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Operator: Good day, and thank you for standing by. Welcome to the Dine Brands Global, Inc. First Quarter 2026 Earnings 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 11 on your telephone. You will hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host, Matt Lee, Senior Vice President, Finance and Investor Relations. Please go ahead, sir. Matt Lee: Good morning, and welcome to Dine Brands Global, Inc.'s First Quarter Fiscal 2026 Conference Call. This morning's call will include prepared remarks from John W. Peyton and Vance Yuwen Chang. Following those prepared remarks, Lawrence Y. Kim will also be available along with John and Vance to address questions during the Q&A portion of the call. Please remember our safe harbor regarding forward-looking information. During the call, management will discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors, which may cause actual results to differ from those expressed or implied. Please evaluate the forward-looking information in the context of these factors, which are detailed in today's press release and 10-Q filing. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We will refer to certain non-GAAP financial measures, which are described in our press release and available on Dine Brands Global, Inc.'s investor relations website. With that, it is my pleasure to turn the call over to Dine Brands Global, Inc.'s CEO, John W. Peyton. John W. Peyton: Good morning, everyone, and thanks for joining us. Today, I will walk through Dine's Q1 results and share insights on consumer behavior as well as our brands' performance in the current environment, and then I will hand it over to Vance for a deeper dive into our financials. We started the year building upon the momentum from last quarter, achieving flat to positive sales growth across all three brands for the first time in several years. This performance reflects progress against our key priorities, which include enhancing the guest experience through operational improvements, strengthening and simplifying our marketing to better connect with guests, particularly through more targeted, culturally relevant engagement, and advancing menu innovation and everyday value platforms to meet evolving consumer needs. As the quarter progressed, the operating environment became more dynamic and, in many ways, more challenging as inflation for food away from home and higher gas prices put a strain on households. With consumer sentiment declining to historically low levels, discretionary spending has become harder to justify, prompting some guests to more carefully evaluate lower-cost alternatives across restaurants, grocery, and other food channels. We are seeing the most pressure on lower-income consumers. As a result, this is driving greater focus on offerings that combine compelling price points with quality, abundance, and differentiated experiences like Applebee's 2 for $25 platform and IHOP's everyday value menu. Against this backdrop, the importance of our strategy and the relevance of our brands becomes even more central to our performance. We operate scaled, well-recognized brands built around value and everyday occasions and offering experiences that cannot be easily replicated at home, delivered at an accessible price point. This remains a strength of our business even within a more challenging landscape. While we recognize there is more work to do to strengthen our financial performance this year, we are pleased with our first quarter sales performance and believe our focus on value, cultural relevance, and disciplined execution positions us well to compete and deliver sustainable results. I will now turn to our key financial highlights for the quarter. All of our brands outperformed Black Box on comp sales. Applebee's reported a 1.9% increase in comp sales, and IHOP posted flat comps, despite weather impacting Applebee's by 94 basis points and IHOP by 80 basis points in the quarter. Our EBITDA was $50.8 million compared to $54.7 million in the same quarter last year. Our decreased profitability reflects our investments in our dual brands and company-owned portfolio initiatives, and we expect these investments to create value over the long term. We returned $24 million of capital back to shareholders. Overall, our results reflect the balance between continued investment in the business and solid top-line performance across the portfolio. Now some updates across our portfolio starting with Applebee's. Building on our sales momentum from 2025, Applebee's posted positive comp sales in the first quarter, outperforming Black Box. The continued focus on our 2 for $25 value platform and new menu innovation serves as our primary sales drivers as these initiatives continue to resonate with our guests. Our strategy this quarter remained consistent: communicating new menu innovation through high-impact targeted marketing and maintaining strong execution in the restaurants. Rather than relying on broad-based campaigns, we are leaning into our 2 for $25 value platform and demand-led activations tied to cultural moments, allowing us to connect more efficiently and compete more effectively for share of wallet. The OM Cheeseburger launch is an example of our value strategy in action. Since its introduction in January, the burger has driven high interest and engagement, supported by its compelling $11.99 price point and inclusion on our 2 for $25 value platform. In just a few months, it became the highest-ordered burger on that platform, reinforcing Applebee's everyday value positioning. Because OM Cheeseburger launched in time for Valentine's Day, we further pushed our 2 for value platform to deliver an affordable yet experiential date night occasion. The OM Cheeseburger news generated more than 9 billion impressions, reached 96 million people on social media, and sparked nearly 80 times more organic reviews than typical campaigns. By providing guests with incredible value during this seasonal moment, it drove the highest single-day sales volume in Applebee's history, with the full week ranking among the top five sales weeks ever. Across digital channels, off-premise comp sales increased approximately 3.5% in the quarter, supported by third-party delivery and targeted promotions tied to key occasions like the Super Bowl and the NCAA Basketball Tournament. From an operations standpoint, our strategy is centered around driving excellence through simplicity, focus, and accountability. We are implementing initiatives that simplify kitchen operations, increase manager presence in the dining room, and improve off-premise order accuracy. During the quarter, manager visibility contributed to higher guest satisfaction scores as reflected in improved guest surveys and Google review scores. As part of these efforts, we are preparing for a systemwide launch of a new Toast point-of-sale platform. We expect this to meaningfully increase beverage order incidences, reduce voids, and increase tips while providing better data and tools for our teams. Collectively, these efforts position us to operate more efficiently and support long-term growth. While April sales have softened against tougher prior-year comps, our focus on value, targeted marketing, and operational discipline will support our performance in a dynamic environment. Turning to IHOP. For the second consecutive quarter, IHOP outperformed Black Box in both sales and traffic in a category where traffic remains under pressure. This reflects the brand's focus on great value, product innovation, culture-driven marketing, and an improved guest experience, all of which are helping to build momentum. Comp sales were primarily supported by check improvement as we balanced IHOP's everyday value menu with increased awareness of premium offerings. Breakfast combos tied to our Bottomless Pancakes campaign performed well, alongside limited-time offerings, including this quarter's featured Spotlight Stack, New York Cheesecake Pancakes. This approach continues in Q2 with the promotion of IHOP's signature Stuffed and Stacked Omelets, including the new bold Barbecue Pulled Pork Omelet, and the launch of a new proprietary coffee blend, the first new coffee introduced at IHOP in almost 20 years. IHOP continued to see momentum in off-premise, with comp sales increasing 2.6% year over year, largely driven by incremental third-party delivery volume. Beyond driving comp sales, third-party channels enhance brand visibility and enable engagement with guests across multiple channels. Off-premise represents 22% of sales, with continued opportunity across delivery, digital ordering, and emerging areas like catering. While early, we are already seeing an approximately 16% improvement in comp sales in catering, and we have made targeted investments over the past year in digital ordering, packaging, and local store marketing to further support the catering channel. IHOP's differentiated breakfast offering translates well to group occasions, and we are seeing meaningful upside in this channel as it continues to scale. Beyond expanding how guests access the brand, we are also focused on how to connect with them. We are showing up in culturally relevant moments that have resulted in incredible buzz for IHOP, allowing us to engage with new fans and consumers. Initiatives like National Pancake Day and the Bottomless Pancake campaign with NFL star Malik Nabers have been successful in driving engagement and keeping the brand top of mind. During National Pancake Day, we saw a 316% year-over-year increase in engagement across social channels, demonstrating the effectiveness of our investments to reach a broader audience. Underpinning all of this is a relentless focus on operational excellence and the guest experience. Speed is progressively improving, with table turns approximately 6% faster than they were in Q4. Guest complaints are down year over year, reflecting strong execution and consistency across the system, while investments in our new POS and hand-helds continue to enhance order accuracy and efficiency in our restaurants. Overall, IHOP continues to deliver steady performance in a challenging environment, with April sales holding steady behind our value menu and barbell strategy with premium offerings. Turning to Fuzzy's. The momentum from our Q4 promotions carried into Q1, contributing to Fuzzy's posting positive comp sales for the first time in three years, enabling the brand to outperform its competitors in sales every month in Q1. This progress is a result of the hard work we have done to strengthen the business with a focus on improving technology, streamlining the menu, and enhancing the in-restaurant experience. We are encouraged by Fuzzy's performance this quarter and remain focused on sustaining and building on this progress. Now for dual brands. It has been one year since we opened our first domestic dual brand in Seguin, Texas, and our confidence in the platform continues to grow. Across the system, most of these restaurants are generating about 1.5 to 2.5 times the sales of the original stand-alone restaurant while maintaining a healthy check balance across both brands. The Seguin restaurant is still delivering roughly two times its pre-conversion sales levels. Today, we have 43 dual brand restaurants open, with 13 additional locations under construction, and we remain on track to have approximately 80 open domestically by year-end. Interest in our dual brands remains strong among existing and new franchisees. We now have 10 different operators that have opened a dual brand restaurant, and of these, two are new franchisees to the Dine system. The dual brand model provides a flexible path to unlock additional value across our existing footprint. It allows franchisees to reposition lower-performing restaurants, including those that may have otherwise reached the natural end of their life cycle, while also enhancing performance at higher-sales restaurants. A long-standing Applebee's franchisee opened its first dual brand in Hawthorne, New York, just a month ago. The successful conversion of a high-sales single-brand restaurant validates that the dual brand model is adaptable and scalable across a range of sales profiles. The unit was already a strong-performing restaurant, and since converting and reopening in March, it has delivered an approximately 1.8 times sales lift. During the last few months, we have learned more about these restaurants from a guest perspective. A few highlights include: guests are excited to have the option to choose between two complementary iconic brands; 62% of our dine-in tickets contain at least one item from each brand; guests who purchase from both brands are spending on average 24% more than those who purchase from just one brand, leading to an overall higher check average at the dual brand restaurants; and sales remain balanced across all dayparts, proving our thesis about the complementary nature of these brands. We also made operational improvements, including updating our online ordering flow to make the experience more seamless for guests, which has driven an increase in average off-premise check, and improving efficiencies in back-of-house operations such as kitchen design. We continue to improve our pre-opening training at restaurants and are seeing newer restaurants achieve faster table turn times. Taken together, these results reinforce our confidence in dual brands as a big idea and a compelling growth vehicle, driving strong unit economics and continued franchisee demand. Turning to our broader development initiatives. We maintained momentum this quarter in new restaurant openings, opening 24, up from 10 at this time last year. We remain on track to meet our full-year domestic development guidance. Development remains a key priority for long-term growth driven by our dual brand formats, the Applebee's Looking Good remodel program, and targeted investments in our company-owned portfolio. In addition to new unit growth, we are also seeing meaningful opportunity within our existing footprint through relocations and real estate optimization. Two recent new restaurant openings are relocations within their existing markets, and while early, in both cases sales increased over 50% compared to the prior location, highlighting both the continued relevance of the brand and the importance of site selection in unlocking incremental growth. We made progress on the Applebee's Looking Good remodel program, completing 11 remodels this quarter. This program has consistent engagement among franchisees, and early results remain encouraging with, on average, a mid-single-digit percent sales lift. We expect about a third of the system to be remodeled by year-end. At IHOP, we are beginning a three-year renovation cycle with a fresh, modern design called California Heritage. It is a light, bright, and joy-filled design that brings a warm, welcoming feel to the restaurant while staying unmistakably IHOP. Before turning the call over to Vance, I note that while we expect to see some near-term headwinds, we remain focused on executing against our priorities and positioning the business to drive sustainable long-term growth in this challenging environment. I will now turn the call over to Vance. Vance Yuwen Chang: Thanks, John. On the top line, consolidated total revenues increased 4.8% to $225.2 million in Q1 versus $214.8 million in the prior year, primarily driven by the acquisition of company-owned restaurants since 2025. Excluding advertising revenues, franchise revenues in Q1 decreased 2.1% primarily due to a decrease in proprietary product sales and performance of our international franchisees. Increases in comp sales for the quarter were offset by closures. Rental segment revenues for 2026 were consistent with the prior-year period. G&A expenses were $53.1 million in 2026, up from $51.3 million in the same period last year, due to annualization of last year's investments in training, development, and operations to support our remodeling, dual brand initiatives, and our larger company restaurant portfolio. Adjusted EBITDA for 2026 decreased to $50.8 million from $54.7 million in 2025, primarily driven by the following factors: first, IHOP's proprietary product sales decreased due to sales timing to our distribution partners; and second, we have more company restaurants and dual brand restaurant openings than last year that resulted in higher G&A and pre-opening support cost. In addition, EBITDA was impacted by restaurants taken back since the prior-year quarter, which are still in turnaround stage and not yet at steady state. I will touch further on the progress we have seen in our company restaurants, particularly around the dual brand conversions, in a moment. Adjusted diluted EPS for 2026 was $1.07 compared to adjusted EPS of $1.03 for 2025. Turning to the statement of cash flows. We had adjusted free cash flow of negative $3 million for 2026 compared to $14.6 million for the same period last year, primarily driven by higher CapEx for company restaurants and the year-over-year impact of performance plan compensation payments. CapEx through 2026 was $12.1 million compared to $3.3 million for the same period in 2025. Nearly two-thirds of the CapEx year to date is tied to remodels and dual brand conversions of company-owned restaurants. Our lower adjusted free cash flow and increased CapEx this quarter is timing, as we expect to end the year with CapEx in the range that we previously provided. We finished our first quarter with total unrestricted cash of $104.2 million compared to unrestricted cash of $108.2 million at the end of the fourth quarter last year. On buybacks and dividends, we returned $20 million of capital to shareholders in Q1, including $22 million of share repurchases, which was approximately 5% of our shares outstanding at the beginning of the year. Our total shares repurchased in Q4 and Q1 were $52 million, which is above what we had committed to on our Q3 2025 call. We continue to believe our shares are undervalued and remain committed to share repurchases. Next, Applebee's performance. Q1 same-restaurant sales increased 1.9% year over year. Domestic average weekly franchise sales per restaurant were $56,300, including approximately $13,500 from off-premise, or 23.9% of total sales, of which 11.9% is from to-go and 12.1% is from delivery. Off-premise saw a positive 3.5% lift in comp sales in 2026 compared to the same period last year. IHOP's Q1 same-restaurant sales were flat. Domestic average weekly franchise sales per restaurant were $38,300, including $8,300 from off-premise, or 21.5% of total sales, of which 7.5% is from to-go and 14% is from delivery. Turning to commodities. Applebee's commodity cost in Q1 increased by 6.3% and IHOP's commodity cost increased by 3% versus the prior year. Our supply chain co-op, CSCS, continues to expect commodity costs in 2026 at mid-single digits for Applebee's and low-single digits for IHOP. The primary driver for both brands' commodity costs is higher beef prices, including the lapping of favorable beef contracts at Applebee's. In 2026, we implemented projects resulting in over $4 million of annualized savings across both systems, and we continue to partner with CSCS to leverage our scale. Lastly, our company-owned portfolio remains instrumental in strengthening brand performance and supporting the overall health of our system, and our goal is to ultimately refranchise the locations at the right time. At the end of Q1, we operated 86 company-owned restaurants totaling about 2% of our system, which is in line with our asset-light model. This includes 12 Applebee's restaurants that we opportunistically took back in February in the Virginia area, with the potential to complete approximately five dual brand conversions out of this portfolio. As has been reported, one of our franchisees, Neighborhood Restaurant Partners, filed for bankruptcy protection. As part of its proposed plan, they are selling approximately 53 restaurants. Dine is stepping in as a stalking horse bidder because we believe that securing these restaurants gives us direct operational insight and allows us to invest in the units through our development initiatives. Although closures for construction impacted profit in our company-owned portfolio, we are making progress. Q1 comp sales outperformed the system with close to a mid-single-digit comp sales improvement year over year. During the quarter, we completed six remodels and two dual brand conversions, bringing our total to 20 remodels and four dual brand conversions since taking back these restaurants. By the end of 2026, we expect to have completed or be under construction on over 30 remodels and eight-plus dual brands. While early, at our four company dual brand restaurants we are seeing sales lifts of approximately 2.5 times, which further supports our confidence in our dual brand strategy. We are maintaining our full-year financial guidance at this time. With that, I will hand it back over to John. Thank you. John W. Peyton: To wrap up, we are pleased with the start to the year and are confident that our strategy will enable us to navigate near-term headwinds. We remain focused on disciplined execution, supporting our franchisees, and investing in initiatives that position us for sustainable long-term growth. Thank you for your time today. We look forward to your questions. Operator, I will turn it back to you for instructions on how to access our queue. Operator: Certainly. We will now open the call for questions. In the interest of time, we ask that you please limit yourself to one question and one follow-up. You may get back in the queue as time allows. Our first question for today comes from the line of Jeffrey Bernstein from Barclays. Your question, please. Jeffrey Bernstein: Great. Thank you very much. My first question is on the comp trends more recently. John, I think you mentioned that the Applebee's comp slowed and you referenced tougher compares. How do you think about that on more of a relevant two-year basis, and what is the underlying trend? You talked about lower income being a focus for your brands and perhaps more vulnerable. Could you discuss that, and whether the spike in gas prices had an outsized hit versus what you have seen in the past? And then I have a follow-up. John W. Peyton: Good morning, Jeff. That is exactly the answer. Our value-conscious, price-sensitive guests are very sensitive to increases in gas prices, the basics, and the cost of living. There is a lot of statistical data broadly and within our company that demonstrates that, and that is what we think we saw happening in April. We are encouraged by recent news where it seems to be lessening a little bit. More broadly, that reinforces our strategy around making sure that we have the right value message at Applebee's for those guests that are price sensitive. We continue to lean into the 2 for $25 message, strengthened by new and exciting news. Last quarter it was OM Cheeseburger, and we will have something new this quarter as well. Jeffrey Bernstein: Got it. And my follow-up is on the asset base. On the dual brands, I think you confirmed 80 in the U.S. by year-end. Where do you think that could go over time? You are picking some markets where you think it will work best, but clearly there is a very strong sales lift you are seeing. Where could the dual brand mix go over time, and more broadly, how has franchisee engagement been of late? Are they more open to the idea, relative to just opening more Applebee's on their own, or opening more of the dual brands in future years? John W. Peyton: We have modeled the opportunities across the country, looking at market size, demographics, competition, and daypart traffic. We have identified 900 opportunities in the U.S. to open a dual brand restaurant or convert an existing restaurant to a dual that would have minimal to no impact on an existing restaurant. Of those 900, 450 would be new builds, and 450 would be adding a second brand to an existing restaurant. We think that is achievable over the next eight to ten years. Franchisee enthusiasm is growing. Our pipeline is strengthening. We are very confident in the approximately 80 we have discussed for this year, and we are building a pipeline into 2027 and beyond. That pipeline includes franchisees that will be new to the dual brand system, and it is becoming equally balanced between existing Applebee's and existing IHOP franchisees. Operator: Thank you very much. Our next question comes from the line of Nerses Setyan from Mizuho. Your question, please. Nerses Setyan: Thank you. On guidance, specifically the EBITDA guidance, can you update us on approximately how much investment in company-owned stores is embedded in that guidance? Vance Yuwen Chang: Hey, Nick. Good morning. We are keeping guidance, and Q1 EBITDA was a little softer, but we are maintaining guidance for two reasons. We have the franchise business and the company restaurants. Overall, the franchise business is steady. Though it is a complicated operating environment, we believe our formula of value, targeted marketing, and operational execution will improve sales trends in the coming quarter. Company restaurants will continue to improve. It is not going to be a straight line, but we have more work to do in terms of construction and store execution. This short-term EBITDA pressure should moderate over time as we start to leverage the investments we have made. In Q1, we had more than 75 closure days due to remodels and program conversions. This is not going to happen for the rest of the year, so we will have fewer closure days. That is what is baked into our guidance. Nerses Setyan: In terms of alcohol licenses, is that behind us, or is that still an ongoing headwind? Vance Yuwen Chang: That is mostly behind us at this point, so it is a tailwind for us. Nerses Setyan: On the company-owned mix going up, you talked about the potential acquisition post the bankruptcy. Are you comfortable with the mix now, or could it continue to go up through the rest of the year and potentially into 2027? John W. Peyton: We are more amenable today than we were in years past to taking back restaurants or a portfolio of restaurants to strengthen them, strengthen the system, prevent closures, and then refranchise them, typically about three years after we acquire them. We will continue to do that when it is the right portfolio, right for the brand, and we can use those restaurants to advance our initiatives like proving out the remodel, converting to duals, and testing programs and technology. While our goal is not to get to 5% of the portfolio company-owned, I am comfortable getting to 5% and still being asset light. That is the threshold you should think about for where I am comfortable going, but it is not the goal to get there. Operator: Thank you. As a reminder, ladies and gentlemen, if you do have a question at this time, please press 11 on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press 11 again. Once again, we ask that you limit yourself to one question and one follow-up. Our next question comes from the line of Dennis Geiger from UBS. Your question, please. Dennis Geiger: Great. Thanks. I wanted to come back to the focus on quality and price points, value in particular. You spoke to having the right value message at Applebee's, the 2 for $25, and something new coming this quarter as well. Where was the value mix for both brands in the quarter, and on the go-forward, is it 2 for $25 plus something new as the playbook for the balance of the year, or do you think you have to do more given current consumer pressures? John W. Peyton: Good morning, Dennis. I will start with Applebee's, then Lawrence will address IHOP. For the quarter, about 26% of our tickets had value items on them, which would be either 2 for $25 or an LTO. That number is down from about a third, which is what it has been for many quarters. The reason is we had the Ultimate Trio as a national promotion in Q1, and we moved it out of the national price point to being priced individually by franchisees, so technically we do not count it. In terms of the trend, including Ultimate Trio sales, we are still running at about a third of our tickets including some sort of value item. That has been consistent for five to seven quarters. 2 for $25 is our primary value communication—two entrées and an appetizer for $25, or $12.50 per person. We keep it fresh with consistent messaging throughout the year and by introducing a new item to it. In addition, we will have value-driven LTOs designed to drive traffic. One other point: almost 62% of the items on 2 for $25 are the upsell tiers, not the entry level $25. Guests are paying increments that franchisees set based on their market. It is doing what it is supposed to do: driving traffic with the $25 message and upselling about two-thirds of the time. Lawrence, can you address IHOP? Lawrence Y. Kim: At IHOP, value mix in Q1 was 22%, slightly higher than Q4 at around 20%, and fairly consistent overall. The uptick in Q1 was primarily due to our Bottomless Pancakes promotion. Our value mix consists of the $6 Everyday Value Menu in addition to promotions like Bottomless Pancakes, our free pancake promotion on National Pancake Day, and our Senior Menu. Going forward, we are staying consistent with the $6 value message; it resonates extremely well. Since launching the weekday $6 value message in October 2024 and evolving it into the $6 Everyday Value Menu in September 2025—and further in March by adding a new BLT to expand daypart propositions—we have outperformed Black Box in traffic every month in 2025 and continue to do so into 2026. We will continue that momentum and balance value with innovation as part of our barbell strategy, including Stuffed and Stacked Omelets and our new coffee introduction, with more to come. Dennis Geiger: As a quick follow-up on check management, beyond value mix, what are you observing around appetizers, beverages, desserts, and other categories over the last couple of months? Lawrence Y. Kim: In 2025, we were laser-focused on driving value to build equity in the value landscape, which supported consistent traffic outperformance. In 2026, we are complementing value with innovation under the barbell strategy. You will see a cadence of both value and innovation through summer, fall, and winter to create awareness and balance across platforms. John W. Peyton: At Applebee's, average check remained about $39, including a slight menu price increase franchisees put in place in Q1. We did see some migration toward lower-priced items at the expense of a drink or an appetizer, but we maintained the average check at $39. Operator: Thank you. Our next question comes from the line of Brian Mullan from Piper Sandler. Analyst: Hi. This is Allison Marsh on for Brian Mullan. Thanks for taking the question. At IHOP, on the California Heritage remodel, can you talk more about what we should expect to see with the remodel—the cadence, how many units are eligible, and how you expect it to roll out? John W. Peyton: Thanks, Allison. Lawrence will take that. Lawrence Y. Kim: The California Heritage redesign is a bright, modern design that is distinctively IHOP, based on a platform we have seen across international and our dual brands. We are very early in the process and are working with our franchisee partners on the incentive program, similar to Applebee's. We will have more to share over the next several quarters. We are excited as some remodels are starting now, but again, we are early in the stage. John W. Peyton: I would add two things. First, on our IR site we have a dual brand video; the IHOP interior featured there is the California Heritage design, which gives a sense of its fresh, modern look. Second, the Applebee's Looking Good remodel program continues into year two. Franchisees are enthusiastically participating, and we expect about 40% of the portfolio to be considered current by the end of this year. Operator: Thank you. Our next question comes from the line of Todd Brooks from Benchmark. Your question, please. Todd Morrison Brooks: Thanks for taking my questions. John, to start, you talked about the stalking horse situation with the franchisee for the 50-plus units. Looking at the base, what is your assessment of franchisee health as we get into a tougher consumer environment? Would you expect more growth in the corporate-owned base—not necessarily up to the 5% cap you mentioned—but with the environment, to keep stores in operation? At this point, beyond willingness to invest and convert to dual, is there still a lot to learn from running stores? John W. Peyton: A couple of thoughts, Todd. The NRP situation is specific to that owner and decisions within their fund about financing. The restaurants we are potentially taking back via the stalking horse bid are a healthy portfolio, so they will be accretive. I do not think it is appropriate to project the NRP situation onto the broader portfolio. As to learning, I disagree that there is little left to learn. It has been a while since we owned restaurants, and having about 100 gives us the ability to test new POS technology, roll menu innovation faster, run tests in-market, and implement guest service and training programs. That is valuable, in addition to renovating and converting to duals. We are seeing progress in restaurants we own—trending positively, particularly on EBITDA and profit—and believe they will be accretive when we refranchise them in three years. I am all in on that. Vance Yuwen Chang: Hey, Todd. On franchisee health, these are franchisee self-reported financials that we collect a quarter in arrears. Based on what we are seeing, on average margins are steady, supported by steady sales performance and cost management initiatives that CSCS and franchisees are doing together. Franchisees are aligned with our strategy and remain committed to growing with us. We are proactively making workout programs to accelerate incentives, remodels, relocations, and unlock dual brand territories. Ultimately, as we have said, dual brands can provide a step-function change to franchisee unit economics outside of normal comp growth. We are enthusiastic about pushing that agenda, and franchisees are as well. Todd Morrison Brooks: As a follow-up on duals, you mentioned a 1.5 to 2.5 times sales lift versus individual branded locations, with strong lift in Hawthorne. What type of lift do you need for a conversion to pencil? Does 1.5 times get the return you or franchisees look for, or do you need closer to 2 times? Vance Yuwen Chang: The flow-through on incremental sales from a dual conversion is much higher than the traditional four-wall margin because you are generally not paying more rent and labor does not increase proportionally. That flow-through should be north of 30%. Using simple math, if a $2 million restaurant adds another $1 million in sales, that is about $300,000 of flow-through to the franchisee's bottom line. The cost of conversion is a little over $1 million, depending on deferred maintenance or structural work that is site-specific. On $1 million of cost with $300,000 of flow-through, that is a very attractive payback for franchisees and for company restaurants. Operator: Thank you. Our next question comes from the line of Brian Vaccaro from Raymond James. Your question, please. Brian Vaccaro: Hi. Thanks, good morning. Could you double-click on underlying consumer dynamics? You noted softness within lower income. Anything worth noting by daypart or weekday versus weekend for either brand? And could you comment on the average check and traffic trends within the comps in Q1 for each brand? John W. Peyton: When it comes to income cohorts, the primary change we have seen this quarter and in recent quarters is that our price-sensitive, more value-oriented guests seem to be staying home a bit more or looking for lower-cost alternatives. Among other cohorts, we did not see significant changes in behavior worth noting. Looking at dayparts, weekdays, and geography, there is no clear pattern—largely consistent with recent quarters. The consumer behavior issue is concentrated among guests most impacted by gas prices and the economy in general. On average check and traffic, Vance can add detail. Vance Yuwen Chang: Brian, average check for Applebee's was about $39; for IHOP, about $35. Menu pricing for Q1 was approximately 4% for Applebee's and 3% for IHOP. Applebee's saw positive PMIX this quarter; IHOP was negative PMIX. Both brands saw negative traffic, but IHOP outperformed Black Box every month for the quarter. Brian Vaccaro: Thank you. Lastly, on closures, it seemed to step up in Q1—I think 20 at IHOP and 32 at Applebee's—but you maintained net development targets for the year. Could you help square that? Vance Yuwen Chang: Typically, closures run about 1% to 2% of the system. In the last year and this year, it is slightly elevated because more franchise agreements are coming due than in normal years. Also, we are proactively making workout programs with franchisees to accelerate relocations and unlock dual brand territory, which is reflected in closure numbers. We are maintaining net development because we have a strong pipeline of dual brands and stand-alone IHOPs opening, and that is baked into guidance. Also, closures tend to be lower-sales restaurants, and openings are larger-sales restaurants, so it is not one-to-one in unit count—there is accretion as we relocate and build new restaurants while closing older, lower-volume units. Operator: Thank you. This does conclude the question-and-answer session of today's program. I would like to hand the program back to John W. Peyton, Dine Brands Global, Inc. CEO, for any further remarks. John W. Peyton: Thank you for guiding us today. Your expertise is valued as always. Thanks, everybody, for your questions and the time you spent with us. As we said in our release and on this call, we are pleased with the brands' performance during the quarter despite a tough environment. We have plans in place to continue to appeal to our guests, particularly those who are increasingly value oriented over the next quarter, and you will see some new news in the next couple of weeks that we think will drive a lot of traffic to both brands. Thanks, everybody, and have a great day. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good day, and welcome to the Brink's Company First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Jesse Jenkins, Vice President, Investor Relations. Please go ahead. Jesse Jenkins: Thanks, and good morning. Here with me today are CEO, Mark Eubanks; and CFO, Kurt McMaken. This morning, Brink's reported first quarter results on a GAAP, non-GAAP and constant currency basis. Most of our commentary today will be focused on our non-GAAP results. These non-GAAP financial measures are intended to provide investors with a supplemental comparison of our operating results and trends for the periods presented. We believe these measures allow investors to better compare performance over time and to evaluate our performance using the same metrics as management. Reconciliation of non-GAAP results to their most comparable GAAP results are provided in the SEC filings, which can be found on our website. We will also have commentary on the status of our pending acquisition of NCR Atleos. As a reminder, this transaction is subject to the completion of customary closing conditions, including regulatory approvals and approval by Brink's and NCR Atleos shareholders. Additional details, including risk factors related to the transaction can be found in the pertinent SEC filings. I will now turn the call over to Brink's CEO, Mark Eubanks. Richard Eubanks: Thanks, Jesse, and good morning, everyone. Starting on Slide 3. We're pleased with another strong quarter of growth and operational execution as we continue to transform Brink's into a more predictable and profitable enterprise. I want to thank all of our team members, especially those in the Middle East region, for their focus in this dynamic global economic backdrop. I could not be more proud of our teams for staying focused and delivering on our Q1 commitments. Our results were at the upper end of our first quarter guidance ranges, and we're off to a strong start to the year. First quarter revenue growth of 10% included 4.5% organic growth, driven mostly by 15% organic growth in ATM Managed Services and Digital Retail Solutions or AMS/DRS. The growth in the quarter was highlighted by the onboarding of Pandora in DRS and good momentum in AMS, especially in the Rest of World segment. At the segment level, Rest of World delivered 7% organic growth on strong precious metals activity in the global services line of business. Overall, organic growth, favorable revenue mix and good underlying productivity drove margin expansion of 10 basis points with over 100 basis points of expansion in both North America and Rest of World and 240 basis points of expansion in Europe. In total, Q1 EBITDA was $238 million with a margin of 17.3%, trailing 12-month EBITDA was $1 billion for the first time in our history this quarter, reflecting a more than $200 million increase since the end of 2022 as we continue to deliver profitable growth across our business. We also continue to improve cash generation with an increase of $66 million year-over-year in the first quarter. On a trailing 12-month basis, free cash flow exceeded $0.5 billion for the first time in our company's history with conversion from EBITDA of 50%. Operationally, we saw improvement in both days of sales outstanding and days payable outstanding. Coupled with EBITDA growth I mentioned earlier, total free cash flow has more than doubled since year-end 2022, with free cash flow now exceeding $12 per share. As I review the quarter, we delivered on our commitments with results at the top end of our guidance range. As I mentioned, I'm proud of our consistent execution during volatile market conditions and our team's focus on the heels of the announcement of our transformational acquisition of NCR Atleos. Supported by this strong first quarter, I remain confident in our ability to continue our trajectory and deliver our full framework for 2026. Turning to Slide 4. You can see the components of our value creation strategy, which remain unchanged for 2026 and are well aligned with the strategic rationale of the NCR Atleos acquisition. We expect organic growth in 2026 to remain consistent in the mid-single digits, driven primarily by new and converted customer growth in recurring AMS and DRS revenue, which is expected to approach 1/3 of our total company revenue by year-end. The acquisition of NCR Atleos is expected to accelerate our ability to capture these AMS and DRS customers by delivering a more vertically integrated AMS offering and lowering our cost base through increased network density on the retail side of our business. On a stand-alone basis for 2026, we expect EBITDA margins to expand by 30 to 50 basis points as we shift revenue to these higher-margin services and drive cost productivity across our operations. This mix shift is expected to continue after completion of the acquisition and cost efficiencies are expected to accelerate behind the $200 million of cost synergies that we previously identified as we eliminate duplicative SG&A and public company costs, optimize our service delivery network and finally, drive global procurement savings. Both companies have delivered meaningful improvement in cash generation over the last few years, and we expect that will compound as we combine our 2 businesses. In addition to working capital improvements, we've already completed a secured financing arrangement that will allow us to absorb the $1.6 billion of NCR Atleos bank debt at a rate that is more than 1 full percentage point better than their current level. While we're focused on the near term on reducing leverage, we expect to produce a combined $1 billion of free cash flow from the 2 companies, providing flexibility to maximize value creation through strategic investments and shareholder returns. Shifting back to the quarter on Slide 5, I'll provide some commentary on performance by line of business. Starting with Cash and Valuables Management, or CVM. Organic growth was 1% in the quarter with good pricing discipline offsetting a couple of percentage points of AMS/DRS conversions. Our Global Service business was also strong again this quarter despite lapping a robust first quarter of 2025. Precious metals movement remain volatile and trends can change rapidly, but we factored in the current favorable trends into our second quarter guidance. AMS/DRS revenue grew organically approximately $50 million in the quarter for a rate of 15%. This was the 13th consecutive quarter of at least 15% organic growth in AMS/DRS as we continue to build momentum in these important businesses. It's important to note that in the fourth quarter of last year, we saw strong growth related to onetime equipment sales, primarily in North America that impacts the sequential comparisons. Factoring in this dynamic, growth in the quarter was in line with our expectations and positions us well to deliver our guidance for the full year. In DRS, we continue to see positive momentum with large enterprise customers in North America, including the onboarding of Pandora during the late fourth and early first quarters. In AMS, we're lapping some large wins in the prior year like Sainsbury's, while we stage for other large deployments, including some in the Rest of World segment. We continue to see positive AMS trends with banking customers, including in Southeast Asia, where we recently won the largest national bank in Indonesia with about 5,000 ATMs. Looking to the balance of the year, we expect AMS and DRS to accelerate sequentially, supported by our strong pipelines and DRS backlogs, including Paradies that will lead us directly into the next slide. On Slide 6, I'd like to highlight an example of the type of wins we're delivering with DRS. Paradies is a leading travel retailer and restaurateur, operating over 700 stores in airports across North America. They offer major brands like Chick-fil-A, Tumi, Starbucks today and Jimmy John's just to name a few. Paradies came to us to help solve common dilemmas they see across large global retail and quick-serve organizations. I've often discussed DRS as a true win-win for both Brink's and retailers, and that's clearly the case here with Paradies. We designed a bespoke solution incorporating both front office recyclers and smart safes that integrate directly with Paradies POS software. Our solutions are expected to help them with several pain points across their global footprint. Among other things, we're able to reduce cash handling time for managers and employees, unlocking productivity and efficiency within their stores. Our solution digitizes cash quickly and tracks transactions down to the teller level, reducing operational shrink across the business. We are also able to simplify service delivery for customers as we shift our key quality service deliverable from arriving within a certain appointment window to providing overnight electronic deposits for faster access to working capital. This shift creates flexible routing and scheduling options for Brink's, allowing us to arrive when needed or when easily added to an existing scheduled trip into the area. We completed a successful trial phase with Paradies and are planning for the full rollout across their entire footprint over the balance of the year. While the solution we designed for Paradies is unique to their specific needs, the problems we're solving for customers are universal. Our DRS offerings have a clear and demonstrated value proposition for retailers of all sizes. As we close more of these deals, I remain confident that we're in the early stages still of our efforts to expand our DRS business across the retail landscape in all geographies that we serve. On Slide 7, you can see our methodical progress towards 20% EBITDA margins in North America. In Q1, EBITDA margins in this segment expanded by 170 basis points year-over-year, driving trailing 12-month margins to 19.5%. Revenue mix has been a big contributor to this progression. It was another great quarter of AMS/DRS growth in North America as we continue to convert customers and install new DRS units, including the Pandora win that we mentioned last quarter. Global Services revenue growth was also strong this quarter despite an elevated prior year period comparable. Our shift to higher-margin flexible service recurring revenue is unlocking operational productivity across the business. Over the years, we've improved and standardized our service delivery network to enable profitable growth. This improvement is clear in the numbers as we continue to deliver improvements in revenue per vehicle and labor as a percentage of revenue. This is setting the stage for continued momentum post closing of our NCR Atleos acquisition as we layer on additional volume to our more efficient network. I'm confident increased scale will position us to drive further expanded margins well beyond our preliminary 20% targets. Turning to Slide 8. I'd like to provide a brief update on the NCR Atleos transaction. While we've been publicly engaged with shareholders over the last 8 to 10 weeks, we've been working hard diligently behind the scenes to progress this transformational acquisition forward. At the end of March, we successfully completed a refinancing of the secured portion of the bridge loan, increasing our capacity while unlocking attractive rates and improving certain conditions in our credit agreement. Just last week, we filed our registration statement and are progressing towards a shareholder vote over the next few months. We're making good progress on the regulatory front as well with filings submitted in many jurisdictions and reviews progressing as expected. NCR Atleos first quarter results will be filed after the market closed today, and we understand them to be in line with our business case modeling and on track with our full year projections. Though NCR Atleos will continue to operate independently until closing, we expect our integration management team to work closely with NCR Atleos to plan and prepare for the execution of the potential cost synergies. Importantly, we've created a dedicated integration management team within Brink's that is isolated from the day-to-day operations of our business and will be responsible for driving program execution of cost synergies after closing. While we're still in the early process in many ways, we're making good progress and continue to expect closing will occur by the end of the first quarter of 2027. The more we interact with our internal teams, our customers and the NCR Atleos management teams, the more encouraged I am by the potential of this combination. Supported by strong momentum in AMS and DRS and ATM as-a-Service, it remains clear that this is the right strategic direction at the right time to accelerate our growth and bolster our business for the future. Before I hand it over to Kurt to walk through the financials, I want to thank our team for embracing the power of our strategy. We've lifted our performance by consistently delivering on our external commitments while improving our service levels to our customers, even redefining the definition of what service quality means. Our team is focused on continuing our efforts to move the business forward behind AMS/DRS customer offerings that deliver clear win-wins for both the customers and for Brink's. I'm encouraged by the strong results we delivered, the strong momentum supporting us and I'm even more optimistic about the future potential as we combine with NCR Atleos and position ourselves to accelerate growth, profitability and value creation. And with that, I'll hand it over to Kurt to discuss the financials, and I'll come back for Q&A. Kurt? Kurt McMaken: Thanks, Mark. I'll begin on Slide 10 with a look at Q1. Revenue increased 10% with 5% constant currency growth and a 6% tailwind from foreign currency. Adjusted EBITDA was up 10% to $238 million with operating profit up 12%. Both operating profit and EBITDA accelerated 10 basis points year-over-year on favorable revenue mix, pricing discipline and productivity in both labor and fleet. Earnings per share was $1.80, up 11%. In the quarter, we completed approximately $30 million of share repurchases prior to the NCR Atleos acquisition announcement, reducing outstanding shares by 5%. As Mark mentioned earlier, trailing 12-month free cash flow was $502 million at the end of the quarter, representing conversion of 50%. I would like to call out that we have enhanced our cash flow disclosures to highlight cash flows related to the NCR Atleos acquisition, which were $2 million in the quarter and are expected to be between $50 million to $60 million for the full year. We believe it is important to isolate these cash flows for investors so they can get a better picture of the true underlying cash generation of the business. These cash flows are included in our expectations to get to approximately 2.3x by the end of 2026. Similar to timing from the prior year, we are currently ahead of our full year cash conversion guidance after Q1. We expect the timing of certain cash tax payments and cash investments over the balance of the year to return us to our target level of 40% to 45% by the end of the year. On Slide 11, total organic growth was $56 million or more than 85% of the growth came from higher-margin subscription-based AMS and DRS. The $8 million of CVM growth was in line with expectations and represents volume growth in Global Services and strong pricing execution, partially offset by the conversion of customers to AMS and DRS. FX contributed $71 million of growth in the quarter with favorable year-over-year rates primarily in the euro and Mexican peso. Shifting to the right side of the slide, growth of $128 million generated $23 million of EBITDA, expanding margins by 10 basis points. As you will see from our guidance for Q2, we expect expansion to accelerate into the second quarter as we continue growth into AMS and DRS. Moving to Slide 12. Starting on the left. Operating profit was up $18 million to $168 million with a margin of 12.2% on strong productivity, pricing and line of business revenue mix. Interest expense was $64 million in the quarter, up about $6 million year-over-year and in line sequentially with the fourth quarter. For the full year, interest expense is expected to be just over $250 million using current interest rate expectations. Tax expense was $29 million in the quarter, representing an effective tax rate of 27.6%, in line with the prior year rate. Interest income and other was down $6 million year-over-year, primarily due to lower interest income related to the prior year repatriation of cash from Argentina. Income from continuing operations was $75 million. Depreciation and amortization was $64 million, primarily reflecting increased depreciation from growth in AMS and DRS equipment. In total, first quarter adjusted EBITDA was $238 million, up $23 million year-over-year with margins expanding 10 basis points. Let's move to Slide 13 to discuss our capital allocation framework. Our capital allocation framework has remained consistent during Mark and my tenure, including through our transformational investment in NCR Atleos. Our leverage at the end of the first quarter was 2.7x net debt to adjusted EBITDA. During 2026, we expect net debt leverage reduction to be the primary focus of our capital allocation as we position our balance sheet for the NCR Atleos acquisition. Over the year, we expect to reduce our stand-alone leverage to approximately 2.3x. While we expect leverage to be approximately 3.4x, assuming Q1 2027 closing, we are currently expecting to be below 3x by the end of 2027. We continue to believe that 2 to 3x is the right leverage to balance capital efficiency and appeal to existing and potential equity investors. Our capital allocation framework has generated meaningful shareholder value over the last several years. The growth acceleration potential into high-margin recurring revenue AMS and DRS is expected to continue to drive margin expansion and compound cash generation for years to come. With clear line of sight to a combined free cash flow of $1 billion, we expect to have the flexibility to make strategic investments and return capital to shareholders in the future. Moving to guidance on Slide 14. Our framework for 2026 remains unchanged. We expect to deliver mid-single-digit total organic growth, supported by mid- to high teens organic growth for AMS/DRS. Using rates as of yesterday, we are currently expecting to see an FX tailwind for the full year of between 2% and 3%. EBITDA margins are expected to expand between 30 and 50 basis points with conversion of EBITDA to free cash flow of between 40% and 45%. In the second quarter, we expect revenue between $1.37 billion and $1.43 billion, reflecting organic growth in the mid-single digits. Using yesterday's spot rates, FX is expected to be a year-on-year tailwind of just below 3% at the midpoint. Adjusted EBITDA is expected to be between $245 million and $265 million, reflecting 10% growth and margin expansion of approximately 40 basis points at the midpoint. EPS is expected to be between $1.85 and $2.25. And with that, we are happy to now take your questions. Operator, please open the line. Operator: [Operator Instructions] The first question comes from George Tong with Goldman Sachs. Keen Fai Tong: In DRS, can you perhaps quantify how much of the growth came from conversion of traditional cash-in-transit customers versus greenfield wins? Richard Eubanks: Yes, sure. We have -- again, George, a good quarter for us in Q1 kind of everywhere in DRS. But particularly as you think about convergence, again, we stay on track what we've seen in prior quarters. So about 1/3 of the installs really coming from conversions of existing customers, which, as we've talked about previously, gives us a little bit of headwind in CVM, but of course, get the benefits of the better margin and certainly recurring revenue. The 2/3, though, really, we continue to be excited about because these are new customers that are either unvended or were previously vended by some other solution. You can see -- we talked about the Pandora deal a little bit in the call. We had it in our presentation last quarter, where we were able to really provide an enterprise solution for a customer that we were able to identify, negotiate and deploy fairly rapidly to collapse our time to revenue. We didn't get a chance to talk about it much last quarter, as you know, given the deal announcement. But if you look at, again, this quarter, another really nice deal here with Paradies, that's one of the airport operators for food and quick serve and retail. And again, just the opportunity to work with customers like that to provide a unique solution, whether that's leveraging hardware, software, POS integration and even some of our cash forecasting and balancing software really allows us to tailor a solution to almost any retail environment as we look to streamline and optimize the total cash ecosystem inside these retail stores. And this is something we'll continue to see going forward. Keen Fai Tong: Very helpful. And then you expect AMS/DRS growth to accelerate sequentially given the strong backlog. What are your latest thoughts on what sustainable medium-term AMS/DRS growth can be? Richard Eubanks: Sure. I think -- we think this mid- to high teens organic growth will continue, George, here, certainly this year. And I don't know what your medium term is, but we've got a view as we go into '27 and get this deal closed, we can do -- continue to accelerate that more. So we're excited about it. And I think if you look at our backlog coming out of Q4 into Q1, team is excited about what we've got lined up for the second half of this year as we're installing those in Q1 as well as Q2. But you can see the organic growth rates are continuing. Although we were a little bit higher in Q4, about 22%, as we mentioned previously, we had a pretty significant amount of equipment sales, particularly in North America. But even that was still in the high teens from an organic perspective, and that continued into Q1. Q1 is typically a little bit lighter just given the fact that we don't do a whole lot of installations during Q4 retail season because most of our retailers are -- it's a busy season, particularly North America and Europe, where they don't want us in their stores installing. So we tend to carry a good backlog into Q1 and Q2. Operator: The next question comes from Tobey Sommer with Truist. Tobey Sommer: I'd like to double-click on AMS and DRS again. How would you describe the geographical differences you're seeing in customer uptake and demand? And then what do you think it takes to light a fire under financial institutions in North America for this to take off? Richard Eubanks: Yes. Good question, Tobey, because we're really starting to to see more broad AMS/DRS growth around the world. And you can see, particularly in Latin America in the quarter, we're seeing Mexico continue to have a good run here in DRS that is allowing us to not only convert customers, but continue to improve margins and build out an installed base. We're seeing that in Argentina as well. And then, of course, in Brazil, we've been having success, and that continues. We're seeing more AMS and DRS, but particularly, I called out AMS in the Rest of World segment, which is really good because these are big cash markets that are kind of much earlier cycle when it comes to AMS/DRS conversion. But last quarter, we talked about AMS Security Bank down in the Philippines that we're currently deploying. We also then talked this quarter about Indonesia, although we've had some success in Indonesia previously. This is a pretty big deployment there. So we feel good about that. We're seeing banks in Rest of World as well as Latin America continue to either make decisions or continue to look at better ways to serve their continued ATM needs. If we move to the Northern Hemisphere, Europe and North America, of course, Europe is our most highly penetrated AMS/DRS market. And again, a good -- continue to have good progress there and a good outlook as we think about Q2 and Q3. But North America, certainly, our DRS trajectory continues to go higher. And you see it in our margins, and I called it out in the North American deep dive there, we continue to see the good mix benefits from DRS, particularly as we see going forward. The last part of your question was around North America banks, particularly U.S. banks. And that's something that we're continuing to have lots of discussions. And as we think about the services across the entire continuum for ATMs and ATM managed services, we're starting to get up those opportunities. And whether that's some of the off-branch bank at work ATMs or whether that's specific services and/or managed services on the on-branch, the full outsourcing continues to be a little slower than -- certainly a lot slower than the Rest of the World. I think this is one of the things that we think about with the Atleos acquisition, Tobey, and getting to a full vertical solution where customer outcomes can be better controlled and I think create more confidence with those customers about a full outsourcing. And so this is something that we're keenly aware of and thinking about and certainly part of our long-term thesis on the business to support both growth and being a catalyst for those banks to do outsourcing as well as increasing our density and participation in our retail footprint. Tobey Sommer: If I could ask a specific question on DRS. Is this -- are you finding this service is more valuable or less valuable to customers based on their business models as sort of like, I don't know, a stand-alone big box as opposed to an area like in an airport where retail is clustered or a mall because you've had a couple of marquee customers that you can talk about that sort of fit that latter bucket. Richard Eubanks: Yes. I'd say it's more about the idea around disclosure, Tobey, and customers being willing to talk about it, to be honest, because we are seeing DRS, we don't get to highlight all of our DRS wins as we've talked about previously in retail. But we're seeing strong value propositions, everything from the SMB mom-and-pop coffee shops all the way up to the big box guys. And many of those solutions can look similar maybe in the middle of that bulge. But when you get to the smaller or you get to the larger, they're certainly more sophisticated and can be more complex. We think the complexity is helpful for us because we can solve some of those problems with more technology and an integrated service model. And then on the low end, on the smaller customers, we're able to, frankly, lower our cost to serve to allow us to provide a better value proposition as we build more density. And as I think about one of the other big opportunities, and we talked about that last earnings call about the Atleos integration is building out more density across our network that again is going to lower our cost to serve and ultimately be able to provide better value propositions to customers, both small and large, but ultimately provide a much more compelling solution than they're able to either self-perform today or even than what we can deliver today from a cost perspective. So again, those benefits continue to accrue, and we think there's a definite network effect that we can create as we build out that density. Tobey Sommer: If I can ask one last one, and I'll get back in the queue. With respect to cash, conversion from EBITDA. You had some numbers in your recent filing that gave us a look at what your expectations are for a number of years for stand-alone Brink's. But maybe you could touch on the opportunity or what the combination with NCR Atleos does to the opportunity to increase that conversion over time. Kurt McMaken: Yes. Tobey, it's Kurt. Maybe I'll jump in here. I would say, first of all, just from a profitability perspective, certainly an opportunity there. The synergies will help on flow-through for sure. Then you go below the OP line and below the EBITDA line, we definitely see opportunities in terms of capital efficiency from both the CapEx and working capital perspective, and we talked a little bit about it. I mean we have to obviously develop that further together, but certainly see opportunities there to drive increased conversion on that. Richard Eubanks: I think the other area, Tobey, is that we think about, and frankly, we're seeing benefit now in our business as we really ramped up our efforts in and around global supply chain and procurement is getting better payment terms as we operate as one large enterprise versus 52 countries. And we've talked about that transformation that's been going on in the business for some time. We're really starting to see some of those benefits. And we think that putting together 2 companies of similar size and scale and purchasing power would only help that in the future as we think about managing payment terms, managing our balance sheet, managing our receivables in the same way as we think about common customers. So the working capital benefits that we're achieving -- sorry, improvements we're achieving now. By the way, Atleos is doing a pretty good job of that, too. We think only together can we really drive not only kind of in contract changes, but also just efficiencies in our systems and better follow-up and operational execution on credit and collections and payment terms. Kurt McMaken: And maybe I just might add that's a good point, Mark, one other thing. If you look at cash interest and cash taxes, there'll be opportunities there as well with the combined firm. And so that's another final area. Operator: The next question comes from Tim Mulrooney with William Blair. Samuel Kusswurm: This is Sam on for Tim. Maybe I'll pivot away from some of the AMS/DRS questions, some good ones were already asked and ask more about your Latin America business actually. So this year, you'll be moving past some of the Argentina inflation impacts for the first time in a while. So how are you thinking about the growth rate and margins for this business? And then I noticed a competitor of yours just made a pretty sizable acquisition in Peru. Curious how this might impact the level of competition you face in this region. Richard Eubanks: Yes. Thanks. Good to hear from you. First of all, I'll address the Peru acquisition. We're not in Peru. Actually, we were in Peru years ago and actually exited the business -- exited the country. But for us, we're -- we're very comfortable with the geography we have today. And as we've talked about previously, our strategic focus is really about moving further up the stack around DRS and AMS more around technology and service efficiency versus really expanded geography. Now we will have some expanded geography or we expect to have some expanded geography post the NCR acquisition that will allow us to kind of reassess what resources we have in which markets and how best to optimize cost and the supply chain there. But for us, again, this wasn't much of a strategic lever for us. We didn't have any cost synergies there because we don't have any businesses there to combine. And really, the market is pretty isolated from our perspective. So we don't see that competitive pressure, let's say, in the region from this acquisition, particularly. More generally, we love Latin America from a fundamental perspective, high cash usage in these markets, good margins. We have good businesses, good leadership teams. And as you point out, Argentina is a place as you look at the kind of FX trends here in the last 6 months as we get to the back half of the year at current rates. Argentina is not a headwind at all. And so from an FX perspective. So that's really interesting because it's a good business for us. We have a good position down there, and it's good margins. And so as we think about going forward, it's going to be less noise and effectively will be something that investors will be able to get a better look at on an apples-to-apples basis without as much noise. The other thing that we think about also down there is the AMS market. It's a huge ATM market, and we're in the biggest markets down there in Brazil, Argentina and Mexico, Colombia, Chile. And certainly, there's activity already going on down there. We've talked about it, but there's a lot left to go. And the banks down there are pretty sophisticated operators. They are relatively consolidated. And so the discussions are progressing well, we have several active networks down there as well as active pilots with existing banks that we're working to convert here in '27 and '28 -- I'm sorry, '26 and '27. Kurt McMaken: Sam, just I'd add too. I mean, you should expect the margins to get better sequentially, and that's what we're seeing. Richard Eubanks: Yes. I think it's -- and Sam, just of note, as you look at our Q1 performance and Q2 guide, this $10 million to $11 million of EBITDA that's above -- was above the midpoint of our guide of our framework should flow through to the balance of the year. And that's -- part of it is this LatAm margin improvements. And as you can see, the EBITDA margins are benefiting in Q1 kind of over our midpoint at the high end of our guide for a couple of reasons. One is the continued AMS/DRS mix benefits, but also we had a strong quarter in BGS. And our Global Services business, I mentioned on the call, given the -- all the volatility in the Middle East that we've seen, there's been a lot of movement of precious metals around the world. And in and out of all of the big financial centers around the world, that likely -- in our guide, we assume that's going to continue into Q2. And as we look out to second half, these markets are volatile. Hopefully, we'll have peace by then and things will settle down. And we're not assuming the kind of that same performance in the back half that we've seen in Q1. Kurt McMaken: So if you think about progression, Sam, it's very typical to look at kind of a 45% of our EBITDA in the first half, 55% in the second half is very typical for us. We're a little bit ahead of it this year. And as Mark said, we see that flowing through for the year. So I think good start. Samuel Kusswurm: Got it. Super, very helpful. And I was going to ask about BGS next, but you already beat me to it there. So maybe I can leverage this next question and maybe address fuel prices. I think I know that your contracts generally have fuel surcharges that are rent into them. But I guess I'd be curious if that's actually captured the full impact that you're seeing right now. And if there's any impact to margins that you might expect for the remainder of the year from this? Richard Eubanks: Yes. So we've been -- you know it well. We've been pretty good at ensuring that fuel doesn't necessarily impact us over the long term adversely. Of course, those indexes and changes, some are monthly, some are quarterly, some are biannually, whatever that we recapture that. But if anything, maybe it could be delayed a quarter. But those -- the fuel prices were in -- we had them in Q1, and you can see our performance, again, was way above our midpoint and at the high end of the guide. So we think that our teams have been pretty good at covering that and ensuring that our pricing discipline maintains those margins. If we go forward we see that likely to be a blip. Some of the things we -- some of the stuff we've seen around the world, we heard about some of these interruptions and fuel and so forth. We haven't experienced that. We haven't experienced it in anything other than episodically, let's say, okay, airports were closed in Dubai for a bit. But other than that, we really haven't had any real kind of structural supply impact and aren't expecting that going forward. Kurt McMaken: Yes. So in our guide and our framework contemplates that, Sam. So we've been good about covering it and still feel good about continuing to cover it. Richard Eubanks: Well, thanks. Listen, we appreciate everyone's time. I appreciate your support and interest in the company and look forward to speaking with you either next few days or when we're on the road at conferences coming up here in May and June. Have a great day. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: [Operator Instructions] With that, I'll hand it over to CEO, Jan Rindbo; and CFO, Martin Badsted. Mr. Jan, please go ahead. Jan Rindbo: Thank you very much, and hello to everyone. Thank you for joining. Let me start by just giving you just a brief introduction to NORDEN. We are a leading global operator transporting the essential commodities for industrial customers worldwide. We have a capital-efficient fleet strategy combining owned and chartered vessels, which enable us to navigate market cycles and deliver competitive returns. So today, we will take you through our performance and the strategic positioning of the company. So let's dive straight into it, and let's do that with probably one of the most discussed topics at the moment, the conflict in the Middle East, which obviously are having big impact on both the markets and operations. So we see, obviously, on the tanker side, strong support on the tanker rate. We've seen surging spot rates where tankers are in high demand to help rebalancing oil markets in view of the lack of the oil supply that's coming out of the Middle East. The dry cargo market reaction has been more muted. And here, it's probably more the additional operational impacts and costs that affect the business. We have seen, obviously, with higher oil prices, a significant increase in the bunker costs. So they're up roughly around 50% since the start of the conflict. That does not directly impact NORDEN because we hedge the directional risk of the oil price, but we are seeing physical delivery premiums have spiked that cannot be hedged. NORDEN has, as you can see here on the map, we have 7 vessels inside -- trapped inside the Persian Gulf, 6 dry cargo vessels and 1 tanker. And we have obviously suspended all new business coming into the region. But we'll obviously touch much more on the situation in the Middle East later in the presentation. If we look at the highlights, the financial highlights of the quarter, we've made $11 million net profit in the quarter, which is giving us a return of just under 8% on the return on invested capital. We have a very strong operational cash flow of $172 million in the quarter. And what is probably the most significant development overall in the quarter has been this increase in the net asset value of our business and our fleet of 11% since the end of the year. So in just 1 quarter, the net asset value of the company has actually gone up by 11% to now stand at DKK 422 per share. And we continue to return cash to investors. In this quarter, we are continuing with a quarterly dividend of DKK 2 per share. And on top of that, we have a share buyback program of $25 million, and that brings the total payout to $35 million for this quarter. When we look at the group fleet overview, we continue to be very active in optimizing the fleet. We have, in this quarter, sold 7 vessels, 4 of those are from declared purchase options. We also continue to lock in longer-term earnings through time charter out. So we've done 8 long-term deals on time charter to secure forward earnings. We also continue to add ships. So we have actually added more ships than we have sold. We've added 11 vessels in the quarter, 8 leases with purchase options, and then we have purchased 3 vessels. And we continue to sit on this big portfolio of purchase options. We have 91 in the portfolio, of which 33 can be declared over the next 2 years at prices that are currently 22% below current market prices. And if we dive a little bit more into the fleet and look at the fleet composition, you will notice here that we are mainly on the ships that are exposed to what we call the positioning margin. So that's more the ships that are dependent on directional market calls. So typically, the larger dry bulk vessels, but also the MR ships. So here, we have specifically sold 1 Cape and chartered out 3. We've sold 2 Panamaxes. On MRs, we have sold 2 ships and time chartered out 5 ships. So quite a lot of activity on these large and medium ships but predominantly reducing exposure in those segments. And then the ships that we are adding to the fleet have all been in what we call the smaller vessel sizes. They are more exposed to the base margin part of the business. This is the core operating margin that is not dependent on the market direction, but this is where a combination of cargoes, reducing ballast time, loading more niche type cargoes add additional margin. And here, we have added 2 Handysize ships to the core fleet and then 9 Multipurpose ships. So we now have built a core fleet of Multipurpose ships of 22 vessels. And strategically, this is sort of one of the areas that we are focused on building. Most of these ships are newbuildings. The first one will deliver later this year, and then this fleet will deliver in the coming years. One deal stands out in the quarter, and that is that we have signed a newbuilding contract for two ice-class multipurpose vessels. Those ships are ordered against a long-term contract that we have signed with a Swedish mining company, and the ships will be used partly to perform that contract when they deliver in 2028. With that, I will hand you over to Martin, who will talk a little bit more about our NAV. Martin Badsted: Thank you very much. Yes, as Jan already alluded to at the highlights page, the NAV developed quite positively during the quarter, up 11% to DKK 422 per share. And it was actually a broad-based increase in the value of assets, both in dry and in tankers. You'll see from the table here that currently, actually, in terms of our own fleet, the majority of the value, $800 million lies within dry, whereas $200 million are in tankers. But when you look at the value of the TC portfolio, including purchase options, it's actually a little bit overweight tankers with $263 million. On the right-hand side, you will see a sensitivity analysis of what happens to the DKK 422 per share if we change both the forward curve and the asset values by 10% or 20%. And you will see the outcome ranging from DKK 308 to DKK 559 per share, all actually either in line or above the current share price. Sorry for that. It's a little bit slow. So looking at the market development in dry, it was actually a fairly strong quarter. When you look at the turquoise line in the middle of the graph, you will see that the spot rates for Supers, as an example, were far higher than 2025. Actually, they were up 41% over the quarter. And that was mainly driven by the standard commodities, iron ore, bauxite, grains, whereas coal was actually quite weak, although we are seeing that changing currently. We do have a firm view on the long-term outlook for dry cargo, not least based on a favorable supply side, where you'll see on the right-hand side that the order book is actually matched more or less by the share of the fleet, which is over 20 years. So there's good reason to believe that you can actually still have favorable fundamentals in the dry cargo market going forward. Looking at our earnings in dry cargo, you will see that we made on an EBIT level, a loss of $45 million, which is, of course, unsatisfactory. It was mainly driven by dry operator large and small, which both made a loss in the quarter. Of course, some of this was related to cost as a result of the Persian Gulf conflict, where we both have vessels stuck within the Persian Gulf, but certainly also the regional bunker premium that Jan talked about in the beginning, which are hedged to the extent possible, but there is still some non-hedgeable items of the bunker exposure we have that has costed us quite dearly during the quarter. Of course, it's not all the Persian Gulf. It's also what we call regional positioning, which really means that we have decided to reposition some of our vessels from the Pacific into the Atlantic in expectations of higher Atlantic rates. The benefits from this have yet to materialize, but we still expect some of that to show up in Q2 earnings, and we do see gradual improvement in earnings in dry operators going forward. In tankers, it was a super strong spot market during the quarter, of course, driven by the dislocation of trade flows following the closure of the Strait of Hormuz. You'll see the graph here actually coming up to close to $70,000 a day. That was actually an average of very large regional discrepancies where the U.S. Gulf ramped up exports quite aggressively and paying rates close to $100,000 a day, whereas it was a little bit more muted, but still good rates of, call it, $30,000 a day in the East. The development in rates has turned around in recent days. And of course, the underlying problem here is that with the closure of the Strait of Hormuz, we are lagging 15% to 20% of volumes that will normally have occupied a lot of seaborne capacity. But also here, actually, fundamentally, we are not so worried about the supply side, as you will see on the right-hand side also here, the order book is matched more or less with the share of the fleet being more than 20 years old. But we do think some of this order book is starting to accelerate deliveries during the second half that should put some pressure on rates going forward. In tankers, we made a total EBIT of $47 million, and it was actually mainly in the dry owner, which has some spot exposure through our NORDEN product pool. The tanker owner made $37 million and the tanker operator just over $10 million in the quarter. And that brings me to the full year guidance, which, as you know, we upgraded end of April, and we raised it by $40 million to a new guidance of $70 million to $140 million and that includes a reservation of $30 million to cover possible costs for the 6 TC vessels that we have stocked within the Persian Gulf, which is really based on an assumption that those vessels may stay there actually until the end of the year before they can get out. The earnings that we expect for 2026 are quite front-end loaded, meaning that much of it should come in Q2 and then taper off within the second half of the year. And in terms of risk exposure, we have about 2,300 open tanker days and close to 7,000 open dry cargo days, all being long against the market. That concludes my part of the slides, and I'll hand you back to Jan. Jan Rindbo: Thank you, Martin. So this is just a reminder of the key drivers in the business model and how we approach markets. So we have these 4 drivers: dry cargo and tankers are 2 and then asset heavy and asset light the operating business. So we have these four. Our exposure to the prevailing market conditions. And what we are seeing now is that in a very, very high tanker market, we have decided to reduce exposure there and move more of that exposure towards dry cargo. And as we explained earlier on some of the previous slides, we have done a few deals to both sell tanker vessels but also take longer-term time charter contracts on tankers. And we now have, on average, around 80% cover for our tanker business until the end of 2028. So taking advantage of these high tanker rates and locking in long-term profits in that part of the business. That means that we have more exposure in the dry side. And within the dry cargo business, as we explained on one of the previous slides, we are moving exposure more towards the smaller segments where we have more impact on the earnings than just being driven by the market. And we think this flexibility in the business model where we have several drivers, realizing that it's not always all 4 drivers that will go at the same time. But over a rolling 5-year period, we can see that this generates higher returns than industry peers that are more specialized in just one segment. So this ability to switch between the segments actually has a lot of value for NORDEN in the long run. If we move to the next slide and then look a bit more at the direction we are taking towards 2030, we see an opportunity to go even deeper in our relationships with customers. At a time where there is a lot of focus on supply chains and geopolitical uncertainty, NORDEN stands out as a reliable service provider in the freight industry, and that is something that we want to leverage and continue to build both more cargo networks with complementing contracts, but also have more efficiencies in the way that we operate the cargo book and the fleet. The expansion towards the smaller vessel sizes within dry cargo is also with a view to focus more on what we call the base margin, the core operating margins in the business and thereby reduce the volatility in our earnings because in the smaller segments, project cargo, minor bulk commodities, but also the logistics part of our business, it is less exposed to market fluctuations and thereby giving more stable returns through the expertise that we can provide in those segments. We will, however, continue to be focused on this adjusting our exposure and remaining what we call asset agile and continue to take the opportunities that we see in the market. So both buying and selling our vessels as an example, is largely driven by the opportunities that we come across in the market. And that sort of is an important part of providing strong upside in better markets. And that's exactly what we're seeing right now through the whole optionality portfolio where we have a lot of extension options and a lot of purchase options in our fleet. And in rising markets, there's a lot of value there that we can realize. And that brings me just to the last slide and just a few points here on the investment story in NORDEN. When you zoom out and look at the industry, we think actually the macro view of the industry is fundamentally very positive because when you take a longer-term view towards 2030 and beyond, we see an aging global fleet, both in dry cargo and in tankers. And we currently have a low order book, especially on the dry cargo side. So this replacement need of all these older vessels is not currently being met by the order book. And as we've also previously explained, all the geopolitical uncertainty and the dislocations are creating longer distances for transportation. And that means that we have a very healthy market balance as we see it. And even if -- even at times of lower economic activity, the inherent risk of a prolonged oversupply situation is much, much smaller than what we have seen historically over the last couple of decades. Our business model, point #2 here that we can adjust to the different markets that we are in, gives us huge flexibility to manage the risk through the market cycle and deliver better returns compared to a pure-play company. And then we have the strategic focus on expanding in areas where we believe we have even more impact ourselves in terms of our operating capabilities and really building this business that is more sophisticated, not least with the AI-driven opportunities that we also see in enhancing our decision-making and really bringing out the -- what we call the NORDEN platform, the value of being one of the largest operators in the industry and having a global network of offices close to our customers bring out all of that value as an important part of our strategic focus. And then the last point we're making here is that we continue with a relatively asset-light approach in our business model, but with the upside from purchase options on the asset upside that enables us to return a lot of cash to shareholders and have this disciplined capital allocation that over time, at least historically have driven a ROIC outperformance compared to the industry. I think with those words, let's turn over to the Q&A session. And hopefully, there are questions where we can put a little bit more color to some of the points that we have made here today. Operator: Thank you, Jan and Martin. And yes, we are now ready for the Q&A session. [Operator Instructions] But let's start off with a couple of the written questions here. They were originally in Danish, so this will be our translation. So the energy company, MASH Makes, which among other things, was supposed to produce biofuel for DS NORDEN's fleet, has gone bankrupt. It is reported that they were unable to raise capital for the next phase. You have been invested in the company since 2023. Can you tell us what loss you'll be taking in NORDEN's future financial reports in connection with this bankruptcy? Martin Badsted: Yes, I can respond to that. So when you look at the future financials, this will have no impact because all of it has been provided for in the current accounts already. So of course, we have been very happy to work together with the team behind MASH Makes and I think they have a very interesting technology. But I think the phase that they are coming into now means that they will need new investors to take this forward. Operator: And a follow-up question in connection with this. Can you tell us how this will affect your transition to biofuel? Are there new partners on the horizon or any concrete partnerships in the works? Martin Badsted: Our efforts to work on decarbonization and offering that also as a product or service to some of our clients is unaltered. So we have a strong belief still that biofuel is part of the answer for the shipping industry, and we are working with several partners to help them actually realize zero emission transportation based on our products. Operator: And the next question here is, as an investor, one has noticed that the bulk/dry cargo market for what is by now an almost excessively long period has not been optimal for NORDEN. The tanker market, on the other hand, is booming. Looking a bit into the future, where we also see risk of, for example, lower Chinese growth, wouldn't it make good sense for NORDEN to look more towards the tanker market over the coming 1, 2 years and prioritize this business leg more heavily? And do you agree with this analysis is also stated? Jan Rindbo: Yes. I think let me start by saying that going back to the business model that we have, both being in dry cargo and in tankers, there will be periods where one leg is more attractive than the other. And only a few years ago, it was the dry bulk business where we actually got the same question, why are we not just focusing on that? I think we've shown over time that the strength of having both activities, that's important. If you talk about the risk reward from where we are today, yes, clearly, tanker earnings are very strong right now, and it's attractive to be in tankers. But to invest further in tankers right now is also very expensive and quite risky. So the risk reward, we think, is more skewed towards the dry cargo side. That's also why we're running with relatively high coverage on the tanker business. We have actually made money overall in dry cargo last year. We are, of course, having a more difficult first quarter in dry bulk, which Martin also explained, there are some different drivers, some repositioning costs that will come back. So we do expect better dry cargo performance in the coming quarters. And of course, our focus is on obviously ensuring that we have the best possible performance. It also, a little bit, ties in with the strategic choice of going towards the smaller vessels where we have more impact on the results through our own operation and not just being driven by the market. Operator: And then a question related to the current situation in the Middle East. It goes, how do you see the scenario for yourself when the Strait of Hormuz is reopened, and peace returns to the region there? One would imagine you'll be extremely busy for an extended period with simultaneously high freight rates primarily for tankers. Do you agree with that expectation? If yes, how long might one expect it to last? And would you also have a positive impact on the dry cargo from this? Martin Badsted: Yes. So that's a very good question or a number of questions actually baked in there. But I think overall, our view is that the closure of the Hormuz Strait as we are seeing now is fundamentally negative for the tanker market. Yes, there have been some super short-term spot rate earnings in the last couple of months, but we think those are temporary. And after that, if it continues for that long, there will be a lag of 15% to 20% of normal seaborne volumes, which we think if such a demand hits that the market will be under pressure. But of course, if the Strait of Hormuz were to open tomorrow, I think you're right that there could be an added employment for, again, a temporary period because countries and companies would need to restock, and there would be quite a lot to do in that case. So it's very dependent on the time frame that we are discussing here. It's less of an issue on the dry side, where I think the impact on the market is more indirect through the impact on the macroeconomic environment. So if global economy suffers because the oil price goes to $150 a barrel, then that will also lead to pressure on demand within dry cargo. But overall, we think it's a fundamentally negative story with some very strong positive temporary effects that we have experienced in the last couple of months. I hope that answers your question. Operator: And then a more specific question towards the Tanker segment. Rindbo mentioned earlier today in the radio show Millionaerklubben that NORDEN has already secured coverage of 80% of the tanker order book through the end of 2028. Is that understood correctly? And does that mean you're looking to bring more tanker vessels into the business going forward? Jan Rindbo: Yes. So that is correct that we have covered now around 80% of our tanker capacity until the end of 2028. And bringing more tankers into the book probably right now in terms of long-term deals, so time chartering in ships on long-term contracts and buying ships. Right now, we don't think that that's the right time to do that. Prices are very high; rates are very high. That's why we've done the opposite, selling ships and taking in cover by charting out ships. Now, of course, how the market plays out in the coming quarters, if there's an opportunity, for example, in the scenario that Martin described that if there is a softening in tanker rates, then that could be an opportunity then to step in and take more capacity on again. So that is obviously part of the playbook in our business model that we can do that. But right now, we feel that the risk reward is not there to add tanker tonnage. Operator: A question related to this, tanker outlook beyond Q2. You say the market eases or expect to be easing in second half of '26. How severe could this easing be if Hormuz reopens quickly versus stay closed? Martin Badsted: Yes, that is a very difficult question. As I said before, if it opens immediately, there will be some short-term benefits from, I think, desired restocking. But if it lasts for a very long time, then we think, as we said, then the easing will come and being driven to a large extent by the lack of volumes, but also by newbuilding deliveries that will accelerate in the second half of the year. Operator: And we will then look at the dry cargo segment. There are a few questions here related to this. There's one here. Entering Q1, you were short on the dry bulk market. How much of the dry cargo loss can be attributed to a wrong positioning? Jan Rindbo: Yes. So that is part of the explanation, but it's not actually the main driver of the results in the first quarter, and we now have a long position also in dry going forward. The main driver of the results in the first quarter is the additional costs that we've seen following the conflict in the Middle East and then this repositioning of ships on lower-paying backhaul routes from the Pacific into the Atlantic and the benefit of then positioning those ships back at fronthaul rates will only come in the coming quarters. Operator: And another question related to dry cargo. Could you provide more detail on the bunker price impact in dry cargo during Q1, especially while the sharply higher regional bunker prices following the Persian Gulf conflict could only be partially hedged? And how much of this impact you expect to reverse or normalize over the coming quarters? Martin Badsted: Yes. So that's actually a very interesting question. And I think there are multiple sorts of impacts on the oil market overall. What you normally see based on quotes in the media and so forth is typically the development in the standard barrel of oil, where you've seen rising prices may be from $70 before the crisis up closer to $120, $125 per barrel. But on top of this, when you look at the diesel and gasoline and some of these refined products, then the price changes have been even more vehement and if you then look into the specific prices when you actually go into a bunker port in different regions, you've seen spikes that we probably have never seen before. And this goes to explain why even though we have a hedge framework that actually hedges all our flat rate exposure, if you will, sort of the standard price of oil, then you can't hedge what happens in local bunker ports here and there because there are no price indices, there are no derivatives to do the hedging. And that means that when you have to perform a cargo and you go into bunker, then suddenly you are met with very unpredictable and in this case, very high bunker prices that will then seriously affect the voyage results that you can incur. Operator: And another question to the dry operator segment here, you're still loss-making at USD 9.2 million. When do the multipurpose Handysize additions start to show up positively in this segment? Jan Rindbo: So the core fleet that we are building, so the 22 ships that we referred to earlier, the majority of those ships are newbuildings that will deliver in the future. And the first newbuilding will deliver to our fleet during Q3. That is the latest estimate for that delivery. And then it will ramp up through '27 and '28. So it will come over the next sort of 2 to 3 years in terms of that core fleet. And that includes these 2-ice class newbuildings that will deliver in 2028. Operator: And then a question related to the fleet and the options that you have here, let me just have a look. You sold 7 vessels year-to-date and then you have 33 purchase options in the money at strikes 22% below broker values. What's stopping you from declaring more of these now while asset values are at a multiyear high? Jan Rindbo: Well, one thing is that the underlying charter rate is very attractive compared to the current market rates, and then we have options to extend that as well. So in addition to the purchase optionality that we have, and there is also value in that. And when we look at the development on asset prices, we are quite optimistic that the prices are not going to decline substantially from the current levels because new yards are full with newbuildings. The markets, especially on both dry and tankers, underbuilt the current asset values. So we would like to both get the value out of the extension options and then subsequently also get the value out of the purchase options. And then I think it's also important to highlight that we are also from time to time, declaring purchase options without necessarily also selling the vessels at the same time. So we could also -- and we are also looking at declaring some of these options and then actually keeping the vessels in our fleet as owned vessels. Operator: And then a question related to your net asset value and capital allocation and what now seems to be the last question. Now it's up to DKK 422 per share, while the share price is around DKK 294, that's a 30% discount. You're distributing around USD 35 million for Q1. That's DKK 2 in dividend and a buyback of $25 million. With the share-trading well below now, would you not lean more aggressively into the buybacks rather than dividends? Martin Badsted: Yes, that I think it is a good question and something that we, of course, also have discussed. There is one problem, which is really that there are some legal limitations as to how big a share buyback program you can undertake compared to the general liquidity in the share in the market. So we can't actually do much more on the share buyback side than what we are doing. So we actually agree in the argument that it's trading at a discount. So it's a good place to actually invest, but we have maxed out on that opportunity already. Operator: Thank you. There seems to be no further questions. So I will leave the word to management for a final remark. Jan Rindbo: All right. Well, thank you for tuning in. Thank you for great questions related to the Q1 report. So thank you again for joining us here, and we look forward to seeing you again for the next quarterly presentation. Thank you. Martin Badsted: Thank you.
Operator: Welcome and thank you for joining the First Quarter 2026 Earnings Conference Call for Herbalife Nutrition Ltd. During the company's opening remarks, all participants will be in a listen-only mode. Following the opening remarks, we will conduct a question-and-answer session. As a reminder, today's conference is being recorded. I would now like to turn the call over to Erin Banyas, Vice President and Head of Investor Relations, to begin today's call. Please go ahead. Erin Banyas: Thank you, and welcome to everyone joining us. With us today are Stephan Paulo Gratziani, our Chief Executive Officer, and John G. DeSimone, our Chief Financial Officer. Before we begin today's call, I would like to direct you to the cautionary statement regarding forward-looking statements on Page 2 of our presentation and in our earnings release issued earlier today, which are both available under the Investor Relations section of our website. The presentation and earnings release include a discussion of some of the more important factors that could cause results to differ from those expressed in any forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995. As is customary, the content of today's call and presentation will be governed by this language. In addition, during today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or nonrecurring items that management believes impact the comparability of the periods referenced. Please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial measures and the reconciliations to the most directly comparable GAAP measure. And with that, I will now turn the call over to our CEO, Stephan Paulo Gratziani. Stephan Paulo Gratziani: Thank you, Erin. Thank you all for joining us today. We delivered a strong start to 2026, with first quarter net sales and adjusted EBITDA exceeding guidance as we continue to build momentum. Importantly, these results reflect the underlying stability of our business and reinforce our confidence in the strategy we are executing. We are building a more connected, personalized approach to health and wellness by bringing together innovation, science, and the strength of our distributor network to better serve customers around the world. On April 14, as part of our debt refinancing, we released preliminary net sales growth expectations that exceeded the high end of our guidance on both a reported and constant currency basis. We also indicated that reported adjusted EBITDA was expected to be at or above the high end of our previously issued guidance. Our final reported results are in line with that release. Let's review a few of the financial highlights from the quarter. We delivered net sales of $1.3 billion, up 7.8% year-over-year and up 5.4% on a constant currency basis, exceeding guidance on both measures. This was our third consecutive quarter of year-over-year net sales growth on both a reported and constant currency basis. India achieved record quarterly net sales for the second consecutive quarter. Adjusted EBITDA was $176 million and above guidance, and we generated $114 million of cash from operations in the quarter. In addition to our first quarter results, we successfully refinanced and strengthened our capital structure in April, which we expect will result in approximately $45 million in annual cash interest savings. We executed this transaction in a highly volatile market and geopolitical environment. We achieved our pricing objectives, extended our maturity profile, and meaningfully reduced our borrowing costs while also enhancing our financial flexibility. This outcome reflects the financial and operational results we have delivered over the past two years. As we build on this momentum, we remain focused on executing against our vision, with personalization at the center of our strategy. Personalization has always been a foundational strength of Herbalife Nutrition Ltd., with our distributors delivering tailored recommendations through direct relationships and a deep understanding of individual goals. What is evolving is the level of precision we can now bring, which is enabled by enhanced data insights and technology. This evolution is especially important as consumer expectations continue to rise, driven by greater access to AI, wearables, and at-home diagnostics, which are increasing demand for guidance that is not only personalized, but also more actionable and continuous. We are evolving from personally curated recommendations to an approach that combines both personally curated and formulated solutions, extending our ability to deliver individualized outcomes at scale through better tools, better data, and expanded manufacturing capabilities, all delivered through our distributors. This builds on four core actions that have long guided our business: what to measure, including key health metrics like weight and muscle mass; what to take, which is products from our expanding portfolio; what to do, including daily habits like hydration and exercise; and who to do it with, which is our distributors who provide guidance and support through a variety of DMOs as they go to market. These actions have successfully built our business over the past 45 years. Our global network includes over 2 million distributors, more than 60 thousand nutrition clubs, and millions of customers across 95 markets. This reach is our differentiator and superpower. Building on that foundation, our recent acquisitions are enabling a more connected, personalized, and data-driven approach that is enhancing these four core actions, making them more precise, scalable, and actionable. On March 26, we announced an agreement to acquire substantially all of the assets of Vionic's core personalized nutrition business, which we completed in April. Vionic is an established UK-based business with an existing supply chain. Its patented product personalization engine uses an individual's health background and a proprietary database of biomarker data to develop personalized nutritional supplement formulas. This acquisition further accelerates our pathway into personally formulated products. In late June, our distributors will begin offering Vionic's personalized nutritional supplements to customers across 11 European countries. The U.S. will follow in July, with additional markets later in 2026. I'd like to take a moment to explain how our recent acquisitions work together to support the four core actions I mentioned earlier, with Protocol as a central operating system. Each acquisition plays a distinct role, and combined, they create greater value than any one capability alone. Let me walk you through how each contributes. Link Biosciences is a formulation and manufacturing engine. It translates insight into products by enabling us to manufacture personalized nutritional supplements in a powder format at scale, directly connecting data and recommendations to the finished product. Vionic accelerates our speed to market with a personally formulated vitamin and mineral complex, in a granule format, while broadening availability through a more accessible price point. Prüvit provides the opportunity to expand our portfolio into the ketone category with a channel-exclusive offering aligned with growing consumer interest in performance, energy, and metabolic health. It is an exciting addition to the portfolio; we will have more to share this summer. And Protocol brings it all together by providing the experience and intelligence layer. It digitizes and scales the four core actions I mentioned earlier—what to measure, what to take, what to do, and who to do it with—bringing greater precision to how distributors support and engage their customers through a more connected, data-informed experience. It translates consumer inputs and health data into actionable guidance that supports more consistent behavior change over time. In March, we expanded the Protocol beta program to include select 10 EMEA markets. That broader deployment is providing valuable feedback that is helping refine the roadmap, platform capabilities, and the digital experience. To enable integration of Vionic into Protocol, and incorporate feedback from the broader beta group, we are extending the beta program, with the next release planned for the North America Extravaganza in July. That release will include a new user experience, enhanced features, and additional capabilities that support our broader strategy. Part of that broader strategy is a multiyear rollout of new packaging across our global product portfolio. The rollout began in March, and we expect it to be substantially completed by 2027. For context, slide 8 highlights our packaging currently in market, and slide 9 highlights our new modern packaging design. Grounded in consumer insights and analytics, the new packaging reinforces scientific credibility and trust at every touch point. At a portfolio level, a consistent science-led visual system simplifies navigation and helps distributors and customers confidently build personalized product combinations. The new labels also reinforce product purpose and efficacy, strengthening confidence and differentiation, which are foundational in a competitive global marketplace. In April, we kicked off our first Extravaganza events of the year, which started in India, where we hosted three consecutive events across Delhi and Bengaluru with approximately 46 thousand attendees. We saw firsthand the strong energy and engagement across the market. These events are a critical part of how we operate. It is where we communicate our vision, build skills, share best practices, and reinforce strategic priorities in ways that directly shape distributor execution. They also drive momentum at the local level, leading to stronger engagement, more consistent business activity, and improved retention. We look forward to that momentum continuing as we kick off our summer Extravaganza events in China, Eurasia, South America, Asia Pacific, Europe, and North America. Before I turn it over to John to walk through the quarter in more detail, I want to take a step back and reflect on what we have accomplished over the past two years. Herbalife Nutrition Ltd. today is a fundamentally stronger company than it was two years ago. We have stabilized net sales and returned to growth, expanded adjusted EBITDA margins, strengthened our balance sheet by repaying nearly $540 million of debt since 2024, reduced our total leverage ratio from 3.9x in 2023 to 2.7x at the end of the first quarter, completed our debt refinancing, unlocking approximately $45 million in annual cash interest savings, and completed four strategic acquisitions. Importantly, we have done all of this with a disciplined approach, improving operational efficiency while executing against our plan. We are about to reach a major milestone this summer—the launch of our next-generation personalized nutritional supplements. This further strengthens our confidence in the path ahead. Our continued progress reflects strong momentum and clear direction as we advance towards our vision to become the world's premier health and wellness company, community, and platform. With that, I will hand it over to John to walk through the financials in more detail. Over to you, John. John G. DeSimone: Thank you, Stephan. Turning to our first quarter financial highlights on slide 11, we delivered another strong quarter, with net sales and adjusted EBITDA both above our guidance ranges, led by continued strength in India. First quarter net sales were $1.3 billion, up 7.8% versus 2025 and above the high end of our guidance range of 3% to 7%. This was our third consecutive quarter of year-over-year growth and our strongest year-over-year growth since 2021, building on the momentum we saw in 2025. On a constant currency basis, net sales increased 5.4% year-over-year, also exceeding guidance. We have now delivered year-over-year constant currency growth in eight of the last 10 quarters. Our first quarter net sales outperformance was driven primarily by India, where net sales reached a record $275 million, up approximately 32% year-over-year, marking the second consecutive quarter of record sales. We believe demand in the market remains strong following the reduction in the GST rate on the majority of our products in late September 2025. I will provide more details on our regional performance later in the call. Adjusted EBITDA was $176 million, above the high end of our guidance range of $155 million to $175 million. Adjusted EBITDA margin was 13.3%, down 20 basis points year-over-year, but up 240 basis points on a two-year stacked rate, including approximately 70 basis points of FX headwinds versus last year. CapEx was $11 million for the quarter, at the low end of our $10 million to $20 million guidance range, primarily due to timing with some spending shifting into the second quarter. Capitalized SaaS implementation costs were $10 million. Gross profit margin was 77.9% in the quarter, down 40 basis points year-over-year. This reflected approximately 50 basis points of input cost inflation, primarily from lower absorption rates; 30 basis points of unfavorable sales mix; 20 basis points from other unfavorable cost changes; and 50 basis points of FX headwinds. These factors were partially offset by 70 basis points of pricing benefits and 40 basis points from lower inventory write-downs. First quarter net income attributable to Herbalife Nutrition Ltd. was $62 million, with adjusted net income of $69 million. First quarter adjusted diluted EPS was $0.64, including a $0.03 FX headwind versus 2025. Our adjusted effective tax rate was 27.3%, compared to 21.8% in 2025, which resulted in an approximately $0.04 unfavorable impact to adjusted diluted EPS. The higher rate in 2026 was primarily driven by a decrease in tax benefit from discrete events compared to 2025. For full year 2026, we continue to expect our adjusted effective tax rate to be approximately 30%, in line with 2025. We delivered strong cash generation in the first quarter, which is typically our lowest cash flow quarter in past years due to timing of our annual distributor bonus payments and employee performance bonus payments. Operating cash flow was $114 million, compared to relatively neutral cash flow in 2025. Consistent with last year, we paid approximately $75 million of annual distributor bonuses in the quarter. However, employee performance bonuses were paid in April, rather than in the first quarter. Credit agreement EBITDA for the first quarter was $194 million and our total leverage ratio was 2.7x as of March 31. Beginning this quarter, we are introducing net leverage ratio as an additional metric to provide greater transparency into our leverage profile and delevering progress. We define net leverage ratio as net debt divided by trailing twelve-month credit agreement EBITDA. At the end of the first quarter, our net leverage ratio was 2.1x, and we are establishing a target to reduce net leverage to below 2x by the end of this year. We believe this metric provides a more complete view of financial flexibility because it reflects debt relative to earnings while also incorporating cash on hand. For additional details regarding the adjustments between adjusted EBITDA and credit agreement EBITDA, as well as the calculation of net debt, total leverage ratio, and net leverage ratio, please refer to the presentation appendix and the earnings press release. As Stephan noted earlier, in April, we completed our $1.45 billion senior secured refinancing. I will provide more details on that in a moment. Turning to slide 12, reported net sales increased nearly $100 million in the quarter, or 7.8% year-over-year, while constant currency net sales increased 5.4%. Volume increased 4.1% worldwide, marking our third consecutive quarter of year-over-year volume growth. Pricing provided an approximately $40 million benefit in the quarter, while country mix was an approximately $26 million headwind to net sales. FX provided an approximately $29 million benefit, or a 240 basis point tailwind. Turning to slide 13, we have the regional net sales results for the quarter. As we noted in our April 14 pre-release, results were mixed across the business in the quarter. Strong growth in Asia Pacific and Latin America offset softer performance in EMEA and North America, while China continued to be a headwind. In Asia Pacific, reported net sales increased 17% year-over-year, while local currency net sales increased 21%, driven by approximately 22% volume growth and favorable year-over-year pricing, partially offset by unfavorable sales mix and FX movements. As I mentioned earlier, India delivered record quarterly net sales for the second consecutive quarter, with reported net sales up 32% year-over-year and local currency net sales up 39%. Growth was driven by a 37% increase in volume and favorable sales mix. Pricing was neutral, as we have not taken a price increase since November 2024, and FX was a meaningful headwind. We continue to believe market demand remains strong following the GST rate reduction on a majority of our products. Importantly, India has long been one of our strongest growth markets. While year-over-year reported net sales growth began to moderate in late 2024 to mid-2025, momentum began to build again, supported by distributor leadership training in 2025. We expect the GST tailwind to continue through September, with momentum extending beyond September although at a more moderate level. Latin America delivered its third consecutive quarter of double-digit reported net sales growth, with net sales up 17% year-over-year and local currency net sales up 7%. Results were driven primarily by favorable year-over-year pricing and sales mix, along with a significant FX tailwind, mainly from the strengthening of the Mexican peso, partially offset by a 2% decline in volume. Within the region, Mexico delivered another quarter of growth, with reported net sales up 22% year-over-year and local currency net sales up 5%, driven primarily by favorable year-over-year pricing. In EMEA, reported net sales increased 1% year-over-year, benefiting from FX tailwinds. Constant currency net sales decreased 6%, reflecting an 11% decline in volume that more than offset favorable year-over-year pricing. In North America, net sales declined 3% year-over-year, reflecting a 5% decline in volume, partially offset by favorable year-over-year pricing. As noted in our April 14 press release, U.S. net sales were negatively impacted by unusually severe weather in January and February, which led to temporary closures of distributor-owned nutrition clubs, disrupted distributors' daily consumption sales, and, in turn, reduced distributor product purchases from the company. Net sales were also impacted by higher levels of shipments in transit at quarter end compared to the prior year, with the related revenue deferred to the second quarter under our revenue recognition policies. Excluding these factors, North American net sales would have been slightly up year-over-year on both a reported and constant currency basis. We continue to expect full-year net sales growth in North America in 2026. In China, reported net sales declined 12% year-over-year, while local currency net sales declined 16%, reflecting a partial benefit from foreign exchange. The decline was primarily driven by an 18% decrease in volume, partially offset by favorable sales mix. Turning to slide 14, we see the key drivers of the $11 million, or 6.5%, year-over-year increase in first quarter adjusted EBITDA. Adjusted EBITDA was $176 million for the quarter, with a margin of 13.3%. On a constant currency basis, adjusted EBITDA was $180 million. Looking at the bridge, we first see the drivers of the year-over-year change in gross profit, including our third consecutive quarter of volume growth, along with pricing benefits, partially offset by unfavorable sales mix and input cost inflation, primarily due to lower absorption rates. Salaries were an approximately $2 million headwind, largely reflecting merit increases implemented in late Q1 2025. First quarter adjusted EBITDA included $5.5 million of China government grant income. Because this grant is typically received once annually, the year-over-year variance is timing-related, as the prior year grant of $4.8 million was recognized in 2025. Lastly, foreign exchange was an approximately $5 million headwind to adjusted EBITDA, and a 70 basis point headwind to adjusted EBITDA margin. Moving to slide 15, I will provide an update on our capital structure. We ended the quarter with $451 million of cash, up nearly $100 million from 2025. During the quarter, we made the scheduled $5 million amortization payment on the Term Loan B, and the revolver was undrawn as of March 31. At quarter end, our total leverage ratio was 2.7x, and net leverage was 2.1x. In April, we completed our $1.45 billion senior secured debt refinancing. We were pleased to execute this transaction in a dynamic market environment while achieving our pricing objectives, meaningfully reducing our borrowing costs, extending our maturity profile to more than seven years, and enhancing our financial flexibility. We also have no material maturities until 2028. The refinancing included $800 million of 7.75% senior secured notes due May 2033, a $225 million Term Loan A, and a $425 million revolving credit facility, with both the Term Loan A and revolver maturing in April 2031. At closing as of April 29, $200 million was outstanding under the 2026 revolving credit facility, with approximately $180 million available to borrow. As I noted, the refinancing meaningfully reduced our borrowing cost. The coupon on the senior secured notes was reduced by 450 basis points, and the spreads on the revolver and term loan were reduced by 300 basis points and 375 basis points, respectively, to 3%. Based on the total senior secured debt outstanding immediately before and after the refinancing, and current applicable interest rates, we expect the refinancing to result in approximately $45 million in annualized cash interest savings. Because the refinancing was completed during 2026, those cash interest savings will only be partially reflected this year. The $45 million represents the annualized benefit based on current conditions. That estimate may change as we pay down debt or as variable interest rates move, but it is reflective of our current expectations for the annual savings from the refinancing. Overall, these actions further strengthen our balance sheet and support our continued focus on deleveraging and financial flexibility. Looking ahead, we are targeting net leverage to be below 2x by 2026 and remain on track to reduce outstanding debt to approximately $1.4 billion in 2028. Separately, let me briefly touch on Vionic. As Stephan noted in his opening remarks, on April 30, we completed the acquisition of substantially all of the assets of Vionic's core personalized nutrition business, as contemplated by the agreement we announced on March 26. Base consideration was $55 million payable over five years, including $10 million payable subsequent to closing. The agreement also provides for up to $95 million in contingent payments tied to certain future Vionic product sales performance. We also obtained a call option to acquire Vionic Lab, a separate platform focused on small molecules and peptides. Importantly, this acquisition is consistent with our disciplined approach to selectively pursuing targeted capabilities that complement our business and can be scaled through our global reach. Turning to slide 16, I will review our outlook for the second quarter and full year 2026. We are continuing to provide net sales and adjusted EBITDA guidance on both a reported and constant currency basis, with reported guidance based on average daily exchange rates from the first two weeks of April 2026. Broadly speaking, since we provided our full-year guidance in February, overall FX impact has moved unfavorably, reducing the tailwind benefit to net sales. For the second quarter, we expect foreign exchange to be a modest tailwind to net sales and neutral to adjusted EBITDA due to timing. On a reported basis, we expect net sales to increase 1.5% to 5.5% year-over-year, including an approximately 50 basis point currency tailwind. On a constant currency basis, we expect net sales to increase 1% to 5% year-over-year. We expect second quarter adjusted EBITDA to be in the range of $150 million to $170 million on both a reported and constant currency basis. This outlook includes an approximately $10 million year-over-year headwind to adjusted EBITDA, or approximately 80 basis points of adjusted EBITDA margin, from two items. Approximately $5 million reflects the timing of the China government grant. We have historically received that grant once annually; in 2026, it was recognized in the first quarter, compared to 2025. The other $5 million relates to the September 2025 India GST rate change. As previously discussed, while the GST rate on most of our products we sell was reduced to 5%, the GST rate we pay on services remained at 18%, which created a mismatch between the GST we collect and the GST we pay, resulting in incremental G&A expense. We have partially offset that impact through a reduction in the sales commission percentage paid to our distributors, reflected in selling expenses. The net impact of those two items is an estimated $5 million headwind to second quarter adjusted EBITDA. Second quarter capital expenditures are expected to be in the range of $15 million to $25 million, above 2026 primarily due to timing as some spending shifted from the first quarter into the second quarter. For the full year, we are increasing the midpoint of our constant currency net sales guidance range while also narrowing the reported and constant currency net sales guidance ranges. The FX tailwind to full-year net sales guidance has been reduced to a 50 basis point benefit from 100 basis points assumed in our previous guidance. For adjusted EBITDA, we have narrowed the ranges on both a reported and constant currency basis, while increasing the constant currency midpoint. We are reaffirming our capital expenditure guidance. For the full year, we expect reported net sales to increase 1.5% to 5.5% year-over-year. On a constant currency basis, we expect net sales to increase 1% to 5% year-over-year. We expect full-year adjusted EBITDA to be in the range of $675 million to $705 million on both a reported and constant currency basis. Based on India's first quarter sales performance and our outlook for the balance of the year, we now expect India GST-related net incremental cost to be an approximately $20 million to $25 million headwind to full-year adjusted EBITDA and an approximately 40 to 50 basis point headwind to adjusted EBITDA margin. Our guidance also includes a preliminary estimate of the impact of higher oil prices. We continue to expect 2026 capital expenditures of $50 million to $80 million. In addition, we expect capitalized SaaS implementation costs of $35 million to $55 million, which are incremental to CapEx. Lastly, we continue to expect our full-year 2026 adjusted effective tax rate to be approximately 30%. Before moving to Q&A, I want to close my opening remarks with one final comment. As Stephan said earlier, Herbalife Nutrition Ltd. is a fundamentally stronger company today than it was two years ago, and we remain focused on driving shareholder value. We returned to net sales growth and expect year-over-year growth to continue the remainder of the year. We strengthened our distributor network through enhanced training and other targeted initiatives, including the Herbalife Premier League, which was launched in March 2024. At that time, we had experienced 12 consecutive quarters of year-over-year declines in new distributors. Since that launch, however, the trend has improved meaningfully, with new distributor growth up 13% on a two-year stack basis in Q1. And as we have now moved beyond the two-year anniversary of the Premier League launch, this metric becomes less relevant going forward. We have also expanded our Q1 adjusted EBITDA margins by 240 basis points since 2024, and we have reduced our total leverage ratio from 3.9x at 2023 to 2.7x at the end of the first quarter, driven by $540 million of debt reduction primarily through cash generated by the business. And lastly, as I have said, we completed our debt refinancing in April, unlocking approximately $45 million in annual cash interest savings. This concludes our opening remarks. We will now open the call for questions. Operator: Thank you. To ask a question, please press 11 on your telephone keypad. To withdraw your question, please press 11 again. Our first question will come from the line of Chasen Louis Bender with Citi. Your line is open. Chasen Louis Bender: Great. Thanks. Good afternoon, guys. Stephan, I wanted to first ask about Protocol. Now that the distributors and their customers have had some more time with Protocol in the U.S. beta group, could you discuss a little bit more the behaviors you are seeing from that group and how they are shaping up relative to your expectations? For example, are you seeing distributors able to sell more Herbalife Nutrition Ltd. product to their customers, and on the customer side, what are you seeing from the activity and the duration with which customers are interacting with the app and inputting their health data? Stephan Paulo Gratziani: Yeah, thanks for the question, Chasen. As you know, we launched beta last year, and the objective of beta is really to get distributor feedback and make sure that it is really fitting with their business flows and how they go out and talk to customers and engage with them. In terms of the distributors and their response, the amount of feedback that we get from different models and leaders that operate in different regions—especially now that we have expanded it to the 10 European markets—is helping us to formulate features, how people are coming into it, and how distributors will work with their customers. At the same time, there has to be enough there for the distributors to actually bring in the customers. We are really in this beta phase, and we did it on purpose. We have paused beta one, beta two; the phasing is because the more information that we have and the more people providing feedback, the more we can adjust it to make sure it goes across different DMOs with different leaders and the way that they operate. I would say that we continue this phase. For us, this was not a company that is going direct to consumer that has the relationship directly. Our entire business is based on distributors and their engagement with customers. So we are in the phase still, and we have enlarged the beta phase as we have gotten more countries in, to make sure that we bring the functions that are necessary to allow the impact and bring the value that we need to. So the beta phase continues. John G. DeSimone: Let me just chime in for a second. Like Stephan said, it is beta. We are seeing performance, getting feedback, enhancing it, and we have an enhanced version coming up with Extravaganza. What we want investors to know: this is an important part of our strategy, but we have not rolled into our forecast any direct revenue from this. So even though we are going to launch Vionic and we are going to launch Protocol, it is still going to be in the beta form. Any results end up being more opportunity to this year than risk to this year because we have not rolled that into the numbers yet. Stephan Paulo Gratziani: Let me just add: Protocol overall is not just a digital application to engage with customers. It really is designed as an end-to-end solution. We believe that the future is in the “what to measure,” meaning that people are going to want to measure more things like bringing their wearables in to inform blood biomarkers, which are going to get launched at Extravaganza, and those are going to come in. Then, personally formulated—or the next generation of personalized nutrition—through Vionic, for example. What ends up happening is it is the overall value proposition which gives it value. That is why we talked about all of the pieces individually being valuable, but it is all the pieces together that make it incredibly valuable. I think the most important thing—the core fundamental of our business—is distributors need to be able to go out into the market and have conversations, and the people that they are talking to, with what they are going to be offering them, say, “Wow. You can do all of this? I am interested.” If you were to ask 10 people on the street, would you rather have supplements that are more personalized for you, or would you rather buy supplements that are formulated for many, I believe that most people would respond, “I would be interested in the more personalized ones.” That is the opening of the conversation, but you also have to be able to deliver the products for it. We are really excited to get to Extravaganza and to be launching these 11 markets in EMEA in June and North America in July, to be able to bring this to market. The pieces are coming together, testing is coming. We are still in beta because there are still functionalities and features that we need to build in. But we are also launching this next generation of personalized supplements, so the pieces are there. This journey for us is really about making sure that our distributors have what they need in hand to go have conversations, bring more people into the company, keep them longer, increase LTV, increase the amount of people that are getting referred, and ultimately increase the amount of people who want to join the business and duplicate a business. Chasen Louis Bender: My second question is on India. Obviously very strong growth following the GST change. I am curious—given what you have seen—how has your thinking evolved on potential price reduction programs in other markets? And just as a housekeeping related to that, what are you assuming in guidance for India constant currency in the rest of the year? I know you mentioned you are expecting continued momentum, but should we expect that, or does your guidance contemplate the similar 30-plus percent growth in the rest of the year? Thanks so much. John G. DeSimone: Yes, Chasen. I will take this. Let me break it into pieces. There is a lesson in India. We had effectively a price decrease due to the GST reduction, and that created a lot of momentum. India had started building momentum just prior to that. A couple things I want investors to know. One is that momentum has been incredibly strong. We are going to annualize the GST in September, but we do not think that means we are not going to grow after. We think the momentum carries forward. Granted, we will be comping quarters that have the GST impact, so the growth rate will moderate, but that momentum we expect to continue. That gives you a little flavor of our thinking of India. India did beat our expectations in Q1. Going forward—if I may break this into buckets—for Q2 through Q4, so the rest of the year, we basically have not changed our sales expectations from where we were in February. They have come up a little, but we had some softness in the quarter in EMEA. We are going to run some tests based on what we learned in India, and hopefully that can work. We also had a price increase in Mexico, plus there was an incremental tax in Mexico, that had a little bit of a volume impact in Mexico on the negative side. That also supports the thesis we are working with the distributors on—that price matters. I think there is a lot of opportunity for us to affect volume in the future by modifying price and modifying the commission structure. So we are running tests. We have been running tests. We are now running more tests based on the results we have seen. Chasen Louis Bender: Got it. That is helpful. I will take the rest of my questions offline. Thanks so much, guys. Stephan Paulo Gratziani: Thanks, Chasen. Operator: Thank you. One moment for our next question. Next question will come from the line of Karru Martinson with Jefferies. Your line is open. Please go ahead. Karru Martinson: Good afternoon. You referenced higher oil costs. I was wondering how that is flowing through to the consumer, especially here in the North American market? John G. DeSimone: We are not flowing it through. We are absorbing it right now. At this point, for the rest of this year, that is what is assumed. We did say it is not material to the year, so we are going to cover it ourselves. We have not raised prices because of it. That does not mean it did not have an indirect impact—or does not have an indirect impact—on the consumer in general, but it does not have a direct impact on our price. Karru Martinson: Okay. So did you see a shift in the ordering pattern when the Iran conflict started and gas prices started going up, or is that too soon to tell? John G. DeSimone: It is too soon to tell, but we did have—as I said—the U.S., we can explain what happened. There were some timing differences, and there were some nutrition club closures during some really bad weather that we can quantify. We made that available to investors. I think the U.S. is on track. EMEA—Europe—had some weakness, and it is too early to tell if that was tied to the economics from the geopolitical situation or not, but there was definitely some weakness in Europe. Karru Martinson: Okay. And just lastly, when we look at China, it has been a work in progress for a while now. How should we think about that, and could you remind us where it stands today as a percentage of your sales? John G. DeSimone: It is really small. It is under 5% of sales—about 4%—so it is relatively small. It does not really contribute to profit in any meaningful way. What I have told investors over the last few quarters is we have a lot of strategies we are going to implement in China. I would wait and see. At this point, we are not rolling in the benefits of those strategies. We are going to wait until we see the benefits. Think of China long term as a huge opportunity for us. We are super underpenetrated. The model does well in China for some of our competitors. The products do well in China. We have not found our footing yet. We are working on it. I am confident over the long term we will. You will not see it rolled into our forecast until we see it coming through in results. Stephan Paulo Gratziani: And, Karru, on distributor leadership, we have spoken about it in the past. Historically, it has been really isolated, and we started at the beginning of this year to allow distributors and leaders from Greater China to come into the market. It is the first time they have ever had that opportunity. We see a continuing trend of more of them being interested, and at this Extravaganza that is coming up this month, there are a few hundred—approximately 500—that are looking at potential building business in China. We are seeing it as really positive from that standpoint, but as you said, it is a work in progress. We will update you over time. Thank you. Karru Martinson: Thank you very much. Appreciate it. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Nicholas Sherwood with Maxim Group. Your line is open. Please go ahead. Nicholas Sherwood: Hi. Thank you for taking my questions. Kind of going back to the Protocol launch, have you seen any use of the platform in nutrition clubs and any feedback of how it works in that space? Stephan Paulo Gratziani: Yeah, Nicholas. Super early. In nutrition clubs, especially here in the U.S., it is really a consumption-based business, and so it is one of the flows and integrations that we are working on because it is obviously a very large and important part of our business. There are millions of people walking in annually into a nutrition club to buy a shake or a tea, and we want to have an easy entrance into Protocol and getting exposure to being able to track and have physical results and move from a transactional to more of a transformational business. So it is one of the areas of focus for us, and it is a major DMO integration—early days. Nicholas Sherwood: That is helpful. And then looking at the packaging redesign, what sort of early metrics did you see coming out of testing the new design, and what have you seen from the early stages of the rollout of that new packaging? Stephan Paulo Gratziani: The first product was just rolled out in India, and it is very, very early. Overall, as we went through the process, distributor feedback and research were very positive. To see in the real world how it impacts is going to take time, but the initial feedback and research are very positive—again, very early. Nicholas Sherwood: Okay. And then my last question is, can you provide any color on the transition of preferred members to the new e-commerce platform, and how do you expect preferred members to interact with Protocol or get added to that platform in the future? Stephan Paulo Gratziani: I think you are referring to DS Commerce. That started to happen with a pilot group at the beginning of the year, and then it was just opened up. It is very recent, so very early to talk about it. John G. DeSimone: If I could step back for a second because we had a lot of questions—just to make sure we are aligned on where we are with a lot of these initiatives. We have launched them in beta form. We are getting the feedback. You get a lot of functionality, including the commerce app where people can buy on the app—or at least have the appearance of buying on the app if it takes us somewhere else. There is some functionality that we are launching where you will start seeing the benefits. Stephan Paulo Gratziani: Correct, John. One thing I think it is early to highlight, but we think it is quite a big deal, is that as a company, we have not really had a subscription business. Product purchases have been—some of them are continual—but we really implemented subscription recently. One of the early indications on the preferred customer on the new commerce platform is that the uptake on subscriptions is very positive. It is still early, but that is a very positive outcome from what we are seeing—early but exciting. It is also one of the things in terms of the launch of Vionic in Europe: we are going to be having a subscription product for the first time in the history of the company. So we are very excited about that. Nicholas Sherwood: Alright. Great. Thank you for answering my questions. I will return to the queue. Stephan Paulo Gratziani: Thanks, Nicholas. Operator: Thank you. One moment for our next question. Our next question comes from the line of John Baumgartner with Mizuho Securities. Your line is open. Please go ahead. John Baumgartner: Good morning. Thanks for the question—or, I should say, good afternoon. First off, going back to personalized nutrition, there is a lot of great detail here into the data expansion and products. I am curious—has there been any evolution in your thinking regarding segmentation, the levels of offerings, how you may tier those out, different levels of personalization? Have you heard any feedback from your distributors as to how they think the product-market fit is as you are going forward with this? Stephan Paulo Gratziani: Yeah, John. Thanks for the question. One of the reasons why we made the Vionic acquisition is for that reason. When we acquired Link, there is a manufacturing process to it: the equipment and the software take the inputs, create the formula, and then you manufacture the formula in powdered form. The price point for that is really more in a premium area. It also, quite honestly, has more functionality—because of the formatting, you can have other need states. Vionic gives us the opportunity—not only was it a company that existed with an existing customer base—but it had been in the business of formulating not only premium but also what we would consider a personalized vitamin and mineral complex at a lower price point, so a larger addressable market. That is part of the strategy: we want to hit different price points. We know our business around the world—from India to Switzerland—different demographics. The other aspect, besides making it more accessible to people—because this is a newer concept—is really what are the offshoots? Where can we go now that we have the capability of personalizing, and with all of the data and the customers for whom we have been personalizing, where does it lead us in the future? Specific product categories where personalization could make a lot of sense—for example, a probiotic that is more personalized than one you are buying off the shelf that has been formulated for everybody, or just for “men 50+,” for example. This is giving us more range and more demographics. I think where this leads in the future is that everything will become—and everyone will want—a more personalized version of whatever they are using today. It is absolutely part of the strategy. John Baumgartner: Thanks for that. And then coming back to EMEA, to drill down there a bit more, I am curious the extent to which there may be more structural change or softness in the direct selling market given the consistent declines you are seeing in sales leaders, or is it more of a productivity issue you think, or maybe some price adjustments can kickstart growth in that region? Stephan Paulo Gratziani: From a distributor lens—someone that worked in EMEA specifically, which was one of the areas that I spent a lot of time in—I think what has happened is the overall way people look at their health and wellness and make their decisions on what they are going to buy and where they are going to spend money is evolving over time. If you think historically, we started in 1980. The idea of a protein shake in 1980—and I will speak to myself—in 1991, when it came to France where I started, you had to convince someone that the idea of taking a shake instead of having breakfast was actually a thing. They would be like, “You are telling me I am going to mix this up, and I am going to drink this instead of having my coffee and croissant, and that is breakfast?” Today, we do not live in a world where a protein shake is novel and innovative. It is more of a commodity. It is an accepted form. I think part of what is happening is as the markets evolve and as technology evolves, the offer also needs to evolve. That is why I am very strong on, as a company, the superpower that we have of these 2 million distributors that are having conversations with tens of millions of people on a daily, weekly, and monthly basis—interacting and helping them with their health goals—that the conversation around personalized nutrition in this next generation is absolutely where the market is going, and we want to lead in that market. We can say, “How can you optimize your current product? How can you optimize with your DMOs? How can you bring more people and keep them longer and have them buy more and refer more people and want to do the business?” Fundamentally, if you have something novel and innovative to go to market with, and people are saying, “This is where things are going in the future. I want to be a part of it. I want to buy it. I want to use it. I want to tell people about it, and I want to sell it,” that is what we are building for. We do all the work in every area—train them, do everything we need to do—but we also work on the core offer. That is what we are doing. John Baumgartner: Thanks. And just a bit of a random question—looking at the U.S. market, I am curious to the extent to which you are seeing any benefits or traction from participation in the diabetes prevention program. I know it is not spoken about a lot, but just curious if there is participation and any learnings there thus far? Stephan Paulo Gratziani: We had started that as a pilot, and to be honest with you, I do not have the answer because I have not followed it that closely. My guess would be it has not had a material impact. Good follow-up. Thank you. Operator: Thank you. As a reminder, if you would like to ask a question, please press 11. Our next question comes from the line of Douglas Matthai Lane with Water Tower Research. Your line is open. Please go ahead. Douglas Matthai Lane: Yes, hi. Good afternoon, everybody. On the Vionic nutritional supplements being offered in Europe beginning in late June and then the U.S. in July, are they the same product offerings in both markets, and what actually are the product offerings that you are rolling out? Stephan Paulo Gratziani: They will be essentially the same. Obviously, different markets have different regulatory aspects to it. Essentially, Doug, think of this as your personalized vitamin and mineral complex stack. I do not want to get into too many details, but a man versus a woman, height, weight, age, objectives, personal conditions—then you put in biometrics, potentially blood biomarkers—and it would be clear that you probably would not need the same amount of vitamins and minerals in your individual compound as everyone else. That is the core offer of Vionic. The other thing—everyone is using supplements. If you ask how you actually buy supplements, even a vitamin and mineral supplement, most people are going down the aisleway at the grocery store or in the pharmacy, or their doctor said something, or someone recommended something to them—they buy it and use it. They might have been using it for a year, two years, three years, five years. We believe that personalization means not only should you have your formula as close to your individual needs as possible today, but also next month—when you have lost five pounds, when you have changed some things in your daily habits and in your diet—and over time as you age and your circumstances change. The capability to flex that on a monthly basis for someone and to personalize that is innovative and makes sense in the world that we live in today. No one is doing this at scale around the world, and so this is our opportunity. We also know that you can get people into the conversation and they look at Herbalife Nutrition Ltd. and say, “This is unique what you are doing.” We have an incredible portfolio—we are doing $5 billion in revenue currently—that is not Vionic. It is an opportunity to have people go beyond just this personalized vitamin and mineral complex. For us, this is not just a door opener. It is something that people are going to want, and we are going to be able to deliver it—especially through 2 million distributors that are having conversations with people every single day. More attraction to Herbalife Nutrition Ltd., a value proposition we think is unique, an opportunity in subscription, and an opportunity for the introduction to the entire portfolio so that we become that solution for people for their health and wellness. Douglas Matthai Lane: Now, Vionic has been around for a little while and has been producing product. Can I get Vionic anywhere else at this point? Stephan Paulo Gratziani: You cannot. As of the transaction, this is going to be sold through Herbalife Nutrition Ltd. distributors. Douglas Matthai Lane: So will it be rebranded under some sort of Herbalife sub-brand? What will that look like? Stephan Paulo Gratziani: We will do the reveal at Extravaganza, so I do not want to give it away, but the brand is definitely staying. Douglas Matthai Lane: Okay, fair enough. When can we see Link Biosciences product out in the marketplace? Stephan Paulo Gratziani: Link Biosciences will be Q1 of next year. Douglas Matthai Lane: Got it. And are you going to operate these four acquisitions as independently as is, or what is the plan structurally on how you are going to run these four acquisitions on personalization? John G. DeSimone: I will jump in. First, they all work together. I think you heard Stephan talk about Vionic and Link and the different versions of personalized nutrition, and they can work together. Protocol supports that—actually, it supports Protocol. The fourth acquisition, which is Prüvit, is a product line. Because there is a separate product associated with that, that may be a little distinct. But overall, those four are all connected. Douglas Matthai Lane: Okay, fair enough. And lastly, John, now that you have completed the debt refinancing, is there any change to your capital allocation priorities? John G. DeSimone: There is not. My number one priority is still to get our gross debt down to $1.4 billion by 2028, which would get our net debt below $1 billion. Douglas Matthai Lane: Okay, fair enough. Thanks. John G. DeSimone: Thanks, Doug. Operator: Thank you. I would now like to hand the call back over to Stephan Paulo Gratziani for closing remarks. Stephan Paulo Gratziani: Thank you, and thanks, everyone, for joining us today. We had a great quarter. We completed our debt refinancing. As Doug just mentioned, we have made four acquisitions. We are executing on our vision. Forty-five years of incredible history are behind us, but the future is even more exciting. As a company, we are evolving. We are advancing how we deliver what we do best—greater precision, greater scale, greater impact—and we are focused on the vision. We are well positioned to deliver what we believe is the next generation of personalized nutrition. Thank you for joining today, and we look forward to sharing continued progress next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
Operator: Good day, and 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: Hello, everyone. Thank you for joining us, and welcome to Bumble First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I will now hand the conference over to Will Taveras, Head of Investor Relations. Please go ahead. William Taveras: Thank you for joining us to discuss Bumble's First Quarter 2026 Financial Results. With me today are Bumble's Founder and CEO, Whitney Wolfe Herd; and CFO, Kevin Cook. Before we begin, I'd like to remind everyone that certain statements made on this call today are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of factors and risks that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in today's earnings press release and our periodic filings with the SEC. During the call, we also refer to certain non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Reconciliations to the most comparable GAAP measures are available in our earnings press release, which is available on the Investor Relations section of our website at ir.bumble.com. With that, I will turn the call over to Whitney. Whitney Herd: Hello, everyone, and thank you for joining us today. This is a period of real transformation at Bumble. Over the past few quarters, we have executed a deliberate reset of our member base. We made a clear choice to prioritize quality over quantity, focusing on well-intentioned engaged members. That decision reduced overall scale, but meaningfully improved the health of our ecosystem. Importantly, this quality reset was not isolated. It was the first step in a broader strategy to reestablish Bumble as the brand that sets the pace for innovation in our category. We focused first on strengthening the underlying supply of our platform because scale without quality degrades the experience and stifles the outcome people are seeking: high-quality, relevant connections. At the same time, we continued rebuilding our technology and product platform to better serve our members' demand for real dates and in-real-life connection. These moves required short-term trade-offs, but they were deliberate and necessary. Now with healthier supply and stabilization in our member base, we are entering the next phase, activation. This phase is anchored by 2 innovation initiatives. First, the introduction of our new technology platform. Second, the launch of a fully reimagined experience for Bumble members, including a new interaction model and profile system. The new Bumble platform and experience will roll out over the balance of the year, beginning with the first stage of the new tech platform in the coming weeks. Our direct member engagement and our research, including our work with author and professor, Dr. Arthur Brooks reinforces a key insight. The biggest friction in dating today is not discovery. It is the gap between online interaction and real-world connection. People get stuck in that in between. This is a central challenge faced by every scaled dating app. Everything we are building is designed to close that gap and drive real in-person dates between high-quality connections. Accelerating each member's progression towards finding that connection and getting out on a date is our priority. We've been doing foundational work on this problem ahead of introducing our new platform and reimagined experience. We have improved profiles, strengthened intent signaling, enhanced safety and built more dynamic onboarding. These changes have helped members show up better even within the limits of our legacy systems. We are also continuing to improve the current Bumble experience by addressing core member pain points, improving recommendations and enhancing usability. Early tests are showing promising results, including improvements in matching behavior and monetization trends, but results are expected to be relatively limited on the legacy tech stack. We have more to do here in the months ahead. What comes next will go much further. The innovation starts with our technology platform. As we shared last quarter, we have been actively rebuilding our new cloud-native AI-enabled tech stack. This modern platform will allow us to move faster, iterate more efficiently and begin to unlock entirely new product experiences. Today, making meaningful changes to our recommendation engine or introducing new features can take months. This has been a real constraint on the rate of innovation. Our new tech platform is expected to eliminate this constraint. As the platform rebuild nears completion, we are ramping development of the next-generation Bumble Date application, a merging of the new back end and the reimagined member experience, launching in select markets in Q4 of this year. Between now and then, elements of our new technology platform will begin powering a parallel roadmap of incremental improvements in the existing product. With our new app experience, the opportunity is not just to improve the current interaction model, but to evolve beyond it. We are designing a system that shortens the distance between intent and outcome, eliminating the friction caused by multiple steps between interest and connection. Clearer signals drive more mutual engagement and faster progression towards in-real-life connection. Early reactions to this new model have been very positive. Our AI layer, Bee, is expected to play a key role in the reimagined experience. Testing Bee and onboarding new members has been especially encouraging, not just in Bee's effectiveness, but in members' willingness to engage deeply and share richer context about who they are and what they are looking for. Bee's ability to capture more signal and process information quickly improves our understanding of each member and will strengthen our recommendation engine. Onboarding is just the first step in how Bee will be used in the new experience. We also expect Bee to help facilitate connection and to suggest and plan real dates among other roles. Bee is a great example of what we can accomplish on the new modern tech stack and how AI will be an important catalyst for our business. It is important to note that we built Bee separate from the legacy system. I have said a lot here. So let me summarize. First, demand for love and human connection is as vital as ever before. We have done the heavy lifting to reset our business with healthy supply that is ready to engage. We are giving them the tools to show up authentically as their best selves. Next is our new platform, which will accelerate product innovation. Right behind that will be an entirely transformed Bumble experience, which dramatically reduces friction and gets members to in-real-life connection faster. We believe this is our path to deliver what daters are seeking today. This is the path to restoring revenue growth, and we are already at work building the monetization model behind it. That is the core of the Bumble app transformation, but it's only part of the picture. Beyond dating, we are also investing in broader connection, which we see as both a critical need in the world and a competitive advantage for us. We have expanded groups on Bumble BFF and are seeing strong early traction with total group joins nearly doubling between December and March. This success is driven by Gen Z women who comprise the largest cohort on the platform, highlighting our opportunity with this core demographic. Overall, more than 80% of BFF members are women, reinforcing the durability of our overall brand. We will continue to expand on group connections and in-real-life meeting for platonic purposes through BFFs, but we are also bullish on the opportunity of romance beyond one-to-one in terms of how people come together and meet for love. We are testing new ways to bring people together for both platonic and romantic purposes, including a new product beta launching next month, which we are super excited about. Across all of these efforts, our approach remains consistent: test, learn, iterate and do it quickly. We are data-driven, member-obsessed and more passionate about the opportunity and problem we are solving than ever before. In terms of timing, members will first experience the rollout of our new platform, delivering a faster and more reliable experience starting in the coming weeks from a back-end standpoint. From there, we expect to introduce the initial features of our new interaction model and profile. This is our big thing. It will start to roll out to select markets in Q4, backed by a 360 marketing campaign. Then we'll continue to refine the experience into 2027, including adding features like group dating and expanded access to Bee. Ahead of our upcoming unveil, we are continuing to deliver innovations in the current Bumble experience that helps members show up better, more confident and ready to engage. Not all of these improvements will be immediately visible to members, but the critical signal enhancements they enable will drive more relevant connections on the back end. And the UI/UX will be on our modernized back end, which will enable the rollout of our transformed experience later this year. As we execute this transformation, we remain disciplined. We delivered a strong Q1 compared to our expectations, and we are managing our cost structure carefully while continuing to invest in product, technology and selective marketing. Of note, we have reduced our performance marketing spend to less than 50% of pre-quality reset levels. We are starting to see the benefit of organic marketing again, including positive word of mouth now that we have improved the member base quality. Despite tech limitations, we've been able to drive meaningful improvements, which we believe signals the opportunity ahead with a modern tech stack in place. To close, we have been hard at work rebuilding our foundation. Now we are focused on translating that into a meaningfully better product experience, which members will start seeing in the coming months. We cannot wait to reignite our brand, product and mission as we transform Bumble and our category. We look forward to sharing more in the months ahead. Thank you so much for your time. And now I will turn it over to Kevin. Kevin Cook: Thank you, Whitney, and hello, everyone. In the first quarter, we delivered results in line with our expectations as we move past our quality reset to focus on product and technology innovation. As Whitney noted, we're seeing signs of stabilization in our member base as we enter the next phase of activation. I'll review our quarterly results before turning to our outlook. Unless otherwise noted, my comments are on a non-GAAP basis, and comparisons are year-over-year. Total revenue for the first quarter was $212 million compared to $247 million in the year ago period. Foreign currency exchange rates contributed $9 million to revenue in the quarter. The loss of revenue from Fruitz and Official equate to approximately 1 percentage point of headwind in the quarter. Bumble App revenue was $173 million compared to $202 million a year ago. Foreign currency exchange rates contributed $6 million to Bumble App revenue. Adjusted EBITDA was $83 million, representing a margin of 39% compared to $64 million and 26% in the prior year period. Higher adjusted EBITDA despite year-over-year revenue decline is a function of how we have executed through our reset period, most notably with more intensive operating discipline and thoughtful marketing spend. Selling and marketing expense was approximately $26 million or 12% of revenue compared to approximately $60 million or 24% of revenue in the prior year period. In addition to the reduced overall spend, we've increased our focus on lower cost and higher return organic and targeted marketing channels. This strategy brings us back to our historical marketing strengths, which we believe also supports long-term brand health. Product development expense was approximately $25 million or 12% of revenue compared to approximately $24 million and 10% in the prior year period. Our product development spending is focused on core product innovation and platform modernization. General and administrative expense was approximately $24 million or 11% of revenue compared to approximately $26 million or 10% of revenue in the prior year period. I'll now turn to the balance sheet and cash flows. For the quarter, we generated $77 million in operating cash flow, $74 million of which converted into free cash flow. We ended the quarter with $246 million of cash and cash equivalents and continue to generate substantial cash flow while maintaining a strong liquidity position. In April, we completed the refinancing of our term loan that had been previously announced. Consistent with our plans to continue deleveraging, we paid down $114 million of debt in connection with the transaction. Pro forma for the refinancing, we had $150 million of cash and cash equivalents at the end of April. Turning to the outlook. As we move beyond the quality reset, our focus is now on activating our higher-quality member base through product innovation and improved member experience. This transition will unfold over the balance of the year as we introduce our new tech platform and accelerate the introduction of new member experiences. While this work will take time to be reflected in our financials, we believe it best positions us to drive more durable engagement and monetization. For the second quarter, we expect total revenue in the range of $205 million to $213 million, including Bumble App revenue of $168 million to $174 million and adjusted EBITDA of $65 million to $70 million, representing a margin of approximately 32% at the midpoint. As we move through 2026, we expect revenue headwinds to moderate as the most acute effects of the quality reset dissipate and we transition from stabilizing to rebuilding the member base. Adjusted EBITDA margins are expected to normalize over the remainder of 2026 as we increase investment in technology and talent to modernize our platform and drive product innovation. We also plan to increase marketing spend to support our innovation initiatives, organic member growth and brand strength. In closing, we've made meaningful progress on our transformation and are now focused on executing the next phase of the business, pairing a healthier, more engaged member base with a modernized platform that will enable faster product innovation and more effective revenue generation over time. Operator, let's take some questions, please. Operator: [Operator Instructions] Your first question comes from the line of Eric Sheridan from Goldman Sachs. Eric Sheridan: Whitney, I want to come back to some of the comments you made in the prepared remarks and go a little bit deeper. When you think about the tech stack and how it will iterate going forward, I wanted to ask a 2-parter. One, how should we be thinking about the velocity of innovation and your speed in terms of going to market that will result from that as we continue to monitor the business from the outside in? And what do you think about your opportunity around personalization and how much of it will be either AI-driven or non-AI-driven when you think about what the tech stack might enable you to do in the years ahead? Whitney Herd: Thank you, Eric. Great to hear from you. So I'll take this piece by piece. I think before we talk about the actual incredible opportunity we have ahead with this new tech stack, just to double down on a couple of the prepared remarks I had around what we've been dealing with. We have had extraordinary tech debt. What do I mean by this? We have frankly not been able to make the changes that both our members are wanting, commanding, needing, demanding, but that we have wanted to roll out. So all of the results you've seen to date are done on the back end of a very legacy system, which really does inhibit the second part of your question, which I'm going to get to in a moment, the personalization of the experience. So let's talk about velocity, my favorite word. Velocity is going to go up in such a way with this new tech stack. So as an example, if we wanted to make a change to the recommendation engine right now, which is the algorithm essentially, right, it could take us months. It's extremely clunky. It's extremely cumbersome. It's extremely difficult to navigate. On this new tech stack, we're talking we can put tests in immediately. We can be monitoring in real time. We can have A/B testing going at levels we've never been able to access before. And frankly, we can make changes in a matter of days or weeks versus months or even, frankly, years. So when you really start to wrap your head around the opportunity there, I think you can understand why I am personally so excited about this new system finally hitting members' back end here -- in the back end of the system here in the coming weeks. Let's talk about personalization. So this is the name of the game. What's the one reason why people come to a product like ours, particularly Bumble. They're not coming for entertainment. They're not coming to use it like a social media platform. They are coming to meet people. And if you want to meet someone, the baseline is you have to be showing people you want to see and that you want to meet. And so what we're able to do with this new system and this next-gen recommendation engine, which kind of goes side by side with the new -- with the new tech infrastructure, we will be able to personalize the system in ways that we just frankly never had access to. It's not lack of innovation. It's not lack of road map. It's not lack of talent. It has been lack of technical capability. So you will see extreme personalization. Turning to the last part of your question, AI or not AI. It's a hybrid. So I think it's important to maybe just spend a quick moment on how I look at AI for this business. AI should never replace human authenticity or human connection. And frankly, I've been saying this for a long time, but I certainly hope that the rest of the world is starting to see it the way I am in the sense that human connection is starting to matter more now than ever before and real authentic human connection. For those of you that have been following and watching people fall in love with AI bots, I mean, this is not the future we want for ourselves or the next generation. So this is why I'm at work. I'm giving it my all to make sure that we can bring people closer to real -- in-real-life, face-to-face, human, meaningful relationships and connections. So we will leverage AI to enable that, but we will not use AI to replace that. So I hope that answers the question. I could talk about this for 6 hours, but I want to give other folks an opportunity to jump in. But thank you again, Eric, for your question. Operator: Your next question comes from the line of Shweta Khajuria from Wolfe Research. Shweta Khajuria: As we think about the time line, could you please talk to what gives you confidence post the activation phase of the renewed tech platform in 2027 or in Q4 of 2026 into 2027? You will start seeing potentially market improvements in the refreshed tech platform. So could you point to what you saw in your test that gives you that confidence? And what should we be looking for starting in Q4 into next year? Whitney Herd: Shweta, it's great to hear from you. So let's talk about these different kind of work streams. I want to be very clear that the back-end tech rebuild is different than what the front forward-facing member-facing interaction model and profile redesign are. So these are 2 separate things that will converge into each other. However, one comes before the other. That is the back-end technology migration and enablement and rebuild. That is coming here in the coming weeks for select members, and we will start to roll out globally and more broadly, obviously, over the weeks following and the months following. So that is the enabler of everything. That is where we can go in and make algorithmic improvements. We can start to make matching and recommendation economics better for folks and really make sure that you are seeing who you want to see. Now very importantly, so that's the back end, and that will start to enable everything. But very importantly, I fundamentally believe, and I feel that I am a trusted source here because I've been on the front line of this industry from its kind of mobile explosion inception, if you will. I fundamentally believe the interaction model is outdated, not just for us, I'm talking about the industry at large. And I believe it's time to leapfrog anything that currently exists and help people break through these areas of friction where these cliffs exist. So right now, to get somebody from first sight to first date is extremely difficult. There are so many areas of drop-off opportunity where that mutuality of needing to like each other, needing to chat to each other, needing to keep the conversations going on this double-sided format, it's quite difficult to get you to a date. And frankly, Shweta, we're a dating app. We're not a matching app. We're not a swiping app. But have we really been behaving like that? And that is the impetus of the new interaction model. So we have listened to our members. We have been in the trenches with them. I personally have been on the front lines of research and deep in the data. So that forward-facing, member-touching interface interaction transition and profile redesign, that is what you will start to see in a major market in Q4 and then, of course, rolling out more broadly through the end of Q4 and early into '27. So let me actually try to answer your precise question. When do we start to see a rebound in the numbers you're all looking for? Well, the answer is very simple. When our technology and our next-gen recommendation engine can actually help better connect people more compatibly and show people who they want to see and then get them out on great dates, that's where the magic happens. And every single thing we are doing, I'm spending every waking hour of my life right now in effort of serving that one goal: get people out on great dates. So I hope this starts to answer your question, and thank you again for taking the time. Operator: Your next question comes from the line of Nathan Feather from Morgan Stanley. Nathaniel Feather: Digging in a little bit more on that kind of pipeline from discovery to actually getting out on dates. What do you feel are the current real pinch points that cause people to maybe have a match, but not actually convert that into an in-person connection? And to what extent can you actually solve that problem? Is there any issues from a perspective of a lot of people have different preferences? There's local markets? Are there ways that you can kind of solve those? And so that's the first part of the question. And then second, continue to see really strong performance on gross margin. Can you give an update on what you're seeing in terms of payment adoption? And do you think about the uplift that's driving EBITDA? Whitney Herd: Thanks, Nathan, for the question. I'll take the first half. I'll kick the second part to Kevin. So the reality is, you're right, everyone has different dating preferences. But the one thing everybody can kind of agree on at this point is everyone is exhausted from this passive model of just low-effort -- like low-effort interest that there's very little follow-through. And frankly, the industry, at large, and us included, we've made it just too easy to express low-intent interest. And so we are turning that on its head. I can't say much more. I really believe that this is going to be category defining, and we want to keep it close to the chest. But what we will tell you is the early testing has come back remarkably positive. There is very little concern that this is not the right direction. But to your point, every market is different, culturally different, preferences are different. We have no issue with being really agile and making sure that we test our way into the appropriate sequencing and the appropriate rollout strategy to make sure that those nuances are accounted for. But I really -- listen, I'm now 36. I've been doing this since I was 22. I cannot tell you how much this is needed right now for people to really feel reinvigorated with finding love. And there's a few frank realities. We are on our phones more than we've ever been on our phones before, much more so than when I started this company. The need for human connection and love is greater right now than ever. We are more disconnected. Everything is working in our favor. The only thing that has been going wrong is our ability to execute on product innovation, and that is simply due to legacy tech debt, and we are working extraordinarily hard. The teams are incredible, and they are so close on getting us to a place where we can finally innovate and deliver a modern product to our members so that they can continue to make meaningful connections in the real world. Kevin? Kevin Cook: It's Kevin. So the improvement in gross margin is primarily a function of increased adoption of alternative billing methods and therefore, a reduction in aggregator fees. So you're right to point out that we had very strong gross margin in the quarter, about 300 basis points than the prior year period, and we continue to see strong adoption of our Apple Pay program, for example, in the U.S., and that program is slightly ahead of expectation, but we expect to see alternative billing be a tailwind to margin throughout 2026. Operator: Your next question comes from the line of Andrew Marok from Raymond James. Raj Solanki: This is Raj dialing in for Andrew Marok. So as it relates to the post-reset disclosures made today, could you update us through March and April and explain how the curves for registrations, retention, MAUs and payer penetration trended from October until now? Given that this is the first month -- that was the first month of post-quality reset, which metric should best predict payer recovery going forward? Kevin Cook: Yes. Ron (sic) [ Raj ], thanks for the question. So obviously, the disclosures were provided specifically as a way for us to meet a contractual obligation to prospective lenders to cleanse data that we shared with them in connection with the refinancing. That information is all for the periods provided. You can see them outlined there in the specific disclosure on the website. They're all reflected in our current financials. They're out-of-date, stale, and have no sort of import in terms of the business today. The only thing I can share is that the business has stabilized with respect to KPI performance. And in particular, on registrations, I think you see highlighted there the steps that we took quite intentionally to bring the member base down to what we viewed as a healthier, higher-quality ecosystem from which now we can build. So that's all I have for you on that. Operator: Your next question comes from the line of Ken Gawrelski from Wells Fargo. Kenneth Gawrelski: As you look out a couple of years in success as you kind of transition the business, can you talk about how you see -- how you could see the financial profile of the business just relative to [indiscernible] built up in the past. You obviously don't want that to recur. Could you just talk about any changes we might see to the financial profile of the business as you kind of get back to growth in '27, '28? Kevin Cook: Ken, it's Kevin. So apologies, you broke up. Can you repeat the question or summarize the question quickly? Kenneth Gawrelski: Sure. Sorry. Is that better? Can you hear me better, please? Whitney Herd: It's still a little shaky. Try one more time. Kenneth Gawrelski: I'm sorry. Is this better? Sorry. Kevin Cook: So why don't you go ahead and we'll do our best. Kenneth Gawrelski: Yes. My quick question is this, are you -- when you think about the future kind of financial profile of the business, if you go out 24 months, 36 months relative to what we've seen in the business in '22, '23 time frame, how may it look different in your view? Different tech stack? You didn't -- don't want to -- and maybe a different kind of marketing go-to-market strategy. So can you just talk a little bit about what the changes in the financial profile might look like? Kevin Cook: Of course. Okay. So you're right to point out 2 key things. First, in the time frame you referenced, it was a marketing-led business, not a product- and technology-led business as it has been since Whitney returned as CEO. So what you'll continue to see is a much more efficient marketing spend. It will never return -- marketing should never return to the levels that you observed in '24 and '25. Marketing is used as -- in support of and as a tool to enhance product and contribute to new product introduction launch and of course, to some degree, brand. You will see a higher rate, overall, in technology and spend or product development. We're in a period of investment now. You see us beginning to gently increase product development expense to deliver all of the innovation that Whitney was describing and is expected for the second half of the year. So overall, with steady revenue or revenue growth, there would be substantial operating margin in the business. So you should expect to see continued adjusted EBITDA margin expansion, again, so long as revenue is stable or revenue is increasing. Let me know if that answers the question. Kenneth Gawrelski: Yes. Operator: At this time, there are no further questions. This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Good afternoon. Welcome to Airgain's First Quarter 2026 Conference Call. My name is Sherry, and I will be your operator for today's call. Joining us today are Airgain's President and CEO, Jacob Suen; and CFO, Michael Elbaz. As a reminder, this call will be recorded and will be made available for replay via the link found in the Investor Relations section of Airgain's website at investors.airgain.com. [Operator Instructions] I caution listeners that during this call, Airgain's management will be making forward-looking statements about future events as well as Airgain's business strategy and future financial and operating performance. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in today's earnings release and Airgain's SEC filings. The conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, May 6, 2026. Airgain undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. In addition, this conference call will include a discussion of non-GAAP financial measures. Please see today's earnings release for further details, including a reconciliation of GAAP to non-GAAP results. I would now like to turn the call over to Airgain's CEO, Jacob Suen. Jacob? Jacob Suen: Good afternoon, everyone, and thank you for joining us. The first quarter marked a solid start to 2026 as we began converting the strategic groundwork we laid last year into broader commercial momentum across the business. Over the past several years, we have been transforming Airgain into a higher-value system-level connectivity company. In Q1, that transformation showed up through customer wins, expanded platform capabilities and deeper commercial engagements across our core markets and growth platforms. Let me start with our platform initiatives. First, we expand AirgainConnect's capabilities through the acquisition of the HPUE MegaFi 2 assets from Nextivity. This acquisition expands our portfolio and strengthens our vehicle gateway capabilities across public safety, utility and enterprise fleet applications. It also broadens what we can offer to our customers. Some customers need a fully integrated vehicle gateway. Others want a simpler high-power router solution. With AirgainConnect, we can now support a wider range of deployment needs, both AirgainConnect Fleet and AirgainConnect MegaFi 2 are part of the AT&T FirstNet offering, and customers can order these solutions directly through the AT&T Speed portal. We are also seeing encouraging progress in the AirgainConnect pipeline. In March, we closed a Tier 2 customer in the energy sector that upgrades across multiple U.S. regions. This customer is deploying AirgainConnect across a fleet of more than 300 maintenance and service vehicles following field trials that demonstrated improved connectivity performance and ease of installation. As of last week, our pipeline includes more than 55 Tier 1 and Tier 2 opportunities, up roughly 40% from the approximately 40 Tier 1 and Tier 2 opportunities we mentioned on our last call. The mix is also becoming more attractive with most of these opportunities now coming from non-first responder markets. Importantly, these opportunities are also advancing through the funnel. More than 1/3 of our Tier 1 and Tier 2 opportunities are now in trial or post trial stages compared to a quarter on our last call. This gives us increasing confidence that the pipeline is not only broader but also moving closer to conversion. At the same time, Tier 1 engagement continues to deepen with several opportunities becoming more strategic, while these larger opportunities take longer to convert we believe the pipeline is moving in the right direction. These emerging opportunities reinforce our view that the strategy we outlined on our last call is working and that AirgainConnect is positioned to become a more meaningful contributor as we move through 2026 and beyond. Second, we continue to advance Lighthouse. In the U.S., we are now working with a business sponsor and a Tier 1 mobile network operator to progress towards a live enterprise trial. This moves Lighthouse from network validation into the business and commercial base. If the trial progresses as expected, we believe initial commercialization opportunities could begin towards the end of 2026 with a broader opportunity developing in 2027. This opportunity with the Tier 1 MNO is being driven by clear customer pain points around coverage, capacity and the cost of network upgrades. In many in-building environments, traditional solutions such as DAS or small cells can be expensive, disruptive and slow to deploy. Lighthouse gets customers a faster and more cost-effective path to upgrading from 4G to 5G coverage. For indoor deployments, the value proposition is straightforward, better coverage, lower cost and faster deployment. For outdoor user cases, Lighthouse reduces coverage gaps and provides network performance benefits, non-disruptive integration and scalability. Based on our engagement with this Tier 1 MNO, we believe indoor deployments could represent the near-term opportunity with initial deployments targeted towards the end of this year. Outdoor deployments remain an important longer-term opportunity and are expected to follow a more expanded evaluation and commercialization cycle. In the Middle East, our relationship with Omantel remained an important entry point. Deployment activity was paused due to the conflict in the region, but engagement is now ongoing, and we expect to move forward with initial deployments over the coming months. We continue to advance our road map for integrated 4G and 5G coverage solutions designed for challenging indoor and outdoor environments. This road map supports 4G and 5G co-location, expands the range of deployment scenarios we can address and strengthens the long-term commercial opportunity for Lighthouse. We are seeing customer interest in trialing the combined solution as units become available. As our engagement with the Tier 1 MNO and enterprise customers has progressed, we believe we now have a clear path to commercialization with our current product road map. As a result, we have realigned our resources and priorities to focus on accelerating commercialization and revenue generation. Now turning to our core markets. In consumer, we secured a multiyear, multimillion dollar in-build antenna design win for a next-generation 5G home connectivity platform with a Tier 1 North American MNO with production units anticipated later this year. As expected, consumer revenue declined sequentially due to seasonality. Looking into Q2 we expect consumer revenue to remain relatively stable with underlying demand still healthy. The primary factor, we are monitoring in the near term is a supply constraint at the gateway level, particularly around memory availability and pricing. This is impacting our OEM's ability to ship finished systems and in turn, can affect the timing of our antenna shipments. At this point, this dynamic is limited to a single OEM serving cable operators. Based on feedback from this OEM, they are actively working to address the issue, and we believe the impact is temporary. As we mentioned earlier, we have secured 2 Tier 1 MNO design wins, and we remain on track for those programs to ramp in the second half of the year. In enterprise IoT, momentum is building. We received a $4 million purchase order from a long-standing IoT solution customer with shipments expected to be completed this year including initial shipments in Q2. This order reflects the resumption of demand from this customer and improves our near-term visibility. We are also seeing continued traction across our embedded modem portfolio and expanding opportunities in emerging applications. We increased our IoT presence in robotics through a new design win with Coco Robotics, and we are seeing additional activity in adjacent areas such as storms, including preproduction shipments in Q2 for a new customer program focused on autonomous VTOL rotorcraft for defense and commercial applications. Stepping back, Q1 reflects progress across our growth platforms in our core markets. Both enterprise and automotive grew sequentially. IoT momentum improved. AirgainConnect engagement product, Lighthouse move into more focused commercialization discussions and our consumer business remains supported by strong Tier 1 relationships. Just as important, our pipeline is broader and continues to expand. We enter this next phase with a more focused operating model, improving visibility and clear opportunities to convert customer engagement into revenue. With that, I'll turn the call over to Michael. Michael Elbaz: Thank you, Jacob. Before diving into the numbers, please note that my review of our financial results and guidance refers to non-GAAP figures. Information about the non-GAAP financial measures, including GAAP to non-GAAP reconciliations can be found in our earnings release. Now let's turn to our first quarter results. Q1 sales came in at $11.5 million which was at the midpoint of our guidance range. Enterprise sales were $5 million, up $0.7 million sequentially, driven by higher embedded modem sales. Automotive sales were $0.9 million, up $0.4 million sequentially, reflecting higher sales of AirgainConnect vehicle gateways. Consumer sales came in at $5.6 billion, sequentially down $1.7 million, primarily due to seasonal impact. Non-GAAP gross margin for the first quarter was 44.2% compared to 46.3% in the prior quarter and relatively flat year-over-year. The sequential decline was primarily due to a lower enterprise margin rate, driven by an unfavorable product mix. Non-GAAP operating expenses for the first quarter amounted to $6.1 million while modestly higher sequentially due to typically higher first quarter marketing and trade show activities, operating expenses declined by 8% or $0.5 million year-over-year as we continue to optimize our OpEx model. In Q1, adjusted EBITDA was negative $0.9 million, $0.2 million lower than the midpoint of guidance. Non-GAAP EPS was negative $0.08 compared to negative $0.07 midpoint of guidance. As of March 31, 2026, our cash balance was $7.1 million relatively flat sequentially. Net cash proceeds from our ATM were $0.6 million. Now moving to our outlook for the second quarter ending June 30, 2026. As a reminder, we provide quarterly guidance for sales, non-GAAP gross margin and expenses, non-GAAP EPS and adjusted EBITDA as we believe these metrics to be key indicators for the overall performance of our business. For the second quarter of 2026, we project sales to range from $12.5 million to $14.5 million with a midpoint of $13.5 million. The midpoint represents a 17% sequential increase driven by enterprise and automotive. We believe our outlook reflects improving demand visibility across the business and continued progress in converting the commercial traction Jacob discussed into revenue. We expect non-GAAP gross margin for the second quarter to be in the range of 42.5% to 45.5% or 44% at the midpoint. We project operating expenses to decrease sequentially to approximately $5.8 million. Non-GAAP EPS is expected to be positive $0.01 at the midpoint of our guidance. Adjusted EBITDA is expected to be positive $0.2 million at the midpoint of our guidance. Overall, the actions we have taken over the past few quarters have improved our operating leverage and position us to convert top line growth more effectively into profitability. Now I would like to turn the call back over to Jacob for his closing thoughts. Jacob? Jacob Suen: Thanks, Michael. As we look ahead, we have good visibility into Q2 and see positive momentum for both our core and growth platforms for the rest of the year. Beyond Q2, we see a broader set of drivers. Demand in our consumer business remains healthy, and we expect improvement as supply constraints ease. IoT continues to build momentum through repeat orders and new application design wins. AirgainConnect is progressing from engagement toward conversion with growing activity across utility and enterprise markets, and Lighthouse is moving towards targeted commercial deployment in the U.S. and Middle East. Taken together, these drivers reflect a more focused and better position business with a stronger platform portfolio, a broader pipeline and an operating model positioned for improved leverage as revenue scales. Our focus is execution, converting pipeline into deployments, driving growth and including profitability as we move through 2026. Operator, we're now ready to take questions. Operator: [Operator Instructions] Our first question is from Anthony Stoss with Craig-Hallum Capital Group. Anthony Stoss: Michael, I was trying to write as fast as I could. Can you just give me the revenue splits? I got consumer $5.6 million, but I missed auto and enterprise. Michael Elbaz: The guidance you meant, Tony? Anthony Stoss: No, the percent of revenue in the quarter that came from auto and same question for enterprise. Michael Elbaz: So auto would be about 40% approximately. I don't have the other numbers in front of me. And enterprise would be about higher actually, 50% approximately. Anthony Stoss: Enterprise 50%, auto 40% and Consumer 10%? Jacob Suen: No, no, no. It's... Anthony Stoss: Yes. September is $5.6 million. Michael Elbaz: Yes. I'll have to come back to you on this, Tony. I don't have those numbers in front of me. Jacob Suen: Yes, the bottom line is overall the enterprise and automotive, we're seeing a sequential growth, and we expect that momentum to continue. And consumer in Q1 was due to seasonality. So we also expect the consumer to improve throughout the year. Anthony Stoss: Perfect. And then Jacob, just getting on the... Michael Elbaz: Tony, the number is 49% on the consumer, 8% on the automotive and 43% on the enterprise in Q1. Anthony Stoss: Perfect. Related to the memory shortages, I get it. A lot of people are talking about it, thinking it's going to get worse throughout the remainder of the year. But given -- I guess the first part of the question is how much of your revenue was affected in Q1 as a result of not being able to ship? And then, Jacob, more longer-term picture, when do you think -- which quarter is it this year? Is it next year when you can get back to the kind of $7 million to $10 million in quarterly revenue on the consumer side? Michael Elbaz: So yes, Tony, this is Michael. So in terms of Q1 impact, we had no revenue impact from the shortages, and we had no gross margin impact from the shortages. In Q2, we are being conservative on the consumer. Typically, you would see that seasonal down in Q1, which we saw and a rebound in Q2. And right now, we are expecting to be relatively flat and mainly because one specific OEM is being impacted. They believe it's a temporary blip right now, and it will be worked out by the end of the quarter, but again, we're being conservative on that. Jacob Suen: Yes. And regarding your questions about the consumer revenue, certainly, as we indicated, the good news is that we always have the stability regarding the MSOs. We are now adding the MNOs. We are now working on 2 major MNOs in the U.S. So that should help us well positioned for the rest of the year. Are we able to get to the $7 million to $8 million range like we used to have, we do have the path for that. Now is that going to be happening this year or next year? We don't know that yet, although it's trending very positively. We mentioned about the design win with the MNO, that should be in the latter part of this year. Anthony Stoss: Got it. And then my last question related to AirgainConnect. Are you seeing a speeding up of some of these trials or your ability to convert? It's great to see that Tier 2 energy customer. What's your feel on how quickly you can convert the trials into more signed deals? Jacob Suen: So on the Tier 1 type of customers, we mentioned before, 12 to 18 months of the cycle time, and we are in the cycle time. The good news here is that the pipeline is changing favorably to us quarter-over-quarter. So for example, we mentioned on the call that we have a current pipeline of over 55 deals in Tier 1 and Tier 2 customers. 20% of that is Tier 1 customers. And of the 20% of that, the vast majority are for non-first responders. So they tend to be moving quicker. However, because those tend to be also strategic type of deals, they are also very much of a multilayer type of meetings, engagements, trials taking place. And so we are basically on track to what we had mentioned about the 12- to 18-month cycle. On the Tier 2, we just mentioned that we closed a Tier 2 customer. Overall, the velocity of the design wins that we have, primarily on the Tier 3 and the Tier 2 so far is accelerating. Last year, we would be closing 1 deal per month. And this year, so far, up until May, it's been about 2 deals per month. I hope this is helpful. Anthony Stoss: Perfect. Jacob Suen: Yes. Tony, also the Tier 1 opportunity size, the vehicle size is also getting bigger as we go after the non-first responder vehicles because a lot of these are large enterprise fleet. So we'll start to work on tens of thousands of vehicles instead of just several thousands or several hundred as in the case of the first responders. Operator: Our next question is from Jaeson Schmidt with Lake Street Capital Markets. Jaeson Schmidt: Just looking at Lighthouse and that potential trial here in the U.S., what additional steps, if any, do you guys need to complete to continue to move that forward? Jacob Suen: Jaeson, yes, Jacob here. So yes, it's actually a very significant milestone. And as I was alluding to in the call earlier, is the fact that -- basically, as far as the technology validation, that looks to be already proven with the trial we have done in the corporate office. And so now we are working with the business sponsor. So typically, they would not work with us to do a business sponsor until they feel very comfortable with the technology validation. So that phase is done. We are now working with them on their sales team to identify several potential customers that would be able to really take advantage of our Lighthouse product. And these are customers as we work with this particular MNO where they actually have to walk away from deals previously due to lack of budget using existing system. So our solution are giving them a fraction of the cost otherwise. So as an example, where they have to have using a system that's going to be $4 per square foot, now we're going to be able to offer them a fraction of that, so they can meet that budget. So those are the customers that we are targeting, and we intend to get 1 or 2 of those customers for the live trial and hopefully, in turn, become permanent. So that's where we're at regarding the progress with this particular MNO. Now as you know, dealing with MNO, it takes time, although they're really seeing a unique value with our Lighthouse. Jaeson Schmidt: Okay. That's good to hear. And then looking at the consumer segment, understanding the near-term dynamics, but do you guys have confidence that you will see that rebound in Q3? Or is it just too early right now? Michael Elbaz: It's a bit early right now, but let me put it this way. The demand is very healthy and the demand, what we mentioned before last quarter is that we were expecting a modest growth on the consumer market across the year. So from a demand standpoint, it's there. It's a question of supply and the timing of it. I should also mention from a consumer business model itself, the way it's being set up and really is based upon the strong relationship we have with the service providers, the OEMs themselves, the CMs and the distribution channel as well, too. And that gives us quite a bit of visibility, at least in the short term about some of the supply management that we have to do. The other piece also that I should mention is that typically, service providers have 2 or 3 OEMs. And typically, we are designed in with 2 OEMs. So if there is any type of supplier allocation being redone, for instance, we're still somewhat covered by it. Jaeson Schmidt: Okay. That's helpful. And then just the last one for me, and I'll jump back into queue. You're expecting a nice sequential downtick in operating expenses. Is this sort of a level we should feel comfortable with in the back half of the year? Or how should we be thinking about OpEx? Michael Elbaz: Yes. I think first half of the year, I believe, in 2026 is about 9% down compared to the first half of last year. As revenue grows, you would expect a modest uptick on that. But overall, our sense is that we definitely want to make sure that we have a very strong operating leverage so that when the top line grows and that top line should be having some higher gross margin than the corporate average. As it grows, then we really optimize our overall business model and be -- really offer some positive and accretive EBITDA margin in the long run. Operator: At this time, this concludes our question-and-answer session. If your question was not answered, you may contact Airgain's Investor Relations team at AIRG@gateway-grp.com. I would now like to turn the call over to Mr. Suen for his closing remarks. Jacob Suen: Thank you all for your thoughtful questions and for your continued interest in Airgain. If there's one key takeaway, it is that Airgain is a more focused and disciplined company with a stronger foundation and improving operating model and growing platform momentum. We believe the work we have done positions us to drive sustainable growth and improve profitability as we move through 2026 and beyond. We appreciate everyone joining us today and look forward to keeping you updated on our progress. Operator, you may now conclude the call. Operator: Thank you for joining us today for Airgain's First Quarter 2026 earnings. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Arcus Biosciences' First Quarter 2026 Business Update and Financial Results. [Operator Instructions] I will now hand the conference over to Holli Kolkey, VP of Corporate Affairs. Holli, please go ahead. Holli Kolkey: Good afternoon, and thank you for joining us on today's conference call to discuss Arcus's first quarter 2026 financial results and pipeline update. I'd like to remind you that on this call, management will make forward-looking statements, including statements about our development strategies and our expectations regarding the advantages and opportunities afforded by our investigational products, our clinical development milestones and time lines, our projected cash runway and our financial outlook. All statements other than historical facts reflect the current beliefs and expectations of management and involve risks and uncertainties that may cause our actual results to differ from those expressed. Those risks and uncertainties are described in our most recent quarterly report on Form 10-Q that has been filed with the SEC. For today's call, please refer to our latest corporate presentation posted in the Investors section of our website. This afternoon, you will hear from our CEO, Terry Rosen; Chief Medical Officer, Richard Markus; President, Juan Jaen; and CFO, Bob Goeltz. With that, I'd like to turn the call over to Terry. Terry Rosen: Thanks very much, Holli. And thanks, everyone, for joining us this afternoon. We're starting a new era for Arcus with full ownership of our lead program, casdatifan, our Phase III kidney cancer study, PEAK-1, enrolling rapidly, a clear path to win in the frontline and the next generation of molecules for inflammation and immunology that can be advanced rapidly into and through development, and with that, the strategic optionality imparted by a rich portfolio of wholly owned molecules and programs. We are at an inflection in value creation for patients and shareholders that will continue to accelerate over the next 12 to 18 months. Arcus has proven to be a highly productive company, creating and advancing a steady stream of potential best-in-class molecules for patients with cancer and inflammatory and autoimmune diseases. We believe that discovery is not a commodity, and we have built exceptional small molecule medicinal chemistry and drug discovery capabilities. Our scientists utilize proven biology to create unmatched medicines designed to raise the standard of care. Since its inception, Arcus has advanced molecules from program initiation to IND filing in a short of 18 months and accelerated platform and signal-seeking studies to move from proof-of-concept Phase I studies to randomized Phase II and registrational Phase III trials in just a few years. Today, the company is laser-focused on casdatifan, which represents a market opportunity of more than $5 billion in kidney cancer alone. I want to stress that casdatifan's efficacy advantages are underpinned by much better molecular properties and a superior pharmacodynamic profile. This profile reflects the key capabilities in Arcus that I described earlier. The simple fact is that casdatifan hits its target much harder and in a more sustained way than belzutifan. As illustrated on Slide 6, this is a point we've emphasized since the data first emerged. These data are clear and they're striking. We believe this fundamental differentiation between casdatifan and belzutifan and the limitations of belzutifan's pharmacodynamic profile and durability of effect are undoubtedly contributors to, if not the principal driver of, the outcome of LITESPARK-012. And the pharmacodynamic advantages of casdatifan will continue to result in improved clinical outcomes across the lines of therapy. I want to emphasize this point. This dramatic difference in profile has been evidenced since late last year. It is not esoteric. Its manifestations on clinical outcomes are dramatic and are at the core of our differentiation. No results to date are surprising. Our top priorities for 2026 are clear. One, complete enrollment for PEAK-1, our second-line Phase III study; and two, initiate a Phase III study in the frontline patient population. With the recent outcome of LITESPARK-012, casdatifan has a clear path to consolidate a fragmented frontline setting as the first HIF-2 alpha inhibitor in this setting. Let me spend a moment on why casdatifan is at the center of everything we do. We believe casdatifan can transform the treatment paradigm in clear cell renal cell carcinoma, and our development strategy is designed to generate evidence to secure cas as a backbone therapy so that every patient has the opportunity to benefit from cas across each line of therapy. PEAK-1 represents our fast-to-market strategy. This is designed to build on the clinician enthusiasm that we've seen for cas as an experimental agent and to generate the data to support the approval of a foundational treatment for clear cell RCC as rapidly as possible. Enrollment in PEAK-1 is accelerating, and we're on track to complete enrollment by year-end 2026. We're confident that PEAK-1 will establish cas plus cabo as the new standard of care in the IO experience setting. The peak sales opportunity for cas in this setting alone is more than $2 billion. At the same time, we are aggressively building a holistic strategy to embed cas across the treatment paradigm. We have been making tremendous progress in the frontline setting with multiple IO combinations now enrolling in ARC-20 and generating data in support of our first-line strategy. These approaches offer the greatest potential for long-term survival for patients. One of our key objectives today is to make very clear our integrated development strategy for casdatifan. It's actually quite straightforward, and here's how we believe things will play out. In the first line, our bedrock therapy will be cas, ipi, anti-PD-1. We believe that we can drive the 35% share of ipi/nivo to a regimen with greater than 50% of the important first-line market. While the IO regimen of ipi/nivo is the dominant therapy today, there's a segment of physicians that's always going to want to reach for TKI, particularly for patients with a fast-growing bulky tumor. Therefore, we will also be developing a cas combination inclusive of the TKI, a TKI with a well-established track record of both efficacy and safety that will allow the patient to have cas/cabo as a subsequent regimen. Our second-line treatment now enrolling its registrational trial PEAK-1 will be cas/cabo, building on the standard of care in this line, cabozantinib monotherapy. Finally, we will have a third-line plus regimen cas with another well-established TKI, and we will be investigating this regimen in both belzutifan naive and belzutifan experienced patients. We think this is a very important, kind of cool study. We also plan to explore novel cas combinations in HCC, liver cancer. I would like to emphasize that all of the clinical development plans discussed today are accounted for within our existing budget and have no impact on the guidance and runway that we have provided. We now control in all respects our early-stage pipeline, including our CCR6, CD89 and CD40 ligand programs, all of which are expected to support IND candidates in the next 6 to 18 months. So as we focus our resources, capital, human and otherwise on the late-stage development of casdatifan. The follow-on programs in our pipeline are early, but also with clear, early and capital-efficient clinical proof-of-concept opportunity and huge commercial potential. Therefore, we anticipate low spend and short time lines to get the proof-of-concept that will drive disproportionate value creation. Juan will discuss these programs in more detail later on in this call. If you want to walk away with just one thing from today, it's that Arcus has complete control of its destiny. The core asset of the company is casdatifan, and we have the strategy, data and resources to transform the treatment of clear cell RCC and create a $5 billion-plus drug. Bob will further elaborate on the enormous commercial opportunity here. We also continue to leverage our demonstrated competitive advantage in small molecule drug discovery, an increasingly scarce capability to generate wholly owned and unique development candidates, the advancement of which further enhances our strategic optionality. With that, I'd like to turn the call over to Richard to discuss our clinical programs. Richard Markus: Thanks, Terry. I'd like to start with casdatifan. As Terry described, our development plan is designed to establish casdatifan as a foundational standard of care in clear cell RCC so that all patients have the opportunity to benefit from treatment with a casdatifan-based regimen across multiple lines of therapy. At ASCO GU this year, we presented updated ORR and PFS from our 4 late-line monotherapy cohorts of ARC-20. As you can see here, the efficacy data continued to improve with longer follow-up at each data presentation. Moving to Slide 12, where we show the ORRs for the 100-milligram QD cohort, which is the dose and formulation being used in our Phase III studies, the confirmed ORR increased from 35% at the August data cut to 45%. A 45% ORR in this late-line patient population is rather remarkable. It's twice that observed with belzutifan in LITESPARK-005 or any study in this patient population. Similarly, the confirmed ORR for the pooled analysis improved from 31% to 35%, well above the range of ORRs that have been observed with belzutifan. On Slide 13, we show the Kaplan-Meier curve for the 100-milligram cohort. As you can see here that the 100-milligram cohort shows an impressive median PFS of 15.1 months after 17.9 months of median follow-up. On the next slide, we show the latest Kaplan-Meier curve for the pooled analysis. The median PFS remained at 12.2 months. So overall, we're seeing PFS that is 2 to 3 times longer with Cas monotherapy than the 5.6 months observed with belzutifan in the same setting. And as is often discussed, while the median is an important benchmark, it's not the only metric that's important. As you can see here and perhaps more impressive is the number of patients still on treatment beyond 18 months and even beyond 24 months. These data clearly support the proposition that casdatifan is the best-in-class HIF-2 alpha inhibitor. And our highest priority now is to maximize the potential of this molecule in ccRCC. Our first registrational trial, which is in the second-line setting, is well underway. Enrollment in the ongoing Phase III study, PEAK-1, is accelerating, and we are on track to complete enrollment by year-end. We are confident that PEAK-1 will establish cas plus cabo as a new standard of care in the IO experience setting. With a sole primary endpoint of PFS and a 2:1 randomization favoring the experimental arm and cabo as the control arm, we believe PEAK-1 is optimized for both probability of success and speed to data. I'd like to spend some time now on the frontline setting. With the outcome of Merck's LITESPARK-012 last month, Cas has the opportunity to be the first HIF-2 alpha inhibitor option in the frontline setting. Treatment in the frontline is generally bifurcated into IO-IO or a TKI, [ anti-PD-x ] combination. This currently leads to the conceptual trade-off between longer time to response or higher primary progression, but with the potential for durable responses and long-term survival with the IO-IO option or a faster time to response and lower primary progression but with much more treatment-associated toxicity for the TKI, [ anti-PD-x ] options. There's currently no treatment option that has the ability to both rapidly control disease and provide the best chance for long-term survival, while also having a favorable tolerability profile for long-term use. We believe a Cas plus IO-IO combination in the frontline setting has the potential to deliver on both of these fronts. We are enrolling several cohorts within the ARC-20 study, evaluating Cas combinations in the frontline setting. While the data are maturing, primary progressive disease rates have already been shown to be low, just 7% or 2 out of 30 patients for the Cas plus zimberelimab, our anti-PD-1 cohort. This rate compares favorably to published rates for anti-PD-1 monotherapy or ipi/nivo in the first-line setting. And in fact, it is close to the rate of a TKI-containing regimen but without the need for the TKI. We're also enrolling a cohort evaluating Cas plus zim plus ipi. Emerging data from these cohorts of ARC-20 will inform the first-line registrational strategy with the goal of finalizing the Phase III study protocol and beginning start-up activities by the end of this year. In parallel, we will shortly begin to evaluate additional Cas plus TKI-containing regimens in the early and late-line settings, including in patients with prior belzutifan experience. This effort contemplates the preference and in fact, the strategic necessity to utilize alternative TKIs as patients advance from one line of therapy to the next. Near term, we expect to have multiple data readouts for casdatifan in 2026. First, mature ORR data and initial PFS data for approximately 45 patients treated in the ARC-20 Cas plus cabo cohort in the IO experience setting will be presented at an investor event or at a medical conference, and all patients will have had at least 12 months of follow-up. Second, we will share initial data from the ARC-20 cohorts evaluating Cas in early line settings, including the cohort evaluating Cas plus zim in the first line. We also expect updated data from late-line monotherapy cohorts, including overall survival. Before I hand it over to Juan, I'd like to quickly touch on quemliclustat, our small molecule CD73 inhibitor. CD73 is highly expressed in pancreatic cancer and high CD73 expression is associated with significantly poor prognosis in several tumor types. In spite of this, as we recently published in Nature Medicine, in our Phase II study, ARC-8, those patients with higher baseline levels of CD73 or adenosine activity were the ones with longer PFS and OS in response to quemli treatment. Pancreatic cancer is one of the most aggressive cancers with an average 5-year survival rate of just 13%. In PRISM-1, our Phase III study evaluating quemli plus gemcitabine and nab-paclitaxel, versus gemcitabine and nab-paclitaxel in the frontline pancreatic study, completed enrollment in September of 2025. Results from this study are expected in the first half of 2027. And if positive, PRISM-1 could represent the first transformative therapy for an all-comer first-line patient population in 30 years. There's no biomarker requirement and no nonresistant mechanism and data to date have indicated that the regimen was well tolerated. Finally, we recently announced that the Phase III STAR-121 study, evaluating our anti-TIGIT domvanalimab plus zim and chemotherapy, versus pembrolizumab plus chemotherapy as a first-line treatment for metastatic non-small cell lung cancer will be discontinued due to futility. While these are certainly not the results we expected, the study had one important positive outcome. In addition to the assessment of Dom in this trial, STAR-121 also evaluated zim plus chemo as an exploratory endpoint. Zim plus chemo performed consistently with respect to overall survival as compared to pembro plus chemo. These data are consistent with what was observed in numerous studies with zim. And this randomized data set provides valuable support for the utility of zim as an anti-PD-1 combination partner for Arcus and its collaborators. I'd now like to turn the call over to Juan to discuss our immunology and inflammation programs. Juan Jaen: Thanks, Richard. Arcus has an exceptional small molecule discovery team that has demonstrated time and time again the ability to create highly effective drug candidates against difficult targets. We have been utilizing this expertise to create and develop drugs that have the potential to address very large markets in inflammation, allergy and autoimmune diseases. In-house expertise in immunology has been a core aspect of our discovery group since Arcus's founding, having been key to many of our oncology programs. Our team is addressing well-understood and validated mechanisms, and has implemented a two-pronged strategy in immunology. First, we leverage our medicinal chemistry capabilities to design and create small molecule drugs that regulate key cytokines therapeutically validated by existing biologics. Secondly, we target immune cell types that play key roles in human disease and have been historically under studied such as mast cells and neutrophils. Our first molecule in the immunology area to enter the clinic will be AB102, a highly selective, orally bioavailable MRGPRX2 antagonist. In the coming weeks, we will be sharing its preclinical profile in an oral presentation at the Society for Investigative Dermatology. The presentation will highlight the ability of AB102 to fully block MRGPRX2-dependent activation and degranulation of mast cells. AB102 inhibits all common human MRGPRX2 variants. We have optimized the potency of AB102 under physiological conditions, such as in human blood and serum. Due to its potency under these conditions, we believe that AB102 is a potential best-in-class once-daily oral treatment for chronic spontaneous urticaria and other atopic conditions such as atopic dermatitis and allergic asthma. It is expected to enter the clinic in the third quarter of 2026 with PK data available shortly thereafter and potential for proof-of-concept data in early 2027. In rapid succession, we have selected an oral, small-molecule TNF inhibitor drug candidate, which is a potential treatment for rheumatoid arthritis, psoriasis and inflammatory bowel disease and an orally active small-molecule CCR6 antagonist candidate as a potential treatment for psoriasis. Both of these molecules are expected to enter the clinic in 2027. We are very excited about the potential for our I&I programs to provide improved options for patients, and we are working to advance these into the clinic as rapidly as possible. I'd now like to turn the call over to Bob to discuss the market opportunity for casdatifan and our financial results. Robert Goeltz: Thanks, Juan. Before I get into the quarterly financials, I'd like to spend some time on the multibillion-dollar market opportunity in RCC for casdatifan. Sales for RCC drugs in just the major markets are anticipated to grow to $13 billion by 2030. Historically, the market has been dominated by 2 classes of therapy, IO and TKIs. There have been a number of offerings in both classes, which is why the market is fragmented. In contrast, there are only 2 HIF-2 alpha inhibitors on the horizon, and we believe our data have demonstrated clear advantages over our only competitor. We have a clear path to consolidate the market and entrench casdatifan as the primary backbone therapy. The development plan that Terry and Richard described is designed to accomplish this objective. If we look at the sales for the sole marketed HIF-2 alpha inhibitor, belzutifan, which is currently approved only in late-line clear cell RCC, is already generating annual run rate sales of nearly $1 billion, only scratching the surface. With casdatifan, we are also targeting earlier line settings, the IO experienced population with PEAK-1 and the IO naive first-line population with our next pivotal study. These earlier line settings have larger patient populations and longer durations of therapy, both of which contribute to a much larger market opportunity. Specifically, our PEAK-1 study targets approximately 20,000 patients in the major markets in the IO experience setting. We believe our commercial opportunity here exceeds $2 billion. In the first line, the opportunity is even greater. With the lack of HIF-2 alpha inhibitor competition in the front line, our goal is to grow the IO-IO share from roughly 1/3 of the market to more than 1/2 by adding Cas. In fact, our market research indicates that oncologists overwhelmingly prefer the promise of a Cas plus IO-IO over a TKI-containing regimen. As Richard mentioned, we also plan to investigate a regimen with IO and TKI in the frontline to address the remainder of the market. We believe the opportunity for casdatifan in the frontline exceeds $4 billion. One point I'd really like to emphasize as we think about the commercial opportunity is duration of treatment. We've seen impressive data in late-line monotherapy with many patients on therapy beyond 18 months. We plan to share updated data later this year. As we think about earlier lines of therapy, we believe there is the potential for meaningful upside resulting from the durability of effect. Conceptually, we think strong HIF-2 alpha inhibition holds the promise of a long-term tail effect. All in, we think Cas has a peak sales opportunity of $5 billion to $10 billion. As a reminder, we own all of the commercial rights to Cas other than in Japan and certain other Southeast Asian countries held by our partner, Taiho. Now let's turn to the financials. Arcus is well positioned to advance its full pipeline with $876 million in cash at the end of the quarter. We have cash runway until at least the second half of 2028. We expect to end 2026 with approximately $600 million in cash, indicative of the declining spend we expect over the year. As Terry outlined, Arcus is entering a new era with more control over our pipeline investments. While we are building a plan to take full advantage of the casdatifan opportunity, we are also sequencing these investments such that any significant growth in overall spend will be largely incurred after the PEAK-1 readout. As a result of the wind down of Dom and reduced spend on quemli, together with broader spend management, we expect to significantly reduce our overall R&D spend in 2026 and 2027 compared to 2025. For example, as our late-stage efforts have become focused on casdatifan, we have decreased our headcount by approximately 10%. Let me transition to the financials for the quarter. For our P&L, we recognized GAAP revenue for the first quarter of $17 million. Our revenue continues to be primarily driven by our collaboration agreements. We continue to expect to recognize GAAP revenue of $50 million to $65 million for the full year 2026. Our R&D expenses for the first quarter are stated net of reimbursements and were $122 million and included non-recurring workforce costs. Our actions to reduce headcount have lowered our ongoing cost structure, which we expect will result in reduced R&D expense in future periods. The discontinuation of STAR-121 and the broader reduction in our Dom-related investment will contribute to a meaningful decrease in R&D expenses as the year goes on. By 2027, we expect more than 80% of our portfolio spend will be directed towards cash development. G&A expenses were $29 million for the first quarter. Total noncash stock-based compensation was $19 million for the first quarter. For more details regarding our financial results, please refer to our earnings press release from earlier today and our 10-Q. I will now turn it back to Terry. Terry Rosen: Thanks, Bob. That was awesome. Let me close by summarizing the key themes for the remainder of 2026. Casdatifan is our #1 priority, and this year will be another transformative year for data and importantly, development as we advance towards commercialization. We expect multiple data sets, Cas plus Cabo data, initial first-line data and overall survival data from late-line monotherapy cohorts, all of which will further reinforce casdatifan's best-in-class profile and support our registrational strategy. PEAK-1 enrollment continues to accelerate, and we're targeting full enrollment by year-end. All of the clinical development plans for casdatifan that were discussed today are accounted for within our existing budgets and have no impact on our guidance or runway. Beyond casdatifan, our PRISM-1 Phase III trial for quemli pancreatic cancer is fully enrolled and on track for a readout in the first half of 2027. Juan shared the exciting progress on our I&I portfolio with AB102 expected to enter the clinic in the third quarter and our TNF inhibitor CCR6 antagonist following shortly thereafter. With $876 million in cash and investments and runway into the second half of 2028, we're well positioned to execute on all of these priorities and create significant value for patients and shareholders. We're moving into a new era for Arcus with full ownership of our lead program casdatifan and a clear strategy to win and transform the frontline setting while rapidly advancing the next generation of wholly owned molecules for inflammation and immunology. We have no doubt that we will be generating disproportionate value for patients and shareholders over the coming 12 to 18 months. Thank you all for joining us. We appreciate your interest and continued support of Arcus, and we will now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Daina Graybosch with Leerink Partners. Daina Graybosch: Tell us about the Cas-TKI frontline combo. Specifically, we all know Merck failed with that triplet mechanistically with bel, lenva, pembro, and that's the LITESPARK-012. We have the press release. We don't know the detailed data. What could you see in that detailed data that would give you more confidence in Cas-TKI IO? And what could you see in the Merck data that would give you less confidence in the TKI combo strategy? Terry Rosen: I think we'll see what their data say, but I think the data that are out there tell us a lot already. So if you consider what we discussed at the beginning, that pharmacodynamic difference between casdatifan and belzutifan, not only the depth of response, but particularly the durability. And you think of that as a surrogate for its antitumor activity and a direct measure of its ability to inhibit HIF-2. I think what you can reconcile very easily is even in the absence of the data from the study itself, if you think about LITESPARK-011 versus LITESPARK-012, the duration of the treatment that you're talking about when you think about PFS roughly for the 2 different studies, is almost 2x. So if you recognize that belzutifan is whatever that surrogate for HIF-2 inhibition, directly relates to inhibition of the tumor, it's clearly losing that effect with time dramatically. So you see at least on erythropoietin production, on the average, you've lost that effect within 9 to 13 weeks. So when you think about it in the second-line population, the percentage of times what's bringing benefit is x. And then in the front line, it's much less. Then on top of that, if you think about the regimen, it's pretty toxic regimen. So even pembro-lenva had about a 37% rate of discontinuation. We know that the triplet was pretty unfavorable from a patient perspective. So if you think about basically, you're having diminishing effect of the HIF-2 inhibitor on top of a much longer duration of an arm that has more AEs than the control arm. So you're basically getting -- paying a price, but getting less benefit. So it's not surprising that you would end up with a hazard ratio that might not be too favorable. For us, we're going to select a TKI that we think has a very favorable -- relative to the TKIs out there, profile. But the most important feature will be that we have a HIF-2 inhibitor that has its robust effect and the durability of that effect is essentially the same on day 1 as it is on day 730. Operator: Your next question comes from the line of Jonathan Miller with Evercore. Jonathan Miller: Congrats on all the progress. I guess looking at a very broad Cas development plan here with a lot of combinations in -- across first-, second-, third-line settings. One thing that's notably absent is any approach in the adjuvant setting, which obviously we know Merck is going after. So I'd love to hear your updated thoughts on adjuvant and why that's missing from the current development plan? And then related to that, I guess, or the flip side of that is relatively recently, recently as well as relatively, you were talking about a more conservative approach to late-stage development for Cas, at least with respect to the number of Phase III trials you would want to start, you were considering going after partnerships to ameliorate the cost of late-stage development. Obviously, there's been a bit of a shift there. But Terry and Bob, I heard you say we don't expect to see any impact on runway or the ability to prosecute all these different programs. So I'd love to get a little bit more granularity on the sequencing that you're talking about and when you would start these TKI containing and potential novel combo development efforts to enable you to pursue all of these different approaches without running up against the bandwidth limitations? Terry Rosen: Thanks, Jon. And I'll let Bob handle that, and then I may have a few comments to add. Robert Goeltz: Yes, in terms of adjuvant setting, I think for us, it comes down to 2 simple things. One is the size of the opportunity and probably more importantly, is the need. So when you think about that particular setting, we think that it's around 12,000 patients or so that get therapy in the adjuvant setting, it's only the high-risk patients with resection and their treatment is capped in 1 year. And so when you actually do the math on that, we actually think that the opportunity, certainly from a revenue perspective, is probably certainly smaller than the second line and probably even smaller than what could be a third-line regimen with an alternate TKI as we described. I think the other important part is we've had a chance to talk to physicians after seeing the LITESPARK-012 data. The bar to add another therapy on top of pembro is considered quite high. In fact, most physicians told us that they actually wouldn't add belzutifan to the regimen even in light of the LITESPARK-012 data. So we actually think it will be a minority of patients that ultimately will receive belzutifan in that setting. So it's prioritization. And frankly, the other settings in first, second and third line are higher on the list for us. And so that's sort of why we've made the decision that we have from an adjuvant perspective. In terms of the sequencing of the spend, as we highlighted, we have PEAK-1 up and enrolling right now. Our goal is to have the study enrolled by the end of the year. The work towards launching these additional Phase III studies would have us in a position to sort of move those studies forward as early as late this year into next year with obviously probably our highest priority being that frontline combination with ipi and anti-PD-1. But the other studies will be shortly on the heels. But if you think about just sort of the general investment profile for the studies, we'll be through the bolus of study start-up for PEAK-1 and the cost profile for PEAK-1 will be starting to decrease as we get into the second half of next year. So we kind of feel like that it's going to be a nice portfolio effect that when we think about these other studies, kicking in really from a spend perspective in late '27 and into '28, we sort of see a generally steady spend profile through the PEAK-1 readout like we described. Terry Rosen: Jon, and I'll -- Bob kind of gave you the line of the spend along with the studies, and I'll give you a little bit more granularity on how we literally see the trials themselves playing out. So the first study, obviously, PEAK-1 that's enrolling, as Bob said, it will be fully enrolled by the end of this year, and then we'll be waiting for readout. We're going full speed ahead and expect that ipi, anti-PD-1 Cas, as we've been talking about for some time, to be getting up and going by the end of this year. We'll see where the TKI inclusive regimen comes in. There's -- Without getting into all the detail now, we'll be sorting through whether there's -- that's actually 2 studies -- 2 registrational studies or a 3-arm study is also a possibility. And then finally, in the later line study that we talk about, we'll start off in ARC-20. And as you know, those are relatively small cohorts that enroll very efficiently. But the other point that I think will be very important within those studies, and we'll get the answers quickly is that we'll be looking at that combination in the third-line plus in belzutifan-naive patients as well. And I think that will establish. It's a cool study, and I think, it's going to establish something [indiscernible] Juan Jaen: [indiscernible] Terry Rosen: Yes, I'm sorry, bel's experience in addition to bel's naive. Thank you, Juan. And I think that will nail something that we think we know the answer to, but we'll have those data even this year. Operator: Our next question comes from the line of Li Watsek with Cantor. Li Wang Watsek: Hey guys congrats on the progress. I guess just one question on the ARC-20 update, especially from the triplet cohort. It sounds like you guys are enrolling the combination with zim plus ipi. Can you clarify if we're going to see the initial data from this cohort this year? And what data points would you want to see to enable a Phase III frontline trial? Terry Rosen: Thanks, Li. So we do think what you'll get to see, and it will be probably in the fall, are the initial data from ipi anti-PD-1 Cas regimen. And essentially, we'll get a sense of the safety data and the rate of primary progression. While there may be some early ORR data, we don't consider that critical. We're most focused on the safety. We'll have an agreement with the FDA as to what safety data package they would want to see to enable us to get that Phase III up and going by the end of this year. And then obviously, because that's the first point, but it's also an important point for that regimen is we'll see the rate of primary progression. I think one thing to recognize about that regimen when we think about triplets, doublets, et cetera, is also just I'd like to make the point is, as you know, we've already talked about the rate of primary progression with casdatifan plus anti-PD-1 alone and those initial data are quite favorable where we only saw a 7% rate of primary progression. Now if you think about what that Cas, anti-PD-1 ipi regimen is going to look like, you basically get 4 cycles of ipi at the outset, of course, with Cas and anti-PD-1. But then the duration and the bulk of your therapy is going to be anti-PD-1 plus Cas. So both the efficacy that you're seeing with that as well as the safety of that will certainly impact the bulk of the therapy. So we're excited about that regimen. We think we're well on track to be able to start the Phase III by the end of this year and have a good safety data package. And we do plan to share that with the external world as well this year. Operator: Our next question comes from the line of Richard Law with Goldman Sachs. Jin Law: Yes, very helpful to see Cas's development laid out in its life for all the different lines of therapy. A couple of questions from me. So looking at the LITESPARK-012 failures in both triplets and dual Cas discontinuation by [ AZ ] and then all the frontline therapies of doublets or monotherapy so far, what is your confidence that a Cas triplet of any kind either with IO-IO or IO-TKI could be safe enough to succeed in 1L? And I mean, what do you think is the safety bar for 1L? Do you think that those triplets have to show like comparable safety profile to like that IO-IO, IL-TKI doublet for them to work? Terry Rosen: So I think we feel very confident based upon what we already know about our molecules with triplets, whether it's a triplet inclusive of a TKI or a triplet with the ipi anti-PD-1. So keep in mind, while we haven't analyzed in detail, and we will later this year, the zim, so that anti-PD-1 Cas, we know that doublet, and we certainly haven't seen anything untoward with that. We know we can combine with cabo well. So what we believe is that the ipi/nivo regimen has been extraordinarily well worked out in terms of dosing of that particular regimen. And as I was mentioning in my response to Li, you're basically going to treat with 4 cycles of ipi, that's quite worked out. So we believe that we have orthogonal AEs. We haven't seen anything in terms of a clear combination issues. When you think about casdatifan, you're basically bringing those on-target anemia and of course, rarely or certainly more rarely hypoxia. Again, we're going to pick a good TKI. We know that Cas anti-PD-1 is looking good. So we think a reasonable TKI will not bring anything untoward there. Keep in mind, we haven't actually seen the Merck data. And I think the thing that you should take away until otherwise is their hazard ratio must have been not good. So that doesn't get to an intrinsic inability to have a triplet. It just says when you're bringing that TKI, when you're bringing belzutifan on top of a pretty rough doublet, and you're treating for a long period of time and you are undoubtedly introducing some new AEs, but you're not having a robust long-term efficacy effect, you're probably not creating a hazard ratio, but we really don't know exactly how that played out. But all the data with our own molecule suggests that casdatifan is a very well-tolerated and robust HIF-2 inhibitor and with an orthogonal AE profile from anything that we plan to combine with. And we'll have all those data within the next 6 months or so. Jin Law: Got it. And then a follow-up on that. Have you seen the efficacy and the safety results from that dual Cas before Astra discontinued it? And will that data be shared to you guys even if Astra does not plan to share that? Terry Rosen: So we haven't seen anything other than what we said at the outset. Since they did disclose, you can now know that there were 9 patients. We -- What we described was that initial safety signal that was very CTLA-4 and more specifically volru-like when they dosed down volru. But casdatifan at the same 100 milligram dose we didn't see any more of it. And those patients still continue on. And in fact, the interesting thing out of that is, as we've commented before, we didn't see any progression. So that, if anything, we don't even know, quite honestly, that given that it was 9 patients, it's not obvious whether that was even purely volru or not. But what is obvious to us, at least as we were thinking about going forward, is that given that ipi/nivo well worked out regimen, well worked out dose, it's time tested. And of course, probably most importantly that you're only going to be carrying your anti-CTLA-4 dosing for 4 cycles made it a clear regimen for us to want to proceed with all the 4 things considered, not wanting to have both of those activities for the duration of the therapy. Operator: Our next question comes from the line of Salim Syed with Mizuho. Michael Linden: This is Mike Linden on for Salim. Just one from us on casdatifan in frontline again. Maybe just how you guys are thinking about patient selection for an ipi/nivo plus Cas combination for a Phase III? Like would these be all-comers versus poor intermediate favorable risk patients, things like that? And I guess, how is the thinking around patient selection changed post LITESPARK-012 failure? Terry Rosen: Yes. So our patient selection strategy hasn't changed. And in fact, we're thinking of all comers. And we would also be thinking of all comers in so far as a TKI inclusive regimen. So what we're really trying to address there is there's clearly -- we've had at Board meetings, there's clearly a strong preference for a TKI sparing regimen. So that's unequivocal, and that's the way we described it as the bedrock of the front line. With that said, it's a little bit one of those things where there's almost a tribalism is the way the investigators in the field would describe it, where there are certain investigators that are very prone, particularly if there is a bulky fast-growing tumor, but even otherwise do want to reach for TKI. So we feel from that overlap of particular patient with particular investigator, there should be a HIF-2 inhibitor containing regimen. And we think we can offer a very good one. So we look at both of those to be in all-comer patient populations. I think, again, the LITESPARK-012 data for us until we see something otherwise, we simply think it has to do -- and certainly, this has to be a contributing factor to that durability of effect, and let's just call it on HIF-2 inhibition with time that we know that's a dramatic difference between our 2 molecules. And of course, when we look at the choices of what to combine with, keep in mind, we have no commercial predisposition there. I -- Essentially, the world is our oyster. If you look at the front line, there's a number of TKIs used. There's not one that's particularly dominant. Overall, you have probably 60% of the patients are getting a TKI, but they're spread somewhat evenly. So we've gone and looked and been very strategic about it and looked at what's the smartest TKI from a safety standpoint, it's well used, it's well tested, approved, understood that we should combine within the front line. We know that we're going to have cabo in the second line. And then we've done the same in thinking about that late-line patient population with what then becomes another TKI that you would use in the late line. And like I said, the other important thing there is that we are going to look at that combination of Cas with that TKI in belzutifan experienced patients and establish that unequivocally. You get the activity that you want to see in that HIF-2 experienced patient. Operator: Our next question comes from the line of Jason Zemansky with Bank of America. Unknown Analyst: This is Jackie on for Jason Zemansky. Congrats on the progress. Just a quick one for you. So what do you think is necessary to drive broad uptake of a TKI-free regimen in the first-line RCC, given how popular TKIs are overall, especially given their ability to rapidly debulk tumors? Or is the goal to compete directly with dual IO therapies? Terry Rosen: So I think -- so what's interesting is we think there is a strong receptivity towards this. Now one of the most important things that we've seen to date is that casdatifan as a monotherapy, even in the late line, performs -- is good or better than TKI in any line of setting. So if you go -- we have in our deck somewhere, you can actually look that even in the late line casdatifan monotherapy, whether you're looking at ORR or PFS, looks quite good. And the thing that's standing out, and I think this is the issue that was identified with belzutifan at the outset was that rate of primary progression. So I think that's raised the question for HIF-2 inhibition, can you compete with TKI at bringing that tumor under control quick enough that you don't have that high rate of primary progression. So we believe that belzutifan was forced in the front line to combine with the TKI to address a potential high rate of primary progression, but we actually think that despite the fact that HIF-2 inhibition is well tolerated, it can get the tumor under control quite fast. And the place where we've already seen our evidence of that is in combining with anti-PD-1, where in 30 patients, we only saw 2 progressors, 2 primary progressors. So 7%, very much in line with the TKI. So we think there's a receptivity to the TKI-sparing regimen, and we think that the key thing to driving that uptake will be to show that our rate of primary progression and then everything that flows from, that looks like a TKI. The last point I would make is it's almost like there -- the mentality would be like because TKIs are a rougher treatment, it's sort of like when you think about chemotherapy that there's a linkage that sort of in people's minds, they associate rougher, but bringing the tumor more under control. Keep in mind that 85% to 90-plus percent of clear cell RCC has HIF-2 as a key driver. So you're hitting the tumor with something that really matters. And we think that's why with a robust HIF-2 inhibitor like casdatifan, you actually can compete with the efficacy effects of a TKI. Juan Jaen: Add one other point is like, I think Dr. McKay in our event in the fall indicated this that the reasons you really prefer using ipi/nivo for the most part is it gives the patients the best chance for long-term survival. And the problem is the Achilles heel as Terry described, of the primary progression. So if you could blunt that and still give patients the best chance of long-term survival and we just saw 10-year follow-up data with 40% of patients alive 10 years later, that's a very compelling regimen we think. Operator: Our next question comes from the line of Emily Bodnar with H.C. Wright. Emily Bodnar: Based on the LITESPARK-011 data, how are you kind of looking at your upcoming Cas plus cabo updated data? And what are you kind of hoping to see to feel confident that you might have a superior profile versus what we saw in the LITESPARK-011 trial? Terry Rosen: Yes. So we already feel that confidence, and we're obviously running the Phase III trial. I think you kind of have to think of things holistically. In the end, what you're going to have is a hazard ratio. And what's nice is that since we are both running versus cabo, those will be directly comparable. While our data when we share later this year, we will still be early, we're going to give Kaplan-Meier curve. We'll have landmark PFS, we'll have ORR. And people will be able to extrapolate to whatever extent how they want to look at those data, but we'll give a very holistic view. I think the other thing that we don't want lost on people because we think it's an interesting other aspect of the data that really will only be emerging. And we'll see how things play out by the time we have some mature data later this year. So while from a regulatory standpoint, the PFS is what matters, we're going to have data now our -- from our monotherapy cohorts that are getting mature enough that we'll start to get a sense of whether we do bring an OS advantage there, albeit in the late line. And the reason we feel that's important is it just -- depending on how that looks for casdatifan, it will potentially give a good sense that this mechanism can not only drive enhancements in PFS, but bring enhancements to OS. And while that may not be a requirement from a regulatory standpoint, we certainly could see it as an important differentiation that would drive more uptake by clinician, in fact, we start to show that there can be OS enhancement from HIF-2 inhibition, which we believe there's no reason there shouldn't be. Operator: Our last question comes from the line of Yigal Nochomovitz with Citigroup. Joohwan Kim: This is Joohwan Kim on for Yigal. Congrats on the progress. Maybe just to mix in a noncash question. Regarding AB102, while it's still early, is there any color you can provide on the intended proof-of-concept study design, whether you're planning on going into CSD versus AD first? Any color on primary endpoints or level of clinical signal you need to see to give confidence to advance into a future registrational program? Terry Rosen: So Juan, why don't you describe how we see ourselves going from A to B to C in the near term? Juan Jaen: Yes. So at a very high level, we have recognized that while we think we may have a better molecular profile, we have a little bit of ground that we need to make up relative to the couple of existing clinical players. So what we've devised is a fairly accelerated plan for establishing PK tolerability in healthy volunteers, followed by a fairly quick, rapid mechanistic confirmation of biological activity and very quickly progressing into a Phase II study in CSU. So we think we will in reasonable speed, catch up and hopefully begin to illustrate the better profile of our drug. In parallel with that, we're thinking about where it might make sense concurrently with that CSU type of Phase II study to demonstrate the value of an MRGPRX2 inhibitor. Right now, our lead candidate for that additional indication seems to be allergic asthma, but that's still at a very early stage of conceptual framing. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect. Terry Rosen: Thanks, everybody. Operator: Goodbye.
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 afternoon, and welcome to Chime's First Quarter Fiscal 2026 Earnings Call. Following the speakers' remarks, we will open the line for your questions. As a reminder, this conference is being recorded, and a replay of this call will be available on our Investor Relations website for a reasonable period of time after the call. I'd like to turn the call over to Peter Stabler, Vice President of Investor Relations. Thank you. You may begin. Peter Stabler: Good afternoon, everyone, and thank you for joining us for Chime's First Quarter 2026 Earnings Conference Call. Joining me today are Chris Britt, our Co-Founder and CEO; and Matt Newcomb, our CFO. Mark Troughton, our President, will participate in Q&A. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release and our earnings presentation posted on our IR website at investors.chime.com. We will also make forward-looking statements on this call, including statements about our business, future outlook and goals. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our Form 10-K filed on March 6, 2026. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements, except as required by law. With that, I'll hand it over to Chris. Christopher Britt: Thanks, Peter, and thank you all for joining us today. 2026 is off to a strong start. In Q1, we delivered strong active member growth, continued taking share from the largest banks, achieved GAAP profitability and accelerated product velocity. Last month, we launched Chime Prime, our new premium membership tier. Prime offers higher cash back rewards, high-yield savings, greater access to liquidity and premium perks for members who make Chime their primary financial partner. Early signs are encouraging, and I'll share more in a moment. The strength of our brand and offerings have never been clearer. We added nearly 700,000 active members in Q1, bringing total active members to a record 10.2 million. Consumers are drawn to Chime's expanding product suite and low-fee model. As a result, Chime again ranked #1 in U.S. checking account openings per J.D. Power's Q1 survey and 50% ahead of the next competitor, while members earning $75,000-plus remained our fastest-growing segment. Unaided brand awareness also continues to rise among consumers earning up to $100,000. Turning to the quarter. Revenue grew 25% year-over-year, exceeding the high end of our guidance range. Coupled with strong cost discipline, we delivered over 13 points of adjusted EBITDA margin expansion year-over-year, demonstrating the powerful fixed cost leverage in our business model. Q1 also marked our first quarter of positive GAAP EPS, a major milestone for our shareholders. And we expect to deliver positive GAAP EPS for our full year results. Our Q1 results highlight our core competitive advantages, primary relationships, our trusted brand, a low cost to serve and rapid innovation powered by ChimeCore now accelerated with AI. Understandably, the health of the American consumer is a major focus for investors today, fueled by geopolitical uncertainty, high energy costs and overall affordability concerns. We look closely at our members' behavior, and as we've reported for the past several quarters, we continue to see broad consumer resilience. Even with fuel spending up, overall purchase volumes and saving rates remain strong and consistent, and average account balances among our recurring direct depositors continue to grow, aided in part by year-over-year growth in the average tax refund. And we've yet to see any meaningful changes in the number of our members receiving unemployment benefits. In terms of lending, our credit loss rates continue to improve, reflecting the strength of our short duration loan portfolio underwritten by recurring direct deposits and our ability to rapidly fine-tune our lending risk models. These factors dramatically lower our loan portfolio risk and are what separate us from other lending businesses. Turning to our 2026 priorities. As we mentioned last quarter, our first priority is to extend our lead as the best financial partner for everyday Americans. This starts by leveraging our proprietary tech stack and cost-to-serve advantage to provide products and services that enable our members to unlock financial progress while maintaining our position as the market's low-cost leader. Our membership tiers embody our central brand promise of offering the most rewarding fee-free banking experiences in the market for everyday Americans. At the same time, they reinforce a simple idea: the more members engage with Chime as their primary financial partner, the more value they unlock. Our membership tiers drive deeper direct deposit relationships, increased product usage and expanded ARPAM as evidenced again this quarter. Building on the success of Chime Plus, our basic membership tier that rewards members who set up direct deposit, we're really excited about the launch of Chime Prime, which offers an even richer set of rewards to members making at least $3,000 of qualifying direct deposits per month. And as with Chime Plus, there are no fees. Chime Prime members unlock a market-leading 5% cash back on the category of their choice when they spend with their Chime Card. Categories include groceries, restaurants, gas, utilities, or travel. So for example, a family spending $1,500 on groceries per month would receive $75 in cash back on Chime Prime. Prime also includes 3.75% APY on savings, a rate 9x the national average, up to 70 points of credit score improvement, higher levels of liquidity through MyPay and instant loans and premium travel and lifestyle perks like access to exclusive airport lounges and special access to concerts. Early results show that our new Prime tier is increasing direct deposit intent and improving retention among existing direct depositors. Prime members are also more likely to adopt Chime Card for everyday spend, helping to drive a continued shift we're seeing from debit to credit spending, which delivers a higher take rate for us. The benefits from this more premium tier deepens our relationship with higher-earning members who are becoming a larger portion of our member base. Turning to our short-term liquidity products. Q1 was another strong quarter for MyPay, which is already a $400 million-plus run-rate business. We rolled out our variable MyPay pricing plan and expanded access to earned wages earlier in the pay cycle, addressing our most frequent member requests while at the same time, retaining our leadership as the low-cost provider in the market. With higher origination volumes, improved yields, and low, steady loss rates, MyPay transaction profit was up over ten-fold year-over-year. We're also making great progress with instant loans, which we believe positions the product to become a meaningful contributor to transaction profit growth over the coming quarters. Members qualifying for Chime Prime are prequalified for instant loans, and continued optimization of our underwriting models is enabling us to broaden member access while we reduce loss rates. Our first priority at North Star is to help our members unlock financial progress. In service of this goal, our product road map for this year will expand to meet even more of their everyday financial needs with investing, joint accounts, and custodial accounts all coming soon. With a broader portfolio of products, we believe we'll continue to deepen our member relationships. The evidence at the cohort level is clear and compelling. The longer a Chime member stays with us, the greater the average product attach rate, purchase volume and transaction profit. This compounding dynamic is the core of our long-term growth model. Our second priority is scaling Chime Enterprise, our expanded earned wage access and suite of financial wellness tools completely free to employees through their employers. As we've mentioned, the sales cycle for enterprise accounts tend to be long, but our pipeline and customer count is growing steadily. We're excited to announce that we've signed 4 new employer partners in Q1, including First Student, the largest provider of student transportation in the nation with over 65,000 employees. As we prepare to roll out with First Student, our Workday partnership will support seamless integration and implementation. Our third priority is to deeply embed AI across Chime and into the member experience. For a full-stack fintech like Chime, with proprietary data, integrated infrastructure, deep bank partnerships and a trusted brand, AI compounds our structural advantage and further differentiates us from incumbent banks. As the primary account for millions of members, we have a real-time view of their financial lives, paychecks, spending, bills, balances, all flowing through our platform. And because ChimeCore powers everything from the ledger to the app experience, we can take action, not just provide insights. With the member's permission, we can move money to where it earns more, extend credit in the moment it's needed, and stop unwanted charges before they post, capabilities no third-party app could replicate. With Jade, our AI copilot rolling out now, we're bringing this to life. Jade will help us move from reactive tools to proactive financial management, helping members spend smarter, save more, pay bills on time, borrow responsibly and build long-term wealth. Early results from scaled beta testing have been encouraging and we'll continue to expand access over the coming months. While AI will accelerate innovation across the industry, it won't replicate the foundations of our model, bank partnerships, payment networks and compliance infrastructure. As choice expands, consumers will choose the platform that delivers the best products at the lowest cost from a brand that they trust. AI is already transforming the way we work. In product and engineering, AI-powered development is quickly becoming the norm. 84% of the code we shipped in March was developed with AI, up from 29% just 4 months ago. That's driving a meaningful increase in velocity. We're now taking the next step with Archimedes, our AI-native "software factory" where we can move from idea to a shipped product with AI agents doing the majority of the development. More broadly, Archimedes represents a fundamental shift in how we build at Chime, from AI assisting humans to AI at the center of how we design and develop products, while maintaining the quality, control, and compliance our platform requires. AI is driving operating leverage at scale, increasing levels of output while keeping headcount flat. We're at a unique moment where AI is unlocking entirely new possibilities in financial services. Because we're not burdened by legacy systems, we can move faster, build better, and lead this transformation. With our platform, model and momentum, we're uniquely positioned to shape what comes next. AI isn't just a tailwind for our business. It's an accelerant of our core advantages, further expanding what we can deliver for our members and for our business. I'll turn it over to Matt to cover our financial results and provide an updated outlook for Q2 and the full year. Matthew Newcomb: Thanks, Chris. In Q1, our fourth quarter as a public company, we again demonstrated both strong execution and the resiliency of our model. We're continuing to execute on multiple dimensions of growth with 19% growth in active members, 5% growth in average revenue per active member or ARPAM, and a 9 percentage point improvement in transaction margin in Q1. These are compounding growth levers, and together drove 41% growth in transaction profit in the quarter. We're the clear #1 share gainer in a massive market with a radical cost-to-serve advantage and a technology and product innovation advantage that continues to extend our lead over the competition. And powered by our deeply engaged primary account relationships, we have a durable, low credit risk, 70% plus transaction margin business that we're scaling over a largely fixed OpEx base. These are the ingredients of a business model with strong long-term earnings power, and in Q1, we again demonstrated our rapid progress along that path. Our Q1 adjusted EBITDA margin of 18% improved over 1,300 basis points year-over-year. Our incremental adjusted EBITDA margin was 73% in the quarter, and we were GAAP profitable. Given the strength in the business, we are raising full year guidance. And, having exhausted our prior repurchase program, we are also announcing an additional $200 million share repurchase authorization. While markets are volatile, our long-term earnings power is not, and this authorization allows us to continue to opportunistically take advantage of market dislocations in our share price. Let me dive into more detail on our Q1 operating results, starting with Active Members. We have a consistent track record as the leading share gainer in a market of nearly 200 million Americans making up to $100,000. In Q1, we added nearly 700,000 net new active members quarter-over-quarter. Some of this growth was driven by particularly strong seasonal tailwinds. As a reminder, each year in Q1, tax refund related activity drives seasonally higher levels of reengaged Active Members. This year, we saw the number of members using our embedded tax filing service grow over 50% year-over-year. Also, this year's later start to tax season concentrated more of this reengagement later in the quarter. That said, our overall growth algorithm continues to perform well, with several other drivers contributing to this quarter's strong performance. First, our top of funnel remains strong. Our brand awareness continues to grow, and new value propositions like Chime Card's cash back rewards on everyday spend are clearly resonating with members. Looking ahead, we're excited about the opportunity to use rewards more broadly to drive both new member growth and retention and expect to continue to experiment this year. Second, our early engagement initiatives, which make it easier to get started with Chime continue to be successful. These initiatives have enabled us to engage members we wouldn't have otherwise engaged, driving all-time high activation rates, lowering our CACs, and improving our payback periods to 5 to 6 quarters. We're also finding that they are increasingly an on-ramp to more deeply engaged direct deposit relationships, not just lightly engaged members. Given this progress, we believe we are on track to exceed our original goal of 1.4 million net new actives for 2026. Second is ARPAM. We have a high-quality member base. We serve the majority of our members in the primary account capacity, which gives us deep levels of engagement, strong retention, and high levels of ARPAM. As our members' primary account relationship, we've also earned both the trust and mind share to drive strong product cross-sell. 15% of our active members use 6 or more products each month and their ARPAM is north of $500, double our average. In Q1 specifically, overall ARPAM increased 5% year-over-year to $263, driven by strength in both payments and platform revenue. Combined payments and OIT revenue increased 19% year-over-year. Resilient member spend trends, along with larger tax refund deposits drove PV and OIT volume growth of 15%. We're also continuing to drive strong adoption of Chime Card across both new and existing members. As of March, nearly half of our members are using a secured credit card, either our legacy credit builder card or increasingly our new Chime Card on a monthly basis. That's up from just over 1/3 of members in September prior to our Chime Card launch. This progress has increased the portion of total purchase volume that is on credit to nearly 25% in March, up from 16% in September. Chime Card is a win-win. Members benefit from cash back rewards on their everyday spend, and we benefit from the higher net interchange rates we earn on credit. And as Chris noted, we're excited for Chime Prime's potential to drive Chime Card adoption even higher. Platform-related revenue increased 50% year-over-year, driven by continued strong performance across our liquidity products. Our success earning direct deposit relationships enables us to offer liquidity products profitably, at low cost, and with low risk. In Q1, we completed the rollout of our new variable pricing model for MyPay, while also maintaining loss rates at our steady-state target of 1%. Together, this grew our MyPay transaction margin to 62%, and overall MyPay transaction profit dollars to $64 million, up 10x year-over-year. We're also seeing strong performance for instant loans, our 3- to 12-month installment loan products. We're scaling access. In Q1, we originated $180 million of instant loans. We're also offering longer duration loans to repeat borrowers, which come with better economics. In Q1, we doubled origination volume quarter-over-quarter for 9- and 12-month loans, and we're driving lower loss rates. We continue to see loss rates improve as much as 50% for repeat borrowers compared to first-time borrowers. Taken together, we're very excited about the progress with this product and its path to becoming a meaningful driver of transaction profit growth over the coming quarters. Third is transaction profit. Our low-cost operating model has enabled us to offer what we believe is the most compelling directive services for mainstream consumers, delivered at over 70% transaction margin. We don't believe any incumbent offers consumers anywhere near the level of utility and value that Chime offers, including for higher earners. In Q1, as a result of our recent transition to ChimeCore as well as continued strong loss rate performance, we improved our transaction margin to 76%, up 9 percentage points year-over-year. Together with our growth in actives and ARPAM, overall transaction profit grew 41% year-over-year to $491 million. So we're compounding growth across multiple dimensions and we're driving this growth with strong unit economics. We continue to acquire members efficiently with 5- to 6-quarter transaction profit payback period. But just as important is the durability of our cohorts driven by our deeply engaged, long-lasting primary account relationships. Our cohorts are underpinned by everyday reoccurring nondiscretionary spend. Our cohorts double in ARPAM as they season as members attached to more products over time, and our cohorts see over 100% dollar-based transaction profit retention, net of churn. Taken together, this drives LTV to CAC of over 8x. It's these unit economics that allow us to drive strong operating leverage while continuing to make meaningful investments in growth. In Q1, non-GAAP OpEx as a percent of revenue fell 5 percentage points year-over-year with leverage across all OpEx categories. And in Q1, we grew our adjusted EBITDA margin to 18%, up 13 percentage points year-over-year at an incremental margin of over 70%. In total, we delivered $119 million of adjusted EBITDA and $53 million of GAAP net income. Turning to our guidance. In the second quarter, we expect revenue between $633 million and $643 million, resulting in year-over-year revenue growth between 20% and 22%. We expect adjusted EBITDA between $72 million and $77 million, and an adjusted EBITDA margin between 11% and 12%. For the full year, we expect revenue between $2.66 billion and $2.69 billion, resulting in year-over-year revenue growth between 22% and 23%. And we expect full year adjusted EBITDA of between $416 million and $431 million, and an adjusted EBITDA margin of 16%. We now expect an incremental adjusted EBITDA margin of approximately 60% for 2026. There are a few things to keep in mind about our second quarter and full-year guide. As a reminder, we have a seasonal business. Many of our metrics, including Active Members, transaction volumes and ARPAM benefits from tax refund-related activity in Q1. In particular, because tax refund-related activity drives more members to reengage with us in the first quarter, we benefit from seasonally high quarter-over-quarter net adds each Q1, but lower net adds each Q2. We expect to see this typical seasonality again this Q2. We also see seasonally elevated transaction margin in Q1 due to higher purchase volume, as well as those lower utilization and higher repayment rates on our liquidity products. As such, we expect transaction margin to normalize from 76% in Q1 to between 70% and 72% for the rest of the year. Finally, while we'll continue driving operating leverage at attractive incremental margins, as we've noted previously, we are investing in the sales and marketing and member support costs to support the recent launch of our Chime Prime premium membership tier this year, particularly in Q2. With that, I'll open it up to Q&A. Operator: [Operator Instructions] We'll take our first question from Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: Great. Really great results here, guys. Nice to talk to you all. Just Matt, you went through a lot with the ads. So I won't ask you to go through it again, but just thinking about drafting off of the strong tax rebate season and some of the initiatives you guys have put in as you're thinking around, additions and how it's going to track for the rest of the year? Has that changed at all? And it does feel like you've gotten a little bit more momentum on instant loans and it's showing up already. So how impactful might that be here as we recast our forecast for the rest of the year? Matthew Newcomb: Thanks, Tien-Tsin. Yes, we're really pleased with the continued momentum that we're seeing on our actives growth. As I mentioned, our overall growth algorithm remains really strong. Top of funnel remains very healthy. Our brand awareness continues to grow. You're seeing this result corroborated by third-party data, J.D. Power, came out with their latest survey in Q1 where Chime again ranked #1 by a large margin in terms of checking account openings. I think our product velocity is really helping us as well. New products like Chime Card and more recently, Chime Prime are clearly resonating with members. And all of this also supports our early engagement initiatives. We're continuing to see great progress that led to shorter payback periods and LTV to CAC north of 8x. That being said, we also saw that some of the -- we also saw some outsized seasonal tailwinds on actives growth in the quarter as well. And as a reminder there, every Q1 we see seasonally high reengagement related to tax refunds. In this quarter, there are really sort of 2 factors that magnified this. We saw a later start to tax season than in years prior, and that concentrated more of the reengagement later in the quarter. As a reminder, we measure monthly actives as of the last month of the quarter. And then we also saw a really strong engagement with our embedded tax filing service this year. So in sum, we're continuing to see broad momentum, but it is true some of the performance in terms of net adds in Q1 was related to seasonal factors. But in aggregate, we're feeling very good about exceeding the $1.4 million annual target that we set out at the beginning of the year and broadly speaking, to follow the similar seasonal trends that we've seen in years prior. Maybe I'll pass it to Mark to touch on instant loans. Mark Troughton: Tien-Tsin, it's Mark. I think on instant loans, we've been very pleased with the progress there. And just to give you an indication there, we originated $180 million in the quarter of instant loans. We expect that to accelerate going forward. Just to remind everybody, Chime Prime members automatically qualify for instant loans. So we do expect some significant growth to come from the instant loan product. In addition to Chime Prime, we're continuing to offer a longer duration loans to our repeat borrowers. Those borrowers operate at 50% better loss rates. And so the model that we've developed here over the last 12 to 18 months seems to be working well. In terms of what it can do overall, we're not giving sort of specific guidance. And I do think this will still be small compared to MyPay. But I think it's fair to say that we expect instant loans can become a material contributor to transaction profit over the coming quarters. Operator: We'll take our next question from James Faucette with Morgan Stanley. James Faucette: Apologies for the background noise. A couple of quick questions here. You mentioned that the above $75,000 income over was kind of your fastest-growing segment. Can you just help us understand how you think about segmentation? And as part of that, I thought the comments around products attached, were also very compelling. How is -- how do those numbers as they come in at that higher income bracket, what is their attach rate or pacing compared to maybe a rest of the customer base as a whole? Christopher Britt: Thanks, James. It's Chris here. Yes. We're really excited about the progress that we're making across really a wide range of segments that we serve. We reported again, I think this is the third quarter in a row where we've announced that specifically the $75,000-plus segment of income is the fastest growing for us. We really have a mainstream service here that appeals to consumers across income segments. And I think we not only see it in our own data, but we also see it in the J.D. Power data, the external data that said that we open up the most checking accounts. When you double-click into reports, they actually break out by income levels, and you see Chime also near the top of the list for higher-earning demos as well. So when we look at the sort of higher income demo specifically, we see retention rates that are similar to -- or right at the same level as the rest of the portfolio. So just as a reminder, a 90-plus percent retention rates after the first year, and we see very high levels of product attached that are similar to all of our cohorts as they continue to age and just a reminder on that, we have some information in the supplemental that shows how our cohorts continue to drive outsized ARPAM as they age. The more tenured cohorts are doing over $400 of ARPAM and we see that of our member base that attach 6 or more products actually generate $500 or more of ARPAM. So obviously, a higher earning customer has the ability to spend more, which is the key driver of our economic model, but it also gives us an ability to offer a wider range of products, including lending and credit products. And now with our Chime Prime product, which gives you 5% in a category of your choice and 3.75% APY, this is extremely powerful and something that is broadly compelling. And so I think we now have even more reasons for our members to stick with us for life. And I think that's particularly relevant to these higher earnings segments as well. James Faucette: That's great to hear. And then I wanted to follow up on one of the other comments you made in terms of accelerating product development and the benefits that you're getting from some of the AI development tools, et cetera. How should we think about kind of what that accelerated product road map can look like? I mean -- and really I'm trying to think about it from a business and financial standpoint, does this help accelerate? Is it more so that it improves your ability to attract members, et cetera? Or should we think about it more as accelerating incremental products for your members and that instead of really accelerating member growth per se, that it's really about finding incremental ways to serve existing members et cetera? Christopher Britt: Well, I think we really see it as a force multiplier for us. It starts with the way that we actually get work done around here. We talked in our intro remarks about Archimedes, which is our software factory that allows our developers to basically run what is essentially a multi-agent development pipeline so we can build products much faster from idea into production with AI handling the vast majority of that work. So we're going to be able to get more products into the hands of our members even faster. We've got a really exciting road map for the rest of the year that we've outlined with investing in joint accounts and custodial accounts and the thing that I think we're most excited about is the progress that we're making on our actual AI copilot called Jade, which is going to allow our members to not just get financial advice, but -- and tips, but also to -- given our unique position of having -- enjoying this primary account relationship, we can give advice and then allow with their permission to take action on the behalf of our members to help them make financial progress. So you should expect to see exciting developments on that front. And I think it's going to give us one more reason for consumers to come to Chime, use us as a primary bank account and I think over time, you're going to see that this technology advantage that we have relative to incumbents is going to only expand in the coming quarters as we deploy these AI tools, both in development and in the consumer product itself. Operator: Our next question from Adam Frisch with Evercore. Adam Frisch: Great results here. Two questions for you. One, the fiscal year guide was increased more than the 1Q beat, which is great to see. So the business momentum is pretty obvious. Matt, was the second quarter guide more conservatism given the seasonality there and not a read on decelerated momentum in the business or anything like that into the second half? And my second question was for Chime Prime, what are the early adoption, eligibility or activation rates? Anything you can tell us about, if you're seeing kind of a lift, in direction deposit conversion and all that kind of good stuff that would go along with that program? Matthew Newcomb: Thanks, Adam, Matt here. I'll talk first about the guide, and then I'll hand it over to Chris to talk a little bit about our early results on Chime Prime. As you mentioned, we're really pleased with really the broad-based business strength we're seeing and the momentum heading into the rest of the year. And just as you said, we're raising our expectations on both revenue and adjusted EBITDA for the full year. As it relates to Q2 specifically, a couple of points to keep in mind. First, on the top line, we do face a more difficult year-over-year growth comparable in Q2. In the year ago period, we saw a 500 basis point revenue growth acceleration from Q1, which is primarily due to how we were scaling MyPay at the time. So if you were to actually look at Q1 and Q2 on a 2-year stack basis, what you see is that revenue growth in Q2 is very comparable to Q1. On top of that, with the launch of Chime Prime, that will also lead to some higher rewards costs beginning in Q2. So those are 2 factors as it relates to top line. On bottom line, 2 things to point out. On a sequential basis, we do expect to see our normal step down from Q1 seasonally high transaction margin. We mentioned in our prepared remarks that we expect transaction margin to land in the 70% to 72% zone for the remaining quarters of the year. And also, as we telegraphed last quarter, we expect to invest behind our Chime Prime launch in Q2, both in sales and marketing and member support. On an incremental basis, we expect adjusted EBITDA margins in the low 50s in Q2. So from a phasing perspective, this is all in line with our plans. And again, to reiterate, we're raising our expectations for the full year on both revenue and adjusted EBITDA. And on the full year, just as you said, not only are we flowing through our outperformance from Q1, we're raising our expectations for the remainder of the year as well. Christopher Britt: Maybe I'll talk about Chime Prime results. Thanks for the question on that. It's really early days, but we're feeling really good. Just as a reminder, we launched Chime Prime to the public on April 2. So a bit early to get a read, but we are seeing already that it is demonstrated to be effective in driving higher levels of direct deposits. So that's a plus, obviously, because as a reminder, you have to do $3,000 of direct deposit to get access to those benefits, including that hefty cash back on Prime of 5%. The other thing that we're excited about is just looking at the retention rates among people who qualify for Prime, we're already seeing that in the first month or so here that it does appear to drive higher levels of direct deposit retention. And at the same time, we're seeing overall continued increase in the adoption of Chime Card. In other words, Prime -- members who qualify for Prime are more likely to be adopting Chime Card. They're taking it up at a higher rate which is a great tailwind for our mix of payments volume, which is increasingly shifting towards credit. So these are all really, really great tailwinds for us. We've got lots of exciting marketing campaigns and product initiatives this -- over the next few months. In fact, you'll see tomorrow, during the NBA game, you'll see our first spot with our newest brand ambassador, John Cena, America's champ, he's going to talk about all the great benefits of Chime Prime and is very relevant to the consumers we serve. So yes, feeling like great progress on that front and continued great tailwinds on this mix of spend towards credit. Operator: We'll take our next question from Will Nance with Goldman Sachs. William Nance: Maybe I could just follow up a little bit on some of the commentary around Chime Prime. And specifically on unit economics, you're clearly embedding some incremental customer acquisition costs in the second quarter. How are you thinking about the impact of that push as it relates to net adds specifically and particularly in 2Q? I mean, is there any expectation of an offset to some of the seasonal weakness that you alluded to earlier in the second quarter? And just more broadly, what are you looking at to gauge success? And then maybe if I could just sneak in a numerical question for Chime Prime. I think you previously talked about like a 175 net interchange for the new card taking into account the higher rewards rate, is something in like the 130 to 140 range on the new card. Is that the right way to think about it? Just correct me if I'm wrong there. Matthew Newcomb: Thanks for the questions, Will. This is Matt. I'll chime in on both of those. So yes, as we discussed, we're really excited about this launch. We are ramping up a bit of investment behind the launch. That's going to be really across a wide range of marketing efforts. And so that's certainly part of our plans and OpEx phasing for the year. As it relates specifically to the cadence of net adds over the quarter, I think the best baseline expectation is to take a look at the cadence of seasonal net new adds that we've seen over the last few years. Again, Q1 being the outsized one, Q2 being the seasonally lower net adds quarter whereas Q3 and Q4 in the middle. So I think that is the right cadence to expect for us. As it relates to take rates, we've discussed in the past how, yes, Chime Card earns around 175 basis points. We've now launched both Chime Prime as well as a new 2% category of your choice cash back offer on Chime Plus. That's an improvement from the previous Plus offering. The way to think about take rates is on our plus offering for take rates to be in that 175 basis point zone whereas Chime Prime will be slightly below that, not as low as what you alluded to, but slightly below those ranges. Those are the ranges we see today. I'll have to caveat that things will shift a bit and fluctuate a bit over time as members choose the categories that they choose to spend in, but that's sort of the appropriate range to think about for us today. William Nance: No, that's awesome. Glad I asked on the Chime Prime side. And then just maybe sticking with the take rate commentary. I was wondering if you could help pick apart some of the sequential moves in take rates from 4Q to 1Q. I know there's been -- I mean, you just alluded to some of the movements in the rewards offerings. But I also know there's some seasonal factors that impacted in the first quarter. So if you could just unpack that and specifically in the context of credit mix going up several points sequentially from 4Q to 1Q. What are some of the offsets that drove the take rate this quarter? Matthew Newcomb: Yes, great question. There's really sort of 3 factors to keep it mind as it relates to take rates, specifically in Q1. We talked about one already, which is, of course, credit mix and how the continued adoption of Chime Card is continuing to drive higher credit mix. In Q1, that landed right around 25% of total spend, up from about 16% before we launched Chime Card in September. And on that front, what I'll say is, we're certainly continuing to see momentum both on new members but also existing members. New members coming into Chime, nearly 60% of them are spending with Chime Card. And among those, they're spending about 70% of their Chime spend on the card. And for existing members, we're seeing that those who have adopted Chime Card are using it for an increasing portion of their Chime spent. So good momentum on that front. And again, that's helping to drive take rates up in the quarter. The second thing to point out as you did, Will, is seasonality. So interchange rates are another metric in our business that are affected by tax refund related seasonality in Q1. More specifically, because outsized deposit volumes from tax refunds result in purchase volume with higher ticket prices, what you see is interchange rates because there's both a variable and a fixed component, are actually a bit lower each Q1. Again, that's a very typical seasonal pattern. We saw that again this year. So as I would encourage you to do with the rest of our business, you really got to look at things on a year-over-year basis. And then lastly, as we shared in our prepared remarks, we are doing more to experiment with member rewards to drive both new member growth and retention. That includes not just the cash back rewards on Chime Card, which is clearly doing well and resonating with members, but it's also included in initiatives like limited time cash back and referral offers, introductory bonuses and other initiatives. These types of member rewards are accounted for as contra revenue, which makes the calculated net take rate of payments revenue and purchase volume look a touch lower. That, of course, is all included in our transaction profit payback period. In the scheme of things, it's a fairly small amount, but we are excited about the potential. So that's one additional factor to keep in mind as it relates to take rates. Operator: We'll take our next question from Andrew Jeffrey with William Blair. Andrew Jeffrey: I wanted to ask a little bit about learnings from variable pricing in MyPay. And if that's sort of a lever you can pull to drive monetization, obviously, the performance there has been terrific with the tenfold increase in transaction profit contribution. But I wonder if you could just elaborate a little bit on what you've seen and what the outlook is for those initiatives? Mark Troughton: Yes, sure, I'll take that one up. Okay. At a high level, we've been very pleased with MyPay performance. $400 million business, now 62% transaction profit margins and still operating at a 1% loss ratio inside -- in a product that really has been on for less than 2 years. So from a pricing perspective, if you remember, as Chris outlined in the early remarks, the real reason we did this was so that you weren't limited by a fixed-fee model, the variable fee model enables us to actually give members access to greater MyPay limits earlier in the pay cycle. And that effectively, to your point, enables us to actually accelerate advancing more MyPay to members. Now having said that, we obviously want to make sure we're advancing this to people who can actually repay us in this situation. What we're not wanting to do here is to create a debt burden that our members cannot handle. So that's been an important part of developing our underwriting model. And I think as you look at the yields, you guys will probably have noticed that if you look year-over-year, our yield on MyPay increased about 35% and if you looked at Q1 relative to Q3 last year, it increased about 20%, and that was really driven by the price change that came in starting in Q4 and then finishing in Q1. And those are key contributors to that. So that takes year-over-year growth in the MyPay-to-MyPay profit. I think it's also important to continue to bear in mind that even at our 2.6% or 2.7% MyPay yield, we are half the cost of our newest competitors in the space. And that continues to be one of the reasons why we bring more people into upper funnel and continue to attract and retain members year after year after year. So I think we feel really good that we now have the pricing structure and the underwriting model in place to start to expand MyPay access to those who can handle it. Andrew Jeffrey: I appreciate that, Mark. And then as a follow-up, one of the things that I hear sort of keenly from investors is about the purchase volume per MAU KPI, which seems to me to kind of miss the point. Nonetheless, investors seem to care about it. And I know there were some seasonal factors influencing 1Q. Can you talk a little bit about your expectations for that KPI and whether it's something that should maybe get as much attention or not get as much attention as it seems to? Matthew Newcomb: I'll pick up that one. Thanks, Andrew. So at the highest level, what I would say first is, as we've shared the last few quarters, we're seeing very consistent overall trends in purchase volumes. And I would say that really is one of the key advantages of our business model and our focus on earning primary account relationships. Our spend is highly concentrated in nondiscretionary everyday categories. And that's been -- that's the type of spend that's very resilient across business cycles. If you take a look at our cohorts, our tenured cohorts, we're seeing very consistent growth in spending. That's true across both discretionary and nondiscretionary categories. It's true across income groups. At the same time, we're seeing account balances increase year-over-year. Again, this is a healthy consumer willing and able to spend and that's translated into a pretty consistent pace of payments in OIT revenue growth. That grew 19% year-over-year in Q1. As it relates to the per active metric specifically, as we shared previously, the reason that purchase volume plus the OIT volume per active is down on a year-over-year basis is largely the result of these early engagement initiatives that have been very successful for us. They've helped us engage new members, we wouldn't have otherwise engaged. This has strengthened our unit economics. That being said, it has had the effect of diluting the headline purchase volume per active metric since these initiatives have driven faster growth of the newly engaged actives who aren't yet spending as much on Chime. It's creating a larger denominator. We do expect these trends to start to normalize in the back half of this year, in particular, as we start to lap last year's launch of these early engagement initiatives. So this is just to kind of hit your question head on, this is really just a phenomenon of the successful early engagement initiatives. It's not a reflection of any sort of concerning underlying spend trends. On that front, we see a lot of resilience and consistent trends. Operator: We'll take our next question from Timothy Chiodo with UBS. Timothy Chiodo: Great. So on Chime Prime, I know the overall paybacks are very attractive 5 to 6 quarters, the LTV CAC is 8x or higher, those sort of great numbers. For Chime Prime, I heard you say obviously a much higher ARPAM. And I also heard that some of the early data suggest that the retention is even higher. So absent a meaningfully higher CAC, I would suggest really, really attractive LTV/CAC payback. So I was -- I was wondering if you could talk a little bit about that CAC and just how much higher it might be for these clearly more attractive customers and Chime think clearly that higher CAC is well worth it in the context of the ARPAM and the retention? Matthew Newcomb: Tim, it's Matt here again. We're really excited about Chime Prime. As Chris mentioned, early signs of a lot of potential benefits across the business. That's true across retention, that's true across Chime Card attach, that's true across direct deposit conversion and attach. And so yes, we're very excited about the potential there. That being said, it's very early days here. We've just started to roll this out. It is too early to give you a sense, specifically on sort of what the unit economic equation specific to Chime Prime looks like. But again, we think this is a great add to our overall product mix and value props and we're excited to keep you posted in the coming quarters. Operator: We'll take our next question from Patrick Moley with Piper Sandler. William Copps: This is Will Copps on for Patrick Moley. As it relates to Chime Enterprise, have -- are you thinking about any sort of future percentage of total member adds coming from the segment? And what's the CAC relative to other traditional channels for member acquisition? Mark Troughton: Will, it's Mark here. I'll pick that up. I think Enterprise is progressing really well, as Chris indicated in the prepared remarks. The value prop is really strong. It's a broader financial wellness product. The EWA is totally fee free. And anytime we approach a large enterprise, we find that 5% to 10% of their employee base is really on direct deposit with Chime, which gives us an edge. So it's resonating really well in the market. It's still early days for us. These enterprise sales cycles are quite long and it takes a little while to get the boat out of the water. I think the good news is we think the boat is out of the water, and that's actually translating into a good pipeline here with a steady drumbeat of conversions, including some large ones like we're announcing today with First Student, which is the largest student transportation company in the U.S. So yes, the momentum is strong, as we've indicated, it's one of our priorities. We're not giving specific guidance with respect to enterprises contribution to net ads. We think the fact that it's a priority, we'll probably tell you that we believe it has the potential for it to be a meaningful contributor. But we're not giving specific guidance related to that. As it relates to CAC, the CAC on Enterprise is materially lower. But really, it's -- the CAC there really is the fixed cost of the Enterprise division and the sales cycle rather than a sort of variable CAC. So that CAC will start off higher, although considerably lower than our consumer channel, and then it will reduce as we get more ads through that same sales cost base. That's how we think of the Enterprise channel. Operator: We'll take our next question from Alex Markgraff with KeyBanc Capital Markets. Alexander Markgraff: More questions, maybe 2, if I can squeeze the second one in. First on Prime for Chris. I'm curious, when we think about the ramp of this offering and some of the forthcoming products or features that you mentioned outside of the really strong initial offering. How do you think about the catalyst that those forthcoming products represent, whether it's account types or at some point, more unsecured credit. Just be curious to understand how those connect as catalysts for the ramp as we think forward? Christopher Britt: Yes, we think that the progress we've made year-to-date has been great. This new offering is incredibly compelling. I mean, if you think about the cost of fuel today, if you're a Chime member that selects the gas category and you're spending, say, $800 a month on gas, you're getting $40 cash back. It's a really, really powerful offering that I think is broadly appealing and that's very consistent with how we're thinking about our product road map. We want to create an even broader set of products for our members to engage with us and not just to avoid fees and not just to get access to short-term liquidity and credit building, but to also play a role in helping shape the long-term financial health and progress for our members. And that's why we'll be launching investment accounts and a combination of allowing people to buy equities directly, we'll have a robo offering for people who are maybe feeling a little less sophisticated or less comfortable investing in the market to try to get them moving in that direction. And we're really excited about using AI to guide people towards all of these exciting new products. We think that as we evolve them and we offer an even more comprehensive set of services that we can truly be even more broadly appealing to consumers even in the 100,000-plus category. We have the core products and services to meet their needs. So I think the combination of these services together will allow us to -- will be a catalyst to drive even more awareness of Chime's product offerings and open up new segments of the population. We've heard of Chime to really take another look at it and I think you're already seeing the progress in the net asset that we're adding each quarter. So expect more and more product offerings coming down the pike, including more products in the area of credit and lending. We're going to keep pushing on those fronts as well. I think Mark mentioned that the Chime Prime tier comes with an instant approved instant loan product. And so we're going to continue to have credit and lending products to serve that segment as well and certainly down the line we anticipate having some form of an unsecured credit card product as well, but that's not something we have on the sort of short-term road map. Alexander Markgraff: Understood. I appreciate that. And then maybe if I could squeeze one in, just on underwriting. Just having heard from some peers in the ecosystem, talked about step changes in underwriting model quality as a result of AI-related improvements. I'm just curious to maybe sort of a pulse check. Obviously, you guys have made a ton of progress in hitting target loss rates around MyPay. But just sort of curious to pull check the maturity of models and if there are opportunities that you all see that didn't exist 12 months ago with respect to model quality? Mark Troughton: Yes, I'll take that one up. I think, look, 2 things. One, it's important to just bear in mind the key advantages we have on the underwriting side. The first one is we -- as the primary account, we have a lot of unique data. Secondly, we're actually underwriting against a recurring direct deposits. So we sit top of the repayment stack. Those are two very, very significant advantages that we leverage. In addition to that, we obviously continue to use those data signals through increasingly sophisticated models. We've been using advanced machine learning on these things for some time. We do think there will be increased advantages with AI, and we will -- we want to continue to sort of lead that. But I think if you have a look at our underwriting performance and you look at something like MyPay, a year ago, we were sitting at 1.7% loss rate, and now we're sitting around 1%. So I think that while there are still meaningful improvements ahead with AI, I think a lot of the advantage is coming from the unique data and the position we have in the recurring direct deposit stack. Operator: At this time, we've reached our allotted time for questions. I'll now turn the call back over to Chris Britt for any additional or closing remarks. Christopher Britt: Great. Thanks again. I want to congratulate the team on a great quarter and looking forward to seeing you all on the road. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, and welcome to Edgewell's Second Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Chris Gough, Vice President, Investor Relations. Please go ahead. Chris Gough: Good morning, everyone, and thank you for joining us this morning for Edgewell's second quarter fiscal year 2026 earnings call. With me this morning are Rod Little, our President and Chief Executive Officer; and Fran Weissman, our Chief Financial Officer. Rod will kick off the call and then hand it over to Fran to discuss our second quarter 2026 results and full year fiscal 2026 outlook. We will then transition to Q&A. This call is being recorded and will be available via replay on our website, www.edgewell.com. During this call, we may make statements about our expectations for future plans and performance. This might include future sales, earnings, advertising and promotional spending, product launches, brand investment, organizational and operational structures and models, cost mitigation and productivity efficiency efforts, savings and costs related to restructuring and repositioning actions, acquisitions, dispositions and integrations, impacts from tariffs and other recent developments such as the conflict in the Middle East, changes to our working capital metrics, currency fluctuations, commodity costs, energy and transportation costs, inflation, category value, future plans for return of capital to shareholders, the disposition of our Feminine Care business and more. Any such statements are forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to future events, plans or prospects. These statements are based on assumptions and are subject to various risks and uncertainties, including those described under the caption Risk Factors in our annual report on Form 10-K for the year ended September 30, 2025, and this may be amended in our quarterly reports on Form 10-Q filed with the SEC. These risks may cause our actual results to be materially different from those expressed or implied by our forward-looking statements. We do not assume any obligation to update or revise any of these forward-looking statements to reflect new events or circumstances, except as required by law. During this call, we will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today, which is available at the Investor Relations section of our website. This non-GAAP information is provided as a supplement to, not as a substitute for or as superior to measures of financial performance prepared in accordance with GAAP. However, management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business and allows more meaningful period-to-period comparisons of ongoing operating results. As a reminder, our results this quarter reflect 1 month of the Feminine Care business classified as discontinued operations. Prior period results have been recast to reflect this presentation. The results of the Feminine Care business are reported separately from continuing operations. All of our commentary today, unless otherwise stated, on performance and our outlook will reflect continuing operations, including our Wet Shave, Sun and Skin Care business. With that, I'd like to turn the call over to Rod. Rod Little: Thank you, Chris, and good morning, everyone. We appreciate you joining us for our second quarter fiscal '26 earnings call. We delivered a strong second quarter with top line and bottom line results ahead of our expectations, reflecting the actions we've taken to strengthen the business, improving our execution and delivering innovation that is resonating with consumers. The top line strength, together with solid gross margin performance and disciplined execution enabled us to deliver adjusted earnings per share and adjusted EBITDA ahead of our outlook. Importantly, these results reflect continued progress in our strategy execution, concentrating resources on the categories and markets where we have clear competitive advantage. And we're seeing this show up in improved consumption and market share performance, including in the United States. Internationally, we continue to see solid market share performance across our key markets. In the U.S., we delivered accelerating consumption growth and share gains, both value and volume. U.S. value share increased by approximately 50 basis points in aggregate in the quarter with gains across branded manual shave, shave preps, Grooming, Sun Care and skin care. This is an important inflection point for the company as we expect to transition to a growth profile in the second half of the fiscal year. While we continue to operate in an uncertain environment, we're executing against 4 priorities that we expect will drive both our near-term performance and our long-term strategy. These priorities are international markets, innovation, productivity and our U.S. transformation. These priorities are at the center of how we allocate capital and focus, directing our resources where we see the strongest linkage between investment, improved execution with the highest returns. This focus is evidenced in our simpler, higher quality portfolio with a stronger margin profile post the Fem Care divestiture, which we completed in February. We are moving forward with flexibility to allocate investments to the categories where we believe we have global scale, clear competitive advantages and momentum. This is Wet Shave, Sun and Skin Care and Grooming. We're also more regionally balanced with roughly half of our sales in North America and half in international markets. Within the portfolio, Wet Shave now represents approximately 60% of our sales, and our Sun, Skin Care and Grooming businesses combined are now approaching 40% of total sales, with Grooming now over 10% of the business. With that context, let me give you an update on our progress across each of our 4 priorities. First, durable international growth. We saw a return to growth in the quarter with continued good underlying consumption and market share trends broadly across nearly all key markets. While slower first half sales reflected timing and phasing impacts versus last year, we believe we are now positioned for strong sales growth throughout the remainder of the fiscal year. Second, compelling innovation. We remain committed to delivering consumer-led locally designed innovation across our portfolio. We are now positioned to realize the benefits from the investments we made in fiscal '25 when we expanded Billie into Australia, Bulldog entered premium skin care across Europe. We took Schick into premium skin care in Japan with the launch of Progista, and we broadened CREMO's range in the United States and Europe, driving meaningful growth. We are also equally excited about the remainder of fiscal '26. We have a robust second half innovation pipeline, including Hydro and Intuition relaunches in Japan, new Wilkinson Sword and Hawaiian Tropic launches in Europe and meaningful launches across Grooming and Sun Care in the U.S. Together, these initiatives reinforce innovation as a key driver of our strategy. All of this is supported by a significant step-up in A&P spend that's focused on brands and markets where we see the strongest linkage between investment, distribution gains, household penetration and repeat rates. Third, productivity through supply chain optimization. We are executing our productivity agenda with consistency and urgency. This quarter, we delivered approximately 220 basis points of gross productivity savings. These actions are an important driver of our profit profile, softening tariffs and inflationary pressures, simplifying the organization, improving speed and service levels and creating capacity to reinvest behind our core brands. We continue to make progress on our Wet Shave manufacturing consolidation, an important program to simplify our footprint, modernize our shave technologies and capabilities and improve the structural economics of the business. Phase 1, consolidating the first 2 plants, which primarily support private label into our new greenfield site is nearly complete and represents the most operationally complex stage of the program. Throughout the transition, our priorities are clear: protect customer service, maintain on-shelf availability and minimize disruption for our retail partners. To support service levels, we're investing to protect fill rates, including, in some cases, running duplicate sites longer than planned as well as absorbing higher operating costs such as overtime and incremental airfreight. Importantly, the program remains on track to deliver the intended service outcomes and savings. As we reach steady state, we expect to begin realizing savings in fiscal '27 with a full run rate in fiscal '28, equating to roughly 2 points of expected company-wide gross margin improvement. Fourth, our U.S. commercial transformation. From an organizational perspective, we've simplified our U.S. structure to reduce complexity and accelerate decision-making with new leadership in place and clear accountability across our commercial teams. We're also investing behind core capabilities, insights, and analytics, media and content, category development and revenue growth management. We anticipate that this will improve how we execute at shelf with our retail partners and win with consumers. And these actions are already yielding results as reflected in the improved consumption and market share trends we're seeing today. We've also taken decisive action to increase investment in our 5 U.S.-focused brands: Schick, Billie, Hawaiian Tropic, Banana Boat and CREMO, shifting to a more sustained brand building and a balanced full funnel marketing mix. You can expect to see the step-up in spending in the second half of the fiscal year. We recently launched new campaigns and support for Billie and CREMO, a new Schick master brand, Do Right By Your Skin Campaign featuring Nick Jonas and our first Banana Boat campaign in 5 years. All examples of the kind of bigger, more impactful full funnel campaigns we're bringing to market with support coming soon on Hawaiian Tropic as we head into the sun season in the Northern Hemisphere. The new Schick campaign sharpens our focus with the skin first approach that treats shaving as the first step in skin care. This builds on our heritage and expertise in hair removal while redefining the category through a skin-first perspective. These campaigns build on the work we've done to identify consumer needs at a more granular level, driving sharper brand positioning and raising the bar on disruptive creative, full funnel and omnichannel excellence, delivered through our recently restructured marketing team and our new fully integrated agency partner. Moving forward, continued support on our core brands will be coupled with sharper insights, greater focus on innovation and renovation and continuing to push for excellence in revenue growth management and omnichannel execution to drive our growth. Overall, we expect these actions to strengthen our fundamentals and position us for growth over the longer term in the U.S. So as we look forward to the remainder of fiscal '26, we are reaffirming our underlying outlook for the fiscal year. We are encouraged by our second quarter and our first half performance and the progress we're making across the business, which increases our confidence in our ability to deliver our plan. At the same time, we're operating in an uncertain macro environment, and we have the bulk of our Sun Care season ahead of us. So we are maintaining a disciplined and balanced outlook. Since our prior update, overall risk has increased given the conflict in the Middle East. While we are maintaining our ranges, we see a modest incremental risk to top line, particularly in our Middle East markets as well as higher inflation risk, most notably from oil and higher fuel costs. At the same time, we continue to see a balanced set of opportunities and levers across the business to help offset these incremental headwinds. which is why we remain confident in our ability to manage through these items, and we are comfortable holding our adjusted ranges. Our confidence is grounded in the strategy I discussed earlier, durable international growth, compelling innovation, productivity and supply chain optimization and our U.S. commercial transformation. To reiterate the key underlying assumptions embedded in this outlook. First, we expect to return to organic net sales growth, driven by strong second half growth in international markets and a return to growth in North America as our U.S. initiatives continue to take hold through the second half of the fiscal year. Second, our plan includes a step-up in brand and A&P investment, most notably in the United States to support our commercial transformation and to accelerate our key brands. We believe this investment, together with our innovation pipeline will strengthen consumer response and drive higher consumption and market share over time. Third, we expect gross margin expansion, supported by productivity gains, pricing actions and tariff mitigation efforts that are expected to build as we move into the second half of the fiscal year, partially offsetting inflationary headwinds. Fourth, even as we invest for the longer term, we intend to continue to prioritize adjusted free cash flow generation through working capital improvement and disciplined spending. And consistent with this approach, our near-term capital allocation priorities remain focused on strengthening the balance sheet, most notably using proceeds from the Fem Care sale to pay down our revolver balance this quarter. Of course, underpinning all of this is the strength of our team and our ability to execute with excellence. The progress we made this quarter reinforces our conviction in our plan and increases our confidence in returning to solid sustainable growth beginning in the second half of our fiscal year, while expanding margins and cash flow in a way that builds long-term shareholder value. With that, I'll turn it over to Fran to walk you through our results and outlook for fiscal '26. Fran? Francesca Weissman: Thank you, Rod. As Rod outlined, we are pleased with our performance as we closed out the first half of the fiscal year with better-than-expected top line results and in-line gross margin performance. Additionally, we are increasingly encouraged with the improved consumption results and market share performance of our brands, reflecting the continued progress being made against our focused strategies. As we transition to growth in half 2, supported by further investments in our brands, we have confidence in our ability to execute our plan, but remain mindful of the dynamic environment in which we are operating. And as a reminder, our results this quarter also include approximately 1 month of Fem Care reported in discontinued operations. Now let's turn to our performance in the quarter on a continuing operations basis. Organic net sales decreased 240 basis points this quarter, better than our expectations as strong performance in Grooming and better-than-anticipated branded Wet Shave were more than offset by expected declines in Sun Care, driven by phasing of orders to Q1 and in private label Wet Shave. North America organic net sales decreased 4.8%, driven by the volume declines in Sun Care and Wet Shave, partially offset by double-digit growth in Grooming and modest growth in Skin. International organic net sales increased 1% as growth in Wet Shave was partially offset by declines in Sun Care and Grooming. Importantly, we delivered growth in several of our key markets. As we pivot to growth in half 2, we are encouraged by our market share performance. We have grown or held market share in nearly 80% of our markets, which is up from approximately 70% in Q1. Wet Shave organic net sales declined less than 1% as gains in men's and women's systems were more than offset by declines in disposables and prep. International Wet Shave grew 3.6%, largely driven by volume growth, reflecting continued category health, solid distribution outcomes and strong in-market activation. North America Wet Shave declined 6%, driven by continued challenged category and channel dynamics. In the U.S. razor and blades category, consumption was down 130 basis points in the quarter. Our value share declined 10 basis points overall, reflecting an improvement from Q1 trends. However, our branded share increased 40 basis points, led by Billie, which continued to grow share up 40 basis points, while our other brands held share. Sun and Skin Care organic net sales decreased approximately 4.5%, driven by the expected phasing in Sun Care that I just reviewed, partially offset by growth in Grooming and Skin. In the U.S., Sun Care category consumption grew approximately 17% in the quarter. Our value share grew 180 basis points, driven by volume gains in Hawaiian Tropic, partially offset by slight declines in Banana Boat. Grooming organic net sales growth was approximately 6%, led by approximately 38% growth in CREMO, partially offset by expected declines across other brands. Wet Ones organic net sales grew about 1%, and our value share was approximately 65%. Turning to the P&L. Adjusted gross margin decreased 310 basis points, in line with our expectations. Productivity savings of approximately 220 basis points were more than offset by 420 basis points of core inflation and tariffs, 70 basis points of unfavorable mix and promotional levels net of pricing and 40 basis points of unfavorable currency movements. We continue to expect productivity, tariff mitigation efforts and pricing to accelerate in the balance of the year and to deliver gross margin rate expansion for the full year versus fiscal '25. A&P expenses were 11.3% of net sales, down from 11.6% last year, primarily due to promotional activation timing. We continue to anticipate spending increases in the balance of the year to support the new campaign launches outlined by Rod earlier. Adjusted SG&A was 20.1% of net sales compared to 19.6% last year, primarily driven by higher consulting and corporate expenses and unfavorable currency impacts, partly offset by lower people costs. Adjusted operating income was $49.4 million or 9.5% of net sales compared to $66 million or 12.8% of net sales last year, primarily reflecting the impact of lower gross margins, higher SG&A expenses and partially offset by lower A&P. GAAP diluted net earnings per share from continuing operations were $0.09 compared to $0.43 in the second quarter of fiscal '25. Adjusted earnings per share from continuing operations were $0.60 compared to $0.69 in the prior year quarter. Currency reduced adjusted EPS by $0.04 in the quarter. Adjusted EBITDA was $73.8 million, inclusive of a $2.7 million unfavorable currency impact compared to $84.7 million in the prior year. Net cash used by operating activities was $71.6 million for the first 6 months of fiscal '26 compared to $70.5 million last year, primarily due to lower earnings. As a reminder, cash flow is presented on a consolidated basis for both continuing and discontinued operations. In the quarter, share repurchases totaled approximately $16 million. We continued our quarterly dividend payout, declaring a $0.15 per share dividend for the second quarter and returned approximately $7 million to shareholders via dividend. In total, we returned $23 million to shareholders during the quarter. Now turning to our outlook for fiscal '26. Consistent with what Rod shared, we are reaffirming our underlying expectations for the year as our first half performance and continued progress against our strategic priorities increase our confidence in our ability to execute our plan. At the same time, we remain mindful of an uncertain macro backdrop and the fact that the majority of the sun season is still ahead of us. With that context, I'll walk through our fiscal '26 guidance and address a couple of key components of its savings for the fiscal year. Our organic net sales range remains unchanged from previous outlook. We expect organic net sales to be down 1% to up 2%, excluding FX tailwinds. Underlying this outlook for the second half, we expect International to deliver mid-single-digit growth, supported by innovation and continued share momentum in our key markets, while North America is expected to improve and grow low single digits as our commercial initiatives gain traction. We continue to expect Q3 to be our strongest sales quarter due to increased sun shipments and seasonal timing, while remaining mindful that weather and in-season demand can influence quarterly phasing. Looking ahead to Q3, we expect net sales to be up in the range of 2% to 3%. Moving to adjusted gross margin. Our expected gross margin rate accretion on a constant currency basis remains unchanged. Reported gross margin accretion is now anticipated to expand by 50 basis points, down 10 basis points due to unfavorable FX. We expect gross margin to expand in half 2, which is consistent with what we shared previously as pricing actions, tariff mitigation efforts and productivity initiatives reach full run rate. The near-term impact of oil price spikes and other operating costs to protect service levels are putting pressure on inflation, which we are working to mitigate through a combination of productivity, volume absorption and mix management, which are disproportionately in Q4. From a phasing standpoint, we expect Q3 adjusted gross margin to be in the range of 44% to 45%, a sequential improvement from the second quarter, with Q4 shaping up as our strongest gross margin quarter of the year, driven by annualization of tariffs, productivity and mitigation initiatives reaching full run rate, improved capacity utilization as well as lapping of last year's onetime headwinds. Our year-over-year A&P rate is expected to increase 70 basis points for the full year, in line with our previous outlook. As Rod mentioned, we're taking action to increase investment in our 5 U.S. focused brands, Schick, Billie, Wine Tropic, Banana Boat and CREMO. From a phasing perspective, we've shifted spend from Q2 into Q3 to support the launch of our brand campaigns timing, and we expect Q3 to be the highest A&P spend quarter of the fiscal year in the range of 15% to 16% of net sales. Adjusted EPS remains unchanged from the previous outlook. Adjusted EPS is expected to be in the range of $1.70 to $2.10. This outlook reflects the impact of expected share repurchases, which were completed in the second quarter to offset current dilution and assumes an effective tax rate of 22% to 23%. Adjusted EBITDA remains unchanged from previous outlook and is expected to be in the range of $245 million to $265 million. Given the phasing impacts that I just addressed, we expect to generate about 40% to 45% of second half adjusted EBITDA and adjusted EPS in the third quarter. Our adjusted free cash flow expectations, excluding the cash impacts of the Fem Care divestiture are unchanged and in the range of $80 million to $110 million for the year, including expected improvements in working capital. Please note, adjustments related to the Fem Care divestiture include taxes related to the sale, working capital and deal-related expenses. Fiscal '26 represents the peak year for capital and investment spending tied to our plant consolidation and broader supply chain transformation. This program is time-bound, not open-ended. And as we move beyond fiscal '26, we expect capital intensity to step down as the new footprint reaches steady state. At the same time, we expect the benefits to build through improved service, lower unit costs and better working capital efficiency. Turning to leverage. We expect our balance sheet to continue to strengthen as the year progresses, reflective of our new lower debt position and supported by accelerating operating cash generation and disciplined capital deployment. For full year fiscal '26, we expect adjusted net debt leverage to end the year in the range of 3.3x to 3.5x, which includes an estimated 0.3 to 0.4 negative turn impact from temporary Fem care divestiture timing and related items. The leverage ratio during this transition period is temporarily higher as the net debt reflects our post-close balance sheet, including cash balances impacted by working capital and other items related to our divested Fem care business, while EBITDA excludes discontinued operations. This difference temporarily inflates the ratio in the near term and is not indicative of our underlying earnings power. And finally, we remain committed to a disciplined capital allocation strategy. The net proceeds from the Fem Care divestiture after taxes and transaction costs have been directed towards strengthening our balance sheet and reducing debt while also supporting continued investment in our core brands with capital expenditures to drive innovation and productivity. For more information related to our fiscal '26 outlook, I would refer you to the press release that we issued earlier this morning. And now I'd like to turn the call over to the operator for the Q&A session. Operator: Our first question comes from Nik Modi with RBC Capital Markets. Nik Modi: Rob, can you just -- I guess one of the clarification questions is, how much inflation do you think you'll have to offset as a result of what's going on in the Middle East? If you could just help us kind of frame and quantify that. But more importantly, I just really want to get into your mind about the guidance. There's just so many moving pieces. Obviously, you had a lot going on in the quarter. There's a lot going on in the world. And I'm thinking of it more directly from like flights are getting canceled overseas that might impact tourism because of fuel shortages that could impact Sun Care. Thinking about inflation for the consumer with gas prices during the summer, which could squeeze the ability to consume Sun Care products and other products across your portfolio. So just there's a lot like incremental headwind I see coming. But the fact that you're confirming guidance, I just wanted to kind of get behind some of that and hopefully, you can unpack that for us. Rod Little: Nik, thanks for the questions. I will start with the overall guidance perspective, and then Fran can hit the expected inflation from the Middle East activity for both this year and I guess, a thought towards next year, even though it's quite premature, Fran can hit both of those. So look, as we look at our guidance for this year, we're halfway through, right? And we're on track halfway through the year, where we thought we'd be on both quarter 1 and quarter 2 when you put those together. So that's point one. We're holding our outlook for the fiscal year guide across all elements, as you point out. I think there's a couple of things going on. First is despite the incremental headwinds coming at us, we took a more balanced planning stance overall. And so we had a plan that had more flexibility and more levers in it if we did hit some incremental headwinds, which we're now seeing. So the headwinds we see, oil, commodities, the cost piece, and then I think as you're pointing out, this consumer demand question, I don't know where that goes, but it's something we're thinking about. And then the cost levers to offset that, we've been aggressively working those, and that's part of not changing our guide as we take some of that incremental cost in. We have offsets in other places. Importantly, we're maintaining our A&P stance. We are not cutting brand investment, and we're not cutting A&P to do this. It's other productivity efforts, it's overhead efficiencies and making some tough calls there. But I think the single thing I'll point you to that gives us optimism and confidence that we can deliver the guide is the step-up in the second half in sales rates, right? We have accelerating consumption and market share data in the U.S. now. You all see that in the scanner data, 26 weeks of consecutive volume share growth, and it's accelerating in the U.S. Fran referenced 80% of our global category country combinations are holding or winning market share. That's the healthiest position we've been in. So there's a broad-based momentum in the business. Distribution is now confirmed, right, in the planogram resets. So that's now in as expected. International, we've talked about phasing all year that it would be more of a second half phase plan. As an example, Shave internationally in Q2 was at 4%. The phasing was primarily in Sun Care, down in the first half, second half up. And we've got the new campaigns and new innovation all launching with incremental investment behind them. And the content is really, really good, very different than the past when you look at the content we're putting out there and how we're reaching consumers. Final data point for you is, April is off to a good start. We're seeing the step-up we expected to see in the month of April, which just obviously closed for us in line with this guide that we've put out. So we're seeing that step-up happen. So final thing before I throw it to Fran around balance. Look, I think your commentary around flights being canceled, travel potentially at risk to some tourism markets here in the second half behind higher oil or maybe jet fuel not available in some cases. We've got line of sight to those risks. We think we're balanced equally with what has been a good start to the sun season domestically here with the category up double digits. Us ahead of that, winning market share from a consumption perspective. And we've not changed our outlook for the year, partly because 80% of the seasons to come. We don't know what will happen with the weather, but we think those 2 pieces, the international tourism risk, the potential upside domestically, we think that's balanced overall, and that's part of what underpins our thinking. Fran, do you want to anything else there and then touch the inflation piece? Francesca Weissman: Yes. Thanks, Rod. Just taking it in 2 parts. If we think about fiscal '26 and the Middle East situation, clearly, things are still unfolding. But what we do have a line of sight to and what we have quantified for '26 is about $3 million to $5 million that's affecting us mostly in margin. We've got some top line pressures in the Middle East markets, as we could imagine. That's already factored into our Q3 outlook. And within the gross margin rate, we've got near-term increases around [ W&D ] and some commodities. Most of this gets trapped in inventory. So as this continues, we'll see more of the pressures coming through in '27. And while we have not sized that yet, our best expectation, if we took a snapshot right now, is probably in the size of what we anticipated tariffs to be, which we have more than mitigated this year through our productivity initiatives. As we look forward to '27 though, it's important to understand that we have strong mitigation factors. Our productivity is expected to accelerate, especially with the consolidation of our plants. We continue to focus on [ FRGM ] as well as mix management. And more importantly, pricing is going to be a lever, of course, that we'll consider both targeted pricing as well as inflationary pricing if appropriate. So still uncovering '27, and we'll come forward as we know more. But that's our best line of sight with what we know today. Operator: And the next question comes from Chris Carey with Wells Fargo Securities. Christopher Carey: One follow-up on the inflation and gross margin and then a question on North America. Regarding the inflation, if my math isn't wrong, I mean, there's a really big step-up in fiscal Q4, both on an absolute percentage basis and a change relative to last year. As you just kind of went through it, and I get tariffs lapping and productivity building, it's nevertheless a big number. So I was just wondering if you could just maybe drill even a bit deeper just on confidence levels around that gross margin and that you're kind of continuing to do the right thing for the business. And then regarding the North America piece, just is there a way to think about the underlying growth rates in North America in the quarter if you kind of normalize for Sun Care shipment timing and the sort of improvement that you're embedding in the business into the back half of the year? Rod Little: Fran, take the inflation, gross margin piece, and I'll take the North America one. Francesca Weissman: Sure. So when we think about half 2, we always anticipated that most of our profit, 2/3 of our profit was going to be in half 2. And actually now as we settled half 1, it's turning out to be closer to 60%. And a lot of that was on the back of improved sales performance, but also improved gross margin performance. And I think I would break out gross margin in 2 ways. We see a sequential improvement in Q3, but we always recognize that Q4 was going to be our strongest quarter for 2 specific reasons. One, what we're cycling and lapping from last year. You may recall we had onetime transitory items that were disproportionately hitting us in Q4. That's about 50% of the Q4 step-up, not to mention that tariff mitigation is at full run rate and also, we're annualizing tariffs in Q4 as well. So that is disproportionately driving Q4 to be slightly higher than what we're seeing in Q3. And then the last piece is just productivity initiatives. We've identified and finalized our productivity initiatives for the year. More of that is falling into Q4 because, as you know, we have over 120 days of inventory. So some of this gets trapped. But the good news is we already have a line of sight to that. So the way it's landing is just disproportionately more into July and August versus June. So those are the main factors that's really driving performance, and it's really in line with what we've expected. Rod, do you want to talk through? Rod Little: Yes. And Chris, on North America, I think you put your finger right on the point of inflection. In the first half and particularly in the second quarter in North America, Sun was down about 10% on the quarter, which is just reflective more than anything of a different of sell-in versus sell-out timing and then also those dynamics versus the year ago period, which is always tricky between quarters. Sun is going to be positive, right, in the second half of the year. In fact, we have total North America estimated in this guide up low single digits in the second half of the year. And so it's that flip on Sun and getting the consumption reads coming through where Sun turns positive. Grooming continues to be very positive for us. As referenced, CREMO was up 38% in the quarter just finished. That momentum continues in the back half of the year. And then we actually have Wet Shave performance improving on a relative basis versus where it was in Q2. And that's behind not only better distribution outcomes, but what we think is really compelling campaigns. And the Do Right By Your Skin Campaign that we launched in Schick last week with Nick Jonas, as an example, has had better-than-expected resonance with consumers and engagement. And so we're optimistic across all elements of the portfolio. And I think we're in a better position right now in North America commercially and where this business can deliver continued growth than we've been in 2 to 3 years. And that's really ultimately the big inflection in our business as we look not only to the back half of the year, but as we go forward to '27. So feeling good about second half, Chris. Operator: The next question comes from Susan Anderson with Canaccord Genuity. Susan Anderson: I guess maybe just a follow-up on that top line growth. I guess, how are you guys feeling about inventory at retail out there, I guess, particularly in time, obviously, the sellouts have been pretty strong. I guess do you feel pretty confident that the retailers will need to replenish given the strength there? And then also, are you seeing as you kind of roll out these new launches, whether it's Hawaiian Tropic or in Wet Shave in Europe, I think you said in Japan, are you getting any pipes or new shelf space that we should think about that will also help to drive that top line? And then maybe also if you could just talk about how you're feeling about the competitive environment with promotions in the Wet Shave category in the back half. Rod Little: Yes. I'll take the first part of that, Susan, and Fran can talk about the competitive dynamics and what we've got assumed in here. Look, I think the second half sets up really well for us in that we don't have any known retailer inventory stocking problem. In fact, we suspect in many cases with our brands, the inventory at retailers needs to be enhanced. And as we go into this, things are very balanced in the trade. And we know, in some cases, the inventory actually needs to be built back up in some cases, in some areas. And I think Sun is a good example. Our consumption has outpaced the market, which has been a healthy category. Frankly, more than we expected as we look at the first half of the year. And so that ought to lead to pull-through in the second half. Even if there's not great weather, I think we're positioned well to do what we've said here. And there's no big pipeline in the second half around new innovation going in that would create a mismatch or a problem for next year. But there are a lot of places where we did get incremental shelf space in the distribution outcomes that I think not only gives us confidence to deliver the second half of the year, but gives us momentum as we start to think about fiscal '27 and planograms in the year ahead, with the velocities we have and the consumption data we have. You mentioned Japan, yes, we got incremental shelf space in Japan in branded shape. It's a branded market. There's really not private label there, but also preps. We have significant growth in Japan in the preps category right now, and that is being driven as more of a regimen experience in Japan, where typically perhaps has not been a big part of the business. So we've got growth in that part of the business, a lot of it is distribution. Across Europe, we've had good distribution wins, some -- winning some tenders in the private label shave area of the business, also some wins in shelf space at shelf across Shave and Sun. And we've talked domestically here in the U.S. about some of the incrementality we've had across totality of Wet Shave, branded and also grooming. The grooming distribution gains are the biggest we've had primarily on CREMO, and that's body wash and APDO. So that we feel like is sustainable and rolls into '27. Francesca Weissman: Yes. And building on that, as we think about these distribution gains, we've talked at the last call around the importance of half 2 and the growth profile and distribution and planogram resets were factored into that. We have finalized that and they happen as anticipated. So a lot of these distribution gains are factored into our half 2 outlook. And when we think about promotional intensity, we still see the same level of promotional intensity that we've seen. It's factored into our outlook. It's not at a level that's higher than what we anticipated. And I think we see slightly more intensity, of course, in women's shave, but again, broadly in line with what we've already anticipated and built into our promotional plans for the balance of the year. Operator: And the next question comes from Olivia Tong with Raymond James. Olivia Tong Cheang: Can you potentially provide some goalposts for the next 12 months versus just the second half? You mentioned 120 days on inventory, which obviously pushes much of the higher costs that we're seeing out of the second half. You also mentioned some of the mitigation options you might have, including potential for inflation-related pricing as well. So should we assume that the gross margin gets hit more so in fiscal '27 than the second half fiscal '26? Perhaps could you give us some goalposts on commodities and what you're seeing from your suppliers on rate of change on cost inflation? And then the second part of the question around pricing promotion. Obviously, the backdrop has been quite challenging from a promotional perspective. So have you seen any changes of late in terms of your competition on promotion and provide some confidence around your ability to potentially take some targeted pricing at some point in the next 12 months? Rod Little: Olivia, so I'll start and Fran can add in if she needs to add in. Look, we are not obviously in a position to talk about '27 from a guide perspective. But as we look forward beyond the second half of the year, we know we've got some cost productivity levers that we've talked about that are bigger than normal. We expect next year to be a good cost productivity year for us as we start to get the initial savings tranche from the shave manufacturing piece, right? So we've got, I think, a good line of sight to cost productivity efforts around cost of goods and margin that continues beyond the second half. We're not going to size or quantify that. What we also know we have in the second half of this year that does not continue into '27 are some onetime things in the base that make that Q4 gross margin that Fran referenced earlier outsized in terms of increase versus prior period. And so I think we're into a more normalized range where I'm not going to predict we're going to grow gross margin at this point next year. We're not going to guide to that, but we've got levers that as we finalize our plans to be able to do that, right? We should be able to pull those levers in that way. The one piece I'll say as we go forward that it's a little different and unknown at this point, with this level of elevation, franchise it as our -- what we have line of sight to now is around what the gross tariff impact was on us a year ago, which we offset largely via cost productivity. I would expect that we would have some pricing power and some ability to take pricing if this elevated oil commodities basket holds where it is today because everybody is hit by that. And what's interesting for us is our business now, as you look at the new portfolio we have without Fem Care, 75% of our business is where we're growing or holding share in a very healthy position. So we've got 25% of our business in this U.S. shave bucket that has been the part of the business that's behind for us. I don't know if we're going to be able to price in that bucket, but international shave, sun skin grooming with the increased equity strength that we have and kind of the competitive dynamics around that. I would expect if these elevated commodity rates hold that we would be looking at taking some pricing next year. Again, there's no sizing or commitment to it, but that will be definitely a lever we'll look at for next year. And frankly, we just don't have this year in our toolkit at the same level we would with that. I think organically, when you look at sales growth as we go out into next year, the second half ought to be -- portend what's to come for '27 as we think about putting a guide out there in the next 5 to 6 months. We're not ready to do that. The second half should be a good proxy for sales growth. Anything you'd add, Fran? No. Okay. Operator: There are no more questions in the queue. I would like to turn the conference back over to Rod Little for any closing remarks. Rod Little: All right. Thank you, everybody. We appreciate your continued interest in Edgewell, and we'll talk again in early August with our Q3 results. Have a good summer. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon. Thank you for attending Hallador Energy's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call will be recorded. I'd now like to turn the conference over to Sean Mansouri, the company's Investor Relations Adviser with Elevate IR. Please go ahead, Sean. Sean Mansouri: Thank you, and good afternoon, everyone. We appreciate you joining us to discuss our first quarter 2026 results. With me today are President and CEO, Brent Bilsland; and CFO, Todd Telesz. This afternoon, we released our first quarter 2026 financial and operating results and a press release that is now on the Hallador Investor Relations website. Today, we will discuss those results as well as our perspective on current market conditions and our outlook. Following prepared remarks, we will open the call to answer your questions. Before we begin, a reminder that some of our remarks today may include forward-looking statements subject to a variety of risks, uncertainties and assumptions contained in our filings from time to time with the SEC and are also reflected in today's press release. While these forward-looking statements are based on information currently available to us, if one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect, actual results may vary materially from those we projected or expected. In providing these remarks, Hallador has no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law to do so. And with the preliminaries out of the way, I'll turn the call over to President and CEO, Brent Bilsland. Brent Bilsland: Thank you, Sean, and thank you, everyone, for joining us this afternoon. Before diving into our first quarter results, I want to begin with what we believe is an important milestone in a multiyear transformation of Hallador, one that has been in the works for a long time now and reflects the steady, deliberate execution of a strategy our long-term shareholders have been patient with. Subsequent to quarter end, we executed a 12-year capacity agreement with a subsidiary of utility, that is expected to generate more than $1 billion of contracted revenue from 2028 through 2040 at pricing levels more than 2x our historical contracted capacity pricing. This agreement is subject to approval by the Indiana Utility Regulatory Commission, which we anticipate will occur in the second half of 2026. The agreement represents one of the most significant commercial achievements in our company's history. It may be helpful to put today's announcement in the context of the path that brought us here. Six years ago, Hallador was originally an underground coal mining company. In 2021, we began acquiring a 1 gigawatt interconnection. In '22, we acquired the 1 gigawatt power plant that utilizes the interconnection. In 2024, we began marketing long-term output of the plant. And in '25, those discussions broadened from data center developers to utilities. In March of this year, we executed a 3-year capacity agreement at approximately twice our historical pricing. And today, we are announcing a 12-year $1 billion-plus capacity agreement that follows directly behind it. Each of those steps was deliberate, each built on the one before. And we believe the same pattern of disciplined sequential execution will continue to define how we create shareholder value from here. Combined with the 3-year capacity agreement we announced in March that contracted our accredited capacity for planning years '26, '27 and '28, the agreement we are announcing today contracts the back portion of planning year 2028 and each year thereafter through mid-2040. Together, these 2 capacity-only sales total approximately $1.1 billion and place Hallador in a substantially sold-forward position on accredited capacity for approximately the next 14 consecutive years. We believe this represents a meaningful structural improvement in the durability of our earnings power and our balance sheet. And importantly, it provides the capital raising foundation from which to pursue the next set of opportunities in front of us. The agreement initially covers a smaller volume of accredited capacity in planning year 2028, increasing to approximately 2/3 of our accredited capacity beginning in planning year 2029 and continuing through 2040. This structure provides the kind of long-duration revenue visibility that is increasingly rare for dispatchable generation in MISO and validates the durable economic value of our dispatchable generation platform. It is worth noting that this agreement is only for our capacity. We are not committing energy under this contract, which enables us to secure durable contracted revenue, while preserving full exposure to future upside in energy markets as demand for power continues to rise across MISO. Preserving that energy side optionality is intentional. As we will discuss in a moment, we believe the energy market is on a different time line than the capacity market, and we are positioning the portfolio to participate in both as they develop. To us, that is the bigger story. While our first quarter results were generally in line with our expectations due to previously mentioned availability constraints at Merom, the underlying value of Hallador is increasingly tied to the growing scarcity of reliable, dispatchable generation. The agreement we announced today is one clear data point of that dynamic. And we believe it is one of several you should expect to see emerge from the role our assets can play in meeting this demand. When we look at the market, we view capacity as the critical first step. For large load customers, particularly data centers, access to accredited capacity is often the gating factor. Without it, projects cannot move forward. As a result, we are seeing capacity markets tighten and reprice ahead of the physical demand that these developments will ultimately bring. Energy demand follows on a different time line. These projects require several years to build. And as they come online and begin to draw power from the grid 24/7, 365, that is when we expect to see more meaningful response in energy pricing. Our portfolio is constructed to participate in both phases. The capacity contracts we have announced this year address the first. The merchant energy position we have intentionally retained is positioned to address the second when it arrives. This dynamic is central to how we are positioning the business. Our strategy is to monetize capacity where we can secure attractive, long-term value today, while maintaining flexibility to participate in future upside in energy markets. We are being deliberate in how we contract our portfolio, locking in value where scarcity is already evident and preserving exposure where we believe demand has yet to be fully reflected. Capacity remains a critical requirement for large load development, and we continue to see strong interest from counterparties seeking reliable supply over longer periods. The agreement we signed is an important anchor in our forward sales book, but it is by design, not the last commercial step we expect to take. We continue to evaluate additional ways to monetize our remaining capacity and optimize our forward energy position. We will maintain a disciplined approach, and we will be deliberate about the timing and structure of any future commercial agreements. That said, the level of inbound interest we are seeing today is meaningfully higher than it was even 6 months ago across multiple counterparty types and contract structures. The contracted high conversion cash flows from these agreements also support a broader transformation we are pushing, building in Hallador over time into a multi-fuel independent power producer with a more diversified generating fleet. We have spoken previously about the proposed 515-megawatt combustion turbine project at our Merom Generating Station site under the MISO ERAS program. Additionally, we are continuing to evaluate dual fuel initiatives for our existing generation. We will work towards making progress on these work streams in the same disciplined sequential way as the contracting strategy has unfolded into the past year. Now turning to our first quarter 2026 results. As we discussed on our last call, we experienced availability constraints at Merom in Q4, that continued into the first quarter and reduced generation from the plant. First quarter results reflected those constraints as lower generation at Merom pressured electric sales and intercompany coal sales, which ultimately impacted our profitability for the quarter. We also incurred outage-related replacement power costs during Q1, which created an additional headwind. While these results were generally in line with the expectations we provided in March, they are below the level of performance that we expect from our Merom power plant over time. Maintaining high levels of reliability remains a top priority for our team, particularly as MISO increasingly depends on dispatchable resources during periods of peak demand. As such, the generating unit in question is currently in a planned maintenance outage, and we are using this period to make reliability-related investments that we believe should improve performance as we move through the balance of the year. As we have discussed previously, Hallador operates as a vertically integrated platform, and Merom sits at the center of that system. When the plant is running efficiently, it drives performance across the business, supporting electric sales, creating consistent internal demand for coal, improving mine productivity and enhancing overall operating efficiency. When performance at Merom falls below planned levels, those impacts extend throughout the platform. Coal inventories increase, production at Sunrise becomes less efficient, and it becomes more difficult to optimize our cost structure. That is why our focus on improving reliability at Merom is so important. The outage currently underway is a key part of that effort. We are making targeted capital investments in the unit, and we believe that, that is the right decision given both the value of Merom today and the increasing importance of reliable, dispatchable generation going forward. Historically, similar investments have led to meaningful improvement in operating performance, and we expect the work being completed now to position the plant for higher availability as we move into the summer and upcoming peak demand periods. We are also in a much stronger financial position to support these investments. At quarter end, we had no outstanding bank debt and meaningfully improved liquidity compared to year-end. That improved capital position gives us greater financial flexibility to invest in the assets, support our ongoing operation and pursue the strategic opportunities we are seeing across the power market. Looking ahead, our second quarter results will reflect the planned outage currently underway, which we expect will temporarily reduce generation as we complete the necessary maintenance. As we move into the second half of the year, the underlying setup begins to shift with the plant returning from outage and availability improving. We expect to be better positioned heading into the peak summer demand period. As I mentioned earlier, more consistent performance at Merom supports not only electric sales, but also internal coal demand, mine productivity and overall operating efficiency across the platform. This is important because the opportunity in front of us ultimately depends on execution. While the agreement we discussed earlier reinforces the value of accredited capacity and dispatchable generation, realizing that value over time requires consistent performance at Merom. We're focused on improving reliability, driving efficiency across our coal operations and translating the market opportunity we see into durable cash flow. Although the first quarter was operationally challenging, it does not change our view of the long-term earnings potential of the platform. The fundamental signals across our markets remain constructive, and we believe Hallador is well positioned to compound shareholder value over a multiyear horizon as the strategy we have been describing continues to unfold milestone by milestone. With that, I'll turn the call over to Todd to take you through our financial results. Todd Telesz: Thank you, Brent, and good afternoon, everyone. Jumping into our first quarter results. Electric sales for the first quarter were $65.1 million compared to $85.9 million in the prior year period, while third-party coal sales increased to $35.1 million compared to $30.2 million in the prior year period. Electric sales in the first quarter reflected the availability constraints at Merom, that Brent discussed earlier, which reduced generation during the period and resulted in lower electric sales compared to the prior year. These impacts were partially offset by stronger credit capacity revenue during the quarter. The increase in third-party coal sales during the first quarter was driven primarily by improved pricing on shipments to customers, reflecting continued execution across our external customer book and Sunrise Coal's ability to supply both internal fuel requirements at Merom and external market demand. On a consolidated basis, total operating revenue was $101.8 million for the first quarter compared to $117.7 million in the prior year period. Net loss for the first quarter was $9.3 million compared to net income of $10 million in the prior year period. Operating cash flow for the first quarter was $20.5 million compared to $38.4 million in the prior year period, with the decrease primarily reflecting lower generation of Merom, higher purchase power costs during the quarter and an increase in coal inventory of approximately $4.6 million. Adjusted EBITDA, a non-GAAP measure, which is reconciled in our earnings press release issued earlier today, was $5.5 million for the first quarter compared to $19.3 million in the prior year period. We invested $7.7 million in capital expenditures during the first quarter of 2026 compared to $11.7 million in the year ago period. As Brent mentioned earlier, we are currently in a planned major maintenance outage at Merom and expect capital spending to remain focused on planned maintenance, reliability and operational improvements across the platform. For the full year, we continue to expect capital expenditures to increase modestly compared to 2025 levels, excluding potential ERAS-related development investments. As of March 31, 2026, our forward energy capacity sales position was $571.2 million compared to $543.5 million at December 31, 2025, and $630.4 million at March 31, 2025. When combined with our third-party forward coal sales of $288.4 million as well as intercompany sales to Merom, our total forward sales book as of March 31, 2026, was approximately $1.2 billion. Importantly, these figures do not include the 12-year capacity agreement signed last week. Hallador had no outstanding bank debt at March 31, 2026, compared to $29.7 million at December 31, 2025, and $21 million at March 31, 2025. Total liquidity at March 31, 2026, was $97.5 million compared to $38.8 million at December 31, 2025, and $69 million at March 31, 2025. The increase reflects both the capital raised during the quarter, capacity payments received and the addition of borrowing capacity under our new credit facility. As Brent mentioned earlier, we took several steps during the quarter to strengthen our capital structure. In early March, we entered into a new credit agreement with Texas Capital Bank, Old National Bank and other long-term relationship lenders, replacing our prior facility. The new agreement includes a $75 million revolving credit facility and a $45 million delayed draw term loan, with maturity in March 2029 and includes an accordion feature that provides additional flexibility. We believe this new facility, combined with our improved liquidity position and the absence of outstanding bank debt at quarter end, provides a more flexible capital structure than we had entering the year. It allows us to fund the planned outage and reliability investments at Merom, manage working capital across both segments and support the commercial strategy Brent outlined, while maintaining a disciplined approach to leverage and preserving the financial flexibility to support the disciplined multiyear transformation Brent described. With that, operator, we can now open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Julien Dumoulin-Smith with Jefferies. Unknown Analyst: This is [indiscernible] on for Julien. Congrats on the big contract. It's been a long time coming, so nicely done there. Just wanted to ask you, now looking forward towards the gas extension, can you talk about what would get you more confident here in pursuing that moving forward with the gas extension and what your strategy there is both with regards to securing the turbine and towards the EPC? I think you've talked about partnerships on the turbine side, but we're also hearing constraints on the EPC side. So curious if you can add more color on how you move forward with the gas reset? Brent Bilsland: Yes. Thank you. Look, I mean, certainly, selling a big block of capacity puts us in better financial footing. It increases our confidence. As far as equipment, yes, equipment is hard to get. EPCs are hard to get, but we're in conversations with those parties, and we're moving those discussions forward. When we secure equipment in an EPC, we will announce such a transaction if we decide to go forward with that. But yes, it's -- what we're seeing in the market is the value of PPAs go up, but equipment prices also go up. And so we're trying to align those economics and see if we can get a development build. Operator: Your next question comes from the line of Nick Giles with B. Riley Securities. Nick Giles: Congrats on the capacity deal. That's really great to see. Brent, in your prepared remarks, you noted that capacity is the bottleneck between data center deals being finalized. And I know you've signed this deal with the utility, but should we assume that this deal is ultimately linked to a hyperscaler end user? And how should we think about how end users have shifted on the energy front? Brent Bilsland: Well, we're a little limited on what we can say just based on some of the confidentiality requirements in the agreement. That said, this is a material agreement, and so it will be filed as an exhibit in our -- with our 10-Q. So there'll be a little more information there. But I would say, overall, data centers are the big demand that we're seeing everywhere. It's not the only demand. I mean we're seeing potential steel plant expansions in Indiana. We're seeing announcements of new aluminum smelters, I think, in Oklahoma. I mean you're seeing manufacturing show up as well, particularly as you look at energy disruption around the world, the United States truly is energy independent. We truly do have some of the cheapest energy and most secure energy in the world. And so if you're going to build anything, it's going to be built upon that foundation. Now AI, I think it's revolutionary technology. I think people are just starting to get the first taste of some of these new products. I mean, Anthropic's new offering is amazing. And once your teams start to experience that, you see the productivity gains. And that's just -- I don't know that any of this is new information. It's just we're seeing it. And why are we seeing in Indiana? Specifically, we've talked about Indiana is welcoming data centers to the state, whereas there's something like 30 different states across the country who have some form of pause or moratorium on new data centers. And so where can you go that has population or is near population, has a great business climate, has favorable tax policy to attract data centers, Indiana is checking that box. And that's why we're just seeing such an intensified interest level in the state. And so that's the wind behind our sails. We executed on it in March. We've executed again here in May. And we hope to announce -- hopefully, we can execute on further deals later this year. Nick Giles: Appreciate that perspective, Brent. Maybe just back on the energy side. In the past, you've talked about kind of where you saw pricing at any given time, and you've made references to the forward curve. And -- so I was hoping just to get an updated view on that? It's been a while. There were some other deals across the space, some on the nuclear side, that we could use as precedent, but I don't think we've seen any of that nature here more recently. So just was hoping for an updated view on kind of where you see energy pricing today? Brent Bilsland: Yes. So there's a lot of different curves out there, a lot of different companies put them out. We generally think capacity is a lead indicator for energy, right? I mean, first, if you're going to build a data center or even a factory for that matter, you really need to secure your credit capacity first. And then once you've secured that, now you can start building your factory or data center. And then once that -- let's just use data center because that is the biggest portion of the demand we're seeing. Once you see that being built, once it gets turned on, now we're using energy, right? And so there's typically a couple of year lag between what we're seeing in the capacity markets to kind of the response we're seeing in the energy markets. And I think the curves are just starting to reflect that. We've seen a little price movement up, which is encouraging. We'll see if that holds. And -- but by and large, I mean, everything we're seeing is encouraging. Nick Giles: And maybe just one more, if I could. Given that some of the juice on the energy side, if you will, could come with a lag, would you be willing to kind of wait it out given you have the stability of the capacity revenue secured now? Or would you rather send something sooner? Brent Bilsland: Well, I think -- look, first of all, we're well hedged for 2026, right? And so that's -- this year's book is in great shape. These capacity deals sets a great foundation for the company through 2040. That's 14 years of forward visibility, a large portion of the book. And again, if you kind of look back to our March release, we talked about if we could continue to sell capacity at the prices we sold out in March, and we could sell everything at that price. That would be $130 million of revenue before we turn the plan on, right? We have a fixed cost of roughly $60 million. This deal was priced higher than that. So we have -- we think we've locked in -- now we've only sold 2/3 of the forward capacity that we have to sell, but we've locked in a profit for 14 years before we even turn the plan. I think that's a great position for us to be in. It definitely -- we feel no pressure. And I think as far as selling energy goes, I think we just have to take the deals as they come. Different customers have different needs, different opportunities. And so if we see opportunities to lock in energy tomorrow at prices that we deem appropriate for the future, we will do so. But where we've seen the biggest response, again, more than doubling the price of what we were doing 2 years ago is in the capacity markets. And so that's where we've been most aggressive. Operator: Your next question comes from the line of Jeff Grampp with Northland Capital Markets. Jeffrey Grampp: Congrats on the announcement. I wanted to talk on -- you're a little more vocal it seems in this release regarding the dual fuel ambitions at Merom. Is there any more detail you can share regarding potential timing, next steps? And as I recall, it was a little bit more of a potential bargaining chip, I suppose, for prospective customers. With that seemingly not really a constraint or consideration, can you talk about what the, I guess, benefits for Hallador would be should you pursue a project like that? Brent Bilsland: Yes, great question. Look, if we bring a gas line in for the gas plant, right, that has a dual use. It can be used for the gas plant, but it also could be used if we decide to dual fuel the coal-fired units. And again, it wouldn't be a replacement of coal. It would be a -- we would have the ability to burn both, right? We could burn coal, we could burn gas. And there's a lot of reasons to do that, right? Some of it is there's times the gas is cheaper than coal. It could be -- it helps our investors, bankers, insurance companies kind of protect the company. And well, if we have a different administration with a different viewpoint, then all of a sudden, Hallador is a multi-fuel company that isn't just a coal company. We think as you progress through this, right, we're locking in the economics of the existing generation. We're trying to step towards building of a gas unit to both expand our capacity, but also add a separate fuel source. If we could then upon that dual fuel the existing plant -- now Hallador has really transitioned from a coal company to a multi-fuel company. And I think there could potentially be a multiple uplift in being able to pull all that off. Now that doesn't mean -- I don't want to sit here today and say we're going to do that. I'm trying to say that because of the contracts we've signed, we've derisked our balance sheet. We've increased the ability to access capital, and these are the type of projects that we are reviewing and trying to work towards. So I just want to kind of give the investor a little bit of insight into how we're thinking. We'll have to see if those investments make economic sense and it's ultimately what we decide is the best use of our capital. Jeffrey Grampp: Understood. I appreciate that thorough answer. For my follow-up, I know in the past, you talked about M&A ambitions and some opportunities there. It's obviously a big derisking event for the Hallador story at large. Does this help further or serve M&A ambitions? Are these independent? And can you just give us a broad update on the opportunity set in that world? Brent Bilsland: Yes. Look, I think there's a lot of opportunity. If you look at -- there's a lot of people that own assets that are funds. And what is unique about Hallador is we have a public vehicle. We have a sales team that can help lock in long-term contracts to add value to those existing assets. And we have a team that is working on developing the interconnect and expanding upon that to meet market demand. So I think Hallador is unique in that -- and we can touch coal assets. So those 4 attributes, I think, really set us apart and make us a more interesting vehicle for potential M&A possibilities down the road. We'll see if those come to pass. We're only going to do deals that we think are smart, and we're going to do the deals that we think bring the most value to the shareholder at the time that they're in front of us. So hopefully, we can have some success on that. Operator: Your next question comes from the line of Matthew Key with Texas Capital. Matthew Key: Congrats on the new agreement. I was wondering if you could help quantify the pricing a little more on the new capacity agreement? I think you mentioned that it was done above the previous 3-year deal that was announced. Could you provide a rough ballpark on that improvement on pricing? Brent Bilsland: Yes, Matt, I apologize, we're somewhat limited on what we can say just due to the confidentiality that is in the agreements. But I think that if you look at the tenor and the volume that we've talked about, and we've given roughly the total dollar amount, I think everybody can kind of get in the ZIP Code. There were a lot of reports out on what our last deal was at. And some of that will show up now. So what we announced in March, some of that does show up in our forward sales book in this 10-Q. So if you compare the previous 10-Q to this 10-Q, I think you can get a feel for what that pricing is. On this particular $1 billion deal, once it's approved by the IURC, that -- then that deal is firmly bound, right? That's the last approval that we're waiting for. I mean we're bound, the counterparty is bound. We just have to have IURC approval. Once that happens in our -- whatever Q follows that time period, then we'll start to report what the volumes and the pricing is on the deal we just announced. Matthew Key: Got it. No, that's helpful color. And for my follow-up, I wanted to talk a little bit about the natural gas expansion. I believe in the previous earnings call, you mentioned that you would expect MISO to complete kind of the ERAS application in 3Q '26. Have there been any changes to that time line? And have they picked up the application as we stand today? Brent Bilsland: They've not picked up the application yet, but we still anticipate them doing that in June, and then that will require us to make the decision sometime in September. Matthew Key: Got it. Yes. So about 90 days, right, after they pick it up to kind of work through the details of that? Brent Bilsland: Yes, that's how the ERAS program is supposed to work. Once they pick it up [indiscernible] the 90-day on. Matthew Key: Got it. Brent Bilsland: We do not control when they pick it up. Operator: I'll now turn the call back over to Brent Bilsland for closing remarks. Brent Bilsland: Yes. I want to thank everybody for their patience in us getting this capacity deal done. We're very excited about the future of the company, and we think we've got just great things in store. So thank you for your time today. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to Ternium's conference call to discuss the results for the first quarter 2026. We would like to inform you that this event is being recorded. [Operator Instructions] We would like to remind you that this conference call is intended exclusively for investors and market analysts. We request that any questions from journalists be dedicated to the Media Relations through our website in the Press section. With this, I would like now to turn the floor over to Mr. Sebastian Marti. You may proceed. Sebastián Martí: Good morning, and thank you for joining us. My name is Sebastian Marti, and I am Ternium's Global IR and Compliance Senior Director. Yesterday, we announced our financial results for the first quarter of 2026. Today's call is intended to provide additional context to that presentation. I'm joined by Maximo Vedoya, Ternium's Chief Executive Officer; and Pablo Brizzio, the company's Chief Financial Officer, who will discuss Ternium's operating environment and performance. Following our prepared remarks, we will open up the call to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on Page 2 in today's webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that, I'll turn the call over to Mr. Vedoya. Maximo Vedoya: Thank you, Sebastian. Good morning, everyone, and thank you for joining our conference call. Earnings margin in the first quarter continued on a recovery path, reaching 12%. This improvement reflects a combination of factors: an improving market environment in Mexico, a focus on profitability over volume in Brazil, and the continued work of our teams to increase efficiency across our industrial operations. In Mexico, apparent steel consumption fell around 10% in 2025, driven by uncertainty triggered by U.S. trade actions. In 2026, however, we see an improvement. The Mexican government has been actively working to mitigate the negative effects of U.S. trade measures on the Mexican economy by defending the local industry against unfair imports from Asia. These actions not only support the continued development of the Mexican industry but are closely aligned with the U.S. government's own trade strategy. Plan Mexico is also central to this effort. It promotes industrial development, increases domestic content in manufacturing and strengthens regional supply chains. In this same line, last week, the steel industry and the Mexican government signed a landmark agreement to prioritize domestically produced steel in all public procurements, a clear sign of the opportunity ahead. Taken together, these policies support our expectation of a recovery in Mexican steel demand. In this context, we expect volumes in Mexico to continue improving in the second quarter, driven mainly by the commercial market. The significant destocking that took place across the value chain in 2025 is now giving way to a normalization of apparent demand. Beyond that, we are seeing early movements in several infrastructure projects, which could add meaningful demand in the coming quarters. Turning to our Pesqueria project in Mexico. The ramp-up curve of the cold rolling mill and the galvanizing line are running ahead of plan. We expect both lines to be operating close to a full capacity by October. The slab facility is also advancing in line with expectation. This project is central to our strategy. It will significantly increase our vertical integration in Mexico, reduce our [ resilience ] on externally sourced slabs and enhance our product capabilities across automotive, industrial and construction applications. Importantly, as the automotive USMCA rule of origin enters into effect next year, this facility will position Ternium as a key player in meeting a growing demand. In this respect, I am pleased to share that we have been granted a patent in the United States for our new electrical steelmaking process, which will enable us to produce exposed steel at scale. This innovation leverages the integration of direct reduction at the same site. In addition, innovations such as virtual stamping solution, which utilizes artificial intelligence to streamline certification process for the automotive industry, enforcing our drive for operational excellence. This commitment continues to be recognized by our customers. In February, we were honored by [ Ariston Group ] with their [ Strategic Partner ] award, the highest recognition for quality and partnership. And in April, Ternium Mexico received the 2025 John Deere Crop Award and achieved the partner level, John Deere's highest distinction for cost-effective and long-term collaboration. Brazil steel consumption remains broadly stable with some sectors showing resilience and others facing more pressure. The automotive industry continues to perform well, with production expected to grow around 4% this year. On the other hand, sectors like agribusiness has been weakened -- have seen weaker demand. A key challenge in the quarter was a significant increase in steel imports, up around 30% versus the previous quarter. Imports accelerated ahead of the government's antidumping measures on cold-rolled and coated products. This has resulted in elevated inventory levels of imported material in the market, which we expect to normalize by the second half of the year. As these trade defensive measures gain traction and inventories level normalize, we expect Usiminas' market share to improve. However, it is also worth noting that import pressure is not limited to China. Volumes from Southeast Asia, particularly South Korea and Vietnam, have increased significantly, reflecting the indirect effects of China oversupply on the region's trade flow. In March, we were honored to welcome President Lula to the official inauguration of the Roberto Rocca Technical School located near our Rio de Janeiro plant. The school provides full-funded technical education to young people from the surrounding communities, offering them access to world-class education. Built with an investment of $50 million, we expect to welcome close to 600 students by next year. In Argentina, after a 2024 record, one of the lowest steel consumption levels in 2 decades, the market began to recover in 2025. However, 2026 did not start as we had expected. Demand is growing unequally. Mining, energy and agriculture are performing well. Automotive remains at reasonable levels. Constructions remain soft. Metal, mechanical and home appliance sectors are lagging, affected by weak domestic consumption. As I bring my remarks to a close, I am pleased to share that Ternium has once again been recognized as a Sustainability Champion by the World Steel Association. This recognition is granted to companies that [ integrate ] sustainability into their core strategy, combining environmental management, safety performance, innovation and responsible community engagement. Looking ahead, we are constructive on our market and our ability to continue improving performance. In Mexico, the combination of normalizing demand, supportive industrial policies and the ramp-up of our downstream projects position us well for the quarters ahead. In Brazil, as trade defensive measures gain traction and imports inventory normalize, we expect to see a healthy competitive environment. In Argentina, we continue to monitor the recovery closely, while remaining -- maintaining our operational discipline. Across all our operations, our teams remain focused on driving efficiency and lowering cost, and we're already seeing the benefits. Overall, the recognition we continue to receive from our customers reflects the quality of what we are doing every day. We are confident in Ternium's ability to deliver even stronger performance in the periods ahead. With that, I'd like to move to a review of our quarterly performance. Pablo, please go ahead. Pablo Brizzio: Thanks, Maximo, and thanks, everybody, for participating in our call. So let's review our operational and financial performance for the first quarter of this year. Starting the webcast presentation on Page #3, we can see that the adjusted EBITDA increased sequentially by 21% in the first quarter, in line with our expectations and reflecting margin improvement. Looking ahead, we expect adjusted EBITDA margin to continue increasing, supported by higher revenue per ton, particularly in Mexico and Brazil, partially offset by higher cost per ton across our main markets. Let's move to the next slide. Net income for the first quarter of 2026 reached $372 million. This reflects improved operating performance, stronger net financial results, primarily driven by foreign exchange gain in Mexico, Argentina and Brazil, and positive deferred tax results. Deferred tax gain amounted to $122 million, driven mainly by currency fluctuations in Argentina and Brazil and inflation effects in Argentina. Net income in the quarter also included a $48 million loss from the quarterly update of the value of a provision from ongoing litigation related to the acquisition of the participation in Usiminas in 2012. Let's turn to Page 5 to review the Steel segment performance. Overall, shipments were broadly in line with the previous quarter. In Mexico, volumes increased, supported by solid commercial market activity. This was driven by more effective trade defenses against unfair imports, healthier inventory level across the value chain and a seasonal recovery in demand. In Brazil, Usiminas prioritized profitability in the face of increased cost volatility, particularly in energy and logistics, resulting in a modest sequential decline in shipments. In the Southern region, demand softened, reflecting weaker industrial activity in Argentina, alongside typical seasonal factors, leading to a sequential decrease in shipments. Looking ahead, we expect shipments to trend higher, mainly driven by Mexico and Argentina, as trade measures gain traction in Mexico and demand conditions gradually improve across both markets. Let's turn to Page 6 to review the performance of our Steel segment. Steel cash operating income improved during the period, driven by higher margins, resulting from realized prices gains, which were partially offset by higher raw material and purchased slab costs. On next slide, the Mining segment reflects a different dynamic. In this case, shipment declined sequentially due to operational disruptions in Brazil caused by an unusual intense rainfall. Finally, let's turn to the cash flow and balance sheet performance on Page 8. The company continues to generate strong cash flow from operations, although this quarter, we saw an increase in working capital, driven by an increase in trade receivables, mainly due to higher steel prices and volumes in Mexico. We anticipate that sales will grow in the second quarter of this year, likely requiring a further rise in working capital. Capital expenditures continue to reflect our progress in the expansion of our industrial center in Pesqueria, now mostly focused on the construction of the slab making facility. Finally, we ended the quarter with a net cash position of $327 million. On top of our CapEx needs, the cash position decline included a $350 million payment for acquisition of Usiminas shares from Nippon Steel, partially offset by $150 million loan collection from Techgen, our nonconsolidated energy joint venture that supplies power to our operations in Mexico. Okay. This concludes our prepared remarks for the first quarter. We will now be happy to take your questions. Thanks, and please proceed with the Q&A session. Operator: [Operator Instructions] Our first question comes from Mr. Rodolfo Angele from JPMorgan. Rodolfo De Angele: Okay. So I wanted to just hear your thoughts on 2 aspects that I think are relevant for Ternium's future performance. So first, there's been a lot of discussion on USMCA. So if you could share your thoughts on what happens there and what it means in terms of different scenarios for the company's performance? And I also wanted to hear from you a little bit about the expectations for the slab market in terms of pricing outlook for the [ remainder ] of the year, especially. And that's all. Maximo Vedoya: Thank you, Rodolfo. Let me start with the USMCA question. And as you know, there have been a lot of discussion and talks about USMCA. Look, I believe that there will be a trade -- a deal between U.S. and Mexico. And as you know, the U.S. administration through the USTR and the Mexican government through the Ministry -- or Secretary of Economy holding meetings. There is a formal meeting on the 25 of May, which is going to start formally the revision -- or the discussions of the USMCA. Most of that discussions are probably going to be on discussing mainly stricter rule of origin and some other issues that have [ arisen ]. And I think my thoughts on this is that this is going to take some time. So I am positive, there is going to be an agreement. But I don't know exactly the timeline, probably won't be by the 1st of July and probably would get most of this year. So this is, I mean, the -- my thoughts of what is happening in the USMCA. There's also some discussions going on, on the Section 232. As you know, I don't think -- my thoughts is, and I always said, there is no -- there's incomparability between Section 232 and USMCA. It doesn't make sense, makes Mexico subject to 232 in steel as the U.S. has a steel trade surplus -- a very big steel trade surplus with Mexico. I know the Mexican administration has also stated that there is a priority while the USMCA negotiate that there has to be a relief in steel and automotive Section 232. And I know they are discussing this during the following weeks. Nevertheless, I think it's important that the Mexican administration, as I said a little bit in my remarks, Rodolfo, has been very proactive in launching initiatives to strengthen the steel consumption in Mexico. While all this is going on, the Plan Mexico, the target measures against unfair competition, the imposition of tariffs for countries that don't have trade agreement with Mexico, all this -- I think it's a very active way of the Mexican government to attack the problems of the Mexican economy, while these 2 things are negotiated. So in the end, I think USMCA, as I said, is going to be renewed probably with much tougher rule of origin, which I think is a very good thing. But I'm not that certain on the timing. Probably the timing -- it takes a little bit more longer. So I hope with this large answer, I did answer your question, Rodolfo. Rodolfo De Angele: Yes, you did. Maximo Vedoya: The slab market, what did you refer with the slab market? Rodolfo De Angele: It's just a market that -- I think it's more unique overall in terms of how pricing dynamics work. So I just wanted to hear your thoughts on what do you see, especially on pricing, what do you expect for the coming quarters? Maximo Vedoya: Prices, as it has been in most of steel products, has been increasing recently. Clearly, the increase in fuel increases the logistics for slabs. And also, there has been some increase in iron ore and in other raw materials, which have made the slab market a little bit more expensive. I mean, from all our production -- our buying of slab is not as big as it used to be because most of the slabs come from our Ternium Brazil facility. But nevertheless, we are buying in the market, and we are seeing some increase in that. It's compensated probably with the increase in prices in finishing products also. Operator: Our next question comes from Mrs. Timna Tanners from Wells Fargo Securities. Timna Tanners: So I wanted to ask, if I could, about a few things. One is to follow up on the USMCA discussions. The U.S. government is more interested in granting relief on tariffs if there is a construction of production in the U.S. So just wondering if you would expand your U.S. presence. Also wondering along those same lines about -- hearing about a Mexican dumping case against U.S. galvanized imports. If you could address those? Maximo Vedoya: Timna, we are not thinking in making some production or increased production in the U.S. now. We don't have that as a plan today. And second, there is a dumping case against cold rolling products. There's no dumping case against galvanized in Mexico, at least in the U.S. There is a dumping case in galvanized against Vietnam and I think other countries. Timna Tanners: Okay. I heard that Mexico was working on one against the U.S. I thought that could be positive for your operations. So we'll stay tuned there. Second, can you expand a bit more on the mention of electrical steel -- sorry, EAF capabilities to make exposed automotive and remind us what might be the time frame for doing that? Maximo Vedoya: Yes, for sure. I mean, as you probably remember, the steel shop, it's going to start the ramp-up in the last quarter of -- between the last quarter of this year and early next year. As you know, the operation, it's -- I mean, the facility is huge. I hope all of you can one day visit it because it's worth visiting the facility. So the ramp-up facility -- the ramp-up curve should take at least all 2027. In the meantime, during all this ramp-up, we are going to work with the automotive customers to certify our products, certification process for all automotive products. Not only the exposed material, but also all the other parts of the car need certification. But we are working very close with all of them because they are very eager to accelerate the certification process. And so, we are working already with them on how to accelerate the certification process as much as possible. We have recently increased the capacity of our Ternium Lab in Pesqueria, which we are working -- certifying all the lab equipment, so we can certify part of the process they need in that site. And I mean, the capacity that this EAF is going to have to have, the capacity of producing exposed material in a sustainable way and in a continuous way is going to be unique because of the process we are doing and all the patents we are developing, especially to decrease all the nitrogen that the EAFs usually have. So this is a unique process that we are developing with our technical people and the supplier of equipment that is Tenova, some sister company of us. So I mean, again, the timing should be around next year, probably by the third and fourth quarter of next year, that we are going to supply in a sustainable way to the automotive industry. Timna Tanners: So it'll be qualified for 2028 or qualified for 2027? Maximo Vedoya: No. The idea is to qualify everything for 2028. Operator: Our next question comes from Mr. Alfonso Salazar from Scotiabank. Alfonso Salazar: A couple of questions from my end. The first one is regarding the outlook in Argentina. I want to see if you can give us more color on what's going on and what are your expectations for future demand. Also trying to understand better what's the situation regarding imports. It seems to be more problematic than in the past. And also exports from Argentina to other Latin American countries, what is the outlook there because of the same thing, imports from -- to other countries from Asia? The second question is, some comments on the decarbonization trends in Latin America, it seems that -- we always knew that it was going to take longer than Europe. But any comment on what is the outlook there as well, these trends of decarbonization and green steel? Maximo Vedoya: Yes. Thank you, Alfonso. So outlook in Argentina, I mean, in the short term, shipments in the second quarter are going to increase because, as you know, the first quarter in Argentina is always a seasonably low quarter. January and February usually are holidays in Argentina. So the demand is quite -- then further down the road, I think, some of the sectors present a good opportunity, mining, oil and gas, and agriculture. They are compensated by others like mechanical goods and like electrical and white goods, sorry. That demand is not very good in the final goods. So it's going to be a little bit better, but we don't expect a huge growth compared to 2025. Imports, although there have been a lot of talks about imports, we are not seeing imports in our products. We have seen some imports in the value chains, but these are stable today. I think the problem in our value chains is that the demand or the consumption is not very good. So that's the situation we have in Argentina. Decarbonization in Latin America, [ you're seeing ] the path is slower than in Europe. I think the pace in Europe has also decreased a lot. I mean, there's a lot of projects that have been announced in Europe that today are not going through, and they continue building up in blast furnace. In Latin America, I can say 2 things. I think one, there is increasing -- in Mexico, where you have the opportunity to change from coal to natural gas. So Mexico will continue on a path of having probably the lowest steel production emissions per ton of production of probably the world. And in Brazil, there's more difficulty to change blast furnace. So the decarbonization there is going to go through -- by small decreases by efficiency, but still working with blast furnace. Alfonso Salazar: And the outlook for other Latin American countries, demand in other countries that you source from Argentina? Maximo Vedoya: No. The regional countries, I mean, usually, they don't have a huge impact in the shipments. We continue to ship to Uruguay, Paraguay. Those are the countries that we ship from Argentina. But the consumption there is marginal. So it's not going to have a huge impact on our shipments. Operator: Our next question comes from Mr. Marcio Farid from Goldman Sachs. Marcio Farid Filho: Obviously, another follow-up on USMCA and Section 232. I think what's changed maybe this time is that obviously, Mexico has put some import barriers to steel coming into Mexico to try and reduce triangulation as well or rerouting. And I'm just wondering, right, once -- assuming Section 232 to Mexico is either removed or reduced, do you think the competitive environment would be different versus where we were a few years ago when we did not have those import barriers? And I remember well, I think in Mexico, import is about 40% of all the steel that you need. So just wondering if you can think about a structural change in terms of the competitive environment between North America, Mexico and the U.S. And second point, demand was very weak in Mexico last year. I think it was down 10%. Part of the reason was, as you mentioned, destocking, but also weak activity as companies wait for better visibility on their relationship with the U.S. You mentioned restocking helped -- has been helping pricing. I'm just wondering if you're seeing demand or activity also recovering or we need to see a final agreement with the U.S. for investments to really resume in Mexico. Those are my questions. Maximo Vedoya: Thank you, Marcio. Yes, I mean, the first question about the triangulation and the efforts that the Mexican administration is doing to control this, I think there is already a structural change. I think the Mexican administration, way before Trump was elected and all this discussion began, was very focused on increasing the value-added content of all what is produced in Mexico. I mean, Mexico was a huge exporter, but the value added of those products, the regional content of those products were not very high. The Plan Mexico, which President Sheinbaum already announced in the campaign, in her campaign, was a plan for doing exactly this, for changing this dynamic. So all the things that the Mexican administration is doing, as you mentioned, are a way of decreasing the dependency of Asian products, especially in those products that Mexico or the region is able to produce. The clear example of that is steel. So I think there is already a structural change. And probably this is going to be even better once the 232, as you said, is reduced or removed from the site between Mexico and the U.S. So clearly, you are correct in your assessment. There is a demand -- regarding the second question, Marcio, there is a demand increase in Mexico. It's not as high. We are -- well, World Steel has just [ released ] that the demand in Mexico is going to grow around 4% in the year. Considering that the demand decreased by 10%, as you said, in 2025, it's not a huge increase, but it is an increase, and we are seeing some recovery in demand. I expect that this is going to be higher once the USMCA -- or where the USMCA is going is more clear. We are seeing this increase at least in a small space, but we are seeing it today. I hope that answered the question, Marcio. Marcio Farid Filho: Yes, for sure. Operator: Our next question comes from Mr. Rafael Barcellos by Bradesco BBI. Rafael Barcellos: So first question, last week, the Mexican government signed an agreement, which I believe they called as an agreement for the promotion of the Mexican steel industry, right? And so, I just wanted to understand, I mean, when do you expect that these measures will finally translate into incremental demand for the country? And what else you think the government can promote to incentivize the sector in the short term? And as a second question, in your outlook, you mentioned a bit of the cost pressure that we have seen for all industries, and I understand that steel is not an exception. But if you can elaborate a bit more on what we can expect for cost in the third Q, for example, it could be helpful. Maximo Vedoya: Thank you, Rafael. Well, the agreement in Mexico, as I said, is an agreement between the government and the steel industry of Mexico to commit that most -- that all of the government use of steel is used -- Mexican steel is used in those infrastructure -- main infrastructure. I think it's very important because there was already a commitment to use Mexican steel. But in some cases, especially all this new infrastructure that is coming by Pemex, by CFE, that is the electricity company, that our investment -- joint investment between public and private sectors, this is going to be -- it's going to be an impact in the demand of steel, especially with all the investment in gas lines, in renewable energy, solar and wind. It has a huge consumption of steel. So it is important in that sense. I don't expect the investments to start in the next quarter or the following. But I think that by year-end, all this effort that the government is doing will have an impact in demand. Too early to say how much, but it's going to have an impact. The second question, sorry? Pablo Brizzio: Cost. Maximo Vedoya: The cost. Well, I mean, it's going to be an impact in cost. But for Ternium, it's not going to be a huge impact. The big impact is going to be in logistics and import of some slabs and some logistic costs in Brazil and probably in Argentina. But it's -- probably, that is going to compensate, as we said in the outlook, by also the price increases. I think that the real risk, let me say, of the conflict in the Middle East is that if it's not resolved quickly, it could cost more a recession. So we are thinking that, that's the real risk for us. We see a little bit increase in cost, but again, more than compensated by the increase the prices of steel are having. Rafael Barcellos: As a follow-up, sorry, can you just elaborate on what you're seeing as for cost trends in the third Q? And on the price side, I understand that prices are outpacing the cost increase. But can you just help us understand, in your view, what is the main driver for this recent good price momentum that we are seeing in Mexico? Maximo Vedoya: Well, the good momentum, I think it's everywhere. You see, in Europe, prices increasing. You see in Brazil. You even see, in China, prices increasing. So I think part of that is motivated by the increase of cost, which is bigger than increase in Southeast Asia and is bigger in Europe than it is in the Americas. So I think that's the motivation, Rafael. Operator: Our next question comes from Mr. Caio Ribeiro from Bank of America. Caio Ribeiro: So I have 2 questions linked to your investments at Pesqueria. So first off, as you complete your upstream investments this year, what are some of the investment avenues that you're contemplating right now? Where does the MUSA expansion fit in within your list of priorities? And then, secondly, assuming that you don't greenlight another investment right away or a large investment like the Pesqueria upstream, downstream investments that you've done in the past years, those CapEx figures, they should drop considerably versus your recent run rate, which, together with that earnings increase that you get from your investments, should drive significantly higher free cash flow generation in the coming years, right? So with that in mind, just wondering how you think about dividend payments going forward? Is there room in your view to boost those to cover a larger part of that positive free cash flow generation that you should have in the coming years? Those are my questions. Maximo Vedoya: Thank you, Caio. Well, yes, the upstream investment, as you know, will -- as I said before, we will start the ramp-up curve by the end of the year or early next year. But I mean, we are still -- but it's still a long way to go. Today, the big investment that, as you say, we are analyzing is the expansion of MUSA. Usiminas has continued to analyze the different alternatives we have regarding CapEx and the cost of production and the material that we can take on each one of these alternatives. And by the end of the year or early next year, we have to take a decision -- or we will have a decision on where to go on that. Those are so far the investments we are considering. I mean, we are not seeing yet a necessity or, I mean, the willingness to make another large investment so close as to bring in heavier project online. So yes, CapEx is going to decrease. As you remember, 2025, we have $2.5 billion of CapEx. This year, it's going to be lower than that -- much lower than that. Probably in 2027, it's going to be even lower, around $1.2 billion or $1 billion. So yes -- and I mean, regarding the dividend, if the numbers improve and we have generation, as you know, we have a track record that the dividend -- our dividend has a very good yield, although we decreased a little bit the dividend -- or the Board decided to decrease a little bit the dividend because of the uncertainty, which I completely agree. Still, the yield dividend with the price of Ternium's [ ADS ] today, it's around 5%. So we will probably continue with this policy of taking a good dividend. Operator: Our next question comes from Mr. Caio Greiner by UBS. Caio Greiner: Two questions. The first one on Brazil. I wanted to hear your thoughts on the strategy that the company has following the recent antidumping duties implementation for the operations that you have there, especially at Usiminas. I wanted to know if you're going to favor, over the next few quarters and maybe even years, higher prices, higher profitability, value over volume, somewhat of what we saw during the first quarter? Or if the strategy is going to be more in the sense of gaining market share, expanding volumes? And if that's the case, I wanted to know how much do you see in terms of volume gain potential over the next, again, quarters and years, and if you believe that you have enough capacity for this amount of volumes that you could increase going forward? And if you don't, what will be the strategy there? Relighting blast furnace, could it be on the pipeline? Or is that more in the sense of just purchasing more shares and raising capacity utilization? And the second one, just a follow-up to the previous capital allocation question. Maximo, you mentioned that you don't have plans of doing another large CapEx project while you still have the MUSA investment. But could you still maybe -- could it be on the pipeline to, again, perform corporate simplification measures, more bottom-up or in-house initiatives like the Usiminas stake that you acquired during the first quarter or anything related to Argentina? That would be very, very helpful. Maximo Vedoya: Thank you, Caio. The first one, I mean, if we have to choose between the 2 strategies you said, probably it's the first one. And we don't want to produce more in order to sell something that the market doesn't need. And so, we are going to start to -- we will always prefer the first strategy. It's clear that with all the measures that the Brazilian government is taking -- as I said, Brazil is kind of a little bit late. I mean, Mexico, U.S., Canada, Europe, even India are taking measures a little bit more quickly than Brazil. But nevertheless, the trade measures in Brazil, it's a very good first step in the very right direction. So if unfair trade comes down, probably it will increase also volume. But we are very -- going to be very cautious. Regarding our capital allocation, Pablo? Pablo Brizzio: Thanks for letting me answer one question. So yes, regarding capital allocation and following on what Maximo said before, we are in the middle of a huge capital allocation structure, taking into consideration the rest of the capital expenditure in the facility in Mexico with the dividend payment and with the capital -- working capital increase because of the increasing volumes and decreasing prices that we saw. This year, as you know, we will be moving from a net cash position to a net debt position. And next year, you are totally right that we will be reducing the level of CapEx, but we will be sustaining probably the other outflows of capital. This could lead to an increase on our position, our cash position, which is not bad and will prepare us for any opportunity that may appear in the market. Among these opportunities, you know that we have talked a lot in the past and we have worked a lot in order to simplify our corporate structure, and this is on our list of priorities. And if there is an opportunity to move in that direction, clearly something that we need to fully analyze and to carefully analyze because it's not that you have an opportunity and you can take it immediately. You need to do all the calculations in order to see the best way to proceed. With that, as Maximo already explained, continuing with the dividend is a policy that we have. And if there are opportunities to improve that, if the numbers reflect it, it's something that we will consider. Additionally to that, we take -- if you want some rest -- our analyzing the next CapEx plan -- internal CapEx plan because the effort that we have to put in order to take this project to work is very significant. And as Maximo explained, we need to go through the ramp-up to certification. So this takes some time. That's why usually when we have this big CapEx plan, then we take at least 1 or 2 years to design the new ones. But as also was explained here, we still believe that Ternium has opportunities to grow in all our markets, especially in Mexico and in Brazil. So there will be opportunities for us to analyze, but it will take some time for us to analyze them and present it to you. Caio Greiner: Maybe just a follow-up to the first -- actually to the second one as well. So in terms of volume gains in Brazil, Maximo, you mentioned that if the unfair trade comes down, you should be able to increase volumes as well. Do you see the current capacity that you have in Brazil as enough for the volume gain that you could have for an expected market share gain? Or could you have -- think about an alternative of, again, relighting one of your blast furnaces there, think about maybe relighting or revamping Cubatao? Maximo Vedoya: Yes, Caio, I mean, today, we have spare capacity in Brazil, especially in the Cubatao plant. As you know, it's a plant that is not working at full capacity. And we will also have slabs available from our Ternium facility in Rio once -- we don't have to ship as much slabs to Ternium Mexico because of the new mill coming -- the upstream project coming online. So I mean, yes, we have capacity in Brazil to grow. And I think it will be enough, I mean, if imports go down in Brazil. Operator: That concludes the question-and-answer session. I would like to turn it back over to Mr. Maximo Vedoya for closing remarks. Please, Mr. Maximo, you may proceed. Maximo Vedoya: Well, thank you very much all for joining us. We welcome, as usual, any feedback or additional questions that you have. In the meantime, have a great day. Bye. Operator: Ternium's conference call has now concluded. Thank you for attending today's presentation. You may now disconnect, and have a good day.
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 Carter's First Quarter Fiscal 2026 Earnings Conference Call. On the call are Richard Westenberger, Interim Chief Executive Officer and President; Chief Financial Officer and Chief Operating Officer; Allison Peterson, Chief Retail & Digital Officer; and T.C. Robillard, Vice President, Investor Relations. Please note that today's call is being recorded. I'll now turn the call over to T.C. Robillard. Thomas Robillard: Thank you. Good morning, everyone. We issued our first quarter 2026 earnings release earlier today. The release and presentation materials for today's call are available in our Investor Relations website at ir.carters.com. Note that the statements on today's call about items such as the company's expectations and plans are forward-looking statements. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please see our most recent SEC filings as well as the earnings release and presentation materials posted on our website. In these materials, you will also find reconciliations of various non-GAAP financial measurements referenced during this call. After today's prepared remarks, we will take questions as time allows. I will now turn the call over to Richard. Richard Westenberger: Thank you, T.C. Good morning, everyone. We appreciate you joining us on the call this morning for an update on our business, and I'm pleased to have my colleague, Allison Peterson, who leads our North American direct-to-consumer businesses, joining me today to provide her thoughts. As usual, we have a lot going on here at Carter's. As I'm sure many of you saw, we announced a leadership transition last week. Doug Palladini has departed as our CEO. We have continued progress to report today, and I'd like to thank Doug for his leadership and contributions over the past year. Anyone who met Doug quickly appreciated his passion for our brands and our mission of serving families with young children, and we wish Doug all the best. We are looking forward to welcoming Sharon Price John as our new CEO next month. Sharon has a rich background in the children's industry, having held senior leadership positions at several outstanding companies in our space, and she has a demonstrated track record of driving transformation and growth. Now turning to our first quarter performance. The year is off to a good start. Our first quarter performance, both sales and earnings exceeded the expectations we shared with you on our last call. We saw higher year-over-year demand for our brands across all of our channels in the first quarter. Easter holiday came a bit earlier this year, which benefited demand. Our sense is that consumers were out shopping broadly in the first quarter. Earnings, although above our expectations were impacted by a number of factors, including the net negative impact of higher tariffs, spending and interest costs. Areas of progress that we'll highlight today include continued positive comparable sales in our U.S. Retail business, driven in part by the success of our investment in demand creation in driving higher traffic to our U.S. stores and websites. We're also continuing to attract new consumers to our brands, including Gen-Z. Balancing out these encouraging green shoots are multiple and continued uncertainties in the marketplace, including the evolving tariff landscape and questions about the resilience of the consumer in the face of ongoing inflation and other pressures. And we remain on our journey to improve the profitability of the company. We know we have continued work to do on this objective in particular. Today, we'll share our thoughts on these matters and how we're thinking about our business over the balance of the year. In reviewing our first quarter performance and our outlook, our comments this morning will track along with the presentation posted to the Investor Relations portion of our website. Turning to our presentation materials. Beginning on Page 2, we have our GAAP basis P&L for the first quarter. Our net sales were $681 million. Our reported operating income was $28 million compared to $26 million last year, and our reported earnings per share were $0.39 compared to $0.43 in first quarter last year. On the following page, we've summarized our non-GAAP adjustments. We had no adjustments to our reported results in the first quarter of 2026. Last year, we had adjustments related to operating model improvement costs and leadership transition costs, which reduced our reported profitability. Our comments this morning will speak to our performance on an adjusted basis, which excludes these unusual items in the prior period. Our first quarter adjusted P&L is on Page 4. Our net sales in the first quarter of $681 million represented growth of 8% over the prior year. On these sales, gross margin was 43.1%, a decrease of slightly more than 300 basis points compared to prior year. As expected, year-over-year, our gross margin rate was pressured by tariffs, a gross incremental impact of roughly $50 million in the quarter. This negative impact was partially offset by improved pricing, other supply chain mitigation initiatives, a higher mix of U.S. retail sales and the benefit of our productivity initiatives. On a consolidated basis, AURs improved in the high single digits and units were up low single digits. In U.S. Retail, first quarter AURs were up low single digits, and we achieved higher pricing gains in our U.S. Wholesale and International segments. First quarter adjusted SG&A increased 3% over prior year to $270 million. The increase was driven by incremental investments in demand creation and general inflationary pressures in wages and rent, which were partially offset by the benefits from our productivity initiatives. We do believe our productivity initiatives are delivering as expected, roughly $6 million in cost reduction in the first quarter between the cost of goods sold and SG&A lines of the P&L. These savings are helping to fund our investment agenda, including the incremental spend on demand creation. While spending was up in dollars, we achieved 180 basis points of leverage in the quarter. First quarter adjusted operating income was $28 million with an adjusted operating margin of 4.2%. While ahead of our expectations, this profitability was lower than last year. Clearly, we're focused on delivering growth in both the top line and operating earnings. And to this end, we have operating income growth planned in the second half of 2026. Below the line, net interest and other expenses increased over prior year as expected due to higher interest costs and a higher debt balance related to the refinancing of our senior notes in fourth quarter last year. Our effective tax rate was approximately 28% in the first quarter, up 60 basis points compared to prior year, which was driven primarily by the new higher minimum tax in Hong Kong, which we highlighted last quarter. For the full year, we're forecasting an effective tax rate of approximately 22%. The net of all this on the bottom line, first quarter adjusted earnings per share were $0.39 compared to $0.66 last year. The impact of our debt refinancing on first quarter 2026 EPS was approximately $0.08 per share. On Page 5, we have the details of first quarter performance by business segment. As mentioned, consolidated net sales grew roughly $50 million over last year's first quarter or by 8% with growth in each of our business segments. Adjusted operating income declined $7 million, resulting in the adjusted operating margin of 4.2%, which I just mentioned. We achieved meaningfully higher profitability year-over-year in our U.S. Retail and International segments. However, these gains were more than offset by lower profitability in our wholesale business, which can be attributed to the net negative impact of tariffs. Corporate expenses for the first quarter were comparable to prior year. And Allison will now provide some additional perspective on our U.S. Retail businesses beginning on Page 6. Allison Peterson: Thank you, Richard. Our U.S. Retail business delivered strong performance for us in the first quarter, continuing to build on momentum we've seen over the past several quarters. Total U.S. Retail sales -- net sales grew nearly 13% in the first quarter. Comparable retail sales increased over 10% versus last year and nearly 5% on a 2-year basis. This was our fourth consecutive quarter of comp growth, and we continue to improve our comp trend on a 2-year basis. This quarter, performance was strong across both stores and e-commerce with strength spanning all product age segments. Our baby assortment remained the primary driver, while we also delivered growth in toddler and kid. We do believe an earlier Easter contributed to business in March as we expected. We estimate the earlier and stronger Easter selling period likely contributed about 2 points of comp in the quarter. Comps were strong in both retail channels driven by higher traffic and higher average transaction values. We are seeing some increased penetration of our opening price point product and clearance sales were up in the quarter. We think this reflects a consumer who is more focused on price. This makes sense to us in the context of higher gas prices and volatile consumer confidence, likely in part due to continued persistent inflation across the economy and the unsettled global situation. Despite these factors, we successfully increased AURs by low single digits in the first quarter while also increasing units by double digits. As Richard mentioned, in addition to the benefit of our demand creation investments, improving traffic across our retail channels, we're also seeing good progress in growing our consumer file. Our active consumer count continued to grow in the first quarter, and we added new Gen-Z consumers to our business who are gravitating to our higher AUR products. Despite the negative net impact of higher tariffs, the strong comp sales performance and benefits from our productivity initiatives led to good improvements in Retail's operating profit and margin in the first quarter. On Page 7. During the first quarter, we launched a collaboration between Disney and our OshKosh brand featuring Winnie's the Pooh. This initiative was seamlessly integrated across our digital and physical touch points through distinct and compelling consumer experiences. Consumers love the unique product, which leveraged OshKosh iconic denim. While not a material contributor to sales in the quarter, it was a highly successful collaboration, which brought new consumers to our portfolio of brands and overpenetrated toward Gen-Z. Notably, the average AUR of this special product was more than double our U.S. Retail average. On the following page, as we've shared previously, continued investment in marketing is a very important element of our growth strategy. We saw strong results from our marketing investments in the quarter, resulting in increased traffic to our channels and growth in our consumer file. We have added tactics to connect to consumers in the places where they are spending significant time discovering brands. Social media and connected TV are 2 great examples of channels where we are seeing increased engagement while leveraging content creators and influencers for their authenticity and high credibility with consumers. I'll now turn the call back to Richard. Richard Westenberger: Thank you, Allison. Turning to our performance in U.S. Wholesale and International on Page 9. In U.S. wholesale, net sales were up slightly over last year. Although we improved pricing in response to tariffs, this was offset by a reduction in unit volume. Exclusive brand sales grew versus last year, driven by the Child of Mine and Just One You new brands, while sales of Simple Joys were comparable to prior year in the first quarter. This is an improvement in recent trend for Simple Joys. As expected, profitability in wholesale was lower than a year ago. Virtually all of this decline can be attributed to the net negative impact of the incremental tariffs. As we mentioned on our last call, we expected first quarter wholesale sales to be softer and that tariffs would meaningfully affect this segment's profitability. As we look to the second half, we believe we're well positioned for sales and operating profit growth in wholesale. Our customers have responded well to our fall and winter product offerings, which has driven sequential improvement in our seasonal order bookings. In addition, the net impact from tariffs tapers meaningfully beginning in the third quarter. Our businesses outside the United States have continued to deliver good performance. Total reported international net sales increased 14% over last year and by 8% on a constant currency basis. Growth in the quarter was driven by our businesses in Canada and Mexico. The largest component of international, our Canadian business posted strong total and comp sales growth, similar to the U.S. business likely benefited from the earlier Easter holiday, and we saw strength across both our stores and e-commerce channels. Demand in Mexico was particularly strong in the first quarter. Easter is very important in this market, and our Q1 business reflected strong holiday demand. Total net sales grew over 40% in Mexico with $3 million of the growth attributable to better exchange rates. Our team delivered a plus 21% comp in Mexico in the first quarter. Last year's business had been negatively impacted by some distribution center disruptions, which benefited this year's comparison somewhat, but the underlying trends and demand profile of our business in Mexico continue to be very strong. We're continuing to pursue store growth in this market with plans to open 12 new stores this year. International operating income was approximately $4 million in the first quarter compared to roughly breakeven performance last year. The improved profitability was driven by productivity savings as well as lower product costs resulting from favorable exchange rates. On Page 10, we have some photos of a new store in Mexico. Our team in Mexico has done a great job taking our successful co-branded store model from here in the U.S. and deploying it across the market in Mexico. On Page 11, we've provided some balance sheet and cash flow highlights. Our balance sheet is in good shape, and we ended the quarter with substantial liquidity. Net inventories were $466 million, down 2% compared to prior year and down over 14% from year-end. First quarter inventory units were 9% lower than a year ago. The amount of ending inventory value attributable to the incremental tariffs at the end of the first quarter was $26 million. Excluding this amount, inventory dollars year-over-year were down 7%. We generated positive operating cash flow of $6 million in the first quarter compared to a use of $49 million last year. This better result was due to improved working capital and favorable timing of interest payments versus the prior year. And in the quarter, we paid $9 million in dividends. Before I cover our expectations for second quarter and the balance of the year, I'd like to summarize some of our thoughts on tariffs, which can be found on Page 12. The impact of tariffs on our results is a complicated topic and made even more so by the developments in the courts and ongoing uncertainty about the future direction the administration may take. For context, we've always paid import duties at Carter's. Tariff rates have typically differed somewhat by country of origin. But in total, we historically paid a little over $100 million annually to bring our products into the United States. This represented a historical effective tariff rate of roughly 13%. The imposition of the additional IEEPA tariffs was estimated to add over $200 million of incremental tariffs to this historical baseline, bringing the effective tariff rate above 35%. Our plans for the year were developed assuming these IEEPA tariffs would be in place for the entire year. Given the Supreme Court's recent decision, the overall tariffs were reduced to a 10% additional tariff rate for all countries, also an additional incremental tariff rate in India related to Russian oil purchases was eliminated. As a reminder, for financial reporting purposes, tariffs become part of inventory costs when product is received. These costs are added to the balance sheet value of inventory. Any changes in tariff rates, including reductions, are not an immediate benefit to the P&L. That benefit occurs over time as products are sold and their cost, including tariffs become part of cost of goods sold. Our guidance reflects the benefit of the lower 10% incremental tariff rate on imports through the second quarter and the elimination of the India Russian-oil-related tariff for the balance of the year. We've assumed the higher IEEPA level tariff rates incorporated into our original plan remain in effect for product imported through the second half of the year. We maintain this assumption for higher-than-historical tariff rates based in part on comments from the administration that they intend to reimpose higher tariff rates at least commensurate with what was implemented under IEEPA beginning midyear. If this does not happen or if tariffs return entirely to their historical baseline rates, we may have some upside to our outlook, all else being equal. Needless to say, we expect changing tariff rates may impact the marketplace conditions, especially pricing, which makes it difficult to call significant changes to our previous outlook for the year right now. Turning to our outlook for 2026 on Page 14 of the presentation materials. As we indicated in our press release this morning, we are reiterating our full year sales and earnings guidance. The year is off to a good start, and we're certainly pleased by that, but the lion's share of our year is still ahead of us, and we're mindful of a number of uncertainties that complicate projecting too far out into the future right now. The consumer continues to spend, but as we noted earlier, has become more value focused as of late. We believe fluctuations in consumer confidence and inflation may continue to affect demand for our brands. We're watching the marketplace closely. Some competitors may begin to take their prices down, and we may need to respond accordingly to ensure we're as competitive in our pricing as needed. To this end, we may need to reinvest some portion of potential upside from lower-than-planned tariffs into sharper pricing in certain parts of the business. It's certainly our intention to hold on to the pricing gains we've achieved to the greatest extent possible. And as I said earlier, we're cautious that we're out of the woods when it comes to tariffs, it's possible that new tactics could be employed by the government to reinstate the previous IEEPA level tariffs or an even higher level of tariffs on imports across a range of our sourcing countries. To reiterate our expectations for the full year, we're expecting net sales growth in the low to mid-single digits over 2025. This growth reflects anniversarying the extra week in 2025's calendar. We're expecting growth in each of our business segments. In our U.S. Retail business, we're planning low single-digit sales growth with comp sales up in the mid-single digits. In U.S. Wholesale, we're planning net sales up in the mid-single digits. And sales in our International segment are also planned up in the mid-single digits, reflecting growth in each of the principal components in International, Canada, Mexico and international partners. On profitability, we're expecting adjusted operating income will also grow in the low to mid-single digits over 2025. We continue to forecast that more of our profit growth will occur in the second half of the year. In part, this is due to the higher year-over-year investment spending and interest costs in the first half of the year versus the second. As we indicated on our last call, we're also expecting a smaller net negative impact from tariffs in the second half of the year as tariffs become more comparable and a more significant benefit from pricing as planned in the second half versus the first half of the year. 2026 earnings per share are expected to be down low double digits to down mid-teens over 2025's adjusted earnings per share of $3.47. Our outlook for operating cash flow in the range of $110 million to $120 million remains unchanged. Also unchanged is our forecast for CapEx of approximately $55 million in 2026, with investments in new stores in Mexico, distribution center upgrades and technology initiatives accounting for the majority of planned spend. Our expectations for the second quarter are summarized on Page 15. Second quarter net sales are expected to increase in the low single digits compared to last year. By segment, we're expecting in U.S. Retail growth in the low single-digit range with comparable sales planned up mid-single digits. As expected, we saw some softening of demand trend in April. In part, we think given the strength of business in late March in advance of Easter, April comparable sales in our U.S. Retail business were down just under 4%. On a combined March and April basis, comps were up in the high single digits. In U.S. Wholesale, we're planning net sales up in the mid- to high single-digit range. In international, we're planning net sales roughly comparable to a year ago. We're planning second quarter gross margin down approximately 100 basis points over last year, principally due to the net unfavorable impact of tariffs, offset somewhat by higher planned pricing, supply chain mitigation actions, a higher mix of U.S. retail sales and productivity improvements. We're planning second quarter adjusted operating income in the range of $11 million to $13 million. Second quarter adjusted EPS is projected in the range of $0.02 to $0.06. Before we open it up to questions, I'd like to thank our thousands of employees across the globe who work tirelessly every day and exhibit such passion for our brands and the families we serve. We are extremely grateful for their efforts. And with those remarks, we're ready to take your questions. Operator: [Operator Instructions] Our first question comes from Paul Lejuez with Citi. Brandon Cheatham: This is Brandon Cheatham on for Paul. I just wanted to touch base on the SG&A change. I think previously, you were looking for that to be roughly flat year-over-year, and now you're looking for a low single-digit increase. I was just hoping that you could unpack what changed there. Richard Westenberger: Sure. So I'll try to give you a little color on that. Well, first, I would say it's expected to be up very low single digits. So it's not something that I'm viewing as an enormous reset to our expectations. A couple of things contributing to that. First, we've had a handful of our intended store closings that are pushing out a bit in the year. They're just going to happen a bit later for a variety of reasons. That is additive to the SG&A line. Also, we've made a decision to spend a bit more on marketing. We feel like we're generating very good returns from those investments. So there's a modest uptick in the spend on marketing, driving very good returns. That's also additive to the SG&A line. Beyond that, I would say there's a couple of areas that are running a little bit harder than planned. Professional fees are a little higher, perhaps a little bit more incremental impact from inflation across wages and rent. Those are the primary drivers. But we have a good record of managing spend pretty tightly here, and my expectation is we'll continue to do that. Brandon Cheatham: Got it. And just as a follow-up on the tariff assumption. So you're assuming that you have a 23% effective rate for basically 4 months and then we return to the 36% rate. Can you just help us like what are you assuming the impact is on gross margin for the balance of the year? By my calculation, it seems like the effective tariff rate that you're assuming before was 36% goes to 32%. Just help us how much of that is flowing through on gross margin in your guide. Richard Westenberger: Yes. I would say it's a difficult question to answer with a lot of precision around just what may happen in the landscape. I think we've given ourselves a little bit of room in terms of what may happen from a marketplace pricing point of view. We obviously held our full year guidance. To your point, we've assumed those tariff rates go back up to the IEEPA level for the second half of the year. The upside that we've reflected in having the benefit of the lower 10% rate and the elimination of the India specific tariff is about $30 million, but there is still considerable gross margin pressure in our plan in the second half. Now there's a higher benefit from assumed pricing in the second half as well. So -- but it is still dilutive on the gross margin line for the year. Brandon Cheatham: But all else equal, you're assuming that $30 million flows through to gross profit or you don't anticipate maybe raising prices as much in the second half? Richard Westenberger: Yes. I think we've just given ourselves a little bit more room, a little bit more flexibility on that pricing and gross margin line of the P&L. So we have not flowed it through. We've held the full year guidance, but that's the benefit of all things being equal, if we're able to achieve our planned pricing and given the reduction in the tariff rates that we will realize in first half imports and such, that's the amount that would flow through. But again, we're not flowing it through because there's just too much uncertainty in the marketplace right now. Operator: Our next question comes from Jay Sole with UBS. Jay Sole: Richard, I'm curious what initiatives maybe that have been going on for the last couple of quarters that were maybe started with Doug in his tenure will continue versus like what stuff might kind of be paused as you wait for Sharon to come in and put her stamp on the business. Can you give us a little sense of that? Richard Westenberger: Sure. Well, as you know, Jay, having followed us for a long time, we have a number of things underway here that we think are generating good returns for us. I think, first and foremost, the investment in demand creation really is -- has been an inflection point for us in terms of driving improved traffic, both to the stores and to the website. That has been an issue in our U.S. retail business for a couple of years prior. We felt like we under-indexed relative to some of the better brands out there, our peers in the industry. So I think we will continue to ramp that up, and we're watching for any signs of inefficiency in that spend. We've not reached that point yet. So that certainly will continue. I think the overall emphasis just on brands and product. This is a product-centric company. And so we continue to work very hard on our assortments to make sure that we've got the most compelling product that attracts and motivates today's generation of parents. That's an evolving landscape. And so I think the attention around the product side of things, in particular, will continue. I think the emphasis on productivity, and that's a broad range set of initiatives, starting with our store fleet. So as you know, we have pruned a number of unproductive low-margin stores. If you're going to have stores, they need to be special, they need to be productive. And so all the efforts that are looking at improving the productivity of our retail store fleet. We've got initiatives also around the e-commerce side of the house. So enhancements are being made to the website that has a lot to do with just the experience for the consumer online, more branding stories. We have a great transactional website. We think there's an opportunity again to have the power of the brand to shine through a bit more distinctly. And so our teams -- our great e-commerce teams are working on that. So I would say more will go forward versus stopping or pausing. Sharon certainly will come in, and we expect her to put her fingerprints on the organization and on the strategy. Fortunately, she's been read in on a number of the things that we have underway here, and I think that was a point of attraction for that we're not starting over. We're not starting from blank slate. There's a lot of good things that are underway here, and I would expect most of those to go forward. Jay Sole: All right. That's super helpful. Maybe if you can also give us a sense of what do you think the children's apparel industry grew during the March-April period? I mean you believe you took share? I mean, how do you think about that? Richard Westenberger: Yes. I don't know about the March-April period specifically. For the first quarter, our data suggests that the market was up just under 5% year-over-year. So there was healthy growth, and that's on top of considerable growth in the market in the fourth quarter. So the consumer does seem to be outspending on their kids. We think that's a healthy backdrop for our business. Our data suggests that we've maintained our share overall. Operator: Our next question comes from Jon Keypour with Goldman Sachs. Jonathan Keypour: I have 2 questions. One of them is very quick. The first is just what can you tell us about tariff refunds you anticipate getting, timing and potential use of those funds? And then just on advertising as a percent of spend, I think historically, you guys have been around 3%, and you have mentioned some willingness to pick that number up to 5%. It sounds like acceleration on the advertising is going to be part of the SG&A increase in the guide. I'm just wondering, it seems like the ROI is very good or the ROAS is very good on the advertising piece, not to put an even more pointed kind of focus on it, but like why not more, I guess? At what point do you feel like you can really accelerate and get up to that 5% and how it still be incremental and still get the right return? Richard Westenberger: Right. Jon, thanks for the question. First, as it relates to tariff refunds, there's about $130 million of incremental IEEPA tariffs that we paid between last year and early this year before the Supreme Court's decision. That is the amount that we have filed for refund with the government. So our claims have been entered into CBP's portal. We do see some progress. We've been tracking this pretty closely as everyone in the industry has. It does look like there is some progress and an intention to start disbursing those funds. We're not counting on that. We're not recognizing that until the cash hits the bank account. But we're in line for our refund, and we're monitoring it closely. As it relates to use of the funds, capital allocation is something that we talk about with our Board all the time. We'll continue to do that. We're not necessarily in a liquidity crunch. We're not constraining investment right now based on not having that tariff money. Our first preference would be to put the money back to work in the business. And so we're actively looking for opportunities to accelerate the growth of the business. Again, we're not capital constrained, where we have good investment cases for investment, we're continuing with that work. And marketing is a good example of that. I would say we're stepping up the investment by a little over $20 million this year. So that 3-ish percent number will start to inch up a bit. I think we're stepping our way into it and monitoring it and measuring it to make sure that we're getting the kind of returns that we should and that make the investment justified. To your point, we might be able to go faster, but I think $20-plus million investment is significant for us. We want to just make sure it's generating the right returns, and we'll continue to spend as we start to see these -- the benefits in the business. Operator: Our next question comes from Jim Chartier with Monness, Crespi, Hardt. James Chartier: Richard, just curious what gives you the confidence for second quarter comp sales to be up mid-single digits given the softness that you saw in April? Richard Westenberger: Yes. Thanks, Jim. I think that the April softness wasn't entirely unexpected, just given the strength of business in March. I think Easter was probably a bit more pronounced of a benefit than we had planned. From the commentary that I've read, others in the industry saw their businesses soften a bit in April. That combined number of high single-digit comp was terrific. We've already -- we're only a few days into May. We've started to see business turn solidly positive again from a comp point of view in our U.S. retail business. And then the compares become a bit easier. May and June are easier compares than April was a year ago. So I think we feel like we've got good momentum in the business. I think, again, the marketing investments appear to be successful in driving traffic to both channels. So that's what gives us the encouragement that we'll achieve that result. Allison, anything that you would add to that? Allison Peterson: The only other thing I would add is that as we continue to see our consumer file grow, that gives us some momentum with bringing new and returning customers back to the brand. James Chartier: Great. And then can you talk about the Umbro collaboration? What are you seeing with that? And then how are you thinking about collaborations going forward? Is that something you think you want to increase the number as you go forward? And what does the pipeline look like? Allison Peterson: Yes. Thanks for the question. I think we are feeling very bullish on collaborations. We've spent some time on the call talking about our collaboration with Winnie the Pooh and OshKosh, and we're very, very happy with the results we saw from that collaboration. Umbro has also started out strong. We are seeing, as with most things, people excited to purchase the baby products first as it relates to the size offerings, and we see toddler and kid a little bit purchase closer to the time of the event, so knowing that the World Cup is up and coming. We anticipate that we'll still see some nice demand. I would say from an experience perspective, we're very excited with how the Umbro collaboration has come to life across all of our channels, very similar to what we saw with Winnie the Pooh. And we do feel pretty confident about our collab pipeline for the rest of the year. Richard Westenberger: Jim, I think the collaborations have been a good way for us to introduce something new, some newness in the assortment, which is a bit of a spark again on that traffic front, brings the consumer in, they find something new and different relative to their expectations. So we'll do it selectively, I think, going forward where it makes sense for our brand and then obviously, whoever we're collaborating with. But there's a place for it in our business in a more meaningful way than we've done historically. Operator: Our next question comes from Ike Boruchow with Wells Fargo. Irwin Boruchow: Richard, 2 for me. I guess the first question is, I know the queue will come out later, but can you share, at least at a high level, the gross margin details, the decline in the first quarter at retail and what it was at wholesale in the first quarter? I guess I'm asking because it seems clear there's a much larger decline in wholesale. And I kind of just want to ask why you're not able to mitigate the pressure in one channel versus the other? And then the follow-up to that is to stay with wholesale is that the wholesale margin run rate now looks like it's come down to more like a mid-teens versus the low 20s a few years ago. Do you expect that to regain that lost margin in '27 and beyond? Or do you kind of view this as the new normal with some structural changes in that channel and DTC kind of is the margin opportunity for the consolidated business going forward? Richard Westenberger: Right. Yes. So good questions. I won't comment on the specific gross margin changes by channel. Those are in the queue. And to be honest, I don't have them right in front of me, but I'll speak at a high level. The wholesale business, for sure, has been more impacted by tariffs, and that's for a variety of reasons. We are much more in control of our destiny in our U.S. DTC business than we are with wholesale. And we plan that business collaboratively with our wholesale customers. And this has been an evolution. The landscape has been evolving as it related to the tariffs being put in place and how the industry has responded. I'd say there's been good partnership and collaboration with those customers, more of a sharing convention of the cost of the tariffs as we've kind of stepped our way into them. I think we've made more progress as we've gotten into 2026, but that coverage was less than what we had achieved in our U.S. Retail business, where we just obviously control much more of the various levers in the business, pricing units and so forth. So it was expected coming into the year that we would not fully cover all of the costs of tariffs in the wholesale channel. And that has had, to your second question, the flow-through impact on wholesale segment profitability. And there's other things that have affected it as well. We've made some make investments in the product itself, which we felt like we had to make from just a competitiveness of the assortment point of view, and that has caused the margin to run down a bit. It's been a very margin-rich business over the years for many years. I think the mix has also changed pretty considerably over the years as it relates to the customer profile. So the department stores, which are the best margin part of that business have just continued to decline. And I think that's more structural as it relates to the industry, nothing to do with their regard for Carter's or the demand for our products. It's just that as a channel has not grown and has been contracting a bit. Business is more concentrated in the mass channel than it had been. Target and Walmart continue to be very good margin businesses for us, but probably not quite at the rate that those department stores have been over time. So I think for the next little bit, the margins will be lower than they've been historically, but our internal plans show margin expansion over time. That's an important objective for all of us that every part of this business is expected to grow its profitability over time. And that's how we're approaching it. But certainly, the impact of tariffs cannot be underestimated in this part of the business. It's also the part of the business that I think will benefit most directly if tariff rates come down more permanently. So most impacted on the way in. And as tariffs go out, hopefully, this is part of the business that should recover more dramatically and more rapidly. Irwin Boruchow: And Richard, you mentioned competitors that may look to take prices lower and you may have to adjust your business. Is that a comment that's more related to your direct-to-consumer business? Or is that more related to the wholesale business? Richard Westenberger: Well, I think it's a comment about the marketplace more broadly. I think tariffs have been an industry issue. So our wholesale customers have faced it with developing their private label assortments with everything else that they're buying in other national brands as well, certainly in our DTC business as we look at other near-end competitors, we're watchful of what they may be doing as well. There's other challenges as it relates to inflationary pressures as well, which may provide the industry some motivation to keep pricing. So as we look into early next year with what's going on with oil prices and commodity costs, we're seeing a bit more inflation than we had originally planned for early next year product deliveries. Transportation costs are going up. We're seeing some additional fuel surcharges. We have an awesome supply chain that does a great job. So we're not disadvantaged in any aspect of how we procure our products, but the entire marketplace is going to see these pressures, including the cost of bringing the goods over to the United States. So tariffs are one element of the cost structure, but I think we have to look at all the other input costs as well. Operator: Our next question comes from Tom Nikic with Needham. Tom Nikic: I've got 2 hopefully quick ones. First, question, Richard, I apologize if you said this already, if I missed it, but did you say anything about store openings and closures for this year? Richard Westenberger: I don't know if we commented on it specifically, Tom. The plan is to close about 60 locations across North America, most of those here in the U.S. As I mentioned, there's a handful of stores that have pushed out timing-wise, probably a bit more into Q4 versus Q3 as originally envisioned. There's -- from memory, we closed about 10 stores in the first quarter, though, another 20 or so that we will close here in the second quarter. And then we have a handful of new store openings. Those are really just stores that were planned originally as part of last year. They've kind of locked over the calendar year-end date, and they'll happen now in 2026. Tom Nikic: Got it. Okay. And then on the wholesale channel, I believe you said that the Amazon business was flat this quarter. Is that sort of a sign that, that business has now stabilized and maybe the declines there are finished? Or was there anything kind of one timing there or anything timing related on the Amazon front? Richard Westenberger: Tom, I would say on Amazon, we actually had growth in the Amazon relationship in the first quarter. And my comment was specifically that Simple Joys volume was comparable in the first quarter, which is an improvement over where we've been. We do have Simple Joys planned down a bit this year, not at the same rate that we've seen over the last couple of years, and we're starting to see the ramp-up of the sale of our flagship brands, for Carter's, OshKosh, Little Planet. They exhibited some growth in the first quarter. There's stronger growth that's planned in the second half for those brands, which we intend to offset Simple Joys being down. So we've planned growth with Amazon for the full year. Operator: Our next question comes from Kendall Toscano with Bank of America. Kendall Toscano: I just had a follow-up on tariffs and just to make sure we're thinking about the timing correctly. But assuming it takes until July to sell through the inventory, you brought in at the 36% rate. So starting around August, you'll start to see some benefits from the lower rates that have been in effect since February 24. I guess how long would you assume it reasonably takes to sell through this inventory that you've been bringing in at lower rates for the last 4 months? Would it be through the end of the year? And I'm just kind of curious how should we think about -- if you're assuming then that the back half of the year, tariffs jump back up to a higher rate, assuming the incremental IEEPA tariffs, when does that hit the P&L? Is it during 2026? Or would it be beyond? Richard Westenberger: Yes. Thanks, Kendall. It would be a mix. I would say, on balance, our turn assumption, which drives the -- how inventory cost bleeds into the P&L is kind of 4 to 5 months. It depends a little bit on the sales rate of product. But the assumption is that we're going to see higher tariffs again and that those will be implemented midyear. And so to the extent we import product beginning in that kind of midyear time frame, those would go into our inventory costs. And we'd be selling that product over the balance of the year and into early next year. We start to sell kind of spring product. There's pre-ship product for spring '27 that we would sell in the fourth quarter. So all of that in our current hypothesis would be subject to the renewed higher tariff rates. I hope it doesn't happen. I hope they find a different path forward and we go back to where we've been historically, but we'll see. Kendall Toscano: That's helpful. And then one other question I had was just on unit growth versus AUR. Obviously, specifically on the U.S. retail business, you had a pretty nice acceleration in units to up low double-digit percent this quarter. Curious how you're thinking about the balance of the year and whether you'd expect unit growth to remain as strong? Richard Westenberger: Yes. I think unit growth may be at the high watermark as it relates to Q1 as we plan the business. I think it will moderate a bit in Q2 and then it will moderate further in the second half where we have more benefit from pricing planned in. That's just how we've planned the business. There's historically been a pretty elastic relationship as you take prices up. Now we've been benefiting, I would say, from a little bit more stickiness, a little bit more inelasticity, particularly among the baby category where we have the most equity with consumers. I would say, among some of our higher-priced, higher AUR goods where the aesthetic, the benefits, the features are a little bit more apparent to the consumer, that has shown some greater inelasticity as well. But pricing is a bigger part of the calculus in the second half and the units won't be as strong, at least as we're looking at it today. Operator: Our next question comes from William Reuter with Bank of America. William Reuter: So you mentioned that you have kind of made the assumption that these 301 tariffs, the U.S. trade representatives will indeed move forward with those. Have you talked to your wholesale partners in terms of Walmart and Target or in the event that they do not put 301 tariffs in place if they expect that you will reduce prices based upon the fact that prices have been set based upon IEEPA tariffs from last year? Richard Westenberger: Bill, I won't comment on specific conversations with specific customers. I would say that we plan the business collaboratively with our wholesale customers. They've been good partners as we have faced this issue as an industry. And I would expect that if we get relief on tariffs that, that would be the spirit of conversations going forward as well. But obviously, we have an interest as an industry to see these costs go away. This is a value-oriented product category. Even small cost increases have been historically difficult with pricing increases over the years to cover. So we'll face those conversations when that situation emerges. I hope that situation emerges where tariffs have gone away, and we're looking at a nice benefit to potentially I'd be discussing together. William Reuter: So does every analyst that's been calculating this for the last couple of years. The second part of my question, you mentioned that good sell-through of winter products has resulted in stronger spring order books, maybe than you've seen in a little while. I guess how much visibility do you have into your order books for the remainder of the year? Any way you can give some context for what types of increases we might be seeing? And I guess, how much remains kind of uncertain, meaning I'm not sure what level of communication from your wholesale customers they provide at this point? Richard Westenberger: Yes, Bill, I would say we've sold in the fall and winter at this point. So I think we have pretty good visibility to the majority of, I would say, seasonal product shipments for the balance of the year. Now an order doesn't necessarily mean that it wouldn't change over time. If conditions change, there is some history that orders could be canceled, but that's -- we don't have a long history of that. So I would say reaction by the wholesale customer set to our product itself with the various meetings we have to show them the line and such. And again, we plan the business collaborative with them. We get their input on the kind of products that they're looking for has been extremely positive and more positive than in recent seasons. So that translated to an improved order profile for the second half of the year. The other component that is a little bit more of a game time read on business is just what happens with replenishment. Replenishment is between 30% and 40% of the business at wholesale, and that depends on how the register is ringing. And so if consumer demand continues to be strong, that's potentially some upside to the forecast as well. But I would say we have good line of sight to seasonal bookings, and that's been an improving outlook for us. William Reuter: That 30% to 40% number is very helpful. Operator: This concludes the question-and-answer session. I'd now like to turn it back to Richard Westenberger for closing remarks. Richard Westenberger: Well, thank you very much for joining us this morning. We appreciate your participation in the call and your questions and your investment in Carter's, and we look forward to updating you on our next call. Goodbye, everybody. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning. My name is Kara, and I will be your conference operator today. At this time, I would like to welcome everyone to The Timken Company's first quarter earnings release 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. If you would like to withdraw your question, press star then number one on your telephone keypad again. Thank you. Mr. Frohnapple, you may begin your conference. Neil Andrew Frohnapple: Thank you, operator, and welcome, everyone, to our first quarter 2026 earnings conference call. This is Neil Andrew Frohnapple, Vice President of Investor Relations for The Timken Company. We appreciate you joining us today. Before we begin our remarks this morning, I want to point out that we have posted presentation materials on the company's website that we will reference as part of today's review of the quarterly results. You can also access this material through the download feature on the earnings call webcast link. With me today are The Timken Company's President and CEO, Lucian Boldea, and Michael Discenza, our Chief Financial Officer. We will have opening comments this morning from both Lucian and Michael, before we open up the call for your questions. During the Q&A, I would ask that you please limit your questions to one question and one follow-up at a time to allow everyone a chance to participate. During today's call, you may hear forward-looking statements related to our future financial results, plans, and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors which we describe in greater detail in today's press release and in our reports filed with the SEC which are available on thetimkencompany.com. We have included reconciliations between non-GAAP financial information and its GAAP equivalent in the press release and presentation materials. Today's call is copyrighted by The Timken Company, and without express written consent, we prohibit any use, recording, or transmission of any portion of the call. Finally, just a reminder, we are hosting an Investor Day on Wednesday, May 20, in New York City. We hope that you will join us either virtually or in person. With that, I would like to thank you for your interest in The Timken Company. I will now turn the call over to Lucian. Lucian Boldea: Thanks, Neil, and good morning, everyone. We appreciate your interest in The Timken Company and for joining us today. I would like to start by thanking our Timken team for their hard work to deliver an excellent start to 2026. We are gaining momentum and making great progress executing our strategic priorities, including two recent actions to advance our 80/20 portfolio work. Our financial performance is strong, and we are pleased to have achieved double-digit earnings growth and margin expansion in the first quarter. Turning to our results for the quarter, total sales were up 8% from last year, and organic revenue grew more than 4% driven by higher pricing and volume growth in the Industrial Motion segment. We expanded EBITDA margins to 18.8% in the quarter, and adjusted earnings per share increased nearly 20% year over year to $1.67. With respect to capital allocation, we repurchased approximately 280 thousand shares and acquired Bijur Delimon, which I will talk about more in a moment. We ended the quarter with a strong balance sheet and net leverage of only 2.1 times, giving us continued flexibility to pursue our balanced approach to capital allocation. While Michael will take you through the details of our 2026 outlook, we are raising our guidance for organic revenue, margins, and earnings. Our outlook now implies 13% adjusted EPS growth at the midpoint of our range compared to the 8% we previously guided, and includes a more positive price/cost impact related to tariffs. We saw improved customer demand across most end markets, which was reflected in our recent order activity. Our backlog at the end of the quarter was up both sequentially and year on year, continuing the positive momentum we experienced in the back half of last year. These trends support the increase in our organic sales outlook for the year to 3% growth. Despite continued volatility around trade and geopolitics, our team is operating with urgency to execute our strategic priorities and deliver stronger performance in 2026. As I mentioned earlier, we are deeply engaged in advancing our 80/20 strategic initiative, including optimizing our portfolio as we are prioritizing actions that will have the greatest impact to company margins and growth. Last quarter, we announced that we are extending the 80/20 discipline across our entire enterprise to reduce complexity and streamline operations. While still early in the process, we are moving quickly. We have established a transformation office with dedicated 80/20 teams responsible for leading the execution of major workstreams. We have completed comprehensive training across many areas of the business and as of today, nearly 300 Timken leaders are fully trained and putting 80/20 principles into action. Our focus on these initiatives has driven two recent actions. On May 1, we announced the sale of our Belts business to Gates. This divestiture is expected to simplify our portfolio, free up resources to redeploy to our growth initiatives, and structurally improve margins for the Industrial Motion segment. We expect to complete that transaction in the third quarter. Secondly, we acquired Bijur Delimon, which strengthens The Timken Company's Industrial Motion portfolio in key markets and is expected to be accretive to Industrial Motion segment margins after synergies. The Timken Company is the natural owner of this business, and it scales our automated lubrication systems platform to nearly $400 million in total revenue. These two portfolio moves are aligned with 80/20, and the net result is a higher-margin, faster-growing Industrial Motion segment. Our teams around the world are energized by the power of 80/20, and we are confident it will be a major driver of value creation over time. I remain confident about the opportunity to raise The Timken Company's organic growth trajectory by focusing on the fastest-growing verticals and regions. This includes driving synergies through the global expansion of our acquired businesses, and we are gaining traction. For example, we saw double-digit organic growth during the first quarter in our linear motion platform in The Americas, driven by new business wins within factory automation. We are excited about the many opportunities like this ahead to leverage The Timken Company's strength and create new ways to drive higher performance. Before I turn over the call to Michael, I want to touch on the leadership transition we initiated for our Engineered Bearings segment and thank Andreas Trugan for his many years of service to The Timken Company. An external search is underway for a permanent successor. During this time, Tim Graham, our President of Industrial Motion, will serve as interim President of Engineered Bearings. Tim spent decades leading teams within Engineered Bearings, including most recently as Vice President of Operations. His deep knowledge of our operations and customers across Engineered Bearings will ensure a seamless transition. Our bearings business set the foundation for The Timken Company more than 125 years ago and remains critical to our future. Together with Industrial Motion, we have a very compelling customer value proposition. I am focused on building the right leadership structure to best position our teams around the world for even greater success. With that, let me turn the call over to Michael for a more detailed review of the results and outlook. Michael? Michael Discenza: Thanks, Lucian, and good morning, everyone. For the financial review, I am going to start on slide 8 of the materials with a summary of our strong first quarter results. Overall, total revenue for the quarter was $1.23 billion, which was up 8% from last year. Adjusted EBITDA margins increased to 18.8%, and adjusted earnings per share for the quarter was $1.67, up significantly versus last year. Turning to slide 9, let us take a closer look at our first quarter sales. Organically, sales were up 4.3% from last year. The increase was driven by higher pricing across both segments and higher demand in the Industrial Motion segment, while volumes were relatively flat in Engineered Bearings. Looking at the rest of the revenue walk, foreign currency translation contributed 3.4% growth to the top line. The acquisition of Bijur Delimon, which closed in mid-March, added a small amount of sales to the quarter. On the right, you can see first quarter performance in terms of organic growth by region. In The Americas, our largest region, we were up 6% driven by growth across both segments in North America, while Latin America was relatively flat. In EMEA, we were up 5% from last year, driven by solid growth across both segments. And finally, we were down 1% in Asia Pacific, as growth in India was slightly more than offset by lower demand in China. Turning to slide 10, adjusted EBITDA was $231 million, or 18.8% of sales in the first quarter, compared to 18.2% of sales last year. Organically, incremental margins were approximately 35%, so solid operating performance from the team during the quarter. Let me comment a little further on a few of the different drivers on the EBITDA bridge you can see on this slide. Starting with the impact from mix, it was a notable year-on-year benefit driven by relatively stronger performance by several of our most profitable platforms within Industrial Motion. With respect to pricing in the quarter, it was positive $32 million and added nearly 3% to the top line as we continued to put through pricing actions to recover the margin impact from tariffs. As you can see on the slide, tariffs were a $20 million headwind versus last year. Looking at material and logistics, costs were lower versus last year driven mostly by savings tactics in the Engineered Bearings segment and material cost deflation in Asia Pacific. With respect to the manufacturing cost line, the increase from last year reflects labor and other cost inflation, as well as a timing impact related to inventory accounting. Moving to the SG&A and other line, expenses were up from last year driven by higher incentive comp and spending on strategic initiatives. Now let us move to our business segment results. Starting with Engineered Bearings on slide 11, Engineered Bearings sales were $806 million in the quarter, up 6% from last year. Organic sales were up 3% driven by higher pricing, while currency translation added another 3%. Among market sectors, aerospace and heavy industries achieved the strongest gains versus last year. We also posted growth in general industrial, off-highway, and renewable energy. Revenue was relatively flat across the distribution and on-highway sectors, while rail shipments were down from last year. Engineered Bearings adjusted EBITDA was $159 million, or 19.7% of sales in the first quarter, compared to 20.9% of sales last year. Margins in the quarter were negatively impacted by higher operating costs compared to last year. Now let's turn to Industrial Motion on slide 12. Industrial Motion sales were $425 million in the quarter, an all-time quarterly record for the segment and up 12% from last year. Organically, sales increased 7% driven by higher demand across most sectors and higher pricing. Currency translation was a benefit of 4.2%, while the Bijur Delimon acquisition added 0.8%. The segment saw growth in the quarter across all product platforms and was led by double-digit gains in The Americas. Among market sectors, automation, distribution, and heavy industries achieved the strongest gains versus the prior year. We also generated growth in the off-highway and aerospace sectors, while solar sales were down. Industrial Motion's adjusted EBITDA margins came in at 21.5% of sales in the first quarter, up significantly from last year. The increase in segment margins reflects strong operational execution by the team, as well as the impact of higher volumes and favorable price/mix. Moving to slide 13, you can see that we generated operating cash flow of $39 million in the first quarter, and after CapEx, free cash flow was slightly positive. Keep in mind that the first quarter is typically our seasonally low quarter for free cash flow, and we expect cash flow to step up significantly as we move through the rest of the year. From a capital allocation standpoint, we returned $53 million of cash to shareholders through share buybacks and dividends in the first quarter. Note that the board recently approved a new five-year share repurchase authorization for 10 million shares. Looking at the balance sheet, we ended the first quarter with net debt to adjusted EBITDA at 2.1 times, which is near the middle of our targeted range. Now let us turn to the current outlook for full year 2026 with a summary on slide 15. We are increasing our outlook across the board. Starting with net sales, we are raising our full-year outlook to an increase of 4% to 6% in total, up from the prior range of 2% to 4%. Organically, we now expect revenue to be up 3% at the midpoint, a one-point increase from the initial guide. The current outlook also adds 1% for M&A to include the expected revenue for the Bijur Delimon acquisition. We are still planning for currency to contribute around 1% to our revenue for the year, unchanged from our prior outlook. On the bottom line, we expect adjusted earnings per share in the range of $5.75 to $6.25, up $0.25 at the midpoint versus the prior outlook. Note that the outlook assumes year-over-year earnings growth every quarter this year. The current earnings outlook implies that our 2026 consolidated adjusted EBITDA margin will be approximately 18% at the midpoint, up from 17.4% in 2025 and slightly higher than the prior guidance. Note that the midpoint of the ranges implies an incremental margin of approximately 30% for the full year. For the second quarter, we expect organic revenue, adjusted EBITDA margins, and adjusted EPS to all be higher than last year. However, we expect adjusted EPS to be modestly lower sequentially compared to the first quarter to reflect incremental inflation and some customer activity we saw pulled forward from Q2 related to the uncertainty around the situation in The Middle East. Moving to free cash flow, we expect to generate $350 million to $375 million for the full year, or approximately 105% conversion on GAAP net income at the midpoint. On slide 16, we provide an updated view on our 2026 organic sales outlook by market sector, which includes the impact of both volumes and pricing. Note that we are raising our outlook for the heavy industries and off-highway sectors based on stronger-than-expected year-to-date performance and the positive trends we see in the order book. Moving to slide 17, here we provide a bridge of the $0.25 per share increase to our 2026 adjusted EPS outlook at the midpoint. First, you can see a $0.20 positive impact from the organic sales change. Next, we are estimating an incremental $0.15 per share tailwind from tariffs versus our prior guide. This primarily reflects the lower tariff rate on India, and a modest net positive impact from the changes to Section 232 on April 6. And finally, we are factoring a $0.10 headwind into guidance to account for potential incremental cost inflation over the rest of the year. In summary, the company delivered better-than-expected first quarter results, and the team is committed to delivering the increased outlook for 2026. Let me turn it back over to Lucian for some final remarks before we open the line for questions. Lucian Boldea: We entered 2026 with momentum, and this quarter reinforces our confidence in the path ahead. Our portfolio is becoming sharper, our 80/20 initiatives are accelerating, and we are executing with urgency to position The Timken Company for stronger growth and higher margins in 2026. I look forward to sharing more details with you soon at our Investor Day on May 20 in New York City. Neil Andrew Frohnapple: This concludes our formal remarks. We will now open the call for questions. Operator: Thank you. We will now begin the question and answer session. As a reminder, if you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. 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 Stephen Edward Volkmann with Jefferies. Your line is open. Please go ahead. Stephen Edward Volkmann: Hey. Good morning, everybody. Thank you for taking the question. I am going to dive in on the changed guidance, Michael, your slide 17, I guess. And I am curious about the tariffs, the $0.15 benefit. I assume that is mostly IEPA in India. Is there any scenario where you get, you know, rebates on what you have paid? And how are you thinking about that? And then, is there also some potential for additional tariffs as we go through these 301 kind of studies through the summer? Thanks. Michael Discenza: Great. Well, good morning, Steve. Thank you for the questions. You sized it up right on the India part. We previously had talked about that, and so the change on IEPA and because India represents a large part of our imports into the U.S., that was one of the bigger impacts. And then the small net impact from the Section 232 change. So those are the big drivers on tariffs. As it relates to IEPA, the process is unfolding. We are following the process, and if and when we have something to communicate on that, we will relay that later. But nothing is assumed in our guidance for anything related to IEPA refunds. As far as additional tariffs, it is a fluid situation. Related to February, we think we have sized it up as best as possible, so I do not anticipate anything further. But, of course, as the administration announces further changes, that could impact us. And again, we would communicate that if and when that was appropriate. Lucian Boldea: Good morning, Steve. Let me take your question on the $0.10 cost inflation. It is somewhat of a placeholder. I will tell you the degrees of what we are seeing today. It depends by region. In India, you are already experiencing an inflationary environment as we sit today. In China, not really, almost somewhat in the opposite direction. In Europe, you are starting to see signs of it, and in the U.S., not as much. Where we are already seeing the increases, we are underway with price increases, in some cases first round, in some cases second round. This is now for us not a new muscle. It is a well-exercised muscle. Customers understand. When you drive to the gas pump and the price of gasoline is higher, you understand that everything else is going up. There is a level of understanding and appreciation that we are in this environment. We will continue to work with customers closely, and it is our best guess of what it can be at this point. We are seeing parts of it already, and we are taking action. We are prepared, and we are in communications with our customers to be sure that we overcome this headwind. Stephen Edward Volkmann: Great. That is helpful. Thanks. I will pass it on. Operator: Your next question comes from the line of David Raso with Evercore. Your line is open. Please go ahead. David Raso: Hi. Thank you for the time. I was just curious. With the rest-of-the-year guide implying somewhat notably slower organic, right, about 2.5% versus the 4.3% in the first quarter, given a lot of the positive commentary around the end market, can you maybe help us a little bit? How much business do you think got pulled from Q2 to Q1? Or should we look at the organic guide as maybe some level of conservatism? And I just wanted also to ask, just given the meeting coming up in two weeks, anything you wanted to put out there as what we should expect at the meeting, especially given the 80/20 rollout now being a little broader and the recent M&A in the last week or so? Just curious if things have changed a little bit in how you are thinking about timing of actions and so forth since when you first joined The Timken Company. Thank you. Michael Discenza: Let me take the first part on the slower organic. Hard to say exactly how much was pulled from second quarter to first quarter, but from a top line standpoint, maybe about 1% top line. Normally, seasonally, we would step up from the first quarter to the second quarter a couple percent. We are now seeing that more flat. So we think about 1% was pulled forward. As it relates to the rest of the year, there is still a lot of uncertainty. Certainly, the Iran conflict creates further uncertainty. We do not have a lot of sales in The Middle East, so it is not necessarily a direct impact, but the impact around the world on the macroeconomies could pull down that organic growth. We are still expecting growth year over year for the rest of the year, but we are taking into account a bit of that Iran conflict impact. Lucian Boldea: If you look at normal seasonality as you head from Q1 to Q2, you would normally expect a couple percent step up. As Michael said, we have pulled maybe 1% out of Q2 into Q1. Something more flattish is probably more consistent with historic seasonality by the time you account for that pull-forward. The good news is we do not yet see demand destruction from the conflict. We see inflationary pressure, but we do not see demand destruction. The pipeline remains robust. The order book remains very robust. The order book was up year over year and also grew sequentially, which is very encouraging. All in all, we remain cautiously optimistic. To your second question on Investor Day, the main objective is to detail our strategy and the long-term vision, and then give you a double click on how we are doing on our transformation, what that looks like, and the execution discipline behind it. We will provide more detail on the actions we have already taken on 80/20, try to quantify those on the portfolio, and provide a roadmap on where we are headed, plus financial targets and a multiyear projection. We are very excited to share all that with you on May 20. Operator: Your next question comes from the line of Robert Cameron Wertheimer with Melius Research. Your line is open. Please go ahead. Robert Cameron Wertheimer: Yes. Hi. Good morning. You had a few things go right to help raise the full-year outlook, and I wonder if you could attribute that to end-market strength or some of the 80/20 and other initiatives that are already paying off? That is the first question. Lucian Boldea: We outlined a few things, and no doubt market demand helped. We communicated in Q3 and Q4 that we were seeing positive momentum on book-to-bill and building the order book. That definitely helped. But we have done quite a bit of self help as well. One of the growth vectors I was most bullish about from day one—and with every day that goes by, I am more excited about it—is regional growth. We have an entire portfolio in the Industrial Motion acquired businesses that are more regional in nature. Taking those businesses into new regions is an important vector. For example, the linear motion business is primarily a German and Italian business. Taking that to the rest of Europe and into The Americas provides a significant growth factor. That linear motion business alone is growing double-digit in The Americas off a lower base, and we are winning in warehouse automation and other applications that are outgrowing. It is a combination of self help and the market. On 80/20, the impact right now is less on quantitative simplification and more on mindset. We have adopted the mindset of doubling down in the markets and industries where we are winning and investing less where we are not. That is already paying off. We have reorganized our commercial teams, verticalized them, and built regional teams with autonomy to operate under a global framework. Those things are already showing. In some regions we are defying gravity a bit versus competitors—nice run in Europe, continuing good run in places like India and the U.S.—driven in part by focus. Operator: Your next question comes from the line of Angel Castillo with Morgan Stanley. Your line is open. Please go ahead. Angel Castillo: Hi. Good morning, and thanks for taking my question. Lucian, I was hoping we could unpack a little bit more of the backlog. You said it is up sequentially and year over year. Any way to quantify that for us and any particular pockets around markets where you are seeing more of a boost in the backlog? Would love any color on order activity in April versus March. I think you mentioned you are seeing activity more flattish in Q2 versus Q1 due to some pull forward. Are you seeing that reflected in your orders, and how does that compare as we think about the degree of conservatism on how much was pulled forward versus underlying demand? Lucian Boldea: The order book was up significantly year over year. The leaders are off-highway, aerospace, rail, and wind—those are the four verticals most contributing. Significant momentum in The Americas, Europe doing pretty well, India doing quite well, China still a little soft. We are encouraged that the order book was up sequentially versus Q4. Translating order book math into precise quarterly revenue math is challenging because of shorter- and longer-cycle businesses, but over time when the order book is up significantly, that flows through revenue, which is why we are encouraged. In Q1 we saw strong activity across both segments. The Americas was a big region for that. Power gen was strong, metals was strong, general industrial was strong. We have been cautious not to hang our hat on this too early because the market may not be fully taking into account The Middle East disruption; the order books and demand are not reflecting it. We see inflationary pressure, but no impact on demand yet. History would say there might be some impact at some point, which gives us a reason for caution. As for April, it is off to a good start—about where we thought we would be. Whatever dynamic drove March being a little stronger—customers realized they are in an inflationary environment and an environment of supply chain uncertainties, so more product sooner is better—persists in April. The pull-forward was modest, about 1%. April is consistent with what we expected in terms of revenue and continued strength in building the order book. Angel Castillo: Thank you. And then to take this together and think about the segments and the cadence you ultimately expect for sales and margins from Q2 through Q4, could you help at the segment level? And on price/cost, you indicated the $0.10 is baking in potential inflation. Are the price increases you are starting to action also assumed in guidance, or are you waiting to see how those go through before embedding them? Lucian Boldea: We have only embedded prices that we already see in the guide. Part of that $0.10 is probably embedded with corresponding price, but not all yet. There is timing on when you get the inflationary increase and when prices actually flow through the P&L. It is more prudent not to have all that perfectly matched yet. For the rest of the year, we expect the trend to continue where you see a little more growth in Industrial Motion than in Engineered Bearings. Looking at the first half being up around 2% to 3%, that is what we expect right now when we look at the drivers and how those are reflected in the two segments. Operator: Your next question comes from the line of Kyle David Menges with Citigroup. Your line is open. Please go ahead. Kyle David Menges: Thank you. I was hoping we could talk a little bit more about the portfolio transformation and maybe the M&A pipeline. I know we will hear more at the Investor Day, but Lucian, do we already have a pretty good idea of the focus areas for M&A? How is that pipeline building now that I am assuming you have a pretty good idea of where you want to expand inorganically? Lucian Boldea: Thank you. It is still a work in progress. There are different phases to portfolio transformation. First, with an 80/20 lens, identify portions of the portfolio where we are not the natural owner and take action. We committed about a quarter ago to take action on up to a single-digit percent of the portfolio. If you look at actions already communicated—around auto OEM and the divestiture of the Belts business—that is now the majority of that single-digit percent. From a divestiture standpoint, we have tackled the majority of what needs to be tackled. From an acquisition standpoint, in the short term, until we have our strategy fully defined and laid out, we will be a little more middle-of-the-fairway and opportunistic. Bijur Delimon is a great example—it became actionable mid to late Q4, and we moved with speed. From first discussions to close was around 90 days. It fits naturally in our portfolio. It is hard to find who are the Bijur people and who are The Timken Company people because they are in the same industry with complementary market coverage, product lines, and regional coverage. We want more of those. To the extent opportunities on our list become available, we are prepared to act quickly. Opportunistic ones you will see us act quickly. More transformational moves will be post communicating our strategy, outlining growth verticals, and positions we are trying to build. We will highlight at Investor Day a time-horizon approach to transformation. In the short to medium term, the M&A playbook is to build out platforms—our lubrication platform is now $400+ million with a runway to $500 million, our linear motion platform is comparable—building these $0.5 billion platforms across the enterprise with market-leading positions. Kyle David Menges: That is helpful. And then more color on the Belts divestiture—how it came together, anything you are willing to share on the financial profile of that business as well, and after this is sold, does that also reduce the tariff impact for The Timken Company? Lucian Boldea: Belts is very consistent with our near-term strategic priorities and 80/20, and it is a great example of a business ending up with a natural owner. I am happy for our Timken team members in the Belts business to be part of Gates. We will quantify more at Investor Day, but it will structurally increase profitability two ways: it mixes us up, and it allows redeployment of resources to faster-growing areas. It will structurally increase adjusted EBITDA margins of the Industrial Motion business. Keep in mind practicality: we expect close sometime in Q3. There is an element of stranded cost to address to get the full benefit. There will be a mix lift on day one, but to get the full lift, we have some self help to do, which we will move on quickly. Operator: Your next question comes from the line of Robert Stephen Barger with KeyBanc Capital Markets. Your line is open. Please go ahead. Robert Stephen Barger: Thanks. First one for Michael. Going back to the cadence for the quarters and the sequential decline in Q2 EPS, will Q2 still be the high point for the next three quarters? Or will Q2 and Q3 be relatively even before the normal seasonal step down in Q4? Michael Discenza: Morning, Steve. Thanks for the question. We would expect a normal seasonal step down from Q2 to Q3 and then Q3 to Q4. We do have typical seasonality built in. Since EPS is coming down sequentially from Q1, Q1 would be the high point, Q2 a little lower, and then normal step downs. Robert Stephen Barger: Got it. Thanks. And then for Lucian, it is kind of a two-speed industrial world with aerospace and defense, data center, grid infrastructure all showing great demand, and a more restrained general industrial. Are there standout opportunities where The Timken Company currently does not participate? And can you talk about humanoids given increasing news flow and investor interest? Lucian Boldea: We do participate in some of those verticals, but we have upside. I have been bullish on power generation and utilities from the day I got here and continue to be. We have a better footprint than we have talked about. Those verticals drive the need for infrastructure, which pulls through heavy equipment and off-highway. On humanoids, the problem they are solving is the skill gap in labor, both quantity and quality, due to demographics and how people want to live and work. Automation in general fills that need, and humanoids are a subset. In industrial automation, the portfolio we have built through acquisitions is remarkable. Our internal CAGR has been double-digit in that market since 2018. We decided to double down on it. How we participate: think about Cone Drive and Spinea offering harmonic and cycloidal drives, Rollon offering linear actuators that create the seventh axis, medical robots via CGI precision gearing, Timken bearings and Cone Drive harmonic solutions, AGVs via Cone Drive and Rollon, and humanoids and exoskeletons where Cone Drive and Timken bearings are already present. We will have our newly appointed Chief Technology Officer talk more at Investor Day about the opportunity and how we plan to go after it. We are nicely positioned to benefit. Robert Stephen Barger: That is really good color. Thanks. Just one quick follow-up. Are you seeing the secondary infrastructure play come through in off-highway specifically, or is that more cyclical recovery? Lucian Boldea: It is hard to fully separate. Regionally there is an uptick, and net growth is driven by those macro trends. Data centers and utilities require significant construction and infrastructure, which requires heavy equipment. Our customers highlight that as a big driver. From our chair, we see the order book beefing up and the pipeline getting stronger from those customers. It is a combination of recovery and macro trends. Michael Discenza: Maybe add some color. In addition to the infrastructure Lucian highlighted, we are seeing some green shoots in ag. Part of off-highway—the ag business, which we have talked about as being down—we are starting to see green shoots there as well. Operator: Your next question comes from the line of Tomo O'Sano with JPMorgan. Your line is open. Please go ahead. Tomo O'Sano: Hi. Good morning, everyone. Thank you for taking my questions. Slide 16 shows improved outlooks across nearly all end markets, but your full-year organic growth guidance was raised to 3%. In Q1, most of the organic growth appeared to be price driven rather than volumes. Given the broader-based end-market improvement and the PMI of about 50, should we expect a greater contribution from volume in the coming quarters, or will organic growth remain primarily price led? Lucian Boldea: You have two factors. Year-over-year pricing comparisons will dampen because we picked up price during last year, so you get less contribution from that, and you also get less contribution from FX. The proportion of growth that comes from volume will be a little higher for the reasons you mentioned, and that is true for organic growth as well. Tomo O'Sano: Thank you. And on the ongoing 80/20 initiatives and portfolio rationalization, is there any intentional short-term restraint on volume growth as you focus on higher-margin products and customers? Lucian Boldea: The intent of 80/20 is growth, not to prune and shrink to perfection. We will share more specific data at Investor Day, but very little pruning of revenue is required to dramatically affect complexity. The price of simplicity is a lot lower than you would expect in our portfolio. With the 300 people trained and our focus, there is way more energy on the eighties than on the twenties. We will take care of simplification, but it comes down to what happens when you double down and focus. A high percentage of our revenue is concentrated with a small number of customers. How do you serve those differently? Timing is perfect: order books are up, customers are motivated to find product, and there is geopolitical and supply chain uncertainty. Customers are receptive to being treated differentially and committing more volume to us as we commit better service to them. I do not expect to see volume declines related to 80/20; I expect dramatic simplification and possibly volume increases. When you simplify your product slate in a factory, you reduce changeovers for short runs and run more efficiently for large customers with consistent demand. We will not go to high volume/low complexity, but even with our existing mix, getting more share of wallet will make a big difference. The whole motivation of 80/20 is growth. Operator: Your next question comes from the line of Timothy W. Thein with Raymond James. Your line is open. Please go ahead. Timothy W. Thein: Thank you. Good morning. I wanted to touch on price versus variable cost as we go through the year—how you are thinking about that. Historically, when markets inflect in more inflationary environments, there are some contractual constraints that limit timing and your ability to push price. Is that analogous now, and how do you expect price versus variable cost to behave for the balance of the year? Lucian Boldea: This is a well-exercised muscle for us. The situation today is slightly different from before. When we started from no tariffs to tariffs, there was only one move on price—up for everybody everywhere. Now you have multiple dimensions that smooth out the curve: in some cases, tariffs going away where prices may be sticky, and in other cases inflation coming in where you have to price up. You have both areas under the curve—up and down—offsetting each other. There may be a little margin expansion in some cases, and short-term margin compression in others as you get prices up. It is a modest number compared to what we dealt with before. We put $10 million as a placeholder, but as of today we are not looking at that full amount. Smaller amounts and dynamics in both directions should allow us to do a better job than when it was a one-time big hit of tens of millions. Timothy W. Thein: Understood. Thank you. And on Industrial Motion and the growth outlook there, I historically think of that as being more European exposed, which could be a concern given the current conflict and second-derivative impacts like higher oil. What underpins the outlook for Industrial Motion? Lucian Boldea: Within Industrial Motion, linear motion and lubrication are majority European and together roughly half of the segment. But Cone Drive, Philadelphia Gear, and CGI are primarily U.S. businesses. Averaging it all out, it is not as heavily European as you might think. Philadelphia Gear is heavily exposed to defense/marine and is growing strongly. In Q1, linear motion growth was driven by The Americas—automation projects in the U.S. drove it. For lubrication, historically a European business, Bijur Delimon brings a heavy Asia footprint, a lot in India, and rail—where we did not have as strong a footprint—which provides a growth vector. Being up in off-highway and general industrial helps lubrication. Ag picking up helps Industrial Motion through chain and other products. Couplings, clutches, and seals for off-highway and industrial distribution also help, and those are more U.S.-based. We feel good about Industrial Motion’s position and how Industrial Motion and Engineered Bearings are coming together. We will spend time at Investor Day explaining how the combined sales motion creates a unique customer value proposition. Operator: Your next question comes from the line of Michael Shlisky with D.A. Davidson. Your line is open. Please go ahead. Michael Shlisky: Hello. Thanks for taking my questions. On ag and the green shoots you are seeing, is it replacement demand and parts versus OEM? Are you getting any commentary from the OEMs—are some of your customers looking to increase production in the fourth quarter of this year in advance of making 2027 models or a better outlook for 2027? Michael Discenza: Hey, Mike. Thanks for the question. On the last part first, we cannot really comment on how fourth quarter is shaping up beyond our guidance framework, and as it gets closer to 2027, we will be able to give you some outlook. As it relates specifically to ag, we are seeing increasing order books. It is hard to know if it is restocking versus OEM. I would assume a little of both. It is just now turning from what has been a pretty long down cycle. We will see what that turns into, but right now it is just beginnings of green shoots. Lucian Boldea: Year-over-year math looks compelling, but on a longer time horizon, part of it is comp off a very low base. It is hard to draw long-term conclusions based on that, but it is certainly no longer a year-over-year headwind; it is now more of a tailwind. Michael Shlisky: Understood. And a quick housekeeping question. The Belts business sold to Gates has not technically closed yet. Is that still part of the guidance, and because it is currently a headwind to EBITDA margins, once it is officially closed would you increase your margin outlook again? Michael Discenza: That is correct. Until the transaction closes, it is part of our guidance. As we said, we expect a structural improvement to Industrial Motion margins post-closing. At Investor Day, we will lay this out more clearly so you can see the exact margin impact. Lucian Boldea: Keep in mind practicality. We expect close in Q3, and then we will address stranded costs to get the full benefit. There will be a mix lift day one, but to get the full lift, we have some self help to do, which we will move on quickly. Operator: There are no remaining questions at this time. Sir, do you have any final comments or remarks? Neil Andrew Frohnapple: Thank you, operator, and thank you, everyone, for joining us today. If you have any further questions after today's call, please contact me. Thank you, and this concludes our call. Operator: Thank you for participating in The Timken Company's first quarter earnings release conference call. You may now disconnect.
Operator: Good day, and welcome to the Bioventus First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to hand the call over to Dave Crawford, Vice President of Investor Relations. Please go ahead. David Crawford: Thanks, Andrea, and good morning, everyone, and thanks for joining us. It is my pleasure to welcome you to the Bioventus 2026 First Quarter Earnings Conference Call. With me this morning are Rob Claypoole, President and CEO; and Mark Singleton, Senior Vice President and CFO. Rob will provide an update on our 2026 priorities and first quarter highlights, and then Mark will review the first quarter results and discuss our 2026 financial guidance. We will finish the call with Q&A. A presentation for today's call is available on the Investors section of our website, bioventus.com. But before we begin, I would like to remind everyone that our remarks today contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the SEC, including Item 1A Risk Factors of the company's Form 10-K for the year ended December 31, 2025, as such factors may be updated from time to time in the company's other filings made with the SEC. You are cautioned not to place undue reliance upon any forward-looking statements, which may -- which speak only as of the date made. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include reference to certain financial measures that are not calculated in accordance with U.S. generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP or adjusted financial measures. Important disclosures about and definitions and reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investors section of our website at bioventus.com. And now I will turn the call over to Rob. Robert Claypoole: Thank you, Dave. Good morning, everyone, and thanks for joining our call today. Bioventus is off to a strong start to the year across our business as we successfully executed our plan, accelerated investment in our growth drivers and delivered another quarter of solid financial results. We continue to strengthen our commercial, operational and financial fundamentals across our company, while we help patients recover so they can live life to the fullest. For my remarks this morning, I would like to provide an update on our performance regarding the 3 priorities we outlined at the start of the year and highlight our first quarter performance. As a reminder, our 3 priorities for the year are: one, accelerate our long-term revenue growth with increased investment into our business; two, continue to increase earnings even as we significantly increase our investment into the business; and three, continue to strengthen our robust cash flow and enhance our capital allocation optionality. We are off to a good start and are progressing well across all 3 of these priorities. As a result, we are raising our full year guidance for adjusted EPS and cash from operations. Mark will provide more detail on that in a moment. Now let me expand on each priority, starting with revenue growth and acceleration of investments into our business. First quarter revenue growth of 7% was slightly ahead of our expectations as we delivered strong revenue performance across our core portfolio. These results were achieved through a combination of factors, including strong focus on growth with disciplined resource allocation, increasing awareness of the differentiated clinical and economic value we bring to our customers and effective commercial execution across geographies and channels. Regarding our investment into the business, our continued ability to deliver above-market growth from our core portfolio is generating significant operating profit for us to invest into our future growth drivers of PNS, PRP, Ultrasonics and our International segment to accelerate long-term growth. During the quarter, we increased investment across these 4 growth drivers, which included expansion of our commercial teams, stronger marketing to help raise awareness of our differentiated solutions and additional physician training programs. We also gained important data-driven insights across our growth drivers that will shape and accelerate our investments throughout the rest of the year. To provide you with some further context, let me share a few examples of the increased investments we are making in PNS as it will account for more than half of our planned investments this year. As a reminder, we possess a significant opportunity with our world-class PNS technology in a rapidly expanding market. To capitalize on the opportunity, we've started to expand the sales organization and add clinical resources to assist in pre-, intra- and postoperative patient and physician support. In addition, we're investing to support these teams with surgeon training and increased marketing to raise awareness. We also made the strategic decision to hire a dedicated general manager. I'm excited to have Megan Rosengarten join Bioventus as our General Manager for PNS. Megan brings a proven track record of launching and scaling new medical device businesses around novel technologies and has held senior leadership roles across multiple leading med tech companies. Bringing Megan on board at this early stage reflects our belief in the significant potential of our PNS business and our intention to scale the business aggressively. Turning to our second priority, increasing our earnings even as we invest in our future growth drivers. In the first quarter, we increased adjusted EBITDA by 24% and improved our adjusted EBITDA margin by well over 200 basis points. The increase in adjusted EBITDA, combined with our significant interest expense savings enabled us to generate adjusted EPS of $0.15, nearly double compared to the first quarter last year. This is a testament to our earnings power, which is generated from our durable above-market growth and our stable peer-leading gross margin. Our strong start to the year with our operating margin exceeding expectations provides us with greater flexibility to invest aggressively in opportunities we identify while delivering on our full year financial goal of increasing earnings. As we ramp up investment throughout the year, we may see some margin fluctuation from quarter-to-quarter, but our strong business model gives us the agility to invest significantly while holding our adjusted EBITDA margin around 20% for 2026. And with respect to our third priority, accelerating cash flow, we had a great start to the year following our very strong performance last year. Cash from operations increased $28 million compared to the first quarter last year and marked the largest -- our largest cash flow from operations in the first quarter since becoming a public company. Our strong cash flow gives us substantial capital deployment optionality. And as mentioned previously, at this time, we plan to continue to prioritize strengthening our balance sheet by using our free cash flow to further reduce debt. In conclusion, thanks to the solid execution of our team, we are off to a strong start, and we remain focused on building our momentum in the quarters ahead. We believe we have a powerful and differentiated combination of value drivers that sets Bioventus apart, and we are confident in our portfolio, our strategy and our investment approach as we continue our pursuit to become a $1 billion leading med tech company that delivers significant value for all of our stakeholders. Now I'll turn the call over to Mark. Mark Singleton: Thank you, Rob, and good morning, everyone. Let me begin by saying that we had a strong first quarter, and we are well positioned to increase investment in our future growth while continuing to strengthen our balance sheet with robust cash flow. I'm confident that with continued focus and disciplined execution, we will advance our business and create significant shareholder value. Turning to our headline results for the first quarter. Revenue of $132 million increased 7% compared to the prior year period, driven by solid performance across all 3 of our businesses. Adjusted EBITDA of $24 million was nearly $5 million higher than the prior year and represented an increase of 24%. Foreign currency exchange rates had a favorable impact for the quarter as we benefited by almost $2 million due to the impact from FX rate movements compared to the first quarter of last year. Adjusted EBITDA margin of 18% expanded 260 basis points compared to the first quarter last year. This was the result of higher revenue and improved gross margin, partially offset by the increase in investment that Rob highlighted. And adjusted earnings were $0.15 per diluted share for the quarter, nearly double compared to the $0.08 in the prior year period. Now let me provide some additional commentary on our quarterly revenue. In global Pain Treatments, we delivered revenue growth of 8% compared to the prior year. As Rob mentioned, our revenue growth slightly exceeded our expectations, which was driven by a favorable rebate adjustment in HA. Operationally, we experienced a slight increase in volume growth in the prior year as growth was impacted by a reduction in inventory levels as distributors, as expected. Next, Global Surgical Solutions revenue grew by 6% as we saw solid growth across the portfolio. We plan to continue to invest in marketing across the business to raise awareness through medical education to train surgeons earlier in their careers, sales force expansion in targeted areas and highlight our distinct clinical and economic value proposition. Shifting to Global Restorative Therapies. Revenue grew 5% compared to the prior year. Our EXOGEN team delivered another strong quarter, and we continue to expect revenue growth in the mid-single digits for the full year. Finally, as one of our four growth drivers, we expect to build on our International segment's double-digit growth rate from last year. International revenue growth increased 17% compared to the prior year, while on a constant currency basis, growth was 11%. We saw improved growth across Ultrasonics in Europe as we began increasing awareness of our innovative technology and opened up another source of growth for Ultrasonics. We believe our positive momentum can continue given our increased strategic focus, talent additions and improved commercial execution. Moving down the income statement. Adjusted gross margin of 76% was 110 basis points higher than the prior year period due to the favorable rebate adjustment as well as benefits from a refund of prior year tariffs. Adjusted total operating expenses and R&D expenses increased by $5 million as we increased investment to accelerate future revenue growth. Now for additional details on our bottom line financial metrics. Adjusted operating income of $20 million increased by nearly $3 million compared to the prior year. Adjusted net income of $13 million increased $7 million compared to the prior year period. This increase is the result of revenue growth, increased gross margin and lower interest expense. Now shifting down to the balance sheet and cash flow statement. Cash flow from operations totaled $9 million, representing more than a $28 million increase compared to the first quarter last year. The stronger cash flow was driven by higher profitability, lower interest expense and favorable working capital. We ended the quarter with $36 million in cash on hand and $272 million in outstanding debt. During the quarter, debt decreased $22 million as we continue to prioritize repaying the borrowing on our term loan. We are confident our projected strong cash flow and increase in adjusted EBITDA will drive our net leverage ratio below 2 by the end of the second quarter of 2026, which is ahead of schedule. We believe this reduction in our net leverage will drive additional interest expense savings and enable greater optionality for future capital deployment. Finally, as Rob highlighted, we are increasing our adjusted EPS and cash from operations guidance. We now expect adjusted earnings per share to range between $0.75 to $0.79. This represents a $0.02 increase compared to our prior year guidance of $0.73 to $0.77. For the year, we now expect cash from operations to range between $84 million and $89 million. This represents a $2 million increase compared to our prior year guidance. We are pleased to reaffirm our 2026 revenue guidance we provided on March 5 of $600 million to $610 million. In addition, we expect year-over-year growth in revenue, adjusted EBITDA and adjusted earnings per share to accelerate from the first half of 2026 to the second half of 2026 as we leverage the expected increase in revenue from our investments. Our guidance does not assume additional impact of U.S. dollar fluctuation for the year. In closing, we are off to a strong start to the year and plan to continue investing in our 4 growth drivers to accelerate revenue growth, deliver increased profitability and strengthened earnings power and generate significant free cash flow. We believe this is a powerful combination that will help us build a leading med tech company and create increased value for our shareholders. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Larry Solow, CJS Securities. Lawrence Solow: I guess just first on -- just clarification on the rebate. So I assume you guys expected this, but you didn't know the timing. Is that why you haven't changed your revenue guidance? And does this just all flow to -- is this like a net that just all kind of flows to the bottom line? Robert Claypoole: Hey Larry, this is Rob. Yes. So as mentioned, we had some favorable rebate favorability and finished slightly ahead of our expectations. And we called that out as it related to a one-time process change by one of our commercial payer partners, and we don't anticipate that a similar level of variability moving forward. So we thought it'd be best to point it out. Outside of this, delivered results consistent with our planning assumptions and expect our revenue growth to accelerate in the second half of the year as we keep executing our plan. Regarding the revenue guidance, yes, we feel really good about the first quarter and where we're headed for the year. And we're only a quarter into the year, which I mentioned because we normally wouldn't raise guidance this early. From a revenue standpoint, this is a key year for us to invest in and activate our growth drivers, which we expect to accelerate throughout the year, especially in the back half. So we're making the investments, executing our plan and analyzing our leading growth metrics very diligently, and we'll keep you updated on our progress with that over the coming quarters. But in the meantime, with cash and EPS, they're clearly ahead of schedule, and so we went ahead and raised our guidance on both of those. So overall, off to a good start, and we'll update you again next quarter on growth, cash and the profit expectations there. Lawrence Solow: No, no, absolutely. And just anecdotally, I don't know if you called out, but obviously, early days for both the PRP and the TalisMann, but any just anecdotal update there? I don't think you gave any sales numbers and they're probably modest. But just how the launches are going, how things are being received? Any thoughts there? Robert Claypoole: Yes. Thanks. Yes, we're encouraged by what we saw in the first quarter. We're, again, investing in the business and expanding, and what the first quarter entailed further validated both the market opportunity and the value of our differentiated technology. I think with the 2 of them combined, equally important is we're learning a lot about how to manage -- maximize our success with the business over the coming years. And that's exactly what this year is about, investing in and activating all 4 of our growth drivers and then diligently analyzing the performance every week, month, quarter to shape our future decisions and investments to maximize that long-term success. So I -- with both PNS, PRP and the others, I expect our learnings and our investments and our revenue growth to continue ramping up throughout the rest of the year. And just with respect to those 2 in particular, I'll also mention that we still expect what we've mentioned in the past that combined PRP and PNS will contribute 200 basis points of growth this year. So off to a good start with those. Operator: The next question comes from Chase Knickerbocker of Craig-Hallum. Chase Knickerbocker: I just maybe wanted to start on quantifying a couple of things within pain first. So maybe, Mark, if you could just quantify for us what the impact of those rebates were in pain on a year-over-year basis, if that's easiest. And then just as far as that negative impact on volumes from inventory, if you could just quantify those 2 dynamics? And then just following up on an earlier question, any sort of thoughts on what the contribution was from the new launches in Q1, just as we think about all the different moving pieces within pain? Mark Singleton: Thanks, Chase. Appreciate that. Yes. When we look at break down the pain question and we look at it, as I said in the script, from an operational perspective, really kind of focus on volume. Our volumes were slightly positive from an overall global perspective. And so I think that's easiest to talk about with that. And when you look at revenue growth, it's slightly positive overall in pain without the rebate benefit. And so overall, it's really consistent with what we talked about in our fourth quarter remarks, I'd say, without the rebate from a Bioventus perspective as well as the Pain Treatment when we look at our 2 headwinds that we had in the first quarter being 1 less selling day and the lower distributor inventory, I think that those are both worth a couple of points of growth within the HA business. And so if you add those back and kind of normalize without those headwinds, our growth would have been in the mid-single digits from an operational perspective. We get into the new products, the PRP and the PNS, just like Rob had talked about in the earlier question, I think Larry quantified it that way is we obviously, PNS already had some growth in our baseline in 2025. So we're continuing to grow there and then getting growth in our PRP business. But our expectations on that are really that, that starts to accelerate throughout the year as the investment comes in and we get more and more momentum with that in the field. So right now, it's playing out as we expected. Chase Knickerbocker: Got it. And then just on Surgical, you guys had kind of laid out your expectations by product line business segment on the previous quarterly call. That business is tracking on a year-over-year basis, a little bit below kind of what we kind of laid out expectations for '26. Can you just kind of talk us through what the kind of movements within that business were in the quarter, kind of what went better and what worse than expected? Or is that just normal kind of seasonality that you were expecting in Q1? Robert Claypoole: Yes. Chase, this is Rob. Our plan for Surgical entailed slower growth for the first quarter and then an increase in our growth rate sequentially throughout the year. And we believe we'll get to double-digit growth in the second half and even for 2026 overall as we gain additional share in BGS and see the impact from the investments we're making across Ultrasonics to train surgeons, expand our sales force and enhance awareness of our differentiated technology and clinical and economic value. So looking at a strong year for Surgical and expect that ramp up in the second half. Chase Knickerbocker: And just last for me, specifically on Ultrasonics. I mean, any specifics you can give us on the quarter just as far as capital growth versus disposables, just the kind of current health of that business would be helpful? Robert Claypoole: Yes. Well, overall, we remain very positive about Ultrasonics. We believe it's going to be a major growth driver for us. As you know, it's a big billion-dollar market. We believe we can make our technology standard of care given the exceptional precision and control it enables, time it saves and [ many ] patient benefits it delivers. And with respect to capital and disposables in any given quarter, both of those are key to the number with the majority of the revenue coming from the disposable side, and we expect those to accelerate throughout the year, as I mentioned, for Surgical overall and to get to double-digit growth for the full year for Ultrasonics as we ramp up our investments and execute our plan. Operator: The next question comes from Mike Petusky of Barrington Research. Michael Petusky: So Rob, I guess just around Ultrasonics, obviously, the lifeblood of getting that business to grow is education and training for surgeons. Can you give any detail around what you guys may be doing differently there in '26 and going forward versus previous just in terms of the effort and maybe urgency that you're trying to bring to bringing greater awareness to surgeons in terms of your technology? Robert Claypoole: Yes. Thanks, Mike. It's a great question. And like you said, it's -- when we have the technology that we have and the opportunity to become a standard of care, training surgeons is critical to that. So there's a few things. One is, as part of our strategic plan that we put in place, a much heavier focus on emphasis on and investment in the training of surgeons going forward. That includes a keen understanding of which surgeons out there we want to reach and when we want to train them in their careers in order to maximize the success of the business overall. So one, it's just a core part of our Surgical plan going forward and of our investment profile for the business. The second is -- so we've built up our medical affairs organization over the past several months, and that includes bringing on a new leader over medical education, someone who's led medical education for a number of other leading med tech companies. And he's building the team around him in that area. So it's not just from a focus standpoint and from an investment standpoint, but it's also bringing new talent on board in order to significantly ramp up the content quality, the folks that we have helping us with that training from outside, including KOLs and just the frequency of that training throughout the rest of the year. And we expect that to continue to ramp in 2027 as well. So I appreciate the question because it is absolutely a big focus for us in terms of driving the long-term growth and success of this business. Michael Petusky: Okay. And then if I could sort of do a follow-up, I guess, on key growth drivers over time and even including this year. I'm just curious, at what point and in what way might you guys start to disclose in terms of some kind of quantification, the PNS business, the progress you're making there, PRP. Like given that you have quantified, hey, this is going to add 200 basis points of growth in '26, to me, it feels like at some point and in some way, there'll come a time to start talking about this either in terms of incremental placements or revenue growth or percentage growth. Can you just talk about how you think about sort of ultimately disclosing as the year goes on? Robert Claypoole: Yes. Thanks. Another great question. So we're very interested in that as well. As we've mentioned before, we're investing and executing our plan with our growth drivers, and I'll keep emphasizing, really analyzing the data and learning a lot regarding commercial activity and the customer behavior about this and having dynamic real-time discussions across our team on what's working well and where we can do better and leveraging our small size and big ambition to make adjustments swiftly and decisively. So what we've said before is that we want to get a few quarters into this year. We're only 1 quarter into it to understand both that commercial activity and the customer behavior more or better so that we can then come out and have the kind of conversation that you're referring to there, getting more specific about the numbers behind each business and even more importantly, communicating what we expect out of those over the next 3 years or so. So as I've mentioned in other forums, Mike, I expect us to be able to have that conversation with you by the end of this year. Operator: The next question comes from Caitlin Roberts of Canaccord. Unknown Analyst: It's Michelle on for Caitlin. Congrats on a strong start to the year. First one from us is how much of the anticipated $13 million investment in growth areas that you called out on your last earnings call, have you allocated already? And maybe can you provide further breakdown or color on that spend? Mark Singleton: Caitlin, this is Mark. So we look at our $13 million of investments, really, say, 25% through the year right now and say that we've been invested slightly less than that. So when we look at it, we're really going to be accelerating the investment over the next 3 quarters. So if you look at our operating expense in the first quarter, we expect that to accelerate into second quarter and the rest of the year. So we'll see a step-up in our expense for the remainder part of the year after first quarter. The investments for that, as we've talked about in the first -- fourth quarter call and Rob referred to it a little bit today, a significant amount of that is in PNS, which is one of our main growth drivers that we're focused on and discussed a lot today. We look at what we're investing inside of that, it's bringing on and ramping up our sales force, bringing on our clinical expertise to make sure that we have the clinical resources to help us drive the demand and help our customers and physicians in that. And then just also continued resources that support that overall in sales reps and then also medical education is a big investment that we're making within that business similar to what we talked about in Ultrasonics. That also is an investment that we're making within the $13 million. So really, most all of those investments are targeted around the growth drivers, but a big portion of that is PNS and then put into Ultrasonics and PRP as well, but all around the same thing, sales resources, clinicians and medical education would be the 3 main areas. Unknown Analyst: Great. And then maybe if I can just sneak in another quick one on PNS. Have you moved out of the pilot launch? And how should we think about the current user mix? Are they primarily existing HA users? And then maybe can you talk about any early initiatives Megan has helped drive in PNS? Robert Claypoole: Michelle, it's Rob. Yes. So I think you may have mixed PNS and PRP there. So let me talk about both of them. So for PNS and PRP, we've moved out of the pilot stage and now we're ramping up. Different dynamics there. For PRP, we're leveraging our existing commercial team for HA, whereas for PNS, we're going to be building that team over the coming quarters for quite some time. So while they're both out of pilot launch, different dynamics in terms of the investment that we're putting into the business for both. And yes, as I mentioned, we're really encouraged by what we're seeing for both in Q1. We're learning a lot. And more than anything, it's validating the market opportunity for both and the strong value that our differentiated technology brings to the space. So very excited about both PNS and PRP going forward. Was there a follow-on question to that? Unknown Analyst: Yes. Yes. Can you maybe talk about any early initiatives that Megan plans to implement or has implemented so far in PNS? Robert Claypoole: Yes, sure. Thanks. Yes. So it's, again, really excited to have Megan on board. She has a track record of -- with promising differentiated technology of scaling it into big businesses. So really excited to have her on board. Really, the focus right now is on scaling the business. So it's -- again, we have this fantastic technology, a market that's growing very fast. We're getting high interest from the customers that we're going to. And now we're building the organization and our commercial efforts. Mark alluded to a number of those things. This is everything from building up the sales team to the clinical resources around that team to the medical education that we're putting in place, to the evidence that we're putting in place. And we had a good plan in place when Megan came on board, and she's doing a fantastic job executing on that plan, leading the team to execute on that plan to scale the business for the future. So again, while it's early, it's a very promising growth driver for us, and we're encouraged what we saw in the first quarter, and we're really looking forward to the path ahead. Operator: This concludes our question-and-answer session. I would like to turn the call back over to Rob Claypoole for any closing remarks. Robert Claypoole: Thank you. Thanks, everyone, for your interest in Bioventus. Once again, we delivered a solid performance throughout our business in the first quarter, and we are confident in our ability to build on our momentum to deliver above-market revenue growth, improve earnings and accelerate our cash flow to create significant shareholder value. Thanks for joining our call. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Good morning, and welcome to the Unisys Corporation First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Michaela Pewarski, Vice President, Investor Relations. Please go ahead. Michaela Pewarski: Thank you, operator. Good morning, everyone. Thank you for joining us. Yesterday afternoon, Unisys released its first quarter 2026 financial results. Joining me to discuss those results are Mike Thomson, our CEO and President; and Deb McCann, our Chief Financial Officer. As a reminder, today's call contains estimates and other forward-looking statements within the meaning of the securities laws. We caution listeners that these statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed on this call. These items can be found in the forward-looking statements section of yesterday's earnings release furnished on Form 8-K and in our most recent Form 10-K and 10-Q filed with the SEC. We do not assume any obligation to review or revise any forward-looking statements in light of future events. We will also refer to certain non-GAAP financial measures such as non-GAAP operating profit that excludes certain unusual or nonrecurring items such as postretirement expense, cost reduction activities and other expenses that the company believes are not indicative of its ongoing operations. While we believe these measures provide a more complete understanding of our financial performance, they are not intended to be a substitute for GAAP. Reconciliations for non-GAAP measures are provided in the slides for today's call, which are available on our investor website. With that, I'd like to turn the call over to Mike. Michael Thomson: Thank you, Michaela. Good morning, everyone, and thank you for joining us to discuss the company's first quarter 2026 results. We're off to a good start in 2026. Both growth and profitability were modestly ahead of the expectations we provided, keeping us on track to achieve our full year guidance ranges. Strong new business signings improved our trailing 12-month book-to-bill ratios and will contribute to in-year revenue. While geopolitical events have introduced new uncertainties in the market, client budget seems to be loosening a bit and especially in the commercial sector and in Europe. Project volumes are beginning to materialize on the back of last year's renewal with solid pipeline in place for the remainder of the year. First quarter profit improvement keeps us on track to achieve our full year free cash flow expectations and reflects our focus on adopting AI and continued workforce optimization. As expected, our pension deficit and estimates for future cash contributions remain stable due to the actions we took last year to remove the majority of the pension contribution volatility, allowing us to focus on strategic growth and efficiency initiatives. Looking more closely at the first quarter, revenue was up 1% year-over-year and 3% in our Ex-L&S solutions. Volumes with existing clients were better than anticipated, including a modest pickup in the PC refresh cycle. This helped offset some of the top line effects from client attrition and modest price pressures created through sharing AI cost savings with clients, which we discussed last quarter. While AI efficiency gains reset market pricing last year, they're benefiting gross margins, which improved 80 basis points in the first quarter, including 170 basis points of Ex-L&S gross margin expansion. Turning to client signings, our first quarter wins increased confidence in achieving our 2026 performance goals and we continue to have a higher portion of guided revenue contracted and in backlog compared to a year ago. The first quarter new business TCV was $158 million, up 16% sequentially and 45% year-over-year. This was our strongest quarter of new business signings since the fourth quarter of 2024, with growth from both new logos and the existing base. Several multiyear contract wins illustrate our ability to gain market share when leading with innovation. For example, we had several notable signings for our agentic service desk powered by our service experience accelerator capabilities. During the quarter, we won a large new scope contract to provide our agentic service desk with one of the world's premier quick service restaurants, expanding our existing support to the entirety of their nearly 14,000 restaurants in the United States, with additional growth opportunities around the world. We also signed a new logo in Australia, which will be our first deployment of our agentic service desk in the Asia-Pacific region, where we landed several recent wins. As a part of this engagement, we will provide elevated IT support to approximately 11,000 employees in Australia's Department of Health, Disability and Aging, where we now support numerous regulatory functions. This is a multiyear contract, which has options extending to 10 years and is structured on delivering against automation and service experience outcomes rather than ticket volumes. The value behind our service experience accelerator is proving to be a compelling point of the spear solution for new business, delivering measurable results and quickly orienting us as an experienced AI partner in moving enterprise AI from concept to reality. Our Device Subscription Service, or DSS, continues to resonate with another first quarter win at a large financial client in the United States. Clients are grappling with evaluating OEMs and hardware costs, understanding device AI capabilities and forecasting headcount fluctuations, all of which makes our clients more open to our intelligent refresh offering, which simplifies the process and helps offset cost pressures. We have recently expanded our intelligent offering to encompass certain IoT devices through a deeper partnership with Dell. Several key engagements for application development and management also contributed to strong first quarter new business TCV. For example, we expanded our existing services relationships with ENAIRE, Spain's air traffic controller, a client of 30 years. Renewal included a sizable new scope, which involves managing more than 100 of our clients' existing applications across numerous functions, with additional funds budgeted for future projects to design, test and deploy new applications. Our application capabilities also opened the door at the largest community college system in the United States with Unisys signing a new logo agreement to modernize and manage an important student-facing applications that provides their approximately 2 million students with resources and tailored education pathways for more efficient incoming transfers, graduations and entry into the workforce. This engagement established a solid foundation, which is already leading to additional work expected beginning in the second quarter. We also made progress on our initiatives to cross-sell CA&I application services into our ECS client base. In the first quarter, we signed a renewal with a large Colombian retailer for existing ClearPath Forward and managed services that integrated new scope application development work supporting the client's core commercial and inventory applications. Across our segments, TCV renewal rates were strong and above 95% for the total company. We are also seeing some unexpected extensions from attrited clients stemming from the lack of readiness from the new service provider. At one such client, we were awarded a large new scope in the first quarter for infrastructure and modernization services. We believe this win demonstrates the desire of some of these clients to remain engaged with us, which we attribute to the deep relationships we've established, our delivery track record and the broadening awareness of our capabilities. Looking at our go-to-market and pipeline, we've seen a modest pick-up in client demand over the past few months and a stronger pick-up with new logos where qualified pipeline increased sequentially in Ex-L&S solutions. A number of these opportunities originated from a new initiative within our direct sales organization, which is the development of rapid value assessments for our key AI-enabled solutions. These repeatable assessments help quantify time to value, inclusive of estimated timelines and outcome-based pricing scenarios, easing friction associated with returns on AI investments, especially in the mid-market. We're currently utilizing rapid value assessments for our agentic service desk, intelligent operations and security operations with assessments for agentic application transformation and management and intelligent device refresh in the works. We're also generating more leads by collaborating with alliance partners on development and marketing around a narrower set of solutions, which identified overlapping priorities and strong value propositions. These efforts have led some partners to place Unisys more prominently on their road maps and using us as their primary and preferred implementation and managed service partner for their technology and are directly handing off leads in areas such as enterprise service management, unified endpoint management and field services to implement technology for smart reading rooms, kiosks and digital signage. I want to shift the focus to discuss our investments in the business, much of which is concentrated on leveraging artificial intelligence to move into higher-valued services and penetrate emerging market opportunities stemming from AI. Our approach towards enterprise AI has been to avoid simply rebranding existing solutions as AI-enabled, but instead to use AI to fundamentally transform the outcomes we deliver to our clients and that positions us well for future-proofing our client relationships. In our Ex-L&S IT services, this involves thoughtfully choosing partnerships to strengthen, enhancing the skills of our workforce, expanding our operational accelerators and constructing agentic workflows and governance frameworks to deliver secure, reliable results. We have also been proactive about rolling out delivery innovation in our existing base to create measurable results, increasing our relevance and thought leadership with clients, prospects and industry analysts. We're working to maximize that momentum by investing more deeply in our talent. We're expanding our forward-deployed engineering capabilities to increase capability in areas such as agentic application services. We view Agentic AI as a major opportunity for organizations to close the modernization gap, especially in public sector and higher education. Expanding our forward-deployed engineering capabilities positions us to take a more prominent role in designing and managing agentic workflows, whether they enhance software applications or replace elements of their functionality. In some cases, we're seeing client interest in expanding these services beyond central IT to reshape business as usual and functions such as HR and finance. As we think about upskilling for AI more broadly, the skills and demand are rapidly evolving almost on a daily basis, with the one constant being the pace of change coming from frontier models, hyperscalers, software and OEM providers. We're committed to maintaining a platform and model-agnostic approach that best addresses a given used case within a specific industry for a specific client. At the same time, significant existing technical debt within IT estates will require subject matter expertise to meet clients where they are today and help them transform and transition their technical debt over time. To do that successfully, we're aligning certain technical resources around key models and platforms to provide specialized consulting to both our external and internal delivery teams. Physical AI infrastructure is another emerging growth vector for Unisys, stemming from demand for AI compute and the rapid build-out of data center capability that's occurring. Data center builds are expanding the need for field technicians knowledgeable in the installation and maintenance of complex AI-focused IT infrastructure. Our large globally scaled field services organization with cutting-edge training and delivery experience connects humans, data and AI agents on one trusted platform. In the first quarter, we signed a new business engagement with a leading global OEM to support the build-out of a large U.S.-based data center. While the initial scope is small, it lends credibility to our specialized capabilities for the installation and support of AI infrastructure. AI infrastructure is just one element of our overarching strategy to expand our field service revenue streams. We're continuing to grow hybrid infrastructure volumes and focus on generating opportunities in network equipment and enterprise storage. We're also broadening field service capability in a variety of hardware, most notably within offices, restaurants, retail and manufacturing facilities. In L&S Solutions, we're approaching AI from both ends, infusing AI functionality directly into the ClearPath Forward ecosystem, while also making it easier to extend ClearPath Forward data and applications to fuel AI in other parts of the enterprise. During the quarter, we put out a new release of AB Suite, which is our low-code development environment for building applications on top of ClearPath. The update suite development enhance data encryptions and simplify integration of data with external environments without disruption of mission-critical operations. The release also adds capabilities for generating AI-based synthetic test data, allowing developers to rapidly test new functionality, while reducing the risk of exposing sensitive data, strengthening security and compliance. In addition to AB Suite release, we launched a new AI developer toolkit with practical guidance for building AI data models within the ClearPath Forward ecosystem. This is the first in a series of targeted client AI-enabled initiatives aimed at reinforcing ClearPath's value proposition and role as a long-term AI-ready platform that clients can rely on for decades. Taking a step back across all our segments, we're seeing AI disrupt the status of the industry and push clients to rethink their solutions and IT providers. This has given us an opportunity to show our agility and step into a more prominent role with clients and partners and accelerate the shift in our brand perception. We also hear it in our conversations with and recognition from the industry analysts and advisers that influence client decision-making. In the first quarter, Unisys was again named a leader in reports on end-user computing services and mid-market digital workplace solutions by Avasant and Everest. We are also newly included in the HFS report on next-generation IT infrastructure services, which includes providers able to help enterprise reimagine infrastructure specifically for AI-native operations and distributed digital environments. These acknowledgments follow Gartner's elevating Unisys to a global leader in digital workplace services. With that, I'll turn the call over to Deb to discuss our results in more detail. Debra McCann: Thank you, Mike, and good morning, everyone. As a reminder, my discussion today will reference slides from the supplemental presentation posted on our website. I will discuss total revenue growth, both as reported and in constant currency and segment growth in constant currency only. I will also provide information, excluding license and support or Ex-L&S to allow investors to assess our performance outside the portion of ECS, where revenue and profit recognition can be uneven between periods due to license renewal timing. Looking at our results in more detail, as Mike mentioned, the year is off to a good start. As you can see on Slide 6, first quarter revenue was $438 million, up 1.3% year-over-year, which included an approximate 600 basis point benefit from foreign exchange relative to the prior year period. In constant currency, revenue declined 4.5% with the largest declines in L&S Solutions due to renewal timing and anticipated volume declines in our Ex-L&S solutions. Excluding license and support, first quarter revenue was $372 million, up 3.1% year-over-year and down 2.9% in constant currency. I will now discuss segment revenue performance in constant currency terms shown on Slide 6. First quarter Digital Workplace Solutions revenue of $118 million was down 6.5% year-over-year. This decline was better than we had anticipated and reflected the factors we have discussed in previous quarters, such as client attrition, pricing dynamics in the industry and lower base levels of PC field services volumes that are stabilized, but down year-over-year. At the same time, growth in areas such as higher-value field services and better-than-expected volumes helped mitigate some of those effects. For example, our volumes and revenue from high-end enterprise storage have nearly doubled on a year-over-year basis. And as Mike mentioned, we continue to see significant market opportunities across a more diverse set of higher-margin field services, including AI infrastructure and IoT devices. We are also pleased with our DWS pipeline, which is up sequentially. First quarter Cloud, Applications and Infrastructure Solutions revenue was $182 million, representing a 2.4% year-over-year decline. The decrease primarily reflected lower volumes, especially at certain U.S. public sector clients and client attrition. As you may recall, we began seeing public sector clients pull back in the first quarter of 2025 due to uncertainties related to federal funding levels and those year-over-year headwinds should lessen as we lap declines in subsequent quarters. Within the Enterprise Computing Solutions segment or ECS, our License and Support Solutions revenue was $66 million, down 12.4% year-over-year due to the timing of the renewal schedule. There is no change to our expected weighting of 30% of full year L&S revenue in the first half and approximately 70% in the second half and we continue to expect $400 million of average annual L&S revenue in 2027 and 2028. Artificial intelligence has been and continues to be a driver of L&S consumption and in churn revenue and we are evolving our ecosystem with innovations that facilitate enterprise AI, both on our platforms and external AI-enabled client environments that can utilize valuable data generated by our systems. We continue to detect no change in client commitment to the ClearPath Forward ecosystem resulting from AI and code refactoring. On the contrary, there are some signs that our ecosystem evolution is leading to certain clients with migration plans reevaluating specific workloads to retain and outsource management to Unisys, which we attribute to consistent investments in platform modernization and sustainability of our skilled workforce. In our specialized services and next-generation compute solutions, the Ex-L&S portion of the ECS segment, first quarter revenue was $50 million, down 2.5% year-over-year. This was ahead of our expectations due to improved volumes and additional scope in some of our business process solutions, which partially offset declines from the phasing of project work. Total company TCV was $274 million for the quarter, up 33% year-over-year. New business TCV totaled $158 million, up 16% sequentially and 45% year-over-year. This is the highest level of new business TCV we have had in 4 quarters. Trailing 12-month book-to-bill was 1.2x for both total company and Ex-L&S Solutions. We ended the year with backlog of $2.96 billion, up 2.4% from the prior year-end. Moving to Slide 8, first quarter gross profit was $113 million and gross margin was 25.7%, up 80 basis points from the prior year. Ex-L&S gross profit was $73 million and Ex-L&S gross margin was 19.5% in the first quarter, up 170 basis points year-over-year. Improvement was primarily driven by expanded use of intelligent automation and ongoing workforce optimization. During the first quarter of 2026, a transaction within the company's U.K. business process outsourcing consolidated joint venture generated $3 million of non-segment revenue and gross margin benefit with no net cash impact. Total company and Ex-L&S gross margin benefited by 50 and 70 basis points, respectively. The transaction is expected to generate $12 million of gross margin benefit for 2026 evenly among the 4 quarters. We remain on track to deliver our targeted 150 basis points of annual Ex-L&S gross margin improvement amid a challenging growth backdrop, although our path may not be a straight line. I will now touch briefly on segment gross profit shown on Slide 8. DWS segment gross margin was 13.5% in the first quarter compared to 14.2% in the prior year period. Contraction primarily reflects impact from exited clients and growth in lower-margin device subscription service revenue in the quarter, which can have larger components of hardware, but offer a strong entry point for expansion into higher-value offerings. DWS margins are expected to improve as we move through the year and benefit from the implementation of delivery initiatives. CA&I segment gross margin was 21.8% in the first quarter, up 230 basis points year-over-year. The improvement was driven by continued workforce and labor market optimization, along with higher productivity supported by greater use of intelligent automation, especially within our central application capabilities. The segment also benefited from increased project volumes in higher-margin solutions relative to exited contracts as we see continued traction in high-value application services and multi-cloud management, which leverage more of the latest AI models and tools for delivery. ECS segment gross margin was 46.9% in the first quarter, down 80 basis points year-over-year. This was driven by lower L&S gross margin due to the timing of license renewals, partially offset by nearly 70 basis points of improvement in SS&C Solutions, which was helped by improved utilization in business process solutions. Across our segments, we are providing our associates career pathways and upskilling in emerging technologies, which is supporting our workforce optimization and internal staffing and our low trailing 12-month voluntary attrition of 11.1%. Turning to Slide 9, first quarter non-GAAP operating profit margin was 4.5%, up 170 basis points year-over-year. This was modestly better than the slightly positive margin outlook we provided last quarter, primarily due to execution against our operational efficiency objectives and increased L&S volume. SG&A was $92 million, down $5 million or 5% year-over-year, keeping us on track to reduce SG&A by $10 million to $20 million in 2026. As a reminder, these savings are concentrated in streamlining corporate functions outside of sales and marketing and most of the restructuring costs to achieve have already been recognized. Adjusted EBITDA was $46 million in the quarter, representing a 10.6% margin, up 130 basis points year-over-year. GAAP net loss was $36 million or a diluted loss of $0.50 per share, while non-GAAP net loss was $10 million or a loss of $0.14 per share. Turning to Slide 10, capital expenditures totaled approximately $21 million in the first quarter, relatively flat on a year-over-year basis and consistent with our capital-light strategy. As a reminder, a significant portion of capital expenditure relates to development for our ClearPath Forward ecosystem, comprising our L&S solutions. Free cash flow was negative $26 million compared to positive $13 million in the prior year period. The decline was driven by the timing of interest payments on our 2031 senior secured notes with payments now occurring in the first and third quarters. In addition, the first quarter interest payment included interest related to an 18-day stub period. Pre-pension free cash flow was $2.9 million in the first quarter, net of $28.2 million of pension and $0.2 million of postretirement contributions. The quarter included approximately $12 million of contributions to our U.K. pension scheme that are incremental to our previous full year forecast. Our joint venture partners funded these contributions, resulting in no cash impact to Unisys. For the remainder of 2026, we expect cash contributions to all global pension plans of approximately $69 million. Our cash balance was $380 million as of March 31st compared to $414 million at the end of 2025. Our liquidity position remains strong, supported by significant cash balances and undrawn $125 million ABL facility with an accordion feature up to $155 million and no significant debt maturities until 2031. Our net leverage ratio, inclusive of pension is 2.9x, down from 3.2x a year ago. Turning to our global pension plans, based on market conditions, we estimate that as of March 31st, both GAAP deficit and aggregate expected contributions through 2029 are essentially unchanged from year-end. As a reminder, we provide more detailed projections for estimated cash pension contributions and GAAP deficit at year-end. Quarterly updates reflect estimated impacts of asset returns, market conditions and assumed deficit reduction from contributions. Following our capital structure transformation in mid-2025, which included a $250 million discretionary contribution to our U.S. qualified defined benefit plans, we took actions that removed substantially all volatility from our expected U.S. contributions. This increased stability, along with the existing stability in international contributions set through trustee negotiation has significantly increased certainty for investors as to our future cash needs and trajectory of deficit reduction. Turning to Slide 12, I will now discuss our financial guidance for the full year and the additional color we provide. We are reaffirming our full year guidance range and expect total company revenue to decline between 6.5% and 4.5% in constant currency, which based on April 30th foreign exchange rates equates to a reported revenue decline of negative 3.5% to negative 1.5%. Guidance assumes Ex-L&S revenue constant currency decline of 7% to 4.5% and full year L&S revenue of $415 million. As a reminder, the timing and exact amount of L&S revenue can be difficult to forecast with precision, as it depends on renewal timing, term and client consumption levels among other factors. We are reaffirming guidance for full year non-GAAP operating profit margin of 9% to 11%, which assumes a slight year-over-year increase in L&S gross margin, targeted Ex-L&S gross margin improvement of 100 to 200 basis points and $10 million to $20 million reduction in operating expenses. Looking specifically at the second quarter, we expect approximately $450 million of total company revenue on a reported basis, which assumes approximately $70 million of license and support revenue. Based on these assumptions, we expect second quarter non-GAAP operating margin of approximately 5%. We expect second quarter items impacting GAAP net income of approximately $30 million, primarily related to pension expense. We expect a number of elevated noncash expenses impacting GAAP net income and earnings per share later in 2026 related to pension annuity purchases and streamlining certain legal entities, which we will guide on a quarterly basis. Also, as a reminder, in 2025, we removed hedges on our intercompany balances, which could create noncash FX gains as the U.S. dollar strengthens or losses as the U.S. dollar weakens. These are difficult to guide due to constantly changing rates, but will impact quarterly GAAP net income. There is no change to our expectation for full year free cash flow of approximately negative $25 million, which translates to positive $72 million of pre-pension free cash flow. This assumes approximate payments of $85 million in capital expenditures, $70 million of cash taxes, $70 million of net interest payments, $30 million in aggregate environmental, legal and restructuring payments and $102 million of postretirement contributions with approximately $29 million of which is expected in the second quarter. We are focused on continuing to increase our efficiency and profitability during this period to maximize our underlying cash generation levels for investment and capital return. Before we open the line for questions, Mike has a few additional remarks. Michael Thomson: Thank you, Deb. I want to reinforce 3 key points we hope came through in our commentary today. First, our confidence in the guidance ranges we've reaffirmed today is reinforced by our first quarter financial performance as well as the strength of our client signings, book-to-bill and backlog position. Second, our L&S solutions are durable and we are continuing to make investments to modernize our ClearPath Forward ecosystem and solidify our platforms as a key enabler of enterprise AI. Third, artificial intelligence is not only allowing us to provide more cost-effective solutions for our clients, but creates opportunities for us to help enhance our clients' business processes and end user experience, which creates a variety of new outlets for Unisys. We hope you'll join us on June 2nd to discuss these opportunities and more at our upcoming Investor Day, which you can RSVP for on our investor website. Operator, you may now open up the line for questions. Operator: [Operator Instructions] The first question that we have comes from Rod Bourgeois of DeepDive Equity Research. Rod Bourgeois: So it was helpful to hear some of your AI initiatives across your different segments and the accelerator work and the service experience work and so on. I wondered if you could just take us through quickly each of your segments and how AI is -- what are the headwinds and the tailwinds from AI? And maybe the net effect when you look across how AI is affecting you across your key segments? Michael Thomson: Great. Yes. Look, I think as we've stated in previous calls, we see AI in general as a significant tailwind for -- not only for us, but I think for the industry in general, but specifically embedded in our segments. And I apologize, I'm fighting a little cold here. So when we think about the impact in DWS, so we've already talked a little bit around some of the headwinds, which is really just the renewal cycle and the reestablishment and cost sharing of applying AI to that renewal. But moreover, I think we've been able to mitigate a lot of that headwind. Clearly, we've embedded AI into our solutions. We've seen the industry analyst reports on how that's set. So we think there's some real opportunity there, not only to have that in our solutions, but in our skill sets that we're bringing to market. So we mentioned in our prepared remarks, many opportunities inside of DWS, whether that's infrastructure, AI and the build-out from a field services perspective, all of the work that we're doing with agent force embedded in Salesforce opportunity and application of AI with our team in there and most prominently in DWS would be embedded in our solution experience accelerator and our agentic service desk. So we're seeing that really resonate, seeing some nice uplifts in pipeline, et cetera, in that particular business segment. So really happy there. And clearly, we think it's net-net, a positive long-term statement for the industry and for Unisys. From CA&I, you've heard in the prepared remarks in general across the board, the benefit there is clearly around AI application as it applies to modernization, the adoption of AIOps in our intelligent operations framework and the work we're doing around the agentic build of what we consider to be the action layer or the application or even above the application layer, that's been really growing across the board for us. And we think it's something that will continue to grow and actually probably opens up TAM for us for areas where we can really penetrate with that agentic layer that historically we may not have played in. So really pretty bullish on the application transformation layer embedded in CA&I. And then in ECS, I mean, it's been a powerful story for the last several years. We've talked roughly around $40 million of increase per year over the prior 3 years of consumption. The work that we've done to continue to embed technology enablement from an AI point of view into the ClearPath Forward ecosystem, we mentioned, in particular, the developer toolkit for AI that really allows for testing and utilization, and I'll say, bimodal data transfer has been really important. And we continue to develop the AB Suite to again allow for innovation and flexible deployment. So we see the technology continue to enhance the utilization of various aspects of AI in ClearPath. And again, we've seen that result over the course of the last several years from enhanced consumption and we see that trend continuing. So really happy with how it's shaping up, starting to see a little bit of relief, I think, from the macros, which has again given us confidence in our guidance as we said it. Rod Bourgeois: And just a follow-up on AI in your ClearPath Forward business. You've rolled out these new AI releases. Can you talk a little bit about the impetus to develop those AI releases and what the early client reaction is? And even to the extent that you're partnering with the AI models on that, just a little more color on the development of those releases and the reaction in the ecosystem? Michael Thomson: Sure. Great question. So look, this is not something that we've picked up in the last 3 months in reaction to what's going on in the market. These AB Suite releases have happened over the course of the last couple of years. This is just the latest release that's going out there. Clearly, there is an ask and road map discussions that we're having with clients. And it's really about access to data, portability of data, continued consumption of data and our ability to continue to build out above the, I'll say, the ecosystem layer or what you would consider the hypervisor layer or core layer of data and usage. The -- I'll say the issue du jour there is really about maintaining the support and steady run of the base and utilizing the emerging technology, you talk about frontier models as an example, being able to extract this valuable data that's embedded in ecosystem and marry that to frontier models to really help our clients continue to take advantage of that data set and do that in a manner so that they're not putting at risk anything in the ecosystem. They run the resiliency, the security, et cetera. So we see this as just a continuation of our ClearPath 2050 strategy and it happens to be the emerging technology that's there today. But we do a little bit and continue to work with kind of joint road mapping on some of these providers. And it extends beyond frontier, right? It's also OEM providers as well as some SaaS applications that sit on top of that ecosystem. So this, again, has been multiyears in the making. And I think from a client perspective, aligned to the expectations that we've set with our clients over the course of managing their road maps. Operator: The next question we have comes from Mayank Tandon of Needham & Co. Brandon Thomas Barron: This is Brandon on for Mayank. And I'm just wondering, like given the strong quarter, can you talk a little bit more about the reaffirmed guidance? Is that taking into account some macro uncertainty at buffer? And what are the levers that get you to the high or low end of the guide? Michael Thomson: Yes. Look, I think, obviously, we've reaffirmed guidance. We talked about Q1 being a little stronger than expectations. Kind of early in the year to be thinking about the impact of that. Obviously, our guide to constant currency, Deb mentioned in her prepared remarks some of the movement in FX embedded in that. So we'll have more color in Investor Day around how that relates to whether we're maybe moving towards the higher end of that or where we sit from a guidance perspective. I guess the message that I would want to leave you with is we feel good about Q1. It's a little better than we expected. We assumed in our guidance, as we talked about when we said it, that no real changes in the macroeconomic environment, although it's maybe moving a little more favorably from a macros perspective, I wouldn't consider one quarter to be indicative of the full year. So when we get a little bit more visibility through Q2, clearly at Investor Day and then obviously, if not Investor Day at our Q2 earnings, we'll talk about what -- kind of how we feel about that guidance range. Debra McCann: Yes. And to answer as far as some of the levers, I mean, it will really -- the signing momentum, if that continues and kind of the conversion timing of that revenue and then field services volumes, those are probably drivers we'd be looking for. Michael Thomson: Yes. And just to tie into that, I mean, as we've continued to enhance and improve our gross margin, that we have a lot more control over, obviously, and continue to work our programs and execute against those programs. And then to Deb's point, as these things become revenue recognition in year and we get to run rate on things that we've already sold and have started to implement, we're expecting some pull-through on margin there as well. Brandon Thomas Barron: Great. And then you guys also mentioned some cross-sell momentum in the quarter. I'm just wondering how big of an opportunity that is for you guys and the dynamics of the cross-sells? Especially with current clients upgrading IT and infrastructure for these AI initiatives? Michael Thomson: Yes. Look, I think -- look, in general, and I mentioned in my prepared remarks one specific client where they had 100 applications sitting kind of on top of our ClearPath Forward ecosystem and we're helping modernize those applications. And there's a great example of kind of that agentic action layer to modernize that. So we see that biggest cross-sell opportunity embedded in application modernization, and specifically, agentic -- I'll say, agentic AI applied to that action layer, the more of that we see, the more of that we're able to accomplish. And I think the market's knee-jerk reaction a little bit on SaaS providers, et cetera, we're not a SaaS provider per se, but we certainly play in the area of supporting SaaS application as solution implementers on the SaaS side. And the ability to use that agentic layer, I think, opens up TAM for us to lean in more heavily in that arena. And the ClearPath Forward ecosystem application construct is really a great proof point of that. We've seen a couple of instances of that recently, and we expect that, that will continue. Operator: The next question we have comes from Matt Dezort of William Blair. Matt Dezort: This is Matt on for Maggie Nolan. Congrats on the good results. Can I ask about the strong new business TCV? I think it was up 45% year-over-year, strong backlog too. I guess, Deb, you touched on it a little bit, but how should we think about conversion timing and ramp periods as well as margin profile of these new wins and your ability to continue to win work at these improved margin levels going forward? Michael Thomson: Great. So yes, super happy with the year-on-year uptick there. We mentioned in our prepared remarks about these rapid value assessments. Part of our strategy that we implemented at the tail end of last year and have carried through to Q1 this year is really looking at these point-of-spear opportunities and how emerging technology really avails itself not only in the AI embedded in our solutions, but the skills that we've got around that AI implementation and the conversion of technical debt. So happy with that uplift. We're seeing some real success in the top end of the funnel as well. Clearly, these solutions are resonating with clients. Now these RVAs or rapid value assessments are typically more point-of-the-spear things and are typically a little smaller engagements as a means to open the door. So we expect that the transition time will be faster. We also expect that much of that work is really more kind of time and material or outcome-based pricing. So we don't have the typical 18-month transition on some of those. And then it's really about the expansion post that RVA adoption is kind of what our focus is on top of that. So we think it will be more volume, perhaps a little smaller value, right, of the actual deal, because it's point-of-spear oriented, but gives us a real jump-off point to expand to other aspects of the business. So again, strong year-over-year TCV growth in that, as well as top of the funnel pretty happy and aligned to what our expectations were when we made those changes at the tail end of last year. Debra McCann: Yes, I think on -- yes, you also asked about margin. And I just think it's mix depending on kind of the solutions that we're signing. I think we mentioned there are some DSS have lower margins, right, but still are really good entry way into the client. Michael Thomson: Yes, that's a great point, Deb. Thanks for chiming in there. Mix is exactly right. And if the TCV is coming from the RVAs, then they're probably already at our accelerated margin profile. But as Deb mentioned, a good chunk of that pipeline aligns as we talked about, our DSS solution, which have a hardware mix in the solution itself, which kind of impacts the total margin of the contract, but not the services piece of our margin. Really, it's more the pass-through component of the hardware. But all in all, good line of sight, good progress and feel like the strategy is taking hold. Matt Dezort: Got it. As a follow-up, can I ask about pricing and just consumption pricing? I think IBM discussed the evolution they're seeing in the mainframe platforms to account for MIPS and AI and additional consumption parameters. Are you doing something similar with your pricing in CPF? And how are you maintaining your deserted premium here while adapting to these changing market dynamics? Michael Thomson: Sure. So great question. Look, the pricing discussions that we've had over the last probably 4 quarters were really pricing discussions as it pertains to Ex-L&S. Your question, obviously, is L&S pricing. We have not really had pricing pressure on the L&S side. It is a premium service, our clients view it as a premium service. We continue to get increased consumption out of that business. And most of that consumption increase is really based on the comments that I made earlier around enabling the data sharing and testing and the like embedded in what's going on in L&S. Typically, from an L&S renewal, as you know, Matt, the revenue recognition and that costing or pricing happens at deal signing and it's usually for the entire duration of that deal and it's upfront from a perspective of usage or consumption. So -- and we've been able to, over the course of the last 5 years and don't expect this to change, get price increases on those licenses as well as the support of that environment. So it's not really been pricing pressure at all on the L&S side of the business and we're quite confident that, that's going to continue. Operator: The next question we have comes from Anja Soderstrom of Sidoti. Anja Soderstrom: So AI seems to be a strong driver for you. But what kind of margin impact do you expect that to have? Michael Thomson: Look, I think we've been pretty consistent that the AI that we've embedded into enabling our solutions continues to have margin expansion and improvement. I think we were probably, what, Deb, almost 600 basis points over the last 3 years in Ex-L&S. Debra McCann: Yes. Yes. Michael Thomson: That is a byproduct of embedding that into our solutions. Clearly, when we have a new logo and they're utilizing the new solution, immediately, we get that impact immediately through -- and we've talked about last quarter, as an example, pushing our agentic service desk into the entire legacy base of clients. We should be above 40% of that base using our agentic service desk by the end of the year. So we still have some improvements that we expect on margin beyond this year for the existing base and we expect that we'll continue to offer this solution at an enhanced margin profile. So if I look at kind of where we are in the adoption of AI into our solutions, we're probably about halfway there in the existing base. And so again, we're talking about from our guidance, another 100, 200 basis points of potential improvement on the Ex-L&S side. And there should still be more in '27 as we continue to deploy our agentic offerings into our existing base. Anja Soderstrom: Okay. And then can we just double-click on the opportunities you see with the field services? Michael Thomson: Yes. So that's one we've been continually bullish on, as you know, and it really comes in 3 flavors. The embedding AI in the way we actually deliver our services from a field service point of view, i.e., location of the technicians, sending data to the technicians on the site with next best case cause of issues, looking and using data to understand how to do preventive things while on site, et cetera. So that's kind of a base used case of traditional elements and how AI is enhancing that. The second and third, I think, are actually more exciting, right? So one is around the different types of field service deployments. We talked about the work we've been doing on infrastructure and high-end storage and kind of moving up stack from a field service technician perspective. We talked in the prepared remarks around the data center work for installation and maintenance of things like liquid cooling for GPU chip configuration in a data center in general. And we also talked about the expansion of field services to other areas. In general, if you think about conference rooms, kiosks, office environments, et cetera, and the data telemetry around IoT devices and how that ultimately aligns to having a field service orientation. As you know, we're one of the few companies with the kind of global scale and reach from a field services point of view. And we think that, that's a differentiator from our perspective. And the alignment of that to our agentic service desk, knowledge management, et cetera, and the skills that we've got globally in field service, we've been investing in that area for several years when I think you've seen a lot of the market kind of curtail some of their investment in that space. We're pretty excited about the opportunity it brings to us. Operator: The next question we have comes from Matthew Galinko of Maxim. Matthew Galinko: I was just hoping you could expand a little bit more on the pipeline for field services around data centers and AI data centers? Michael Thomson: I mentioned on my prepared remarks that we had won an engagement there. We've been in the hunt for a couple of others as well. There's billions of dollars being spent in that space. And our goal is to really have our associate base totally prepared to handle significant volume as it pertains to data center construct, installation of racking in there and obviously, the component pieces around immersion cooling, liquid cooling, et cetera. So the pipeline has been, I would say, fairly strong. Our discussions with clients or prospective clients in that pipeline is going, I think, incredibly well. And we're happy about the fact that we are in the hunt for a whole host of opportunities there with some pretty significant players. So clearly, the market awareness of our abilities and skills in that space is out there. And again, these deals take a little bit of time to materialize. But I guess what I would say to you is that we're certainly getting significant invites and that we've got really good opportunities in the pipeline to expand that opportunity for the company. Operator: The next question we have comes from Ana Goshko of Bank of America. Ana Goshko: I have a pension question. So Deb, you mentioned the -- some charges to come later this year related to pension annuity purchases. And I know those purchases helped to reduce the overall liability and then in the medium to long term also help to reduce the amount it's going to take to reduce the pension deficit. But it wasn't clear to me that you had already agreed to do the annuity purchases this year. I know those are cashless. So is that kind of a done deal? Or is it still something that you're considering? Debra McCann: Yes. No, it's not a done deal. It's still in our plans. As we laid out last year, we were going to do some annuity purchases. We did some last year at the end of the year and our plan was to do more this year, but it's not locked in. And that's why we don't know the exact amount of the charge, it will depend on the timing. And so that's why as the year goes on and we get closer to locking that in, we'll give a sense of what that noncash charge would be. Michael Thomson: Yes. Ana, it's Mike. So when we talked about -- even when we did the debt, we talked about roughly $600 million worth of pensions annuities. I think we did, Deb, like $375 million, something like that. And so this would kind of be the other half of that. You're right that is cashless to us. As you know, we've done about 6 of these already. And so when we do them, you make an offer and then you get bids. And there are -- and there has been high interest in those bids. Normally, we get maybe 4 to 7 folks bidding on that. And then it's really a matter of does the bid come through at a rate that we think is worth it from our perspective. So you're right, it is still a little bit market-oriented, but our availability to do another one starts in Q3. And so we fully expect to put that offer out in Q3 and we fully expect that we'll get the same level of demand that we've gotten historically and it really comes down to the economics of the rate. Ana Goshko: Okay. Okay. Great. Understood. And then secondly, I think I asked the same question last quarter. But the debt market has been just very messy for software-related companies and IT-related companies generally. So that's kind of created an opportunity potentially for you to buy back bonds at an attractive rate. I know you've got uses for your liquidity, but you do have a strong liquidity position. So I think you bought back just a tiny bit of bonds in the quarter and about $2 million. And just wondering if that's something that has continued after quarter end or just kind of your view is on basically tapping that opportunity? Debra McCann: Yes. So we have windows where we can purchase. And you're right, we did in Q1, purchase an immaterial amount and at an opportunistic value, we feel. And so we'll continue to look at our liquidity, our cash and assess that as time goes on and as the windows open that allow us to do that. So we'll continue to keep an eye on that and see when the price is opportunistic, look at the overall liquidity picture and make that determination. Operator: The final question we have is a follow-up from Rod Bourgeois. Rod Bourgeois: Yes. I thought I would just ask, in the public services, you had some delays with the government shutdown and some other decision challenges there. The question is, is that starting to turn? And then similarly, on PC refresh, is that also at a point where you should see some upside there as well? Or is it still a little bit of a wait and watch going on? Just those updates would be helpful. Michael Thomson: Sure. Look, I would say, in general, public sector has been more favorable than it has in previous quarters. So -- and I would throw higher end in that same viewpoint. I think some of the noise has started to settle down and some of that project work is starting to return. So again, I wouldn't say 1 quarter or 1.5 quarter is indicative of the future. But I'm encouraged by what we're seeing as far as the loosening of the belt a little bit here and getting back to a little bit more normalcy in that space. I think they also recognize that in many cases, there are significant laggards from a technology perspective and the utilization of the emerging technologies, specifically this influx of these agentic AI models can help leapfrog them and get them not only up to date from a technical debt perspective, but catch them up for perhaps multiyear lag effect. So that's been, I think, pretty positive in the market. And then as far as your comment on PC refresh, yes, we saw a little better than expected in Q1. Again, I'm hesitant to say that, that is a byproduct or that's going to just continue throughout the remainder of the year, but there are certainly some elements that would suggest that it should, specifically as we talk about the Microsoft licensing component, et cetera. So we -- and again, we're coming up against comps of a pretty low year. But I would remind you that, at least for us, the reliance on that refresh cycle is less and we continue to train and educate the workforce on the infrastructure component of the field services arm that is impacted by those PC refreshes. We've extended that IoT devices to go beyond PC refresh. So it's an important factor. But when we set our guidance, we expected it to be pretty flat and maybe even still a little declining. So -- and it's actually performed a little better than our expectations. Operator: The final question we have comes from Sean Perkins of Deutsche Bank. Sean Perkins: I'd like to dig into a little bit more about the data center opportunity that you highlighted to some of the work you have there. Perhaps if you can discuss maybe some of the clients that you're seeing engage with you in those arenas and then how you're -- what the go-to-market strategy for your business is there to as far as given the market -- and to think about the market opportunity size? Michael Thomson: Well, thanks, Sean, for the question. I'm not really at liberty to share actual client names, but I would say to you that, obviously, we're engaged with the OEMs in regards to that and they're an entry way into some of these clients. And I would say, at least for a couple in the pipeline, it's kind of the who's who in that space. So we feel really, again, privileged that those types of clients are engaging with us to talk about the installation and maintenance of such a high-profile investment for them. And again, there are billions of dollars, as you know, being spent in this space. We think there's a really big TAM. And we've been using this, I'll say, period of the last 12 months to really make sure our workforce is trained up on the utilization of this new technology, not only on how to deploy it, but clearly, the implementation of racking and cabling and immersion cooling is a pretty technical aspect. And so the recognition of our capabilities to do that puts us in really good stead. And again, I would just say that we're talking about some major OEMs and major players in data center build. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Greetings, and welcome to the Coherent Third Quarter Fiscal Year 2026 Earnings Call. It is now my pleasure to introduce your host, Mr. Paul Silverstein, Senior Vice President of Investor Relations for Coherent. Please go ahead. Paul Silverstein: Thank you, operator, and good afternoon, everyone. With me today are Jim Anderson, Coherent's CEO; and Sherri Luther, Coherent's CFO. During today's call, we will provide a financial and business review of the third quarter of fiscal 2026 and the business outlook for the fourth quarter of fiscal 2026. Our earnings press release can be found in the Investor Relations section of our company website at coherent.com. I would like to remind everyone that during our conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. These are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release, our most recent Forms 10-K and 10-Q and the reports that we may file on Form 8-K with the Securities and Exchange Commission. All our statements are made as of today, May 6, 2026, based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release and investor presentation that can be found on the Investor Relations section of our website at coherent.com. Let me now turn the call over to our CEO, Jim Anderson. James Anderson: Thank you, Paul, and thank you, everyone, for joining today's call. Coherent is a global leader in photonic technology, which is foundational to the performance and scalability of AI data centers and critical to many important industrial applications. We are at the center of an extraordinary expansion in optical networking infrastructure, driven by the rapid growth of AI and the increasing need for bandwidth and energy efficiency. As a result, we delivered another quarter of strong financial performance with accelerating growth, expanding margins and improving profitability. Importantly, we are seeing continued strengthening in demand across our business. This quarter, we experienced another step function increase in our order book, driving our backlog to a record level. Customer demand remains exceptionally strong with no signs of attenuation, and our visibility continues to extend further into the future with orders now reaching into calendar 2028 and customer LTAs extending to the end of the decade. This demand is increasingly translating into near-term shipment and revenue opportunities as we continue to expand capacity. Given both the near- and long-term demand strength, combined with our continued expansion of production capacity, we expect a period of sustained strong revenue growth over the coming quarters. We expect strong sequential revenue growth in our June quarter, and we continue to expect fiscal '27 growth rate to exceed our fiscal '26 growth rate. Turning to our Q3 operating results. Revenue increased 9% sequentially and 27% year-over-year on a pro forma basis, representing an acceleration in our year-over-year growth rate versus the prior quarter. Non-GAAP gross margin expanded both sequentially and year-over-year and the combination of revenue growth, margin expansion and operating leverage drove non-GAAP EPS growth of 55% year-over-year. We continue to grow profitability significantly faster than revenue. We are pleased with the continued execution, but we also see significant opportunity ahead as we scale the business to meet the demand environment in front of us. Our Datacenter & Communications segment continues to be the primary driver of our growth and accounted for 75% of total company revenue in Q3. Growth in this segment accelerated again this quarter with revenue increasing more than 40% year-over-year. Segment performance was driven by both accelerating demand and strong execution across our product portfolio. In our data center business, revenue increased 13% sequentially and 37% year-over-year, representing a second consecutive quarter of double-digit sequential growth. We expect data center growth to further accelerate in the current quarter, supported by exceptionally strong demand, improving supply and continued progress in our capacity ramp. Demand in our data center business remains exceptionally strong and broad-based across multiple customers and product categories. We expect the accelerated growth in the current quarter to be driven by both transceivers and OCS systems. Within transceivers, we expect growth to be driven by both 800 gig and 1.6T. In particular, we expect 800 gig revenue to grow year-over-year in calendar '26, while 1.6T transceivers ramp rapidly through the balance of this calendar year and into next year as a broad range of customers adopt 1.6T. Given the exceptionally strong demand environment and the industry-wide constraints in indium phosphide, capacity expansion remains one of our highest priorities. Importantly, we continue to make excellent progress on our 6-inch indium phosphide ramp, which is a key driver of our long-term capacity expansion and a meaningful differentiator for Coherent. We are now seeing the benefits of this ramp in both revenue and margin, and we expect those benefits to increase further over the coming quarters. We remain on track to achieve our goal of doubling internal indium phosphide output capacity by the end of this calendar year. And based on current execution, we now expect to reach that milestone 1 quarter earlier than originally planned. We also expect to more than double our internal indium phosphide capacity again by the end of calendar 2027. Our 6-inch platform is producing EMLs, CW lasers and photodiodes and the yields for each of the 3 device categories continues to exceed those of our 3-inch production lines. During the quarter, we shipped our first transceivers containing components produced on our 6-inch lines, and those shipments contributed to both sequential revenue growth and gross margin improvement. The initial 6-inch production contribution came from our Sherman, Texas facility, which is the world's most advanced indium phosphide production site and will play an important role in ramping CW laser production for our CPO solutions, including those supporting our NVIDIA partnership. Given the success of the 6-inch ramp to date, we have also announced plans to begin 6-inch indium phosphide production at a third site in Zurich. Overall, we are very pleased with the execution of our production teams. As we continue to ramp 6-inch output, we expect increasing benefits to both revenue and gross margin across our transceiver and CPO product lines over the coming quarters. We expect OCS revenue to grow this quarter as we ramp production capacity to meet demand. We have increased our view of the OCS market opportunity to over $4 billion, reflecting expanding use cases across data center interconnect, scale-out and scale-up networks and continued broadening customer engagement. We believe OCS also expands our role into higher-value layers of AI networking infrastructure. We recently resolved the bottleneck in our production capacity and are now ramping output rapidly across 2 production facilities. As a result, we expect strong sequential revenue growth over the coming quarters as production improvements translate into higher shipments and backlog conversion. We also continue to make strong progress in co-packaged optics, which we believe represents one of the most important long-term growth opportunities for Coherent. As we have discussed previously, CPO expands our role in AI data center architectures, particularly in the scale-up portion of the network, where optics is expected to increasingly complement and over time, displace copper. We believe CPO represents more than $15 billion of incremental addressable market opportunity. In March, we announced a strategic partnership with NVIDIA focused on multiple CPO-related products and solutions. This partnership includes both NVIDIA's $2 billion equity investment in Coherent and a multiyear supply agreement extending through the end of the decade. The agreement covers multiple CPO-related products, including our high-power CW laser and provides meaningful long-term visibility into future demand. More broadly, our CPO opportunity is supported by the breadth and depth of Coherent's photonic technology platform. We believe our breadth of photonic technology and our manufacturing scale, position us very well to support a broad range of customer requirements across key optical components, subsystems and higher-level assemblies. We expect initial scale-out CPO revenue to begin ramping in the second half of this calendar year with scale-up CPO revenue expected to begin ramping in the second half of calendar 2027. In addition to NVIDIA, we are also engaged with multiple other customers across a broad range of CPO and MPO opportunities. Overall, we believe CPO will become a significant contributor to Coherent's long-term revenue growth and margin expansion and will further strengthen our strategic position in AI data center infrastructure. Turning to our Communications business. Revenue growth accelerated significantly in Q3, with revenue increasing 16% sequentially and 60% year-over-year, driven by strong demand across data center interconnect, scale-across and traditional telecom applications. We expect strong sequential growth again in the current quarter. Demand remains broad-based across customers, products and end applications. We are seeing strong momentum across our communications portfolio, which spans components, modules and systems, reflecting both favorable market conditions and Coherent's strong competitive position. In particular, we continue to see robust demand for our DCI solutions, including ZR and ZR+ transceivers as well as strong demand across our broader transport portfolio. One additional growth driver that we are particularly excited about is multi-rail. These solutions address the increasing need for greater bandwidth and connectivity between AI data centers as workloads become more distributed across multiple locations. We believe multi-rail represents a significant expansion of our communications addressable market opportunity, and we expect initial revenue to begin ramping in the first half of calendar 2027. Overall, we believe our communications business is very well positioned for continued strong growth, supported by current demand strength, our expanding portfolio and the ramp of important new platforms over time. Across our Datacenter & Communications segment, the breadth and depth of Coherent's Photonic technology portfolio, combined with our manufacturing scale, continue to resonate strongly with our customers. As a result, we have signed or are in the process of finalizing long-term supply agreements with multiple strategic customers that include both multiyear demand commitments and upfront investment to support capacity expansion. Turning to our Industrial segment. Revenue declined modestly both sequentially and year-over-year on a pro forma basis, reflecting continued softness in parts of the broader industrial market. However, we are seeing encouraging signs of improvement, particularly in semiconductor capital equipment, where bookings have increased meaningfully. We expect that improving demand to begin contributing to revenue growth in the current quarter and to support further sequential improvement through the balance of the calendar year. Over the longer term, we see important incremental growth opportunities for our industrial technologies and AI data center applications. At OFC, we highlighted our data center XPU cooling solutions and thermoelectric generators, which address the growing thermal and power challenges created by larger AI data centers. Our proprietary Thermadite material can improve thermal performance and help enable higher XPU efficiency, while our advanced materials for thermoelectric generation can improve data center power efficiency through waste heat recovery. We are engaged with multiple strategic customers on these technologies, and we believe they represent a meaningful expansion of our long-term market opportunity. We expect revenue from these products to begin ramping in the second half of calendar 2027. Overall, while industrial remains a smaller contributor to our current growth than data center and communications, we believe it is positioned to become an increasingly important source of incremental revenue and diversification over time. In summary, we delivered another quarter of strong financial performance with accelerating revenue growth, expanding margins and increasing visibility into future demand. We are operating in a highly favorable demand environment driven by AI data center expansion, and we believe Coherent is uniquely well positioned to capitalize on this opportunity, given the breadth of our photonic technology portfolio, our manufacturing scale, our continued capacity expansion and the increasing conversion of demand into backlog and revenue. I want to thank the entire Coherent team for their strong execution and continued innovation. I'll now turn the call over to Sherri. Sherri Luther: Thank you, Jim. In our third quarter, we delivered accelerated double-digit year-over-year revenue growth and meaningful gross margin expansion, significantly improving profitability. We have strategically increased our capital investments to expand internal capacity in support of the rapidly growing demand in data center and communications. In addition, we also continued to strengthen our balance sheet, reducing our debt leverage ratio to below 1x. I will now provide a summary of our Q3 results. Third quarter revenue was a record $1.8 billion, up 7% sequentially from the second quarter, and up 21% year-over-year, driven by growth in AI data center and communications demand. On a pro forma basis, revenue increased 9% sequentially and 27% year-over-year, excluding revenue from our Aerospace and Defense business and our Munich, Germany product division, which were sold in Q1 and Q3, respectively. Our Q3 non-GAAP gross margin was 39.6%, a 57 basis point improvement compared to the prior quarter and a 105 basis point improvement as compared to the year ago quarter. We continue to execute on our gross margin expansion strategy, where we generated sequential and year-over-year increases in gross margin, primarily in the Datacenter & Communications segment. These improvements were driven by reductions in product input costs, yield improvements from 6-inch indium phosphide as well as significant benefits from pricing optimization. Third quarter non-GAAP operating expenses were $348 million compared to $321 million in the prior quarter and $297 million in the year ago quarter. R&D expense as a percentage of revenue increased to 9.9% in Q3 compared to 9.4% in both the prior quarter and the year ago quarter. The sequential and year-over-year increases in R&D were primarily in the Datacenter & Communications segment product road maps. These investments are focused on multiple short- and long-term revenue growth drivers, namely in transceivers and CPO as well as new high-margin, high-value systems such as OCS and multi-rail. We continue to focus on investments with the highest ROI that drive the future growth of the company. SG&A expense as a percentage of revenue declined to 9.4% in Q3 compared to 9.6% in the prior quarter and 10.4% in the year ago quarter with continued progress on driving efficiencies and greater leverage in SG&A. We are already seeing benefits from our low-cost regional shared services initiatives within the G&A functions as we streamline processes and gain better leverage and efficiency. In addition, our ERP consolidation project has made great progress where the majority of the company is now in a single ERP platform. We expect additional benefits from these initiatives in Q4 with more meaningful benefits into fiscal year 2027. Our third quarter non-GAAP operating margin increased to 20.3% compared to 19.9% in the prior quarter and 18.6% in the year ago quarter due to strong revenue growth and continued gross margin expansion. Third quarter non-GAAP earnings per diluted share was $1.41, up 9% from the second quarter and up 55% from the year ago quarter. The acceleration in earnings outpaced revenue growth, driven by strong top line performance as well as gross margin expansion. Our cash balance increased to $3 billion from $1.5 billion in the prior quarter, primarily due to the $2 billion equity investment from NVIDIA that we announced on March 2, 2026. We focused our capital allocation priorities during the quarter on investments that drive long-term revenue growth and profitability, specifically investments in our data center and communications business and our R&D product road map as well as capacity expansion. We also made $162 million in debt payments during the quarter, reducing our debt leverage ratio to 0.5x, down from 1.7x in Q2 and 2.1x in the year ago quarter. Our capital expenditures increased to $290 million compared to $154 million in the prior quarter and $112 million in the year ago quarter. These investments were focused on expanding our internal capacity to support the exceptional demand in data center and communications. Due to our strong bookings and the rapidly growing demand, we expect capital expenditures will increase sequentially in Q4. We continue to be on track with our capacity expansion plans. With a strong balance sheet and continued focus on improving profitability, we are well positioned to support the unprecedented customer demand with investments to rapidly expand our production capacity. As a reminder, at the end of January, we closed the sale of our Munich, Germany product division. For reference, over the prior 4 quarters, this business contributed average quarterly revenue of $25 million with a gross margin well below Coherent's corporate gross margin. Our Q3 results included $8 million in revenue from this business. I will now turn to our guidance for the fourth quarter of fiscal 2026. We expect revenue to be between $1.91 billion and $2.05 billion. We expect non-GAAP gross margin to be between 39% and 41%. We expect total operating expenses of between $360 million and $380 million on a non-GAAP basis. We expect the tax rate for the quarter to be between 18% and 20% on a non-GAAP basis. We expect EPS of between $1.52 and $1.72 on a non-GAAP basis. With our strong backlog and excellent visibility, we are focused on rapidly expanding our internal capacity with investments that drive the long-term growth and profitability of the company. We will continue to allocate capital in a disciplined manner as we execute against our long-term financial target model and drive durable shareholder value. That concludes my formal comments. Operator, please open the call for Q&A. Operator: [Operator Instructions] We take the first question from the line of Samik Chatterjee from JPMorgan. Samik Chatterjee: Congrats on the robust set of results, numbers here. Jim, maybe if I can start off with the guide for the June quarter. It is implying an acceleration from Q3, so the increases you had in Q3 from a revenue perspective. And particularly when I look back through the year, every quarter, you've managed to sort of accelerate the sequential revenue growth. So maybe if you can sort of dive into, one, what's the driver on the demand side that's helping you lead to that acceleration? And maybe also contextualize it in terms of supply and how that's helping with the acceleration as well? And I have a follow-up after that. James Anderson: Yes. Thanks, Samik, for the question. Yes, if you look at the midpoint in the June quarter guide, certainly, we expect acceleration in growth versus prior quarter and if you look at the year-over-year growth rate as well. We really believe the current June quarter kind of represents a new inflection point in our revenue growth rate moving forward, so faster growth this quarter. And as we look forward into fiscal '27, which starts in July, we expect our fiscal '27 growth rate to be above fiscal '26. And on the demand side of the equation, I would say that just -- it looks exceptional right now, both in terms of the degree of demand, but also our visibility on demand. If we look at just bookings in the prior quarter, bookings in the prior quarter were up substantially from the previous quarter, record bookings, incredible amount of backlog, and we've now got orders that extend out into calendar '28. And so we have just tremendous demand ahead of us, but also great visibility on that demand. And that demand is coming from places you'd expect, certainly data center and growth, both transceivers with some of the new growth vectors we're bringing on as well as communications. And then probably more importantly, on the supply side of the equation, that's probably really more than our focus. Demand looks great. What we're doing is ramping supply very, very quickly. And both this quarter, but moving forward, we're bringing on substantially more capacity over the coming quarters. And probably the best single example of this is just the indium phosphide capacity that's coming online. Indium phosphide has kind of been the key constraint for us for a number of quarters. It's a constraint for the industry. But our target this year is to double our indium phosphide capacity. And the great thing is we're -- it looks like based on the current execution, we'll achieve that goal next quarter, which is 1 quarter earlier than we thought. And when I look into next calendar year, we expect to more than double indium phosphide capacity again. So that's a quadrupling of capacity over a 2-year period. And so that looks really good. And so I think that really unlocks an acceleration in our revenue growth moving forward. And that's kind of on all the existing business. Then you layer on top of that some of the new growth areas and new growth vectors that are coming online. OCS is ramping. We expect that to contribute to growth this quarter and grow sequentially. CPO revenue kicks in, in the second half of this year. That's -- we view that as all incremental. Our multi-rail systems will start contributing revenue in the first half of next calendar year. And then we think thermal solutions will start to generate revenue in the second half of calendar '27. So we sort of have these multiple growth vectors that are layering on top of the existing business growth. So we feel really good about the growth and the sort of accelerated growth ahead of us. Samik Chatterjee: Got it. Got it. And then maybe just a follow-up on similar lines. You mentioned the acceleration on the indium phosphide capacity. Given that you're tracking a bit ahead relative to your target for 2x in the first year? How should we think about potentially upside or accelerating the target for 2x sort of next year as well? And as investors, how should investors think about the impact of that on gross margin? How material is it? When does it start to be material to your gross margin trajectory as well? James Anderson: Thanks, Samik. Actually, on the second part of your question on gross margin, we already started to see the impact of 6-inch indium phosphide capacity, which has a much better cost structure. So 6-inch versus 3-inch is more than 4x as many devices at less than half the cost. We already started to see that contribute to gross margin expansion in our fiscal Q3. As Sherri said, I think in our prepared remarks, our guide in the current June quarter has gross margin going up sequentially. Again, part of that, what's driving the gross margin expansion is the 6-inch indium phosphide capacity, which just gives us a much, much better cost structure. But overall, I'm really pleased with the execution on our 6-inch indium phosphide ramp. There's kind of 2 factors underneath there. There's just the raw capacity ramp, but also very important is the yields. And so the team has executed ahead of plan on the raw capacity ramp, but also we're seeing very healthy yields. We're in production on 3 different types of devices, EML, CWs and PDs. And all 3 of those devices have yields on 6-inch that are higher than our 3-inch production yields. And Texas was the first facility we started ramping 6-inch on. Super pleased with the progress there, because we saw such good yields out of the gate from Texas, which is the world's leading indium phosphide production facility. We started production in Sweden. And now we announced a third site that we're going to start production on 6-inch indium phosphide and that's Zurich, and we'll start to see production from that third site at the beginning of calendar '27. So this ramp of indium phosphide 6-inch is both -- it unlocks a lot of additional growth for us, but it's also definitely contributed to gross margin as it becomes a bigger portion of our indium phosphide overall production capacity. Operator: We take the next question from the line of Simon Leopold from Raymond James. Simon Leopold: The first thing I want to see if you could address is there's a perceived gap versus one of your primary competitors that stems from investors comparing their forecasts and your forecast in categories like the OCS and CPO. How do you explain the difference? And then I've got a quick follow-up. James Anderson: Yes. I think, Simon, on both of those new growth areas, we feel really good about the growth that's ahead of us. On OCS, we recently, just over the last couple of months at OFC, we doubled our forecast of the market opportunity there. The revenue growth rate, the sequential growth that we're guiding in the current quarter, part of that growth, that sequential growth is OCS systems growth. We feel great about the differentiation of our technology. It's a very differentiated technology that provides both higher reliability, but much, much better power efficiency. And so we feel really good about the long term, both the short- and the long-term growth prospects on that product line. And we've really been focused on just ramping capacity as fast as possible. And as I mentioned in the prepared remarks, we did kind of have a breakthrough over the last couple of months on removing a bottleneck in the production capacity that's allowed us to ramp production at a much faster rate, and we're ramping in 2 sites in parallel. So we feel good about the OCS, both the long-term opportunity, but the ramp in the near term as well. And then look, CPO is -- I think it's a transformational growth opportunity for the company. We see that market size as over $15 billion, and that's probably a conservative estimate over the coming years. We've -- CPO revenue for us will start in second half of this calendar year, and that will be initially scale-out CPO revenue. And then we expect to see the beginning of scale-up CPO revenue in the second half of calendar '27. And we're engaged with multiple customers. Obviously, we have a public announcement that we did with NVIDIA on our partnership with NVIDIA. That's all around CPO. That's a multibillion-dollar agreement that extends out through the end of the decade. And importantly, is it's multiple different CPO solutions. So if you look at what can we provide in the CPO solution, it's not just the laser, right? We're certainly providing the high-power CW laser. But beyond that, we're providing the external laser source module. We can provide the fiber attach unit, which includes micro-lens arrays. It includes polarization maintaining fiber. So we have our own fiber optics fiber that we'll provide in those solutions. Within that external laser source, we provide all of the ingredients, not just the laser, but the isolators, the thermoelectric coolers. So there's a tremendous amount of content that we expect to provide in CPO. And I see this as a major new growth area for the company. And I think we're very, very well positioned in CPO. And like I said, first revenue will start in sort of later this year, this calendar year. Simon Leopold: Great. And just as a follow-up, I appreciate you don't want to get the -- micromanaging each product segment, but I'd like to see if you could confirm if the 1.6 terabit transceiver revenue exceeded, let's say, $100 million in the March quarter. And if not, when can we get to that milestone? James Anderson: Yes, Simon, we don't break out individual data rate revenue for our transceiver business. But we expect 800 gig to grow this year. It will probably grow again next calendar year. And then on top of that, 1.6T is ramping at an incredibly rapid pace. In fact, as I think we've shared in the past, that 1.6T ramp is actually faster than what we would have thought, say, a year ago, which we're really pleased with. And so if you look at our incremental or sequential growth in the current quarter, a good portion of that is driven by the 1.6T ramp. And we expect 1.6T to not just contribute to the current quarter sequential growth, but to continue to ramp very quickly over the coming quarters as well. And so I think really the growth drivers for our transceiver business are really 800 gig and 1.6T combined, not just this calendar year, but next calendar year as well. Operator: We take the next question from the line of Thomas O'Malley from Barclays. Thomas O'Malley: My first one is on gross margin. So if I look at gross margins in March at 39.6% and then I look at gross margins last year at 38.5%, the incremental on a year-over-year basis is around 44%. So since that time, I mean, you've increased 6-inch production, you've doubled indium phosphide almost, you exited some businesses. In fact, like your data center business, you kind of report -- well, you could assume some percentage of this comms business, but that's growing really nicely as well. So why aren't you getting more incremental fall-through on the gross margin side? Is there any puts that you could highlight that are preventing you from kind of breaking out on that line item? Sherri Luther: Yes. Thanks, Thomas. So the way -- a few things I'll just highlight from a gross margin perspective is that if you go back about to the end of Q4 of 2025, we've increased our gross margin sequentially in 7 out of the past 8 quarters. And if you include the 57 basis points improvement from our -- just our recent Q3 quarter, that's an increase of about 530 basis points. And then if you tack on to the midpoint of our guide for Q4, that takes you to 570 basis points improvement. So I think that's pretty good progress. I mean we're not done, but I am pleased with the progress that we've made there. And the target that we put out at our Investor Day last year was greater than 42%, and we are super, super focused on making sure that we get to that target. And when you look at the drivers of our gross margin expansion strategy that we've been executing on quarter over quarter over quarter, it's cost reductions, it's yield improvements and it's pricing optimization. And when you look at our Q3 quarter, each of those areas increased quite significantly from the prior quarter in each of those categories. And so we talked a little bit about some of those in my prepared remarks. But from a cost reduction perspective, we had improvements from 6-inch indium phosphide. We've talked about the fact that it's half the cost, right, when you go from 3-inch to 6-inch. So we're already seeing the benefit of 6-inch. We also talked about yield improvements in Q2 that we saw in 6-inch. So we're continuing to see yield improvement as we continue to ramp. And we talked about how we've got 2 sites going in parallel. We've got another site coming up. I expect to continue to see improvements on 6-inch as we bring the other site up and as we continue to ramp 6-inch. That's going to continue to add benefit to our gross margin. And the other areas of cost reductions that we've seen, actually, that's been predominantly in our data center and communications business. So the majority of -- well, over the majority of our improvements in gross margin have really been in the data center and communications business. So I'm really pleased with that progress. We've also seen pricing optimization benefits. That has significantly increased quarter-on-quarter and certainly year-over-year. And that's been not only in the industrial business, but that was actually quite sizable in our data center and communications business. So I'm really pleased with the progress we've made so far. We're going to continue to drive to get to our target and super focused on doing that, but I'm quite pleased with the progress so far. And we're early stages is the way that I would look at it. Thomas O'Malley: And then just as a follow-up, in the preamble, Jim, you mentioned some bottlenecks that were being relieved in the OCS business. What specifically are you referring to? And how much of an impact could that have on production? James Anderson: Yes, there were some internal components or some components that we make internal to Coherent that we're pacing our production capacity expansion. And so we were able to sort of dramatically improve the amount of internal components that we were producing. And so that really unlocked an acceleration in our production capacity. And so the last month or 2, we've seen a really good ramp-up in our pace of production and expect that to continue. So we're seeing a much faster ramp of production on OCS than, say, a few months ago, which is really good. Operator: We take the next question from the line of Blayne Curtis from Jefferies. Blayne Curtis: Actually, I wanted to ask about scale-across just becoming a big talking point. You called it out in the comm business. Maybe you could just talk about kind of where that is today? And as you look to fiscal '27, how do you frame that ramp for scale-across? James Anderson: Yes. Thanks, Blayne. Yes, we're seeing just tremendous growth in the scale-across part of the business. This falls within our Communications segment, which I mentioned in the prepared remarks. So scale-across or DCI, also within that communications segment is traditional telecom. But the fastest growth that we're seeing is in that scale-across piece of the business. In the most recent quarter, we saw a 16% sequential growth and 60% year-over-year and here, again, similar to data center, just the demand is exceptional. The visibility is exceptional. We have LTAs that are in place with customers in that segment. And we're seeing -- it's really broad-based across almost every product we have in that segment and broad across customers as well. And just to give you a sense of the products in that segment would cover components like pump lasers. It would cover modules like ZR/ZR+ transceivers, which would be the 100 gig, 400 gig and 800 gig ramping ZR/ZR+. It covers line cards and amplifiers and then full systems as well. And so yes, this -- we expect this area, just given the demand we see in front of us and the visibility of this to be a very strong growth area for us moving forward. And then a new system that we think is going to continue to accelerate our growth rate here is multi-rail. And so our multi-rail technology, which we highlighted at OFC, this helps provide a huge capacity increase within the same power and physical area of the prior solution. So it's a tremendous benefit to the customer. And we have a number of very differentiated component technology pieces that go into that system that really position us very well. And we're selling full systems, and we expect that revenue to start in the first half of calendar '27. And so just another growth vector layering on top. So very strong growth in this area, and we expect that to continue given the strong growth that we see ahead of us. Blayne Curtis: And then I just wanted to follow up on Tommy's gross margin question. I just want to better understand the tailwinds. You called out 6-inch as being the biggest driver. I'm assuming the 6-inch volumes that you mentioned you're shipping in your units are still fairly small. So are there start-up costs that kind of roll off there, and that's what the savings are? And then as the -- is [indiscernible], is that a gross margin uplift as well? James Anderson: Yes. So when I mentioned in the prior quarter, the 6-inch, I mentioned that as it was one of the contributing factors. There were actually a number of other contributing factors to gross margin expansion in the prior quarter. And in our guide for the current quarter, it's kind of similar. 6-inch is a contributor, but there's other factors as well. There's pricing and other cost structure improvements that we made. And yes, I would say we're still pretty early in the 6-inch ramp. If you think about the 6-inch -- so we shipped our first transceivers last quarter that included devices from our 6-inch. And that was just the initial production that we started. That will ramp significantly over the coming quarters. So I think there's much more of the 6-inch benefit is ahead of us. If you think about the total doubling of capacity and the fact that all of that doubling of capacity is 6-inch, by the end of this year, next quarter, half of our capacity will be 6-inch. So I think that benefit from 6-inch is more ahead of us. And then on the 1.6T question, yes, we definitely see that as beneficial to gross margin. we expect -- just like we've always seen in prior transitions of speed of data rates at the beginning of the life cycle of a new data rate, generally, the gross margins are better than the prior data rate. So we would expect 1.6T to be beneficial to gross margin for the transceiver business. Operator: We take the next question from the line of George Notter from Wolfe Research. George Notter: I was just curious about anything more you could tell us on the new LTAs that you're signing. Obviously, we learned a lot around the NVIDIA transaction. But you mentioned there's a number of other deals that you guys have brought in. Anything you can tell us in terms of how big those deals are? What kind of duration are we talking about? Are they funding your capital expansions? Like anything you can tell us like financially just in the aggregate, more details would be interesting. James Anderson: Yes. Thanks, George. Yes, there were a couple of additional LTAs that we signed in the prior quarter. And then I would say there's a number of other ongoing discussions. We would expect to close some additional LTAs this quarter very soon. And those LTAs usually have 3 parts. You asked about kind of a CapEx commitment. Yes, there's usually an upfront investment from the customer. to help with the CapEx. And that can come in a number of different forms, but there's usually some upfront investment, which kind of represents sort of skin in the game from the customer and which we view as really positive. And then there's -- of course, there's a supply commitment from us. But the third element is there's almost always some sort of demand minimal -- at least minimal demand commitment from the customer to make sure that, that capacity is going to get utilized. So those are kind of 3 parts of the LTA. Almost every LTA has those 3 parts in it. And so yes, I would say good progress last quarter in additional LTAs, and we anticipate more LTAs to come and yes, significant in size. George Notter: Anything about the genre of customer here? Is this cloud providers? Is this systems manufacturers? Anything else you could say? James Anderson: It's both, right? We would see -- we expect LTAs from both hyperscalers as well as other system customers. So I would expect both. Operator: We take the next question from the line of Vivek Arya from Bank of America Securities. Michael Mani: This is Michael Mani on for Vivek Arya. I wanted to dive in deeper with some of the CPO LTAs or long-term agreements that you're dealing with, including NVIDIA, but maybe some of the other deals that you're kind of eyeing over the next couple of years. What's the mix of these agreements between lasers, ELS modules, which you highlighted OFC and the various other components that you could sell into a CPO solution like fiber attach units. How does that vary by customer? Like what are the puts and takes there based on the deal? James Anderson: Yes. It kind of -- it can depend by customer, but it's important to keep in mind that we have a very broad portfolio of CPO technology that we can bring to the customers. I think that's a real advantage for us. And we -- at OFC, we laid out all the different types of technology that we can bring to a CPO solution. Lasers, the high-power CW lasers is certainly one important component, but it's not the only. We can also bring 200 gig and in the future, 400-gig VCSELs as well. There's some applications where VCSELs are sort of a better laser technology for like near package optics. But beyond that, if you look at the external laser source, we can provide that module. But within that, almost all those key optical ingredients we have in-house as well, not just the laser, but the isolators, the thermoelectric coolers. So all of the ingredients that go in that, which customers view as a big strength because we're not dependent on others for those technologies. And then the actual fiber attach unit, so this is the -- what connects the switch chip or the XPU to the faceplate or to the external laser source module, we can provide that entire assembly as well because we have the lens arrays, we have the polarization maintaining fiber. So we have all the ingredients for the CPO solution. And I would say most customers are leveraging, if not all of that portfolio, certainly a good portion of that portfolio. Michael Mani: Great. And for my follow-up, I just wanted to ask about the 2 incremental opportunities you highlighted for '27, right, with multi-rail and thermal management products. So you said revenue timing for first half, I think, for multi-rail and second half for the thermal products. But what are the milestones between now and then from a customer perspective? Like when do we get a better sense of how large those ramps can be? And what does the competitive landscape look like in both of those areas? And how do you think you're especially differentiated, if you could articulate that? James Anderson: Yes. Michael, on the -- let me start with the multi-rail, which is the near-term one. I would say the milestones are just the typical engineering milestones that we would walk through with the customers. There would be a qualification, a pilot run, very normal engineering milestones that we're moving through. And again, we would expect revenue to start in the first half of '27. I think as we get closer to that revenue ramp, we can provide just some better idea of what the rate and pace of that revenue ramp is. But we see that as a substantial new product line with significant revenue opportunity. I mean, we sized the market for multi-rail at least $2 billion over the coming years, and it could be larger than that. And the technology that we have is very differentiated. With multi-rail, it's really all about the underlying technology. And without going into a bunch of the technical details because we covered this at OFC, but there's a number of key components that go into that multi-rail that are unique to us or we have unique differentiation that position us really well. So we feel really good about the competitive positioning on multi-rail. And then the second part of your question, definitely, thanks for asking about the thermal solutions. We're very excited about this. This is us taking our industrial technology, some of our materials technology that we apply to the industrial market and re-purposing this for data center. An example is our Thermadite technology. Thermadite is a material that it's a proprietary material that only Coherent provides. And if you look at Thermadite applied to the cooling of, say, a switch chip or an XPU or an ASIC chip relative to the current thermal solutions, which are usually copper-based solutions, a Thermadite or other type of material that we could provide can provide heat transfer that's either 2x better than copper, sometimes up to 5x better than a copper solution. So this is a massive improvement for customers because what that means is if we use one of those thermal solutions that have 2 to 5x better thermal properties, it allows the say, the XPU, the GPU to run at a much higher frequency or utilization rate because it can be cooled much more effectively. So it's almost like getting sort of more tokens out of the same CPU or GPU. And so it's a big win for our customers. We're really excited about that, very strong customer engagements there. And again, just kind of moving through the normal engineering milestones, but we would expect revenue in the second half of next year. By the way, the other one that I would mention, which is really a great technology is our thermoelectric generators where we're harvesting waste heat from the -- again, the CPU or GPU, harvesting waste heat and converting that back into electrical energy, which is pumped back into the data center. So a great efficiency gain for power efficiency in the data center. So yes, we're excited about those new thermal solutions. Operator: We take the next question from the line of Papa Sylla from Citi. Papa Sylla: Congrats on the results. Maybe, Jim, my first question is around pricing in general from like a transceiver perspective. Obviously, you were, I guess, too, had one, as a seller of transceivers, but also a buyer of lasers and electrical component as well. And at least kind of yesterday or over the past couple of days, we have been hearing kind of some laser pricing increases, particularly for EML. So I'm curious if you are seeing that on one front, but also are you able, if that's the case, at the transceiver level, pass through those costs? Are you -- do you have enough levers in general at the transceiver level to also increase pricing given the demand supply imbalance? James Anderson: Yes. Let me start with the pricing and come back to the cost. On price, yes, I would call pricing very healthy, very healthy dynamics around pricing. Because of the supply versus demand, I think pricing has been very good, right? And one of the things that always happens as we change data rates is the ASP goes up with the new data rate. So 1.6T pricing, higher than 800 gig, et cetera. And so I would say the pricing dynamics are very healthy. And then on the cost side, remember that most of the components that go into our transceivers are internally sourced. And so that buffers us from any increases, provides some level of buffer against increases in pricing in externally sourced. Now we do use some externally sourced components. We do that for strategic reasons. But yes, we view it as we've been successful at either passing along those external component price -- higher prices or offsetting that with our own internal production as well. So we've -- the combination of pricing and cost has been -- we've seen higher gross margins. I think Sherri shared in her prepared remarks, specifically in data center and communications, we've seen the gross margin improvement we've seen is primarily coming from that component of our business. Papa Sylla: Got it. That's very helpful. And then in terms of my follow-up, it seems like it's very clear that the demand you are seeing for 1.6T is very strong, the early deployments at least. So I'm curious if you can touch a little bit on the mix you are seeing between EML, SiPho and perhaps even VCSEL. And maybe a follow-up to that is kind of what would be, generally speaking, the margin implication of selling higher SiPho transceivers versus EML or vice versa? James Anderson: Yes. On the second part of your question, we really don't see a significant margin difference between EML or SiPho-based transceivers. Both those transceivers are in the same ballpark of gross margin. And we're ramping both 1.6T, we are ramping both EML and cycle-based 1.6T. Remember, even a SiPho-based transceiver requires a CW laser based on indium phosphide, right? So either way, they both require indium phosphide capacity, which is, again, ties back to why we're driving one of the reasons we're driving higher indium phosphide capacity ramp. But for us, the mix is really determined by -- between EML and SiPho is really determined by kind of the customer applications. So we work with the customer on which one of those 2 technologies just fits their application better. And there can be pros and cons depending on the type of application. And then we do expect VCSELs to be used later on as well. Our 200-gig VCSEL development going very well. And beyond just 200-gig VCSELs that go into transceivers, we see 200 gig where we expect 200-gig VCSELs to be adopted in some CPO applications or NPO applications as well. But yes, that initial 1.6T ramp is a combination of EML and SiPho-based 1.6T. Operator: We take the next question from the line of Ruben Roy from Stifel. Ruben Roy: Jim, the kind of the discussion around CPO has certainly seemingly accelerated since the beginning of the year through OFC and even over the past few weeks with some of your peers and yourselves talking about it. First question, just a clarification on the second half scale-out, '27 scale-up ramp. Are those ramps tied to NVIDIA specifically? Or are there other customers contributing to those initial scale-out CPO revenues for you? And then the second part of the question is, as you think about CPO and new opportunities like multi-rail and the components that go into multi-rail, my understanding is some of those things have higher margin structures than maybe other indium phosphide or silicon photonics components. How are you thinking about allocating capacity across some of these sort of, let's call them, newer growth areas as you think about the next 12 to 18 months? James Anderson: Yes. Thanks, Ruben. On the CPO, certainly, now that the NVIDIA partnership is public, yes, they're -- clearly, they're probably our lead customer on CPO -- and -- but we do expect other customers to follow as well. And we're engaged with multiple different customers. It's actually a pretty wide set of customers, and we expect to have CPO solutions across multiple customers. But definitely, NVIDIA would be kind of the lead customer for us. And then on the second question on multi-rail, yes, definitely higher gross margin structure in that part of the business. You're absolutely right that there's some specific components that go into multi-rail solutions that are quite high margin that also rely on indium phosphide capacity. In general, the way we look at capacity allocation is we allocate indium phosphide capacity to whatever drives the most -- the highest margin dollars. So whatever drives the maximum amount of margin dollars for the company, that's where we allocate the capacity. Operator: We take the next question from the line of Sean O'Loughlin from TD Cowen. Sean O'Loughlin: Jim, congrats on a solid set of results, as always. One of the things, and I think this speaks a lot to maybe Blayne and Tom's questions earlier in the call is one of the things that investors are trying to get a better handle on is, as you ramp 6-inch indium phosphide and the capacity there, the delta between maybe shipping initial SKUs, initial transceivers revenue, as you mentioned, versus having that line fully qualified at some of your customers for volume production. And I'm going to ask the question in a way that I know is the wrong way to frame it. But if I think about we're going to double indium phosphide capacity next quarter, why hasn't that translated into doubling revenue? And that's, I think, where I'm having conversations with a lot of folks, if you could just comment on that. James Anderson: Yes. Remember that there is a latency from the indium phosphide devices to when we actually ship transceivers, right? So when the indium phosphide devices, whether that's an EML or CW laser come out of the production facility, it's really probably the next quarter, 2 to 3 months later before we see the transceivers then shipped based on those devices, right? And as an example, those transceivers that shipped in our March quarter, that was indium phosphide devices that were produced in either our September or the early part of our December quarter. So there's usually a lag of a few months from when the devices are made to when we see those -- those show up in transceiver shipments. Sean O'Loughlin: And then just can you comment, Jim, on anything on the customer side? Or should we assume that there's a much tighter relationship between once the transceiver ships there, we've already been through the qualification process. Is that how we should think about it since it's... James Anderson: Yes, there's nothing unique about the devices on 6-inch versus 3-inch in terms of qualification. There may, in some cases, need to be qualification, but that would have already happened ahead of production shipments, right? So when we're talking about production shipments, the qualification is already complete at that point. Sean O'Loughlin: Got it. That's helpful. And then maybe related to the CW EML question, and I know I just -- I wasn't not listening. I know you're going to say it's sort of agnostic and you go where the customer goes. But if you could maybe comment on the 400-gig silicon photonics that you demonstrated at OFC and maybe some of the other industry commentary that maybe questioning the viability of silicon photonics and CW lasers at 3.2T, that would be helpful. James Anderson: Yes. Thanks, Sean. Yes, as you mentioned at OFC, we demonstrated 400-gig silicon photonics that would enable 3.2T. That -- we demonstrated that, but it could be used in either transceiver or could be used in CPO. So we demonstrated just the capability to do that. The form factor may be CPO or transceiver or both. But we would -- but we believe we have a path to 3.2T or 400 gig per lane silicon photonics based on that demonstration. And we're certainly -- we certainly expect to have both solutions based on 400-gig differential EMLs, which we already have but 400-gig silicon photonics as well. And by the way, we're -- we have 200-gig VCSELs that we're working on, but we also have 400-gig VCSELs that are in development as well. Those are a little further out, but we're certainly working on that as well. So we think we've got a really robust road map of multiple different laser technologies to support the future road map for our customers. Operator: Ladies and gentlemen, we have reached the end of our question-and-answer session. I would now like to turn the floor back over to Coherent's CEO, Jim Anderson, for his closing comments. James Anderson: All right. Thank you, operator, and thanks, everybody, for joining us today. In closing, we are certainly very pleased about the strong third quarter performance and the continued momentum across our business. Demand remains exceptionally strong, and we see accelerating growth ahead of us as we ramp capacity significantly over the coming quarters. I want to thank our employees for the great execution and the continued innovation, and we look forward to updating you at our next call in another quarter. Thank you. Operator: Thank you. Ladies and gentlemen, you may disconnect your lines at this time. Thank you for your participation.
Operator: Good day. My name is Chloe, and I will be your conference facilitator. I would like to welcome everyone to Aeva Technologies First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded and simultaneously webcast. I would now like to turn the call over to Andrew Fung, Senior Director of Investor Relations and Corporate Development. Andrew, please go ahead. Andrew Fung: Thank you, and welcome, everyone, to Aeva's first quarter 2026 earnings conference call. Joining on the call today are Soroush Salehian, Aeva's Co-Founder and CEO; and Saurabh Sinha, Aeva's CFO. Ahead of this call, we issued our first quarter 2026 press release and presentation, which we will refer to today and can be found on our Investor Relations website at investors.aeva.com. Please note that on this call, we will be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views only as of today and should not be relied upon as representative of our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our most recent Form 10-Q and Form 10-K. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Aeva's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. The webcast replay of this call will be available on our company website under the Investor Relations link. And with that, let me turn the call over to Soroush. Soroush Dardashti: Thanks, Andrew, and good afternoon, everyone. Q1 was a strong quarter at Aeva, where we achieved another new quarterly revenue record as we continued executing on our growing commercial momentum. With the rise of physical AI and more industries looking to leverage new levels of perception, Aeva is uniquely positioned with our FMCW LiDAR on-chip technology to tap into a broader and more diverse range of applications than what is possible with conventional LiDAR. This quarter, it was especially exciting to see our commercial momentum progressing and expanding to more real-world deployments. This is not only helping drive our strong revenue trajectory, but we believe also further positions Aeva to continue our commercial growth with a growing list of customers. In automotive, we achieved important milestones with our customers on their path towards commercialization and production. With Daimler Truck, we began deliveries of our production-intent Atlas product, which highlights the maturity of Aeva's technology and is a critical step for the OEM's work towards series production. And in passenger vehicles, we successfully integrated first Atlas Ultra sensors in the top European OEM's development vehicles and are jointly working on the AV stack development with this passenger OEM. Outside of automotive, we are growing in defense across multiple fronts, including expansion with Forterra to use Aeva's technology in a second autonomous ground vehicle as they look to leverage our long-range and velocity measurements and notably our wavelength undetectability by night vision systems. We're also seeing interest in other applications in defense, such as drones for further expansion. In smart infrastructure, we recently unveiled Aeva CityOS, our AI-powered platform for real-time intelligent traffic management. Reception has been very positive, and we have already won our first large-scale deployment in Georgia. And on factory automation, we are seeing growing momentum with multiple customers. Our multiyear collaboration with Nikon is entering its next phase of commercial deployment with Nikon recently launching its next-generation robotic inspection laser radar system called APDIS MV5, which is powered by our Eve high-precision technology. This is part of a multiyear production agreement to use Aeva's technology for automated inspection in factories for automotive, aerospace and energy industries. Beyond all of this, we continue to advance on new opportunities to use our technology platform across multiple physical AI applications. Our focus remains on delivering on existing programs, further solidifying a leadership position with additional wins and scaling manufacturing to support the expanding demand for Aeva's differentiated technology. Now let's dive more into Aeva's recent business developments. Starting first with Daimler Truck. As the exclusive long-range LiDAR supplier and primary detection sensor for Daimler Truck's production program, Aeva played a critical role in bringing their highway Level 4 solution to market. And we continue to work very closely with Daimler Truck as well as with Torc, which are developing the AV stack. The start of Atlas C-sample deliveries to Daimler Truck this past quarter marks a major step forward on the OEM's path to commercialization. This is our production-intent sensor for Daimler Truck's series production trucks and will be used by the OEM to finalize the AV stack validation and operation ahead of their target launch in 2027 and the following production ramp-up. For Aeva, it also represents a major achievement that demonstrates the maturity and readiness of our technology for mass scale automotive-grade deployments. We are on track to scale deliveries of our Atlas sensors to Daimler Truck over the course of this year, which will support the OEM's vehicle fleet rollout and additional milestones ahead of series production. Moving now to the latest development in automotive with the global top 10 passenger OEM based in Europe and other automotive engagements. First, on the top European passenger OEM program, where we are the exclusive LiDAR supplier globally outside of China for the OEM's next-generation Level 3 production program. We have been collaborating closely with both the OEM and the OEM's AV stack provider and in the past quarter, began integration of Atlas Ultra in the OEM's development vehicles. This has been going on track and will be used to jointly develop and mature the AV stack. We expect to deliver additional sensors this year to support the OEM's ongoing development and fleet rollout ahead of target start of production in 2028. The top European passenger OEM selection of Aeva for its large-scale Level 3 program continues to serve as a strong vote of confidence in our technology and our growing maturity to the rest of the automotive industry. We are encouraged by our ongoing engagements and over Q1, continue to grow our pipeline. This includes our progress on the development program with a global top 5 passenger OEM that we announced last quarter. The work is focused on the configuration, integration and validation of our Atlas Ultra sensors for the OEM's next-generation global vehicle platform. We have successfully completed the initial set of milestones and we'll continue working with this OEM towards the next-generation vehicle program. Separately, we have kicked off our collaboration with NVIDIA following their selection of Aeva as the reference sensor for the DRIVE Hyperion platform. Aeva is the reference LiDAR sensor globally outside of China, which has the potential to effectively make Aeva a core LiDAR supplier to many leading passenger and commercial vehicle OEMs using the NVIDIA platform globally. As part of this, we are working together on one common platform comprising of the same sensor suite, meaning one common set of cameras, radars, LiDARs and NVIDIA compute and autonomy software to offer to these leading OEMs and AV players. And in the past quarter, our teams have made good progress on the integration of our FMCW technology into DRIVE Hyperion stack, including working together to implement our velocity data path in the DRIVE Hyperion platform. So in summary, we continue to advance on multiple automotive engagements, including other passenger programs and high-volume ADAS Level 2 for commercial vehicles. We continue to believe that Aeva is well positioned to secure additional wins given our differentiated performance, balance sheet and commercial momentum, bringing further validation of Aeva's capability and maturity. Switching gears to other physical AI applications. Aeva is quickly expanding in defense with Forterra, a leading provider of autonomous ground systems for defense and other complex operational environments. Since announcing our win with Forterra last quarter, I'm pleased to share that Forterra is expanding use of Aeva 4D LiDAR to its newest autonomous ground vehicle called MESA. MESA integrates 4 Atlas sensors for surround view and leverages our long-range and velocity detection, vehicle positioning and stealth operational capability in GPS-denied environments. Beyond the growing demand for AGVs, we're seeing new interest in drones and working on opportunities to expand further with existing customers as well as new engagements with defense companies and organizations on both autonomy applications. Over the past quarter, we have also been expanding deeper into the smart infrastructure market, particularly around Intelligent Transportation Systems or ITS. This is a growing market opportunity as municipalities across the country look to modernize infrastructure to be safer and more efficient. In just the U.S. alone, there are around 15 million intersections and more than 300,000 traffic signals. This is why we launched Aeva CityOS, a full stack intelligent traffic solution that combines 4D LiDAR with edge AI processing and analytics in collaboration with our partners. Compared to traditional ITS solutions, which rely on cameras, radar or inductive loop sensors, CityOS leverages the advantages of Aeva's 4D LiDAR to enable operation in all lighting conditions and deliver more advanced detection while preserving privacy. We are very encouraged that CityOS is quickly gaining traction with DOTs and municipalities across the U.S. We have already secured our first large-scale deployment in Georgia with an expansion to 30 additional intersections in the Greater Atlanta area. This expansion comes after a successful initial rollout across multiple intersections surrounding Centennial Olympic Park and others. The area is one of Atlanta's busiest pedestrian corridors where we believe CityOS can help improve roadway safety and traffic operations. Aeva's ITS team is also actively working with other programs and municipalities on new opportunities, and we believe that our differentiated solution will drive additional deployments over the course of this year. In precision sensing, we are incredibly excited to see Nikon's first commercial laser radar product powered by our Eve precision sensing platform. With Aeva, Nikon's next-generation APDIS laser radar system is capable of faster measurements in a smaller, more flexible size, which enables Nikon's major automotive OEM customers, aerospace and energy production partners to shorten production times, cut costs and improve quality for volume production. This product is the start of a multiyear production agreement to use Aeva's technology in Nikon's products. More broadly, the flexibility of our Eve precision technology is driving new interest to use Aeva across manufacturing and factory automation for a diverse set of industries from automotive to energy production and semi-capital equipment manufacturing. We are engaged with multiple customers on additional opportunities and working towards converting those to design wins as we expand in precision. With that, let me turn the call over to Saurabh, who will discuss our Q1 financial results. Saurabh Sinha: Thank you, Soroush, and good afternoon, everyone. Consistent with how Aeva is delivering on our commercial objectives, our Q1 financial results also reflect our growing momentum. This includes achieving a new record revenue quarter of $6.3 million in Q1, which represents an increase of around 90% year-over-year, driven by scaling sensor shipments across multiple markets and progression on development milestones for major customers. The non-GAAP operating loss was $25.8 million in Q1, which is about flat year-over-year and highlights our ability to maintain operating expenses at similar levels versus the prior year while continuing to scale the business. Gross cash use, which we define as operating cash flow less CapEx, was $28.1 million in the quarter. Our total available liquidity at the end of Q1 was $224.5 million, which consists of $99.5 million in cash, cash equivalents and marketable securities and $125 million in an undrawn facility that is fully available to draw at management's sole discretion. We continue to believe that our performance and liquidity position differentiates us from peers and together with our ongoing financial discipline enables Aeva to support ongoing programs as well as secure new wins. With that, I will turn the call back to Soroush for closing remarks. Soroush Dardashti: Thank you, Saurabh. In closing, I am really proud of how Aeva is expanding its leadership position with increasing real-world deployments of our unique perception platform across a wide range of industries. Looking ahead, as we continue to see growing commercial momentum and an increasing list of opportunities to pursue, we are keenly focused on execution, both with existing programs and new engagements, while also scaling our manufacturing to support more customers and the increasing demand for our products and differentiated technology platform. And with that, let's now turn to Q&A. Operator: [Operator Instructions] And we'll take our first question from Colin Rusch with Oppenheimer & Co. Colin Rusch: Guys, can you just give us an update on the progress with SOA and CPO solutions for data center? We continue to see data management and transport expense ramping pretty aggressively for all applications. Just want to see where you're at from a commercialization perspective with that and how we can think about that coming to market over the next few years. Soroush Dardashti: Colin, this is Soroush. Yes, happy to answer that. So obviously, the data center market is a massive market and a number of opportunities. I think maybe just a quick background here. I mean, as most of us know, the first wave of the AI data center market really started with all the semiconductor companies and the GPU and compute processing driven by faster compute needs. And the second wave and bottleneck arose from memory and high bandwidth storage, right? And I think as we're now going to higher and higher speeds, what's become clear is that there's a certain limitation on how much we can transfer data between data centers and racks. And I think this next bottleneck really is going to be relying heavily on optical interconnects because that's where copper hits a physical limit to transfer data center -- data within data centers. So I think this is obviously a significant, I think, next wave that's coming on. It's a massive opportunity. And why this is relevant for Aeva, I guess, as we mentioned, is because we've spent the past decade creating and perfecting some of the best high-power sources and proprietary silicon photonics technology and making it so that it works to meet the harsh requirements for automotive, right? And we did it because it simply did not exist. And I think what we are seeing now is those components, our proprietary technology for high-power sources and silicon photonics has a significant advantage potentially for both performance and cost efficiency compared to what's on the market. So we're seeing some strong -- very strong interest for high-power sources and silicon photonics from some of the big players in the space, from folks that are making the GPUs like the obvious NVIDIA and AMD to some of the hyperscalers, Amazon, Meta, others. And I think Aeva has a unique technology there in how we do those sources and the silicon photonics. We are looking now to take those investments we've made in the past number of years and apply it to the CPO market. But I think initial data is really promising on the performance of those high-power sources. And we're looking to apply that as we can talk more about this in the next years, we will. And -- but I think it's overall a massive opportunity for us where we are definitely going to be taking advantage of. Colin Rusch: Perfect. And then just moving on to other physical AI applications. We're seeing factories as a prime target for optimization. Given the fact that you've got a couple of partners and started delivering with Nikon now, can you talk about the potential acceleration in that market segment with metrology solutions and how we should think about new build versus retrofit applications for the sensors? Soroush Dardashti: Yes. Yes, happy to. I think in general, we are seeing for the industrial market and general physical AI significant demand across multiple segments for us. I mean, as you saw in the earnings today, it's not just about automotive right now where we are seeing significant traction, but in the other physical AI, including both in the industrial market for Eve sensing. We have now the first commercial product of Nikon coming online into the real world and shipping. Nikon already does [ $300 million ] in just robotic inspection and metrology alone, and we obviously, we're taking higher ASPs there than automotive with the mix of volumes. But also, we're seeing interest and demand from others importantly in the Eve sensing market for, for example, semi-capital equipment manufacturing, where there's significant investments. It kind of relates back to some of the infrastructure on the AI side we talked about. But folks are using our sensors already in some of those semi-cap factories for various things, wafer measurements, quality control, all that. So I think that opportunity is definitely picking up. We're already shipping in the 1,000-plus type of sensors in the Eve side. There is orders coming in for that as well with a much higher volume. So this is definitely an area that we're going to continue to grow. And then separately, on the other side of physical AI, I guess, on the ITS and smart infrastructure, we're seeing growing demand for CityOS. Within the past quarter, we've already had some wins. We are starting to deploy some of the large-scale deployments in Georgia. So multiple segments. And of course, defense is the other one that we're seeing double-digit growth pretty quickly there. So we're excited by all the progress. All that means, though, obviously, we're focused on scaling and manufacturing in the next phase as we bring up the products to [ massive ]. Operator: We'll move next to Suji Desilva with ROTH Capital. Sujeeva De Silva: Soroush, Saurabh, congratulations on the progress here. Just with getting closer on the auto -- passenger auto OEM and moving toward working on the software and the stack development, I'm just reminded earlier in the auto industry where there was challenges of the software development between the auto OEM and large programs, maybe Volkswagen and CARIAD, those kind of concepts. I'm just curious how you think it's happening differently now that's going to be more likely to hit production schedules and move forward versus having challenges? Any color there would be helpful. Soroush Dardashti: Yes. Suji, happy to answer. So obviously, on automotive, we are firing on multiple cylinders, right? We -- within commercial vehicles, we shipped our Atlas C-samples to Daimler Truck. We just announced that today. It's a critical milestone for the industry because these are the production-intent sensors and products. And I think it's going to be one of the first OEMs that we use for redundant chassis with production-intent hardware and sensors for the AV stack. On the passenger car side, in the last quarter, obviously, we just announced the win with a top 10 European OEM, top 10 global OEM, which is based in Europe. And we have made very good progress across the teams. We are working together with them and one of the AV stack partners. We've delivered the first Atlas Ultra samples for integration. I think the key right now is in the next number of months, we're going to be working together on implementing the sensor data into the stack and also doing fleet operations, fleet runs on the vehicles. And I think all that is pointing to the program being really progressing well on track. If you also look at the time line, we're not that far away from SOP, right? By 2028, the time line target is in the SOP, and we're progressing all pretty well to that. So it's kind of around the corner. So the teams are working very intensely together with on-site support and multi -- multiple times weekly engagement. So that -- all that, I think, is progressing good. On the pipeline side, we are also seeing growing interest on the pipeline with both passenger when we talk about the top 5, but also on commercial vehicles and on ADAS applications, not only Level 3 autonomy, but also high-volume ADAS Level 2 as well. Sujeeva De Silva: That's great. And then my other question, Soroush, is on the defense market and drones. Defense market, curious your go-to-market strategy. You partners there. Are you a subcon? How are you tapping that opportunity? And then specifically on drones, it sounds like it's a very interesting opportunity, but I'm curious, does the Aeva product translate to the flying vehicle drone market easily? Or are there kind of changes that we made? Any color there would be helpful. Soroush Dardashti: Yes. So I think in defense it's definitely an area that we're seeing significant growth in demand in the market. I think in the past consecutive 2 quarters since we announced even our first win in defense, defense has been a significant contributor of our shipments and also revenues, some of them double-digit percentage of product revenues. And I think Forterra is obviously one customer, our first win in there, and we talked about that they're expanding on multiple vehicle platforms. These are more ground vehicles or AGVs, where we have significant advantage with our technology as well as our wavelength compared to time of flight. That's why this is accelerating pretty quickly. If you recall, this kind of moved on from obviously, engagements and then to win to shipments and deployments with a matter of less than 60 days or so. So it's moving pretty quickly. But beyond that, as you mentioned, this is obviously not the only area in defense. We are acting as the Tier 1 supplier to these defense companies and innovators. So obviously, we're not the prime, but we are the tier supplier to them. But we are seeing significant interest and growth also in the drones applications. We already have some engagements there. Our technology with this long-range has some significant advantages and the velocity with the fact that also it's stealth in terms of detectability by night vision. So we are seeing that, and we are having some engagements with some of the, I would say, larger prime organizations that have significant investment and budget for drones application. So as we can, also talk about that, we will. Operator: We'll move next to Matthew Paciulli with Canaccord Genuity. Matthew Paciulli: Congrats on another great quarter. Maybe just to start, I think on the last call, you guys had mentioned 4 commercial wins in 2026 you were targeting. Is it safe to assume that CityOS is one of those wins? And could you just provide us an update on how those conversations are going? Soroush Dardashti: Yes, Matt, happy to. So I mean, to be honest, we have had multiple wins since the beginning of the year. I think the way also how we count that matters for us, with Forterra as the first win in defense. If you look at also NVIDIA and CityOS, we have had multiple wins. We are counting right now, I think, Forterra and NVIDIA on that. And so we're already ahead of track in terms of the 4 goals. And that was obviously aggressive because it was 100% or double from last year, I think, in terms of the targets for goals, but we're well ahead of the schedule. And I think more importantly, as we are growing and maturing also as a company, we see that it's going to be less about just the number of wins. Of course, these are targets we set for this quarter, but really responding to the growing demand across multiple segments and focusing on those main leaders with high volume and near-term potential as well to expand that. But I think we are overall progressing very well on track on the 4 targets we have. Matthew Paciulli: Great. I appreciate the clarity there. And maybe just as a follow-up, on CityOS, appreciate the commentary on just the market size behind that. Do you guys kind of foresee any potential bottlenecks associated with getting this product out globally? It seems like it could be very dependent on kind of time lines and funding of municipalities and such. If you could just provide some color as to how those deployments are going and how those time lines and sales cycles work? Soroush Dardashti: Yes, happy to. I think as a data point, as a time line, we started entering this market really towards the end of last year. And it's only been a few months since that time frame with the team that we have brought on and the ecosystem capabilities that we have, we've been able to introduce this new solution, which is importantly a total solution. It's a comprehensive solution, not just LiDAR, it's sensors, compute and perception software and analytics software, working together with our partners to deploy that. And obviously, ASPs there for the solution is much, much higher than automotive. So I think in the span of a few months, we've had multiple wins there. We talked about already our first win with Georgia and deployments. It's one of the first large-scale deployments in the state, over 30 intersections, which is significant. But also the team is continuing to grow this, I think, fairly quickly in the space. And part of it is because of the experience and the conversations that have been happening for some time. The other part is there is this growing interest and demand from both at the state level and at municipalities level to modernize traffic management and traffic flow. These are things that have been around for a number of years with very basic technologies like inductive loops in the ground to detect vehicles. So obviously, that's very ripe with better perception of sensing right now, and there's significant, I think, budgets and resources allocated for that. So from a timing standpoint, we're seeing that already. And right now, our focus you asked about internationally is in the U.S. Obviously, each country has different rules and regulations. So over time, I think we may expand into other areas. But U.S. alone has over 15 million intersections and 300,000 signalized traffic signals today. And you do the math, these are multibillion-dollar opportunities, and that's why it's one that we are going after. So we do expect that it's going to continue to contribute also to our growth in the near term as well. Operator: We'll move next to Richard Shannon with Craig-Hallum. Richard, you may need to check the mute function on your device. Richard Shannon: How's that? Is that working now? Andrew Fung: Yes. Soroush Dardashti: We can hear you. Richard Shannon: Okay. Sorry about that. I wasn't on mute, but just glad it's working now. Thanks guys for letting me ask a couple of questions here. My first one, Soroush, is regarding -- kind of similar questions here regarding both the top 10 OEM for which you have a win in the top 5, which I guess I'd characterize it as an advanced engagement here. But I'd love to get a sense from you what to expect from announcements and updates in the next couple of earnings calls here, either in terms of finalizing designs and hearing about forecast with the top 10 OEM or getting to and announcing a win with the top 10 OEM. Just want to get a sense of what we should hear in the future. Soroush Dardashti: Yes, yes, happy to talk about that, Richard. So obviously, on the top 10 OEM, this is a production program that we have already won, and we have already started the first phase of development there that's been going -- progressing very well. I think in terms of what's coming down, I think -- I guess, as I mentioned a bit earlier, the key focus right now is enabling the OEM and the AV partner to go and build the fleet with the full AV stack, including the FMCW technology and do the validation across different regions and make sure that all the KPIs are met and get that ready for launch. And we don't have -- it's a short kind of time frame between now and 2028. So it's in automotive world, that's pretty much lightening speed. So that's moving pretty quickly. I think in terms of what to expect, obviously, as we make those progress, I think, into those milestones for the fleets, and we can talk about that, we will. And I think at some point, that's expected in the next number of months that's coming online actually. So that's important. And then on the other opportunities, top 5 and others, we are engaged. Obviously, we delivered on top 5, the Atlas Ultra sensors as well. And we're working through the integration and the validation and testing. I think there, obviously, that's not one program yet, and we have to see how that progresses with the final decisions towards RFQ, but we're working towards the next-generation vehicle. But we're also, beyond these are engaged in multiple other Level 3 automated driving, but also ADAS, which is really Level 2, which typically LiDAR doesn't really penetrate, where we see some interesting opportunities where these will be very high-volume opportunities across passenger and commercial vehicles. So multiple OEMs, they are engaged. Some are in the RFI and some more on the RFQ, but we expect that in the next few months, some of those will make decisions as well. So -- and we are feeling good and well positioned. And I think our goal is that, obviously, as part of our goals for the 4 wins this year that we have automotive wins included in that. So that's what we also expect that at least additional win in automotive for hopefully, the rest of this year that's come online. And I think overall, all indications have been pretty positive for the developments we have had so far. Richard Shannon: Okay. To your last comments there, Soroush, you mentioned this briefly in the press release as well here about looking at L3 or even ADAS Level 2 here, which is interesting because you typically talked about and seem to be targeting more advanced levels of autonomy. And you typically, I think, have talked about a bit of a higher ASP than what other solutions might offer here. So being able to hit that pricing envelope is pretty interesting there. So I'd love to get a sense of whether you see the pricing looking attractive for you? And any way that you would characterize or quantify the number of programs you're looking at for the kind of these lower levels of autonomy? Soroush Dardashti: Yes, sure. I think you're definitely spot on there, Richard. I think in this space, Level 2 and ADAS typically and historically has been enabled more by vision and maybe radar solutions. I think one of the advantages as we have, obviously, is we kind of have a laser radar product, right? So it's -- we call it 4D LiDAR, so with additional velocity. I think we have multiple engagements there on the ADAS side. What I'm excited by is the fact that our solution beyond just price, which is I think is an important piece. And as we are getting into towards the automated production, we have always said that our economies of scale will enable us to go after higher volume markets and lower level ADAS is part of that. So I think from a price point structure standpoint, it's definitely made possible by our investments we have made on the core technology, our core vision as well as Atlas and Ultra lines. But I think we see that both on commercial vehicles and passenger. And I think at least between the programs that we have, I expect one of those to make the decisions this year coming up. So I think those are -- would be for, basically, think of it as more advanced automatic emergency braking, scenarios where cameras suffer like nighttime, pedestrians, automatic braking. And typically, those are higher volumes in the 100,000-plus type run rate that we talk about. Operator: And we've reached the end of our Q&A session for today's event. Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.