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Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Telephone and Data Systems, Inc. First Quarter 2026 Operating Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute when prompted. I will now hand the conference over to John Toomey, Treasurer and Vice President, Corporate Relations. Please go ahead. John Toomey: Good morning, and thank you for joining us. The presentation we prepared to accompany our comments this morning can be found on the Investor Relations sections of the Telephone and Data Systems, Inc. and Array websites. With me today in offering prepared comments are, on behalf of Telephone and Data Systems, Inc., Walter C.D. Carlson, President and CEO, and Vicki L. Villacrez, Executive Vice President and Chief Financial Officer. On behalf of TDS Telecom, Kenneth Dixon, President and CEO of TDS Telecom, and Christopher “Chris” Bautfeldt, Vice President, Financial Analysis and Strategic Planning. I will now turn the call over to Walter. Walter C.D. Carlson: Thank you, John, and good morning, everyone. Turning to slide three, this morning Telephone and Data Systems, Inc. announced a proposal to acquire the remaining shares of Array not currently owned by Telephone and Data Systems, Inc. in an all‑stock transaction. As Telephone and Data Systems, Inc. continues its transformation, this proposal is the next step in executing our strategy, simplifying our corporate structure, and enhancing our ability to invest in targeted areas of growth. Array has successfully completed its transition into a tower‑focused company with strong fundamentals, and we believe this transaction will position the combined company for long‑term growth. By bringing Array fully under Telephone and Data Systems, Inc.’s ownership, Array’s stockholders would retain a significant interest in the tower business while gaining exposure to Telephone and Data Systems, Inc.’s growing fiber business. Under the terms of the proposal, Telephone and Data Systems, Inc. would acquire all of the outstanding common shares of Array that Telephone and Data Systems, Inc. does not currently own by way of a merger in which each Array common share not owned by Telephone and Data Systems, Inc. would be exchanged for 0.86 of a Telephone and Data Systems, Inc. common share. This exchange ratio assumes that the previously announced spectrum license sales identified in our offer letter will have closed prior to the closing of the transaction contemplated by Telephone and Data Systems, Inc.’s proposal, and that the Array Board, consistent with its treatment of net proceeds from prior spectrum sales, will have declared and paid dividends of $10.40 per share to Array stockholders prior to the closing. At $10.40 per share, Array would distribute approximately $900 million in net proceeds. This exchange ratio reflects an at‑market offer based on yesterday’s closing prices for Telephone and Data Systems, Inc. and Array, subject to the assumptions just described. The transaction is expected to qualify as a tax‑free reorganization for U.S. federal income tax purposes. Telephone and Data Systems, Inc. expects the transaction to eliminate duplicative corporate costs, streamline corporate governance, increase share liquidity, and strengthen the capital structure of the enterprise, providing greater flexibility to pursue strategic investments across all our businesses, including towers and fiber. As noted in this morning’s press release, the proposal is subject to review and recommendation by a special committee of Array’s disinterested directors and the approval of the majority of the disinterested shareholders of Array based on votes cast. It would also require approval of Telephone and Data Systems, Inc.’s shareholders and the satisfaction of customary closing conditions. Telephone and Data Systems, Inc. does not intend to sell or otherwise transfer its interest in Array and will not entertain any third‑party offers for Array or its assets in lieu of this proposal. Telephone and Data Systems, Inc. continues to support Array’s previously disclosed intention to opportunistically monetize its remaining unsold wireless spectrum. Telephone and Data Systems, Inc. looks forward to working constructively with the Array Board’s special committee as they evaluate this proposal. Beyond what I just disclosed, and the information included in our press release and proposal letter to Array, we are not going to comment further on or take questions regarding the offer on today’s call. With that, let us turn to slide three. The enterprise is making good progress on its 2026 priorities. Our focus remains on advancing our strategy with financial and operational discipline. As I just mentioned, the proposal announced this morning will aid in strengthening Telephone and Data Systems, Inc.’s corporate and capital structure, and we look forward to working with Array’s special committee. Both business units continue to make progress toward their operational goals. TDS Telecom continued to add fiber addresses and customers in the quarter. Array is off to a strong start in 2026 and is making good progress growing tower tenancy. In the arena of spectrum, Array closed on a small transaction with T‑Mobile earlier this week and expects the remaining announced T‑Mobile and Verizon spectrum sales to close in the second or third quarter, subject to regulatory approval and other customary conditions. I am pleased with the progress each business unit is making and with the efforts we have underway to strengthen our culture as we go through this period of transformation. I would like to personally thank every associate across the enterprise for their continued commitment and contribution. I will now turn the call over to Vicki. Vicki L. Villacrez: Thank you, Walter, and good morning, everyone. Slide four updates you on our capital allocation priorities. TDS Telecom continues to make nice progress toward achieving its long‑term objective of reaching 2.1 million marketable fiber service addresses, delivering 40 thousand in the quarter. Ken and Chris will discuss more about the opportunities and momentum we are seeing in that space in a moment. We continue to evaluate M&A opportunities in a financially disciplined, accretive, business‑case‑driven fashion. In mid‑April, we announced an agreement to acquire Granite State Communications. As I have communicated in the past, we are primarily focused on small to medium‑sized opportunities that are already fibered up or have an accretive economic path to all fiber and support our clustering strategy. Granite is just like that: fully fibered with over 11 thousand service addresses that are adjacent to several of our existing markets in New Hampshire. We are excited to welcome these associates and customers into the Telephone and Data Systems, Inc. family and expect the transaction to close in the third quarter, subject to regulatory approval. Finally, in the area of shareholder return in the form of Telephone and Data Systems, Inc. share buybacks, we were not in the market during the quarter. At the end of the first quarter, we had a $520 million authorization for Telephone and Data Systems, Inc. share buybacks available, and we remain committed to executing on that program. Across all three priorities, the company intends to be disciplined, balancing the needs of the business and evaluating future returns along with market and other conditions as we move forward. Thank you. I will now turn the call over to Kenneth Dixon to discuss Telephone and Data Systems, Inc.’s fiber business. Kenneth Dixon: Thank you, Vicki, and good morning, everyone. At TDS Telecom, 2026 is focused on executing our fiber growth plan: building fiber addresses, driving fiber sales, and continuing to transform our operations. This quarter, we made progress across all three priorities as we scale our fiber network and advance our long‑term strategy. As shown on slide six, our fiber builds are off to a good start. We delivered 40 thousand marketable fiber service addresses in the first quarter. This is the highest first‑quarter total in our company’s history and nearly 3x our delivery in 2025. This performance reflects both effective execution and construction capacity, including our highest‑ever internal and external construction crew counts. While we are pleased with the record construction number, we still have more work to do. We continue to invest in our internal construction teams by adding headcount and upgrading tools and equipment to support increased build capacity, giving us a strategic advantage. We believe these investments provide greater control over our execution and improve long‑term efficiency. In addition, we have a robust pipeline of addresses currently under construction, positioning us very well for the spring and summer build season. This pipeline includes a mix of addresses from our fiber expansion into new areas as well as fiber upgrades in our existing markets through our Fiber Deeper program and the federal A‑CAM program. As a reminder, the A‑CAM program provides federal support that enables us to bring fiber to approximately 300 thousand service addresses, including those along the route where it would otherwise not be economical, helping to drive copper out of our network. Looking at sales, we ended the quarter with approximately 11 thousand fiber net adds, up 32% year over year. As we continue to scale our fiber footprint, we remain focused on converting new service addresses into customers and improving the overall customer experience. During the quarter, we strengthened leadership in key sales and customer‑experience roles to support these priorities. Our operational transformation is centered on efficiency, improving the customer experience, and simplification. We continue to make progress modernizing our systems and remain on track with our transformation roadmap. I am happy to announce that we have now completed the billing conversion in our cable markets and have also introduced a new Field Force platform to support our technicians. These updates simplify our back‑office processes and provide an improved customer experience. We are now able to launch multi‑gig speeds in our cable footprint. These areas are some of the best markets in the country, and we continue to see great opportunity here, so expect more to come. Finally, as Vicki noted, in mid‑April we signed an agreement to acquire a fiber‑based telecommunications business in New Hampshire. The transaction adds over 11 thousand fiber addresses that are contiguous with existing TDS markets and supports our clustering strategy. Approximately 30 associates will join the TDS team. We are excited about the opportunity to continue to deliver excellent service in this area, and we look forward to closing this transaction in the third quarter, subject to regulatory approval. Turning to slide seven, our long‑term goals reflect our continued focus on executing our growth strategy that delivers scale, speed, and long‑term value. With the delivery of 40 thousand fiber addresses in the quarter, we now serve approximately 1.1 million fiber addresses representing 58% of our total footprint, with 79% of addresses capable of gig speeds. While there is more work ahead, the progress we are making reinforces our confidence in the path forward as we continue transforming into a fiber‑centric company. I will now turn it over to Chris to walk through our first‑quarter results. Christopher “Chris” Bautfeldt: Turning to slide eight, the chart on the left shows our quarterly fiber service address delivery over the past five quarters. As Ken highlighted, our first‑quarter fiber address delivery nearly tripled year over year. This significant increase reflects the additional construction capacity we introduced last year and are continuing to scale this year. Our execution in the first quarter demonstrates the effectiveness of the strategy and the momentum we are building as we advance toward our long‑term goals. The chart on the right illustrates the continued expansion of our fiber footprint. Over the past three years, we have nearly doubled the number of fiber service addresses across our markets, demonstrating steady and meaningful progress. On slide nine, residential fiber net adds were approximately 11 thousand in the first quarter, a 32% increase compared to prior year, driven by continued footprint expansion and ongoing copper‑to‑fiber conversions. Residential fiber connections have also nearly doubled over the past three years, and we expect continued growth as we expand our fiber footprint. Turning to slide 10, the chart on the left depicts our residential revenue per connection, which increased 1% year over year. This growth reflects annual price increases offset by ongoing industry‑wide declines in video attachment rates. The chart on the right is new this quarter and breaks down total residential revenue between copper, cable, and fiber. You will see our fiber revenue is up 13% versus prior year, an uplift of approximately $11 million, which helps offset the legacy revenue stream pressures we are experiencing. In cable, revenues are down roughly 10% versus 2025. As Ken highlighted, we are increasing investment in our cable markets to stem these declines. Overall, total residential revenue declined $5 million compared to prior year; approximately $3 million of this decline is attributable to divestitures of markets that were predominantly copper‑based. We remain hyper‑focused on driving fiber revenue at a pace that is expected to more than offset legacy declines. Slide 11 summarizes our financial performance. Total operating revenues declined 3% in the quarter, or 1% excluding the impact of divestitures. This reflects continued legacy revenue‑stream pressures, partially offset by growth in fiber connections and modest improvement in revenue per connection. Cash expenses decreased 3%, driven primarily by benefits from our transformation initiatives, including lower costs for billing, circuits, and facilities. Adjusted EBITDA declined 3% in the quarter, driven largely by the revenue losses from divestitures. Capital expenditures totaled $126 million in the quarter, reflecting higher construction activity, a robust funnel of addresses under construction, and accelerated investments in our internal construction crews and equipment. Slide 12 reflects our guidance for 2026, which remains unchanged. We are projecting total Telecom revenues of $1.015 billion to $1.055 billion. Current headwinds in our copper and cable markets are guiding us toward the lower half of this range. Adjusted EBITDA guidance remains between $310 million and $350 million as we continue our transformation efforts. Capital expenditures for the year are projected to be between $550 million and $600 million to support our goal of delivering between 200 thousand and 250 thousand new fiber service addresses. Before turning over the call, I want to thank the entire TDS team for their continued execution and focus. Their efforts across fiber delivery, customer growth, and operational transformation are critical to the progress we are making toward achieving our long‑term objectives. I will now turn the call over to Anthony. Anthony Carlson: Thanks, Chris, and good morning. 2026 has got off to a busy but great start. The organization is laser‑focused on fully optimizing our tower operations and monetizing our spectrum. In the first quarter, we saw cash site‑rental revenue increase 64% over Q1 of last year, we also demonstrated sequential tower‑tenancy growth when adjusted for DISH, and we continue to move our announced spectrum transactions forward. Before I get to the details of the quarter, I want to acknowledge the Array Board’s receipt of Telephone and Data Systems, Inc.’s proposal to acquire the remaining public shares of Array. Our Board has formed a special committee of independent directors who have retained independent advisers to carefully evaluate the proposal and make a recommendation as to what is in the best interest of Array’s shareholders. Array will be providing updates as appropriate, but we will not be commenting further or taking questions regarding this proposal today. Moving along to slide sixteen, I want to provide an update regarding DISH. As previously disclosed, we received a letter from DISH Wireless in September 2025 in which DISH asserted that unforeseeable FCC actions impacted its master lease agreement with Array and, as a result, DISH believes it is relieved of its obligations under the MLA. Since early December, DISH has generally failed to make the required payments and is therefore in breach of its obligations. Array continues to take actions it deems necessary to protect its rights under the MLA. Given the ongoing nonpayment, in the first quarter, Array ceased recognizing DISH revenue, and all unpaid 2025 amounts have now been fully reserved. Accordingly, our tenancy ratio no longer includes DISH colocations. When normalizing for this impact, we continue to see sequential growth in our tenancy ratio as depicted on the right, from 0.95 in Q4 2025 up to 0.96 in Q1 2026. Importantly, in Q1 we grew revenue and healthy colocation application volumes while supporting T‑Mobile in its integration. As noted on slide 17, cash site‑rental revenue in Q1 increased 55% year over year from all customers, and when normalized for DISH impact, this increase was 64%. When layering in the T‑Mobile interim site revenue, the increase was 86% year over year, or 98% when normalized for DISH. Our application volume remains robust, and coupled with our existing pipeline, will drive additional revenue growth in 2026 and beyond. Turning to slide 18, T‑Mobile has until January 2028 to finalize its 2,015 committed sites under the new MLA. We continue to anticipate 800 to 1,800 tenantless towers after the integration is completed and all interim sites are terminated. Our ground‑lease optimization work remained a priority in Q1, and we are making progress in reducing the cash burden of these negative cash‑flow assets. As noted previously, this will be a multiyear effort focused on cost avoidance, additional lease‑up, evaluating long‑term command, and decommissioning in situations where it makes sense, a process we have already begun on a subset of sites with no path to economic viability. This approach allows us to thoughtfully assess all potential outcomes for the tenantless tower portfolio. As shown on slide 19 and presented in prior quarters, we have reached agreements to monetize roughly 70% of our spectrum holdings. As a reminder, the sale of spectrum to AT&T closed on January 13, 2026, with the Array Board declaring a $10.25 per share dividend that was paid on February 2. In Q1, the FCC approved the sale of certain 100 MHz licenses to T‑Mobile, and that transaction closed earlier this week. Additionally, the FCC approved the sale of the 600 MHz and AWS licenses to T‑Mobile and, pending closing conditions, we expect that sale to close in Q2. Verizon will close in Q2 or Q3 of this year, subject to regulatory approval and normal closing conditions. The remaining transactions with T‑Mobile are expected to close by the end of 2026, once again dependent on regulatory approval and closing conditions. We continue to pursue opportunistic monetization of our remaining spectrum, primarily C‑band. We view our C‑band spectrum as a highly compelling 5G asset with a mature ecosystem ready for carrier deployment, and with no near‑term buildout requirements, we have ample time to realize its value. Slide 20 summarizes the results of our partnership, or non‑controlling investment interests. As discussed last quarter, investment income and distributions for full‑year 2025 were impacted by several one‑time factors, including the impact of the Iowa partnership selling their wireless operations to T‑Mobile and distributions received from Verizon related to their transaction with Vertical Bridge. For Q1, equity income was elevated due to prior‑period adjustments recorded by the managers of certain investee entities. Regarding cash distributions, certain entities distribute cash only twice per year, resulting in an uneven distribution pattern throughout the year. Slide 22 summarizes Array’s financial results. Year over year, we continue to see the impact of the T‑Mobile MLA driving revenue growth. As noted last quarter, there was a prospective change in classification of property taxes and insurance from SG&A to cost of operations. As such, that is driving roughly half of the year‑over‑year increase in cost of operations. SG&A expenses continue to include costs to support the wind‑down of legacy wireless operations, but sequential quarter‑over‑quarter results are declining as planned. We expect these wind‑down expenses to persist throughout 2026, but with additional reductions over future periods. On slide 23, our guidance across all metrics—total operating revenue, adjusted EBITDA and OIBDA, and capital expenditures—is unchanged. As a reminder, our guidance ranges are wider than industry norm due to uncertainty with the T‑Mobile MLA and the timing of interim site terminations. In closing, I want to again thank Array’s associates for their continued passion and dedication to driving operational efficiencies and growth. We continue to move through our first year as a stand‑alone tower company. I will now turn the call back to Walter. Walter C.D. Carlson: Thank you, Anthony. As I noted in my opening remarks, Telephone and Data Systems, Inc. continues to make solid progress advancing our strategic priorities. Our first‑quarter execution, combined with the momentum we are seeing across the business, positions us well as we move forward into the year. I would like to again thank all of the outstanding associates across the Telephone and Data Systems, Inc. enterprise for their continued dedication and hard work in serving our customers and supporting the advancement of our business. Operator, please now open the line for questions. Operator: Thank you. We will now open the call for questions. If you would like to ask a question, please raise your hand. If you have dialed in to today’s call, please press 9 to raise your hand and 6 to unmute when prompted. Your first question comes from Richard Hamilton Prentiss with Raymond James & Associates. Richard, your line is now open. Richard Hamilton Prentiss: Good morning, everybody. You continue to be very busy. A couple of questions. On the fiber side, the TDS Telecom side, have you looked at whether there is an ability to put fiber into a REIT structure, or any desire at some point to put fiber into a REIT‑like structure to be more tax efficient? Vicki L. Villacrez: Yes, Richard, this is Vicki. I will take that one. We have looked at a number of structural options, but given where we are at today, they are just not optimal. I am not going to speculate going forward on what we may or may not do in the future, but as I think about our fiber program, we are in a really good position. We have a strong balance sheet, and we are focused on funding fiber with our cash. Richard Hamilton Prentiss: Okay. Second question, can you update us as far as the number of shares or percent ownership Telephone and Data Systems, Inc. has of Array Digital, just so we can understand exactly how many of the disinterested might be out there? Walter C.D. Carlson: Let me take that. I think the press releases that have been issued speak to that, Richard. I think 81.9% is the right rough number, and we can get back to you with precise numbers offline. Richard Hamilton Prentiss: That is great. We had some people asking; there were some Bloomberg numbers out there saying 70%. We knew it was 80‑something, so appreciate that. The last question for me, a little more strategic. I know you have been looking at maybe providing more reporting metrics on the fiber business. Any update to what you think you could provide to help people understand what is happening with the fiber business—any cohort analysis or trend lines to help us look at the value of that business as it is going through a capital spending cycle and some EBITDA pressure? Is there a burn rate, and what can you give us to help understand the traction and future look? Vicki L. Villacrez: Lots of questions there, Richard. We will piece those apart. On disclosures, this quarter we added disclosures for our residential revenues and broke them out by technology, so you will see reporting by fiber, cable, and copper. We think this is something that will be helpful to investors going forward. Furthermore, we have included metrics in our trending schedules on our Investor Relations website, so I will point you there. Ken, do you want to jump in on the rest of Richard’s questions? Kenneth Dixon: The metrics that are most important as we move to a fiber‑centric business are, first, how well we are delivering marketable addresses from a build‑plan perspective, and second, our fiber net sales as we sell into that new open‑for‑sale footprint while also increasing our overall penetration in those new cohorts. So build velocity and overall fiber net performance are the two big things. Richard Hamilton Prentiss: I am going to assume as you get fiber out there, the maintenance capital and ongoing capital once you are done with the build drops to pretty low levels. Kenneth Dixon: We definitely see the cash‑cost‑per‑customer improvements on everything—from trouble tickets, copper versus fiber, to a lower call‑in rate—so we love the fiber business. The faster we migrate away from copper and bring it to fiber, we will continue to see improvements in the bottom line. Richard Hamilton Prentiss: Great. That is helpful. Everyone have a great Mother’s Day weekend. Thanks. Operator: Thank you. Your next question comes from the line of Sebastiano Carmine Petti from J.P. Morgan. Your line is now open. Sebastiano Carmine Petti: Thank you for taking the question. Sticking with TDS Telecom and Ken for a second: you hired some sales folks and customer‑experience folks to support your priorities. Where are you from a process‑improvement standpoint—instilling some of your decades of experience running fiber businesses into TDS Telecom? What inning are we in? What near‑term low‑hanging fruit remains to improve process performance and construction build? And on investing in the cable footprint—something we have not heard discussed in a bit—is that strategic and core? How do you think about the blocking‑and‑tackling improvements needed for the cable KPIs to begin stabilizing, given the competitive backdrop and repricing pressures? Kenneth Dixon: Thank you for the question. I would say we are in the very early innings, and we are starting to make very nice progress. I am starting to see wind in our sails. On address delivery, I am very happy with the team’s 40 thousand service‑address delivery—almost three times more than last year. It was important to prove we could keep our crews working all winter, and we accomplished that. We have started the spring and summer months with record crew counts for the two most important quarters of the year. Through April we are at record numbers, a combination of internal and external crews, and we continue to see sequential month‑over‑month crew‑count improvements as we head into May. Going into the second quarter, I am bullish on what we can accomplish because we have the largest funnel of addresses under some form of construction in our company’s history. On sales and customer experience, we see the opportunity to penetrate new addresses as fast as we deliver them. We are very happy with our presales velocity; we typically go in 60 days before an address becomes marketable, and we are seeing excellent results in the low‑20% range. We have put a tremendous amount of sales capabilities into our door‑to‑door channel—adding several vendors in Q4 last year and more in April and May—and we have several others in our funnel. We believe we have to be in the markets and use door‑to‑door to drive our sales agenda. We have also expanded significantly our .com business, which is open 24/7/365; sales have improved significantly, and we will continue to put more resources there. We are now developing our MDU sales capabilities, which is a tremendous opportunity—again, early innings but starting to see nice progress. The 11 thousand fiber net adds—up 32% year over year—is a very good start, and we have momentum. On the cable business, I love our cable markets. We are in some of the best markets in the country. Last year, we decided to convert those markets first onto our new billing system and get them on a single stack across the company. We also made a significant investment in a new field service tool for our technicians to improve overall service delivery, and we are now positioned to move to multi‑gig in 2026. We are just getting started in terms of what we can do in those markets. A lot is going on, but I like what I am seeing, and we have more work to do. We are definitely moving in the right direction. Sebastiano Carmine Petti: For Vicki, on Granite—should we anticipate bolt‑ons like this going forward: smaller systems that are adjacent versus big chunky deals? And does combining entities make it easier to REIT the tower business over time versus the current structure? Vicki L. Villacrez: Sebastiano, thank you. On the second question, we are not going to comment on any impact or implications of the offer on the table, and we cannot speculate on what the future will look like at this point. On Granite, this acquisition is consistent with our capital allocation priorities—building fiber and M&A acquisitions in the fiber space. It is a tuck‑in, it is accretive, and it is adjacent to our current markets in New Hampshire. It is 100% fibered up. We are excited to bring Granite State Communications on board and welcome all of the associates. It brings 11 thousand fiber service addresses to our portfolio. Operator: Thank you. As a reminder, if you would like to ask a question, please raise your hand. If you have dialed in to the call, please press 9 to raise your hand and 6 to unmute. Your next question is a follow‑up from Sebastiano Carmine Petti from J.P. Morgan. Your line is open again. Sebastiano Carmine Petti: For Chris, on the cost‑transformation efforts, is the $100 million run‑rate savings by 2028 still the right figure? Are we at a point where the cost savings are falling to the bottom line in 2026, or is there reinvestment going back into the business? Christopher “Chris” Bautfeldt: Hi, Sebastiano. Yes, we remain on track to hit $100 million of run‑rate savings by year‑end 2028. As you heard in my remarks, we are starting to see some of those benefits this year. The bigger benefits you will see in 2027 and 2028, but we absolutely are starting to see some of those benefits drop to the bottom line. As I have said before, we do not expect that entire $100 million to fall to the bottom line because some of that is helping offset inflationary cost increases. As we continue to expand our fiber footprint and customer base, we do plan to reinvest some of those savings. We are seeing nice benefits and remain optimistic about the full potential of this program. Sebastiano Carmine Petti: Thank you. And for Anthony, on the upcoming AWS‑3 reauction and upper C‑band next year—any change in conversations regarding monetization of the remaining C‑band and CBRS? Anthony Carlson: Thanks for the question. We continue to believe that the C‑band spectrum we hold is excellent and valuable spectrum, with an ecosystem to support it today. We are not going to be a forced seller in these circumstances. We believe the carrying costs are modest. While we are open to a deal at a fair value, we do not feel it is burning a hole in our pocket. We do not have further updates on a sale of our C‑band spectrum at this time, but we remain very optimistic about realizing fair value at the appropriate time. Operator: Your next question is from Richard Hamilton Prentiss with Raymond James & Associates. Richard, your line is open. Richard Hamilton Prentiss: On the service addresses, Ken, is the build plan still targeting 200 thousand to 250 thousand service addresses this year, and what would cause you to miss it versus hit it or beat it? Kenneth Dixon: Yes, that is still the target. I have a very good degree of confidence based on the crew counts we have starting the second quarter and the funnel and pipeline of addresses at a new record in terms of construction. I am very confident we are going to deliver within that target. Richard Hamilton Prentiss: And, Anthony, one of the themes at Connect(X) was high‑rent relocation efforts. Do you have an appetite to do some new builds there, and what capital commitment might you put to work? Anthony Carlson: To be very clear, as we have stated multiple times, we are laser‑focused on optimizing the value of the assets we have in hand and see significant upside from our current portfolio. That is not to say we are not open to opportunities, but the going rates we have seen for high‑rent relocations and participating in new builds have not been consistent with what we think we can achieve by optimizing our portfolio. On our own churn, a small nugget: we had only one total tenant churn in the entire first quarter, which speaks to the strength of our portfolio and its relative susceptibility to high‑rent relocation. Richard Hamilton Prentiss: One for Walter—an obligatory satellite question. How are you thinking about the somewhat existential threat of satellite coming into terrestrial, given your assets in broadband fiber and towers? Walter C.D. Carlson: That is an excellent question. Satellite is a technology that has gotten substantial additional focus over the last 18 months and substantial additional investment over the last 12 months. I think satellites will have substantial influence going forward on the communications industry. That being said, we feel very strongly about the continued benefit of a terrestrial tower portfolio, and we feel very strongly about the superior capabilities of fiber networks delivering specific communication into individuals’ homes and businesses without interruption and without fear of being impacted by weather. We are paying attention, and we feel very good about the thrust of both of our businesses. We are watching. Operator: Next question comes from the line of Sergei Dluzhevskiy with GAMCO Investors, Inc. Your line is now open. Sergei Dluzhevskiy: Good morning. First question on the TDS Telecom side. Last quarter, you expanded the fiber build target by 300 thousand edge‑out passings in, I believe, 50 adjacent markets to your current expansion footprint. How do the demographics and churn profiles of these markets compare to your older cohorts? Among this new cohort, what types of markets are you prioritizing for a build sooner rather than later? Kenneth Dixon: We are looking at markets where we have already planted a flag—where we have established our brand and deployed fiber—so we already have technicians and sales capacity. We have looked closely at demographics, competitive intensity, build costs, and expected returns, and then prioritized accordingly. That is our edge‑out opportunity. These markets check the boxes I mentioned, and because we were first to the original market with fiber, the extensions are a natural fit. We believe we prioritized the right markets first with the highest opportunities and returns. Sergei Dluzhevskiy: On cable, what do you like most about your cable footprint? Can you comment on the competitive environment and the investments you are planning—where the dollars will go and how quickly you expect those investments to pay off? Kenneth Dixon: From an investment perspective, our focus now is going to a multi‑gig environment in our cable business, which is the opportunity for 2026. We are operating in highly attractive markets—some with among the highest housing growth in the United States—so we see a definite opportunity going forward. Sergei Dluzhevskiy: On the Array side, the wireless partnerships produce nice cash flow every year. Any updated thoughts on monetizing those stakes? For example, recent transactions valued stakes at about 11.5x cash distributions. At that multiple, your stakes could be worth a significant amount. What could move you closer to taking that step? Anthony Carlson: As we have said before, we like the cash flows from these assets. There are challenges for us with transactions similar to the ones you mentioned. We have them at a very low tax basis. If you looked at the performance of those investments over the very long term and did a DCF, it would be challenging to get a multiple commensurate with the full value. We are open to offers that would deliver full value, but they would have to deliver full value net of taxes. We like those cash flows, so we are not in a hurry to sell. Sergei Dluzhevskiy: Lastly on Array, EBITDA is expected to be somewhat depressed in the medium term, pressured by transition and wind‑down costs. Can you talk about your targets, qualitatively and quantitatively, to take cost out and improve margins in 2026 and 2027? Longer term, post T‑Mobile transition, what kind of margins are realistic? Anthony Carlson: We think there is significant opportunity to improve Array’s margins. We focus on tower cash‑flow margins. First, land is our largest cost, and we have a much lower rate of land ownership than many large public players. There is significant value to be realized by, where appropriate, purchasing more of the land interests under our towers. Second, as a new tower company, we believe we have opportunities to improve as we transition from a maintenance posture aligned with operating a full‑fledged wireless company to one aligned with a tower company. Those are the two big cost‑side opportunities to improve tower cash‑flow margins, in addition to expanding margins by increasing colocations, which we work hard to do every day. Operator: There are no further questions at this time. I will now turn the call back to John Toomey for closing remarks. John Toomey: Thank you again for joining us today. As always, please reach out to us if you have any questions. I hope everyone has a wonderful weekend. Thank you. Operator: This concludes today’s call. Thank you all for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter 2026 Results Conference Call and Webcast. 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, please press star 11 on your telephone. You will then hear an automated message indicating 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 turn the conference over to Martha Wilmot, Director of Investor Relations. Please go ahead. Martha Wilmot: Thank you, Michelle, and welcome, everyone, to South Bow Corporation’s First Quarter 2026 Earnings Call. With me today are Bevin Mark Wirzba, President and Chief Executive Officer; Van Dafoe, Senior Vice President and Chief Financial Officer; and Richard J. Prior, Senior Vice President and Chief Operating Officer. Both our SEDAR+ profile and our SEC filings contain more detailed information. Today's discussion will also include non-GAAP financial measures and ratios that may not be comparable to those presented by other entities. With that, I will turn it over to Bevin. Bevin Mark Wirzba: Thank you, Martha, and good morning, everyone. We appreciate you joining us. South Bow Corporation delivered solid first quarter results underpinned by strong operational performance and stable cash flows, despite heightened geopolitical and market uncertainty. During the quarter, we advanced the strategic priorities we laid out for the year. These included placing the BlackRock Connection project into commercial service, continuing remedial pipeline integrity work on our Keystone pipeline, and conducting the open season for Prairie Connector, which I will address in a moment. Throughout this work, we remained focused on safe and reliable operations and disciplined capital allocation. Before I turn it over to Richard and Van, I want to address Prairie Connector directly and set expectations for today's call. We closed bids for the open season at the end of March as planned, and we are currently in a 60-day evaluation period. As you can appreciate, these are significant decisions for South Bow Corporation and our customers, being made against a complex macro, regulatory, and policy backdrop. We intend to use the full 60-day evaluation period to reach a commercial determination. So, while I expect our analysts will have many ways to ask about it on today's call, we do not have anything further to add beyond what we have already disclosed. At the conclusion of the 60 days, we will communicate the outcome of the open season and outline potential next steps if the project continues to be advanced. As a reminder, the concept behind Prairie Connector is to move Canadian crude oil from Hardisty, Alberta, to the Canadian-U.S. border, where it could connect with downstream pipeline systems serving multiple U.S. markets, including Cushing, Oklahoma, and destinations on the U.S. Gulf Coast. Last week, a presidential permit was issued to Bridger Pipeline for cross-border facilities that would transport the Canadian crude oil we are proposing to move into the United States. This represents a meaningful development in the permitting process for cross-border energy infrastructure, and one that has understandably attracted its fair share of attention. That said, we are continuing to work diligently to ensure any project we advance is within our risk preferences, and that risks are allocated appropriately among the parties best positioned to manage and mitigate them. Our team brings deep pipeline development experience across multiple jurisdictions and projects, some more famous than others, and we are applying all those learnings to find an allocation of risk that makes sense for all stakeholders. Recent global events have reinforced that secure, reliable energy and the infrastructure that delivers it truly matter. At South Bow Corporation, we are encouraged to be part of the conversation and to support our customers in increasing competitive, responsible Canadian energy in a world that continues to need more of it. With that, I will turn it over to Richard. Richard J. Prior: Thanks, Bevin, and good morning. I will start with safety and pipeline integrity, which remain top priorities. During the quarter, we continued to progress our remedial work related to the mild post-01/1971 incident, including a combination of in-line inspections and integrity digs across the Keystone system. In parallel, we are working closely with our in-line inspection technology providers to enhance tool performance and detection capabilities, including advancing the development of a new phased-array ultrasonic tool, which we have now completed three successful runs with. We are encouraged that this tool enhances our overall detection capabilities and will be an important component of our ongoing integrity program. Overall, we are pleased with the progress we have made under the remedial work plan. Based on the work completed to date, we expect pressure restrictions to be lifted in a phased manner, with the process beginning later this year. Turning to operations, our first quarter throughput was driven by strong operational performance and ongoing optimization of our systems. The Keystone pipeline operated with a 95% system operating factor, enabling us to transport more than 600 thousand barrels per day during the quarter, providing customers with an opportunity to move makeup barrels as well as limited spot movements. As the quarter progressed, we started to see strong demand for capacity on our assets, most notably on the U.S. Gulf Coast segment, with recent geopolitical events driving an increase in demand for export barrels. With the modest widening of Cushing-to-U.S. Gulf Coast differentials, we have been seeing higher throughput on our MarketLink asset in the second quarter. I will finish with a brief comment on growth. With broad macro changes supporting an increasing production outlook in the Western Canadian Sedimentary Basin, we continue to evaluate smaller-scale, customer-led opportunities within our existing footprint. These include either expanding interconnectivity that would direct more barrels onto our systems or deliver barrels off our systems into new destinations. As Bevin noted, we will advance these opportunities with the same level of discipline that we are applying to Prairie Connector and to our inorganic growth strategy. With that, I will turn it over to Van to walk through our financial performance and outlook. Van Dafoe: Thanks, Richard, and good morning. South Bow Corporation delivered normalized EBITDA of $257 million in the first quarter of 2026, which was in line with market expectations and modestly higher than 2025. While normalized EBITDA in our Keystone segment declined due to lower maintenance activity in the period, this was more than offset by higher contributions from our Marketing segment. Our expectations for 2026 remain unchanged, and we are reaffirming our normalized EBITDA outlook of $1.03 billion within a range of 2%. Based on our current outlook, any potential upside from the Marketing segment reflecting current market dynamics is expected to fall within our guidance range. Distributable cash flow of $168 million increased quarter over quarter, driven primarily by lower current taxes in the period. We continue to maintain our full-year distributable cash flow outlook of $655 million that we will use to fund our dividend, strengthen our balance sheet, and, where appropriate, allocate capital towards growth. Turning to leverage, we exited the quarter with a net debt to normalized EBITDA ratio of 4.7 times. That is unchanged from December 31 and in line with our expectations. As BlackRock cash flows begin to ramp in the second half of the year, our leverage profile will improve modestly through the balance of 2026. Lastly, the board of directors approved our quarterly dividend of $0.50 per share yesterday. As we have said consistently, the dividend remains a foundational component of South Bow Corporation’s total return proposition. Switching briefly to growth and building on Bevin and Richard’s comments, we have received a number of questions on how we think about funding growth at South Bow Corporation. At a high level, our approach is straightforward. Any growth we pursue will be evaluated through a disciplined capital allocation lens. At our Investor Day in November, I outlined a range of potential financing alternatives for large-scale growth opportunities, including cash on hand, issuance of capital, and new equity, depending on the opportunity and the associated risk profile. Importantly, I also walked through the financing criteria that guide our decision-making. These include adhering to our capital allocation priorities, protecting our dividend sustainability, preserving our investment-grade credit profile, maintaining leverage neutrality, and delivering per-share accretion. Bevin Mark Wirzba: Thanks, Van, and thanks, Richard. To close, I want to come back to something I have said before, because it really does define South Bow Corporation. We operate critical and enduring energy infrastructure in a corridor that connects one of the strongest and most secure supply basins in the world to some of the most attractive refining and demand markets. That positioning matters, and it matters to our customers. Canadian producers have clear ambitions to materially grow their asset bases. With our customer-led strategy, our focus is on putting forward the most competitive solutions to support that growth while staying firmly aligned with our capital allocation principles and risk preferences. As we have said consistently, growth at South Bow Corporation will be balanced with financial discipline. We are committed to maintaining a strong balance sheet and delivering a meaningful and sustainable dividend while investing in growth. That balance is central to how we run this company, and it is fundamental to our strategy. We will now open the call for questions. Operator: Thank you. To withdraw your question, please press star 11 again. Our first question is from Sam Burwell with Jefferies. Your line is open. Sam Burwell: Hey, good morning. I appreciate the disclaimer around Prairie questions, but I will give it a shot. I want to better understand what the key hurdles are remaining to making a call on whether to advance Prairie. What is nonnegotiable prior to making a call before the end of the evaluation period relative to what could get sorted out prior to an FID down the line? Bevin Mark Wirzba: Thank you, Sam. There is a lot to consider in evaluating the proposals received. When we review what our customers have submitted, we have to confirm a number of things among our partners to ensure that we are all aligned on whether we execute on those agreements and move forward to the next step. That next step is really to prepare for a potential investment decision on the project. The typical elements you would evaluate for FID include ensuring that your contracting strategy, your supply chain procurement, your cost estimates, and the execution plan are all in line. We are also kicking off significant permitting efforts across the system in the United States as well as doing the preliminary work in Canada. One thing I want to remind everyone of from my remarks is that there are other elements that remain in the project outside of just commercial risk. We need to ensure that we manage and mitigate any last-mile risk that could occur on the project in the future. We are seeing great alignment in both Canada and the United States, but we cannot expose our shareholders to risks that they cannot bear, nor can we. Those would be the key gating items, Sam. Sam Burwell: Okay, perfect. As a follow-up, what is the current max capacity on the Gulf Coast portion of Keystone, and how easily and cost-effectively could that potentially be expanded? Richard J. Prior: Sure. We are able to move in excess of 800 thousand barrels per day on the Gulf Coast leg. It was originally designed as part of what was going to be the Keystone XL system, and so it could move 830 thousand plus. I would say at this point, it is pretty much at max design. There may be modest amounts of optimization or using things like reducing agent that could top that up a little bit, but it is at the upper end of what it can move. We are seeing very strong throughput on it here in the second quarter, and I think when we release our second quarter results, you will see what kind of top-end capacity we are able to move on the Gulf Coast section. Sam Burwell: Alright. Awesome. Thank you. Operator: Thanks. The next question will come from Maurice Choy with RBC Capital Markets. Your line is open. Maurice Choy: Thank you, and good morning, everyone. Sticking with the theme about the U.S. Gulf Coast segment of Keystone, you mentioned the second quarter being a little bit higher than the first quarter because of higher demand. How do you think about the durability of this higher demand for the remainder of the year? And more importantly, are you seeing any different submarkets within this region that are asking South Bow Corporation to consider expanding into? Bevin Mark Wirzba: Maurice, I will start, and maybe I will ask if you could repeat the last part of your question. I think neither Richard nor I really caught that. We are seeing volumes, as Richard has pointed out, flowing very high on our Gulf Coast segment right now. Just to remind everyone, Cushing volumes are what drive that arb and those flows, and Cushing volumes are reducing. Our outlook is that much of the volume growth we have seen has been macro driven of late, and we do not anticipate seeing that level of strength through the back half of the year. Could you repeat the last part of your question, please? Maurice Choy: Just thinking about as this part of the pipeline extends south, are there any customers or submarkets within the U.S. Gulf Coast asking South Bow Corporation to expand more connectivity, like additional fingers and toes? Richard J. Prior: Great question. We are in constant dialogue with our customers about increasing the amount of connectivity, both on the receipt end of our pipeline and certainly on the delivery end in the Gulf Coast. We are trying to make sure that our customers that move barrels on the pipeline can as efficiently as possible reach end-market destinations, whether that be refineries or additional marine terminals. We are in a number of discussions about adding additional connectivity at the southern end of our pipeline so we can continue to serve as many markets and end users as possible. Maurice Choy: Thank you. And just to finish off, Van, you mentioned that any potential upside from Marketing is expected to fall within your guidance range. How would you characterize the market conditions and the landscape that underpin this view? Is that a CSFOO-type of environment, or more of an extended year-end type of environment? Van Dafoe: Thanks, Maurice. For Marketing, if you remember, when we spun out we reduced the sandbox that Marketing plays in. This quarter, the $9 million in EBITDA took advantage of some market volatility, and the team was able to capture some value there. I would not expect that to progress throughout the rest of the year. We would rather have our customers take those volumes, and so our Marketing group is the shipper of last resort when no one else will take it. Operator: Thank you. The next question will come from an analyst with Goldman Sachs. Your line is open. Analyst: Hey, team. Good morning. Thank you for the time. I will try one on Prairie Connector—feel free to punt if needed given the disclaimer. I would be curious to hear your thoughts on what the overall structure could look like. Are you planning—or is this part of the process—to think through forming a total JV where you would own not just the portion of the line down to the border, but interests south of the border as well? There are moving pieces, but could you walk us through what the structure could look like over time? Bevin Mark Wirzba: We are still baking the cake on a few elements of that. As I mentioned in my remarks, we are not going to add much further today. We have our system that we were just talking about at length in terms of the Gulf Coast segment that we operate and own. We also have the permitted right-of-way and existing pipe that has been constructed in Alberta, and we are working with partners to determine the balance of the scope in the right way. We are looking to execute this with as little risk as possible, and that is key to structuring our arrangements with our partners. Analyst: That is fair. Second one for me: you got BlackRock online—good example of what you can do on that portion of the system. Understand it is still early days after the oil price spike, but what have conversations been around next potential projects up there? Has the pace of conversations picked up with where oil has gone? Bevin Mark Wirzba: That is a great question. While there has been a lot of focus on Prairie Connector, we have been focused on the balance of the increased egress potential out of the basin, which is great for our customers. Peers are moving west and east to satisfy or fill those expansions, including our own. There will be a need to expand intra-Alberta systems. Our team has been looking at our pre-invested corridor in the Grand Rapids, as you pointed out, where BlackRock is. That corridor is permitted, and we would look to see if there is opportunity to attract barrels into that system. I recently visited the site at the Heartland facility where it was prebuilt for receiving those barrels and then delivering them. We have a connection directly to TMX off that Grand Rapids route. We are looking at solutions intra-Alberta. It was great to see our customer IPC be so successful with their first phase and encouraged by their comments on their quarter that they are evaluating phase two as well. These are all constructive elements to leveraging our pre-invested corridors intra-Alberta. Operator: Thank you. The next question will come from Jeremy Tonet with J.P. Morgan. Your line is open. Jeremy Tonet: Hey, good morning. This is Eli on for Jeremy. I wanted to touch on the pressure restriction lifting process on Keystone. Can you remind us of the key milestones there, where you are at, and how we should expect that to progress through the rest of the year? Richard J. Prior: Thanks. We are making very good progress and are very pleased with the work to date on our remedial action program. Our view at this time is that later this year we are going to be able to start removing pressure restrictions in a phased manner, likely on a segment-by-segment basis. The process to remove all of the pressure restrictions on the pipeline will probably go into 2027 until we can lift them in their entirety. The process is segment by segment: running in-line inspection tools, analyzing the data, completing associated digs, verifying the integrity in each segment, completing the engineering analysis, and in certain cases working with the regulator to lift those pressure restrictions. Jeremy Tonet: Got it. That is helpful. For the outlook for interruptible volumes on Keystone, whether that is later this year or next year, can you remind us of the key differentials that make that economic for shippers, and how you see volumes above contracted resuming throughout this decade? Richard J. Prior: We were able to move in excess of our contracted volumes in the last quarter. We had very high operational performance and a more measured amount of maintenance work in the first quarter, so we were up at about 615 thousand barrels per day, which is beyond contracted capacity. A lot of that in the first quarter was makeup rights, though we did move a few spot batches. As this year continues and into next year, we see differentials continuing to widen as more crude production comes on in Alberta, and we would see demand increasing for uncommitted space on the pipeline. Once we get all of the pressure restrictions removed, I think we will be back up in that roughly 625 thousand-barrel-per-day throughput that we would be able to move. Operator: Thank you. The next question will come from Benjamin Pham with BMO. Your line is open. Benjamin Pham: Good morning. You touched on some of the regional pipe outlook, which seems quite positive. With all the export projects on egress being announced, including yourselves, do you get a sense there could be meaningful pent-up demand for a regional pipeline buildout, assuming one or more of these projects are sanctioned? Bevin Mark Wirzba: Thanks, Ben. As I have mentioned, we do see encouraging signs. If you look at the growth CAGR of the basin over the last ten years, it has been around 3%, and then this last year and this year, another growth of about 100 thousand to 150 thousand barrels per day per annum. By the end of this year, we see that egress will be tapped, and expansions are being contemplated to address the outlook. If you add up what we are hearing from customers, it may not be a 3% growth CAGR, but even a 2% growth CAGR is what we have been hearing. Over the next five to seven years, that looks like another 1 million barrels per day, and that is what is underpinning the expansion potential we are seeing. Those barrels have to move, and they are originating in the oil sands. There are a number of operators that have systems that can collect those barrels. We will try to put forward the most competitive solutions. We may have a bit more of an advantaged position on the west side as opposed to some peers who have great positions on the east, but we will still look to see how we can participate broadly in that growth. Benjamin Pham: That ties to your balance sheet. Thinking about any project you sanction today, timing of CapEx, and how that translates to years from now—you probably do not have a big need for CapEx if you announce a growth project. More specifically, as you think about the balance sheet in a couple of years, how much CapEx do you think you can take on before considering asset sales, equity, or partnerships? Bevin Mark Wirzba: I will start, and then pass it to Van. When we spun, our number one capital allocation priority was to reduce leverage. We had a target of getting down to 4 times within five years. We are a little bit ahead of that schedule based on the current base plan, and Van can provide details. We reserved around $150 million per year of free cash flow to invest in the business, and that will now grow to closer to $180 million with BlackRock coming on. Right now, we are not deploying significant capital, so we are building up cash on the balance sheet. Van Dafoe: Thanks, Ben. First and foremost, we keep an eye on our investment-grade rating and making sure that is maintained, with a view to get to BBB flat over time. We will take that into account when financing projects. Our original value proposition at that 2% to 3% growth, we view as being fundable through our distributable cash flow. We have additional free cash flow to do that. It is the bigger, chunkier opportunities where we would consider different financing besides our cash flow. Bevin Mark Wirzba: And when you think about the types of projects we are investing in, they are aligned with our risk preferences. When you are building long, contracted, take-or-pay style investments, the financing is more straightforward than something that has a lot of merchant or shorter-tenor risk on it. Benjamin Pham: Okay. That is great color. Thank you. Operator: Thank you. The next question will come from Sumantra Banerjee with UBS. Your line is open. Sumantra Banerjee: In the press release, you mentioned that you expect WCSB crude supply to still grow modestly throughout the rest of the year. Given the recent geopolitical events, what are the puts and takes you are looking at, and what could potentially change this view down the road? Bevin Mark Wirzba: It is a great question. We brought forward the Prairie Connector opportunity to customers to address what we saw as optimization-driven growth within the basin—additional technology our customers are using, extended well pairs, those types of things that did not need a significant amount of capital—as well as regulatory reform. If you look at the releases by our customers in the past week, they have pointed to ensuring that the policy and regulatory environment, particularly around emissions, is resolved in order for them to invest significant capital to grow the basin to meet the global desire for Canadian crude. The next gating item beyond what we could service with Prairie Connector would be more clarity in the regulatory and policy environment. Sumantra Banerjee: Got it. As a quick follow-up, you mentioned leverage ticking down through the rest of the year, especially with BlackRock cash flows ramping up. Are there any other puts and takes we should consider there? Van Dafoe: If you think about the normalized net debt-to-EBITDA ratio, there are two components. Year over year, our EBITDA would increase from 2025 to 2026. On top of that, we are paying down debt or accumulating cash on our balance sheet. We currently have limited growth capital in our guidance for this year, so that would put more cash on our balance sheet. It is that combination of increased EBITDA year over year and increased cash or decreased net debt. Sumantra Banerjee: Got it. That is helpful. I will hand it over. Operator: Thank you. There are no further questions in the queue at this time. I will now turn the call back over to Bevin for closing remarks. Bevin Mark Wirzba: Thank you, Michelle, and thank you to all the analysts who joined and asked questions. We really value your continued interest in South Bow Corporation, and we look forward to connecting with you again soon. Have a great day. Operator: This does conclude today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and welcome to the Plains All American Pipeline, L.P. and PAGP First Quarter 2026 Earnings 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, you will need to press star 11 on your touch-tone telephone. Please note this call is being recorded. I would now like to turn the call over to Blake Fernandez, Vice President of Investor Relations. Please go ahead. Blake Michael Fernandez: Thank you, Michelle. Good morning, and welcome to the Plains All American Pipeline, L.P. First Quarter 2026 Earnings Call. Today’s slide presentation is posted on the Investor Relations website under the News and Events section at ir.claims.com. An audio replay will also be available following today’s call. A condensed consolidating balance sheet for PAGP and other references are in the appendix. Today’s call will be hosted by Willie Chiang, Chairman, CEO and President, and Al P. Swanson, Executive Vice President and CFO, along with other members of our management team. With that, I will turn the call over to Willie. Wilfred C.W. Chiang: Thank you, Blake. Good morning, everyone, and thank you for joining us. This morning, we reported first quarter adjusted EBITDA attributable to Plains All American Pipeline, L.P. of $730 million. Al will cover the details on our results in his portion of the call. Let me start with the macro environment, which has changed significantly since our last call. Recent geopolitical events have reiterated the importance of reliable, secure, and responsibly produced energy. The closure of the Strait of Hormuz has significantly disrupted global shipping channels and Middle East supply, contributing to stronger commodity prices over the past couple of months. In response, excess floating storage has been drawn down, and strategic petroleum reserves are being released globally. While this helps balance the market deficit on a short-term basis, we are seeing a more constructive oil market developing on a longer-term basis. We expect this destocking environment to continue over the next number of months and ultimately drive a restocking phenomenon longer term, as countries replenish depleted strategic petroleum reserves globally. Post-war, we would not be surprised to see several countries restock their SPRs above pre-war levels, essentially creating an additional layer of demand into the future, which should support prices and incent producer activity. On the supply side, OPEC production capacity post-war remains uncertain, but we suspect spare capacity will be tighter based on a slower recovery of shut-in production and infrastructure damage during the war. We believe the conflict shifts the focus towards more geopolitically stable regions to ensure security of supply. Against this backdrop, North America, including the Permian, remains well positioned to play a critical role in meeting global demand. As this occurs, the value of existing infrastructure in the ground should continue to increase over time. For these reasons, we believe Plains All American Pipeline, L.P. is well positioned for both the near-term volatility and longer-term macro environment. Based on these market dynamics and the growth trajectory that we see for our business, we have increased our initial 2026 EBITDA guidance. As highlighted on slide four, we are increasing the midpoint of our full-year 2026 adjusted EBITDA guidance by $130 million to $2.88 billion. The NGL segment EBITDA is now expected to be $170 million, following first quarter outperformance of $45 million and the updated divestiture timing now in May 2026. Our trajectory of growth this year is underpinned by three key drivers: the sale of our NGL assets, Cactus III synergy capture and streamlining. The growth of our EBITDA is paced with the execution of these initiatives and is enhanced by capturing optimization opportunities that have been substantially secured over the next three quarters. We are also seeing increased producer interest in both Canada and the United States for additional connections to our system. The combination of all these factors will ramp up through the year and position us well into the future. Our premier crude oil footprint continues to support stable fee-based cash flows in a variety of macro backdrops. As global markets turn to North America for long-term energy supply, we are well positioned across key producing basins and downstream markets to drive multiyear growth. We remain committed to our efficient growth strategy, generating significant free cash flow, optimizing our assets, maintaining a flexible balance sheet, and continuing to return cash to unitholders via our disciplined capital allocation framework. With that, I will turn the call over to Al to cover our quarterly performance and other financial matters. Al P. Swanson: Thanks, Willie. Slides five and six contain adjusted EBITDA walks that provide additional detail on our performance. For the first quarter, we reported crude oil segment adjusted EBITDA of $582 million, which was broadly in line with our internal estimate and includes a full-quarter contribution from the Cactus III acquisition, offset by a number of one-off items including winter weather impacts in the Permian, system maintenance, and timing of minimum volume commitments. Moving to the NGL segment, we reported adjusted EBITDA of $145 million, reflecting a stronger-than-expected contribution from higher straddle production and improving frac spreads in March. A summary of 2026 guidance and key assumptions is on slide seven. Growth capital remains $350 million, while maintenance capital was increased to $185 million reflecting ownership of the NGL assets into May. Regarding the $130 million increase in EBITDA guidance, key drivers are outlined in the waterfall on slide eight. The NGL segment increased by $70 million, driven by outperformance in the first quarter along with ownership of NGL assets into May. The oil segment was increased by $60 million, driven by captured optimization opportunities, FERC tariff escalators, increased spot tariff volumes, and increased West Coast volumes. To the extent that the elevated commodity environment persists into the second half of the year, we would expect to capture incremental opportunities. For 2026 guidance, we continue to assume Permian crude oil production to be relatively flat year over year. While we have yet to see a meaningful shift in U.S. producer behavior, any increase in activity would likely benefit 2027 and beyond. We expect an improving back end of the crude oil curve and removal of natural gas takeaway constraints as new egress projects start up later this year to drive incremental activity throughout the year. As illustrated on slide nine, we remain committed to generating significant free cash flow and returning capital to unitholders while maintaining financial flexibility. For 2026, we expect to generate $1.85 billion of adjusted free cash flow excluding changes in assets and liabilities, and excluding sales proceeds from the NGL divestiture. Our pro forma leverage at the end of the first quarter was 4.1x, reflecting the Cactus III acquisition. First quarter leverage pro forma for the NGL sale would decrease to approximately 3.5x, and we would expect leverage to migrate towards the low end of our target range of 3.25x to 3.75x by the end of the year. We expect net proceeds from the NGL sale to be approximately $3.3 billion, which is approximately $100 million higher than our prior estimate. Our acquisition of Cactus III last year has mitigated the tax liability of the unitholders resulting from the NGL divestiture. As a result, we no longer expect to pay a special distribution following the closing of the NGL sale. Before handing it back to Willie, I would note that both current and deferred taxes are elevated on the statement of operations this quarter because of the restructuring activities associated with the NGL sale. There was no cash tax impact in the quarter, as payment of the related taxes will be made in conjunction with closing or in future periods. With that, I will turn the call back to Willie. Wilfred C.W. Chiang: Thanks, Al. In the midst of volatile energy markets, we remain steadfast and focused on executing our three initiatives for 2026: closing the NGL sale, driving synergies on Cactus III, and advancing our streamlining initiatives. Our efficient growth strategy has positioned us well to execute through a range of market environments, generating durable cash flow and creating long-term value. Importantly, the improving oil macro environment is starting to present additional organic investment opportunities with strong returns. We continue to evaluate both organic and inorganic opportunities in a disciplined manner. Capital investments help underpin long-term EBITDA growth, but they must meet our return thresholds and provide visibility into future return of capital to unitholders. Our transition to a pure-play crude midstream company, coupled with the acquisition of Cactus III, is proving timely as tensions in the Middle East position North America as a key source of global energy supply into the future. Before I turn the call over to Blake, I would like to make a brief comment about our pending transaction with Keyera. In terms of timing, as reported by both Keyera and Plains All American Pipeline, L.P. in separate releases earlier this week, we are targeting to close the transaction this month. While it is unfortunate that the Competition Bureau has chosen to challenge the transaction, their lawsuit does not prevent the parties from closing the transaction, which both Plains All American Pipeline, L.P. and Keyera are committed to do. I realize you may have some additional questions, but I hope you understand it would be inappropriate for us to comment any further on this matter, so we would appreciate it if you would refrain from asking questions regarding the transaction. Blake, I am now going to turn it over to you to lead us through Q&A. Blake Michael Fernandez: Thanks, Willie. As we enter the Q&A session, please limit yourself to two questions. This will allow us to address as many questions as possible from participants in our available time this morning. With that, Michelle, we are ready for questions. Operator: Thank you. If your question has been answered and you would like to remove yourself from the queue, please press 11 again. Our first question comes from Brandon B. Bingham with Scotiabank. Your line is open. Brandon B. Bingham: Thanks. Good morning, everybody. I just wanted to ask on the new guide. If I look at your sensitivity and the new crude price expectations, it would imply that, at least on price movements alone, the crude contribution should probably be higher than what is currently shown. Could you just walk us through what is baked into the new guide and maybe the embedded outlook in there? Al P. Swanson: Sure, Brandon. Our original guidance for the year assumed a $60 to $65 environment for 2026, so roughly a $62 midpoint. We came into the year highly hedged at roughly those levels. The $85 environment that we are talking about for the future is roughly the strip from June through December when we looked at it. So there would be some benefit based on crude prices on our PLA, but because we had hedged quite a bit before entering the year, that sensitivity we give is just a raw sensitivity. In order to make it more meaningful, we would have had to have disclosed to you the hedge position at the beginning of the year, which we have not historically done. So what I would say is that the first quarter performance and the nine months of our guide are very minimally impacted by actual PLA pricing. Brandon B. Bingham: Very helpful, thank you. And then maybe just wanted to ask about, in light of some of the commentary in your prepared remarks about a more constructive longer-term market and just the whole macro environment as it stands today, how are you thinking about the potential for the EPIC expansion at this point? Jeremy L. Goebel: Brandon, good morning. We are excited about the opportunities around our entire long-haul portfolio and are having constructive dialogue with existing customers and new customers looking for secure supply from the United States. That results in some spot activity, but longer term the expectation is to contract at higher rates than maybe before, with potentially new counterparties. That would pertain to recontracting existing pipeline capacity and expansions as well. We are looking at all of the above and hope to have updates in the coming quarters on how that looks. Brandon B. Bingham: Okay. Great. Thank you. Operator: Our next question comes from Gabriel Philip Moreen with Mizuho. Your line is open. Gabriel Philip Moreen: Hey, good morning, everyone. Maybe I will just ask the Permian macro question, Willie, in terms of your best outlook. I think previous years you talked about 200 thousand-ish barrels a day year-over-year growth. Best venture at this point, I realize there are a lot of things in play and things are changing quickly, but do you think that goes significantly higher from here, 400 thousand, 500 thousand in 2027? I am just curious what your latest thoughts are there. Wilfred C.W. Chiang: Yeah, Gabe. Jeremy may have some additional comments, but I will give you my thoughts. U.S. producers have remained very disciplined as far as capital allocation, and they are looking at the back end of the curve to see where it goes. WTI is roughly $70, and our view is when you start getting into $75 and above, increased activity happens. There are also some other short-term operating constraints that are limiting production a bit. The Permian has some natural gas takeaway constraints. There are new lines that are being built and being commissioned as early as later this year, so the thought is that alleviates itself. Our assumption for the Permian this year was flat, and if there is some upside, obviously we benefit from it. We are not giving a formal guide, but we would expect growth going forward and probably some momentum of volumes that will increase production, maybe with a little bit of a flush later this year or early next year. I think it really depends on the back end of the curve, but the systems are ready to go. Gabriel Philip Moreen: Thanks, Willie. And then maybe if I can ask on the sustainability of some of the marketing opportunities you are currently seeing. Can you talk about some of the spreads that you are seeing and also the value of dock space, the extent you are debating internally maybe terming some of those out at higher prices? And then, the steepness of the curve and backwardation—how that is playing with your storage. Is that helpful? Is that a hindrance? Jeremy L. Goebel: Gabe, without getting into specific strategies, time, location, and quality spreads—all that volatility—we benefit from all of those because we have the assets, the supply position, and the trading function to capture those opportunities. It is hard to forecast those when they arrive. That could be time spreads—do you sell a barrel now and buy it back later by emptying a tank? Differences in grades between Canada and the United States, differences in Gulf Coast grades—all of those are strategies and things we can take advantage of with our integrated system. We are excited about those opportunities. What we have put in the forecast has been substantially captured over the next three quarters. This is a very volatile period; we have only been in this sixty to seventy days, so it is hard to forecast that to continue. But if it continues, we would expect to capture more opportunities going forward. And just to add on, we estimate there is close to 200 thousand to 300 thousand barrels a day of oil that is behind pipe in the Permian Basin. So that flush production Willie referenced is substantial, and a lot of that is in the more constrained areas of the Delaware Basin, where we have a broader footprint, including New Mexico and other places. If you look at the Waha spread, flat price in Waha has been largely negative since last September. That is what is accumulating all of this to go, and as gas prices recover, productive capacity is already there to add. As you add more, that puts more pressure on potentially long-haul spreads and the ability to term up contracts at greater rates. We are seeing more demand from new customers, and we are seeing potentially flush production. Those should all help convert short-term opportunities into longer-term opportunities. Wilfred C.W. Chiang: And if you look at our numbers, long-haul has increased and margins on that have also improved. I think we are moving to a more structurally full-pipe situation as we go forward, which should be constructive for us. Gabriel Philip Moreen: Appreciate it. Thanks, guys. Operator: Our next question comes from Manav Gupta with UBS. Your line is open. Manav Gupta: Good morning. I just wanted to focus a little bit on the weather impact. I think it is about $49 million quarter over quarter. I am trying to understand, since you mention timing of minimum volume commitments, is there a possibility some of this can be reversed in 2Q—some of what you lost in the current quarter comes back into the second quarter? If you could talk a little bit about that. Jeremy L. Goebel: Yes, Manav. Those are two different things. With regard to weather, weather is just production shut in for a period—you cannot make that back, but the flush production does come back. With regard to the timing of MVCs, that is continuous in our process. If you look at some of the earnings calls from others about their dock performance or other things in the first quarter, freight was really expensive and margins did not have people moving, so long-haul volumes were down across the industry. But that has completely reversed in timing. So you would absolutely expect that to be recovered—it is just a question of those MVCs accrued versus when they are paid. All the pipelines are full again, and the MVCs are being reversed. Wilfred C.W. Chiang: Manav, if you are referring to slide five, I think the point of your question is on that negative $49 million. There are a bunch of one-time events in there that you are absolutely correct will not occur again as we go forward. Manav Gupta: Perfect. And if you could also talk about the very strong results from the NGL segment in the first quarter versus the last quarter—some of the drivers of what helped you deliver much stronger earnings in that segment quarter over quarter? Thank you. Jeremy L. Goebel: Sure, Manav. Higher border flows than expected—you had very full storage in Canada and continued production, which required volumes to be exported, and those were exported through our Empress asset. So higher border flows lead to more straddle production, and that would all be unhedged and impact results. In addition, higher frac spreads towards the end of the first quarter contributed. I would say those two, and that has continued into the second quarter, which is reflected in the increase in guide for the NGL business through closing. Manav Gupta: Thank you. Operator: Thank you. Our next question comes from Michael Jacob Blum with Wells Fargo. Your line is open. Michael Jacob Blum: Thanks. Good morning, everyone. My question is on the guidance, the crude segment. It sounds like most of the increase is optimization that you have already locked in, and then maybe the rest is PLA. I just want to make sure I understood that. And then, if prices stay elevated for the balance of the year, would there be upside to the guide in the crude segment, or is that already baked into the numbers? Wilfred C.W. Chiang: Thanks, Michael. Great question. Our assumptions are that the numbers in there are really what we have captured that will roll off through the year as we actualize optimization efforts. And you are correct—if we have a stronger macro environment and higher prices, there definitely is upside. Michael Jacob Blum: Great. Thank you. Operator: Our next question comes from Jeremy Tonet with JPMorgan Securities. Your line is open. Jeremy Tonet: Hi. Good morning. Just wanted to see what you are seeing locally, ear to the ground there, as far as producer activity—whether rigs are being picked up by the independents or larger drillers as well—and what would be needed across the strip to gain the comfort to do that? How do you think production could uptick here, and what do you see? Jeremy L. Goebel: Jeremy, good morning. You have already seen about 15 rigs added back, and we would expect some to continue. But as Willie mentioned, there is a bit of a throttle right now—you cannot add more natural gas to the system if flaring is not allowed. Productive capacity is there; rigs being added now would impact 2027. I think there was a bit of confusion in the market in that the products market and the physical crude market are substantially tighter than the financial markets would indicate, which means the back end of the curve has to come up. It is very difficult, even if you opened the Strait of Hormuz tomorrow, to get everything back in order the way it was. It is going to take a while for shipping to start. You have to empty tanks before you can start back up production. Products markets are just empty in some places. There is a real dislocation that will take time. Some integrators have stated for every day it is down, it is three days to get back up. So it is potential for months to get out of this even if it were resolved today. I think that is the part producers are waiting on—more assurance in the back end of the curve to bring rigs on. At this point, the service companies have stacked equipment. It takes capital and commitments to bring those back. Producers need commitment from prices that they will be there, and the longer this goes, the more likely that will occur. But the dislocation in the back end of the curve right now is maybe causing some hesitancy, which is going to prolong the problem. Jeremy Tonet: Got it. That is helpful. How do you think that impacts basis over time and what it could mean for future egress expansion? Jeremy L. Goebel: It is constructive for basis—more production and more demand on the water. Specifically in the Corpus market and some of the more efficient docks, you are seeing higher pricing relative to even the screen. On a prolonged basis, that says there are new buyers coming to America. Vessels that used to be pointed at other locations intend to come back and forth to the United States for a while. You are seeing that on the NGL side, you will see it on the LNG side, and on the crude side. More buyers and more demand is generally constructive for spreads, and we would expect to match either our suppliers or our customers with that and, hopefully, offer service at a higher rate. Wilfred C.W. Chiang: Jeremy, you are aware that on Cactus III we have expansion capacity. As we have always said, we are going to pace that with market demand and commercial contracts. As we have gotten to know the project and assessed it, we have the ability to do that in a phased approach. It is fairly flexible for us to get additional volumes. It is not a binary big expansion—there are ways to do it in phases which should match customer demand. Generally speaking, in a higher price environment, there are more opportunities because there is a pull on the whole system, and optimization opportunities become more prevalent versus a lower price environment where less is moving. Jeremy Tonet: That is helpful. Thank you. Operator: Thank you. Our next question comes from Jackie Kalidas with Goldman Sachs. Your line is open. Jackie Kalidas: Hi, good morning. Thank you so much for the time. First, I was wondering if you could comment on the progress of your cost reduction initiatives. Are these on track with expectations at this point, and is there any potential for upside capture here? When should we expect Plains All American Pipeline, L.P. to realize more significant efficiencies through the year? Christopher R. Chandler: Good morning, Jackie. We are on track to capture the efficiencies—$50 million by the end of 2026 and an additional $50 million in 2027. We have already made a number of changes, some unrelated to the NGL transaction and some in anticipation of the NGL transaction. We feel confident in the number. There is always upside—we are always looking for additional opportunities, and we will certainly pursue any that we find. We are not prepared at this time to change the $100 million target we have through 2027, but we are on track and things are going well. Jackie Kalidas: Thank you. And then one on capital allocation. With debt reduction as a near-term focus, particularly following the pending NGL sale, when can we expect a shift—or what would allow a shift—from debt paydown to a larger focus on potential buybacks or preferred paydowns? Al P. Swanson: Clearly, with the proceeds from NGL, we intend to take that and pay down a little over $3 billion of debt, which would be the term loan, the outstanding CP we have, and a $750 million note that matures later this year. Post that, we expect to be right at the midpoint of our leverage range—around 3.5x—and expect that to migrate down, which will then bring us back to where we have been for the last number of years prior to the EPIC acquisition, with leverage towards the low end of our range. Our capital allocation, first and foremost, is focused on maintaining distribution growth, funding investments—whether organic or M&A-related—as well as looking at taking out preferreds should leverage remain at or below the bottom end of the range, and opportunistic share repurchases. So, once we get through the NGL sale and deployment of the proceeds, we return to the framework we have been operating under for the last several years. Jackie Kalidas: Great. Thank you. Operator: I am showing no further questions at this time. I would like to turn the call back over to Willie Chiang, President, CEO and Chairman, for closing remarks. Wilfred C.W. Chiang: Michelle, thanks. We appreciate everyone’s support and attention, and we look forward to seeing you on the road. Stay safe. Thank you very much. Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. First Quarter 2026 Financial and Operating Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. You may also submit questions in writing at any time using the form in the lower right of the webcast frame. Should you need assistance during the conference call, I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets and Investor Relations. Please go ahead. Brian Ector: Thanks, Dave. Good morning, and welcome to Baytex Energy Corp.'s First Quarter 2026 Results Conference Call. Joining me today are Chad E. Lundberg, our President and Chief Executive Officer; Kendall Arthur, our Chief Operating Officer; and Chad L. Kalmakoff, our Chief Financial Officer. This is Chad’s first call as CEO and Kendall’s first as COO. Before we begin, please note that our discussion today contains forward-looking statements within the meaning of applicable securities laws. I refer you to the advisories regarding forward-looking statements, oil and gas information, and non-GAAP financial and capital management measures in yesterday’s press release. All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. After our prepared remarks, we will open the call for questions. Webcast participants can also submit questions online. With that, let me turn the call over to Chad. Chad E. Lundberg: Well, good morning, everyone. Q1 was a strong start to the year. Production averaged above the high end of our guidance at 69,500 BOE per day, driven by outperformance across our heavy oil portfolio. We exited the quarter with net cash of $591 million and repurchased 35 million shares, or 4.6% of our shares outstanding, for $174 million. With this outperformance, and a constructive commodity backdrop, we are raising our 2026 production guidance to 69,000 to 71,000 BOE per day. This represents 7% annual growth at midpoint, up from 3% to 5% previously. We are maintaining discipline, with capital expenditures moving to the high end of our guidance at $625 million, and this includes incremental projects in our Duvernay and heavy oil. Along with updating our current-year guidance, we are also updating our three-year outlook. With the depth and quality of our inventory, we are targeting 6% to 8% annual production growth through 2028, up from the prior midpoint of 4%, while maintaining a net cash position throughout the period. Before I turn the call over to Kendall, I want to acknowledge two appointments that were announced yesterday. Kendall Arthur moves into the Chief Operating Officer role and Adrian Blazovic has been appointed Vice President, Heavy Oil. I have worked closely with both for the past eight years. They have been instrumental in building our Canadian operations and are central to our long-term leadership plan. I am confident in their ability to execute and deliver against the strategy you will hear about this morning. Kendall, over to you. Kendall Arthur: Thanks, Chad, and good morning. We had a strong operational quarter. As Chad mentioned, production of 69,500 BOE per day exceeded the high end of our guidance, with oil and NGLs representing 88% of the mix. We invested $145 million in exploration and development, and brought 53 wells on stream, consistent with our full-year plan. In heavy oil, we delivered strong results across the portfolio. At Peavine, the first six wells of our 2026 program averaged 30-day IP rates of 680 barrels per day, well above the expected type curve. At Lloydminster, we stepped up to three rigs during the quarter, successfully targeting seven discrete horizons across the “Van Ville” stack, bringing 16.7 net wells on stream. At Peace River, we brought three wells on stream and acquired an additional 40 sections at Utikima, bringing our total land position to 109 sections. We completed a 21 square mile seismic shoot covering approximately 20% of the land base, and following interpretation could drill our first exploration test well in early 2027. In the Duvernay, we drilled our first four wells of the year, with completions now underway. First wells are expected on stream in June, with nine following in Q3 and Q4, totaling 13 wells on stream in 2026, with one four-well pad drilled and to be completed in early 2027. It was a safe and efficient quarter, and I want to recognize our field teams for their dedication and hard work. With that, I will turn it over to Chad L. Kalmakoff. Chad L. Kalmakoff: Thanks, Kendall. This marked our first full quarter of results for our Canadian business. We generated $152 million of adjusted funds flow, or $0.20 per basic share. Our operating netback improved to $35.36 per BOE, up from $29.30 per BOE in Q4 2025, driven by higher realized pricing and continued cost discipline. We realized hedging losses of $29 million in the quarter. Our exposure to the current strip will increase as our WTI hedges roll off at the end of Q2. As a reminder, on an unhedged basis, every $5 move in WTI impacts our adjusted funds flow on an annual basis by approximately $125 million. We ended Q1 with a net cash position of $591 million and, as Chad highlighted, we repurchased 35 million shares, or 4.6% of the shares outstanding, for $174 million. The balance sheet is in excellent shape with full flexibility to fund our capital program and return capital to shareholders. Our quarterly dividend of $0.0225 per share remains unchanged. With that, I will turn the call back to Chad. Chad E. Lundberg: Thanks, Kendall and Chad. I want to close by stepping back from the quarter and speak about the business and the opportunity in front of us. Our strategy is straightforward: grow 6% to 8% annually, advance the Duvernay and our heavy oil portfolio, invest in future optionality, and return value to shareholders. We are targeting 15% annual total shareholder return at a mid-cycle price of $70. This is through a combination of production growth, dividends, and share buybacks. We can deliver this with the strength and depth of our current portfolio. The Duvernay is on track to deliver 35% production growth in 2026 with an exit rate of 14,000 to 15,000 BOE per day. Our heavy oil assets carry 12 years of drilling inventory at our current pace, with active exploration across the fairway and two Peavine waterflood pilots underway. We are also driving our cost structure lower. The long-term sustaining breakeven target is under $50, further enhancing our resilience through the cycle. Gemini Thermal represents significant long-term optionality that sits beyond our three-year outlook. Gemini is a regulatory-approved project with 44 million barrels of booked reserves and a first-phase design of 5,000 barrels per day. We are advancing our technical and commercial outlook toward a final investment decision in 2027. This is a business with deep, profitable heavy oil inventory, a growing Duvernay, and net cash on the balance sheet. We are excited to show what Baytex Energy Corp. is capable of. Before we open for questions, I want to recognize two people. First, Eric Thomas Greager. Through his leadership, Eric helped to establish the disciplined Canadian platform we are today. He has worked to ensure a seamless leadership transition and has positioned the company for success going forward. Second, Brian Ector. I did not want to let this call pass without saying Brian has been the trusted and steady voice of Baytex Energy Corp. to the investment community for many years. He will be retiring in July, and we look forward to working with him through the transition. On behalf of everyone at Baytex Energy Corp., thank you both. It has been a pleasure working with you. With that, we are ready for questions. Operator: We will now begin the question and answer session. You will hear a tone acknowledging your request. To submit your question in writing, please use the form in the lower right section of the webcast frame. If you are using a speakerphone, please pick up your handset before pressing any keys. Our first question comes from Phillips Johnston with Capital One. Please go ahead. Phillips Johnston: Hi, thanks for the time. I wanted to ask about the new 15% total shareholder return target, which is rather impressive. Just want to make sure I am thinking about it correctly. So if we assume the new three-year growth rate is around 7% and you add the 1.5% base dividend yield to that, you need another 6% or so from share buybacks to bridge that gap, which in round numbers I think is around $300 million of share buybacks per year. So my question is, is that math correct? And I guess as a follow-up, I realize that this year's buyback is going to be significantly north of that figure. So conceptually, should we think about the buyback in 2027 and 2028 as being significantly lower so that you average around $300 million per year over the three years, or is that a decent placeholder for 2027 and 2028? Chad E. Lundberg: Okay. Thanks, Phil. Appreciate the question. I think this one is very important to be clear on. So, yes, at a top line, our first priority is to deliver a 15% total return to shareholders. As you said, that is inclusive of production growth, plus a dividend, plus our buyback program. If we just step back, I want to reiterate the commitment from the proceeds from the Eagle Ford sale. Seventy-five percent, or $650 million, will be deployed in 2026 through the buyback program. Beyond that, though, we think this business is capable of, and we are targeting, the 15% that you described as we think about moving from this point into the future. Phillips Johnston: Okay. Great. That clears it up. Thank you so much. And then I wanted to ask you about the incremental CapEx spend for the year. Does that increase factor in any service cost inflation, or is it just a reflection of the increased activity? Chad E. Lundberg: Maybe just a little bit of minor cost inflation. We are seeing no doubt on the diesel side now. I do not think you could say we have it all baked in at this point in time. Short of that, no, that is something that we are thinking about. We have most of our service supply costs locked in for calendar 2026, certainly. And so we will just have to see. We are seventy days into the war, seventy days into a complete flip on a macro basis with respect to supply, demand, and the oil market. We will just continue to monitor and see where supply costs go. Phillips Johnston: Sounds good. Thank you, Chad. Operator: And the next question comes from Greg Pardy with RBC. Please go ahead. Greg Pardy: Thanks. Good morning. Thanks for the rundown and congratulations to everyone. And Brian, it has been just amazing working with you for such a long time. So all the very, very best. Chad, I want to ask you just a little bit about Gemini. I know in your opening remarks you framed it and indicated that it would be beyond the three-year plan as you look at it. What are the next steps in terms of how you are approaching this? For example, I know it has been framed at 5,000 barrels a day or so at this point. Is that a number that conceivably could go up? And then what about the team you are assembling within the organization, with depth of expertise in thermal? Chad E. Lundberg: Okay. Thanks for joining, Greg. Let me start high level. Gemini has been in the portfolio since 2014. We have identified 300 million barrels of resource on the project. At a modest 50% recovery, that puts us at 150 million barrels that we are targeting to capture. As I said in my comments, we have regulatory approval for Phase 1 of the project to develop it out. What does that mean? It means we have 3D seismic shot. We have stratigraphic test wells to identify and confirm the chamber, and ultimately that gave confidence for the approval. So that would be Phase 1. If you do the math on the total resource available to recover against 5,000 barrels a day, it would put us out at a 75-year ROI, and so that would make us think about incremental projects to enhance the production beyond the 5,000. Can we get to 10,000 or maybe a little bit above? I think there is a chance. What do we have to do? A bit of the team has been scheduled since the initial projects back in 2014. We had a recent hire, as some picked up on the web, into the thermal team that we are very excited about. We are relooking at the commercial, technical, and capital cost outlook on the project. From there, we are thinking about trying to get to an FID decision in early 2027. That means we ultimately have a chance to put first barrels online in 2029. Does that help, Greg? Greg Pardy: Chad, it helps a lot. You know how I feel about thermal, so that is music to my ears. Maybe just back on the conventional side. As you look at your three-year plan now with a higher growth rate, with that comes higher decline rates, higher natural declines, and then also higher sustaining. Could you maybe put some context around how your decline curve is going to shift and then maybe what sustaining looks like over the next two or three years, just in broad strokes? Chad E. Lundberg: As you pointed out, 6% to 8% production top line growth over the three-year plan. The bulk of that comes out of the Duvernay asset, but there also is some coming from heavy oil. Heavy oil is 75% of our production flows today, and I would remind everybody that of the 75%, approximately 10% of our heavy oil is waterflood-derived at this point in time. So if you look across that piece and portion of our portfolio, we have very competitive declines in the space. As we think about that three-year plan, our decline stays actually relatively flat with the growth. On top of that, we have incremental projects and catalysts that do not sit inside the three-year plan today—so Peavine waterfloods that are being piloted right now. We have incremental project opportunity across the conventional cold flow heavy oil fairway, as well as just working on the cash cost structure and making the business better, which we do as meat and potatoes every day inside the company. Operator: And the next question comes from Menno Hulshof with TD Cowen. Please go ahead. Menno Hulshof: Thanks, and good morning, everyone, and congratulations Eric and Brian. Just maybe I will start with a question on the balance sheet. You talked about running net cash under the three-year plan, which is great to hear. But can you describe your philosophy in a little more detail? And is there a scenario you would take on a bit of balance sheet leverage? I am assuming the answer is no, but maybe you could just walk us through that. And then on the outlook for 2027—I understand we will have to wait for the release of 2027 guidance for the full details, which is still a long way out—but what ultimately drives the decision to grow 6% next year versus 8%? Oil price, of course, is going to factor in, but what are the other considerations in getting from six to eight or the other way around? And what are the broad strokes in terms of growth, spending, and activity levels based on what you are seeing today? Chad E. Lundberg: Good morning, Menno. First and foremost, we think that a strong balance sheet is paramount for an oil and gas company given the cyclical nature of the commodity. That would be step one. We view debt as a potential tool in the event we need it. We would not look to ever use it as a tool to go into debt like we were in the past before the Eagle Ford transaction and the repositioning that we have undertaken. As you think about this company going forward, if we did elect to use debt, half a turn at $70, or mid-cycle pricing, would be a threshold boundary that we would not exceed, and there would have to be very good reason to take it on. On your second question, it comes back to what we are really trying to do at the company, and that is drive value out to the shareholders within Canada with these great assets that we have. When you think about how we do our capital planning, it is really a bottoms-up build from the teams. The question we ask is, what is the best way to run this asset? What does “best” mean? Where can you deliver the strongest returns and strongest capital efficiencies to ultimately drive this growth? The fallout is the corporate top-line production. When we talk about 6% to 8% in 2027, 2028, and beyond, this moves us, for example, to an 18 to 20 well program in the Duvernay. Again, that is where we hit a one-rig levelized base, and we have a shot at improving our capital cost structure even further than what we have demonstrated to this point in the asset. Equally so in heavy oil, where we would look to run the four rigs—essentially keep them going around the clock—to build on the crews, the teams, and efficiencies. That is what underpins the growth, Menno: coming at it from a point of view of where we can drive the maximum value and returns to shareholders. If you look at 2027 with what I just said and think about capital costs, this year, in the press release yesterday, we are going to 13 wells drilled, completed, tied in, and online in the Duvernay, with an incremental pad in the Duvernay that is docked into 2027. Next year, 18 to 20 wells. That is going to come with some incremental capital, and you can expect that to be additive to the $625 million where we sit today. Does that help, Menno? Menno Hulshof: Yeah, that does. That is great. Thanks again. I will turn it back. Operator: And the next question comes from Dennis Fong with CIBC. Please go ahead. Dennis Fong: Hi. Good morning. First, congrats also to Brian as well as Eric, and thanks for taking my question. My first one maybe falls a little bit further along the line from what Menno was asking. You have obviously showcased very strong well cost improvement in the Pembina Duvernay. As you switch towards a one-rig development program and start to roll in a lot of those efficiencies, where do you think the cost structure can get to within the Pembina Duvernay? And then my next question turns towards the waterflood over at Peavine. I know you are initiating the two pilots with two different styles of waterflooding technique. Can you talk to some of the data points or key metrics that you are looking for or hoping to find in terms of each of those pilots, how that may provide you insight to its possible deployment across your existing field, and the future development of the play? And if you will permit me one last question, I am looking at slide 12 within your presentation. You have highlighted an opportunity set targeting eight discrete development horizons within your heavy oil exposure. I see that most of it is coming from the Waseca and the Sparky. Can you characterize the opportunity set that exists from targeting the full stack of formations as you go forward, both from an inventory perspective and a growth perspective? Chad E. Lundberg: I am going to answer that very directly. If you look in our slide pack on page 10, we outline what we have been doing with Duvernay costs. In 2024, we moved from $1,165 per foot to $1,025 per foot of lateral length completed. We are budgeted this year at $1,000 per foot, and we think—this is the power of getting to scale in the asset—that at full rig activity pace we have a shot at getting to $900 a foot or better. I think that directly answers your question. The broader question is the ecosystem of unconventional development. People have to understand what we have done at this company. We talked about costs; we have not talked about characterization. Again, slide 10 points to what we have done year-over-year, 2024 to 2025, on the characterization front, moving from 80 BOE per foot to 90 BOE per foot. We have not really talked about facilities and water infrastructure, but that is part of the ecosystem that needs to be developed to really optimize and maximize your efficiencies. This year we have a little bit of incremental facilities spending. For example, as we built up budget, it is about $50 million, with the majority of that going to the Duvernay. We have three years of elevated facility spend in the Duvernay—2026, 2027, and 2028—at that $35 million range. After that, it drops to $10 million going forward. That gets us five of seven major anchor batteries completed and two and a half of five of the water reservoirs completed. The last point I would make is stakeholder relations. We have a tremendous surface stakeholder team at the company. The amount of work they have done to complete the formula for how you are successful in unconventionals has been very strong. On Peavine waterfloods, we are currently drilling and converting our two pilots. One of the pilots is a conversion of a two-leg lateral—it was actually the initial discovery well in the play—to an injector. We will be actively trying to observe how fast we can fill up the voidage for oil that we have pulled out of the ground already and what happens when we get that voidage refilled, with the offsetting declines and subsequent production on the active producers. The second pilot is where we are drilling new producers in conjunction with new injectors. Again, as we turn the production online, we will immediately turn injection online, and we will be attempting to observe what happens with decline and ultimately what that does to the recovery factors on the wells up in Peavine. Stepping back, we hold 48 of the top 50 wells on primary production in Peavine, and you can see continued strong results with the delivery of primary development in Q1. In broad brush strokes for conventional cold flow heavy oil, typically you get to a 7% recovery on primary development, double that with waterflood to roughly 15%, and then push greater than 20% as you go to more of a polymer flood style development technique. In some of our primary wells we have surpassed and gone as high as a 15% recovery, so we are seeing tremendous recovery from primary production. Boiling it down, Dennis, we are looking for base decline moderation on offsetting wells, how that translates into ultimate recovery factor, and how that ultimately flows straight through to top-line production out of the asset. We are pretty excited about what it does for the company if it works. On the broader heavy oil opportunity set, we are very excited about this area. In Northeast Alberta, we have doubled the land position in the last five years and opened up eight different stacked layers. We think about it as a cube of oil in place. You are right, the initial production is from the Sparky formation, and that is what we identified on a map five years ago in our long-range planning. With the work that has been done by our technical teams and industry broadly, mapping out the signatures of the Clearwater has opened up the incremental opportunity set here to the Waseca, as you pointed out, the Colony, McLaren, and the various zones within that stack. Of the 1,100 wells that we hold and call a risked inventory set in heavy oil, approximately half sit on this Northeast Alberta property. There is further incremental inventory that we are actively derisking by way of exploration dollars, drilling stratigraphic test wells, and, at times, committing to an outright development well. They are $2 million wells, and at times we will push right through to drilling. The opportunity is large. It is a cube of oil in place over eight different layers and a sheet that is greater than 100 sections. There are two predominant zones that we are producing from right now, but you can see that we are starting to uptick the different layers as we move further out in time. Look for us to continue to advance and unlock that in the future and in future updates. Operator: This concludes our question and answer session from the phone lines. I would like to turn the conference back over to Brian Ector for any questions received online. Brian Ector: Great. Thanks, Dave. We do have several questions coming in from the webcast, and I will try to summarize a few of them here. First, to Chad L. Kalmakoff, can you elaborate on our hedge roll-off—maybe the hedge book and our hedge philosophy going forward? Chad L. Kalmakoff: Sure. I will hit the hedge book first. We still have about 50% of our WTI hedged until the end of Q2. Those have been legacy hedges that we had in place prior to the sale of the Eagle Ford. As I mentioned in the introductory remarks, once those roll off, we have pretty robust exposure to WTI prices. In terms of philosophy going forward, I think we have always said a strong balance sheet is the best hedge. We would not be looking to hedge any more WTI exposure and, obviously, with our cash position we are in an enviable spot. So I am not looking to do any more WTI hedges. We continue to hedge differentials—WCS, MSW. We are about 40% to 50% hedged on WCS for the remainder of the year around $13. That is something that we will probably continue in the future, to hedge those differentials. Brian Ector: And a number of questions are coming in around dividend philosophy and shareholder returns again. Chad, can you elaborate on the thoughts around the dividend versus the buyback program? Chad E. Lundberg: At the top line, we talked about the target to deliver 15% returns to our shareholders at $70 oil, comprised of growth plus dividend plus buybacks. We talked about $650 million coming to shareholders this year by way of buybacks. The other 25% of the proceeds, I would remind everybody, is being deployed to small, incremental greenfield tuck-in and bolt-on style activity that we think we are very good at, to enhance and extend our current inventory position. With respect to the dividend, Brian, specifically, we pay 9¢ a share today—depending on where our price is, in the 1.5% range as part of the formula. We do not intend to increase the dividend at this point in time. That would be something we might look at in the future, but as we sit today, everything is evaluated on a best returning, risk-adjusted basis, and this is the formula that we are moving forward with. Brian Ector: One last question around the free cash flow generation of our business. We were a couple million dollars in Q1, Chad. Thoughts on expectations as the year unfolds for free cash flow? Chad L. Kalmakoff: Sure. I think we expect the balance of the year to be more robust. We kind of touched on the hedges—that impacts Q2 a little bit. But beyond that, if you think about an $80 average price for the remainder of the year, that would put you at around $250 million of free cash flow for 2026 in total. And then, again, you think about the WTI price beyond that—the $125 million per $5 on a full-year basis—that would be your notional change. Brian Ector: Perfect. Thank you. So free cash flow will grow as the year unfolds. That covers the questions coming in from the webcast. That does wrap up today’s call and the questions that were coming in. We would like to thank everyone for joining us. Thanks again for your time, and have a great day. Operator: This brings to a close today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning and welcome to the Prospect Capital Corporation Third Quarter 2026 Earnings Release and Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to John Barry. Please go ahead, sir. Thank you, Drew. John Barry: Joining me on the call today are Michael Grier Eliasek, our President and Chief Operating Officer, and Kristin Van Dask, our Chief Financial Officer. Kristin? Kristin Van Dask: Thanks, John. This call contains forward-looking statements that are intended to be subject to Safe Harbor protection. Future results are highly likely to vary materially. We do not undertake to update our forward-looking statements. For additional disclosure, see our earnings press release and 10-Q filed previously and available on our website prospectstreet.com. Now I will turn the call back over to John. John Barry: Thank you, Kristin. In the March quarter, our net investment income, or NII, was $78 million, or $0.16 per common share. Our NAV was approximately $3 billion, or $6.05 per common share. At March 31, our net debt to total assets ratio was 27%. Unsecured debt plus unsecured perpetual preferred was 88% of total debt plus preferred. We are announcing monthly common shareholder distributions of $35 per share for each of May, June, July, and August. Since our IPO nearly 22 years ago, through our August 2026 declared distribution we will have distributed approximately $4.8 billion, or $22.07 per share. Our preferred shareholder cash distributions continue at their contract rates. We continue to progress our strategic priorities including rotation of assets into an increased focus on our core business of first lien senior secured middle market loans, with our first lien mix increasing 790 basis points to 72% since June 2024. We are focusing on new investments in companies with less than $50 million of EBITDA, including companies with smaller funded private equity sponsors, independent sponsors, and no third-party financial sponsors. Number two, reduction in second lien senior secured middle market loans with our second lien mix decreasing 404 basis points to 12.4% since June 2024. Number three, exiting subordinated structured notes, with our subordinated structured notes mix decreasing 837 basis points to near zero since June 2024. Number four, exiting targeted equity-linked assets, including real estate, with five additional properties sold in the current fiscal year and certain corporate investments, including the exit of Echelon Transportation in February 2026, with other exits targeted and in progress. Number five, enhancement of portfolio company operating performance and profitability, including through adoption of artificial intelligence and automation initiatives focused on enhancing revenues and reducing costs. And number six, utilization of our cost-effective floating-rate revolver, which significantly matches our floating-rate assets. Thank you. I will now turn the call over to Michael Grier Eliasek. Michael Grier Eliasek: Thank you, John. Over the past two decades, Prospect Capital Corporation has invested approximately $13.4 billion in over 350 exited investments out of over $22 billion invested in over 450 total investments that have earned a 12% unlevered investment-level gross cash IRR to Prospect Capital Corporation. This multi-decade time period predates and includes the GFC, and has been dominated in general by low prevailing market interest rates. In Prospect Capital Corporation’s primary business of middle market lending, over the same nearly 22-year time period, Prospect Capital Corporation’s exited investments resulted in an investment-level exited gross IRR of approximately 14.4%, based on total capital invested of approximately $11.4 billion and total proceeds from such exited investments of about $14.7 billion, with an annualized realized loss rate of 20 basis points. In Prospect Capital Corporation’s core targeted business of middle market lending to companies with less than $50 million of EBITDA, over the same nearly 22-year time period, Prospect Capital Corporation’s exited investments resulted in an investment-level exited gross IRR of approximately 16.9%, based on total capital invested of around $6.5 billion and total proceeds from such exited investments of about $8.6 billion, with an annualized net realized loss rate of 10 basis points. Prospect Capital Corporation’s EBITDA-to-interest coverage for our primary business of middle market lending is about 205%, which increases to around 230% for Prospect Capital Corporation’s core targeted middle market lending to companies with less than $50 million of EBITDA. As of March 2026, we held 89 portfolio companies across 31 different industries, with an aggregate fair value of $6.3 billion. Our portfolio at fair market value included 2.5% of investments in software companies, which is significantly less than the 23% average across BDCs with publicly traded unsecured bonds from a Wall Street fixed income research report in the last couple of months. We primarily focus on senior and secured debt, which was 84% of our portfolio at cost as of March. Our middle market lending strategy is the primary focus of our company, with such strategy, as of March, representing 85% of our investments at cost, an increase of 875 basis points in our business mix from June 2024. Middle market lending comprised 94% of our originations during the March quarter, with a continued focus on first lien senior secured loans. Investments during the quarter included follow-on investments in existing portfolio companies to support acquisitions, working capital needs, organic growth initiatives, and other objectives. We have essentially completed the exit of our subordinated structured notes portfolio as of March, with such portfolio representing nearly 0% of our investment portfolio at cost and representing a reduction of 837 basis points from 8.4% in June 2024. Our real estate property portfolio at National Property REIT Corp., NPRC, totaled 14% of our investments at cost as of March and continued to focus on developed and occupied cash-flow multifamily investments. Since inception of this strategy 14 years ago, in 2012, and through March 2026, we have exited 57 property investments, earning an unlevered investment-level gross cash IRR of 24% and a cash-on-cash multiple of 2.4x. We exited five property investments in the current fiscal year through March 2026, earning an unlevered investment-level gross cash IRR of 18% and a cash-on-cash multiple of 2.3x. The remaining real estate property portfolio included 53 properties and paid us an income yield of 5.2% for the March quarter, providing an opportunity for potential income enhancement at Prospect Capital Corporation from a portfolio rotation strategy into more corporate first lien senior secured middle market originations. Prospect Capital Corporation’s aggregate investments in NPRC included a $229 million unrealized gain as of March. We expect to continue to redeploy future real estate property exit proceeds primarily into more first lien senior secured loans, with selected equity-linked investments. Our interest income for the 12-month period ending March 2026 was 92% of total investment income, reflecting a strong recurring revenue profile of our business. Payment-in-kind interest income for the last 12-month period ending March 2026 was reduced by 41% from the prior 12-month period and was 11% of total investment income for the quarter. Non-accruals, as a percentage of total assets as of March, stood at around 0.7% based on fair market value, consistent with the prior quarter. Investment originations in the March quarter aggregated $115 million and consisted of 94% middle market investments, with a significant majority first lien senior secured loans. We also experienced $222 million in repayments and exits as a validation of our capital preservation objective, resulting in net repayments of $107 million. Thank you. I will now turn the call over to Kristin. Kristin? Kristin Van Dask: Thanks, Grier. We believe our prudent leverage, diversified access to matched-book funding, substantial majority of unencumbered assets, weighting toward unsecured fixed-rate debt, and avoidance of unfunded asset commitments all demonstrate balance sheet strengths, as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 25 years into the future. On 10/30/2025, we successfully completed the institutional issuance of approximately $168 million in aggregate principal amount of senior unsecured 5.5% notes due 2030, which mature on 12/31/2030. Our unfunded eligible commitments to portfolio companies total approximately $28 million, of which $17 million are considered at our sole discretion, representing approximately 0.4% and 0.3% of our total assets as of March 2026, respectively. Our combined balance sheet cash and undrawn revolving credit facility commitments stood at $1.8 billion as of March, and we held $4.2 billion of our assets as unencumbered assets, representing approximately 65% of our portfolio. The remaining assets are pledged to Prospect Capital Funding, a non-recourse SPV. We currently have $2.12 billion of commitments from 48 banks, demonstrating strong support of our company from the lender community with a diversity unmatched by any other company in our industry. The facility does not mature until June 2029 and revolves until June 2028. Our drawn pricing continues to be SOFR plus 2.05%. Outside of our revolver, we have access to diversified funding sources across multiple investor types and have successfully issued securities in an array of markets. Prospect Capital Corporation has issued multiple types of unsecured debt: institutional non-convertible bonds, institutional convertible bonds, retail baby bonds, and retail program notes. All of these types of unsecured debt have no asset restrictions and no cross-defaults with our revolver. We have tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out 25 years, with our debt maturities extending through 2052. With so many banks and debt investors across so many unsecured and nonrecourse debt tranches, we have substantially reduced our counterparty risk. At 03/31/2026, our weighted average cost of unsecured debt financing was 4.71%. Now I will turn the call back over to John. John Barry: Kristin, thank you very much. We will now open the call for questions. Operator: Thank you, sir. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Again, it is star then 1 to ask a question. At this time, we will pause momentarily to assemble our roster. This concludes our question and answer session. I would like to turn the conference back over to John Barry for any closing remarks. John Barry: Thank you, everyone. Have a wonderful day and a wonderful weekend. Bye now. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Rocco and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Dauch Corporation First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim. David Lim: Hey. Thanks, Rocco. Thank you, and good morning, everyone. I'd like to welcome everyone who is joining us on Dauch Corporation's first quarter earnings call. Earlier this morning, we released our 2026 earnings announcement. You can access this announcement on the Investor Relations page of our website, www.dalc.com, through the PR Newswire services. You can also find supplemental slides for this conference call on the investor page of our website as well. A replay of this call will be available through May 15, 2026. Before we begin, I'd like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements that are subject to risks and uncertainties which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed. Additional information, we strong marks the first time our results include the Daule acquisition. And I am very pleased with the performance as we begin to capture integration synergies and leverage our combined operational strengths. The acquisition has met our expectations with the product portfolio with customers, and very importantly, the strong personnel that came with the acquisition. The transaction brings together two great companies with size, scale, and compelling industrial logic position us for long-term success. In addition, we have had constructive discussions with our major about the acquisition, and feedback continues to be very positive as they appreciate our focus on quality, technology leadership, operational excellence, launch readiness, as well as continuity of supply. We are excited about the strong value and long-term strategic benefits of this transformational transaction. As for today's agenda, I will review the highlights of our first quarter financial performance. Next, I will touch on some business updates, commentary on the industry and our synergy progress, as well as an update on our guidance. I will then turn the call over to Chris to cover the details of our financial results, after which we will open up the call for any questions that you all may have. So let's begin with some of the details. The company's first quarter 2026 sales were $2.4 billion and adjusted earnings per share was $0.34 and adjusted free cash flow was a use of $41 million. First quarter North American production was down approximately 2%, Europe was down approximately 1%, and global production was down approximately 3%. However, our legacy sales were flat on the quarter but on a pro forma combined sales basis, we are up slightly. Specifically, we experienced a mix effect on GM's heavy-duty large truck production which was down early in the quarter as they prepare for the next model year launch, whereas GM's light-duty trucks were strong. In general, days supply of inventory with GM large trucks appeared to be at their expected levels, and SUVs appear to be on the lighter side. The Ram heavy-duty continues to enjoy a year-over-year favorable comparison, which is positive. In addition, we saw nice strength in both BMW and Volkswagen CUV platforms here in North America. From a profitability perspective, our adjusted EBITDA in the first quarter was $309 million or 13% of sales. Our results were supported by a favorable mix on a number of key platforms and a solid dollar contribution. As always, our continued focus on operational efficiency contributed to our margin performance during the quarter. So 2026 is off to a good start. Chris will provide more details about our overall financial performance during his prepared remarks. Let me now talk about some business updates, which you can see on Slide 4 of our presentation deck. The quarter, the company received approximately $21 million in net proceeds from the completion of a sale of a Dalles cylinder liner business. We will continue to assess and optimize our current product portfolio to align with our core business, enhance our growth prospects, and our long-term profitability. We also want to highlight our recent award from Cherry JTOR to supply PTUs and RDMs on a derivative model that we already support. The start of production is scheduled for later this year and will run beyond the 2030 timeframe. We continue to see positive momentum on this platform as the SUV product is resonating very well with Chinese consumers. In addition, we have been awarded a business extension for a major truck platform in Brazil with a lifetime revenue of over $750 million which is scheduled to launch later this decade. Additionally, we received contract extension awards with multiple customers. And as OEMs evaluate their respective long-range product plans, business extensions have become a theme in the industry. We also earned numerous sideshow business wins including replacement and new business with six different global OEMs. Furthermore, our metal forming business unit continues to realize wins across multiple product families from our forging to our powder metallurgy, in part due to benefits from both onshoring and reshoring efforts to the U.S. Our strategy to become a leading global driveline and metal forming supplier is unfolding as expected. Next on Slide 5, I would like to provide an update on our acquisition synergies and value capture. After approximately three months into operating as a combined company, we have already realized $35 million of run-rate savings to date, representing excellent progress. We are benefiting from the pre-work that was completed before the deal closed. Out of the gate, we mainly attacked overlapping corporate SG&A, and some procurement cost. While there is much work ahead of us, we have a strong team in place and are encouraged by our momentum and the progress to date to achieve our year-end target run-rate savings of greater than $100 million. And as we have previously communicated, we expect to deliver $180 million in run-rate savings by the end of year two, and a full $300 million in run-rate savings by the end of year three. Currently, geopolitical risks remain an overhang on our industry, especially the Iranian conflict, which is driving elevated oil, energy, and gas prices. However, in the first quarter, we did not see a significant impact on our operations or customer schedules. That stated, over the long term, fuel prices could impact us through higher energy, logistic, and transportation expenses as well as certain petroleum-based input costs such as lubricants. Clearly, we are closely monitoring these developments and we will look to mitigate any impact over time. In the near term, our customer schedules remain stable and consumers appear to be resilient. As always, we will remain focused on the matters that we can control and we will proactively make necessary adjustments to market fluctuations. Now let us talk about our full-year guidance. We have revised our outlook by raising our sales and adjusted EBITDA, reflecting a combination of factors, including our strong first quarter performance, while balancing the macro risks that I just mentioned. The company is now targeting sales of $10.3 billion to $10.8 billion, adjusted EBITDA range of approximately $1.3 billion to $1.425 billion, and adjusted free cash flow of approximately $235 million to $325 million. Our guidance ranges are underpinned by the following production assumptions: North America production at 15 million units, Europe at approximately 16.7 million units, China at 32.3 million units, and overall global production at 91.4 million units. As you know, we use multiple data sources to derive our outlook, including forecasts for certain programs that are significant to our performance. We also note GM is transitioning to its next-generation full-size truck program, and appears to be bullish on overall volumes as demonstrated by the planned opening of their Lake Orion assembly plant. In summary, we had a good first quarter. The integration of Dali is off to a strong start. Our synergy achievement is on track. We raised our guidance, although we are monitoring geopolitical and macro trends. And we are excited about our future and we are built to perform. Now let me turn the call over to our Executive Vice President and Chief Financial Officer, Chris May, for the first quarter financial details. Chris? Thank you, and good morning, everyone. Chris May: I will cover the financial details of our first quarter 2026 results and our updated guidance with you today. I will also refer to the earnings slide deck as part of my prepared comments. But before I begin the financial discussion, I wanted to provide a few housekeeping items for you all. We have included several reference items in the appendix of our earnings deck. First, we included the full-year 2025 and LTM first quarter 2026 pro forma financial metrics for our newly combined company. We have also provided some supplemental walks and data points related to that information. Also, we have updated our definition of adjusted EBITDA and adjusted earnings per share to better reflect our new company's operating performance and geographically diverse business. These changes were also based on feedback from various stakeholders. The definitions include updates to adjust for the amortization of related intangible assets, certain financial instruments assumed from DALL E as part of the acquisition, and one-time purchase accounting items, all of which are non-cash and non-operational in nature. In the appendix, we provided a comparison to our prior disclosures for comparability purposes. As it relates to adjusted EBITDA, there is almost no change to prior amounts. None of these updates have an impact on our guidance or previous planning for our Daulay acquisition. So with that said, let us begin. In 2026, our sales were $2.38 billion compared to $1.41 billion in 2025. Slide 7 shows a walk of first quarter 2025 sales to first quarter 2026 sales. For legacy DAO, volume mix and other was lower by $9 million or relatively flat. While our primary North American market had overall lower volumes of 2%, full-size truck products were higher and offset most declines in other vehicle types. The divestiture of our India commercial vehicle axle business had a $35 million impact in the quarter and metal market pass-throughs and FX increased sales by approximately $44 million. About two-thirds of this related to FX and was primarily driven by the strengthening euro. Dowling contributed $983 million in gross sales for the first quarter; that figure reflects only February and March activity, as we closed the transaction on February 3. On a year-over-year basis, the Dolly portion of our business experienced the same trends as it related to sales. The details are noted on our slide. Now let us move on to adjusted EBITDA. For 2026, adjusted EBITDA was $308.5 million and adjusted EBITDA margin was 13% versus $177.7 million and 12.6% last year. You can see the year-over-year walk down adjusted EBITDA on Slide 8. In the quarter, adjusted EBITDA for legacy Dow was higher due to favorable mix on volume, continued performance, and net favorable metal markets and FX. We continue to be excited by our positive performance trends we have experienced in our business over the last several quarters. DALL E contributed approximately $122 million in adjusted EBITDA for the quarter. Similar to sales on a year-over-year basis, the Dowling portion of our business experienced the same trends as it relates to adjusted EBITDA and those details are also noted on our slide. In the first quarter, we realized $5 million in synergy benefits. As David highlighted, we achieved a $35 million run-rate as of today and we expect this to continue to grow. We have a nice market basket of potential savings that we continue to drive to completion and have a visible path to the targeted $100 million-plus of run-rate synergy savings by year-end. Most importantly, our synergy realization journey has only just begun. Let us move on to interest and taxes. Net interest expense was $77.5 million in 2026, compared to $37.3 million in 2025. The increase in interest expense year-over-year primarily reflects the issuance of new and assumed debt in connection with the combination. The weighted average interest rate of our outstanding long-term debt was approximately 7% at the end of the quarter. We have now replaced all of Dolly's acquired debt with the exception of $349 million of U.S. Private Placement Notes. These remaining notes have a good maturity profile with the furthest maturity in 2036 and fit into our overall capital structure quite nicely. With these notes remaining in place, we have begun to redeem and distinguish a portion of our 2028 senior notes in the second quarter. This action will provide additional runway with minimal debt maturities now through 2029. As for taxes, in 2026, we recorded an income tax benefit of $20 million compared to an expense of $14 million in 2025. This includes a benefit for a valuation allowance release of approximately $20 million in a non-U.S. jurisdiction. Due to all the acquisition-related activity this year, our taxes and impacts are quite involved in 2026. However, once you remove all that activity, we expect our adjusted effective tax rate to be approximately 35%. This is a somewhat elevated rate in 2026, due to valuation allowances and partial interest deduction limitations in the U.S. As for cash taxes, we expect approximately $160 million to $170 million this year. Taking all these sales and cost drivers into account, our GAAP net loss was $100 million or a loss of $0.52 per share in 2026 compared to net income of $7.1 million or $0.06 per share in 2025. Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.34 per share in 2026 compared to adjusted earnings per share of $0.22 in 2025. Let us now move on to cash flow and the balance sheet. Net cash used in operating activities for 2026 was $64.4 million compared to net cash provided by operating activities of $55.9 million in 2025, driven by working capital timing, and cash payments for restructuring and acquisitions. Capital expenditures, net of the proceeds from the sale of property, plant, and equipment for 2026 were $102.7 million. Reflecting the impact of these activities, our adjusted free cash flow was a seasonal use of $40.8 million in the first quarter 2026 as compared to a use of $3.9 million in 2025. From a debt leverage perspective, we ended the quarter with net debt of approximately $4.1 billion and a net leverage ratio of 2.7 times at 03/31/2026. In the near term, we continue to focus on reducing our outstanding debt and strengthening our balance sheet. But as you will recall, at a sustained 2.5 times or below net leverage mark, we will consider additional capital allocation avenues including returning capital to shareholders. We ended the quarter with total available liquidity of approximately $2.6 billion consisting of available cash and borrowing capacity on our global credit facilities. Now let us talk about our updated financial guidance on Slide 6. Our updated targets are as follows. For sales, our new range is $10.3 billion to $10.5 billion versus $10.3 billion to $10.7 billion previously. This new sales target is based upon current global production assumptions, and also certain assumptions for our key programs. For example, we continue to anticipate GM's full-size truck and pickup and SUV production in the range of 1.3 million to 1.4 million units this year. From an EBITDA perspective, we anticipate a range of $1.3 billion to $1.425 billion versus $1.3 billion to $1.4 billion previously. However, if we included the DALI results for a full year, in other words pro forma as if we owned them since January 1 of this year, our range would be approaching the $1.4 billion to $1.5 billion range. Included in our adjusted EBITDA is the proportionate share of income from our joint venture in China with Hesco called SDS. We expect our JV share, which is already included in adjusted EBITDA, to be in the range of $65 million to $75 million this year and this is unchanged from our previous guidance. Overall, we increased the top end of our range, but maintained our low end. Our new range was driven by our solid first quarter performance and potential for continued good truck production. However, our overall guidance is mitigated some by potential increase in costs, in particular related to fuel and energy prices that we are starting to experience driven by macro world events and whose path through the rest of the year is still uncertain. We continue to anticipate adjusted free cash flow in the range of $235 million to $325 million. And while we do not provide quarterly guidance, here are some thoughts around the second quarter. Our schedules appear okay, with no major changes at this point. However, we are experiencing some additional costs related to energy and we would expect some tariff recovery timing spread throughout the year, similar to our experiences last year. Our CapEx assumption is unchanged at 4.5% to 5% of sales as we ready the organization for important upcoming launches, especially for one of our major truck programs. And lastly, for our quarters going forward, we would expect a fully diluted share count of approximately 245 million shares. We remain focused on a strong integration between legacy Dell and Dali, realizing synergies, strengthening the balance sheet, and navigating geopolitical and industry uncertainty. As we progress further into 2026, 2027 comes into view and the very exciting potential ahead of us. We are building around the benefits of our synergy activity, focusing on delivering cash performance opportunities, not only converting on our profitability, but also reducing acquisition costs, reducing restructuring costs, driving interest lower, and optimizing working capital. Thank you for your time and participation on the call today. I am going to stop here and turn the call back over to David so we can start the Q&A. David Lim: David? Operator, can you go ahead and start the Q&A please? Operator: Absolutely. At this time, I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad. We will now open the call for questions. Our first question today comes from Joseph Spak at UBS. Please go ahead. Joseph Spak: Thanks. Good morning, everyone. Maybe just a quick clarification, Chris, on some of the, I guess, definitional changes. One, to clarify, the definition of EBITDA to include minority interest when you gave EBITDA guidance last time, that was already in that assumption even if it was not maybe explicitly called out. And then two, with the definitional change, and I understand those are non-cash items that you are backing out, and I do not think they were in anyone's model. So I think it does not really matter for comparability this quarter. But just to be clear, is that change the reason why the high end of the range went up? And is it really all that, like you are not forecasting further, you know, changes on those non-cash adjustments going forward? Chris May: No. We are not forecasting any changes on those non-cash items going forward. If you look at some of these, Joe, you will find some of them relate to initial purchase price accounting such as our inventory item or our intangible asset amortizations, our joint venture or overall intangible asset amortization, and then a couple relate, I would say, more on technical accounting matters for FX and mark-to-market on some acquired debt and derivatives. None have anything to do with the operations of the company and none had any influence on the change of our guidance. Joseph Spak: Okay. And then equity income when you initially gave that $1.3 billion to $1.4 billion, that was already inclusive of that China JV equity income. Chris May: Correct. That is correct. Joseph Spak: Okay. Then, David, maybe just great to hear you are off to a good start on the synergies. Now that you have actually owned this business here for at least a couple months, so I was wondering if you could give us just a little bit more color on what is going well, what is maybe going a little bit faster, where you see some additional challenges. And then as you sort of dive deeper in, the level of comfort you have with those targets and maybe even if you are starting to search for additional levers to pull here on the cost side. David Lim: Yeah, Joe. First of all, I will say this is, we acquired some outstanding talent from Dallet GKN at various levels, from senior management leadership all the way down to the plant floor. I have been very pleased in regards to how our teams have assimilated together and are working together as we try to bring, as I said, two strong companies together with independent cultures, but we are trying to blend into one culture going forward, and that is going exceedingly well. I have been very pleased as I have gotten out with our senior leadership team to visit a number of the factories here. There is a good engineering aptitude, strong manufacturing or operational aptitude there as well, and a focus on safety and quality, which is, as you know, critical and paramount historically to the Dauch Corporation. So that has been positive. There have been some areas where maybe some capital investment or some other things made have been neglected a little bit at some of the facilities when it comes to just general stores and just facility maintenance and all, but nothing that is material or extraordinary that we cannot deal with and address over a period of time. So I am pleased with that. I think we made great progress in regards to addressing the corporate costs right upfront. So Chris led that workstream for us along with Roberto Fioroni on the GKN side. So that has gone well. SG&A, as I said, is going well, and we have made really good progress in regards to our run-rate for this year, and we will continue to grow that as we go forward. I would say with the economic conditions in the market right now, especially with the Iran war conflict, we are keeping a watchful eye on some of the purchasing activity. But at the same time, we have multiple years to address that. But I think there are some initial challenges here in the first year just because of what is taking place. But do not read too deep into that because I still think that we can confidently deliver that number. And then from an operational performance standpoint, again, we are still getting around to the 100-plus facilities that we took over. But we are very encouraged with the opportunities that exist there and are hopeful that there are incremental opportunities going forward. But hopefully, that addresses your question. Overall, I am very pleased with the acquisition, the integration planning that went into that integration, and also our first quarter start here. Joseph Spak: Great. Thanks. I will pass it on. David Lim: Yeah. Thank you. Operator: Thank you. And, ladies and gentlemen, we do ask that you please limit yourself to two questions at a time. Our next question today comes from Analyst at BofA. Please go ahead. Analyst: Hi. Thanks for taking my questions here, and congrats on a strong quarter. I just wanted to walk through the guide a little bit more, particularly on top line. You took the sales guide up a bit. You actually took the global production forecast down. Can you walk through what allowed you to do that? Are you actually seeing better-than-expected production on some of your key platforms even though the global production environment maybe is a bit softer? Thanks. Chris May: Yes. Good morning, Alex. This is Chris. I will take that. Yes, we took the top end a little bit. We saw inside the first quarter, obviously, some strength on the light-duty truck, full-size truck here in North America and some other platforms that we supply a lot of sideshafts into. So a nice positive start to the year from a volume perspective. Our overall macro assumption versus our last guidance on North America is relatively flat, Europe down just a tick, but I would say holistically some beneficial mix was played into our thought process at the higher end of that range, as well as a little bit of benefit from FX translation as well. The euro has strengthened a little bit, as well as some other currencies. But primarily, just a nice benefit of some mix that we have seen at the higher end of the range. Analyst: Perfect. Really helpful. And then I just wanted to walk through, you called out additional energy costs. Could you maybe walk us through exactly what you are seeing there? And then just on the overall commodity exposure, is there anything that we should be paying attention to? It does not seem, as of right now, like a significant impact for the year, but just remind us on some of the commodity exposure. Thanks. Chris May: Yes. I will start with the commodity question, then we can talk a little bit about what we are seeing in the macro from near-term inflation pressure related to macro events. From a commodity perspective, you may recall many of our commodity-based costs we have direct pass-throughs to our customers, for which we retain pass-through on about 80% to 90% of those costs. Key commodities that we would track in that bucket would be for things such as aluminum, scrap steel, nickel, moly, and a whole host of other products. I would say they surprisingly have been relatively stable. We have seen some small upticks in those over the last month. But again, they are pass-through and generally protected. When they go up, you carry a little bit of a residual negative; when they go down, you get a little bit of a residual benefit. Those are the primary from a commodity standpoint. And then in terms of some of the macro inflation, primarily due to the Iran conflict, we have seen some elevated energy prices. We have seen some elevated fuel prices. Those translate into things such as fuel surcharges for logistics, etc. I would say inside of the second quarter, we would be pacing towards, call it, $5 million to $10 million impact associated with that. We will see how this plays out for the balance of the year. Still quite uncertain at this point in time, as you know. Analyst: Perfect. That is incredibly helpful. Best of luck going forward. Operator: Thank you. And our next question today comes from Tom Narayan with RBC. Please go ahead. Tom Narayan: Chris, this one is for you. First of all, on Slide 15, thank you for whoever put this together. I know a lot of work went into this. On that Slide 15, if I just take the LTM EBITDA $1.573 billion, and I do all the adjustments, the one-time commercial settlement, businesses that were sold, take out the Q1 synergies, January dollar contribution, and then I compare it to your guide for 2026, take out the synergy, it looks like there is a slight downshift implied by the guidance at the midpoint at least. So I am just wondering if there is a downshift in 2026 versus 2025 contemplated or perhaps the guidance may be a tad conservative, or maybe I am just splitting hairs? Chris May: No, I think in terms of the analysis that you have done pretty quickly here this morning, taking a look at this data is pretty close to accurate. You have to remove the dollar January. We do have to remove the commercial items. Those also impact revenues and profit when you take out the commercial settlement items as well as the businesses that were sold. But if you sort of kind of adjust for those items, you would then find you would need to grow, set up obviously for our synergy capture opportunity here inside our guide, we said $50 million to $75 million, so midpoint $62 million. But holistically, if you think in this LTM period to our 2026 year, at the macro, our volumes are down almost 2%. North America is down almost 2%. Europe is down 2%. Now this gets into mix and different things we will experience each quarter, but that is a main driver of that. That would translate at 25% to 30% contribution margin in terms of that variance. That is your main driver. And then if you peel that out, you will find we actually have positive performance embedded inside of that. Tom Narayan: Got it. And that is taking it to the midpoint, of course. Yeah. I mean, it is barely, it is just a slight downshift. It is not much. But then, second one, you know, this has been a hot topic with this past earnings season, is Chinese domestic OEM customer capture and order books. Just wondering if there is, I know you have what you have disclosed so far from last quarter, etc. But would love to hear, especially in the Dalles side, how you are doing in terms of acquisition on Chinese domestic? Thanks. David Lim: Tom, this is David. As you know, Dollar GKN enjoyed a very strong relationship with Hess and they have a JV called SDS, which is now ours. That business does a tremendous job with both the domestic as well as Western OEMs. But it has really shifted a lot of its business to the domestic Chinese OEMs. So they have been able to not only protect their business, but grow their business. And that volume increases both in China, within that company as well as their export initiatives into Europe and Southeast Asia and Latin South America. They are positioned and poised to benefit from that. We are already starting to see some of that. At the same time, historical Dauch had our own WFOE in China that had done a similar thing as we picked up a lot of domestic Chinese business. So we referenced again today the expanded relationship with Cherry J Tour in regards to an incremental derivative program off of something we are already supporting. So again, we continue to see plenty of opportunities with the Chinese OEMs. And we are winning our fair share of business with them as they expand their capability on a global scale. Tom Narayan: Got it. Thanks a lot. I will turn it over. David Lim: Yes. Thank you. Operator: And our next question today comes from Analyst at Deutsche Bank. Please go ahead. Analyst: Yes, sorry about that, talking to myself on mute. Good morning. So thanks for taking my questions. If we look at the walks for the quarter, it seems like Gallo was a pretty material contributor to strong profitability, even more so than I would say legacy DAO, if my reading is right. So is there something in there in its mix of programs that helped drive that result? Performance and other was pretty strong as well. Any color that you can provide there would be great. Thank you. Chris May: Yes. If you look at the year-over-year walks, you can see the sales and walks in Slides 7 and 8. The legacy Dow performance was 12.9% margins and the legacy Dowling extrapolate was 12.4% margin. So I would say both sides of the equation contributed quite equally with a little bit larger on the downside. And then your margin took up with some of the synergy flow-through. So our view is both businesses performed at positive performance in the quarter on a year-over-year basis, both had a nice mix in terms of from a revenue perspective, and obviously the contribution from the synergy helped the overall company. Analyst: Great. Helpful. Thank you. And then looking out at the rest of the year, it looks like GM has added another shift for its T1 heavy-duty, I think later this year starting at the Flint assembly. Even though it is setting up for the new model. Does the new guide anticipate some benefits from that? Or would that be incremental on top of what you might already have in there? Chris May: Yes. So our guidance as it relates to the full-size truck program for GM is 1.3 million to 1.4 million units. Any planned announcements or schedule adjustments that they have articulated and that have been provided to us have been included inside of that guidance range already. Analyst: Okay. Thank you very much, guys. Operator: Thank you. And our next question today comes from Itay Michaeli with TD Cowen. Please go ahead. Itay Michaeli: Great. Thanks. Good morning, everybody, and congrats on the quarter. I was hoping, just to follow up on prior questions, if we could just do a little bit of a bridge from the kind of Q1 margin of like 13.3% pro forma to what is implied the rest of the year? It sounds like there is some incremental commodity freight baked in there, but also some acceleration in synergies. I am hoping you could go through some of the puts and takes for the full year, kind of what is implied from the Q2 to Q4 margin based on latest guidance? Chris May: Yes. Some of the puts and takes as we think about it from here: obviously, we will transition in the rest of the year to a full month of DALE results, right, that would come in at their blended rate of, at a full cost basis, at the 12% to 12.5% range. So that will start to weather itself in. I would expect to have synergy step-up through the course of the year as we transition and continue to put it in the bag, continued success on our synergy transition to get to that $50 million to $75 million run-rate by the end of the year. As I mentioned on one of the previous questions, we do see a little bit of drag as it relates to inflation, in particular in the second quarter, on fuel and some of those related costs. We will see how those play out for the rest of the year. I would say that is plus or minus for Q3 and Q4 depending on how macro events unfold. And then we had some core performance inside of our company as well. As we transition through the year, we have seen nice traction on our metal form side of the business from a margin perspective. Some of the challenges that we have articulated in the legacy plants over the last couple of years, we are seeing some positive trends from that perspective as well. So those are some of the pieces as I think on a go-forward basis. And then you have tariff plus or minus as we go through the year, timing of when we bill or collect, etc., and that can change from quarter to quarter. Itay Michaeli: Great. That is helpful. Thanks, Chris. Then just as a follow-up, I know it is still early since the closing of the deal, but any observations from sourcing opportunities and how those have gone in the last few months? David Lim: Itay, this is David. Great question. We have had nothing but cooperation and success in positive communication from the customer. They obviously historically know our performance from a historical DAUQ standpoint. At the same time, DALL E GKN had good performance as well. We are maintaining that good performance. That was a priority to us: to protect continuity of supply and the quality and product integrity going into our customers. They are actually pleased in the fact that we will have more size and scale to help weather the challenges that exist in the marketplace today. Clearly, there are a lot of distressed suppliers in the marketplace and have been since COVID. And I think that is only going to amp up as we go forward. So the communication and the feedback from the customers has been very positive. And obviously, we are going to look to continue to maintain those strong relationships that we have and look to try to expand from a cross-selling capability to those loyal and valued customers. Itay Michaeli: Terrific. That is all very helpful. Thank you. David Lim: Yes. Thanks, Itay. Operator: Thank you. And our next question today comes from Analyst at BNP. Please go ahead. Analyst: Hey, guys. So pro forma net leverage finished at about 2.65x. And just based on my math and the guide, it sounds like it will finish the year around 2.28 or so. So how should we think about the timeline to get to the targeted 2.5? Thank you. Chris May: Yes. I understand your math. Yes. We will probably be somewhat level or so through the course of this year based on our guide. But if you think about some of the points we have articulated previously as it relates to our leverage, really one of the main drivers of delevering the company, of course, will be our operational performance through the achievement of our synergies. And as we transition into next year and we take in the next leg from the $100 million run-rate up to the $180 million run-rate, obviously we will drive both profitability and cash flow. So sort of taking down the net debt, if you will, and also driving EBITDA up through that transition period, we will then start to see some traction taking down our leverage even further from where we end the year. That is kind of a timeline of how I would think about it. Analyst: And then as we think about the next generation of GM's full-size truck platform, can you share if you guys expect to have the same participation rate as you do on the T1? And have there been any shifts in GM's insourcing mix, especially between light-duty and heavy-duty? Thank you. David Lim: Yes. This is David. With respect to the model changes that are taking place in the next-generation product with General Motors, we have secured that business. We are in the process of getting ready to launch that business on a staggered cadence based on GM's program timing. Obviously, there are interesting engineering changes as they address some horsepower, torque, and other requirements for the business. We factored that into our business. So that will impact favorably some of the content per vehicle and the overall margin performance. We have secured everything that we have had, and as they look to the next generation beyond that, which will be out in that mid-2030 period of time, our expectation would be to secure our replacement business and continue to try to demonstrate to GM that we are a valued and strategic partner to them. Analyst: So for the next-generation program, you will be on at least as much of the vehicles as you are on the current generation. David Lim: Absolutely. Operator: Thank you. And our next question today comes from Analyst at Financial. Please go ahead. Analyst: Good morning. This is Anastra Etemola on for Nathan Jones. Thanks for taking my questions. Maybe discuss the rationale—in the beginning of the presentation, you gave the rationale for a DAPLay subsidiary you mentioned that you sold. How does this optimize the portfolio? Maybe just trying to get a better picture of your priorities in terms of the overall portfolio. David Lim: Yes. This was something that we evaluated as part of overall product assessments and we continue to assess our product portfolio and we do that consistently throughout the year. But this was something that stood out to us that was not really a core program to us. Chris May: And we had an interested buyer and we came to the appropriate commercial agreement on that to be able to sell that asset. David Lim: As Chris covered earlier, we also divested our commercial vehicle business, which was a legacy Dauch business. So again, things have changed now that we have been able to acquire Dallet. Our [inaudible] is different. We are assessing what is core and what is non-core to our business today. Those assets or businesses that we deem to be non-core, obviously we will try to sell for the appropriate value. But at the same time, we are not going to give anything away. What we want to do is make sure we can pare our portfolio down to the critical products that show growth and also show profitability, and just strengthen the overall company and provide for that robust business model that we have communicated to you all. So it was just a small step in regards to assessing the portfolio. I am sure there will be others that we will evaluate and anything that we do there obviously will continue to help us in regards to accelerating paying down our debt and strengthening our leverage situation. Analyst: Thank you for that. Appreciate the context. Also, just something you mentioned earlier. I know you mentioned the direct pass-through 80%, 90% of the cost. Can you maybe talk about the lag to recover make recoveries? Chris May: Yes, it can be anywhere from a month to a quarter, depending on the customer. So 30 to 90 days. Analyst: Perfect. Thank you. Appreciate that. Operator: Thank you. Our next question today comes from Dan Levy at Barclays. Please go ahead. Dan Levy: Hi, good morning. Thanks for taking the questions. I wanted to go back on the commodity question. You talked about you have a basket of commodities that you are getting direct pass-throughs on. Can you give us a sense of today, pro forma organization now, how inflation dynamics may differ versus the prior AAM? And to what extent do you have increased costs that maybe now have to be recovered outside of formal pass-through mechanisms? To what extent should we be thinking differently about things like energy cost, etc.? Chris May: Yes, Dan, this is Chris. I will take that. For our more pure commodity-type costs, you have heard us articulate for many years. Bringing in the dollar side into the business in total, you will find our view, I would say, very similar. Many of the same type of commodity inputs that we have. So not really a lot of change from that perspective: either types of commodities or pass-through mechanisms. But things such as when you sort of get outside of those core types of commodities like steel and scrap and nickel and aluminum, and things that we talked about like energy and stuff like that, I would say both sides also, those are typically not automatic pass-throughs. You have to have some discussion with the customers and both sides of the legacy businesses had the same type of dynamics from that perspective. Dan Levy: Okay, great. And then, second question is on—you have laid out the cost synergies here. You talked about potential as well for revenue synergies on the customer front, and I know you addressed a while ago the initial discussions with customers. But some of the customers where you have been underrepresented up until now, the Toyota, VSCW-type customers, just what the dialogue has been with some of these customers? And how much more there is opportunity to expand that relationship now that you have inroads into some of these different customers. David Lim: Great question. What I would say is this. Our first conversations with the customers is just to inform them of the combination, to inform them of the capability, and also to make sure that we are protecting continuity of supply and not disrupting them. And as I said in my previous comments, that has gone very favorably. Many of the European and the Asian OEMs, although historical Dauch had a relationship with them, we will benefit greatly from the strength that Dowel and GKN has shared for decades with many of those customers. So it is still early in regards to the discussion phase, but our customers clearly want to better understand our full complement and capabilities. There will be technology days that we will share with each of these customers on a go-forward basis. But they clearly can see the benefits of an expanded portfolio and they clearly see the performance capability that we collectively bring to the table. And just the general dialogue, without getting specific, has been positive in regards to potential consideration for cross-selling type opportunities and new business growth opportunities. I will leave it at that. Dan Levy: Great. Thank you. Chris May: Thank you. Operator: Thank you. And our next question today comes from Analyst at Jefferies. Please go ahead. Analyst: Hi, hello. Thank you for taking my question and congrats on the results. Just to build on what is going well and what has not. You have owned the Dialysate Cardimatology business a couple months now. It would be really interesting to hear your thoughts on the different strategic and diversification initiatives that it has been pursuing over the last few years. If that is the direction you will continue with on the auto and non-auto side. And then secondly, just wanted to ask about the EV commercial cancellation settlement payments. Are there any more of those to go over the next couple of months just given the hit that Dalla's e-powertrain business took over the last couple of years? Thank you. David Lim: Yeah, this is David. I will take these questions and Chris, you can chime in as you feel fit. Clearly, historical Dauch was in the powdered metal business. And clearly so was Dowling GKN. By putting the two together, we have a very strong industry-leading powdered metal capability that is also vertically integrated now with the supplier of raw powder. As you know, under Melrose, this business was really—even Dounlay was up under strategic review. We clearly see this as our wheelhouse in regards to our metal forming business. We think there is opportunity to enhance its performance on a go-forward basis. And we are working on those initiatives right now. Like any piece of business, we will always keep optionality in our business. But we consider that a critical part of our thesis, strategic thesis, as we want to be this global leading driveline and metal forming supplier. There is a great strategic fit of our powder metal business with their powder metal business. Although there is some rationalization that needs to be done, especially on footprint in North America. And we will do that appropriately and time it appropriately, make sure that we are not incurring too much cost that way. But we also see tremendous growth opportunities with it. It just had not received a lot of investment over the years from its previous owner. So we are encouraged and excited. We have a really good leadership team that is running the powdered metal group. And we are introducing some of the AM operating systems into that business, which we also think will bode favorably from a margin and cash generation performance over time. On the EV front, as we talked before, EV—there are different strategies, different approaches globally around the world. We continue to see significant opportunities in Asia, especially China. We are mainly doing a lot of that through the JV that we have there. We will continue to monitor Europe and see what happens there with regulatory and policy change, as we are seeing some of that take place right now, but we do expect extra growth there. In North America, you see here what has happened with the regulatory and policy change where EV penetration was under 5% last month from a high of, you know, 10% or 11% earlier now that all the incentives are gone. So we will continue to be appropriate and balanced and selective in EV. But at the same time, there are some cancellation costs, many of which have been dealt with and addressed, but there are still some open issues that are out there with customers that we need to bring resolution to wrap up the commitments that they made to us and we made. But unfortunately, the market did not materialize. So those are ongoing commercial dialogues with us and our customers, but we hope to bring those to resolution this year and get that behind us completely. So Chris, I do not know if there is anything you want to add. Chris May: Yes. On resolution for any of those EV matters, as you know, if you look at the results historically, Vale had a very strong year last year in closing out a lot of their issues. We had a few small issues that we closed out last year. Dolly closed, I think, one of their last remnant ones from their side of the house in January, which are not in our reported results. But going forward, as David mentioned, there are a few yet to wrap up, but I would say nothing of significance at this point in time. Analyst: Thank you. And, by the way, I appreciate that you broke out the payment in the presentation, just given some of your peers have not. So thanks. Chris May: Thank you. Operator: Thank you. And our next question today comes from Analyst at Wolfe Research. Please go ahead. Analyst: Good morning, guys. Good morning. Just a quick question on the guidance. You raised the guidance at the high end. And I think you mentioned that part of the reason was because mix is better. But I was wondering why you did not increase the guidance, the high end for the free cash flow? I would have assumed that incremental business would have helped cash flow as well. Chris May: Yes, great question, Federico. If you think, we also raised the top end of our sales as well. So obviously, if you do that, you will have some working capital to finance a little bit of the higher end of the sales. That would be your primary driver for holding the cash flow as is. Analyst: Got it. Thank you. And in terms of cadence for your operating results, how should we think about it going through the year? And is there any change from the historical seasonality of American Axle? Chris May: Yes. From a seasonality perspective, I would say our entire business combined, both legacy American Axle and legacy Dolly, we operate the same identical seasonal pattern with our customers, whether they are in Europe in late August, in North America in July, and around the holiday time in December, which is also common in Europe. Very good seasonality, almost identical production days per quarter, almost identical on a seasonality perspective is how I would think about it. And as you think about the year, clearly, some of the key points we talked about in my prepared remarks: a little inflation pressure in Q2 from macro events, but our synergy will build through the year, right? So that will come on in Q3 and Q4 to get that exit run-rate. Those would be some of the operational elements. From a revenue perspective, we got a lot of questions today about the GM full-size truck. We had some downtime in January for heavy-duty. As you know, one of their larger endpoints, a large facility, Silao, they will go through their next-generation change that will impact, call it, mid-second half of the year as they finalize when they are going to take that facility down for a little bit. That is a primary endpoint for us as one of our customers as well. Operator: Thank you, guys. And gentlemen, our final question today comes from Analyst at BofA. Please go ahead. Analyst: Hey, guys. Thanks for slipping me in. I want to ask a little bit about the EPA changes. We met with a big OEM this week, and they were pretty happy with some of the EPA changes that perhaps are relaxing some limitations to agate cylinder new gasoline engines, and they thought maybe it could perhaps help their mix for heavier pickup trucks and SUVs. Is that something that you are seeing in your production forecasts—that mix is happening elsewhere in North America? Trying to get a little smarter on that because it could be a big benefit to the OEMs' price points. David Lim: Yes. Anything that the government is doing to relax regulatory and policy is clearly a benefit to the OEMs, especially the domestic OEMs, and then certainly a benefit to us as well. As we said before, as ICE has extended out and even hybridization, that is clearly a strong benefit to us as a company. And we have got an installed capacity and product portfolio that is already solidly in place. As we alluded, our financial performance was impacted favorably in regards to the truck platform. On the light-duty GM, very strong. Ram heavy-duty, very strong. GM was down in the first quarter as they are transitioning, but we expect to be very strong throughout the year. So we are clearly seeing the benefits of that. We are starting to see also some of the long-range product plan adjustments with the customers as some of those EPA adjustments and regulatory adjustments have been reduced. There is no doubt about it. Analyst: That is good. It is good for the sector. Alright. Thanks so much. That is it for me. David Lim: Yes. Thanks, Doug. We want to thank all of you who have participated on this call and appreciate your interest in Dauch. We certainly look forward to talking with you in the future. Thank you. Operator: Thank you, sir. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Operator: Greetings, and welcome to the Starwood Property Trust, Inc. first quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. It is now my pleasure to introduce your host, Zachary H. Tanenbaum, Head of Investor Relations. Thank you. You may begin. Zachary H. Tanenbaum: Thank you, operator. Good morning, and welcome to the Starwood Property Trust, Inc. earnings call. This morning, we filed our 10-Q and issued a press release with a presentation of our results, which are both available on our website and have been filed with the SEC. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are forward-looking statements which do not guarantee future results or performance. Please refer to our 10-Q and press release for cautionary factors related to these statements. Additionally, certain non-GAAP financial measures will be discussed on this call. For reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP, please refer to our press release filed this morning. Joining me on the call today are Barry Stuart Sternlicht, the company's Chairman and Chief Executive Officer; Jeffrey F. DiModica, the company's President; and Rina Paniry, the company's Chief Financial Officer. With that, I am now going to turn the call over to Rina. Rina Paniry: Thank you, Zach, and good morning, everyone. Today, we reported distributable earnings of $147 million, or $0.39 per share, for the first quarter. Our results were impacted by continued higher-than-normal cash balances, the resolution of nonperforming assets, and the ongoing optimization of our new net lease cylinder, adjusted for which DE would have been $0.47. I will provide more detail for these items within my business segment discussion. As we continue on our stated task to grow our investment base, resolve our nonperforming assets, and optimize our new net lease platform, our underlying earnings power continues to build. In the quarter, we deployed $2.5 billion of capital across our businesses, including $1.5 billion in commercial lending, $597 million in infrastructure lending, and $128 million in net lease, bringing total undepreciated assets to a record $31.7 billion at quarter end. We deployed another $1.5 billion after the quarter, 70% of which was in commercial lending. Our company is diverse, with commercial lending comprising just 52% of our investment base and owned property increasing to 25% this quarter. We are really not a typical mortgage REIT. I will now take you through our individual segment results, beginning with commercial and residential lending, which contributed DE of $172 million to the quarter, or $0.45 per share. In commercial lending, we funded $894 million of our $1.5 billion in loan originations along with another $278 million of preexisting loan commitments. After factoring in repayments of $835 million, our funded loan portfolio grew to $16.7 billion. This does not include $1 billion of new originations after quarter end, which brings our loan portfolio to its highest level since inception, or $2.3 billion of unfunded commitments on previously closed loans that will generate future earnings when funded. I mentioned earlier that our run-rate earnings were impacted by our resolution of nonperforming assets. During the quarter, we sold a multifamily asset in Conyers, Georgia that was foreclosed in February. We repositioned the asset during our one-year hold period, cutting delinquency in half from 16% to 8% and increasing occupancy from 86% to 91%. After a broad marketing campaign and over 20 qualified bids, we sold the asset for a $5 million DE loss and a small GAAP gain, reflecting the adequacy of the GAAP reserves we previously recorded on this asset. We foreclosed on three five-rated nonaccrual loans in the quarter, the first of which was a $248 million mixed-use property in Dallas, consisting equally of multifamily and hospitality. The second was a $71 million multifamily in Phoenix and the third was a $28 million multifamily in Dallas. We obtained independent third-party appraisals for all three assets, with the mixed-use property that represented two-thirds of this quarter's foreclosures appraising 10% above our basis. The other two assets carried a combined $25 million of specific CECL reserves. The weighted average risk rating on our loan portfolio improved to 2.9 this quarter versus last quarter’s 3.0. This improvement is net of two small multifamily loans that were downgraded from a 3 to a 4 in the quarter, which Jeff will discuss. We ended the quarter with $676 million of reserves, $455 million in CECL, and $221 million in REO. Together, these translate to $1.82 per share of book value, which is reflected in today’s undepreciated book value of $18.97. Turning to residential lending, our on-balance sheet loan portfolio ended the quarter at $2.2 billion, down from $2.3 billion last quarter due to repayments of $38 million and a $21 million negative mark-to-market adjustment on the portfolio that was offset by the $31 million positive mark-to-market we recorded last quarter. Our retained RMBS portfolio remained relatively steady at $400 million. Next is infrastructure lending, which contributed DE of $22 million, or $0.06 per share, to the quarter. Our strong investing pace continued with $597 million of new loan commitments, of which $567 million was funded. After factoring in repayments of $320 million, our portfolio increased to a record $3.2 billion. Nearly 70% of this quarter’s commitments were self-originated, bringing our total self-origination volume to $950 million. Also in the quarter, we completed our seventh actively managed infrastructure CLO, a $600 million transaction at a record-low spread of SOFR plus 1.68%. We used a portion of the proceeds to repay CLO 3 for $330 million. CLOs now represent 75% of our infrastructure debt, providing a durable, nonrecourse, non-mark-to-market financing. Turning to our property segment, we recognized $29 million of DE, or $0.08 per share, across all three major portfolios. I will start with a brief comment on our Florida affordable multifamily portfolio, Woodstar. Last week, HUD released new maximum allowable LIHTC rent levels which were set 8.9% higher than last year. Certain properties were in geographies where the rent increases were once again capped by HUD, with the incremental rent growth being deferred to next year. To date, we have recouped 100% of our original equity investment in this portfolio plus an incremental $540 million that we have been able to reinvest across our business line. We have $416 million of Woodstar debt maturing in Q4 and anticipate another cash-out refinancing, again affirming our valuation on these assets. In net lease, as I mentioned earlier, we are still in the ramp-up phase of this business, which has been quite dilutive following our acquisition eight months ago, a dynamic we anticipated and disclosed at the time. If optimized and at scale, this business would have contributed $0.03 of incremental DE to the quarter. The quarter's acquisition volume was in line with our original underwriting, with $128 million of purchases containing a weighted average lease term of 19.5 years and weighted average rent escalations of 2.5%, bringing our total portfolio at quarter end to $2.5 billion with a weighted average remaining lease term of 17.4 years and zero defaults. As you are aware, we adjust DE for the straight-line rental income reflected in our GAAP numbers. If we were to include straight-line rent in DE, it would add another $0.01 to the quarter. We continue to optimize this platform’s capital structure, completing two notable refinancings since our last earnings call. The first is a new ABS transaction, which was used to replace a more costly issuance that we assumed in connection with the acquisition. The ABS financing totaled $466 million at a weighted average fixed rate of 5.06%, a record-tight spread for this platform. This allowed us to replace $324 million of existing ABS financing, which carried a weighted average fixed rate of 0.65%. The impact on our master trust was a reduction of 44 basis points from 5.73% to 5.29%, a benefit that we will realize in DE over time. However, during the quarter, we recognized a $0.01 nonrecurring DE loss as a result of unwinding the interest rate hedges we had put in place in anticipation of this securitization. The second refinancing was completed after quarter end with the closing of a new five-year $1 billion warehouse facility. It has a 40% lower spread and is nearly twice the size of the in-place financing we assumed at acquisition. These accretive financings combined with the ramp in transaction volume build the foundation for the earnings power embedded in this platform and pave the way to overcoming the $0.03 of dilution that we recognized this quarter. Concluding my business segment discussion is our investing and servicing segment. Collectively, the cylinders in this segment contributed a robust DE of $57 million, or $0.05 per share, to the quarter. Our special servicer, LNR, continues to perform as the positive-carry credit hedge we have long described, with servicing fees increasing to $52 million this quarter. Our active servicing portfolio totaled $9.9 billion while our named servicing portfolio was $95 billion. LNR continues to be the highest-rated special servicer in the country, with a rating of CSS1, the highest rating possible. Our conduit, Starwood Mortgage Capital, securitized or priced $153 million of conduit loans in three transactions at profit margins that were at or above historic levels. We typically see lower securitization volume in Q1 and expect to see volumes increase in the near term. Turning to liquidity and capitalization, our current liquidity stands at $1 billion, which does not include liquidity that could be generated from cash-out refinancings, sales of assets in our property segment, direct leveraging or issuing corporate unsecured debt backed by our unencumbered assets, or issuing Term Loan B where we have nearly $1 billion of capacity today. In addition, we have $9.4 billion of availability across our bank financing lines. We continue to operate at conservative leverage levels, ending the quarter with a debt to undepreciated equity ratio of 2.59x. Also notable this quarter, our board authorized a $400 million share repurchase program on February 26. In March, we deployed the first $20 million of that program, purchasing 1.1 million shares at a weighted average price of $17.67, a discount to both our current stock price and undepreciated book value per share. And one final note, during the quarter, we are proud to have been awarded the 2025 Mortgage REIT of the Year by PERE Credit. The award reflects the breadth and resilience of our diversified platform across market cycles. With that, I will now turn the call over to Jeff. Jeffrey F. DiModica: Thanks, Rina, and good morning, everyone. Let me start with a broader backdrop because it is important context for the quarter. Capital markets have been volatile to start the year, driven largely by geopolitical developments in the Middle East. Treasury yields and credit spreads have moved with each headline, and while volatility has increased, the overall environment remains relatively stable. Refinancing volumes are significantly elevated, with loans originated before the 2022 rate rise facing their final extensions and newer-vintage loans coming out of call protection and taking advantage of spreads that are today at the tight end of their long-term ranges. This backdrop is constructive for our legacy investments and leaves us well positioned to capitalize on new origination opportunities at scale. Starwood Property Trust, Inc. is a differentiated multi-cylinder platform built to outperform in volatile market environments, spanning commercial, residential, and infrastructure lending, owned real estate, and special servicing. This diversification gives us the earnings profile of a credit business with the upside from our large owned property portfolio, our countercyclical special servicer, early prepayment income, and further resolutions in our lending book. We have invested in every quarter of our 17-year history, and when we see outsized opportunities like we have over the past year, we have the firepower to lean in. We have done just that, with nearly $4 billion of investments closed year to date. We are expecting a very robust finish to the first half of the year with an equally strong pipeline extending into the second half. From a portfolio standpoint, we continue to see the benefit of repositioning we began several years ago. Multifamily and industrial continue to dominate our pipeline, and we continue to grow our non-U.S. loan portfolio, where our manager, Starwood Capital, has large originations teams spanning the globe with decades of lending experience. Starwood Capital is also one of the largest private data center owners in the world, with over 150 dedicated people in the sector, giving us the expertise to also make loans on data centers with confidence. Their footprint also allowed us to be a first mover lending in this space, taking advantage of wider spreads on loans that generally have 15 to 20 year leases to investment-grade tenants and fully amortize over the initial lease term. U.S. office represents 7.6% of our assets today, which is well below our peers and represents the bulk of our reserves. Additionally, we only have one life science loan for $56 million, and together, these sectors are less than 8% of our assets, which is extremely low in our industry and allows us to have more certainty regarding potential portfolio outcomes. As Rina mentioned, our overall risk rating fell from 3.0 to 2.9 in the quarter. I will note that nearly half of the over 50 loans in our history that have been risk-rated 4 or 5 have now been resolved or returned to a 3 or lower rating. Also, over half of our CRE lending commitments have been originated since 2024 at a lower basis and with better loan coverage metrics. We still have work to do, but we have meaningfully repositioned the portfolio in this cycle, leaving us in a good position relative to where the market is today. Our approach to credit remains consistent. We lean into situations where we have conviction and control, and we are willing to use our balance sheet and large internal asset management resources to actively manage outcomes rather than fire sale assets at a worse outcome to shareholders. We have a proven track record of successfully stepping in when sponsors stop supporting and investing in assets. Along with our manager, we have the willingness and proven operational capability in house to improve performance and protect and potentially grow value. We continue to make steady progress resolving legacy assets. Nonaccrual and REO balances declined again this quarter, and we have now resolved over $300 million of assets that were previously a drag on earnings. We have additional REO sales in process and expect further reductions in the remainder of the year and in 2027. We did see some ratings migration in this quarter, which is consistent with where we are in the cycle. Two loans moved into the 4-rated category, both in multifamily. The first is an $81 million multifamily asset in Georgia where the current debt yield is tracking below the extension threshold required at the upcoming maturity. Second is a $40 million multifamily asset in Texas where the sponsor had signaled an unwillingness to continue supporting the asset. Both situations are ones we have navigated many times. We have defined action plans, both are being actively monitored, and we are prepared to step in and execute these plans should we need to. Our 5-rated loan category declined by over $200 million, including the $347 million Rina mentioned, offset by our purchase of the $114 million senior position on a large industrial asset proximate to Manhattan. We are working to resolve this asset, and the sponsor has leases under negotiation for almost all of the available space. Successful resolution of this loan, our largest in the 5-risk category, would decrease our 5-rated bucket by over 50%. That progress, along with continued growth in our investment balance, represents the core pillars of management’s plan to grow earnings and dividend coverage as we have outlined in prior quarters. In Infrastructure, a business we are in our ninth year investing in, we committed $597 million at above-trend returns in the quarter. A majority of that activity was self-originated, which allows us to dictate credit and structure while continuing to grow our portfolio and earn excess return. Given our ability to finance this business accretively, these loans are also supported by durable long-term demand drivers from the energy transition and AI-driven power infrastructure build-out, leaving us with a pristine low-LTV portfolio. Our financing is diverse, low spread, and benefits from nonrecourse, non-mark-to-market provisions in our CLOs, which, as Rina said, account for 75% of this segment’s debt. Our net lease platform, Fundamental Income, continues to ramp as per our acquisition plan. We expect volumes to increase throughout the year as the team completes their first year under Starwood Property Trust, Inc. As Rina mentioned, we again made meaningful progress on the financing side in the quarter. The combination of a lower cost of funds and a higher advance rate, which we underwrote and have now executed on, is directly accretive to the ROE of this cylinder and demonstrates what Starwood’s capital markets relationships help bring to this platform. These improvements should help turn this business accretive in 2027, in line with our underwriting, supporting our thesis of creating long-term shareholder value at the expense of short-term earnings dilution we have experienced to date. Our I&S segment again performed very well. The servicing platform continues to act as a positive-carry credit hedge, generating higher earnings during periods of stress. Since the rate rise, we feel the equity market has undervalued the countercyclical nature of this business on our stock, but it proved again this quarter it is a real differentiated earnings contributor with our highest ROE. I would now like to spend a few minutes discussing our low-leverage balance sheet. We have been and plan to continue to tactically increase our unsecured debt as a percentage of our company’s capital structure. Unencumbered assets to move to more stable non-mark-to-market financing is supportive of our corporate credit ratings, which we hope to improve as we execute on this plan. Our unsecured debt continues to trade very well, which we view as a reflection of the debt market’s confidence in our balance sheet and the value of the diversity of our platform. Our next corporate unsecured maturity is $400 million in July, and we have multiple options to address it. We have ample liquidity to repay it with cash or refinance it to take advantage of the strong current credit market backdrop I started today’s call describing. Our access to the debt capital markets is genuinely differentiated. There is no other company in our space with the same footprint across secured, unsecured, and securitized funding channels. Wrapping up, we are the oldest and largest mortgage REIT with an equity base that is larger than our next four peers combined, and as much trading volume as those peers combined, giving shareholders unparalleled liquidity. In our 17 years, we have built a unique diversified business, invested almost $120 billion of capital while successfully navigating multiple cycles, leaving us as the only mortgage REIT to have never cut our dividend. We have a clear path forward: continue to resolve legacy assets while scaling our investment platforms. Progress across each of these areas is tangible, which we expect to improve earnings and dividend coverage. With that, I will turn the call to Barry. Barry Stuart Sternlicht: Thanks, Jeff. Thanks, Rina. Thanks, Zach. And morning, everyone. I apologize up front. I am not feeling well, so I am doing this with a half stomach. Wow. It is an interesting world. I think we would like to say that there has never been so excited and so terrified at the same time. And it is not just the war, obviously. It is what is the impact of AI long-term on the markets, the office markets, the employment base, what will politicians do in the face of potentially job losses, what will happen with Taiwan, which the markets obviously think is a zero risk given the S&P’s daily highs. And I tend to think the real estate sector in general, coming out of the frozen tundra the last three years, we are still recovering the 500 basis point increase in rates most anyone no one saw coming and then the slow descent even though ex-rents inflation had clearly descended. If you think about the world, it is sort of an odd concept. I was in a room with a lot of people out West recently, and I asked people to raise their hand, if you would have expected what is going on in the world—war, oil prices, deglobalization, trade wars—how many people would expect the stock market to be at all-time highs? And it is sort of a strange thing. But in the middle of this, the real estate markets are curing themselves, although it is slow. It is not quarter to quarter. Supply is dropping dramatically in multifamily. Supply is dropping in industrial. Supply is stagnant, almost nonexistent in the office market. Same in retail. Senior housing. All these sectors are benefiting from capital being sucked into other things, including data centers, which is an asset class we play on both the equity and the debt side, which is the moon and beyond, of course with the risk of Taiwan shutting it all down and the party. I am sure the Chinese know. So when it comes to us, we are sitting here as a unique company with these diversified asset business lines. We keep adding new business lines. We have quite a few assets that are not earning a fair return, whether REO or they are nonaccrual loans. When you look at our stock, you are earning from about 75%—something like that—of our asset base. It is not our full asset base. It is almost like valuing a company that has a major tower under construction, and on the balance sheet, it shows up in the work in progress, not as an asset, but when it is completed, it will produce earnings. I think it is the same story today here. We earned $0.39 for the quarter, not a number we are happy with. But if you backed up the dilution, which will go away over time in fundamentals and the triple net lease business, it would be $0.41–$0.42. About a point and a half drag of what we took in the quarter just hits to our earnings from the REOs. And some of those REOs, when fixed up, we expect to actually make money on, but it takes time. We have a property that the developer will lose several hundred million dollars. We will take it back, and we expect to be able to lease the whole thing and hopefully sell it at a gain. And those are the kinds of opportunities, but they are not quarter to quarter. But with that confidence, we stepped up and bought stock in the quarter. We actually cannot buy stock when we go into blackout period, so that stops several weeks before earnings. We will continue to repurchase stock because it is a pretty good investment for us. Some of our businesses are really spectacular at the moment, and they are masking some of the noise—the less than spectacular parts. The special servicer is cranking. Amazing this far along in the cycle. We still have $100 billion in named servicing and almost $8.5 billion active in the servicing book, and it is not going to be going down. There is still a lot of distress. Rates are still higher. I should have mentioned when I talked to you about what would you think of the world, the 10-year—well, hovering around 4.40%, 4.36%, 4.32%, 4.42%. I mean, that is materially higher than I think most people would think. We are pressing on. We are creating unprecedented deficits, but equity markets do not seem to care very much. Again, I am finishing the thought. This is all good for real estate. The tide had gone out and the tide is turning. We are going from headwinds to tailwinds. And there are really three things behind the tailwinds: one, the reshoring in the United States. We have been bringing back all of these plants, equipment, creating demand for industrial. That is a real trend. It is starting. It is not a massive tidal wave, but you are beginning to see the impact a little bit. Two, supply, which we talked about, and three, interest rates, because the forward curve is still lower. And the markets are very confused, as most executives are, about a world of, I think, post–World War II record low consumer confidence, but retail spending continues up. And I tend to think the posted GDP numbers are sort of illusory. You can talk about them as being great, and they are what they are. But they are really driven by two things: AI spending, which is not felt by the average American, and by productivity gains. And that kind of GDP is not the kind of GDP that normally would send U.S. consumers to the store. And as you know, consumption is 70% of GDP. So it is a miraculous economy, but it is not your grandma’s economy, and it is creating all kinds of odd things. I know. And investors chasing multiples of revenues in the equity markets. So I think we will catch a bid—meaning the entire real estate sector. And I can say that we have recently completed or are about to complete our thirteenth fundraiser of a fund on the equity side, and robust investor demand where a year ago, they would not talk to us. That is really a reflection of the turn in the market, and several of my peers in the asset management business have harped on their recent earnings calls, and we tend to agree things will be getting better. Our pace of our originations is solid. We are all looking for the earnings to come out of the book. We are confident in our ability to pay the dividend. We sit on $1.5 billion of gains in our multifamily book. We actually made $0.05 selling one asset—just one asset—last quarter. So quarter to quarter, we are sequentially up $0.37 to $0.39, but chose not to take any of those gains. We are playing long ball, not short ball. And we are confident in our ability to create a dynamic company that is capable of producing superior earnings and therefore dividends. And I want to thank the team that continues to work really hard to continue to lead the market in our field. Thank you. I will take questions. Operator: We will now open the call for questions. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. Our first question comes from the line of Jade Joseph Rahmani with KBW. Please proceed with your question. Analyst: Hi. This is [inaudible] on for Jade. Thanks for taking the question. It would be helpful to hear your thoughts on the outlook for resolving nonaccruals and foreclosed assets. Maybe comment on the time horizon and, if possible, give a percentage range for resolutions in 2026 and 2027. Thank you. Jeffrey F. DiModica: Yeah. Thanks so much. Appreciate the question. I think we have told you we have resolved over $300 million. We have a resolution that you will see as an upgrade on a lease that was signed for about $100 million in the quarter in Brooklyn that will take an asset that now through three large leases has completely moved from a troubled risk rating of 4 or 5 back into something lower. We are expecting potentially a lease, as I spoke about, on another asset just outside Manhattan, where should we sign that lease, that will go from a 5 or 4. I think I mentioned in my script that 25 of the 53 loans we have ever had at the 4 or 5 have now been either worked out or moved back down. Our strategy is just different than other people’s a bit on these. A lot of people are willing to fire sale to a higher-cost-of-capital buyer potentially with financing when they have a difficult asset. We look at every loan on a present value of the likely outcome to us, and given our access to liquidity, we have chosen to lean in. Rina gave you some examples in the quarter. Even the multifamily that we lost $5 million or so on, we increased occupancy significantly, decreased the delinquencies significantly in the six months or so that we managed that property. Being managed by Starwood Capital, we have people with expertise in these. So we are not afraid to take something back. We are not afraid to stay in. We do not stay in for the sake of staying in, but if the present value of getting the money back today versus investing in the asset—if the present value is higher on the latter, we will do the latter. So we have a few that you will see play out. It will put us over $500 million or so, I think, in the very near future. We are expecting $900 million by the end of the year in our plan, and then another $500 or so million next year in our base plan. That will work most of the way through it. But it is very difficult to judge when you will sign a lease and when something will play out and when the present value calculus for us will turn positive versus negative on making that decision. Analyst: Great. Thank you. That is very helpful. And then separately, it would be helpful to touch on the outlook for net lease and when you would expect it to become accretive. I know you cited $0.03 of dilution, but you also issued ABS and entered into a new credit facility. So any commentary there would be helpful. Jeffrey F. DiModica: Yeah. Thanks so much. You know, this is an interesting one. You all know we were not earning the core dividend at the time we closed this deal in July. We made a decision knowing this business is running exactly at what we expected it to run in the short run. We knew we had to optimize the financing. We knew we would get originations up. We made a decision to take on negative DE for up to six quarters. I think when we did it, we told people it would become accretive in ’27. And so it is not often that a company like us takes six quarters of negative DE at a time where we are not earning the dividend. But we did that because we wanted to own this platform. We were buying a platform that we knew would be short-term dilutive, and as you look at the rent bumps over a number of years, it becomes very accretive down the line. So as large shareholders with management and our board, we looked at the long term here. We are obviously paying a penalty for it in the market today because missing a number, as you see in today’s stock price, is not something that bots like very much, but we set this up for the long term. We think the business will perform. As you said, we have now optimized the financing, which should start kicking in and help it turn to be accretive in 2027. It becomes very accretive beyond that. But I will turn it to Barry for any other comments that he might have. Barry Stuart Sternlicht: Well, a couple things. One, the fundamental business, if it traded separately, would probably trade at a 5% or 6% dividend yield, and it is tucked into us, and, obviously, it is hurting us when in fact it has probably got significant value as a stand-alone business, which is not lost on us. So one way or another, we are going to get this thing to scale or spin it out or do something that will create the value that is in the business. We are not using straight-line accounting on their leases. Some of our peers do that. With that, I mean, our yields would be significantly higher even this year. So zero defaults, percent-occupied portfolio, growing at about the pace—I would say it is growing at the pace we underwrote, but not nearly as fast as I would have hoped. So and that is one of the reasons you see the dilution. I think you have to look at us—just answering the former question—we are going to work as fast as we can to repair these nonaccrual assets and the REO assets. But, as Jeff mentioned, we do not have the need to give them away. At the end of the day, we are real estate guys. And so what you see in most of these assets, especially the ones that get in trouble, is the borrower just stopped taking care of them. Right? So you have a portfolio of multifamily that has rooms out of service because he just did not care because he is going to lose the asset, or you have tenants that will not take on an office asset because the borrower has no desire or any need to put in tenant improvement dollars. He is just flushing his cash. You get these, in some cases, really good assets that have been abandoned by the borrowers. It takes time to actually get them back to stabilization, and then you sell them. It is not—sadly, it is—you know, it would be easier if this was a closed-end fund kind of thing. And it is not done to optimize earnings quarter to quarter. It is done really to maximize return on the capital that we invested behind these properties. So and we are blessed with the fortress balance sheet, so we can put the money into convert—as we are—1201 K Street in D.C., which is being converted from an office building to a rental. And in the time that we have taken, the underwriting rents have gone up, so our yields on cost would be even better than we thought and expect they will be. Did not seem to fire half of D.C. So when we complete that—but that is not going to get done for another year, or year and a half. And so that is the kind of situation. We are confident. We are major shareholders of our stock. As you saw, we repurchased stock. So we are confident in our ability to weather the storm and continue to pay the dividend. And wait for cleaner numbers, frankly. The data is not bad. It is just not very clean. So we know all that. Operator: Thank you. And as a reminder, if anyone has any questions, you may press 1 on your telephone keypad to join the question and answer queue. Our next question comes from the line of Gabe Poggi with Raymond James. Please proceed with your question. Analyst: Hey. Good morning. Thanks for taking the questions. Kind of a piggyback on the last question, $0.48 of the dividend coverage is the goal. Help us—or me—shape kind of where we are in that timeline based on these first quarter results. I know, Barry, you said there is a lot of noise in it and the dilution from net lease, etcetera. But how should we think about kind of the timetable to get to $0.48 as you are working through nonaccruals, as you are taking time with REO and being patient, etcetera, etcetera? That is question one. Rina Paniry: Thanks for the question. So as I mentioned in my remarks, I think we are there on a recurring basis today. Right? We are not there on a reported basis. So we need to work through—we talked about Fundamental, and we think that that becomes breakeven, call it, early next year and then accretive thereafter. We think on a recurring basis we would be in excess of the dividend at some point, probably late next year. We had higher-than-normal cash balances that we talked about last quarter. We raised excess financing on our Woodstar refi. We had two debt raises. So we are still fighting the cash drag from having over a billion dollars of cash for the quarter. So we need to get the money deployed, and I think that will help. But I would say you are not going to see kind of above on a recurring basis until next year, some point. And we still have to work through the REO assets. Jeffrey F. DiModica: That is right. We have been saying that consistently, though, for a while—that the back half of ’26 gets to get into ’27. That is when we hope. And, you know, there are little nuances along the way. Let us talk about cash drag. We do not tend to whine about the timing of cash flow. But in this quarter, of the $1 billion of sub-CRE loans, 57% of them were funded, which means 43% were not. On average, they were only funded for 27 days on that 57%. So we are getting very little credit there versus, in the quarter, our repayments are outstanding for 64 days. That probably cost us a penny or two as well. There are just small nuances, but I think if you normalize Fundamental, you go into the upside that Rina talked about and the other businesses, we start to get down—as per the plan I just told you—on nonaccruals, etcetera, and we continue to originate at this very elevated pace with great quality originations. We are really proud of the book that we are building over the last couple of years, half of which is 2024 and beyond originations. It will all come together as we turn the year to getting to that $0.48 that actually is reported in the box more than today’s. Barry Stuart Sternlicht: I am going to be more optimistic than Rina and Jeff because I know about some situations that we will trigger. And if we have to sell some assets to be able to redeploy the capital at the 12%–13% ROEs, then we will do it. I think there are some loans that are toggling to becoming accrual again. They are material. And I would expect at least one of them to have resolution certainly by the end of this year. And with that, there might be a material—it is a material earnings mover for us. So I do think it is unacceptable to have $0.11 or so or $0.12 of dilution from Fundamental. So that is not a stable situation. If it does not get better, we are going to put it in the rightful home, which may not be here. So it is not acceptable. Even though the businesses are performing well, the noise is too much for shareholders to comb through. We could invite you into the house and show you our assets, and you would see the values are all there. And our ability to earn the dividend and exceed it is certainly in the house. It is just—we told you about this last quarter—it is going to be a rocky road to get there. It is a puzzle. And we have to manage it in the best way to maximize returns to the shareholders. We are, as I said, large shareholders, so we are very motivated to do the right thing. Getting back to the $0.48, obviously, would be the holy grail. It is the only thing that we did with CRE lending—that is 52% of our business. We have $1.4 billion of gains, Gabe, away from this. We have always had recurring, nonrecurring gains that come from things. The servicer had a good quarter this quarter. SMC often has a good quarter. It was light this quarter. We used to get a lot of prepaid penalties. Those are coming back in this tighter spread environment. We are going to start getting prepaid again. All these recurring, nonrecurring things will get us over that number, never mind the fact we have $1.4 billion of gains sitting outside of it. I think the construct to hold somebody to earning it all in the core—where you take the stock down significantly—does not really apply as much to a well-diversified company that has always had recurring, nonrecurring gains. And we will have recurring, nonrecurring gains through the rest of this year. Analyst: Thank you for that. That is all very helpful color, especially on the timing stuff, Jeff, and I fully appreciate that it takes time to work through this. Follow-up: Jeff, you had mentioned that there were some REO kind of potentially in the sales process or beginning to kind of kick that ball down the road. Is there any more color you can give on that as it pertains to—you took some keys this past quarter—kind of what we are looking like potentially, and Barry just alluded that where some of those sales, if those sales could be pulled forward to reallocate capital? Jeffrey F. DiModica: Yeah. We prefer to let you know when they happen because the markets move pretty quickly. There are two or three that we think happen fairly soon. There are a couple of leases that could move some nonaccruals away from nonaccrual. I think you will see that and then with some potential upgrades. But I do not want to signal any of the sales quite yet, but you know, I gave you the sense that we hope to get through $900 million this year and $500 million next year off that list. And that will be a combination of a number of things. But nothing imminent that we are going to report here. Analyst: Got it. Thank you for the comments. Zachary H. Tanenbaum: Thank you everyone for joining us, and we will see you again next quarter. Operator: Thank you. And ladies and gentlemen, this concludes today’s conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Good morning, and thank you for joining us today for Concentra Group Holdings Parent, Inc. earnings conference call to discuss the first quarter 2026 results. Speaking today are the company's Chief Executive Officer, Keith Newton, and the company's President and Chief Financial Officer, Matthew DiCanio. Management will give you an overview and then open the call for questions. Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including without limitation, statements regarding operating results, growth opportunities, and other statements that refer to Concentra Group Holdings Parent, Inc.'s plans, expectations, strategies, intentions, and beliefs. You are hereby cautioned that these forward-looking statements may be affected by the important factors, among others, set forth in Concentra Group Holdings Parent, Inc.'s earnings release and in reports that are filed or furnished with the SEC. Consequently, actual operations and results may differ materially from those discussed in the forward-looking statements. These forward-looking statements are based on information available to management today, and the company assumes no obligation to update these statements as circumstances change. At this time, I would like to hand the conference call over to Keith Newton. Thanks, operator. Keith Newton: Good morning, everyone. Welcome to Concentra Group Holdings Parent, Inc.'s first quarter 2026 earnings call. We have continued our momentum from 2025 and are pleased with a strong start to the year. Total company revenue was $569.6 million in Q1 2026 compared to $500.8 million in Q1 of the prior year, representing 13.7% growth year over year. Excluding contributions from the Nova and Pivot acquisitions in both current and prior year where applicable, revenue was $520.3 million in Q1 2026, resulting in a 6.3% increase over the prior year. Total patient visits increased 6.7% to an average of more than 54 thousand visits per day in the first quarter. Our workers' compensation visits per day increased 9.6% and employer services visit volume increased 4.8% relative to prior year. Excluding the impact from the acquisition of Nova, total visits per day increased 2.9% in the first quarter; workers' compensation visits increased 6.2% and employer services increased 0.7%. We believe the stronger performance in our workers' compensation business has been a result of a combination of events. Most importantly, we have seen the continued improvement of our patient satisfaction with the experience they have in our centers along with the implementation of new technologies to help strengthen the account management and retention of our existing employer customers along with enhanced prospecting efforts for new employer customers. The service level metrics we track at our centers, including average patient time in the centers, Google ratings, and patient net promoter scores, are all at or close to historical bests. Additionally, Q1 2025 was the easiest comp of all the quarters in 2026 due to a relatively dry winter last year compared to more ice and snow winter events this year that led to more slips and falls and resulting injuries. On the rate front, revenue per visit grew 3.1% during the first quarter relative to prior year. The growth was driven by a 2% increase in workers' compensation and a 2.7% increase in employer services revenue per visit. The California workers' compensation rate increase took effect on March 1, so we anticipate upside to the workers' compensation rate growth over the remainder of the year. Adjusted EBITDA was $120.7 million in the quarter versus $102.7 million in the same quarter of the prior year, or a 17.6% increase. Adjusted EBITDA margin increased 69 basis points from 20.5% in Q1 2025 to 21.2% in Q1 2026. With our strong Q1 performance, our trailing twelve month adjusted EBITDA is now $450 million, up $85 million, or 23%, from our trailing twelve month adjusted EBITDA at the time of our IPO in July 2024. Adjusted net income attributable to the company was $51.5 million and adjusted earnings per share was $0.40 for the first quarter 2026, representing strong growth over prior year of $42.2 million and $0.33 respectively. Quick update on 2025 acquisitions. Regarding our March 2025 acquisition of Nova, we have completed our integration efforts and captured all the synergies that we expect to capture. We are comfortably ahead of where we anticipated we should be approximately one year into this deal, and we are tracking well towards the original objective of reaching a transaction multiple below 7.5 times adjusted EBITDA. With our June 2025 acquisition of Pivot, we have a similar story. Integration is complete, performance is strong, and we are ahead of our original estimate of a transaction multiple of below 9 times adjusted EBITDA. Regarding other growth efforts during the quarter, we added three centers via acquisition and one de novo center outside of Atlanta. On the de novo front, we continue to expect to open a total of eight to ten centers this year, with planned locations in Arizona, Idaho, Missouri, Illinois, Virginia, South Carolina, and Florida. With respect to additional small bolt-on M&A, we have several opportunities actively underway and look forward to sharing more detail in the future. Finally, I would like to take a moment to recognize and thank Doctor John Anderson, our Chief Medical Officer since 2014, who, as previously disclosed, has announced his well-deserved retirement at the end of the year. Known affectionately across Concentra Group Holdings Parent, Inc. as Doctor A, he has been the foundational part of our organization for nearly five decades, including his time with predecessor companies. Over his career, Doctor Anderson has helped shape our mission, vision, and values, built a comprehensive clinical orientation and training program that supports long-term success in occupational health, embedded a strong patient-first mindset into our daily operations, and developed our best-in-class clinical model. His decades of service, leadership, and clinical expertise have been invaluable, and we are deeply grateful for the lasting impact he has made on our organization. We are fortunate to have a strong pipeline of both internal and external candidates and will be conducting a thorough evaluation process with the expectation of filling the role in the coming months. To support a smooth transition, we expect to enter into a consulting agreement with Doctor Anderson for a period of time. I will now turn the call over to Matthew DiCanio for additional details on our financial results for the quarter and updated outlook for 2026. Matthew DiCanio: Thanks, Keith, and good morning, everyone. In our occupational health operating segment, total revenue of $519.9 million in Q1 2026 was 9.9% higher than the same quarter of the prior year. Total visits per day increased 6.7% over the same quarter of the prior year and revenue per visit increased 3.1% from $147 in Q1 2025 to $151 in Q1 2026. Workers' compensation revenue of $337.7 million in Q1 2026 was 11.8% higher than prior year. Workers' compensation visits per day increased 9.6% from prior year during the quarter, and workers' compensation revenue per visit increased 2% from $209 in Q1 2025 to $213 in Q1 2026. Employer services revenue of $172.4 million increased 7.6% in Q1 2026 from prior year. Employer services visits per day increased 4.8% from the same quarter prior year. And finally, employer services revenue per visit increased 2.7% from $94 in Q1 2025 to $97 in Q1 2026. As with past quarters, here are the same stats for Q1 excluding the impact of Nova to help isolate the core business from our Q1 2025 acquisition. This is the last quarter we plan to break out Nova as its contribution will be fully embedded in both Q2 2025 and Q2 2026 P&L. Total revenue within the occupational health center operating segment was $487.8 million in Q1 2026, a 5.7% increase over the prior year. Total visits per day increased 2.9% over the same quarter prior year and revenue per visit increased 2.7% from $147 in Q1 2025 to $151 in Q1 2026. Workers' compensation revenue of $317.8 million in Q1 2026 was 7.5% higher than prior year. Workers' compensation visits per day, excluding Nova, were 6.2% higher than prior year during the quarter, and workers' compensation revenue per visit was 1.3% higher than prior year during the quarter. Employer services revenue of $160.7 million in Q1 2026 increased 3.2% from prior year. Employer services visits per day, excluding Nova, were 0.7% higher than prior year during the quarter, and employer services revenue per visit was 2.4% higher than prior year during the quarter. I would like to take a moment to reemphasize an important distinction in our business mix. Our workers' compensation segment generates significantly higher revenue per visit and contribution than our employer services offering. Employer services remains an important part of our service offering, and it often is the initial point of entry with employer customers, but those services are typically completed at much lower contribution margins. As you can see, workers' compensation is the primary engine of our business, accounting for approximately two-thirds of our total center revenue. As a result, in a low-hire, low-fire macroeconomic environment like the one we are experiencing today, employer services can show muted trends while the company continues to perform well overall. While this may be obvious to some, we felt it was important to underscore this dynamic given the significant growth disparity between employer services and workers' compensation visits this quarter. Moving on from our occupational health centers, our on-site health clinics operating segment had another strong quarter with reported revenue of $37.2 million in Q1 2026, a 125% increase from the same quarter of prior year. This was largely driven by the acquisition of Pivot On-site Innovations in Q2 2025. Excluding the impact from that acquisition, our on-site health clinics operating segment revenue grew 20.9% year over year during the quarter. On-site health clinics total revenue is nearing a run-rate of $150 million, up from $64 million in 2024. We are encouraged by the continued strong organic growth in this business. We have a robust pipeline of opportunities across both occupational medicine and advanced primary care supported by a highly capable team following last year's Pivot acquisition that is well positioned to execute on our growth strategy. We remain excited about this segment given the meaningful cross-selling opportunities within our existing customer base, an expanding margin profile, the direct employer-paid revenue model, and the growing and sizable market opportunity. We estimate the serviceable addressable market to be between $15 billion and $20 billion with only a small portion currently penetrated. This significant white space combined with our best-in-class service gives us strong conviction in the long-term potential of the business. And finally, other businesses, which include telemedicine, our pharmacy operations, and other occupational health related services businesses, generated $12.5 million in the quarter, a 10.4% increase against the same quarter prior year. We are impressed by the team's execution in these areas and the opportunities that exist to continue to grow at attractive growth rates. Moving on to expenses, cost of services was $399.1 million, or 70.1% of revenue, in Q1 2026, an improvement from 71.3% of revenue for the same quarter prior year. We continue to realize incremental improvements in staffing efficiencies within centers, resulting in nice gains in center-level margin. Our total general and administrative expenses were $55.3 million, or 9.7% of revenue in Q1 2026, compared to 9.3% of revenue in the same quarter prior year. Excluding items that are added back for the purpose of calculating adjusted EBITDA, including equity comp expense, one-time select separation costs, and M&A transaction costs, G&A expense was $50.2 million for the quarter, or 8.8% of revenue, compared to 8.2% of revenue in the same quarter prior year. The increase is predominantly driven by planned additions to our team and IT infrastructure resulting from our separation from Select. As a result, adjusted EBITDA margin increased from 20.5% in Q1 2025 to 21.2% in Q1 2026. To quickly comment on the separation, we continue to track very well and have now hired more than 95% of the total expected new FTEs. Over the next month or so, we will complete several significant back-office technology separation milestones resulting in functional separation from Select by the end of this summer, well ahead of the November 2026 deadline. Now to touch on cash flows. In Q1, we generated $21 million in operating cash flow. This compares to $11.7 million in 2025, with the year-over-year increase largely resulting from higher earnings in Q1 2026. Investing activities used $14.8 million of cash in the first quarter and were driven by the acquisition of three net centers in California as well as investments in de novo centers, relocations, renovations, maintenance, as well as IT investments. Free cash flow, or cash flow from operations less cash flow from investing activity excluding business combinations, totaled $9.9 million, an increase from prior year first quarter free cash flow of negative $4 million. This was driven by a combination of higher cash flow from operations and lower capital spend in Q1 2026. Finally, financing activities during the quarter resulted in net cash outflows of $24.4 million as we repurchased approximately 661 thousand shares totaling $15 million and paid $8 million in dividends. At the end of the first quarter, we had approximately $65 million remaining under the repurchase program authorized by the Board of Directors. We ended the quarter with a total debt balance of $1.58 billion and a cash balance of $61.7 million. Our net leverage ratio per credit agreement at March was 3.4 times, down slightly from year end. Q1 is typically our lowest free cash flow quarter, so we expect to see an acceleration in the decline in our leverage ratio over the remainder of this year. Finally, we are pleased to announce continuation of our dividend this quarter, with the Concentra Group Holdings Parent, Inc. Board of Directors declaring a cash dividend of $0.0625 per share on 05/05/2026. The dividend will be payable on or about 06/09/2026 to stockholders of record as of the close of business in May 2026. Moving on to 2026 guidance. Given the strong start to the year, we are revising our 2026 guidance, including increasing the low and high end of our revenue target range by $25 million to $2.275 billion to $2.375 billion; the low and high end of our adjusted EBITDA range by $10 million to $460 million to $480 million; and the low end of our free cash flow target range by $15 million and the high end by $10 million to $215 million to $235 million. Our CapEx range of $70 million to $80 million remains unchanged. With respect to net leverage, given the increase to both adjusted EBITDA and free cash flow guidance, we expect to end the year comfortably below three times. Overall, a great start to the year, and our team is excited about initiatives we have in place to continue our trajectory. That concludes our prepared remarks, and we thank everyone for the time today. I will now turn the call back to the operator to open the call for questions. Operator: Certainly. We will now open the call for questions. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Your first question for today is from Ann Hynes with Mizuho. Great. Good morning, and thank you. Ann Hynes: So, depending on who you look at, you beat consensus adjusted EBITDA estimates by 10% to 11%. What was your internal beat versus what consensus was? And what surprised you the most on the upside beat? Operator: Thanks. Matthew DiCanio: Yeah. Good morning, Ann. Hey, it is Matt. So I think, when you look at our results, what really drove the results in Q1 was the workers' compensation visits and also our cost of service and cost control. Our teams did a great job from a staffing perspective across the centers, and the visit volume was higher than expected. We are not necessarily going to comment on our internal budget, but those were the two main drivers of our performance in Q1. Ann Hynes: And I know in your prepared remarks, you talked about weather. So was weather actually a positive impact in the quarter? And if it was, can you quantify how much it was? Keith Newton: Yeah, Ann, this is Keith. Weather can be both negative and positive to us. We think that in this quarter, it was a net positive. In our business, ice and snow, depending upon the extent you get it and how long it is around, can create lots of slips and falls. The individuals that are coming to our centers typically, a lot of them are having to work during those time frames—either maintenance workers, street workers, whatever—and so we see quite a bit during the wintertime, the slips and falls. When you look back at 2025, it was a relatively mild, dry winter. Our Northeast region, when you look at them geographically, was by far the region that was most up over the prior year, so indicative of weather. We certainly had center days where we had closures, but we have always been extremely aggressive about limiting that as much as possible because we are here to keep America working. So we are very aggressive about getting our centers open. There are people out there needing care as a result of those injuries. So we think overall, based on the extent of the weather this year compared to last year and our ability to minimize the number of days our centers are actually closed, that overall, it was a net gain. Ann Hynes: Alright. Great. Thank you. Operator: Your next question for today is from Justin Bowers with Deutsche Bank. Justin Bowers: Good morning, everyone. Keith, just on that note of keeping America working, can you give us your perspective on economic activity based on what you are seeing with your customers and some of the prospects that you mentioned Concentra Group Holdings Parent, Inc. is doing? And then part two of that would just be, how are those trends correlating with the BLS and JOLTS data? I know those relationships had decoupled from historical patterns before and just curious if you are seeing any different trends. Keith Newton: Yeah. So, I think coming out of last year and early part of this year, it has kind of been, as Matt mentioned earlier, the continued no-hire, no-fire type situation. So from a hiring perspective, we saw that early in the year. Now it seems like things are starting to accelerate a little bit. We are optimistic about that. I believe we have had the first two months in a row, including this month, with net job gains. So that definitely is a positive for the future. The second half of the question— Matthew DiCanio: Yeah. I would just add a couple comments on the economic data. We saw some positive news today. Total employment continues to grow, especially blue collar, which is the patients that walk in our centers every day. There are fewer layoffs compared to prior year. So we are seeing stability. Obviously, with our employer services visit volume, it is still below historical averages, but the good news for us is total employment continues to grow and clearly we are gaining market share within the categories that we compete. Keith Newton: The quit rates are usually indicative of growth in our employer services. Those still remain relatively stable or below norm. So we have not really seen much there. It seems to be more just straight new job growth that we are starting to see in the last, say, sixty days or so. I do not know if we would really change our opinion as far as what we have said in the past as far as the disconnect a little bit with what has been out there, but we are optimistic it starts to narrow. And again, workers' compensation is typically indicative of what is going on with total employment, and we are seeing blue collar continue to trend up. Justin Bowers: Understood. Thank you. Appreciate it. Operator: Your next question is from Benjamin Hendrix with RBC Capital Markets. Benjamin Hendrix: Hey. Thank you. I may have a bad connection, but I am going to try to get this in here. Just any comments on your free cash flow guidance? Seems like the low end came up higher than EBITDA. You still continue to have really strong free cash flow conversion. Any thoughts on timing dynamics through the capital or other durations there? Thanks. Matthew DiCanio: Yeah. Sure. Good morning, Ben. So we raised our free cash flow guidance. We obviously raised our EBITDA guide. So from a profit standpoint, we are moving higher. The CapEx was a little lower in Q1, but we still expect it to be between $70 million and $80 million for the full year. So really, we are just pushing up that guide there equivalent to what we saw from an EBITDA standpoint. Operator: Thank you. Your next question is from Stephen Baxter with Wells Fargo. Stephen Baxter: Hi. This is Mitchell on for Steve. Just on the rate side and workers' comp, I know you mentioned California rate taking effect in March. Just trying to understand what led to the revenue per visit being below your typical rate increase in Q1, and are you still on track for the 3% for the year? Matthew DiCanio: Thank you. Yeah. Sure. I will take that. So overall, revenue per visit was up 3.1%. You will see in our investor deck workers' comp was up 2%, and employer services was up 2.7%. So there are some differences there because of visit mix. That is why the overall revenue per visit is higher than the individual components, with workers' comp visits growing faster than employer services in Q1. Keith mentioned the California rate increase went into place on March 1. So we did not have a couple months of that outsized rate increase, but that is now in effect, and we will see it for the rest of the year. Also, there was some visit mix within the workers' comp rate growth. So it would have been higher than 2% if the visit mix was consistent with prior periods—maybe 2.3% to 2.4%. But overall, we are on track, and we had some more updates in April, and so we expect 3% potentially higher for the full year. Keith Newton: Yeah. And the 3% that we have quoted in the past is really what we have seen on average through the years. There is going to be some a little higher, like last year, some a little lower. But again, this year, we feel pretty good about where it is going to end up—just some timing of when. And we are also, as Matt mentioned, seeing a little bit of mix going on with it also. Operator: Great. Thank you. Your next question for today is from Joanna Gajuk with Bank of America. Joanna Gajuk: Hey. This is Joaquin already got on for Joanna. So I just wanted to ask any update on the New York rates? And when do you expect to have a final if you do not have one already? And then once you know the rates, how quickly do you plan to expand to New York? Keith Newton: I will take that one. No new update. I am not sure when we are going to hear something, but anticipate it will happen this year and that January 1 something will go into play. Right now, as we mentioned in the past, it is focused on the E&M codes, the evaluation and management codes that doctors use as far as coding level of service, and PT was not adjusted at all. So it definitely took a step forward. It is in an area where we could consider doing something now, albeit still not as attractive as what we want and what we see in other states. But we will continue to work on that. We can move pretty quickly. We have done a lot of analysis in the state. We know where we want to be. We know what we want to do. But we also have a pretty good pipeline already built, so we can be selective when we start and when we pull the trigger there in New York. In the meantime, we are going to continue on the de novos that we talked about earlier that are already in the pipeline this year, and we have a robust pipeline built next year for additional de novos and small organic M&A out there. There are certain things we will look at as we get further out in the year that could be a little bigger than those things, but we have tabled those for now, as we have mentioned in the past, as we get through the final decoupling from Select here in the near future, and we continue to delever a little bit more. Joanna Gajuk: Thanks. And then just touching up again on the activity. So you have always highlighted onshoring as a tailwind for your business. What industries do you mainly have your eyes on? And then what portion of your de novos are targeted within this theme? Thanks. Keith Newton: Well, as far as onshoring, manufacturing naturally is going to be the fit with what we do, so we will continue to watch what is going to happen there. But as far as onshoring manufacturing, that is going to take some time because typically that requires some sort of capital deployment that is not going to happen overnight. So we hope to see that in the future as we continue to hear about the trillions of dollars that potentially are going to get invested in the United States over coming months and years. The second part of the question, I did not catch that. Matthew DiCanio: Joaquin, can you repeat the other part of your question? Joanna Gajuk: Yeah. So it was just what portion of de novos were being targeted at this theme in the future. Thanks. Matthew DiCanio: Yeah. So our de novo strategy is spread pretty much across the country. We track economic activity, industrial pockets of growth, things like that. So it is pretty spread all across the country. We have got a new state of Idaho that we are entering. We are growing in Texas, Florida, a lot of areas where you see continued infrastructure build-out and growth trends. The other thing I would add to what Keith was saying about onshoring is the construction industry will be important for us as well, especially with all the AI build-out. We are seeing pockets of that across the country that we believe are going to help our business as well. Operator: Thank you. Your next question is from Benjamin Rossi with JPMorgan. Benjamin Rossi: Hey, good morning, and thanks for taking my questions here. Just following up on the rate side and workers' comp, you mentioned some of that mix shift in workers' comp and then California went into effect on March 1. I know historically, you said most workers' comp fee schedule adjustments occur in Q1. So you got one month of California in the first quarter. But did this one include the bulk of your 2026 fee schedule benefit? Should we expect any other meaningful step-ups over the course of the year, like in October or later? Thanks. Keith Newton: I believe we have said in the past approximately 75% to 80% of what we see typically is happening during the first quarter at some point in time, and that is pretty much what we saw this year. We have got Tennessee that is going to be happening in the second quarter that will be meaningful for us. And then there will be some annual updates that other states do throughout the summer and early fall, like in Arizona. At this point in time, we really do not know what they will be doing, but would not anticipate anything too material other than potentially inflation-adjusted activity around their fee schedule. But that is what we really see happening for the rest of the year. Benjamin Rossi: Understood. I guess this is just a follow-up on the on-site side and talk about the current opportunities that were in there in your opening comments. When you are assessing opportunities for your on-site health clinics, where do you see the current largest white space opportunities across things like new geographies, new employer relationships, deeper wallet share, or service line expansion? And do you think about sequencing here in the coming quarters? Keith Newton: I would say D, all of the above. Where we are really gaining some traction is in the area of advanced primary care, which we have talked about in the past. We deployed Epic as the electronic medical record within the on-sites a year and a half or so ago. We are really starting to gain some traction there, which is a white space we typically did not play in just because we did not have the capabilities and the technologies to support that type of delivery of care. We are extremely competitive, definitely have the support and awareness of the broker world that supports a lot of the employer decisions around this. We definitely have a seat at the table. Because of our infrastructure and footprint across the United States, it makes us extremely competitive with those that have historically focused on that. In addition to that, with our size now with the acquisition of Pivot, that combination has gone extremely well. We have had a lot of our employer base that we supported with those traditional more Occ Med type on-sites wanting to shift or wanting to expand into further sites. So we have got what we call the internal organic growth within existing employers and have been very successful as far as starting to add sites there across the United States. We are really pulling all the levers—prospecting new, going after RFPs, expanding existing—and again, focusing on the advanced primary care type of on-site is probably the biggest white space that we historically did not play in. Matthew DiCanio: And Ben, I will just add a couple comments just to reiterate in case people missed it in the opening remarks. Our on-site portfolio, excluding the Pivot acquisition, grew 20% in Q1, and the total on-site portfolio is now approaching $150 million in revenue, up from $64 million in 2024. So the teams are doing an unbelievable job, the leadership from our organization, but also the acquisition of Pivot which, as Keith mentioned, is ahead of schedule. We are really excited about the trends there and the upside for the future. Benjamin Rossi: Great. I appreciate all the additional comments. Operator: We have reached the end of the question and answer session, and I will now turn the call over to Keith Newton for closing remarks. Keith Newton: Thank you, operator, and we appreciate everybody joining us today. We will talk again next quarter. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Sounds like the music for the Titanic. Ladies and gentlemen, thank you for standing by. Welcome to the W&T Offshore, Inc. First Quarter 2026 Conference Call. During today's call, all parties will be in a listen-only mode. Following the company's prepared comments, during the question and answer session, we ask that you limit yourselves to one. This conference is being recorded and a replay will be made available on the company's website following the call. Over to Tracy W. Krohn, our Chairman and CEO. Tracy W. Krohn: Thank you, Al. Good morning, everyone, and welcome to our first quarter conference call for 2026. With me today are William J. Williford, our Executive Vice President and Chief Operating Officer; Sameer Parasnis, our Executive Vice President and Chief Financial Officer; and Trey Hartman, our Vice President and Chief Accounting Officer. They are all available to answer questions later during the call. We started 2026 on a positive note with strong operational and financial results that either met or exceeded our guidance across multiple metrics. Our production was 36 thousand 200 barrels oil equivalent per day, toward the higher end of guidance and flat with 2025 despite some adverse weather impacts in early 2026. The solid quarterly results start with our ability to maintain strong production, and we were aided by our realized prices of $45.08 per barrel oil equivalent, an increase of 26% from the fourth quarter. In March, our realized oil price was $88.61 per barrel. Additionally, our lease operating expense, LOE, was down 11% to $66 million, below the midpoint of guidance. Reductions in our LOE costs were mainly driven by lower base LOE spend, reflecting fourth quarter 2025 cost-saving initiatives that began to materialize in 2026. All these positives helped us generate $55 million in adjusted EBITDA, our highest quarterly number since 2023. We are also very pleased to have generated $21 million in free cash flow, a significant improvement from the fourth quarter of last year. Our ability to execute our strategy has delivered very strong results to start off 2026, including a healthy balance sheet and enhanced liquidity. At the end of 2026, our total debt and net debt were $351 million and $220 million, respectively. Our liquidity was $175 million. We built W&T Offshore, Inc. using a proven and successful strategy that is committed to profitability, operational execution, returning value to our stakeholders, and ensuring the safety of our employees and contractors. We have consistently delivered operationally and financially with low-decline production, meaningful EBITDA, and seamlessly integrating accretive producing property acquisitions during our nearly 45-year history. Capital expenditures in 2026 were $7 million and asset retirement settlement costs totaled $17 million. We continue to expect our full-year capital expenditures to be between $20 million and $25 million, which excludes potential acquisition opportunities. Our budget for ARO remains the same at $34 million to $42 million. Yesterday, we provided our detailed guidance for second quarter 2026 and reiterated our unchanged full-year production and cost guidance. In 2026, we have a planned third-party Mobile Bay natural gas processing facility turnaround that will impact our NGL volumes and temporarily increase our LOE. However, our full-year LOE guidance has not changed. We are forecasting the midpoint of Q2 2026 production to be around 34 thousand 300 barrels oil equivalent per day. This is a decrease of 5% compared to 2026, driven primarily by the turnaround, but the key is that we have not changed full-year guidance. Second quarter LOE is expected to be $71 million to $79 million, up from first quarter actual of $66 million, and this is due to the planned Mobile Bay turnaround as well as higher planned workover and facility maintenance work that is expected to benefit production in 2026. It is important to note that LOE expenses tend to increase and decrease seasonally, with much of the work being accomplished during warmer weather months that also produce less wind. Second quarter transportation and production taxes are expected to be between $7 million and $8 million compared with $9 million in the first quarter, which reflects some of the benefit of the new pipeline we installed for the West Delta 73 field. Second quarter cash G&A costs are expected to remain comparable to our Q1 results. I want to point out that we tend to spend significantly less than our peers in capital expenditures and choose to instead spend more dollars on low-risk, high-rate-of-return workovers and facility optimization. We believe this is a more economic way to invest our operational cash flow back into our business and it is a lower-risk option. We can then build cash flow to help us make accretive acquisitions of producing properties. Over the years, we have consistently created significant value by methodically integrating producing property acquisitions. We look for strong producing assets with meaningful reserves at an affordable price that we can integrate into our vast infrastructure. We primarily spend LOE dollars to work over, recomplete, and upgrade these assets. As a result, we often see additional production uplift from these acquisitions above the rates they were producing when purchased. This strategy makes W&T Offshore, Inc. unique, but it is our ability to execute over and over throughout the years that allows us to add value. With our low-decline production, increasing realized pricing, and continued cost control, we believe that we are well positioned operationally and financially to deliver robust results in 2026 while we examine accretive acquisition opportunities. Before closing, I would like to discuss some regulatory updates in more detail. As we mentioned in yesterday's earnings release, the Department of Interior has proposed some positive regulatory changes that would roll back obligations from a 2024 rule that would require companies to set aside about $6.9 billion in supplemental financial assurance. About $6 billion would have applied to small businesses that make up most of the operators in the Gulf. The proposed changes will better align financial assurance requirements with actual decommissioning risk and reduce industry-wide bonding costs by at least $500 million annually. These proposed revisions have been published in the Federal Register with a 60-day public comment period, which is expected to end May 15. We welcome these changes proposed by the Trump [inaudible] that can further encourage U.S. offshore production growth and increase America's energy independence. Regarding the surety litigation, I am able to report that the district court has rejected the surety's attempt to require W&T Offshore, Inc. to immediately pay their demands—I would call them ridiculous demands—for collateral. The sureties are appealing that ruling and W&T Offshore, Inc. will continue to vigorously defend our position that the surety's demands for collateral were neither appropriate nor lawful. Moreover, W&T Offshore, Inc. prevailed in virtually every respect as it relates to the surety's attempt to dismiss the claims W&T Offshore, Inc. has asserted in the lawsuit. Yesterday, the court granted W&T Offshore, Inc.'s request to file an amended lawsuit, which sets forth broader and other claims against the sureties. This case will go on. As can be reviewed in our court filings, the sureties' conduct caused W&T Offshore, Inc. to incur substantial damages and we intend to seek to remedy the conduct and obtain damages to the fullest extent of the law. In closing, I would like to thank our team at W&T Offshore, Inc. for all their efforts. We are ready and able to add significant value in 2026. W&T Offshore, Inc. has been an active, responsible, and profitable operator in the Gulf of America for over 40 years. We have a long track record of successfully integrating assets into our portfolio and we know that the Gulf of America is a world-class basin, being the second largest basin by production and the largest basin in the USA by area. We have a solid cash position and strong liquidity that enables us to continue to evaluate growth opportunities while continuing to generate strong operational cash flow and adjusted EBITDA. We will maintain our focus on operational excellence and maximizing the cash flow potential of our asset base in 2026 and beyond. Operator, we can now open the lines for questions. Operator: We will now begin the question and answer session. Your first question today comes from Derrick Whitfield with Texas Capital. Please go ahead. Derrick Whitfield: Good morning, Tracy and team, and thanks for your time. Tracy W. Krohn: Good morning, Derrick. Derrick Whitfield: Starting with your guidance, while I understand you are reiterating production guidance for the full year, how would you characterize your desire to further lean into workovers in the favorable environment? Tracy W. Krohn: Yes. Well, that is always a key factor for us. We have always got a good inventory of things to do. As we have acquired assets over the years, we take the time to study them and restudy them, and that allows us to continue doing these workovers. Do expect to see some more of that. We will ramp up a little bit during the summer because the weather is better—late spring and summer, which is about now. In fact, we are moving some things around in the Gulf now to begin that process. Workovers have always been a key strong point for us, along with not only workovers but recompletions. Analyst: Great, Tracy. And then maybe shifting over to the M&A environment, I wanted to get your thoughts on the competitive landscape at present. Is it safe to assume we are in a pencils-down environment for larger packages, or are you seeing reasonable action in the market at present? Tracy W. Krohn: The company has got a very strong liquidity position right now. There has been a dearth of significant transactions for the last several years in the Gulf. We feel pretty good about where we are. We are in different data rooms almost continuously over the years. I think that there is a real good possibility that things are going to start moving around. We certainly have aspirations in that direction and intend to continue to pursue things that will fit our normal financial criteria. That criteria usually starts with cash flow, and then also what is the reserve base. What are the things that we can do to increase cash flow near term, such as workovers and recompletions and facilities upgrades, that will generate those numbers near term. Analyst: Great update. Thanks for your time. Tracy W. Krohn: Thank you, sir. Operator: And your next question comes from William Blair. Please go ahead. Analyst: Hey Tracy, this is actually Neil. Just had two quick ones for you. How are you doing? And nice to be back on the call. Tracy W. Krohn: Good, Neil. Analyst: My first question, Tracy, I know part of the upside for you all is converting a lot of the 2P to primary reserves. It seems like with the plan you have laid out, there is still a lot of that going on. Could you tell us what you think the timing of that would be? Tracy W. Krohn: The really cool part about our 2P reserves is that a lot of those reserves come to us in the form of cash and then later on booked reserves. As time moves forward, we see that first as cash flow. That is cash flow and reserves that we do not have to spend any CapEx on, and that has been a real focal point of the company over many years. It is why we have traditionally very low decline rates, and that shows up as massive amounts of cash and reserves over time. It has always seemed to have been that way for the company since we started, and I try to reiterate that to investors in just about every presentation that we do. There are additional reserves that are probables that we do have to spend some CapEx on. We look forward to doing that in the near future. We have not been doing a lot of drilling lately because we have not needed to. One of the hallmarks of the company is making sure that we try to continue the cash flow stream. If any time I can acquire reserves as opposed to drilling for them at approximately the same price, then that is what we are going to do. We are going to take the risk out of it and do that, and that is one of the reasons why we are still here after 40-something years. That is a great question, Neil. I appreciate it. Analyst: I love that upside. Secondly, as you said, not that you are going to have to go drill much, but you have a very low CapEx guide. Does that factor in the workovers that Derrick talked about? Are service costs holding in right now, or what are you seeing for service? Tracy W. Krohn: Part of that is exactly what you suggested—holding on and making judicious decisions about workovers and recompletions. Part of it is to make sure that we maintain really good liquidity. I think there will be opportunities going forward in the market for us to make additional acquisitions. Again, it is not that we do not have wells to drill. We do. We have a pretty good inventory of exploration opportunities and, in fact, even proven reserve opportunities that are substantial. It is not because we do not have inventory; it is because management, including myself, believes that opportunities to do additional acquisitions are good, and we like the way that we are positioned in this market and we have good liquidity. Analyst: Perfect. Thank you much, sir. Operator: Your next question comes from Jeff Robertson with Water Tower Research. Please go ahead. Analyst: Thank you. Tracy, just to follow up on your previous comments. W&T Offshore, Inc. has a pretty low reinvestment rate when you think about cash flow from operations in 2026, and yet production is expected to stay relatively flat for the year from where you were in the first quarter based on your midpoint guidance. To your point about the capital-light business model, is a lot of that production performance just related to, as Neil talked about, moving 2P reserves into PDP without any capital? And is that something that goes on for 2026, 2027, and beyond just based on your reserve profile and performance of your assets? Tracy W. Krohn: The short answer to that is yes. Again, with probable reserves, because of the quirks around the booking of those via the SEC, we have to wait a while before we can put them back in as proved reserves, and often those are just additions to proved producing. We get a dual effect of not only increasing the reserves, but also increasing our borrowing capacity as well. That is a double plus for us. This is normal. These are the actions of the corporation. I have done this illustration in just about every investor meeting we have ever had. I have an illustration in the deck that shows you the effects of the probable reserves and how they get to be producing reserves over time. We generally book them again as cash flow and reserves over time. It is not that we do not have inventory to drill—we do—but it is nice to have that additional bit of reserves. In Europe, they look at this as companies are valued more on the 2P basis than they are just 1P, and our regulators have been a little bit slow to do that. That has always been a complaint and I do not understand the rationale behind it. It seems ridiculous to me because we have proven it over and over again that we definitely increase reserves and cash flow over time without additional CapEx. Analyst: When you think about acquisitions, two-part question. One, are you able to buy on a 1P basis? And then secondly, you spoke about the regulatory environment and some of the things that are coming down the road. Will that have an impact on M&A activity in the Gulf of Mexico, do you think? Tracy W. Krohn: That is a pretty good two-part question, Jeff. To answer your question on 1P, it is really a bunch of different factors. It is not just necessarily 1P. We do look at the entire reserve stack, and again, we like to see acquisitions that have cash flow and a reserve base that we can forecast, but also we like to see some upside too, where we can do some work or drill some wells, that sort of thing. They are all a little bit different. In the Gulf, you have to take into consideration what are the retirement obligations. That is a very important part of what we do. We manage that very well. The company has done more plug and abandonment decommissioning on those AROs than anyone. We have spent over a billion dollars doing that decommissioning work over the years. We think that we are the expert in that market. We understand it very, very well, and that is one of the things that we always look at closely in determining value. As far as the other things that we are looking for, yes, we are in a mode where we are looking around for things that are going to fit our financial criteria, and we have been in data rooms for quite a while. Analyst: Thank you. Tracy W. Krohn: Thank you, sir. Operator: Seeing no further questions, this concludes our question and answer session. I would like to turn the conference back over to Tracy W. Krohn, Chairman and CEO, for any closing remarks. Tracy W. Krohn: Thank you, operator. We appreciate everybody listening, and I look forward to every day. I never know what is going to happen with regards to the markets, and it seems that with the war in Iran, it has been a little bit more difficult to think about it in terms of going forward. On the other hand, we are very pleased that the company is doing well and positioned to do even better. Thank you for listening, and we look forward to talking to you again soon. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to VAALCO Energy, Inc.'s first quarter 2026 earnings conference call. All participants will be in a listen-only mode for the duration of the call. Should you need any assistance, please signal a conference. After today's presentation, there will be an opportunity to ask questions. Please be aware that today's call is being recorded. I would now like to turn the call over to Investor Relations Coordinator, Chris Delange. Please go ahead. Chris Delange: Thank you, operator. Welcome to VAALCO Energy, Inc.'s first quarter 2026 conference call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights of the first quarter. Ronald Y. Bain, our CFO, will then provide a more in-depth financial review. George will then return for some closing comments before we take your questions. During our question and answer session, we ask you to limit your questions to one and a follow-up. You can always reenter the queue with additional questions. I would like to point out that we posted a supplemental investor deck on our website that has additional financial analysis, comparisons, and guidance that should be helpful. With that, let me proceed with our forward-looking statement comments. During the course of this conference call, the company will be making forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. VAALCO Energy, Inc. disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in our earnings release, the presentation posted on our website, and in the reports we file with the SEC, including our Form 10-Ks. Please note that this conference call is being recorded. Let me turn the call over to George. George Maxwell: Thank you, Chris. Good morning, everyone, and welcome to our first quarter 2026 earnings conference call. Over the past two years, we have streamlined and expanded our portfolio while delivering consistently solid operational results. In February 2026, we divested all of our Canadian assets and simultaneously added to our Côte d’Ivoire position by being named operator with a 60% working interest in the Kossipo field on CI-40 block. We are actively evaluating and processing seismic with our partners in Nyonie Marine and Gnondo Marine blocks offshore Gabon and on our exploration block CI-705 in Côte d’Ivoire. At Etame, we have had several successful wells drilled and the rig has now moved to Avouma to drill the next well in our drilling campaign. The Baobab FPSO has successfully completed its refurbishment and is now moored back into position with wells being reconnected and production expected to resume in early June. As we discuss our operational and financial results today, it is important to remember that 2025 was a transitional year for VAALCO Energy, Inc. as production came offline in Q1 at Côte d’Ivoire due to the FPSO project, and we did not start the drilling campaign in Gabon until late Q4. First quarter 2026 was a pivotal quarter operationally and we are beginning to see the significant production uplift we are projecting from these major projects in Q2 2026 and expect it to continue into 2027. We are confident in our ability to execute and have increased our full-year 2026 production and sales guidance, and added to our work program without increasing our capital expenditure guidance. I would now like to provide a quick update on our diverse portfolio of high-quality assets beginning with Côte d’Ivoire. I would like to remind you that we had no assets in Côte d’Ivoire prior to April 2024. Since that time we have developed a significant and prospective portfolio. In line with the project timeline, the FPSO at Baobab ceased hydrocarbon operations in January 2025. Following a year of refurbishment in Dubai, the FPSO returned to Côte d’Ivoire in April and is now moored into position and we have four out of the seven risers and umbilicals connected. We expect the field to restart production in June with sales commencing from the FPSO in Q3. We are very pleased how well the FPSO refurbishment went and that it was completed within the initial timeline expected. The refurbishment was undertaken to extend the life of the vessel and to increase its capacity as we begin a significant development program at Baobab later this year. The program includes four producers, two or three water injectors, and two workovers, providing potential meaningful additions to production from the main Baobab field, where we have a ten-year extension of the license to 2038. The current drilling plan on Baobab is to begin drilling on a batch basis the top-hole sections of all wells. These completions will then be commenced and we expect at least one well to be on full production by year end. In February 2026, in accordance with the CI-40 PSC, VAALCO Energy, Inc. and PETROCI elected to participate in the development of the Kossipo field. VAALCO Energy, Inc. was confirmed as operator with a 60% working interest in the Kossipo field on the CI-40 block, just eight kilometers from the Baobab field. We are now working on a field development plan using new ocean bottom node seismic data that is expected to help de-risk and enhance our evaluation and development plan. The Kossipo field was discovered in 2002 with the Kossipo-1X well and later appraised in 2019 with the Kossipo-2A well, which tested at over 7 thousand barrels of oil per day. Our current assessment has the field with an estimated gross 2C resources of approximately 102 million barrels of oil equivalent and 293 million barrels of oil equivalent in place. Also in Côte d’Ivoire, we continue to evaluate the subsurface potential of our new exploration block CI-705, which we operate with a 70% working interest. We continue to see encouraging prospectivity on the block and proven play types through the Ivorian Basin, including both structural and stratigraphic traps in the Upper Cretaceous and Albian sections. We have met all current work commitments on the block and have been granted a six-month extension to the first exploration phase, which now extends this phase into Q4 2026. Our subsurface work will continue to mature the encouraging prospectivity we see on the block in preparation for a decision later this year to proceed to the second exploration phase, which carries a well commitment. So in less than two years, we have established a sizable position in Côte d’Ivoire with considerable upside potential. We are genuinely excited about the prospectivity in Côte d’Ivoire and its ability to help us achieve our production growth targets. Moving to Gabon. In 2025, we began our Phase 3 drilling program with the drilling of two pilot wells in the Etame field. Based on the pilot well results, we proceeded with drilling the Etame 15H-8 development well on the 1V block of Etame in December 2025. This well came online in late February at about 2 thousand gross barrels of oil per day, so our Q1 production results only had one month of production from this well. The rig remained on the Etame platform to drill an exploration prospect in West Etame. While this well encountered 10 meters of high-quality Gamba sands, the target zone was water-bearing and not commercial. The lower portion of the well was plugged and abandoned, but the wellbore was utilized and we sidetracked the upper portion of the well to drill the Etame 14H-8 development well in the main fault block of Etame that was de-risked from the results of the earlier pilot wells. In late April, the Etame 14H-8 was brought online with an impressive initial rate of around 4.85 thousand gross barrels of oil per day. This well encountered 325 meters of lateral net pay in high-quality Gamba sands in an attic position within the main fault block at Etame. Our second quarter production at Gabon should be enhanced by two months of production from this very successful well. After completing the program at the Etame platform, we moved the rig to the Avouma platform where we are drilling a development well and a workover well to enhance production, lower cost, and potentially add reserves. We also plan another two wells at South Tchibala platform following the completion of the program at Avouma. We expect that development well at Avouma to be completed later this quarter and we plan to announce the results to the market when that happens. Regarding our exploration blocks in Gabon, the Nyonie Marine and Gnondo Marine, we are working with our partners on plans for the two blocks moving forward. We commenced a seismic survey in November 2025, which was completed in 2026. This survey completed part of the exploration work program commitment for these blocks. Processing of the seismic data has begun with early products expected to begin arriving later this year. Given the proximity of these blocks to prolific producing fields of Etame and Dussafu, we are excited about the future possibilities for these blocks. Turning to Egypt, for the past year, we had contracted a rig and drilled about 20 wells across a drilling campaign that helped to increase production year-over-year in 2025. We are very pleased with the operational performance and efficiency of the drilling program, which contributes to minimizing costs. In conjunction with our drilling program, we also continued performing production optimizations, workovers, and recompletions that have significantly improved our production performance. While we wrapped up the drilling program in 2025, given the strong results, we have added a six-well drilling program in Egypt that is commencing in Q2, which should help increase production in Q3. We have not increased our 2026 CapEx guidance for the cost of these wells as the range we provided in March can comfortably include these new wells. We also plan optimizations, workovers, and recompletions in 2026 that are focused on production enhancement. Egypt production remains strong and we continue to invest to drill development wells and continue to delineate opportunities in Ghazalat that could open additional prospects in the future. Turning to Equatorial Guinea. In March 2024, we announced the finalization of documents in Equatorial Guinea related to the Venus Block P plan of development. Last summer, we began our front-end engineering design, or FEED, study. The FEED is complete and confirms the technical viability of our plan of development, but also highlights some of the risk and challenges from the shelf location. We have expanded this review to explore more efficient development opportunities through a subsea development versus the original shelf development, which would also significantly simplify drilling operations and well design, and this evaluation is currently underway. We are expecting to proceed with our plans to develop, operate, and begin producing from the discovery in Block P offshore. We are targeting Venus FID in 2026. In closing, we have an outstanding diversified portfolio that we believe has significant upside opportunities. We remain focused on growing production, reserves, and value for our shareholders. I would like to thank our hardworking team who continue to operate and execute our plans. Over the past several years, we have significantly diversified our portfolio, enhanced our capacity to generate operational cash flow, while returning capital to shareholders and increasing our credit facility capacity. We are well positioned to execute the projects in our enhanced portfolio, and our proven track record of success these past few years should instill confidence for our future. With that, I would like to turn the call over to Ron to share our financial results. Ronald Y. Bain: Thank you, George, and good morning, everyone. I will provide some insight into the drivers for our financial results with a focus on the key points and give additional insight into our 2026 guidance. As George discussed, operationally, we are performing very well. But the first quarter was an inflection point for us financially. I want to begin by highlighting the multiple factors that impacted our Q1 financial results, including the timing and number of liftings in Gabon, exploration expense, and both realized and unrealized derivative losses. I want to point out that in the previous conference call, and in our Q1 guidance, we discussed the reduced sales volumes expected in Gabon due to the sole lift being a government lift. As I have previously stated, in Gabon, Egypt, and Côte d’Ivoire, our foreign income taxes are settled by the government through oil liftings in Gabon and Côte d’Ivoire and the government taking their share in Egypt. We also sold the Canadian assets in February, and as a result, only had a portion of production and sales from those assets in Q1. Additionally, as George discussed, Côte d’Ivoire remained offline for the FPSO refurbishment; production should resume by the end of the second quarter. Despite all these factors, our Q1 sales and production were both slightly above the midpoint of our guidance. We forecasted that Q1 sales would be quite a bit below production; by the midpoint of the full-year, production and sales guidance are much more in line, which means sales will likely exceed production in future quarters. This can be seen in our Q2 guidance. While Q1 sales had no partner liftings in Gabon, we expect two partner liftings in Q2, which is expected to significantly increase our sales revenue and ultimately our adjusted EBITDAX. Another major factor impacting earnings and the expenses in the first quarter was the $22.4 million in exploration expense. This was driven by the cost of an exploration well at West Etame offshore Gabon that was determined to be unsuccessful and additional seismic costs at the Nyonie and Gnondo blocks in Gabon. In the previous call, we also discussed the forecasted exploration expense and Q1 actually came in below the guidance range of $27 million to $32 million. Nearly all of our expected annual exploration expense came in in Q1. Turning to hedging. In 2025, we entered into a new reserve-based lending facility to help provide VAALCO Energy, Inc. with short-term funding to supplement our internal cash flow generation, as we have multiple large capital projects underway across our portfolio. Over the past year, we have been talking about the more programmatic hedging program that will be more consistent over a rolling time horizon. We are looking to mitigate risk and protect the cash flow needed for our capital investments and shareholder distributions through the ongoing hedging program. Prior to the Iran conflict, the hedging program consisting primarily of collars allowed us to protect our downside risk and lock in a range of prices that allowed us to generate strong cash flow. As you know, the market has been very volatile since March, and our hedges had about $15 million in realized losses in the first quarter, with an additional $56 million in unrealized derivative losses as we mark to market the positions. We had 56% of our guided Q1 barrels hedged with costless collars, the unhedged positions being largely represented by the Egyptian sales where the PSC terms provide the state with 85% of the pricing upside, over cost oil and the contractor, 15%. We are continuing to monitor the situation and hedge on any geopolitical shock or spike we can. With Côte d’Ivoire coming back online, we will have more oil barrel sales unhedged in Q3 and beyond. Our full quarterly hedge positions are disclosed in the earnings release. Turning now to the first quarter results, we reported a net loss of $93.7 million in Q1 2026, which was driven by $71 million in derivative losses, of which $56 million represents unrealized book losses, and a $22.4 million exploration expense. While most of our expected exploration expense for 2026 occurred in Q1, with the uncertainty in macro events and oil pricing our realized and unrealized derivative losses could continue to impact earnings in the coming quarters. We also generated adjusted EBITDAX of $11.6 million, which included no partner liftings in Gabon and no sales in Côte d’Ivoire. Q2 2026 is expected to be materially improved due to the two planned partner liftings in Gabon, and Q3 2026 sales are expected to include Côte d’Ivoire. With the FPSO expected to be fully operational in June, we are forecasting some production in Côte d’Ivoire in Q2, but there will not be any liftings until Q3. Production in Q1 was 15.11 thousand NRI BOE per day or 19.88 thousand working interest BOE per day, both above the midpoint of VAALCO Energy, Inc.’s guidance. As I discussed earlier, sales of 12.16 thousand NRI BOE per day for Q1 were slightly above the midpoint of guidance but quite a bit lower than production. Turning to costs, with no partner liftings in Gabon, our production costs for Q1 on an absolute basis were quite a bit lower than in Q4 2025 and were well below the midpoint of guidance both on an absolute basis and on a per-barrel basis. Our focus remains on keeping our costs low to enable us to maximize margins and increase cash flow. But with higher fuel and service costs driven by the Iran conflict, we may see some expenses increase in the near term. Looking at G&A, our cash G&A totaled $6.9 million, which was below the low end of guidance. Moving to taxes, in the first quarter, we reported an income tax expense of $4.3 million, which was comprised of a $14.9 million current tax expense offset by a deferred tax benefit of $10.6 million. Income tax expense included a $2.9 million unfavorable oil price adjustment as a result of the change in value of the government's allocation of profit oil between the time it was produced and its present mark-to-market liability. Turning now to the balance sheet and cash flow statement, in Q1, we invested $78.1 million on a cash basis and $73.3 million on an accrual basis in net capital expenditures. This was primarily related to new wells drilled as part of the drilling campaign offshore Gabon, as well as expenditures associated with the refurbishment and reconnection activities of the FPSO in Côte d’Ivoire. Keep in mind, we wrote off the cost of the unsuccessful West Etame well, so that cost is not in CapEx. Unrestricted cash at the end of the first quarter was $48 million. In the first quarter, to help fund our capital programs, we did draw $92 million against the company's reserve-based lending facility. In April, the aggregate borrowing base under the 2025 RBL facility increased to $300 million. We now have $152 million drawn on the credit facility and net debt of $104 million. We anticipate a substantial part of the interest we incur this year from the facility borrowings will be capitalized and is in our capital guidance. Last call, I discussed how pleased we were in 2025 with the progress made with our Egyptian receivables, and I said that we expected to see collections exceed revenue in Q1 2026. For the first quarter, we saw an additional reduction to our trade receivables of about $7.4 million, with our trade receivables falling from just under $32 million at year-end 2025 to just over $24 million at the end of the first quarter 2026. We will continue to work with the Egyptian General Petroleum Corporation to maintain a strong relationship and keep our receivables current. In Q1 2026, VAALCO Energy, Inc. paid another quarterly cash dividend of $0.0625 per common share, or $6.7 million. We also announced the second quarter dividend payment, which will be paid in June. Let me now turn to guidance, where I will give you some key highlights and updates. As I mentioned earlier, guidance for the remainder of 2026 has no contribution from the Canadian assets that were sold in February, and we are forecasting the Baobab field in Côte d’Ivoire coming back online in June with sales resuming in Q3. With the strong performance of our drilling campaign, coupled with the restart of production at Baobab and some additional drilling in Egypt, we expect to see strong increases in production from Q1 levels moving forward. Additionally, with two partner liftings in Gabon expected in Q2, our sales guidance is 44% higher in Q2 at the midpoint compared to Q1 sales. We are confident in our operational abilities and are increasing our full-year 2026 production and sales NRI volumes by 8%–12%, respectively. Our full guidance breakout is in the earnings release and our supplemental slide deck on our website, with production breakout of both working interest and net revenue interest by asset area. For the total company, we are forecasting Q2 2026 production to be between 21.6 thousand and 23.8 thousand working interest BOE per day and between 16.8 thousand and 18.7 thousand NRI BOE per day. This is a significant increase over Q1 production. We expect our second quarter 2026 NRI sales volumes to range between 16.8 thousand and 18.3 thousand BOE per day. We expect our absolute production cost to be higher in the second quarter, in line with the additional sales volume, and on a per-BOE basis to be in the range of $26 to $31 per NRI BOE. This is slightly higher than Q1, as we are expecting some cost increases primarily related to fuel costs and reflects a higher mix of West African barrels versus North African barrels that dominated the mix in Q1. For our exploration expense, we are forecasting a range of between $2 million and $3 million for Q2, a 90% reduction compared to the first quarter. We expect cash G&A to be in the range of $7 million to $9 million and our annual G&A guidance remains the same. Finally, looking at CapEx, our Q1 spend was below the guidance range, but we believe this is primarily due to timing. Our Q2 2026 capital spend is projected to be between $110 million and $130 million as we continue the drilling campaign in Gabon, we complete the FPSO refurbishment, and begin drilling additional wells in Egypt. George outlined the multiple programs across our assets, as we believe that our efforts in 2025 and 2026 are building the foundation for another step change in production in the future. Our second quarter guidance includes about $6 million in capitalized interest, all of which relates to our large capital investment program this year. Even though we are adding a drilling rig in Egypt and increasing our 2026 production and sales volumes, our full-year capital guidance for 2026 remains unchanged. In closing, while Q1 results were impacted by several factors, we are optimistic about improvement in Q2 and for the remainder of 2026 as we expect to continue to grow production and sales volumes. We believe we remain well positioned to continue executing on our strategy of growing production and reserves while adding meaningful value. We have a long track record of successfully delivering operational results that meet or exceed expectations. We have achieved many things these past few years and 2026 has started with strong operational successes. We have delivered in the past and we are very well positioned to continue to execute at a high level across our diversified assets over the next several years. With that, I will now turn the call back over to George. George Maxwell: Thanks, Ron. Our second quarter is off to a strong start with the drilling success in Gabon and the FPSO at Côte d’Ivoire back on location with production expected to restart at Baobab in June. In the first quarter, we rationalized our portfolio by selling the Canadian operations and added high-upside opportunities at Kossipo in Côte d’Ivoire. Looking across our asset base, we are executing on several projects across our expanded portfolio. In Gabon, we have an extensive drilling campaign underway and the rig is now in Avouma drilling wells and looking to do workovers that should add reserves and production. At Baobab, a couple of months after the field comes back online, we are expecting to begin a multi-well development drilling program. At Kossipo, we are very excited to be named operator with a 60% working interest and are working on a field development plan that is being driven by new seismic; we are looking to utilize existing infrastructure already in place. Also in Côte d’Ivoire, we are acquiring additional regional well data and concluding further geological evaluations of our new exploration block CI-705, where we are the operator with a 70% working interest. In Egypt, our ongoing production optimization, workover, and recompletion programs have performed well, and we are drilling additional wells in 2026 as I discussed earlier. In Equatorial Guinea, we have completed our initial front-end engineering and design study and confirmed the viability of the development concept and are currently evaluating alternative technical solutions which may deliver enhanced economic value. Our ability to remain focused on successfully executing our strategy is key to growing the company profitably over the remainder of the decade. We have successfully delivered strong operational and financial results for the past several years, where we have met or exceeded guidance on a quarterly basis, and we believe that we can continue to meet or exceed our guidance numbers in Q2 and beyond. There are numerous macro events that we cannot control. The things that we can control, like operating efficiently, investing prudently, and maximizing our production, will help us deliver the forecasted growth and profitability for our shareholders and partners. The timing of the new wells in our Gabon program recently coming online and the expected restart of Côte d’Ivoire later this quarter are certainly very well timed with the increase we are seeing in oil prices. Our entire organization is actively working to deliver strong results that will continue to help fund our capital programs while also returning value to our shareholders through a top quartile dividend. We have maintained credibility over the past several years, having delivered on our commitments to the market and to our shareholders, and we will continue to deliver with this exciting slate of projects we have over the next few years. We are in an enviable position with a much stronger and diverse portfolio of producing assets with expected significant future upside potential. Thank you. And with that, operator, we are ready to take questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. Our first question will come from Stephane Foucaud with Auctus Advisors. Please go ahead. Stephane Foucaud: Yes. Morning or afternoon, gents. Thanks for taking my question. My question is really around what we are hearing on those oil premiums in the market versus Brent. I heard recently that some lifting in Nigeria was sold at a $15 premium to dated Brent, which is already at a premium on the M+1 prices. So I was wondering, is that what you see across your portfolio in Gabon and Egypt? And then related to that, some of the production you have is hedged. But I assume that this hedging is around Brent, so that still allows you to capture, even on that hedged production, any potential premium. If you could confirm if my understanding is right. Thank you. Ronald Y. Bain: Hi, Stephane, it is Ron. Yes, you are correct. We saw at times a difference between the screen price and what we saw in dated Brent. We had two liftings that are coming up; I can talk to them—April and May—and on both occasions we are seeing about a $4 premium to dated Brent for our crude. So yes, we are seeing a premium for West African barrels at this point in time. Egypt is a more difficult one because it is domestically sold, but obviously the listed price in relation to that, that we are marked over from EGPC, is getting closer to dated Brent. So not necessarily seeing the premium develop there per se, but we certainly see it on the West African barrels. And it is obviously far too soon on Côte d’Ivoire; we will not have a lift in Côte d’Ivoire until August. Stephane Foucaud: Thank you. And with regards to the hedging, my question was that I assume the financial hedging is based on Brent. Do you because it is on dated Brent? Ronald Y. Bain: You are quite right. Any premium to that will be above what we have our hedges in place at. Stephane Foucaud: Okay. That is great. Thank you very much. Operator: Our next question will come from Jeffrey Woolf Robertson with Water Tower Research. Please go ahead. Jeffrey Woolf Robertson: Thank you. Good morning. Ron, could you share any additional color on the lifting schedules in Gabon and Côte d’Ivoire beyond the second quarter? Ronald Y. Bain: We can certainly share in the second quarter. We have got two confirmed liftings in Gabon. We are working with the operator in CNR for Baobab, and we likely see a lifting there in the August time period. We have basically stated we will have one every other month in Gabon between now and the end of the year. And as we stated previously, we do not foresee another GOC lift this year; it is all contractor party lifts. So hopefully that helps you with your modeling there. Jeffrey Woolf Robertson: And, George, at Kossipo, if you get the field development plan submitted before year end, what will that do to VAALCO Energy, Inc.’s ability to shift reserves from one category to another? Ronald Y. Bain: Yes. If we get the FDP in place before year end, which is our commitment to the DGH in Côte d’Ivoire, the categorization of the 102 million barrels equivalent that is currently sitting in 2C would move to a 2P categorization within our NSAI report for year end. So that is definitely our focus. That would add to our 2P reserve books somewhere in the region of just north of 60 million barrels. Operator: Thank you. Our next question will come from Charlie Sharp with Canaccord. Please go ahead. Charlie Sharp: Yes. Thanks for taking my question. Just another bit of a follow-up, if I may, on liftings—and that has been very helpful in terms of the timing of those liftings. I guess, can you remind me what the typical lifting size is in Gabon? Or what the anticipated typical lifting size would be on Baobab? And also, just on your production guidance for Côte d’Ivoire, does your guidance capture any potential flush production, or would that be potentially on top of guidance? Thank you. Ronald Y. Bain: I will start with the liftings then, Charlie. Typically, in the past in Gabon, we have lifted parcel sizes of 650 thousand gross, but as of late we have tried to maximize that out to 900 thousand. Obviously, from an economics point of view on the freight, it is more beneficial for us. So we are planning 900 thousand gross lifts. In Côte d’Ivoire, we generally plan 650 thousand lifts; we are working with the operator there to try and encourage higher lifts than that. The vessel has come back in very good shape, and there is no reason in my mind why we cannot be looking at 900 thousand to 950 thousand lifts. George Maxwell: I will add to what Ron said there, Charlie. One of the reasons we were with the operator down at 650 thousand is that their initial plan when the vessel came back onstream was not to use the wing tanks. That plan has subsequently been changed and we are just finalizing some remedial work on-site on the wing tanks right now to make sure we have that additional storage. That means that, where before we had perhaps used those partly for ballast, they now can be used for storage capacity that starts to increase the argument around the higher liftings from Baobab. Ronald Y. Bain: With regard to the guidance, of course, we work closely with the operator when it comes down to the production forecast. We have our own simulation models that we work on for the Baobab field and where we see the performance. George Maxwell: You are absolutely correct that with a field shut in for some 14 months, we would expect to see flush production. We have kept all the anticipated flush production upside in reserve relative to our guidance. There are really two reasons for that. One, we are confident in the history match in our model that what we are seeing indicatively of a kick-start in production will be achieved, but we will hold that in reserve right now. The second reason is, unlike Etame, there is not a natural pressure support inside the Baobab field; it requires water injection in order to sweep that oil up to the drainage points. So the water injection has also been shut down during this period. On the startup sequence, we would expect the water injection to begin and we do expect to see first production, but we have kept that in reserve at the moment. Charlie Sharp: That is very helpful. Thank you. Operator: Our next question will come from Christopher Courtenay Wheaton with Stifel. Please go ahead. Christopher Courtenay Wheaton: Thanks very much. Two questions, if I may. Firstly, Ron, a question for you on working capital, if I may. I was surprised at the magnitude of the working capital outflow in the first quarter, particularly when my reading of the accounts is that, when you look at the difference between sales and production volumes, the Gabon cargo to pay the government taxes is already taken out of the revenue line. So I wonder if you could help unpick that for me, because it feels like I have double counted somewhere, or there has been double counting somewhere of both the Gabon tax revenue and also working capital outflow. And my second question was for George on Kossipo. It is fantastic to see that head towards FID. Is the development plan, presumably monetization via some of the Baobab infrastructure? In that case, has a sort of commercial framework been agreed with CNRL as operator so that that can form part of the financial framework that goes into assessing the project viability? Those are my two questions. Thank you. Ronald Y. Bain: Chris, it is Ron. I will go first on working capital. On working capital in relation to the tax position, when we accrue the barrels that are on the balance sheet, it is a liability for foreign taxes payable. When we settle those, effectively you are moving the working capital because there is an outflow of cash as you take those barrels off and settle them against that liability. That did happen in Q1. Also, our accounts payable came down a bit as we settled, along with CNR, a number of the bills on MV10 when it sailed out to Dubai and came back into African waters. So there was a movement in payables there as those bills were settled. We completed a well in Gabon as well, and you have got the payments going out for that for drilling, too. Those were the key catalysts. The other part is there is an inventory build as you go to the latter half of the quarter. The GOC lifted in early February, and the partner lift was in April. So again, inventory built up a little bit. With the strong prices, AR built up, although we collected most of the AR. Overall, that is where the outflow came. Against that, the unrealized hedges have now moved up the accrued liability number. George Maxwell: On Kossipo, Chris, maybe it is not well known, but even though we are the operator now of Kossipo in that economic extraction area, we are still under the single PSC. Within that PSC, any of the developments that are attached to CI-40 has a contractual right to evacuate back through the existing infrastructure, so that is very much clearly there. With regard to the economics for processing and storing through Baobab, that still has to be worked out, but it is worth pointing out as well that we are also 30% participants in that position and have a voice at that table on both sides effectively. That all being said, when we are looking at the FDP, we have to look at what is the most efficient extraction. We are eight kilometers away from Baobab, so either an interconnect or tieback solution—how does that look both from a capital spend and an engineering concept—or there is also the opportunity to look at a standalone position if that is more economically efficient and, more importantly, can be done in a more timely manner. But I think all the listeners should take comfort that we have absolute contractual rights to evacuate through Baobab and maximize efficiency of that facility if the timing allows. Christopher Courtenay Wheaton: That is a really helpful explanation there, George. Thanks very much indeed. George Maxwell: Thanks, Chris. Operator: Our next question will come from William Dezellem with Tieton Capital. Please go ahead. William Dezellem: Thank you. Two questions related to production. First of all, in the first quarter it was quite good relative to your guidance that you gave. Ultimately, what went right for that to come in so strong relative to guidance? Ronald Y. Bain: There are two things there. One, as we mentioned back in March, we intimated that the upward trend on production coming out of the Egyptian campaign in December meant we had a very strong profile coming into January and February. That was a big delta in our upside. Also, because of the performance, particularly around the final wells in the Egyptian campaign, it really led towards the acceleration of the campaign for 2026, pulling it forward from a late Q3/Q4 prospectivity that we had in a contingent plan to a firm program coming into May. That really changed our position on pulling forward the activity in Egypt because of the strong performance that came through in December and into the first and second quarters. In addition to that, we did see a little bit of a kick coming from the performance in Gabon. It continued to be just above guidance from the wells, and we had the two new wells coming on in the drilling campaign. But primarily, the kick against our forecast was coming in Egypt. William Dezellem: Thank you. And then relative to the 14H well, the upper part of that well came in at a really quite high production rate. Does the knowledge of that level of production lead to some learnings or a change in how you are thinking about future drilling in that area? George Maxwell: Yes and no is the answer to that. It is worth reminding everyone we have been drilling and producing out of Etame for some 24 years now, so it is a very mature field. When we talk about the targeted drilling that we are going for, we talked about the concept of going after attic oil. What that actually means is we are looking at the positions where the existing drainage points are down-dip of the upper parts of the structure and we are trying to place these wells at the very top part of the structure to capture that additional oil that has not been swept by previous wells. Your assessment that a well design is always looking to come across with an extended lateral at the very top of the structure to gather that attic oil that is never going to be swept from the existing drainage points is correct. It is exactly the same type of well that we are trying to drill right now in Avouma with exactly the same type of concept. All future wells, I believe, in Etame will be this type of well design—top of the structure, very long lateral, very long exposure to the reservoir—in order to capture those stranded oil opportunities. Ronald Y. Bain: Bill, I will just add a little bit more color to what George said there. As you saw, we increased the production and sales guidance from our Q4 call, and that is primarily with a view on that main fault block well, which came in very well, as well as the continued Egyptian success that we have got. So that is where the rise in the production and the sales is on the full-year guidance. William Dezellem: Great. Thank you both, and good luck with finishing the FPSO hookup. George Maxwell: Thanks, Bill. Operator: Our next question is a follow-up from Stephane Foucaud with Auctus Advisors. Please go ahead. Stephane Foucaud: Yes, thank you. Actually, Bill asked the question I wanted to ask and I could not confirm. That was around what had driven the production guidance increase in 2026 in Gabon, but I think Ron just responded to that, saying that this was basically the very strong well in Q1. Thank you. Operator: Our next question is a follow-up from Jeffrey Woolf Robertson with Water Tower Research. Please go ahead. Jeffrey Woolf Robertson: Thanks. George, at Nyonie and also at your two blocks in Gabon, what is the earliest you might expect to see wells drilled there if you continue down that path? George Maxwell: On these blocks, if you recall, when we acquired these along with BW Energy and Panoro, the commitment position on these blocks was basically seismic acquisition, processing, interpretation, and a single well commitment. Had we been a little bit ahead of the game, we could have thought of tagging on that single well commitment at the end of this campaign in Gabon. We are definitely not going to be there because the acquisition just completed in mid-January and it is out for processing and interpretation. We are not expecting hot-shot data probably into Q3, maybe as late as Q4, for the evaluation. As has been announced by BW Energy, they have picked up a rig to commence a program later this year in Gabon, and that program for them, I believe, runs through mid-to-end 2027. There is an opportunity that the commitment well, subject to interpretation and identification of a targeted location, could come in late 2027, early 2028, at the back end of that program. Failing that, it is then going to be down to looking at the next opportunity for a rig to be in the area to meet that commitment on the drilling program. Jeffrey Woolf Robertson: And at Nyonie, if you move to the second exploration phase, which I think will begin at the end of this year, I think you have that might include a well by 2028. Would that likely be a 2028 well, or could that slip into 2027? George Maxwell: It is unlikely to slip into 2027. It depends on two key things. One, the location of the well. You have to look backwards into VAALCO Energy, Inc.’s history, and you look backwards and these blocks that have been reassigned to us and our partners are areas that VAALCO Energy, Inc. previously held back in the early teens. So we do have an understanding of the prospectivity of that block, and that is why we were quite comfortable to come back in in a partnership because we do see a degree of prospectivity there. As to when and where that well will ultimately be drilled is down to, one, the location of the well and its proximity to infrastructure, and the closer to our infrastructure or their infrastructure obviously makes it more exciting for us to pull that forward because it is a much closer monetization point. So that is really what is going to be the driver—how exciting the prospects are that we find and the location of these prospects to existing infrastructure. The closer they are, the more keen we would be to drill them. It is unlikely in my mind, but you never say never, that it would fall into 2027; there is that slight possibility. Operator: Thank you. Our next question will come from James Wilen with Wilen Management. Please go ahead. James Wilen: Hey, fellas. You guys have a lot of moving parts, which I would like to tie together. As you exit 2026, will your barrels per day production approach 30,000 barrels? Ronald Y. Bain: Jamie, it is Ron. Guidance at the moment has an exit rate of between 25,000 and 27,000 barrels. We will continue to look at that with the Gabon drilling successes as we go forward. In Côte d’Ivoire, we have previously stated we go into batch drilling there and we only see one of those wells completing, and it will be very late in the year, so it will come in for one month. If there is movement there, there is a possibility for that exit rate to be higher than that. But at this point in time, we are guiding an exit rate of between 25,000 and 27,000. George Maxwell: The only thing I would add to that, Jamie, is, as I said earlier in the call, there are all kinds of possibilities of flush production coming on in Côte d’Ivoire when we start up. That is currently not within our guidance. James Wilen: Okay. And secondly, as far as taxes go, in 2026 and 2027, we have a lot of cost oil that will go to limit our tax liability. How much free cash flow will we have that will not be taxable as we look forward? Ronald Y. Bain: I cannot give you specifics on free cash flow that is not taxable. What I can say, Jamie, is that you have been in the stock for some considerable time, so you know the history here. In relation to the cost pools building up, we basically see for Gabon, as I said, that we see no other GOC state lift this year. I cannot see a state lift now—and my team cannot see a state lift now—until Q1 2027 based on the volumetrics. So again, there is not a cash tax liability in relation to that. We also foresee, with the spend that we have got both for the Baobab and the drilling campaign in Côte d’Ivoire, that we will maximize that cost pool for about a two-year period, but it really depends on oil price. If oil prices stay at this current level of around $100, we will burn through those cost pools quicker. That is the same case with Gabon. It is great that we will have incremental free cash flow from the pricing; it also means that we will burn through it, but we will not have that tax expense. You will crystallize that benefit to the company quicker than our models predict at the moment, which have the forward curve in there. James Wilen: Not a bad thing at all. Thanks, fellas. Ronald Y. Bain: Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to George Maxwell for any closing remarks. George Maxwell: Thank you, operator. I would like to thank everyone participating in today's call. We have had a considerable amount of activity and, as Jamie mentioned in his question, we have a lot of moving parts. We have a lot of cash catalysts that are happening throughout 2026. By the time we get to midyear, we will have three drilling campaigns fully active in our assets, drilling wells and enhancing production—catalysts to generating cash flow. We have a very, very busy year ahead, and that busy year is building both the profiles and the opportunity for significant steps up in production in early 2027. I do not want to look that far ahead because we only need to look as far ahead as Q2, when we start to see the increase in crude oil sales coming from liftings, and those liftings are increasing even more with the additional production that we are taking in Gabon from the drilling campaign and the restart of the Baobab field. We have seen Egypt operating very successfully from the last campaign in Q4 2025. We made the decision to accelerate the program in 2026 to further enhance those opportunities. We did not talk much about Equatorial Guinea, but I will highlight again we are targeting FID in Equatorial Guinea this year. We are building to continue that step change in production going into 2027 and 2028. Thank you. I look forward to talking to you in the Q2 call in August. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Minh Merchant: The press release announcing The Oncology Institute's results for the first quarter of 2026 are available at the Investors section of the company's website, theoncologyinstitute.com. A replay of this call will also be available at the company's website after the conclusion of this call. Before we get started, I'd like to remind you of the company's safe harbor language included within the company's press release for the first quarter of 2026. Management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our filings with the SEC. This call will also discuss non-GAAP financial measures such as adjusted EBITDA and free cash flow. Reconciliation of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and available on our website. Joining me on the call today are our CEO, Dan Virnich; and our CFO, Rob Carter. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn the call over to Dan. Daniel Virnich: Thank you, Minh. Good afternoon, everyone, and thank you for joining our first quarter 2026 earnings call. I'm pleased to report a strong start to 2026 in the first quarter, driven by continued expansion and performance of our value-based contracts across markets and the ongoing growth of ancillary services, particularly our pharmacy business, which provides us with confidence to reaffirm our 2026 outlook for revenue and full year adjusted EBITDA profitability. As noted in our earnings release, we are also pleased to meaningfully update our free cash flow projections for the year to a positive range of $5 million to $15 million, reflecting our ongoing performance and improving economies of scale as we grow. None of this would be possible without continued commitment to high-quality oncology care by our physicians and staff across the 5 states we operate in every day. There are a few key highlights from the quarter that I would like to now review. First, revenue of $147 million was up 41% year-over-year, driven by strong capitated revenue growth and record performance from our Specialty Pharmacy business. Record Part D sales drove pharmacy revenue up 78% in the quarter compared to the first quarter of 2025, reflecting overall growth in patient encounters and continued operational execution on prescription fills. As a testament to the durability and replicability of our clinical model, we saved nearly $2 million in Medicare spending as part of the CMS Enhancing Oncology Model performance program in period 3, increasing the savings generated from the previous period, while maintaining the high-quality care we deliver to the members we serve in the community. We believe that this ongoing recognition from CMS underscores the clinical and economic value of TOI's integrated approach to oncology care applied to all patient populations, not just capitated members. Turning now to operations. I would like to walk through some key updates from the first quarter. Our work in Florida continues to be a critical proof point for our model in one of our newer markets, and I'm pleased to share meaningful progress on several fronts. We are now generating a profit in the Florida market. This is an important milestone that reflects the maturation of our capitated relationships in the state and validates the model we have been building. Our initial members under delegated capitation partnerships continue to show data points demonstrating excellent clinical outcomes, with MLR performing in line to slightly better than planned. As a reminder, we target a mature MLR of approximately 85% for new delegated capitation contracts, and we are now achieving that with our 2025 effective contracts in South Florida. In terms of further near-term capitation growth, we anticipate expansion of existing plan partnerships across 11 additional counties for Medicare Advantage members in Q3, which will expand our TOI clinic and MSO network to cover effectively the entire Florida market to serve delegated capitation agreements across multiple health plans. This next phase of expansion encompassing Q3 will expand our total MA lives under delegated capitation arrangements to approximately 200,000 total lives across 25 total counties. In addition to the capitated revenue associated with these new patients, this expansion is also expected to be a meaningful tailwind to our Part B pharmacy business as we capture the prescription volume, which will deliver faster, more convenient fills to our patients and value outside of capitation to our payor partners. To effectively support these important patient populations, we anticipate opening 7 new TOI clinics over the remainder of the year to ensure we are delivering the high-quality coordinated care that our patients deserve, and we will also add meaningfully to our contracted provider footprint across the state. As I mentioned in our last call, we are preparing to launch our proprietary provider portal this summer, and I'm excited to share more detail on this important initiative. We see 2 primary benefits of the TOI portal. First, it is designed to further strengthen contracted provider engagement and drive continued adherence to our clinical pathways and quality initiatives. Pathway adherence is a meaningful lever for MLR performance, and we believe this tool will be an important driver of ongoing improvement. Second, over time, we intend to use the portal to provide access to ancillary services, including Part D dispensing, clinical trials and care navigation, all key components of our integrated care strategy and key profitability levers, as we grow. There may also be an opportunity to pass on savings from our ancillary services to MSO providers, which will further drive engagement. Our Specialty Pharmacy business delivered an exceptional quarter and continues to be one of the strongest growth drivers across the enterprise. We filled a record number of scripts in the first quarter with Specialty Pharmacy revenue up 78% year-over-year at $87.5 million for the quarter, delivering $16.8 million of gross profit. This growth is being driven by a combination of higher patient volumes, continued optimization of pharmacy workflows across our network as well as ongoing efforts to reduce avoidable leakage to outside pharmacies. Gross margin in our Specialty Pharmacy business also came in higher than anticipated in the quarter at 19.2%, driven primarily by efforts in TOI's procurement function to manage drug pricing strategy and capitalize on our developed central clinical infrastructure via formulary pathways within the pharmacy. This is an area where we continue to see the benefit of our scale and distributor relationships, which will only be further enhanced as we grow. We are also working to expand pharmacy access in Florida to our delegated network members, which we believe broadens our ability to capture both Part B and D scripts from our delegated population. We expect this to be available in the second half of this year and view it as an incremental opportunity on top of our core Part B dispensing strategy, not contemplated in our annual revenue guidance. We continue to make meaningful progress on our AI-enabled operational initiatives this quarter. As a reminder, last year, we launched 3 AI integration efforts focused on revenue cycle management, prior authorization services and our patient call center. I'm pleased to report that we remain on track to achieve the $2 million in operating expense savings we outlined for 2026. These initiatives are not just delivering cost efficiencies, they are also improving the experience for our patients, providers and administrative teams, and we expect to build on them as we continue to scale. Finally, I'm pleased to welcome Minh Merchant to the Executive team as TOI's new Chief Legal Officer. Minh will oversee all legal, compliance, regulatory and privacy matters as we continue to scale the platform. As a company that is expanding its managed care footprint, delegated arrangements and operational complexity, having a seasoned legal and compliance leader at the table is critical. Minh is a great addition, and we look forward to the contribution she will make as we continue to grow and strengthen the Executive team. In summary, we are off to a strong start in 2026. Revenue growth of 41%, record pharmacy performance, profitability in Florida and a growing pipeline of capitated lives, gives us confidence that the momentum we built throughout 2025 is continuing into the new year. As we look ahead, our focus remains on operational execution and quality patient care, scaling our delegated capitation model, deepening payor partnerships and continuing to invest in the technology and operational capabilities that will drive sustainable profitability over the long term. With that, I'll turn the call over to Rob to review the financials in more detail. Rob? Rob Carter: Thanks, Dan, and good afternoon, everyone. I want to echo Dan's comments on the continued momentum we're building across the business as we progress through 2026. On the call today, I will review our first quarter financial results, provide an update on the balance sheet and liquidity and close with our updated guidance and outlook. Turning to financial performance. Total revenue for the first quarter was $147.4 million compared to $104.4 million in the prior year period, representing 41.2% year-over-year growth, a continuation of the strong momentum we have been building. Patient services revenue, which includes both our capitated and fee-for-service arrangements, was $59.1 million, representing 40.1% of total revenue and an 11.3% year-over-year increase. Within patient services, capitated revenue grew 54% year-over-year to $26.9 million, driven by new market momentum and the continued ramp of our delegated arrangements in Florida. Fee-for-service was $32.2 million, down approximately 10% year-over-year despite increasing visit volumes, reflecting the impact of mix driven by active drug formulary management, more conservative reserves against collections and modest pricing pressure in the IV drug channel. Capitation now represents approximately 45.6% of patient services revenue, up from roughly 33% a year ago, underscoring the ongoing shift in our revenue mix toward value-based care. Specialty Pharmacy revenue was $87.5 million, representing 59.4% of total revenue and growing 77.6% year-over-year. This was driven by a 103% increase in the number of prescription fills, reflecting the continued strength in fill rates as we bring new capitated lives onto the platform, partly offset by approximately a 12% decrease in average revenue per fill as our mix continues to evolve. Gross profit for the first quarter was $23.3 million compared to $17.2 million in the first quarter of 2025, reflecting continued top line expansion across both segments. Overall, gross margin was 15.8% compared to 16.5% in the prior year. The roughly 80 basis point decline is primarily the result of a nonrecurring rebate we recognized in the first quarter of last year as well as the natively lower margin profile of the delegated business as it increases as a proportion of TOI revenue. Patient services gross profit was $5.7 million compared to $6 million in the first quarter of 2025. Patient services gross margin was 9.7% compared to 11.3% a year ago, a decrease of approximately 163 basis points. The year-over-year decline is primarily the result of new ramping delegated contracts and our aforementioned conservative fee-for-service reserve approach. Specialty Pharmacy gross profit was $16.8 million, growing 78.1% year-over-year from $9.4 million in the prior year period. Gross margin was essentially flat at 19.2% versus 19.1% a year ago, evidencing TOI's ability to maintain unit economics as the pharmacy scales its distribution and adapts to an evolving pricing environment, including the phase-in of the Inflation Reduction Act. Our expanded utilization management program, which we refer to as TOI Pathways, now covers our entire drug portfolio, including the pharmacy versus historically only our Part B drugs, which continues to support margin stability, and we see further opportunity in this area as we increase scale. Turning to operating expenses. Total SG&A for the first quarter was $28.2 million or 19.1% of total revenue compared to $25.4 million or 24.3% of revenue in the same period a year ago. That represents approximately a 520 basis point improvement year-over-year, reflecting continued cost discipline and the operating leverage inherent in our model as we continue to scale. We see further leverage ahead as we scale and are planning to launch AI pilots around prior authorization optimization and a next-generation call center later this year. Adjusted EBITDA for the first quarter was a loss of $2.4 million, favorable to a loss of $5.1 million a year ago. As we noted on our call last quarter, Q1 is seasonally our most challenging period. Deductible resets and annual drug cost increases create natural headwinds that take time to work through. We are pleased with the year-over-year improvement and remain confident in delivering positive adjusted EBITDA for the full year, driven by the continued ramp of our Florida delegated arrangements, our growing Specialty Pharmacy platform and our continued cost discipline and push towards AI and automation in our central operations. We ended the quarter with $30.3 million in cash and cash equivalents compared to $33.6 million at year-end 2025. Our senior secured convertible note principal outstanding was $85.9 million, unchanged from year-end with a maturity date of August 9, 2027. I want to note that we are in late-stage discussions regarding the refinance of the notes and expect to provide an update during the second quarter. Operating cash flow for the quarter was negative $2.3 million compared to negative $5 million in the first quarter of 2025, reflective of the operating losses during each of those respective periods. Turning to guidance. We are reiterating our full year 2026 outlook for revenue, gross profit and adjusted EBITDA and are raising our free cash flow outlook to reflect favorable terms from vendor renegotiations as we continue to realize the benefits of our scale. For the full year, we expect revenue of $630 million to $650 million with approximately $150 million of capitated revenue, gross profit of $97 million to $107 million, adjusted EBITDA of $0 to positive $9 million and free cash flow is now in the range of positive $5 million to $15 million compared to our previous outlook of a loss of $15 million to positive $5 million. For the second quarter, we anticipate adjusted EBITDA in the range of a loss of $1 million to positive $1 million, reflecting seasonal improvement as deductibles are satisfied and the continued ramp of our Florida delegated lives. We expect momentum to build through the remainder of the year and remain confident in our commitment to full year positive adjusted EBITDA. With that, I'll turn the call over to Dan for his closing remarks. Dan? Daniel Virnich: Thank you, Rob, and thank you to everyone for your continued interest in the world-class community oncology solution we are building at TOI. I'm pleased to reaffirm our revenue and EBITDA guidance for the year as well as meaningful improvements in free cash flow. Our initiatives on creating a world-class provider portal and using technology to drive OpEx efficiencies will continue to drive our story as a leader in high-quality coordinated oncology care while delivering profitability for shareholders. Before opening the call to questions, I want to thank our patients for putting their trust in our ability to deliver high-quality care and to thank our physicians, clinicians and employees across The Oncology Institute. Their unwavering focus on delivering high-quality oncology care in the community is what continues to drive the progress we are seeing across the business. With that, I'll turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] We'll take our first question from David Larsen with BTIG. David Larsen: Congratulations on another great quarter. Can you talk a little bit about your delegated risk arrangements in Florida? Did I hear you correctly when I -- I think I heard you say you now cover the entire state. And then just any color around risk, like the trend, the medical expense trend, how it's performing relative to expectations? And I think I heard you say that you're profitable in Florida? Daniel Virnich: Dave, thanks for the great questions. Regarding the first question, yes, we will be network adequate across 25 counties by the start of Q3 of this year, so July 1. That coincides with the expansion of multiple health plan agreements, which in total encompass about 200,000 MA lives across those counties in the delegated capitation model. The MLR performance on the delegated capitation book of business, which we mentioned in the earnings call for the 2025 cohort, is performing slightly better than our target MLR of 85%, which is a great data point. And we'll continue to update that as these additional lives enter the risk cohort. And then yes, on a 4-wall EBITDA basis, that Florida market is now profitable due to all this growth. David Larsen: Daniel, I didn't quite hear the MLR percent. Did you say it was 85%, slightly better than 85%? Daniel Virnich: That's correct. Yes. David Larsen: Okay. And then like Evolent Health, for example, I think this morning reported an MLR of 93%. What, in your view, causes such a significant delta? So why are you performing so much better than them in your opinion, at a high level without obviously having access to their data? Daniel Virnich: Yes. I mean I can't really speak to exactly why they would be at our level, but there is obviously differences in the care delivery model with us having a hybrid employed and network care delivery approach and kind of very tight control over care delivery and patient experience in our employed clinics. I think that would be definitely one aspect of it as well as the high engagement we're seeing on the network providers through our portal and pathway integration. David Larsen: And then in the delegated model, are you bearing risk for Part D? And can you push those delegated lives through your own specialty pharmacy? And if you don't bear risk, I would imagine that would be a benefit to your pharmacy? Daniel Virnich: Yes, that's exactly right. Yes, the only take risk on Part B, as in boy, Part D as in dog, is fee-for-service revenue at that a little bit over 19% margin that we called out, which flows through our pharmacies and dispensaries. And those bills apply to both capitated as well as noncapitated lives. So it's an additional economic benefit to the capitated members coming to us for care. There is the additional added benefit of us having a pharmacy in that 4 practices in the network that deliver Part B, as in boy, medications, which are part of our risk, we can deliver those at our pricing, which is beneficial given our scale. David Larsen: Just one more. Sorry to keep asking questions, I'll hop back in the queue, but just one more. Did I hear you say you were talking to additional health plans in the Florida market beyond Elevance? Daniel Virnich: Yes. We're talking to additional health plans in Florida as well as other markets as well for the delegated capitation model. So we'll have additional updates for that in the next earnings call, but we are seeing a lot of opportunity and momentum around that specific delegated capitation model kind of across markets. David Larsen: Okay. Congrats on the great quarter. Operator: We'll take our next question from Matthew Shea with Needham. Matthew Shea: Nice start to the year guys. Maybe first on dispensary, really, really impressive growth there and it sounds like volume driven by a mix of membership and continued attachment rates. I guess any additional color there? Membership seems pretty self-explanatory, but maybe on the attachment rate side, are these coming in ahead of expectations? And if so, my understanding is this is mostly driven by provider education. So is there anything you would call out on the provider education side that's been notable in helping drive this growth? Rob Carter: Matt, it's Rob. Yes, attachment rate has exceeded our expectations in the year. The workflow changes that we implemented last year, I think they're continuing to pay dividends. And so that work progresses. I think as you look at the rest of the year, I think you can expect some improvement quarter-over-quarter as we continue to refine those workflows and as additional value-based lives come on the platform. Matthew Shea: Okay. Got it. That's helpful. And then maybe on the proprietary network portal, good to hear that, that remains on track for the Q2 launch. But maybe as we think about the pacing of the rollout, I would assume that will be sort of a provider-by-provider, market-by-market. But maybe how should we think about the cadence of that? And where are you hoping to get to in terms of provider coverage by year-end? And then given it can strengthen the provider engagement and drive adherence to the clinical pathway, it seems like a nice lever to drive MLR. So curious if you've built in any financial benefits to the 2026 guide or if we should think about that as more of a 2027 event? Rob Carter: Yes, absolutely. So when we roll out the portal, which we're anticipating in Q3, that's going to be immediately accessible to 100% of the nonemployed providers across our delegated contract network. So basically, all of Florida will have access to it in the MSO side of our business. We already see good adherence to pathways or care pathways for Part B medications by those providers, but I think this will drive additional adherence because it will just create additional visibility and control over those providers to access our formulary and pathways. We -- As we called out in the earnings call, the additional, I guess, P&L upside related to that portal, which we anticipate will happen this year, but is not contemplated in our current guidance, would be related to Part D fills. Recall that our current Part D fills are all from our employed physician base. There are no Part D fills flowing through to our MSO providers through implementation of e-prescribing in the portal and Part D formulary visibility. We hope to catch some Part D growth as well through our MSO network in the second half of this year, but we haven't specifically guided to that or included in the forecast given timing as well as lack of visibility into attach rate on that. Matthew Shea: Okay. Got it. Okay. That's super helpful clarification that the patient portal can help with that Part D. Okay. And then maybe last one for me before I jump back in the queue. So the 200,000 lives target in Florida for July 1, I guess, thinking back to the last earnings call or sort of where I had you guys in Q1, I had 70,000 lives in the Elevance partnership and then 22,000 from Humana and CarePlus, so call it, 90,000 in change. Maybe help me bridge the difference from there to 200,000? Is that all Elevance? It sounded like maybe you alluded to some other payers in there as well? Just kind of trying to get a sense of ultimately what sort of wins drove that expansion? Daniel Virnich: Yes. So we've opted not to disclose the specific health plans as additional lives are coming through, but it's effectively an incremental 130,000 MA lives with major carriers in Florida. Operator: We'll take our next question from Yuan Zhi with B. Riley. Yuan Zhi: Congrats on a strong quarter. Maybe a question to Rob first. Can you give me more color on the substantial $20 million free cash flow improvement since the adjusted EBITDA and the gross margin guidance didn't change? Maybe specifically comment on the timing of this cash flow improvement? Rob Carter: Yes. Thanks for the question. So this is the direct result of negotiations that have been underway now for several months with some key suppliers, in particular, on the drug side of things. This is an advantage that we have as we continue to grow and scale. We have opportunities for leverage, and we're able to take advantage of that in a very, very meaningful way. And so very excited about the outlook there. Yuan Zhi: And on the Florida expansion, do you right now have the -- have your fully owned clinics ready to enter all these 25 counties in Florida under the dedicated model? Daniel Virnich: Yes, it's Dan. That is underway right now. We need to see by the time we go live with those additional lives that we'll have our clinics in place to adhere to our sort of ratio of employed clinics, MSO providers in the additional counties where we will be taking risk. Yuan Zhi: Got it. And one last question on the Specialty Pharmacy. Can you clarify, are you able to dispense drugs outside of oncology, considering this patient may have other comorbidity or disease that may need oral drug? Daniel Virnich: Yes. So at this time, our Specialty Pharmacy really focuses on oncology-specific medications, both oncolytics as well as medications that support chemotherapy pathways or oncolytic pathways exclusively. We don't prescribe for non-oncology conditions or non-hematology conditions. Operator: [Operator Instructions] Our next question comes from Robert LeBoyer with NOBLE Capital Markets. Robert LeBoyer: Congratulations on another nice quarter. My question has to do with the CMS enhancing oncology model, and you mentioned saving $2 million in Medicare spending as part of the program during one of the periods. Could you just elaborate on what the model measures and put the $2 million in perspective in terms of spending per patient, spending on the total, maybe tie in the medical loss ratios and if there's any information on how that compares with other providers, that would be helpful, too? Daniel Virnich: Robert, great question. So that -- the savings performance was in periods 2 and 3 of the enhancing oncology model, which, as I think most people know is the next iteration of the oncology care model that CMMI had for a number of years. It's an episodic total cost of care risk model. So a little bit different than Part B capitation, although the principles are the same, adherence to value-based therapeutics and then implementation of our high-value cancer care program, which is specifically designed for Part A avoidance, which is part of the risk in the EOM model. We don't have numbers off the top of our head in terms of MLR performance or total risk pool for that cohort. We can certainly follow up on that. So we'll have a set absolute savings amount at this time. Robert LeBoyer: Okay. Great. And in terms of the portal that you mentioned, are there any particular things that you could point to or discuss in terms of how that would change the providers' actions or whether that would save money, keep them on track, monitor what they're doing or just exactly how that would work? Daniel Virnich: Yes, absolutely. The portal is meant to be a centralized hub for our utilization management efforts. So all network providers that are helping serve our capitated partnerships in terms of patient care will be submitting their prior authorizations for care into that portal to get a UM decision made by our medical directors. Once that decision is made, then that authorization is approved or there's a peer-to-peer or a change request. It also offers a centralized hub where we've got a high degree of visibility into all of our pathways to help drive additional formulary adherence. And then as mentioned, it's got the added benefit of being a path to get network providers to engage in ancillary services like pharmacy and clinical trials. Operator: We'll take a follow-up question from Matthew Shea with Needham. Matthew Shea: Appreciate the follow-up. Maybe, Dan, thinking longer term on AI and beyond 2026, sort of last quarter, you noted you're just starting to scratch the surface on use cases and capabilities of Agentic AI and that there were a number of sort of integration opportunities out into the future. So maybe as we think about you moving beyond those 3 initial buckets that you've highlighted for 2026, are there any other potential areas that are top of mind? And as we think about you maybe going after some of those and looking out to the 2028 targets, is there anything contemplated in those targets in terms of AI efficiencies beyond sort of the initial $2 million that you've outlined for 2026? Rob Carter: Yes. So to hit the second question first, no, our long-range kind of forecast that we issued in January did not contemplate additional AI efficiencies, so very conservative. The $2 million that we forecast into 2026 is really just scratching the surface on integration into those 3 core functions: call center; RCM; and prior auth. I mean it's moving quickly in terms of the capabilities of Agentic AI in all 3 of those functions. So I do believe there will be substantial opportunity to expand upon those savings and drive additional OpEx efficiencies over the next 2 to 3 years. Additional use cases at this point, we do believe there's a good use case in the care navigation side of what we do as well with our high-value cancer care program. It's kind of a -- because it's highly protocolized, it's perfectly set up for that use case, which would obviously drive efficiencies in terms of labor costs to implement and scale that program over patients that are appropriate. And I'm sure there's many others. But I'd say just even the 3 core use cases that we have going right now, we are far from maximizing the savings and sort of efficiency opportunity amongst those 3. Operator: Thank you. At this time, there are no further questions in queue. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Greetings, and welcome to the Strattec Security Corporation third quarter fiscal 2026 financial results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deborah Pawlowski, investor relations for Strattec Security Corporation. Please go ahead. Deborah Pawlowski: Thank you, and good morning, everyone. We appreciate you joining us for Strattec Security Corporation’s third quarter fiscal 2026 financial results conference call. Joining me on the call today are Jennifer Slater, our President and Chief Executive Officer, and Matthew Pauli, our Senior Vice President and Chief Financial Officer. Jennifer and Matthew will review our financial results, the progress we are making on our transformation, and our outlook. You can find a copy of the news release and the slides that accompany our conversation today on the Investor Relations section of the company’s website. If you are reviewing those slides, please turn to Slide two for the Safe Harbor statement. As you are aware, we may make some forward-looking statements on this call during the formal discussion as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated on today’s call. These risks and uncertainties and other factors are discussed in the earnings release as well as in other documents filed by the company with the Securities and Exchange Commission. You can find these documents on our website as well. I want to also point out that during today’s call we will discuss some non-GAAP measures. We believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release and slides. So with that, I will turn the call over to Jennifer, who will begin with Slide three. Thank you, and good morning, everyone. Jennifer Slater: We delivered another solid quarter and continued to make progress on our transformation despite a challenging automotive environment. Our previously completed restructuring actions delivered $1.9 million in savings this quarter. This is a peak level as we lap some of the benefits from the prior year restructuring actions. We generated $11.4 million of operating cash flow in the quarter and ended the third quarter with $107 million of cash on hand. That liquidity gives us flexibility to continue investing in the business, support customers, and navigate a dynamic industry backdrop. While sales were down from the prior year, the decline was in line with expectations, and we continued to improve profitability, generate strong cash flow, and maintain a very strong balance sheet. Despite lower revenue and ongoing foreign exchange headwinds, gross margin expanded to 16.5% supported by restructuring savings, recoveries tied to canceled customer programs, and continued operational focus. As highlighted on Slide four, our priority remains the execution of our transformation plan with discipline and consistency. We are working to build a more predictable, higher-performing company, and that means staying focused on daily operational execution while continuing to put the right processes, talent, and systems in place. During the quarter, we made additional changes within our Mexico operations that are expected to provide $800 thousand in incremental annualized savings beginning in the fourth quarter. More broadly, the actions we have taken over the last several quarters help to improve the way the business operates and better align our cost structure with the business we have today. Equally as important as our focus on improving our cost is a transformation for how we approach growth. As you know, the automotive industry is long-cycle and cyclical, with intense competition. And more recently, there have also been challenging external factors such as tariffs and supply chain challenges within our business and the broader industry. As a result, our strategic growth initiatives are centered on how we build a sustainable business that can deliver resilient and predictable growth even in a challenging industry. From a commercial standpoint, we are focused on capturing additional content with our current customers by deepening our relationships and being involved in advanced development on new platforms. In addition, we are starting to develop with a more diverse set of customers that have U.S. production sites and are looking to source globally. We are also focused on innovation and a product strategy that is anchored to engineering-led access systems, organized into three core product categories of permission, motion, and hold. The team is busy defining technical product road maps that are aligned with customer requirements and current and future technologies. We are very early in our execution on these growth initiatives. Importantly, we have the balance sheet and financial flexibility to support our efforts and the broader transformation of Strattec Security Corporation. With that, I will turn the call over to Matthew to walk through the financial details. Matthew Pauli: Thanks, Jennifer, and good morning, everyone. Please turn to Slide five. As Jennifer pointed out, sales in the quarter were down 4.5% as lower volume and EV program cancellations were only partially offset by pricing benefits and tariff recoveries. The annual impact of the customer cancellations on reduced EV platforms is about $9 million, of which about two-thirds we have already seen in our year-to-date fiscal 2026 results. Our largest declines by customer were with Ford and Hyundai Kia, which were both down a little over 10% year over year in the quarter. During the quarter, we did see higher sales to Tier 1 customers and Stellantis as they increased production. By product, door handles and keys and lock sets were steady while power access and latches were down year over year. Please turn to Slide six. Gross profit for the quarter was $22.7 million compared with $23.1 million in the prior-year period. While gross profit dollars were modestly down on lower sales, gross margin improved by 50 basis points year over year to 16.5% reflecting the value of our transformation actions. The quarter benefited from restructuring savings of approximately $1.7 million as well as recoveries related to canceled customer programs. Those benefits were partially offset by higher labor and benefit costs, incremental tariff costs, and a meaningful foreign exchange headwind. As we previously communicated, the annual cost of incremental tariffs has been approximately $5 million to $7 million, of which about half were IEPA tariffs. We have recovered the majority of the tariff costs on a delayed basis through price increases or pass-throughs to OEMs and will now pursue past AIIPA tariff recoveries from the government, which we will then have to pass back to our customers. On a year-to-date basis we continue to see the benefits of pricing actions, operational improvements, and restructuring savings come through in our margins, although foreign exchange remains an ongoing headwind. Overall, we believe these results show that we are improving the underlying earnings power of the business even in a softer production environment. Please turn to Slide seven. Selling, administrative and engineering expenses were $17.6 million in the quarter, or 12.8% of sales, compared with $16 million, or 11.1% of sales, in the prior-year period. The increase reflects continued business transformation activity, executive transition costs, higher salaries and benefits, and third-party engineering support. At the same time, these expenses also reflect investments we are making to strengthen the business. As Jennifer mentioned, we are continuing to upgrade talent, improve internal capabilities, and support the systems and processes needed to create a more effective and scalable operating model. We remain focused on cost discipline, and over time we still expect SAE to move closer to our targeted operating range. For now, the reported expense level reflects both the work required to transform the business and the near-term investments needed to support that effort. Please turn to Slide eight. Net income attributable to Strattec Security Corporation in the third quarter was $3.2 million, or $0.78 per diluted share, compared with $5.4 million, or $1.32 per diluted share, in the prior-year quarter. On an adjusted basis, net income was $3.7 million, or $0.90 per diluted share. The year-over-year decline in quarterly earnings was primarily driven by unfavorable changes in foreign exchange, which was a headwind in both cost of goods sold and other income and expense. Non-operating other income and expense in the prior year included a $235 thousand foreign currency gain while the current year included a $900 thousand currency loss, the majority of which is unrealized losses on peso forward contracts driven by the sudden and short-lived strengthening of the U.S. Dollar at the end of the quarter. The currency loss had a $0.16 negative impact on earnings per share. Based on the accounting mark-to-market requirements for the forward contracts, this could reverse at the end of the fourth quarter given where the peso is trading today. On a year-to-date basis, earnings per share was up 46% over the prior-year period reflecting the cumulative benefits of cost reduction actions, productivity improvements, and stronger underlying operating performance. Adjusted EBITDA was $10.1 million in the quarter compared to $12.5 million in the prior-year period. FX was the primary reason for the decline. On a year-to-date basis, adjusted EBITDA was $37.9 million, a 23% increase over the prior-year period. Turning to Slide nine. The business continues to demonstrate that it is a strong cash generator with cash from operations in the third quarter of $11.4 million. We ended the quarter with $107 million in cash and cash equivalents. We also continued to reduce debt associated with the joint venture credit facility and, subsequent to quarter end, that facility was replaced with a new revolving credit agreement that extended the maturity and eliminated the Strattec Security Corporation guarantee on borrowings. Our balance sheet remains a significant strength. It supports investments in organic growth, continued process modernization and automation, the flexibility needed to manage through cyclical industry conditions, and enables us to execute on our plans for growth. Please turn to Slide 10. As we look ahead, we continue to expect a moderate market environment including the impact of canceled EV programs and lower production on certain key platforms. At the same time, we believe the business is better positioned than it was a year ago with a stronger operating foundation and clearer priorities. We expect revenue in the fourth quarter will be down 3% to 4% year over year reflecting the same dynamics that we saw in the third quarter. As we have mentioned before, over the next few years we are targeting gross margin of 18% to 20%, which assumes the peso at its five-year average of 19.5. We are currently operating in the 16-plus range. Over the next several years we are targeting SAE of approximately 10% to 11% of revenue, excluding unusual items. Our focus remains on continuing to improve operational performance, maintaining cost discipline, supporting customers effectively, and generating cash. Over time, we remain focused on building a stronger and more consistently profitable business through a combination of cost improvements, modernization efforts, and more effective positioning for future customer awards. With that, I will turn it back to Jennifer to cover Slide 11. Jennifer Slater: Thanks, Matthew. We presented our vision last quarter, which reflects the broader transformation taking place at Strattec Security Corporation and the role we aim to play in safe and secure access solutions. Our vision is to be the most trusted global leader in safe and secure access solutions for the automotive and mobility industries by creating the ultimate access experience for consumers. As we discussed previously, we have been working to sharpen how we align internally around a common purpose and how we present these changes externally. This work supports our internal culture and organizational alignment so the team is engaged with the direction of the company and the role that they play in that future. It also reinforces the importance of innovation, collaboration, and accountability as we continue to transform the business. We believe the actions we are taking are building a stronger company with improved resilience, better earnings power, and a clearer path to long-term value creation. We have a strong balance sheet, an engaged leadership team, and a sharper strategic focus. We are confident in the progress we are making and the opportunities ahead. With that, we will now open the call for questions. Thank you. Operator: We will now conduct a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 to remove yourself from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing 1 to ask a question at this time. The first question comes from John Franzreb with Sidoti & Company. Please proceed. John Franzreb: Good morning, everyone, and thanks for taking the questions. Morning, I would like to start with the $600,000 in canceled programs. I am curious if those are programs that you walked away from or if those are programs that the customer canceled? Jennifer Slater: Yes. I will let Matthew talk a little bit more about the financials. But the canceled programs are really what you have seen in the headlines from our customers on a shift of EV programs back to ICE in North America. And so that is really just the impact of those decisions that the customer made. Matthew Pauli: Yes. And John, it is about a $1.3 million benefit in our results. About half of it is in cost of goods sold, the other half is within SAE. And it is really recovery of costs that we previously had expensed for the development on those programs. John Franzreb: Okay. I guess the reason I phrased the question the way I did was that I know that there is a review of unprofitable or less profitable programs. I am curious where you stand in that evaluation. Jennifer Slater: Yes. We did a portfolio review first, and that is why we made the decision not to continue to invest in our switch portfolio. And then we continue, obviously, to look for cost optimization versus pricing-up opportunities. So that is an ongoing effort for us, John. But nothing in this quarter related to that. John Franzreb: Got it. And since we are talking about particular product lines, I saw in the presentation that power access was down. Maybe can we talk to why that was the case? Jennifer Slater: Yes. That really was just timing of builds from our customers, between Hyundai, Kia, and Ford. So we do not see that impacting long term. That is really more just a timing-of-build impact. John Franzreb: Alright. Fair enough. I guess I will ask one more question and get back into the queue. What is needed to move the gross margin from the 16% threshold to the 18% target range? What are the levers you need to pull still? Jennifer Slater: Yes. I think we are pleased with the progress that we have made so far on gross margin. We have talked about the fact that we still feel early in the transformation and there is still a lot of work to do on cost optimization. So we will continue to have very granular focus on further cost opportunities that will help that gross margin. The other piece is, as you mentioned, the portfolio review on pricing. We talked about in the past that we had really taken the low-hanging fruit, but we are continuing to look at where there are further opportunities on pricing. And then longer term, volume is important. So, I think at this volume level, we are confident we can get to the 18% to 20%, but volume always matters longer term. Matthew Pauli: Yes. The only thing I would add, John, is if you look at our gross margin last fiscal year, it was 15%. If I look at it on a trailing twelve-month basis at the end of the third quarter here, it is just north of 16.5% on a trailing twelve-month basis. So we are seeing improvement in our gross margins from the actions that we have taken to right-size the cost structure and improve the margins. So we feel comfortable with the target, with the items we have line of sight to, to get to the 18% to 20%. Jennifer Slater: And I think it also is a proof point for our cash generation because we have continued to have stable cash generation from the improvements that we have put into the fundamentals of the business. John Franzreb: Alright. I lied then. What were the changes you actually made in Mexico that were beneficial? Matthew Pauli: Yes. We implemented additional restructuring action in Mexico. That is what is driving the additional savings that you will see starting here in the fourth quarter. It is about $800 thousand. Jennifer Slater: And I think, John, that is where we continue to have opportunity. What we balance is making sure that as we optimize the business, we do not impact delivery or quality for our customers. So it is a measured approach of getting our cost structure in the right way. Part of it is just looking at the way we do our business and improving processes. Part of it is the automation activities, the simple automation activities that we have talked about, and continuing to look at benchmark cost structures against where we are at. So this is where we think there is continued opportunity, but it is really in a balanced measure to make sure that we are not impacting our customers from a quality and a delivery standpoint while we right-size our cost structure. John Franzreb: Fair enough. Okay. Now I will get back into the queue. Thank you very much, everybody. Jennifer Slater: Thank you, John. Operator: At this time, there are no further questions. I would like to thank everyone for their participation in today’s conference. You may disconnect your lines at this time. Have a great day.
Operator: Hello, everyone, and welcome to Astrana Health's First Quarter 2026 Earnings Call. [Operator Instructions] Today's speakers will be Brandon Sim, President and Chief Executive Officer of Astrana Health; and Chan Basho, Chief Operating and Financial Officer. This press release announcing Astrana Health's results for the first quarter ended March 31, 2026, is available in the Investor Relations section of the company's website at www.astranahealth.com. The company will discuss certain non-GAAP measures during this call. Reconciliations to the most comparable GAAP measures are included in the press release. To provide some additional background on the results, the company has made a supplemental deck available on its website. A replay of this broadcast will be available at Astrana Health's website after the conclusion of this call. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meanings of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook, and will, and conclude, among other things. Statements regarding the company's guidance, continued growth, acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, liquidity, operational focus, strategic growth plans, and acquisition integration efforts. Although the company believes that the expectations reflected in these forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ materially from those projected. There could be no assurance that those expectations will prove to be correct. Information about the risk associations with the investing in Astrana Health is included in the filings with the Securities and Exchange Commission, which we encourage you to review before making any investment decisions. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, change in market conditions, or otherwise, except as required by law. Regarding the disclaimer language, if you would like to refer to Slide 2 of the conference call presentation for further information. With that, I will turn the call over to Astrana Health's President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon. Brandon Sim: Good afternoon, and thank you for joining us on Astrana Health's first quarter 2026 earnings call. Today, I'll begin with our first quarter results. Then discuss how we have built and positioned Astrana anchored in our AI-enabled platform and longitudinal payer-agnostic care model and why that model is increasingly advantaged. I'll then provide updates on our 4 strategic pillars and our progress against each. And finally, I'll provide some color on the Prospect integration, expansion market performance, and recent regulatory updates before turning the call over to Chan. Astrana delivered a strong start to 2026. We saw continued disciplined growth, well-controlled medical cost trend, meaningful operating leverage, and early performance from new full-risk contracts that continue to track in line with our underwriting expectations. More importantly, this quarter reinforces our broader thesis. As the health care environment becomes more complex, advantage will accrue to organizations that can integrate care delivery, data, and financial accountability into a single operating system. Astrana has built that operating system. And we believe that advantage is widening. In the first quarter, Astrana delivered revenue of $965.1 million, up 56% year-over-year and adjusted EBITDA of $66.3 million, up 82% year-over-year. Non-GAAP adjusted EPS was $0.74, up 76% year-over-year and free cash flow was just over $64 million in the quarter. Deleveraging also continued to progress ahead of schedule with net leverage declining to approximately 2.3x on a pro forma trailing 12-month basis and to 2.2x based on the midpoint of our full year guidance. As a reminder, when we announced the Prospect transaction, we communicated a path to deleveraging below 2.5 turns of net leverage within 24 months. We have now achieved that milestone in just 3 quarters. And we anticipate ending the year at or below 2 turns of net leverage. We are pleased with the consistency of our performance and execution against our priorities in the first quarter. And our results increasingly reflect the advantages of the platform we have built and the way we are embedding AI across our platform. Our view is straightforward. AI can improve individual tasks. But the greatest value accrues to the orchestration layer where data, workflows, clinical decisions, and financial accountability are integrated across the system. In health care, that means connecting how care is financed, coordinated, and delivered and, ultimately, improving outcomes for patients. We believe that requires deep architectural alignment. Unlike fragmented health care technology stacks assembled across multiple third-party vendors, our platform was designed internally as an integrated operating system because an embedded orchestration across workflows, care delivery, and financial operations requires that. As a delegated payer-agnostic platform, we sit at the center of the health care ecosystem with a continuous longitudinal view of each patient across plans, settings, and time. We are not tied to a single payer or a single line of business. We follow the patient throughout their health care journey. That creates 2 structural advantages. First, it creates long-term value. The continuity we build with our patients allows us to engage and manage care over extended periods of time, driving better clinical outcomes, more efficient resource allocation, and more predictable financial performance. Second, it creates a compounding data advantage. Our longitudinal view allows us to build a more complete and persistent understanding of each of our patients, which improves our ability to predict risk, intervene earlier, and coordinate care across settings. And on top of that foundation, we have built a proprietary data ontology and AI models that translate intelligence into action, embedding real-time insights, next best actions, and workflow orchestration directly into provider workflows and care management operations. Across our platform, our AI agents are increasingly embedded into operational and clinical workflows, helping manage authorizations, claims processing, care management, quality outreach, and next best actions in real time. Because these agents operate within our broader platform and data infrastructure, they act with longitudinal context across the patient journey rather than within isolated workflows. And these capabilities are embedded directly into the day-to-day workflows of our providers and care teams, driving measurable improvements at the point of care. Providers actively using our platform achieve a 24% higher gap closure rate and a 30% higher annual wellness visit completion rate. And those outcomes are increasingly powered by AI-enabled patient engagement at scale, including around 500,000 automated member interactions across voice and text each month, the equivalent of several hundred personnel worth of outreach capacity. We are seeing similar leverage operationally. For example, our AI claims agents have reduced provider payment cycle times to less than half that of manually processed claims. Taken together, these capabilities translate directly into improved clinical outcomes, more efficient operations, and ultimately, more predictable financial performance. Importantly, because we operate the system our AI is improving and because we maintain longitudinal relationships with patients across payers, the benefits compound over time within our platform. As more patients flow through our system, our models improve, our predictions sharpen, and our ability to allocate resources becomes more precise across the patient journey. That combination of longitudinal relationships, data continuity, and integrated workflows is what really enables us to translate AI into durable clinical and economic value. We continue to see those platform advantages translates into consistent clinical performance across the enterprise. In the quarter, medical cost trends slightly outperformed our full year trend assumption of approximately 5.2%, with strong performance across both our core and legacy Prospect populations as we continue integrating Prospect onto the Astrana operating system. Our original Medicare populations in both ACO REACH and MSSP also performed well, reinforcing the scalability of our platform and the ability of our technology and clinical infrastructure to drive consistent outcomes across lines of business. We are also seeing that leverage reflected in our operating structure. In the first quarter, G&A as a percentage of revenue was 6.4%, a 70 basis point improvement year-over-year. As we continue embedding agentic workflows and intelligence across the platform, we expect additional operating leverage over time and believe that we will exit the year at levels below where we are today. Turning to membership. We ended the quarter serving approximately 1.55 million members in value-based care arrangements. On Medicaid and Exchange, trends in the quarter remained generally in line with expectations with puts and takes across the portfolio, largely offsetting one another. Medicaid membership attrition tracks modestly below expectation, while acuity has remained favorable, reflecting less adverse selection than modeled due in part to our longitudinal patient relationships. On the exchange, attrition tracked somewhat ahead of expectations during the quarter. And overall, we continue to manage these dynamics with a disciplined and appropriately conservative approach. And our broader assumptions and outlook for 2026 remain unchanged. On prudent risk progression, we delivered on the commitment we made in late 2025 to convert key contracts to full risk arrangements. At quarter end, approximately 80% of care partners' revenue and around 40% of owned membership were in full risk arrangements. Importantly, new contracts that commenced this quarter are performing in line with our underwriting, reinforcing the discipline of our approach. Collectively, our results reflect continued execution across the 4 strategic pillars we have discussed consistently over the past several years: Disciplined growth, prudent risk progression, strong clinical and medical cost performance, and expanding operating leverage through our platform. Now, turning to Prospect. Integration remains on track and continues to validate the strategic rationale for the transaction. We have completed financial standardization, established full visibility into medical economics and aligned clinical workflows under the Astrana Care model. Gross provider retention remains above 99% for the quarter. And we continue to track towards the high end of our $12 million to $15 million annual synergy target. In our expansion markets, Southern Nevada, which reached run rate profitability in 2025 with a 20% year-over-year improvement in MLR, continues to perform well. In Texas, the launch of our full risk delegated model with a large payer partner on January 1 is progressing in line with expectations. And we expect our platform and operating model to drive a similar maturation curve over time in Texas as we've observed in our other markets. Finally, some quick comments on the regulatory environment. On the 2027 Medicare Advantage final rate notice, we believe there continue to be structural tailwinds for Astrana. Our model is not dependent on diagnosis sources that are being disallowed. And our historically conservative and counter-based approach to risk adjustment positions us well under the revised framework. More broadly, as regulatory changes continue to minimize risk adjustment as a source of alpha, we expect relative performance across the industry to be increasingly driven by underlying clinical execution and cost management. That is core to how we operate. To close, our first quarter results reinforce the structural advantages of the Astrana platform. We are growing with discipline, progressing risk responsibly, managing medical costs with consistency, and continuing to widen a durable technology and AI advantage that compounds with every patient we serve. With that, I'll turn the call over to Chan. Chan Basho: Thank you, Brandon, and good afternoon, everyone. Our first quarter financials reflect solid execution and a strong start to 2026, driven by the commencement of new full risk contracts, continued contribution from Prospect and disciplined platform-wide performance. Total revenue for the first quarter was $965.1 million, up 56% versus the prior year period, driven by the full quarter contribution from Prospect, commencement of full risk contracts and continued organic growth across our Care Partners segment. Adjusted EBITDA for the quarter was $66.3 million, up 82% versus the prior year period. Both revenue and adjusted EBITDA came in at the higher end of our guidance range, reflecting the durability of our model. Net income attributable to Astrana was $14.4 million and adjusted EPS was $0.74 per share. Medical cost performance in the quarter was in line with expectations. Our 2026 plan assumes a blended cost trend of approximately 5.2%. And Q1 actuals across both legacy Astrana and legacy Prospect were consistent or better than planned across all lines of business. G&A as a percentage of revenue was 6.4% compared to 7.1% in the prior year first quarter. This 70 basis point improvement reflects continued operating leverage as we scale revenue and continue to embed AI capabilities across the enterprise. Free cash flow for the quarter was $64.1 million due to strong operating performance and conversions to full risk. We continue to expect strong full year free cash flow generation as new full risk contracts ramp, working capital normalizes, and integration-related investments decline. We ended the quarter with $478.4 million of cash and $586.8 million of net debt. Net leverage on a pro forma basis was approximately 2.3x, down from 2.6x at year-end, reflecting strong free cash flow generation and continued EBITDA growth. We remain committed to meaningful deleveraging over the next 12 months through profitable growth, free cash flow generation, and disciplined debt reduction. We are reaffirming our full year 2026 outlook. We continue to expect total revenue in the range of $3.8 billion to $4.1 billion, adjusted EBITDA between $250 million and $280 million, and free cash flow between $105 million and $132.5 million. We're pleased with our first quarter performance and continued execution and remain disciplined in our approach to full year guidance. Our outlook continues to assume conservative Medicaid membership trends and 0 contribution from HQAF. We expect greater clarity on both items as the year progresses. And until then, we will continue to apply an appropriately conservative approach to full year guidance. As a reminder, the midpoint of our 2026 guidance reflects our operating plan. The low end assumes a stacked downside case rather than a shift in underlying execution. On the headwind side, we have embedded expected declines in Medicaid and exchange enrollment, adverse selection, losses associated with new cohorts and expansion markets, conservative medical cost assumptions, and 0 contribution from HQAF. On the tailwind side, we have modeled improved 2026 Medicare Advantage rates, continued realization of Prospect synergies, ongoing maturization of full risk cohorts, and operating efficiencies driven by automation and AI deployment. For the second quarter of 2026, we expect revenue between $965 million and $1 billion and adjusted EBITDA between $65 million and $70 million. Taken together, our first quarter results give us continued confidence in our ability to deliver against our 2026 framework. With that, operator, we're happy to take questions from the audience. Operator: [Operator Instructions] Our first question is from Jack Slevin with Jefferies. Jack Slevin: Candidly, crazy afternoon, so a little trouble processing information. Maybe just to hit on what I think are like the 3 biggest things for everyone here. I heard the commentary on the trend better or in line with what you're expecting across all books. If I just think about enrollment and trend in Medicare Advantage on the HIC side and in Medicaid, can you just give me the rundown on sort of where that stuff landing versus expectation and how to think about the progression there versus what you sort of already expressed at the last quarter call? [Technical Difficulty] Operator: Will the speakers please check and see if their line is muted. Brandon Sim: Sorry, can you guys hear me? Operator: Yes. Brandon Sim: I apologize. Sorry, I know that, that was -- that was a busy quarter, Jack. Thank you for joining anyway. Happy to give an update per line of business on enrollment and trend. For -- starting off with Medicare, enrollment came in, as we had described before, mid-single-digit growth in eligibility. I'll start first with enrollment and then go to trend. On Medicaid, as I mentioned in my prepared remarks, enrollment or disenrollment tracked slightly ahead of the midpoint of our range. And so we're looking at probably on the high end of our range for disenrollment for the year. And then finally, for exchange, things came in better than expected in terms of disenrollments as has been noted industry-wide. In terms of trend, we were able to come in at or above our full year range for trend, which is a blended 5.2% cost trend year-over-year. And so trend has performed very well across all lines of business. Notably, trend came in better in Medicaid as well relative to our expectations. So there was lower adverse selection so far throughout the year than we expected even with the slightly higher disenrollment than expected. So as I mentioned in the prepared remarks, Medicaid and exchange kind of puts and takes there ended up balancing out. And trend ended up performing better than expected really across all lines of business and for both core and legacy Prospect populations. Jack Slevin: Just one follow-up for me. The balance sheet, obviously now getting to a better position. I know you called it out and then sort of a lot of where you had been messaging and things progressing nicely and good free cash flow generation in the quarter. I guess maybe just thinking about, you had done some M&A, nothing obviously on the scale of Prospect beforehand. But as you sort of get that leverage ticking down and think about what you can do with excess free cash, would love to get your thoughts just on what you think the best use of cash is here. If there's ample tuck-in opportunities? If the buyback is something you should look at? Just curious to sort of hear what you're thinking about there. Brandon Sim: Yes, of course. Overall, our approach to capital allocation, I think, is going to remain disciplined and consistent with the priorities we've previously communicated. First and foremost, of course, our near-term focus is on deleveraging following the Prospect transaction. As I mentioned in the remarks, we're very pleased with the pace of progress so far. As I mentioned, net leverage already declining to approximately 2.3 turns on a pro forma TTM basis. And that's far ahead of the timeline we originally communicated when we announced the transaction. And so when we think about capital deployment, I think our highest priority continues to be investing organically into the platform, including our technology infrastructure, AI capabilities, clinical operations, and expansion markets. And we see strong returns and a meaningful runway ahead in those efforts. On M&A, though, it's really a question about capital allocation efficiency. I think we already -- we believe we already have the core capabilities required to operate a fully integrated AI-enabled health care operating system internally. So the question is less about acquiring technology capabilities and more about determining the most capital-efficient way to expand membership provider relationships and market density over time. So it's going to be a bit of a buy versus build question in terms of M&A. That being said, we continue to believe the platform is extremely well positioned to integrate and scale M&A acquisitions over time. Because we've built that proprietary operating platform, I think we've proven that we're able to operationalize acquired assets very efficiently and very consistently across the platform. And we've demonstrated that capability, as you noted, with Prospect, but also with things like collaborative health systems, CFC, and more in the past. So it's going to be an important opportunity to continue growing the platform. But we're going to remain disciplined and highly selective in the approach. And finally, on share repo, we did continue to do share repurchases in Q1 as we have in Q4 of last year. And we'll continue to evaluate that capital allocation strategy dynamically based on where we believe the risk-adjusted return for repo will be and where we think we can create kind of long-term shareholder value. So given the strong cash generation so far and that integration is on track and ahead of schedule, we're pleased with where we are. And we think we have a lot of flexibility over time as we continue growing the platform. Operator: Our next question is from Ryan Daniels with William Blair. Ryan Daniels: Congrats on the strong start to the year. Brandon, I thought you gave a great overview of the Astrana operating platform and the advantages it gives you both on care and operating efficiencies. So I'm curious how much more leverage do you have there to drive maybe G&A efficiencies? And what type of new programs are you launching? And then as a follow-up, I'd love to learn more about how you plan to commercialize that in the market as other vendors kind of struggle sometimes to manage care as effectively via your care enablement partner offering. Brandon Sim: Hello, Ryan, thanks for the question. I think there's a lot of -- I described some of the examples of how we're using technology so far. It's really deeply integrated into the system. And it helps that we have a fully delegated capitated model where we do act as a single payer. And we have the visibility across authorizations, claims, care management, and the entire ecosystem. So far, as I mentioned, we've really been using a lot of AI in terms of our risk stratification models, our next best action models, creating a suite of agents on both the payer-facing and provider-facing side. On the payer side, for example, on claims adjudication and prior authorization, on the provider and patient side in terms of engagement through voice and text as well as clinical documentation and gap closure. I think some opportunities remain in further expanding our agentic care management workflows, something we've developed over the last half year or so that we're -- that is already in use, but certainly can lead to further efficiencies on both the OpEx and, hopefully, over time on the cost of care line as well. We're also looking at, of course, continuing to finish off the integration of Prospect onto the Astrana operating system, which can drive further operating leverage as well as over the medium term, medical cost leverage, and continuing to expand our clinical decision support capabilities embedded directly into the provider workflow as part of the Astrana operating platform. So I think there are going to be continued opportunities. And like I mentioned in the prepared remarks, already reduced G&A as a percentage of revenue, 70 basis points year-over-year and expect to exit the year even lower than where we came in around -- sorry, lower than where we came in, 6.4% in Q1. On the second question in terms of commercializing this in the market, I think perhaps an underappreciated part of our story is that there is a segment that we report in which we do commercialize some of these tools to the market in our Care Enablement segment. That segment continues to grow rapidly, has a strong gross margin and EBITDA margin profile. And just in this quarter, we added a new client, which we had disclosed kind of on earnings -- on a previous earnings report to that client base in the Care Enablement business. So we continue to grow that business rapidly. And we think there is potential to not only improve groups and clients in that business, but also one day potentially, as we did with the Community Family Care acquisition, to look for deeper ways to partner and get them perhaps into our Care Partners business. Ryan Daniels: And then one quick follow-up. This is more housekeeping. But with the quality assurance fund, I know that's not included in your guidance. Has there been any update there or any thoughts on when we might get timing on that to see if there could be potential contribution to this fiscal year for you guys? Brandon Sim: Thanks, Ryan. Yes, I think that's unfortunately going to have to wait until later in the year. We don't have an exact date in mind, but probably in the third or fourth quarters. So again, out of conservatism, we've left that contribution out of the guidance for 2026. But we look forward to hearing more and updating the street when that happens. Operator: Our next question is from Jailendra Singh with Truist Securities. Jailendra Singh: Congrats on a strong quarter. Brandon, I know you have been cautiously optimistic around your 2027 EBITDA target of $350 million and you've said that there is still a path to get there. But in recent few months, there have been some positive developments around 2027 CMS MA rule. You just said that Medicaid and HICs have been trending better to at least in line to better than expectations and then you're also driving AI-driven efficiencies. Are you feeling better about that target now versus 3 months back? Or at least you're willing to say that current consensus, which is around $340 million, seems to be at least in a reasonable range. Just trying to understand like how your views about 2027 might have shifted in the last couple of months or 3 months. Brandon Sim: Hello, Jailendra, thank you for the question. When we originally provided that 2027 adjusted EBITDA framework, this was back in 2024. Of course, we're in a meaningfully different regulatory and industry environment than the one we're operating in today. But with that being said, I think the more important point, the more salient point is the continued strength and adaptability of the Astrana platform over all environments. Our model was designed to operate across cycles, as I've mentioned many times before. And we believe the consistency of our performance over really decades of performance. But certainly even in the last 5 or 6 years, certainly reflects that. As an example, from 2019 through guidance for 2026, we've grown revenue at approximately a 32% CAGR and adjusted EBITDA at a 25% CAGR while continuing to generate operating leverage and free cash flow along the way as we grow very, very rapidly. And against that context, looking forward into '27 and beyond, we think that the business has continued to be positioned to grow organically at a mid to high teens rate while continuing to deliver on free cash flow as well. We see meaningful opportunities, of course, to accelerate that growth past the mid to high teens growth rate through disciplined and selective M&A potentially over the long-term, particularly given the scalability of what we've built. But even without M&A, we still think that it's a mid to high teens organic grower. And so that being said, I think the key takeaway here is really the operating model and its durability across all regulatory and economic cycles. Our ability to continue compounding growth as we have, 25%, both organically and inorganically over the last 6, 7-year period and our continued expectation that off of the 2026 number, that mid to high teens CAGR on the EBITDA line is firmly within reach over the short to medium-term future. Jailendra Singh: And then my follow-up on the AI investments. You talked -- I think in the presentation, you said that your G&A has been benefiting from AI-enabled tools. And is the message that all of the 70 basis point year-over-year improvement was driven by these AI tools, which would imply like $7 million benefit in the quarter alone. I just want to confirm that. And then as we think about broadly your AI investment strategy. How are these investments split between focus on administrative aspect of the business where savings might directly fall to bottom line right now versus investing in clinical workflow, so that these will drive more savings down the road? Just help us understand how do you allocate your AI investment strategy and the dollars there? Brandon Sim: Yes, of course. I think it's a little hard to say exactly how much of the 70 bps is driven directly by AI. Certainly, AI is being infused across the board. So I would say a meaningful part of that without quantifying is driven by AI and its ability to help us scale the business without increasing G&A costs associated with that rapid revenue growth. In terms of the split between more administrative functions and maybe clinical or coordination and navigation-related functions that could potentially have an impact on medical costs in the short and medium-term future. I think it certainly started off on the payer side and on the G&A side. We built agents around claims, around authorizations, around eligibility. And I think over the last probably year or 2, we've been building a proprietary suite of more clinical-facing tools such as risk stratification, care management, workflow orchestration, and identification that I think will lead to MLR improvements over time. And you can see that a little bit as we -- maybe getting a little off topic here. But you can see that a little bit with how Prospect has performed as we continue to onboard them onto the Astrana operating system. Prospect, prior to the acquisition had medical cost trend running 6%, 6.5% or so. We modeled around 50 basis points of improvement in 2026 versus that number. And we're outperforming that by a bit here even in Q1, even though we've already improved by that 50 basis point margin. So I think you'll really start to see even more MLR improvement in the medium term. But I would say the improvement is largely skewed towards G&A at this point in time. Operator: Our next question is from Craig Jones with Bank of America. Craig Jones: So Brandon, I want to follow-up on your comments around your encounter-based risk adjustment model MA. So it sounds like CMS keeps mentioning like leveling the playing field in MA and really wants to rewrite the current MA risk adjustment model. So if you were in the room with them redoing the risk adjustment model, what would you recommend changing? And then how do you think the potential changes end up making potentially going to this encounter-based model would help Astrana? And then do you think you could see something along these lines as soon as the 2028 technical notices fall? Brandon Sim: Thanks for the question. Yes. I think the future of risk adjustment is really interesting. As you can see in the ACO lead preliminary model details. There is the phasing in of an AI inferred risk score, which would depend not necessarily on an organization's ability to document and submit codes, but rather trying to use AI to infer the true acuity of the member and reimbursing appropriately based on that kind of "gold standard" kind of determination of a member's risk. Again, I think, ultimately, because we've been conservative on risk adjustment, because we see members over a longitudinal period of time and we try to be very appropriate in terms of capturing the clinical complexity of the population. We think that either way, we're well structured, we're well positioned for that future. We think that because we haven't relied on documentation or coding optimization to generate savings and value for the health care system in the past, it may even be beneficial for us, for example, to have a true determination of what a patient's risk is via AI that the government or CMS is going to determine rather than everyone playing a game to try to improve their risk scores over time on a relative basis. So I think really, regardless of how all that shakes out, we think we're structurally well positioned for the long-term. That being said, if I had my way, I do think that the -- that risk adjustment as a source of alpha is not really, I think, in the benefit of the health care ecosystem in the long-term and for the Medicare Trust fund in the long-term. So I would recommend without knowing more that some of these approaches that are being suggested like AI inferred risk models seem very appropriate and seem like a much more efficient way to standardize what risk determination looks like across the American population. Operator: Our next question is from Michael Ha with Baird. Michael Ha: So when it comes to AI, clearly, everyone is talking about it this earnings season, all the large national payers, providers. But the thing is most of them have pretty legacy old infrastructure, fragmented data, as you said yourself. So when I think about Astrana versus, I guess, almost all of your peers. It's the fact that you built an AI-native tech platform many years ago. And the fact that you yourself are spearheading foreseeing AI adoption across basically every facet of your company. I think that's still widely underappreciated. So I was wondering if you could talk more about this specifically, the structural differences between you Astrana versus your peers when it comes to unlocking the power of AI? In other words, like what still has to happen -- what still has to be done by your peers to get there versus what can already start to happen at Astrana? Brandon Sim: Yes. Thanks so much for the comments, Michael. I think broadly, that's right. I think our thesis has always been building internally. And I think that thesis is being rewarded in an era where it is easier than ever and faster than ever to build internally because of the advent of generative AI and its use in coding. And I think as long as you have the integrated data infrastructure to support that, the ontology is on top of that, the definitions, the concepts and the relational -- and the relationships between those concepts so that the AI understands how to operate on each of these concepts and how they relate to each other and how they ultimately translate into actionable insights. I think that's hard to replicate, right? I think if you're operating a system where you've acquired a bunch of stuff. And you haven't integrated them into a unified data layer with a unified set of concepts and vocabulary on top of that, on top of which the AI and the agents can operate. You're going to find it very difficult to kind of build the fifth floor of the building without having the structural supports in the ground floor and the lobby built out. And I think that's a lot of what our peers are doing perhaps without getting too much into what our peers are doing. I think there's a rush to chase the kind of the sexiest parts of AI to build the top floor, the penthouse unit without having the foundational approach, without having the pick axis, the knowledge about how to dig the hole and the foundation into the ground to build that in an effective manner. And I think we've spent a lot of time, myself personally, given my engineering background to build out that foundation. And now we think that's going to unlock our business in terms of rapidly adopting AI across the enterprise and embedding it deeply into each and every workflow, both operationally, clinically and on the quality of care side. So we're really excited about where we can take this platform. We're already seeing the G&A improvements. We're starting to see some of the trend improvements as we continue to integrate new businesses onto the platform. And we're seeing great success as well in terms of our Care Enablement business, selling the tools, and the integrated workflow that we've built to other provider groups and helping them succeed also in an accountable care relationship. Michael Ha: So next question on the final MA rate notice. So I'm getting roughly like 4% net rate increase for Astrana if I exclude -- on the chart reviews. And when I think about Astrana's margin expansion, just how sensitive it is to the rate environment? I know your cost trends are running, I think, 4% to 5% roughly for MA. So at face value, right, that would imply rates are basically they match up. But if I start at 4%, add maybe 1% to 2% coding, maybe another 1% to 2% help from plans, benefit design pricing. Then we're getting into a different sort of ballpark of 6% to 9% rate versus trend of 4% to 5%, up to 400 basis points of margin expansion. So it feels quite considerable. And that's not even including right, your regular cohort maturation dynamics, any other trend vendors or G&A. So at a high level, am I missing any major components? Is this even the right way to start thinking about 2027? Brandon Sim: Yes. Mike, as always, your math is great. So I would broadly agree with your comments. I think the final rate notice was constructive overall. And the overall top line kind of effective growth rate of 5.33% does more appropriately reflect underlying medical cost trend. As you mentioned, the disallowed diagnosis -- or the diagnoses, sorry, are expected to be immaterial for Astrana, given our historically conservative and encounter-based approach to risk adjustment. So as you had noted correctly, the average change for us might be the 2.48% plus the 1.53% or approximately 4% in aggregate. And as we think about '27 more broadly in our models, at our current RAF levels, we probably expect to maintain MA margins consistent with 2026 with that 4% kind of average rate book increase. Beyond that, we continue to see tailwinds and opportunity for more accurately capturing the complexity of our populations and risk adjustments. And there's potential tailwinds above and beyond the 4% from those sources. Operator: Our next question is from David Larsen with BTIG. David Larsen: Congratulations on the great quarter. Can you talk a bit about your margins for like, I guess, full cap books of business that would include inpatient? And can you remind me what regions or how many members are full cap, including pharmacy, doc, inpatient? Brandon Sim: Thanks for the question, Dave. Thanks for tuning in. Our fully capitated arrangements start off in lower kind of EBITDA margin arrangements as we transition them from full risk because as we talked about before, you get the kind of increase in percentage of premium without yet necessarily flowing through the decrease in inpatient utilization as we take on additional portions of the risk dollar. Over time, the maturation of the full risk cohorts, as we've seen over the past years as we've moved members cohort at a time into full risk arrangements as we continue to do that as we did in Q1 of this year. You see that margin profile mature and ultimately get to hopefully a similar point as the kind of partial risk members as well. So I think that's what we expect as we continue to move members selectively and prudently into full risk arrangements. We underwrite kind of this margin maturation cycle. We've seen that happen now over several years. And each of those has matured as expected. And so we can kind of space out our membership moving into full risk as appropriate. I do want to mention that almost all of our full risk arrangements do not include Part D as in dog risk. So there are a handful that do and most of them do not. In terms of the geographies where we are full risk, it really varies. Most of our membership, 80% of the revenue approximately comes from California. So I would say still that California does have a large percentage, a majority of the full risk members. However, we have moved over 14,000 Medicare Advantage members into a full risk delegated construct arrangement with a payer partner, for example, in Texas in the first quarter of this year. So -- and we also have full risk delegated contracts in Nevada. And of course, the ACO REACH business is in some aspects, the full risk business also. So we're really in the business of properly underwriting and then appropriately and proactively reducing the cost of care for our populations and then making sure that our financial contractual arrangements are conducive to us capturing some of the value that we're generating for our patients and for our communities over time. David Larsen: And then for Prospect, I think you may have mentioned this earlier. Is it still $80 million of EBITDA? Is that on track? Brandon Sim: Yes, that's right, Dave. Prospect was on track for around $80 million of adjusted EBITDA on an annualized basis. And at this point in time, it is currently tracking a bit ahead of those expectations. David Larsen: And then just one quick one. It looks like your stock has been doing really well over the past couple of months. I guess what do you attribute that to just at a high level? What? Brandon Sim: Sure. I mean we're always happy to see that as it's our job to continue generating shareholder value, of course. I think I hope it's a continued recognition of our leadership and our consistency and stability of our model. The differentiation of our technology platform, the 35% revenue CAGR, the 25% adjusted EBITDA CAGR that I mentioned, which I think is fairly unheard of in health care services over a very long period of time, over 7 years. And ultimately, of course, definitely helps that there's been -- there have been regulatory tailwinds, including the adjustment, the more appropriate, in our view, 2027 Medicare Advantage final rate notice. So I think overall, a lot of positive kind of macro tailwinds lining up and hopefully, an increased recognition of the unique platform that we've built that has really generated free cash flow, profitability, and now rapid growth for over 3 decades. David Larsen: The best health care is when you don't actually have to see your doctor. And that's the model that you guys have created. So nice quarter. Operator: Our next question is from Ryan Langston with TD Cowen. Christian Borgmeyer: This is Christian Borgmeyer on for Ryan. So looking at the second quarter guidance and EBITDA margin, how should we think about puts and takes within the cost of service revenue and G&A lines? For example, any seasonal considerations within medical utilization, in particular that are different this year? Or on the G&A side, any sequential savings from AI or Prospect synergies embedded in that? Chan Basho: In terms of our 2026 guide, probably the best way to think about this is in the first half of the year, we're probably going to see a little over 50% of profitability coming in consistent with what's happened in historical years. As you think about puts and takes, the puts and takes, as we mentioned, it's around HQAF. It's around opportunities with MA and ACO as well as watching in terms of what's going to happen around the Medicaid membership trend. Brandon Sim: And then maybe to answer the other part of your question. We didn't see any abnormal utilization necessarily in Q1. I know there's been talk about weather and the flu season and whether that was heavier or lighter. I don't think things came in pretty operationally clean is how I characterized the quarter and tracked pretty consistently both on the inpatient and outpatient side with the broader medical cost trends that we reported across the business, even drilling down into each line of business as I started off the Q&A session with. So we felt pretty comfortable this quarter. And we're maintaining guidance primarily because we want to take a disciplined and conservative approach early in the year here. Christian Borgmeyer: I actually had a quick balance sheet question actually. I see the accounts receivable balance and the medical liabilities balance are each up like $90 million to $100 million sequentially. Anything to call out there related to any one item or program in particular? Or is that the full risk conversions contributing to that? Chan Basho: Yes, that's the full risk conversion that you're seeing in Q1. Operator: Our next question is from Gene Mannheimer with Freedom Capital Markets. Eugene Mannheimer: Congrats on a good start to 2026. So coming in or tracking at the high end of cost synergies with Prospect. Can you discuss potential revenue synergies there and when you may start to see that realized? And my follow-up would be on the MLR trends at or better than the 5.2% or so that you called out. Did you or can you break that out across the legacy Astrana and the Prospect book? Brandon Sim: Hello, Eugene, thanks for calling in. Sure thing. So on the revenue synergies, we haven't -- those are not included in the $12 million to $15 million synergy range. So we haven't quantified that yet. But we do expect over time that our partners and our providers and ultimately, our members will see the value of our denser network and our ability to drive access to care, high-quality care in a faster way because of the larger network that we now have. So over time, we do think that, that value will be realized by the platform, but we haven't yet quantified necessarily what that looks like. On the trend item, I would say that, as I mentioned before, Prospect came in 6% to 6.5%, 6.2%, 6.3% trend prior to the acquisition. And we are underwriting a 50 basis point improvement in that trend year-over-year. Our overall trend for the year is around 5.2% on a consolidated basis. And I would say that both core Astrana as well as legacy Prospect businesses performed better than expected here in Q1. Again, it's still early on in the year. We don't have perfect visibility, claims visibility yet, for example, on March. So we wanted to be conservative, but things are tracking well here to start the first quarter. Operator: Our next question is from Matthew Gillmor with KeyBanc Capital Markets. Matthew Gillmor: I wanted to follow-up on the full risk contract transition discussion. I think this quarter, you had 40% of members in full risk. I think last quarter, you set an expectation of 36 members in full risk as of the first quarter, so maybe a little bit ahead of schedule. I wanted to see if I had those numbers right and then just get an update in terms of how you're thinking about the pacing of members moving to full risk over the course of the year. Brandon Sim: Hello, thanks for the question. Yes, I think that's approximately right. Around 40% of our members are in full risk arrangements. And that translates into around 80% of our care partners revenue being -- coming from full risk arrangements. And of course, that's because the percentage of premium that we receive in the full risk arrangements per member is obviously higher than the partial risk arrangements. So I think you're continuing to see that the percentage of both membership and revenue continue to grow. In Q1, this took a step up because of the forwards contracts that we had started in the first quarter as we had guided to late last year. And all of those have now been completed. And so that's what's led to the spike here in Q1. On a go-forward basis, I think in our supplemental presentation deck. We did note that we do expect continued growth in the percentage of full risk members. And we'll be phasing that in over time kind of on a regular course basis. Matthew Gillmor: And as a follow-up, we've been particularly interested in your ability to bring this delegated model into new markets. And so the news out of Texas that you've updated us on has certainly been encouraging. I did want to take your temperature in terms of expanding a delegated model either into new markets or even just new states or even just new markets within states like Texas, which many of those places traditionally haven't had fully delegated models. Brandon Sim: Yes, it's a great point. And you're absolutely right. A lot of parts of the country have not necessarily operated in a -- don't even mention delegated model. They haven't even operated really in a value-based care setting in a broad way. And so we recognized the challenges of kind of gone 0 to 1 in a very short period of time. And I think that's why we've been really working on a gradated kind of approach to helping providers and payers along as we continue to take the Astrana delegated model outside of California, outside of Nevada, outside of Texas, and through the rest of the country. And what that looks like really is, first, entering into partial risk arrangements, ensuring that the data feeds that we need are on the ground and ready to go. Ensuring that our relationship with our downstream providers, primary care specialists and even hospitals are strong. Ensuring that our technology platform is integrated directly into the workflow of those providers. And ensuring that kind of our care management orchestration is in place and kind of allowing the economic contractual relationships to kind of follow behind the wake of the operational changes that we're making in terms of how health care is delivered in these new states and/or geographies. So it is a created kind of stepwise approach to getting folks into the validated model. We think that it ultimately will win out because, frankly, at the end of the day, it's just a more efficient model. It's a more valuable model to the health care system and a more efficient one for both payers and kind of the overall system. So we think that logic will take the day here and the economics of it will take the day. But we do recognize that change management takes time. And we're prepared to and have engaged in Florida, I mean, sorry, in Texas and Nevada, for example, on that path forward step by step. Operator: Our final question is from Andrew Mok with Barclays. Thomas Walsh: This is Thomas Walsh on for Andrew. You shared that acuity in the Medicaid population remains favorable in part due to your longitudinal patient relationships. Can you help us understand how those patient relationships mitigated the acuity impact in practice? And are there any other factors on the mix of members disenrolling or otherwise that mitigated the adverse selection? Brandon Sim: Yes, definitely. I think what I was alluding to, to put it more clearly is that the patients that tend to be Astrana members, which -- and the patient attribution mechanism is the choice. The selection of a primary care provider who is an Astrana primary care provider. The members that tend to be attributed to us, tend to not be the members who have low to no utilization because they are almost making an active choice to be an Astrana member and to be engaged in our care model and to be engaged in the longitudinal nature of the care model that we have with our patients as we follow them, for example, across line of business. I mentioned before, the example during COVID, members who lost their jobs and had to switch from a commercial line of business to commercial insurer to potentially something on the exchanges or something on Medicaid, for example, could continue to be in the Astrana ecosystem, continue to have the same care management, continue to see their same PCP and same specialist network. Those are the benefits, I think, of being in the Astrana network. And that tends to insulate us or we think partly insulate us from the level of adverse selection we expected from the disenrollment of members and kind of potentially their lower MLR. That didn't end up playing out the way that -- or to the degree that we thought it would. And that's what's led to some of the improved acuity in the Medicaid population. Thomas Walsh: And following up on ACA attrition tracking better than expectations, similar to trends across the industry. Could you share the actual disenrollment you experienced there? And at what point in the year would you expect to have enough visibility to make an informed revision to the full year membership expectation? Brandon Sim: Yes. I think at the beginning of the year, embedded in our guidance, we thought it would be a 30% to 40% disenrollment number in exchange throughout the year. And I think we had quantified that at a kind of mid-single-digit EBITDA impact headwind, of course. What we're seeing so far this year is not quite the 30% to 40%, really closer to high single-digit attrition in the ACA population. It still is early. We're still in May here. And there could be further disenrollments after the 90-day grace period. But across the industry, as we think about projections for actuarial firms and what others have been saying as well as our own experience. We're now projecting a decline of, call it, 20% to 30% instead of 30% to 40% internally at least. Again, we haven't reflected that in the guidance yet of conservatism, but that's kind of the quantum of the numbers we're talking about. Operator: There are no further questions at this time. I would like to turn the conference back over to management for closing remarks. Brandon Sim: Thank you, everyone, for joining our call today. We appreciate your time. And we hope to see you in the near future at one of our -- one of several conferences we'll be attending or we can catch up at any time if you e-mail investors@astranahealth.com. Again, thank you so much for joining and have a great evening. Operator: Thank you. This will conclude today's conference. You may disconnect at this time. And thank you for your participation.
Operator: Greetings, and welcome to the Main Street Capital First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Zach Vaughan. You may begin. Zach Vaughan: Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's First Quarter 2026 Earnings Conference Call. Joining me today with prepared comments are Dwayne Hyzak, Chief Executive Officer; David Magdol, President and Chief Investment Officer; and Ryan Nelson, Chief Financial Officer. Also participating in the Q&A portion of the call is Nick Meserve, Managing Director and Head of Main Street's Private Credit Investment Group. . Main Street issued a press release yesterday afternoon that details the company's first quarter financial and operating results. This document is available on the Investor Relations section of the company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until May 15. Information on how to access the replay was included in yesterday's release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the company's home page. Please note that information reported on this call speaks only as of today, May 8, 2026, and therefore, you are advised that any time sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call will contain forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may or similar expressions. These statements are based on management's estimates, assumptions and projections as of the date of this call, and there are no guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements as a result of risks uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at sec.gov. Main Street assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss non-GAAP financial measures, including distributable net investment income, or DNII, and DNII before taxes. The NII is net investment income, or NII, as determined in accordance with U.S. generally accepted accounting principles or GAAP, excluding the impact of noncash compensation expenses. The NII before taxes is NII as determined in accordance with GAAP, excluding the impact of noncash compensation expenses and any tax expenses included in NII. Management believes that presenting DNII and DNII before taxes and the related per share amounts is useful and appropriate supplemental disclosure for analyzing Main Street Capital Corporation's financial performance since noncash compensation expenses do not result in a net cash impact to Main Street upon settlement. And tax expenses included in NII may include excise tax expense which is not solely attributable to NII and deferred taxes, which are not payable in the current period. Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Two additional key performance indicators that management will be discussing on this call are net asset value or NAV and return on equity, or ROE. NAV has defined as total assets minus total liabilities and is also reported on a per share basis. Main Street defines ROE as the net increase in net assets resulting from operations divided by the average quarterly NAV. Please note that certain information discussed on this call, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. And now I'll turn the call over to Main Street's CEO, Dwayne Hyzak. Dwayne Hyzak: Thanks, Zack. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call. We hope that everyone is doing well. On today's call, we will provide our key quarterly updates, after which we'll be happy to take your questions. We are pleased with our performance in the first quarter particularly given the backdrop of significant economic and geopolitical uncertainties, which resulted in DNII before taxes per share, in line with our expectations and our guidance and strong investment activity in our [indiscernible] market investment strategy, following our very strong investment activity in the fourth quarter of 2025, resulting in significant growth of our lower middle market investment portfolio over the last 2 quarters. We believe these results continue to demonstrate the sustainable strength of our overall platform. The benefits of our differentiated and diversified investment strategies may continue strength and quality of our portfolio companies, particularly our lower middle market portfolio companies. We're also pleased that we further strengthened our capital structure since the beginning of the year. despite the challenging environment, which Ryan will discuss in more detail. Given our strong liquidity position and conservative leverage profile, we're very well positioned to continue the growth of our investment portfolio for the foreseeable future, and we're excited about the current opportunities we are seeing. We remain confident that our unique investment income and value creation drivers, together with our cost-efficient operations and conservative capital structure, will allow us to continue to deliver superior results for our shareholders in the future. Our favorable DNII before taxes for the first quarter and net realized gains over the last 2 quarters, combined with our outlook for the second quarter resulted in our most recent dividend announcements, which I will discuss in more detail later. Our NAV per share increased in the quarter primarily due to the accretive impact of our equity issuances and the impact of a net fair value increase in our lower middle market investment portfolio, partially offset by net fair value decreases in our private loan investment portfolio and our asset management business, which Ryan will discuss in more detail. Continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of favorable dividend income contributions and net fair value appreciation in our lower middle market equity investments. Based upon our current views of these investments, and feedback from our portfolio company management teams, we expect these favorable contributions to continue. We're also pleased to have exited our investments in a high-performing lower middle market portfolio company, KBK Industries in the first quarter resulting in a material realized gain in addition to the significant dividends received over the life of our equity investment. We continue to see significant interest from potential buyers in several of our lower middle market portfolio companies which we expect to lead to favorable realizations over the next few quarters and which we believe further highlights the strength and quality of our portfolio companies and their exceptional leadership teams. We're also excited about the new and follow-on investments we made in our lower middle market strategy during the quarter, which included investments in 3 new portfolio companies and follow-on investments in 5 high-performing portfolio companies to support strategic acquisitions, resulting in a net increase in lower middle market investments of $157 million. Our private loan investment activity in the quarter was slower than our expected normal quarterly activity primarily due to lower overall levels of private equity industry investment activity, resulting in a net increase in private loan investments of $37 million. David will discuss our investment activity in more detail. We also continue to produce positive results in our asset management business. The funds we advised through our external investment manager continued to experience favorable performance in the first quarter, resulting in a meaningful incentive fee income for our asset management business, and together with our recurring base management fees, a significant contribution to our net investment income. We remain excited about our plans for the external funds that we manage, and we're optimistic about the future performance of the funds and the attractive returns we are providing to the investors of each fund and about our strategy for growing our asset management business within our internally managed structure. As part of these efforts, we remain focused on growing the investment portfolio of MSC Income Fund, a publicly traded BDC advised by our external investment manager, which is solely focused on the private loan investment strategy with respect to new portfolio company investments. The result of the increase to its regulatory debt capacity, which became effective at the end of January 2026. The fund maintained significant capacity to add additional debt to fund future growth of its investment portfolio. [indiscernible] the Income Fund's First Quarter 2026 Financial Results Conference Call will be held later this morning for those who would like additional details. Based upon our results for the first quarter, combined with our favorable outlook for the second quarter, earlier this week, our Board declared a supplemental dividend of $0.30 per share payable in June, representing our 19th consecutive quarterly supplemental dividend and an increase to our regular monthly dividends for the third quarter of 2026 to $0.265 per share. These third quarter regular monthly dividends represent a 3.9% increase from the regular monthly dividends paid in the third quarter of 2025. Supplemental dividend for June as a result of our favorable level of DNII before taxes in the first quarter and our net realized gains over the last 2 quarters will result in total supplemental dividend paid during the trailing 12-month period of $1.20 per share representing an additional 39% paid to our shareholders in excess of our regular monthly dividends. We currently expect to recommend that our Board continue to declare future supplemental dividends to the extent DNII before taxes significantly exceeds our regular monthly dividends paid or we generate net realized gains, and we maintain a stable to positive NAV in future quarters. Based upon our expectations for continued favorable performance in the second quarter, We currently anticipate proposing an additional significant supplemental dividend payable in September 2026. Now turning to our current investment pipeline. As of today, I would characterize our lower middle market investment pipeline as average. Consistent with our experience in prior periods of broad economic uncertainty, we believe that our ability to provide highly flexible and customized financing solutions to lower middle market companies and their owners and management teams together with our differentiated long-term to permanent holding periods, represents an even more attractive solution to the needs of many lower middle market companies, and we're excited about our expectations for continued growth of our lower middle market investment portfolio. Similarly, in our private loan investment strategy, we are seeing an improved lending environment and significant opportunities, which we believe position us well to capitalize on new private loan investment opportunities and to generate growth for our private loan investment portfolio and our asset management business. And as of today, I'd characterize our private loan investment pipeline as average. With that, I will turn the call over to David. David Magdol: Thanks, Dane, and good morning, everyone. As Dwayne highlighted in his remarks, we believe that our first quarter financial results continue to demonstrate the strength of Main Street's platform, our differentiated investment approach and our unique operating model. We are pleased to report that the overall operating performance for our portfolio companies continues to be positive, which contributed to our favorable first quarter financial results. . Despite the continued heightened level of uncertainty in the overall economy, we remain confident in the ability of our portfolio companies to continue to navigate the current environment. Each quarter, we try to highlight a key aspect of our differentiated investment strategy. This quarter, we'd like to revisit reasons why we believe that our structure as a publicly traded company with the significant benefits of permanent capital is a great match within our -- within our lower middle market strategy. First, we believe that our permanent capital structure allows us to be the ideal long-term deperminent partner for the owner operators and management teams of privately held businesses. One of the challenges for a typical institutional investor in private equity is that they cannot provide a long-term partnership solution for business owners or their management teams due to the finite life of their investment funds. Our permanent capital structure and long-term to permanent lower middle market investment strategy provides us with the flexibility to provide significantly more beneficial long-term structural considerations as opposed to relying slowly on price as the competitive advantage. As a result, we believe our flexibility results in highly attractive customized investment structures that other investors simply cannot provide. In addition, our ability to be a long-term deperminent partner in the companies we invest in allows the owners of these businesses and their management teams the ability to maintain the identity and independence of their companies while also pursuing the best long-term strategy to achieve attractive outcomes for all of their company stakeholders. Second, our long-term holding period also result in a diversified portfolio of investments in more mature companies that typically have lower relative leverage profile since they use free cash flow from operations to deleverage over time. As our company's deleverage, we work proactively with our portfolio company executives and individual equity owners to decide how they can continue to generate the best returns for the equity owners of these businesses. This tends to create 3 attractive opportunities through which our high-performing lower middle market portfolio companies can create value. The opportunity to thoughtfully execute on internal and external growth initiatives to achieve long-term equity capital appreciation, continued deleveraging from internally generated cash flow to achieve equity appreciation and the opportunity to pay significant dividends to shareholders of the business. We often see our portfolio of companies take advantage of several of these value-creating opportunities. Given our unique strategy, we are well aligned with our portfolio company operating partners to evaluate and pursue the best alternatives to create shareholder value since we share the benefits of equity ownership with them. Alternatively, should one of our portfolio companies face difficult industry headwinds or economic conditions or other challenges since they have lower relative leverage profiles and the benefits of a long-term institutional partner, they tend to be well positioned to either work through any negative economic cycles as they arise and pursue acquisitions when valuations are most attractive. Either way, our lower middle market portfolio companies have the added benefit of a highly aligned partner in Main Street to help them work through potentially challenging times. Our lower middle market portfolio currently includes 48 companies that have been in our portfolio for greater than 5 years, including 21 that have been in our portfolio for more than a decade. We are excited about our partnerships with these lower middle market companies and the future opportunities they represent. The first quarter of 2026 represented another attractive period for add-on investments for our lower middle market companies whereby we supported 5 of our portfolio companies with additional capital for growth initiatives. [indiscernible] Main Street's strong capital availability, long-term investment horizon and ability to provide both debt and equity capital to our portfolio of companies. we are well situated to move quickly to support our portfolio of companies, not only on the initial transaction but also when they identify growth initiatives. Today, the environment for add-on acquisitions by our portfolio companies remain strong, and we welcome the opportunity to make incremental investments in our high-performing lower middle market portfolio companies. Both these situations, Main Street is pleased to provide most, if not all, of the cash needs for our portfolio companies to complete their highly strategic acquisitions. These acquisitions provide our portfolio companies, their owner operators, and their management teams, the opportunities to benefit from the significant equity value creation opportunities produced through combined economies of scale, cross-selling opportunities and other synergies that are expected to result from add-on acquisitions. We welcome the opportunity to support our lower middle market portfolio companies as they seek to invest incremental capital in support of both internal and external growth initiatives, and we believe our seasoned lower middle market portfolio will continue to provide attractive follow-on investments investment opportunities in the future. Now turning to the composition of our investment portfolio. As of March 31, we continue to maintain a highly diversified portfolio with investments in 189 companies spanning across numerous industries and end markets. Our largest portfolio companies, excluding the external investment manager, represented only 4.5% of our total investment income for the trailing 12-month period and 3.4% of our total investment portfolio at fair value at quarter end. The majority of our portfolio investments represented less than 1% of our income and our assets. Our lower middle market investment activity in the first quarter included total investments of approximately $206 million including total investments of $105 million in 3 new lower middle market portfolio companies, which, after aggregate investment activity resulted in a net increase in our lower middle market portfolio of $157 million. In our private loan strategy, we completed $149 million in total private loan investments, which after aggregate investment activity resulted in a net increase in our private loan portfolio of $37 million. At the end of the first quarter, our lower middle market portfolio included investments in 93 companies representing $3.2 billion of fair value, which was 25% above our related cost basis. and our private loan portfolio included investments in 85 companies, representing $2 billion of fair value. Total investment portfolio at fair value at quarter end was 115% of the related cost basis. Additional details on our investment portfolio at quarter end are included in the press release that we issued yesterday. With that, I will turn the call over to Ryan to cover our financial results, capital structure and liquidity position. Ryan Nelson: Thank you, David. To echo Dwayne and David's comments, we are pleased with our operating results for the first quarter, given the current environment. Our total investment income for the first quarter was $140.1 million increasing by $3.1 million or 2.2% over the first quarter of 2025 and decreasing by $5.4 million or 3.7% from the fourth quarter of 2025. Interest income increased by $7.3 million from a year ago and by $2.5 million from the fourth quarter of 2025. The increases from prior year and fourth quarter were principally attributable to the impact of higher levels of income-producing debt investments partially offset by a decrease in interest rates, primarily resulting from decreases in benchmark index rates on our floating rate debt investments and a negative impact from investments on nonaccrual status. . Dividend income decreased by $7.8 million when compared to a year ago after a $700,000 increase in unusual or nonrecurring dividends and decreased by $7.7 million from the fourth quarter, including a $3.5 million decrease in unusual or nonrecurring dividends. The decreases in dividend income for both comparable periods are primarily a result of the performance of our lower middle market companies and their capital allocation decisions relative to prior periods and the decrease in nonrecurring dividends. Fee income increased by $3.6 million from a year ago and decreased by $300,000 from the fourth quarter. The increase in fee income from prior year is primarily due to higher closing fees on new and follow-on investments and an increase in fee income from the refinancing and prepayment of debt investments and other investment activity. Fee income considered nonrecurring increased by $1 million from a year ago and by $500,000 from the fourth quarter of 2025. The first quarter included income considered less consistent or nonrecurring in nature primarily related to accelerated fee income and dividends from our equity investments, which totaled $4.1 million. These income items were $1.7 million or $0.02 per share higher than the first quarter of 2025, $3.5 million or $0.04 per share lower than the fourth quarter and $1.5 million or $0.02 per share lower than the prior 4 quarter average. These decreases were primarily due to lower nonrecurring dividends from our lower middle market portfolio companies. Our operating expenses increased by $5 million over the first quarter of 2025 and by $800,000 from the fourth quarter. The increase in operating expenses from the prior year was largely driven by increases in interest expense, cash compensation-related expenses and deferred compensation expense. The increase in interest expense from a year ago was primarily driven by an increase in average borrowings to fund the growth of our investment portfolio, partially offset by a decrease in the weighted average interest rate on our credit facilities resulting from decreases in benchmark index interest rates and decreases in the applicable margin rates resulting from the amendments of the -- of our credit facilities in April 2025 and a decrease in the weighted average interest rate on our unsecured debt obligations resulting from early repayment of the 2025 notes and the issuance of the August 2028 notes. The ratio of our total operating expenses, excluding interest expense, as a percentage of our average total assets was 1.3% for the quarter on an annualized basis and the trailing -- in the trailing 12-month period and continues to be among the lowest in our industry. Our external investment manager contributed $8.3 million to our net investment income during the first quarter representing an increase of $500,000 from the same quarter a year ago and a decrease of $900,000 from the fourth quarter. Our external investment manager earned gross incentive fees of $4 million during the first quarter and waived $1 million in incentive fees from MSC Income fund, resulting in net incentive fees of $3 million. This net result represents an increase of $300,000 in net incentive fees from prior year and a decrease of $1.2 million compared to the fourth quarter of 2025. Our external investment manager ended the quarter with total assets under management of $1.8 billion. During the quarter, we recorded net fair value depreciation, including net unrealized depreciation and net realized gains on the investment portfolio of $32.6 million. This decrease was primarily driven by net fair value depreciation in our private loan investment portfolio, our external investment manager and our middle market investment portfolio, partially offset by net fair value appreciation in our lower middle market investment portfolio. The net fair value depreciation in our private loan portfolio was primarily driven by the depreciation on a specific portfolio company and increases in market spreads. The net fair value depreciation of our external investment manager was primarily driven by decreases in the valuation multiples of publicly traded peers partially offset by an increase in valuation multiples for private transaction, both of which we use as benchmarks for valuation purposes and increased fee income. The net fair value appreciation in our lower middle market portfolio was largely driven by the continued positive performance of certain of our portfolio companies. We recognized net realized gains of $18 million in the quarter. Additional details on our net realized fair value activity are included in the press release that we issued yesterday. We ended the first quarter with investments on nonaccrual status, comprising approximately 1.2% of the total investment portfolio at fair value and approximately 4% at cost. Net asset value, or NAV, increased by $0.13 per share over the fourth quarter and by $1.43 per share or 4.5% when compared to a year ago, to a record NAV per share of $33.46 at quarter end. Our regulatory debt-to-equity leverage calculated as total debt, excluding our SBIC debentures, divided by NAV and was 0.71x and our regulatory asset coverage ratio was 2.41x, and these ratios continue to be more conservative than our long-term target range of 0.8 to 0.9x and 2.25 to 2.1x, respectively. We continue to be active this quarter on capital activities, aided by our strong relationships as we continue to manage our near-term maturities and overall capital structure diversity. These activities included an expansion of the total commitments under our corporate facility by $30 million to $1.175 billion in February, the issuance of an additional $200 million of our unsecured investment-grade notes maturing in March 2029, resulting in an effective yield of 6.2% on such issuance and the issuance in April of $150 million of private placement unsecured notes maturing in April 2031 with an interest rate of 6.93%. We were also active in our at-the-market or ATM program, raising net proceeds of $134.1 million from equity issuances, given the significant increase in our net lower middle market investment activity over the last several quarters. After giving effect to the capital activities in the first quarter of 2026 and the recent issuance of private placement unsecured notes, we entered the second quarter with strong liquidity, including cash and unused capacity under our credit credit facilities totaling approximately $1.4 billion with a near-term debt maturity of $500 million in July 2026. We continue to believe that our conservative leverage, strong liquidity and continued access to capital are significant strengths that have proven to benefit us historically and have us well positioned for the future, allowing us to continue to execute our attractive investment strategies despite the current market uncertainty. Coming back to our operating results. DNII before taxes per share for the quarter of $1.04, was $0.03 per share lower than the first quarter of last year and $0.07 per share lower than the fourth quarter. Looking forward, we expect second quarter of 2026 DNII before taxes of at least $1 per share with the potential for upside driven by portfolio investment activities during the quarter. With that, I will now turn the call over to the operator so we can take any questions. Operator: [Operator Instructions] Your first question comes from the line of Robert Dodd with Raymond James. Robert Dodd: On the the dividend income from the -- there was a bit of decline in relatively big decline in nonrecurring dividends, which obviously, they're not recurring. But is there anything thematic behind that? I mean, obviously, there's a lot of volatility and uncertainty out in the economy, et cetera, and we've seen in some instances in the past when that picks up your portfolio of companies retain a bit more cash. So I mean, is that kind of a driver and you expect that kind of extra dividend income to be moderate in the near term? Or was that just like a one-off thing in the quarter? Dwayne Hyzak: And Robin, I would say on the the nonrecurring side, those would be items that are either tied to an exit of an investment. Obviously, if we sell a business and historically, had dividend income and there's dividend income in the quarter that we exit, that's going to be called out as nonrecurring. The other would be if there were some transaction, some type of a large distribution that happened in 1 quarter, and that company had not historically paid dividends. We would call that out as well. I'd say the the activity between Q4 and Q1 was more related to exits. I think we've talked about the fact we've had a couple of really attractive exits were those exits have been companies that have been in the portfolio for a long time, had delevered. We're paying significant dividends or distributions and those dividends or distributions obviously go away with that exit. So we like the exit because it is attractive from a value standpoint. We think it proves out the long-term value of our lower middle market strategy, but it does come with the the negative kind of consequence of losing the dividend income of those companies that they have paid historically. More broadly, I do think, to your point, there is and has been more uncertainty in the market broadly. So I think our companies in times like this, they do tend to become more conservative from a capital allocation standpoint. So I think if you look at the total dividend income number, both Q1 versus Q4 and then Q1 versus prior year Q1, there would be some impact from those capital allocation decisions as well would be a combination of both of those Robert Dodd: Got it. Got it. And then is it also -- the comment, I think there was a few waiver of the incentive fees from [indiscernible], obviously, from the acts a difficult for that. But is that I mean should we expect that to continue in the near term in terms of our main being extra supportive of the performance of AMS in terms of fee waivers. Dwayne Hyzak: Sure, Robin. I'd say on the fee waiver for the incentive fee, I think it's going to be based upon what happens in that quarter. So there's no pre-agreed upon expectation or agreement there. We're going to look at what happens in each quarter and then make a decision on whether or not, we think it makes sense to provide that fee waiver. Obviously, in the first quarter, we provided that. And to your point, it was about $1 million of the fee waiver that came through to the benefit of MSC Income Fund and obviously, to the detriment of the Asset Management business on the Main Street side. Robert Dodd: Got it. Got it. And then just more generally, obviously, I mean I think the private loan you characterized this average. It has been slower in terms of activity through much of last year because you thought the pricing was unreasonably low. All the indications we're hearing in the market that pricing maybe is moving higher. So is there a prospect where the private loan activity could ramp up the average for Q2, but is there a prospect we could ramp up more if M&A picks up and the pricing may be turning more attractive? Dwayne Hyzak: Robert. I'll give a couple of comments, and I'll let Nick add on or clarify. What I would say is that could happen, but it all comes down to the overall private equity industry activities. And I'd say in the current period where there is some uncertainty. The big question mark is what does private equity do? How aggressive will they be from a deployment of capital standpoint. But if they are active, if they are aggressive, I do think the current environment from a pricing and just general structure terms and conditions, it is favorable. I think we've talked about our pricing range broadly being in the 500 to 600 range from a spread standpoint. I'd say we probably think it's still in that range. within that range, we have probably trended to the bottom end of that range over the last year. So that may have improved a little bit, but I think it remains to be seen how much activity there is over the next kind of 1 or 2 or 3 quarters and then what that does to pricing. But Nick, feel free to add on there. Nicholas Meserve: I think Dwayne nailed it. I think the one thing I would add would I'd say over the last 12 months, we probably lost a few more deals just on straight pricing, where we went lower than we were comfortable with. And I think that dynamic hopefully has changed in the current period and hopefully 6 of us the rest of the year. Operator: Your next question comes from the line of Brian McKenna from Citizens. Brian Mckenna: Great. So just Quick question on unrealized markdowns in the quarter. It seems like the majority of that was from marking your asset manager given the decline in valuations for the public alts. But was there anything else meaningful within that just in terms of the other drivers? And then if you're -- it might be tough to answer this, but if you were to mark-to-market portfolio in these assets to reflect some of the quarter-to-date recovery, how much of the first quarter markdowns would be reversed? Dwayne Hyzak: Sure, Brian. Thanks for the question. I would say a couple of things. From a fair value standpoint, I'd say it was a mixed bag this quarter. The lower middle market continue to have significant appreciation. You probably saw that in the earnings release, but it will also be more detailed in the 10-Q, but we had just under $30 million of depreciation in the quarter. . On the flip side of that, you hit on the asset management business. It was a fairly significant amount of depreciation, and that was purely based upon the peer evaluations we use as part of the valuation inputs for that valuation process. And then you also had private loan was down by a significant amount, about $36 million of depreciation. And I would say, -- that was a mix of one specific name that had significant depreciation and then kind of a mixed bag across the rest of the portfolio, both kind of underlying performance and just movement in the marketplace from a spread standpoint. Brian Mckenna: Okay. That's helpful. And then kind of going back to capital and liquidity. I mean, you've raised a decent amount of capital year-to-date. I think that's a great example of just the underlying strength of the balance sheet, the business and really your access to both the debt and equity capital markets and [indiscernible]. So you raised feel like you're million of new debt capital. You also raised some equity capital to the ATM. And I heard the commentary on the pipeline today is average, but it seems like you're in a pretty strong position to lean in from a deployment perspective, but how should we think about the pace of originations and really net portfolio growth over the next few quarters? Dwayne Hyzak: Sure, Brian. So to your comments there, we had been very active on the lower middle market side, both Q4 and Q1. I think we're still seeing good opportunities, and we expect to continue to see good opportunities as we move forward, particularly given the current state of the economy, we think our market strategy and offerings are always very attractive. We think they should become even more attractive in this type of environment, and that's what we've seen over the last 20 years. So we would expect that to be the case. When you look at our capital activities related to lower middle market, I think you've heard us say this in the past, but when we're issuing equity, it's really tied to us growing our lower middle market portfolio. So we've grown the portfolio significantly in Q4 and Q1. So we were planning to catch up a little bit on the equity issuance to to support that lower middle market growth. On the debt capital side, I would say our activities were more in anticipation of the July maturity we have. So we've got a $500 million maturity in July. So we were building liquidity and capital structure flexibility to make sure that we cannot only address that maturity, but also have significant dry powder to continue to grow because we do think, as you heard us say in our comments and as I said earlier, we do expect to have good opportunities on the [indiscernible] market side. And we -- as we said here today, we expect to have good opportunities on the private credit side, but that will largely be dictated by the overall marketplace. But we do expect to have good opportunities, and we're trying to make sure we're positioned from a capital standpoint to act on that. Operator: Okay. Got it. And then one more, if I may. When you look across your portfolio, what percent of your lower middle market investments will directly or indirectly benefit from everything going on in and around AI and digital infrastructure. And I ask that because it does feel like the old economy is coming back in a big way here, and I suspect many of the businesses you're invested in are set to benefit pretty meaningfully from all of this. So I'm just trying to gauge how big of an impact we could see from all this over the next several years? And what that ultimately means for shareholder value creation. Dwayne Hyzak: Sure, Brian. I think to your point, if you look at our lower middle market portfolio, and I'd say also our private credit portfolio, we're value-based investors. We're old economy-based investors. We do have some limited technology software, but it's admittedly a small part of our portfolio. So most of our businesses are pretty kind of basic kind of traditional industries and companies. So when we look at AI, I would say all of our companies are looking at it. It's something that we emphasize as part of our President's meeting each year. We did it in our most recent meeting back in October, and we'll continue to emphasize it going forward in that venue, but also as our portfolio management teams, our portfolio managers on our side are speaking with portfolio companies on an ongoing basis, whether it's in board meetings or just other periodic catch-ups, AI and what they're doing there is a consistent [indiscernible] conversation. . That being said, I think we don't expect it to be a huge game changer. We think it will be beneficial, but I think it remains to be seen how beneficial it will be long term. happy to let David add on any additional comments he has. David Magdol: I think Dwayne covered it. The only thing I'd add is that we do have some companies that are kind of more infrastructure oriented on what would be building infrastructure related to AI that should benefit as well. So we'll see some benefit across the portfolio that we think is incremental. We'll continue to appreciate over time. Operator: Your next question comes from the line of Arren Cyganovich with Truth Securities. . Arren Cyganovich: I'd like to talk a little bit about credit quality. We've seen across the BDCs that we cover a bit kind of weakening, I'd say, over the past couple of quarters. What are you seeing from your portfolio companies? And are there any particular vintages of originations that might be underperforming? Dwayne Hyzak: Sure, Aaron. Thanks for the question. I'd say when we've seen weakness, I would say, been more specific company weakness as opposed to anything that's more broad across the portfolio. or the economy. The 1 thing that I might add, which is something we may have said in prior quarters, and we've seen it continue to evolve in the more recent periods is you are seeing more bifurcation between the companies that are doing really well versus companies that are not doing as well. I think we've continued to see that bifurcation. So despite some of the uncertainty in the economy, there are certain companies that are just absolutely crushing it. So you're seeing more of that. But you're also seeing on the flip side, if something is underperforming, you're probably seeing more pressure on that underperformance. Those would be the comments I would make. But David or Nick, if you guys have something else to add, but we add on. David Magdol: Just specific to your comment on the vintages on the lower middle market side, our partners that we're transacting with are transacting for personal reasons that exist in all sorts of periods of time, whether it's a prolific or more challenging economic environment. they're looking at succession planning or what have you? So we don't really see a major impact relative to vintage in that side of our portfolio, which is obviously the majority of our business. Jason Beauvais: On the [indiscernible] the only thing I would add would be deals that were done in '21, '22 with -- in a lower rate environment, they survived to the higher rates, but you are starting to see if they are struggling, the longer term with those higher rates and the siting of off of cash flow is more to interest versus CapEx is harming those businesses, and I think we're seeing that kind of buildup over time the past 2, 3 years of higher interest rates. Operator: Your next question comes from the line of Sean Paul Adams with B. Riley Securities. Sean-Paul Adams: You've got a long track record of NAV appreciation from those realized gains on those equity exits. What's your gauge on kind of the tempo of upcoming equity exits given just the general frothiness in the market. Dwayne Hyzak: Thanks for your question. Thanks for joining us this morning. We -- with a large portfolio, today, we've got, I think it's 93 portfolio companies, a significant portion of which have been in our portfolio for a long period of time and have performed. I would say those companies consistently would get interest from third parties. A lot of it kind of unsolicited inbound interest that either sparks a transaction through that process or at least sparks our management team partners and our equity partners in those businesses to consider an exit. So we have been and continue to have a number of our companies that are in different stages of looking at an exit. And we think that over the balance of the next couple of quarters, we should see 1 or more exits. And when those exits happen, we think that they tend to be good outcomes, both for us and for our management team, partners, the other equity owners and management team members of those companies. So I'd say nothing has changed today. We haven't seen anything that has been elevated, but we also continue to see some activities across the portfolio that we think will lead to good outcomes if there is an exit. But David, if you want to add anything, [indiscernible] add on there. Operator: Your last question comes from the line of Kenneth Lee with RBC Capital Markets. Kenneth Lee: Just one on leverage. Just want to get a latest updated view on where you think leverage could trend? I think previously you said you could take a little bit more of a conservative view, but just given the pipeline that you're seeing as well as the macro backdrop. Just wanted to get your latest piece there. . Unknown Executive: Thanks for the question, Ken. Just to remind you, the -- our leverage target from a regulatory basis is 0.8 to 0.9x. -- currently, as we sit today, we're at 0.71x, which is consistent with where we were at the end of the quarter. You could see us move closer to our target range, depending on where we are or where we end up from a net origination standpoint. But as we've messaged in the past, we're comfortable being kind of at the conservative end of that target range. Dwayne Hyzak: I mean, one thing I would add. I think you've heard us say this in the past, but just make sure it's kind of on top of people's minds. I think we value capital flexibility and liquidity more than pushing up leverage and trying to eke out some economic returns through that process. I know that not everybody has that view, but that's always been a view that has served us well over the last 20 years, and we would expect to continue to maintain that. So that's the only other thing I would add. I think as the operator said, that was our last question of the day, so we greatly appreciate everybody for joining us this morning, and we look forward to catching up again in August after our second quarter earnings release. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good day and welcome to the AdvanSix Inc. First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Adam Kressel, Vice President, Investor Relations and Treasurer. Please go ahead. Thank you, Danielle. Adam Kressel: Good morning, and welcome to AdvanSix Inc.'s First Quarter 2026 Earnings Conference Call. With me here today are President and CEO, Erin N. Kane; Senior Vice President and CFO, Patrick Day; and Vice President of Corporate Finance and Strategic FP&A, Christopher Gramm. This call and webcast, including any non-GAAP reconciliations, are available on our website at investors.advansix.com. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our business as we see it today. Those elements can change, and actual results could differ materially from those projected, and we ask that you consider them in that light. We refer you to the forward-looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our Annual Report on Form 10-Ks, as further updated in subsequent filings with the SEC. This morning, we will review our financial results for the first quarter 2026, and share our outlook for our key product lines and end markets. Finally, we will leave time for your questions at the end. With that, I will turn the call over to AdvanSix Inc.'s President and CEO, Erin N. Kane. Erin N. Kane: Thanks, Adam, and good morning, everyone. We appreciate you joining us here today for our quarterly call. As you saw in our press release, the AdvanSix Inc. team navigated a number of headwinds to deliver a solid first quarter performance, including the earlier winter-storm-related impacts, and new geopolitical challenges amid continued subdued industrial end market demand. In the quarter, we generated 7% sales growth year over year, supported by improvements in chemical intermediates volume and plant nutrients market pricing, partially offsetting the margin impacts driven by increased sulfur and natural gas costs. We are executing with a focus to recover inflationary raw material input costs by leveraging both our pass-through formula and freely negotiated pricing mechanisms. I would like to thank all of our teammates who contributed to successfully maintaining safe operations during the winter storm earlier this year. While the earnings impact related to this event came in just above the high end of our anticipated range, we were able to save $3 million of planned turnaround expense for the year. Looking ahead, we anticipate significant sequential earnings and cash flow improvement into the second quarter. We are in a solid position as the domestic planting season progresses, and continue to operate amid a tightening acetone global supply and demand environment and a modestly recovering nylon industry. We are maintaining a disciplined focus on cost productivity, capital spending, turnaround execution, and full-year free cash flow generation. We continue to expect full-year CapEx in the range of $75 million to $95 million, with targeted allocation of nearly 20% of that toward high-return growth investments. We also continue to expect debt leverage ratios near the low end of our target range of 1.0 to 2.5 times by the end of this year. Key to our strategy is a keen focus on controllables to support through-cycle profitability and cash conversion while progressing targeted growth strategies and initiatives. We announced yesterday an exciting new opportunity to expand our integrated ammonia platform at our Hopewell, Virginia site to supply the growing regional diesel exhaust fluid (DEF) market. I will share more about this later in the call. Lastly, effective April 27, we welcomed Patrick Day as our new Senior Vice President and Chief Financial Officer. Pat has tremendous experience establishing corporate and financial strategies to accelerate growth and shareholder value. We look forward to his expertise as we advance into our next chapter. I would also like to thank Christopher Gramm for his commitment and support during his time as interim CFO over the last year. With that, I will turn it to Christopher to discuss the financials. Christopher Gramm: Thanks, Erin. I am now on Slide 4 to discuss our results for the quarter. Sales of $[inaudible] in the quarter increased approximately 7% versus the prior year, comprised of 6% volume growth and 1% favorable price. Sales volume growth was primarily driven by favorable chemical intermediates sales. Market-based pricing improved by 3%, primarily driven by an increase in plant nutrients reflecting higher nitrogen pricing amid increased sulfur input costs. Raw material pass-through pricing was down 2% following a net cost decrease in benzene and propylene, which is a major input to cumene, our largest raw material and key feedstock to our products. Adjusted EBITDA was $5 million, down $47 million from last year, primarily driven by the absence of insurance proceeds from the prior year of $20 million, the unfavorable impact of higher sulfur and natural gas raw material prices, higher utility expenses, and $11 million of winter-storm-related impacts. On a sequential basis compared to the fourth quarter, higher sales volume growth supported by improved operational performance was more than offset by escalating raw material input prices. From a free cash flow perspective, the first quarter represents a seasonal use of cash as expected, primarily due to the timing of cash payments for CapEx following the prior quarter outages. The absence of insurance proceeds was also a meaningful driver of the year-over-year change. We continue to anticipate sequential improvement into the second quarter and expect the second half of the year to be a source of cash to achieve our full-year expectations. Now let us turn to Slide 5. On this slide, we are detailing our quarterly sales contributions by product line, as well as price and volume indicators, both year over year and sequentially. In light of the significant raw material inflation and the mix of our formula or index-based pricing mechanisms, we did not fully cover those costs in the first quarter. However, we anticipate recouping a large portion of that shortfall in the second quarter, particularly into the heart of the domestic planting season for plant nutrients. Starting with Nylon Solutions, resin volumes improved sequentially on improved operational performance, while caprolactam volumes moderated in a soft demand environment, particularly for carpet applications. We saw a higher export mix in 2026 which is expected to continue in the near term. With our advantaged position, we are evaluating export opportunities to ensure the best economic output for the integrated enterprise. Domestic pricing steadily increased overall, supported in part by higher input costs. Plant nutrient volumes were flat to down both year over year and sequentially in the first quarter, while pricing strength continued. In the early parts of the year, we witnessed more cautious buying behavior down the value chain and a more risk-averse sentiment from customers amid the higher input costs and rapidly rising nitrogen prices. Lastly, chemical intermediates sales improved on the back of volume improvements year over year. In acetone, as we mentioned on the first quarter 2025 earnings call, downstream MMA saw extended plant outages last year. In 2026, we observed more normalized operating rates down the value chain supporting demand. In addition, given pricing dynamics and trade flows across our key products in this portfolio, we delivered on opportunistic spot sales domestically and in the export markets. Thanks, Erin. I am now on Slide 6 to discuss what we are seeing across our major product lines. Erin N. Kane: Our diversified end market exposure continues to be a strategic advantage providing resilience across cycles. Agriculture and fertilizer remains our largest end market. As we sit here today, our domestic granular sales for this fertilizer year are now expected to be near record levels but closer to flat as compared to the last fertilizer year. While the fertilizer year started off with optimism and a strong fall fill as we have discussed in previous calls, buying has become more cautious given continued challenged fundamentals including farmer profitability and input affordability, cold weather to start the spring, and drought conditions. What that means is we are now selling in-season tons with the ability to work coverage of sulfur input costs. This is important because amid a higher global nitrogen pricing environment on the heels of the conflict in the Middle East, ammonium sulfate pricing actions are largely offsetting sulfur input costs rather than driving margin expansion in this current context. We know that growers value the cost of nutrition. In fact, ammonia for direct application is currently a relatively attractive value for growers. While we are not a large merchant ammonia supplier, we have seen good demand and netbacks and have been maximizing our ammonia availability this spring while slightly moderating ammonium sulfate production. While we capture the benefit from the advantage between U.S. natural gas and global nitrogen prices, we also contend with the impact of sulfur input costs versus the sulfur value proposition we deliver to farmers. On tightened global supply, sulfur quarterly prices settled at a record $655 per long ton in 2026, with current spot prices trading even higher than those levels. This represents over a 30% sequential increase and roughly a 140% surge year over year, so a meaningful increase that the industry is experiencing. Moving to our key nylon end markets, across building and construction as well as engineering plastics, North American demand has not materially changed. Global pricing has moved up with capacity rationalization and material shortages in Europe, lower operating rates in China, logistics constraints, and higher input costs. Our industry pricing mechanisms work to pass through changes in core raw materials, notably benzene, but also natural gas and sulfur. Given global trade flow dynamics, reduced imports have created opportunities to gain share. In this environment, it is critical for our business to remain agile through pricing and mix. We continue to execute our plan, including taking advantage of export opportunities as they arise, increasing prices to offset cost increases, and reducing inventory levels for nylon resin to align with current market conditions. In chemical intermediates, phenol demand remains soft overall, driving lower global operating rates. Coupled with reduced acetone imports into the U.S., all of this is supporting tightening acetone supply and demand dynamics. Acetone price increases have been implemented in the industry to keep pace with rising propylene costs. Spreads have held near cycle averages, and we continue to anticipate that for the full year 2026. Let us move to Slide 7. We were excited to announce yesterday that we have entered into a process design and licensing agreement to assess expansion of our integrated ammonia platform to enable the domestic manufacturing of DEF, a critical emissions control product used across on- and off-highway diesel applications. As background, DEF is an EPA-mandated additive for reducing NOx emissions from diesel engines, with strong and growing demand driven primarily by Class 8 vehicle usage in the Mid-Atlantic and Northeast. Demand for DEF continues to grow to meet environmental standards, and as regulatory requirements expand across transportation, construction, agriculture, and industrial equipment fleets. The AdvanSix Inc. Hopewell facility provides a strong foundation for expanding domestic manufacturing at the site and already produces all required DEF inputs. This potential expansion would complement existing capabilities at the site with full continued commitment to the production of ammonium sulfate fertilizer to serve the U.S. farming industry. Our geographic position uniquely enables reliable supply to meet growing demand in a market currently served by imports and production from other domestic regions. Our investments over time with our ammonia unit operation have paid off in terms of our reliability and output. This project has the potential to unlock further value from our existing assets through increased optionality to serve a broadened customer base. We will advance through detailed engineering and development phases with final investment decision targeted for 2027. Additional updates will be provided as engineering, commercial, and financial milestones are achieved, and regulatory approvals are secured. We anticipate a multi-year capital investment supporting attractive financial returns following expected operational startup in 2029, which align with our long-term value creation objectives and commitment to disciplined capital allocation. Let us turn to Slide 8 before moving to Q&A. AdvanSix Inc. offers a compelling investment thesis with value drivers supporting through-cycle profitability and sustainable performance. Our strategic initiatives and unique combination of assets and business model are core to our durable competitive advantage and long-term positioning. Our global low-cost position and vertically integrated caprolactam production serve us well. In addition, a sulfuric acid platform integration coupled with a leading technology position underpins how we win in plant nutrients. We are progressing our sustained ammonium sulfate growth program and have now announced another high-return investment opportunity to serve the growing DEF market. These capabilities, combined with increasing asset operational agility and diversified products and end market mix, position us to navigate cycles and capitalize on emerging opportunities. We remain focused on delivering on controllable levers, including our non-manpower fixed cost savings program, risk-based prioritization of our capital investments, continued working capital discipline, and 45Q carbon capture tax credits, to support improved cash flow generation. With that, Adam, let us move to Q&A. Adam Kressel: Thanks, Erin. Danielle, can you please open the line for questions? We will now open the call for questions. Operator: Thank you. We will now begin the question and answer session. Using a speakerphone, please pick up your handset before pressing the keys. The first question comes from Pete Oesterlin from Truist Securities. Please go ahead. Pete Oesterlin: Hey, good morning. Thanks for taking the questions. Just wanted to start on the DEF ammonia project. I guess, do you have a rough estimate you can share for the capital intensity you expect for this project between now and 2029? And maybe how does the hurdle you are targeting at this point compare to other programs you have had, like Sustain, and the IRRs you have referenced there? Erin N. Kane: Thanks, Pete. Good morning, and appreciate the question. At this time, I would share that we would expect the CapEx for this program certainly to be larger than our Sustain program. Hopefully, you can appreciate that while we are investigating and doing our FEED process, we are having a number of negotiations with folks and, at this time, would keep the actual CapEx range a bit confidential—more to come there. But you can think about it certainly as a larger program than Sustain. That said, our internal targets, as we have shared for high-return growth and cost savings projects, are 20%+ IRR hurdle rates. This project fits well into that range, and we are certainly announcing it now given the fact that this continues to demonstrate real potential for the company. Pete Oesterlin: Very helpful. Thanks. And then, switching gears, when you think about the level of sulfur pricing that you are guiding to for the second quarter, is it your expectation at this point that prices should be at or above that level for the remainder of the year? Even if the Iran conflict ended very soon, how long would you expect until you start seeing some easing for the dynamics that are driving higher prices in that market? Erin N. Kane: You are probably aware that spot prices continue to trade higher than the Q2 settlement. Certainly, as we think about the Q3 settlement that will come in a couple of months—it is settled by two large phosphate producers here in the U.S. and their three largest suppliers. But I think, consistent with what you are probably hearing with others in this space, even if we have a resolution in the Middle East, there is quite a bit of time for things to settle back out. I can share that security of supply is not a consideration for us, seeing that we are buying here in North America. Certainly, there is a lot of sulfur—about 50% of world supply—coming from the Middle East, but we are in a great spot being a North American producer and purchaser. Pricing probably does stay higher for longer. Then we will have to see what it does for demand into its largest applications. Just over 50% of the world’s sulfur goes into phosphate fertilizer. Watching that will be key compared to what we see. But we feel good about our sequential opportunity to recover, and that has been our focus as we progress through Q2. Operator: The next question comes from David Silver from Freedom Capital Markets. Please go ahead. David Silver: Let me just get my questions in order here. I did want to go back to the sulfur question and a couple of your comments regarding ammonium sulfate. I think you mentioned that ammonium sulfate prices are increasing but more or less in line with the rise in sulfur costs. I am wondering—you talked about kind of balanced markets, whereas for most nitrogen fertilizer products, it is somewhat different supply-demand; it is very tight. You do have a very strong vertically integrated production structure. What kind of in-season flexibility do you think you have to maybe exploit some pretty big price differentials amongst the different nitrogen fertilizer products? You have looked at these markets for quite a while. Why not tilt or lean on direct ammonia sales and a little bit less of the ammonium sulfate here? Erin N. Kane: Thanks for that question, David. Hopefully that was teased out a bit in our remarks. We are a big producer and a leader in ammonium sulfate, and that is certainly a place we will continue to play. With ammonium sulfate, we do capture the differential between where nitrogen is priced and our U.S. natural gas position. We also can have that directly in our ammonia sales as well. I would say right now, it is a moderate lever. We can pull back a bit on our ammonium sulfate production. We continue, as we shared last year, to produce ammonia at historically high levels, and then, relative to what we are targeting to sell, that would be consistent with that. Farmers need NPK. They need sulfur. There is a value proposition for sulfur, and we continue to focus on ensuring that they have their needs met there as well. This situation right now, compared to perhaps Ukraine and Russia, has us contending with sulfur. Farmers do seem to be sticking more with ammonia for direct application, and we are looking to take advantage of that too and provide the opportunity that we have off our assets to do so. David Silver: Okay. I am going to follow up with a couple of targeted questions. Firstly, you did talk about the sulfur market. You did talk about your positioning and being able to get all the sulfur that you require. But there is—I am guessing it is unprecedented—this gap between the spot price of sulfur and the contract price of sulfur. I just wanted to clarify that AdvanSix Inc. is able to purchase at the contract price—the lower contract price—under your current supply agreements rather than some mix of contracts and spot pricing. Can you touch on your supply arrangements for sulfur and, in particular, how tight the relationship is between the U.S. contract price versus having to go out into the spot market? Erin N. Kane: I can confirm that we purchase entirely on the contract marker. David Silver: Okay, great. Thank you for that. I did want to follow up maybe on the DEF project—very interesting project and leveraging some of your capabilities. I read the release the other day and then your comments in the prepared remarks. You are going to be adding some urea melt capacity there. Will you also be debottlenecking ammonia? In other words, are you going to have a higher ammonia capacity once the project is finished than you currently have, or how should I think about that in terms of allocating ammonia amongst the nylon, the fertilizer, and now the DEF? Erin N. Kane: This next phase does not require an ammonia expansion. Given our geographical location and our integrated platform, we always look at marginal ammonia debottlenecking, but for DEF we do not need to expand ammonia for the purposes of the project. David Silver: Okay. Very good. Last one for me: I would like to get an update on the Section 45Q credits. I am guessing that the filing for the 2018–2020 period for roughly $20 million has not been received yet. Can you provide an update on that? And then, do you anticipate filing for an additional tranche of the credits to which you are entitled in the current fiscal year? Should we think about that maybe in the $20 million range as well? Christopher Gramm: David, thanks for that question. As you can imagine, there has been a lot of continuing activity around 45Q. We have the audit process underway with the IRS for the 2018 through 2020 years of credit. We anticipate field work being wrapped up in the second quarter, and we are making good progress on the audit itself. In terms of the timing of the cash—and while $20 million was the full value—we have already received $2 million of that in prior years. We are anticipating another $18 million. We would expect the proceeds for that in the second half, subject to IRS approval, but we are expecting that in the second half. In terms of the life cycle assessment for the 2021 year and following, we have submitted those to the DOE, and we are working now with the DOE and the IRS to get those certified. Just as a reminder, we have been at this for over five years, and so this process takes some time as we work through with the government to get their approval and the due diligence that they do. Hopefully those will be coming shortly, but that is the process and where we are. David Silver: Okay. Great. Thank you for the update. Erin N. Kane: Thanks, David. Operator: This concludes our question and answer session. I would like to turn the conference back over to Erin N. Kane for closing remarks. Erin N. Kane: Thank you all again for your time and interest this morning. As we move through the remainder of 2026 and navigate a dynamic environment, we are well positioned to support our strategic priorities as a U.S.-based integrated manufacturer aligned to domestic supply chains and energy, as well as a diverse set of end market applications. We look forward to speaking with you again next quarter. Stay safe and be well. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Welcome to the PacBio First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Caylene Parrish with Investor Relations. Please go ahead. Caylene Parrish: Good afternoon, and welcome to PacBio's First Quarter 2026 Earnings Conference Call. Earlier today, we issued a press release outlining the financial results we'll be discussing on today's call, a copy of which is available on the Investors section of our website at www.pacb.com, or as furnished on Form 8-K available on the Securities and Exchange Commission website at www.sec.gov. A copy of our earnings presentation is also available on the Investors section of our website. With me today are Christian Henry, President and Chief Executive Officer; and Jim Gibson, Chief Financial Officer. On today's call, we will make forward-looking statements, including, among others, statements providing predictions, estimates, expectations and guidance. You should not place undue reliance on forward-looking statements because they are subject to assumptions, risks and uncertainties that could cause our actual results to differ materially from those projected or discussed. Please review our SEC filings, including our most recent Form 10-Q and 10-K and our press releases to better understand the risks and uncertainties that could cause results to differ. We disclaim any obligation to update or revise these forward-looking statements, except as required by law. We also present certain financial information on a non-GAAP basis, which is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company's operating results as reported under U.S. GAAP. Reconciliations between historical U.S. GAAP and non-GAAP results are presented in our earnings release, which is available on the Investors section of our website. For future periods, we're unable to reconcile non-GAAP gross margin and non-GAAP operating expenses without unreasonable effort due to the uncertainty regarding, among other matters, certain acquisition-related items that may arise during the year. A recording of today's call will be available shortly after the live call in the Investors section of our website. Those electing to use the replay are cautioned that forward-looking statements may differ or change materially after the completion of the live call. I will now turn the call over to Christian. Christian Henry: Thank you, and good afternoon, everyone. Our first quarter of 2026 was highlighted by record consumable revenue, greater than 100% year-over-year growth in consumable shipments to clinically focused accounts and significant progress on our strategic objectives, including entering our first significant AI-related project with Basecamp Research. On the other hand, instrument revenue, particularly Vega, was lower than we had expected. This was driven by continuing pressure on academic funding, particularly in the United States. Additionally, we were unable to deliver some products to the Middle East because of the conflict in the region. I'll start by diving into our consumable performance. Once again, we achieved record consumable revenue, marking our third consecutive record quarter. In Q1, this was highlighted by more than 100% year-over-year growth in shipments to clinically focused accounts. This growth offset the fact that some customers held off consumable shipments to wait for the SPRQ-Nx commercial launch. Overall, consumable revenue grew 9% year-over-year, and clinical shipments now represent a mid-teens percentage of total consumable shipments, doubling year-over-year. We expect clinical shipments to continue growing as customers transition from testing and validation to full commercialization. Consumable pull-through was within our expected range of $225,000 to $250,000 Revio system. Additionally, there was strong demand to participate in our SPRQ-Nx early access program during the quarter. Turning to instruments. We shipped 15 Revio systems in the first quarter compared to 12 in the first quarter of 2025. While Revio demand remains constrained by the funding environment in the Americas, we are encouraged by the fact that half of Revio placements went to new customers globally, and we continue to see multisystem orders from clinical accounts building their capacity. We ended the quarter with cumulative Revio shipments of 346 systems. We shipped 27 Vega systems in the first quarter compared to 28 in the first quarter of 2025. The revenue contribution from Vega was impacted by 2 primary factors: lighter demand in the United States, where academic funding remains under pressure and promotional pricing geared towards attracting new customers. Specifically, during the quarter, we launched a limited time Vega promotion to expand our Vega installed base and unlock several new accounts. We concluded the promotion at the end of the first quarter, and we expect Vega ASPs to normalize in the second quarter. The good news is that more than 85% of Vega placements went to new customers this quarter, expanding the reach of HiFi sequencing. Cumulative, Vega shipments stand at 174 systems. From a regional perspective, EMEA was a highlight in the first quarter, delivering 17% year-over-year growth. We are seeing clinical customers who were in pilot and validation mode now make the transition into sustained production scale sequencing. That shift is creating demand for more Revio placements and is driving sustained consumable pull-through. The EMEA pipeline for Revio continues to be strong, and we believe that instrument sales in EMEA will remain an important driver for our business. As we saw in 2025, we expect that EMEA will be the fastest-growing region in our business in 2026. In the Americas, we continue to aggressively shift our strategy to clinical and commercial accounts where the funding dynamics are more favorable. In fact, in Q1, our largest accounts are now commercial service providers and clinical accounts. Revenue in Asia Pacific declined 16% year-over-year due primarily to our largest customers in China waiting for the commercial launch of our SPRQ-Nx kits, which are expected to ship later this month. Looking ahead, we remain confident in delivering revenue growth for the year. Although Vega demand remains softer than we anticipated, Revio opportunities are increasing with the imminent launch of SPRQ-Nx. As I communicated previously, we believe the introduction of SPRQ-Nx makes HiFi sequencing the most affordable long-read sequencing technology. These favorable economics have been enabled by both the Multi-Use SMRT Cell and an increase in SMRT Cell yield. We will commercialize SPRQ-Nx with the ability to use the SMRT Cell 3x, and our beta customers have seen double-digit improvement in yield. In fact, the beta program has gone so well that we significantly expanded the program in the first quarter. However, as I previously indicated, some of the customers are waiting for the full launch of the new chemistry, which will occur later this month. Ultimately, we believe that SPRQ-Nx will drive demand for both more Revio systems and more consumables, but SPRQ-Nx isn't limited to Revio. Later this summer, we expect to launch the SPRQ-Nx chemistry on the Vega platform. On Vega, SPRQ-Nx will enable significantly more throughput, and it will unlock some of the key features of the SPRQ chemistry, including lower DNA input quantities. This will immediately increase the utility of the platform and increase its value, which we believe will accelerate demand for Vega. Now I'd like to highlight a few significant strategic developments from the first quarter and areas where we have made encouraging progress in support of our long term goals. First, we completed 2 significant strategic actions in the quarter. We closed the sale of our high-throughput short-read sequencing assets to Illumina, generating approximately $48.1 million in net cash proceeds and meaningfully strengthening our balance sheet. Additionally, we resolved outstanding litigation with personal genomics of Taiwan. Taken together, these actions sharpen our focus, strengthen our position and allow us to concentrate entirely on what we believe to be our true competitive advantage, long-read sequencing. We are also making real progress in our clinical opportunity, which we believe remains the most compelling long-term driver of our business, with shipments to clinical accounts increasing more than 100% year-over-year. Our goal is clear: lower the barriers of adoption and enable clinicians worldwide to deliver more complete answers to patients and their families. Our core thesis is straightforward. HiFi is the only commercially available sequencing technology that we believe can comprehensively characterize substantially all classes of variants in a single assay. As a comparison, short-read approaches require multiple tests to achieve a similar result. As demand for comprehensive genomic testing continues to grow, we're focused on expanding the clinical utility of HiFi sequencing because our system's faster time to answer, comprehensive genomic output, and altogether less expensive total testing costs can provide the insights that meaningfully change outcomes for patients. Specifically, we continue to believe that the rare disease market will be a major driver for clinical adoption of HiFi sequencing. Of the estimated 300 million people living with a rare disease, many remain undiagnosed or misdiagnosed, which we believe to be a reflection of the limitations of historic sequencing technology. What makes the rare disease market particularly compelling from a business perspective is that we believe we are in the early phase of the adoption curve. Patients getting sequenced today represent a small fraction of those who could benefit. It is clear to our team that we are in the early innings of a very large opportunity, and we have the chance to make a big impact with HiFi technology. We've made notable progress across our recently announced collaborations in rare disease. Ambry Genetics is on track to assess 1,000 patients in their once study. With Ambry, we believe we are proving that HiFi has the power to find what other sequencing technologies have missed. Our collaboration with n-Lorem and EspeRare continues to advance with HiFi sequencing across dozens of ultra-rare diseases. HiFi has the potential to help inform therapy recommendations, another important validation point for clinical utility beyond the initial diagnosis. Additionally, the University of Washington program studying sudden unexplained death in childhood by sequencing across 200 families is well underway, further building our evidence base. As utilization of HiFi to sequence rare disease cases continues to expand, the ability to connect the data across customers and sites becomes a valuable tool for understanding each rare disease. This is why in late February, we announced a collaboration with DNAstack to launch the first global federated HiFi whole genome data set. Through the HiFi Solves consortium, which includes nearly 30 clinical and research institutions across 15 countries, the collaboration enables secure international research and allows genomic insights to travel across borders. Members have connected or have committed to connect more than 10,000 HiFi whole genome sequences, which would form one of the largest and most diverse federated HiFi data sets dedicated to rare disease research. We expect that collaboration will accelerate discoveries for patients and further drive our strength in the clinical research setting. Beyond rare disease, we're seeing a tremendous opportunity in the carrier and newborn screening markets. For example, in the fourth quarter of '25, we announced the Babies and focus project led by Eurofins Genomics U.K. to sequence at least 2,000 samples. This study aims to demonstrate that long-read whole genome sequencing provides clinically meaningful improvements within a newborn screening setting, particularly in detecting complex and structural variants. We believe that this study will generate real-world evidence at population scale that can justify adoption of long-read sequencing in newborns in national health care programs and demonstrate the value created by long-read sequencing over short-read approaches. I'm happy to report that this is advancing as planned, and we expect 1,000 samples to be sequenced on the PacBio technology between April and September of this year. We believe this work is foundational for building the evidence base for potential inclusion of long-read sequencing in a national newborn screening program in the United Kingdom. Before I turn the call over to Jim, I want to discuss our recently signed collaboration with Basecamp Research to deeply sequence approximately 100,000 metagenomic samples. This will be the largest project using HiFi technology in the history of PacBio and the first scaled use of HiFi for the development of a biological foundation model. The team at Basecamp believes that model performance and biology scales disproportionately with data quality and diversity, not just model size. As a result, Basecamp is ambitiously targeting to create a Trillion Gene Atlas, which may end up expanding known genetic diversity by as much as 100-fold by sequencing up to 100-plus million species globally. The Trillion Gene Atlas will be used to train a new class of biological foundation model, Basecamp's Eat-in model, which is already demonstrating the ability to move beyond simple prediction into generative biology, designing therapeutics directly from sequence and disease prompts, including gene insertion systems, antimicrobial peptides and cell therapies with high experimental hit rates. Basecamp selected PacBio for this groundbreaking project because HiFi technology offers the most accurate and comprehensive view of the genome, which will be critical for this new class of biological foundation model. Additionally, with the launch of SPRQ-Nx, we now have the ability to not only sequence at scale, but also offer the economics required to meet the needs of ambitious projects like the Trillion Gene Atlas. I look forward to keeping you updated on this project as we expect sequencing to begin scaling up over the course of 2026. I'll now hand the call over to Jim, to detail our financials. Jim? James Gibson: Thank you, Christian. I'll discuss non-GAAP results, which include noncash stock-based compensation expenses. I encourage you to review the reconciliation of GAAP to non-GAAP financial measures in our earnings press release. Unless otherwise noted, all growth rates are year-over-year. We reported total revenue of $37.2 million in the first quarter of 2026, roughly flat compared to $37.2 million in the first quarter of 2025. Instrument revenue in the first quarter was $9.7 million, a 12% decrease from $11 million in the first quarter of 2025. The year-over-year decline was primarily driven by lower Revio ASPs as we continue to prioritize placements in strategic accounts and lower Vega ASPs associated with our Q1 promotion. This dynamic was partially offset by an increase in Revio instruments shipped. In total, we shipped 15 Revio systems and 27 Vega systems, bringing cumulative shipments to 346 Revio systems and 174 Vega systems. Turning to consumables. Revenue reached a record $21.8 million in the first quarter, up 9% from $20.1 million in the first quarter of 2025. Annualized Revio pull-through per system was approximately $229,000, reflecting consistent utilization across an expanding installed base. Finally, service and other revenue declined approximately 7% to $5.6 million in the first quarter compared to $6 million in the first quarter of 2025. From a regional perspective, Americas revenue of $16.7 million increased by 2% year-over-year. The performance was primarily driven by growth in consumables revenue related to an increase in our installed base. For Asia Pacific, revenue of $9.7 million decreased by 16% compared to the first quarter of 2025. The year-over-year decline reflected a weaker academic funding environment and the fact that some of our Chinese service providers are waiting for the launch of SPRQ-Nx. EMEA revenue of $10.8 million increased by 17% compared to the first quarter of 2025 despite some challenges delivering product to the Middle East. The year-over-year increase was driven by consumables demand, reflecting both account expansion and higher utilization, particularly in clinical settings where increased test volumes drove incremental pull-through. Moving down the P&L. First quarter non-GAAP gross profit of $13.8 million represented a non-GAAP gross margin of 37% compared to a non-GAAP gross profit of $15 million or a gross margin of 40% in the first quarter of 2025. Non-GAAP gross margin decline in the quarter was impacted by 3 primary factors: First, we continue to see increased computing component costs, specifically memory, which we flagged on our Q4 call as a potential headwind in 2026 and which we believe will persist throughout the year. Second, we held a temporary Q1 promotion for Vega to drive placements, which compressed instrument margins. Third, there are unique onetime dynamics at play in Q1, including inventory adjustments and warranty-related charges. We want to be clear. Gross margin pressure in Q1 was primarily driven by nonrecurring and timing-related factors, and we expect gross margins to improve in the second quarter. Non-GAAP operating expenses were $49.9 million in the first quarter of 2026, representing a 19% decrease from non-GAAP operating expenses of $61.7 million in the first quarter of 2025. Operating expenses in the first quarter of 2026 included noncash share-based compensation of $3.8 million compared to $8 million in the first quarter of 2025. Regarding headcount, we ended the quarter with 492 employees compared to 485 at the end of 2025. Non-GAAP net loss was $35.9 million, representing $0.12 per share in the first quarter of 2026 compared to a non-GAAP net loss of $44.4 million, representing $0.15 per share in the first quarter of 2025. We ended the first quarter with approximately $276 million in unrestricted cash, cash equivalents and investments compared with $280 million at December 31, 2025. Our cash position reflects the January closing of the sale of intellectual property and other assets related to our short-read DNA sequencing technology to Illumina for which we received $48.1 million in net cash proceeds. Turning to 2026 guidance. Given the dynamics that Christian cited, we are lowering the high end of our outlook for 2026 revenue by $5 million and now expect revenue in the range of $165 million to $175 million. Our revised outlook continues to assume that consumables are the primary driver of growth, supported by continued utilization from clinical customers and the ongoing expansion of the Revio and Vega installed base. We continue to assume no meaningful recovery in academic and government funding, particularly in the Americas. We expect non-GAAP gross margin improvement in 2026 to be towards the lower end of our previously communicated range of 100 to 400 basis points. While higher consumable mix and the introduction of SPRQ-Nx remain important drivers of margin expansion, rising compute costs will temper the pace of margin improvement in the near term. Non-GAAP operating expenses are expected to be in the range of $220 million to $225 million, down from 2025 levels. I'll now hand it back to Christian, for closing remarks. Christian Henry: Thanks, Jim. The first quarter certainly had its challenges. But when I look at what we have accomplished to start the year, record consumables revenue, continued sequential strength in EMEA, increasing clinical adoption, the Basecamp Trillion Gene Atlas win and the promising results of our SPRQ-Nx beta program, which will enable full commercialization later this month, I see that we are executing on the initiatives that are expected to drive meaningful sustained growth. We are well positioned to advance the field of sequencing, making an impact for the better and delivering long-term value across stakeholders. We believe that HiFi sequencing remains the most comprehensive and accurate way to sequence the genome. We remain focused on increasing the adoption of HiFi through both increasing the throughput of the sequencers and dramatically improving the economics of leveraging the technology through SPRQ-Nx. With these improvements, we expect to continue creating new opportunities and expanding our clinical opportunity, especially. Additionally, HiFi is increasingly becoming recognized as an obvious choice as large data sets are created to train advanced AI models for drug discovery. As a result, I'm confident in the trajectory of our business and growth as we advance through 2026. We look forward to updating you as the year continues to unfold. With that, we will now open it up for questions. Operator? Operator: [Operator Instructions] The first question comes from Dan Brennan with TD Cowen. Unknown Analyst: [ Pradeep ] on for Dan. What does your guide for instruments imply? And what sort of visibility do you have going forward? Christian Henry: Can you repeat the first part of the question for me? Unknown Analyst: Yes. What does your guide for instruments imply for the rest of the year? Christian Henry: Yes. So our guide for instrument, the guide for instruments continues to be strengthening Revio's and a little bit of uncertainty around the Vega platform. Vega, we're finding, particularly in the Americas, is really more sensitive to the academic and government funding environment. And as we've turned our focus to really driving clinical and commercial accounts, we're seeing more demand for the Revio system. And so on balance, we expect them to somewhat balance out, and that's why you can see in the guide, we still believe we're going to achieve -- we're going to still be in the range of the guide that we provided back in February. From a visibility perspective, we do have funnels for both platforms of course. The platform for Revio has been improving. And Vega, particularly in the Americas, has been a bit more challenging. And so that's kind of where we sit today. Unknown Analyst: Can you discuss clinical traction, including U.S. versus outside U.S.? And what does progress in the U.S. look like and outlook for 2026 and even 2027? Christian Henry: Yes. So U.S. versus the U.S., if we look at clinical traction, I'll start outside the United States because really, we're seeing in EMEA, very, very strong traction with the Vega platform being really the platform for whole genome sequencing for rare disease. And we're seeing the customers in EMEA go from the validation phase to increasing full commercialization. And so we expect that to be an important core driver. In the United States, we're actually seeing much of the same thing. And one of the things we said in our written remarks is that our biggest customers now have become the clinical and commercial accounts. And what's exciting about that is those clinical accounts -- some of them have gone commercial, but many of them are kind of ending their validation phase at this point in time. And we expect to see them ramping in full commercial production with both the carrier screening assays as well as whole genome sequencing in the rare disease setting. So we do expect our growth prospects in clinical to continue and quite frankly, keep moving forward, both in the United States and in Europe, in particular. So very encouraging results. We also indicated that we saw over 100% growth quarter year-over-year for the clinical side of our business and consumables, which will help us all around. Operator: The next question comes from Doug Schenkel with Wolfe Research. Unknown Analyst: This is [ Austin ] on for Doug. Just a quick one on input costs. Within cost of product sales, what is your exposure to memory pricing? And given the rise in memory chip costs, are you expecting a material gross margin headwind? And if so, how should we think about the impact on margin cadence for the rest of the year? Christian Henry: Yes, it's a great question. Thank you, Austin. We do -- our instruments are heavy compute instruments, both for DRAM and for storage as well as GPUs. We've mitigated some of that risk over the for 2026, but we do expect that to impact our gross margin some this year. And as Jim pointed out, we expect to be more on the lower end of gross margin growth than the higher end of gross margin growth really as a result of these input costs. So they are having an impact. There's a lot of variability there. We're seeing prices increase pretty regularly here. And so we're managing it. But we're managing it through. We already have supply on hand, and we're also looking at R&D solutions, which take a bit longer to get into the system, but over the long run, as DRAM prices kind of normalize, those R&D solutions actually will help us with gross margin in the long run. So in the short run, we're managing it will have some impact in 2026. We still are expecting to improve our gross margins over 2025. And in the long run, R&D solutions will help us lower those costs overall. Unknown Analyst: Great. And then just one on the discounting you mentioned. Where did ASPs for Revio's and Vegas land in the quarter? And are there any similar discounting activities planned for the rest of the year? Or should we expect improving ASPs from here? Christian Henry: Yes. We -- there are no additional discount programs that are ongoing or going forward. That Vega was really a onetime promotion. And what we were trying to do with that promotion is get some new accounts, and we are very successful at that. 85% of the Vega sales were to brand-new customers. But we've decided to kind of back off of that discount in Q2. Revio ASPs are reasonably consistent with where they've been and Vega was certainly lower this quarter because of that promotion. We would expect Vega to return to kind of more normalized levels in Q2. Operator: The next question comes from Kyle Mikson with Canaccord Genuity. Unknown Analyst: This is [ Alex ] on for Kyle Mikson. So I understand you're facing 2 pressured instruments, but I'd like to focus on some areas of strength and potential growth. Just to start here, congrats again on the consumables growth in the quarter. Aside from rare disease, you had your pure target panels. Any plans to launch additional pure target panels in the near term? And of course, it's no secret that you shifted a good deal of focus towards the clinical end market. Do you have any internal targets regarding where you can envision what clinical might make up as a percentage of total revenue in the medium- to long-term? Christian Henry: Yes. Those are great questions, and we're actually very happy with the pure target performance that we've had with the company, and that's really enabling us to get into the carrier screening market, for example. Where we're seeing the fastest growth though in clinical really is in a whole genome context in rare disease. But the pure target panel itself is great for carrier screening. We are developing variations of it, so that customers can customize their panels somewhat, which I think will help spread that opportunity out for us. And when we start to look at the long run, we do believe that a very substantial proportion of our business, perhaps as much as more than half of our consumable revenue over time will be clinically driven. And we'll reserve to figure out when does that actually occur. But we are certainly seeing that the clinical business is making up for some of the weakness in the academic segment, particularly on the consumable side, and we're very happy to see that we've got 3 sequential quarters in a row of record consumables which I think will -- not only is demonstrating the power of the platform, but it's also going to, in the long run, help our gross margins as that product mix continues to improve. Of course, the one thing I will also say is with the imminent launch of SPRQ-Nx, SPRQ-Nx, because of its multi-use capability is one of those rare situations where we can improve the economics for the customer, but we can also increase our gross margin for consumables. And so as that product starts to take hold over the second half of the year and into 2027, that's another real opportunity for gross margin expansion. So very excited about what's going on in consumables right now. Unknown Analyst: Great. And just one more for me. This is on the upcoming ultra-high throughput sequencer. So just thinking about multiple dynamics here in the near to medium term, the launch of SPRQ-Nx and the reusable SMRT Cells. But also you have customers thinking about this ultra-high throughput sequencer as well. So how should we factor that into potential slowdown of Revio orders near the ultra-high throughput launch as well as the benefit you're going to get from the full broad commercial launch of the reusable SMRT Cells. Moreover, do you envision yourself as a multiple product tools vendor in the long term? Or realistically, do you think maybe ultra-high throughput and Vega would become the main stage of the portfolio? And perhaps what is customer feedback on potential new sequencers indicated to you about how you think about this dynamic? Christian Henry: Yes. It's an interesting question. And what our strategy has been is that we believe we need that having 3 platforms in the market gives customers a lot of choice for what levels of volume that they want to pursue. What our intent is, is to keep improving the Revio platform through improvements to the reagents to the consumables, which is what we've done with the SPRQ chemistry and now with SPRQ-Nx chemistry, we will keep creating more value for those Revio customers. That said, for those customers that want to operate at very significant scale, the ultra-high throughput system will be the way to go because it will be -- it will drive cost down for them in terms of not only the economics of the sequencing, but the logistics and everything behind that. And so over the long run, we believe that all 3 platforms will find their place in the market with the mid-throughput kind of customers being long-term Revio users. And then, for example, the larger clinical accounts all moving to the ultra-high throughput. Vega will continue to improve as well. As I said in my written remarks, we're going to increase the throughput pretty substantially later this summer and also introduce all of the features of SPRQ, so Ultra or so low DNA input amounts, for example. And that will add value to that platform and help it become a mainstay. It is -- it will have the right level of throughput for lots of different applications like AAV and microbial and other types of applications like that. So we do think it will find its footing not only in the academic setting, but perhaps in some of the -- some aspects of the clinical market as well. So we see very strong prospects for all 3 platforms in the market going forward. Operator: The next question comes from David Westenberg with Piper Sandler. Unknown Analyst: This is [ Peron Patel ] on for David. Maybe just one on EMEA growth. Maybe could you characterize the type of clinical applications that are driving that growth? Is it primarily rare disease germline? Or are you seeing meaningful contribution from oncology rare disease? Christian Henry: Yes. So we grew 17% in EMEA. So we're really pleased with how EMEA is moving forward. And it really is on the back of rare disease testing in going -- becoming first-line tests in different countries. Structurally, Europe is a perfect market for us and for Revio for this, a single-payer health care system with a lot of innovative leaders that have really gotten behind the fact that with long-read sequencing and particularly HiFi, you can eliminate several other tests relative to short-read approaches and you can increase your diagnostic yield at the same time. And so they're demonstrating this in multiple countries now, and we're starting to see that push. That's really what really what is propelling our growth in that part of the world right now. Interestingly, they grew substantially even though we did have some challenges getting some shipments out to the Middle East, which would have counted in the EMEA scorecard. So that region is really doing quite well, and I fully expect it to be our fastest-growing region again in 2026. Operator: The next question comes from Mason Carrico with Stephens. Mason Carrico: Maybe first, within the 2026 guide, how much visibility do you have today into consumable revenue that's baked in maybe from the existing installed base ramping utilization versus consumables associated with maybe new placements this year? Christian Henry: Yes, that's a great question. And the reality is that we have -- most of our guide is predicated on existing customers and their utilization because here we are in May. And as we place new systems, there is a ramp-up time for utilization, particularly if they're going to have a meaningful contribution to consumables in 2026. So when you think about the guide, we're really taking the majority of it coming from existing customers as they grow and expand. The launch of SPRQ-Nx is the one variable that we are evaluating, and we'll see how that unfolds over the next 2 or 3 months as we kind of get that off the ground. As I did say, some of our customers held off their shipments in March for regular SPRQ reagents in anticipation of the SPRQ-Nx launch. And so I suspect as some of those -- as we get SPRQ-Nx out to market, some of those customers perhaps will place bigger orders earlier, which will help us and get us off and moving. But overall, when we think about the visibility to the guide in consumables, it really is driven off of the existing installed base, what we know about the existing installed base expanding their utilization and then to a lesser extent, the new placements of instruments that we expect. Hopefully, that helps. Mason Carrico: Yes. No, that's really helpful. And -- we're juggling a few tonight, so sorry if you've talked about this, but could you share any additional feedback on the Vega promotional program in Q1 and how we should be thinking about Vega placements for the balance of the year? I think you had a high percentage of new customers in Q1 for Vega. How much of that demand was driven by that promotional program? Christian Henry: Yes. The promotional program was successful. It's always difficult. Once you put a promotion in place, it's always difficult to know which customers would have purchased the system without the promotional price. But we did have a substantial portion of our 27 units shipped under the promotion. And where the promotion was most successful was in APAC, in particular, where that's certainly a more price-sensitive market. And so we're seeing that. But it also kind of gave us some insight that it really is a tough academic and -- academic and government tough funding environment, particularly in the Americas because even with the promotion, there wasn't that many customers that took advantage of the promotion in the United States, and it's really due to funding. And so it helped us understand that a little better. When I think about going forward demand, I do think that the funnel allows us to kind of certainly achieve our guidance. That's why we put the guidance out the way we did. And I do think that Vega will be volatile from quarter-to-quarter. It typically is. It varies. If you look at last year, the numbers varied quite a bit. But I do expect us to start moving in a more normalized direction with respect to ASPs, and we'll see how the unit volumes react to that. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Christian Henry, for closing remarks. Christian Henry: Yes. Well, I appreciate everyone's participation on today's call. We look forward to providing you updates at the various conferences this quarter and on our next call, and we appreciate your support of PacBio. So have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: The host is recording this meeting. Line muted. Press pound pound one or hash hash one to speak. Kelsie Davenport: Good morning, and thank you for joining us as we discuss RGC Resources, Inc. 2026 second quarter results. I am Kelsie Davenport, director of finance of RGC Resources, Inc., and I am joined this morning by Paul W. Nester, president and CEO of RGC Resources, Inc.; Timothy J. Mulvaney, our VP, treasurer, and chief financial officer; and Tommy Oliver, senior vice president of regulatory and external affairs. To review a few administrative items, we have muted all lines and ask that all participants remain muted. The link to today's presentation is available on the Investor and Information page of our website at www.rgcresources.com. At the conclusion of the presentation and our remarks, we will take questions. Turning to slide one. This presentation contains forecasts and projections. Slide one has information about risks and uncertainties, including forward-looking statements that should be understood in the context of our public filings. Slide two contains our agenda. We will discuss operational and financial highlights for the second quarter and first six months of our 2026 fiscal year. We will then review our outlook for the rest of the 2026 fiscal year, with time allotted for questions at the end. I will now turn the presentation over to Tommy. Tommy Oliver: Well, thank you, Kelsie, and good morning, everyone. Turning now to operations on slide three. Main extensions and renewal activity for 2026 were steady. We installed 2.7 main miles, a similar total to the main miles installed in 2025. In addition, we connected 340 new services in 2026, which was close to the 359 connections from 2025, evidence that residential development continued across the region in the first half of the fiscal year. As shown on the right side of the slide, we renewed 1.5 miles of main and 190 services during the 2026 fiscal year. While the main miles renewed were down, in part due to weather, compared to the same period last year, the service renewals increased by almost 25%. Let us move to slide four, where we show our delivered gas volumes for the quarter. Despite an extreme cold spell in late January and early February, the quarter as a whole was warmer compared to the same quarter in the 2025 fiscal year. Total volumes were down 5% compared to 2025. Residential and commercial volumes were both down 5%, and heating degree days were down 2% compared to 2025. Let us move to slide five. The story of delivered gas volumes was a little different in the first six months of fiscal 2026. Despite the larger number of heating degree days, total volumes were down 3% compared to 2025, with the decline in industrial usage, primarily attributable to one customer, being the main reason. Unlike the quarter, heating degree days for the six months increased 3%, as the first six months of the fiscal year were colder than the prior year. Let us move to slide six, where we talk about CapEx. CapEx for 2026 compared to 2025. Total spending was 9.8 million dollars in the current year, down approximately 8% over the same period a year ago. Weather related to a winter storm in late January and early February affected our spending. We picked back up in March and will discuss plans for the remainder of the year later in the presentation. I am going to now turn it over to our CFO, Timothy J. Mulvaney, to review our financial results for the quarter. Tim? Timothy J. Mulvaney: Thank you, Tommy. Moving to slide seven, this shows both our second quarter and first half results for fiscal 2026. We had a robust quarter, with increased Roanoke Gas margins due to the rates that went into effect January 1 combined with higher earnings from our unconsolidated affiliate, MVP, and lower interest expense, which overcame higher expenses related to investment in our gas system and inflationary pressures that remain higher than the Fed’s 2% target. Net income of 8.7 million dollars, or $0.84 per diluted share, compared to net income in the same quarter a year ago of 7.4 million dollars, or $0.74 per diluted share, a 14% increase. The year-to-date results are also shown on slide eight. The strong Q2 results drove the six-month performance as well, as the first quarter did not have the benefit of the January rates. Net income was 13.6 million dollars in 2026, or $1.31 per diluted share, compared to $1.26 per diluted share in 2025, a 5.3% increase. A reminder about the seasonality of our industry: with recent ratemaking activity, much of our revenue is generated through volumetric factors, and accordingly, our performance in the back half of the year, when volumes are lower, inevitably results in fewer revenues and profits. Paul will discuss our outlook for the remainder of 2026 in a few moments. Moving forward to slide eight, our balance sheet remains strong. We do have a 15 million dollar note at Roanoke Gas that matures in August. It is included in our current maturities of long-term debt. We are deep in conversations with our lenders to refinance this note. We have long known that we would be unable to replicate the 2% rate that we have enjoyed. The discussions with lenders have been positive and should allow us to refinance this note at a rate consistent with our plans. We will have more to share on this in the near term. I will now pass the presentation to Paul W. Nester, our CEO. Paul? Paul W. Nester: Good morning, and thank you, Tim. We have a few topics that we would like to discuss concerning the second half of 2026. These are listed on slide nine. Before we get into the details of those, I do want to again thank our customers and employees for an outstanding winter performance. We discussed this a little bit on the first quarter call, when we were just coming out of winter storm Fern, but our system performed admirably during that period. Our employees performed admirably and safely, and so did our customers. Again, we had an outstanding winter heating season and are appreciative of our employees and customers. We are here to serve our customers. We did have a couple of challenges that arose in the second quarter. One of our top five customers by volume, and a long-time manufacturer in the Roanoke Valley—in fact, over 60 years—idled their operations in March. We really have great care and concern for the employees at that operation who lost their jobs in that process. Many had been there many years. As Tim said, it is a headwind in 2026. Again, they were a large gas customer. Tommy will talk about the ratemaking impacts of that event in just a few moments. Another challenge was described in our 10-Q, which we filed yesterday afternoon. We had some damage at our LNG peak shaving facility in the middle of the quarter. We have hired tank experts and other experts to help us assess the cause and makeup of this damage and to potentially design some solutions to remediate it. The outcome of that is that we do not expect to have use of our LNG peak shaving facility in the coming winter season. We have begun intense and thorough planning for that event and to provide service without the facility. As we disclosed in October, we are unable to estimate the costs associated with this event, and we are unable to estimate the investment required to possibly repair or, if needed, replace the tank. Tommy will also incorporate the ratemaking impacts of that into his comments. We will, of course, continue to update you in future communications and/or SEC filings as more facts about this become known. I am going to turn it over to Tommy to give us an update on our pending rate case. Tommy? Tommy Oliver: Thank you, Paul, and we are moving to slide 10 now. As we discussed in our most recent earnings call, Roanoke Gas filed an expedited rate case on December 2 seeking approximately 4.3 million dollars in incremental annual revenues, based on our current authorized return on equity of 9.9%. Interim rates became effective 01/01/2026, subject to refund. The SEC staff is in the process of their audit and is scheduled to file testimony in June. The hearing is scheduled for 07/15/2026, and we expect final resolution from the Commission by calendar year-end. For four months beginning in January, we were offsetting the new rates through credits on bills to return the tax credits to customers that were resolved with the IRS late in fiscal 2025 and had been included within our regulatory liabilities on the balance sheet. We concluded these refunds in April. As Paul mentioned just a few minutes ago, we had a large customer cease operations in the second quarter. We informed the SEC staff of this development, and we are optimistic that the SEC staff will incorporate the expected decline in usage over the coming year into their recommended revenue requirement when they file testimony in June. Regarding the damage that occurred to our LNG facility, we have alerted staff of this situation and have held discussions with staff regarding the establishment of a regulatory asset for these costs. So, Paul, I am going to turn it over to you. Thank you, Tommy. Paul W. Nester: I continue to be pleased with the work of Tommy and his team, and really our whole company, and our relationships with the State Corporation Commission, not only on the ratemaking side, but also in the safety aspect. So thank you for all that good work there. We are on slide 11. Our capital spending forecast remains at 22 million dollars for the fiscal year. We have rebalanced the mix of spending just slightly from what we presented at the end of the first quarter. Again, as more facts become known about our LNG facility, we will continue to be flexible to reposition certain investments as needed, or potentially add to this capital spending plan. On slide 12, with the strong second quarter that Tim reviewed, we have both narrowed and raised our 2026 earnings per share range. On the lower end, we are at $1.31, and on the higher end, we have moved it up to $1.37. I think Tim’s reminder about the seasonality is important. Obviously, the third and fourth quarters will not look like the first and second quarters from an earnings standpoint. We continue to see the same macroeconomic concerns that we have been talking about now for several quarters. Practical inflation remains above the 2% level that the Fed targets. We are constantly, throughout the organization, looking for ways to be more efficient and to save and manage expense. Interest rates—Tim talked about the refinancing of that note. Certainly, the global situation has caused the interest rate market to be volatile within a range, but still volatile. We are working with our debt partners almost on a daily basis to optimize that refinancing. The local economy, and we have said this as well for several years now, continues to be steady. The Google data center is moving forward. There have been a few other positive announcements recently across the Roanoke Valley. Our teams continue to work every day with economic development, contractors, and other folks that are facilitating this growth, and we do everything we can to support that. We will now open the call for questions. We would love to entertain any questions that you may have. Please dial 1 to unmute your line. Pound pound or hashtag hashtag 1 to unmute your line. We will wait just a few more moments in case anyone has a question. Hashtag hashtag 1 to unmute your line. Okay. Well, hearing no questions from the audience, this does conclude our remarks. Our team will be at the AGA Financial Forum in about ten days, and we hope to have the opportunity there to greet and visit with many of our investors and financing partners there. We wish the rest of you a safe and pleasant summer, and we look forward to speaking with you again in August to review our 2026 third quarter results. Thank you.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Crinetics Pharmaceuticals First Quarter 2026 Financial Results. [Operator Instructions] I will now hand the conference over to Gayathri Diwakar, Head of Investor Relations. Gayathri, please go ahead. Gayathri Diwakar: Thank you, operator. Good afternoon, everyone, and thank you for joining us to discuss the first quarter 2026 results. Today on the call, we have Dr. Scott Struthers, Founder and Chief Executive Officer; Isabel Kalofonos, Chief Commercial Officer; Dr. Alan Krasner, Chief Endocrinologist; and Tobin Schilke, Chief Financial Officer. Please note, there is a slide deck for today's presentation, which is in the Events and Presentations section of the Investors page on the Crinetics website. In addition, a press release was issued earlier today and is also available on the corporate website. Slide 2. As a reminder, we'll be making forward-looking statements, and I invite you to learn more about the risks and uncertainties associated with these statements as disclosed in our SEC filings. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those stated or implied in such statements due to risks and uncertainties associated with the company's business. In particular, today, we will be reviewing launch progress to date, our commercialization plans, future performance and other data about the acromegaly market, which are all necessarily subject to a high degree of uncertainty and risk. These forward-looking statements are qualified in their entirety by the cautionary statements contained in today's news release, the company's other news releases and Crinetics' SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. In addition, this call will include certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures and reconciliations thereto are included in today's news release accessible from the Investor Relations section of our website. I would also like to specify that the content of this conference call contains time-sensitive information that's accurate only as of this live broadcast. Crinetics takes no obligation to review or update any forward-looking statements to reflect events or circumstances after the date of this conference call. With that, I'll hand the call over to Scott. R. Struthers: Thanks, Gayathri. Thank you for joining us on today's call. Moving on to Slide 4. This has been another strong quarter of executing our plan to make Crinetics the premier endocrine company. Crinetics is committed to translating the complexities of cutting-edge endocrinology into real value for patients. And with the launch of Palsonify, we are delivering on that commitment every day. We've made great strides in building the business by consistently adding patients every week to the pool that will be helped by Palsonify for many years to come. The consistent positive feedback we continue to receive from both patients and HCPs is especially gratifying. We have also meaningfully advanced our deep clinical stage pipeline with 4 major trials running and recruiting nicely. These represent blockbuster opportunities across several areas. And we continue to grow the pipeline with multiple compounds and IND-enabling activities with more to come from our ongoing discovery efforts. We have built a company that has proven it can discover, develop and deliver its own novel therapeutics, and we are well capitalized to continue to execute this growth strategy and drive value creation. I'm very proud of our team's strong execution across all dimensions of the company's first launch. This collective effort has translated into 232 additional patient enrollments and $10.3 million in net product revenue for the quarter. And we are making strong progress with access, including continually driving higher conversion from enrollment forms to patients starting Palsonify and growing reimbursement as coverage on formularies expand. We expect low discontinuation rates based on our clinical studies. Therefore, the number of patients on Palsonify should continue to compound. We continue to see momentum build on all fronts in the second quarter. While it's early days, we are confident in our growth trajectory. Palsonify sets a new standard of care for the treatment of acromegaly and is on track to become the most prescribed brand. Over the last few weeks, we've continued to advance Palsonify globally, including the European Commission approval of our MAA, the JNDA submission in Japan by our partners at SKK and our MAA submission in Brazil. These milestones underscore the strength of Palsonify's clinical data and the significant unmet need amongst patients around the world. As we expand internationally, we are taking a disciplined market-by-market approach, prioritizing geographies with clear regulatory and reimbursement pathways and pacing investment in line with an increasingly dynamic global pricing and access environment. All in all, it's clear that Palsonify is positioned to become the leading acromegaly treatment, and Crinetics has an exceptionally equipped team to bring it to the patients in need. With our early commercial success, continued clinical execution and a robust balance sheet to support the advancement of our innovative pipeline, Crinetics is well positioned to generate value for all stakeholders in both the near and long-term. I'll now turn the call over to Isabel to discuss the Palsonify launch in more detail. Isabel? Isabel Kalofonos: Thank you, Scott. Turning to Slide 6. The Palsonify launch continues to build on its strong momentum. I'm incredibly proud of our team. Their execution has led to a strong demand across all patient segments, expanding the breadth and depth of prescribing activity and solid reimbursement coverage. Palsonify establishing itself as a new standard of care in acromegaly, addressing a clear need for an effective, safe and convenient treatment to control the disease. Moving to Slide 7, starting with patients. As Scott mentioned, in the first quarter alone, we secured 232 new patient enrollment forms. This performance reflects strong execution in the field and demonstrates that we are expanding beyond early adopters and clinical trial transitions to reach the broader acromegaly population. As expected at this stage of launch, the majority of new enrollments continue to come from patients switching from existing therapies. We are seeing meaningful breadth and switching behavior with patients coming from all acromegaly therapies, including lanreotide, octreotide, cabergoline, oral nucleotide and combination regimens. We are very pleased to see that Palsonify is performing consistently across this diverse patient base with physicians and patients experiencing its benefits regardless of prior therapy. Importantly, both controlled and uncontrolled patients have switched to Palsonify, reinforcing its versatility across different clinical profiles. We are also encouraged by the expansion within treatment-naive patients. From the fourth quarter in 2025 to the first quarter in 2026, treatment-naive patients increased from 5% to 15% of total enrollments. We believe this is a positive signal of growing physician confidence and over time, we expect sustained growth in the share of naive patients. Providers are increasingly viewing Palsonify as a reliable solution across a broad range of patient profiles. As previously discussed, our strategy remains focused on driving adoption among both treatment-naive and switching patients, while expanding the overall market. Palsonify's differentiated profile, including rapid onset of action in as little as 2 to 4 weeks, sustained symptom and IGF-1 control and convenient once-daily oral dosing positions it well to address key limitations of existing therapies. We are already seeing early signs of this potential. Approximately 15% of first quarter prescriptions came from patients reinitiating therapy after discontinuing prior treatment, which is an encouraging indicator of Palsonify's ability to expand the treatment population over time. Our patient strategy continues to focus on empowering the patient voice and ensuring early and seamless access to treatment as described on Slide 8. This includes rapid initiation through our Quick Start program and comprehensive health support. We also support patients with a robust suite of services designed to meet patients' needs throughout their treatment journey, including education delivered by our endocrine nurse educators and engagement through our patient ambassador program. Our ambassador program connects with patients through multiple digital and social channels as well as live patient ambassador programs. The patient stories being shared reflect a diverse range of experiences on Palsonify, including individuals who were previously uncontrolled on existing therapies and who have achieved meaningful IGF-1 reduction along with clinically important symptom improvement. We believe this will motivate patients to more proactively manage their acromegaly and to initiate informed conversations with their physicians about Palsonify. Via CrinetiCARE , we are providing comprehensive support to help navigate insurance coverage and minimize friction in the prescribing process. Together, these efforts reinforce our commitment to supporting patients, amplifying their voices and helping them take a more active role in their care. Turning to Slide 9. I'm very pleased with our marketing and field execution. We continue to expand our prescriber base. As of March 31, there were 263 unique prescribers, up from over 125 at the end of 2023. This represents an important and expanding foundation for future growth. At large treatment centers, we are seeing top prescribers begin with a gradual number of patients with highly positive responses. In many cases, broader adoption is currently limited not by interest, but by appointment availability, which reinforces our confidence in underlying demand. Consistent with the prior quarters, enrollments remain evenly split between academic and community settings, reflecting broad relevance across practice types. Awareness of Palsonify continues to build, supported by targeted media reach, a strong presence at major congresses and a growing body of scientific publications. This includes a recently published indirect treatment comparison demonstrating Palsonify's value relative to other therapies as well as 2 oral sessions at the American Association of Clinical Endocrinology, including a late breaker that presented the first 6 real-world cases highlighting Palsonify's efficacy in both treatment-naive and uncontrolled patients. Our commercial execution continues to support educational programs and peer-to-peer engagement. Overall, we are very pleased with the positive experience prescribers have with Palsonify, which reinforces our confidence in continued adoption and growth. From an access standpoint, approximately 70% of patients on therapy at the end of first quarter were reimbursed a meaningful improvement from last quarter, and patients have continued to transition from quicker start to reimbursed product. Over time, we expect nearly all patients to have coverage for Palsonify, and we will continue to provide quicker start when needed to ensure initiation of therapy as soon as possible. We are also seeing most prior authorizations approved for 12 months and aligned with the label, reflecting payer confidence in both the clinical profile and durability of benefit. Turning to Slide 10. Payers appreciate Palsonify's unprecedented safety and efficacy, which continues to be reinforced with new research and publications. As I mentioned it, we recently published in the Journal of Clinical Endocrinology and Metabolism, a comparison of PATHFNDR-1 results against other approved acromegaly therapies. The analysis showed placebo-adjusted IGF-1 normalization of 79.7% with paltusotine, more than double what has been reported for both subcutaneous or oral ocreutide. This efficacy data, coupled with Palsonify's fast of action and symptom control are resonating strongly with payers. We continue to have highly productive discussions with top payers across the country, including regional and self-insured employer groups, supported by compelling clinical presentations that are resonating clearly. These conversations are translating into results. We are achieving formulary wins earlier than the typical decision time frame, reinforcing the strength of Palsonify's value proposition. Moving to Slide 11. Importantly, we have now achieved over 60% coverage and remain on track to exceed our 75% coverage goal by the end of third quarter of 2026. Our national account directors will continue to meet with payers in the next quarter to continue to accelerate coverage. We have delivered this progress with improved speed to therapy and continued operational efficiencies across prior authorization and appeals. Collectively, this reinforces that payers recognize the meaningful clinical benefit of Palsonify and the value of keeping people living with acromegaly in sustained biochemical and symptom control. Overall, our experienced commercial team is executing extremely well. The value proposition is clearly resonating with all stakeholders, and we are encouraged by the trajectory of the launch as we continue to expand access and improve outcomes for patients. I will now hand the call to Alan to discuss the pipeline. Alan Krasner: Thanks, Isabel. As we launch Palsonify, we continue to advance our deep homegrown pipeline. This pipeline continues in the Palsonify tradition of using novel and meticulously designed small molecules to interact with therapeutic endocrine receptors to improve the health and lives of our patients. Like Palsonify, we work to create truly new and needed treatments, which are easy to use for the patients and for their health care providers. As a clinical endocrinologist, I have long been frustrated by what I call no better option inertia, and the history of acromegaly care is a great example of this. For decades, we have been telling our acromegaly patients treated on depot injections that their blood tests look okay. Therefore, they are okay. Even if the patient wasn't feeling okay, there was very little we could do about it anyway. We knew that there were a lot of unsolved problems, not the least of which was unstable control of acromegaly symptoms even when blood test results suggested normal or close to normal IGF-1 levels. That's where Palsonify came in. It was long past time to break the inertia and create a better option, one that for the first time was approved with a rigorous demonstration of IGF-1 normalization and symptom control. And the patients don't have to wait a long time to achieve these goals. Palsonify for acromegaly is only the first candidate on this pipeline slide and the potential patient impact across our pipeline is enormous. Atumelnant is another great example of a Crinetics pipeline candidate. It has a novel mechanism of action that has already resulted in unprecedented biomarker and clinical responses in short-term Phase II studies. The Phase III COLMCAH adult and Phase II/III BALANCECAH pediatric studies are actively enrolling with a great deal of patient and investigator interest. We are also excited to begin enrollment into the Phase II/III equilibrium ADCS study in the near future. Additionally, we will report interim data from our Phase II CAH open-label extension later in the year. When I look at Slide 13, I see a lot of scientific creativity addressing long-standing inertia in clinic and plenty of opportunities for significantly better therapies to address many endocrine and endocrine oncologic disease states. We don't settle for the status quo at Crinetics. We don't do inertia. I'd like now to update you on our activities at major medical conferences. I recently returned from the American Association for Clinical Endocrinology meeting where Palsonify data were featured in 2 well-received oral presentations. As Isabel mentioned, one of these was the first description of real-world experience using Palsonify presented by a prescribing physician. There is no better way for practicing health care providers to learn about a new product than discussing with each other personal observations of how patients do with the treatment. We have heard many powerful anecdotes from patients and these real-world results are very consistent with what we are hearing. Diligence study and follow-up does not stop just because a product is approved. The Annual Endocrine Society Meeting is coming up in June, and there will be several Crinetics data communications, 3 of which are oral presentations. One of these oral presentations will summarize results of up to 2 years of long-term safety and efficacy data from the Phase III PATHFNDER-OLE studies. Another oral presentation will detail final results from the Phase II TuCAN study results for eptumelimib in the treatment of adult congenital adrenal hyperplasia, or CAH. And the third, we will present new dosing data from the ongoing single-center study evaluating Aomelimet in patients with ACTH-dependent Cushing's syndrome. With the great potential across the Crinetics pipeline, I expect we will be presenting at these and other meetings for many years to come. With that, I will hand the call to Tobin for a financial update. Tobin Schilke: Thank you, Alan. Turning to Slide 16. Our financial results for the first quarter 2026 demonstrate a balance of disciplined execution and strategic investment as we advance the development of our pipeline and commercial launch of Palsonify. In the first quarter, we recognized $10.7 million in total revenue, consisting of $10.3 million in net product revenue from Palsonify and $0.4 million from our licensing agreement with our Japanese partner, SKK. Cost of product revenue in the first quarter was $0.2 million. Prior to Palsonify's approval last September, manufacturing costs were expensed through R&D as 0 cost inventory. If we were to include the cost of products sold that was previously expensed as 0 cost inventory, the cost of product revenue would have increased by less than $0.1 million. To date, we have only distributed 0 cost inventory and expect to continue to do so for the near term. Our research and development expenses for the first quarter were $100.1 million compared to $85.1 million in the fourth quarter. The increase compared to the fourth quarter is primarily due to the ramp-up of ongoing Phase III trials as well as the initiation of the Phase II/III pediatric study of adamelimab in CAH. Selling, general and administrative expenses were generally steady at $50.8 million for the first quarter compared to $53.7 million in the fourth quarter. The fluctuation compared to the fourth quarter reflects timing variability of commercial investment. We ended the quarter with $1.3 billion in cash, cash equivalents and investment. As of April 23, 2026, we had approximately 105.4 million shares of common stock outstanding. On a fully diluted basis, we had 123.5 million shares outstanding. This includes our outstanding options, unvested restricted stock units and shares expected to be purchased under our employee stock purchase plan. Moving to Slide 17. We are maintaining our guidance for GAAP and non-GAAP operating expenses in 2026. We expect GAAP operating expenses to be between $600 million and $650 million. We expect our non-GAAP operating expenses, which exclude cost of product revenue, stock-based compensation, depreciation and amortization to be between $480 million and $520 million. Based on our current operating plans and cash position, we project that our existing cash and investments will be sufficient to fund our operations into 2030. This provides us with significant runway to execute on the commercialization of Palsonify, pivotal readouts for ongoing clinical trials in carcinoid syndrome, adult CAH, pediatric CAH and Cushing's and continued advancement of our early pipeline, including proof of concept for 9682. I'll now turn the call back to Scott for some closing remarks. R. Struthers: Thank you, Tobin. Turning to Slide 19. Palsonify sets a new standard for the medical treatment of acromegaly. I'm very pleased with the progress we have made on the launch. We are optimistic that the trajectory ahead of us will make it the most prescribed treatment for these patients. As we approach the halfway point of 2026, Crinetics is in a unique position of strength with fully integrated capabilities, a deep pipeline and robust balance sheet. We are nicely advancing this innovative portfolio of clinical programs and the site activations and enrollment trends in all studies are positive. I look forward to sharing meaningful data from these programs as they mature. Beyond our late-stage trials, we are continually innovating on our early-stage programs and moving them forward towards the clinic as well as beginning new discovery efforts. We've also taken a new step for the company in establishing a collaboration with Dr. John Kopchick at Ohio University for the discovery of oral non-peptide growth hormone antagonist. Dr. Kopchick is a leading innovator in the field and discovered pegvisimod, the only commercially available growth hormone antagonist. We look forward to working with him to potentially create a new oral add-on therapy. As you've seen today, we are not just executing a launch. We're building a premier endocrinology company. With Palsonify setting a new standard of care in acromegaly and ongoing Phase III studies for carcinoid syndrome, atumelnant advancing toward 2 important indications, 9682 exploring the potential of an entirely new platform, a discovery engine that keeps replenishing what comes next and a uniquely experienced team to carry it forward, we are well on our way to transforming the lives of people living with serious endocrine diseases and creating lasting value for all stakeholders in the near and long term. Thank you for listening, and we look forward to your questions. Operator: [Operator Instructions] Our first question comes from the line of Joe Schwartz with Leerink Partners. Joseph Schwartz: I have one on atumelnant and one on 9682. First, we noticed that you've added a balanced CAH update for '26. What will that entail? Can you give us a sense of the quantum of data you'll report and what you hope to demonstrate there? And then second, where are you now in terms of enrolling the BRAVIS 2 study dosing cohorts? And when do you think we might get our first taste of data out of that program? Also, at what point do you make the investment decision to expand the range of tumors you might target? R. Struthers: Thanks for both questions, Joe. Let's see, taking them in order. How about -- let's talk about the BALANCE pediatric study. So, a reminder, this is a cohort-based study starting first in 12- to 18-year-olds looking at doses and confirming the translation of our expected doses in pediatrics from the adults. And there's 2 cohorts there that are mandated and then a possible third cohort. We're not changing our guidance. We hadn't said it wasn't coming this year. We're just reminding folks it may come this year. And especially if we don't need that third optional cohort, we will have data on the 12- to 18-year-olds as we begin going down the age groups. In terms of 9682, we are in the dose escalation phase, marching up the doses. We don't think it's prudent to give guidance as to when that may or may not come about. But the enrollment and enthusiasm in both that and all the CAH programs and the Cushing's program and the carcinoid syndrome program are very high. And so 9682 will make the decisions on the additional cohorts as we get to an effective or a tolerated dose. But we've already set out some key cohorts we're going to be expanding in the expansion phase. Operator: Your next question comes from Gavin Clark-Gartner from Evercore. Gavin Clark-Gartner: Great to see the progress. For Palsonify, I just wanted to confirm, for the cumulative enrollment that pie chart you showed the 15% of naive patients, that's cumulative since launch, right? What was the percent of naive patients that came in specifically in the first quarter? R. Struthers: Thanks, Gavin. Let me hand that over to Isabel, but we are pleased with the overall execution across all dimensions of this launch. And I've got a lot of questions over the years, where do you think the primary group is going to be? And I think the answer I've given is everybody. Our source of business is every single group. And in addition to those naive, the folks who are coming back to care represents an early victory on our planned Phase II of the launch when we start focusing more heavily on. But maybe, Isabel, you want to comment a little bit more about the naive population. Isabel Kalofonos: Just to clarify the 15% is specific to first quarter. And our market research showed that basically, the messages on PATHFNDR-2 are resonating really well with the community. We're helping shift long-standing perceptions. We are successfully reframing or as a true first-line option rather than a second-line alternative. The efficacy story is landing really well. And as Alan mentioned it, 3 of the 6 patients highlighted at the AAC poster were naive patients who have remarkable results. So, we see this group really expanding in the future, and we expect to be actually dominating in this group. R. Struthers: Yes. And just to add on to that, remember, this comes back to our overall strategy of laying the groundwork, getting people experience and then starting not just to focus on switching market, but growing the market and bringing people back to the care that they need, that they gave up on because of the problems associated with the current level of care like Alan was talking about. The inertia is not something that we want to do. We're not going to -- we need to move past that. Gavin Clark-Gartner: That's super helpful. Super quick follow-up. What's the scope of the CAH data that's coming at end of this year? R. Struthers: Well, I think you'll just have to wait and see for the abstracts, but it's a beautiful molecule, and we very much like it. Operator: Your next question comes from the line of Yasmeen Rahimi with Piper Sandler. Unknown Analyst: This is Liam on for Yasmeen Rahimi. Congrats on another outstanding quarter. Just looking forward at the Palsonify launch, could you provide some color on how you think 2Q will compare to 1Q? And how do you really see starting forms evolving over the next 4 quarters? Or I guess like what would be considered a steady-state starting form number? R. Struthers: I'll let Toby take that one. Tobin Schilke: Thanks, Liam. When you step back and zoom out, as Scott mentioned, we've accomplished a lot in the first quarter. You've seen the growth of the naive patients is the first question answered, the penetration into the discontinued patients and sort of just the depth and breadth from payer coverage and the increasing number of accounts that we penetrated over time. However, there's always puts and takes. So, for instance, we had the momentum in the fourth quarter of 2025, where we had some patients who had joined and became enrolled from the OLE and some kind of early adopters and a handful of hand raisers there. So that it's really tricky to kind of forecast where we're going to be. However, we like the momentum that we're building, and we're really confident in our trajectory. R. Struthers: And I think something that has been very nice to see is just how well the team across all the dimensions of the company, whether it's sales or medical affairs or even the back office stuff. It's all working very smoothly. The engine is coming, and we're building momentum. Operator: Your next question comes from the line of Max Skor with Morgan Stanley. Maxwell Skor: So, regarding Palsonify, with 70% reimbursed, what's the form to paid conversion rate? And how should we think about timing for the remaining 30%? R. Struthers: Well, first, let me complement the market access team. 70% at this early point in the launch is really superb for a molecule in the rare disease space like this. But do you want to comment a little bit more on some of the dynamics as well? Isabel Kalofonos: Yes. Thank you for the question. As Scott pointed out, we're very pleased that 70% of the total systems and the patients are getting reimbursed, and we are working through moving those quicker starts into reimbursed patients. That's moving at a good pace. I'm not going to mention the specific metric, but we're expecting all of them will eventually be converted to reimbursed drug. Operator: Your next question comes from the line of Jon Wolleben with Citizens. Jonathan Wolleben: Just one for me on Palsonify. When we think about the unique prescriber base, do you have a sense of how many acromegaly patients those prescribers have under their care? Just looking for some commentary about kind of the deepening of the prescribers as well as the broadening over time. R. Struthers: Yes. Thanks. And as we've said in the overall strategy the last couple of times, we're trying to get a broad set of experience so that we can then begin to expand the market and get people in and focus then on depth. And I think we're succeeding on both aspects of that. We're getting a broad set of prescribers at the top pituitary centers and out in the community, and those are starting to show depth in some of those prescribers and some are just new to the drug. Maybe you want to add a little bit to that. Isabel Kalofonos: We are very pleased with the results. I mentioned earlier in the call, 50% of the prescriptions are coming from community and 50% are coming from PTC. But the 50% from community are coming from 70% of our total prescriber base. That's really promising because it means we are expanding the market, building a broad base of prescribers that are having really positive experience and are starting to put the second, third and fourth patient on drug. Answering your question on how many patients those doctors represent today, approximately 1,400 patients. Operator: Our next question comes from the line of Jessica Fye with JPMorgan. Jessica Fye: Just curious, as you enroll the registrational atumelnant trials, do you anticipate being able to provide the Street with commentary on the ongoing safety profile, maybe based on like blinded safety data as it accrues? R. Struthers: Thanks, Jess, and welcome back. Yes, let me just say that every day, we're accruing patients every week. And the safety profile continues to be what we've always communicated it to be, which is very, very favorable. But maybe I should let Alan give a more physician-oriented answer to that. Alan Krasner: Yes, I mean, all trials, especially major Phase III, Phase II/III trials are carefully monitored for safety. Sometimes the efficacy results, of course, are blinded. But there are always medical monitors following both safety and efficacy as well as external data monitoring committees. In general, when the trial -- when these trials continue, that means the risk-benefit profile has been analyzed and it has been found to be safe to go forward. I don't know that we would come back to make public announcements, but you can be sure that this is -- when the trials continue, things are going along as expected. R. Struthers: And maybe just to be absolutely clear, with continued experience, we see continued good safety profile with nothing that has changed our mind or perspectives on that whatsoever. And as we add more patients, anything in the past that might have been concern to some, not so much us, continues to be diluted by more and more experience, both in the adult ongoing Phase III in the rapidly recruiting pediatric study where everybody is super sensitive to safety, of course, and in the ongoing OLE experience. So that experience base grows every day, and we continue to be pleased with the profile of atumelnant, both on a safety and efficacy point of view. Operator: Your next question comes from the line of Dennis Ding with Jefferies. Yuchen Ding: Congrats on a strong first quarter. I have one on Palsonify. So, it seems like each doctor so far is prescribing it to 1, maybe 2 patients. What's the feedback from them who have used it so far? And what's preventing them from prescribing Palsonify to more patients? Is it just confidence in getting these scripts approved? Or maybe penetration is just gated by the timing of patient visits? R. Struthers: Thanks, Dennis. Let me correct your premise. It is not true that they've only prescribed to 1 or 2 patients. It depends on how many patients they have and how often they're able to see them. But we have some who routinely are switching patients or adding to new patients. And just as we've said since the beginning, the major challenge is just getting that darn appointment. But we're hearing tons of positive feedback in an anecdotal sense that we're now starting to publish as evidence. We're getting good coverage, good reimbursement and everything is moving along just as we expect. So, nothing is getting in the way other than a little bit of time and a little bit of finding those darn appointments. Yuchen Ding: Got it. And if I can have a follow-up. For your preclinical oral TFHR antagonist, how do you think about this approach going after the receptor versus going after the autoantibodies? I mean one might say that completely hitting the receptor might get patients to go into a hypothyroid state that might require a Levo supplementation. So curious how you're thinking about that. R. Struthers: Yes. So just like our other programs, we're really going after the core target of the disease. And it's super specific to go after the receptor. And remember, there's this whole other branch that are going things downstream of the receptor like the anti-IGF antibodies. But at its core, what we've shown in a preclinical setting is a great degree of specificity, ability to achieve dose response. And if necessary, we could take add-back approaches like levothyroxine, which almost every endocrinologist is familiar with. Alan, maybe you want to elaborate on how we're thinking about developing this drug. Alan Krasner: Yes. No, I mean, I agree with Scott. It is the fundamental driver of the disease states in multiple organ systems is via -- it's mediated by the TSH receptor. So that's where we really want to target the therapy. The autoantibodies in Graves disease are very -- they come and go. The wax and wane with time. It's unpredictable as to when antibodies are even there versus how much antibody is there and what form of antibodies are there. These are polyclonal antibodies that are very heterogeneous. So even measuring them in a laboratory isn't necessarily predictive of clinical things. So, it's very hard to react to autoantibodies and chase them, especially in the disease state, which the natural history is for these things to kind of appear and disappear. I think targeting the TSH receptor is much more reliable and I hope will prove to be much more effective and long-term solution for patients. Operator: Your next question comes from the line of Kate Delloruso with LifeSci. Katherine Kaiser-Dellorusso: Congrats on all the progress this quarter. Just a quick one on Palsonify. I know it's early days, but I was wondering if you had any insights on real-world compliance or adherence thus far that might be captured your patient resources like the CrinetiCARE platform. R. Struthers: Yes. Thanks, Kate. Just a reminder, we've had great compliance and persistence throughout the clinical trials, open-label extensions, and that trend continues as we go into the real-world setting. But maybe you want to comment, Isabel? Isabel Kalofonos: We are very pleased with the positive experience that patients are having on Palsonify. You see a fast set of action in 2 to 4 weeks. You see symptom control and IGF-1 control. And that has led to the patients to continue on therapy. So, the patients that started in fourth quarter are on therapy today. We see a very positive trend on adherence and compliance. R. Struthers: And if I just extrapolate from these anecdotes we're hearing about how patients feel better. The converse of that is when you stop, you know what good is like and you are reminded what bad is like again. So, as we think about these enrollment forms each quarter and the natural history of acromegaly, it's important to remember that this is a lifelong disease, and we've developed a lifelong treatment. And so each quarter, we're adding hundreds of people who I think we can help not just through providing a good drug, but providing the whole ecosystem through CrinetiCARE and our other services to help them manage their health care, help them get to reimburse for their drug and help them stay on the care that they need. Operator: Your next question comes from the line of Alex Thompson with Stifel. Alexander Thompson: I guess when might you be in a position to give us some more clarity around time lines for the paltusotine carcinoid Phase III and the AML adult study? I guess asked another way, both of those trials have primary completion dates for 2027 on clinicaltrials.gov at this point. Is it possible we see data next year? Or are we going to have to wait until 2028? R. Struthers: Well, look, as I said earlier, Alex, it's not prudent to comment on time lines at an early stage of a trial like this. And you have to throw an estimate on clinicaltrials.gov. But we've done a whole bunch of different things as we've grown the company to help ensure that we can maximally recruit our studies. And these go from things like internalizing our U.S. clinical operations. So those are relationships at sites where we've had studies before and now it's with our own Crinetics staff who have low turnover and stay as a relationship for the duration of the study. And those people are also then, of course, the likely prescribers of the drug. And so, we've seen an acceleration in site activations. We've also put in various structures to help make sure that the sites are screening effectively. We've been very pleased in the CAH study that almost every site as soon as it's activated, starts screening immediately. And you don't always see that in these types of clinical trials, but it's great evidence about the enthusiasm of the investigator and the patient community. And similar in carcinoid syndrome, remember what a tough, tough disease this is and what really solid data we showed in the Phase II program. We recently had an investigators meeting there. And again, a ton of enthusiasm and a very positive response. So, we are working hard to make sure we can bring in these time lines at the fastest possible pace, and we've built the company to do that. So it's -- we had a discovery engine, I think most people recognize. The development engine, there's a lot of stuff behind the scenes that most people forget about, but it's complex and it's really running well. And now we've built the commercial engine and the commercial engine is coming, too. Operator: Your next question comes from the line of Tyler Van Buren with TD Cowen. Nicholas Lorusso: This is Nick on for Tyler. Congrats on the progress and on the quarter. Can you discuss what proportion of revenue came from new patients this quarter compared to patients rolling over from last quarter? And also, what was the overall growth of the patient enrollment forms month-over-month in Q1 and as you moved into Q2? R. Struthers: I'll let Toby take that. Tobin Schilke: Yes. I don't think we were going to comment on the revenue from new patients versus carryover patients. But when you step back, I think that as we look at this data and sort of the growth that we've had in enrollments, we're feeling very good about the trajectory of things. The team, like as Scott and Isabel mentioned, are building the relationships and they're doing it in a very steady fashion. And we're quite pleased with the progress and just the response to Palsonify in the field. Operator: Your next question comes from the line of Douglas Tsao with H.C. Wainwright & Co. Douglas Tsao: Congrats on the progress. I'm just curious if you could provide a little bit more on the 15% of patients who are returning to therapy. I'm just curious if you have a sense of were they in the system still and routinely seeing a clinician but chose not to be receiving sort of injectable therapy and were very quick to come on as soon as Palsonify was available? Or were these patients who somehow heard about the drug and then decided to sort of reenter sort of treatment? R. Struthers: Yes. Thanks, Doug. Again, let me give some credit to the team. They've been piloting some of the programs they're planning on deploying more widely to do exactly this and bringing these patients back to care. And so, some of it is from that and some of it is spontaneous. But maybe you want to comment a little bit, Isabel. Isabel Kalofonos: Well, we are really pleased because we are bringing back to patients that have given up on their treatment, even though they have a chronic disease where symptoms continue to advance. So, these patients that have discontinued therapy remain in the system. They were primarily discontinued due to the burden of the treatment and the fact that those treatments don't deliver, right? You continue to have symptoms at the end of the cycle, you have painful injections and after what you just give up. So, for us, it's great. None of them has discontinued for more than 2 years, some of them just a few months ago. And we have reengaged them. And that reengagement takes our media programs, our participation on the program and also some specific tools where we are working to identify them with the practice. So, these are very early outcomes in a group that has given up, but it's very encouraging for us because it means that we can expand the market. Douglas Tsao: That's really helpful. And just maybe on the switch patients, I'm curious, do they generally just come in -- I mean, how many visits to see the doctor do they need? Are they generally coming in, talking about the clinicians saying, yes, I would like to do this and they sort of get the ball rolling with the patient start form -- or do some patients need a couple of visits to sort of go through an education process? R. Struthers: Yes. So, there's a little bit of a mix. But before we hand this to Isabel, let me just tell you one anecdote I heard recently -- I had recently firsthand where I was talking to a couple of HCP friends of mine, and they were telling me about a couple of different patients that had come in and asked for Palsonify. And their initial reaction was, well, this is a -- you're on a second-line therapy. I'm not sure a first-line therapy will be what you need. And yet it worked anyway much to their surprise. And so, everybody was happy with that, and that story is propagating as well. But you want to comment, Isabel? Isabel Kalofonos: Yes. When it comes to the switching patients, I will first comment that we are very pleased that they are coming from all kinds of previous therapies, octreotide, lanreotide, combination therapy, cabvergolin, Mycapssa. So, we are taking share from pretty much all those switches. And the beauty of Palsonify is that it's performing really well across the board. So that shows the versatility of our drug and that confirms the efficacy and the benefit also having a once-daily therapy. When it comes to how long it takes to convince patients, it's like everything in life. Some patients are more ready to do that change because they are having the symptoms, because they feel uncontrolled because they hear about the convenience of our treatment, all of that makes them ready to switch. Other patients want to hear from other patients. That's why we have our Embassor program to hear stories. Other patients want to have a second opinion with the doctor. But that's what we are seeing across the board as patients have interest in learning more and many patients are joining our Embassor events. Douglas Tsao: That's really helpful. And Scott, can I just ask a quick follow-up in terms of your anecdote. I mean just given their reaction, I mean, does that suggest that even very well-educated clinicians with Palsonify don't necessarily have a full appreciation of the data and the strengthness of it because just given the PATHFNDR results, I mean, I don't think anybody should be surprised that the drug would work or that it wouldn't be applicable to everybody with acromegaly. R. Struthers: Yes. No, it's not that it wouldn't be applicable to everybody. It's just that we're seeing kind of even more than we expected in the real-world setting than what we saw in the PATHFNDR studies. Because remember, we -- the PATHFNDR had 2 parts of the spectrum, 2 ends. The patients who are untreated at all in PATHFNDR-2 and the patients who are very well controlled on the injectable depots. But what was missing was all those patients in the middle who aren't that well controlled, who might be on combination therapy, and we only had a small amount of data on that from Phase II. And so, what we're learning in the real-world setting is that even if you're on a combination therapy, some patients are getting better on Palsonify. Even if you're on something like pasarreotide, which is a mixed receptor that people advance to after they fail on lanreotide and which has a variety of different problems associated with it, even those patients are getting switched and doing well. So I think we're all just a little bit surprised at how well this has done in the real-world setting, which is why it's so critical that we capture the real-world evidence and start to get that out there, not just through word of mouth, which is already happening, but through publications and formal presentations of evidence. Operator: Your next question comes from the line of Richard Law with Goldman Sachs. Jin Law: Congrats on the results and progress so far. Two questions for me. The first is we saw sales from other products from many other companies impacted by the severity of weather in Q1. Was there any seasonal effect that impeded Palsonify sales in moment form in Q1? And do you believe there's a pent-up demand as a result in Q2? And then I have a follow-up on eimelimab. R. Struthers: Look, we're very pleased with just the overall consistent launch and the way the team is performing, and I couldn't be happier. I think we've got enough time for the eimelimab question. Jin Law: Yes. I think just kind of following up to what you said earlier about safety monitoring, something like that. Can you discuss like what data sets that you can -- that you believe can help derisk the safety profile related to ahead of that Phase III CAH study? And then I think in the ongoing trials, you mentioned that you guys do monitor the safety or the data monitoring will monitor safety. Is there -- if there's a lower grade like liver tox signal, would that get reported to you? Like what level and what quantity of level of that signal gets communicated to you guys? R. Struthers: I'll let Alan answer the technical part of that. But in my view, there's not really anything to derisk anymore. We're at a normal Phase III, and it's moving forward in a very nice fashion. Alan, maybe you want to give people some comfort with the specificity of the rigor that goes into our overall safety monitoring, including the Phase III. Alan Krasner: Yes. So, all clinical trials, including Phase III clinical trials contain within it extensive safety monitoring, which generally includes regular visits with health care professionals for physical examinations as well as a battery of routine safety blood tests, EKGs and other important things, too, that are generally -- that are routine for clinical trials. All these safety data are very carefully monitored by well-trained professionals all the time. The all the safety data is available in real time to the medical monitors in particular. And this is followed very carefully. And as I said earlier, generally, when a trial is continuing, that means all the safety checks are as expected. And I feel very confident in our compounds and in our trials, including the ongoing trials. Yes. R. Struthers: And maybe to even put a finer point on it. You really think that IRBs around the world would let us start dosing 12-year-olds or soon even younger if they had any question about the safety or risk benefit of this drug. I don't think they would, especially as we get into kids. Operator: Our next question comes from the line of Catherine Novack with Jones. Catherine Novack: Just one on Palsonify in Europe. Can you give me your thoughts on potential pricing dynamics here and when you expect to see revenue from individual countries and which countries may be first? R. Struthers: Yes. Thank you. Look, we're focused on executing on the U.S. launch. And I'm really pleased that we've received the approval in the EU. We've submitted in Brazil. We've submitted in Japan. And all of this is building options for us around the world and I think showing the strength of the drug with the receptions we're getting from these global regulators. But like everybody else in pharma and biotech, we're monitoring rapidly how all the pricing and access situations are evolving. And we're navigating this uncertainty in a very disciplined market-by-market approach. We'll be prioritizing geographies with clear regulatory and reimbursement pathways. And also importantly, we're pacing the investment in these international activities, again, to preserve the option value without overcommitting too much capital. And just to be clear, we're not preparing for revenue from international operations this year, but we will be prepared for early launch in 2027. Operator: Your next question comes from the line of Brian Skorney with Baird. Brian Skorney: Congrats on the quarter. I also wanted to get some thoughts maybe on the ex-U.S. launch you mentioned sort of thinking about prioritizing where reimbursement may be favorable given sort of the IRA dynamics. But how do you think about where there might be higher value areas through either genetic clustering or just diagnostic clustering being a driver of demand? Like I think in Northern Ireland, there's a genetic cluster of the R304 mutation, maybe Brazil seems to have better diagnostic infrastructure than other areas. So, are there any areas that you kind of point to where the pool of identified patients may be particularly meaningful? R. Struthers: Yes. So, first, there's not really a genetic clustering to acromegaly, except as you say, in the Irish giants, which is one of a relatively small population where there is a genetic component to the acromegaly. So the distribution of incidents is pretty much global, but some health care systems are better at identifying patients and/or keeping them under care. But we need to balance that against also the reimbursement landscape and the regulatory certainty in those regions. So, all those things we're taking into account, but it's a little too early to comment in detail on the specificity of our international plans. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the BioLife Solutions Q1 2026 Shareholder and Analyst Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Troy Wichterman, Chief Financial Officer of BioLife Solutions. Troy Wichterman: Thank you, operator. Good afternoon, everyone, and thank you for joining the BioLife Solutions 2026 First Quarter Earnings Conference Call. On the call with me today is Roderick de Greef, CEO and Chairman of the Board. We will cover business highlights and financial performance for the quarter and reiterate our 2026 financial guidance. Earlier today, we issued a press release announcing our financial results and operational highlights for the first quarter of 2026, which is available at biolifesolutions.com. As a reminder, during this call, we will make forward-looking statements. These statements are subject to risks and uncertainties that can be found in our SEC filings. These statements speak only as of the date given, and we undertake no obligation to update them. We will also speak to non-GAAP or adjusted results. Reconciliations of GAAP to non-GAAP or adjusted financial metrics are included in the press release we issued this afternoon. Now I'd like to turn the call over to Roderick de Greef, Chairman and CEO of BioLife. Roderick de Greef: Thanks, Troy. Good afternoon, everyone, and thank you for joining us for BioLife's First Quarter 2026 Conference Call. We're off to a solid start to 2026 with first quarter revenue growth of 25% and adjusted EBITDA up approximately 15% versus the prior year. Performance in the quarter was driven by continued strength across our broader product portfolio, led by our biopreservation media or BPM franchise. We entered 2026 with a simplified business and heightened focus on high-margin recurring revenue, and our results this quarter demonstrate the operating leverage in our model as a result. At the same time, we're seeing continued momentum across the CGT landscape, driven by expansion into larger indications, encouraging data readouts, strategic M&A and an improving funding environment, all of which we believe will support long-term growth across our end markets and underpins sustained value creation for BioLife shareholders. Turning to the quarter's results. Total revenue reached $27.5 million, increasing 25% year-over-year and adjusted EBITDA of $6.2 million or 22% of revenue, up roughly 15% from the prior year. BPM remained the primary driver of revenue growth with our other cell processing tools also contributing to overall growth. BPM represents over 85% of total revenue and continues to benefit from broad adoption across both commercial therapies and clinical pipelines where we maintain a dominant market share. Our top 20 BPM customers represented approximately 80% of BPM revenue and demand forecast from these accounts provide good visibility into our business. Channel mix remained consistent with over 60% of BPM revenue generated through direct sales with the balance through third-party distributors. Roughly half of BPM revenue was generated from customers with approved commercial therapies, and this remains a key driver of growth and durability in our model. We highlight these metrics because they reflect the ongoing shift in our business toward later-stage programs and commercial products, which are more stable, less sensitive to funding dynamics and growing faster than the broader CGT market. Several of the therapies we support are already at or tracking toward blockbuster status with annual revenues exceeding $1 billion. As these therapies scale and expand into new geographies and additional potentially larger indications, we believe BioLife is well positioned to benefit from higher patient volumes and the recurring nature of these revenue streams. Gross margin and adjusted EBITDA as a percent of revenue declined year-over-year due to the previously discussed bag yield dynamics. This remains a key operational priority, and we are making steady progress in close collaboration with our key customers to address it and are confident that this is temporary in nature. Stepping back, our market position continues to strengthen. At the end of the quarter, our BPM products were embedded in 17 approved therapies with visibility into an additional 9 unique approvals, expanded indications and geographic expansions over the next 12 months. Across the broader pipeline, we estimate our solutions are utilized in more than 250 commercially sponsored CGT clinical trials in the U.S., exceeding a 70% market share with an even higher share in later-stage Phase III programs. Independent third-party analysis of U.S. commercially sponsored trials where our biopreservation media is not used, no other commercial alternatives were identified, suggesting that these trials are relying on internal homebrew formulations. Given our leading share among late-stage programs, we expect this pipeline will convert into future commercial revenue as therapies advance through the approval process, reinforcing our position as a critical spectrum component of the cell therapy workflow. Building on this foundation, our team is focused on expanding BioLife's role within the CGT workflow beyond biopreservation media. Our CellSeal Vials and hPL product lines are already utilized in 4 approved therapies and over 35 clinical programs, and that number continues to grow. This expanding footprint is supporting our cross-selling efforts with existing BPM-only customers evaluating additional components of our portfolio. Given the size of these organizations and the rigor of their validation processes, adoption cycles tend to be longer, reflecting a higher bar for change while reinforcing the stickiness of these relationships. That said, we're seeing encouraging early traction and each additional BioLife product that's integrated into a therapy has the potential to increase our revenue per dose by 2 to 3x relative to BPM alone. While still early, this represents a meaningful opportunity to enhance both growth and the overall financial profile of the business. From a capital allocation standpoint, we remain focused on the highest return opportunities to support long-term growth, both organically and through disciplined strategic initiatives. Alongside our cross-selling efforts, we are regularly evaluating adjacent areas that build on our core scientific and commercial strengths. This includes selective acquisitions, minority investments and strategic partnerships that broaden our platform and increase our participation across the CGT ecosystem. This is enabled by our balance sheet, which gives us the flexibility to pursue attractive opportunities with discipline while maintaining a high bar for financial profile and strategic fit. Turning to our 2026 outlook. We are affirming the guidance we introduced on our last call. We expect revenue of $112.5 million to $115 million for the year, representing growth of 17% to 20%. As in prior years, our guidance reflects the visibility we have today based on demand forecast from our key customers. We also expect continued operating and adjusted EBITDA margin expansion and anticipate generating full year GAAP net income for the first time in many years. Before handing it over, I'll briefly highlight a few favorable developments we're seeing across the cell therapy landscape. Field is diversifying beyond traditional oncology applications with increasing activity in large autoimmune indications. We're also seeing encouraging data emerging in allogeneic cell therapies that have the potential to unlock multibillion-dollar market opportunities as well as renewed interest in established autologous approaches such as CAR-T and TILs, expanding the market from its base in liquid tumors into solid tumor indications. At the same time, we're seeing meaningful strategic activity, including the recent nearly $8 billion acquisition of Arcellx by Gilead as well as continued investment in next-generation manufacturing capacity and automation to support scale. As these therapies evolve and care settings shift, whether into outpatient and community settings or toward off-the-shelf approaches, this is expected to support sustained demand for robust, high-quality and trusted cell processing tools, biopreservation media and packaging solutions, areas where BioLife is well positioned. Taken together, these dynamics reinforce our confidence in the long-term trajectory of the field and the attractiveness of the CGT end market. BioLife has exposure across these areas and is uniquely positioned to benefit as these trends translate into durable demand. With that, I'll hand the call over to Troy to provide an overview of our first quarter financial results. Troy? Troy Wichterman: Thank you, Rod. We reported Q1 revenue of $27.5 million, representing an increase of 25% year-over-year. The year-over-year increase was primarily related to increased sales of our biopreservation media products, driven by strong demand from customers with commercially approved therapies as well as strong revenue growth from the balance of our product portfolio. GAAP gross margin for Q1 2026 was 64% compared with 67% in Q1 2025. Adjusted gross margin for the first quarter was 64% compared with 68% in the prior year. The decrease in adjusted gross margin percentage compared with the prior year can primarily be attributed to a product mix shift towards bags, which carry lower gross margins than bottles as well as a previously discussed impact from manufacturing yields. We view the yield impact as transitory and a key operational priority throughout 2026. And as it is resolved, we expect a corresponding expansion in gross margin. GAAP operating expenses for Q1 2026 were $17.5 million versus $15.3 million in Q1 2025. The increase compared to the prior year can be attributed to a $1.2 million increase in R&D, primarily related to our PanTHERA acquisition in April 2025 and the opening of our Center of Excellence. In addition, we had a $0.9 million expense increase in stock-based comp acceleration related to severance, partially offset by a reduction of $0.8 million in acquisition costs. Adjusted operating expenses for Q1 2026 totaled $16.8 million compared with $13.8 million in the prior year. GAAP operating income for Q1 2026 was $27,000 versus an operating loss of $0.5 million in the prior year. The improvement was primarily due to increased revenue compared to the prior year and lower acquisition costs, partially offset by higher stock comp related to severance. Our adjusted operating income for the first quarter of 2026 was $1 million compared with $1.2 million in Q1 2025. Our GAAP net income was $1.2 million or $0.02 per share in Q1 compared to $0.3 million or $0.01 per share in the prior year. The increase in net income was primarily due to increased revenues compared to the prior year. Adjusted EBITDA for the first quarter of 2026 was $6.2 million or 22% of revenue compared with $5.4 million or 24% of revenue in the prior year. The primary driver of the change as a percentage of revenue in the current quarter was due to the impact of bag yields on our gross margin percentage as discussed earlier. Turning to our balance sheet. Our cash and marketable securities balance reported as of March 31, 2026, was $111.5 million compared with $120.2 million as of December 31, 2025. Taking into consideration our adjusted EBITDA of $6.2 million in Q1, cash usage was primarily driven by tax obligations for share withholdings vested in Q1 of $5.6 million, debt principal payments of $2.5 million and unfavorable working capital of $6.9 million, which includes an increase in AR of $5.1 million, primarily related to timing. The entirety of our $2.5 million SVB debt balance is considered short term. Our final payment on the SVB debt balance is due in June 2026. We will pay a $1.2 million loan maturity balloon payment due at the time of maturity. Turning to our 2026 financial guidance. We are reiterating our 2026 guidance disclosed during our fourth quarter earnings call. Total revenue is expected to be $112.5 million to $115 million, reflecting overall growth of 17% to 20%. The increase is primarily due to expected demand from our BPM customers with commercially approved therapies as well as increased demand for our other tools. We expect GAAP and adjusted gross margin for the full year to be in the mid-60s. We expect gross margins to benefit from favorable pricing, partially offset by product mix and the previously discussed impact from bag yields. We expect to achieve full year positive GAAP net income and expansion of adjusted EBITDA margin in 2026 compared to 2025. Finally, in terms of our share count, as of April 30, we had 48.9 million shares issued and outstanding and 50.3 million shares on a fully diluted basis. Now I'll turn the call back to the operator to open up for questions. Operator: [Operator Instructions] And our first question comes from Matt Stanton from Jefferies. Matthew Stanton: Maybe on the topic of the bags, could you just clarify, are you saying that the bags have lower margins than bottles, all else equal and that there's also the scrap issue tied to the bag, so kind of two issues on the bag in terms of mix? And then I would love to just get an update on the scrap side of the bag. I think before you talked about kind of a 90-day notice period. Maybe just help us in terms of getting that back to normal as we think about kind of the 22% adjusted EBITDA margins in 1Q and the walk up the rest of the year to kind of get to that year-over-year expansion that you reiterated again today. Roderick de Greef: Yes, Matt, let me take the second part of your question, and I'll have Troy deal with the first part. So with respect to where we are with our customers in order to solve this problem, we have been working with them over the last 60 days to provide them with several different alternatives to the existing bags, which are causing the problems. So we are at a point now where that customer notification will be going out shortly. There's a 90-day period for them to select effectively which option they'd like to utilize. And then we have to burn through the remaining bag inventory that we have. So we're on track for the same sort of timing as we had laid out in the last phone call we had. And we would expect to be able to see some flow-through of enhanced margin either Q4 or Q1 of '27, depending on how quickly we burn through the existing bag inventory. I'll let Troy answer the rest. Troy Wichterman: Yes. And Matt, on your question on bags versus bottles on gross margin. So as a percentage of revenue, bags do have a lower gross margin than bottles by quite a bit at this point in time because of that yield issue we've been talking about. Matthew Stanton: Okay. And then so once the yield issue is rectified, are the margins closer to the same as previous is that right? Troy Wichterman: Closer, correct. Matthew Stanton: Okay. Okay. And then maybe, Rod, you talked about a little bit just outside of biopreservation media, you talked a little bit about cross-selling there. I would love just some more color on the new product front. Obviously, you have the Cryo case. I think you've talked about maybe some other things coming out of the pipeline. You have PanTHERA here, would love kind of an update on that. Just anything as we think about the back half of '26 and '27 on the new product front and other things coming out besides biopreservation media. Roderick de Greef: Sure. You bet. With respect to the PanTHERA product, we're still on track for a Q4 launch of that. We've identified what the value proposition will be in addition to identifying the final molecule that we'll be going with. So that looks good. With respect to cross-selling the other products, that is a longer-term effort. It continues to move forward with respect to increased number of validations, et cetera. And I think that at the end of the day, when I look at the revenue growth, albeit from a smaller base, those other tools are growing at a faster rate actually than the biopreservation media is. So we're pleased with the momentum. Obviously, we'd like things to go faster, but there's a certain amount of inertia with respect to the validation process within these large companies. Operator: The next question comes from Brendan Smith from TD Cowen. Brendan Smith: Congrats on the quarter. Maybe just a quick one from us on a bit more sector level. I guess as you kind of look at state of biotech funding and kind of the broader strength you're seeing, are you potentially expecting any inflection orders over the coming months? I guess, just given that we're now kind of approaching almost 6 months of pretty solid funding recovery there. I guess, really, how big of a driver is that for BioLife realistically? And is this something that could jump up in Q3 or Q4? Or just kind of your view on the funnel looking like a more gradual ramp? Just kind of trying to understand cadence for guidance. Roderick de Greef: Yes. Thanks, Brendan. I think that as we've talked in the past, the biotech funding does not really impact us. To the extent that it does, it impacts us at very early-stage customers. There's a few exceptions to that. But in general, it affects earlier-stage customers that buy a very small amount of product through distributors from us, right? So the overall impact is not that meaningful. The bulk of the revenue, certainly the revenue growth is coming from well-capitalized firms. And when I look at the Phase III customers that we have that should be gaining approval over the next sort of 12 to 24 months, those are, by and large, also well capitalized. On top of that, though, to the extent there is an impact, I read the other day where overall biotech financings for '25 were about $11.1 billion. So it seems to me that, that issue has stabilized and now should not be a headwind at any level for us going forward. Operator: The next question comes from Paul Knight from KeyBanc. Paul Knight: Rod, we were at the BioLife booth at INTERPHEX, the CryoCase won one of the Best In Show awards. How is that going commercially? Roderick de Greef: Yes. We were pleased to receive the award for sure, Paul. I think it's good recognition that it truly was sort of a unique product that we put out. So again, we have well over 3 dozen validations going on, and I think that there's definite interest. But again, whenever you're dealing with something that changes in the manufacturing process, particularly of a final drug product, but even in late stage, it's a decision by committee, right? A lot of people are involved, and it takes a lot of time. But we're seeing some bright spots and are looking forward to being able to see some traction certainly towards the second half of the year, hopefully, with the type of announcement of a customer that people would recognize. Paul Knight: And then the other question, Rod, you mentioned earlier, autologous has kind of been the core of the market. But where are we with allogeneic cell therapy based on what customers are telling you? Roderick de Greef: Yes. I think we're still a couple of years out, but Allogene has published some decent data. I think they did a raise. So from a financial perspective, they're in a much more solid position. And I think there, although the overall BPM volumes per patient might be a little bit lower, the opportunity to address much larger patient populations is, in our estimation, going to far outweigh the reduced amount of volume per patient. But again, I think it's a good 2-plus years away from really having a revenue impact on BioLife. Paul Knight: And then lastly, you mentioned GAAP net income. Is that like targeting 4Q, Rod, or Troy? Roderick de Greef: No, it's for the full year per quarter, Paul. Operator: The next question comes from Mac Etoch from Stephens. Steven Etoch: Maybe following up on Paul's question. I think the share of homebrew has been pretty stable over the last couple of years, particularly in late-stage trials. As you think about cell and gene therapy expanding into these larger indications and the FDA focusing on more standardized platforms, do you see an opportunity to kind of capture more of that share moving forward? Roderick de Greef: Yes, I think so. As we're taking a cut of this data, Matt, on every 6-month basis. We go back and review the results of all the clinical trial work that has been done and refresh it. And the numbers are actually going up in our favor. So I think that at the end of the day, it's going to be very few folks who use a homebrew with a commercial product. As we've mentioned, we're in 900-plus trials worldwide, but the ones that really matter are the 250-plus that we're in that are commercially sponsored that are looking to achieve a commercial therapy. And I think that it's going to be increasingly difficult to justify whether it's from a cost perspective, a manufacturing process perspective, a logistics perspective, the FDA to use something other than the gold standard. Operator: The next question comes from Matt Hewitt from Craig-Hallum. Tollef Kohrman: This is Tollef Kohrman on for Matt Hewitt. Is there anything specific you want to call out on that increase in R&D expense? Roderick de Greef: Yes. I think it is directly related to bringing on the Center of Excellence, which provides us with the ability to do some serious scientific work. We have 4 or 5 scientists working at the center, all PhDs. We've never had that before in terms of a team of scientists that can actually do the R part in addition to the D part of R&D. So we're pretty pleased with that. So there's a cost associated with that as well as the cost of increasing the accelerating projects that we have internally, including the RCC, which will ultimately be the answer to the bag issue that we have. So that's a rigid container designed to carry our product from our factory to our customers in a rigid container that can be used in a closed system. So that's a product that we're definitely making an investment in as well as the consumable line associated with the CT-5. So that's where the money is going. It's really internal product development. Operator: The next question comes from Thomas Flaten from Lake Street Capital Markets. Thomas Flaten: Rod, you mentioned in your prepared comments that commercial BPM customers were about half the revenue. And I think on the last call, you said you could get that maybe up to 55%. Any update on that outlook? Or do you think 55% is still realistic? Or do you think you can push it beyond that? Roderick de Greef: I think in the near term, that's about the right number. The rate of growth of that group of customers versus, say, distribution or noncommercial is so significantly different that it's going to be a higher number in the outer years. But in this year, I think a target of 55% is pretty much where we're going to settle out. Operator: And our next question comes from Yi Chen from H.C. Wainwright. Katherine Degen: This is Katie on for Yi. Thinking about some of the deals you announced on prior calls with Pluristyx and Qkine with those two coming together and that announcement on May 1, does that integration kind of give you any meaningful wins for biopreservation media demand? Are you kind of expecting any pull-through from that deal? How are you kind of thinking about that? Roderick de Greef: are you speaking about the Qkine deal? Katherine Degen: Yes. Roderick de Greef: Yes. I think where the pull-through with our products comes into play is combining our CellSeal product line as a primary container for Qkine cytokine line. That's where we're going to see some incremental revenue from our products. The other way we'll generate revenue is obviously through the sale of their cytokines to our customer base. Katherine Degen: Yes. I guess my question is, are you expecting any synergy now that Pluristyx and Qkine have an agreement together? Roderick de Greef: You mean the Pluristyx and Qkine agreement? Katherine Degen: Yes, right. Roderick de Greef: No, no. I think -- yes, that's specific to Qkine providing some products that have -- that are relevant to their Organoid kit. So that really is outside of anything to do with BioLife per se. Katherine Degen: Okay. So you don't think they'll pull through any customer base from that? Roderick de Greef: Not that will directly impact our revenue in any way, no. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Rod de Greef for any closing remarks. Roderick de Greef: Thank you, Jason. In closing, 2026 is off to a strong start with solid top line growth. We remain focused on operational execution, including supporting our core BPM customers, expanding adoption across our broader portfolio and managing operations efficiently across our organization. We believe our position as a leading supplier of bioproduction products, together with exposure across the attractive and growing CGT end market leaves us well positioned for durable growth and long-term value creation. Thank you for your time today, and I look forward to seeing some of you at upcoming investor conferences. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Michael Judd: [Presentation] Hi, everyone. Welcome to Opendoor's Q1 2026 Financial Open House Earnings Live Stream. I'm Michael Judd, Opendoor's Head of Investor Relations. A few quick housekeeping guidance before we get started. Like all things Opendoor, we're going to do this faster. Details of our results and additional management commentary are available in our earnings release, which can be found at investor.opendoor.com. The following discussion contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact are statements that could be deemed forward-looking, including, but not limited to, statements regarding Opendoor's financial condition, anticipated financial performance, business strategy and plans, market opportunity and expansion and management objectives for future operations. These statements are neither promises nor guarantees, and undue reliance should not be placed on them. Such forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Opendoor's most recent annual report on Form 10-K for the year ended December 31, 2025, as updated by our quarterly report on Form 10-Q for the quarter ended March 31, 2026, and other filings with the SEC. Any forward-looking statements made on this webcast, including responses to your questions, are based on management's reasonable current expectations and assumptions as of today, and Opendoor assumes no obligation to update or revise them, whether as a result of new information, future events or otherwise, except as required by law. The following discussion contains references to certain non-GAAP financial measures. The company believes these non-GAAP financial measures are useful to investors as supplemental operational measurements to evaluate the company's financial performance. For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our website at investor.opendoor.com. And with that, let's get into the open house with Kaz and Christy. Kasra Nejatian: Good afternoon, everyone. I opened the Q4 financial open house by showing you a clip from the Q3 financial open house. I did this because I think among the most important things you can do to build trust is to just do what you said you would do. Don't promise and moon and deliver dust. Just do what you said you would do. Our last open house might as well have been called the look at the October cohort open house. With that in mind, let's once again take you back to our last financial open house. That the October cohort is going so well is not a plan, it's a proof point. The product launches I'm going to talk to you about aren't promises of things that might work. They're the explanation for why October happened and why it's repeatable. Now look, because we're committed to transparency, let me get ahead of a couple of things. October was not our largest cohort by volume. But it was about double the size of what we were doing just a few months ago. We're not getting lucky on a few homes in a friendly market. And given how the past few weeks have gone, I believe we're on track to significantly increase our acquisition size as we said we would do. What October shows is that the structural changes we made under Opendoor 2.0 are working. And then we're compounding those learnings into every single cohort going. During that call, I told you that Opendoor 20 cohorts would perform fundamentally differently than Opendoor 1.0. And back then, some folks said, October was a fluke or that we'd fall apart when the markets got harder or the sample set got larger. And one of my favorite investors said, look, 1 month does not make a trend. That was fair. Fair enough. So here are the facts. We now have a few more months of data, and we should compare the first full 4 months of Opendoor 2.0 against the last couple of years of Opendoor 1.0. Don't pay attention to me. Look at the chart. These are the cohort arrival curves. They show what happens when a group of homes margins on the y-axis as that group of homes sells on the X-axis. Every one of those purple lines is an old Opendoor cohort. They all do the same thing. They bleed margin as we sell through. Now look at the blue curves. Margin doesn't drop the way it used to. This is a step function change in how this company operates. 4 consecutive months tell us something October alone could not. This isn't an accident. This isn't small sample luck. Mortgage rates are still far too high and the listings are at all-time highs. But in a housing market that was supposed to break us, our cohorts are delivering. October wasn't a fluke. It was just the first month we could see it. We've now sold through over 80% of the October cohort and our trends have continued. Margins for our core cash products have come down only 90 basis points from where they were at 10% sold to over 80% sold. Last year, that same journey cost us over 260 basis points. So we've seen about a 3x improvement. And then November, December, January, they all showed the same pattern 4 months in a row. In fact, Q4 of '25 and January '26 cohorts have the best combination, the best combination of margin, margin stability and resale velocity of any cohort in Opendoor history, obviously, excluding the COVID era. Our cohort curves or the slope of our margins as homes sell-through are basically flat. And we're doing this at great speed. Every single cohort from October through January is selling faster than any corresponding cohort since COVID. And we're meaningfully scaling growth. In Q1, we entered into contract in over 5,000 homes. That's 2x bigger than Q4 and 3x bigger than Q3. In fact, when it comes to contracts, this was our single best quarter since 2022. Cohorts are performing better, resale velocity is improving, and we're scaling growth. But how can we do this? Well, let's talk about it for a second. Two quarters ago, I laid out the blueprint and told you exactly what we were going to do. Underneath this all, there was one simple goal, make Opendoor faster. Last quarter, we graded ourselves and we're green across the board, and I promise we will do this every single quarter. So let's do that. Step one, profitability, breakeven by the end of 2026. We're on track. We'll be ANI positive on a forward 12-month basis by the end of the year. And as of April 1, Opendoor is adjusted EBITDA profitable on a forward 12-month basis. Step two, unit economics that make the model work, positive contribution margin while increasing velocity. We're on track. Our contribution margin has increased every single month since we bottomed out in September and October, November, December and January cohorts. They're all selling faster than any corresponding cohort since COVID. We're improving margins, speeding up clearance, and we're doing all of it in a worst market. Acquisitions are growing. In Q1, we entered into contracts in over 5,000 homes, 2x what we did in Q4, 3x Q3. And our Q1 DTC acquisition contracts are up more than 4x compared to Q3 '25. This was our single best contract quarter since 2022. Step 4, we're making really good progress on our capital-light products for sellers and transacting directly with buyers. Opendoor Checkout has now helped us sell homes in a bunch of states and more than 1/3 of our acquisition contracts in Q1 were cash now more later. This time last year, that number was exactly 0. That's our scoreboard. We're green across the board. This quarter, the scaffolding came down and what's underneath is a company that finally knows exactly what it is and how it wins. For a long time, the core assumption of Opendoor was that we had to be better at predicting the future than the rest of the world. We operated like a front desk. We looked at the macro and made directional bets based on where we thought the prices were going to be in 3, 6, 9 months. And then we pushed billions of dollars on to the table. The issue was never the people and not the model. The problem was a wrong problem to solve. Even if our models had been perfect, they were still pointed in the wrong direction. Everything flowed from a single question, where are home prices going? That one guess drove everything. It set the spread, which set what we bought and determine whether or not we made money. And when we got the answer wrong, we blamed the market every single time. Macro became our excuse for everything. Look, when predicting the future is your North Star, a reflex in the down market is always the thing, widen spreads, slow down, pull back, wait for the market to recover. Every defensive move said the thing that was actually killing us. We were playing prevent defense when we were down by touch down. So of course, we were losing. We widened the spread to protect ourselves, but in doing so, we changed their funnel. We changed the thing that was making the company work. We got worse homes. Worse homes meant worse margins. Worse margins went back into the model. The system got more conservative and spreads widened even more. We didn't just have risk that we could not calculate. We actually built a machine that amplify it. Every move made everything worse. That was our fatal flaw. In a business where time is risk, the old model got us to slow way down. And once that reflex exists, every department in the company, product, operations, finance, everyone starts running the same defensive operating system. The default everywhere was slow down just to protect ourselves. Look, I'm a nerd's nerd. I think models are really cool, but they're incredibly worthless when you had the wrong strategy. So what we did wasn't just improve the pricing model. We changed the question that it was meant to answer. A year ago, the most important input into every decision was our home price appreciation forecast. Today, it's how fast we can sell the home we're looking to buy. Market makers do not win by being right about direction. They win by controlling their exposure to being wrong. They win by being right about time. When a prop that gets scared, it pulls right back. That's how the spiral starts. When a market maker sees risk, it does the exact opposite. It speeds up and prices to clear. The faster you move, the less any single home can hurt you. And velocity is how we know our pricing is right. A home that fits doesn't give us any signal. It just increases risk. Opendoor 1.0 was a Kobayashi Maru. It wasn't a game we should have played. Without fundamentally changing it, we will just totally kill the company. You don't beat that game by getting better at simulation. You beat it by changing the program. So we're now running on a velocity OS. The difference is totally structural. We have rebuilt our engine around a totally fast team of high-frequency thinkers. Our signal intelligence officers, hedge fund quants and they're all maniacally focused on data loops. They have a mandate, ship a change every single week, optimized for both margin and velocity. And as our models get better and they're getting better every single week, the whole machine moves faster. The whole company runs faster. We now run on a weekly cadence across the company. Products ship every single week. We don't need to be perfect in order for this business to work. We just need to be faster with hundreds of acquisitions a week, we see pricing signals, renovation costs and clearance patterns faster than anyone else in this market. Every home keeps to something. And every single day, we shave hold times, our capital turns go up and our returns go up. Speed. Speed pays for everything. In a bad market or a great one, the variable thing that actually matters is time. So when you ask what has made the change? What makes this whole thing work? It's one word. Faster. I wear a T-shirt at every financial open house that says one thing, Faster. You can see it. I'm wearing one right now. Most of you think it's just a personality quote, right? A founder nerd thing, a costume of a wartime CEO. It's really not. Look, we used to be in a business that lived or died and whether we got the future right. Now we're in a business that lives or die and whether we move fast. Faster isn't just our competitive advantage. It's an absolute moral imperative. Let me just say this again, so you don't think I'm being subtle about it. Faster is not just our competitive advantage. It's our whole reason for being here. It's our moral imperative. Every day, someone is stuck and cannot move is a day in their life that they cannot move on. They're on hold. If we're in the business of helping people move, then days matter. It's a job offer they haven't accepted, a planned retirement put on hold and finally not started. The traditional home sale process is more than just inconvenient. It holds these people back. 40 million homeowners in this country want to move in the next 12 months, but only 1 in 5 think they can actually do it, not because moving is too expensive, but because everything about it is just too uncertain. There's a simple test for any system. Would you design it this way if your family had to live in it? The legacy real estate system fails to test. It's our job to fix this. Every product decision Opendoor goes through does goes to one single filter. We only care about one thing. Are we returning time to people. Last week, across all sellers, Opendoor gave back over 100 years of time, over 100 years of time, over 500 families said yes to an Opendoor offer and reach certainty about 90 days sooner than they would have in a traditional process. You do the math. In just 1 week, we got rid of a century of human waiting, time that got returned to families who got to move on. Faster is a moral imperative. It is a good in and of itself, and that is what this company is for. Every product launch ultimately serves one question. How do we move faster for sellers, for buyers, for Opendoor for everyone? So let me run through some product launches. This quarter, we expanded cash down more later coverage. Every week, hundreds of families who would have heard, sorry, we can't help you are now getting the real offers. We totally rebuilt the foundations of our buyer apps. We acquired Doma's Escrow division. Noah, our AI underwriter, prices normal homes in Phoenix now. We rebuilt every message a buyer gets from us, 6 different systems became just one conversation. We rebuilt our offer page, giving customers the type of information they would have gotten from an expert who was at their kitchen table. We also built a portable assessment scheduling. You can now get your home assessment done on your own terms. More than half of our assessments are now seller-led, 6,000 in March alone. We migrated our component library to an AI-native front end. While we were in there, we killed our legacy cake service, a transition that had failed 3 times in 4 years, finished in 6 weeks. The platform is what makes everything else faster. Talk to any Opendoor engineer, and they'll tell you this is a really big deal. We built an AI audit tool that automatically reconciles inspection scopes with actual repair decisions, giving our field teams real actionable feedback to improve operating compliance and cost discipline. At title intake, it used to take us up to 5 hours. It now takes 15 minutes. We launched Opendoor Mortgage in Colorado. One of our marketing managers replaced our $0.5 million life cycle legacy e-mail system with one Claude skill. A field manager in our Southeast division runs 5 states on Claude. Afinance team turned 20 hours of SOX deliverables into 1-minute query. None of these people, by the way, were engineers. We also tripled our Cash Now, More Later product. Our voice bots dropped seller contract time from 30 minutes to 5. We replaced 72 manual exports a month with 1 pipeline. We built a new listing operated consoles in 8 days, we merged 8 different HR systems into one and end process. We built dozens of point solutions. Now that's not the full list. It's just what I had time for before they play to walk me off stage music. As you can tell, we've changed a lot, but I also want to tell you what we haven't figured out. Look, I'm a Leafs spin. I know what it feels like to we promise lots of things and get absolutely none of them. I know what it feels like to watch the same group of people over and over again, give you false hope and give you nothing. I thought about this more than I probably should, but I've decided that the promise is not the same thing as a proof. You do not get credit for what should have happened. You only get credit what actually did. I know what it feels like to have momentum in March and tears in May, which is why this t-shirt says faster and not done. Faster is a setting. It's not a destination. We don't get to celebrate signals. Every quarter is just another shift for us. We're not done. We're not even close. Mortgage is live, and the early data is honestly going a lot better than I thought it would go. We're getting really good attach rates and our customers love it. But look, it's early. We don't fully know how the product is going to work across different market conditions in different home price tiers. We have a thesis. It's working really well, but we haven't proven it at scale. Cash Now, More Later, it's growing really fast. It's over 1/3 of our growing pie. And that's just really remarkable for a product that didn't exist a year ago. And that was totally reworked just 3 months ago. We're iterating how it works. We're fine-tuning it, trying to get the balance right between what the seller gets and what Opendoor keeps. But let me be honest with you. Every product that Opendoor ships has to earn its place in our portfolio. Cash Now, More Later is earning it, but we're not done changing it. And like we said earlier, the housing market, look, it just remains what it is. We believe the model we have built on faster works across macro cycles. We're no longer dependent on the macro. We control our own destiny. October, November, December, January cohorts, they were all bought during the most aggressive expansion in our history in a market that I don't think anyone would describe as favorable, and this is the best evidence we have. But that's just what it is. It's evidence. It's not proof. Proof will take more time, more reps, more shifts, more aggression, more products shipped faster. And we've said this before, and you'll always hear us saying this. We're not asking you to take our word for it. We're asking you to watch and to hold us accountable. Christy is going to walk you through the numbers in a minute. But before she does, I want to close with this. I've been asked a lot what Opendoor is. We changed our LinkedIn profile from real estate to software, but software is too generic. Look, Opendoor is on a mission. Our job is to get people who are stuck moving. We're a machine that helps America move. When I joined Opendoor, I did it because the home ownership matters. It is the thing. It is the single thing that leads to better families, better neighborhoods. When people buy a home they love, they're buying a share in this country. We don't buy homes at Opendoor to hold them. We buy them. We buy them so we can get them into a next family faster, with less friction at a better price. And every family we help move is a family that is clear down roots. It's a neighborhood, we're getting better. It's children that get to grow up in a home that their parents love. Faster is what this company was built to do. This T-shirt, that's just a reminder. The Opendoor machine is now running and every day it runs, every single day it runs, friction disappears and people move. We do not need a better market. We just need a better machine. Last week, we gave back over 100 years. That's 100 years of human pain just gone. That's not corporate dragon. That's just families moving and building better lives. Please track it. Please hold us accountable. Christy? Christy Schwartz: Thank you, Kaz. I'm not wearing a T-shirt, but I promise I'll match the pace. Three things to know about Q1 before we get into the details. One, we reduced aged inventory from 51% to 10% in 2 quarters. The book is the freshest it's been in nearly 4 years. Two, margins bottomed out in September and have improved every month for 6 months straight. Q1 closed at 4.4%, up 3.4 points quarter-over-quarter, and we expect the upward trend to continue into next quarter. Three, acquisitions are up 45% from Q4, and Q1 was our strongest quarter for signed contracts since Q2 2022. And the headline behind those 3, starting in Q2 2026, we expect to be adjusted EBITDA profitable on a 12-month go-forward basis. The machine is working. Let's get into it. As a reminder, we are executing against 3 management objectives on our path to profitability. The table in our earnings release shows our progress on each. Let me walk through the highlights. First, scale acquisitions. We purchased 2,474 homes in Q1, up 45% from Q4. This is the second consecutive quarter of meaningful growth. And signed acquisition contracts, our leading indicator, tell an even stronger story. March was our highest single month for signed contracts since June 2022, and Q1 was our highest quarter since Q2 2022. An acquisition contract will typically close about a month later. Q1's 2,474 purchases are mostly from late Q4, early Q1 contracts. Late Q1 contracts will close primarily in Q2. Also, we want to be clear, we don't close on every home we go into contract on. Under Opendoor 2.0, we're deliberate about which contracts we take all the way to purchase. So the funnel narrows between contract and close. So more contracts mean more opportunities to be selective and the trajectory matters. In a short period of time, we've gone from our lowest contract volume since COVID to our highest since 2022. This is the tempo required to achieve the goals we set for ourselves, and we're building the volume and the discipline at the same time. You can continue to track our weekly progress on accountable.opendoor.com. Volume only counts if the quality holds, and our second management objective is the scorecard for whether we're delivering the right kind of growth. The second, improve unit economics and resale velocity. This is where the work really shows up, and there are 3 data points I want to highlight. One, resale contribution margin has improved every month since September 2025, closing Q1 at 4.4%, up 3.4 percentage points quarter-over-quarter. Two, our Q4 2025 and January 2026 cash acquisition cohorts have the best combination of margin, margin stability and resale velocity of any corresponding cohort in company history, excluding the COVID era. And three, the percentage of homes on the market for more than 120 days fell to 10%, down from 33% at year-end and 51% at the end of Q3, a 41 percentage point improvement in just 2 quarters. Let me stay at this point for a moment. Two quarters ago, more than half of our homes had been sitting on the market for over 120 days. At the end of Q1, that number was 10%. That is the lowest it's been since Q2 2022. To put it in perspective, the broader market was at 23% 2 quarters ago and rose to 33% at the end of Q1. We are now carrying a book that is materially fresher and healthier than the market. Inventory health is both a leading indicator of forward margin and evidence that our approach is working. A faster-moving book means lower holding costs, less market exposure, better resale outcomes and more efficient use of capital, and that's exactly what's showing up in our margins. This didn't happen because the market got friendlier. It happened because of tailored underwriting, disciplined close to listing workflows and resale systems designed to move homes quickly while protecting unit economics. Third, build operating leverage. Fixed operating expenses were $33 million in Q1, down $2 million quarter-over-quarter and down $6 million year-over-year. Our trailing 12-month operations expense as a percentage of trailing 12-month revenue held steady quarter-over-quarter at 1.3%. We are holding the fixed cost base flat while simultaneously investing in the AI and infrastructure that powers our product, and it's worth pausing here for a minute. We're going all in on AI, and we're doing it responsibly. There's a lot of noise right now about companies blowing their 2026 budgets on AI before the second quarter. That's not us. We're focused on results, not token leaderboards. We have an internal Slack channel called Default to AI, where teams celebrate measurable impact. Some highlights in addition to what Kaz shared earlier: an AI-powered repair negotiation tool cut our buyer fall-through rate by over double digits; field managers are using AI scoping feedback, helping to reduce pre-list renovation spend by up to 10% to 20% per home in pilot markets; and a ticket triage automation, redeployed 3 full-time employees from classification to resolution. What's notable is that most of these tools were built by operators, not engineers using the AI infrastructure we've invested in. We're cutting waste and reallocating into capabilities that move the business. Our flat fixed operating expense is the output of that discipline, not the absence of investment. 3 objectives, 3 quarters of consistent progress. The plan is working. Turning to the balance sheet. We ended the quarter with $999 million in unrestricted cash, our highest cash balance in years. That's a product of 2 things: the strength of our parent level capital position following the work we did last fall and the health of our inventory book. We held 3,420 homes in inventory at quarter end, representing $1.1 billion in net inventory. Our nonrecourse asset-backed borrowing capacity remains robust at $7.1 billion with $1.5 billion committed. Between liquidity, facility capacity and the quality of what we're financing under those facilities, we have meaningful flexibility to execute against our plans. Now let me give you the guidepost for Q2. Acquisitions. You can continue to track our acquisition contracts on accountable.opendoor.com. We've updated our contract road map for the remainder of the year. The ranges reflect our current outlook, inclusive of typical seasonality, and we'll continue to update them each quarter as we learn more. Revenue. Our Q1 increase in home acquisitions will start to flow through to resales, leading to expected revenue growth of approximately 25% quarter-over-quarter. Contribution margin. Our contribution margin bottomed out in September and has been improving every single month since then. We expect the contribution margin for Q2 2026 to fall in the middle of our 5% to 7% goal we shared in the first Opendoor 2.0 financial open house. Adjusted EBITDA. We expect Q2 adjusted EBITDA to be breakeven, plus or minus a few million dollars, and we see Q2 as an inflection point. We expect to be adjusted EBITDA profitable on a 12-month go-forward basis starting in Q2. In closing, last quarter, I said you can't build a great business in a spreadsheet. You build it by shipping product, operating with discipline and learning from the market. Q1 is what that looks like when the machine starts to work. Acquisitions, margin, resale velocity, inventory health and cost all moved the right way at the same time. That's not a lucky coincidence. That's a system that's working. Two quarters ago, we laid out our plan. Every quarter since we graded ourselves against it and delivered. We have a lot left to prove. We intend to keep doing exactly that. With that, Michael, I'll turn it over to you for questions. Michael Judd: Great. Thanks, Christy. Our first question comes to us via video submission from Mike Alfred. Mike Alfred: It's Mike Alfred, Founder and Managing Partner of Alpine Fox LP as well as Board Director in IREN and Bakkt. Great job on the execution side. I really like the way the business is integrating AI into everything you're doing. My question is about the longer-term implications of AI. Do you believe when you look at the strategic direction of the company that we are well prepared for all the things that AI is likely to change about the way the real estate market operates in the coming years? Kasra Nejatian: That's a great question. Look, I think the answer to this is like in a bunch of layers. And I can't think about the layers, so let me just go through them. Layer 1 is like the earnings call answer. AI is important. We're leaning right in. We're spreading across the entire business. If you kind of hear that from every corporate CEO. I mean it's true, but it tells you like nothing actually useful. Layer 2 is actually important. That's like the software leverage story. Like the original SaaS era, the insight was that you could take a CRUD database, wrap business logic around and some workflow around it. And then you'd find that people could do a lot more, right? Software would get cheaper, people could do a lot more because you could encode the rules and the processes and decision-making into software. And the leverage was just insane. AI extends that by quite a bit because you're now encoding judgment on top of rules and the leverage becomes really high. Like that's real and it's important. And we're capturing a lot of this. But that's just the story of software broadly. It doesn't say anything specific about Opendoor. We just happen to be honestly just really good at this. Layer 3 is actually fundamentally more interesting. It's like the automation versus the collaboration split. AI as collaboration software is very misunderstood. Let me talk about that for a second. Look, our goal isn't to use AI to cut 15% of our expenses by doing the same things we're doing just cheaper, right? Like that's the automation applied to cost. And the goal isn't like a black box replaces a human process end-to-end. That's just not what we doing. Like what we want to do, given everything AI can do is to rebuild our processes from scratch, from a blank piece of paper so that we can use AI to have a fundamentally different process. Layer 4 is actually our complexity as a structural advantage. This one is important to understand, and this is why we're not afraid of AI is the way like some software incumbents are. Real estate is atoms and risk and not just bits, it's also some bits. The underlying transaction involves a level of complexity and condition and local dynamics and human emotion and all of it like makes the system very complex, and that's actually our advantage, right? AI doesn't eliminate this complexity. It just makes navigating it a lot easier. So what we don't need to do here is just stick to some hypothetical end state. We just need to be meaningfully better than the alternative and the legacy process at every step. Like this is a Red Queen's Race dynamic, and it works in our favor here. Look, we've been running in this very complex environment for years, and we have a craft ton of operational knowledge, and that is deeply, deeply useful. The last -- I promise this is the last layer. I like 5-layer cakes. The fifth layer is about what AI does to the other side of the transaction. So there are 2 parts to this, right? What the customer feels and sees and what it does to the category. On the customer side, look, the traditional real estate process is defined by information asymmetry, right? That's just not an accident. That's the foundation of the whole process, but experts who know the market make profit from transaction friction because the parties themselves can't navigate it. AI totally dissolves this asymmetry, right? What that means is the customers are being like upgraded. We can build AI concierge that feel to the customer like the expert is sitting at the kitchen table, right? That's an incredibly important thing, and it's what we're doing. On the category side, this is the actual metabit, right? Every major Internet transition, every industry has had winners that didn't just jam the Sears catalog into a browser, they actually helped with the transaction, travel, retail, fintech, that's been true across of Internet. It just hasn't happened in real estate and real estate is like honestly, the last major holdout, not because the category is fundamentally immune from this, but because the underlying complexity made it a little too messy to transact at scale. AI just totally removes this constraint. I think I should actually start the answer by saying yes. But yes, we believe we're well positioned. It's honestly on the inside, it feels as though our business was built waiting for this mana to fall from heaven, and it now has. Michael Judd: Great. We got a few questions submitted via Say Technology that all kind of clustered around profitability. So I wanted to pull out 2. The first comes from Heejun C., who's asking, you said in the last earnings call that turning profitable by the end of the year was achievable. Now the first quarter has passed and interest rates remain high. Is that still a realistic goal? Also, Arun Jacob V. asks, how confident are you today in the Q2 positive EBITDA and year-end profitability forecast? And what are the key swing factors from here, which might influence it? Christy Schwartz: So great questions. Thank you. We reconfirmed our goal and expectations earlier on the call, and I'll say it again here. We expect Opendoor to be breakeven or profitable, adjusted net income profitable, by the end of this year on a 12-month go-forward basis. And Arun, to answer your question, we also shared in the call earlier that we're going to reach an important milestone on that path to profitability in that starting in Q2 2026, we expect to be adjusted EBITDA profitable on a 12-month go-forward basis. Our management objectives that we report every single quarter are the 3 legs to the stool that help ensure we're on the right path, and we're building momentum. Acquisition closes are up. Acquisition contracts, the leading indicator to closes, are also up. In fact, Q1 2026 had over 5,000 contracts. That's the highest quarter of contracts since Q2 2022. Retail contribution margin has improved every single month since September, and we guided Q2 to the middle of our 5% to 7% targeted CM range. Long-held inventory went from 51% to 10% in 2 quarters. And we did all of this while holding fixed OpEx down. The last time acquisition contracts exceeded 5,000 in a quarter, our fixed OpEx was double where it is right now, yes, double. And that's the AI investments and operator empowerment that we talk about every single quarter, that's what's happening here in fixed OpEx. We have made meaningful changes to what is required to run Opendoor 2.0, and we are beginning to demonstrate that those changes are durable as the volumes return. We're clear on our profitability goals, and we will continue to check back in every quarter with updates. Kasra Nejatian: Can I add something here? I think Warren Buffett famously said you find out who's swimming without shorts when the tide goes out. I have 4 kids, and they actually sometimes go swimming and I have to worry about them wearing shorts. So I feel for Warren. But right now, like the tide is out in housing, right? In the real estate market, the tide is out. And most CEOs will tell you that they wished conditions were friendlier. I'm telling you the opposite. When I took this job, I knew the tide was out. That was the entire point. I didn't take this job because I was hoping macro would turn and would bail us out. Like I wasn't looking for a company of sunshine patriots. I think Kelly Clarkson famously retweeted Nietzsche and said, what doesn't kill you actually makes you stronger. We chose -- I chose hard mode. We choose hard mode because that's what's going to make us stronger. Look, we do not need permission from the Fed to put on our shorts to go swimming. Everything we've accomplished so far, everything has been done in the face of an unforgiving macro. And I think we've told you how it looks like when we're winning. And some of you are watching this. But I think I should tell you what it would look like if we were losing, if we could not do the things Christy said we will do. This is the thing most company CEOs don't do because they're afraid they're going to end up losing and they want to be able to hide it, but I want you to hold us accountable. Here's how you would know. Cohort curves start looking like they did with the purple lines. They would start high, would have massive losses as we went through. Contracts would plateau at the low end of our range or below the low end of our range for a whole bunch of weeks and homes greater than 120 days in the market would go back to what we had in Q4. If those 3 things happen, if all those 3 things happen, then we're not doing what we said we would do, right? It's all about slope, acquisition, inventory health. That's the business. Those 3 things. Look, I don't think any of those 3 things are going to happen. I don't think all 3 of them are going to happen together because we believe we've built a model that works better. Faster is the key. We can't ignore the macro. We're not stupid, but it will never be our excuse. Good excuses don't make great companies, right? We control our own destiny. We don't need the market to recover. We don't need rates to fall. We don't need perfect conditions. We just need to keep moving more families faster and faster through a machine that's already working. So as I've said before, look, we're not asking you to take our word for it. We're just asking you to watch those 3 things that Christy talked about. Michael Judd: Great. The next question, Andrew L. asks, as you accelerate acquisition velocity, how are you ensuring that underwriting quality remains high and that you won't need to raise equity to fund this expansion? Christy Schwartz: Thank you for the question, Andrew. It's important to know that we're not accelerating acquisitions by driving like blunt spread compression. It is driven by a combination of tailored underwriting that allows us to give really compelling offers to high-quality homes, product expansion through our Cash Now, More Later product, geographic expansion and just conversion improvements realized from such things as making improvements to the offer page. While we've removed the requirement for an in-person visit from pre-contract to post contract, we still perform an in-person inspection before we purchase the home. This sequencing change helped remove friction from the contracting process, and it saved the cost of an in-person inspection for higher intent sellers. without compromising our understanding of the home we're about to acquire. But what I just described isn't proof that our underwriting quality remains intact and high. The proof is in the cohorts themselves. Our October, November, December and now January cohorts are each coming in with higher contribution margin, improved margin stability, increased resale velocity compared to their prior year cohorts. On the capital question, our cash position actually grew as we acquired more inventory, which reflects the underlying health of our inventory book. Younger homes with shorter days on market are structurally easier to finance, and we have sufficient warehouse capacity to more than keep up with our acquisition pace and plans. We also have warrant structures that provide additional capital optionality. To the extent any future capital decision is made, we expect to be opportunistic rather than necessary, and we will continue to evaluate the capital stack with an eye toward minimizing dilution. Kasra Nejatian: I say a couple of things here. Like first, there's a persistent myth that to move fast, you have to be sloppy. I just fundamentally reject this. Look, there was a rumor when I joined Opendoor that Opendoor was the best buyer of homes with foundation issues. Like whether or not that was true, it's definitely not true anymore. Today, we use AI to remove this toil we had accrued. We no longer have 11 people touching every single home so that one person that does touch it can actually do their job well, right? That's actually all I want to say about underwriting because I don't want to give away all of our secrets. But on the equity piece, let me add to what Christy said. I said it in my very first earnings calls, but I want to repeat it. I despite dilution. If we issue a share, it has only one job to make every other share worth more for our existing shareholders. We will never issue shares to extend the runway. That's not what we're going to do. The goal is for Opendoor to never be in a position where it has to raise money to survive. In the history of this company, it has raised way too much money. We're going to stop doing that. The discipline we need going forward is that we're going to fund this business from the cash flow we generate. I'm not interested in like building a company that needs a life graph every time. I'm interested in building a ship that actually floats, right? What Christy talked about isn't the best case scenario. It's the only way we were going to run this company. Michael Judd: Great. Our next question comes from Heejun C., who asks, I'm interested in your 4.99% mortgage promotion currently exclusive to Colorado. Are there plans to expand this offer to other regions or states soon? If so, please provide an estimated time line or a list of upcoming locations. Kasra Nejatian: Well, look, first of all, it wasn't a promotion. I want to be clear about that. That was the actual rate. We don't run rate connect here. We charge what the math allows us to charge, right? Look, mortgage is early right now. We're live in Colorado and loans are doing well without any optimization, right? Attach rates are above even my most optimistic expectations. And I'm not going to give you a launch calendar for every market, but we're in flight on licensing in about just over 20 states right now, and we expect to kind of roughly double that by the end of Q3, and we're rolling this out as fast as we can. But we've gotten some early feedback that I think is helpful. One of the customers told us that our rates blew the other lenders out of the water. And I want to talk about our math and why our rates below other lenders out of water, right? The math is simple. Big bank lenders take about 340 basis points in revenue per loan. Most of that is just a toil tax on the borrower, right? It pays for branch offices, loan officers, manual underwriting, paper shuffling, terrible ads and like expensive lunches. We've built an AI-native mortgage platform from day 1. No legacy system, no commission-driven sales force, right, as few humans as possible to get the job done. So we're not just discounting our way to a lower rate. We're actually building our way towards this. That structural advantage means that the regular mortgage on our homes will always be the lowest rate the customers can get, right? Today, our rates are running about 100 basis points below the market average. And that translates to about 10% to 15% lower mortgage rates per month. And that's the gap, right? Our job is to just chip away at this to make sure that we actually make housing affordable in this country. Michael Judd: Great. James M. on Say asks, tokenization of real estate? Kasra Nejatian: What's the question? That's the whole thing? Michael Judd: That's the question. Kasra Nejatian: Okay. Well, I think this is a question that gets asked frequently, and I have a rule of not announcing product launches before they're ready. I think the worst thing tech companies do is they make software for PowerPoint presentations, and that's just stocks, that's what makes people hate software companies. Opendoor exists to tilt the world in favor of homeowners, right? Simpler, faster, fairer, and you do that by reducing the friction tax. Like the embedded friction tax in the system today on a given transaction is a double-digit percentage of the home's value. And tokenization is an incredibly important way of reducing this. Here's like how I think about it. And it's important to be mindful of this. The patterns that we treat today as the natural order of things are usually just the last hack that someone installed on our machines, right? This is when Judd starts rolling his eyes. But it matters, so I'm going to talk about my favorite topic, history of money. Look, we went from barter to coinage to build an exchange to checks to ACH to SWIFT, right? And it really does feel like we're living in the future. But the entire system of money that we rely on runs on banks running COBOL software. This is a programming language from 1959. So the infrastructure powering our banking system that moves trillions of dollars is older than the moon landing. And we feel like we're in a stable place, but the people who were bartering also felt like they were in a stable place, right? These are not permanent solutions. None of them are permanent because of the following. They all require intermediaries between people to get anything done, right? That cannot be the end state. Onchain settlement is the first time in the history of money where you don't need permission from other people to move value between 2 parties. This isn't an incremental improvement. It's like an inevitable category end, right? And within our lifetime, we're going to see what it does and everything we do today will seem antiquated. And title is the same story. It's just about 100 years behind, right? Like animals mark their territory physically and humans mostly have done the same thing for most of history, right? The real innovation here was in Medieval England. We formalized this with a clot of dirt and some witnesses, and now we have some paperwork. All that has happened between then and now is that some of these are searchable on the Internet. That's the entire innovation that these paper records that live in courthouses are now searchable. Look, the fact that there is a lobbying group, defending the current way of doing things is the most reliable evidence that we'll do for the next thing. It's like the petition of the candle makers against the sun. When I look at the housing transaction, I find it really hard to imagine that title to the most expensive asset in our lifetime does not live on chain. It's hard to imagine that we have 3 transactions doing the same thing, Title, insurance, mortgage, and they all have data trapped in silos. These will all move on chain. Now look, I'm not announcing any of this today, but we are doing work that's on the green path to end. Our acquisition of Doma's escrow business is one example, right? We're taking the closing infrastructure of America, building checkout for real estate. And this is not tokenization, but it's clearly the step in the right direction. And in that world, title and mortgage and insurance, all of it can move on chain, and this all gets better. Operator: Thanks, Kaz. I can't wait for the TED Talk. Our next question comes to us from Dae Lee from JPMorgan. Kaz, you've now been leading Opendoor for over half a year and have had time to implement meaningful changes across the product and operations. As you reflect on the moves you've made, which specific change do you believe is having the most measurable impact on seller conversion rates and acquisition volumes today? And what does the data tell you about that's compounding across your markets? Looking ahead, where do you see the biggest opportunity to structurally drive more homes purchased per market without proportionately scaling OpEx? Kasra Nejatian: Dae, I want you to know that I noticed that was 2 questions. Let me answer them one at a time. On what's actually moving the numbers? Look, I don't think any single thing we shipped is moving anything by itself, but the real structure change in our system is, right? Like think about the classic sell me this pen story. The old Opendoor was the guy who would say, this pen is amazing. It's so smooth. It's lovely. The guy who would aggressively show up and give you one choice. Like that was the old cash offer world. We'd show at your door, give you one choice, say, yes or no. That's not how people transact, right? The new Opendoor starts by asking the customer what they want. What do they actually need? What are they worried about? How much cash they want upfront? What do they want later, what time line they want? Cash Now, More Later isn't a single offer. It actually allows the customer to change Opendoor's business logic so that it works for them, right? The new offer page also does the same thing. It is the digital equivalent of sitting down with someone and explain to them the realities of their neighborhood, their home instead of just flashing a headline number, right? We want the customer to have the full picture and make the right choice that is best for them, and we want to be helpful in that process. And most people think that in order to do that, you need a human at a kitchen table. I think that's just wrong. Most people just want the information themselves so they can decide for themselves what's best for themselves. That's the shift. That's driving the conversion improvement. We also used to believe we would need boots on the ground everywhere we had homes. I actually insisted on launching every state in the Lower 48 because I want to test this hypothesis. It turned out that if you have a good underwriting model, a good product and a good partner network, you can buy homes anywhere, like we closed a home in South Dakota this week, and we have 0 employees in South Dakota. So that actually helps a lot. And to your second question on OpEx, I mean, I think we've already answered a lot of this. But the same machine does both of these things, right? More offer types mean more sellers, more sellers per market means we can have more transactions without adding headcount city by city. But the big price, obviously, is the tens of millions of people who want to move who can't, right? Between supply and demand, there is friction, right? If you reduce friction, you move both supply and demand lines. I actually saw this every day at Shopify. We made entrepreneurship easier. Therefore, we created more entrepreneurs. The same dynamic is true in housing, right? As we make things easier in buying a house, selling a house, mortgage, title and eventually insurance, all of this will increase the demand and increase the supply. And none of this requires like significant incremental headcount. Now, look, now this works if the underlying engine isn't good, but I think we've shown you that we're no longer peanut buttering spread across cohorts. And we've shown you we have now 4 cohorts of data and Q1 was our largest contract quarter in years. The last time we had this many homes in contract, our fixed OpEx was twice as high. So I think that answers your second question. Michael Judd: Great. Andrew from Citizens is curious to help us understand a little bit more about seasonality kind of through the balance of the year. Christy Schwartz: I'm happy to provide some color on seasonality, and I'm sure Kaz will be happy to add something as well. Each quarter, we provide a series of macro charts, and those charts show a consistent pattern in every macro, strong macro, neutral macro, challenged macro, one thing remains the same, and it's the seasonal pattern. They present themselves year after year. Macro changes the level of the curve and seasonality is the shape of the curve. The selling season kicks off shortly after the Super Bowl, peaks in early summer, then tapers through fall and bottoms out in December. This affects our resale velocity, which is considered in our spreads and therefore, impacts our acquisition cadence. Days on market lengthens in the back half, margins compress in Q4. Our acquisition cadence runs inversely to market resale activity. We acquire less in late spring when we'll be selling into weaker demand, and we build inventory throughout the fall in anticipation of the spring selling season. You'll now see seasonality more reflected in our estimates on accountable.opendoor.com. We've updated our projected acquisition range with the shape easing through spring and summer and building through the fall. Kasra Nejatian: I will add something. Look, seasonality is just like gravity. It's like a rule of nature. You don't blame gravity and if you try to fight it, you tend to lose. We know how to fly planes. We don't do it by fighting gravity. We just build math to fly them, right? And while we can't flatten the curve entirely, we can collapse the impact over time, and that's what we're working on. Opendoor is like a retail like Walmart, like Home Depot, like Amazon, like Shopify, these retailers have known seasonality, but obviously, Q4 is a better quarter for them because of Christmas. And Q1 numbers are always lower than Q4. But no one would argue that Walmart's strategy has failed because January sales were lower than December sales. That would just be insane. The shape is just like the shape. The same general seasonal shape that shows up in housing in 2021 when the market was on fire, in 2022 when the rates spiked and in 2025, when delistings like hit record highs, that's the shape, the different macro environments, but the same calendar like since Pope Gregory invented it, I guess. Opendoor knows more about the shape of the curve than almost anyone else in the world, and we shape our underwriting engine around it, right? We underwrite homes based on when we plan to sell them. That's what our underwriting engine does. And I think it is working better and better every day. Look, I want to end this answer with what I said earlier. We committed to being ANI profitable on a go-forward 12-month basis at the end of this year. Hard macro or not, we will do that. Our floor model assumes this hard macro will continue. If there's an interest rate cut or the macro improves, our floor will be higher. So I think we're running out of time. So let me just close with this okay. Look, we're not asking you to believe in vibe here. We're asking you to watch the scoreboard, the cohort slope, acquisition contracts, inventory health. That's it. Those are the tells, right? If we keep moving the way we moved this quarter, then the machine is doing exactly what we said it would do. The market didn't bail us out here. Rates didn't save us. The team just did the work. They rebuilt the company's operating system. They shipped products. They cleaned up the book. They grew contracts, and they did it way more efficiently than anyone thought we could do it. That doesn't just give me optimism. It gives me confidence. we will have a lot left to prove, and we always will. When we reach profitability, the next part is how much? It just won't stop, right? We're going to keep shipping. We're going to keep showing you the data, and we're going to keep moving faster because families matter. Okay. That's it. Thank you. Thank you, and see you all next quarter.