. Moving to the right side, high level for the quarter. Sales for the quarter were $3.9 billion, up 7% year-over-year, reflecting favorable FX, solid volumes and strong underlying business performance. Adjusted EBITDA was $223 million. While this was down year-over-year, the comparison reflects the impact of near-term customer-driven production inefficiencies and increased launch expense as we continue to invest in future growth. Equity income was lower year-on-year as a result of lower volumes with certain of our customers in China. Adjusted net income was $41 million or $0.52 per share. Let's dig a bit deeper into the quarter, beginning with revenue on Slide 14. I'll go through the next few slides relatively quickly as details for the results are included on the slides, allowing sufficient time for Q&A. We reported consolidated sales of $3.9 billion in the quarter, which was an increase of $254 million compared to the same period last year, primarily reflecting better FX tailwinds, along with favorable volume and pricing. On the right side of the page, we are presenting regional performance on a trailing 12-month basis. This view helps normalize seasonality and timing effects inherent to our operating model and provides a clear picture of the underlying trends. In the Americas, we are seeing growth of 5%, outperforming a flat market, primarily driven by Adient's customer profile, pricing and new vehicle launches. In EMEA, sales have trailed the market, reflecting customer volume and mix and deliberate portfolio actions such as the recent closure of our Saarlouis Ford plant. For China, while the trailing 12-month view is influenced by earlier-period softness, recent performance has notably been stronger. This quarter, sales in China grew at double digits, while the overall market declined, building on first quarter's significant outperformance. We expect this trend to continue over the next several quarters based on our book of business and launch schedule. Unconsolidated revenue declined year-over-year, reflecting planned program exits in Europe and lower volumes in China. Turning to Q2 EBITDA performance. Adjusted EBITDA of $223 million included approximately $8 million of temporary customer-driven production inefficiencies, which we expect to recover in future periods, and $11 million of launch expense, which supports future growth in our expanding program portfolio. Excluding these items, Adient's underlying business performance remains solid, reflecting the strength of our operating model and the continued focus our teams have on operational excellence and delivering on our full year commitments. As shown on the chart, volume and mix was an approximate $18 million headwind, mainly driven by the shift to China OEMs versus foreign manufacturers in China, which, as mentioned previously, will result in margin compression that we view as manageable, plus a variety of higher volumes on lower-margin platforms in North America in Q2. As in prior quarters, we've provided detailed segment-level performance slides in the appendix of the presentation for your review, but I'll briefly summarize each region at a high level. In the Americas, we had a solid underlying business performance, reflecting strong execution and program momentum. Results for the quarter were partially impacted by mix, temporary production inefficiencies and launch costs to support the region's future growth. In EMEA, the team continued to focus on driving positive business performance despite a challenging macro environment. And along with FX tailwinds, this helped mitigate the ongoing mix headwinds in the region. In Asia, results were impacted by equity income, the timing of commercial negotiations and planned increases in launch as the region invests in new programs and growth. Equity income was unfavorable year-on-year, primarily reflecting lower volumes in our China joint ventures. Moving on, let me flip to our cash, liquidity and capital structure on Slides 16 and 17. Starting with cash on Slide 16. For the quarter, the company generated $8 million of free cash flow, defined as operating cash flow less CapEx. In addition to the typical seasonality of our business, second quarter cash flow benefited from approximately $90 million of timing-related items, specifically related to a commercial agreement and a hedging transaction. Both items will reverse and become outflows in the third quarter. On a year-to-date basis, free cash flow totaled $23 million and included the benefit of the same $90 million timing effect just mentioned. Excluding this impact, year-on-year cash flow performance reflects favorable working capital fluctuations, driven by typical period-to-period swings, lower cash restructuring outflows in Europe, timing of dividend payments, and an increase in cash spending, supporting Adient's growth initiatives and automation spend. Important to point out, last quarter, we highlighted a nonrecurring tax settlement in a certain jurisdiction that increased our tax -- cash tax forecast for fiscal year '26. That settlement was paid out in our second quarter. Despite the expected $90 million outflow in the third quarter, we continue to expect strong free cash flow in the second half of the year, consistent with our historical seasonality, and remain confident in delivering on our free cash flow commitment. Turning to our balance sheet on Slide 17. Adient continues to maintain a strong and flexible capital structure. As of March 31, we had a total liquidity of approximately $1.8 billion, consisting of $831 million of cash on hand and $957 million of undrawn revolver capacity. Again, worth mentioning, the $90 million, which benefited second quarter free cash flow, was also included in the March 31 cash balance. I would also point out, Adient did draw on our ABL during the quarter due to typical seasonality and normal working capital fluctuations for our business. The ABL was fully repaid within the quarter. On a trailing 12-month basis, our net leverage was 1.8x, which remains comfortably within our targeted range of 1.5x to 2x, reflecting both disciplined capital management and the underlying earnings power of the business. Importantly, we have no near-term debt maturities, providing us with significant financial flexibility as we navigate a dynamic operating and macro environment. Overall, the capital structure remains strong and flexible. Turning now to our expectations as we move from the first half into the second half of fiscal year 2026. The first half of fiscal 2026 delivered solid business performance that was in line with our internal expectations despite a challenging operating environment. We remain focused on what was within our control, maintained discipline in execution and cost management, and exited the first half with a solid cash position and a healthy balance sheet. As we look to the second half of fiscal year '26, we currently anticipate approximately $35 million of input cost headwinds. Approximately $25 million is related to Middle East conflict through higher chemical and freight costs, and additional $10 million is driven by higher costs as a result of the LyondellBasell chemical supply disruption. This $35 million of higher input costs is expected to be more than offset with the benefits from volume and the acceleration of business performance. The team remains focused on driving business performance and generating cash. Turning to our updated outlook for fiscal 2026. Based on our performance year-to-date, improved customer production schedules, we are modestly increasing full year guidance for revenue, adjusted EBITDA and free cash flow. We now expect consolidated revenue of approximately $14.8 billion, up from our prior outlook of approximately $14.6 billion, reflecting solid first half performance, updated near-term customer production schedules and the latest S&P Global production assumptions. Adjusted EBITDA is expected to be approximately $885 million, up from our prior guidance of $880 million, reflecting the impact of higher revenues and increased business performance, which are helping to offset the $35 million of anticipated higher input costs. As a result of these updates, we now expect free cash flow of approximately $130 million, up from $125 million previously. This improvement reflects the pull-through of incremental adjusted EBITDA and continued focus on working capital discipline and cash generation. Cash taxes are still expected of approximately $125 million, no change from prior guidance. CapEx also remains unchanged at approximately $300 million. We have included a simple adjusted EBITDA bridge within the materials on Slide 20 that illustrates the components of our revised guidance. Before wrapping up, I want to spend a moment on Slide 21 because this page speaks to the durability and trajectory of our cash generation. As we've discussed, the $130 million of free cash flow expected this year reflects several elevated and transitional cash uses that are not structural to the business. As these items normalize, we expect materially stronger EBITDA to free cash flow conversion. Capital expenditures are expected to remain at about $300 million, supporting growth, innovation, operational excellence, while remaining aligned with our long-term capital allocation framework. Restructuring cash flows are expected to normalize as European actions progress. Similarly, interest expense is expected to ease with opportunistic repricings and voluntary debt paydown. And finally, cash taxes are expected to revert to a more normalized level following this year's nonrecurring settlement payment. Taken together, these actions clearly outline the path to a structurally higher free cash flow profile. Longer term, as business performance and volume continue to scale and calls for cash remain relatively stable, we believe Adient is well positioned to generate materially stronger free cash flow, supporting disciplined and balanced capital allocation, driving enhanced shareholder value. With that, let's move to the question-and-answer portion of the call. Operator, can we have our first question, please? Operator: [Operator Instructions] Our first question does come from Colin Langan with Wells Fargo. Colin Langan: Any color on why the revenue increase? I mean, we've seen S&P actually lowered numbers, at least on the calendar year. Anything in particular that's driving that? Is that just a geographic mix, certain platform mix? Mark Oswald: Yes. Colin, I'd say it's a combination of, one, you have to adjust that we're on the September 30 fiscal year, right? Obviously, we're 2 quarters through. Third quarter, we have pretty good visibility now based on production call-offs, right? And then, it's -- as you indicated, it's based on geographic mix, it's customer platforms that we're exposed to, et cetera. Colin Langan: Okay. And any color on the onshore bidding? I mean, you seem to have won a pretty large chunk of that so far. Has this been sort of a short-term action wave and then more actions will come in a few years? Or is this actually still even early days for some of the onshoring opportunities, and we'll see the larger numbers coming as more stuff gets bid and onshored? Jerome Dorlack: Yes. I think we're -- in terms of the discussions with the customers, I think they're still very active, still very dynamic. At the point where we're at now, I think a lot of them are waiting to see how the USMCA negotiations and discussions go. Once there is clarity on how that shapes up and what the rules in terms of content, how long that agreement will be, whether it will be an annual evergreen or another 7-year bilateral or trilateral, whatever that shapes up to be, I think that will then free up the next wave of onshoring discussions. I think what's important though and how you think about Adient and how we're positioned, and we've presented figures on this in the past, among seating suppliers, we have the best footprint to be able to capitalize on this. We have more JIT facilities than anyone -- than any other seating supplier in the U.S. From a geographic standpoint, we're best positioned to be able to capitalize on this. We have the capacity to be able to do it. And then, because of our leading modularity, ModuTec, and capabilities, and now with the foaming acquisition, we have the capital ready to be able to deploy the footprint to be able to deploy it and the customer relationships to be able to capitalize on this. And I think we still feel pretty strongly we'll be a net beneficiary of onshoring. Operator: Our next question comes from Nathan Jones with Stifel. Andres Loret de Mola: This is Andres Loret de Mola on for Nathan Jones. Just on margins, the decline of 70 bps, can you maybe give a little bit more color on the temporary customer-driven costs? And are they recoverable later on? Mark Oswald: Yes. So good question. So yes, if you look at that 70 bps, I'd say 60 bps is really related to mix. And as I indicated in my prepared remarks, a lot of that mix was -- obviously, we were very transparent that as we continue to shift and pivot to the Chinese local manufacturers there, there's going to be margin compression. That's the majority of that. There was also some, I'd say, higher-volume, lower-margin business in the Americas that we saw for the quarter. We do view the mix shift over in China to be very manageable. We've indicated that's going to be falling up somewhere around 100 basis points when we get through the year. So 1 quarter does not make a trend. We have a pretty good line of sight in terms of what launches are coming on, where production is heading over there. Same thing with the Americas just in terms of where we see the volumes heading over there in the next couple of quarters. Andres Loret de Mola: Got it. That's helpful. And then, just on the split domestic versus foreign OEMs in China, I mean, can you guys -- I know you said 70% launches with local OEMs. Can you provide a kind of breakdown of what that mix is now and sort of what you expect for 2026? Mark Oswald: Yes. So last year, we ended 2025, we were somewhere just north of 60-40 mix over there. And so, as we continue to win -- and we indicated last year, our 2025 wins was also skewed about 70% local Chinese to 30% foreign. So, as we continue to launch this year, that's going to be trending from, call it, that low-60% to that 70% mark over the course of the next 12 months or so. Jerome Dorlack: Yes. And I think as we indicated in the prepared remarks today, our bookings this year are mirroring that same bookings rate, so 70% domestic, 30% [ transplant ] for the win rate. So if you look at our forward roll-on, we would expect our roll-on to continue to drive mirroring that 70% domestic, 30% [ transplant ], so continuing a very aggressive roll-on business and rotation into the domestic OEM. And it really is leveraged by our world-class joint venture footprint that we have there, working with our joint venture partners and really the way we operate our business in China for China with local Chinese leadership, local Chinese management and leveraging our technology. And that's why we talked a lot today about technology, bringing technology to scale there, and it's not commoditized technology. It is leading-edge technology there that allows our customers to be able to price for value, price for the customer in that region through the products we deliver there. Operator: The next question comes from Joe Spak with UBS. Joseph Spak: Mark, I want to go back to your comments on normalized free cash flow. And I want to sort of bridge that a little bit to sort of next year as well. And I realize like you're not going to guide '27 now and a lot can happen between now and then. But you are talking about $400 million on the backlog. So even if we assume 10% incremental margin, that's like $40 million in EBITDA. The recoveries from the Middle East is another $25 million. The supply disruption is another $10 million. You have business performance. There's the $100 million in free cash flow timing items you mentioned in '26. So I guess what I'm getting at is, it seems like based on what we know now, and I know things can change, it seems like free cash flow could be up over $200 million next year. I'm just wondering if we're thinking about that correctly, if there's any other offsets we should be thinking about? And if we do see that, I know you said you paused the buyback activity for uncertainty, but why wouldn't you sort of try to maybe get ahead of what seems like a pretty good inflection of cash flow and buy back the stock when it's at relatively attractive valuations? Mark Oswald: Yes. Great questions, Joe. I think you're thinking about the buckets the right way. Clearly, there's going to be revenue growth that we've been very transparent in mentioning. So obviously, that will convert. If I look at my calls from cash, as I indicated, those will be relatively stable to improving, right, as my cash taxes trends back to its normalized level. Restructuring -- now, again, restructuring over time will trend back to its normal level in Europe. We obviously still have to look to see the European landscape over there. I don't think anybody is expecting that to get much better over there, right? So we have to see what our customers do with their programs, what that means for our restructuring. But all in all, that will trend back down to its normalized level. Interest expense, as I indicated, we're opportunistic with repricing like we've been doing with the Term Loan B as we basically do some voluntary debt paydown because we do recognize that the disciplined capital allocation policy includes not only share buybacks, but also debt paydown, right, inorganic growth opportunities as we demonstrated this past quarter with the Woodbridge business. Yes, I think you're right. I think the cash definitely trends higher. So I think you're thinking about that in the right way, Joe. In terms of why not get in front of it earlier and we hit the pause button this year on the share repurchases, as I indicated, we got into Q2 -- because of normal seasonality and working capital needs, we actually did draw on the ABL, right? So we drew $150 million that will be called out in our Q this afternoon when we release that. When we paid that back, clearly, the war in the Middle East, it started, it escalated. We started to see chemical prices increase. We had the supplier [indiscernible] right. So there was greater uncertainty. So it was prudent for us to do that as we went through Q2. As we go through the balance of the year and we go into next year, there's really been no change in our capital allocation policy. We still expect to be good stewards of capital. We'll still be balanced with our allocation policy right. So, no change from that perspective. Joseph Spak: I guess, the second question, just I want to go back to China. Again, on the one hand, you're talking about 70% of the wins in China is domestic. That's coinciding with margin degradation in the region, which I know you said you can expect, and I think the slides had a comment about how it's manageable. But can you just help us like level set like -- because it's sort of tied up within the -- what you show for APAC. I know some of the China business is unconsolidated. Like, where are we now? What level does that backlog really come on at from a margin perspective? And like where can we see margins going? I think you've been very clear, and we can appreciate that, that's going to be a margin headwind. But what's sort of the steady-state level for that business? Mark Oswald: I think as we go through the balance of this year, as I indicated, do I still expect us to be down about 100 bps in 2026? Absolutely. As we continue to win new business over in that region, the team has been working very hard just in terms of, again, using automation over there, right? They're basically being sourced, the whole seating, whether it's trim, foam, JIT, right, metals, right, which continues to help out the overall earnings profile of that business over there, right? So the team is working hard to continue to maintain it at 100 basis point degradation. We view that as manageable. As we get into 2027 and start to finalize 2027, and we'll be back out with that. But again, I think that 100 basis points is probably good for your modeling at this point. Operator: The next question comes from Mike Ward with Citigroup. Michael Ward: Mark, maybe just to follow up a little bit on what Joe was asking. On the excess cost, the $25 million, $35 million, does that -- if you're able to recover it by the end of this year, does that provide some upside to your current forecast? Mark Oswald: Yes. So again, Mike, if you think about chemicals in particular, right, we have pass-through agreements and escalators with our customers, right? Those typically come on at a 2-quarter lag, right? So third quarter, I'm not expecting any recoveries. Am I going to start getting some of those recoveries in the fourth quarter? Absolutely. Will some of that bleed into '27? Yes. Some of the, what I'd say, customer production inefficiencies, right, we called that out. Is the Americas team going to go back and work with our customers to try and recoup some of that in the back half of this year? Yes, there will be tough commercial negotiations. So could there be some upside, Mike? Possibly. But again, tell me when the war in the Middle East is going to end, tell me what oil prices are going to do, tell me how fast LyondellBasell can get their facility up and operating, right? So those -- we're trying to balance what I'd say is the risk for the balance of the year versus, as you indicate, some opportunities for the balance of the year. That's why we came out with the $885 million guide. That's our best 50-50 look right now in terms of where we think the year is going to end. Michael Ward: Makes sense. And maybe, Jerome, on more of a strategic standpoint, I mean, the trim acquisition, in North America, what type of level of vertical integration do you have for a typical seat? Jerome Dorlack: Yes. So the Woodbridge plant is a foaming plant for us. If you look at our business in North America, I mean, on an average contract, given our customer mix and our customer platform mix, especially when we talk about the large truck platform that we acquired, it would have been 2 quarters ago when we went from just having the JIT and foam, we acquired JIT, trim and foam on that, we will be well over 80%, probably 85% vertically integrated on our business in North America. It is a very, very healthy level now in our North America business. And when I say vertically integrated, I speak about JIT, trim and foam. We've talked a lot about the metals business and trying to look at the metals business and wind out some of our non-healthy metals business. So we've been, I think, very transparent on that. But on the JIT, trim and foam level, it's a very healthy level of vertical integration now in the Americas business. And it's one of the reasons why you've seen the Americas business really have a, I think, nice progression on the margin expansion and the cash flow progression as well. Operator: Up next is Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: I was hoping to first follow up a little bit on the commodities outlook. I know obviously, a lot of moving parts between the disruption and the conflict. But at least in terms of the disruption piece, do you have good visibility in terms of the supply? Is it really just a question of higher pricing and basically recoveries coming with a lag? Or is there also -- I guess, what sort of visibility do you have in terms of essentially ensuring supply? And then, what does that look like into 2027? Jerome Dorlack: Yes, I think you have to -- I think, Emmanuel, you have to break it down into 2 pieces. I think you have to break down the LyondellBasell issue and then maybe break down the Middle East/Strait of Hormuz issue. So on LyondellBasell, I think our team in the Americas, with our customer group, has done a very good job of working through alternative means of supply and securing alternate supply chains. So I think we have good line of sight, alternative chemicals supplied, validation underway with our customers. I think we've been able to tie that off. On the Strait of Hormuz, at the moment, I think we have line of visibility as much as anyone in the industry can have when it comes to supply. I'll go back to Mark's comments. I don't think we can sit here today and be any better forecasters or prognosticators that would say, if it remains the way it is, I can't tell you what's going to happen in 3 months, 5 months, 6 months or anything along those lines. I don't know that I can give you a better answer than anyone else can on that topic, Emmanuel, nor should we really be doing that. So again, on LyondellBasell, I think we've done a very good job working with our teams. I think we're supplied. We have supply secured. On Strait of Hormuz, I don't think we're in any better condition or any worse of a condition than anyone else in the industry on that topic. Emmanuel Rosner: That's helpful. And then, one follow-up on the normalized free cash flow. So obviously, a decent piece of it would be normalization of restructuring spending. It doesn't seem like 2027 would necessarily be the year, first, with potential restructuring needs in Europe. I guess, what would need to happen to be able to sort of like lower this restructuring need? It just feels like in Europe, there's maybe some structural industry trends that would require ongoing restructuring for longer. Jerome Dorlack: I think it's too early to say, Emmanuel, whether 2027 is normalized or not normalized, whether there's a tail-off or not a tail-off. I think we're very much in active discussions with a couple of key customers around the key -- a couple of key JIT manufacturing sites right now and what the future of those sites will be. So it's just -- it's too early to say what '27 and even '28 look like at this point. In terms of what needs to happen in Europe, I think there needs to be stabilization within the European theater on industry volumes and capacity rationalization across not only the JIT landscape and the seating landscape, but also our customers' manufacturing landscape. And I think there's still announcements coming out at our customers, where they're trying to repurpose their manufacturing facilities. You've seen announcements around that. And with that, that opens up opportunities for us to be able to service them in different ways than maybe we would traditionally do. And it's some of those discussions that we're in with them. So I think it's too early to say what our '27 restructuring looks like, whether it tapers off or it doesn't, and the same would go for '28. Operator: The next question comes from Dan Levy with Barclays. Dan Levy: Your second half guidance, you're basically saying that you're offsetting the weaker half-over-half revenue and the onset of some of these commodity costs with better business performance, which you've done a really good job putting up. Maybe you could just remind us sort of like what's hitting now? And then, you've broadly talked about a number of different work streams in terms of restructuring, balance-in, balance-out, labor efficiency. Maybe just give us a sense where you are on your journey on business because it's been so good for so long. And what else is sort of the next front here on continuing to drive those benefits as opposed to sort of clearing out already the low-hanging fruit? Mark Oswald: Yes, Dan, maybe I'll start on what we see first half, second half, and Jerome can comment just in terms of certain of the automation, which is going to contribute to the efficiencies and business performance. But you're absolutely right. When I look at first half, second half, sales are going to be down slightly where we called out $35 million of higher input costs. But I've also got the benefit of lower launch costs in the second half of the year. I've got better business performance. As we indicated, business performance starts to accelerate, whether that's through the lower launch costs, my ops waste, my C&I efficiencies that the plant builds as I go through the second half of the year, right? Some of the, what I'd say, frictional costs that [ hit ] in Q2 with the customers, we'd expect that to subside as we go through Q3, Q4. So it's really the acceleration of business performance that really gives me comfort in terms of confidence in what I think I can do in second half versus first half despite the lower levels of [ buying ]. Jerome Dorlack: Yes. And then, to your -- second part of your question, what is the -- I'll use my words, the next frontier of driving business performance? We've talked a lot about automation starting to flow in. And even this year, if you look at the capital expenditures that we're putting into the business, that step-up year-over-year in automation, that will start to pay dividends as we get into '27 and '28. And we're really leading the industry in terms of some of the automation we're doing in our foaming business, some of the automation we're putting into our metals business, our trim business, and then, on the JIT side of it, what we've been able to do with our modularity. The feedback we get from our customers is your modularity offerings are leading edge. It's one of the reasons we've been able to conquest and expand our backlog in the JIT side is through our modularity offerings. With that, we're not only able to offer more competitive pricing to our customers, but it also leads to some of this margin expansion story, better roll-on, roll-off into the business. And so, when you look at the restructuring coming in, in Europe starting to pay dividends, but then also modularity, better roll-on, roll-off and then the automation piece of it, that's really where we see this then starting to fuel some of the additional margin expansion that we'll see in the Americas and in our European business going forward and that sustainability piece. And then, just coming back to some of the questions that we had earlier in the call around Asia and China in particular. I think it is worth continuing to highlight that even though there will be margin compression on the Asia side -- or the Asia Pacific business, as revenues grow there, even with that margin compression, it will still be cash-accretive, margin-accretive and still expanding cash flows for Adient overall. I think it's always important to keep that in mind. Dan Levy: Great. As a follow-up, I wanted to just -- I asked a similar question on the last earnings call, but I think it just gets to a broader theme on where we are on market share dynamics in the seating market and more specifically within North America because one of your competitors has talked about sort of a growing pipeline and traction on awards. So can you just give us a sense, broad strokes, what we are seeing on market share dynamics? Is there sort of a consolidation within yourselves and another one of your competitors away from the rest of the field? Jerome Dorlack: Yes. I think that that's a fair way to characterize it. I think if we look at where the wins are occurring, where some of the market share is coming from and how that pie is shaping up, I think based on the competitive offering that we're able to bring forward, our modularity solutions, the technology that we're able to put in place, I think the pie continues to shrink into those who are able to bring the most competitive offerings forward, who have the balance sheet to be able to do it, who are able to deploy the capital and who are the suppliers of choice into their customers. And I think Adient is certainly one of those, if not the preeminent one in the space. And I think with that, we're at the bottom of the -- or I guess, the midpoint of the hour. I just want to close the call by first thanking all of the 70,000 Adient employees around the world for your commitment to making the company what it is, and then thank all of our customers for your continued support to the business and to the company, and then thank all of our owners and shareholders for your ongoing support. Thank you very much, everybody. Mark Oswald: Thank you. Linda Conrad: Thank you. And in closing, I want to thank you once again for your interest in Adient. If you have any follow-up questions, please feel free to reach out to me. With that, operator, we can close the call. Operator: Thank you. That does conclude today's conference. We thank you for your participation. Have a wonderful day. And at this time, you may disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Louisiana-Pacific Corporation Earnings Conference Call. After the speakers' presentation, there will be a short question-and-answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Aaron Howald. Please go ahead. Aaron Howald: Thank you, Operator, and good morning, everyone. Thank you for joining Louisiana-Pacific Corporation to discuss our financial results for 2026 and our updated guidance for the second quarter and the remainder of the year. Hosting the call with me this morning are Jason Ringblom and Alan J. Haughie, who are Louisiana-Pacific Corporation’s chief executive officer and chief financial officer, respectively. After prepared remarks, we will take a round of questions. During today's call, we will be referencing a presentation that has been posted to Louisiana-Pacific Corporation’s IR website, which is investors.lpcorp.com. Our 8-K filing, earnings press release, and other materials are also available there. Finally, today's discussion contains forward-looking statements and non-GAAP financial metrics, as described on Slides 2 and 3 of the earnings presentation. The appendix of the presentation also contains reconciliations that are further supplemented by this morning's 8-K filing. Rather than reading those materials, I will incorporate them by reference. And with that, I will turn the call over to Jason. Jason Ringblom: Thanks, Aaron. Good morning, everyone, and welcome to Louisiana-Pacific Corporation’s earnings call for 2026. We appreciate you joining us. I am proud to say that in the first quarter, Louisiana-Pacific Corporation navigated the challenges of a complex market exceptionally well. Against an increasingly volatile macro backdrop, and despite significant impact from winter storms and the conflict in Iran, we delivered on our guidance. Price realization both in Siding and OSB exceeded our expectations, partially offsetting lower volumes and contributing to EBITDA performance above the high end of our guided range. I will discuss our results for the quarter at a high level before describing what we are seeing in the various markets that we serve. One highlight that we are incredibly proud of is our safety performance in the quarter. Louisiana-Pacific Corporation team members in North America worked over 1 million and a half hours with a world-class total incident rate of only 0.26. I also want to recognize our newest Siding mill in Segola, Michigan, for achieving two years without a recordable injury. Our goal will always be zero injuries, but I want to personally thank every Louisiana-Pacific Corporation team member who contributes to our award-winning safety culture. From a macroeconomic perspective, given the trajectory with which the housing market weakened over the course of 2025, we expected the first quarter would be a challenging comparable. Accordingly, as you can see on page 5 of the presentation, our net sales were down compared to the prior-year quarter, driven largely by softer OSB demand and lower commodity prices, which fell below EBITDA breakeven for Q4 of last year and Q1 of this year. OSB price softness accounted for a $66 million reduction in net sales and EBITDA. By contrast, the pricing power of SmartSide helped offset lower sales volume, moderating revenue declines. Louisiana-Pacific Corporation delivered EBITDA in the quarter of $82 million, representing an $8.08 billion decline year over year, primarily from $66 million in lower OSB prices which I mentioned earlier. Siding EBITDA was only $5 million lower despite 10% lower net sales, with the remaining roughly $9 million attributable to other factors, including South America and higher corporate unallocated expenses. For the quarter, Louisiana-Pacific Corporation delivered $0.38 in adjusted earnings per share and returned $21 million to shareholders via dividends. I am pleased to share that we saw minimal impact from crude oil price volatility in the first quarter. This reflects both near-term agility of our supply chain and operations teams as well as the longer-term algorithmic structure of many of our strategic supply contracts. We did see modest increases in freight rates, which was not surprising given how quickly diesel prices respond to crude oil supply disruptions. Overall, however, other inflationary impacts were minimal in the quarter. Alan will share some sensitivity analyses later to help model the direct and indirect impacts of crude oil price volatility on our raw material costs in the second quarter and beyond. Next, I will go a layer deeper and spend a few minutes describing how the quarter unfolded across the three market segments that the Siding business serves, each representing roughly one-third of Siding volume. I will start with off-site construction, which includes both sheds and manufactured housing. While currently largely consisting of shed volume, opportunities are plentiful to grow market share in manufactured housing as well. As discussed in our prior call, prebuys in advance of our annual price increase resulted in elevated channel inventories. This was not exclusively a shed phenomenon, but the impact was disproportionately felt in this segment. In February, we anticipated that this would be a drag on first-quarter volumes while expecting channel inventory to normalize in Q2. I am pleased to say that this has played out more or less as we expected. While shed volumes were off significantly in the first quarter, sell-through rates held up quite well, and channel inventory is now back within seasonally normal ranges. Another third of Louisiana-Pacific Corporation’s Siding volume goes into the repair and remodeling market, with prefinished ExpertFinish being our fastest growing product line within this segment. In the first quarter, ExpertFinish accounted for 12% of our Siding volume and 18% of Siding revenue. We believe that ExpertFinish has a long runway for growth and continued share gains, and we are investing accordingly to support that demand. Our newest ExpertFinish line in Green Bay, Wisconsin, which adds approximately 50 million square feet, or 25%, to annual capacity, is now ramping up and making excellent progress. We also plan to add a further 20 million square feet of capacity at our Bath, New York facility later this year and finally, in late April, we acquired a piece of land in North Branch, Minnesota, where we intend to build additional ExpertFinish capacity to support growing demand over time. The final third of Louisiana-Pacific Corporation’s Siding is used in new residential construction. One of our most significant growth opportunities is with the national homebuilders, where we remain relatively underpenetrated. We believe we are uniquely well-positioned to build mutually beneficial partnerships with these homebuilders by leveraging SmartSide’s labor-saving value proposition together with our integrated portfolio of OSB and Siding. So far in 2026, we have secured two new builder partnerships, and we continue to actively pursue additional opportunities. Just to give you a sense of scale for the business we recently secured, with the nation’s largest homebuilders, as well as the magnitude of the opportunity ahead, I will share some specifics. We currently expect to supply about 100 million square feet of SmartSide in total to 15 of the top 25 U.S. homebuilders. We estimate that this represents a high-single-digit share of the total exteriors market for these builders, and a similar high-single-digit percentage of our overall SmartSide volume. Again, we believe that the unique value proposition we can offer these homebuilders gives us significant opportunities for additional growth in the years to come. Finally, before I turn the call over to Alan, I want to recognize Dusty McCoy and Ozi Horton, both of whom retired last week from Louisiana-Pacific Corporation’s board of directors. Personally and on behalf of the entire Louisiana-Pacific Corporation team, I want to thank Dusty and Ozi for their insights, their thoughtful counsel, and their contributions to Louisiana-Pacific Corporation’s culture and strategic transformation. With that, let me turn the call over to Alan for a more thorough review of Louisiana-Pacific Corporation’s financial results and our updated guidance. Thank you, Jason. I would also like to add my thanks and congratulations to the whole Louisiana-Pacific Corporation team for a very strong— Alan J. Haughie: —quarter for safety, and to Dusty and Ozi for their service on Louisiana-Pacific Corporation’s board of directors. I know I have certainly benefited from their wisdom and guidance over the last seven years. Okay. The first-quarter performance for Siding is shown on page 8 of the presentation. In line with expectations, unit volumes were down by 18% year over year. And as discussed on the last earnings call, in addition to a slowing market, we exited the fourth quarter with increased channel inventory following the announcement of our January price increases. A disproportionate amount of that inventory was held by serving our shed customers, where elevated inventory led to volume declines both sequentially and year over year. ExpertFinish, on the other hand, continues to be the best performing product category within Siding, which in this market means volumes are flat. The 9% increase in selling prices partly mitigated the decline in volume, with primed prices increasing by 8% and ExpertFinish prices increasing by 10%. Now there are a few moving parts within all of this, so let me briefly unpack it. The largest single contributor to the reported 9% price increase is naturally our January 1 list price increase, which averaged four to five points. The remainder, let us call it four and a half points, is roughly two and a half points from favorable mix and around two points from rebate refinements. Now the mix dynamics are the result of lower volume of shed products within the primed product category and relatively strong volumes for ExpertFinish, including the two-toned Naturals subcategory which we launched in 2025. And what I referred to as rebate refinements is the final recognition of lower-than-expected rebate payments relating to the fourth quarter of last year as well as modestly lower rebate accrual rates in 2026. Both factors are, of course, volume related. As we look toward the second quarter, we expect list price realization to remain steady, of course, while mix and rebate impacts will probably normalize somewhat. So price and volume combined for a revenue reduction of $42 million, but an EBITDA hit of only $8 million. The $2 million reduction in selling and marketing costs is merely timing, and while inflationary costs have been mild so far, I will discuss this subject further in a moment. The other bar includes the nonrecurrence of the EBITDA benefit of last year’s OSB production at Siding mills, more than offset by some inventory build in anticipation of maintenance outages later in the year. The resulting EBITDA margin of 28% for Siding was, of course, helped by the rebates and inventory dynamics I mentioned earlier, and would be closer to last year’s 26% without these factors. But in the long run, the roughly 50% incremental EBITDA on volume, albeit a decline this quarter, shows the significant leverage that this business will deliver as and when growth resumes. For OSB on page 9, price is once again the dominant element. In 2025, OSB prices were at their highest in the first quarter, fell significantly in the second, and have been mired in the EBITDA breakeven for the past several months. As a result, prices are 28% lower than the first quarter of last year, resulting in $66 million less revenue and EBITDA. Low OSB volumes for both commodity and Structural Solutions reduced sales and EBITDA by a further $30 million and $10 million, respectively. Now the operations team did an outstanding job of controlling what they can: operating efficiently, minimizing costs, and prioritizing safety. As a result, mill overhead and SG&A contributed $5 million in year-over-year savings. And the $3 million negative shown in the Siding waterfall from lower OSB transfers is offset here with income. All of this results in a $12 million EBITDA loss, better than our guidance amidst a very challenging demand and price environment. Cash flow on page 10 shows net operating cash outflow of $38 million compared to an inflow of $64 million last year, reflecting the $80 million reduction in total EBITDA and a somewhat larger-than-usual buildup of log inventory. Cash ended the quarter at $164 million, and we have $900 million in liquidity, including our undrawn revolver. Now, before I conclude with our updated guidance, let me address the impact of crude oil prices on Louisiana-Pacific Corporation’s raw material and freight costs as shown on page 11. Starting with freight, roughly speaking, we estimate that each $10 per barrel increase in crude oil corresponds to a $0.03 per mile increase in Louisiana-Pacific Corporation’s variable freight cost, on a blended basis assuming current rail-truck mix and refinery margins. Louisiana-Pacific Corporation experienced total freight usage of the order of 30 million miles in 2025. So the full-year freight cost impact of each $10 per barrel increase in crude oil prices, all else equal, would be an annual impact of about $1 million. In OSB, freight is generally passed through, while Siding is priced on a delivered basis, so the EBITDA impact to Louisiana-Pacific Corporation would be mitigated by that dynamic. I should also add that Louisiana-Pacific Corporation Siding is lighter and more durable than some competing alternatives, which allows us to ship by rail and transport much more volume on a truck than these competitors can. For raw materials, excluding logs, many of our inputs have crude oil as feedstock, including resins, primer, and paint. And, of course, the delivered cost of these materials includes some freight. For raw materials across Louisiana-Pacific Corporation’s North American business, we estimate that the total annual cost impact of each $10 per barrel increase in crude oil is of the order of $1.5 million to $2 million per quarter, or $6 million to $8 million per year, all else equal. This would be split roughly 75/25 between Siding and OSB, given Siding’s more raw-material-intensive recipe. Louisiana-Pacific Corporation can experience a slight cost impact for logs when higher diesel prices impact harvesting and delivery costs, but compared to the freight and raw material costs, the log cost impact is small enough to be immaterial for modeling purposes. Now bear in mind that these are estimates of annual impacts. Many of our raw material supply contracts have trailing algorithmically adjusted prices with varying update cycles, so the specific timing of these various impacts is more variable. We saw minimal impacts in the first quarter, but if prices stay elevated, we will trend towards these annual run rates over the next two quarters or so. Our raw material cost estimates are incorporated in our updated guidance as shown on slide 12. Unlike our approach to OSB guidance, we will explicitly avoid any attempts to predict future crude oil prices. And frankly, we are less concerned about the cost impact of higher crude oil prices than we are about the broader macroeconomic and demand impacts and the general volatility driving them. You will recall that our full-year guidance was predicated on housing starts being flat year over year. Mathematically, flat starts would require a rebound in the second half. Now we made no attempt to predict the timing or trajectory of that rebound, but expected that improving consumer confidence, moderating interest rates, and seasonal increases in OSB pricing and demand would be the bellwethers that would signal its approach. And as you are all aware, especially following the conflict in Iran, not only are those market indicators not improving, but they continue to erode. Now while our order files in Siding give us a good bit of visibility into the second quarter, high input costs, falling consumer confidence, and increasing interest rates are magnifying uncertainty about demand in the back half of the year. As a result, we feel it is prudent to temper our expectations for the second half. Current lower levels of market activity anticipate Siding volume declines year over year in the second quarter of about 10%, with sequential improvements through year end. Within this, ExpertFinish is expected to continue to outperform products as we gain share relative to competing prefinished alternatives; therefore expect full-year ExpertFinish volume growth in the mid-single-digits range. List prices should remain very steady, of course. But the very strong price/mix effect of the first quarter is expected to moderate as shed mix increases now that the channel inventory of shed products has normalized. As a result of these volume and price dynamics, we currently expect Siding revenue in the second quarter between $435 million and $445 million and EBITDA between $115 million and $120 million. For the full year, Siding revenue and EBITDA are now expected to be between $1.4 billion and $1.66 billion, with EBITDA between $410 million and $425 million. For OSB, we are applying our normal methodology, assuming prices remain flat from last Friday’s printed level. Unfortunately, Friday’s print included a significant drop in the Southeast and Southwest regions, bringing OSB prices back under EBITDA breakeven levels. As a result, we now expect OSB EBITDA in the second quarter to be a loss of about $10 million. Now we do not plan to merely plod doggedly ahead should these prices persist in an oversupplied market. Again, for modeling purposes, extrapolating current prices forward, the third and fourth quarters would deliver similar results, as reflected in the revised full-year guidance. And finally, while our modeling approach has generally been to assume that Louisiana-Pacific Corporation South America and unallocated corporate expenses net to zero, the economic situation in Chile is similarly depressed and uncertain at the moment, and the soft results in South America are reflected in the total adjusted EBITDA guidance. So in conclusion, housing and general consumer sentiment are not showing the hoped-for signs of recovery yet, and this is most acutely felt in OSB demand and prices. But we remain confident in the SmartSide value proposition and in the long-run ability of our Siding business to gain share in all the segments we serve. And with that, we will be happy to take a round of questions. Operator: Thank you. We will now open the call for questions. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. In order to accommodate as many individuals as possible for questions, we will allow one question and one follow-up question to be permitted per caller. Please stand by while we prepare the Q&A roster. Our first question comes from the line of George Staphos with Bank of America Securities. Your line is live. George Staphos: Thanks, Operator. Hi, everyone. Good morning. Thanks for the details. I wanted to ask a point of clarification, maybe as a two-parter for my first question. Alan, I just want to make sure your guidance does not include any assumption on oil pricing per se, correct? If so, can you tell us what the change in oil was relative to your fourth quarter so that we could calibrate somewhat to your adjustment in guidance relative to the cost? The second part of that question is, is there a way to give us pro rata, a change in oil, how much hits percentage-wise on cost of manufacturing in Siding, and how much hits on the freight side? Alan J. Haughie: Thanks for the question. In reverse order, the cost of manufacturing through the raw materials is a much larger impact than freight. The full annualized impact of freight is relatively small, as detailed. We have more miles of transport in OSB just given the volume, so you can basically anticipate most of the cost hitting on the raw material side and in the manufacturing side. Within that, about 75% of the impact to cost of manufacturing will land in Siding just because of the more raw-material-intensive recipes of Siding relative to OSB. Our guidance makes our best attempt to reflect our current understanding of what the actual annualized impact will be, meaning that we have baked in what we have seen near term in terms of those raw material inputs and also our understanding of the various dynamics of the supply contracts with regard to their pricing algorithms and methodologies. That is about as specific as we are going to get on that rather than diving too deep into the nuts and bolts of those individual contracts. So short answer, yes, the guidance for margins does reflect our outlook of what we are seeing in the market and what we anticipate seeing in the back half of the year. And if prices go significantly higher or lower, you have the sensitivities to give it some Kentucky windage. George Staphos: Okay. The second question is on the 100 million square feet of Siding across the 15 of the top 25 builders. Is that the 2026 actual volume that you expect, or is that a run rate? And what was the base in 2025, if you could share that? Thank you very much. Jason Ringblom: I will touch on that, George. The 100 million feet that we specified is, in fact, where we think we will land in 2026. Obviously, with the wins that we have communicated in recent calls, the prior-year volumes were lower. What I would say about the programs—we are not going to give specific names—but each one of these meets a material threshold for us and adds several thousand homes to our portfolio. In both cases, these programs that we talked about really provide us access to new markets where we are underpenetrated, specifically in the Southeast and Southwest markets. Because of that, it is allowing builders and contractors to experience the benefits of using SmartSide, in many cases for the first time with respect to installers. George Staphos: Is there any way to size that—a one-third increase, a 25% increase, a 2% increase? Any granularity would be helpful, and thanks, good luck in the quarter. Jason Ringblom: I would say it is above 10%. Operator: Our next question comes from the line of Michael Andrew Roxland of Truist Securities. Your line is live. Michael Andrew Roxland: Thank you, Jason, Alan, and Aaron, for taking my questions. One quick one. I believe the gap between vinyl and engineered wood Siding has narrowed. Vinyl—you are seeing increases due to oil. I think there has been a price increase announced for May, 3% to 8% in most products. So where does the price spread currently stand between vinyl and engineered wood, and how does that compare to, let us say, three or six months ago? Have you seen any switching to engineered wood or, even if not switching itself, indications of interest to switch to engineered wood as a result of this narrowing spread? Jason Ringblom: Mike, I will touch on that. As you noted, we are hearing from our customers that there are some manufacturers going up on the vinyl side; that just makes SmartSide more attractive with regard to that specific comparison. That is something we are keeping a close eye on. But I think most of that has taken place over the course of the last 30 days, essentially. So we have not felt anything material in our order file as it relates to some of the changes in pricing dynamics in the market. Michael Andrew Roxland: Got it. So in terms of your customers themselves, nothing in your order file just yet, but indications that there could be increased orders or better demand should this spread continue to narrow? Jason Ringblom: Yes. I think anytime that spread narrows, it presents an opportunity, and we are positioned well to capitalize on that. We like the narrowing of that spread, and we will take advantage of it where we can. Michael Andrew Roxland: One quick follow-up, Jason. Where does that spread currently stand relative to three months ago, six months ago? Jason Ringblom: It is tough to really put your finger on that. What we are hearing is price increases in the neighborhood of 6% to 12%, depending on who it is. So the spread has narrowed by that much. Michael Andrew Roxland: One last one, and I will turn it over. Any update on the potential conversion at Maniwaki? Jason Ringblom: I can touch on that, Mike. As of today, we have, roughly speaking, about 400 million to 500 million square feet of capacity to support our growth on the primed side. We have explained our options for expansion on prior calls, so I will not get into that. But the engineering work continues on a couple of different paths, including Maniwaki. Nothing new there to share, but I would expect we will be in a position to share more information in the coming quarters. Operator: One moment for our next question. Thank you. Our next question comes from the line of Anika Dholakia. Your line is live. Anika Dholakia: Good morning. You have Anika Dholakia on for Matt today. Thank you for taking my questions. First, staying on capacity—even if volumes come in softer than expected, our understanding is that the Green Bay line would still support margin expansion given its higher efficiency. Do you have a sense of the magnitude of the potential margin benefit if this were the case? And how is that contemplated in the guidance? Alan J. Haughie: Yes, thanks, Anika. Good question. It is contemplated, but the margin benefit really accrues to us more when the facility is fully ramped up. Early in its ramp-up, which is where we are now, that effect is less pronounced, both by virtue of lower efficiency in the early days of operations and the smaller amount of volume as it goes through. Very roughly speaking, if you think about the margin improvement for ExpertFinish as being on a similar trajectory that it was last year, I think that puts you in the right ballpark. As we get more volume through that facility, we will really be able to see the effect of that efficiency and get more specific about its actual effect in subsequent quarters. We will certainly bleat about it as and when it happens. Anika Dholakia: Okay. Great. That is really helpful. Second, back to the new construction opportunity—when we think about the Siding volume at the 15 of the top 25 builders, where can this high-single-digit number get to as we think of a more normalized starts environment? And then more broadly, longer term, for your new construction strategy, how are you growing in that channel? Is it more growing wallet share, or is it building up the number of builder partnerships? Jason Ringblom: Appreciate the question. In the new construction segment, specifically with the top 25 builders, we still have a relatively small share position—in the high single digits, as we noted earlier—so there is a ton of opportunity there. At the end of the day, we are trying to be very disciplined and strategic in terms of where we leverage these enterprise programs. It is really about getting access to markets where we are historically underpenetrated, building a stocking dealer base around those programs, and then building our business around some of those wins. In terms of the growth opportunity, at high single digits, the opportunity is very significant for us, and that will be the focus going forward. Operator: One moment for our next question. Our next question comes from the line of Ketan Mamtora of BMO Capital Markets. Your line is now open. Ketan Mamtora: Maybe just coming back to the full-year Siding guidance. Backing into the numbers, it feels like the guide is $32 million below what you all had talked about at the midpoint of guidance. But Q1 was a solid beat—about $18 million higher. It almost feels like a $50 million swing for the remaining three quarters. Can you highlight two or three key points that would help us think about the key pieces here? Alan J. Haughie: Sure, Ketan. The drop in guidance—it is about a $50 million drop from the midpoint. High level, you have to assume that the majority of this reduction is volume related. Call it $70 million of volume, which comes through at a 50% variable margin. So that accounts for about $35 million. There is then about $15 million to $20 million of impacts from oil in the back half of the year, concentrated more in the second half than in the second quarter. So that $50 million is roughly $35 million from volume and the balance from oil-based costs. Ketan Mamtora: Perfect. This is very helpful. And then, Jason, you talked about expanding the dealer network. There was a recent partnership with Sherwood Lumber on the East Coast. Can you talk about how you are thinking about your existing distribution partnerships—how you are thinking about them, those relationships, and where you have opportunity to penetrate more? Jason Ringblom: Appreciate the question, Ketan. We have really good access to market through our traditional two-step distributors. Typically, in most markets, we have two distributors; in some, there might be overlap where we have three. Those two-steppers provide supply to many of the pro dealers and one-steppers. That is where our access to market could be improved in some regions and really is the focal point of our enterprise program strategy—to build out that pull-through demand in underpenetrated markets so we can build our stocking dealer network with those pro dealers, one-steppers, etc., to grow our business with contractors and builders beyond those programs. Operator: Thank you. Our next question comes from the line of Steven Ramsey with Humphrey. Your line is live. Steven Ramsey: Hi. Good morning. I wanted to think about the cross-selling to builders. Clearly it seems like success winning share with builders. Can you parse out how much of that is success cross-selling OSB and Siding, or is this pure Siding wins? Jason Ringblom: Thanks for the question, Steven. It is both. I believe that the integration of our two businesses that occurred roughly a year ago at Louisiana-Pacific Corporation is allowing us to be more creative, more flexible, and more responsive when it comes to addressing the needs of our customers. These programs are not cookie-cutter in nature. They are tailored to meet the needs of each respective customer. We are in the early stages. We have one of the most robust portfolios of products or solutions in the industry, and we are in a unique position to leverage that to drive value for targets in the marketplace. Steven Ramsey: Looking at Siding, it seems like the implied second-half margin is a bit lower than the first half. How much of that is more builder series from these builder wins, or higher ExpertFinish volume, which I know is a mix negative for margin even though it is on an upward trajectory itself? Can you talk through the second-half dynamics of Siding margin? Jason Ringblom: Steven, I would say both of those factors are relatively small compared to the overall volume decline and the raw material price increases that Alan mentioned earlier. Operator: Our next question will come from Sean Steuart from TD Cowen. Your line is open. Sean Steuart: Thanks. Good morning, everyone. A couple of questions. The $200 million earmarked for strategic growth capex—that was consistent quarter over quarter. Can you remind us how much of that is ExpertFinish growth and how much, if any, would be earmarked for Maniwaki work, presuming you advance that project? Is any of that total earmarked for that project? Alan J. Haughie: There is close to $100 million in here for ExpertFinish expansion. Not all of it is the new mill—some of it is the New York upgrade and completion of the New York facility. So about $100 million there. There is $20 million to $30 million on the next major Siding mill. Call it $130 million of Siding capacity expansion—about three-quarters of it is ExpertFinish. Sean Steuart: Thanks for that. And then, Alan, you touched on the log inventory build in Q1, which I guess is Canada and the Northern U.S. That seemed to be a bit larger than normal. Can you go into some of the factors there and how we should think about the unwind through the remainder of the year? Alan J. Haughie: The unwind will be just the normal course of consumption. We did do some forward logging as oil prices rose, and I am very pleased with the efforts of the team to get ahead of some of the freight costs, because once we get the spring breakup, there is very little we can do. So we got a little bit ahead of it. The majority of the remainder is in anticipation of Siding maintenance projects that mean we need to get a little bit ahead on finished goods as well. It is actually a piece of cost mitigation that really triggered it. Operator: Our next question will come from Kurt Willem Yinger from D.A. Davidson. Your line is open. Kurt Willem Yinger: I wanted to unpack the full-year Siding sales outlook. By my math, it is a high-single-digit decline in volume. I think maybe a couple of points of that would have been the destock in Q1. How does that underlying mid-single-digit volume decline compare to what you are expecting from the overall market, and what should we infer from that in terms of market share expectations? Alan J. Haughie: High level, we think we are going to perform relatively well as in growth in both off-site and ExpertFinish—this is fundamentally gaining market share. The rest of the product lines—everything that is not off-site and ExpertFinish—is going to be down high teens. That is where you see the greatest impact of the underlying weak market. So assume off-site and ExpertFinish are going to have modest growth, and high-teens decline in everything else. That is the shape we see emerging. Kurt Willem Yinger: Got it. On ExpertFinish, the flattish volumes in Q1 and the mid-single-digit outlook for the year—is that a function of capacity constraints, or how do we unpack that deceleration versus what we saw last year? Jason Ringblom: We are still dealing with a little bit of the ExpertFinish allocation hangover, if you want to call it that. We came off allocation in February, and now that we have visibility into channel inventories, we have noticed that they are a little bit higher than where we would like them to be, which is not uncommon when you come off a managed order file. We believe the first half is going to be a little bit weaker than the second half, due to our channel partners bleeding down inventories to more normal levels. Operator: Our next question will come from Mark Adam Weintraub from Seaport Research Partners. Your line is open. Mark Adam Weintraub: Just wanted to follow up on the last question. Alan, you mentioned for primed and for some of the other businesses some growth, but down in the mid- to high-teens in some of the other businesses. Is that because customers, in part, are moving from the businesses where you see yourselves being down mid- to high-teens into the areas where you are flat or growing, or are there two different dynamics going on here? Jason Ringblom: The biggest dynamic we were dealing with—though we are mostly through it—was related to the shed segment and how much inventory carried over into the new year. I would say we are 85% of the way through that; there is still a little bit of excess inventory there. We have really good visibility into our order file for Q2, but beyond that, there is a tremendous amount of uncertainty looking into the back half of the year. We feel good about what we are doing in the new construction segment and feel like we can outpace housing starts in that segment. In repair and remodel, ExpertFinish being up mid-single digits will be reflective of a better performance than the R&R segment as a whole. Mark Adam Weintraub: So it sounds like it is really shed where the source of relative performance is going to be soft this year versus your historical algorithms against overall market growth. Is that fair? Jason Ringblom: Yes, I agree with that. We pay close attention to sell-through rates in that segment. We get data from our distributors, and we are pleased to see that those sell-through rates have held up quite well. So it is really just an inventory dynamic that is playing out in 2026. Mark Adam Weintraub: One last real quick one—Maniwaki. Can you remind us, is that particularly well positioned if growth in primed continues to be a main focus, or not necessarily? Jason Ringblom: Maniwaki is certainly an option for us. If we went that direction, it would be the largest OSB plant that we have converted to Siding. It would end up being our largest primed Siding facility. We are still assessing all of our options and are pursuing parallel paths in some cases. Operator: Our next question comes from Susan Marie Maklari from Goldman Sachs. Your line is live. Susan Marie Maklari: My first question is on the Siding side of the business. Can you talk about how you are thinking of price elasticity, and within the mid-single-digit growth you are expecting in ExpertFinish, how much of that is the underlying strength of the consumer relative to your share gains and some of those new products that are gaining momentum? Jason Ringblom: Thanks for the question, Susan. Looking at price elasticity, if you look back at our history, we typically implement a price increase one time annually. There may be a few times in our history—COVID being one—where we had a second price increase. We monitor both raw materials and broader competitive dynamics to determine where we need to position pricing. In the current environment, we are taking a wait-and-see approach, no different than our approach to tariffs last year. We do not want to make a knee-jerk decision due to what could be short-term circumstances in raw material pricing. Our focus is on playing the long game and being as consistent and predictable as possible for our customers amidst all the factors impacting our pricing decisions for Siding. We are pleased with what we realized in terms of the annual price increase that Alan spoke to earlier, and right now we are holding steady. Susan Marie Maklari: Shifting gears to OSB, can you talk about your plans for production there? Do you still expect that the industry will see capacity come online this year, or has the housing backdrop perhaps changed those plans? Could we see something shift in terms of OSB as we move through the balance of 2026? Jason Ringblom: Your guess is as good as mine in terms of new capacity coming online. I can speak to one of our competitors taking out a plant—or plants—coming offline as we speak right now in Western Canada. As it relates to OSB at Louisiana-Pacific Corporation, our strategy has not changed. We are proud of the way our team is navigating the current OSB environment—focused on operating with discipline and agility. Over time we have proven our ability to manage and control costs and continue to improve OEE and efficiency. It is a cyclical business, but I am confident that we will be ready to take advantage of the next upward step in the cycle whenever demand improves. Operator: And our next question will come from Adam Baumgarten from Vertical Partners. Your line is open. Adam Baumgarten: Hey, everyone. Good morning. Can we get some color on how Siding sell-through trended throughout 1Q and into 2Q so far? Any major change in trend? Jason Ringblom: We get data from our distributors on sell-through rates. We talked a lot about the inventory build from Q4 to Q1, and that Q1 would look a little bit weaker due to the amount of inventory that was held at the two-step level. That ended up being largely true, and most of that inventory, as mentioned earlier, has been depleted. Sell-through rates have more or less mirrored what we saw this time last year, just down slightly as it relates to the underlying market conditions in the new residential construction segment. No concerning trends at this point. We are seeing the normal seasonal uptick in those rates and are hopeful that will continue. Adam Baumgarten: Thanks. We were chatting at the Builder Show—there was some commentary around being pleasantly surprised about the interest in ExpertFinish from some of the builders. Did that play any role in the partnerships that you mentioned? Jason Ringblom: It is playing more of a role than ever, but it is still a relatively small percentage of the business that is bundled in these programs. There is a macro trend in our favor. Labor is tight and expensive. Builders are focused on job site cycle times, and I think all of that plays into our favor as it relates to ExpertFinish and the new ExpertFinish Naturals two-tone line. We believe that will be a trend that continues, and it is why we are investing more in Green Bay, Bath, and North Branch, Minnesota, going forward. Operator: Thank you. I am showing no further questions from our phone lines. I would now like to turn the conference back over to Aaron Howald for any closing remarks. Aaron Howald: Thanks, everyone. With no further questions, we will bring the call to a close there. As usual, we will be available for follow-ups. Stay safe, and we will look forward to connecting again in the next quarter. Thank you. Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a wonderful day.