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Operator: Good afternoon, and welcome to the MannKind Corporation First Quarter 2026 Financial Results Earnings Call. As a reminder, this call is being recorded on 05/06/2026 and will be available for replay on the MannKind Corporation website shortly after this call for approximately 90 days. This call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from these expectations. For further information on the company's risk factors, please see the Form 10-Q for the period ended 03/31/2026, the earnings release, and the slides prepared for this presentation. Joining us today from MannKind Corporation are Chief Executive Officer, Michael E. Castagna, and Chief Financial Officer, Christopher B. Prentiss. I would now like to turn the conference over to Michael E. Castagna. Please go ahead, sir. Michael E. Castagna: Thanks, operator, and good afternoon, everyone. Thank you for joining us for our Q1 2026 earnings call. Here is today's agenda, and I will start with some opening remarks. In the first quarter, we continued to execute our strategy to evolve MannKind Corporation into a diversified company positioned to deliver sustained long-term growth. The company is fundamentally different than it was even a few years ago, and we are excited about the near-term milestones that will further advance the company's evolution. Today, we will discuss the recent positive developments with United Therapeutics and articulate our growth plans that we expect will drive significant shareholder value over the coming years. Let's begin with our announcement earlier today that MNKD-1501 has been unveiled as ralinepag DPI, which United Therapeutics optioned back in August. Our formulation team has been moving ralinepag DPI forward expeditiously, and we recently received a $5 million payment to prioritize the continued rapid advancement of this program. We have the potential to receive up to $35 million in development milestones plus a 10% royalty on net sales. Of those milestones, we expect about $15 million to be earned over the next 12 months. This expanded collaboration is significant for a few reasons. First, it deepens an already productive partnership with United Therapeutics. Second, ralinepag DPI has the potential to be used across pulmonary arterial hypertension, pulmonary hypertension associated with interstitial lung disease, idiopathic pulmonary fibrosis, and progressive pulmonary fibrosis, collectively impacting more than 250 thousand patients and representing a substantial opportunity to improve outcomes across these conditions. Third, it continues to validate our unique Technosphere platform. In addition to ralinepag DPI, we have also confirmed MannKind Corporation as the sole manufacturer of Tyvaso DPI under a supply agreement that includes contractual minimums. This provides us with a solid foundation as we continue to scale our Danbury, Connecticut facility for our own pipeline, including a manufacturing buildout to support the growth of FURO6 ReadyFlow. Now let's move on to Q1 performance. We delivered quarterly revenues of $90 million, a 15% increase over the prior year, as this now includes the addition of FURO6. Q1 was a challenging quarter for several reasons. Number one is structural. Each year, Q1 typically declines relative to Q4 due to annual deductible resets. As patients face higher out-of-pocket costs at the start of the year, we see both fewer fills and lower doses per prescription. For FURO6, doses per prescription were down roughly 20% in Q1 compared to Q4. Number two is transitional. As we prepared for our upcoming launches of Afrezza Pediatrics and the FURO6 ReadyFlow auto-injector, we reorganized field teams, leading to customer disruptions in Q1 as we did not want to disrupt the field in Q4 or the upcoming next two quarters given the potential launches. Additionally, we reallocated marketing resources away from Afrezza adult, which slowed the growth year over year as we thought it would be more prudent to shift these investments toward the pediatric Afrezza launch and FURO6 nephrology opportunity. We have made the adjustments, and the field teams in place today are talented, highly experienced in their therapeutic areas, and have the right resources to deliver quarterly growth over the balance of the year. Number three, as we prepare for the launch in Q3 of the auto-injector, we want to ensure an efficient conversion. We transitioned our inventory levels to minimize volatility and inventory stocking of the current on-body infuser at the specialty pharmacies. As this adjustment is now behind us, we expect future product outflows to better reflect underlying prescriber demand, which will help us accelerate the transition upon FDA approval. When you put these three things together, Q1 came in lighter on the revenue side, but even so, the underlying indicators were more encouraging than the top line may suggest. We saw growth in both overall writers and repeat writers of FURO6, hitting a record number of prescribers in Q1, and demand momentum improved as the quarter progressed. Doses dispensed are up nearly 60% through April compared to the same period last year. Chris will walk through the quarter in more detail. We are confident the underlying business is moving in the right direction, and we remain on track to meet our full-year 2026 FURO6 revenue target of $110 million to $120 million. Now let's walk through the Q1 highlights. The FDA approved the updated Afrezza label, which now provides clear starting dose guidance. That is an important enabler for the pediatric launch as this was the dosing used for the pivotal trial. We have also completed our launch buildout for Afrezza Pediatrics ahead of the May 29 PDUFA date. We completed the pilot phase enrollment in our Inhale First pediatric trial evaluating Afrezza in youth with newly diagnosed type 1 diabetes. That is the long-term goal I have talked about for years. Additionally, we settled the convertible notes, which strengthens the balance sheet. Finally, on the SC Pharma integration, we are now approximately seven months post-close, and I am very pleased with how the integration has progressed. For most functions, integration is substantially complete, and we have identified synergies that exceeded our $20 million annual target we previously set. I want to thank both teams for the way they came together. These integrations are always challenging, and ours is going exceptionally well. Now I will take a step back to talk about strategic evolution because this tells a really important story. Until 2022, we were essentially a single-product company with Afrezza. Since then, United Therapeutics and Tyvaso DPI specifically have played a critical role in funding our transformation, including enabling the SC Pharma acquisition last year. With that acquisition, we added FURO6, which brought an incredible team with deep cardiology experience. That has expanded our portfolio and our commercial infrastructure in a meaningful way. As we look at 2026 and beyond, we are now a diversified cardiometabolic and orphan lung company with multiple FDA-approved products, two near-term regulatory catalysts, and a potentially transformative pipeline opportunity with inhaled nintedanib DPI advancing into Phase 2. The United Therapeutics partnership will remain a reliable pillar of the business, providing stability and significant growth potential. It also gives us flexibility to advance the pipeline, reduce debt, and pursue business development opportunities. But the MannKind Corporation story is increasingly about the products and development candidates we own and the brands we are building for the long term. Turning to the major catalysts for 2026 and beyond, we have two regulatory catalysts and one clinical catalyst stacked up in a narrow window over the next three to four months. First is the Afrezza pediatric indication. If approved, Afrezza will be the first and only needle-free mealtime option for children and adolescents in more than a century and would address a long-standing unmet need with a highly differentiated value proposition. Importantly, this opportunity compounds over time as adolescents initiate therapy early and continue into adulthood, supporting durable long-term growth for the brand. Second is the FURO6 ReadyFlow auto-injector. If approved, this changes the administration profile for FURO6 from several hours to just seconds, which has real implications for patient convenience, training, and widespread adoption. It supports broader use and would significantly reduce our cost of goods. Third is the MNKD-201 nintedanib DPI program. There remains an urgent need for more effective therapies in IPF. Current options are limited by tolerability. Our lung-targeted delivery approach is designed to address those barriers, and we are on track to report Phase 1b top-line data in the third quarter, a key clinical de-risking step. In parallel, we are advancing MNKD-201 into a global Phase 2 trial this quarter. Each of these catalysts will be significant on its own. Having all three in a single calendar year is a powerful testament to our progress and execution over the last ten years. Together, these milestones strengthen our foundation and position us to potentially deliver meaningful growth in the years ahead. We have two near-term regulatory events, a growing commercial business, a strong revenue base from United Therapeutics, and a pipeline approaching important data milestones. Now let us go deeper on the upcoming commercial expansion opportunities for our products, starting with Afrezza. The pediatric opportunity is a well-defined new population entry point with the ability to expand across even broader populations over time. There are roughly 360 thousand people between 8 and 22 years old living with type 1 diabetes in the U.S., with about 30 thousand newly diagnosed each year. While our launch focus is type 1 in children and adolescents, when you look at the broader picture where Afrezza is already indicated, the long-term opportunity for inhaled insulin is significant with over 38 million patients that we are indicated for today. The pediatric opportunity is one of the most important for Afrezza since its initial approval, and our extensive research highlights why. Despite decades of technology and drug innovation in diabetes, A1c control is still not meeting goals, largely because of mealtime challenges that exist in the everyday life of patients. Afrezza is the solution. After more than a decade on the market, Afrezza is poised to finally live up to its potential. Managing mealtime insulin in children and adolescents often means multiple daily injections, rigid meal timing, and significant burden on both parents and caregivers. Afrezza directly addresses those challenges by eliminating mealtime injections through a novel route of administration, providing greater flexibility around meals, and easier timing for kids. When you think about what it means for a child with type 1 diabetes to not have to take a shot at lunch or wear a pump while playing sports, or count carbs at a birthday party or even forgo the cake, that is a really big deal to the average life of a child. This is a therapy backed by more than a decade of real-world data and now a completed Phase 3 pediatric trial. The American Diabetes Association now positions inhaled insulin as an equivalent option to multiple daily injections and insulin pumps including AID in their guidelines. This guideline support puts Afrezza on equal footing with the standards of care, a significant milestone that recently happened. The evidence base has never been stronger. Families and physicians continue to highlight the significant daily burden of diabetes management and are telling us that Afrezza has the potential to fundamentally change that experience. With peak share potential in the range of 23% to 37%, and each 10% share representing approximately $150 million in net revenue, the opportunity is significant and will continue to compound over the coming years. Pediatric represents a fundamentally different dynamic. As we look at our key areas at launch, we are continuing to be very disciplined. We are directly addressing the mealtime challenge for about 35% of patients who have real friction with insulin and mealtime today, compounded by the fact that 25% to 35% intentionally miss their mealtime injections or pump boluses. We are engaging consumers through highly targeted outreach—about 93% of families are motivated to speak to their HCP to request a change in the child's diabetes management, so patient requests matter. We are targeting roughly 60-plus prioritized academic medical centers with about 20 key account managers, where the highest-volume pediatric prescribers are. In parallel, the broader Afrezza sales team extends coverage by engaging community-based healthcare providers as well as these academic centers to ensure comprehensive reach and frequency at launch. We are enhancing the customer experience through ease of access, with commercial or Medicaid patients able to get on Afrezza for $35 or less. In parallel, we have engaged in a number of payer discussions to ensure formularies are positioned to support the pediatric launch, and we are seeing receptivity to expand access for children and adolescents as we approach approval. The pediatric approval for Afrezza offers the brand a new beginning—new patients, eager physicians, and a clear unmet need. If approved, we are ready to launch. Let us turn our attention to FURO6. As we look at the addressable opportunity, there are roughly 700 thousand fluid overload events we can address outside the hospital setting. There are multiple intervention points along the patient journey. Since launch, we were historically targeting when fluid first presented at home and oral diuretics were not enough. We are moving to address the post-discharge setting; it can impact length of stay and 30-day readmissions. With the FURO6 ReadyFlow, we believe we can unlock several additional intervention points both earlier and later in the treatment paradigm, where FURO6 logistics can break this cycle of admissions and readmissions. Next, let us talk about the ReadyFlow auto-injector and why we are so excited about it. We consistently hear from HCPs that the current FURO6 on-body infuser, while effective, can be a barrier to adoption in certain patient segments. With the PDUFA date of July 26, if the ReadyFlow auto-injector is approved, it will reduce the administration time of FURO6 from five hours to just seconds. That could broaden use among prescribers who have been more selective with the current presentation. Our research also supports this: 65% of HCPs anticipate they would expand their FURO6 use with the ReadyFlow auto-injector. Patients are already familiar with the auto-injector delivery format through other therapies. It is a simple, reliable delivery system with minimal training required. It has comparable efficacy and safety to IV and the current on-body infuser. The auto-injector allows earlier intervention and enhances patient independence because there is less hesitancy to use it. Importantly, the ReadyFlow auto-injector would significantly reduce our cost of goods, which improves our margins and frees up capital to reinvest. On FURO6 ReadyFlow launch readiness, we are building from a position of strength. To support the launch, we have identified four key tactics. Number one, approximately 60% of FURO6 patients require prior authorizations today, so simplifying access and reducing friction in the onboarding process is critical to ensuring patients can start therapy without delay. Based on recent payer conversations, they are receptive to removing access hurdles given the overall cost benefits of FURO6 and reducing the number of patients going into the ER related to fluid overload. Number two, from an adoption standpoint, our market research is encouraging. Roughly 85% of existing FURO6 patients are expected to convert to the ReadyFlow auto-injector, reflecting strong confidence in the ReadyFlow profile. In addition, 65% of healthcare providers anticipate expanding their use as they have earlier and more productive intervention. Number three, we have a clear focus on accelerating time to patient start. We are exploring alternative distribution partners that will improve our ability to get FURO6 in the hands of the patient the same day. Lastly, we have deployed our key account manager team to deepen integrated delivery network relationships and get FURO6 integrated into hospital discharge protocols. That is where the post-discharge intervention opportunity lives. It is where we believe we can make the most meaningful difference in reducing hospital readmissions. We have prioritized more than 60 key accounts supported by the entire sales force, in addition to our newly established key account managers who completed training in March. This approach should drive consistent uptake and appropriate utilization, which we expect will accelerate in the second half. Taken together, these tactics position ReadyFlow for rapid adoption by accelerating patient starts, establishing earlier use in the treatment pathway, and ensuring focused, disciplined execution across the accounts that matter most. Moving on now to the nintedanib DPI, our MNKD-201 program. IPF is a devastating disease. These patients cough up to a thousand times per day, and with the poor tolerability of current treatments, their quality of life is significantly compromised. Eight out of ten patients die from this disease within five years, and many would rather forgo treatment than endure the side effects of today's standards of care. Our approach is to bypass the GI tract through targeted pulmonary delivery. The Technosphere platform is a proven platform. We have two FDA-approved products with less than a 3% discontinuation rate due to instances of cough and demonstrated safety and tolerability in patients with underlying lung disease. So when you combine a proven molecule like nintedanib with direct lung targeting and consider our Phase 1 volunteer observations showing no GI tolerability issues and our Phase 1b in actual IPF patients showing no discontinuations due to cough or serious adverse events in the first 12 patients, we have strong confidence in the potential to improve tolerability while maintaining or potentially enhancing efficacy. Onto our MNKD-201 program updates. We have completed enrollment of Cohort 1 in our Phase 1b INFLow study, which is in active IPF patients. Our top-line data are expected to be shared during Q3. That is a key de-risking point as we generate safety and tolerability data in these patients. Simultaneously, we are initiating enrollment in our global Phase 2 study now that we have received our first country approval. We are advancing both programs in parallel to accelerate data generation and development timelines. Here are the key things that differentiate MNKD-201: a two-second inhalation, a proven delivery platform with no cleaning required, and the potential to dramatically reduce side effects while meeting or beating the efficacy of oral nintedanib. Each step further de-risks a program that we believe has tremendous potential to target a disease with limited treatment options. Taken together, our inhaled nintedanib DPI program, along with United Therapeutics’ Tyvaso DPI and ralinepag DPI, gives us three differentiated shots on goal in IPF. Importantly, nintedanib DPI is not only well positioned to serve as the backbone of therapy, but also opens the door to combination use alongside other current and emerging IPF therapies, which is increasingly how we expect this market to evolve. Together, these programs reinforce the potential for inhaled delivery to improve tolerability and play a central role in redefining how IPF is treated. Before I turn it over to Chris, I want to highlight some of the key upcoming scientific conferences we will be at, including the Respiratory Innovation Summit where we have a small presentation at ATS, the American Diabetes Association where we have almost 10 presentations at the Scientific Sessions, and the American Association of Heart Failure Nurses in San Diego in late June. These are exciting times with lots of data dissemination and hopefully upcoming FDA approvals. I will now turn it over to Chris to review our first quarter 2026 financial results. Thanks, Chris, and good afternoon, everyone. Christopher B. Prentiss: For a summary of our financials, please review our press release issued before this call and our Form 10-Q, which is now on file with the SEC. Let us start with FURO6. For Q1 2026, FURO6 net sales were $15.5 million. As a reminder, the acquisition closed on October 7, and only post-acquisition results are included in MannKind Corporation financials. Underneath the revenue number, the demand metrics for the brand remain strong. We had a record number of writers in the first quarter, and 75% of those writers are repeat writers, which is a really good signal. Doses dispensed grew 64% year over year, and our IDN business grew 97% year over year, reflecting the early traction of our key account manager team. If you look at 2025, approximately 14% of annual volumes were generated in Q1. If you apply this to our Q1 units dispensed, we remain on track to achieve our annual target and are reaffirming our 2026 FURO6 revenue range of $110 million to $120 million. Turning to Afrezza global sales, Q1 2026 net sales were $15.3 million, up 3% year over year. As we discussed earlier, we have shifted our marketing efforts toward our two anticipated launches this year and transitioned nephrology sales responsibility to the legacy Afrezza sales team. As expected with a new call point, this created some near-term disruption, which we expect to improve steadily over the remainder of 2026. Tyvaso DPI-related revenues provide a durable revenue base. Our collaboration services revenue is driven primarily by manufacturing revenue based on volumes sold through to United Therapeutics plus the recognition of deferred revenue. For the quarter, CNS revenue was $23.5 million compared to $29.4 million for the prior-year quarter. As we have noted previously, this revenue stream may fluctuate between periods depending on production scheduling at our Danbury facility across Afrezza, development programs, and Tyvaso DPI. However, it is important to note that the amendment to our Tyvaso DPI supply agreement we signed earlier this quarter established annual minimum quantities, effectively fixing our annual manufacturing revenue for Tyvaso DPI. As a result, period-to-period fluctuations are driven primarily by manufacturing planning and scheduling requirements, and to a lesser extent by the timing of revenue recognition from other collaboration activities. One such collaboration is our development of ralinepag DPI with United Therapeutics. We recently received $5 million to accelerate its development. We will begin to recognize this in Q2. An additional $35 million of development milestones remain, of which we expect to earn $15 million over the next 12 months. Q1 2026 royalties reflect year-over-year growth of 9% to $32.7 million. In 2026, royalty revenue will support key capital priorities including funding the March retirement of our senior convertible notes, our CVR obligations, and our pipeline programs. Turning to the bottom line, for Q1 2026, we reported a GAAP net loss of $16.6 million, or $0.05 per share. On a non-GAAP basis, we reported a net loss of $6.9 million, or $0.02 per share. For comparison, in Q1 2025, we reported GAAP net income of $13.2 million, or $0.04 per share, and non-GAAP net income of $21.6 million, or $0.07 per share. The year-over-year change reflects the planned increase in commercial spend associated with the potential FURO6 ReadyFlow auto-injector and Afrezza pediatrics launches, as well as the incremental cost structure associated with the SC Pharma acquisition, including amortization of acquired intangible assets, which is non-cash. For the full details on non-GAAP adjustments, please refer to our press release and 10-Q filing. On the expense side, R&D expenses increased over the prior-year period, driven by ongoing enrollment in the Phase 1b study and preparations to begin enrollment for the Phase 2 study of MNKD-201. We expect R&D spending to remain at this level as we advance the MNKD-201 program, as well as our pipeline programs such as our inhaled bumetanide program MNKD-701. Selling, general, and administrative expenses increased compared to the prior-year quarter, primarily driven by the expanded commercial infrastructure supporting the anticipated pediatric Afrezza and ReadyFlow auto-injector launches, as well as the full-quarter impact of the SC Pharma commercial team and operating structure. Having two PDUFAs within months of each other is unusual for a company of our size and makes 2026 a deliberate investment year. We are investing to ensure both potential launches are properly supported across the field and in promotion, which is reflected in SG&A this quarter. Going forward, we will continue to evaluate commercial performance and adjust investment levels with discipline as we execute on these launches. Turning to our balance sheet, we ended Q1 with a solid liquidity position after settling the remaining balance of our senior convertible notes. We believe we have sufficient capital to support our planned commercial launches and continue advancing our pipeline. In addition, our credit facility provides financial flexibility if needed, and we remain focused on deploying capital in a manner that maximizes long-term value for our shareholders. Before I turn it back over to Mike, I want to mention that we will be at the Jefferies Global Healthcare Conference in New York in June. We look forward to engaging with many of you there. With that, I will turn the call back over to Mike. Michael E. Castagna: Thank you, Chris. Let me close by summarizing why we believe MannKind Corporation is well positioned for the next phase of growth. Number one, as we look at the remainder of 2026, we are in the middle of a meaningful corporate transformation. Since 2022, we have evolved from a single-product company into one with multiple FDA-approved products and a more diversified growth profile. United Therapeutics revenue continues to provide a strong foundation while our revenue mix is shifting steadily toward MannKind-owned brands, with owned revenue moving from roughly 40% just prior to the SC acquisition to over 65% with the anticipated FDA approvals as we exit 2026. That represents a fundamentally different company than the one we experienced a few quarters ago. Number two is FURO6. We have a clear line of sight to achieving our $110 million to $120 million revenue range for 2026. The ReadyFlow auto-injector, pending its July 26 PDUFA date, represents a meaningful opportunity to extend and accelerate the brand's growth trajectory. The fact that 65% of healthcare providers indicate they would expand their use with the FURO6 ReadyFlow auto-injector reinforces our confidence in its potential. Number three is Afrezza. A pediatric approval would unlock a significant growth opportunity and represent the most important milestone since the approval of Afrezza in 2014. Pediatric demand indicators are strong, the value proposition is clear, and we are launch ready with disciplined, targeted investment. If approved, our team is ready to execute. Number four is our partnership with United Therapeutics. The Tyvaso DPI franchise continues to deliver durable economics with the potential for expansion into IPF, and ralinepag DPI extends the partnership into multiple indications, reinforcing both the strategic depth and long-term value of this relationship. Number five is nintedanib DPI. Completion of the Phase 1b in IPF patients—where we expect top-line data in Q3—and first patient enrollment in the global Phase 2 program this quarter represent important de-risking milestones and position this asset as the next meaningful pipeline value driver. When we put all these together—a durable revenue base from United Therapeutics, two near-term regulatory catalysts, and a pipeline with meaningful upside—our priorities are clear, our team is focused, and MannKind Corporation is poised to capitalize on some of the most fundamental and transformational moments in the history of the company. We will now open the call for questions. Operator: Thank you. At this time, if you would like to ask a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk. Then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait one moment to allow the queue to form. Our first question will come from Roanna Clarissa Ruiz with Leerink Partners. You may now unmute your audio and ask your question. Roanna Clarissa Ruiz: Great. Good afternoon, everyone. A couple from me. I will start off with ralinepag DPI and get a little bit more context. How long have you been working on it, and what additional formulation work do you think needs to be done from here to go from the oral ralinepag to an inhaled version? Any gating factors you might expect as you are working through this? Michael E. Castagna: Thank you, Roanna. Before I start, I just want to apologize to everyone for the technical difficulties we had and the length of the call. We will get to Q&A, but I just want to apologize. On ralinepag DPI, we have been working on this since we announced the agreement back in August. It takes a while to onboard powders and API. All that has been moving very smoothly. We had a bunch of prototype powders; we have selected some leading ones, and they are moving forward. There is always some fine-tuning as you go through manufacturing, but overall we are moving full scale ahead on United Therapeutics’ timelines. Roanna Clarissa Ruiz: Okay, great. And then I wanted to ask about the nintedanib DPI program as well. Now you have a few different shots on goal in IPF, with ralinepag DPI, etc. How are you thinking about these products evolving in the landscape given their different active ingredients, and any physician feedback you have heard so far? Michael E. Castagna: We believe there will be combination use going forward. We know the current orals have overlapping toxicities and the data in combination have not always looked that positive. But if you look at the TETON data 1 and 2, the combination of treprostinil and nintedanib looked very strong, and we know pirfenidone is a little bit weaker of an agent, so we see a bigger gap there. In general, I would see an evolution of a combination market. That is one of the reasons we are running a QID arm in our Phase 2, so that if you were on QID Tyvaso DPI or Tyvaso nebulizer, you could look at a QID nintedanib DPI as well. We are hoping to show in that trial whether using 4 mg twice a day or 2 mg four times a day, outcomes are comparable. If one is better, that is great and we will lead with that. That is one of the things we are exploring in Phase 2. Roanna Clarissa Ruiz: Great. Last one for me on FURO6. Any extra color on trends you saw in the quarter? You reiterated your guide, which is encouraging, but anything interesting you are watching for in the next couple of quarters in terms of underlying demand? Michael E. Castagna: First, we know two competitors launched last October. We are keeping an eye on that, but not much activity—maybe 40 to 50 scripts since launch, so nothing of significance. We did hear anecdotal reports of people switching back; some had tried the nasal and may not have gotten the efficacy they wanted and went back to FURO6. That is an early indicator of patient or physician satisfaction for us, which makes us more confident as we go forward. On the FURO6 side, new prescribers looked great, nephrology picked up a lot in March as we closed out the quarter. We think the transition of the sales force caused a pretty big disruption in January and February. As they get relationships re-established, lunches on calendars, and dinner events now taking place, we think nephrology will continue to accelerate throughout the year. Overall, especially with the auto-injector, FURO6 should grow a lot faster in Q3 and Q4. Looking at volume, the percent of units that shipped in Q1 last year versus Q1 this year gets you close to our reported number. Q1 co-pay resets are a headwind; we heard the same from other companies. March and April pick back up, which gives us confidence for the rest of the year. We feel pretty good, and all the feedback and anecdotal evidence we hear for FURO6 is very positive. Operator: Our next question comes from Wells Fargo. Please go ahead with your question. Analyst: Hey, good evening, and thank you. I also wanted to ask about ralinepag DPI that was disclosed this morning. Going back to what you were saying a minute ago, how far along in the process are you, and what gives you confidence that you can actually formulate this as a DPI? I believe there is also discussion in the disclosure that once-daily is on the table. What is the confidence around that as well? Michael E. Castagna: I cannot comment on the pharmacokinetics; I will defer to United Therapeutics and their modeling and all the work they have done and what they know about ralinepag. We will not know the real answer until we get into humans and see the pharmacology. Hypothetically, what they believe is probably the best we have today. In terms of my confidence, I feel pretty confident we have a lead powder that can go forward into animal and human trials now. The amount of powder we have to make for those things is not very significant, so that is ahead of schedule. United Therapeutics has done an excellent job moving this as quickly as humanly possible, and we are doing our best to keep up and stay ahead of them. Overall, there is a lot of energy to accelerate this as quickly as possible, and I think there will be good updates throughout this year and next year. Analyst: Excellent. On the two PDUFAs coming up—Afrezza pediatrics and FURO6—assuming both are approved, how soon after those approvals would you anticipate seeing the adoption curves impacted? Michael E. Castagna: On pediatrics, the approval should come the week before the American Diabetes Association meeting. If that timeline holds, it would be ideal because we have nine or 10 presentations and posters, as well as an evening event at ADA. That will be a good blast-off, not just for the U.S., but also internationally. We plan a staged rollout across the first 30, 60, 90 days to get into the top 10 to 15 institutions, set up best practices, and then expand. We are updating the reimbursement hub and leveraging the FURO6 hub model for a more white-glove service. We should see a little impact in Q2, but we will be watching Q3 and the summer closely. On the Inhale First trial, the first nine or 10 patients’ anecdotal feedback is really positive; first-insulin use in newly diagnosed children could be a game-changer if that continues. On FURO6, with a July 26 PDUFA, we expect launching in August. We would see a little impact in Q3 and a fuller impact in Q4. That one should go faster given the acute-use dynamic. Operator: Our next question will come from Cantor Fitzgerald. Please go ahead with your question. Analyst: Hey, this is Sam on for Olivia. Piggybacking on FURO6 questions, it is encouraging you are still confident hitting $110 million to $120 million in sales this year. Is that including both the on-body and the auto-injector? You mentioned weighting more toward Q3 and Q4. Is that due to the potential approval of the auto-injector, and do you expect the auto-injector to cannibalize the on-body infuser quickly? Michael E. Castagna: The forecast for the year basically looks at how units came out in 2025 and proportionately how demand curves look today; they are consistent with 2025. The auto-injector is a small portion of that range, not the reason we expect to hit $110 million. The on-body infuser should be able to get us in that direction, and the auto-injector will bring it there faster. Timing of launch and speed of rollout will determine the incremental. One challenge in the first half is we do not have samples this year as we prepare for the auto-injector and manage inventory. We are gearing up to sample the auto-injector to drive faster adoption. Operator: Our next question will come from Truist Securities. Please go ahead with your question. Analyst: Hi, it is Dinesh on for Greg. Congrats on the progress. One on the ralinepag DPI update: can you remind us on the relative positioning of prostacyclins and treprostinil-based drugs in PAH—patient applicability and physician choice—and how that frames your view on commercial and royalty opportunities to MannKind Corporation via United Therapeutics? Michael E. Castagna: It is a little early to speculate. United Therapeutics has Tyvaso DPI and Tyvaso nebulizer. Over the next two to three years, the major focus will be continued penetration, including IPF for the DPI scenario. Tyvaso should be a growth driver. As ralinepag launches, that probably goes earlier due to convenience, but that is United Therapeutics’ positioning and expertise. On IPF, you heard in United Therapeutics’ call that ralinepag DPI will be the predominant formulation in that development program, so we expect that to become the dominant driver overall for IPF. Operator: Our next question will come from Brandon Richard Folkes with H.C. Wainwright. Please unmute your line and ask your question. Brandon Richard Folkes: Thanks for taking my question. On Afrezza pediatrics, do you have to do anything on the contracting side post-label expansion, or does that fall into current coverage contracts? Secondly, how will you assess success of the pediatrics ramp early on, and what objectives would drive you to invest further versus keep investment where it is or pull back? Michael E. Castagna: Because it will be the same SKUs, we do not have to add another SKU to contracts, so no fundamental updates there. We have presented to large PBMs and some regionals, and we are exploring freeing up prior authorizations and simplifying access for pediatrics. There is appetite to reduce friction for kids. We are making sure Medicaid access exists and the big three PBM commercial lives have access. It will not all happen July 1, but through the year and into January next year, we expect updated clinical guidelines at most payers to support Afrezza use—even in adults—because ADA guidelines put Afrezza equal to AID systems and multiple daily injections. Step edits that put Afrezza behind those are now against standards of care, so we expect payer criteria to update in a positive way heading into 2027. In terms of pediatric success, the key metrics are breadth and depth of prescribing rather than early revenue: number of prescribers, number of institutions initiating and repeating use, and patient referrals into our hub. We will share those in the quarters ahead. We will have access programs to ensure payer friction is not a reason to avoid prescribing. We have also decided our 20 key account managers will be supported with local coverage to help with reach and frequency at launch. Operator: Next question will come from Yun Zhong with Wedbush. Please unmute your line and ask your question. Yun Zhong: Hi, good afternoon. Questions on the MNKD-201 program. It is encouraging to hear good safety and tolerability with no discontinuations. Given you will enroll the first patient in Phase 2 in Q2 without waiting for Phase 1b top-line in Q3, do you plan to confirm anything else besides safety and tolerability from the Phase 1 study? Also, United Therapeutics discussed a bridging study for Tyvaso DPI for IPF starting with healthy volunteers and then patients. Do you expect any impact on patient enrollment and your overall program? Lastly, including ralinepag, there will likely be three DPI products for IPF. Do you envision patients taking different inhalations with the same DPI, or is co-formulation reasonable to improve convenience? Michael E. Castagna: Several questions. On MNKD-201, we did a Phase 1a last year with healthy volunteers, particularly looking at cough-related incidents, FEV1, FVC, and GI side effects like diarrhea. We can confirm cough was not a major concern and GI side effects did not occur even at the highest doses, which gave us confidence. On FEV1 and FVC, there were no significant issues beyond expected variability. In the 1b study, we are in IPF patients, taking a stepwise approach to show you can dose a dry powder inhalation safely and effectively. After the first 12 patients at 2 mg TID (about 30 mg powder to deliver 6 mg nintedanib), tolerability, cough, and discontinuations presented no concerns. That cohort is now closed. The DSMB will meet next week, and hopefully post-meeting we will open Cohort 2. We are already screening and expect to enroll that faster and have top-line in Q3. That top-line will likely show that 8 mg BID versus 2 mg QID does not show a meaningful difference in tolerability or cough, which helps wrap up questions as we expand Phase 2. On Tyvaso DPI bridging, remember United Therapeutics is focused on Tyvaso DPI for the U.S. market in IPF. Our Phase 2 is, as of today, 100% ex-U.S. We are considering adding a few U.S. sites pending additional FDA steps. We have submitted the protocol to FDA and received comments, so we know what it would take. We are focused on accelerating European and other ex-U.S. enrollment, including Canada and Australia, to minimize any potential impact from Tyvaso’s IPF acceleration in the U.S. On co-formulation, our technology, given dose sizes and the common excipient, has potential for fixed-dose combinations. I have worked on fixed-dose combos previously. First we need to confirm dosing regimens are tolerable, which is the first step for any fixed-dose combo, and then you need two parties willing to come together. Stay tuned, but we are all moving in the same direction to help patients live longer, healthier lives versus today. Operator: Our next question will come from Mizuho Financial Group. Please go ahead with your question. Anthony Charles Petrone: [inaudible] Michael E. Castagna: Okay, may have dropped. Operator: Our next question will come from RBC Capital Markets. Please go ahead with your question. Analyst: Good afternoon, Michael. On discharge protocols and integrating FURO6 into the 60 key accounts, can you walk us through the process to open those accounts or have changes made to discharge protocols, and how long they may take? And a second one on Afrezza: of the 60 priority accounts, what would they represent in terms of your targeted market share of 23% to 37%? Over 50%? Can you fine tune that? Michael E. Castagna: They take time. If this were fast, we would be blowing out numbers now. Think six to 15 months, not three months. Every health system is different. I have met with several at the C-suite level, cardiac surgery, and discharge quality teams. Consistently, there are patient navigators responsible for 30-day readmissions. You need to engage quality, pharmacy, get local contracts set up, and get adoption into protocols—that all takes time. Cleveland Clinic is already doing it. Kaiser is running a large experiment in Northern California that looks promising. We expect trial results later this year looking at early discharge by a day or two, which is the type of data people want. Other clinics focus on ensuring patients leave with FURO6 so they are not coming back within 30 days. It is a hodgepodge of systems. As we find commonalities, we will get those across the finish line. Cleveland Clinic shares their protocol with other customers, which is great. On your Afrezza question, I would estimate roughly 75% to 80% of the target opportunity is concentrated in those key accounts. About 20% of patients fall in the community setting and 80% in the key account setting. It is very concentrated. Operator: Final question comes from Mizuho Financial Group. Please go ahead and ask your question. Anthony Charles Petrone: Thanks a lot. On FURO6 and the July 26 PDUFA date, are you expecting a panel meeting on the auto-injector? As a follow-up, FURO6 is moving from a hospital or infusion clinic five-hour infusion to under 10 seconds at home. What does that transition look like? How long to get adopted in the home, and what level of patient training is needed? It seems pretty seamless and a game-changer—just trying to frame the transition. Michael E. Castagna: We do not expect a panel. We have had various information requests from FDA—nothing that looks like a showstopper. We believe we are on track for that PDUFA date and are working on labeling and manufacturing so we are ready when FDA gives the green light. On the transition, because it is an acute-use drug—every cycle is new—conversion can happen very quickly. Today, probably 90% of use is preventing people from going into the ER and about 10% is post-discharge within 30 days, roughly. The auto-injector should really help with hospital discharge because it is much easier. We are targeting more local distribution and same-day delivery to the patient, which is important when someone is suffering fluid overload. That is harder with the on-body infuser given higher COGS. We expect a quick transition overall. There will be a group who still prefer the on-body infuser, and we will make it available, but we believe the preponderance of growth will come from the auto-injector. Operator: That concludes the question and answer portion of today's call. I will now hand the call back to Michael E. Castagna for closing remarks. Michael E. Castagna: Thank you for joining our call today. Apologies again for the technical difficulties. We appreciate your continued support and look forward to keeping you updated as we execute on the multiple regulatory and clinical catalysts expected in the months ahead. These are exciting times. We have never been busier here at MannKind Corporation—stay tuned for updates as we go. Thank you. Operator: That concludes today's call. You may now disconnect.
Operator: Good afternoon, everyone, and welcome to EVERTEC, Inc.'s First Quarter 2026 Earnings Conference Call. Today's conference call is being recorded. At this time, I would like to turn the call over to Loyda Montes Santiago of Investor Relations. Please go ahead. Loyda Montes Santiago: Thank you, and good afternoon. With me today are Morgan M. Schuessler, our President and Chief Executive Officer, and Karla Cruz-Jusino, Chief Financial Officer. Before we begin, I would like to remind everyone that this call may contain forward-looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC report. During today's call, management will provide certain information that will constitute non-GAAP financial measures under SEC rules, such as constant currency revenue, adjusted EBITDA, adjusted net income, and adjusted earnings per common share. Reconciliations to GAAP measures and certain additional information are also included in today's earnings release and related supplemental slides, which are available in the Investor Relations section of our company's website at evertecinc.com. I will now turn the call over to Morgan M. Schuessler. Morgan M. Schuessler: Thanks, Loyda, and good afternoon, everyone. I am pleased to announce strong first quarter results that demonstrate continued execution against our strategic priorities and momentum across our core markets. Today, I will begin with an overview of our M&A framework and how it is translating into value creation across our portfolio, including the closing of the DIMENSA acquisition and an update on Sinqia and Tecnobank. Each of these reflects a different phase of the same strategy: acquiring, integrating, and scaling high-quality assets. I will then review our Q1 performance before turning the call over to Karla for a more detailed discussion of our financial results. Let me start by outlining how we think about M&A. Our framework is a disciplined approach built around a clearly defined set of criteria. First, we focus on scalable assets with transferable capabilities, which allow us to drive efficient growth while minimizing incremental costs and simplifying integration. Second, client overlap and regional footprint are also key considerations. We look to expand our services with the right financial institutions and retailers while leveraging the attractive growth characteristics of businesses with core operations across Latin America. Finally, we prioritize high-quality revenue and strong underlying economics, emphasizing profitable business models supported by recurring or volume-based revenue, with clear opportunities for accelerating growth and expanding margin over time. Consistent with that framework, I am pleased to announce that we have successfully closed our previously announced acquisition of DIMENSA. Strategically, this acquisition represents an important step forward, positioning us amongst the largest financial SaaS providers in the market. DIMENSA adds a meaningful set of new client relationships, strengthens existing key partnerships, and significantly expands our opportunities within the region as we continue to build a comprehensive one-stop-shop portfolio of services. This acquisition simultaneously supports growth and efficiency, reinforcing our leadership in existing markets while expanding our presence into new segments. From a financial perspective, DIMENSA is expected to be neutral to slightly accretive in 2026, reflecting integration timing and financing cost. We anticipate realizing synergies beginning in 2027, which should further enhance the earnings contribution over time. On a pro forma basis and inclusive of the synergies, the acquisition multiple compares favorably with EVERTEC, Inc.'s current valuation. Given we are only days into the acquisition, near-term focus is integration execution and building momentum through 2026 and beyond, as we expect DIMENSA to become an increasingly important contributor to our growth as we move forward. Turning to Sinqia, integration priorities remain focused on operational discipline, product rationalization, and go-to-market effectiveness. The commercial pipeline remains balanced between new customer wins and cross-sell opportunities, supported by our expanded product offering and modernization of existing platforms and the complementary acquisitions we have completed across Brazil. While the competitive environment remains active, our scale, local expertise, and increasingly integrated offering continue to differentiate us. As we look ahead, our focus remains on driving operational efficiency and positioning the business for sustained margin improvement over time. Lastly, Tecnobank continues to validate our M&A strategy in Brazil, strengthening our local scale and capabilities while demonstrating our ability to integrate founder-led platforms and position them for sustainable growth, reinforcing confidence in our ability to execute strategic acquisitions in the region. Now turning to slide seven, I will cover some highlights from our first quarter results. Revenue for the quarter was approximately $247.9 million, an increase of 8% compared to the prior year, driven in part by the full-quarter contribution from the Tecnobank acquisition as well as organic growth across most of the company’s portfolio. On a constant currency basis, revenue also reflected the continued stability in the underlying business momentum with approximately 5% year-over-year growth. Adjusted EBITDA for the quarter was approximately $97 million, up 9% year over year. Adjusted EBITDA margin was 39.1%, consistent with the prior year despite headwinds from the 10% discount to Popular and unfavorable foreign exchange dynamics. This performance reflects our continued focus on disciplined cost management and operational efficiency. Adjusted EPS was approximately $0.90, an increase of 3% from the prior year, driven by strong adjusted EBITDA growth and the lower share count reflecting the impact of the share repurchases completed during the current and prior year. From a capital allocation perspective, during the quarter, we paid approximately $3.1 million in dividends and repurchased approximately 700 thousand shares for a total of $20 million. We exited the quarter with approximately $130 million remaining on our share repurchase program, providing us flexibility going forward. Our liquidity remains strong at approximately $460 million as of March 31, allowing us to execute on the DIMENSA acquisition. Let me now provide an update on Puerto Rico beginning on slide eight. Merchant acquiring revenue grew 2% year over year, driven by higher sales volume despite a modest decline in spread that was consistent with our expectations. Payment Services Puerto Rico grew 6% year over year, driven by transaction growth and continued strength in ATH Móvil, primarily ATH Móvil Business. Business Solutions revenue declined approximately $6 million, or 9% year over year, primarily reflecting the 10% discount to Popular as well as a one-time hardware and software sale executed during the prior year period. Overall, economic conditions in Puerto Rico continue to remain stable, with positive trends in total employment and strong tourism performance. The unemployment rate remained at 5.6%, while consumer spending continued to demonstrate strength and stability. Turning to slide nine. In Latin America, revenue increased 32% year over year on a reported basis. Tecnobank delivered a strong full-quarter contribution in Q1, supporting revenue and EBITDA growth in Latin America and reinforcing the reacceleration we have been seeing in Brazil. We also benefited from continued organic growth across the region, including contribution from recent client wins. Results also benefited from a $6.8 million foreign exchange tailwind, primarily in Brazil. On a constant currency basis, our Latin America business grew 24% compared to the prior year. In summary, we are pleased with our first quarter performance and the continued progress across our strategic initiatives. Our diversification into Latin America continues to drive growth. Our Puerto Rico business remains resilient. And our disciplined M&A strategy continues to deliver tangible results. We remain focused on sustainable organic growth, disciplined capital allocation, and long-term value creation. With that, I will now turn the call over to Karla Cruz-Jusino, who will provide more details on our Q1 results and discuss our updated outlook for the remainder of 2026. Karla Cruz-Jusino: Thank you, Morgan, and good afternoon, everyone. Turning to slide 11, I will begin with a review of EVERTEC, Inc.'s first quarter results. Total revenue for the quarter was $247.9 million, an increase of approximately 8% compared to the prior year, driven by organic growth across most of our segments and the contribution from Tecnobank, which closed on October 1. On a constant currency basis, revenue growth would have been approximately 5%, with reported results this quarter benefiting from favorable foreign currency fluctuations primarily in Brazil. Adjusted EBITDA for the quarter increased to $97 million, up 9% year over year with a 39.1% margin, consistent with the prior year despite several known headwinds during the period. These headwinds included the full impact of the 10% discount to Popular as well as higher-than-anticipated unfavorable foreign exchange dynamics, particularly in countries where our contracts are denominated in U.S. dollars while our expenses are in the local currency, including Uruguay and Costa Rica. Our ability to maintain margin stability in this environment reflects continued execution against our cost discipline initiatives and a strong focus on operational efficiency across the organization. We continue to actively manage expenses while supporting growth initiatives, which have allowed us to absorb these headwinds and deliver consistent profitability. Adjusted net income was $56 million, broadly consistent with the $56.3 million in the prior year, reflecting strong adjusted EBITDA performance. This resulted in solid bottom line stability despite the anticipated increase in the adjusted effective tax rate to 10.9% for the quarter, driven by the continued growth in our Latin America operations, which are subject to higher statutory tax rates. Results also reflect higher operating depreciation and amortization as well as the impact of the 25% non-controlling interest from the Tecnobank acquisition. Adjusted EPS was $0.90, an increase of approximately 3% from the prior year, reflecting adjusted net income results and the benefit of a lower share count from repurchases completed during the current and prior periods. Moving to slide 12, I will now cover our first quarter results by segment. Beginning with merchant acquiring, revenue increased approximately 2% year over year to $448.4 million in sales volume. Sales volume and transactions both grew approximately 4%, with growth driven by new high-volume merchants as well as from existing customers. As expected, we did see a modest decline in spread reflecting a change in the mix consistent with more recent trends, which was partially offset by higher non-transactional revenues from pricing initiatives implemented in the third quarter of prior year. Adjusted EBITDA for the segment was $19.5 million with an adjusted EBITDA margin of 40.3%, down approximately 240 basis points from the prior year. The margin decline was primarily driven by higher processing costs related to CPI increases in our Payment Puerto Rico segment. Overall, performance continues to demonstrate stable demand and healthy underlying transaction activity. On slide 13 are the results for the Payment Services Puerto Rico and Caribbean segment. Revenue for the quarter was $58.4 million, an increase of approximately 6% year over year. Growth was driven by the continued strong performance in ATH Móvil, particularly ATH Móvil Business, which delivered double-digit growth in both volumes and transactions. We also saw solid growth in POS transactions, which increased approximately 8% year over year, supporting the overall segment performance. Results also benefited from higher services provided to our Latin America segment, reflecting organic growth and new client activity. These were partially offset by the 10% discount to Popular. Adjusted EBITDA was $34.7 million, an increase of approximately 11% from the prior year, with an adjusted EBITDA margin of 59.4%, an increase of approximately 240 basis points. Margin expansion was driven by incremental volumes, including increased volumes across merchant acquiring and Latin America. Overall, the segment delivered strong year-over-year growth and continued to demonstrate its ability to scale. Turning to slide 14, I will cover our results for Latin America Payments and Solutions, which was the largest contributor to revenue and EBITDA growth during the quarter. Revenue for the quarter was $110.3 million, an increase of approximately 2% year over year. Currency tailwinds in the quarter benefited segment growth by approximately $6.8 million, or 8%, mainly driven by the appreciation of the Brazilian real. On a constant currency basis, revenue growth for the segment would have been approximately 24%. Growth was driven by the full-quarter contribution from the Tecnobank acquisition, continued strength in Brazil, solid performance from Granada, and overall organic growth across the region. These were partially offset by the attrition impact from the MELI relationship, which will anniversary in the second quarter, and pricing actions to extend key client contracts. On a reported basis, adjusted EBITDA was $32.8 million, an increase of approximately 32% from the prior year, with an adjusted EBITDA margin of 29.7%, aligned with prior year. Adjusted EBITDA benefited from strong revenue growth but was partially offset by foreign currency headwinds from the higher-than-anticipated appreciation in markets such as Uruguay and Chile. Overall results reflect strong execution across the region, positioning the segment well for the remainder of the year. Moving to slide 15 are the results for our Business Solutions segment. Revenue for the quarter was $59.5 million, representing a decrease of approximately 9% from the prior year. This decline was in line with our expectation and was primarily attributable to the 10% discount to Popular that began in October of last year, as well as a nonrecurring hardware and software sale completed during the prior-year quarter. Adjusted EBITDA was $21.6 million, slightly below the prior year, reflecting the impact of the 10% discount to Popular. Adjusted EBITDA margin increased approximately 240 basis points to 36.3%, mainly driven by lower expenses associated with the prior-year one-time hardware and software sale, which came in at lower margins, as well as lower operating costs tied to nonrecurring projects executed in the prior-year quarter and cost-saving initiatives implemented within the segment. Overall, segment profitability remained resilient, with margin expansion reflecting disciplined cost management and the absence of prior-year one-time items. Moving to slide 16, you will see a summary of our corporate and other expenses. Adjusted EBITDA was negative $11.7 million for the quarter, representing 4.7% of total revenue, slightly below our expectations. Moving to slide 17, I will now review our cash flow performance. We continue to effectively manage our working capital, generating net cash from operating activities of $31.2 million during the quarter. Capital expenditures were $22.7 million for the quarter, reflecting ongoing investments to continue modernizing our platforms and enhancing our information security capabilities. During the first quarter, we paid down approximately $6 million in debt and returned approximately $23.1 million to shareholders through share repurchases and dividends. We repurchased 683 thousand shares for $20 million during the quarter, and as of March 31, we had approximately $130 million remaining under our authorized share repurchase program available through 12/31/2027. Our ending cash balance for the quarter, excluding cash and settlement assets, was $314.5 million, a decrease of approximately $17.3 million compared to year-end 2025. Turning to slide 18, our net debt position at quarter end was $826.2 million, comprised of $1.1 billion in total long- and short-term debt offset by $290.9 million of unrestricted cash. Our weighted average interest rate was approximately 6%, a decrease of approximately 55 basis points year over year, reflecting the benefit from debt repricing actions executed during the prior year and lower interest rates. Our net debt to trailing twelve months adjusted EBITDA was approximately 2.15 times, compared to 2.04 times a year ago, remaining at the lower end of our target leverage range of two to three times. This continues to reflect our disciplined approach to capital allocation and balance sheet management. As of March 31, and prior to closing the DIMENSA acquisition, our total liquidity, which excludes restricted cash and includes available borrowing capacity, was $450.3 million, slightly above the prior year. Turning now to our outlook for 2026 on slide 19. Based on our first quarter performance and the closing of the DIMENSA acquisition, we are increasing our full-year expectations. For 2026, we now expect reported revenue to be in the range of $1.073 billion to $1.085 billion, representing growth of 15.1% to 16.4% year over year. This outlook includes approximately 135 basis points of foreign currency tailwinds, driven primarily by the current appreciation of the Brazilian real relative to the 2025 monthly average exchange rate. On a constant currency basis, we now expect revenues for 2026 to grow between 13.8% to 15%, an increase from our prior constant currency range of 8.7% to 10%. This outlook reflects two primary factors: the inclusion of DIMENSA following its closing, and the continued solid performance across our existing businesses, which remains largely in line with the assumptions we previously shared. Starting with the legacy business, we continue to have a positive outlook supported by sustained momentum across payments, resilient performance in Puerto Rico, and continued growth across key Latin American markets. We are seeing consistent execution against our commercial and operational priorities, driven by a strong pipeline and disciplined cost management. As a result, our underlying assumptions for the core business remain intact, and in several areas are tracking modestly ahead of our initial expectations. With respect to DIMENSA, the updated outlook reflects the incremental revenue contribution from the acquisition. DIMENSA has strengthened our position in Latin America and aligns closely with our long-term strategic priorities. While the business currently operates at a modestly lower margin profile than our Latin America segment average, it has scale and strategic adjacencies that we expect to enhance our growth profile over time. For 2026, we are not assuming any synergies, as we expect the majority of cost and scale benefits to begin to materialize in 2027 and beyond. At the segment level, for merchant acquiring, we continue to expect mid-single-digit growth in 2026, supported by stable transaction activity, sales volume, and the implementation of key merchants. In Payments Puerto Rico and Caribbean, we also continue to expect mid-single-digit growth, driven by continued strength in ATH Móvil and POS volume, including processing services provided to the Latin America segment, partially offset by the impact of the Popular discount. For Latin America Payments and Solutions, we now expect revenue to grow in the high 30s on a reported basis and mid-30s on a constant currency basis. Finally, in Business Solutions, we continue to expect revenue to decline in the low- to mid-single digits, reflecting the anticipated reset following the Popular discount. Adjusted EPS is now expected to grow between 6.6% and 9.9% from the $3.62 reported for 2025, or between 5.2% and 8.6% on a constant currency basis. This outlook assumes an adjusted EBITDA margin of 39% to 40%. The updated range reflects the higher anticipated contribution from Latin America while continuing to incorporate the operating discipline and cost initiatives we have discussed in prior quarters. From an earnings perspective, our updated guidance assumes that DIMENSA will be neutral to slightly accretive in 2026, reflecting the balance between operating contributions, incremental interest expense, and integration timing. Below the line, our outlook reflects the post-transaction capital structure, financing costs, and related tax considerations. We continue to expect our effective tax rate to remain within a range of approximately 11% to 12% for the full year. Capital expenditures are also expected to remain at approximately $90 million. In addition, we expect to continue returning capital to shareholders through dividends and, when appropriate, share repurchases. Overall, our increased 2026 outlook reflects confidence in the performance of our existing business and the strategic and financial contribution of DIMENSA. While our focus in 2026 remains on integration and execution, we continue to see meaningful long-term value creation opportunities. In summary, we delivered a solid first quarter, increased our full-year outlook, and remain well positioned to execute against our priorities for 2026, supported by a strong balance sheet, disciplined capital allocation, and continued focus on execution. With that, operator, please open the line for questions. Operator: Thank you. We will now open the call for questions. The first question comes from an Analyst with Raymond James. Analyst: Hey, good afternoon. I appreciate you taking the questions. I wanted to start on the updated outlook. I appreciate the color on the expected EPS impact from DIMENSA, but as we think about the $40 million raise to the midpoint of revenue, can you give us a more detailed sense of how much of that is driven by the deal versus some of those other factors you talked about? Morgan M. Schuessler: Hey, thanks for the question. We do not break that out, as you know, historically, but let me give you a little bit of color on DIMENSA since you asked. We are extremely excited about the deal because this year it will be neutral to accretive, and our leverage ratio will still be 2.4 times or less. And in 2026, we have no synergy baked in. So what you are seeing in the guide does not include synergies, which we think we will realize in 2027 and 2028, which make the deal even more valuable. It is mostly, about 95%, recurring revenue. It gets us into two verticals we are not in today—insurance and risk—and then it also helps us double down on funds and banks. So we think there are a lot of synergies not only on the expense side, but also on the revenue side. But we cannot really break out the specifics on the numbers for the deal. Analyst: I appreciate that and the extra color. And then just a quick follow-up on the corporate revenue headwind. It grew pretty meaningfully year over year. Can you provide some color on what drove this in the quarter? And to the extent you can give any expectations, is this the right run rate for the year, or do you expect it to step down as we progress throughout the year? Karla Cruz-Jusino: Corporate revenue is impacted by, obviously, intercompany transactions that we have pulled out as part of some of the growth on some of our segments. So that is the expected run rate as we think about the next couple of quarters. Morgan M. Schuessler: Very good. Did we lose you? Analyst: That was all. Thanks. Appreciate it. Morgan M. Schuessler: Thank you. Operator: The next question comes from James Eric Friedman with Susquehanna. James Eric Friedman: Hi. I am sorry for the background noise. I want to know, Morgan, in terms of your prepared remarks and the observation on slide four about the transferability of the acquired assets, could you elaborate on that? In particular, the transferability—like in which use cases have you had the most success so far in transferring the assets either regionally or to other verticals? Morgan M. Schuessler: Yes, so what I would say is there are a couple of pieces to this. One is Sinqia specifically. A lot of what we have done in Brazil with Sinqia is primarily focused on the current market. We do have some products that we have exported, but it has been limited. PayStudio is the platform, Place to Pay is a platform, and Risk Center is a platform that we have localized throughout the region. That is what Santander is running on, that is what Banco de Chile is running on, Grupo Aval, and even BCR now in Costa Rica. Those are some of the platforms we have regionalized. In Brazil, we have done a good job of leveraging the platforms from a cross-sell perspective. Looking at this deal, they have four verticals; two of those verticals we are not in. They are in the insurance business with about 65% of the market. With the insurance companies, they are dealing with the brokers, the underwriters, and the consumers. They also have a risk management product for financial institutions. We are able to cross-sell our products to their insurance and risk customers and vice versa. On the fund side, we have a similar product with very different customers. We have the mid-size banks, and they have the larger banks. In terms of transferring capabilities, we think we can take LOT45, which is one of our products that we acquired with Sinqia, and bolt it on to the DIMENSA product. That is where we can take these products in Brazil and bolt them together. DIMENSA has a set of clients we do not have, and we have a capability they do not have, so we can broaden the value proposition. In that concept of transferability and platforms we can leverage across deals, we have those that we can leverage across the region, which are a lot of the payment products. Then within Brazil, we can combine some of these products that we have between Sinqia, DIMENSA, and Tecnobank, and there are large transferable client bases and integrations we can do to make these products work together. James Eric Friedman: That is a great answer. And then I want to ask, at a higher level, about the prospects of inflation—maybe for Morgan or for Karla. Some of the other payments companies are talking about it. Could you share your perspective on how inflation impacts the business, whether it is wage inflation or gas inflation? Any commentary at a high level on inflation would be helpful. Thank you. Morgan M. Schuessler: There are multiple impacts like in anybody's business. The good thing is that some of our payments businesses are tied to the size of the ticket, so if there is inflation in some of our merchant acquiring businesses, we actually get a lift from that. We see incremental revenue. Also, some of our contracts, particularly with banks, are tied to CPI. The way that interacts and plays is that in some ways we benefit from inflation. But just like any other business, when there is inflation and it impacts our costs, those are costs we have to absorb. I think we have demonstrated that when we have significant cost increases across our base—whether it is the $18 million discount we had to pass to Popular or inflation in general—we have done a good job of managing it and keeping our margins at about the 40% level. Operator: The next question comes from Vasundhara Govil with KBW. Vasundhara Govil: Thank you for taking my questions. Morgan, a high-level one on AI. Given the market's focus on potential for AI to reshape software economics, how do you think about that potential risk, and are you seeing appetite among financial institutions in Latin America to embed AI into their own workflows? How might that affect you? Morgan M. Schuessler: Great question, Vasu. We are bullish on AI generally—around software development and the enterprise overall. This year we have been very focused on appropriate governance and experimentation to see where we think the biggest benefits are. There are three areas where we think we will see a big impact, and that is not baked into 2026 guidance. I think that will impact us in future years. Number one is efficiency; it will change our cost structure, and we can be much more efficient in certain areas. The second is growth—the ability to add new features to improve our products so that we can grow faster. And the third is quality—the ability to have better quality and better SLAs because AI is helping how we manage service. Two examples: incident management—our Place to Pay product, which is our online gateway, is using AI to manage incidents. If there is a system problem, we can resolve the issue five to eight times faster using AI. It is better quality for our customers and keeps our systems up and running in a more durable way. On the growth perspective, in our Risk Center product—which users employ to monitor fraud—we are using AI to make it easier for users to interact with the software, so they do not have to know all the formulas to build logic. They can use natural language to create those rules more quickly. What we are seeing is 40% fewer alerts, meaning fewer false positives, and a 20% increase in fraud detection because the tools are easier to use and AI is flagging fraud more quickly. We are seeing real use cases across all those areas. We think it will help margins, help us grow faster, and improve our quality and service management. Vasundhara Govil: That is helpful. It does not sound like you think it is a big threat in terms of banks using AI themselves to disrupt some of the software products you offer today? Morgan M. Schuessler: No. I understand that theory with some software and technology companies, but we are processing financial transactions where there is reconciliation involved, settlement between financial institutions, and risk management products. We think the products that we provide we will be able to provide more quickly and more cost effectively. We actually think AI is a catalyst and a tailwind for our business. I do not see it as a negative. Vasundhara Govil: Thank you. That is very helpful color. And if I may ask a follow-up on the Banco de Chile partnership. I think last quarter you mentioned it is now operational. How is that tracking relative to your internal expectations, and how long before it ramps to its full run rate? How should we think about the revenue potential relative to the Santander relationship today? Morgan M. Schuessler: Great question. The deals we have talked about on previous calls are going as expected. Any benefits we see in 2026 are already baked into the guidance. All of the projects we have announced as far as new clients are going as anticipated. Operator: The next question comes from an Analyst with Deutsche Bank. Analyst: Hey, thanks for the question. A follow-up on DIMENSA—I get that you do not break out the inorganic contribution, so let me ask about historical performance. The former owner of DIMENSA disclosed some numbers for 2025 and 2024 in Brazilian reals. Is there any accounting consideration with net-to-gross revenue or anything we need to keep in mind when looking at the historicals? And if you look at the 2024 to 2025 growth rate they disclosed, it was pretty healthy. Was that all organic, or did DIMENSA benefit from some inorganic contributions? Any sense of how DIMENSA had been performing, leaving aside what exactly is baked into the 2026 guide? Morgan M. Schuessler: What I would say about DIMENSA is very similar to Sinqia. Some of their growth was M&A. If you look at their historical numbers, it includes some M&A. They did have some softness in their business a couple of years ago—just like we did—because of the general circumstances in Brazil. After Lula won, people were more cautious about IT spend, and they also had some legacy platforms that were outdated. Looking forward, we think there are cost synergies that are meaningful that we will take out in 2027—again, not included in 2026. We have talked to clients, and they are excited about us acquiring this asset because they want us to do with DIMENSA what we have done with Sinqia—modernizing the platforms so they can grow with the business—and they are looking forward to having multiple relationships with a vendor like Sinqia. As I said earlier, we think there are a lot of cross-sell opportunities. DIMENSA has some of the biggest banks in the funds business. We can bolt on LOT45 to provide other capabilities using some of our other products. We think the revenue synergies and the growth tailwind from combining these products, modernizing them, and cross-selling are compelling. Analyst: Got it, helpful. A higher-level one on capital allocation: You have done a bunch of acquisitions. Leverage is in a healthy spot, and you have about $130 million on the repurchase authorization. How should we think about prioritizing buybacks versus paying down debt versus other opportunities to continue building the business, especially in Latin America? Are there prospects for potential attractive deals you are looking at? How should we think about the priority of each of those in 2026? Morgan M. Schuessler: Great question. We just bought DIMENSA and we just bought Tecnobank, so we are very focused on integrating those, and that is a key priority for us. As you know, we are now a little over 45%—closer to 46%—of our revenues outside of Puerto Rico, and a lot of that has been M&A. We will continue to focus on M&A, and we continue to have a healthy pipeline, but right now we are focused on DIMENSA and Tecnobank. We believe the stock is attractive, as you can tell by our previous buyback. We are opportunistic. We understand the stock price is low compared to where it has been over the last year or two, and we will continue to balance that as we look at capital allocation. But right now, we will focus on the deals we have and continue to consider buying stock. Operator: The next question comes from Cristopher Kennedy with William Blair. Cristopher Kennedy: Good afternoon. Thanks for taking the question. You provided some good updates on the economy in Puerto Rico. Any comments or observations on some of the markets outside of Puerto Rico that you can talk about, given macro uncertainties? Morgan M. Schuessler: We do not have anything specific to call out. We are still confident in 2026, and even with some of the things that are going on in different markets, we do not see anything that we would specifically call out. Cristopher Kennedy: Understood. And last call you talked about one of the biggest pipelines for the company. Can you talk about how the conversion of the pipeline is progressing? Morgan M. Schuessler: Great question. Flipping to the organic side, we posted some pretty big deals—Banco de Chile, Grupo Aval, Financiera Oh!, among others we have talked about. We still have a very healthy organic pipeline, and we are optimistic this year that we will continue to have wins that we can announce throughout the year. Thanks for taking the questions. Operator: Thank you. That does conclude the question and answer session. I would like to turn the floor to management for any closing comments. Morgan M. Schuessler: I want to thank everybody for joining the call. We look forward to seeing you at conferences and speaking to you individually over the coming quarter. Everybody have a good night. Thank you. Operator: Thank you. That concludes today's conference. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: At this time, I would like to welcome everyone to the International Flavors & Fragrances Inc. First Quarter 2026 Earnings Conference Call. To ask a question at that time, please press star 1 on your telephone keypad. If you would like to remove your name from the queue, please press star 2. Participants will be announced by their name and company. In order to give all participants an opportunity to ask their questions, we request a limit of one question per person. I would now like to introduce Michael Bender, Head of Investor Relations. You may begin. Michael Bender: Thank you. Good morning, good afternoon, and good evening, everyone. Welcome to International Flavors & Fragrances Inc.'s First Quarter 2026 Earnings Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay. During the call, we will be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website. Today's presentation will include non-GAAP financial measures, which exclude items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all the sales and EBITDA growth numbers that we will be speaking to on the call are on a comparable currency-neutral basis unless otherwise noted. With me on the call today are our CEO, Erik Fyrwald, and our CFO, Michael DeVeau. We will begin with prepared remarks and then take questions at the end. With that, I would now like to turn the call over to Erik. Erik Fyrwald: Thanks, Mike, and hello, everyone. Thank you all for joining us today. International Flavors & Fragrances Inc.'s first quarter 2026 results reflect our continued focus on execution, while serving customers with leading innovations and driving productivity and cash flow. Even amid uncertain market conditions around the world, we are making solid progress on our commitments as we continue to strengthen International Flavors & Fragrances Inc. for long-term success. I will start today’s call by briefly summarizing the first quarter, and then I will talk about the key strategic progress we have made so far this year. I will then turn the call over to Mike, who will provide more details on the first quarter results, segment performance, and our outlook for 2026. Turning to Slide 6. Our team delivered a solid start to the year in the first quarter. Across all our businesses, we delivered solid sales growth driven by volume improvements. Our Health & Biosciences segment led with mid-single-digit sales growth, while Taste, Food Ingredients, and Scent all grew low single digits. This growth, combined with our productivity initiatives, resulted in a higher margin. In the first quarter, we also generated a strong free cash flow improvement compared to last year. This reflects a focus on cash, including working capital. Over the past few years, we have made significant progress simplifying our portfolio. This strategic effort is resulting in our being able to focus and reinvest in our core and highest growth businesses while achieving our deleveraging targets. In March, we completed the divestiture of our commodity soy crush, concentrates, and lecithin business to Bunge for $110 million. Looking ahead, the sale process for our Food Ingredients business continues to make very good progress. While we do not have any additional information to share today, we are pleased by the strong interest in this business and we will let you know as soon as there is news to share. In the first quarter, we also announced regional production and added innovation capabilities to better support the continued strong growth of our Health & Biosciences business in Latin America. This includes the startup of our Areito site in Argentina, our first full fermentation-based enzyme production in the region, and we opened a household care application laboratory at the International Flavors & Fragrances Inc. Innovation Center in Brazil. Together, these will improve our speed, reliability, and locally relevant solutions for markets including brewing, animal nutrition, biofuels, and home care. Now, with respect to the macroeconomic environment, including the ongoing Middle East conflict, it is clear that uncertainty and challenges will continue to persist through 2026. But we remain focused on advancing our commercial and innovation pipelines, driving productivity, and working with customers to offset inflation. This, when combined with our solid start to the year, de-risks the balance of the year and gives us the confidence to reaffirm our full-year 2026 financial guidance ranges despite this uncertain environment. International Flavors & Fragrances Inc.’s diversified portfolio, the essential nature of our business, strong value proposition, and disciplined execution position us well to navigate ongoing volatility. In sum, we are doing what we said we would do with discipline and clarity. International Flavors & Fragrances Inc. is laser focused on achieving the strategic goals we clearly laid out two years ago. Our leadership team and our highly dedicated IFFers all around the globe are committed to delivering high-value products that anticipate and solve the evolving needs of our customers. While there is more to do, I am proud of our progress and how our global team keeps strengthening how we serve customers to enable us to deliver on our commitments. And with that, I will pass the call over to Mike to offer a closer look at this quarter's consolidated results. Mike? Michael DeVeau: Thank you, Erik. Thanks, everyone, for joining today. International Flavors & Fragrances Inc. delivered revenue of greater than $2.7 billion in the first quarter, with volume growth across all businesses. This solid performance led to 3% sales growth for the quarter, driven by mid-single-digit growth from Health & Biosciences and low-single-digit increases from Taste, Food Ingredients, and Scent. Adjusted operating EBITDA totaled $568 million for the quarter, an 8% increase driven primarily by volume growth and productivity gains. Our adjusted EBITDA margin also increased by 110 basis points on a currency-neutral basis to 20.7%, our highest EBITDA margin since 2022. We continue to focus on what we can control, and the strategic progress we have made across all of our segments is clearly visible in these results. On Slide 8, I will provide a closer look at our performance by business segment. In Taste, sales increased 2% to $656 million, growing in all regions with a notable mid-single-digit performance in Greater Asia. The segment also recorded a very strong quarter of profitability improvements with adjusted operating EBITDA of $153 million, an 18% increase from the year-ago period. Profitability gains were primarily driven by volume growth, favorable net pricing, and productivity gains. Food Ingredients sales were up 3% to $839 million, as growth in nearly all businesses was led by strong double-digit increases in Inclusions and mid-single-digit growth in Systems. Volume growth in the quarter was approximately 5%, the highest it has been in several years. Food Ingredients had a strong quarter profitability-wise as well, delivering an adjusted operating EBITDA of $114 million, a 12% increase year over year, led by volume growth and productivity gains. Our Health & Biosciences segment achieved sales of $595 million, an increase of 5% from the prior year, which was all volume-driven with growth across nearly all businesses, especially in Animal Nutrition and Food Biosciences. From a profitability standpoint, Health & Biosciences delivered adjusted operating EBITDA of $153 million in the first quarter, an increase of 7% from the prior year, driven primarily by volume growth. Lastly, our Scent segment delivered sales of $651 million, representing 1% growth from the prior year. First-quarter performance was led by growth in Fine Fragrance, which had a strong double-digit year-ago comparable, and Consumer Fragrances. Fragrance Ingredients was down in the quarter as expected due to continued market softness and price competition in the commodity portion of our portfolio. Adjusted operating EBITDA for this segment decreased 2% to $148 million as benefits from volume growth and productivity gains were more than offset by unfavorable price-to-input costs, specifically in the commodity portion of our Fragrance Ingredients business. Turning to Slide 9. Cash flow from operations totaled $257 million, which is an increase of $130 million year over year, and capex was $165 million year to date, or roughly 6% of sales. Our free cash flow position in the first quarter was $92 million, increasing $144 million year over year. As mentioned last quarter, we remain disciplined in our execution across all elements of working capital, as it is a key priority in 2026 as we remain focused on driving a meaningful improvement in cash flow this year. During Q1, we also returned $102 million to shareholders through dividends and an additional $35 million through our dilution-cost share repurchase program. Our cash and cash equivalents finished at $562 million at the end of the first quarter. As of March 31, our gross debt totaled $5.85 billion, a significant decrease of more than $3 billion compared to the prior-year period. Our trailing twelve-month credit-adjusted EBITDA totaled approximately $2.1 billion. Our net debt to credit-adjusted EBITDA ended Q1 at 2.5 times, slightly below last quarter. Disciplined capital allocation remains a core focus for us as we maintain our balance sheet strength through operational execution. Turning to Slide 10, I would like to walk you through our full-year outlook for 2026. We are off to a solid start, with first-quarter results that outperformed our expectations going into the year. This strong performance de-risks the balance of the year and gives us confidence to reaffirm our full-year 2026 financial guidance ranges. We are operating in an unpredictable environment, particularly as it relates to the ongoing conflict in the Middle East. While we cannot control the macro backdrop, the factors that we can control, including the strength of our commercial pipeline, the depth of our customer partnerships, and our continued productivity gains, give us confidence in our ability to execute through this period. For full-year 2026, we are reiterating our sales expectation of $10.5 billion to $10.8 billion, representing 1% to 4% growth. We expect to deliver top-line growth in all our divisions supported by new wins and a robust innovation pipeline. From a profitability perspective, we continue to expect full-year adjusted operating EBITDA of $2.05 billion to $2.15 billion, representing 3% to 8% growth with solid margin expansion. We continue to expect foreign exchange to have a roughly one percentage point positive impact on full-year sales growth with a minimal impact on adjusted operating EBITDA growth. Our full-year guidance now reflects only two months of the soy crush, concentrate, and lecithin business, as the divestiture closed about a month ahead of schedule on March 2 versus the April 1 date embedded in our original guidance. As a result of the ongoing Middle East conflict, inflationary pressures are expected to build over the course of 2026. We are proactively working with our customers to offset these pressures through pricing actions, starting with surcharges related to logistics and energy costs, and then building to account for raw material inflation. In terms of phasing, we expect these inflationary trends to adversely impact profitability in the second quarter of 2026, where costs will begin to increase and our pricing actions are not fully implemented. Post-Q2, we expect this pressure to gradually ease through the back half of the year as pricing actions take full effect. In addition, our most significant exposure to the Middle East conflict, both from a sales and margin perspective, fits within our Scent business—and our Fine Fragrance business in particular. We anticipate that Fine Fragrance volume in the Middle East will be impacted in the second quarter, in part due to slower market demand but also temporary supply chain challenges our customers are facing, such as getting packaging into the region. When combining these impacts, we expect absolute EBITDA dollars in the second quarter to be lower than the $568 million we reported in the first quarter, mostly driven by lower volume, unfavorable price-to-input costs, and weaker mix related to Fine Fragrance softness. Stepping back, our full-year outlook we are reaffirming today reflects a different shape than what we expected 90 days ago—with a stronger Q1 and a more measured balance of year given the Middle East conflict. But our full-year goal is unchanged. Behind that consistency is the strategic progress we continue to make at International Flavors & Fragrances Inc. We are applying stronger discipline to direct capital allocation towards higher-value initiatives, strengthening our innovation and R&D pipeline, investing commercially where we have great opportunities, and driving structural productivity that will compound profitability leverage moving forward. We are pleased with what we are building in terms of a more focused, more competitive International Flavors & Fragrances Inc., and that gives us confidence in the value we are creating as we move forward. With that, I would now like to turn the call back to Erik for closing remarks. Thanks, Mike. Erik Fyrwald: Now to close, I want to reiterate that the core businesses at International Flavors & Fragrances Inc. are strong and performing well. Our Q1 2026 results reflect the continued progress we are making in delivering on our commitments. Even in an uncertain and evolving macroeconomic environment, we have stayed focused on what we can control and doing what we told you two years ago we would do: getting to a focused portfolio of three strong businesses that are performing well with significantly more potential to create value for many years to come. I continue to spend a lot of time traveling the world to visit our teams and customers, and I am ever more energized and confident about our future based on what I see and hear, including how our commercial and innovation pipelines continue to grow and advance, and I am pleased that our focus allows us to reaffirm our full-year 2026 guidance. We are investing for the future—in innovation, commercial, and supply chain capabilities, and in customer partnerships that matter most. I am confident that we have the right strategy, the right team, and the right innovation to continue to create long-term value. Thank you. We will now open the call for questions. Operator: We will now begin the Q&A session. If you would like to remove your question, press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. As a reminder, we kindly ask that you limit your questions to one question per person. Our first question comes from the line of Ghansham Panjabi with Baird. Ghansham, your line is now open. Ghansham Panjabi: Thank you, Operator. Good morning, everybody. On the outperformance that you delivered during the first quarter, can you give us more color on the specifics that drove the upside? And also, looking back at the quarter, do you think you benefited from any out-of-pattern ordering due to customer pre-buying, etc.? Thank you. Michael DeVeau: Good morning, Ghansham. Thanks for the question. The strong top line and operating leverage during the first quarter was driven by, first of all, volume-led growth across all our segments, which was great to see, and continued solid productivity. We continue to strengthen our productivity muscle. Although we do not know all the reasons for specific orders from all of our customers, we have not seen any indication of significant pre-buying. Operator: Thank you. Our next question comes from the line of Lisa De Neve with Morgan Stanley. Lisa, your line is now open. Lisa De Neve: Hi. Thank you for my question. You talked a little bit on the call on the Food Ingredients exit, which is helpful. Can you share where you are in the process right now and maybe when you intend or hope to update the market on any potential events? Thank you. Erik Fyrwald: Thanks, Lisa. We are running a very disciplined process, and it is going very well, with several potential buyers going through second round of due diligence, and the feedback has been very positive so far. The business, as you know, is performing well. It had double-digit EBITDA growth in 2025, and again in the first quarter of this year. That gives us a lot of confidence that we will get through this process in a very positive way. As I said before, we expect to have an update by our second quarter earnings call. Operator: Thank you. Our next question comes from the line of Nicola Tang with BNP Paribas. Nicola, your line is now open. Nicola Tang: Thanks. Hi, everyone. I wanted to ask what assumptions on both pricing and input inflation you are baking into your top line and EBITDA outlook. I would love to understand magnitude and how much of the inflation you expect to offset this year. Thank you. Michael DeVeau: Hi, Nicola. Thank you for the question. You are right. We are seeing inflation across various inputs. Just to dimensionalize, Brent crude is a good indicator, as it is up significantly versus the average of 2025, and that impacts a couple elements of our cost baskets. At first, it starts with energy and logistics inflation, where we are already seeing double-digit increases coming through, and then, over time, it will make its way to some of the raw material costs, which we have not seen a big change in yet, but we expect it to come later this year. Please remember, we do have inventory on our balance sheet, so we have some protection in the short term as it relates to raw materials. Our focus now is energy and logistics, given it is more real time. We are working with our customers to implement pricing surcharges. This is underway and will build throughout the quarter. As you know, pricing in our industry is a strong part of our algorithm. Consistent with historical inflationary cycles, we collaborate with our customers to fully offset any inflation, and usually it is a 12- to 18-month period. We do not expect anything materially different this time around as we continue to engage with customers. Operator: Our next question comes from the line of Fulvio Cazzol with Berenberg. Fulvio, your line is now open. Fulvio Cazzol: Yes, good morning, gents. Thanks for taking my question. Back in February, you anticipated a slow start to 2026 and for organic sales growth to sequentially accelerate through the year, supported by the strong innovation pipeline and the improvement in commercial execution. I understand the comments that you made regarding the Scent business in the second quarter, but for the rest of the segments, is that still your expectation? Erik Fyrwald: Thanks, Fulvio. The first quarter came in better than expectations with really good execution across all of our businesses. However, we did not anticipate the Middle East challenges. But as you can see, we have developed the ability to deal well with unexpected global challenges over recent years. Our second quarter is challenged due to factors that Mike explained, but we do expect the commercial pipelines to continue to deliver in the second half, and that is why we are confident in our full-year guidance. Operator: Thank you. Our next question comes from the line of Kristen Owen with Oppenheimer. Kristen, your line is now open. Kristen Owen: Hi. Good morning. Thank you for the question. Can you discuss some of the scenarios around the remainder of the year given some good color on Q2? Given the strength of the Q1 results, what needs to happen to get you to the high end and the low end of the guide? Thank you. Michael DeVeau: Thanks, Kristen. We are very pleased, as Erik said earlier on the call, with the start of the year. Volume and profitability came in a bit better than we expected. As we look towards the balance of the year in our forecast, we are cautiously optimistic in terms of the operating environment. For top-line performance, we are assuming there is no fundamental change in the lower consumer demand environment. So for us to achieve the higher end of the range, end-market demand would have to pick up and improve, and conversely to be at the lower end. Fortunately, we have a very strong innovation pipeline and a commercial pipeline that we are working with our customers on; that is a big part of why we have confidence in the sales guidance range. In terms of EBITDA performance, we remain focused on driving profitability, and our guidance range reflects the now inflationary environment that developed post our original guidance in February. The team is fully focused and committed to working with customers to offset inflation—initially through pricing actions related to surcharges for logistics and energy—but that does take some time. As we progress over the course of the year, we will see an improvement there. Any material difference between the 3% and the 8% range really is going to come from the pricing aspect to offset the inflation. At the same time, we are working on incremental productivity initiatives. If we have flexibility, we will work to drive profitability over the course of the year. While the environment has changed, we are consistent in what we are trying to achieve and consistent in our outlook for the full year. Operator: Thank you. Our next question comes from the line of Michael Sison with Wells Fargo. Michael, your line is now open. Michael Sison: Hey, guys. Nice start to the year. You and the industry had to raise prices; it is pretty obvious why. At what point does this inflation flow through to the consumer and start to impact demand? When I run by duty free, you look at the fragrance prices—they are pretty high. So in the businesses, at what point does demand start to get impacted by the higher prices? Erik Fyrwald: Thanks, Mike. I expect demand to continue to be solid given everything that we are seeing. In Fine Fragrance, we expect to see continued solid growth for the full year, although less than the double-digit growth we have been seeing. As we discussed, there is a temporary slowdown in Fine Fragrance in the important Middle East due to the factors of what is going on there. In Consumer Fragrance, we have seen the pipeline grow and lots of interest in innovation that we are bringing to the marketplace. Other than the commodity ingredients, which is about half of our Fragrance Ingredients sales, everything else is on a solid base for the full year. Operator: Thank you. Our next question comes from the line of John Roberts with Mizuho Securities. John, your line is now open. John Roberts: Thank you. Good morning, everyone. A quick one on Scent. The Ingredients business continues to be the weak link, it seems like. How should we think about that business now, especially with raw materials going up and the hydrocarbon cost? And how are we thinking long term—your position being net long, sending within production? Erik Fyrwald: Thanks for the question. To reiterate, our Fragrance Ingredients business outside sales is about $500 million a year and is roughly half specialty and half commodity. The specialty side is very attractive, and we will continue to emphasize that part of the business and further strengthen it with a strong R&D pipeline where we are driving for both internal formulation use and external use. We will do more here in specialties. We will do more in naturals, synthetics, and biotech molecules. On the commodity side, that is the part that is very challenged—challenged by Indian producers and Chinese producers—and it is an area where we need to continue to have competitive costs for our internal formulation use, but we are de-emphasizing external sales. You will see that happen over the coming year or so. Operator: Thank you. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin, your line is now open. Matt Hauer: Hi. This is Matt Hauer on for Kevin McCarthy. With your balance sheet in better shape and incremental cash flow from the divestiture of Food Ingredients on the come, how are you thinking about capital allocation—stock buybacks, R&D investment, bolt-on M&A opportunities, and new ventures like AlphaBio? Michael DeVeau: Thanks, Matt, for the question. We remain very disciplined in our capital allocation strategy. Our net debt to EBITDA leverage is 2.5 times, and we have implemented a share buyback program to offset dilution. In the event that we do have an influx of cash from a potential divestiture, we will look to maintain our net debt to EBITDA leverage plus or minus 2.5 times. Use of proceeds would focus on opportunities to minimize any potential dilution related to a transaction. At the same time, we will fund organic growth investments that have high return profiles and pursue potential bolt-on acquisitions and ventures that create strong shareholder value. We will be disciplined in how we allocate capital to ensure we are generating strong shareholder returns. Operator: Our next question comes from the line of David L. Begleiter with Deutsche Bank. David, your line is now open. Emily Fusco: Good morning. This is Emily Fusco on for David L. Begleiter. Do you still expect North American Health trends to improve starting in the back half of the year with a full recovery in 2027? Thanks. Erik Fyrwald: Thanks, Emily. The short answer is yes. As we said earlier, we expect the first-half Health to be flattish and then return to growth in the second half, with acceleration into 2027 as our commercial and innovation pipelines deliver with customers. We are very pleased with the team we have in place now, the efforts they are making, and what we are hearing back from customers. Operator: Thank you. Our next question comes from the line of Josh Spector with UBS. Josh, your line is now open. Anoja Shah: Hi. Good morning, everyone. It is Anoja Shah sitting in for Josh. Thank you for the guidance on Q2, but can you give us a little more detail there—maybe some of the moving parts to get to what you are guiding to for Q2? Michael DeVeau: Sure. Thanks for the question. As you know, we do not give specific quarterly guidance. We are focused on delivering the full-year objectives and results. To help with modeling, in Q2 we expect EBITDA to be lower than our Q1 performance. There are three primary drivers: one, we expect growth to be more moderate in Q2 versus Q1; two, we expect some unfavorability in terms of price to input costs—we are seeing energy and logistics charges rising, and we have not fully implemented our surcharges yet, which will happen over the course of the quarter, creating margin pressure; and three, Fine Fragrance will be under pressure because of the Middle East, which creates a small mix headwind. As we move through the second half, all three elements should improve, and we expect to finish within our full-year guidance range. Operator: Thank you. Our next question comes from the line of Laurence Alexander with Jefferies. Laurence, your line is now open. Laurence Alexander: Erik, if memory serves, one of your goals for the segments was to recoup the share positions that they used to have with a flat to higher gross margin for each of the subunits. Can you give an update on that strategy, what you have seen so far, how long you think it would take to get there, and what it could mean over the next three to five years? Erik Fyrwald: Sure. Thanks for the question, Laurence. I feel like we are making very good progress across the company. We have done a great job of getting to the right portfolio; the sale of the Food Ingredients business is the next important step. Looking at the three future businesses: in Health & Biosciences, we continue to make really good progress, particularly in enzymes. The one area we are focusing on further improving is Grain Processing, both in enzymes and yeast—there is great opportunity there. Health is the area we talked about needing a turnaround. I think we are well on our way with strong leadership, an increasingly strong commercial pipeline, and a strong innovation pipeline. We see that starting to turn in the back half of this year and accelerating into 2027. In Scent, we have a very strong position in Fine Fragrance, with some temporary issues we are working through. In Consumer Fragrance, we have a very strong team with a very good pipeline. Our R&D machine has really picked up in the last year; it takes 18 to 24 months to deliver, but we are seeing progress in that pipeline that will deliver in 2027 and beyond. The real issue in Scent is the commodity Ingredients that we talked about, and we are dealing with that. By 2027, we expect that to go away as a headwind and unleash the full potential of the rest of the Scent business. In Taste, I am very proud of the team. We now have a number of quarters of strong performance ahead of the market, with a good pipeline. Finally, in Food Ingredients, you know about the sales process, and performance has been enhanced by the great work Andy Mueller and his team have delivered. In 2023, we had 9% EBITDA margin; in 2024, they built it to 12%; 2025, 13%; and this year, I think we will exceed 14% EBITDA margin. As the portfolio was optimized within that organization and focused on higher growth opportunity areas, we have seen a return to top-line growth that we expect for the full year. Overall, solid performance, including in productivity. Are we satisfied? No. We are pleased with the progress, but we know we have so much potential that we are creating a bigger ambition across each business, and we expect to realize that in the coming five years. Operator: Thank you. Our next question comes from the line of Patrick Cunningham with Citigroup. Patrick, your line is now open. Alex: Hi. Good morning. This is Alex on for Patrick. With all the different puts and takes now, what are your expectations for free cash flow in 2026? Michael DeVeau: Thanks for the question. Cash flow improvement is a key priority in 2026. For the year, I continue to expect a meaningful improvement driven by: one, improvements in profitability; two, improvement in working capital; three, lower interest expense; and four, a lower incentive compensation payout year over year versus prior year. We are off to a very good start, but we still have more work to do over the next three quarters. As I explained on our Q4 call, we have also added a compensation metric for the entire organization based on free cash flow conversion to EBITDA, so we are not only driving it strategically, we are also comping on it to drive the right behavior. In terms of a specific target, I will refrain from providing one until we have clarity on Food Ingredients. The only thing I will say is that I expect it to be better in 2026 than it was in 2025—we will see a year-over-year improvement. Operator: Thank you. Next question comes from the line of Silke Kueck with JPMorgan. Silke, your line is now open. Silke Kueck: Hi, good morning. Can you talk about in which segments you think you gained share this quarter, whether it is in Taste or Health & Nutrition? And can you quantify in some way the product launches that are coming in the back half and which areas they will come in? Erik Fyrwald: Great question. First of all, I think it is unhelpful to just look at one quarter; we need to look at trends over time. I am very pleased with the progress we are making in Health & Biosciences enzymes and in cultures/food biosciences. The area of challenge that we have talked about is Health. I am pleased with the progress we are making to turn that around, and we will start to see some progress in the second half, accelerating into next year. In Scent, we have done very well versus the market in Fine Fragrance; we talked about some temporary challenges there. On the Consumer Fragrance side, we fell a little bit behind; we now have a really strong team in place, a very strong commercial pipeline, and we are starting to see that turn. You will see that in the second half and into 2027. We have a really good innovation pipeline in our Scent business that we did not have before; you will see that starting to manifest in the marketplace later this year, with real impact in 2027 and beyond. In Taste, very solid performance; we are performing ahead of the market, and I expect that to continue with a very good commercial and innovation pipeline. In Food Ingredients, the transformation and turnaround continue, performing well against competitors across the business, which is why we expect the sale process to continue to go well. Overall, very pleased. We have a couple of areas—the commodity Scent Ingredients and Health—where we need to get back to performing ahead of the market and deal with the commodity Scent Ingredients business. We are making progress in all those areas—pleased but not satisfied, more to do. Operator: Thank you. Our next question comes from the line of Christopher S. Parkinson with Wolfe Research. Christopher, your line is now open. Harris Fein: This is Harris on for Chris. Thanks for taking my question. On the Taste margins, they came in a fair bit better than we were expecting on not a huge amount of organic growth. Can we zoom in on what is happening there? Is it productivity? Is it mix? How should we be thinking about that? Thanks. Michael DeVeau: Sure. Great question. Thanks, Harris. When I think about the Taste business, they have been doing very well in terms of overall growth performance. Quarter after quarter, whether you compare versus competition or historical trends, they are continuing to deliver—predicated on really good volume growth. At the same time, they have been driving pricing, which has been favorable in terms of net raw material cost, so that is also helping—not only volume leverage, but a favorability in terms of net price to input costs. Third is productivity. The team has done a really good job being disciplined in driving productivity throughout the business to support margin performance. Regarding Q1 performance on a go-forward basis, timing of inventories and some of that leverage will abate. The 18% currency-neutral EBITDA growth is very high; I would not expect that to persist. It will normalize. The team did a very good job with the hand they were dealt in Q1. Operator: Our next question comes from the line of Kate Grafstein with Barclays. Kate, your line is now open. Kate Grafstein: Thanks. As you start to have pricing discussions with your customers, are you noticing any pushback? And at what level of pricing would you need to offset the expected inflation over the next twelve months? I have a follow-up after. Michael DeVeau: I had the fortune to run pricing in our Taste division for a couple of years at International Flavors & Fragrances Inc., and nothing is fundamentally different. Pricing conversations are always a give-and-take relationship. What is really important is to engage based on facts. From a market standpoint today, nobody can refute logistics and energy increases. We are having tactical conversations specifically on that. We also want to collaborate with our customers; we can offer solutions to help them reduce cost by reformulating and doing different things, and we are absolutely willing to do so. So this is consistent with historical norms. In terms of the level of pricing, I would categorize it as a modest benefit this year as we work through logistics and energy. As we go forward, we are focused on raw materials; as we go into the back half of this year and into 2027, we will work with our customers there. It is modest over the next couple of quarters in terms of overall price, but it will build over time as we progressively move forward. Erik Fyrwald: Let me add that having trust with our customers is really important to us. We are being very clear that we are not trying to take advantage of this to increase our margins; we are trying to just pass through the cost increases we are seeing from higher costs and being very clear about the cost. Where we are trying to drive our margin improvement is through great innovation that customers love and that helps them profitably grow, and through productivity. Kate Grafstein: Thanks. On the productivity piece, it has been very strong—last year and this quarter. Is it possible to accelerate productivity as another lever if pricing does not come through as strong as you expect? Michael DeVeau: Yes. You can always look at the organization and incremental opportunities. We have a long-term productivity plan that the teams are working on as they think about their margin evolution. In the short term, if there is pressure, we have levers we can pull to drive incremental productivity to help minimize any potential gaps. First and foremost, we are focused on getting the surcharges in place, and as we progress over the course of the year, we will consider whatever we need to do in terms of productivity to cover. Operator: At this time, I would now like to turn the conference call back over to Erik for any closing remarks. Erik Fyrwald: Thanks, everybody, for joining. To summarize, two years ago, we laid out our plan and direction. We are executing well—doing what we said we would do. We said we would drive our commercial and innovation pipelines—that is happening. We said we would deliver on productivity—that is happening. I am very proud of Team IFF all around the world for making this happen. We love our customers, and we love bringing them leading innovation that helps them drive profitable growth and enables us to also profitably grow. Thank you. Operator: Thank you. That will conclude the International Flavors & Fragrances Inc. First Quarter 2026 earnings conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Hello, and welcome to Vir Biotechnology, Inc. First Quarter 2026 Financial Results and Corporate Update Conference Call. As a reminder, this call is being recorded. After the speakers' presentation, there will be a question and answer session. I will now turn the call over to Kiki Patel, Head of Investor Relations. You may begin, Kiki. Kiki Patel: Thank you, operator. Welcome, everyone. Earlier today, we issued a press release reporting our first quarter 2026 financial results and corporate update. Before we begin, I would like to remind everyone that some of the statements we are making today are forward-looking statements under applicable securities laws. These forward-looking statements involve substantial risks and uncertainties that could cause our clinical development programs, collaboration outcomes, future results, performance, or achievements to differ significantly from those expressed or implied by such forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding the potential benefits of our collaboration with Astellas, the therapeutic potential of 5,500 and our PROXTEN platform, our development plans and timelines, financial terms and milestone payments, and our cash runway and capital allocation priorities. These risks and uncertainties and risks associated with our business are described in the company's reports filed with the Securities and Exchange Commission including Forms 10-K, 10-Q, and 8-K. Joining me on today's call from Vir Biotechnology, Inc. are Marianne De Backer, our chief executive officer, and Jason O’Byrne, our chief financial officer. During 2026, the Vir Biotechnology, Inc. team delivered meaningful advances across our T cell engager and hepatitis delta programs, underscoring our ability to execute towards key clinical and corporate priorities. The agenda for our call today is as follows. First, Marianne will share an update on our recent landmark global strategic collaboration with Astellas and our prostate cancer program. Next, she will provide an update on our hepatitis delta program evaluating tobevibart, an investigational neutralizing monoclonal antibody, and elebsiran, an investigational small interfering RNA. Then Jason will provide an overview of our first quarter 2026 financial results. And finally, Marianne will close the call and we will open the line for Q&A. With that, I will now turn the call over to Marianne. Marianne De Backer: Thank you, Kiki. Good afternoon, everyone, and thank you for joining us for Vir Biotechnology, Inc. first quarter 2026 earnings call. Since our last earnings call in February, we have remained highly focused on execution as we advance both our oncology and hepatitis delta programs with speed and focus. I will begin by providing a brief update on the current status of our recent collaboration with Astellas, a deal valued at up to $1.7 billion. In addition, in the U.S., commercial profits will be split 50/50 between the parties with Vir Biotechnology, Inc. having the option to co-promote alongside Astellas. As a reminder, on February 23, 2026, we announced that we entered into a collaboration with Astellas to co-develop and co-commercialize VIR-5500, our PROXTEN dual-masked PSMA-targeted T cell engager. Since then, the transaction successfully closed on April 15, 2026, marking an important transition from deal announcement to deal execution. With the deal closed, our joint teams are operational and partnering closely on a shared clinical development plan to enable rapid expansion and accelerate delivery to patients. This collaboration brings together Astellas’ global leadership in prostate cancer with our differentiated PROXTEN-enabled T cell engager. We chose to partner with Astellas because of their decade-long track record of successfully co-developing category-defining therapies, including Xtandi, the world’s number one prostate cancer drug. Metastatic castration-resistant prostate cancer, or mCRPC, remains a significant unmet need with a 5-year survival rate of only 30%, underscoring the urgency for new treatment options that can deliver even deeper, more durable disease control and improved quality of life. VIR-5500 is the most advanced dual-masked T cell engager currently under evaluation in prostate cancer. The foundational driver of the Astellas collaboration shaping our development strategy going forward is our Phase 1 data for VIR-5500. Johann de Bono shared an update from this study evaluating patients with advanced mCRPC as an oral presentation at ASCO GU in February. Today, I will highlight key takeaways from the data. For a more comprehensive update from the trial, please refer to our fourth quarter earnings call from February 23, 2026. Overall, the VIR-5500 data showed a favorable safety and tolerability profile with no observed dose-limiting toxicities. At the dose levels of 3,000 micrograms per kilogram and above, we saw mostly Grade 1 cytokine release syndrome, or CRS, defined as fever only. We did not observe any Grade 3 CRS at this dose, reinforcing the potential of the PROXTEN dual masking platform to widen the therapeutic index of our T cell engagers. We view the absence of high-grade CRS at our go-forward monotherapy dose, together with a lack of mandatory steroid premedication in our protocol, as a meaningful differentiator for 5,500. We believe that sparing steroids may help preserve T cell function and reduce treatment complexity for both patients and physicians. Collectively, these attributes support the potential for outpatient administration and could translate into significant clinical and commercial advantages over time. Importantly, this profile may support positioning 5,500 in both the pre- as well as post–radioligand therapy, or RLT, settings, offering flexibility across the treatment continuum and potential use in routine care settings relative to the specialized infrastructure required for RLT administration. Furthermore, the depth of PSA and RECIST responses we observed were particularly encouraging, with several patients sustaining responses for up to 27 weeks. Additionally, we saw emerging signs of durability up to 8 and 12 months, respectively, in patient cases with extended follow-up. One of the most compelling aspects of our data is that these deep responses were observed in heavily pre-treated patients with advanced poor-prognosis disease, including liver metastasis. This is historically the most difficult population to treat and resistant to immunotherapies, underscoring the clinical significance of the activity we are seeing. Additionally, we observed a complete response for a patient who previously relapsed on an actinium-based PSMA-directed radioligand. We view these findings as especially meaningful given historically poor outcomes and limited responsiveness of this patient population to subsequent therapies. Building on these encouraging Phase 1 dose-escalation monotherapy results, we have dosed a first patient in our Phase 1 dose expansion cohorts for VIR-5500 in late-line patients. This milestone represents an important step in evaluating VIR-5500’s best-in-class potential for people living with prostate cancer. In the monotherapy expansion cohorts, we are evaluating Q3-week 800, 2,000, and 3,500 microgram per kilogram step-up dosing. This study will measure safety and efficacy including PSA responses and objective response rate, or ORR, of VIR-5500 in patients with mCRPC who are refractory following treatment. These patients will have had exposure to multiple prior lines of therapy, including at least one second-generation androgen receptor pathway inhibitor and one taxane regimen. The expansion includes two distinct cohorts: patients who are naïve to prior RLT and patients who have previously received RLT in any treatment setting. Dose escalation of VIR-5500 in combination with enzalutamide continues in early-line mCRPC patients. We anticipate dosing the first patient in the combination dose expansion cohorts in both early-line mCRPC and metastatic hormone-sensitive prostate cancer over the coming months. Together, these cohorts highlight the potential of VIR-5500 across the prostate cancer continuum, including in the frontline setting. VIR-5500 has the potential to be a best-in-class T cell engager. We anticipate initiating our registrational Phase 3 program for VIR-5500 in 2027. These results provide validation of our broader platform, unlocking significant opportunities to develop next-generation masked T cell engagers in other solid tumor types. Turning now to the rest of our clinical-stage T cell engager programs. VIR-5818 is our PROXTEN-masked HER2-targeted T cell engager. We view this as a signal-finding study given the early stage of development and the basket design where multiple tumor types are evaluated in parallel. We expect to report preliminary response data evaluating VIR-5818 monotherapy and combination therapy with pembrolizumab in 2026. This update is intended to inform our understanding of dose and help identify which HER2-expressing populations may warrant further study, particularly in areas of high unmet medical need. For VIR-5525, our PROXTEN dual-masked EGFR-targeted T cell engager, Phase 1 study enrollment is progressing as expected. The study design incorporates learnings from 5818 and VIR-5500 to enable efficient dose escalation. We are evaluating both monotherapy and combination with pembrolizumab across multiple EGFR-expressing tumor types, including non-small cell lung cancer, colorectal cancer, head and neck squamous cell carcinoma, and cutaneous squamous cell carcinoma. We believe this program has the potential to address significant unmet medical need in these indications where existing EGFR-targeted approaches have limitations. Turning now to our hepatitis delta program. The hepatitis delta community is severely underserved, with approximately 180,000 actively viremic patients across the United States, UK, and EU based on a composite of high-quality epidemiology sources. In the U.S., the patient population is highly concentrated in major urban centers and can be supported by an efficient commercial approach with a targeted specialty sales organization focused on hepatologists, gastroenterologists, and infectious disease specialists. Overall, we expect our tobevibart plus elebsiran combination to have two clear advantages in chronic hepatitis delta versus our competitors. The first is that we are seeing potential best-in-class efficacy with a strong safety profile. The second is that our regimen is designed with once-monthly subcutaneous dosing with the potential for both at-home and in-office administration. For viral infectious diseases, clearing the virus is the key to improving long-term outcomes. KOLs in chronic hepatitis delta highlight undetectable virus as measured by “target not detected,” or TND, as the gold standard measure of viral clearance. Achieving undetectable HDV by this measure is the most stringent threshold available and means that the delta virus is completely cleared from the bloodstream. As the delta virus replicates so aggressively, patients need HDV to be completely undetectable for positive clinical outcomes and to avoid rebounds. Peer-reviewed evidence suggests that patients with hepatitis delta who achieve undetectable virus have significantly improved long-term clinical outcomes, including reduced progression to cirrhosis, hepatocellular carcinoma, liver transplantation, and death, compared with patients in whom virus remains detectable. These data support undetectable virus as a key clinically meaningful goal of antiviral therapy for patients with hepatitis delta. In January, we reported potential best-in-class efficacy in our Phase 2 SOLSTICE trial in patients with chronic hepatitis delta for a subset of patients at Week 96. Evaluable participants receiving the combination therapy of tobevibart and elebsiran showed increased and sustained viral suppression of HDV RNA versus treatment with the antibody alone. The data showed 88% of evaluable participants achieved undetectable virus, compared to 46% on tobevibart monotherapy alone. Additionally, we saw rapid onset of viral suppression, achieving 41% undetectable virus within 24 weeks. These results underscore the limited efficacy of hepatitis delta treatment with antibody monotherapy alone. In contrast, combining complementary mechanisms of action with tobevibart plus elebsiran raises the rate of undetectable virus to approximately 90%. Importantly, we see similar efficacy in cirrhotic patients, who will be a significant patient cohort at launch due to the delayed diagnosis of most hepatitis delta patients to date. The combination was well tolerated with no Grade 3 or higher treatment-related adverse events and no discontinuations. The second key differentiator is that tobevibart plus elebsiran will be administered only monthly, consisting of two subcutaneous injections administered at the same time. As a reminder, competitors’ lead regimens require either daily or weekly injections. For the hepatitis delta patient population, this frequency will be a significant challenge, so we see monthly dosing as an additional meaningful differentiator for our regimen. Additionally, due to the need for higher dosing frequency of competitive regimens, tobevibart plus elebsiran may have the potential to be the only product conveniently enabling both self-administration at home and physician administration in office. This is important because physicians have indicated that up to 20% of hepatitis delta patients might not be able to self-administer, so tobevibart plus elebsiran may be the only treatment available for this group of patients. Our hepatitis delta regimen has already been recognized by multiple global regulators with FDA Breakthrough Therapy and Fast Track designations, as well as EMA PRIME and orphan drug designation, underscoring both the unmet need and the strength of the data package. These designations provide ongoing engagement with both agencies and support a high level of confidence in our ability to achieve broad labels for our regimen. We are pleased to share that we will be presenting the complete 96-week SOLSTICE Phase 2 data in an oral presentation at the upcoming EASL 2026 annual meeting in Barcelona on May 29, 2026. We will also be presenting a poster of a 48-week subgroup analysis evaluating the impact of BMI on ALT normalization after successful viral control. As we look ahead to our ongoing registrational program, all three of our ECLIPSE studies are on track. ECLIPSE 1 enrollment is complete with approximately 120 participants randomized 2:1 to our combination therapy versus deferred treatment. The primary endpoint is a composite of undetectable virus as measured by HDV RNA TND plus ALT normalization at Week 48. We expect to report topline data from ECLIPSE 1 in the fourth quarter of this year. ECLIPSE 2 enrollment continues on track across multiple European sites. This study will enroll approximately 150 patients who are being randomized 2:1, evaluating the switch to our combination therapy in patients who have not adequately responded to bulevirtide. The primary endpoint for the trial is undetectable virus as measured by HDV RNA TND at Week 24. The strong enrollment momentum we are seeing in Europe reflects an important unmet need in patients previously treated with bulevirtide. For ECLIPSE 3, our Phase 2b head-to-head comparison, enrollment is complete, with approximately 100 patients randomized 2:1 to our combination therapy versus bulevirtide. The primary endpoint for the trial is undetectable virus as measured by HDV RNA TND at Week 48. In general, we view Gilead’s expected U.S. launch of bulevirtide as a positive for the hepatitis delta market overall and one that helps pave the way for next-generation therapies like ours. Hepatitis delta remains significantly underdiagnosed and undertreated, and the introduction of the first approved therapy in the U.S. should meaningfully raise disease awareness, expand screening, and establish treatment pathways among treating physicians. Complementing this, we have an experienced commercialization partner through our collaboration with Norgine, who holds an exclusive license across Europe, Australia, and New Zealand. Norgine’s established infrastructure in specialty pharma and hepatology positions us to maximize the commercial opportunity of our HDV regimen across these geographies. In summary, we have made exceptional progress across our entire clinical portfolio, and we believe these advancements leave us well positioned to deliver on our clinical and corporate objectives. With that, I will now hand the call over to Jason for our financial update. Jason O’Byrne: Thank you, Marianne. Before discussing the first quarter financials, I will share the latest news about our Astellas collaboration. We are pleased to report that the 5,500 global collaboration and licensing agreement closed on 04/15/2026 following expiration of the HSR waiting period. Upon closing, Vir Biotechnology, Inc. received a $75 million cash payment representing Astellas’ equity investment, and within 30 days of closing, we will receive a $240 million upfront payment. As a reminder, we are eligible to receive a $20 million manufacturing tech transfer milestone payment in 2027, will share global development costs 40% by Vir Biotechnology, Inc. and 60% by Astellas, and will split U.S. commercial profit/loss equally with Astellas. We are eligible to receive up to an additional $1.37 billion in development, regulatory, and ex-U.S. sales milestones, along with tiered double-digit royalties on ex-U.S. net sales. A portion of certain collaboration proceeds will be shared with Sanofi according to the terms of that licensing agreement. Overall, this deal provides immediate capital and significantly reduces our near-term development spend, preserving substantial long-term economic upside. The collaboration with Astellas can maximize the value of VIR-5500 through accelerated clinical development and global reach, potentially benefiting more patients and creating greater value for our shareholders. Shortly after announcing our global collaboration with Astellas and sharing updated Phase 1 data from the VIR-5500 program, we completed a follow-on equity offering. On 02/27/2026, the offering closed, and we received gross proceeds of approximately $172.5 million before deducting underwriting discounts and commissions and estimated offering expenses. We intend to use the proceeds from the offering to fund our share of the development costs for VIR-5500, to advance the broader T cell engager platform, and for working capital and other corporate purposes. Turning now to our balance sheet. We ended the first quarter with approximately $809.3 million in cash, cash equivalents, and investments, which includes the aforementioned proceeds from the follow-on offering. Subsequent to quarter end, we closed the Astellas collaboration; therefore, $315 million in proceeds from that transaction are not reflected in our 03/31/2026 cash position. Based on our current operating plan, and including the net effects of the recent Astellas agreement and capital raise, we expect our cash runway to extend into 2028, enabling multiple value-creating milestones across our pipeline. Now I will review our first quarter 2026 financial performance and overall financial position. R&D expense for the first quarter of 2026 was $108.9 million, which included $6.0 million of stock-based compensation expense. This compares to $118.6 million for the same period in 2025, which included $7.0 million of stock-based compensation expense. The year-over-year decrease was primarily driven by a $30 million payment to Alnylam in 2025, partially offset by hepatitis delta qualification batch manufacturing costs and, to a lesser extent, higher clinical expenses in 2026. SG&A expense for the first quarter of 2026 was $23.3 million, which included $6.1 million of stock-based compensation expense, compared to $23.9 million for the same period in 2025, which included $7.1 million of stock-based compensation expense. First quarter 2026 operating expenses totaled $132.3 million, representing a $10.3 million decrease compared to the same period in 2025. Net loss for the first quarter of 2026 was $125.7 million compared to a net loss of $121.0 million for the same period last year. Looking ahead, we will continue disciplined allocation of capital, prioritizing investments in those programs with the greatest potential for meaningful patient benefit and value creation. With that, I will now turn it back over to Marianne to close the call. Marianne De Backer: To close, we are exceptionally well positioned for long-term value creation at this inflection point. Since December 2025, the combination of our collaborations with Norgine and Astellas, together with a successful financing, has generated over half of $1 billion in capital, significantly strengthening our balance sheet. With the closing of our global collaboration with Astellas this quarter, we now have an established partner to advance VIR-5500 aggressively across the prostate cancer landscape while maintaining disciplined capital allocation. Overall, the combination of potent antitumor activity and a favorable safety profile underscores VIR-5500’s potential as a best-in-class T cell engager for the treatment of prostate cancer. Beyond our clinical programs, we are steadily advancing seven preclinical T cell engager assets that utilize the PROXTEN platform and broaden our pipeline’s optionality, positioning us well to generate the next wave of value creation. At the same time, our hepatitis delta program continues to generate compelling and increasingly differentiated clinical data with multiple near- and mid-term catalysts ahead across our ECLIPSE studies. Taken together with our progress in oncology, this momentum underscores the breadth of our scientific platforms and our ability to execute with focus, urgency, and discipline. Looking ahead, our priorities are clear: to deliver rapid, high-quality clinical execution, advance multiple expansion and registrational-enabling studies, and deploy capital thoughtfully in ways that maximize long-term value while keeping patients at the center of everything we do. With that, I will turn the call over to Kiki to begin the Q&A session. Kiki Patel: Thank you, Marianne. This concludes our prepared remarks. We will now open the call for questions. Joining me for the Q&A are Marianne and Jason. Please limit questions to two per person so that we can get to all of our covering analysts. I will turn it over to you, operator. Operator: Thank you. We will now begin the question and answer session. Star one to ask a question. We ask that you pick your handset up when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Our first question comes from Paul Choi with Goldman Sachs. Paul Choi: Good afternoon, everyone, and thanks for taking our questions. My first question is on 5,818 in the HER2 setting. Can you comment on your level of interest in future development, particularly in HER2-positive breast cancer? It is not listed among the tumor types in your quarterly deck here, and so I am just curious, given the number of available therapies for that particular tumor type, what is the criteria from your upcoming dataset for potential development in that tumor type? And then I had a follow-up question. Marianne De Backer: Thank you, Paul, for that question. We will be sharing data on our 5,818 program in the second half of this year, and this will be both for our monotherapy dose escalation and dose escalation in combination with pembrolizumab. As to future development, we will, at that time, be able to provide a better picture as to what future expansion cohorts could be. Specifically to your question on breast, I would say that obviously the bar is high, but do keep in mind that this drug class, for example like in HER2, has a 1% mortality rate, so there is certainly still prospect to come up with better treatments. Again, we will be sharing data in the second half of the year and will then give a prototype of where we see the program heading. Regarding your follow-up question on 5,500 and potential development in earlier treatment settings, we already have a dose escalation ongoing for early-line 5,500 combined with an ARPI. Together with Astellas, our collaboration partner, we are planning to start an expansion cohort in the same setting, a combination of VIR-5500 with enzalutamide. That is expected in the coming months. Paul Choi: Okay. Great. Thank you for that. Operator: Your next question comes from Roanna Clarissa Ruiz with Leerink Partners. Your line is open. Please go ahead. Michael Ulz: Hi. This is Michael on for Roanna. Thank you for taking our question. Regarding 5,500 late-line mCRPC monotherapy expansion cohorts, what would constitute a clear signal as a green light to initiate Phase 3 in 2027? Are you anchoring on PSA-50, PSA-90, or RECIST or PFS, something like that? And I also had a question about the underlying biology for PROXTEN protease cleavage. How tumor-specific is the protease activation profile across different tumor types? For example, are you seeing differential cleavage kinetics in prostate versus colorectal or NSCLC that might affect the therapeutic index? Marianne De Backer: We have dosed the first patient in the baseline expansion cohort for VIR-5500 monotherapy. In that expansion cohort, we are going to explore more in-depth both pre- and post–radioligand therapy; that will be additional data we will be gathering, as we only had a limited set of such patients in our initial cohort on which we reported data on February 23, 2026. It is going to be the totality of the data—PSA, RECIST, rPFS—and we will have a fuller dataset to decide on next steps. Our goal, pending data, is to start pivotal trials in 2027. Regarding PROXTEN biology and protease cleavage, one of the founders of the company that was acquired by Sanofi, from which we licensed the technology, has been working in this field for over 20 years. The protease-cleavable linker is really a promiscuous linker across different families of proteases to ensure activity across a broad set of tumor types. This design supports consistent activation and helps drive a favorable therapeutic index across indications. Operator: Your next question comes from Cory Kasimov with Evercore. Analyst: Hey. This is Josh Gazzara on for Cory. Thanks for taking our question. Maybe one on HDV. As you approach the pivotal HDV data, what are your latest thoughts on pricing there? And then a quick follow-up on 5,500: especially in the late-line castration-resistant setting, is there a minimum durability you and Astellas are looking for before you move into a Phase 3—a specific number or competitive threshold? Marianne De Backer: Thank you, Josh. Hepatitis delta is an orphan disease. There are a number of anchor points for price that we can point to. The first is the price of bulevirtide in Europe, which varies somewhere between $60,000 and $165,000 gross price. You could also look at the price of bulevirtide in Canada, which was set at, I believe, $115,000. Across your fellow analysts, I see estimated prices vary somewhere between $150,000 and $250,000. We think that is very adequate for a severe orphan disease where we would be delivering substantial patient benefit. On durability for 5,500, we will be looking at the totality of the data rather than a single threshold. Several T cell engagers have shown durable responses. Our dataset is still a little early, but we have observed a number of patients with confirmed partial responses beyond 27 weeks, and we have case examples of one patient on treatment for 8 months and another for a year and continuing. We will look for greater consistency across the broader expansion cohort. Operator: Your next question comes from Alec Stranahan with Bank of America. Your line is open. Please go ahead. Analyst: Hey, guys. This is Matthew on for Alex. Thanks for taking our questions, and congrats on the progress. Two for us on competitive landscapes. First, for HDV: just curious your thoughts on Mirum’s data that came out recently and whether that changes your thoughts on your opportunity or the competitive landscape. And secondly, for EGFR T cell engagers, a competitor recently discontinued development of their dual-masked program—what gives you confidence that your strategy will pan out where others have failed? Marianne De Backer: On your first question, as I laid out in the introduction, we and key opinion leaders in this field strongly believe that what really matters in a viral disease is to get rid of the virus, measured by HDV RNA target not detected. For our monthly regimen of tobevibart and elebsiran at 48 weeks—our primary endpoint—we achieved about 66% TND, increasing from 41% at 24 weeks to 66% at 48 weeks and then to 88% at 96 weeks. We did not see this increase for our antibody monotherapy, which was about 30% TND at 24 weeks and then plateaued around 50%. Mirum’s monthly therapy appears to show only 5% TND, which may not be viable; for their weekly 300 mg regimen, they are showing 30% TND at 24 weeks. From a viral efficacy perspective, we believe we have a potentially superior, best-in-class regimen. For ALT normalization, results across different regimens appear similar in the roughly 40–50% range; we had 47% at 24 weeks and Mirum reported between 40% and 45%. Again, we believe viral elimination to undetectable is what really matters, and there we clearly have superior data. As to EGFR, yes, Janssen discontinued their EGFR T cell engager. The musculoskeletal issues reported as dose-limiting toxicity were unexpected and something we will watch. We strongly believe our masked T cell engagers are differentiated. Our masking technology uses steric hindrance—the same PROXTEN mask across all clinical programs—so we do not need to redesign a new mask every time. We can translate learnings across programs. With VIR-5500, the masking technology allows dosing much higher, which can deliver a better therapeutic index. Our masking approach is fundamentally different. Operator: Your next question comes from Philip Nadeau with TD Cowen. Your line is open. Please go ahead. Philip Nadeau: Good afternoon. Thanks for taking our questions. Two from us. First on 5818: you referenced the dose-escalation data in the second half of the year. Can you give us some sense of what will be disclosed at that time—number of patients, duration of follow-up, measures that you will talk about, and what tumor types will be in the update? Second, on HDV, your presentation cites about 104,000 patients with HDV in the U.S. and Europe. How many of those do you estimate are diagnosed and under the care of a physician, so could be amenable for therapy shortly after launch? Marianne De Backer: For 5818, we will be sharing data from both the monotherapy dose escalation and the dose escalation in combination with pembrolizumab in the second half of the year. We will provide the number of patients at that time. The 5818 trial is different from our 5,500 trial; it is a basket trial with a wide variety of tumor types. We have already shown initial results, for example in metastatic colorectal cancer, where we had a 33% confirmed partial response. Where we have enough patients in a given tumor type, we will share information on responses and tumor shrinkage. Importantly, we view 5818 as a signal-seeking trial to inform potential expansion cohorts. On hepatitis delta, we estimate about 61,000 actively viremic patients in the United States. It is a hugely underdiagnosed disease; we believe only about 10–15% are diagnosed at this time. Once a regimen becomes available, that could change. Diagnostic testing is getting better and is relatively affordable: Medicare reimbursement rates are about $17 for an antibody test and about $43 for a quantitative RNA test. The current challenge is patients often need two or three visits: first for an HBV test, then an antibody test, then an RNA test. Streamlining can help. In Europe, reflex testing—immediately testing for hepatitis delta on the same sample when a patient tests positive for hepatitis B—has increased diagnosis rates substantially. If such guidelines are adopted in the U.S., it could drive a significant increase. Operator: Your next question comes from Etzer Darout with Barclays. Your line is open. Please go ahead. Analyst: Hi. This is Luke on for Etzer. Thanks for taking our question. For HDV, with the ECLIPSE 1 trial reading out in 4Q and then you have ECLIPSE 2 and 3 reading out in 1Q next year, assuming a positive ECLIPSE 1 trial, is that going to be enough to support a BLA filing, or do you need to wait for 2 or 3 to do that? And then on 5,500, the partnership announcement with Astellas said they will be responsible for all development activities after Phase 1. What kind of visibility will you have into those trials as they enroll? Marianne De Backer: On the collaboration with Astellas, it is a global co-development and co-commercialization agreement with significant joint governance. We have a joint development committee, joint steering committee, joint manufacturing committee, joint IP committee, joint finance committee, and so on, with equal representation and joint decision-making, with standard escalation paths. We will remain very intricately involved. We are running the Phase 1 trials now, with Astellas very involved as well. Operational ownership of a given trial matters less than pre-alignment on the clinical development plan and budget, and we are set up to make joint, swift decisions. Regarding filing requirements, our guidance is that we would need a combination of ECLIPSE 1 and ECLIPSE 2 for filing. We will have ECLIPSE 1 data in 4Q 2026, and ECLIPSE 2 in 1Q 2027. Operator: Your next question comes from Sean McCutcheon with Raymond James. Your line is open. Please go ahead. Sean McCutcheon: Hi, guys. Just one quick question from us. You talked a bit about competitor data in HDV, but could you speak to the component of a competitor running an all-comer study with a meaningful proportion of patients with elevated ALT above five times the upper limit of normal, and any potential read-through to how you are seeing the patient population? Marianne De Backer: The estimation is that maybe about 5% of delta patients have an ALT above 5x the upper limit of normal. These very high ALT levels can have a lot of different reasons. We and KOLs strongly believe that the real measure of liver damage is cirrhosis status, and that is why we have enrolled more than 50% of patients in our trial who are CPT-A cirrhotic, and we have shown really good results—similar to slightly better—in those patients. Operator: Your next question comes from Joseph Stringer with Needham. Your line is open. Please go ahead. Joseph Stringer: Hi. Thanks for taking our questions. For the Phase 3 ECLIPSE 1 trial in HDV, what is your current thinking on the bar for success on the 48-week primary composite endpoint? Would replicating the approximately 38% response rates that you saw in Phase 2 set you up for success here? Marianne De Backer: ECLIPSE 1 compares treatment with our regimen of tobevibart and elebsiran versus deferred treatment. It is almost like a placebo-controlled trial, which makes it very likely to be successful. The bar for success is really low given the endpoint is TND plus ALT normalization. For example, for bulevirtide 10 mg in Phase 3, the level of TND you can reach is about 20%, and it was 12% for the 2 mg dose. So the bar for success is not that high. We believe we have a combination of best-in-class viral efficacy and ALT normalization that appears similar across regimens. First, patients who will be on bulevirtide will have to inject themselves daily, and it is a chronic treatment. Chronically, every single day, they will need to inject themselves, and for bulevirtide 10 mg, the expected level of TND you can reach is about 20%. In contrast, our combination regimen of tobevibart and elebsiran is a monthly subcutaneous administration with a TND at 48 weeks of 66%. The chances of success for patients are much higher, and convenience is also much better. We are also running ECLIPSE 2, which looks at bulevirtide failures—patients who have not achieved adequate response—so we will be prepared at launch to have both options available for at-home and in-office administration. Kiki Patel: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, greetings, and welcome to the Rand Capital Corporation First Quarter FY 2026 Financial Results Conference Call. At this time, all participants are in the listen-only mode. If anyone requires operator assistance during the conference call, please signal the operator by pressing star and 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Craig Mychajluk. Please go ahead. Thank you, and good afternoon, everyone. Craig Mychajluk: We appreciate your interest in Rand Capital Corporation for joining us today for our first quarter 2026 financial results conference call. On the line with me are Daniel Penberthy, our President and Chief Executive Officer, and Margaret Whalen Brechtel, our Executive Vice President and Chief Financial Officer. A copy of the release and slides that accompany our conversation is available at randcapital.com. If you are following along on the slide deck, please turn to Slide two. I would like to point out some important information. As you are likely aware, we may make forward-looking statements during this presentation. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ from where we are today. You can find a summary of these risks and uncertainties and other factors in the earnings release and other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. During today's call, we will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results in accordance with generally accepted accounting principles. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's earnings release. With that, please turn to Slide three, and I will hand the discussion over to Daniel Penberthy. Daniel? Daniel Penberthy: Thank you, Craig Mychajluk, and good afternoon, everyone. We view Q1 as a transition quarter for Rand Capital Corporation. Our results reflected the impact of nonaccruals and a smaller income-producing portfolio due to the repayment of several debt investments during 2025. But we have also made progress on several fronts that we believe are important as we move through 2026. Investment income for the quarter was $1.2 million and net investment income was $0.18 per share. Those figures were below the prior-year period primarily due to a reduced amount of interest income from our current portfolio companies as compared with 2025. At the same time, we generated a realized gain of approximately $1.1 million from the exit of Cybertz, or The Rack Group as it is commonly known, and we also deployed $5.1 million into new and follow-on investments during the quarter. This includes our new investment in AME HoldCo. From a capital position standpoint, we ended the quarter with net asset value of $17.16 per share with approximately 80% of the portfolio invested in debt investments, and more than $20 million of available liquidity, with only $0.5 million drawn on our line of credit at quarter end. So while the quarter's earnings reflect the lag from 2025 debt repayments and current portfolio nonaccruals, we believe the quarter also showed continued execution through capital recycling, new investment activity, and balance sheet flexibility. With that overview, let us turn to Slide four. Delivering consistent cash dividends remains central to Rand Capital Corporation’s strategy. During the first quarter, we paid our regular quarterly cash dividend of $0.29 per share, and in April, we declared another regular dividend of $0.29 per share for 2026. That consistency is important. Even in periods where repayments have reduced the size of the earning portfolio and nonaccruals have weighed on our current income, we have remained focused on supporting the regular dividend while rebuilding the portfolio. The nature of the GAAP versus tax or RIC-based accounting for our dividends has benefited us in 2026 as we work hard to rebuild the portfolio base supporting future dividends. Our dividend strategy remains disciplined and earnings driven. We want to preserve balance sheet flexibility, continue to support the portfolio where appropriate, and deploy capital selectively into investments that can contribute to income and create long-term shareholder value. Please turn to Slide five for a review of the portfolio. At March 31, our portfolio had a fair value of $51.5 million across 20 portfolio companies. This compares with $48.5 million at year-end 2025. The portfolio remained positioned toward income generation with approximately 80% in debt investments, as I previously highlighted, and 20% in equity investments. That debt-orientated mix continues to reflect our emphasis on structures designed to generate current income while preserving some potential upside through equity participation. The annualized weighted-average yield on debt investments, including PIK interest, was 9.43% at quarter end, down from 11.3% at 12/31/2025. That decline primarily reflects the impact of nonaccruals including such companies as FSS and MRES, both of which were placed on nonaccrual status beginning in 2025. These nonaccruals dragged down the total yield on an aggregated basis. However, keep in mind our individual transactions are more typically currently being priced with interest in the 13% to 14% range. More broadly, our strategy remains focused on expanding income-producing investments over time while preserving credit quality with a disciplined approach to underwriting and valuation. Please turn to Slide six. This slide summarizes our key portfolio actions in the quarter—both new deployment and follow-on capital, as well as the actions we took in a workout situation and, importantly, a strong full-cycle realization or exit for Rand Capital Corporation. We closed a $4 million investment in AME HoldCo during the quarter consisting of a $3 million term loan at 13% and a $1 million equity investment alongside it. AME provides auto center design and installation, and we believe it fits well within our lower middle market investment strategy. We also remained active with existing portfolio companies. During the quarter, we participated with a co-investor in the buyout of MRES' senior credit position, with Rand Capital Corporation’s pro rata investment totaling approximately $0.678 million. This positioned the investor group as a senior creditor in the situation. MRES is currently being restructured through a technical bankruptcy through the courts. We are optimistic that given our strong position in both the senior and subordinated debt tranches, we will play a key role in partnering with the company to execute a successful workout plan. We also funded a $0.4 million follow-on debt investment in FSS, bringing our total investment there to a fair value of $4.3 million at quarter end. And lastly, we completed a smaller follow-on equity investment of $0.05 million into KITECH. In addition to those investments, the quarter included the final monetization of Cybertz, doing business as The Rack Group, which we view as a strong investment outcome for Rand Capital Corporation. We had previously received full repayment of our original $7.7 million debt investment, and during the first quarter, we sold our remaining equity holdings for approximately $1.3 million in proceeds, generating a realized gain of approximately $1.1 million. The Rack Group is a good example of the way our model is intended to work: earning income through the life of the investment, providing follow-on capital to support growth, and participating in upside through equity components. More broadly, it also reflects the capital recycling dynamic that is core to our strategy and all BDCs, where repayments and realizations create capital for future deployment into new income-producing opportunities. Please turn to Slide seven, which shows our balanced industry exposure across the portfolio. Professional and business services remains the largest area of exposure, followed by manufacturing, and then distribution and consumer products. While individual weighting shifted during the quarter due to new investment, follow-on funding, and repayments and valuation changes, the broader portfolio continues to reflect a balanced mix across multiple industries aligned with our lower middle market focus. We believe maintaining this balanced industry exposure supports the portfolio resilience while preserving flexibility to pursue attractive sector-specific opportunities as they do emerge. Please turn to Slide eight. Our top five portfolio investments represented approximately $22.9 million in fair value, or 44% of the total portfolio, at 03/31/2026. These holdings include International Electronic Alloys, or INEA, KITECH, Highland All About People, BMP Foodservice Supply, and AME HoldCo. These investments form an important part of the portfolio and we are focused on working with the companies to preserve creditworthiness and the value in the Rand Capital Corporation portfolio as well as to preserve and maintain their income-producing base. Some also include equity participation or PIK interest income features that can contribute to additional return potential over time. Compared with prior periods, the top five also reflect the portfolio transition we have discussed. Cybertz is no longer in the top five, following the full monetization of that investment, and AME has now entered the group following our new investment in the quarter. With that, I will turn it over to Margaret Whalen Brechtel to walk through the financial results in more detail. Margaret Whalen Brechtel: Thanks, Daniel Penberthy, and good afternoon, everyone. I will start on Slide 10, which provides an overview of our financial summary and operational highlights for 2026. Total investment income was $1.2 million, down 38% compared with the prior-year period. The decrease primarily reflects lower interest income from portfolio companies following the repayment of five debt instruments over the past year along with lower fee income. Noncash PIK interest totaled $0.244 million in this first quarter, representing 20% of total investment income compared with 31% in the prior-year period. We continue to monitor PIK exposure closely. Total expenses were $0.642 million for the quarter, down 19% compared with $0.791 million in 2025. The decrease primarily reflects lower base management fees and no income-based incentive fee accrual in 2026. Net investment income for the quarter was $0.545 million, or $0.18 per share. Adjusted net investment income per share is also $0.18 per share. Please turn to Slide 11. The waterfall chart on this slide illustrates the drivers of net asset value change during 2026. We began the period with net assets of $52.2 million. During the quarter, we generated $0.545 million of net investment income and $1.1 million of net realized gain on the sale of our remaining equity position in Cybertz. These positive contributions were offset by $2 million of unrealized depreciation and $0.861 million of dividends declared during the quarter, resulting in ending net assets of approximately $51 million and a net asset value per share of $17.16. Now turning to the balance sheet on Slide 12. At 03/31/2026, total assets were $52.5 million and net asset value per share was $17.16, as I just mentioned. Our investment portfolio accounted for $51.5 million of total assets, or $17.30 per share, while consolidated cash was [inaudible] per share. Other assets and liabilities, net, reduced net asset value by approximately $0.919 million, or $0.31 per share. We ended the quarter with $0.5 million outstanding on our senior secured revolving credit facility and approximately $20.1 million remaining availability. This facility permits up to $25 million in borrowings, subject to borrowing conditions and portfolio eligibility requirements, and it does not mature until 2027. The Board of Directors also renewed our share repurchase program, authorizing the repurchase of up to $1.5 million of additional Rand Capital Corporation common stock. The combination of modest leverage, meaningful availability under the facility, and the renewed authorization provides flexibility as we evaluate opportunities to deploy and, where appropriate, return capital to shareholders. With that, I will turn it back to Daniel Penberthy for closing remarks. Daniel Penberthy: Thanks, Margaret Whalen Brechtel. If you would please turn to Slide 13. As we step back and look at where Rand Capital Corporation stands today, we believe the first quarter continued the transition we began in 2025. We are moving from a period where repayments and portfolio events dominated the narrative into a period where we are again deploying capital selectively into new income-producing assets while managing through a handful of challenged portfolio positions. What continues to differentiate Rand Capital Corporation is our flexibility. Across the BDC landscape, investors are focused on dividend sustainability, credit quality, and balance sheet strength. We believe our actions from a capital recycling and new investment deployment perspective while maintaining conservative leverage demonstrate that we are managing with that same focus. Looking ahead, our 2026 objectives are straightforward and aligned with the slides. First, we are executing a long-term strategy anchored in a resilient, income-focused investment model. We are seeing early signs of improved sponsor activity and deal flow in our segment of the market, and we believe we are well positioned to scale the portfolio prudently as attractive opportunities emerge. Second, we intend to use our liquidity and available credit capacity to support both new investments and follow-on capital where we see compelling risk-adjusted returns. We are maintaining underwriting standards and active portfolio oversight. Including in situations like FSS and MRES, we are working to protect and, where possible, enhance future value. Third, our goal is to support a consistent earnings-driven dividend while reinforcing NAV through disciplined capital allocation. We believe our current balance sheet, portfolio mix, and pipeline give us the flexibility to pursue growth from a position of strength rather than a need to chase volume. We believe the work completed in 2025 and the actions taken in 2026 have positioned Rand Capital Corporation to rebuild the portfolio thoughtfully from a position of balance sheet strength. We remain focused on the things we can control—prudent underwriting, disciplined capital allocation, and long-term shareholder value creation. As you all know, the broader BDC market is experiencing significant volatility and private credit has become more challenging for many of the newer public and private funds. Rand Capital Corporation is not immune to these dynamics. However, we are confident that our decades of experience and the strength of our management team will guide us through what we expect to be a relatively short-lived and intermittent period of market disruption. Thank you for your time today and your continued interest in Rand Capital Corporation. We appreciate your support and look forward to updating you on our progress next quarter. Have a great day. And go Savers. Operator: Ladies and gentlemen, the conference call of Rand Capital Corporation has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Hello, and welcome to Fortinet, Inc.'s first quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we will conduct a question-and-answer session. Please be advised that this call is being recorded. I would now like to hand the call over to Anthony Luscri, vice president of investor relations. Please go ahead. Anthony Luscri: Thank you. Good afternoon, and thank you for joining us on today's conference call to discuss Fortinet, Inc.'s first quarter 2026 financial results. Joining me on today's call are Ken Xie, Fortinet, Inc.'s founder, chairman, CEO, Christiane Ohlgart, our CFO, and John Whittle, our COO. Ken will begin our call today by providing high-level perspective on our business. Christiane will then review financial results for 2026 before providing guidance. During the Q&A session, we will ask that you please limit yourself to one question and one follow-up question to allow others to participate. Before we begin, I would like to remind everyone that on today's call, we will be making forward-looking statements, and these forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. Please refer to our SEC filings, in particular, the risk factors in our most recent Form 10-K and Form 10-Q for more information. All forward-looking statements reflect our opinions only as of the date of presentation, and we undertake no obligation and specifically disclaim any obligation to update forward-looking statements. Also, all references to financial metrics that we make on today's call are non-GAAP unless stated otherwise. Our GAAP results and GAAP-to-non-GAAP reconciliations are located in our press release and in the presentation that accompany today's remarks, both of which are posted on our Investor Relations website. As a reminder, this is a live call that will be available for replay via webcast on our Investor Relations website. The prepared remarks will also be posted on the quarterly earnings section of our Investor Relations website following today's call. Lastly, all references to growth are on a year-over-year basis unless noted otherwise. I will now turn the call over to Ken. Ken Xie: Thank you, Anthony, and thank you to everyone for joining our call. We are very pleased with our excellent first quarter result, exceeding our guidance through strong execution and broader-based demand. As a result, billings grew 31%, total revenue increased 20%, and product revenue grew 41%. Non-GAAP and GAAP operating margin were very strong at 36% and 31%. With GAAP operating margin and revenue growth totaled together at 51%, one of the highest in the industry. We also generated a record $1 billion of free cash flow, highlighting the strength and durability of our business model. GAAP earnings per share increased 29%, demonstrating our commitment to strong shareholder return. The convergence of networking and security approach Fortinet, Inc. has led for 26 years is accelerating in the AI era. Customers are adopting Fortinet, Inc.'s platform with secure networking, unified SASE, and security operations built on a single FortiOS operating system, enabling expansion across many use cases. By delivering all core SASE capability natively integrated in one operating system, our SASE firewall significantly reduces cost for customers. Innovations such as FortiOS 8.0 with its rich integrated functionality and FortiASIC technology deliver higher secure computing performance at significantly lower cost. And our direct supply chain management continues to differentiate Fortinet, Inc. and support market share gain. As AI drives strong demand for SASE and firewalls, secure networking billings grew 32%, outperforming the broader market. Today, we announced the 3500G and 400G series, delivering significant performance improvement over previous generations, further strengthening Fortinet, Inc.'s leadership. OT security accelerated in the quarter with OT billings growth over 70% as customers prioritized protecting critical infrastructure amid heightened threat. Unified SASE billings grew 31%. Our differentiation is powered by three key advantages: single operating system across next-gen firewall, SD-WAN, and SASE; our own global cloud infrastructure delivering better security and performance at roughly one-third the total cost of ownership of peers; and a much larger total addressable market, especially in sovereign and private SASE, which allow customers to deploy SASE in their own environment to meet data sovereignty and regulatory requirements. Beyond secure networking and SASE, AI is rapidly expanding opportunity in security operations, as AI-driven security operations billings grew 23%, supported by more than 20 AI-enabled solutions on our platform as customers consolidate vendors and simplify operations. Finally, given our strong results and confidence in the business, we are reiterating our 2026 guidance. We continue to expect balanced growth, strong cash generation, recurring revenue, and a shareholder-focused long-term capital allocation strategy, while consistently delivering GAAP profitability since IPO. As AI increases the demand for security, our platform approach continues to differentiate, supported by a strong direct operations model that enables us to turn supply chain challenges into opportunity to gain market share. I would like to thank our employees, customers, partners, and suppliers worldwide for their continued support and hard work. I will now turn the call over to Christiane. Christiane Ohlgart: Thank you, Ken, and good afternoon, everyone. As Ken noted, we delivered a strong first quarter, exceeding the high end of our guidance across billings, total revenue, operating margin, and earnings per share. The success reflects broad-based demand and strong execution across customer types, industry verticals, our geos, and all three pillars. Total billings grew 31% to $2.09 billion driven by broad strength across secure networking and unified SASE. Our large enterprise segment was particularly strong. Secure networking billings grew 32%, driven by robust FortiGate demand as customers expanded protection across operational technology environments, contributing to OT billings growth of over 70%. Unified SASE adoption continued to build during the quarter with billings growing 31% driven by strength in SD-WAN and FortiSASE. FortiSASE expansion within our customer base also remained strong, with 18% of our large enterprise customers now having purchased FortiSASE, an increase of over 45%. AI-driven security operations billings grew 23%, highlighting our continued platform expansion within our installed base. Turning to revenue, total revenue grew 20% to $1.85 billion with product revenue increasing 41% to $645 million as customers shifted toward higher-performance products. This included a number of AI-related deployments where customers invested in FortiGates to support increased throughput, segmentation, and security requirements across AI infrastructure. Technology upgrades, upselling, and expansion into new use cases drove strong growth in both hardware and software. We again benefited from our strong supply chain execution. Recent pricing changes had a low single-digit impact on product revenue growth. Service revenue grew 11% to $1.21 billion, while service billings growth reaccelerated to 27%, and deferred revenue increased 15%, driven in part by SecOps ARR growth. We view service billings growth, deferred revenue, and SecOps ARR growth together with accelerating product revenue as leading indicators of future services revenue. Stepping back, these results reflect both strong execution in the quarter and durable demand drivers that continue to shape customer priorities as customers invest in and upgrade their network security solutions to defend against sophisticated attacks that are growing in both speed and complexity due to the availability of AI tools. AI is expanding the attack surface and increasing performance requirements, which is driving higher and more durable security spend across networking, SASE, and security operations. Our strong product revenue and service billings trends and outlook continue to be driven by key tailwinds, including the ongoing convergence of security and networking, rising customer investments and demand to secure AI infrastructure as traffic, segmentation, and performance requirements increase, and accelerating IT and OT convergence as customers recognize growing exposure across critical infrastructure. These drivers translated into strong demand this quarter, particularly in large enterprises, where both the number of deals greater than $1 million and total deal value grew over 60%. We saw strong growth in both Europe and the U.S. Looking ahead, we see these dynamics reinforced by durable tailwinds that support continued platform adoption over time. Tailwinds include vendor consolidation, ongoing technology upgrade cycles, and the continued expansion of enterprise attack surfaces across cloud, OT, and AI environments. In OT specifically, we are seeing strong demand driven by heightened ransomware and nation-state activity alongside rapid digitalization as organizations seek to deploy AI. These same dynamics are extending into SASE, where customers increasingly require flexibility to meet data privacy, sovereignty, and regulatory requirements. We support both cloud-based SASE and sovereign SASE, enabling enterprises and service providers to deploy SASE within their own data centers when required. Demand for our sovereign SASE continues to be strong, and no major SASE competitor currently offers a comparable solution. Rising cyber risk, heightened regulatory scrutiny, and growing data sovereignty requirements while dealing with economic pressures are further accelerating customers to adopt platform-based approaches. At the same time, rapid AI adoption and increased geopolitical uncertainty are expanding the cybersecurity TAM as organizations prioritize resilience, sovereignty, and consistent protection across increasingly complex and distributed global infrastructures. Importantly, these trends align with the reasons of our platform approach. Our platform approach continues to resonate. Fortinet, Inc.'s platform approach is differentiated because secure networking, unified SASE, and AI-driven security operations are all built on the single operating system FortiOS. Unified architecture enables customers to deploy security consistently across private, public, and hybrid multi-cloud environments, as well as across hardware, software, and SaaS form factors, while supporting seamless expansion across use cases. As AI rapidly expands the attack surface, customers are prioritizing integrated platforms that share telemetry and reduce operational complexity, accelerating vendor consolidation. Against this backdrop, our strong network security foundation remains a core differentiator, driving adoption of SD-WAN, SASE, and security operations and supporting continued wallet share expansion as customers simplify architectures and consolidate vendors. This contributed to growth of 28% in unified SASE and SecOps combined, with momentum continuing across our more services-rich pillars. We are also introducing a new SD-WAN and SASE services bundle designed to broaden adoption and further support services revenue over time. We also benefit from durable competitive advantages, particularly as performance requirements increase. Our proprietary ASIC technology and integrated operating system deliver superior performance and lower total cost of ownership, which is increasingly important in high-throughput environments as customers scale AI-driven traffic inspection. Finally, customer demand remained broad-based across segments, demonstrating the durability of our platform strategy, with over 6.6 thousand new organizations selecting our FortiOS platform during the quarter, reinforcing the breadth of demand across SMB, mid-market, and enterprise customers. Overall, these results reflect consistent demand drivers and durable long-term trends. As the market continues to evolve toward platform-based security architectures, we believe Fortinet, Inc. remains well positioned to take share and deliver sustained growth and long-term shareholder value. Now I would like to highlight some key seven-figure deals that demonstrate our market leadership and customer expansion. First, a cloud infrastructure provider focused on GPU compute for AI workloads selected Fortinet, Inc. to secure a new AI data center as part of its continued expansion. The customer chose our FortiGates to deliver high-performance perimeter protection, segmentation, and secure connectivity for a new production environment. The win was driven by Fortinet, Inc.'s ability to provide scalable, high-throughput security aligned with the customer's standardized architecture, enabling rapid deployment of new capacity as demand for accelerated compute continues to grow. In another AI-related deal, Fortinet, Inc. was selected for the initial phase of an AI data center project in the Middle East for a leading generative AI company. This win positions Fortinet, Inc. as a key security partner for next-generation AI data center infrastructure, which demands significant scale, performance, and architectural flexibility. The customer selected Fortinet, Inc. for the strength of our security architecture to address the complexity of securing high-performance AI environments. This deployment also reinforces the importance of standardizing Fortinet, Inc. security solutions to enable consistent, scalable, and efficient protection as AI data center deployments continue to expand. Next, a multinational energy company selected Fortinet, Inc. to standardize and secure its network through the deployment of our full SD-Branch solutions across more than 3 thousand locations, alongside OT security for an additional 300 global sites. The win reflects strong customer confidence in our ability to support large-scale distributed infrastructure environments with a unified approach to networking and security. By consolidating networking and security onto a single platform, the customer simplified operations while improving resilience and highlights Fortinet, Inc.'s ability to scale securely within complex mission-critical infrastructure environments. The customer is also exploring an expansion into FortiSASE, highlighting the opportunity to further extend secure access capabilities across the enterprise. Lastly, a global manufacturer selected our 40 thousand users as part of a strategic initiative to modernize its remote access environment. The win was driven by our lower total cost of ownership and commitment to ongoing feature development, positioning us ahead of the competition. The customer chose FortiSASE for its unified FortiOS platform, which provides a single security policy across FortiSASE and FortiGates, with globally distributed PoPs for simpler, consistent protection across on-premises and cloud environments, enabling them to build a scalable security architecture. Turning to margins and cash flow, non-GAAP gross margin of 81% was better than expected, which is impressive given the strong product revenue growth of 41% and the related mix shift toward product. Our GAAP gross margin was also strong at 80.3%. Non-GAAP operating margin of 35.8% was a first-quarter record, up 160 basis points and exceeded the high end of the guidance range, mainly due to better-than-expected revenue growth and continued cost management. Our GAAP operating margin of 31.4% continues to be one of the highest in the industry. Non-GAAP earnings per share increased 41% to $0.82, while GAAP earnings per share grew 29% to $0.72, significantly outpacing our top-line growth, reflecting high-quality earnings, supported by disciplined stock-based compensation and continued return of capital over the past year. Free cash flow was a record of $1.01 billion and adjusted free cash flow was $1.07 billion, up 27% and represented a margin of 58%. We repurchased 10.6 million shares of common stock for $827 million during the first quarter, and an additional 1.9 million shares for $146 million quarter to date. The remaining share repurchase authorization as of today is approximately $766 million. Now moving on to guidance. As a reminder, our second quarter and full-year outlook, which are summarized on Slides 30 and 31, are subject to the disclaimers regarding forward-looking information that Anthony mentioned at the beginning of the call. Consistent with our disciplined and prudent approach to guidance, our strong first-quarter execution supports a higher second quarter and full-year outlook. We are raising our full-year guidance across all top-line metrics including billings, revenue, and service revenue, while managing the second half of the year on a quarter-by-quarter basis. For the second quarter, we expect billings in the range of $2.09 billion to $2.19 billion, which at the midpoint represents growth of 20%; revenue in the range of $1.83 billion to $1.93 billion, which at the midpoint represents growth of 15%; non-GAAP gross margin of 79.5% to 80.5%; non-GAAP operating margin of 33% to 35%; non-GAAP earnings per share of $0.72 to $0.76, which assumes a share count between 736 million and 740 million; infrastructure investments of $50 million to $100 million; a non-GAAP tax rate of 18%; and cash taxes of $160 million to $180 million. For the full year, we expect billings in the range of $8.8 billion to $9.1 billion, which at the midpoint represents growth of 18%; revenue in the range of $7.71 billion to $7.87 billion, which at the midpoint represents growth of 15%; service revenue in the range of $5.09 billion to $5.15 billion, which at the midpoint represents growth of 12%. We continue to expect services revenue growth to pick up in the second half of the year, driven by accelerating product revenue growth, a key leading indicator. We expect non-GAAP gross margin of 79% to 81%, non-GAAP operating margin of 33% to 36%, non-GAAP earnings per share of $3.10 to $3.16, which assumes a share count of 743 million to 749 million, infrastructure investments of $350 million to $550 million, a non-GAAP tax rate of 18%, and cash taxes of $400 million to $450 million. I will now hand the call back over to Anthony to begin the Q&A session. Anthony Luscri: Thank you, Christiane. As a reminder, during the Q&A session, we ask that you please limit yourself to one question and one follow-up question to allow others to participate. Operator, please open the line for questions. Operator: Thank you. If you would like to ask a question, please click on the raise hand button at the bottom of your screen. When it is your turn, you will hear your name called and receive a message on your screen that you may unmute yourself. We will allow one moment for the queue to form. Our first question comes from Shaul Eyal at TD Cowen. Your line is open. Please unmute and ask your question. We will now open the call for questions. Shaul Eyal: Thank you. Good afternoon, guys. Congrats on the quarter and the guidance. Ken or Christiane, what drove the strength this quarter? But probably more so, what provides you with the confidence in this strong guidance? It would appear that even second quarter could be prudent, to put it very mildly. Just curious as to your thoughts about it. Ken Xie: Shaul, great question. Thank you. First, definitely AI is a tailwind to drive the growth. And for us, we also have invested in AI for, like, 15 years, with over 500 patents and a lot of internal usage and also building of the product. So that is where we prepared for this growth, also from the operations side, with our direct manufacturing operations, inventory, all these things. So we see AI as an opportunity. Also, AI accelerates the convergence of our network and our security. Like I mentioned months ago in the forum, this accelerates, which is why a lot of companies need to upgrade their internal network, their servers, data centers, all these things. So we see this growth probably will be more long term. At the same time, we differentiate ourselves a lot with other competitors. I actually put a slide on the investor presentation, Slide 10, going back almost 30 years with all these different point solutions compared to integrated solutions. Fortinet, Inc. is probably the only company where, for every major new demand for network security, we in-house develop a solution, including SASE. At the same time, we also integrate well with all the previous functions, and we keep improving on all this with our ASIC acceleration and our own infrastructure to deliver better security at lower cost. I think all this drives the company to keep gaining market share in the last 20-plus years. This time, we definitely want to leverage this opportunity, whether AI or supply chain, and we feel we are gaining market share very quickly right now. Saket Kalia: Okay. Great. Hey, guys. Thanks for taking my questions here, and great start to the year. Ken, maybe for you, the security environment feels different after Methos. Maybe the question is, because I know you spend a lot of time with customers, what are customers saying to you about how they are reacting, and what parts of Fortinet, Inc.'s portfolio do you think could benefit most? Ken Xie: I keep telling customers, you need to use AI to secure AI. It is interesting and definitely exposes a lot of vulnerabilities, and you have to react very quickly and leverage AI to react in operations. So for the long term, security operations, where we have over 20 products using AI and building AI, is really helping customers. On the other side, to meet AI demand, there is also a lot of infrastructure buildout. That is why we see, especially as we are the only leader in the OT area, OT grew 70%. It is very strong growth, because OT really secures the bottom few layers of the AI five-layer cake, whether the energy level, infrastructure level, all leveraging OT security. We are probably the only leader in that space, giving us strong growth. We also see customers start to realize the value of integrating more functions into a single OS, our ASIC advantage, and also the supply chain operation model we have. It is all long-term investment, but it is starting to pay off now. Saket Kalia: Makes sense. Christiane, maybe for you for my follow-up. I would love to get a little bit of a historical perspective. Back in the early 2020s, post COVID, we had the benefit of some early ordering which then created a bit of an air pocket in later quarters. How do you think about how much early ordering maybe helped this quarter, and what gives you the confidence that this also does not create an air pocket at some point in the future? Christiane Ohlgart: I think the situation in 2026 is a little bit different from COVID. The threat landscape is accelerating significantly. During COVID, there were some new requirements where companies needed to secure remote access and digitize their business a little bit more. Now it is about significantly more threats. So the demand for our products is going to continue as AI data centers are going to be built out and as customers are deploying AI internally. We see significant tailwinds for our business and for our products specifically. Ken Xie: Also, on Slide 25 of the presentation, you can see during COVID we were the one gaining a lot of market share compared to peers. We feel this is an opportunity because our operations model and long-term investments have more advantage than competitors. We do not believe anyone can predict how long this supply chain situation will last, but we feel we have a strong direct operations model, which is better than pretty much all other competitors. A lot of long-term investments show advantages now. Slide 25 shows during COVID five or six years ago we were gaining a lot of market share. Even with some digestion in 2024 or early 2025, we still kept gaining share. We feel this is another opportunity that works better for us than for competitors. Rob Owens: You guys, thanks for taking my question. Ken, I appreciate the throughput and segmentation arguments relative to AI, but I want to dovetail a little bit more on Saket’s question around the 20 or so products that use AI within your portfolio. Are there a couple things that customers are honing in on that are driving that sense of urgency for them right now? Ken Xie: Christiane gave a few cases about supporting some AI data center buildout. Initially, it is like the five-layer cake. You need to have the lower layers built up first, from energy and infrastructure, and then secure the data center. After they build out some AI infrastructure, the security needs to come in, especially when the application starts to deploy. When companies leverage AI, there is a lot of opportunity for security companies to help them use AI to secure AI. We are ahead of competitors with long-term investment, patents, and investments in R&D, G&A, support, and product. I have an engineering background and love new technology. In the last 30 years, as on Slide 10, we are the only one to internally build new technology, meet challenges, integrate together, while most competitors have to go through acquisition to meet new demand. That gives us confidence to continue growing faster and gaining market share. Christiane Ohlgart: What we hear from customers that are not building out their own AI infrastructure and are more on the AI use side, they are most concerned about traffic flows and shadow AI. A lot of our products can help them, and with FortiOS improvements and upgrades, there is a lot of interest in what our existing products can do and which additional products, like FortiAIGate, they can deploy to have more visibility, transparency, and monitoring of traffic flows. Brad Zelnick: Excellent. Thank you so much for taking the question. I wanted to follow up on what Rob had asked and Ken's comments about the AI data center, and Christiane, what you shared about the win in the Middle East in securing AI infrastructure. What are you seeing specifically in this market for securing AI data centers? Who are you competing with? Who are you partnering with? How long are the cycles? And how much of the pipeline for these opportunities is contributing to the strong guidance that you have given us for the year? Ken Xie: If you look at Fortinet, Inc.'s technology, we are the only cybersecurity company that builds our own ASIC chip from day one. That gives us much better performance and lower cost, both on computing power cost and energy cost, fitting data center internal segmentation well. None of our competitors can compete with us on performance and cost, including the two products we announced today. On average, on the top functions we use, we have about 3x to 5x better performance for the same cost and much lower energy. That fits well for bigger infrastructure data center buildout and internal segmentation. AI-generated traffic generates a lot of additional east-west traffic, and all the servers or even different departments need additional security for internal segmentation. We see strong demand not just in data centers but also for internal segmentation to get better manageability and visibility for AI traffic. Christiane Ohlgart: Related to your question on pipeline building, my comments around the customer wins were also about reference architectures and scalability. Most providers that are starting to build out data centers are creating their reference architecture to build out more as demand increases for their services. We are confident this creates a tailwind for us. Ken Xie: Especially for technology like ASIC, systems, and hardware, these are more long-term investments compared to software, where most other security companies focus. Now is the time to see the long-term hardware and ASIC investment benefits. Customers appreciate the hardware and ASIC now. Brad Zelnick: Thanks, Ken. It reminds me of the heritage of Fortinet, Inc. and early success in the service provider market segment and why it is so important today in AI data centers. Maybe a quick follow-up for you, Christiane, to get your latest thoughts on memory pricing and any further price increases you might be contemplating throughout the year, and specifically what is baked into the guidance? Christiane Ohlgart: From a guidance perspective, we have baked in a low single-digit amount specifically into product. Regarding pricing, we have said multiple times that we are trying to maintain gross margin. As our component costs increase, we contemplate pricing actions, but we will also bring it down again when we do not have the pressures anymore. Ken Xie: Our policy is not like some other companies using these opportunities to increase margin. We want to maintain a healthy margin. When our costs increase, we adjust pricing, but when costs come down, we also lower prices to maintain the same margin. That was the policy five years ago in the last supply chain, and it is the same during this memory shortage. Because we have a much bigger quantity than other competitors—we have almost 60% market share on unit shipments of network security systems—and with our direct manufacturing operations, we prepare better, operate better, and negotiate better than competitors. We feel it is a chance to gain market share again like we did five years ago. Tal Liani: You got me back. You cannot get rid of me. I have everyone asking about AI. I am going to ask about the other thing. The most surprising part of your result is actually the billings growth of legacy—32% year-over-year growth in secure networking billings. Check Point said their firewall growth decelerated and that the market is weaker. What are the firewall trends? What drives this 32% growth in secure networking billings, and how sustainable is it? Ken Xie: Tal, I prepared Slide 10 in the presentation for you. We go back 30 years. The most growth in network security comes from FortiGate. Every year you need to meet new functional demand. We are probably the only company that in-house keeps meeting new function development, from early UTM and next-gen firewall, to sandbox, to SD-WAN, SASE, to today’s AI and quantum computing. Once you innovate, you also need to integrate. FortiOS 8.0 integrates about 30 functions. You also need to keep improving—that is where the ASIC comes in—to improve performance and add secure computing, and at the same time invest in infrastructure to make it more secure and lower cost. I use the three I’s to describe what happened in network security over 30 years: innovation, integration, and improvement. Some competitors cannot come up with new functions quickly or integrate; they have to go through acquisitions and become multi point-solution stacks. The blue area shows many companies, including some competitors, needing multiple solutions to meet one FortiGate/FortiOS solution we have, whether SD-WAN, SASE, and other functions. There are still many point-solution providers, including in SASE—they cannot offer customers total security infrastructure. The benefit of a single OS with integration, new functions, ASIC improvements—all of this gives more advantage over other players. This supply chain situation shows our advantage and operations model. Tal Liani: How sustainable is 32% growth? Is there an easy comp situation this year that boosts growth, or is there something more fundamental that could be sustained over time? Ken Xie: Look at Slides 24 and 25 compared to five years ago. It is pretty comparable. That time, we also grew around the low-40%s. Christiane Ohlgart: Tal, we can really see interesting demand in network security. The drivers are not only AI. It is consolidation, simplicity, and the security posture across the products that are driving significant interest into the network security portfolio. Fatima Boolani: Good afternoon. Thank you for taking my questions. Ken, at a very high level, we are in one of the most consequential CapEx and infrastructure investment cycles across the board. You are clearly seeing the benefits based on the seven-figure transactions related to AI infrastructure buildout. Specifically, what is the impact to your secure networking portfolio and the higher-end FortiGate appliances? Should we expect the product mix to trend toward very high-end SKUs? And for Christiane, related to the product growth upswing and presumably the higher-end mix, why are we not seeing a more visible catch-up on the services side? You only really tightened the services revenue range by bringing up the low end. Ken Xie: Great question. Fortinet, Inc. has more advantage in the high end with our own ASIC solution. It is much better performance and much lower cost, both on product and on energy cost. We see strong growth in the high end. At the same time, unified SASE also grew 31%, and 4Q last year grew 40%, driven a lot by SD-WAN in the low end. That is also why we launched a new bundled service to accelerate adoption of SD-WAN and SASE. Slide 14 shows the bundle—it is very attractive for customers to adopt new SASE and SD-WAN services. So growth is both high end—more data center—and low end—more driven by SD-WAN. AI data center buildout is still in a very early stage, and once applications start leveraging AI, that will be a long-term growth driver. We also believe the bundled service will drive additional service revenue after customers have the hardware. Christiane Ohlgart: Fatima, to address your concern, I am very enthusiastic about our services billings at 27% growth. Deferred revenue grew 15%. It all trends in the right direction. The conversion from the balance sheet into revenue just takes longer, so you do not see it immediately. But the trends are all positive. Our growth was really good. I am very happy with the quarter results and also with the rate of services with hardware. Gabriela Borges: Hi. Good afternoon. Ken, it sounds like there has been a bit of a step-function change in the pipeline related to AI data center. If that is right, why do you think that is happening now? Is there a shift with sovereign AI projects or the mix from training to inference? Ken Xie: Both connect together. AI data centers combined with sovereign SASE and sovereign AI are driving growth together. It is interesting—it is the same FortiGate and FortiOS to do both AI security and SASE in a zero trust environment. They both drive growth together. Gabriela Borges: And a follow-up: Fortinet, Inc. has been transparent on some vulnerabilities that you found in your own technology. How is your internal process for hardening your infrastructure changing as you get access to leading-edge LLM models that can help upgrade the quality of your own infrastructure? Ken Xie: We are working more closely with leading AI companies, whether handling vulnerabilities or helping automate a lot of operations for our customers. At the same time, we also build our own infrastructure, which has better security and more performance than some third-party infrastructure. We feel we do better than most. We are also developing new technology, using AI to secure AI. Brian Essex: Great. Thank you for taking the question, and congrats on results for the quarter. A quick one and a follow-up. With regard to unified SASE billings, could you unpack that a little bit? How much is SD-WAN? How much is SASE? And could you help reconcile the deceleration in SASE ARR so we can understand the primary drivers? Ken Xie: On Slide 4, we have the three pillars. Unified SASE includes SD-WAN, and SASE is more like FortiSASE and other things. FortiSASE is one of our strong growth areas, including AI-related. We believe the new bundle will also accelerate SD-WAN and SASE services going forward, as shown on Slide 14. Unified SASE grew 31%. About 25% of billings right now come from SASE. It is a pretty big number. We believe we are a top-three player and one of the fastest growing right now. Brian Essex: How much was contribution from sovereign SASE? There is focus on sovereign data centers and sovereign infrastructure. Would love to understand the contribution there. Ken Xie: Sovereign SASE is probably almost the same size as cloud-based SASE, perhaps even bigger. Sometimes with sovereign SASE, because we are using the same OS and FortiGate, customers may buy us as a firewall and gradually turn on SASE functions and deploy in their data center or infrastructure. We also see service providers starting to ramp up sovereign SASE quickly, especially in Europe. A few large telecom service providers are launching sovereign SASE services with our products, which is also driving a lot of product revenue. Gray Powell: Okay. Great. Thanks. Specifically, are you starting to see more branch office firewall customers turn on SD-WAN components and then convert their firewall subscriptions to secure service edge? If so, how should we think about the ballpark uplift to a customer's annual spending, or just directionally think about that opportunity? Ken Xie: That is very good field feedback. That is also why, on Slide 14, we launched a new bundled service to help accelerate SD-WAN and SASE. We combine four to five separate services into one bundle, including some SASE licenses based on the FortiGate model—from 40, 60 up to midrange products—together with SD-WAN and application monitoring. Customers are increasingly turning firewalls into SD-WAN and then into SASE/zero trust. It helps accelerate additional services. On Slide 11, we track big enterprises and the adoption of SASE and SD-WAN. Last quarter, SASE was about 16%; now it is 18%. It is strong growth and the clear trend. Christiane Ohlgart: And Gray, as we upgrade our customer base, these features become more interesting. It allows us to sell the next higher-end model typically for the edge, which is very beneficial for us as well. Analyst: Hey, guys. Thanks for the question. I want to unpack the current service billings strength—it was a nice acceleration. What was the driver there? Subscription, support, moving away from prior-year headwinds? And can we expect that line to further accelerate this year? Christiane Ohlgart: We had good linearity that helped us a little bit in the current quarter already, and then with the strong overachievement, it helps for the rest of the year. We believe our growth rates are picking up. As I said earlier, it takes time. This is where we adjusted the low end of the range to bring up the midpoint, but you cannot get super-fast acceleration of the balance sheet. We are confident not only this year, but also about the benefits that service billings give us for next year. Analyst: As a quick follow-up, did you see a change in buying behavior in 1Q related to people pulling forward because of higher memory costs? And what metrics give you confidence that you have not seen a change in buying behavior? Ken Xie: During COVID, we did see some pull-forward, especially in retail with scheduled deployments where they ordered ahead. This time, we do not see much pull-forward, but we do see strong demand. We cannot control channel inventories; in March, we did not see an increase there either. We are managing better. We tell customers we want to maintain margin—we do not want to raise margin like some other suppliers. When our costs are higher, we raise price, but when costs come down, we lower price in real time. That builds trust with partners and customers, and the direct model helps. It is difficult to judge how long this will last, but we operate to maintain healthy margin and respond quickly with our direct manufacturing model to better support customers. Junaid Siddiqui: Thank you, and good afternoon. Ken, you mentioned in the past how the edge is eating the cloud as customers move latency-sensitive and cost-intensive workloads to the edge. How are you adapting your security architecture to support this shift to capture demand redistribution, and does this shift meaningfully change the value proposition or monetization opportunities at the edge versus traditional data center deployments? Ken Xie: The edge over cloud point is because we have built ASIC for 20–30 years. We want to increase computing power and real-time processing on the appliance at the edge. That is a long-term investment that was criticized before compared to cloud, but AI and new trends show the edge has strong value now. We will continue investing in ASIC, hardware appliances, and because many new physical AI or modern applications need edge-time computing decisions instead of going to the cloud, with the cloud more for management. OT shows strong growth—over 70%—with deployments in the field and real-time edge traffic management. It is a hybrid approach: not 100% cloud or 100% edge; both have value. A few years ago, there was too much emphasis on cloud only. We insisted on investing in ASIC and systems at the edge. Now customers and partners see the benefit of this hybrid approach. Operator: We have no further questions at this time. I will now hand it back to Anthony Luscri for closing remarks. Anthony Luscri: Thank you. I would like to thank everyone for joining today's call. We will be attending investor conferences by JPMorgan and Bank of America during the second quarter. Fireside chat webcasts will be posted on the Events and Presentations sections of our investor website. If you have any follow-up questions, please feel free to contact me, and have a great day.
Operator: Good afternoon, and welcome to Mirum Pharmaceuticals, Inc. First Quarter 2026 earnings conference call. My name is Tracy, and I will be your operator today. All lines are currently in a listen-only mode, and there will be an opportunity for Q&A after management's prepared remarks. I would now like to hand the conference over to Andrew McKibben, SVP of Strategic Finance and Investor Relations. Please go ahead. Andrew McKibben: Thank you, Tracy, and good afternoon, everyone. I would like to welcome you to Mirum Pharmaceuticals, Inc. first quarter 2026 earnings conference call. For our prepared remarks, I am joined today by our Chief Executive Officer, Christopher Peetz, our President and Chief Operating Officer, Peter Radovich, and Eric H. Bjerkholt, our Chief Financial Officer. Our Chief Medical Officer, Joanne M. Quan, will be joining us for Q&A. Earlier this afternoon, Mirum Pharmaceuticals, Inc. issued a press release reporting our first quarter 2026 financial results. Copies of the press release and our SEC filings are available in the Investors section of our website. Before we start, I would like to remind you that during the course of this conference call, we will be making certain forward-looking statements based on management's current expectations, including statements regarding Mirum Pharmaceuticals, Inc.'s programs and market opportunities for its approved medicines and product candidates and financial guidance. These statements represent our judgment and knowledge of events as of today and inherently involve risks and uncertainties that may cause actual results to differ materially from the results discussed. We are under no duty to update these statements. Please refer to the risk factors in our latest Form 10-Q and subsequent filings for more information about these risks and uncertainties. With that said, I would like to turn the call over to Chris. Christopher Peetz: Thanks, Andrew, and good afternoon, everyone. We have a number of important updates to cover today, but I would like to start by grounding in the vision we set when we founded Mirum Pharmaceuticals, Inc. in 2018: building a company focused on bringing forward medicines for overlooked rare diseases. This quarter reflects the progress we have made in turning that vision into a durable, growing business. Our start was based on Lipmarly, and today, we are a broader rare disease company with three approved medicines and a pipeline positioned to deliver multiple new therapies over the next two years. These high-impact programs are grouped across two focus areas: rare liver disease, where we have built clear leadership, and rare genetic disease, where we are establishing a second growth platform, each with distinct commercial capabilities. Across both, we have built a financially self-sustaining business that can support continued investment in the portfolio. Our strategy is driving compelling results. Starting with rare liver disease, uptake of Libmarli remains strong, driven in part by performance in PFIC, which continues to exceed expectations. Based on that demand and continued performance across all brands, we are raising our full-year revenue guidance to $660 million to $680 million. More importantly, we are now seeing the next phase of our rare liver disease business take shape. Our recent clinical readouts in PSC and hepatitis delta represent important potential expansions for this business, extending beyond our pediatric foundation into larger patient populations with significant unmet need. In PSC, the VISTA study of elixirat showed a significant improvement in pruritus, reinforcing the potential for elixirat to play an important role for these patients who currently have no approved medicines. This is a major advance in PSC research and positions vilixibat as a potential first approved medicine for patients in the U.S. And in hepatitis delta, results from the Phase 2b portion of the AZURE-1 study further support the potential for berlivatig in a patient population where treatment options are extremely limited. We look forward to the upcoming late-breaking presentations for both VISTA and AZURE at EASL later this month. Now in parallel to this expansion of our rare liver disease business, today, we are announcing another step in building out our rare genetic disease business, with the addition of zolergosertib, recently licensed from Incyte. Zolergosertib is a once-daily oral inhibitor in development for fibrodysplasia ossificans progressiva, or FOP, an ultra-rare progressive condition where patients develop bone in soft tissues. This accumulation of excess bone leads to profound physical immobilization, with most FOP patients becoming wheelchair dependent by early adulthood, and severely impacts life expectancy. Based on the strength of zolergosertib’s PROGRESS study, conducted by Incyte, an NDA has been accepted with priority review, with a PDUFA date of September 26, 2026. If approved, we expect to launch by year-end. This is a strong strategic fit aligning with our capabilities in rare genetic disease where care is concentrated in a small number of specialized centers and requires deep engagement with patients, caregivers, and physicians. Stepping back, we have built a company with multiple commercial growth drivers, a pipeline of meaningful upcoming catalysts, and the financial strength to advance our portfolio independently. This foundation is translating directly into high-impact medicines for patients and into value creation as we deliver on our strategy. With that, I will turn the call over to Peter to walk through the commercial portfolio and preparation for the upcoming potential launches. Peter Radovich: Thank you, Chris. The first quarter was another period of strong commercial execution, with total net product sales of approximately $160 million. This included Lemarle net product sales of $84 million in the U.S., and $30 million internationally, with the bile acid medicines contributing $46 million. Robust adoption in PFIC, particularly in adult patients, continues to be a strong point for us, as education to increase awareness and recognition of genetic cholestasis among adult liver providers continues to be successful. Additionally, we saw stronger than expected performance in Q1 international Lugmarley sales, as well as continued new patient adds in Alagille worldwide. The bile acid medicines grew in a manner consistent with their cadence over the last several quarters, highlighted by our rare genetics team continuing to identify undiagnosed patients with CTX. Overall, we expect these dynamics to continue and, as a result, are raising our full-year 2026 net product sales guidance to $660 million to $680 million. And as Chris mentioned, we are also beginning to see the next phase of growth in our rare liver disease business take shape. The recent results from the VISTA study of meloxicimab in PSC and the AZURE-1 study of berlobotib in hepatitis delta represent important steps in extending our presence into larger, primarily adult liver settings where patients have limited or no approved treatment options. These programs build directly on a global commercialization platform we have established for Lumarli, Cetexly, and Cobalt, heavily leveraging our existing technologies, people, and infrastructure. We plan to expand our U.S. and international teams starting later this year to reach liver health care providers in adult settings, including GI liver providers who manage PSC patients and hepatitis delta, as well as other care settings like infectious disease and selected primary care providers where we believe we can increase the number of diagnosed hepatitis delta patients. In the U.S., our current 20-person liver field commercial team reaches about 1,500 health care providers, with current focus on pediatric liver providers and some higher volume adult providers. After our planned expansion to approximately 60 U.S. field commercial personnel, we anticipate being able to reach over 4,000 liver health care professionals, representing the vast majority of potential prescribers for our rare liver business. Turning to our rare genetic disease business, we are very excited by the addition of zolergocertib for the treatment of FOP, where there remains a desperate need for additional treatment options. FOP is a devastating, relentlessly progressive condition in which soft tissues such as muscles, tendons, and ligaments gradually turn into a second skeleton, leading to cumulative loss of mobility and severe disability in early childhood. FOP is a highly concentrated, ultra-rare disease with an estimated prevalence of about one per million, which translates to approximately 300 patients in the United States and around 900 patients globally. Patients with FOP are largely managed by specialized tertiary centers, with most of these centers also [inaudible]. Eric H. Bjerkholt: Thanks, Peter. Good afternoon, everyone. We remain disciplined behind our pipeline, which remains on track across all programs. Today, I will walk you through the financials for the quarter, including an overview of the impacts of the Bluejay acquisition and the zolergosertib transaction. Net product sales for the first quarter were $160 million compared to net product sales of $112 million in the first quarter of last year. Cash, cash equivalents, and investments as of March 31 were $421 million compared with $391 million at the beginning of the year. In the first quarter, the cash contribution margin from our commercial business was in the mid-50% range, and cash flow from operations was about $2 million. First quarter financials were significantly impacted by one-time expenses related to the acquisition of Bluejay Therapeutics, which closed in January. The total net cash out related to this acquisition was $253 million, which was offset through net financing proceeds of $260 million. Total operating expense for the quarter ended March 31 was $949 million, which includes $761 million in expense associated with the acquisition of Bluejay, R&D expense of $98 million, SG&A expense of $96 million, and cost of sales of $29 million. Expenses for the quarter included stock-based compensation, intangible amortization, and other noncash expenses of $64 million, including $35 million of stock-based compensation expense associated with the acquisition of Bluejay. The intangible amortization and other noncash item expense are largely reflected in our [inaudible]. As Chris and Peter mentioned, we recently entered into an exclusive license agreement with Incyte. In return for worldwide rights to zilogisertib, Incyte received an upfront payment of $16 million and is eligible to receive additional development and regulatory milestone payments, including $25 million upon U.S. FDA approval for FOP, ownership of a rare pediatric disease priority review voucher, if awarded, as well as sales-based milestones and shared royalties on worldwide net sales in the mid- to high-single-digits percent range. As we have discussed previously, we expect R&D expense to step up in 2026 as we invest behind berlobitur ahead of the anticipated BLA submission next year. For example, R&D expense in the first quarter included $21 million related to the development of berlobitide. Importantly, this expected increase is fully funded. We are continuing to scale the business with discipline, balancing investment in growth with a strong balance sheet and financial independence. This approach positions us to advance our pipeline and execute on upcoming milestones without compromising our long-term financial strength. I will now turn the call back to Chris for closing remarks. Christopher Peetz: Mirum Pharmaceuticals, Inc. is in a strong position after a very busy start to the year. What is most encouraging about the quarter is not just the number of positive updates, but how clearly they fit together. We continue to grow our commercial medicines, we are expanding our rare liver business into larger indications, and we have added what we believe is a transformational medicine to our rare genetic business. Importantly, this is all coming together within a high-impact, scalable business model. We are excited about the progress ahead as we approach multiple pivotal readouts, potential regulatory submissions, and potential new product launches. I would also like to thank the entire Mirum Pharmaceuticals, Inc. team for all the hard work in getting us where we are today. Your dedication brings new treatment options to patients around the world. With that, operator, please open the call for questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Gavin Clark-Gartner with Evercore ISI. Your line is open. Please go ahead. Analyst: Hi. This is Yatra on for Gavin. I just had one on FOP. Wondering your current view on the number of diagnosed FOP patients in the U.S. based on claims, patient advocacy, and provider research, and then how many of those patients will immediately be treatable at launch? And then I have one follow-up on with Marley. Peter Radovich: Yes, thanks for the questions. We point towards approximately 300 identified patients in the U.S., coming from patient group IFOPA. In terms of addressable patients, the main feature there is the NDA application Incyte filed is for age 12 and over, so that would be the majority of the patient population at launch. Analyst: And then in terms of Lezmarli specifically on the guidance raise, wondering what is driving the bulk of the increase? Is it due to the ex-U.S. expansion or the continued PFIC ramp? And within PFIC, is the contribution skewing towards those older patients? Peter Radovich: Thanks for the question. Certainly, Live Marley U.S. PFIC was the biggest driver. We continue to see both pediatric and adult patients come to treatment. I think the older adolescents and adults really are the major driver, although we are still in early innings. We have made good progress educating adult providers on genetic testing, but probably still the minority of them are actually doing that. I think there are more adult patients to find out there who could potentially benefit. Eric H. Bjerkholt: And just on the international piece, Q1 historically has had a bit more seasonality and a little bit of a softer number in Q1, and that just was not as much of a factor this year, somewhat also in part due to not only additional countries performing, but also PFIC starting to show up in that international number. Peter Radovich: Thank you. Operator: Your next call comes from the line of Joshua Schimmer with Cantor. Your line is open. Please go ahead. Joshua Schimmer: Great. Thanks so much for taking the questions. Also on the zolergosertib, how are you thinking about its differentiation versus maybe some of the other programs in development? Garetosmav, if I am pronouncing that right, and sohonos? That is number one. Number two, are you planning to explore the program in other ossification indications or disorders? And then number three, I think I heard you say peak sales for the asset of $200 million. Is that global or U.S.? Thank you. Peter Radovich: Thanks, Josh, for the questions. Just to clarify, the “$200 plus” is a global number for us. Christopher Peetz: In terms of positioning here, the programs that you mentioned are the ones we are tracking, with Sohonos being approved and the other program being in the registration phase. For Sohonos, the data coming out of the PROGRESS study here for zolergosertib is a real step forward in terms of the overall activity profile and tolerability and safety profile. So we see the clinical data here as a quite meaningful advance on what is currently available in the market, which has quite a few limitations to it. And compared to the pipeline, this is an oral, which we see as a big advantage, particularly in a setting where you can potentially drive ossifications from injections and some of these other interventions. So having an oral, we see as a nice differentiator for the program. Joshua Schimmer: Got it. And then plans for other ossification disorders? Peter Radovich: Early days in thinking about it. At this point, we want to stay very focused on getting this launched for FOP, but it is certainly something we will consider as we get further down the road. Operator: Your next call comes from the line of Jonathan Wolleben with Citizens. Your line is open. Please go ahead. Jonathan Wolleben: Hey. Thanks for taking the question. A little unusual having something under review where we have not seen any of the data. Just wondering what you guys have been privy to, to make you comfortable with this acquisition. And then, what would be the forum for it to make sense to get this out into a public domain? And will you guys be eligible for a review voucher if approved? Christopher Peetz: Thanks for the question, Jonathan. I fully appreciate the unique nature of the situation. In our review—this is a conversation that has been going on for quite some time, typical for a license transaction like this—we have had full access to clinical data, to the regulatory correspondence, and the NDA. So we feel quite confident in the profile for zoligosertib and where they are at in the regulatory process. From the Incyte side, they have done a fantastic job putting together this program and saw it fitting better in a rare disease company like Mirum Pharmaceuticals, Inc., but the work they have done on it is quite strong. They want to have the data presented first at a medical meeting, so we are hopeful that is happening relatively soon. Once we get that presented, we will be able to share more on the pivotal data and overall product profile. As for a review voucher, we do expect this to be eligible for a voucher. Under the terms of the agreement, Incyte will keep that voucher, and we will launch the product. Operationally, Incyte, given they are mid-stride with the filing and review, will complete the primary role through approval, and then we will take over sponsorship at the point of U.S. approval. Peter Radovich: Yep. Thanks for the questions. Operator: Your next question comes from the line of Michael Eric Ulz with Morgan Stanley. Your line is open. Please go ahead. Rohit Bhasin: Hi. This is Rohit on for Mike. Thanks for taking our questions. With the recent pipeline acquisitions, can you talk about how you are thinking about BD moving forward? And then also, can you talk about how you are thinking about pricing in FOP? Thanks. Christopher Peetz: I can start and I will hand it over to Peter. As you have seen now for Mirum Pharmaceuticals, Inc. over the history of the company, we see a priority in staying active on the BD front. That is how you find unique opportunities that fit and add value to the company. So we will continue to work to find good programs to bring into the team. Peter Radovich: On zolergosertib pricing, we will make a decision and communicate that closer to approval. For thinking about the U.S., you can look at the Niemann-Pick C products and other ultra-rare settings like that where you have a strong value proposition. Similar epi is probably in the ballpark. Operator: Your next question comes from the line of James Condulis with Stifel. Your line is open. Please go ahead. James Condulis: Hey. Thanks for taking my question, and congrats on the quarter. Maybe one follow-up on HDV. I think we have heard a couple questions about the 900 mg monthly arm, specifically as it relates to the TND virologic response and maybe a little bit of an outlier relative to some of your prior data and the rest of your dataset. Curious about your perspectives here. And as you think about the commercial setting, for docs in the real world, what do you think is the most important measure for evaluating efficacy for these different drugs? Is it that TND response, other measures of virologic response, the composite? Thanks. Christopher Peetz: Thanks for the question. I will make a couple of comments and have Joanne speak to some of the data that we are seeing out of the AZURE-1 Phase IIb portion. In terms of what we are focused on and what we think is most relevant for ultimate use and driving adoption here, it is that composite of virologic response and ALT normalization. Those two factors are what is pointed to in the FDA guidance and show that you are not only addressing the viral load, but you are also addressing the liver inflammation that is part of the disease. Seeing both of those move means you are going after both components—for both the infection and the liver. Joanne M. Quan: Yes, and to Chris’s point on the composites, all very true. When we look at the curves in terms of the virologic response, we do see declines in everyone. When you stretch to the endpoint, if you do not meet a certain point by week 24, then you are on one side of the line or the other, but we do see decreases in all of the patients. There is certainly no evidence of lack of response or resistance or anything like that. Partly, it is an artifact of time. We do see deepening response with continued treatment. And again, this is a numerically fairly small group. We will have a lot more information with the full AZURE-1 and AZURE-4 Phase 3 datasets to make a final call on that. James Condulis: Makes sense. Thank you. Peter Radovich: Thanks for the questions, James. Operator: Your next question comes from the line of Brian Skorney with Baird. Your line is open. Please go ahead. Brian Skorney: Hey. Good afternoon, guys. Thanks for taking my question, and great quarter. I would love to also ask a question on FOP. It seems like you are doubling down on making it your corporate nemesis. I am wondering if you could give broad thoughts on where you think Sohonos’ profile leaves an opening for another entrant and compare and contrast how zolergosertib might address these. And the timeline would put us right around mid-cycle review with the FDA right now. Has that already happened or is it still pending? Eric H. Bjerkholt: Thanks for the question. On the review, yes, that has happened, and I would just say things are tracking as expected. Peter Radovich: In terms of positioning, the feedback we have heard from stakeholders—patients, caregivers, physicians—regarding the available therapy in the market today is that there is a lot to be desired in terms of both efficacy and safety. We will be able to get into more details once we have the PROGRESS data presented at an upcoming medical conference, but from what we have seen in our review of the zolergosertib profile, it is really exciting what it can mean for these patients, both efficacy-wise as well as a convenient oral and well-tolerated regimen. Operator: Your next question comes from the line of Lisa Walter with RBC Capital. Your line is open. Please go ahead. Lisa Walter: Thanks so much for taking our questions. Maybe just some more detail, if you can share, on the FOP opportunity. Are there any overlaps with your current call points? And did you disclose the deal terms with Incyte? And given the recent positive results in HDV and PSC, has this impacted your thinking on when you could become a profitable company? Peter Radovich: Great overlap with our existing team—our rare genetics team that is focused on texlecobalt. We mentioned that a significant majority of FOP patients are cared for in centers that also prescribe Cetaxley and Colbomb. Different prescribers most of the time—some overlap with medical genetics. For FOP, the biggest prescribers will be endocrinologists, so that is a new physician target, but the center overlap is really high with our existing rare genetics business. We are excited about adding this product to that team. Eric H. Bjerkholt: On the financials, we disclosed the upfront license fee was $16 million, and the next milestone would be $25 million upon FDA approval. There are some other commercial milestones, and a royalty in the mid- to high-single-digits range. We expect after launch that this product will be accretive very, very quickly. On the path to profitability, that is much more driven by brelovitag and voxibat, as well as our current commercial business. We are spending a lot on R&D this year for both of those products, so profitability will be pushed out probably until 2028 on a GAAP basis. We reiterate that we expect to be operating cash flow positive next year. Operator: Your next question comes from the line of Jessica Fye with JPMorgan. Your line is open. Please go ahead. Jessica Fye: Hey, guys. Good afternoon. Thanks for taking my question. Can you estimate the contribution in the first quarter of LiveMarly sales from Alagille versus PFIC? And then another one on FOP—just thinking about that market, what do you see as the penetration for palovarotene, and would you envision the ALK inhibitor being used in combination with that drug? Christopher Peetz: Thanks for the question. Briefly on Livmarli, we typically are not breaking out by indication, but we can say both Alagille and PFIC are growing, and PFIC is the bigger growth driver. Peter Radovich: On FOP, in the U.S. market where this medicine is available, palovarotene—based on pharmacy claims data and what we have heard in physician and caregiver interviews—it is probably a minority of diagnosed patients that are currently receiving it. It can be tried; it can often be difficult to tolerate and stay on. Operator: Next question comes from the line of Ryan Deschner with Leerink Partners. Your line is open. Please go ahead. Ryan Phillip Deschner: Hey, guys. I have Ryan on for Mani. Thanks for taking our question, and congrats on the quarter. Circling back to FOP, what is the latest thinking on an OUS filing and when you would expect to launch there? And then on the peak sales of $200 million, is that in the 12+ age group that you would get approved in the upcoming filing? How should we think about upcoming data for the younger age groups that are being tested? Thanks. Christopher Peetz: Thanks for the questions, Ryan. On ex-U.S. strategy, a European filing is upcoming. We could still have that in this quarter. Incyte is still driving those activities, and their team is doing a great job. In terms of the overall peak estimate, the $200 million-plus is the full brand in FOP over the lifecycle. For the younger age patients, we do expect that the label would launch at 12 and older. There are two other cohorts in the study that are ongoing that would support potentially taking that age lower over the near term. Those are ongoing and enrolling now, so they are not too far out. Ryan Phillip Deschner: Awesome. Thanks. Operator: Your next question comes from the line of Ryan Deschner with Raymond James. Your line is open. Please go ahead. Ryan Phillip Deschner: Thanks for the question. A couple for me. What is your strategy for identifying FOP patients in the U.S. and abroad, addressing the relatively high misdiagnosis rate for FOP? Do you anticipate any early line of sight into a substantial group of patients from Incyte’s prior clinical studies or maybe a compassionate use program or something like that in FOP? And I have a follow-up. Peter Radovich: Thanks for the question, Ryan. FOP patients often have a longer diagnostic odyssey than they should. There are patients who get diagnosed at birth, but the literature says the average age of diagnosis is seven years, and obviously some wait longer. That is improving with the availability of genetic testing, and we see an opportunity to continue to raise awareness—just like in all of our rare genetic diseases—to shorten that diagnostic odyssey as much as we can. In the U.S., we think a substantial majority of patients are identified; it is probably a different story in some middle- and lower-income countries. Ryan Phillip Deschner: Thanks. Just wondering if there was anything notable so far in the business extension in terms of rollover, discontinuation rates, pruritus, or other patient metrics that might take a little longer to modulate over time. Peter Radovich: Incyte’s PROGRESS study is enrolling well. We will be able to disclose more about what they have seen at the upcoming medical conference. We have certainly seen a lot of physician and patient interest. Eric H. Bjerkholt: Great. Thanks for the question. Operator: Your next question comes from the line of Joseph Thome with TD Cowen. Your line is open. Please go ahead. Joseph Thome: Good afternoon. Thank you for taking my questions. One on FOP: the level of ALK2 inhibition you are seeing with the therapy—do you think that could be enhanced by garetuzumab, Regeneron’s Activin A drug, or are these largely going to be competitive therapeutics in the landscape? And second, when we think about the potential expansion opportunity for Livmarli and the basket trial that is going to be reading out later this year, how should we think about that in your overall projection for Livmarli? How much is this basket population? Christopher Peetz: On garetuzumab positioning, it is probably best to get into more detail after our data is presented so we can give a more complete picture. We think the profile for zolugosertib and its clinical positioning is really strong as a convenient oral single agent, and we are excited about bringing that forward. Peter Radovich: On EXPAND, we have talked about that indication being about a third of at least a $1 billion peak sales opportunity for Livmarli, and we reiterate that. Operator: Your next question comes from the line of Charles Wallace with HCW. Your line is open. Please go ahead. Charles Wallace: Hi. This is Charles on for RK. Thanks for taking my question. For FOP, how many patients from the PROGRESS study—I think there were 63 in that study—do you expect could come on after launch? And do you expect to have some sort of bridging program? Christopher Peetz: Thanks for the question, Charles. Given the nature of the relationship here, we are going to wait until we have the data presented to give specifics. Overall, we think it is a really compelling profile, and the feedback has been positive, but we do not want to get into specifics ahead of having the data presented. Charles Wallace: That is fair. And then another question on the salesforce expansion. You are growing it to 60 in the field. When do you expect the team to be fully on board and fully functional? Peter Radovich: As noted in prepared remarks, we are starting later this year. I think by early next year we will be fully on board, and that team will cover both pediatric and adult settings where not just adult PFIC can be found, but also PSC and HDV. By early next year, they would be active in all those areas. Of course, with the pipeline products, the activity would really start upon potential FDA approval. Charles Wallace: Great. Thanks for taking my questions, and congrats on a great quarter. Peter Radovich: Thanks for the questions. Operator: There are no further questions at this time. I would now like to turn the call back to Chris Peetz for closing remarks. Christopher Peetz: Thank you all for joining us today and for all the support and a great start to 2026. Have a great afternoon. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. Star zero, and a member of our team will be happy to help you. Hello, and welcome, everyone, joining today’s Q1 2026 SLR Investment Corp. earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Michael Gross, Chairman and Co-CEO. Please go ahead. Michael Gross: Thank you very much, and good morning. Welcome to SLR Investment Corp.’s earnings call for the quarter ended 03/31/2026. I am joined today by my long-term partner, Bruce Spohler, our Co-Chief Executive Officer, as well as our Chief Financial Officer, Shiraz Kajee, and members of the SLR Investment Corp. Investor Relations team. Shiraz, before we begin, would you please start off by covering the webcast forward-looking statements? Shiraz Kajee: Good morning, everyone. I would like to remind everyone that today’s call and webcast are being recorded. Please note that they are the property of SLR Investment Corp. and that any unauthorized broadcast in any form is strictly prohibited. This conference call is also being webcast from the Events Calendar in the Investors section on our website at srinvestorancorp.com. Audio replays of this call will be made available later today as disclosed in our May 5 earnings press release. I would also like to call your attention to the customary disclosures in our press release regarding forward-looking statements. Today’s conference call and webcast may include forward-looking statements and projections. These statements are not guarantees of our future performance or financial results and involve a number of risks and uncertainties. Past performance is not indicative of future results. Actual results may differ materially as a result of a number of factors, including those described from time to time in our filings with the SEC. We do not undertake to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call us at (212) 993-1670. At this time, I would like to turn the call back over to our Chairman and Co-CEO, Michael Gross. Michael Gross: Thank you, Shiraz, and thank you to everyone for joining our earnings call this morning. Following a year of relative outperformance and strong portfolio credit quality metrics, we are pleased to report a solid start to 2026 for SLR Investment Corp. This is despite the confluence of events in the first quarter that created challenges for our industry. These include rising geopolitical uncertainty and elevated concerns about the disruptive impacts of artificial intelligence on the economy, and to a greater extent the private credit asset class. These dynamics have triggered a speculative and often negative global conversation about the industry unlike anything we have seen in our twenty years of operating SLR Capital Partners and decades of experience managing BDCs designed to match the ownership of illiquid private credit assets with permanent equity. While we expect an elevated focus on private credit and BDCs to persist through 2026, we think it is important to remind investors we have been positioning the portfolio for this moment of recalibration of risk in direct lending for a long time. We believe SLR Investment Corp.’s conservatism and focus on collateral-based specialty finance strategies should enable our portfolio to weather uncertain economic conditions while allowing our origination teams to be opportunistic in an improving investment climate. Additionally, we continue to embark on growth initiatives across our specialty finance investment strategies. We also believe that both institutional and private wealth investors are increasingly recognizing SLR Investment Corp.’s value proposition and place in a portfolio’s allocation of private credit that provides differentiated exposure. For the first quarter of 2026, we reported net investment income, or NII, of $0.33 per share and net income of $0.31 per share. NII was down sequentially primarily due to three factors: first, the lag impact on our floating rate loans from the Fed’s 50 basis points cut in the fourth quarter of 2025; second, a contraction of the comprehensive portfolio as deal activity slowed meaningfully in what is already a seasonally light quarter amid rising economic uncertainty; and lastly, a decline in fee income. As of March 31, the company’s net asset value per share was $18.16, down one-half of 1% sequentially but flat year-over-year. SLR Investment Corp.’s net income for the quarter equates to an approximate 7% annualized return on equity. While we recognize that the company’s net investment income ROE did decline sequentially, we continue to expect that our net income ROE, or total return, remained above the public and private BDC industry average in the first quarter and continued to compare favorably on both a one-year and three-year basis. During the first quarter, SLR Investment Corp. originated $242 million of new investments across the comprehensive portfolio and received repayments of $360 million for net repayments of $180 million, resulting in a quarter-end comprehensive portfolio of $3.2 billion. The primary driver of new originations continues to be our commercial finance strategies, which we believe offer more attractive risk-adjusted returns in today’s competitive private credit markets. As of 03/31/2026, approximately 85% of our portfolio investments were senior secured specialty finance loans, which remains the highest percentage on record and offers a risk profile that is highly differentiated from other BDC portfolios available to investors. We continue to believe that SLR Investment Corp.’s investment portfolio mix shift over the last couple of years to asset-based specialty strategies provides greater downside protection than cash flow loans through our strong credit agreements, actively managed borrowing bases, and underlying collateral support. We expect to continue to approach new investments in cash flow lending opportunistically, especially if signs of widening spreads and improved terms endure. For investors concerned about the uncertainty, technology obsolescence risk, and enterprise value destruction for the software industry from the burgeoning threat of artificial intelligence, we believe that SLR Investment Corp.’s portfolio, with its lack of software exposure, offers a safe haven for investors. Our direct industry exposure to the software industry remains at approximately 2% of our portfolio’s fair value as of 03/31/2026 and is one of the lowest amongst publicly traded BDCs. During the first quarter, we established an artificial intelligence investment committee responsible for assisting investment teams with evaluating both new opportunities as well as the existing portfolio as it relates to the risk of AI to both companies and industries. Despite our de minimis exposure to software, we believe that AI will have an impact either positively or negatively in nearly all industries and are assessing every portfolio company and new investment opportunity accordingly. Our underlying analysis includes evaluating the impact to business model, customer base, and competitive moat from AI as well as incorporating company- and sector-specific evaluation categories. We will apply this process during underwriting of new investments and will reevaluate all portfolio companies at least once per quarter. In addition, we are implementing AI in our specialty finance businesses to assist in analyzing borrowing bases and covenants, streamlining routine workflows, and improving legal document reviews. Overall, we are pleased with the composition, quality, and performance of our portfolio, a direct result of SLR Investment Corp.’s multi-strategy approach to private credit investing. At quarter end, 94.5% of our comprehensive investment portfolio was comprised of first lien senior secured loans. 100% of investments at cost were performing with zero investments on nonaccrual. Our watch list investments represented only 2.2%, which we note is unchanged from the first quarter in 2021. We believe these credit quality metrics compare favorably to peer public BDCs. At March 31, including available credit facility capacity, at SSLP and our specialty finance portfolio companies, we had over $900 million of capital available to deploy. Our liquidity profile puts us in a position to take advantage of either stable economic conditions or a softening of the economy. At this point, I will turn the call back over to Shiraz to take you through our first quarter financial highlights. Shiraz Kajee: Thank you, Michael. SLR Investment Corp.’s net asset value at March 31, 2026 was $990.8 million, or $18.16 per share, compared to $18.26 per share at 12/31/2025. At quarter end, SLR Investment Corp.’s on-balance sheet investment portfolio had a fair value of approximately $2.1 billion in 99 portfolio companies across 28 industries, compared to a fair value of $2.1 billion in 100 portfolio companies across 31 industries at December 31. SLR Investment Corp.’s investment portfolio continues to be funded by a combination of our multi-lender revolving credit facilities and the issuance of term debt in the unsecured debt markets to institutional investors. The company is investment grade rated by Fitch, Moody’s, and DBRS. More than 40% of the company’s debt capital is comprised of unsecured debt as of March 31. At March 31, the company had approximately $1.1 billion of debt outstanding with a net debt-to-equity ratio of 1.14x, within our target range of 0.9x to 1.25x. We have ample liquidity to fund our unfunded commitments and for future portfolio growth. Looking forward, the company has one debt maturity in 2026 with $75 million of unsecured notes maturing in December. We expect to continue to prudently access the debt capital markets and issue unsecured debt as and when needed. Subsequent to quarter end, the company increased its revolving capacity by $25 million with the addition of a new lender. Total revolving commitments now total $720 million, up from $695 million as of quarter end. Furthermore, in May, the Board authorized a one-year extension of our $50 million stock repurchase program. Moving to the P&L, for the three months ended March 31, gross investment income totaled $49.3 million versus $54.5 million for the three months ended December 31. Net expenses totaled $31.4 million for the three months ended March 31. This compares to $32.9 million for the three months ended December 31. Accordingly, the company’s net investment income for the three months ended March 31, 2026 totaled $17.9 million, or $0.33 per average share, compared with $21.6 million, or $0.40 per average share, for the prior quarter. Below the line, the company had net realized and unrealized losses of $0.7 million in the first quarter versus a net realized and unrealized gain of $3.5 million for the fourth quarter of 2025. As a result, the company had a net increase in net assets resulting from operations of $17.1 million for the three months ended 03/31/2026, compared to a net increase of $25.1 million for the three months ended 12/31/2025. On 05/05/2026, the Board declared a quarterly distribution of $0.31 per share, payable on 06/26/2026, to holders of record as of 06/12/2026. The Board also approved a voluntary and permanent change in the company’s advisory agreement with the investment adviser, SLR Capital Partners, reducing the performance-based incentive fee payable to 17.5% from 20%. This further aligns the adviser with our shareholders. With that, I will turn the call over to our Co-CEO, Bruce Spohler. Bruce Spohler: Thank you, Shiraz. As Michael shared, we believe that the private credit industry continues to exhibit signs of the middle stages of a credit cycle, characterized by rising defaults and growing credit dispersion in direct lending. With uncertainty percolating, today’s environment requires highly disciplined underwriting and a heightened focus on capital preservation. Our specialty finance strategies offer high returns in cash flow loans and greater downside protection through their underlying collateral support and tight documentation. We view these more favorable terms as a complexity premium earned through investing in structures that require significant expertise as well as infrastructure that many private credit firms do not have. Turning to the portfolio, at quarter end, the comprehensive investment portfolio consisted of approximately $3.2 billion with average exposure of $3.7 million measured at fair value; approximately 98% of the portfolio consisted of senior secured loans with 94.5% in first lien loans. The 3.2% of our portfolio held in second lien loans consists entirely of asset-based loans with borrowing bases and no second lien cash flow loans. At quarter end, our weighted average asset-level yield was 11.1%, down from 11.6% in the prior quarter. The sequential decline was primarily due to the lagged impact from the 50 basis points decline in base rates in the fourth quarter and reduced one-time income that had occurred in the fourth quarter. Overall, we believe our portfolio has been less impacted by changes in base rates and spread compression compared to the BDC peer group because of our lower allocation to cash flow loans. Based on our quantitative risk assessment scale, our portfolio continues to perform well. At quarter end, the weighted average investment risk rating was under two, based on our one-to-four risk rating scale, with one representing the least amount of risk. Just under 98% of our portfolio is rated two or higher. Importantly, 100% of the portfolio was performing with no investments on nonaccrual. While our credit quality remains strong, in light of market concerns of increasing defaults in private credit portfolios, we believe it is important to note that SLR Investment Corp. has a strong track record of successfully navigating workouts. When a portfolio company’s performance deteriorates, we work closely with our co-lenders, owners, and management teams to arrive at a value-maximizing path forward. In the event owners are no longer willing to support a portfolio company with additional equity, we are comfortable stepping into an ownership role if we believe that will be the path to drive the maximum return. We have a dedicated senior team that works closely with our investment teams when a situation first becomes noisy. They work hand-in-hand with our senior leadership team at SLR on all workouts. In addition, our asset-based lending teams are led by industry veterans with over thirty years of liquidation and workout experience, and they provide additional restructuring support when needed. Now let me touch on each of our four investment verticals. Starting with our Specialty Finance segments, as a reminder, we dynamically allocate to our strategies based on market and economic conditions, which allows us to source what we believe to be attractive investments across market cycles. Let me start with asset-based lending. Our direct corporate ABL business remains a highly fragmented industry and contains high barriers to entry through the complexity of underwriting, collateral monitoring, and active borrowing base management. This strategy requires significant investment in experienced human capital as well as infrastructure. Our priority remains first lien positions on liquid current account assets, which has historically minimized our downside risk exposure. At quarter end, our ABL portfolio totaled just under $1.4 billion across roughly 250 issuers, representing approximately 43% of our total portfolio. During the first quarter, we originated $77 million of new ABL investments and had repayments of $194 million. The weighted average asset-level yield on this portfolio was 12.3% compared to 12.6% in the prior quarter. Our ABL portfolio contraction in the first quarter was predominantly due to temporary paydowns of existing revolving credit facilities and our proactive management of borrower exposures, consistent with our hands-on ABL credit discipline, as opposed to repayments of loans that would have generated repayment fees. In our ABL business, a meaningful contributor to returns is derived from portfolio churn in the form of early repayment fees and the acceleration of upfront fees. We had close to 70% of this portfolio churn last year across our ABL businesses. Over time, we expect this churn to revert to its historical level, which we expect will drive incremental fee income. We are seeing increased activity across our ABL platform. In particular, we are seeing an uptick, post a quiet first quarter, from our sponsor finance clients who are increasingly seeking incremental liquidity through companies. We expect to produce net portfolio growth in our ABL strategy through the remainder of this year. Turning to ABL strategic initiatives, our adviser recently established a sourcing arrangement for ABL investments with a large U.S. commercial bank that spans many of our ABL strategies. This partnership expands our origination reach. We are optimistic that this initiative will enhance our investment sourcing funnel and support portfolio growth in specialty finance ABL investments. We are currently in discussions for other partnership opportunities similar to this. In addition, we are continuing to evaluate strategic transactions such as portfolio and ABL business acquisitions. We also continue to expand our ABL origination team. Now let me touch on Equipment Finance. At quarter end, the equipment finance portfolio totaled just under $1.1 billion, representing approximately a third of the total portfolio. It was highly diversified across roughly 580 borrowers. The credit profile of this portfolio was unchanged quarter over quarter. During Q1, we originated $122 million of new assets with the majority of these investments coming from our business that provides leases to investment grade corporate borrowers. We had repayments of approximately $126 million. The weighted average asset-level yield for this asset class was 10.2% compared to 10.9% in the prior quarter. We remain encouraged by current trends we are seeing in our equipment finance business. Our investment pipeline has expanded and we are seeing demand from our borrowers to extend leases on equipment rather than buy new equipment at higher tariff-adjusted prices. Now let me turn to Life Sciences. At quarter end, the portfolio had just over $180 million of senior secured investments, representing close to 6% of the total portfolio, which is down from a peak of 15%. Over the past couple of years, we have been reporting on the origination challenges in this strategy. The debt market for venture-backed private and public late-stage life science companies has seen an influx of capital and a corresponding degradation in credit discipline. Our life science finance team has been in this business for over twenty-five years. A zero loss track record has been predicated on underwriting and structuring standards that new entrants are often not adhering to. This trend has impacted our portfolio growth. For context, Life Sciences has historically accounted for an average of 22% of our quarterly gross comprehensive income since 2020. However, in the first quarter, it was only 13.5%. One-time life science fees have historically contributed an average of 3.5% to our gross investment income, whereas they represented approximately 1% during Q1. Similar to asset-based lending, churn is critical in our Life Science portfolio and has been a significant contributor to our earnings. The pipeline of new opportunities has picked up materially in 2026. To capitalize on the expected growing opportunity set in Life Sciences, our adviser has expanded the team through the hiring of three highly experienced professionals. We expect that these efforts to broaden our origination reach and product offering should generate strong portfolio growth over the coming quarters. We will eventually both increase portfolio churn as well as fee income. Finally, let me turn to cash flow lending. As a reminder, in cash flow lending, we position SLR Investment Corp. not as a generalist capital provider across all industries but rather as a specialized, industry-focused partner to private equity firms with portfolio companies in the upper mid-market. This is most evident in the healthcare sector. We intentionally curate our sponsor base, partnering exclusively with dedicated healthcare private equity firms with long-standing successful track records of investing in the healthcare industry. These sponsors prioritize knowledge over terms, recognizing that the healthcare industry’s ongoing regulatory and reimbursement evolution requires a lender with deep domain expertise. By leveraging SLR Investment Corp.’s three healthcare investment pillars—healthcare ABL, Life Sciences, and Healthcare Sponsor Finance—we evaluate sponsor-backed investments with a level of granularity that generalist lenders cannot replicate. Beyond our focus on healthcare, we selectively deploy capital into business and financial services which mirror these same defensive characteristics: target market leaders with high recurring revenue, sustainable business models, and low capital intensity. By focusing on companies that share the resilient non-cyclical profiles of our healthcare portfolio, we maintain rigorous underwriting standards while providing prudent diversification across our cash flow finance strategy. At quarter end, this portfolio was $480 million across 28 borrowers, including the senior secured loans in our SSLP. Approximately 2% of the portfolio is allocated to software investments. Weighted average EBITDA was approximately $110 million. 100% of our cash flow investments are in first lien investments, and the portfolio carried a weighted average LTV of 38%. Our borrower fundamentals are trending positively, with year-over-year growth in both EBITDA and revenue at our portfolio companies. Weighted average interest coverage on this portfolio was 2.2x at quarter end, up from 2.0x in the prior quarter. During Q1, we made investments of $43 million in first lien cash flow loans and had repayments of approximately $40 million. Only one of these 12 investments was to a new borrower. At quarter end, the weighted average cash flow yield was approximately 10% compared to 9.8% in the prior quarter. Now let me turn to our SSLP. During the quarter, we invested $9.8 million and had $3.4 million of repayments. Net leverage was just under 1x. In the first quarter, we earned income of $1.5 million, representing an annualized yield of roughly 12.25%, compared to 9.25% in the fourth quarter. At quarter end, we had approximately $54 million of undrawn debt capacity. We expect to grow this portfolio opportunistically over the remainder of 2026. Now let me turn the call back to Michael. Michael Gross: Thank you, Bruce. Over the last seven months, we think both the public and private markets have come to terms with private credit’s maturation as a core asset class with a corresponding recalibration of forward return expectations to reflect a tighter spread environment and a more normalized default loss experience. With less than 10 basis points of annual losses at SLR Investment Corp. since the company’s IPO sixteen years ago, resulting in an IRR above 9%, our North Star at SLR continues to be protecting capital, avoiding losses, and not chasing higher spreads at the expense of structural protections. We believe this approach provides our investors with absolute returns designed to consistently exceed the liquid corporate credit markets yet with lower volatility. It is with this view—that the private credit market has matured and correspondingly carries tighter illiquidity premiums—that our Board of Directors took action this quarter to adjust the second quarter dividend distribution to a level we view to be sufficiently covered from earnings while simultaneously preserving capital as we grow our earnings, and to adjust our performance-based incentive fees to 17.5% from 20%. These are actions that we do not take lightly as leaders and significant shareholders of SLR Investment Corp. since founding more than fifteen years ago. However, we believe that we have struck the right balance and are acting in the best long-term interests of shareholders. As a reminder, we have taken action previously at SLR Investment Corp. to adjust the dividend during transitioning investment climates to make way for growth. The SLR team owns over 8% of the company’s stock and has a significant percentage of their annual incentive compensation invested in that stock each year, including purchases that took place in the first quarter. The team’s investment alongside fellow institutional and private wealth investors should demonstrate our confidence in the company’s portfolio, stable capital structure, and earnings outlook. We have made significant investments and resources across the SLR platform over the last couple of years and year to date that should fuel growth in the investment portfolio that will support net investment income growth. Importantly, we have the available capital to be opportunistic in market dislocations and to evaluate strategic transactions. Thank you all again for your time today with a busy day of BDC earnings releases. Operator, will you please open up the line for questions? Operator: Thank you. And our first question today comes from Erik Edward Zwick with Lucid Capital Markets. Your line is now open. Erik Edward Zwick: Thanks. Good morning, everyone. I thought you made some interesting points in the prepared comments describing how lower churn in some of the portfolios has led to lower fees and how this is, hopefully, a more temporary, market-related impact, but that has driven down the investment income here in the most recent quarter. And I suspect that is what is driving action in the stock price today. But you also highlighted some initiatives you have taken to grow the specialty finance strategies and how those should help rebuild that income through additional churn. I am just curious to what degree—and I realize there is no definite time frame—how soon should we start to see the benefits of those initiatives that you have taken and outlined? Shiraz Kajee: Yes. I think that it will take a few quarters. If you step back for a moment, the churn commentary goes specifically to both our asset-based lending and life science portfolios. Historically, those assets have had a contractual duration of five or six years, but an actual duration of about two years. So it is a combination of bringing more of those assets into the portfolio, which we expect to do this year, and then letting those mature and start to repay over the next twelve to twenty-four months. That is a typical life cycle of that churn that will get back to a more normalized nonrecurring-yet-recurring fee income portion of our gross investment income. Additionally, the strategic initiatives include strategic sourcing arrangements—particularly on the asset-based lending side—additional origination team members on both the ABL and life science teams, and then, less predictable from a timing perspective, we continue to see some attractive opportunities in potential portfolio and team acquisitions in specialty finance, though those are a little less able to predict. Erik Edward Zwick: Thank you. I appreciate the color there. And then, just more importantly from my research and investigating, credit performance is ultimately one of the biggest predictors of long-term ROE and performance for BDCs, and you have outlined your very limited loss history and that the portfolio remains very clean from a nonaccrual perspective. Also, comparing your internal risk ratings from last quarter to this quarter, there has been an improvement there, but we are seeing kind of the opposite at other BDCs. So I wonder if you could just talk about the improvement that I noticed here in the most recent quarter from your internal risk rating perspective. Shiraz Kajee: Yes. I think, as you know, we do not judge it quarter to quarter. There are always some names coming in and names coming out underneath those risk ratings. What we like to point to is the watch list is about 2.2%. If you go back over the last five years, it has been a little higher, a little lower, but 2.2% is actually the average going back to 2020. So to your commentary, we are looking for more consistency across the credit performance, and that is what we are happy about and comfortable with. It is also an example of how we have talked for a long time that the specialty finance assets, the ABL assets, are much less volatile than cash flow–oriented loans. That is why the watch list is so low, and we expect it to stay that way. Erik Edward Zwick: Thank you for taking my questions this morning. Michael Gross: Thank you. Operator: Thank you. Our next question comes from Rick Shane with JPMorgan. Your line is now open. Rick Shane: Hey, guys. Thanks for taking my question. Look, the implied ROE on your new dividend based on current book is about 6.8%, which is roughly SOFR plus two. That seems like a relatively low margin given the return and risk profile of the company. And again, I realize great track record on credit, but this is a levered portfolio. There is inherently credit risk in it. How do we think about this going forward? Are you saying that the return profile for the company is likely to be altered—or for the industry is likely to be altered—long term because of some of the dynamics we are seeing in terms of the broader flows to private credit? Or how should we think about the dividend in the context of your long-term return objectives? Michael Gross: I think we set it at a level where we have confidence it is exceeding the near term. In the long term, as Bruce alluded to in his commentary, we have several levers and initiatives that give us comfort that over the medium to long term, we should see our earnings move back toward the $0.40 level that we have experienced in the past and get to the higher ROE and ROI that we expect and have experienced. The other thing is our focus continues to be on total return. Obviously, that takes account of losses. We feel very good about where we are because of the credit quality, and that is something that is sustainable. Rick Shane: Got it. And when you think about those levers to get back to the $0.40 of core earnings, what is the path? Recasting the portfolio is a gradual process. Is the most immediate opportunity a modest degree of enhanced leverage? I am trying to figure out not only what the destination is but what the path looks like as well. Michael Gross: Fair question. We touched on this earlier in terms of timing. Potential portfolio acquisitions, particularly around the asset-based industry—which we have done in the past given the fragmented nature—have shown more opportunities. Those would be more difficult to predict, but more immediate should they come to pass as we bring portfolios in. The most recent, as you may recall, was in 2024 when we brought in the Webster factoring portfolio. Those are difficult to predict but are immediately accretive and also strategic in terms of expanding our ABL footprint either geographically or by industry. The other levers you heard generally revolve around expanding our sourcing across specialty finance, in particular ABL and life sciences. It is a combination of additional originators and strategic sourcing arrangements where we are creating partnerships with existing ABL players. As you know, we are incredibly conservative, so having a broader pipeline and expanded origination opportunity set allows us to bring more of these short-duration ABL and life science loans into the portfolio. We also know they will churn out fairly quickly with a roughly twenty-four-month average duration, so you will start to see those come into the portfolio this year and begin to exit as early as next year. That velocity in those two asset classes will contribute additional nonrecurring, recurring fee-based income. Rick Shane: Got it. And then, philosophically, you guys are conservative. Your credit results are evidence of conservatism. For some types of lenders—if you are a credit card lender—there is an efficient frontier; it is not a zero-defect business by definition. If your loss rates are too low, you are leaving too much opportunity on the table. I would argue that BDC lending is, in fact, a zero-defect business. One of your most thoughtful competitors years ago said to me, “There is no spread that makes up for a bad loan,” and that has always stuck with me. But I do wonder if even within a zero-defect construct, is there a concern that you are too far from that line of zero defect and that there is a little bit of widening you can do and still maintain a zero-defect objective? Bruce Spohler: That is a phenomenal point. The way we address our, let us call it, ultra-conservative approach to this requirement to be zero defect in private credit is by moving increasingly into these specialty finance strategies. The reason that we have zero defects is in large part because of the leadership of our Life Sciences and ABL teams. Secondarily, they come with collateral, tight documentation, and borrowing bases. There has been no degradation in the documentation in Life Sciences and ABL. The performance of these asset classes, in addition to the leadership of those teams over decades and multiple cycles, allows us to take on more risk in those strategies than we would as a team focused exclusively on cash flow lending because you have that downside protection of underlying collateral—be it cash and IP in Life Sciences and working capital assets in Asset-Based Lending. We are extremely cognizant of your point, and therefore it further aligns with our conservative culture to do more in these specialty finance, collateral-based strategies. Michael Gross: I would add that, in terms of where we are and where others are on the risk spectrum, the jury is still out. We have had a seventeen-year run without a real credit cycle. What we are seeing this quarter and last quarter is public and private BDCs with significant NAV degradation, with the storyline behind it being that it is temporary and mark-to-market. The jury is out on whether that is truly mark-to-market and recoverable. When you think of software exposure, that mark-to-market may be permanent and can actually become worse. We are very comfortable where we have been—on documentation and not pushing the envelope on traditional direct lending—because to your earlier point about spread, it is not just spread that you cannot make up for; it is bad documentation that prevents you from getting to the table early enough to protect your interests. In the past, are there deals that we passed on because we were too conservative and they worked out just fine? Yes. But had we applied that same mentality as a portfolio approach, we would be sitting on a lot of loans today that we would be really worried about. To the earlier comment about rebuilding NII, the good news is that given how low our watch list is and that we have no defaults, the team is not focused on restructurings. They are focused on growth and how to rebuild in a way that we can be profitable for the long term. Rick Shane: Guys, thank you very much. I appreciate it. I realize they are pretty hyper-philosophical type questions, and I appreciate the thoughtful answers. Michael Gross: Thanks, Rick. Appreciate the questions. Operator: Thank you. And as a reminder, it is star one if you would like to ask a question. We will go next to Robert Dodd with Raymond James. Your line is now open. Robert Dodd: Hi, guys. I have got a first question—the second question basically already asked—but I have got a slightly different way of looking at it. On the comprehensive portfolio, paybacks—right, you would always rather get your money back than lose it. It surprised me a little bit that it was so strong and the portfolio shrank so much relatively speaking in this quarter when there is this sense that the banks are not looking to go heavily risk-on right now. They are one of your primary competitors on ABL lending. It is a fragmented market. Was the real driver of that payoff simply seasonal? It seems like a market where I would have expected repayments on ABL or competitive takeaways to be more muted. You were very successful on getting a lot of capital back—that is a good thing and a bad thing. Any thoughts on what drove that dynamic? Bruce Spohler: Under the hood in asset-based lending, there are three primary sources of repayments. There is the traditional refinance to another ABL lender or maybe to a cash flow loan. Then there is what I would call temporary repayment because most ABL facilities have a large revolver with seasonal draws. In our $194 million of ABL repayments, some of that is seasonal repayments, and most of it was not a borrower exiting the platform and canceling their facility. The third dynamic—which we did not have in Q1 but to touch on your broader question—is that sometimes in asset-based lending when we feel the fundamental performance of the business is not going in a direction we are comfortable with, the beauty of ABL is that because we have strong documentation, we can start to turn up the pressure on that borrower and create alternative sources of liquidity. We can wind down our exposure with that borrowing base by increasing reserves and ineligibles such that our advance rates continue to contract in our favor. That will drive an exit or repayment, not necessarily because we got refinanced or there was a temporary paydown, but because we have applied some pressure and encouraged them to refinance us with somebody else. That is also a dynamic our Life Sciences team has used selectively from time to time. A key element of our specialty finance strategies is that you have the ability to wind down exposure and take down advance rates given how tight the documentation is and the underlying collateral support. Specifically to your question in Q1, it was really temporary repayments of facilities rather than a true refinancing or an agreed-upon exit. Robert Dodd: Got it, got it. Thank you. And then the second one—it is basically related to Rick’s question. I agree that zero defect is the goal. But when you look at the portfolio, have you been, with the in-house teams, so strict in pipeline construction that the result is you have really high-quality assets but maybe not enough “good” assets in the flow? So when a great asset repays, you do not have a flow of acceptable, probably zero-defect but maybe not “great,” to moderate the size of the portfolio more? Is expanding distribution—like signing a deal with a bank to see more ABL deals—part of moderating the flow? Bruce Spohler: When you are saying yes to about 5% of the opportunity flow, the way to expand funded investments is to expand the funnel so that 5% becomes a much bigger absolute number. The quality of deals we generally see from ABL banks is higher quality—it might not be their quality because they are measured based on the borrower’s risk rating, rather than the collateral—whereas we can look at the collateral and say, “That is phenomenal collateral.” As Michael touched on with the AI initiative, there are a number of businesses that we lend to that may be impacted by AI. If we have collateral, some of those companies may not survive, but we will likely liquidate ourselves out and be fine. To your specific question, there is no such thing as a “great” private credit deal; you are taking on the ability to potentially lose money. Everything we do is looking for “good.” The more deal flow we have with underlying collateral that checks the SLR box for “good,” the better. Expanding that pipeline by getting more from ABL banks also increases the level of the operating performance of those borrowers. It is really the combination of a much larger pipeline and high-quality collateral—both in ABL and Life Sciences—that we believe, if things go sideways (and we always assume they will), we are going to be fine because of the additional collateral support beyond just traditional ownership support in a borrower. Robert Dodd: Got it. Thank you. Operator: Thank you. And our next question comes from Finian O’Shea with Wells Fargo. Your line is now open. Finian O'Shea: Hey, everyone. Good morning. Thanks for having me on. Can you hit on the fee change, the break to 17.5% on the incentive fee—appreciating that. How did you and the Board come to that number? Michael Gross: It was not a long discussion. It was initiated by us, not the Board. We looked around at what others were doing and thought it was the right thing to do. Finian O'Shea: Okay, that is helpful. And then did the concept of the hurdle rate come up, given the story now is growing earnings—which is tough for a BDC to do—you have been working at that for a long time; it is not the easiest thing to deliver on. Do you think a higher hurdle rate would motivate or align the team better to achieve higher earnings? Michael Gross: No, actually a lower hurdle would do that in terms of incentive fees, but that was not something we were going to consider. The team, frankly, has never focused on our hurdle rate. That is not their job; that is not how they are motivated or compensated. The hurdle rate we have had since inception goes up and down with rates—it is the right place to be. Finian O'Shea: All for me. Thanks so much. Operator: Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to our presenters for any additional or closing remarks. Michael Gross: No further comments other than to thank you all for your participation today. We recognize it is a very busy period of time and there is a lot going on within the private credit space, both in the public and private BDCs, and as always, the entire team is available for any questions that you may have to follow up with. Thank you. Operator: Thank you. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the DoorDash, Inc. Q1 2026 earnings call. After today’s opening statement, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. I will now hand the call over to Weston Twigg. Weston, please go ahead. Weston Twigg: Alright. Thank you, Elizabeth. Good afternoon, everyone, and thanks for joining us for our Q1 2026 earnings call. I am pleased to be joined today by Co-Founder, Chair and CEO, Tony Xu, and CFO, Ravi Inukonda. We will be making forward-looking statements during today’s call, including, without limitation, our expectations for our business, financial position, operating performance, profitability, our guidance, strategies, capital allocation approach, and the broader economic environment. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described. Many of these uncertainties are described in our SEC filings, including our most recent Form 10-K and 10-Q. You should not rely on our forward-looking statements as predictions of future events or performance. We disclaim any obligation to update any forward-looking statements except as required by law. During this call, we will discuss certain non-GAAP financial measures. Information regarding our non-GAAP financial measures, including a reconciliation of such non-GAAP measures to the most directly comparable GAAP financial measures, may be found in our earnings release, which is available on our Investor Relations website at ir.doordash.com. These non-GAAP measures should be considered in addition to our GAAP results and are not intended to be a substitute for our GAAP results. Finally, this call is being audio webcast on our Investor Relations website. An audio replay of the call will be available on our website shortly after the call ends. Operator, I will pass it back to you, and we can take our first question. Operator: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from the line of Shweta Khajuria with Wolfe Research. Your line is open. Please go ahead. Shweta Khajuria: Thanks a lot for taking my questions. Let me try two, please. One is on product and the other is on partnership. So first on product, could you please talk about how you envision your product developing over the next 12 to 24 months as you integrate more of agentic and AI capability? So will we have an opportunity to communicate via voice and put a cart together and execute a transaction, even saving us more time, or better search and discovery, or whatever it may be? If you could please talk to that. And then the second one is on partnership. You announced extension and expansion of your partnership with Lyft. As you think about the greater value proposition around local commerce and becoming the operating system for local commerce, how do you think about travel as an adjacency with Uber partnering with Expedia—partnering with Airbnb and Booking.com type partnership? A value add or something else? Your thoughts on that would be great. Thanks a lot. Tony Xu: Hey, Shweta. Maybe I will take both of those and feel free to add in anything you want, Ravi. Look, on the first question with respect to product, the DoorDash, Inc. philosophy and story has always been the same here, which is we have to create the best end-to-end shopping experience. If we do that, we will continue to be the ones that innovate and lead. We will continue to deliver great results like the ones that you saw in the quarter and in the many years leading up to the results that we have just shared. There is not one way to do that. You talked a bit in your premise, Shweta, about this idea that you should be able to, with the assistance of agentic-like tools, have better discovery and search experiences, and we agree with you. I think that we absolutely will have agentic ordering experiences in which it will be a lot easier for customers to do many things that they do today with much lower friction, to discover things that they perhaps did not know existed on DoorDash, Inc., to formulate complicated queries and solve those in the best possible way. The most important thing in delivering this is making sure that we can do it not just in discovery and the upper funnel, but across the end-to-end experience. What is the point of having the best discovery experience if we cannot bring you that exact item, or if that exact item were out of stock, or it does not meet your personalized preferences, and we cannot actually solve for that need? For us, the way I think about it is there is no one trick. It is making constant and continuous improvements to the selection quality, the accuracy of the catalogs, making sure that we offer the widest choice in terms of affordability and different price points, offering the best quality of experience in speed, timeliness, and accuracy, and then, obviously, in customer support, which I think is also having an agentic revolution in itself. You will see all of these things play out in the DoorDash, Inc. product experience. The most important thing is that we have to build the best end-to-end experience. We are the only company that has the most robust catalog, much of which is actually about the physical world that does not exist in any digital repository, that cannot be scraped, and that we ourselves uniquely own access to because of all the work that we do to actually build up a repository of the physical world. That is something that we will continue to build greater and greater advantage in, especially in the world of agentic commerce. Your second question on membership and how partnerships will evolve: the way to think about it is that membership experiences and the benefits that live underneath the umbrella of membership programs only matter if they are best-of-breed experiences to customers. This is why you see different customers, for example, choose a variety of different memberships even for the same product. If you take streaming, for example, some people prefer shows of a certain format on one network, whereas others prefer shows of a different format on a different network, and that is why they end up having multiple membership programs. There are so many examples of this where being best of breed is ultimately what customers care about and why they will choose to adopt or not adopt your program. As you saw in some of the results that we discussed—record engagement in DashPass as well as our other membership programs around the world—what we are doing is building the best-of-breed product experience when it comes to eating, and increasingly in shopping as we go outside of the restaurant category. There is a long way to go. There are 20 to 25 occasions for eating alone every single week, so over 100 every single month. If you add in shopping, it is even higher than that, and on that combined sum, we are a tiny fraction of what is available and addressable, which means there is a large runway and opportunity for us to become even better in breed in terms of what we can offer. If we can keep doing that, I think we are going to be just fine. You see it in our numbers. You see it in our growth rates both in the US and outside of the US. We are gaining share virtually in every single market, and we are growing at near historical highs in pretty much all of our geographies. I think that is happening even at the scale that we have developed over the last few years because we are continuing to build the best-in-breed experiences in categories that have a very large runway for growth. Shweta Khajuria: That was great. Thank you, Tony. Operator: Your next question comes from the line of Michael Morton with MoffettNathanson. Your line is open. Please go ahead. Michael Morton: Good evening. Thank you for the question. One for Tony and then a quick one for Ravi. Kind of following up on what you were just speaking about, Tony—AI and partnerships. As the AI platforms become more capable, there is a concern from investors that personal agents could layer themselves in between the on-demand marketplaces and the consumer. I would love to know DoorDash, Inc.’s long-term strategic view on this, and if there is a risk to your business of becoming an API or logistics offering to these, and why or why not you would want to work with one of these third-party AI platforms. Then the quick one for Ravi: as you have been operating Dot for a bit now in some cities, are you willing to share any learnings about what percentage of the US delivery market you think is addressable for AVs, and then maybe thoughts on how to incentivize consumers to come out and meet the Dot, or where the opportunity costs are around cost to serve with AV? Thank you so much. Tony Xu: Yeah. Hey, Michael. I will start on your question related to agentic commerce and agents and whether or not there is any intermediation or disintermediation risk. I think what is instructive here is what we have seen historically with top-of-funnel programs. For at least a decade, you can argue companies like Google or Apple, and many other large platforms, were top-of-funnel drivers to a lot of different commerce platforms, ours included. Take, for example, Google food ordering, which allowed you to order through various Google channels—Google Maps, Google Search, and I believe a few others—where you could order restaurant delivery. That started in the mid-2010s and went for about eight years before they shut it down. From a traffic perspective, they absolutely could drive a lot more traffic than virtually anyone else could to any one of these restaurants. Yet the retention of that traffic was a fraction of what platforms like DoorDash, Inc. saw, and as a result, customers effectively moved all of their shopping experiences to DoorDash, Inc. I would argue something similar happened with Amazon where, perhaps at the beginning of the 2010s, Amazon was not a leading player in the product search category, but by the end of the 2010s, Amazon ended up owning a significant percentage of all product search terms related to commerce. You may ask why that happened and what lessons we can learn from history to instruct what is happening in this moment and in the years to come. What I would say is customers ultimately do not care about any top of funnel—DoorDash, Inc. included—or any of these agents. What they care about is whether they got the order they wanted, the item they were actually looking for, and whether they got it in the best possible experience in terms of price, speed, timeliness, and accuracy. Obviously, if something were to go wrong, was it fixed appropriately and quickly? When I look at it from the customer’s perspective, they are going to ultimately judge us on the best end-to-end experience. That is what we are focused on maniacally at DoorDash, Inc.—not just building agentic ordering experiences on DoorDash, Inc. to make discovery or search easier, but also building a catalog, a digital catalog of structured information for the physical world: collecting where every banana sits or every ripe or unripe avocado, to every size shoe in whatever color and style a customer is looking for. All of that information about the physical world—of which there are billions of items, tens of millions per city—and getting that annotated and having that unique and proprietary to DoorDash, Inc., which we do not have to share with anybody. If we can do that and improve our discovery experience over time, given the power of some of these agentic tools, I think we are going to be the best end-to-end shopping experience. Ultimately, that is how we are going to get judged. I think that is the reason why, for instance, even our restaurant delivery business, which is the oldest of the areas in which we operate, continues to grow at above historical highs, because we are constantly trying to build the best end-to-end experience and be best of breed in doing so. It does not mean we are perfect. We have a long way to go, and it is not a guarantee that we are going to be able to get there. But if we can keep executing like we have, I think the numbers will continue to speak for themselves. These top-of-funnel players will be partners of ours. They will drive a small percentage of our traffic, and a lot of that will be a choice that we will have. Ravi Inukonda: Hey, Michael. On your second point around Dot, we are very happy with the progress that we are making. Maybe I will talk a little bit about the vision. The vision for us is we are building autonomous delivery because, ultimately, we think different formats are needed for different types of delivery. That is how we build the most efficient network. We are happy to partner with others, and we are happy to build ourselves. I think there are going to be different formats both on land as well as in the air that we are working on. We are early on this journey. We are scaling. What we are trying to do is operate at scale, manufacture at scale. That is going to be important for us. We have seen good results. We have launched it in a couple of markets. Adding it down to the end customer benefit—because I think that was one part of your question—it is going to be a combination of the key things that we focus on. It is going to help us with speed. It is going to help us with quality. It is going to potentially help us with overall range of delivery. The key is the work that we are doing is starting to look good. We are early in our journey, and the overall progress we are making is going really well according to the plans that we made at the beginning of the year. Tony Xu: One thing, Michael, I will add to the autonomy story that sometimes is harder to see from the outside is that there is a pretty big difference between just shipping a vehicle or having a vehicle ready for a demonstration and a vehicle that can really operate at scale under any condition and is really battle-tested. It is kind of like saying, I can shoot a three-point shot, and so can Steph Curry, but one of us is the greatest shooter of all time, and one of us maybe hits it once in a while. This year for us, it is really climbing that curve for the autonomy program and making sure that we can harden our systems. It is not just the autonomy. It is the autonomy, the hardware, the remote operations, all the work around regulatory with the different cities so that we can do this at scale and truly be the best of breed. I believe the only way you can really do that is if you actually get in there and do all of the things yourself. That is what is happening this year with DoorDash, Inc. and also our broader autonomy program. Operator: Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open. Please go ahead. Eric Sheridan: Great. Thank you so much for taking the questions. As we get deeper into 2026, any updated views around either the depth or the duration of some of the strategic investments, especially in the platform, that you talked about over the last couple of earnings calls? More importantly, any updated views on how the tech replatforming might position you for different forms of innovation than you envisioned six plus months ago? Thanks so much. Ravi Inukonda: Sure, Eric. I will start, and Tony can feel free to add anything. We talked about two calls ago that we are investing $100 million back into the platform. Obviously, the largest component of that is our global tech infrastructure stack. It is going well. The biggest component is being able to design and map all the domains, which is what the team has done over the last several quarters. That part is done. Now we are focused on execution. We are starting to see production traffic go through. We are already starting to see some early benefits come through. On the cost side, which I think was the second part of your question, my view on the overall quantum of dollars that we are investing behind this has stayed the same. It is largely in line with what I had expected two quarters ago. Both the program from an execution perspective as well as a cost perspective is going well. Finally, to your point around benefits, ultimately, the benefit is going to accrue in terms of us being able to do more, us being able to release features earlier. The feature development velocity is going to improve, which will ultimately result in retention, frequency, and unit economics increasing. That was the goal for this. We are starting to see benefits, and I feel good about where the trajectory of the overall program is. Tony Xu: The two things around your second part of your question, Eric, that I would add to what Ravi said about innovation are, one, velocity and, two, quality. Velocity increases for the simple fact that instead of shipping one feature—which, if we were to do it today, we would have to ship three separate times across DoorDash, Inc., Bolt, and Deliveroo—we would only have to do that once. That is the velocity comment. The second point is around the quality in which we can see benefits. By choosing to build a new tech stack versus just replatforming a couple of different brands into the same tech stack that we currently have, you get to take the best-of-breed experiences from different brands and products and put them into a new product that all three get the benefit from. For example, one of the things that we have learned is that there are different logistics challenges in places like London or cities in Europe that are a lot smaller, tighter, and not always perfectly gridded like some cities in the United States or other parts of the world—perhaps older cities historically—not really meant for driving under any circumstance. You need different logistics approaches, and we can borrow and take the best of what we are seeing from European operations and bring those over here to the US. In the US, because we have larger physical geographies that travel longer distances and perhaps a greater retail network with a larger catalog of items, those are advances that we get to port over to Europe. That is what I mean by quality. I am pretty excited that we are on track, which is great news when you are taking on a project as large and ambitious as the one we are thinking about. We are already seeing some velocity and quality wins across all of the brands, and I think there will be a lot more to come as we actually roll this out. Ravi Inukonda: Great. Thank you. Operator: Your next question comes from the line of Youssef Squali with Truist. Your line is open. Please go ahead. Youssef Squali: Excellent. Thank you so much. Hi, guys. Maybe just following up on the prior question and looking at it more from a competitive lens. Can you talk a little bit about what you are seeing in Europe, particularly Northern Europe, with Uber becoming a little more aggressive? There is a line of thinking that maybe as you guys are going through your replatforming, it may make you potentially a little more vulnerable to competition. So maybe if you can comment on that. And then, Ravi, thank you for quantifying the support to drivers. In Q2, I think you said $50 million. Obviously, we do not know how long this thing is going to last, but is $50 million a good run rate to assume for the rest of the year, just assuming status quo on the macro environment? Thank you. Tony Xu: I can take the first question, which is around our competitive position in Europe. We have never been stronger in Europe. Deliveroo is seeing the highest growth rate it has in the past four years, and it has been reaccelerating in growth each of the months in which we have been operating it. Bolt is seeing the highest share performance in each one of the countries in which we operate. Those are outcome metrics, and candidly, they are not things that I stare at all the time. I am looking at what improvements we are actually shipping for our different audiences. If we are seeing logistics improvements, how is that translating into lower wait times at different stores, higher accuracy of picking, or faster delivery? If we can continue executing the way that we have, I think the share performance and reaccelerated growth is only going to continue. It goes to the DoorDash, Inc. story: how do you build what is best of breed? If you continue building what is best of breed, customers will continue voting with their wallets, and they are voting DoorDash, Inc. Ravi Inukonda: Hey, Youssef. On the first one, I will question your premise because if you look at the underlying consumer input metrics—whether it is users, order frequency, we talk a lot about subscription in the press release—we are seeing accelerated growth in subscription. Users are growing. We are gaining share in the majority of the markets that we are operating in. The other thing I would offer is if you actually look at the overall MAU growth in the industry, the majority of that is being driven by DoorDash, Inc. That should tell you the business is doing really well, both from a demand as well as an underlying improvement in customer metrics perspective. Your second point around the impact from a gas rewards perspective: roughly, the impact of that is about $50 million in Q2. We did have to find offsets in the business. We will push out some investments from the first half into the second half. Our goal is to make those investments in the second half of the year. On whether we are going to extend it, we have not made any decision. We will monitor the situation closely and do what is right for the business. That said, my broader view on EBITDA for the full year has not changed. The last couple of quarters, I talked about the fact that I expect overall EBITDA margins for 2026 to be slightly higher compared to 2025, excluding RUE, and RUE to produce roughly about $200 million of EBITDA. That view has remained very consistent. If we do decide to extend the gas rewards program, we will find offsets in other parts of the business in order to make sure we still feel good from a top line as well as a bottom line perspective. Youssef Squali: That is very clear. Thank you, Doug. Operator: Your next question comes from the line of Nikhil Devnani with Bernstein. Your line is open. Please go ahead. Nikhil Devnani: There. Thanks for taking the question. Tony, in a world with AI workloads and a more productive workforce, is your mental model for headcount growth and even organizational structure for DoorDash, Inc. changing at all? Tony Xu: Yeah, it is a really good question. In short, the answer is yes. The longer answer is we are trying to figure out what that really looks like because we are seeing a lot of productivity gains right now from AI. Well north of half of our code—probably closer to two-thirds of our code—is written by AI today. But that alone does not articulate how workflows and team setups ought to change. It means that we are being more productive and shipping more code, but the ultimate question I have is, are we actually delivering better outcomes for customers? At the end of the day, that is the only thing that really matters. We are in that period where we are seeing productivity gains and trying to figure out how those translate to what team setup should look like. The top priority for us right now is getting all teams onto a single tech stack. The second priority is making sure that everyone in the company—not just engineers—is as AI-capable as anyone else. Then we can start thinking about what workflows have to change to truly deliver things faster. Right now, we are delivering features faster—delivering sets, projects, and components faster—but I think the customer holds us to a higher bar: can you actually deliver outcomes much faster? That is a tricky question that all companies, ourselves included, are wrestling with right now, and we will figure it out. Ravi Inukonda: Hey, Nikhil. Very similar to what Tony talked about, we are using it across the board and seeing productivity improvements. The goal for us from a productivity improvement perspective is as it has always been: we want to do more with more. We want to drive more features. We want to do more for our audiences, and we want to do more internally as well. Ultimately, we channel productivity improvement into developing more features. If it is purely from a modeling perspective, I would expect, in the near term, OpEx to roughly be in the 2% range that I have talked about before. We are being very judicious and disciplined. The goal is to generate leverage on it, just like any other part of the P&L over time. Nikhil Devnani: That is helpful. Thanks. And, Ravi, if I could just follow up on the order growth dynamics in Q1 as well. Could you elaborate a bit on the deceleration there? Is that just weather, or are there other things you want to call out? How are you thinking about that as you think about the Q2 guidance you have given for GOV? Thank you. Ravi Inukonda: The question broadly is around consumer demand on the platform. Demand continues to be quite strong. The impact purely from a winter storm perspective is roughly about 1% on a year-over-year growth basis from a GOV standpoint. When I look at the underlying demand, it continues to be very good. We have talked about MAUs reaching an all-time high. Order frequency is growing. Subscription had a record quarter across the board—across DoorDash, Inc., Deliveroo, as well as Vault. What we are seeing is member growth has accelerated on a year-over-year basis, following the last few quarters where member growth has been quite healthy. We are seeing that from sign-up as well as overall retention. We are gaining share. New verticals are continuing to do well. We were volume share leaders in Q4, and we have continued to extend that. Across international, we touched on Deliveroo acceleration, and the rest of the international portfolio is also growing. Scooter is off to a good start. We feel good about the demand patterns that we are seeing in the business. Nikhil Devnani: Thank you. Operator: Your next question comes from the line of Deepak Mathivanan with Cantor Fitzgerald. Your line is open. Please go ahead. Deepak Mathivanan: Great. Thanks for taking the question. Tony, on groceries, in the last few months, you have got a lot of new partners. Can you talk about the trends in the business broadly—maybe in terms of penetration, how use cases have evolved, potentially some color on growth, and maybe also where the unit economics have seen the biggest gains? And then similarly, Dasher Fulfillment Service is also another big area of focus this year. Where does it currently stand, and where do you want the service to get to ultimately before it starts becoming another incremental key growth driver? Thank you so much. Tony Xu: Those are related questions, so I will start with where grocery is at today. It is pretty much at record highs for us. We became the share leaders by volume last fall or last winter, and it has continued to go in one direction. There is a lot of activity in the field. You are right, in part, because we have added a lot of grocers, and we like the trajectory of the pace we are at. We are also improving the service experience. It is not just adding more selection. I always ask myself, why is grocery not a lot bigger? Why should it not be even bigger than restaurants? It is because the online delivery experience is just not yet good enough compared to the offline experience of buying it for yourself. We are really closing that gap, and the team deserves a ton of credit for making us a lot more accurate, more affordable, making basket building a lot easier, making customer support better, making the experience easier for shoppers—literally tens of thousands of little things over the last six or seven years that are accumulating. But there are still reasons why, over time, if you truly want to marry the best possible selection—which is every store inside your neighborhood—with the best possible quality—which means you get exactly the item you order without any substitutions or changes and certainly no out-of-stocks or canceled items or orders—I think you do have to work the fulfillment problem, which is where Dasher or Dasher Fulfillment Services comes in. There, we are trying to build an inventory management and fulfillment setup with all of the grocers and retail partners that we work with. If we can do that, then finally you can unlock what is truly a magical experience where it is more similar to restaurant delivery where, yes, there might be a small premium you pay, but at least you get exactly what you ordered, which is not the experience today. In terms of where Dasher Fulfillment Services is, we are doing it with a handful of grocery and retail partners today. If you think about that journey, we are trying to work with grocers and retailers who, for decades now, are used to running their supply chain and their stores in one particular way. Now we are introducing a second way, and there are a lot of things to figure out in terms of technology, people processes, the interaction of business models, and everything in between. We see good results with a handful of partners, but in the spirit of all things at DoorDash, Inc., we really want to make sure we nail the experience before we scale it because this is quite disruptive in a positive way to the customer experience and also disruptive to how retailers are used to working and running their businesses for so many decades. We have to make sure that we get it fully right end to end. Then we can replicate the playbook. Ravi Inukonda: Deepak, on the unit economics side, we made a lot of good progress. Last call, I made the point that we expect the overall new vertical to be gross profit positive in the second half. We are trending well towards that. We have not been worried about what the profitability profile of this business looks like. It is something we understand quite well and what we need to do. It is not that there is any structural change we need to make happen. It is just continued execution on a number of lines up and down the P&L. What we are truly focused on is how we scale the business. In Q4, we talked about the fact that about 30% of our monthly active users order from categories outside of restaurants. We truly think that could be 100% over time, and that is going to come with a lot of improvements in selection, quality, and the underlying product. Looking at consumer metrics, order frequency is improving. Basket sizes for mature cohorts are continuing to improve, which means people are using us for more use cases. Over time, the underlying order rate also continues to improve. These are all good signs, which drive both growth and improvement in scale, which will ultimately drive the unit economics in the business as well. Deepak Mathivanan: Great. Thank you so much. Operator: Your next question comes from the line of Josh Beck with Raymond James. Your line is open. Please go ahead. Josh Beck: Yeah, thank you so much for taking the question. Maybe more on the cost side. Ravi, you mentioned the $50 million gross cost as you look to find relief for those investments. What are some of the big topics that you are looking to uncover there? And then, going to some of your points on new verticals, certainly a very nice watermark to achieve gross profit breakeven. To get to the next milestone, what are going to be some of the really important elements? Generically, it seems like within new verticals, advertising is a bit more of a weighting factor there. Just curious how to think about some of the important drivers beyond scaling into the second half. Ravi Inukonda: Hey, Josh. I will take the first one. Tony, why do you not take the second one? On cost and gas rewards impact on the model for the rest of the year: in Q1, we had the impact from both winter storms as well as the introduction of gas rewards. In Q2, we did extend the gas rewards program. The rough impact in Q1 was about $50 million. The projection for the impact in Q2 is also going to be about $50 million. Like I said earlier, we did find offsets in the business. It is a very dynamically managed business. We take our plans very seriously. We look at input metrics to make sure we are doing the right investments. We did have to push out some investments in H1 in order to make room for this. We are fully convicted that we are going to make these investments in the second half of the year. If we do decide to extend the program, our goal is to find offsets like we did in H1. My view on the full-year EBITDA has not changed. We have said a couple of quarters ago that overall 2026 EBITDA margin is going to be slightly higher compared to 2025, excluding room. That view still stands. I would expect second-half EBITDA to be higher than first half, and second-half EBITDA margins to be higher than the first half, largely similar to what I had expected at the beginning of the year. Overall, we look pretty good from a bottom-line perspective for the rest of the year, and demand on the platform continues to be strong as well. Tony Xu: With respect to your second question about what else we need to do to achieve higher levels of profitability within grocery, the short answer is more of the same. We are not trying to rely on any one source of revenue, like ads, to make grocery profitable. We do not need to. We believe we have created a lower cost structure that allows us to make delivery profitable, but it is just not good enough yet. From the perspective of the customer—not our P&L—we still need to be more accurate. We still need to have more items available, even from existing stores, and we need to do it at better and better price points. If we keep doing that, you already see it in our cohort behavior. It is not true across the whole business because we are still gaining a lot of new customers— in fact, we gained about one in every two new customers that comes into the industry for grocery delivery for the first time—but cohorts over time buy bigger and bigger baskets and achieve profitability milestones without any unnatural or overreliance on any one cost or revenue driver. That tells me that, at current course and speed, it will get there. The question is how to get there faster, but perhaps most importantly, how to actually unlock a much bigger industry. Grocery delivery fundamentally should be as large, if not larger than, restaurant delivery. It is just that the product is not good enough yet. We already are leading, from what we have been told by some of the top grocers in the country, in terms of quality, but we still think there are miles to go. Perhaps we brought some innovations to the market, but we think that we have to keep innovating on all things accuracy and price points, and we have some interesting ideas on how to do that. We do not have to do anything unnatural or rely at all on any single line item to make the math work. Josh Beck: Super helpful. Thanks, guys. Operator: Your next question comes from the line of Brian Nowak with Morgan Stanley. Your line is open. Please go ahead. Brian Nowak: Thanks for taking my questions, guys. I have two. The first one, Tony, in the letter you talk about making some new tools that help designers streamline the merchant onboarding process. Can you talk to us about areas you have made the most progress in bringing on new merchants and more inventory per merchant, and what are some of the technological advancements you are still looking to make to really make that easier to get more of those bananas and avocados that you talked about earlier—and even carving knives? And then, Ravi, one for you on the replatforming. You say that you have live production traffic ramping up across all three of the global marketplace brands. Does that mean that you are running all three tech stacks now, so we are burdening the P&L with the max cost, and then we should start to turn some of those off in the back half? Or how does this triple-platforming-down-to-one-platforming timeline work? Tony Xu: I will take the first one, Brian. We continue to ship a lot of different tools to make it easier to work with us, for customers to find what they are looking for, and for Dashers to perform deliveries. On the specific question with respect to the merchant tool, where I have found AI to be helpful—especially now with more powerful models that can reason in a multi-turn fashion—is that you can start looking at repetitive processes that are stitched together and actually get them done with perfect quality every single time, using just an agent. Even six to eight months ago, this was less true because you had to build a lot of backup or redundant systems to make sure agents do not go off the rails and can actually finish the task. That has happened with onboarding, for example—whether it is helping you with your menu or your catalog as a restaurant or retailer, or with your photos and your metadata and the annotation of that data. All of these are effectively repetitive tasks in which you can create agents and stitch them together to do that in a really productive way. With all things, the removal of friction increases activity, and increased activity increases the business that we get to do together. We are already seeing benefits to the P&L from some of the AI work that we are doing—some of it on our own products, like the AI ordering agent, and some on tools related to merchants, customer support, and Dashers. With respect to things we still have to do—capturing all the inventory inside a city—we are still just a tiny fraction of all items sold or even represented today on DoorDash, Inc. That is becoming more interesting as some of those items are also different when it is an in-store shopping experience. Some restaurants, for example, offer different in-store products and experiences and services that they do not offer for takeaway or in the offline world. There is a lot we have to document. The second thing we have to do is build structure and cleanliness out of what is inherently very messy and constantly changing, which is a challenge. If we can do both across every category as we march from restaurants to grocery to different categories within retail—and do that through the merchant’s channel online, the DoorDash, Inc. channel online, and the merchant’s channel offline or in-store—I think that builds a really rich dataset that is nonexistent anywhere, extremely valuable for the merchant to have a full view of all the different types of customers and occasions, and really interesting for DoorDash, Inc. to build both products as well as businesses. Ravi Inukonda: Hey, Brian. On your second question around the global tech side, two broad points, then the mechanics. The team has done an incredible job. This is a massive project. It is going according to plan. I am really happy with the progress. Even on the cost side, my view on the overall cost is very similar to what I talked about two quarters ago. So both on progress and cost, I feel very good. On the mechanics of the P&L, there is a portion of the spend which is redundant in the sense that we are going to run all three tech stacks in parallel while we are working on the new global tech stack. That is going to phase in and phase out. My expectation is the majority of that will run through 2026. Maybe some portion will bleed into early 2027, and then it will bleed out. Hopefully, that gives you the mechanics of how the rest of the P&L is going to work for the year. Brian Nowak: Thank you both. Operator: Your next question comes from the line of Justin Patterson with KeyBanc. Your line is open. Please go ahead. Justin Patterson: Great. Thank you very much. Good afternoon. I saw you recently launched workplace catering for DoorDash for Business. Can you talk more about how you are thinking about that opportunity and what you see as some of the key challenges toward scaling this? Thank you. Tony Xu: DoorDash for Business is off to a very great start, and it is something we really recently focused on in the last few years. DoorDash for Business is a suite of products—there are three. You talked about one of them, which is catering. There is also Meal Manager, and corporate solutions related to DashPass and group ordering. The idea is, if you are a company or an organization—it could be a nonprofit, a government institution, or a school—and you are serving multiple different use cases, sometimes it is a group meeting with just a few of us, sometimes you are hosting an event in which you need catering, sometimes you need individual meals as your sales teams travel to do different things or client demos. You are going to want to work with one place ideally where you can see everything in one view and offer your organization the best-in-breed selection, price, and quality. Because we offer what we believe is the best of breed in price, selection, quality, and service, DoorDash for Business is naturally growing very quickly. The biggest challenge, especially with catering, is solving the perennial hard problem of cooking for a large group of people. It sounds simple, but if you think about cooking for yourself and then adding guests, that logistics problem gets exponentially more difficult as you increase the count of guests. The challenges are numerous: kitchen capacity, menu design, staffing, logistics, operations. We have to do all of that. To truly create the industry—because the industry by itself is somewhat limited since not every restaurant is built as a manufacturing facility to cook up to the needs of a larger organization or team—it is really working hand in hand with merchants and Dashers to co-create that solution and hopefully create a very large industry. Operator: Your next question comes from the line of Lloyd Walmsley with Mizuho. Line is open. Please go ahead. Lloyd Walmsley: Thank you. Wondering if you can give us an update on what you are seeing in the ads business on a 1P basis and syndicating ads outside of Dash. And then, second one, Tony—earlier you talked about miles to go in terms of improving the user experience in grocery. Can you elaborate on some of the things you are doing—have you found any big unlocks or anticipate any big unlocks—to drive a step-function improvement in the grocery experience that can help you penetrate deeper with your customers? Thanks. Tony Xu: Sure. Maybe I can take both and feel free to add, Ravi. On the ads question, it has never gone better for us. Ads are at a record high and continue to grow extremely fast compared to any previous year. The continued strong trajectory comes from the team cracking the code not just in solving problems for SMBs—restaurants or retailers—but also larger advertisers, both in the restaurant world as well as in retail. Another unlock has been cracking the code on CPG advertisers. There is no one thing; it is a relentless checklist of making the product a lot better for advertisers and delivering on two competing objectives. One, you have to deliver the best return on ad spend for advertisers, which we do. Two, you have to deliver the best consumer experience where you do not spam people. We have a much lower ad load than some other platforms, and the teams have been working really hard to balance those two objectives. Beyond scaling some of the unlocks in ads, we are also discovering some off-site opportunities you mentioned, which include in-store activities in addition to our work buying on behalf of advertisers off of DoorDash, Inc. I think there is a very large runway for the ads business. On grocery, we have been at it for about five years now. I am, on the one hand, super proud of the team—becoming the volume leader where consumers shop as well as where new consumers find out about grocery delivery for the first time. On the other hand, I do stand by the statement that we have miles to go to build an experience that can outcompete you going into a grocery store and buying items yourself. That is still the winning product if you look at the data. That does not mean we are not growing extremely fast, making a lot of improvements, gaining share, and improving profitability while we do it. There is a lot of work to do. A lot of it has to do with continuing to build a cost structure that allows you to offer items at around the same price as in-store and delivering with perfect quality. The hardest problem to solve in grocery is that, because consumers—when we go into grocery stores—move items around, and because of how supply chains, inventory systems, and payment systems do not necessarily always talk to each other, and how grocery stores are run and were built historically and as they have moved into e-commerce, it is really hard for them to know where things are. That is still the fundamental problem to solve. We have done lots of things already in that space that we have pioneered and are proud of. There is a long way to go in scaling that work to all the stores we work with, not just the ones in which we have tested. We also have to do the next hill climb to achieve perfect quality at the prices you would expect, for every single item, every single time. Ravi Inukonda: And, Lloyd, on your first question on ads, if you are thinking about it from a flow-through perspective, it is growing and having an impact from a margin and profitability perspective. But the way we think about it is very similar to the rest of the business. An ad dollar is very similar to improvements we generate from unit economics. Ultimately, our goal as operators is to find opportunities to reinvest that back in the business to drive long-term free cash flow production. That is largely what we are doing with advertising or other efficiency that we generate in the business. Lloyd Walmsley: Alright. Thank you. Operator: Your next question comes from the line of Justin Post with Bank of America. Your line is open. Please go ahead. Justin Post: Great. Thank you. I just want to follow up on advertising. How do you think about integrating that with agentic capabilities on your own platform? And is there any way you could generate ad revenues on agentic platforms on other platforms? Thank you. Tony Xu: I will take that. Ads are just a means to connect consumers with merchants who are hoping to be discovered and making sure that you do that in the best possible way. With respect to agentic commerce, that is just one way of shopping. I do not think it will change our ability to advertise. It may increase some of the in-surface areas, but I think a lot of that remains to be seen. I do not think the ideal agentic shopping experience is just going to be a chat assistant. I think it is going to take on various forms, and we are iterating on that. With respect to what happens with ads on third-party agentic sites, I think you will have to ask them. Justin Post: Great. Thank you. Operator: And this concludes today’s Q&A session. This also concludes today’s call. Thank you for attending. You may now disconnect. Unknown Speaker: Goodbye.
Operator: Good day, ladies and gentlemen, and welcome to Red Violet, Inc.'s First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call is being recorded. I would now like to introduce your first host for today's conference, Camilo Ramirez, Senior Vice President, Finance and Investor Relations. Please go ahead. Camilo Ramirez: Good afternoon, and welcome. Thank you for joining us today to discuss our first quarter 2026 financial results. With me today is Derek Dubner, our Chairman and Chief Executive Officer, and Daniel MacLachlan, our Chief Financial Officer. Our call today will begin with comments from Derek and Daniel, followed by a question-and-answer session. I would like to remind you that this call is being webcast live and recorded. A replay of the event will be available following the call on our website. To access the webcast, please visit our Investors page on our website, redviolet.com. Before we begin, I would like to advise listeners that certain information discussed by management during this conference call are forward-looking statements covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with Red Violet, Inc.'s business. Red Violet, Inc. undertakes no obligation to update the information provided on this call. For a discussion of the risks and uncertainties associated with Red Violet, Inc.'s business, I encourage you to review Red Violet, Inc.'s filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-Ks and subsequent 10-Qs. During the call, we may present certain non-GAAP financial information relating to adjusted gross profit, adjusted gross margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, and free cash flow. Reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures are provided in the earnings press release issued earlier today. In addition, certain supplemental metrics that are not necessarily derived from any underlying financial statement amounts may be discussed, and these metrics and their definitions can also be found in the earnings press release issued earlier today. With that, I am pleased to introduce Red Violet, Inc.'s Chairman and Chief Executive Officer, Derek Dubner. Derek Dubner: Good afternoon, everyone, and thank you for joining us. Before I walk through the quarter, I want to recognize our team. The results we are reporting today—record revenue, record margins, record EBITDA, and one of the strongest quarters for new customer onboarding in our company's history—are a direct outcome of disciplined execution. This is a team that consistently delivers, and that consistency is what drives the results you are seeing today. Now to the quarter. Revenue for the first quarter was a record $25.8 million, up 17% year over year. It is important to note that the prior year period included $1.2 million of one-time transactional revenue, so the underlying growth this quarter is stronger than the headline suggests. Adjusted gross profit increased 20% to $22.0 million, resulting in a record adjusted gross margin of 85%. Adjusted EBITDA increased 27% to $10.7 million, with a record margin of 41%. Adjusted net income was $6.6 million, producing record earnings of $0.46 per diluted share. Operating cash flow increased 32% to $6.6 million. This marks yet another quarter of consistent execution with high-teen growth and continued expansion in margins and cash flow. On the customer front, IDI added 400 new billable customers, one of the highest quarterly additions in our history, bringing total customers to 10,422. FOREWARN grew to more than 417,000 users with over 640 realtor associations under contract. These metrics reflect increasing adoption, deeper integration, and the growing reliance our customers place on our platform in their daily operations. At the same time, we continue to see a significant and expanding opportunity set in front of us, particularly as AI continues to unlock new capabilities across analytics, data aggregation, and customer interaction. Given the strength of our model and the level of cash flow we are generating, we are well positioned to invest proactively into that opportunity. Importantly, our opportunity in AI is not just about access to tools. It is about the foundation that we have built that those tools operate on. Our longitudinal identity graph, built and refined over time through real-world usage, is what enables us to generate actionable signals, not just data outputs. AI enhances our ability to analyze the foundational graph, identify patterns, and surface risk and insight with greater speed and precision. Similarly, our ability to aggregate and fuse new data is directly tied to our ability to resolve that data to unique individuals within our identity graph. Aggregating data is one thing, but correctly attributing it to the right individual over time is something entirely different. Whether it is distinguishing between thousands of individuals with the same name, resolving generational differences, or identifying underbanked consumers with limited public data, our platform is architected to unify fragmented data into a persistent, accurate identity—a continuously maintained and correctly attributed view of an individual over time, all powered by our proprietary engine. As we bring in additional data inputs, AI further enhances our ability to validate that data against our graph, then link and extract meaningful insight, reinforcing and extending the advantage we have built over the past. Across customer workflows, AI is also enhancing how our solutions are experienced, improving responsiveness, deepening integration, and increasing the utility of our platform in day-to-day decisioning. Internally, we are seeing accelerating adoption of AI across the organization, from engineering and security to operations and customer support, driving significant gains in productivity and development velocity. Within our technology organization in particular, development velocity has accelerated materially with teams leveraging AI and agentic tools to code, test, and deploy at rates we have not previously experienced. What historically required multiple resources can now often be accomplished by a single engineer operating with AI augmentation, significantly increasing our pace of product development and innovation. What we are observing is a compounding effect. As adoption deepens across the organization, the pace of improvement is accelerating, driving efficiency gains internally while simultaneously strengthening the value we deliver to customers. We are just scratching the surface. The net effect is that AI is acting as a force multiplier, increasing the value of our data, accelerating our pace of innovation, strengthening our position within the markets we serve, and further enhancing our AI-embedded layered architecture, which is fundamentally differentiated from the legacy technology stacks of our competition. Switching topics for a moment, I also want to revisit something we said several years ago, and Daniel will go into it in more detail. At that time, we outlined what this business would look like at a $100 million annual revenue run rate—specifically, adjusted gross margins exceeding 80% and adjusted EBITDA margins in the range of 35% to 40%. We had our skeptics, but that was guided by this team's knowledge and experience building similar businesses over the past three decades. Today, at our current scale, we already are delivering 85% adjusted gross margins and 41% adjusted EBITDA margins. This level of performance reflects the durability of our business and the operating leverage inherent in the model as we grow. We ended the quarter with $43.5 million in cash. We currently have $15.6 million remaining under our stock repurchase program after repurchasing 73,250 shares at an average price of $41.90 per share during the first quarter and through 04/30/2026. We will continue to allocate capital with discipline, balancing share repurchases with continued investment in our platform, data assets, and go-to-market capabilities. This was a strong start to 2026, and a continuation of the consistent, disciplined execution that defines who we are. With that, I will turn it over to Daniel. Daniel MacLachlan: Thanks, Derek. Good afternoon, everyone. We are off to an excellent start in 2026, delivering the highest revenue, adjusted gross profit, and adjusted EBITDA in our history—results that reflect the strength of our platform, the expanding reach of our solutions, and the consistency with which we are executing. I want to take a moment to put these results in context, because I think it speaks to something important about this team and this business model. As Derek mentioned, in March 2022, we laid out a framework on our earnings call of what this business looks like at $100 million in annual revenue. At the time, our run rate was approximately $45 million, our adjusted gross margin was 75%, and our adjusted EBITDA margin was 25%. We told you that at $100 million in annualized revenue, you could expect adjusted gross margin to exceed 80% and adjusted EBITDA margin to be in the range of 35% to 40%. We meant it, and we built toward it. This quarter, we crossed that revenue threshold for the first time—on $25.8 million in quarterly revenue, a $100 million-plus annual run rate—we delivered adjusted gross margin of 85% and adjusted EBITDA margin of 41%. Disciplined execution against a multiyear road map at the margins we said we would deliver is not something every management team can point to. But we can, and we are just getting started. At maturity, this business model is capable of adjusted gross margins in excess of 90% and adjusted EBITDA margins approaching 65%. The 2026 performance is evidence we are on the right path to get there. But we take a long-term view of this business, and we are not managing to a near-term margin target. We are managing toward the full potential of what we have built. Over the past decade, we have constructed a differentiated data and analytics platform—one that ingests, normalizes, and delivers intelligence at scale across a broad and growing set of use cases and end markets. The foundation we have built is what makes our AI actionable. AI is accelerating how we develop and deploy new capabilities, compressing development cycles and broadening the solutions we can bring to market. It is enhancing how our customers interact with our products, improving the speed and precision with which identity intelligence is surfaced and acted upon, and it is reshaping how we think about operational efficiency and scale, enabling us to accelerate productivity across the entire business. We are already seeing these benefits, and we expect their impact to compound. As we continue investing in AI, product development, and go-to-market capabilities, we expect adjusted EBITDA margins in the near term to trend in the mid- to high-30% range. We view that as a reflection of deliberate investment in the long-term growth of the business. The path to 65% adjusted EBITDA margins runs directly through the investments we are making today. Turning now to our first quarter results. For clarity, all the comparisons I will discuss today will be against the first quarter 2025 unless noted otherwise. Total revenue was a record $25.8 million, up 17% over the prior year. As Derek noted earlier, Q1 2025 included $1.2 million in one-time transactional revenue from two significant customer wins. Normalizing for that, our underlying growth rate this quarter would have been greater than 20%. We generated $22.0 million in adjusted gross profit, the highest to date, delivering a record adjusted gross margin of 85%, up two percentage points. Adjusted EBITDA came in at a record $10.7 million, up 27% over the prior year. Adjusted EBITDA margin expanded three percentage points to 41%, a new high. Adjusted net income increased 29% to $6.6 million, resulting in adjusted earnings of $0.46 per diluted share—both new highs. Turning to the details of our P&L, as mentioned, revenue for the first quarter was $25.8 million with solid performance across the business. Within IDI, we saw broad-based growth across our verticals, with particular strength in financial and corporate risk, and investigative. We added 400 billable customers sequentially to end the quarter with 10,422 customers. Financial and corporate risk was our fastest-growing vertical, with background screening leading the way with exceptional growth, continuing to benefit from the targeted product development and go-to-market investments we have made over the past year. Financial services delivered strong growth driven by deeper customer integration and volume expansion. In addition, both corporate risk and insurance contributed meaningful growth, rounding out a solid showing across the vertical. Investigative posted robust double-digit gains across every industry, including law enforcement, private investigators, bail bonds, and process servers. Law enforcement, in particular, continues its impressive trajectory, and we remain focused on deepening our penetration of the public sector. This vertical is expanding as a share of our total revenue, and we see significant runway ahead. Collections delivered steady gains this quarter. The recovery dynamic we have discussed in prior quarters remains intact, and we continue to see volume expansion from our existing customer base as the industry works through elevated delinquency levels. The vertical is maintaining its steady recovery, and we view it as a meaningful tailwind to our growth outlook. Emerging markets delivered healthy underlying expansion this quarter. The $1.2 million in one-time transactional revenue in Q1 2025 we noted earlier concentrated in this vertical, which creates a tough year-over-year comparison. Normalizing for that, the underlying growth rate was robust and in line with the demand momentum we continue to see across these industries. Retail, government, legal, repossession, and marketing all contributed meaningful growth. We remain encouraged by the breadth of activity throughout emerging markets as a significant long-term growth driver for the business. Lastly, IDI's real estate vertical, which excludes FOREWARN, delivered modest growth year over year, but is starting to show signs of stabilization following the prolonged pressure that elevated rates and affordability constraints have placed on housing activity. While the macro environment remains a headwind, we are encouraged by the trajectory and believe we are well positioned as conditions gradually improve. As to FOREWARN, the platform continued its impressive performance, delivering strong double-digit revenue expansion this quarter. We exited the quarter with over 417,000 users, up from 325,000 users a year ago. FOREWARN continues to gain traction with real estate professionals, who rely on it as an essential part of their daily workflow. We now have over 640 realtor associations contracted to use FOREWARN. Overall, contractual revenue accounted for 75% of total revenue in the quarter, up one percentage point from the prior year. Gross revenue retention remained strong at 95%, down one percentage point. Moving back to the P&L, our cost of revenue, exclusive of depreciation and amortization, increased $0.1 million, or 4%, to $3.8 million. Adjusted gross profit increased 20% to a record $22.0 million, resulting in a record adjusted gross margin of 85%, up two percentage points from the prior year. Our sales and marketing expenses increased $0.5 million, or 8%, to $5.9 million for the quarter, driven primarily by higher personnel-related expenses. General and administrative expenses increased $1.7 million, or 28%, to $7.9 million, driven primarily by higher personnel costs and acquisition-related activity. Depreciation and amortization increased $0.2 million, or 10%, to $2.8 million for the quarter. Net income increased $1.0 million, or 28%, to $4.4 million for the quarter. Adjusted net income increased $1.5 million, or 29%, to $6.6 million, the highest to date, resulting in record adjusted earnings of $0.46 per diluted share. Moving on to the balance sheet, cash and cash equivalents were $43.5 million at 03/31/2026, compared to $43.6 million at 12/31/2025. Current assets totaled $57.3 million, compared to $56.5 million at year-end, while current liabilities were $5.1 million, down from $7.9 million. We generated $6.6 million in cash from operating activities in the first quarter compared to $5.0 million in the same period last year. Free cash flow for the quarter was $3.1 million, a 24% increase from $2.5 million a year ago. In the first quarter and through 04/30/2026, we purchased 73,250 shares of company stock at an average price of $41.90 per share under our stock repurchase program. As of 04/30/2026, we had $15.6 million remaining under the repurchase program. In closing, crossing the $100 million revenue run rate threshold this quarter is a milestone worth acknowledging, but it is not a finish line. The same discipline and focus that got us here is what will take us to the next level. We have a clear line of sight to continued margin expansion, a platform that is scaling efficiently, and a team that has constantly and consistently delivered on what it said it would do. We are confident in our ability to build on this momentum, and we look forward to updating you on the progress throughout the year. We will now open the call for questions. Operator: Thank you. We will now open the call for questions. As a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. Please stand by while we compile the Q&A roster. Our first question today is from Eric Martinuzzi with Lake Street Capital Markets. Your line is open. Eric Martinuzzi: Hey, congrats on the $100 million run rate. That is a very significant milestone that I know you guys have been working a long time to achieve, so great to see that. Question regarding we are always looking for kind of what is next. And given the achievement of those targets that you laid out back in March 2022, you talked a little bit in your prepared remarks, Daniel, about the at-maturity type model having in excess of 90% gross margins and then approaching 65% on the adjusted EBITDA. Obviously, that is the goal. Is there a timeline you are willing to communicate? Daniel MacLachlan: Thanks, Eric, and I appreciate the question. We are really excited about crossing that revenue threshold. That is a milestone and a good marker for us, but as I said earlier, it is just the beginning; it is not a finish line. When we talk about timelines to get to that maturity, we are not going to put a timeline on that today because we do not issue formal guidance, and pinning a year on a maturity-state outlook would be inconsistent with how we manage the business. What it comes down to is the structure of the business model. We operate a data and analytics platform with a largely fixed cost base. Once the platform is built and the data is in place, the marginal cost of an incremental transaction is very small. That means as revenue scales, an outsized share of every dollar flows to the bottom line. Our cost structure is built to support a meaningfully larger business than where we are today, and we are continuing to invest in that cost structure to enable future growth. So 65% at maturity is not a forecast and is not a target. It is the model output when you take a high fixed-cost, low marginal-cost platform and you let it scale to its natural operating leverage. For timelines, it is really about continuing what we are doing—building a good foundational business—and moving as quickly as we can toward those underlying metrics. Eric Martinuzzi: Okay. And then the other notable achievement here was new customer onboarding. As you went through the different verticals you serve, I did not really pick up on anything that was a substantial change versus your commentary last quarter, and maybe I am incorrect there. But what do you attribute the strength to? Is Q1 typically a time when you do onboard a significant number of new customers? Is there something going on in the macro or with the brand that is allowing you to achieve those numbers? Derek Dubner: Thanks, Eric. Q1 is generally strong. Industries tend to enter the new year with a little bit of wind in their sails. Maybe they are ready to deploy those budgets and get going. But I think what we would say is we have produced near-record onboarding—or at least at the very highs of our 12-month average—for quite a while now. We have always said that those are a great leading indicator of the revenue generation and success of the business in the out months, and that is bearing true, and that is why we use it as exactly that—a leading indicator. It is a confluence of many things ongoing within the organization. I think we are doing a very nice job of marketing ourselves, being present at conferences, engaging with our customers, and delivering what they want in products and solutions. We have always said we are very customer-centric, and we will never change. When we think about the next series of developments—whether it be functionality within an application for a certain industry—we are talking to our customers. We are finding out what they want, what they do not see in the competitive environment, and we execute upon that. I am very proud of the organization. That is why I started out with a thank you to the team. It is really brilliant execution over the last 18 months. We have an extraordinarily strong road map, and because of the AI implementations across the organization, we are seeing acceleration there. It has us very enthusiastic that we are well positioned for the future. Eric Martinuzzi: Got it. Last question for me. You talked about the growth in the quarter—up 17%—but really would have been even stronger when you back out the $1.2 million from the year-ago quarter. My math has the kind of apples-to-apples growth at around 24%. I know you are not in the business of giving guidance, but seasonal trends in the business historically would have Q2 up from Q1. Is there any reason that trend would be different this year? Daniel MacLachlan: Thanks, Eric. Historically, the first quarter has always been a really strong quarter for us. We noted Q1 2025 had a little additional in there in one-time transactional revenue, but going back historically, we have always had a good first quarter out of the gate. We try to replicate and grow that in Q2. Last year, if you look, we were probably down sequentially by about $200,000, but of course we were going against that transactional comp. We are not providing any formal guidance. For us, when we think about the business—and going back to 2024 and 2025—we talked about reaccelerating the growth rate. Obviously, we were able to do that. It is one foot in front of the other and continuing to execute. From a sequential basis, we have a great foundation coming out of the gate at $25.8 million. The expectation is we can leverage that and, over the next couple of quarters, grow from there. For the first quarter, April for the most part is closed, and what we saw in April was an extremely strong month. We are excited about what is happening in the business and looking forward to continuing to perform for the near, medium, and long term. Eric Martinuzzi: Great. Thanks for taking my questions. Operator: Our next question comes from Josh Nichols with B. Riley Securities. Your line is open. Josh Nichols: Yes, thanks for taking my question, and great to see the company taking back some stock this quarter. I wanted to ask two questions. One, about scaling up the go-to-market strategy. Historically you have been a little bit more narrowly focused, but when we think of that broadening out—inside sales, strategic sales, and distribution—what are your plans to grow those channels this year, and how are you investing in that? Daniel MacLachlan: Yeah, thanks, Josh. I will take that. If you look historically, especially in that go-to-market line—we provide some supplemental metrics around our sales and marketing personnel—we have invested there. We have invested on the marketing front, bringing in a highly skilled leader to build out that team. As Derek talked about earlier, we are at the conferences we need to be at, we are at the trade shows we need to be at, and we are continuing to engage with customers. That starts with a solid marketing foundation and builds out from there. On sales go-to-market, we have built out an extremely efficient and productive inside sales team. I think of that as the engine of the organization—highly skilled, verticalized subject matter experts across a broad group of industries and verticals. Tactically, over the last several years, we built out more of our strategic side in a number of areas where we have made investments. We have built out the strategic team. So growth is not only in some of those pockets where we have been investing; it is also across the broad and diverse industries and verticals we serve. We call out five main verticals in which we operate and break down revenue, but when you look at the amount of industries that roll up into that by verticals, it is around 25 or 26 different industries. The great thing about the growth we have seen this quarter—and have seen consistently—is that it is broad-based. It is in a number of areas, and it is not concentrated in one use case or one customer. That gives us a lot of confidence today to talk about how the business has been and how we expect it to perform in the future. Derek Dubner: Yeah, Josh, I know you are aware, but I will state it unequivocally that we are an early-stage company sitting in front of an enormous market opportunity, and we are very fortunate that we are generating very healthy cash flow. With that opportunity in front of us, the summary of our call today is that we are going to invest. The opportunity is that large. Our goal is not to set necessarily a record EBITDA margin tomorrow. We are building a very healthy foundational business with a view of 10 years out. The answer across the board is we expect to grow our team. This team is going to be methodical, deliberate, and directly in line with where the opportunity demands it. That includes go-to-market, your question, but also product, data, and definitely AI-driven capabilities. Over time that will create an inflection point. We will get to where revenue scales meaningfully without a commensurate increase in headcount because of what we are doing today and tomorrow. That is the model. We are not one of those companies that has bloated through the pandemic or is using AI as an excuse to eliminate personnel or a missed quarter or anything else. Net-net today, more employees—but a team that is going to operate at a fundamentally much higher level of productivity. Then that will flatten out, and you will see those margins just drive. Josh Nichols: Thanks. Then, Derek, you touched on it—always good to hear you talk a little bit about your thoughts on technology and the impact and tailwinds that you think that is going to bring to the business. Clearly, it is a rapidly evolving environment. Agentic capabilities with AI are something that has gotten a lot of focus recently. I am curious how you are thinking about investing in that, enhancing the company's agentic capabilities, and what that could do for the business as that scales up over the next few years. Derek Dubner: Yeah, sure, Josh. Thank you for the question. We spent some time on this in the fourth quarter in our earnings and full year, but I am happy to revisit it. AI, we do not perceive that as a threat to our business. It is a tailwind for us. I will restate it again: AI alone cannot replicate our data. We have built this longitudinal identity graph. It is billions of unified records, and it is tested and modeled and refined over years of actual usage. That is the foundation that AI needs to run on. For us, we have this healthy foundation built, and we can layer AI on top of it and better serve our customers in all different ways. In the risk signals we are generating, through an API connection our customers see it when they come into the office in the morning versus the competition’s solutions. Our competition is working on trying to complete migrations to the cloud from other architectures. We are cloud native, AI embedded from day one. We are using AI to compress development cycles and implement more AI across the organization. It is pulsating through the products and what we are doing every day—pair programming, agentic tools. We are very excited because as customers, especially small and medium size, become more adept at using it and getting agents into their workflow, we are completely usage-based and volume-based. That means they will access our products in much faster fashion—less manual activity—and more demand for the identities that we can clear every single day. It is necessary to come back to us. One person’s data on a given day to open a new bank account is only good for that moment in time. The next day, that person’s identity and profile may have changed. They might have been arrested the night before, they might now be divorced, they might have financial stress that occurred—a bankruptcy filing, a very large judgment. The next time the commercial or public sector sees that consumer, they need to clear that identity again and make a critical decision about that individual. We have been building for this for the last 11 years. We have built this identity graph to be extraordinarily high confidence. AI can only be directionally correct. We need to be accurate. Law enforcement is making critical decisions every day using our products, as are financial services and all of our industries. We are really well positioned. We are very excited about the innovation that is going on and the product road map, and very excited about introducing new products and updating you on that. Daniel MacLachlan: Thanks, Josh. Operator: Thank you. I am showing no further questions at this time, so I would like to turn it back to Derek Dubner for final remarks. Derek Dubner: Thank you. As we close, I want to reiterate that our performance this quarter reflects the strength of our strategy, the resilience of our business model, and the continued trust of our clients and partners. We remain focused on disciplined execution, responsible growth, and delivering long-term value to our shareholders. While the macro environment continues to evolve, we are confident in our positioning, our technology, and our team. We appreciate your continued support, and we look forward to updating you on our progress next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good afternoon, and welcome to Tarsus Pharmaceuticals, Inc. First Quarter 2026 Financial Results Conference Call. As a reminder, this call is being recorded and all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. At this time, I would like to turn the call over to David Nakasone, head of misalation, to lead the call. David, you may begin. David Nakasone: Thank you. Before we begin, I encourage everyone to visit the Investors section of the Tarsus Pharmaceuticals, Inc. website to view the earnings release and related materials we will be discussing today. Joining me on the call this afternoon are Bobak R. Azamian, our Chief Executive and Chairman, Aziz Mottiwala, our Chief Commercial Officer, and Jeffrey S. Farrow, our Chief Financial Officer and Chief Strategy Officer. I would like to draw your attention to slide three, which contains our forward-looking statements. During this call, we will be making forward-looking statements that are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors contained in our SEC filings for additional detail. With that, I will turn the call over to Bobak R. Azamian. Bobak R. Azamian: Good afternoon, and thank you for joining us. We are off to a strong start in 2026 with a quarter that reflects the continued momentum of XTENVI’s launch and the strength of our key growth drivers. We have always believed XTENVI would be revolutionary and our strong first quarter results reflect that. Every key metric we track, including the number of prescribers, depth of prescribing, awareness, and evidence generation, continues to grow substantially quarter over quarter. These are the same drivers we have committed to delivering on, and we are on track to achieve our full-year guidance, reach blockbuster status over the next couple of years, and realize $2 billion in peak sales potential. In the first quarter of 2026, XTENVI delivered more than $145 million in net product sales, an increase of more than 85% year over year, reflecting consistent patient outcomes and expanding eye care physician, or ECP, utilization across their practices. Having spent time in the field and at several medical conferences over the past few months, I can tell you what we are hearing directly from ECPs: they describe XTENVI as one of the most impactful medicines they have ever used, with consistent outcomes, clear utility across their practices, and broad access that is nearly universal. It works, it is easy to use, and access is outstanding. When those elements come together, behavior changes. ECPs are no longer looking only for the most symptomatic cases; they are beginning to screen every patient for collarette. That is what ultimately drives a larger addressable market over time—more patients identified, and more patients treated. What we are building at Tarsus Pharmaceuticals, Inc., however, is not a one-product story. We have developed a disciplined, repeatable playbook for identifying diseases with clear root causes and significant unmet need, and transforming how they are treated. That playbook is driving the future of our pipeline. In the first quarter of 2026, we initiated CALLIOPE, an approximately 700-participant Phase II trial of TPO5 for the potential prevention of Lyme disease. Enrollment is progressing well, with the first wave of participants already dosed, and we expect top-line data during 2027, which would support readiness for a Phase III trial. Lyme disease represents one of the largest and fastest-growing unmet needs in infectious disease prevention, affecting millions of Americans each year, yet there are no FDA-approved prophylactic options available today. It seems like I cannot go a week without reading something in the news about the impact of the disease and the increasing burden on the U.S. healthcare system. TPO5 is the first-of-its-kind investigational oral on-demand prophylactic designed to target and kill ticks before they transmit disease, and we believe it has the potential to fundamentally shift the current paradigm from management to disease prevention. We have seen tremendous interest in this program from patients, potential partners, federal agencies, and the broader medical community, reflecting both the scale of the opportunity and the need for a new approach. Another program I hear increasing excitement about is TPO4, particularly with the initiation of our Phase II CORE study in ocular rosacea. Ocular rosacea is another significant and underdiagnosed disease, affecting an estimated 15 to 18 million Americans, with no FDA-approved treatments today. Similar to Demodex blepharitis, or DB, it is a mite-driven disease that impacts the area around the eye, including the eyelids and surrounding skin, and can meaningfully affect how patients look, feel, and see. We hear it all the time from ECPs: a treatment like TPO4 could be game-changing, and they cannot wait to offer their patients an option like this. TPO4 is a novel sterile investigational ophthalmic gel designed to treat Demodex mites, the root cause of disease, and we believe it has the potential to become another first and only FDA-approved medicine for an underdiagnosed and underappreciated eye disease. The CORE study is progressing as planned, and we continue to expect top-line data in 2027. Turning back to XTENVI, the drivers are clear: broader physician adoption, a DTC campaign bringing more patients through the door, and an expanding evidence base—all pointing to a larger treatable population over time. XTENVI is only one piece of a larger story. We are deliberately building Tarsus Pharmaceuticals, Inc. to create and lead new categories in eye care and beyond, with the pipeline and playbook to do it repeatedly. And with that, I will pass it to Aziz. Aziz Mottiwala: Thanks, Bobak. As just highlighted, in Q1 we delivered more than $145 million in XTENVI net product sales, an increase of more than 85% year over year, and we meaningfully outperformed the market. Additionally, every key metric we track has grown, and as we have moved into the second quarter, prescriptions continue to grow, with some of the highest weekly numbers since launch. Our outstanding performance continues to be driven by three key factors: increasing depth of prescribing, expansion of the patient funnel, and ongoing evidence generation. In terms of depth of prescribing, we continue to see growth not just in the number of ECPs prescribing XTENVI, but in how often they prescribe. In the first quarter, nearly half of our 15 thousand target ECPs prescribed XTENVI at least once a week, up approximately 10% from Q4 2025. As Bobak noted, ECPs continue to see incredible outcomes with XTENVI and are looking for more patients they can serve across their practices. At the American Society of Cataract and Refractive Surgery, or ASCRS, conference, we met with countless physicians and heard in several podium discussions that they are broadly incorporating DB screening and treatment as part of their routine preoperative procedures, where every cataract patient is assessed prior to surgery. To further accelerate the growth we are seeing within our existing base of ECPs, we are preparing to deploy our key account leaders, or KALs. This is a highly targeted investment focused on our largest and highest-potential practices where ECPs are actively prescribing and there remains significant opportunity to expand utilization. This role attracted exceptional talent from across the industry, and we expect this team to be a meaningful driver of incremental growth starting in 2026. Additionally, retreatment rates are increasing to the mid-teens range as ECPs formalize long-term DB management protocols. As a reminder, we expect steady-state retreatment rates of approximately 20%. Turning to direct to consumer, or DTC, our DTC campaign is delivering strong and improving return on investment, or ROI, that is exceeding our expectations and is at the higher end of benchmarks. This is also reinforced by what we consistently hear from ECPs: more and more patients are coming into the office proactively asking about DB and XTENVI. Further, we continue to see millions of visitors to the xtenvi.com website, and high-value engagement—including quiz completion and use of the Find a Doctor tool—is up nearly 40% quarter over quarter, continuing to exceed even our own lofty expectations. With over a year of experience, we now have a much clearer understanding of what specifically maximizes DTC performance, and we are applying those learnings to continuously improve how and where we deploy our investment, focusing on the channels and messages that generate the highest-value engagement. In short, we are amplifying what is already working. Additionally, we have several exciting new things planned in the coming weeks, including a creative refresh and expanded disease state messaging designed to help even more patients recognize their symptoms, normalize DB, and ultimately drive more patients into the office. We are also continuing to make investments in evidence generation that reinforce the broad utility of XTENVI and expand how ECPs think about DB. One key example is the data we presented at ASCRS on the association between DB with chalazion and hordeolum—conditions that are estimated to impact several million patients in the U.S. These conditions can cause patients significant discomfort, impact their vision, and lead to invasive procedures in ECP offices. This data showed that a large portion of patients assessed also had underlying DB—more than 70% overall and even higher in recurrent cases—and we are hearing directly from doctors that they are excited about this data and are proactively screening and treating these patients. The takeaway is simple: our ongoing evidence generation is doing exactly what we intended—expanding our market opportunity by giving ECPs more compelling reasons to look for and treat DB across a broader and larger set of patients. As we look ahead, there is great momentum across the key drivers of the business, and we expect to build on that momentum with the deployment of our KAL team, the scaling ROI of our DTC campaign, new patient-focused initiatives, and additional evidence that further supports the broad utility of XTENVI. And as Jeffrey will discuss, these drivers give us confidence in achieving full-year guidance while continuing to expand the long-term opportunity for XTENVI. Over to you, Jeffrey. Jeffrey S. Farrow: Thanks, Aziz. Building on what Bobak and Aziz outlined, we delivered net product sales of $145.4 million, reflecting strong year-over-year growth from growing demand for XTENVI and exceptional execution by our team. As expected and highlighted on our year-end earnings call, the first quarter included typical seasonal dynamics such as deductible resets and higher out-of-pocket costs, as well as some impact from severe winter weather, particularly in the Northeast part of the country. Despite these factors, our underlying demand remains significantly stronger than our peers. According to third-party data, peers experienced double-digit prescription declines versus our low single digits, and as we entered the second quarter, XTENVI prescription trends rebounded to all-time highs. Turning to other revenue items, license fees and collaboration revenues were $16.7 million in the quarter. This includes a one-time $15 million regulatory milestone payable by our partner, Grand Pharma, following the approval of TPO3 for DB in Greater China, as well as approximately $1.7 million related to the required China withholding tax. This approval represents an important step toward helping the more than 40 million people in the region affected by DB and underscores our commitment to serving patients. Over time, we do expect to generate additional royalties from this partnership, although they are not expected to be meaningful in 2026 or 2027 as Grand Pharma seeks to secure payer coverage. We look forward to supporting Grand Pharma as they prepare for commercial launch later this year. For additional details on our Q1 financial performance, please refer to the earnings release issued earlier today. Looking ahead, we reiterate our full-year 2026 guidance of net product sales of $670 million to $700 million, SG&A expenses of $545 million to $565 million including approximately $40 million in stock-based compensation, R&D expenses of $115 million to $135 million including stock-based compensation of approximately $20 million, and gross margins of approximately 93%. Our guidance reflects continued strength in the underlying fundamentals of the business, including increased depth of prescribing, expansion of the patient funnel, continued execution by our exceptional sales force including the deployment of our new key account leaders, and ongoing evidence generation expanding the addressable patient population. From a quarterly perspective, growth in 2026 is expected to follow patterns consistent with our prior experience and broader sector dynamics—that is, strong growth in the second quarter, more modest growth in the third quarter, and robust growth in the fourth quarter. Finally, turning to the pipeline, as Bobak mentioned, we initiated our Phase II CALLIOPE trial evaluating TPO5 for the potential prevention of Lyme disease during the first quarter. Lyme disease is the most common vector-borne disease in the United States, with more than 35 million people considered to be at high or moderate risk of contracting the disease and hundreds of thousands of new cases diagnosed annually, yet there are still no FDA-approved prophylactic options. What makes TPO5 compelling is not just the size of the market, but the strength of the science and the differentiated nature of our approach. This oral, on-demand investigational therapeutic is designed to directly target the root cause of Lyme disease by potentially killing ticks before disease transmission occurs—an approach that is simple, fast, and practical for patients. In fact, it is already approved for Lyme disease prevention in dogs and cats, and they have benefited from prophylactic Lyme therapies just like TPO5. From a financial and operational standpoint, we are advancing this program with a clear development path and defined milestones, including expected top-line data in 2027. Similarly, our ocular rosacea program continues to progress as planned, with top-line data also anticipated in the first half of next year. Outside of the U.S., we continue to advance our global expansion efforts for TPO3 and are on track to complete the key technical work required to support potential future filings. At the same time, we are taking a thoughtful approach to timing and evaluating next steps in the context of the broader geopolitical, regulatory, and macro access environment. Before I hand the call off to Bobak, I want to restate that we firmly believe that we are well-positioned for the remainder of 2026 with strong and growing underlying demand for XTENVI and a robust and advancing pipeline with top-line results in 2027. With that, I will turn it back to Bobak for closing remarks. Bobak R. Azamian: Thanks, Jeff. Tarsus Pharmaceuticals, Inc. continues to execute on one of the most successful launches in eye care, and we have delivered so much that the addressable market continues to expand beyond our initial estimates. More patients are being identified, more patients are being treated, and more physicians are continuing to embed XTENVI into routine care. This is a direct result of how we deepened utilization in ECP practices, meaningfully grew awareness about DB, and generated compelling clinical evidence showing just how important it is to treat the condition. We are now applying that same category-creating model across our pipeline, including in Lyme disease prevention and ocular rosacea, as we work to replicate the success of XTENVI and establish Tarsus Pharmaceuticals, Inc. as a leader in creating new standards of care. Operator, please open the line for questions. Operator: Thank you. To ask a question at this time, you will need to press 1-1 on your touch-tone telephone and wait for your name to be announced. To withdraw your question, simply press 1-1 again. Please stand by while we compile the Q&A roster. Operator: Our first question comes from the line of Yuchen Ding with Jefferies. Your line is now open. Yuchen Ding: Hi, thanks for taking our questions. We have two. On the second quarter, I was surprised that you did not give bottle guidance, but when I look at consensus, which is $168 million, it should imply around 145 thousand to 150 thousand dispensed bottles. That is about 13% or 14% quarter-over-quarter growth and similar to the Q2 bounce that we saw in 2025. How do you feel about those numbers, and does our math make sense? And then second, Glaukos has a Phase II readout later this year for DB. They are delivering physostigmine, which is approved for glaucoma. You have mentioned before that you have looked at all these different assets, so I am curious what you think about the potential tolerability issues there since the drug actually constricts pupils. From your own due diligence, are vision changes or blurry vision a liability with that asset? Thanks so much. Jeffrey S. Farrow: Hi, Dennis—this is Jeff, and I will take the first part of the question and then turn it over to Bobak for the second part. As we have moved into full-year guidance, we have stepped away from the quarterly updates in terms of bottles dispensed and gross-to-net, absent some material change where we do not believe we are going to be able to meet that guidance. Our expectation is to continue to provide updates on the guidance that we provided earlier. We still believe in the full-year guidance, both on the revenue side and the SG&A side. To your question on growth between Q1 and Q2, just a reminder that 2025 was the second full year of launch and we were starting from a smaller base at that point in terms of total bottles, so we should not expect 30% growth similar to what we saw between Q1 and Q2 last year. Take into account the fact that we are starting on a bigger base now and make your adjustments accordingly. Bobak R. Azamian: Thank you, Dennis. With respect to how we see the landscape, we are really focused on XTENVI. We have been creating a really important market category for patients, and we see that growing. I think the evidence we are generating around XTENVI is robust, with more to come, so we believe that XTENVI’s profile is going to be the standard of care for the foreseeable future. We certainly track everything we see in terms of pipeline, and we are not surprised that people are also looking at this market, but in terms of XTENVI’s effectiveness, its safety, and the product profile, it is just such a great standard of care. I hear time and again, like I did in the field this quarter, how this is the best medicine a lot of doctors have seen, so we are really focused on building on that success and creating a lasting standard of care. Operator: Thank you. Our next question comes from the line of an Analyst with Mizuho. Your line is now open. Analyst: Hi, this is Emma for Greg. Thanks for taking our questions and congrats on the quarter. Maybe two from us. First, how much of the current growth is coming from the extension use cases under the Demodex blepharitis umbrella? Specifically, we are interested in the cataract surgery patient population. And then second, given the reaffirmed guidance of $670 million to $700 million, can you walk us through some of the assumptions and drivers required to achieve that guidance, including prescription growth, gross-to-net normalization, and overall run rate through the balance of the year? Aziz Mottiwala: When we think about the market and how the product is performing, one of the great things we highlighted in the prepared comments and what we are hearing clearly from physicians is the continued expansion of use throughout the patient population. We started early on with some of the most obvious cases—dry eye, cataract surgery, contact lens intolerance. We are definitely seeing a lot of utilization across all of those segments, and we have really shifted our strategy now to not only go after those segments but to go more broadly. There are 25 million Americans out there and they are coming into the funnel. We think about not just cataract and dry eye; we think about, as we mentioned, patients that have hordeolum or chalazia, for example, and even other cases. The way to think about this is physicians are using this across every segment we have highlighted, and they continue to expand to new segments—that is where our evidence generation strategy will fuel growth. In terms of some key drivers, I would highlight that coming off of this quarter, we saw progression in every metric we track commercially—depth, and all of our consumer metrics—which sets us up nicely for the rest of the year. We have our key account leaders deploying; they will start to make an impact in the third quarter and in the back half of the year, and we have some exciting things on our direct-to-consumer initiatives as well. A lot more drivers to come, and I will let Jeff speak to the mechanics in terms of the guidance. Bobak R. Azamian: Aziz, one other thing I would add—based on what I hear, these drivers are really playing out. I am hearing doctors that are treating regardless of symptoms, treating with any comorbidity, and in the setting of cataract surgery. I am excited about the evidence that we generated and evidence to come. I think chalazion is one of those examples where there are lots of reasons to treat, and that is really leading to the expansion of the patient population and the addressable market here. Jeff, I will pass to you. Jeffrey S. Farrow: Thanks, Emma, for your question. In addition to the broad strokes Aziz mentioned—growing depth of prescribing, DTC impact, and evidence generation that Bobak highlighted—and the impact of the KAL team, those will impact growth over the quarters, particularly in the back half of the year. We continue to see the seasonality that we saw last year and the year prior. Much like last year, Q1 was tempered, but we saw some nice robust growth in the second quarter as the deductibles got blown through by individual patients. We also see growth in the summertime, but much more tempered than between Q1 and Q2, and then Q4 tends to be one of our highest growth quarters as patients come into the end of the year, have run through their deductibles, and are trying to use up their FSA. We anticipate that type of seasonal impact as well. Operator: Thank you. Our next question comes from the line of an Analyst with LifeSci Capital. Your line is now open. Analyst: Congrats on the quarter. Just a couple of questions. I am getting some questions on ocular rosacea. You mentioned it is the root cause of the disease. I think with blepharitis, in the trials you were plucking eyelashes and you can legitimately see the mites, and it is a pathognomonic sign when you see the collarettes now. How comfortable do we feel that ocular rosacea is—Demodex mites are causing the ocular rosacea? Bobak R. Azamian: Thank you, Frank, and I appreciate that question. You have tracked our story for a long time, and you have seen the playbook that we applied in the development of XTENVI and are applying in OR. To your point, it starts with a disease that has a clear root cause and clearly identifiable patients, and we see that in OR. To your question, we see that the majority of patients with OR have Demodex. It is harder to measure—you do not have the benefit of a collarette that you can pull from around the eye—but you do have clear signs. Those are signs of inflammation, redness, erythema, and telangiectasia. We know that when patients have those signs, they are very likely to have Demodex as an underlying root cause. That is the basis of our approach here. I will also add we are hearing a lot of great interest in OR as well. When I am out in clinics or talking to doctors about XTENVI, they raise OR. They say, “I am looking at these patients; I have something great for the added margin, but I do not have anything for the inflammation around their eyes.” They are seeing how important this disease is now that they are taking a close look around the eyes. We see an opportunity to create a category with a very similar playbook. Analyst: Great. And then just on the endpoint side, to compare it to what you have done in the past, the collarette cure rate was very interesting for blepharitis. In this case, can you remind us what the endpoints are and the comfort on the regulatory side of those endpoints? Bobak R. Azamian: Absolutely. We are enrolling patients by OR, and we are looking at OR endpoints—those same telangiectasias and erythema. We have aligned with the FDA that we need to look at those endpoints and we need to see an improvement in one of them. That is how we are structuring the trial, and that is the bar we expect for success in the Phase II trial that we are conducting. Analyst: If I could sneak in a last one. In terms of the second quarter, Jeff, thanks for breaking out first-quarter seasonality and the cadence. In the second quarter, can you give any granularity as to what is to be expected in the months of the second quarter? Jeffrey S. Farrow: In terms of revenue, Frank? Analyst: Yes, or scripts. Sometimes there are weeks that are harder, or there are summer months with holidays and conference time. Any granularity on what goes on in the second quarter that we should pay close attention to? Jeffrey S. Farrow: Part of that was the impact of the spring break timeframe, which we have already passed through in large part in April, so that is behind us. There are some conferences that could pull some doctors out of the office, but we do not anticipate that to be much greater than what we have seen historically. You can think about this as on a growth trajectory upwards for the rest of the quarter. Analyst: Great. And do you break out how your patients are broken down between age groups? Is it the older crowd or the younger crowd you are treating? Jeffrey S. Farrow: We see utilization across a wide array of patients. Cataract patients are typically an aging population, so we see a lot of utilization there. But patients with contact lenses or dry eye span the entire patient population. While there is a higher propensity in elderly patients—you are right about that—we see more and more younger patients, professionals working and looking at the screen all day, noticing their eyes are bothering them. They see the ad, they are motivated to talk to their doctor. We are seeing utilization across the board—cataract is obviously an elderly population, and elsewhere it is a diverse population of patients getting treated. Operator: Thank you. Our next question comes from the line of Jenna Davidner with Barclays. Your line is now open. Jenna Davidner: Hi, thank you for taking my question. I had one on Lyme disease. As Bobak mentioned, there is a lot of elevated concern right now around ticks, so I was curious if you could remind us what your strategic priorities for this program are and whether or not this might make sense to partner out. Given the elevated concern and that there is no FDA-approved prophylactic treatment, do you think there is any pathway toward an accelerated approval timeline? Thank you. Bobak R. Azamian: Thank you so much, Jenna. Thanks for highlighting the Lyme program. We hear a lot of interest in this program. There is not really a week that goes by that I do not see something in the press or media about Lyme disease, and tick season has now started. We are very excited about the program. We have advanced it into this Phase II trial that is groundbreaking in many ways—700 patients across a broad array of participants and geographies. We are using a very novel investigational medicine, TPO5, which is an oral on-demand option—patients can take it where they sit and on demand—and that is a very unique potential medicine. In this trial, we expect to get good data on safety and dosing and be Phase III ready, as I mentioned. That will allow us to assess where this fits. Our base case is this is better in someone else’s hands as it goes to Phase III, but delivering a robust Phase II data set with FDA clarity on the path forward will be important. In terms of the FDA’s guidance, they have been very collaborative. There have been other vaccines developed in this space, so we are largely following that guidance. The Phase III is TBD based on our Phase II, but our base case is that we would have to conduct a large vaccine-like Phase III, and that is something we would have clarity around as we get ready for that and talk to potential partners. Operator: Our next question comes from the line of Jason Matthew Gerberry with Bank of America. Your line is now open. Analyst: Hi, this is Melanie on for Jason. Thanks for taking our question. You mentioned that with the addition of the key account leaders, most of that impact is likely to be seen in the back half of the year. How should we think about that incremental impact on top of the seasonality you flagged, with a stronger second half? Thank you. Jeffrey S. Farrow: Melanie, adding these key account leaders is going to be a great catalyst for us in a lot of ways. We have shown when we added people, we can get a response right away—we did this when we expanded our sales force prior, and we are using a very similar approach. The key account leader is a unique position targeted toward the increasing depth of prescribing we are seeing. Two things I will tell you: no one in our called-on audience, no physicians we are talking to, have capped out yet—even our top doctors have room to grow—and we are seeing a broader opportunity with doctors being able to prescribe more in general. These key account leaders are some of the most experienced and sophisticated sales individuals, and again, this is against a very high bar because we have a great sales team. They will be targeted against the highest-opportunity practices that are having good success but could be doing more. We are finalizing training, and they will be out there in the third quarter. I think you are going to start to see that. It is about 17 to 20 people; this is not a massive expansion of the sales force, but this will catalyze even more depth of prescribing and is a key element to drive to the targets we have this year. I would expect you to see that right away, and you will see that bear through the seasonality, but it does not alleviate the impact of seasonality—that is a patient-flow issue, not so much an execution issue. Think of this as depth of prescribing, change of behavior over time, and allowing us to continue a great growth trajectory. You will still see seasonality in the quarters, as mentioned. Operator: And our next question comes from the line of an Analyst with Oppenheimer. Your line is now open. Analyst: Hi, thanks for taking our questions. A couple from us. First, can you give any additional color on what percentage of prescriptions dispensed in the quarter represent retreatment patients versus new starts? Second, thinking about the $2 billion peak sales number, how much of that is predicated on retreatment becoming recurring annual behavior versus purely new patient identification? Aziz Mottiwala: Retreatment is something we get a lot of questions on and something we are tracking closely. It is also something we have seen progress nicely over the last several quarters. As a reminder, we have said we would expect retreatment to be at steady state around 20%, meaning at any given week of prescriptions, about 20% of the composition would be retreatments. What we are seeing so far is retreatment averaging in the mid-to-high teens, and that is up quarter over quarter—one of those key metrics—so we are seeing that steadily progress. We would expect that to even out at around 20%. To your question on long-term potential, at steady state you can assume about 20%, so in a peak-year revenue, approximately 20% would be due to retreatment. Operator: Thank you. Our next question comes from the line of Lachlan Hanbury-Brown with William Blair. Your line is now open. Lachlan Hanbury-Brown: Hey, thanks for the question. First for Jeff: you had stronger-than-expected gross-to-net in the first quarter. Can you elaborate on what drove that? Is that the mix shift, changes in Medicare, or some one-off items? How should we think about that flowing through? We typically have a cadence of gross-to-net stepping down throughout the year—should we still expect that, or is it going to be relatively flat from here? Jeffrey S. Farrow: Lachlan, good to hear you. We are not providing gross-to-nets on a quarterly basis now that we have moved to full-year revenue guidance. I would say we did see the typical seasonality in the first quarter in terms of copays resetting and driving some additional support. That said, we are very comfortable that we will be exiting Q4 in the 43% to 45% range. I would guide you to expect it to be somewhere within that range for the year. Lachlan Hanbury-Brown: Great, thanks. And maybe one for Aziz. The continued strong growth in web visits and especially the high-value activities on the website seems encouraging. Has the conversion rate—from website visits to e-scripts—to the extent you can track it, maintained constant so it tracks in line with the increase in visits? Aziz Mottiwala: On DTC, this is an area that is really compelling and one we are excited about. You highlighted the increased high-value activities. We are pleased because the ROI overall continues to improve and is already ahead of benchmarks and our expectations. We do not get into specific conversion metrics, but if the ROI is improving, it implies more patients are getting on therapy. Q1 is a patient-flow thing—there were lost days due to weather—so I would not think about Q1 versus those engagement metrics as the comparator. Patients are ready to go, and we are seeing the impact even early in Q2 with prescriptions near all-time high levels. I think you will continue to see that stack over time. The great thing about DTC is once you get to a great ROI—and I have seen this in my career—you can start to see a stacking effect where patients are primed and ready to go. This also validates the strategy of continuing to drive depth of prescribing. The more doctors looking for more patients, the better our conversion is going to be. This is the one-two punch we are working on, and you are seeing positive trajectory on both fronts. Operator: Thank you. Our next question comes from the line of Francis Edward Hickman with Guggenheim. Your line is now open. Francis Edward Hickman: Thanks for taking the question. Congrats on the progress. Another one on the gross-to-net. As this retreatment cohort expands toward that 20% that you have guided for, does the gross-to-net profile change between a refill prescription and a new start? Do you get better net price realization if a patient is coming back and does not need to go through the whole copay assistance program? Curious how that dynamic may shift beyond the typical seasonal gross-to-net changes you have already talked about. Jeffrey S. Farrow: Great question, Eddie. It is not likely to change on a refill patient. They still have to go through the prior authorization process as well as potentially provide some copay for that product as well, so it is not likely to change much. Francis Edward Hickman: Got it. And did you talk specifically about which federal agencies have interest in TPO5 and what that means for acceleration of the program? Jeffrey S. Farrow: Sure, Eddie. We have a strong government affairs team that has been engaged. As you and Jenna highlighted, there is a lot of interest here. There is a Lyme-focused group looking at opportunities to speed up approvals, particularly in the Phase III realm, and stepping away from the disease-prevention approach that vaccines typically do. They are invested in looking at diagnostics and other areas that can speed up the development pathway. And then RFK, who is part of the HHS program, has made this a high priority. As has McCarray. The FDA has taken an aggressive approach here and is looking to speed therapeutics to market as quickly as we can. Operator: Thank you. There are no further questions in the queue at this time. Ladies and gentlemen, this concludes today’s conference call. Thank you for participating, and you may now disconnect.
Operator: [Operator Instructions] With that, I'll hand it over to CEO, Jan Rindbo; and CFO, Martin Badsted. Mr. Jan, please go ahead. Jan Rindbo: Thank you very much, and hello to everyone. Thank you for joining. Let me start by just giving you just a brief introduction to NORDEN. We are a leading global operator transporting the essential commodities for industrial customers worldwide. We have a capital-efficient fleet strategy combining owned and chartered vessels, which enable us to navigate market cycles and deliver competitive returns. So today, we will take you through our performance and the strategic positioning of the company. So let's dive straight into it, and let's do that with probably one of the most discussed topics at the moment, the conflict in the Middle East, which obviously are having big impact on both the markets and operations. So we see, obviously, on the tanker side, strong support on the tanker rate. We've seen surging spot rates where tankers are in high demand to help rebalancing oil markets in view of the lack of the oil supply that's coming out of the Middle East. The dry cargo market reaction has been more muted. And here, it's probably more the additional operational impacts and costs that affect the business. We have seen, obviously, with higher oil prices, a significant increase in the bunker costs. So they're up roughly around 50% since the start of the conflict. That does not directly impact NORDEN because we hedge the directional risk of the oil price, but we are seeing physical delivery premiums have spiked that cannot be hedged. NORDEN has, as you can see here on the map, we have 7 vessels inside -- trapped inside the Persian Gulf, 6 dry cargo vessels and 1 tanker. And we have obviously suspended all new business coming into the region. But we'll obviously touch much more on the situation in the Middle East later in the presentation. If we look at the highlights, the financial highlights of the quarter, we've made $11 million net profit in the quarter, which is giving us a return of just under 8% on the return on invested capital. We have a very strong operational cash flow of $172 million in the quarter. And what is probably the most significant development overall in the quarter has been this increase in the net asset value of our business and our fleet of 11% since the end of the year. So in just 1 quarter, the net asset value of the company has actually gone up by 11% to now stand at DKK 422 per share. And we continue to return cash to investors. In this quarter, we are continuing with a quarterly dividend of DKK 2 per share. And on top of that, we have a share buyback program of $25 million, and that brings the total payout to $35 million for this quarter. When we look at the group fleet overview, we continue to be very active in optimizing the fleet. We have, in this quarter, sold 7 vessels, 4 of those are from declared purchase options. We also continue to lock in longer-term earnings through time charter out. So we've done 8 long-term deals on time charter to secure forward earnings. We also continue to add ships. So we have actually added more ships than we have sold. We've added 11 vessels in the quarter, 8 leases with purchase options, and then we have purchased 3 vessels. And we continue to sit on this big portfolio of purchase options. We have 91 in the portfolio, of which 33 can be declared over the next 2 years at prices that are currently 22% below current market prices. And if we dive a little bit more into the fleet and look at the fleet composition, you will notice here that we are mainly on the ships that are exposed to what we call the positioning margin. So that's more the ships that are dependent on directional market calls. So typically, the larger dry bulk vessels, but also the MR ships. So here, we have specifically sold 1 Cape and chartered out 3. We've sold 2 Panamaxes. On MRs, we have sold 2 ships and time chartered out 5 ships. So quite a lot of activity on these large and medium ships but predominantly reducing exposure in those segments. And then the ships that we are adding to the fleet have all been in what we call the smaller vessel sizes. They are more exposed to the base margin part of the business. This is the core operating margin that is not dependent on the market direction, but this is where a combination of cargoes, reducing ballast time, loading more niche type cargoes add additional margin. And here, we have added 2 Handysize ships to the core fleet and then 9 Multipurpose ships. So we now have built a core fleet of Multipurpose ships of 22 vessels. And strategically, this is sort of one of the areas that we are focused on building. Most of these ships are newbuildings. The first one will deliver later this year, and then this fleet will deliver in the coming years. One deal stands out in the quarter, and that is that we have signed a newbuilding contract for two ice-class multipurpose vessels. Those ships are ordered against a long-term contract that we have signed with a Swedish mining company, and the ships will be used partly to perform that contract when they deliver in 2028. With that, I will hand you over to Martin, who will talk a little bit more about our NAV. Martin Badsted: Thank you very much. Yes, as Jan already alluded to at the highlights page, the NAV developed quite positively during the quarter, up 11% to DKK 422 per share. And it was actually a broad-based increase in the value of assets, both in dry and in tankers. You'll see from the table here that currently, actually, in terms of our own fleet, the majority of the value, $800 million lies within dry, whereas $200 million are in tankers. But when you look at the value of the TC portfolio, including purchase options, it's actually a little bit overweight tankers with $263 million. On the right-hand side, you will see a sensitivity analysis of what happens to the DKK 422 per share if we change both the forward curve and the asset values by 10% or 20%. And you will see the outcome ranging from DKK 308 to DKK 559 per share, all actually either in line or above the current share price. Sorry for that. It's a little bit slow. So looking at the market development in dry, it was actually a fairly strong quarter. When you look at the turquoise line in the middle of the graph, you will see that the spot rates for Supers, as an example, were far higher than 2025. Actually, they were up 41% over the quarter. And that was mainly driven by the standard commodities, iron ore, bauxite, grains, whereas coal was actually quite weak, although we are seeing that changing currently. We do have a firm view on the long-term outlook for dry cargo, not least based on a favorable supply side, where you'll see on the right-hand side that the order book is actually matched more or less by the share of the fleet, which is over 20 years. So there's good reason to believe that you can actually still have favorable fundamentals in the dry cargo market going forward. Looking at our earnings in dry cargo, you will see that we made on an EBIT level, a loss of $45 million, which is, of course, unsatisfactory. It was mainly driven by dry operator large and small, which both made a loss in the quarter. Of course, some of this was related to cost as a result of the Persian Gulf conflict, where we both have vessels stuck within the Persian Gulf, but certainly also the regional bunker premium that Jan talked about in the beginning, which are hedged to the extent possible, but there is still some non-hedgeable items of the bunker exposure we have that has costed us quite dearly during the quarter. Of course, it's not all the Persian Gulf. It's also what we call regional positioning, which really means that we have decided to reposition some of our vessels from the Pacific into the Atlantic in expectations of higher Atlantic rates. The benefits from this have yet to materialize, but we still expect some of that to show up in Q2 earnings, and we do see gradual improvement in earnings in dry operators going forward. In tankers, it was a super strong spot market during the quarter, of course, driven by the dislocation of trade flows following the closure of the Strait of Hormuz. You'll see the graph here actually coming up to close to $70,000 a day. That was actually an average of very large regional discrepancies where the U.S. Gulf ramped up exports quite aggressively and paying rates close to $100,000 a day, whereas it was a little bit more muted, but still good rates of, call it, $30,000 a day in the East. The development in rates has turned around in recent days. And of course, the underlying problem here is that with the closure of the Strait of Hormuz, we are lagging 15% to 20% of volumes that will normally have occupied a lot of seaborne capacity. But also here, actually, fundamentally, we are not so worried about the supply side, as you will see on the right-hand side also here, the order book is matched more or less with the share of the fleet being more than 20 years old. But we do think some of this order book is starting to accelerate deliveries during the second half that should put some pressure on rates going forward. In tankers, we made a total EBIT of $47 million, and it was actually mainly in the dry owner, which has some spot exposure through our NORDEN product pool. The tanker owner made $37 million and the tanker operator just over $10 million in the quarter. And that brings me to the full year guidance, which, as you know, we upgraded end of April, and we raised it by $40 million to a new guidance of $70 million to $140 million and that includes a reservation of $30 million to cover possible costs for the 6 TC vessels that we have stocked within the Persian Gulf, which is really based on an assumption that those vessels may stay there actually until the end of the year before they can get out. The earnings that we expect for 2026 are quite front-end loaded, meaning that much of it should come in Q2 and then taper off within the second half of the year. And in terms of risk exposure, we have about 2,300 open tanker days and close to 7,000 open dry cargo days, all being long against the market. That concludes my part of the slides, and I'll hand you back to Jan. Jan Rindbo: Thank you, Martin. So this is just a reminder of the key drivers in the business model and how we approach markets. So we have these 4 drivers: dry cargo and tankers are 2 and then asset heavy and asset light the operating business. So we have these four. Our exposure to the prevailing market conditions. And what we are seeing now is that in a very, very high tanker market, we have decided to reduce exposure there and move more of that exposure towards dry cargo. And as we explained earlier on some of the previous slides, we have done a few deals to both sell tanker vessels but also take longer-term time charter contracts on tankers. And we now have, on average, around 80% cover for our tanker business until the end of 2028. So taking advantage of these high tanker rates and locking in long-term profits in that part of the business. That means that we have more exposure in the dry side. And within the dry cargo business, as we explained on one of the previous slides, we are moving exposure more towards the smaller segments where we have more impact on the earnings than just being driven by the market. And we think this flexibility in the business model where we have several drivers, realizing that it's not always all 4 drivers that will go at the same time. But over a rolling 5-year period, we can see that this generates higher returns than industry peers that are more specialized in just one segment. So this ability to switch between the segments actually has a lot of value for NORDEN in the long run. If we move to the next slide and then look a bit more at the direction we are taking towards 2030, we see an opportunity to go even deeper in our relationships with customers. At a time where there is a lot of focus on supply chains and geopolitical uncertainty, NORDEN stands out as a reliable service provider in the freight industry, and that is something that we want to leverage and continue to build both more cargo networks with complementing contracts, but also have more efficiencies in the way that we operate the cargo book and the fleet. The expansion towards the smaller vessel sizes within dry cargo is also with a view to focus more on what we call the base margin, the core operating margins in the business and thereby reduce the volatility in our earnings because in the smaller segments, project cargo, minor bulk commodities, but also the logistics part of our business, it is less exposed to market fluctuations and thereby giving more stable returns through the expertise that we can provide in those segments. We will, however, continue to be focused on this adjusting our exposure and remaining what we call asset agile and continue to take the opportunities that we see in the market. So both buying and selling our vessels as an example, is largely driven by the opportunities that we come across in the market. And that sort of is an important part of providing strong upside in better markets. And that's exactly what we're seeing right now through the whole optionality portfolio where we have a lot of extension options and a lot of purchase options in our fleet. And in rising markets, there's a lot of value there that we can realize. And that brings me just to the last slide and just a few points here on the investment story in NORDEN. When you zoom out and look at the industry, we think actually the macro view of the industry is fundamentally very positive because when you take a longer-term view towards 2030 and beyond, we see an aging global fleet, both in dry cargo and in tankers. And we currently have a low order book, especially on the dry cargo side. So this replacement need of all these older vessels is not currently being met by the order book. And as we've also previously explained, all the geopolitical uncertainty and the dislocations are creating longer distances for transportation. And that means that we have a very healthy market balance as we see it. And even if -- even at times of lower economic activity, the inherent risk of a prolonged oversupply situation is much, much smaller than what we have seen historically over the last couple of decades. Our business model, point #2 here that we can adjust to the different markets that we are in, gives us huge flexibility to manage the risk through the market cycle and deliver better returns compared to a pure-play company. And then we have the strategic focus on expanding in areas where we believe we have even more impact ourselves in terms of our operating capabilities and really building this business that is more sophisticated, not least with the AI-driven opportunities that we also see in enhancing our decision-making and really bringing out the -- what we call the NORDEN platform, the value of being one of the largest operators in the industry and having a global network of offices close to our customers bring out all of that value as an important part of our strategic focus. And then the last point we're making here is that we continue with a relatively asset-light approach in our business model, but with the upside from purchase options on the asset upside that enables us to return a lot of cash to shareholders and have this disciplined capital allocation that over time, at least historically have driven a ROIC outperformance compared to the industry. I think with those words, let's turn over to the Q&A session. And hopefully, there are questions where we can put a little bit more color to some of the points that we have made here today. Operator: Thank you, Jan and Martin. And yes, we are now ready for the Q&A session. [Operator Instructions] But let's start off with a couple of the written questions here. They were originally in Danish, so this will be our translation. So the energy company, MASH Makes, which among other things, was supposed to produce biofuel for DS NORDEN's fleet, has gone bankrupt. It is reported that they were unable to raise capital for the next phase. You have been invested in the company since 2023. Can you tell us what loss you'll be taking in NORDEN's future financial reports in connection with this bankruptcy? Martin Badsted: Yes, I can respond to that. So when you look at the future financials, this will have no impact because all of it has been provided for in the current accounts already. So of course, we have been very happy to work together with the team behind MASH Makes and I think they have a very interesting technology. But I think the phase that they are coming into now means that they will need new investors to take this forward. Operator: And a follow-up question in connection with this. Can you tell us how this will affect your transition to biofuel? Are there new partners on the horizon or any concrete partnerships in the works? Martin Badsted: Our efforts to work on decarbonization and offering that also as a product or service to some of our clients is unaltered. So we have a strong belief still that biofuel is part of the answer for the shipping industry, and we are working with several partners to help them actually realize zero emission transportation based on our products. Operator: And the next question here is, as an investor, one has noticed that the bulk/dry cargo market for what is by now an almost excessively long period has not been optimal for NORDEN. The tanker market, on the other hand, is booming. Looking a bit into the future, where we also see risk of, for example, lower Chinese growth, wouldn't it make good sense for NORDEN to look more towards the tanker market over the coming 1, 2 years and prioritize this business leg more heavily? And do you agree with this analysis is also stated? Jan Rindbo: Yes. I think let me start by saying that going back to the business model that we have, both being in dry cargo and in tankers, there will be periods where one leg is more attractive than the other. And only a few years ago, it was the dry bulk business where we actually got the same question, why are we not just focusing on that? I think we've shown over time that the strength of having both activities, that's important. If you talk about the risk reward from where we are today, yes, clearly, tanker earnings are very strong right now, and it's attractive to be in tankers. But to invest further in tankers right now is also very expensive and quite risky. So the risk reward, we think, is more skewed towards the dry cargo side. That's also why we're running with relatively high coverage on the tanker business. We have actually made money overall in dry cargo last year. We are, of course, having a more difficult first quarter in dry bulk, which Martin also explained, there are some different drivers, some repositioning costs that will come back. So we do expect better dry cargo performance in the coming quarters. And of course, our focus is on obviously ensuring that we have the best possible performance. It also, a little bit, ties in with the strategic choice of going towards the smaller vessels where we have more impact on the results through our own operation and not just being driven by the market. Operator: And then a question related to the current situation in the Middle East. It goes, how do you see the scenario for yourself when the Strait of Hormuz is reopened, and peace returns to the region there? One would imagine you'll be extremely busy for an extended period with simultaneously high freight rates primarily for tankers. Do you agree with that expectation? If yes, how long might one expect it to last? And would you also have a positive impact on the dry cargo from this? Martin Badsted: Yes. So that's a very good question or a number of questions actually baked in there. But I think overall, our view is that the closure of the Hormuz Strait as we are seeing now is fundamentally negative for the tanker market. Yes, there have been some super short-term spot rate earnings in the last couple of months, but we think those are temporary. And after that, if it continues for that long, there will be a lag of 15% to 20% of normal seaborne volumes, which we think if such a demand hits that the market will be under pressure. But of course, if the Strait of Hormuz were to open tomorrow, I think you're right that there could be an added employment for, again, a temporary period because countries and companies would need to restock, and there would be quite a lot to do in that case. So it's very dependent on the time frame that we are discussing here. It's less of an issue on the dry side, where I think the impact on the market is more indirect through the impact on the macroeconomic environment. So if global economy suffers because the oil price goes to $150 a barrel, then that will also lead to pressure on demand within dry cargo. But overall, we think it's a fundamentally negative story with some very strong positive temporary effects that we have experienced in the last couple of months. I hope that answers your question. Operator: And then a more specific question towards the Tanker segment. Rindbo mentioned earlier today in the radio show Millionaerklubben that NORDEN has already secured coverage of 80% of the tanker order book through the end of 2028. Is that understood correctly? And does that mean you're looking to bring more tanker vessels into the business going forward? Jan Rindbo: Yes. So that is correct that we have covered now around 80% of our tanker capacity until the end of 2028. And bringing more tankers into the book probably right now in terms of long-term deals, so time chartering in ships on long-term contracts and buying ships. Right now, we don't think that that's the right time to do that. Prices are very high; rates are very high. That's why we've done the opposite, selling ships and taking in cover by charting out ships. Now, of course, how the market plays out in the coming quarters, if there's an opportunity, for example, in the scenario that Martin described that if there is a softening in tanker rates, then that could be an opportunity then to step in and take more capacity on again. So that is obviously part of the playbook in our business model that we can do that. But right now, we feel that the risk reward is not there to add tanker tonnage. Operator: A question related to this, tanker outlook beyond Q2. You say the market eases or expect to be easing in second half of '26. How severe could this easing be if Hormuz reopens quickly versus stay closed? Martin Badsted: Yes, that is a very difficult question. As I said before, if it opens immediately, there will be some short-term benefits from, I think, desired restocking. But if it lasts for a very long time, then we think, as we said, then the easing will come and being driven to a large extent by the lack of volumes, but also by newbuilding deliveries that will accelerate in the second half of the year. Operator: And we will then look at the dry cargo segment. There are a few questions here related to this. There's one here. Entering Q1, you were short on the dry bulk market. How much of the dry cargo loss can be attributed to a wrong positioning? Jan Rindbo: Yes. So that is part of the explanation, but it's not actually the main driver of the results in the first quarter, and we now have a long position also in dry going forward. The main driver of the results in the first quarter is the additional costs that we've seen following the conflict in the Middle East and then this repositioning of ships on lower-paying backhaul routes from the Pacific into the Atlantic and the benefit of then positioning those ships back at fronthaul rates will only come in the coming quarters. Operator: And another question related to dry cargo. Could you provide more detail on the bunker price impact in dry cargo during Q1, especially while the sharply higher regional bunker prices following the Persian Gulf conflict could only be partially hedged? And how much of this impact you expect to reverse or normalize over the coming quarters? Martin Badsted: Yes. So that's actually a very interesting question. And I think there are multiple sorts of impacts on the oil market overall. What you normally see based on quotes in the media and so forth is typically the development in the standard barrel of oil, where you've seen rising prices may be from $70 before the crisis up closer to $120, $125 per barrel. But on top of this, when you look at the diesel and gasoline and some of these refined products, then the price changes have been even more vehement and if you then look into the specific prices when you actually go into a bunker port in different regions, you've seen spikes that we probably have never seen before. And this goes to explain why even though we have a hedge framework that actually hedges all our flat rate exposure, if you will, sort of the standard price of oil, then you can't hedge what happens in local bunker ports here and there because there are no price indices, there are no derivatives to do the hedging. And that means that when you have to perform a cargo and you go into bunker, then suddenly you are met with very unpredictable and in this case, very high bunker prices that will then seriously affect the voyage results that you can incur. Operator: And another question to the dry operator segment here, you're still loss-making at USD 9.2 million. When do the multipurpose Handysize additions start to show up positively in this segment? Jan Rindbo: So the core fleet that we are building, so the 22 ships that we referred to earlier, the majority of those ships are newbuildings that will deliver in the future. And the first newbuilding will deliver to our fleet during Q3. That is the latest estimate for that delivery. And then it will ramp up through '27 and '28. So it will come over the next sort of 2 to 3 years in terms of that core fleet. And that includes these 2-ice class newbuildings that will deliver in 2028. Operator: And then a question related to the fleet and the options that you have here, let me just have a look. You sold 7 vessels year-to-date and then you have 33 purchase options in the money at strikes 22% below broker values. What's stopping you from declaring more of these now while asset values are at a multiyear high? Jan Rindbo: Well, one thing is that the underlying charter rate is very attractive compared to the current market rates, and then we have options to extend that as well. So in addition to the purchase optionality that we have, and there is also value in that. And when we look at the development on asset prices, we are quite optimistic that the prices are not going to decline substantially from the current levels because new yards are full with newbuildings. The markets, especially on both dry and tankers, underbuilt the current asset values. So we would like to both get the value out of the extension options and then subsequently also get the value out of the purchase options. And then I think it's also important to highlight that we are also from time to time, declaring purchase options without necessarily also selling the vessels at the same time. So we could also -- and we are also looking at declaring some of these options and then actually keeping the vessels in our fleet as owned vessels. Operator: And then a question related to your net asset value and capital allocation and what now seems to be the last question. Now it's up to DKK 422 per share, while the share price is around DKK 294, that's a 30% discount. You're distributing around USD 35 million for Q1. That's DKK 2 in dividend and a buyback of $25 million. With the share-trading well below now, would you not lean more aggressively into the buybacks rather than dividends? Martin Badsted: Yes, that I think it is a good question and something that we, of course, also have discussed. There is one problem, which is really that there are some legal limitations as to how big a share buyback program you can undertake compared to the general liquidity in the share in the market. So we can't actually do much more on the share buyback side than what we are doing. So we actually agree in the argument that it's trading at a discount. So it's a good place to actually invest, but we have maxed out on that opportunity already. Operator: Thank you. There seems to be no further questions. So I will leave the word to management for a final remark. Jan Rindbo: All right. Well, thank you for tuning in. Thank you for great questions related to the Q1 report. So thank you again for joining us here, and we look forward to seeing you again for the next quarterly presentation. Thank you. Martin Badsted: Thank you.
Operator: Welcome and thank you for joining the First Quarter 2026 Earnings Conference Call for Herbalife Nutrition Ltd. During the company's opening remarks, all participants will be in a listen-only mode. Following the opening remarks, we will conduct a question-and-answer session. As a reminder, today's conference is being recorded. I would now like to turn the call over to Erin Banyas, Vice President and Head of Investor Relations, to begin today's call. Please go ahead. Erin Banyas: Thank you, and welcome to everyone joining us. With us today are Stephan Paulo Gratziani, our Chief Executive Officer, and John G. DeSimone, our Chief Financial Officer. Before we begin today's call, I would like to direct you to the cautionary statement regarding forward-looking statements on Page 2 of our presentation and in our earnings release issued earlier today, which are both available under the Investor Relations section of our website. The presentation and earnings release include a discussion of some of the more important factors that could cause results to differ from those expressed in any forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995. As is customary, the content of today's call and presentation will be governed by this language. In addition, during today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or nonrecurring items that management believes impact the comparability of the periods referenced. Please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial measures and the reconciliations to the most directly comparable GAAP measure. And with that, I will now turn the call over to our CEO, Stephan Paulo Gratziani. Stephan Paulo Gratziani: Thank you, Erin. Thank you all for joining us today. We delivered a strong start to 2026, with first quarter net sales and adjusted EBITDA exceeding guidance as we continue to build momentum. Importantly, these results reflect the underlying stability of our business and reinforce our confidence in the strategy we are executing. We are building a more connected, personalized approach to health and wellness by bringing together innovation, science, and the strength of our distributor network to better serve customers around the world. On April 14, as part of our debt refinancing, we released preliminary net sales growth expectations that exceeded the high end of our guidance on both a reported and constant currency basis. We also indicated that reported adjusted EBITDA was expected to be at or above the high end of our previously issued guidance. Our final reported results are in line with that release. Let's review a few of the financial highlights from the quarter. We delivered net sales of $1.3 billion, up 7.8% year-over-year and up 5.4% on a constant currency basis, exceeding guidance on both measures. This was our third consecutive quarter of year-over-year net sales growth on both a reported and constant currency basis. India achieved record quarterly net sales for the second consecutive quarter. Adjusted EBITDA was $176 million and above guidance, and we generated $114 million of cash from operations in the quarter. In addition to our first quarter results, we successfully refinanced and strengthened our capital structure in April, which we expect will result in approximately $45 million in annual cash interest savings. We executed this transaction in a highly volatile market and geopolitical environment. We achieved our pricing objectives, extended our maturity profile, and meaningfully reduced our borrowing costs while also enhancing our financial flexibility. This outcome reflects the financial and operational results we have delivered over the past two years. As we build on this momentum, we remain focused on executing against our vision, with personalization at the center of our strategy. Personalization has always been a foundational strength of Herbalife Nutrition Ltd., with our distributors delivering tailored recommendations through direct relationships and a deep understanding of individual goals. What is evolving is the level of precision we can now bring, which is enabled by enhanced data insights and technology. This evolution is especially important as consumer expectations continue to rise, driven by greater access to AI, wearables, and at-home diagnostics, which are increasing demand for guidance that is not only personalized, but also more actionable and continuous. We are evolving from personally curated recommendations to an approach that combines both personally curated and formulated solutions, extending our ability to deliver individualized outcomes at scale through better tools, better data, and expanded manufacturing capabilities, all delivered through our distributors. This builds on four core actions that have long guided our business: what to measure, including key health metrics like weight and muscle mass; what to take, which is products from our expanding portfolio; what to do, including daily habits like hydration and exercise; and who to do it with, which is our distributors who provide guidance and support through a variety of DMOs as they go to market. These actions have successfully built our business over the past 45 years. Our global network includes over 2 million distributors, more than 60 thousand nutrition clubs, and millions of customers across 95 markets. This reach is our differentiator and superpower. Building on that foundation, our recent acquisitions are enabling a more connected, personalized, and data-driven approach that is enhancing these four core actions, making them more precise, scalable, and actionable. On March 26, we announced an agreement to acquire substantially all of the assets of Vionic's core personalized nutrition business, which we completed in April. Vionic is an established UK-based business with an existing supply chain. Its patented product personalization engine uses an individual's health background and a proprietary database of biomarker data to develop personalized nutritional supplement formulas. This acquisition further accelerates our pathway into personally formulated products. In late June, our distributors will begin offering Vionic's personalized nutritional supplements to customers across 11 European countries. The U.S. will follow in July, with additional markets later in 2026. I'd like to take a moment to explain how our recent acquisitions work together to support the four core actions I mentioned earlier, with Protocol as a central operating system. Each acquisition plays a distinct role, and combined, they create greater value than any one capability alone. Let me walk you through how each contributes. Link Biosciences is a formulation and manufacturing engine. It translates insight into products by enabling us to manufacture personalized nutritional supplements in a powder format at scale, directly connecting data and recommendations to the finished product. Vionic accelerates our speed to market with a personally formulated vitamin and mineral complex, in a granule format, while broadening availability through a more accessible price point. Prüvit provides the opportunity to expand our portfolio into the ketone category with a channel-exclusive offering aligned with growing consumer interest in performance, energy, and metabolic health. It is an exciting addition to the portfolio; we will have more to share this summer. And Protocol brings it all together by providing the experience and intelligence layer. It digitizes and scales the four core actions I mentioned earlier—what to measure, what to take, what to do, and who to do it with—bringing greater precision to how distributors support and engage their customers through a more connected, data-informed experience. It translates consumer inputs and health data into actionable guidance that supports more consistent behavior change over time. In March, we expanded the Protocol beta program to include select 10 EMEA markets. That broader deployment is providing valuable feedback that is helping refine the roadmap, platform capabilities, and the digital experience. To enable integration of Vionic into Protocol, and incorporate feedback from the broader beta group, we are extending the beta program, with the next release planned for the North America Extravaganza in July. That release will include a new user experience, enhanced features, and additional capabilities that support our broader strategy. Part of that broader strategy is a multiyear rollout of new packaging across our global product portfolio. The rollout began in March, and we expect it to be substantially completed by 2027. For context, slide 8 highlights our packaging currently in market, and slide 9 highlights our new modern packaging design. Grounded in consumer insights and analytics, the new packaging reinforces scientific credibility and trust at every touch point. At a portfolio level, a consistent science-led visual system simplifies navigation and helps distributors and customers confidently build personalized product combinations. The new labels also reinforce product purpose and efficacy, strengthening confidence and differentiation, which are foundational in a competitive global marketplace. In April, we kicked off our first Extravaganza events of the year, which started in India, where we hosted three consecutive events across Delhi and Bengaluru with approximately 46 thousand attendees. We saw firsthand the strong energy and engagement across the market. These events are a critical part of how we operate. It is where we communicate our vision, build skills, share best practices, and reinforce strategic priorities in ways that directly shape distributor execution. They also drive momentum at the local level, leading to stronger engagement, more consistent business activity, and improved retention. We look forward to that momentum continuing as we kick off our summer Extravaganza events in China, Eurasia, South America, Asia Pacific, Europe, and North America. Before I turn it over to John to walk through the quarter in more detail, I want to take a step back and reflect on what we have accomplished over the past two years. Herbalife Nutrition Ltd. today is a fundamentally stronger company than it was two years ago. We have stabilized net sales and returned to growth, expanded adjusted EBITDA margins, strengthened our balance sheet by repaying nearly $540 million of debt since 2024, reduced our total leverage ratio from 3.9x in 2023 to 2.7x at the end of the first quarter, completed our debt refinancing, unlocking approximately $45 million in annual cash interest savings, and completed four strategic acquisitions. Importantly, we have done all of this with a disciplined approach, improving operational efficiency while executing against our plan. We are about to reach a major milestone this summer—the launch of our next-generation personalized nutritional supplements. This further strengthens our confidence in the path ahead. Our continued progress reflects strong momentum and clear direction as we advance towards our vision to become the world's premier health and wellness company, community, and platform. With that, I will hand it over to John to walk through the financials in more detail. Over to you, John. John G. DeSimone: Thank you, Stephan. Turning to our first quarter financial highlights on slide 11, we delivered another strong quarter, with net sales and adjusted EBITDA both above our guidance ranges, led by continued strength in India. First quarter net sales were $1.3 billion, up 7.8% versus 2025 and above the high end of our guidance range of 3% to 7%. This was our third consecutive quarter of year-over-year growth and our strongest year-over-year growth since 2021, building on the momentum we saw in 2025. On a constant currency basis, net sales increased 5.4% year-over-year, also exceeding guidance. We have now delivered year-over-year constant currency growth in eight of the last 10 quarters. Our first quarter net sales outperformance was driven primarily by India, where net sales reached a record $275 million, up approximately 32% year-over-year, marking the second consecutive quarter of record sales. We believe demand in the market remains strong following the reduction in the GST rate on the majority of our products in late September 2025. I will provide more details on our regional performance later in the call. Adjusted EBITDA was $176 million, above the high end of our guidance range of $155 million to $175 million. Adjusted EBITDA margin was 13.3%, down 20 basis points year-over-year, but up 240 basis points on a two-year stacked rate, including approximately 70 basis points of FX headwinds versus last year. CapEx was $11 million for the quarter, at the low end of our $10 million to $20 million guidance range, primarily due to timing with some spending shifting into the second quarter. Capitalized SaaS implementation costs were $10 million. Gross profit margin was 77.9% in the quarter, down 40 basis points year-over-year. This reflected approximately 50 basis points of input cost inflation, primarily from lower absorption rates; 30 basis points of unfavorable sales mix; 20 basis points from other unfavorable cost changes; and 50 basis points of FX headwinds. These factors were partially offset by 70 basis points of pricing benefits and 40 basis points from lower inventory write-downs. First quarter net income attributable to Herbalife Nutrition Ltd. was $62 million, with adjusted net income of $69 million. First quarter adjusted diluted EPS was $0.64, including a $0.03 FX headwind versus 2025. Our adjusted effective tax rate was 27.3%, compared to 21.8% in 2025, which resulted in an approximately $0.04 unfavorable impact to adjusted diluted EPS. The higher rate in 2026 was primarily driven by a decrease in tax benefit from discrete events compared to 2025. For full year 2026, we continue to expect our adjusted effective tax rate to be approximately 30%, in line with 2025. We delivered strong cash generation in the first quarter, which is typically our lowest cash flow quarter in past years due to timing of our annual distributor bonus payments and employee performance bonus payments. Operating cash flow was $114 million, compared to relatively neutral cash flow in 2025. Consistent with last year, we paid approximately $75 million of annual distributor bonuses in the quarter. However, employee performance bonuses were paid in April, rather than in the first quarter. Credit agreement EBITDA for the first quarter was $194 million and our total leverage ratio was 2.7x as of March 31. Beginning this quarter, we are introducing net leverage ratio as an additional metric to provide greater transparency into our leverage profile and delevering progress. We define net leverage ratio as net debt divided by trailing twelve-month credit agreement EBITDA. At the end of the first quarter, our net leverage ratio was 2.1x, and we are establishing a target to reduce net leverage to below 2x by the end of this year. We believe this metric provides a more complete view of financial flexibility because it reflects debt relative to earnings while also incorporating cash on hand. For additional details regarding the adjustments between adjusted EBITDA and credit agreement EBITDA, as well as the calculation of net debt, total leverage ratio, and net leverage ratio, please refer to the presentation appendix and the earnings press release. As Stephan noted earlier, in April, we completed our $1.45 billion senior secured refinancing. I will provide more details on that in a moment. Turning to slide 12, reported net sales increased nearly $100 million in the quarter, or 7.8% year-over-year, while constant currency net sales increased 5.4%. Volume increased 4.1% worldwide, marking our third consecutive quarter of year-over-year volume growth. Pricing provided an approximately $40 million benefit in the quarter, while country mix was an approximately $26 million headwind to net sales. FX provided an approximately $29 million benefit, or a 240 basis point tailwind. Turning to slide 13, we have the regional net sales results for the quarter. As we noted in our April 14 pre-release, results were mixed across the business in the quarter. Strong growth in Asia Pacific and Latin America offset softer performance in EMEA and North America, while China continued to be a headwind. In Asia Pacific, reported net sales increased 17% year-over-year, while local currency net sales increased 21%, driven by approximately 22% volume growth and favorable year-over-year pricing, partially offset by unfavorable sales mix and FX movements. As I mentioned earlier, India delivered record quarterly net sales for the second consecutive quarter, with reported net sales up 32% year-over-year and local currency net sales up 39%. Growth was driven by a 37% increase in volume and favorable sales mix. Pricing was neutral, as we have not taken a price increase since November 2024, and FX was a meaningful headwind. We continue to believe market demand remains strong following the GST rate reduction on a majority of our products. Importantly, India has long been one of our strongest growth markets. While year-over-year reported net sales growth began to moderate in late 2024 to mid-2025, momentum began to build again, supported by distributor leadership training in 2025. We expect the GST tailwind to continue through September, with momentum extending beyond September although at a more moderate level. Latin America delivered its third consecutive quarter of double-digit reported net sales growth, with net sales up 17% year-over-year and local currency net sales up 7%. Results were driven primarily by favorable year-over-year pricing and sales mix, along with a significant FX tailwind, mainly from the strengthening of the Mexican peso, partially offset by a 2% decline in volume. Within the region, Mexico delivered another quarter of growth, with reported net sales up 22% year-over-year and local currency net sales up 5%, driven primarily by favorable year-over-year pricing. In EMEA, reported net sales increased 1% year-over-year, benefiting from FX tailwinds. Constant currency net sales decreased 6%, reflecting an 11% decline in volume that more than offset favorable year-over-year pricing. In North America, net sales declined 3% year-over-year, reflecting a 5% decline in volume, partially offset by favorable year-over-year pricing. As noted in our April 14 press release, U.S. net sales were negatively impacted by unusually severe weather in January and February, which led to temporary closures of distributor-owned nutrition clubs, disrupted distributors' daily consumption sales, and, in turn, reduced distributor product purchases from the company. Net sales were also impacted by higher levels of shipments in transit at quarter end compared to the prior year, with the related revenue deferred to the second quarter under our revenue recognition policies. Excluding these factors, North American net sales would have been slightly up year-over-year on both a reported and constant currency basis. We continue to expect full-year net sales growth in North America in 2026. In China, reported net sales declined 12% year-over-year, while local currency net sales declined 16%, reflecting a partial benefit from foreign exchange. The decline was primarily driven by an 18% decrease in volume, partially offset by favorable sales mix. Turning to slide 14, we see the key drivers of the $11 million, or 6.5%, year-over-year increase in first quarter adjusted EBITDA. Adjusted EBITDA was $176 million for the quarter, with a margin of 13.3%. On a constant currency basis, adjusted EBITDA was $180 million. Looking at the bridge, we first see the drivers of the year-over-year change in gross profit, including our third consecutive quarter of volume growth, along with pricing benefits, partially offset by unfavorable sales mix and input cost inflation, primarily due to lower absorption rates. Salaries were an approximately $2 million headwind, largely reflecting merit increases implemented in late Q1 2025. First quarter adjusted EBITDA included $5.5 million of China government grant income. Because this grant is typically received once annually, the year-over-year variance is timing-related, as the prior year grant of $4.8 million was recognized in 2025. Lastly, foreign exchange was an approximately $5 million headwind to adjusted EBITDA, and a 70 basis point headwind to adjusted EBITDA margin. Moving to slide 15, I will provide an update on our capital structure. We ended the quarter with $451 million of cash, up nearly $100 million from 2025. During the quarter, we made the scheduled $5 million amortization payment on the Term Loan B, and the revolver was undrawn as of March 31. At quarter end, our total leverage ratio was 2.7x, and net leverage was 2.1x. In April, we completed our $1.45 billion senior secured debt refinancing. We were pleased to execute this transaction in a dynamic market environment while achieving our pricing objectives, meaningfully reducing our borrowing costs, extending our maturity profile to more than seven years, and enhancing our financial flexibility. We also have no material maturities until 2028. The refinancing included $800 million of 7.75% senior secured notes due May 2033, a $225 million Term Loan A, and a $425 million revolving credit facility, with both the Term Loan A and revolver maturing in April 2031. At closing as of April 29, $200 million was outstanding under the 2026 revolving credit facility, with approximately $180 million available to borrow. As I noted, the refinancing meaningfully reduced our borrowing cost. The coupon on the senior secured notes was reduced by 450 basis points, and the spreads on the revolver and term loan were reduced by 300 basis points and 375 basis points, respectively, to 3%. Based on the total senior secured debt outstanding immediately before and after the refinancing, and current applicable interest rates, we expect the refinancing to result in approximately $45 million in annualized cash interest savings. Because the refinancing was completed during 2026, those cash interest savings will only be partially reflected this year. The $45 million represents the annualized benefit based on current conditions. That estimate may change as we pay down debt or as variable interest rates move, but it is reflective of our current expectations for the annual savings from the refinancing. Overall, these actions further strengthen our balance sheet and support our continued focus on deleveraging and financial flexibility. Looking ahead, we are targeting net leverage to be below 2x by 2026 and remain on track to reduce outstanding debt to approximately $1.4 billion in 2028. Separately, let me briefly touch on Vionic. As Stephan noted in his opening remarks, on April 30, we completed the acquisition of substantially all of the assets of Vionic's core personalized nutrition business, as contemplated by the agreement we announced on March 26. Base consideration was $55 million payable over five years, including $10 million payable subsequent to closing. The agreement also provides for up to $95 million in contingent payments tied to certain future Vionic product sales performance. We also obtained a call option to acquire Vionic Lab, a separate platform focused on small molecules and peptides. Importantly, this acquisition is consistent with our disciplined approach to selectively pursuing targeted capabilities that complement our business and can be scaled through our global reach. Turning to slide 16, I will review our outlook for the second quarter and full year 2026. We are continuing to provide net sales and adjusted EBITDA guidance on both a reported and constant currency basis, with reported guidance based on average daily exchange rates from the first two weeks of April 2026. Broadly speaking, since we provided our full-year guidance in February, overall FX impact has moved unfavorably, reducing the tailwind benefit to net sales. For the second quarter, we expect foreign exchange to be a modest tailwind to net sales and neutral to adjusted EBITDA due to timing. On a reported basis, we expect net sales to increase 1.5% to 5.5% year-over-year, including an approximately 50 basis point currency tailwind. On a constant currency basis, we expect net sales to increase 1% to 5% year-over-year. We expect second quarter adjusted EBITDA to be in the range of $150 million to $170 million on both a reported and constant currency basis. This outlook includes an approximately $10 million year-over-year headwind to adjusted EBITDA, or approximately 80 basis points of adjusted EBITDA margin, from two items. Approximately $5 million reflects the timing of the China government grant. We have historically received that grant once annually; in 2026, it was recognized in the first quarter, compared to 2025. The other $5 million relates to the September 2025 India GST rate change. As previously discussed, while the GST rate on most of our products we sell was reduced to 5%, the GST rate we pay on services remained at 18%, which created a mismatch between the GST we collect and the GST we pay, resulting in incremental G&A expense. We have partially offset that impact through a reduction in the sales commission percentage paid to our distributors, reflected in selling expenses. The net impact of those two items is an estimated $5 million headwind to second quarter adjusted EBITDA. Second quarter capital expenditures are expected to be in the range of $15 million to $25 million, above 2026 primarily due to timing as some spending shifted from the first quarter into the second quarter. For the full year, we are increasing the midpoint of our constant currency net sales guidance range while also narrowing the reported and constant currency net sales guidance ranges. The FX tailwind to full-year net sales guidance has been reduced to a 50 basis point benefit from 100 basis points assumed in our previous guidance. For adjusted EBITDA, we have narrowed the ranges on both a reported and constant currency basis, while increasing the constant currency midpoint. We are reaffirming our capital expenditure guidance. For the full year, we expect reported net sales to increase 1.5% to 5.5% year-over-year. On a constant currency basis, we expect net sales to increase 1% to 5% year-over-year. We expect full-year adjusted EBITDA to be in the range of $675 million to $705 million on both a reported and constant currency basis. Based on India's first quarter sales performance and our outlook for the balance of the year, we now expect India GST-related net incremental cost to be an approximately $20 million to $25 million headwind to full-year adjusted EBITDA and an approximately 40 to 50 basis point headwind to adjusted EBITDA margin. Our guidance also includes a preliminary estimate of the impact of higher oil prices. We continue to expect 2026 capital expenditures of $50 million to $80 million. In addition, we expect capitalized SaaS implementation costs of $35 million to $55 million, which are incremental to CapEx. Lastly, we continue to expect our full-year 2026 adjusted effective tax rate to be approximately 30%. Before moving to Q&A, I want to close my opening remarks with one final comment. As Stephan said earlier, Herbalife Nutrition Ltd. is a fundamentally stronger company today than it was two years ago, and we remain focused on driving shareholder value. We returned to net sales growth and expect year-over-year growth to continue the remainder of the year. We strengthened our distributor network through enhanced training and other targeted initiatives, including the Herbalife Premier League, which was launched in March 2024. At that time, we had experienced 12 consecutive quarters of year-over-year declines in new distributors. Since that launch, however, the trend has improved meaningfully, with new distributor growth up 13% on a two-year stack basis in Q1. And as we have now moved beyond the two-year anniversary of the Premier League launch, this metric becomes less relevant going forward. We have also expanded our Q1 adjusted EBITDA margins by 240 basis points since 2024, and we have reduced our total leverage ratio from 3.9x at 2023 to 2.7x at the end of the first quarter, driven by $540 million of debt reduction primarily through cash generated by the business. And lastly, as I have said, we completed our debt refinancing in April, unlocking approximately $45 million in annual cash interest savings. This concludes our opening remarks. We will now open the call for questions. Operator: Thank you. To ask a question, please press 11 on your telephone keypad. To withdraw your question, please press 11 again. Our first question will come from the line of Chasen Louis Bender with Citi. Your line is open. Chasen Louis Bender: Great. Thanks. Good afternoon, guys. Stephan, I wanted to first ask about Protocol. Now that the distributors and their customers have had some more time with Protocol in the U.S. beta group, could you discuss a little bit more the behaviors you are seeing from that group and how they are shaping up relative to your expectations? For example, are you seeing distributors able to sell more Herbalife Nutrition Ltd. product to their customers, and on the customer side, what are you seeing from the activity and the duration with which customers are interacting with the app and inputting their health data? Stephan Paulo Gratziani: Yeah, thanks for the question, Chasen. As you know, we launched beta last year, and the objective of beta is really to get distributor feedback and make sure that it is really fitting with their business flows and how they go out and talk to customers and engage with them. In terms of the distributors and their response, the amount of feedback that we get from different models and leaders that operate in different regions—especially now that we have expanded it to the 10 European markets—is helping us to formulate features, how people are coming into it, and how distributors will work with their customers. At the same time, there has to be enough there for the distributors to actually bring in the customers. We are really in this beta phase, and we did it on purpose. We have paused beta one, beta two; the phasing is because the more information that we have and the more people providing feedback, the more we can adjust it to make sure it goes across different DMOs with different leaders and the way that they operate. I would say that we continue this phase. For us, this was not a company that is going direct to consumer that has the relationship directly. Our entire business is based on distributors and their engagement with customers. So we are in the phase still, and we have enlarged the beta phase as we have gotten more countries in, to make sure that we bring the functions that are necessary to allow the impact and bring the value that we need to. So the beta phase continues. John G. DeSimone: Let me just chime in for a second. Like Stephan said, it is beta. We are seeing performance, getting feedback, enhancing it, and we have an enhanced version coming up with Extravaganza. What we want investors to know: this is an important part of our strategy, but we have not rolled into our forecast any direct revenue from this. So even though we are going to launch Vionic and we are going to launch Protocol, it is still going to be in the beta form. Any results end up being more opportunity to this year than risk to this year because we have not rolled that into the numbers yet. Stephan Paulo Gratziani: Let me just add: Protocol overall is not just a digital application to engage with customers. It really is designed as an end-to-end solution. We believe that the future is in the “what to measure,” meaning that people are going to want to measure more things like bringing their wearables in to inform blood biomarkers, which are going to get launched at Extravaganza, and those are going to come in. Then, personally formulated—or the next generation of personalized nutrition—through Vionic, for example. What ends up happening is it is the overall value proposition which gives it value. That is why we talked about all of the pieces individually being valuable, but it is all the pieces together that make it incredibly valuable. I think the most important thing—the core fundamental of our business—is distributors need to be able to go out into the market and have conversations, and the people that they are talking to, with what they are going to be offering them, say, “Wow. You can do all of this? I am interested.” If you were to ask 10 people on the street, would you rather have supplements that are more personalized for you, or would you rather buy supplements that are formulated for many, I believe that most people would respond, “I would be interested in the more personalized ones.” That is the opening of the conversation, but you also have to be able to deliver the products for it. We are really excited to get to Extravaganza and to be launching these 11 markets in EMEA in June and North America in July, to be able to bring this to market. The pieces are coming together, testing is coming. We are still in beta because there are still functionalities and features that we need to build in. But we are also launching this next generation of personalized supplements, so the pieces are there. This journey for us is really about making sure that our distributors have what they need in hand to go have conversations, bring more people into the company, keep them longer, increase LTV, increase the amount of people that are getting referred, and ultimately increase the amount of people who want to join the business and duplicate a business. Chasen Louis Bender: My second question is on India. Obviously very strong growth following the GST change. I am curious—given what you have seen—how has your thinking evolved on potential price reduction programs in other markets? And just as a housekeeping related to that, what are you assuming in guidance for India constant currency in the rest of the year? I know you mentioned you are expecting continued momentum, but should we expect that, or does your guidance contemplate the similar 30-plus percent growth in the rest of the year? Thanks so much. John G. DeSimone: Yes, Chasen. I will take this. Let me break it into pieces. There is a lesson in India. We had effectively a price decrease due to the GST reduction, and that created a lot of momentum. India had started building momentum just prior to that. A couple things I want investors to know. One is that momentum has been incredibly strong. We are going to annualize the GST in September, but we do not think that means we are not going to grow after. We think the momentum carries forward. Granted, we will be comping quarters that have the GST impact, so the growth rate will moderate, but that momentum we expect to continue. That gives you a little flavor of our thinking of India. India did beat our expectations in Q1. Going forward—if I may break this into buckets—for Q2 through Q4, so the rest of the year, we basically have not changed our sales expectations from where we were in February. They have come up a little, but we had some softness in the quarter in EMEA. We are going to run some tests based on what we learned in India, and hopefully that can work. We also had a price increase in Mexico, plus there was an incremental tax in Mexico, that had a little bit of a volume impact in Mexico on the negative side. That also supports the thesis we are working with the distributors on—that price matters. I think there is a lot of opportunity for us to affect volume in the future by modifying price and modifying the commission structure. So we are running tests. We have been running tests. We are now running more tests based on the results we have seen. Chasen Louis Bender: Got it. That is helpful. I will take the rest of my questions offline. Thanks so much, guys. Stephan Paulo Gratziani: Thanks, Chasen. Operator: Thank you. One moment for our next question. Next question will come from the line of Karru Martinson with Jefferies. Your line is open. Please go ahead. Karru Martinson: Good afternoon. You referenced higher oil costs. I was wondering how that is flowing through to the consumer, especially here in the North American market? John G. DeSimone: We are not flowing it through. We are absorbing it right now. At this point, for the rest of this year, that is what is assumed. We did say it is not material to the year, so we are going to cover it ourselves. We have not raised prices because of it. That does not mean it did not have an indirect impact—or does not have an indirect impact—on the consumer in general, but it does not have a direct impact on our price. Karru Martinson: Okay. So did you see a shift in the ordering pattern when the Iran conflict started and gas prices started going up, or is that too soon to tell? John G. DeSimone: It is too soon to tell, but we did have—as I said—the U.S., we can explain what happened. There were some timing differences, and there were some nutrition club closures during some really bad weather that we can quantify. We made that available to investors. I think the U.S. is on track. EMEA—Europe—had some weakness, and it is too early to tell if that was tied to the economics from the geopolitical situation or not, but there was definitely some weakness in Europe. Karru Martinson: Okay. And just lastly, when we look at China, it has been a work in progress for a while now. How should we think about that, and could you remind us where it stands today as a percentage of your sales? John G. DeSimone: It is really small. It is under 5% of sales—about 4%—so it is relatively small. It does not really contribute to profit in any meaningful way. What I have told investors over the last few quarters is we have a lot of strategies we are going to implement in China. I would wait and see. At this point, we are not rolling in the benefits of those strategies. We are going to wait until we see the benefits. Think of China long term as a huge opportunity for us. We are super underpenetrated. The model does well in China for some of our competitors. The products do well in China. We have not found our footing yet. We are working on it. I am confident over the long term we will. You will not see it rolled into our forecast until we see it coming through in results. Stephan Paulo Gratziani: And, Karru, on distributor leadership, we have spoken about it in the past. Historically, it has been really isolated, and we started at the beginning of this year to allow distributors and leaders from Greater China to come into the market. It is the first time they have ever had that opportunity. We see a continuing trend of more of them being interested, and at this Extravaganza that is coming up this month, there are a few hundred—approximately 500—that are looking at potential building business in China. We are seeing it as really positive from that standpoint, but as you said, it is a work in progress. We will update you over time. Thank you. Karru Martinson: Thank you very much. Appreciate it. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Nicholas Sherwood with Maxim Group. Your line is open. Please go ahead. Nicholas Sherwood: Hi. Thank you for taking my questions. Kind of going back to the Protocol launch, have you seen any use of the platform in nutrition clubs and any feedback of how it works in that space? Stephan Paulo Gratziani: Yeah, Nicholas. Super early. In nutrition clubs, especially here in the U.S., it is really a consumption-based business, and so it is one of the flows and integrations that we are working on because it is obviously a very large and important part of our business. There are millions of people walking in annually into a nutrition club to buy a shake or a tea, and we want to have an easy entrance into Protocol and getting exposure to being able to track and have physical results and move from a transactional to more of a transformational business. So it is one of the areas of focus for us, and it is a major DMO integration—early days. Nicholas Sherwood: That is helpful. And then looking at the packaging redesign, what sort of early metrics did you see coming out of testing the new design, and what have you seen from the early stages of the rollout of that new packaging? Stephan Paulo Gratziani: The first product was just rolled out in India, and it is very, very early. Overall, as we went through the process, distributor feedback and research were very positive. To see in the real world how it impacts is going to take time, but the initial feedback and research are very positive—again, very early. Nicholas Sherwood: Okay. And then my last question is, can you provide any color on the transition of preferred members to the new e-commerce platform, and how do you expect preferred members to interact with Protocol or get added to that platform in the future? Stephan Paulo Gratziani: I think you are referring to DS Commerce. That started to happen with a pilot group at the beginning of the year, and then it was just opened up. It is very recent, so very early to talk about it. John G. DeSimone: If I could step back for a second because we had a lot of questions—just to make sure we are aligned on where we are with a lot of these initiatives. We have launched them in beta form. We are getting the feedback. You get a lot of functionality, including the commerce app where people can buy on the app—or at least have the appearance of buying on the app if it takes us somewhere else. There is some functionality that we are launching where you will start seeing the benefits. Stephan Paulo Gratziani: Correct, John. One thing I think it is early to highlight, but we think it is quite a big deal, is that as a company, we have not really had a subscription business. Product purchases have been—some of them are continual—but we really implemented subscription recently. One of the early indications on the preferred customer on the new commerce platform is that the uptake on subscriptions is very positive. It is still early, but that is a very positive outcome from what we are seeing—early but exciting. It is also one of the things in terms of the launch of Vionic in Europe: we are going to be having a subscription product for the first time in the history of the company. So we are very excited about that. Nicholas Sherwood: Alright. Great. Thank you for answering my questions. I will return to the queue. Stephan Paulo Gratziani: Thanks, Nicholas. Operator: Thank you. One moment for our next question. Our next question comes from the line of John Baumgartner with Mizuho Securities. Your line is open. Please go ahead. John Baumgartner: Good morning. Thanks for the question—or, I should say, good afternoon. First off, going back to personalized nutrition, there is a lot of great detail here into the data expansion and products. I am curious—has there been any evolution in your thinking regarding segmentation, the levels of offerings, how you may tier those out, different levels of personalization? Have you heard any feedback from your distributors as to how they think the product-market fit is as you are going forward with this? Stephan Paulo Gratziani: Yeah, John. Thanks for the question. One of the reasons why we made the Vionic acquisition is for that reason. When we acquired Link, there is a manufacturing process to it: the equipment and the software take the inputs, create the formula, and then you manufacture the formula in powdered form. The price point for that is really more in a premium area. It also, quite honestly, has more functionality—because of the formatting, you can have other need states. Vionic gives us the opportunity—not only was it a company that existed with an existing customer base—but it had been in the business of formulating not only premium but also what we would consider a personalized vitamin and mineral complex at a lower price point, so a larger addressable market. That is part of the strategy: we want to hit different price points. We know our business around the world—from India to Switzerland—different demographics. The other aspect, besides making it more accessible to people—because this is a newer concept—is really what are the offshoots? Where can we go now that we have the capability of personalizing, and with all of the data and the customers for whom we have been personalizing, where does it lead us in the future? Specific product categories where personalization could make a lot of sense—for example, a probiotic that is more personalized than one you are buying off the shelf that has been formulated for everybody, or just for “men 50+,” for example. This is giving us more range and more demographics. I think where this leads in the future is that everything will become—and everyone will want—a more personalized version of whatever they are using today. It is absolutely part of the strategy. John Baumgartner: Thanks for that. And then coming back to EMEA, to drill down there a bit more, I am curious the extent to which there may be more structural change or softness in the direct selling market given the consistent declines you are seeing in sales leaders, or is it more of a productivity issue you think, or maybe some price adjustments can kickstart growth in that region? Stephan Paulo Gratziani: From a distributor lens—someone that worked in EMEA specifically, which was one of the areas that I spent a lot of time in—I think what has happened is the overall way people look at their health and wellness and make their decisions on what they are going to buy and where they are going to spend money is evolving over time. If you think historically, we started in 1980. The idea of a protein shake in 1980—and I will speak to myself—in 1991, when it came to France where I started, you had to convince someone that the idea of taking a shake instead of having breakfast was actually a thing. They would be like, “You are telling me I am going to mix this up, and I am going to drink this instead of having my coffee and croissant, and that is breakfast?” Today, we do not live in a world where a protein shake is novel and innovative. It is more of a commodity. It is an accepted form. I think part of what is happening is as the markets evolve and as technology evolves, the offer also needs to evolve. That is why I am very strong on, as a company, the superpower that we have of these 2 million distributors that are having conversations with tens of millions of people on a daily, weekly, and monthly basis—interacting and helping them with their health goals—that the conversation around personalized nutrition in this next generation is absolutely where the market is going, and we want to lead in that market. We can say, “How can you optimize your current product? How can you optimize with your DMOs? How can you bring more people and keep them longer and have them buy more and refer more people and want to do the business?” Fundamentally, if you have something novel and innovative to go to market with, and people are saying, “This is where things are going in the future. I want to be a part of it. I want to buy it. I want to use it. I want to tell people about it, and I want to sell it,” that is what we are building for. We do all the work in every area—train them, do everything we need to do—but we also work on the core offer. That is what we are doing. John Baumgartner: Thanks. And just a bit of a random question—looking at the U.S. market, I am curious to the extent to which you are seeing any benefits or traction from participation in the diabetes prevention program. I know it is not spoken about a lot, but just curious if there is participation and any learnings there thus far? Stephan Paulo Gratziani: We had started that as a pilot, and to be honest with you, I do not have the answer because I have not followed it that closely. My guess would be it has not had a material impact. Good follow-up. Thank you. Operator: Thank you. As a reminder, if you would like to ask a question, please press 11. Our next question comes from the line of Douglas Matthai Lane with Water Tower Research. Your line is open. Please go ahead. Douglas Matthai Lane: Yes, hi. Good afternoon, everybody. On the Vionic nutritional supplements being offered in Europe beginning in late June and then the U.S. in July, are they the same product offerings in both markets, and what actually are the product offerings that you are rolling out? Stephan Paulo Gratziani: They will be essentially the same. Obviously, different markets have different regulatory aspects to it. Essentially, Doug, think of this as your personalized vitamin and mineral complex stack. I do not want to get into too many details, but a man versus a woman, height, weight, age, objectives, personal conditions—then you put in biometrics, potentially blood biomarkers—and it would be clear that you probably would not need the same amount of vitamins and minerals in your individual compound as everyone else. That is the core offer of Vionic. The other thing—everyone is using supplements. If you ask how you actually buy supplements, even a vitamin and mineral supplement, most people are going down the aisleway at the grocery store or in the pharmacy, or their doctor said something, or someone recommended something to them—they buy it and use it. They might have been using it for a year, two years, three years, five years. We believe that personalization means not only should you have your formula as close to your individual needs as possible today, but also next month—when you have lost five pounds, when you have changed some things in your daily habits and in your diet—and over time as you age and your circumstances change. The capability to flex that on a monthly basis for someone and to personalize that is innovative and makes sense in the world that we live in today. No one is doing this at scale around the world, and so this is our opportunity. We also know that you can get people into the conversation and they look at Herbalife Nutrition Ltd. and say, “This is unique what you are doing.” We have an incredible portfolio—we are doing $5 billion in revenue currently—that is not Vionic. It is an opportunity to have people go beyond just this personalized vitamin and mineral complex. For us, this is not just a door opener. It is something that people are going to want, and we are going to be able to deliver it—especially through 2 million distributors that are having conversations with people every single day. More attraction to Herbalife Nutrition Ltd., a value proposition we think is unique, an opportunity in subscription, and an opportunity for the introduction to the entire portfolio so that we become that solution for people for their health and wellness. Douglas Matthai Lane: Now, Vionic has been around for a little while and has been producing product. Can I get Vionic anywhere else at this point? Stephan Paulo Gratziani: You cannot. As of the transaction, this is going to be sold through Herbalife Nutrition Ltd. distributors. Douglas Matthai Lane: So will it be rebranded under some sort of Herbalife sub-brand? What will that look like? Stephan Paulo Gratziani: We will do the reveal at Extravaganza, so I do not want to give it away, but the brand is definitely staying. Douglas Matthai Lane: Okay, fair enough. When can we see Link Biosciences product out in the marketplace? Stephan Paulo Gratziani: Link Biosciences will be Q1 of next year. Douglas Matthai Lane: Got it. And are you going to operate these four acquisitions as independently as is, or what is the plan structurally on how you are going to run these four acquisitions on personalization? John G. DeSimone: I will jump in. First, they all work together. I think you heard Stephan talk about Vionic and Link and the different versions of personalized nutrition, and they can work together. Protocol supports that—actually, it supports Protocol. The fourth acquisition, which is Prüvit, is a product line. Because there is a separate product associated with that, that may be a little distinct. But overall, those four are all connected. Douglas Matthai Lane: Okay, fair enough. And lastly, John, now that you have completed the debt refinancing, is there any change to your capital allocation priorities? John G. DeSimone: There is not. My number one priority is still to get our gross debt down to $1.4 billion by 2028, which would get our net debt below $1 billion. Douglas Matthai Lane: Okay, fair enough. Thanks. John G. DeSimone: Thanks, Doug. Operator: Thank you. I would now like to hand the call back over to Stephan Paulo Gratziani for closing remarks. Stephan Paulo Gratziani: Thank you, and thanks, everyone, for joining us today. We had a great quarter. We completed our debt refinancing. As Doug just mentioned, we have made four acquisitions. We are executing on our vision. Forty-five years of incredible history are behind us, but the future is even more exciting. As a company, we are evolving. We are advancing how we deliver what we do best—greater precision, greater scale, greater impact—and we are focused on the vision. We are well positioned to deliver what we believe is the next generation of personalized nutrition. Thank you for joining today, and we look forward to sharing continued progress next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Arcus Biosciences' First Quarter 2026 Business Update and Financial Results. [Operator Instructions] I will now hand the conference over to Holli Kolkey, VP of Corporate Affairs. Holli, please go ahead. Holli Kolkey: Good afternoon, and thank you for joining us on today's conference call to discuss Arcus's first quarter 2026 financial results and pipeline update. I'd like to remind you that on this call, management will make forward-looking statements, including statements about our development strategies and our expectations regarding the advantages and opportunities afforded by our investigational products, our clinical development milestones and time lines, our projected cash runway and our financial outlook. All statements other than historical facts reflect the current beliefs and expectations of management and involve risks and uncertainties that may cause our actual results to differ from those expressed. Those risks and uncertainties are described in our most recent quarterly report on Form 10-Q that has been filed with the SEC. For today's call, please refer to our latest corporate presentation posted in the Investors section of our website. This afternoon, you will hear from our CEO, Terry Rosen; Chief Medical Officer, Richard Markus; President, Juan Jaen; and CFO, Bob Goeltz. With that, I'd like to turn the call over to Terry. Terry Rosen: Thanks very much, Holli. And thanks, everyone, for joining us this afternoon. We're starting a new era for Arcus with full ownership of our lead program, casdatifan, our Phase III kidney cancer study, PEAK-1, enrolling rapidly, a clear path to win in the frontline and the next generation of molecules for inflammation and immunology that can be advanced rapidly into and through development, and with that, the strategic optionality imparted by a rich portfolio of wholly owned molecules and programs. We are at an inflection in value creation for patients and shareholders that will continue to accelerate over the next 12 to 18 months. Arcus has proven to be a highly productive company, creating and advancing a steady stream of potential best-in-class molecules for patients with cancer and inflammatory and autoimmune diseases. We believe that discovery is not a commodity, and we have built exceptional small molecule medicinal chemistry and drug discovery capabilities. Our scientists utilize proven biology to create unmatched medicines designed to raise the standard of care. Since its inception, Arcus has advanced molecules from program initiation to IND filing in a short of 18 months and accelerated platform and signal-seeking studies to move from proof-of-concept Phase I studies to randomized Phase II and registrational Phase III trials in just a few years. Today, the company is laser-focused on casdatifan, which represents a market opportunity of more than $5 billion in kidney cancer alone. I want to stress that casdatifan's efficacy advantages are underpinned by much better molecular properties and a superior pharmacodynamic profile. This profile reflects the key capabilities in Arcus that I described earlier. The simple fact is that casdatifan hits its target much harder and in a more sustained way than belzutifan. As illustrated on Slide 6, this is a point we've emphasized since the data first emerged. These data are clear and they're striking. We believe this fundamental differentiation between casdatifan and belzutifan and the limitations of belzutifan's pharmacodynamic profile and durability of effect are undoubtedly contributors to, if not the principal driver of, the outcome of LITESPARK-012. And the pharmacodynamic advantages of casdatifan will continue to result in improved clinical outcomes across the lines of therapy. I want to emphasize this point. This dramatic difference in profile has been evidenced since late last year. It is not esoteric. Its manifestations on clinical outcomes are dramatic and are at the core of our differentiation. No results to date are surprising. Our top priorities for 2026 are clear. One, complete enrollment for PEAK-1, our second-line Phase III study; and two, initiate a Phase III study in the frontline patient population. With the recent outcome of LITESPARK-012, casdatifan has a clear path to consolidate a fragmented frontline setting as the first HIF-2 alpha inhibitor in this setting. Let me spend a moment on why casdatifan is at the center of everything we do. We believe casdatifan can transform the treatment paradigm in clear cell renal cell carcinoma, and our development strategy is designed to generate evidence to secure cas as a backbone therapy so that every patient has the opportunity to benefit from cas across each line of therapy. PEAK-1 represents our fast-to-market strategy. This is designed to build on the clinician enthusiasm that we've seen for cas as an experimental agent and to generate the data to support the approval of a foundational treatment for clear cell RCC as rapidly as possible. Enrollment in PEAK-1 is accelerating, and we're on track to complete enrollment by year-end 2026. We're confident that PEAK-1 will establish cas plus cabo as the new standard of care in the IO experience setting. The peak sales opportunity for cas in this setting alone is more than $2 billion. At the same time, we are aggressively building a holistic strategy to embed cas across the treatment paradigm. We have been making tremendous progress in the frontline setting with multiple IO combinations now enrolling in ARC-20 and generating data in support of our first-line strategy. These approaches offer the greatest potential for long-term survival for patients. One of our key objectives today is to make very clear our integrated development strategy for casdatifan. It's actually quite straightforward, and here's how we believe things will play out. In the first line, our bedrock therapy will be cas, ipi, anti-PD-1. We believe that we can drive the 35% share of ipi/nivo to a regimen with greater than 50% of the important first-line market. While the IO regimen of ipi/nivo is the dominant therapy today, there's a segment of physicians that's always going to want to reach for TKI, particularly for patients with a fast-growing bulky tumor. Therefore, we will also be developing a cas combination inclusive of the TKI, a TKI with a well-established track record of both efficacy and safety that will allow the patient to have cas/cabo as a subsequent regimen. Our second-line treatment now enrolling its registrational trial PEAK-1 will be cas/cabo, building on the standard of care in this line, cabozantinib monotherapy. Finally, we will have a third-line plus regimen cas with another well-established TKI, and we will be investigating this regimen in both belzutifan naive and belzutifan experienced patients. We think this is a very important, kind of cool study. We also plan to explore novel cas combinations in HCC, liver cancer. I would like to emphasize that all of the clinical development plans discussed today are accounted for within our existing budget and have no impact on the guidance and runway that we have provided. We now control in all respects our early-stage pipeline, including our CCR6, CD89 and CD40 ligand programs, all of which are expected to support IND candidates in the next 6 to 18 months. So as we focus our resources, capital, human and otherwise on the late-stage development of casdatifan. The follow-on programs in our pipeline are early, but also with clear, early and capital-efficient clinical proof-of-concept opportunity and huge commercial potential. Therefore, we anticipate low spend and short time lines to get the proof-of-concept that will drive disproportionate value creation. Juan will discuss these programs in more detail later on in this call. If you want to walk away with just one thing from today, it's that Arcus has complete control of its destiny. The core asset of the company is casdatifan, and we have the strategy, data and resources to transform the treatment of clear cell RCC and create a $5 billion-plus drug. Bob will further elaborate on the enormous commercial opportunity here. We also continue to leverage our demonstrated competitive advantage in small molecule drug discovery, an increasingly scarce capability to generate wholly owned and unique development candidates, the advancement of which further enhances our strategic optionality. With that, I'd like to turn the call over to Richard to discuss our clinical programs. Richard Markus: Thanks, Terry. I'd like to start with casdatifan. As Terry described, our development plan is designed to establish casdatifan as a foundational standard of care in clear cell RCC so that all patients have the opportunity to benefit from treatment with a casdatifan-based regimen across multiple lines of therapy. At ASCO GU this year, we presented updated ORR and PFS from our 4 late-line monotherapy cohorts of ARC-20. As you can see here, the efficacy data continued to improve with longer follow-up at each data presentation. Moving to Slide 12, where we show the ORRs for the 100-milligram QD cohort, which is the dose and formulation being used in our Phase III studies, the confirmed ORR increased from 35% at the August data cut to 45%. A 45% ORR in this late-line patient population is rather remarkable. It's twice that observed with belzutifan in LITESPARK-005 or any study in this patient population. Similarly, the confirmed ORR for the pooled analysis improved from 31% to 35%, well above the range of ORRs that have been observed with belzutifan. On Slide 13, we show the Kaplan-Meier curve for the 100-milligram cohort. As you can see here that the 100-milligram cohort shows an impressive median PFS of 15.1 months after 17.9 months of median follow-up. On the next slide, we show the latest Kaplan-Meier curve for the pooled analysis. The median PFS remained at 12.2 months. So overall, we're seeing PFS that is 2 to 3 times longer with Cas monotherapy than the 5.6 months observed with belzutifan in the same setting. And as is often discussed, while the median is an important benchmark, it's not the only metric that's important. As you can see here and perhaps more impressive is the number of patients still on treatment beyond 18 months and even beyond 24 months. These data clearly support the proposition that casdatifan is the best-in-class HIF-2 alpha inhibitor. And our highest priority now is to maximize the potential of this molecule in ccRCC. Our first registrational trial, which is in the second-line setting, is well underway. Enrollment in the ongoing Phase III study, PEAK-1, is accelerating, and we are on track to complete enrollment by year-end. We are confident that PEAK-1 will establish cas plus cabo as a new standard of care in the IO experience setting. With a sole primary endpoint of PFS and a 2:1 randomization favoring the experimental arm and cabo as the control arm, we believe PEAK-1 is optimized for both probability of success and speed to data. I'd like to spend some time now on the frontline setting. With the outcome of Merck's LITESPARK-012 last month, Cas has the opportunity to be the first HIF-2 alpha inhibitor option in the frontline setting. Treatment in the frontline is generally bifurcated into IO-IO or a TKI, [ anti-PD-x ] combination. This currently leads to the conceptual trade-off between longer time to response or higher primary progression, but with the potential for durable responses and long-term survival with the IO-IO option or a faster time to response and lower primary progression but with much more treatment-associated toxicity for the TKI, [ anti-PD-x ] options. There's currently no treatment option that has the ability to both rapidly control disease and provide the best chance for long-term survival, while also having a favorable tolerability profile for long-term use. We believe a Cas plus IO-IO combination in the frontline setting has the potential to deliver on both of these fronts. We are enrolling several cohorts within the ARC-20 study, evaluating Cas combinations in the frontline setting. While the data are maturing, primary progressive disease rates have already been shown to be low, just 7% or 2 out of 30 patients for the Cas plus zimberelimab, our anti-PD-1 cohort. This rate compares favorably to published rates for anti-PD-1 monotherapy or ipi/nivo in the first-line setting. And in fact, it is close to the rate of a TKI-containing regimen but without the need for the TKI. We're also enrolling a cohort evaluating Cas plus zim plus ipi. Emerging data from these cohorts of ARC-20 will inform the first-line registrational strategy with the goal of finalizing the Phase III study protocol and beginning start-up activities by the end of this year. In parallel, we will shortly begin to evaluate additional Cas plus TKI-containing regimens in the early and late-line settings, including in patients with prior belzutifan experience. This effort contemplates the preference and in fact, the strategic necessity to utilize alternative TKIs as patients advance from one line of therapy to the next. Near term, we expect to have multiple data readouts for casdatifan in 2026. First, mature ORR data and initial PFS data for approximately 45 patients treated in the ARC-20 Cas plus cabo cohort in the IO experience setting will be presented at an investor event or at a medical conference, and all patients will have had at least 12 months of follow-up. Second, we will share initial data from the ARC-20 cohorts evaluating Cas in early line settings, including the cohort evaluating Cas plus zim in the first line. We also expect updated data from late-line monotherapy cohorts, including overall survival. Before I hand it over to Juan, I'd like to quickly touch on quemliclustat, our small molecule CD73 inhibitor. CD73 is highly expressed in pancreatic cancer and high CD73 expression is associated with significantly poor prognosis in several tumor types. In spite of this, as we recently published in Nature Medicine, in our Phase II study, ARC-8, those patients with higher baseline levels of CD73 or adenosine activity were the ones with longer PFS and OS in response to quemli treatment. Pancreatic cancer is one of the most aggressive cancers with an average 5-year survival rate of just 13%. In PRISM-1, our Phase III study evaluating quemli plus gemcitabine and nab-paclitaxel, versus gemcitabine and nab-paclitaxel in the frontline pancreatic study, completed enrollment in September of 2025. Results from this study are expected in the first half of 2027. And if positive, PRISM-1 could represent the first transformative therapy for an all-comer first-line patient population in 30 years. There's no biomarker requirement and no nonresistant mechanism and data to date have indicated that the regimen was well tolerated. Finally, we recently announced that the Phase III STAR-121 study, evaluating our anti-TIGIT domvanalimab plus zim and chemotherapy, versus pembrolizumab plus chemotherapy as a first-line treatment for metastatic non-small cell lung cancer will be discontinued due to futility. While these are certainly not the results we expected, the study had one important positive outcome. In addition to the assessment of Dom in this trial, STAR-121 also evaluated zim plus chemo as an exploratory endpoint. Zim plus chemo performed consistently with respect to overall survival as compared to pembro plus chemo. These data are consistent with what was observed in numerous studies with zim. And this randomized data set provides valuable support for the utility of zim as an anti-PD-1 combination partner for Arcus and its collaborators. I'd now like to turn the call over to Juan to discuss our immunology and inflammation programs. Juan Jaen: Thanks, Richard. Arcus has an exceptional small molecule discovery team that has demonstrated time and time again the ability to create highly effective drug candidates against difficult targets. We have been utilizing this expertise to create and develop drugs that have the potential to address very large markets in inflammation, allergy and autoimmune diseases. In-house expertise in immunology has been a core aspect of our discovery group since Arcus's founding, having been key to many of our oncology programs. Our team is addressing well-understood and validated mechanisms, and has implemented a two-pronged strategy in immunology. First, we leverage our medicinal chemistry capabilities to design and create small molecule drugs that regulate key cytokines therapeutically validated by existing biologics. Secondly, we target immune cell types that play key roles in human disease and have been historically under studied such as mast cells and neutrophils. Our first molecule in the immunology area to enter the clinic will be AB102, a highly selective, orally bioavailable MRGPRX2 antagonist. In the coming weeks, we will be sharing its preclinical profile in an oral presentation at the Society for Investigative Dermatology. The presentation will highlight the ability of AB102 to fully block MRGPRX2-dependent activation and degranulation of mast cells. AB102 inhibits all common human MRGPRX2 variants. We have optimized the potency of AB102 under physiological conditions, such as in human blood and serum. Due to its potency under these conditions, we believe that AB102 is a potential best-in-class once-daily oral treatment for chronic spontaneous urticaria and other atopic conditions such as atopic dermatitis and allergic asthma. It is expected to enter the clinic in the third quarter of 2026 with PK data available shortly thereafter and potential for proof-of-concept data in early 2027. In rapid succession, we have selected an oral, small-molecule TNF inhibitor drug candidate, which is a potential treatment for rheumatoid arthritis, psoriasis and inflammatory bowel disease and an orally active small-molecule CCR6 antagonist candidate as a potential treatment for psoriasis. Both of these molecules are expected to enter the clinic in 2027. We are very excited about the potential for our I&I programs to provide improved options for patients, and we are working to advance these into the clinic as rapidly as possible. I'd now like to turn the call over to Bob to discuss the market opportunity for casdatifan and our financial results. Robert Goeltz: Thanks, Juan. Before I get into the quarterly financials, I'd like to spend some time on the multibillion-dollar market opportunity in RCC for casdatifan. Sales for RCC drugs in just the major markets are anticipated to grow to $13 billion by 2030. Historically, the market has been dominated by 2 classes of therapy, IO and TKIs. There have been a number of offerings in both classes, which is why the market is fragmented. In contrast, there are only 2 HIF-2 alpha inhibitors on the horizon, and we believe our data have demonstrated clear advantages over our only competitor. We have a clear path to consolidate the market and entrench casdatifan as the primary backbone therapy. The development plan that Terry and Richard described is designed to accomplish this objective. If we look at the sales for the sole marketed HIF-2 alpha inhibitor, belzutifan, which is currently approved only in late-line clear cell RCC, is already generating annual run rate sales of nearly $1 billion, only scratching the surface. With casdatifan, we are also targeting earlier line settings, the IO experienced population with PEAK-1 and the IO naive first-line population with our next pivotal study. These earlier line settings have larger patient populations and longer durations of therapy, both of which contribute to a much larger market opportunity. Specifically, our PEAK-1 study targets approximately 20,000 patients in the major markets in the IO experience setting. We believe our commercial opportunity here exceeds $2 billion. In the first line, the opportunity is even greater. With the lack of HIF-2 alpha inhibitor competition in the front line, our goal is to grow the IO-IO share from roughly 1/3 of the market to more than 1/2 by adding Cas. In fact, our market research indicates that oncologists overwhelmingly prefer the promise of a Cas plus IO-IO over a TKI-containing regimen. As Richard mentioned, we also plan to investigate a regimen with IO and TKI in the frontline to address the remainder of the market. We believe the opportunity for casdatifan in the frontline exceeds $4 billion. One point I'd really like to emphasize as we think about the commercial opportunity is duration of treatment. We've seen impressive data in late-line monotherapy with many patients on therapy beyond 18 months. We plan to share updated data later this year. As we think about earlier lines of therapy, we believe there is the potential for meaningful upside resulting from the durability of effect. Conceptually, we think strong HIF-2 alpha inhibition holds the promise of a long-term tail effect. All in, we think Cas has a peak sales opportunity of $5 billion to $10 billion. As a reminder, we own all of the commercial rights to Cas other than in Japan and certain other Southeast Asian countries held by our partner, Taiho. Now let's turn to the financials. Arcus is well positioned to advance its full pipeline with $876 million in cash at the end of the quarter. We have cash runway until at least the second half of 2028. We expect to end 2026 with approximately $600 million in cash, indicative of the declining spend we expect over the year. As Terry outlined, Arcus is entering a new era with more control over our pipeline investments. While we are building a plan to take full advantage of the casdatifan opportunity, we are also sequencing these investments such that any significant growth in overall spend will be largely incurred after the PEAK-1 readout. As a result of the wind down of Dom and reduced spend on quemli, together with broader spend management, we expect to significantly reduce our overall R&D spend in 2026 and 2027 compared to 2025. For example, as our late-stage efforts have become focused on casdatifan, we have decreased our headcount by approximately 10%. Let me transition to the financials for the quarter. For our P&L, we recognized GAAP revenue for the first quarter of $17 million. Our revenue continues to be primarily driven by our collaboration agreements. We continue to expect to recognize GAAP revenue of $50 million to $65 million for the full year 2026. Our R&D expenses for the first quarter are stated net of reimbursements and were $122 million and included non-recurring workforce costs. Our actions to reduce headcount have lowered our ongoing cost structure, which we expect will result in reduced R&D expense in future periods. The discontinuation of STAR-121 and the broader reduction in our Dom-related investment will contribute to a meaningful decrease in R&D expenses as the year goes on. By 2027, we expect more than 80% of our portfolio spend will be directed towards cash development. G&A expenses were $29 million for the first quarter. Total noncash stock-based compensation was $19 million for the first quarter. For more details regarding our financial results, please refer to our earnings press release from earlier today and our 10-Q. I will now turn it back to Terry. Terry Rosen: Thanks, Bob. That was awesome. Let me close by summarizing the key themes for the remainder of 2026. Casdatifan is our #1 priority, and this year will be another transformative year for data and importantly, development as we advance towards commercialization. We expect multiple data sets, Cas plus Cabo data, initial first-line data and overall survival data from late-line monotherapy cohorts, all of which will further reinforce casdatifan's best-in-class profile and support our registrational strategy. PEAK-1 enrollment continues to accelerate, and we're targeting full enrollment by year-end. All of the clinical development plans for casdatifan that were discussed today are accounted for within our existing budgets and have no impact on our guidance or runway. Beyond casdatifan, our PRISM-1 Phase III trial for quemli pancreatic cancer is fully enrolled and on track for a readout in the first half of 2027. Juan shared the exciting progress on our I&I portfolio with AB102 expected to enter the clinic in the third quarter and our TNF inhibitor CCR6 antagonist following shortly thereafter. With $876 million in cash and investments and runway into the second half of 2028, we're well positioned to execute on all of these priorities and create significant value for patients and shareholders. We're moving into a new era for Arcus with full ownership of our lead program casdatifan and a clear strategy to win and transform the frontline setting while rapidly advancing the next generation of wholly owned molecules for inflammation and immunology. We have no doubt that we will be generating disproportionate value for patients and shareholders over the coming 12 to 18 months. Thank you all for joining us. We appreciate your interest and continued support of Arcus, and we will now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Daina Graybosch with Leerink Partners. Daina Graybosch: Tell us about the Cas-TKI frontline combo. Specifically, we all know Merck failed with that triplet mechanistically with bel, lenva, pembro, and that's the LITESPARK-012. We have the press release. We don't know the detailed data. What could you see in that detailed data that would give you more confidence in Cas-TKI IO? And what could you see in the Merck data that would give you less confidence in the TKI combo strategy? Terry Rosen: I think we'll see what their data say, but I think the data that are out there tell us a lot already. So if you consider what we discussed at the beginning, that pharmacodynamic difference between casdatifan and belzutifan, not only the depth of response, but particularly the durability. And you think of that as a surrogate for its antitumor activity and a direct measure of its ability to inhibit HIF-2. I think what you can reconcile very easily is even in the absence of the data from the study itself, if you think about LITESPARK-011 versus LITESPARK-012, the duration of the treatment that you're talking about when you think about PFS roughly for the 2 different studies, is almost 2x. So if you recognize that belzutifan is whatever that surrogate for HIF-2 inhibition, directly relates to inhibition of the tumor, it's clearly losing that effect with time dramatically. So you see at least on erythropoietin production, on the average, you've lost that effect within 9 to 13 weeks. So when you think about it in the second-line population, the percentage of times what's bringing benefit is x. And then in the front line, it's much less. Then on top of that, if you think about the regimen, it's pretty toxic regimen. So even pembro-lenva had about a 37% rate of discontinuation. We know that the triplet was pretty unfavorable from a patient perspective. So if you think about basically, you're having diminishing effect of the HIF-2 inhibitor on top of a much longer duration of an arm that has more AEs than the control arm. So you're basically getting -- paying a price, but getting less benefit. So it's not surprising that you would end up with a hazard ratio that might not be too favorable. For us, we're going to select a TKI that we think has a very favorable -- relative to the TKIs out there, profile. But the most important feature will be that we have a HIF-2 inhibitor that has its robust effect and the durability of that effect is essentially the same on day 1 as it is on day 730. Operator: Your next question comes from the line of Jonathan Miller with Evercore. Jonathan Miller: Congrats on all the progress. I guess looking at a very broad Cas development plan here with a lot of combinations in -- across first-, second-, third-line settings. One thing that's notably absent is any approach in the adjuvant setting, which obviously we know Merck is going after. So I'd love to hear your updated thoughts on adjuvant and why that's missing from the current development plan? And then related to that, I guess, or the flip side of that is relatively recently, recently as well as relatively, you were talking about a more conservative approach to late-stage development for Cas, at least with respect to the number of Phase III trials you would want to start, you were considering going after partnerships to ameliorate the cost of late-stage development. Obviously, there's been a bit of a shift there. But Terry and Bob, I heard you say we don't expect to see any impact on runway or the ability to prosecute all these different programs. So I'd love to get a little bit more granularity on the sequencing that you're talking about and when you would start these TKI containing and potential novel combo development efforts to enable you to pursue all of these different approaches without running up against the bandwidth limitations? Terry Rosen: Thanks, Jon. And I'll let Bob handle that, and then I may have a few comments to add. Robert Goeltz: Yes, in terms of adjuvant setting, I think for us, it comes down to 2 simple things. One is the size of the opportunity and probably more importantly, is the need. So when you think about that particular setting, we think that it's around 12,000 patients or so that get therapy in the adjuvant setting, it's only the high-risk patients with resection and their treatment is capped in 1 year. And so when you actually do the math on that, we actually think that the opportunity, certainly from a revenue perspective, is probably certainly smaller than the second line and probably even smaller than what could be a third-line regimen with an alternate TKI as we described. I think the other important part is we've had a chance to talk to physicians after seeing the LITESPARK-012 data. The bar to add another therapy on top of pembro is considered quite high. In fact, most physicians told us that they actually wouldn't add belzutifan to the regimen even in light of the LITESPARK-012 data. So we actually think it will be a minority of patients that ultimately will receive belzutifan in that setting. So it's prioritization. And frankly, the other settings in first, second and third line are higher on the list for us. And so that's sort of why we've made the decision that we have from an adjuvant perspective. In terms of the sequencing of the spend, as we highlighted, we have PEAK-1 up and enrolling right now. Our goal is to have the study enrolled by the end of the year. The work towards launching these additional Phase III studies would have us in a position to sort of move those studies forward as early as late this year into next year with obviously probably our highest priority being that frontline combination with ipi and anti-PD-1. But the other studies will be shortly on the heels. But if you think about just sort of the general investment profile for the studies, we'll be through the bolus of study start-up for PEAK-1 and the cost profile for PEAK-1 will be starting to decrease as we get into the second half of next year. So we kind of feel like that it's going to be a nice portfolio effect that when we think about these other studies, kicking in really from a spend perspective in late '27 and into '28, we sort of see a generally steady spend profile through the PEAK-1 readout like we described. Terry Rosen: Jon, and I'll -- Bob kind of gave you the line of the spend along with the studies, and I'll give you a little bit more granularity on how we literally see the trials themselves playing out. So the first study, obviously, PEAK-1 that's enrolling, as Bob said, it will be fully enrolled by the end of this year, and then we'll be waiting for readout. We're going full speed ahead and expect that ipi, anti-PD-1 Cas, as we've been talking about for some time, to be getting up and going by the end of this year. We'll see where the TKI inclusive regimen comes in. There's -- Without getting into all the detail now, we'll be sorting through whether there's -- that's actually 2 studies -- 2 registrational studies or a 3-arm study is also a possibility. And then finally, in the later line study that we talk about, we'll start off in ARC-20. And as you know, those are relatively small cohorts that enroll very efficiently. But the other point that I think will be very important within those studies, and we'll get the answers quickly is that we'll be looking at that combination in the third-line plus in belzutifan-naive patients as well. And I think that will establish. It's a cool study, and I think, it's going to establish something [indiscernible] Juan Jaen: [indiscernible] Terry Rosen: Yes, I'm sorry, bel's experience in addition to bel's naive. Thank you, Juan. And I think that will nail something that we think we know the answer to, but we'll have those data even this year. Operator: Our next question comes from the line of Li Watsek with Cantor. Li Wang Watsek: Hey guys congrats on the progress. I guess just one question on the ARC-20 update, especially from the triplet cohort. It sounds like you guys are enrolling the combination with zim plus ipi. Can you clarify if we're going to see the initial data from this cohort this year? And what data points would you want to see to enable a Phase III frontline trial? Terry Rosen: Thanks, Li. So we do think what you'll get to see, and it will be probably in the fall, are the initial data from ipi anti-PD-1 Cas regimen. And essentially, we'll get a sense of the safety data and the rate of primary progression. While there may be some early ORR data, we don't consider that critical. We're most focused on the safety. We'll have an agreement with the FDA as to what safety data package they would want to see to enable us to get that Phase III up and going by the end of this year. And then obviously, because that's the first point, but it's also an important point for that regimen is we'll see the rate of primary progression. I think one thing to recognize about that regimen when we think about triplets, doublets, et cetera, is also just I'd like to make the point is, as you know, we've already talked about the rate of primary progression with casdatifan plus anti-PD-1 alone and those initial data are quite favorable where we only saw a 7% rate of primary progression. Now if you think about what that Cas, anti-PD-1 ipi regimen is going to look like, you basically get 4 cycles of ipi at the outset, of course, with Cas and anti-PD-1. But then the duration and the bulk of your therapy is going to be anti-PD-1 plus Cas. So both the efficacy that you're seeing with that as well as the safety of that will certainly impact the bulk of the therapy. So we're excited about that regimen. We think we're well on track to be able to start the Phase III by the end of this year and have a good safety data package. And we do plan to share that with the external world as well this year. Operator: Our next question comes from the line of Richard Law with Goldman Sachs. Jin Law: Yes, very helpful to see Cas's development laid out in its life for all the different lines of therapy. A couple of questions from me. So looking at the LITESPARK-012 failures in both triplets and dual Cas discontinuation by [ AZ ] and then all the frontline therapies of doublets or monotherapy so far, what is your confidence that a Cas triplet of any kind either with IO-IO or IO-TKI could be safe enough to succeed in 1L? And I mean, what do you think is the safety bar for 1L? Do you think that those triplets have to show like comparable safety profile to like that IO-IO, IL-TKI doublet for them to work? Terry Rosen: So I think we feel very confident based upon what we already know about our molecules with triplets, whether it's a triplet inclusive of a TKI or a triplet with the ipi anti-PD-1. So keep in mind, while we haven't analyzed in detail, and we will later this year, the zim, so that anti-PD-1 Cas, we know that doublet, and we certainly haven't seen anything untoward with that. We know we can combine with cabo well. So what we believe is that the ipi/nivo regimen has been extraordinarily well worked out in terms of dosing of that particular regimen. And as I was mentioning in my response to Li, you're basically going to treat with 4 cycles of ipi, that's quite worked out. So we believe that we have orthogonal AEs. We haven't seen anything in terms of a clear combination issues. When you think about casdatifan, you're basically bringing those on-target anemia and of course, rarely or certainly more rarely hypoxia. Again, we're going to pick a good TKI. We know that Cas anti-PD-1 is looking good. So we think a reasonable TKI will not bring anything untoward there. Keep in mind, we haven't actually seen the Merck data. And I think the thing that you should take away until otherwise is their hazard ratio must have been not good. So that doesn't get to an intrinsic inability to have a triplet. It just says when you're bringing that TKI, when you're bringing belzutifan on top of a pretty rough doublet, and you're treating for a long period of time and you are undoubtedly introducing some new AEs, but you're not having a robust long-term efficacy effect, you're probably not creating a hazard ratio, but we really don't know exactly how that played out. But all the data with our own molecule suggests that casdatifan is a very well-tolerated and robust HIF-2 inhibitor and with an orthogonal AE profile from anything that we plan to combine with. And we'll have all those data within the next 6 months or so. Jin Law: Got it. And then a follow-up on that. Have you seen the efficacy and the safety results from that dual Cas before Astra discontinued it? And will that data be shared to you guys even if Astra does not plan to share that? Terry Rosen: So we haven't seen anything other than what we said at the outset. Since they did disclose, you can now know that there were 9 patients. We -- What we described was that initial safety signal that was very CTLA-4 and more specifically volru-like when they dosed down volru. But casdatifan at the same 100 milligram dose we didn't see any more of it. And those patients still continue on. And in fact, the interesting thing out of that is, as we've commented before, we didn't see any progression. So that, if anything, we don't even know, quite honestly, that given that it was 9 patients, it's not obvious whether that was even purely volru or not. But what is obvious to us, at least as we were thinking about going forward, is that given that ipi/nivo well worked out regimen, well worked out dose, it's time tested. And of course, probably most importantly that you're only going to be carrying your anti-CTLA-4 dosing for 4 cycles made it a clear regimen for us to want to proceed with all the 4 things considered, not wanting to have both of those activities for the duration of the therapy. Operator: Our next question comes from the line of Salim Syed with Mizuho. Michael Linden: This is Mike Linden on for Salim. Just one from us on casdatifan in frontline again. Maybe just how you guys are thinking about patient selection for an ipi/nivo plus Cas combination for a Phase III? Like would these be all-comers versus poor intermediate favorable risk patients, things like that? And I guess, how is the thinking around patient selection changed post LITESPARK-012 failure? Terry Rosen: Yes. So our patient selection strategy hasn't changed. And in fact, we're thinking of all comers. And we would also be thinking of all comers in so far as a TKI inclusive regimen. So what we're really trying to address there is there's clearly -- we've had at Board meetings, there's clearly a strong preference for a TKI sparing regimen. So that's unequivocal, and that's the way we described it as the bedrock of the front line. With that said, it's a little bit one of those things where there's almost a tribalism is the way the investigators in the field would describe it, where there are certain investigators that are very prone, particularly if there is a bulky fast-growing tumor, but even otherwise do want to reach for TKI. So we feel from that overlap of particular patient with particular investigator, there should be a HIF-2 inhibitor containing regimen. And we think we can offer a very good one. So we look at both of those to be in all-comer patient populations. I think, again, the LITESPARK-012 data for us until we see something otherwise, we simply think it has to do -- and certainly, this has to be a contributing factor to that durability of effect, and let's just call it on HIF-2 inhibition with time that we know that's a dramatic difference between our 2 molecules. And of course, when we look at the choices of what to combine with, keep in mind, we have no commercial predisposition there. I -- Essentially, the world is our oyster. If you look at the front line, there's a number of TKIs used. There's not one that's particularly dominant. Overall, you have probably 60% of the patients are getting a TKI, but they're spread somewhat evenly. So we've gone and looked and been very strategic about it and looked at what's the smartest TKI from a safety standpoint, it's well used, it's well tested, approved, understood that we should combine within the front line. We know that we're going to have cabo in the second line. And then we've done the same in thinking about that late-line patient population with what then becomes another TKI that you would use in the late line. And like I said, the other important thing there is that we are going to look at that combination of Cas with that TKI in belzutifan experienced patients and establish that unequivocally. You get the activity that you want to see in that HIF-2 experienced patient. Operator: Our next question comes from the line of Jason Zemansky with Bank of America. Unknown Analyst: This is Jackie on for Jason Zemansky. Congrats on the progress. Just a quick one for you. So what do you think is necessary to drive broad uptake of a TKI-free regimen in the first-line RCC, given how popular TKIs are overall, especially given their ability to rapidly debulk tumors? Or is the goal to compete directly with dual IO therapies? Terry Rosen: So I think -- so what's interesting is we think there is a strong receptivity towards this. Now one of the most important things that we've seen to date is that casdatifan as a monotherapy, even in the late line, performs -- is good or better than TKI in any line of setting. So if you go -- we have in our deck somewhere, you can actually look that even in the late line casdatifan monotherapy, whether you're looking at ORR or PFS, looks quite good. And the thing that's standing out, and I think this is the issue that was identified with belzutifan at the outset was that rate of primary progression. So I think that's raised the question for HIF-2 inhibition, can you compete with TKI at bringing that tumor under control quick enough that you don't have that high rate of primary progression. So we believe that belzutifan was forced in the front line to combine with the TKI to address a potential high rate of primary progression, but we actually think that despite the fact that HIF-2 inhibition is well tolerated, it can get the tumor under control quite fast. And the place where we've already seen our evidence of that is in combining with anti-PD-1, where in 30 patients, we only saw 2 progressors, 2 primary progressors. So 7%, very much in line with the TKI. So we think there's a receptivity to the TKI-sparing regimen, and we think that the key thing to driving that uptake will be to show that our rate of primary progression and then everything that flows from, that looks like a TKI. The last point I would make is it's almost like there -- the mentality would be like because TKIs are a rougher treatment, it's sort of like when you think about chemotherapy that there's a linkage that sort of in people's minds, they associate rougher, but bringing the tumor more under control. Keep in mind that 85% to 90-plus percent of clear cell RCC has HIF-2 as a key driver. So you're hitting the tumor with something that really matters. And we think that's why with a robust HIF-2 inhibitor like casdatifan, you actually can compete with the efficacy effects of a TKI. Juan Jaen: Add one other point is like, I think Dr. McKay in our event in the fall indicated this that the reasons you really prefer using ipi/nivo for the most part is it gives the patients the best chance for long-term survival. And the problem is the Achilles heel as Terry described, of the primary progression. So if you could blunt that and still give patients the best chance of long-term survival and we just saw 10-year follow-up data with 40% of patients alive 10 years later, that's a very compelling regimen we think. Operator: Our next question comes from the line of Emily Bodnar with H.C. Wright. Emily Bodnar: Based on the LITESPARK-011 data, how are you kind of looking at your upcoming Cas plus cabo updated data? And what are you kind of hoping to see to feel confident that you might have a superior profile versus what we saw in the LITESPARK-011 trial? Terry Rosen: Yes. So we already feel that confidence, and we're obviously running the Phase III trial. I think you kind of have to think of things holistically. In the end, what you're going to have is a hazard ratio. And what's nice is that since we are both running versus cabo, those will be directly comparable. While our data when we share later this year, we will still be early, we're going to give Kaplan-Meier curve. We'll have landmark PFS, we'll have ORR. And people will be able to extrapolate to whatever extent how they want to look at those data, but we'll give a very holistic view. I think the other thing that we don't want lost on people because we think it's an interesting other aspect of the data that really will only be emerging. And we'll see how things play out by the time we have some mature data later this year. So while from a regulatory standpoint, the PFS is what matters, we're going to have data now our -- from our monotherapy cohorts that are getting mature enough that we'll start to get a sense of whether we do bring an OS advantage there, albeit in the late line. And the reason we feel that's important is it just -- depending on how that looks for casdatifan, it will potentially give a good sense that this mechanism can not only drive enhancements in PFS, but bring enhancements to OS. And while that may not be a requirement from a regulatory standpoint, we certainly could see it as an important differentiation that would drive more uptake by clinician, in fact, we start to show that there can be OS enhancement from HIF-2 inhibition, which we believe there's no reason there shouldn't be. Operator: Our last question comes from the line of Yigal Nochomovitz with Citigroup. Joohwan Kim: This is Joohwan Kim on for Yigal. Congrats on the progress. Maybe just to mix in a noncash question. Regarding AB102, while it's still early, is there any color you can provide on the intended proof-of-concept study design, whether you're planning on going into CSD versus AD first? Any color on primary endpoints or level of clinical signal you need to see to give confidence to advance into a future registrational program? Terry Rosen: So Juan, why don't you describe how we see ourselves going from A to B to C in the near term? Juan Jaen: Yes. So at a very high level, we have recognized that while we think we may have a better molecular profile, we have a little bit of ground that we need to make up relative to the couple of existing clinical players. So what we've devised is a fairly accelerated plan for establishing PK tolerability in healthy volunteers, followed by a fairly quick, rapid mechanistic confirmation of biological activity and very quickly progressing into a Phase II study in CSU. So we think we will in reasonable speed, catch up and hopefully begin to illustrate the better profile of our drug. In parallel with that, we're thinking about where it might make sense concurrently with that CSU type of Phase II study to demonstrate the value of an MRGPRX2 inhibitor. Right now, our lead candidate for that additional indication seems to be allergic asthma, but that's still at a very early stage of conceptual framing. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect. Terry Rosen: Thanks, everybody. Operator: Goodbye.
Operator: Good afternoon, and welcome to AtriCure's First Quarter 2026 Earnings Conference Call. This call is being recorded for replay purposes. [Operator Instructions] I would now like to turn the call over to Marissa Bych from the Gilmartin Group for a few introductory comments. Marissa Bych: Great. Thank you. By now, you should have received a copy of the earnings press release. If you have not received a copy, please call (513) 644-4484 to have one e-mailed to you. Before we begin today, let me remind you that the company's remarks include forward-looking statements. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond AtriCure's control, including risks and uncertainties described from time to time in AtriCure's SEC filings. These statements include, but are not limited to, financial expectations and guidance, expectations regarding the potential market opportunity for AtriCure's franchises and growth initiatives, future product approvals and clearances, competition, reimbursement and clinical trial enrollment and outcomes. AtriCure's results may differ materially from those projected. AtriCure undertakes no obligation to publicly update any forward-looking statements. Additionally, we refer to non-GAAP financial measures, specifically constant currency revenue, adjusted EBITDA and adjusted loss per share. A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures is included in our press release, which is available on our website. And with that, I would like to turn the call over to Mike Carrel, President and Chief Executive Officer. Michael H. Carrel: Great. Good afternoon, everyone, and welcome to our call. AtriCure is off to a strong start in 2026 with worldwide revenue of $140 million in the first quarter, reflecting 14% growth year-over-year. We are building on the momentum we established in 2025 from new product launches with this quarter marking an acceleration in our worldwide growth rate from the preceding quarter and comparable quarter last year. Fueling this acceleration is our U.S. business, which drove approximately 15% in the quarter from expanding adoption of AtriClip FLEX-Mini and PRO-Mini devices, cryoSPHERE MAX probe and continued strength from our EnCompass clamp. In addition, we generated $17 million in adjusted EBITDA, nearly double the first quarter of last year. Our results this quarter once again demonstrate our ability to deliver durable, double-digit revenue growth and expand profitability. Beyond our financial results, we have made exceptional progress in our BoxX-NoAF clinical trial. Since initiating trial enrollment in the fourth quarter of last year, we have enrolled approximately 300 total patients. To date in this 960-patient randomized controlled trial, we are tracking well ahead of our original time line and now expect to complete enrollment around the end of this year, nearly 1 year ahead of plan. The pace of enrollment in this trial reflects an extremely high level of engagement from surgeons who experienced firsthand the impact postoperative Afib has on their patients. As a reminder, up to half of cardiac surgery patients without pre-existing Afib will develop postoperative Afib, which is the most common complication of cardiac surgery. Because there is no established treatment today, postoperative Afib is a substantial burden on the health care spending, with estimates exceeding $2 billion annually in the U.S. alone. We are confident that our BoxX-NoAF clinical trial utilizing our EnCompass clamp and AtriClip device has the potential to meaningfully change treatment outcomes for this patient population and address the significant unmet clinical need. BoxX-NoAF is also highly complementary to our LeAAPS clinical trial, studying stroke reduction benefit of left atrial appendage management in cardiac surgery patients without atrial fibrillation. We expect both of our landmark clinical trials to generate robust clinical evidence in support of preventative treatment for cardiac surgery patients, unlocking a massive global market opportunity for AtriCure while establishing new standards of care in cardiac surgery. We at AtriCure are well positioned to realize these significant catalysts for our business in the coming years. Now on to updates covering franchise performance in the first quarter. Pain management once again led our portfolio growth, increasing 28% year-over-year. The cryoSPHERE MAX probe continues to be the primary driver of growth, contributing roughly 70% of our pain management sales this quarter. Surgeons across both new and existing accounts recognize the significant time savings and clinical effectiveness it provides, leading to more patients having their postoperative pain managed effectively. Building on our legacy of innovation, we are also pleased that our cryoXT probe for amputation procedures is beginning to gain traction. We continue to receive outstanding feedback from each new surgeon that uses this device and through our registries are capturing clinical outcomes for this therapy. We are still in the early innings for cryoXT for the cryoXT therapy development and adoption. However, we remain confident in cryoXT contributing more meaningfully as we move to the back half of 2026. Within our cardiac ablation franchises, worldwide open ablation revenue grew 15% in the first quarter, led by steady adoption of EnCompass clamp in the United States and Europe. EnCompass is delivering growth from both new and existing accounts even as we approach the 4-year anniversary of our U.S. full market launch. As mentioned in our fourth quarter earnings call, our efforts to drive treatment of Afib in cardiac surgery patients was validated with a recent announcement from the Society of Thoracic Surgeons' Annual Meeting, including concomitant Afib treatment as a quality metric. There is strong precedent for the impact of quality metrics in cardiac surgery, and we believe this change will support increased adoption for surgical Afib ablation and appendage management, serving as a durable tailwind for growth for years ahead. Our minimally invasive ablation franchise continued to face headwinds in the first quarter. We believe there is a role for hybrid therapy in the current and future treatment landscape and remain committed to providing a solution for the unmet need for patients with long-standing persistent Afib. Finally, turning to our appendage management franchise, which saw 16% growth worldwide, driven by both our open and minimally invasive appendage management products. Our open left atrial appendage management business benefited from strong adoption of AtriClip FLEX-Mini in the United States, where we exited the quarter with FLEX-Mini contributing approximately 40% of our open appendage management revenue. More importantly, we believe our FLEX-Mini device has been impactful in driving share gains in this market. Surgeons using our trialing competitive devices are impressed by the small form factor of AtriClip FLEX-Mini, along with robust clinical evidence and superior product performance of our AtriClip devices. In minimally invasive procedures, AtriClip PRO-Mini is building upon that adoption in the U.S., providing a pricing uplift that offsets pressure of our hybrid AF therapy procedure volumes. It remains clear that differentiated innovation plays an important role in maintaining our position as the leader in appendage management in cardiac surgery, and we continue to prioritize investments in this platform. In our international markets, we are growing adoption across our legacy left atrial appendage management devices. Following the first quarter, we received CE Mark under EU MDR in Europe for both AtriClip FLEX-Mini and PRO-Mini devices and expect to launch both products in Europe later this year. New product launches in Europe, the United States, China and Japan, coupled with the future of LeAAPS clinical trial outcomes, provide a long runway for growth in our appendage management franchise. In closing, the performance we delivered this quarter underscores the power of our innovation and focus on execution. While the rapid progress in our BoxX-NoAF clinical trial reinforces the significant opportunity ahead at AtriCure. We remain committed to advancing standards of care, scaling responsibly and delivering durable growth with improving profitability for our shareholders. And with that, I'll turn the call over to Angie Wirick, our Chief Financial Officer. Angie? Angela Wirick: Thanks, Mike. Worldwide revenue for the first quarter of 2026 was $141.2 million, up 14.3% on a reported basis and 12.8% on a constant currency basis versus the first quarter of 2025. Our performance reflects substantial growth driven by the continued adoption of key new products in the United States and many regions throughout the world. On a sequential basis, worldwide revenue increased approximately 1% compared to the fourth quarter 2025. First quarter 2026 U.S. revenue was $116.2 million, a 14.9% increase from the first quarter of 2025. Open ablation product sales grew 17.3% to $39.1 million, fueled by the strong and sustained adoption of our EnCompass clamp across new and existing accounts. U.S. sales of appendage management products were $48.4 million, up 14.9% over the first quarter of 2025, driven primarily by increasing adoption of our AtriClip FLEX-Mini and PRO-Mini devices. U.S. MIS ablation sales were $6.4 million, a decline of approximately 25% over the first quarter of 2025. And finally, U.S. pain management sales were $22.4 million, up 29.5% over the first quarter of 2025, led by the cryoSPHERE MAX probe, which contributed approximately 70% of pain Management sales in the quarter, driving increased adoption in both thoracic and sternotomy procedures. International revenue totaled $25 million for the first quarter of 2026, up 11.5% on a reported basis and up 3.3% on a constant currency basis as compared to the first quarter of 2025. European sales were $16.1 million, up 13.2% and Asia Pacific and other international market sales were $8.9 million, up 8.4%. International growth was tempered by continued uncertainty in the U.K. as well as lower distributor sales in Asia. Offsetting these headwinds, we saw significant growth across franchises in other major geographies, largely driven by our direct markets. Gross margin for the first quarter of 2026 was 77.4%, up 246 basis points from the first quarter of 2025. The increase was driven primarily by favorable product and geographic mix with strong U.S. performance propelled by our new product launches and adoption. Transitioning to operating expenses for the quarter, total operating expenses increased $10.2 million or 10.3% from $98.6 million in the first quarter of 2025 to $108.8 million in the first quarter of 2026. Rapid enrollment in our BoxX-NoAF clinical trial, which offsets a decrease in LeAAPS clinical trial costs, along with increased headcount focused on product development initiatives, resulted in a 7.6% increase in research and development expense from the first quarter of 2025. SG&A expense increased 11.2% from the first quarter of 2025 as we continue to support growth while driving leverage across the organization. Completing the P&L, first quarter 2026 adjusted EBITDA was $17.1 million compared to $8.8 million for the first quarter of 2025, representing a 95% increase. We recorded net income of approximately $100,000 compared to a net loss of $6.7 million in the first quarter of 2025. Earnings per share and adjusted earnings per share were both breakeven at $0.00 compared to a loss per share and adjusted loss per share of $0.14 in the first quarter of 2025. Our results reflect a balanced approach to allocating capital towards area we believe will sustain and accelerate growth, all while continuing to improve profitability. Now turning to our balance sheet. We ended the first quarter with approximately $146 million in cash and investments. Cash burn for the quarter was slightly improved from the first quarter of 2025 and reflects our normal pattern of cash usage, driven by share vesting, variable compensation and operational needs. As we move through the remainder of the year, we expect positive cash flow, resulting in full year cash generation that is moderately higher than 2025. Our balance sheet remains healthy and supports both current operations and our investment in strategic initiatives that we believe will drive long-term value creation. And now on to our outlook for 2026. We are reiterating our expectations for full year revenue of $600 million to $610 million, reflecting growth of approximately 12% to 14% over full year 2025 results. Consistent with our first quarter results, we expect performance over the remainder of the year to be driven by our pain management, appendage management and open ablation franchises and partially offset by continuation of headwinds from our MIS ablation franchise, along with certain international markets. For the second quarter, we anticipate typical seasonality translating to mid-single-digit sequential growth. On gross margin, while our first quarter 2026 results were exceptional as a result of extremely favorable mix. We continue to expect modest improvement in full year 2026 gross margin over full year 2025. Product and geographic mix are expected to be favorable in the near term. However, we will bring our expanded manufacturing facilities online in the second half of 2026, which will increase manufacturing cost burden, moderating the full year gross margin outlook. Turning to operating expenses. As Mike mentioned, the accelerated timing for full enrollment in our BoxX-NoAF clinical trial has placed us significantly ahead of schedule, and we now expect full enrollment of the trial around the end of this year. As a result, over the next 3 quarters, we expect additional R&D investment. While the cost of BoxX-NoAF acceleration is incremental to our plan, we continue to drive strong gross margins and operating leverage, reflecting discipline across our business. With that in mind, we are reiterating our expectations for full year 2026 adjusted EBITDA of $80 million to $82 million and full year net income, translating to earnings per share of approximately $0.00 to $0.04 and adjusted earnings per share of approximately $0.09 to $0.15. Consistent with our 2025 performance, our quarterly outlook for adjusted EBITDA is largely informed by normal top line cadence and the timing of R&D spend. As a reminder, 2025 R&D spending included LeAAPS enrollment costs for the first half of 2025 only. Therefore, we expect a slightly higher increase in R&D spending in the second half of 2026. In conclusion, our first quarter results highlight the durability of AtriCure innovation and continued improvement in our financial profile while funding investments in growth catalysts for the future. We remain energized by the opportunities in front of us and the exceptional AtriCure team who will make 2026 a success. With that, I will turn the call back to Mike. Michael H. Carrel: Thanks, Angie. 2026 is off to a good start, and our team is fully committed to our patients, our partners and our shareholders. As we look ahead, we are confident in our ability to execute with discipline, sustain operational excellence and build on the momentum that we've created, delivering meaningful progress throughout 2026 and well beyond. And with that, I'll turn it over to the operator for any questions. Operator? Operator: [Operator Instructions] And our first question comes from Bill Plovanic with Canaccord Genuity. Zachary Day: This is Zachary. Can you talk about the progress you're making on PFA integration? Any milestones that we should be on the lookout for this year? And then can you talk quickly about the RF enhancements you're making to come with the next-generation catheter? Michael H. Carrel: Sure. I'll take that on. I appreciate the question. On the PFA, we're making great progress on that. We've done our first in-human over in Australia so far. We're now starting first in human in Europe as well. It's not really first in-human anymore, but we're going to be doing an additional 30 to 40 patients in Europe. And so that will obviously lead for our submission for the trial that we expect to start running sometime next year. And so we're on pace, doing great. No additional commentary at this point in time, but we're really pleased with the results that we've seen so far and feel like there aren't any specific milestones other than really submission to the FDA later on this year, acceptance of the IDE and then beginning to enroll as we kind of look into 2027 at some point in time. So we'll give more details as we kind of get forward on that. We really want to focus today's effort on, obviously, the great progress we've made on the BoxX-NoAF clinical trial because we're so far ahead of plan that we wanted to make sure that we got that out there. 300 patients in a very short period of time put us well over a year ahead of plan, and we thought that was just a big, big milestone for us as we kind of close out this year being able to finish up enrollment around the end of the year. That's something we're super excited about. As for the RF advancements, they are embedded in there. We've got both the RF and also the dual energy combined in some of those first-in-human playbooks, and that will all be indicated and looking forward to kind of seeing that in trials sometime next year. Operator: Our next question comes from Matthew O'Brien with Piper Sandler. Matthew O'Brien: The first one, Mike, I know you can't grow this pain management business 30% every quarter but just talk about what you saw in the quarter from a growth perspective in terms of new accounts, existing accounts with cryoSPHERE MAX? And then also on the ortho side of things, just maybe the contributions that you got from those different buckets and how do we think about the growth trajectory for that business? And then I do have a follow-up. Michael H. Carrel: Yes. I'll start and just say that the cryo business, the pain business, is as we talked about our Analyst Day about a year ago, this is something that's got -- it's multiple billions of dollars of opportunity. Obviously, thoracic is an area that we've been established in for a long period of time. We're now starting to see some traction on the sternotomy side, and we're just starting on this, obviously, below-the-knee amputation area. We're just scratching the surface in my mind in all the areas that people undergo surgery and have a lot of pain afterwards, both from other parts of the body and other types of surgeries to looking into and researching the impact that you can have on actually phantom limb pain, which affects over 3 million people. I mean these are big, big numbers when you look at it. So we've got decades worth of growth in my mind here. Whether or not we can grow 30% for decades, obviously, the numbers get bigger and that becomes more difficult. But the good news is we've got multiple places to actually grow this market for many, many years to come. And with that, I'll turn it over to Angie to give you some of the specifics on the numbers. Angela Wirick: Yes. Matt, from an account perspective, we are about 70% of our pain management accounts have adopted cryoSPHERE MAX, and we continue to see every quarter since we've launched, we continue to see nice uptake. It was about 10% growth in the cryoSPHERE MAX accounts within the quarter. So this is clearly becoming the dominant device that's being used. I think surgeons are very compelled by the quick freeze times that they're seeing and just exceptional outcomes for their patients. Matthew O'Brien: Got it. That's great to hear. On BoxX-NoAF, in my experience, Mike or Angie, when these things enroll faster, it's because doctors are seeing good outcomes. That's why they're doing more of these cases. Can you just talk about any kind of anecdotal feedback you're getting from the clinicians as far as outcomes here? And then kind of what's expected from these outcomes? And then given the time line for finishing enrollment, could we see -- because I think the follow-up is pretty short. Could we see data at ACC or HRS next year? Michael H. Carrel: Yes. Great question. I think you're right that, that is kind of what you said. We don't have any specific information because it's obviously a blinded trial. I don't know exactly what's happening within the trial relative to the individual patients or the randomization on that front. That being said, we do know sites that have utilized this technology for their postoperative pain. We've seen it in all the preliminary work that went into going into the trial. And what we saw was significant reductions as a result of that. So much in fact that we have several sites and even more. We've got 5-plus sites or so that have decided to adopt this and will not come into the trial because they're seeing such good results relative to using the EnCompass clamp plus the AtriClip to see significant reductions in that. If you look at the STS database, what you see is it's about 35% to 40% of all patients that undergo cardiac surgery go into postop Afib, sometimes you'll see up to 50% in some studies where you'll see it as high as that. And we're seeing in the trials in different areas that it's less than 10%. We don't need that to win the trial, though, and to have a meaningful clinical impact on it. So we feel really confident and really good about where this is going and the results that we'll wind up seeing. In terms of timing of results, you're correct. We think it's going to be around the end of the year based on the pace of enrollment we're seeing right now. I said around because it could be sometime at the end of December or early January time frame that we might have full enrollment in place. Then you're right, we've got about 30 days of follow-up from that last patient. And then we'll have to obviously adjudicate all of that data. So if you start to do the math, as you just described, probably not HRS, more likely a surgical congress that we would do some sort of late breaker. The surgical congress that is out that late is AATS next year. If we got the data earlier, STS is in the January, February time frame. Obviously, that is highly unlikely to make it that quickly, but we're hopeful that we can conclude the trial, get those initial results and get some data out there as a late breaker sometime at the AATS, which is around the same time as HRS next year. Operator: Our next question comes from Marie Thibault with BTIG. Marie Thibault: I wanted to spend a minute here on your international business. I think you called out some uncertainty on the U.K. side, which I know isn't brand new and also some lower distributor sales from APAC. So can you tell us a little bit more about what's going on behind the scenes there? And any visibility on when things might start to improve? And then it sounds like the direct markets, OUS have been healthy. So just any more color on those markets as well. Angela Wirick: Yes. Marie, you called out the 2 kind of headwinds that we're facing within our international business. The U.K. within Europe, we had anticipated that being a drag and talked I think, at length within our guidance that we've baked in a run rate that looks very similar to how we exited 2025. That held true for the first quarter of 2026 as we started the year. And then just with our larger distributors in Asia, inherently, distributor orders can be lumpy. We expect that pressure to be transient as we think about the rest of 2026. You mentioned it, but I'll remind everybody. I'd say outside the headwinds, we saw really good growth in our franchises in our direct markets in Europe, Australia and Canada. We continue to be excited about bringing new products into each of those markets and seeing the progress that the teams are making there and continue to focus on the NHS and making sure that our pain management device. And then kind of any other budgetary pressures, what we can control that we are addressing quickly to get this market to a rebound. So guidance does not assume any kind of recovery in the U.K. and then strong business in other areas within Europe and the distributors in Asia that that's expected to be transient again. Marie Thibault: Okay. Great detail. And then maybe my follow-up on the Convergent procedure side, just wanted to understand kind of how your view of that market has been evolving. Obviously, the PFA landscape has evolved quickly. So would just love an update on what you're seeing there on the ground. Michael H. Carrel: Yes. On the ground, we kind of talked about it very briefly during my remarks. There's definitely a continued headwind in that area. What we're seeing is the data is still incredibly strong and these patients benefit from using the Convergent platform. That being said, they're getting multiple PFA catheters first. They're trying one than another. Some are going up to 3. That's obviously delaying that pipeline and those patients coming through. That's why it becomes tough to predict exact timing for us on that. That being said, if you talk to most people that are actually using it, they actually do believe in it. They're just seeing fewer patients or they're trying to catheter out one more time before they actually send that patient on. So that's the reality that we're dealing with right now. That's why we've set the expectations as we have. But we really feel like those that are utilizing technology are getting incredible benefit, and we're having lots of -- we continue to have lots of good conversations with the EPs. And we do think that it's a solution that matters, and we have to continue to support. Operator: Our next question comes from Lily Lozada with JPMorgan. Unknown Analyst: This is Henry on for Lily. I just wanted to pivot a little bit to talk about the guidance. You were able to beat on the top line but you reiterated the revenue guide. Can you talk a little bit more about why that's not flowing through into the full year guide? And are there any headwinds in particular you'd like to call out for the remainder of 2026? Angela Wirick: Yes. I think on the top line guide, we came in ahead of our expectations, both top and bottom line, a positive start to the year, but it is still early in the year and want to see continued outperformance before we revisit the guidance. I think that's very much in line with our philosophy and track and impact years. We are guiding to numbers that we feel very confident that we can achieve and look to beat and raise throughout the year. The headwinds we just touched on is primarily within our international business and then in our hybrid ablation business in the U.S. and in the areas of outperformance, very similar to what you saw in the first quarter results. Expecting continued really strong growth within our pain management franchise, our open ablation franchise and appendage management as well. Operator: Our next question comes from Mike Matson with Needham. Joseph Conway: This is Joseph on for Mike. Maybe just one on international first, China and Japan. I was wondering if you guys could just maybe give a broad overview on where you are now with the portfolio in terms of approvals or launches and maybe where that portfolio could sit in China and Japan by the end of this year? Angela Wirick: Yes. Pretty comparable between both our China and Japan markets. You have the basic RF ablation devices. Neither market has EnCompass at this point in time. We just recently put China -- put our AtriClip in China. So that's a newer product launch in that market. And then within Japan, we've had different versions of our AtriClip on market and got expanded clearances for the mini devices more recently there and are working on other product launches. I think with any market that you enter into, you're looking at the product set and what the market can absorb given economic considerations, so on and so forth. But it is a subset of the overall products that we've got launched and are selling within the U.S. market. Joseph Conway: Okay. Great. Makes sense. And then one on appendage management. So obviously, a very strong year in 2025 and with new products, it's looking good as well. But with the increased competition, it's just, I guess, trying to get a handle on basically where they are, where your competitors are with trialing and incentives. Has that kind of steadied off? Are you seeing increased incentives for them to trial the product from your customers? Just trying to understand how these new entrants are affecting your sales or not affecting. Michael H. Carrel: Yes. And just right now, there's only one entrant in the market that's Medtronic. They do have a product that we compete with today. And as I mentioned in my comments, what we saw was they kind of peaked in market share back in the kind of summer time frame, late summer, early fall time frame. And we've seen with FLEX-Mini gaining more and more adoption at more and more sites that we're actually gaining some of that share back. We still have the predominant market share in the United States. We feel like the innovation that we put out there with FLEX-Mini, with PRO-Mini with obviously clinical evidence that we'll generate that will be very specific to our product that we're going to be in a very good place both in terms of who we're competing with right now and also if Edwards does come into the market. Obviously, they've mentioned that they're going to be coming into the market later on this year, and we will be ready for that. Again, the way that we know how to compete is to build the best products that are what the market really wants to meet those needs. We continue to innovate. On top of that, we've invested heavily in clinical evidence that's very specific to our product, both in the LeAAPS and in the BoxX trial, which both include the appendage, looking for the benefits that we can get for stroke reduction on that, that will be very specific to our product and our product only. And putting that level of evidence is something that none of the competition has actually started a trial down that pathway, and these are long trials. So it gives us a great deal of confidence in terms of the future for that. So. Continue with the innovation, continue with the clinical evidence gives us confidence that when competition comes in, whether it's the ones that are out there, the ones that are talking about coming into the market and there may be more in the future that we are going to be incredibly well positioned. We also believe, as I've mentioned on this call before, that competition coming into the market means it's a big market. It means that it is a multibillion-dollar market that can take on competition like this. All great markets in medical devices typically have several players in there, and we believe that, that's actually a really good sign that this is a big and robust market on the international scale. Operator: Our next question comes from John McAulay with Stifel. John McAulay: Just want to put a finer point on the 2026 guidance commentary you gave. So reiterating the top line range and adjusted EBITDA range. I just want to understand the intention there as you beat on both. Would you expect that we let numbers for the rest of the year sort of stay where they are to reflect the strength in the quarter or the hybrid and international headwinds you called out, you expect that those sort of offset the $2 million of upside as we look ahead to the rest of '26? Angela Wirick: John, no different from our philosophy on guiding. We are putting out numbers that we believe we cannot only meet, but that we've got a pathway to beat. I think with one quarter in, you're still early in the year. And specific to the top line, felt like the right and prudent thing to do at this point in the year was just to hold the guide and expect that we've got the ability to outperform no different than when we started the first quarter. On the bottom line, I'd say more of a shift in we are -- with the pace of enrollment on BoxX-NoAF, those costs are incremental, pulling enrollment in by a year into 2026, that is incremental to our plan in 2026 for the full year. We had a very strong margin -- gross margin in the first quarter, expect for there to be improvement over 2025. But that being said, some of the favorability on the margin side is transient, again, with the mix of the international business primarily. You take that kind of whole calculus and the diligence that we're seeing across the business to see improvement in leverage that positioned us really well to be able to absorb the additional trial costs and hold the bottom line guide where it's at. And again, no different are putting numbers out there, we expect not only to meet but to be. John McAulay: That's helpful. And just to make sure I'm understanding the dynamics OUS. So in the quarter, you highlighted 3.3% constant currency growth. Is that what we should be expecting for the year ahead? Or what are the drivers of acceleration or reacceleration we should be looking at in that business? Angela Wirick: Yes. Good question. I'd say the -- we are expecting our international business to grow on a reported basis closer in line to the overall company guide. So that would be kind of double-digit growth for our international business. You saw more favorability from a currency in the first quarter, expect for that to lean a bit as we think about the rest of the year. Strength in our direct markets in Europe, we expect for that to be a continued driver there. You've got newer product launches in that market. EnCompass is a big driver in our European market and then a bit of a rebound in our Asia distributors. Again, I think ordering patterns can be kind of lumpy there. So expecting that to rebound as well. And that's the calculus to get to kind of that mid-double-digit growth expectation for the year. Operator: Our next question comes from Danny Stauder with Citizens. Daniel Stauder: Just first one on pain management. Great to see the strong quarter. You noted improved market penetration in thoracic and sternotomy. But just on the latter of the 2, it's nice to hear you're starting to see traction. But I was just curious what was driving this of late. We've talked about sternotomy and that opportunity for a bit now. So I just wanted to see if there was any newer developments that's leading to this? Michael H. Carrel: Yes. Great question. I think what you're seeing here, Danny, is that you're seeing it works in sternotomy. It just takes a little bit longer to get there. With the MAX product that has reduced the time in half that really has improved adoption and the willingness of somebody to even try it. And then once they try it, they see really good results pretty quickly, and then it becomes a lot more sticky at that point in time. So I'd say that's really what you're seeing. It's not something that you'll ever get a hockey stick curve off of, I don't believe, but I think that you're going to continue to see nice robust growth within this area as we add more and more accounts. So we've got many accounts that are actually doing this now. It's no longer just a handful across the country. People are talking to each other. They're talking about the results, whether it's at trade shows or other places like that or peer-to-peer conversations, and that's really what's driving it. Daniel Stauder: Okay. Great. And then just one follow-up on the FTS quality metric update. Could you give us a little more color on this? First when will it start? And should we be thinking of this more as a longer tail growth over the next few years versus more near-term uptick? Just any more information on how we should think about this in terms of incremental adoption or just frame the potential revenue opportunity here would be really helpful. Michael H. Carrel: Sure. I'll start by saying just a reminder to everybody that in the U.S., about 35% of all patients that have Afib that undergo cardiac surgery actually get an ablation. And so that is obviously a very low number. You still have 65% left to go. The quality metric is meant to address that. It's meant to say that -- and what they put out there was that there'd be 70% of the patients actually get treated. That number will likely grow. That was the commentary that was at STS back in January of this year. They anticipate that they'll put some teeth into it. They wanted to roll out that this is becoming a quality metric. And that quality metric will go into effect sometime in 2027, at which point in time there will be some teeth in it in terms of they'll be measured on it. It will be recorded in the STS database. How that's all -- the specifics behind that are still not disclosed yet by STS, but that is coming out. To give you some perspective, I mentioned in the call that previously, the last time they did any kind of therapeutic view like this, it was the Lima to the LAD. And when they made it a quality metric, it went from about 10% adoption up to 99.8% adoption or so today. So quality metrics matter. They make a difference. People look at them, hospitals look at them, they affect their ratings. And so we do anticipate that on the Afib side of things, we should see some uplift relative to the Afib side in 2027 as they're kind of rolling this out. And obviously, that will continue into '28 and beyond. So we think that's going to be a big boon and positive for us on the ablation side to improve that penetration from 35% in the U.S. to hopefully obviously getting it closer to 80%, 90% or so at some point over the next 3 to 5 years. So we've got a lot of room for growth. This is a little bit of -- I don't know, you can call it care or stick depending on how you want to look at it, but it's an incentive either way for people to do the treatment. On top of that, obviously, we're going to have data that comes out on the non-Afib patients. And we believe you combine that with the quality metrics and the fact that the EnCompass clamp is so easy to use that we will start to see some really nice adoption overall over the next 3 to 5 years in a big way. Operator: Our next question comes from Keith Hinton with Freedom Capital Markets. Keith Hinton: I just have a quick one on AtriClip. Can you just talk a little bit -- and I apologize if I missed this, I'm jumping around a little bit. But can you talk a little bit about the use of FLEX-Mini versus the prior generations in open appendage? And then more broadly, can you just talk about the current ASP for AtriClip in the U.S. and how we should think about those dynamics going forward as uptake continues for FLEX and PRO-Mini? Angela Wirick: Yes, I'll take this one. The AtriClip FLEX-Mini, what we are seeing is a pretty steady conversion from our last-generation AtriClip device, the AtriClip FLEX fee, less so from the original AtriClip device, which is still on the market. But between the 3 products, you've got different price points, and you've also got the ability for a surgeon to choose depending on the approach that they want to take for managing the appendage. Exiting the first quarter 2026, we were up to about 40% of the revenue in the U.S. in open appendage management in the FLEX-Mini clip. We exited last year a little over 35%. So we continue to see steady share gains by that new product launch. And from an ASP perspective, we're well positioned by offering a range here as low as $1,100 with the original AtriClip device for accounts where pricing is a sensitivity and the FLEX-Mini clip up to $2,250. Operator: Our next question comes from Suraj Kalia with Oppenheimer & Co. Suraj your lines is open, please unmute your button. I am showing no further questions at this time. I would now like to turn it back to Mike Carrel for closing remarks. Michael H. Carrel: Great. Well, I just wanted to thank everybody for joining for the call today after an exciting Q1 and what's starting to be a great 2026 overall. So thank you for joining. We appreciate it. We look forward to talking to you again in July. Talk to you soon. Operator: This concludes the question-and-answer session. This concludes today's conference call as well. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the Houlihan Lokey Fiscal Year and Fourth Quarter 2026 Earnings Conference Call. [Operator Instructions] Please this note event is being recorded. I would now like to turn the conference over to the company. Please go ahead. Christopher Crain: Thank you, operator, and hello, everyone. By now everyone should have access to our fourth quarter and fiscal year 2026 earnings release, which can be found on the Houlihan Lokey website at www.hl.com in the Investor Relations section. Before we begin our formal remarks, we need to remind everyone that the discussion today will include forward-looking statements. These forward-looking statements which are usually identified by use of words such as will, expect, anticipate, should or other similar phrases are not guarantees of future performance. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. And therefore, you should exercise caution when interpreting and relying on them. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. We encourage investors to review our regulatory filings, including the Form 10-K for the fiscal year ended March 31, 2026, when it is filed with the SEC. During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. These non-GAAP financial measures are not intended to be considered in isolation from, as a substitute for, or as more important than the financial information prepared and presented in accordance with GAAP. In addition, these non-GAAP measures have limitations in that they do not reflect all the items associated with the company's results of operations as determined in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings release and our investor presentation on the hl.com website. Hosting the call today, we have Scott Adelson, Houlihan Lokey's Chief Executive Officer; and Lindsey Alley, Chief Financial Officer. They will provide some opening remarks, and then we will open the call to questions. With that, I'll turn the call over to Scott. Scott Joseph Adelson: Thank you, Christopher. We ended fiscal year 2026 with a record $2.6 billion in revenue, up 10% versus last year and adjusted EPS of $7.56, up 20% versus last year. Both Corporate Finance and Financial Valuation and Advisory produced record revenues for the year and our Financial Restructuring business had 1 of the strongest years on record. Delivering these results against the backdrop of significant geopolitical uncertainty and macroeconomic pressures underscores the strength and resilience of our business. Since we went public 10 years ago, we have reported annual revenue growth in 9 of the 10 years. We ended the fourth quarter with revenues of $636 million, and adjusted earnings per share of $1.63. It is worth highlighting that our CF and FDA businesses each produce their highest fourth quarter revenues ever. Our quarterly results are typically more volatile than our annual results due to both external macro events and the timing of revenues. In FR, our fourth quarter results were impacted as the closing of 2 larger transactions extended beyond the quarter end. While the growth in our fourth quarter results in CF and FDA were impacted by recent external market disruptions, including renewed geopolitical uncertainty from the conflict in the Middle East and market volatility affecting the software sector. Notwithstanding the turbulence exhibited in the marketplace over the last few months, our business is in the best shape in its history. We have a record level of backlog and pipeline. We have a record number of managing directors and we have a record number of corporate acquisition opportunities in various stages of potential completion. In the fourth quarter, CF continued to see solid backlog growth and improved transaction metrics across most of our industry groups, technology being an exception. In addition, CF revenues outside the U.S. grew significantly faster than U.S. revenues in both the fourth quarter and fiscal year. Capital Solutions performed well in fiscal year 2026 and we enter year fiscal 2027 with strong backlog and high expectations for those services. Segments of our FDA business saw the same disruption from macro events in the fourth quarter, while others did not. But momentum for that business has returned to more normal levels, and we expect growth in fiscal year 2027. In FR, our expectations for fiscal year 2027 have improved. We are seeing multiple tailwinds, widening credit spreads, dislocation in private credit and the software sector and energy volatility. These factors are driving increased activity levels, including several notable recent wins, leading to higher expectations for fiscal year 2027. Based on these dynamics, we expect this business to continue to perform at elevated levels in fiscal year 2027. We successfully closed 2 previously announced transactions in the fourth quarter, welcoming new colleagues from Audere Partners and Mellum Capital. Additionally, we hired 4 managing directors in the quarter, bringing our total hired and acquired for the fiscal year to 33. We are also pleased to announce that we promoted 25 colleagues to Managing Director in the first quarter of fiscal year 2027. I would like to congratulate our new partners and recent promotes and wish them great success in the years to come. As we enter fiscal year 2027, our diversified business model positions us well to navigate whatever market conditions emerge. This diversification has consistently enabled us to perform through volatile periods, and we believe that advantage remains as strong as ever. And our global workforce continues to be the key differentiator. We recognize with gratitude the strength of our talented workforce now more geographically diverse and with a wider range of expertise and specialties than ever before. We continue to see a strong hiring market for senior talent. On the M&A front, our acquisition pipeline is as active as it has ever been with no shortage of compelling opportunities to further strengthen our platform. I would like to thank our more than 2,700 employees for continuing to deliver excellence to our clients and to 1 another. I would also like to thank our clients and shareholders who continue to entrust us on our journey of building the best investment banking advisory business in the world. And with that, I will turn it over to Lindsey. J. Alley: Thank you, Scott. Revenues in Corporate Finance were $434 million for the quarter, up 5% compared to the same period last year. We closed 171 transactions this quarter, up from 147 in the same period last year and our average transaction fee on closed deals decreased. M&A deal time lines have extended due to the geopolitical uncertainty created around the war in the Middle East and its ripple effects and we expect that dynamic to persist as long as there is uncertainty. These time line shifts may moderate our growth a bit in our first quarter for fiscal year 2027, similar to the impact on our growth in the fourth quarter. While the near term may show variability due to closing timing, the fundamental trajectory of the Corporate Finance business for the full year remains encouraging. Financial Restructuring revenues were $110 million for the quarter, ending the fiscal year with revenues of $529 million, down 3% from fiscal year 2025. We closed 30 transactions this quarter, down 21% from the same quarter last year and our average transaction fee on closed deals decreased. For Financial and Valuation Advisory, revenues were $91 million for the quarter, a 3% increase from the same period last year. We had 1,248 fee events during the quarter compared to 1,224 in the same period last year, a 2% increase. Turning to expenses. Our adjusted compensation expenses were $391 million for the quarter versus $410 million for the same period last year. Our only adjustment was $18 million for deferred retention payments related to certain acquisitions. Our adjusted compensation expense ratio for the fourth quarter in both fiscal 2026 and 2025 was 61.5%. We expect to maintain our long-term target of 61.5% for our adjusted compensation expense ratio for fiscal 2027. Our adjusted non-compensation expenses grew 10.5% to $94 million for the quarter compared to $85 million for the same period last year. For the quarter, we adjusted out of non-compensation expenses $5.8 million in acquisition-related costs and $1.7 million in noncash acquisition-related amortization. Our adjusted non-compensation expenses grew 10.7% for the year, and we ended fiscal 2026 with an adjusted non-compensation expense ratio of 13.9%. We expect to see similar growth in adjusted non-compensation expenses in fiscal 2027. Our adjusted effective tax rate for fiscal year 2026 was 23.7% compared to 29.8% for fiscal year 2025. The decrease was primarily a result of the change in our policy where we are no longer adjusting out the impact of stock compensation deductions on our effective tax rate. For fiscal 2027, similar to last year, we expect our first quarter adjusted effective tax rate to benefit from the vesting of shares in May at grab prices for which the majority were significantly below where our stock is currently trading. Based on where our stock is trading today, we think that benefit may reduce our adjusted effective tax rate in our first quarter for fiscal 2027 to about half of our fourth quarter adjusted effective tax rate. Turning to the balance sheet. We ended the quarter with approximately $1.4 billion in cash and investments. As a reminder, a significant portion of our cash is earmarked to cover accrued but unpaid bonuses for fiscal year 2026 that will be paid this month end in November. Also in our fourth quarter, we repurchased approximately 300,000 shares as part of our share repurchase program. We will continue to evaluate balance sheet flexibility for acquisitions versus excess cash for share repurchases. Finally, the Board approved an increase in our quarterly dividend to $0.70 per share, 17% higher than our quarterly dividend in fiscal year 2026. The first quarter dividend will be paid in June. And with that, operator, we can open the line for questions. Operator: [Operator Instructions] The first question is from Brennan Hawken with BMO. Brennan Hawken: So you flagged really some pretty constructive comments on the outlook, even though that was it was maybe couched by some uncertainty to start out the year in 1Q. But I'd love to drill down on Restructuring. So last quarter, you guys said you expect Restructuring to face some revenue pressures, but now you've got an improved outlook. So does that mean that you're no longer seeing the pressures and you think the stability or growth are possible? Is it possible to put a finer point on that? Scott Joseph Adelson: Yes. Thanks, Brennan. I appreciate the question. I think that what you're seeing is kind of the flip side of the troubles that occurred on the Corporate Finance side during the quarter also created opportunity in -- on the Restructuring side. And I think that a number of people had the perspective even going in -- we were being a bit conservative last quarter when we talked about it because we did not actually see the new mandates coming in and the pace of that change, after the -- really the events in software and the war and energy all started to converge. We have seen that really change and the activity levels and Restructuring pick up materially. That gave us the -- as well as we said in our remarks, including some recent important wins to really give us confidence that we can continue to operate in Restructuring at elevated levels next year and probably beyond that as well. Brennan Hawken: Excellent. I appreciate that, Scott. And then you spoke to the backlog building in Corporate Finance. Maybe aside from tech. So we've been hearing about the need for sponsors to begin to transact. What are you seeing in regards to sponsors and the pressure for them to actually monetize? And how is the setback that maybe they're seeing in some of the tech-oriented investments playing through? And how do you expect that to impact as far as transaction volumes go when we move forward on Corp Fin? Scott Joseph Adelson: Let's take that in 2 separate pieces. Let's park tech for a moment. And just overall, if you look at sponsor activity, before really the conflict started what we had said was we had really seen things picking up quite a bit. And then obviously, that started and it created much more of a -- stop, we got to figure out what's going on here for a moment. And then if you really look the activity levels from a pitch standpoint, even in February, before it started, were really quite strong, more important metric is really the go to market when deals actually kick off. And as we sit here today, even in the last few weeks have been the most active we have seen in years. And so that activity level is increasing again at a pace that we feel good about. And software is -- I haven't talked really about software more than tech. Software is clearly a sector that is going to be impacted. And I don't think anybody really has an answer on how much yet. And I do think that there is a -- going to baby out with the bath water problem at the moment that everything that looks or smells like software is all of a sudden, not in favor. I think that will change as people dig in and there will be winners and losers like there are in every sector that you see a dislocation and it clearly will not be all software companies. J. Alley: And to put a finer point on it, Brennan, we have assumed that software will be affected in fiscal year '27 in our comments. Operator: The next question is from Devin Ryan with Citizens Bank. Devin Ryan: I just want to ask another 1 on sponsor slightly different angle. If you're trying to think about like order of magnitude of pent-up activity. We've seen larger deals in the market. And I think the argument of sponsors are going to come to be more active, but just trying to think about like how much more active, we have record duration of portfolios. There's record dry powder in the market. So how do you guys think about that? And the other part of the question is just, are buyers and sellers going to get aligned on price? The current vintage, some of those assets were bought at high valuation. So is that a risk or just not something that you guys see as an issue here as we get to maybe sponsors being able to exit some of these positions? Scott Joseph Adelson: Clearly, it has -- we talked about this a lot. We talked about the velocity of transactions. At the velocity has -- again, it is picking up. The -- we need to have some level of certainty in geopolitical issues where it's not to hit these road bumps along the way. But everything we are seeing is that sponsors want to begin to transact. There has -- you are correct that there are certain companies that will be under the price differentials that will be too difficult for them to deal with. There's no doubt about that. But that is -- from every indication we have, that is not the preponderance of the deal flow that is out there or anywhere near it. It really is -- there's different qualities, if you will, of assets that come out and the outstanding assets throughout the cycles have traded at really healthy prices with really no price degradation at all. It is really the ones below that as the market heats up, there is a greater receptivity to those companies and believing that you can really improve them and make them better and add that those companies are the ones that we really start to see in a healthier market begin to transact on a more regular basis. J. Alley: And Devin, we have a pretty compelling graph in our investor presentation, courtesy of Pitch Book that just shows the number of transactions within private equity, the growth over the last 10 years and the aging in this last year as of December 31, and over half of them are over 5 years old. And so -- I mean, there -- to answer your question with an exclamation point, there is a lot of pent-up demand. And we had started experiencing it well before the fourth quarter. I'd say it slowed down a bit in the fourth quarter, and we're seeing it tick right back up to where it was. So there's -- the market has gotten some comfort that there is at least containment in what's going on in the Middle East and software, I think, is a different story. Devin Ryan: Got it. I appreciate that color. And then as a follow-up, in Financial and Valuation Advisory, is that benefiting or going to benefit from the, call it, group scrutiny on private credit valuation driven just private equity more broadly, thinking that maybe that could drive more demand for valuation work and you guys would get involved in more situations with your clients? Just curious if that maybe a second derivative of some of this focus on private credit. Scott Joseph Adelson: Yes. We've talked about that a fair amount. That's really our portfolio valuation group, which has been growing quite nicely through all cycles and we feel very good about where that business is heading. And that is -- that TAM is continuing to grow and some of the things that you're talking about just -- are what grows it, is at the more -- getting marks more regularly is certainly 1 of those things and situations like we are seeing in private credit is a great example of why they need those marks on a more regular basis. Operator: The next question is from Brendan O'Brien with Wolfe Research. Brendan O'Brien: I guess to start, your comments on activity in Europe last year, certainly caught my attention. There's obviously a lot of interesting dynamics at play in the region at the moment. On the 1 hand, you have higher reliance on energy or an exporter of energy and so more sensitive to the price shock, but there's also clearly a push towards deregulation and more economically favorable simulative policies. Just want to get a sense as to what you're seeing or hearing from clients in the region at the moment and whether you expect that outperformance in terms of growth rate to persist? Scott Joseph Adelson: I think some of this is -- we just have a differentiated business in Europe at this point, and that is continuing to grow and the market is continuing to understand that. And obviously, our recent acquisition in France only adds to that. And so some of that growth is just -- we are in earlier stages in our business there and the market is really recognizing our differentiated product. The activity levels in Europe, broadly defined, we continue to see as being strong. And there's no doubt that some of the headwinds that you're discussing exist whether or not those wind up having a material impact on the year, we will see. But we feel good about our European and Asian businesses. And I think as we've said, even our Asian business even grew faster. Brendan O'Brien: Great. And I guess for my follow-up, I guess, on the FDA business, and specifically just AI implications for that business. On the 1 hand, I do see this as an area where you could see significant productivity gains given there are a lot of recurring cash. However, I've also been hearing some concerns on pricing pressures if this becomes more commoditized. Just wanted to get a sense as to how you're thinking about the implications of AI for this business longer term? How you're investing to kind of get ahead of the curve? And how you see that kind of impacting overall profitability of that business over time? Scott Joseph Adelson: Great. Thanks. The -- couple of things. We have been investing ahead of that technological corp for a very long time, actually, and FDA and 1 of our acquisitions. In the U.K. 2 years ago was along those lines as well. We certainly understand those pressures. And those -- none of those are new to us. And yet, we think that, that TAM is going to -- and it has been growing, as you can tell by our performance faster than any decline in pricing. J. Alley: And look, we have experienced pricing pressure on our FDA products for a decade, as Scott said, or more. And we have sort of reacted by growing our TAM at a rate significantly faster than the pricing pressure. And we expect that to continue. So we will continue to see pricing pressure. We also believe -- and you alluded to it at an earlier question -- it was alluded to in another question, that market for our TAM product, especially if private equity opens is going to double. And so we're, I think, pretty excited about all of that. And the other advantage is, very few firms have the wherewithal to invest in technology at the same pace that we are or that the big 4 accounting firms are. So this -- there is going to be a consolidation in this industry. A lot of the boutiques that are in and now just won't be able to keep up. And we think that for firms the size of Houlihan's, that is a huge competitive advantage for a business that requires a fairly significant spend in technology over the next 3 to 5 years. Scott Joseph Adelson: And we've talked about it before, but the data that we have from being enormous amount of marks that we do, obviously just makes our models that much better. Operator: The next question is from Ryan Kenny with Morgan Stanley. Ryan Kenny: Just a follow-up there on the need to spend on technology. Is there any update on non-comp outlook for this year or maybe longer term need to spend on non-comp? J. Alley: No. I mean, I think the technology spend that you've seen us making over the last several years is not expected to change. So non-comp is, as I mentioned on the call, expected to look a lot like fiscal '26 non-comp increases. I think 1 thing important when we spend money on technology for our Portfolio Valuation business or FDA business, that technology spend is transferable to our Corporate Finance business. Both businesses are high-volume businesses. And so it is -- we're able to spread the investments we make, whether it's in AI or whatever across really those 2 businesses, in particular, also will benefit our Restructuring business as well. So it's incorporated in the numbers and the assumptions we've made. Scott Joseph Adelson: I think you can think about it more -- I'm sorry about that. I think it's really more a matter of shifting priorities and to accomplish that. Ryan Kenny: Got it. And then separately on the capital side, you guys raised your dividend. Any update on how you're thinking about capital allocation to buybacks versus dividend versus potentially M&A? J. Alley: Yes. It hasn't changed. I think the quarterly dividend is really -- were increases a measure of our continued growth and our outlook for the next year. And our priority continues to be making acquisitions that we think are incredibly accretive to our shareholders and share repurchases after that. Now having said that, our goal is to maintain our share count, which we've done a pretty good job over the last several years. But we have maintained that balance sheet flexibility to make the acquisitions similar to what we did in February. And as Scott mentioned, we're going into fiscal '27, I think quite optimistic about the outlook for M&A for us this year. Operator: And next, we have James Yaro with Goldman Sachs. James Yaro: Scott, Corporate Finance did slow quickly relative to your previous guidance for the quarter having better than normal seasonality. You did talk about things already beginning to improve. How quickly can these deals turn back on and close? And then stepping back, do you think that there have been any permanent impacts to the Corporate Finance client backdrop from any of the either geopolitical or software issues? Scott Joseph Adelson: I don't think there's been -- the software, I don't know. Just flat out. We can't -- don't know. I don't think that it should have a permanent effect. I think it will have a permanent effect on some. And certainly, I don't think it should have on all, but I don't know. On the overall business, not at all, that we've talked about it throughout that we have been operating in a world where we have had just an elevated level of uncertainty, particularly geopolitical uncertainty. And when it rises above a level for whatever reason, in this case, it was conflict in the Middle East, people put their foot on the brakes, and they say, wait a minute, I need to understand what is going on, and that is what we saw. It clearly impacted our results. But as Lindsey pointed out, as it has subsided and people really just keep getting their head around higher levels of uncertainty and say, we have to get on with business and being an optimist, I do look at that and recognize there's a -- given the level of uncertainty, when it does subside to any reasonable level there is such a strong demand for activity to really ramp back up because we are seeing it in its early, early stages today, but again, there still is a reasonable amount of uncertainty. If that continues to subside, it will only get better and better. James Yaro: Okay. Great. Just 1 more on Restructuring. You talked about in the press release, lower average transaction fees on closed transactions. I'd just love to get your perspective on what -- but you -- and then in addition, you know that that's not a trend. But maybe just comment on why this isn't a trend, what happened in the quarter? And then also, you talked about 2 -- I think you talked about 2 deals that stretched beyond the quarter. Does that mean that we should have a seasonally elevated fiscal first quarter? J. Alley: So it's a good question. Look, I think that the transaction, the average transaction size for Restructuring, there are no trends. Some quarters, it's higher than others simply because of size of transaction. Corporate Finance does have an upward trend to it. And FDA in some cases, is flat given some of the comments we've made. Financial Restructuring is going to vary quarter by quarter, just depending on the size and makeup of the transaction that closed out quarters. So nothing to read into there. I think with respect to the second part of your question on... Christopher Crain: The 2 deals. J. Alley: The 2 transactions. Look, we're very comfortable saying they're going to close in fiscal '27. When you start pinning us down for quarters, we get a little bit antsy, but we do think that 1 of the reasons why we're comfortable at elevated restructuring revenues for fiscal '27 is simply because those 2 transactions are included in it, along with all of the other things that Scott mentioned. So we do expect them to close and likely in the first half of the year, as I said, but I don't really want to pin it on a space quarter. Scott Joseph Adelson: I think based upon what I know today, it's unlikely for them both to close in the same quarter as it sits today. If that were the case, I think we might say something different to you, but I think that because there's going to be spread out is something that I think just think about it as a normal elevated level. Operator: The next question is from Nathan Stein with Deutsche Bank. Nathan Stein: I wanted to ask a revenue split for the M&A and Capital Solutions businesses within Corporate Finance. What was this revenue split in the fourth quarter? And do you expect those levels to be sustained in fiscal '27? J. Alley: So we don't -- we won't give splits by quarter, but our Capital Solutions business is above 20% of our Corporate Finance revenues. Think of it that way. And I'd say the last couple of years, that number has gotten higher as a percentage of the overall Corporate Finance business. What happens next year? I don't want to get into that level of detail. But we have said before that business, the outlook for that business and the momentum in that business is exceptional. And so we'd love to be able to comment looking backwards a year from now and give you a bit more color. But looking forward, I don't want to get into that level of detail for Capital Solutions. But over 20% is kind of how I would think about it. Nathan Stein: And then I guess just on AI, do you have any updates for investors as to how you're looking at implementing AI across your business? Scott Joseph Adelson: I can get in an awful lot of details, depends on the time you really want me to take. Yes, I mean, we are embracing it fully, and there's really want to think about it. There's multiple ways to think about it. There's a front-end component to it. There's a workflow component to it. There's a operational or back office component to it. There's a moonshot component to it. And we have basically work streams in all those areas occurring. Operator: The next question would be from Alex Bond with KBW. Alexander Bond: So I heard the commentary on the strengthening M&A backlog, which is obviously good to hear. But curious how you would describe maybe how, if at all, the preannounce pipeline has shifted in terms of composition recently, whether it be sponsors versus strategics or any geographical mix shift. Just trying to drill down on where you've seen activity be most prevalent at the moment given everything that's going on in the market? Scott Joseph Adelson: Yes. Thanks, Alex. Good question. I mean it really has been across the board. I mean, our mix sponsored, non-sponsored doesn't change that dramatically. A lot of people talk about that a lot, but it is -- it's been -- it is fairly constant points different from period to period. So there are these dramatic swings that I think people may expect. Clearly, a number of the -- when we talk about pitch pipelines and things that have just kind of more visibility to it that tends to be more sponsor-driven simply because they just -- there's a cadence to that. And so that is clearly picking up as we were saying. In terms of U.S. is clearly a part of that. Europe is part of that. We have said Europe is growing faster, but to be fair, it's from a smaller base. And Asia is growing faster than that, but that's from a smaller base. So we are seeing activity in all 3 regions. I would say, appropriate for where they are in their maturation. J. Alley: And Alex, I mean, look, if there's some optimism in our voice, even given sort of the uncertainty of the last quarter, it's because it's firing on all cylinders across industry, across geography with the 1 exception of technology. And technology as pressure on it, and we've incorporated that into our thinking. And technology is a decent-sized business for our software is. But the other industries are -- and again, not hard to point to why, it goes right back to that there is a huge pent-up demand particularly from private equity to transact, and we're kind of right in the middle of that. Operator: Next question is from Michael Brown with KBW. Michael Brown: I wanted to ask Restructuring, maybe just to kind of narrow in a little bit there. So the activity levels there seem like they can be certainly broadening out. And I think you talked about an element of that they can stay elevated. They've been running at a healthy pace here for a while. So maybe just help us kind of frame what elevated kind of means now? So when we look at fiscal '27 and obviously, it's early days here, but fiscal '27 versus fiscal '26, does that just kind of mean potential for growth here? Is it possible in your view that we see kind of a new record for the business as we get to fiscal '27? Any kind of view on that based on what you're seeing in the activity? J. Alley: So I would answer it this way. We have been saying elevated levels for the last 3 years for Financial Restructuring, and we're using the same terminology. So I would just start there. Michael Brown: Right. Okay. Great. And maybe just switch gears to the follow-up on the capital allocation question earlier and the M&A question. So you talked about how the M&A pipeline is as active as ever. Maybe just talk a little bit about what's your top criteria there? You did some acquisitions in Europe, so maybe anything you kind of do geography-wise or industry vertical capability. And what deal size are you targeting now? Are you starting to think maybe about some larger-sized deals that could have more of a needle mover on the franchise? Or is that just kind of too hard to do just given the size and scale to platform that? Scott Joseph Adelson: I think we've talked about it before. I mean, first of all, there are geographic ones, there are product ones, there are industry ones, there is a complete portfolio. But really what drives it is cultural fit. I mean that is the single most important thing to us. Much more so than size or any of the other attributes that I just articulated, it really is cultural fit. And when we find groups of people that really fit with our culture, and we believe we'll be successful in our organization. We work on getting those deals done. And that feels comfortable that you will see more of that in the years to come. It will vary in size, but what hopefully won't vary is the cultural fit. J. Alley: And it's -- we have a lot of flexibility. I mean, remember, we keep saying the market is huge, and we are an incredibly small player in a huge market. And our last 3 transactions we've done are good examples of just the variability you're going to continue to see. The Waller Helms transaction was a transaction within the FIG space and a couple of niches within FIG where we were meaningfully underweighted, and it has been incredibly successful. The transactions that we did in February, one was on the product side in our Capital Solutions business, we were underweighted in real estate particularly in Europe, and we had a transaction that identified an opportunity to fill that in. And finally, we were significantly underweighted in the markets in France, and we found a geographic fit. And there are more of each of those. And so it's hard to answer the questions about what we're focused on. As Scott said, we have so many unfilled areas in product, geography and industry that it is much more about finding the right partners than it is about focusing on a particular niche because we're underweighted in it. Operator: Well, with this question, this is our last question in the queue. If there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Scott Adelson for any closing remarks. Scott Joseph Adelson: Thank you, Debbie. I want to thank you all for participating in our fourth quarter and fiscal 2026 earnings call. We look forward to updating everyone on our progress when we discuss our first quarter results for fiscal 2027 this summer. Operator: This concludes our conference. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone. And welcome to EOG Resources, Inc. First Quarter 2026 Earnings Results Conference Call. As a reminder, this call is being recorded. For opening remarks and introductions, I will turn the call over to EOG Resources, Inc.'s Vice President of Investor Relations, Pearce Hammond. Please go ahead, sir. Pearce Hammond: Thank you, Cindy, and good morning, and thank you for joining us for the EOG Resources, Inc. First Quarter 2026 Earnings Conference Call. An updated investor presentation has been posted to the Investor section of our website, and we will reference certain slides during today's discussion. A replay of this call will be available on our website beginning later today. As a reminder, this conference call includes forward-looking statements. Factors that could cause our actual results to differ materially from those in our forward-looking statements have been outlined in the earnings release and EOG Resources, Inc.'s SEC filings. This conference call may also contain certain historical and forward-looking non-GAAP financial measures. Definitions and reconciliation schedules for these non-GAAP measures and related discussion can be found on the Investor Relations section of EOG Resources, Inc.'s website. In addition, any reserve estimates on this conference call may include estimated potential reserves as well as estimated resource potential not necessarily calculated in accordance with the SEC's reserve reporting guidelines. Participating on the call this morning are Ezra Y. Yacob, Chairman and Chief Executive Officer; Jeffrey R. Leitzell, Chief Operating Officer; Ann D. Janssen, Chief Financial Officer; and Keith P. Trasko, Senior Vice President, Exploration and Production. I will now turn the call over to Ezra Y. Yacob. Ezra Y. Yacob: Good morning, and thank you for joining us. EOG Resources, Inc. is off to an exceptional start in 2026. Our track record of consistent, high-quality execution continues to set us apart, delivering strong operational performance across our foundational assets while steadily advancing our emerging plays and exploration opportunities. The first quarter was a clear extension of that momentum. We exceeded expectations across key operating and financial metrics; production volumes, total per-unit cash operating costs, and DD&A all outperformed guidance midpoints, driving robust financial results. We generated $1.8 billion in adjusted net income and $1.5 billion in free cash flow. Consistent with our commitment to disciplined capital allocation and enhancing shareholder value, we returned nearly $950 million during the quarter through our regular dividend and opportunistic share repurchases. In today's macro environment, EOG Resources, Inc. is well positioned in realizing the benefits of decisions we made during a more challenging commodity price backdrop. Those actions were deliberate and are paying off. For example, we strengthened our portfolio through the acquisition of nCino, increasing our oil production by approximately 10%, and we complemented that with a strategic bolt-on acquisition in the Eagle Ford. We also enhanced our market exposure by securing LNG contracts linked to JKM and Brent, positioning us to capture premium pricing in global markets. Additionally, we expanded our international footprint with high-quality concessions in the UAE and Bahrain, opportunities that would be difficult to replicate in the current price environment. Finally, we continue to deepen our vertical integration across critical services. This differentiated approach further improves efficiencies, lowers costs, and strengthens execution across our operations. As a testament to investing capital at a disciplined pace, between 2022—which was the last period of very robust oil prices—and 2026, where we are in a similar oil price environment, we have added nearly 100 thousand barrels per day of oil, over 140 thousand barrels per day of NGLs, and nearly 1.6 billion cubic feet per day of gas to EOG Resources, Inc.'s net production. We did this while generating an average ROCE of 27%, returning approximately $20 billion to shareholders, and maintaining a pristine balance sheet. EOG Resources, Inc. continues to take a consistent approach to capital allocation in the current environment. Given robust oil prices and softness in natural gas, we have refined our plan for the balance of 2026. We are increasing oil and NGL production while maintaining our $6.5 billion capital budget by reallocating capital from gas to oil-weighted assets. This is a disciplined and pragmatic rebalancing that underscores the value and flexibility of our multi-basin portfolio. Our 2026 program includes production growth, domestic and international exploration, and a peer-leading regular dividend with a breakeven oil price below $50 WTI, leaving ample room for additional cash return to shareholders under current strip prices. This revised plan strikes the right balance between near-term free cash flow generation and long-term value creation, while preserving the strength of our balance sheet. Turning to the macro backdrop, the conflict involving Iran is the most significant development impacting our business and the broader energy markets. Disruptions to crude supply and flows through the Strait of Hormuz are estimated to remove approximately 900 million barrels from global markets through June 2026. Even in a scenario where the conflict is resolved relatively quickly, rebuilding global inventories back to five-year average levels will provide ongoing support for oil prices. Additionally, we expect the post-conflict outlook to include replenishing strategic petroleum reserves, limited remaining global spare capacity, and a higher geopolitical risk premium. Together, these dynamics point to a constructive oil price environment with geopolitical developments likely to continue driving periods of upside volatility. On natural gas, near-term pressure remains with Lower 48 storage levels above the five-year average. However, our medium- to long-term outlook remains positive. U.S. natural gas benefits from two durable structural tailwinds: rising LNG feed gas demand and increasing electricity consumption. We expect U.S. natural gas demand to grow at a 3% to 5% compound annual growth rate through the end of the decade and believe the previously forecasted potential for global LNG oversupply has been significantly reduced with the damage to LNG infrastructure abroad. Our investments in building a premium gas position to complement our oil business have us well positioned to supply these expanding markets. And while EOG Resources, Inc.'s share price has increased following the onset of the conflict, the move in oil prices has been even more pronounced. As a result, we continue to believe EOG Resources, Inc. represents a compelling investment opportunity for several reasons. First, we have a high-return domestic and international asset base with deep, long-duration inventory. Across our multi-basin portfolio, we estimate approximately 12 billion barrels of oil equivalent of resource potential generating greater than a 100% direct after-tax rate of return at $55 WTI and $3 Henry Hub. Our disciplined capital investment allows us to pace development appropriately and direct capital towards the highest-return opportunities across the portfolio. Second, we bring differentiated exploration capabilities and approximately 25 years of unconventional experience, an advantage we have consistently leveraged to identify and capture opportunities ahead of the market. Third, we have a demonstrated track record as a low-cost, highly efficient operator supported by strong technical expertise and operational execution. In the past year alone, we reduced average well cost by 7% and operating costs by 4%. Fourth, we generate durable free cash flow and consistently deliver a peer-leading return on capital employed. Fifth, we remain committed to a sustainable and growing regular dividend, complemented by meaningful additional cash returns. Notably, we have never reduced nor suspended our regular dividend in 28 years. Finally, our pristine balance sheet provides resilience and strategic flexibility through commodity cycles. All of this is underpinned by EOG Resources, Inc.'s distinctive culture: a decentralized, collaborative operating model that fosters innovation and drives performance at the asset level. In summary, we are off to a strong start in 2026 and are well positioned to execute in the current macro environment. We remain focused on delivering sustainable free cash flow, maintaining operational excellence, and creating long-term value for our shareholders. Now, I will turn it over to Ann D. Janssen for details on our financial performance. Ann D. Janssen: Thank you, Ezra. EOG Resources, Inc. delivered another quarter of outstanding financial performance, once again demonstrating the power of our consistent approach to capital allocation: invest with discipline, return cash, and maintain a pristine balance sheet. In the first quarter, we generated adjusted earnings per share of $3.41 and adjusted cash flow from operations per share of $5.85, building free cash flow of $1.5 billion. During the first quarter, we returned approximately $950 million to shareholders, nearly $550 million through our regular dividend and approximately $400 million in share repurchases. With $2.9 billion remaining under our current share repurchase authorization at March 31, we have substantial capacity for continued opportunistic buybacks. Our financial position remains exceptional. We ended the first quarter with over $3.8 billion in cash, an increase of approximately $450 million since year-end 2025, and net debt of $4.1 billion. Our leverage target, which is maintaining total debt at less than one times EBITDA at bottom cycle prices of $45 WTI and $2.50 Henry Hub, remains among the most stringent in the energy sector. This provides both downside protection during challenging periods and the financial flexibility to invest strategically through commodity cycles. Turning to 2026, our low-cost operations and financial strength allow us to be unhedged, providing shareholders full exposure to higher oil prices. At current strip pricing and using guidance midpoints, our 2026 plan generates a record $8.5 billion in free cash flow. Given the substantial increase in oil prices since late February, and the subsequent increase in our free cash flow, we expect to return at least 70% of free cash flow this year, which would represent a record annual cash return to shareholders. The foundation of our cash return remains our regular dividend. Historically, we supplement the regular dividend with share buybacks or special dividends. Over the past three years, we have favored share buybacks as our primary supplemental return mechanism as we believe the shares are attractively valued and we like the connection between repurchasing stock and dividend increases. We are committed to executing buybacks opportunistically. If market conditions warrant, we could build some cash on the balance sheet to provide future flexibility to maximize long-term value creation. Our track record speaks for itself. Whether through buybacks, special dividends, strategic bolt-on acquisitions, or infrastructure investments, we have consistently deployed capital to enhance shareholder value. EOG Resources, Inc.'s financial foundation has never been stronger. We are generating significant free cash flow, returning meaningful cash to shareholders, and maintaining financial flexibility to capitalize on opportunities as they arise. This combination of operational excellence and financial discipline positions us exceptionally well for long-term value creation. With that, I will turn it over to Jeffrey R. Leitzell for our operating results. Jeffrey R. Leitzell: Thanks, Ann. I would first like to thank all of our employees for their outstanding performance and efficient operational execution in the first quarter. Our quarterly volumes, total per-unit cash operating costs, and DD&A beat guidance midpoints. This was accomplished during the quarter with a significant winter storm event that impacted numerous operating areas and caused substantial third-party downtime. With the benefit of EOG Resources, Inc.-owned and operated infield gathering systems, the use of in-house production optimizers, area-specific control rooms, and our diverse marketing strategy, our teams were able to manage remote operations and minimize downtime during this event. These efforts have allowed us to get off to a strong start in 2026, and because of that, I would like to recognize our field teams for all their hard work and dedication. For the full year 2026, we are increasing oil production guidance by 2 thousand barrels per day and NGL production guidance by 6 thousand barrels per day while keeping total capital expenditures flat at $6.5 billion. The added oil and NGL volumes are driven by reallocating capital across the portfolio rather than increased activity levels. From a development standpoint, we are moderating near-term drilling and completions activity at Dorado in response to current gas prices. Dorado remains a large-scale, high-quality dry gas resource, and we continue to invest in this foundational asset at a pace to balance short- and long-term free cash flow, grow into emerging North American gas demand, and leverage our technical learnings and infrastructure to continue lowering breakevens and expand margins. Capital is being reallocated to our foundational oil plays to leverage current market conditions. This initiative underscores the strength of our multi-basin portfolio, which allows us to continually optimize capital allocation as commodity cycles evolve. This reallocation is weighted towards 2026 while maintaining capital discipline and preserving long-term value across the portfolio. Turning to costs, we have not seen any significant inflation with our services or cost increases on high-quality rigs or frac spreads. For 2026, approximately 50% of our well costs are already locked in, and we continue to rebid service to maintain pricing discipline. While some vendors have added fuel surcharges, our exposure to higher diesel prices is structurally lower than many peers. Approximately 70% of our drilling rigs can run on natural gas, and 100% of our frac fleets are e-frac or dual-fuel capable, both able to be powered by our low-cost fuel gas. This significantly mitigates exposure from rising diesel prices. On the operating cost side, the impact from higher diesel prices has been minor. Overall, we are insulated from a number of these potential inflationary pressures through our contracting strategy and self-sourced materials vertical integration. Long-term, staggered contracts limit exposure to spot market volatility, while our ability to source key inputs directly and leverage integrated infrastructure reduces risk to higher prices. Collectively, these actions allow us to maintain capital efficiency, drive execution, and focus on sustainable cost reductions, and are complemented through utilizing data and technology to reduce time on location. All of this delivered significant results across our portfolio in the quarter. First, on drilled feet per day, we realized the following increases in 2026 versus the full-year 2025 average: in the Utica, we increased by 22%; the Powder River Basin increased by 13%; and the Eagle Ford increased by 12%. We continue to make significant strides in capital through lateral length optimization, resulting in fewer vertical wellbores to drill, more productive time both on surface and downhole, as well as a reduced surface footprint. In addition, EOG Resources, Inc.'s internal drilling motor program acts as a force multiplier on these longer laterals, improving downhole drilling performance and giving us the confidence to continue extending laterals across the portfolio. We are focused on drilling two- to three-mile laterals in the Delaware Basin and three- to four-mile laterals in the Utica and Eagle Ford plays. Second, our completions teams are continuing to increase stimulation efficiency. Each of our foundational plays has increased completed feet per day, led by the Eagle Ford and Delaware Basin, at 12% and 17% increases during the first quarter, respectively. One major factor that has allowed us to accomplish these results is an increase in our maximum pumping rate capacity by approximately 20% per frac fleet since 2023. This has not only allowed our technical teams to decrease their total pump times but also allowed our engineers the flexibility to tailor each high-intensity completion design around the unique geological characteristics of every target. Additionally, our teams are applying real-time geology, drilling, and completions data to improve well performance across the portfolio through innovative completions and targeting strategies. For example, our Western Eagle Ford wells are benefiting from larger frac job designs, and we are seeing positive results in the Utica from staggering our landing zones. Third, I would like to highlight our Janus Natural Gas Processing Plant in the Delaware Basin. Since November 2025, this plant has averaged 300 million standard cubic feet per day of processing, representing 94% plant utilization. Janus had a record month in March 2026 with 100% utilization and 300 million standard cubic feet per day of processing. Strong operations at Janus help us reduce Delaware Basin GP&T costs while highlighting the advantage of strategic infrastructure investments. Delivering this level of consistent performance is impressive and is a testament to the execution of the teams on the ground. This is another example of EOG Resources, Inc.'s operational excellence delivering financial results. Lastly, our marketing strategy—built on flexibility, diversification, and control—continues to deliver significant value. A key and growing aspect to this is our access to international markets and exposure to premium pricing. On the crude side, we have access to 250 thousand barrels per day of export capacity out of Corpus Christi. We leverage this capacity to reach international markets, and it gives us the flexibility to price crude on a domestic-based or Brent-linked price. Regarding LNG gas supply agreements, our Cheniere contract expanded from 140 thousand BTUs per day to 280 thousand BTUs per day during 2026. An additional 140 thousand BTUs will start in the second quarter of this year, bringing us to the full 420 thousand BTUs per day. These volumes are linked to JKM or Henry Hub pricing at EOG Resources, Inc.'s election on a monthly basis. We also supply 300 thousand BTUs per day of LNG feed gas at Henry Hub-linked pricing. Together, these contracts highlight that our marketing strategy is a competitive advantage and demonstrate how targeted international pricing exposure is driving premium realizations and incremental value across both crude and natural gas. After a strong first quarter, EOG Resources, Inc. is well positioned to execute on its full-year plan, and we are excited about our operational team's ability to drive value through the cycles. Now here is Ezra to wrap up. Ezra Y. Yacob: Thanks, Jeff. I would like to note the following important takeaways. First, we have started 2026 with strong momentum and execution across the business. Second, capital discipline is a core pillar of our value proposition. We have updated our 2026 plan to increase oil production while keeping capital spending unchanged. Our portfolio is performing, our balance sheet is resilient, and our capital allocation remains firmly anchored in returns and shareholder value. Third, we expect to continue to deliver in 2026 and beyond for our investors. In a macro environment that demands both agility and rigor, we are well positioned not just to navigate volatility, but to capitalize on it. Our disciplined approach to investment across our foundational and emerging assets continues to grow the free cash flow potential of the company both in the short and long term. Overall, our success is grounded in our commitment to capital discipline, operational excellence, and sustainability, underpinned by our culture. Thanks for listening. Now we will go to Q&A. Operator: Thank you. The question and answer session will be conducted electronically. Please do so by pressing the star key followed by the digit one. If you are using a speakerphone, you are allowed one question and one follow-up. We will take as many questions as time permits. Once again, star one. Our first question comes from Arun Jayaram of JPMorgan Securities LLC. Go ahead, please. Arun Jayaram: Yes, good morning. First question is on marketing. You raised your full-year oil guidance by $3.25 a barrel. Can you remind us of the pricing mechanism on those waterborne barrels out of Corpus as well as the potential uplift you anticipate from the Cheniere marketing agreement as you are reaching 420 thousand BTUs in 2Q? Jeffrey R. Leitzell: Yes, Arun, thanks for the question. First off, on the waterborne volumes that you talked about, as I mentioned in my opening comments, we have about 250 thousand barrels per day of export capacity. Those barrels can be linked either to domestic pricing or Brent-linked pricing. We basically sell those cargo by cargo, on an each-ship basis. There has been a lot of price volatility recently with the conflict, so we have been able to sell numerous cargoes at attractive pricing. It has really been paying dividends to have that export capacity to diversify our marketing on the oil side. Over on the JKM side, when you look at LNG, you are starting to see a little bit of the benefit from that JKM linkage, but you are also seeing some of the volatility in the market that is counteracting that, so there is a little bit of noise. As you know, we came into the year producing 140 thousand MMBtu into that Cheniere contract. We increased that another 140 thousand in the middle of the first quarter, so you are not seeing the full realization flow through, and then we will have the additional 140 thousand come in during the second quarter, and you will continue to see it build into our overall guidance as you move forward. The other thing I would note on the actual price realization for gas is that although we have pretty minimal exposure in the Permian to Waha—less than 7%—you do see a little bit of an effect on the realization for the first quarter, especially with some of the lower pricing over there. I do not think you will see that alleviate until probably the last quarter, whenever we start bringing on some more egress in the Permian Basin and bring on that 4 million to 5 million a day of capacity. All in all, we are extremely happy with our overall international exposure. It is a great piece to diversify our overall marketing strategy, and especially at times of volatility, I think our teams are doing a great job taking advantage of it. Arun Jayaram: Great. And my follow-up is on the Middle East exploration program. I was wondering if you could provide a little bit of an update on what is going on on the ground and how, Ezra, you think about capital allocation given the geopolitical risk situation, although you could argue if the UAE does leave OPEC that perhaps provides a potential tailwind to growth. And perhaps you could give us a sense of when EOG Resources, Inc. may be in a position to share initial results either from Bahrain or UAE on your exploration program? Ezra Y. Yacob: Yes, Arun, good morning. There is a lot there, so let me unpack some of it and maybe I will let Keith P. Trasko address the current operations piece. On the UAE’s decision to leave OPEC, it does not really have any change or impact for EOG Resources, Inc. We just recently began operations in the country, so we have not felt any impact, and going forward, we certainly do not expect to. I think it shows some of the positive steps the UAE is taking within their country. From our perspective, our intention has always been that if the plays are successful, returns are going to drive the investment and growth in the oil play more so than any type of production quotas. As far as continued capital allocation given the geopolitical risk, longer term it is still early in the conflict to be making those types of decisions. During the exploration phase, we entered this trying to do a couple of different things—certainly evaluating the subsurface potential of the fields. We certainly wanted to evaluate the surface and operating environment: can we get access to high-quality equipment, can we build scale there, and things of that nature? We are also looking during the exploration phase to evaluate the geopolitics, the sanctity of contracts, our partners, things of that nature. With great confidence here during this conflict, we have definitely landed with strong partnerships with both ADNOC and BAPCO. There has been very clear communication and straightforward alignment on our operations, and that really gives us pretty good confidence going forward. It actually gives me confidence in the way that we approach or look at the potential for other international opportunities. Keith P. Trasko: On the operations side, we are closely monitoring the situation in both Bahrain and the UAE. It is pretty dynamic. We have some employees that remain in the region while others have been repositioned. Since the program is still in the exploration phase, our 2026 plan for Bahrain and UAE was designed with a lot of flexibility. On the timeline side, both projects are moving forward in line with our expectations for exploration plays. The near-term timeline has slipped slightly from the start of the year, so we anticipate having results in the second half of this year, and we will provide additional updates if there are material changes. Over the longer term, we remain very excited. We entered the UAE and Bahrain because we saw compelling subsurface opportunities, positive production results from prior horizontal development, and strong partners in both countries. In Bahrain, you have a tight gas sand. In the UAE, you have a carbonate mudrock; we are very used to dealing with those types of rocks. We believe they will benefit significantly from the drilling and completions technologies that we employ in our domestic unconventional plays every day. In the current exploration phase, we are gathering data on long-term well costs, evaluating our ability to access high-performing service equipment, and we started exploration activity with limited operations in both countries last year. Our goal remains to leverage our core competencies in onshore unconventional development to unlock resources competitive with the domestic portfolio. Operator: Our next question comes from Stephen I. Richardson of Evercore. Go ahead, please. Stephen I. Richardson: Hi, good morning. Ezra, it sounds like the decision to pivot a little bit more towards liquids is more to do with the opportunity of liquids than it is a change in your longer-term view in gas. Maybe you could talk about the value of keeping the capital flat and making that adjustment within the portfolio, and then what it does sound like you are thinking—that this is a longer-term impact to market, which I think we would agree with. So how does that set you up for 2027 and beyond from a liquids and potentially oil growth perspective? Ezra Y. Yacob: Yes, Steve, great question and good morning. I would start with the decision on the capital reallocation this year. It really is just looking at where the dynamics have played out and what has happened since the beginning of the year. There has been a dramatic upset on the liquids side, on the oil side, and you have seen a dramatic response in the oil price. Conversely, on the natural gas side, inventory levels—after starting the year off pretty strong supporting price—have climbed above the five-year average, and gas prices have pulled back a bit. For us, it is a pretty simple calculation of reallocating some of the activity in Dorado to some of our more oil-weighted assets, not just for returns, but quite frankly, there is a call across the globe right now for increased oil supply, and so that is what we are doing. In Dorado, we have made fantastic progress. We have reduced our well costs with our target down below $700 per foot, and we feel confident that we can hit that this year. As you know, we have a low breakeven price of about $1.40 per Mcf. The advantage of having a multi-basin portfolio with both geographic and product diversity is that we have the flexibility to move capital allocation around throughout the years if you see something as dramatic as we have this year. For 2027, this does set us up better to grow liquids—these maneuvers that we have done now—to grow liquids, maybe a little more oil, a little more aggressive in 2027. But really, it is too early to get there. We need to continue to see how the conflict proceeds. That is why we are confident in our plan today to maintain our capital budget because we want to see how these things start to play out a little bit longer. We are not quite there yet as far as making a call on picking up rigs or frac fleets and investing longer term. Just this morning, over the last 10 to 12 hours, you can see how volatile the situation remains. While we do think longer term this sets up an environment where there is a much higher floor for oil price than where we entered the year, we would like to have better line of sight and understand that a little bit more before we took any additional steps forward. Stephen I. Richardson: That is great. Very clear. Maybe I could also ask on the buyback. It looks like you stepped up on the buyback pretty significantly in the month of April here, and that is despite, I think we would agree, that oil price is above a view of mid-cycle when you just mentioned some of the volatility. I think Ann mentioned this in her script, but can you talk a little bit about how tactical you are willing to be around the buyback and how you think about that relative to the value of just a ratable program throughout the year? Because obviously there is a ton of volatility in the commodity and your stock price as we look forward. Ann D. Janssen: Yes. Good morning, Steve. Through the first four months of 2026, we have seen exceptional value in our stock, and that has been reflected in the buyback activity you referenced. It has put us in a good position to return at least 70% of annual free cash flow back to our shareholders this year. As reported in the first quarter, we repurchased 3.2 million shares. To dissect that a little, we did have some limitations on buybacks during the fourth-quarter earnings period because for the first two months of 2026, we were operating under the parameters of a 10b5-1, so the majority of those 3.2 million shares were repurchased in March. Then we leaned in, and from April 1 to April 28, we repurchased approximately 2.3 million additional shares. That is really a testament to us continuing to see a lot of value in our stock driven by tremendous positive momentum we see within the company. We believe those buybacks support sustainable growth of our regular dividend. Finally, if you look at the energy weighting in the S&P 500, despite the increase in stock prices, it is still very low at approximately 3.5%. You can also see free cash flow yields in the energy sector are close to historic highs. We have allocated over $7.1 billion to repurchases since we first started buying back stock in 2023, and that has allowed us to reduce our share count by more than 10% at compelling prices. That disciplined approach focuses on being opportunistic and positions us to create meaningful value for our shareholders, and we remain confident continued improvement in our business and growing intrinsic value will provide additional opportunities for us to buy back our stock going forward. Operator: The next question comes from Joshua Silverstein of UBS. Go ahead, please. Joshua Silverstein: Just a question on the shifting activity. I was curious about the decision process as to how you reallocated amongst the three different basins there. Why 10 more in the Utica versus five in the Delaware versus, say, 15 all in the Utica or Delaware? I was curious if there was something that drove this or if it was based on what you could do with the existing rigs and frac crews there? Thanks. Jeffrey R. Leitzell: Hey, Josh. Thanks for the question. There is nothing to read into there at all. It really just happens to be what flexibility we have in our activity schedules at this point in the year across all the assets. A couple of things I would state: in the Utica, where we are increasing 10, we have seen some of the easiest drilling in the company, and we have talked about that very openly, with really solid efficiency gains even in the first quarter where we increased our drilled feet per day by 22% versus 2025. Seeing outstanding results there has allowed us to build our working DUC count a little more than some of the other plays. In the Delaware, everything is going outstanding as well. We tend to be a little bit more efficient on the completion side there because we have full super-zipper operation across our fleets along with all of our sand logistics in place, so you really do not have delays there. We also saw a 17% increase in the first quarter on completed lateral feet per day, which was keeping the DUC count a little tighter. That is all it is—just the mechanics of how things were moving, the timelines we had between our rigs and completion fleets in each one of the divisions, and how it made sense to allocate that capital and keep each division healthy so we can keep improving each one. Joshua Silverstein: Got it. Thanks for that. And then I know you have not added any additional CapEx for exploration for this year, but I am curious with the additional cash you will now be building if there are new prospects you are teeing up for exploration for next year, both domestically and internationally. I know you guys are always out looking for new areas to go in—some resource upside. So curious for an update there. Thanks. Keith P. Trasko: Yes. We have a number of exploration plays, both domestic and on the international side. In fact, I would say maybe even more on the domestic side than international. Our teams are always utilizing data from our successful plays to revisit basins, look at new basins, and see what could be unlocked with the new technology we have applied to other plays and with the lower costs of today than in the years that the basin was first looked at. We are always on the lookout for what can make our inventory better. I cannot comment on specifics, but as you know, exploration has always been our preferred method of adding low-cost reserves. You look at DoradoCo, you look at Dorado, you look at our Utica first-movers, Trinidad exploration; even the Encino acquisition was born of organic exploration from the years prior. We expect all our asset teams to be exploring for inventory additions and/or something transformative. We have several prospects and leasing campaigns, and when we are ready to comment on specifics of a given program, we do so. Exploration is a big way that we deliver value to shareholders. Operator: The next question comes from Scott Michael Hanold of RBC. Go ahead, please. Scott Michael Hanold: Yes, thanks. If I could return to the shareholder return discussion, I am not sure if this is for Ann or Ezra, but could you give us a view of how you think about variable dividends? I know there have been a number of your peers who have shelved that concept. If your stock price does go at a point, do you still see variables having some value? And secondly, on shareholder returns, is there the ability or desire for you to push to, say, a 90% to 100% return versus the base 70% level like you have done in past quarters? Ezra Y. Yacob: Good morning, Scott. Thanks for the question. On the special dividend piece, that is still in our mix. We have been clear that the foundation of our cash return to shareholders is the regular dividend. That is the one that we love—sustainably growing that regular dividend. We think it sends a message of discipline to our investors; it shows increasing confidence in capital efficiency going forward. When we first started doing additional cash return three and a half to four years ago, we leaned in on special dividends a bit more than buybacks. We have always said that, in general, we are pretty agnostic to how we return that additional cash to shareholders, but we are committed, as far as buybacks go, to being opportunistic. We have really shifted in the last few years. Over just over three years now, we have shown a track record of consistently being in the market every day looking for opportunities. So opportunistic—not necessarily just holding out for a dramatic black swan event—but really looking at where we can create value for shareholders through the cycle. I think we have done a great job with that. We are also very cognizant not to let this program become procyclical, and that is one reason why we have that 70% minimum return commitment. Going to a 90% to 100% return at these elevated prices—I would not say nothing is impossible, but I would highlight that we would like to build a little more cash on the balance sheet in this part of the upcycle and prepare for a potential future pullback in prices where we could continue our track record of positive countercyclical investment. Some of the things I mentioned earlier—investment in the Janus processing plant, the Encino acquisition, the bolt-on in the Eagle Ford, some of our marketing agreements—are really when we create significant value for shareholders: being able to have the balance sheet to zig when maybe others are zagging. Scott Michael Hanold: Appreciate that context. My follow-up is on the premium pricing in the contracts. You all obviously have been a step ahead of other companies with signing these agreements and benefiting right now. As you look ahead, is there further opportunity to build on that, or are these more countercyclical decisions? Jeffrey R. Leitzell: Yes, Scott. Our marketing team looks day in and day out for new opportunities, new outlets, and diversifying the portfolio we have—both domestically, where we have emerging plays and are in new areas, and internationally. We are constantly adding new markets and trying to minimize differentials to maximize netbacks. On the international side, we have great exposure with our LNG agreements, as we have talked about, getting close to 1 Bcf a day. We continue to look for unique ways to price gas going offshore to try to take volatility out and get a premium price. As we have talked about, the Cheniere agreement is kind of a sweetheart deal, so it is tough to get those kinds of terms. But we are still in the market and looking at opportunities. With the size of the company we are now, we have a lot of scale in all these basins and internationally. With how low-cost we are, we are able to keep operations moving with consistent activity. That is an advantage to us in negotiations, along with our balance sheet—which counterparties know will be resilient through cycles—and we can lean on that. That tends to help in negotiations to get us better pricing. Our goal is to continue to improve our overall price realization and maximize netbacks, and we will continue to look for ways to do that. Operator: Our next question comes from Phillip J. Jungwirth of BMO. Go ahead, please. Phillip J. Jungwirth: We are coming up on almost a year since you announced the nCino acquisition. One of the things you noted at the time was EOG Resources, Inc.’s volatile oil wells being 8% to 10% more productive than Encino. I know we have talked a lot about lower well costs, but hoping you could update us on what you are seeing on the productivity side now that you have some EOG-drilled and completed wells on. And then also, could you expand on that staggered lateral comment that you had earlier and what exactly you are doing here? Keith P. Trasko: Morning. On the productivity side in the Utica, we are treating it all as one asset now. We see really consistent productivity in the program year over year. I would say we are even a little surprised to the upside in some of the step-out areas. On the staggering targets that Jeff mentioned, we have been testing that, especially in the north where you have a thicker section. We have been seeing good results. Our goal is always to increase recovery of each acre and each section, and we will take those learnings, integrate them with our detailed geologic mapping, and see where in the play we can apply it. Over the long term, there are a lot of opportunities to apply learnings from how Encino did things through to our other analog plays within the company to continue to improve well performance. Phillip J. Jungwirth: Okay, great. And then you also mentioned that Eagle Ford bolt-on earlier in the prepared remarks. You have done a really good job improving returns in the Western Eagle Ford through efficiencies, long laterals—four milers. It is an area we have not seen much industry consolidation. Based on the synergies you have realized in the Utica, does this make you more encouraged about pursuing additional bolt-ons in the Eagle Ford or elsewhere, given you can bring superior operating and marketing capabilities that can create value? Ezra Y. Yacob: Thanks, Philip. It is a good question. We always knew before doing the nCino acquisition that we should have an advantage in a lot of areas—assets we might be able to improve with our operations, cost structure, and marketing, like you mentioned. The challenge has always been getting these deals done at a price that allows the all-in returns to really compete. Anytime you are buying anything with a lot of production, that weighs on the returns profile of the overall project, so the upside really needs to be there to counteract a typical 10% to 12% bid-ask spread. That is always the challenge. Cyclically, like you pointed out, last year we were able to get a couple of deals done. The first was Encino, obviously with a lot of production, but Keith just talked about a tremendous amount of upside. We really got to prove to ourselves exactly what you are asking: that scale, our knowledge base, and our database from outside a single basin—and bringing data from other basins—can add tremendous value. We saw great margin expansion and great improvement on the well productivity side and, as you pointed out, on the well cost side. The other one we did was in the Eagle Ford. That was kind of a needle in a haystack. It essentially had zero production—very, very low production—and we were surrounding that acreage. It fit in like a jigsaw puzzle piece. It was fantastic for us. We immediately got the production that was there into some of our infrastructure. We immediately started to extend some laterals we were drilling surrounding the acreage onto the acreage, and very quickly, within this first year that we have had that bolt-on in our portfolio, we have already drilled a number of high-return wells on it. You are right—it has gone a long way toward telling us that continuing countercyclically and focusing on returns is a winning strategy for us when it comes to either bolt-ons or potential deals that come with a bit of production as well. Operator: The next question comes from Doug Leggate of Wolfe Research. Go ahead, please. Doug Leggate: Ezra, I wonder if I can go back to the liquids pivot, and I just wanted to understand a little bit more what you are actually doing there. Have you physically reallocated equipment, or was this—forgive me—a classic EOG beat-and-raise? What have you actually done differently? The reason I ask is, if you flex things that quickly, how do you maintain efficiency? I am wondering if this was underlying production and productivity beats that were going to happen anyway. Jeffrey R. Leitzell: Hey, Doug. The first thing I would say with the actual productivity raise for the year is that we did have a beat in the first quarter. Other than that, we are reacting to what we are seeing from a price standpoint and making very modest adjustments to the activity schedule around the portfolio—just shifting investment from gas to oil. What that really means is we are taking a little bit of capital out of Dorado. It is not a whole lot. We are going to drop them down to just less than a frac fleet, so they will still have plenty of activity to focus on the asset, continue to move it forward, and progress it. The only thing is the exit rate now in Dorado will drop a little bit; it will go from a Bcf target to just over 800 million a day. We actually do have a rig down there that is going to go up and drill just a couple of DUCs in San Antonio, actually. We are reallocating the rest of the capital to add five net completions in the Delaware Basin and then the 10 net in the Utica, which is very small and within rounding. Five wells in the Delaware are just additions to a package—it is not really any additional equipment. In the Utica, it is similar—where the rig has gotten out in front, it is just a couple of packages of DUC inventory. A lot of it, as I said, is due to the great performance and consistent efficiency, which has allowed us to do the raise on the whole year within the same CapEx of $6.5 billion. As we stated, it will add 2 thousand barrels per day on the year for oil and 6 thousand barrels per day on the NGL side. We keep hitting on it, but it is one of the benefits of having this multi-basin portfolio. We have multiple high-return assets across the company that all compete for capital, and it gives us a lot of flexibility to alter our plan in real time very quickly without much disturbance—and maximize shareholder value through the cycles. Doug Leggate: I appreciate that, Jeff. Ezra, maybe for you then—specifically, my follow-up is basically not a capital return question necessarily; it is more of a philosophical question. Remarkably, your yield is now higher than ExxonMobil, and we tend to think of them as using buybacks to manage their dividend burden. You have also got a pristine balance sheet. How do you think about that split between allowing the dividend burden to move up versus the risk—as you pointed out—of procyclical buybacks? And maybe as an add-on to that, are you prepared to let your balance sheet go back to net debt zero? Maybe you could touch on those issues. Ezra Y. Yacob: Those are good questions. On net debt zero, I would not say it is a target for us, but you clearly saw that we have been there before. I would not mind getting there again. With the 70% minimum commitment we have in place, it would be difficult to get there this year, but potentially in the next couple of years. One of the things to keep in mind is that we think having a pristine balance sheet is a competitive advantage. It allows you to move from a position of strength, and that includes cash on the balance sheet. With regards to the dividend, hopefully the dividend yield will move the other way and get lower. The way we think about share repurchases—this has been a bit of a learning experience—it is straightforward math that when you are buying back stock, that reduces your absolute dividend commitment. Having been in the market buying back stock for three years, we really have good experience with that, and we love it. Going back to Scott’s question, maybe we are not quite as agnostic anymore on special dividends versus stock buybacks because we do see the ongoing benefit and the correlation with our ability to continue to increase the regular dividend. The regular dividend is now about $4.80 annualized per share, and it has a yield that is competitive across the broad market. Over the three years we have been buying back stock—during a softer part of the cycle—we have a compound annual growth rate on the dividend of about 9%. That is something we are proud of and continue to look forward to discussing with the Board. Our dividend increases should reflect growth, margin expansion, and the ongoing capital efficiency of the company, and any share repurchases obviously help that as well. Operator: Next question comes from Analyst at Truist. Go ahead, please. Analyst: Thanks, Cindy. Good morning, everyone. Thanks for the time and prepared remarks. Ezra, I was hoping you could go back to your views on the macro. It certainly seems like maybe your bias, once all this ends, is mid-cycle oil is maybe higher than what we all anticipated prior to the Iran conflict. Can you talk a little bit about how this could change how you allocate capital on a go-forward basis? I am curious how you think about more growth in a supportive oil price environment and how you allocate across oil versus gas? Ezra Y. Yacob: That is a good question. I would say we are a little bit more bullish going forward. It might be a bit of semantics, but I am not sure we would say the mid-cycle price has changed dramatically. I would frame it as: for the next few years, we think we are going to be in an environment above mid-cycle prices. Historically, this is a cyclical business. When you look back at five-, 10-, 15-year runs, WTI usually ends up in the mid-$60s—around $65. The point now is that with inventory levels where they have gotten down to, it is going to take quite a while to get inventories back up to the five-year average. That would assume barrels flow pretty easily through the Strait of Hormuz, the committed SPR releases hit the market, and investment in the U.S. and non-OPEC is above where it was when we entered 2026. What does that mean for us? We put out a three-year scenario at the beginning of this year that contemplated an environment based on fundamentals where we were investing to grow the business on the oil side at about low single digits. If there was a real call going forward supported by fundamentals on shale, we could increase maybe to mid-single digits. Honestly, that low single-digit plan is a very compelling scenario. It is not guidance; it is a scenario. It delivers, on a conservative $60 to $80 WTI range, a 15% to 25% ROCE, $12 billion to $24 billion in free cash flow, and a compound annual growth rate of free cash flow of 6% plus. That is straight free cash flow, not per share—so any additional buybacks obviously increase that. The big takeaway is even at the same strip price as the past three years, our go-forward scenario would increase cumulative free cash flow by about 20% over the past three years. Leaning in a little more aggressively into growth not only needs to be supported by fundamentals, but we also need to be mindful of the cost environment. We do not want to lean into a higher-cost environment just to grow production if you are running into inflationary headwinds. Increasing inventory levels back to the five-year average is best for consumers and energy affordability, but to do it at an appropriate cost. We will be very thoughtful and deliberate before we did something like that. Analyst: Thanks, Ezra. That is really helpful. I will leave it there since we are at the hour. Really appreciate the time. Ezra Y. Yacob: Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Ezra Y. Yacob for any closing remarks. Ezra Y. Yacob: I would just like to say that we appreciate everyone's time today. Thank you to our shareholders for your support and special thanks to our employees for delivering another exceptional quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, and welcome to Ultragenyx First Quarter 2026 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Joshua Higa, Vice President of Investor Relations. Joshua Higa: Thank you. We have issued a press release detailing our financial results, which you can find on our website at ultragenyx.com. Joining me on this call are Emil Kakkis, Chief Executive Officer and President; Erik Harris, Chief Commercial Officer; Howard Horn, Chief Financial Officer; and Eric Crombez, Chief Medical Officer. I'd like to remind everyone that during today's call, we will be making forward-looking statements. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. Please refer to the risk factors discussed in our latest SEC filings. I'll now turn the call over to Emil. Emil Kakkis: Thanks, Josh, and good afternoon, everyone. We are now in our 16th year since our founding, and this year is expected to be transformative with growing revenue and multiple new drug approvals. We're on track to well exceed $700 million in revenue from our global commercial business with a consistent track record of double-digit annual revenue growth. We have a PDUFA date for two gene therapies that would bring first ever treatment to patients and families with no other disease-modifying options. Also, we will unwind our Phase 3 Aspire study, evaluating GTX-102 in patients with Angelman syndrome in the second half of this year. We're continuing to execute global clinical trials across the largest late-stage pipeline in rare diseases. We're also manufacturing our gene therapy products in our new facility in Bedford, Massachusetts. I'll start with GTX-102 for Angelman syndrome. The first patients enrolled in the Phase 3 Aspire study have reached their day 338 visit and have transitioned to open-label extension study. The rest of the patients will be completing the blinded portion of the study in the next few months and crossing over to open label extension. With the Aurora study, we are expanding GTX-102 treatment to other ages and genotypes of Angelman syndrome and enrollment in that study continues to go well. We prefer to develop the first-ever treatments for diseases that have not had significant breakthroughs in the past and so do not simply work in disease areas where there are other competitor programs at similar stages of development. In the case of Angelman syndrome, we made an exception given the size indication and the excellent work genetics had done with the scientist Scott Dindot to develop a potent ASO that worked in a large animal model rather than just mice, which often do not predict human biology. The preclinical research, Scott conducted in his lab at Texas A&M is a total force of molecular genetics. He is able to identify and target a separate and distinct region of the antisense message transcript that has led to more efficient transcript knockdown and greater potency in the clinic. This was a superior science that led us to study Angelman syndrome. Later in the call, Dr. Crombez will walk through the longer-term efficacy, durability and safety data from the Phase 1/2 study in his section. But I want to highlight now that we have 66 patients on therapy for an average of 3 years and with the longest approaching 5 years, with continuing and improving benefits across multiple domains and with a favorable safety profile. Based on this longer-term data, we believe GTX-102 can deliver clinically meaningful treatment effects and can be safely administered in chronic dosing. What we see in the Phase 1/2 data we believe GTX-102 is making an important difference in the lives of these patients and their families. Shifting now to our global commercial efforts. Our commercial business continues to deliver. We're now getting revenue in more than 35 countries, a result of strategically investing in high-quality teams who can efficiently navigate the complex approval and reimbursement processes around the world. This reflects a disciplined country-by-country execution, our teams deliver every quarter. This base business is not only generating meaningful and growing revenue, it is the engine that will power our next phase of growth. Our team is currently commercializing Dojolvi and Mepsevii are poised to add DTX401 and UX111 to their responsibilities as we look forward to approvals for these two products later this year. Our established global commercial business is bringing first-ever treatments to patients who need them, paving the path to profitability in 2027. I'll now turn the call over to our Chief Commercial Officer, Erik Harris, who will provide details on his team's efforts in the first quarter. Erik Harris: Thank you, and good afternoon, everyone. As Emil mentioned, the underlying business remains strong, and we are well positioned to capitalize on the potential upcoming launches. Howard will share details, but we remain fully confident in our 2026 revenue guidance. Throughout the first quarter, the commercial and field teams have continued to meet the growing demand for our products across the globe. I'll start with Crysvita and want to put the first quarter revenue in the right context. The revenue in North America, Latin America and Turkey was consistent with our expectations in the ordering patterns we have seen in prior years. This is a business we know well. We see continued strength in the underlying demand across all of our regions, including in markets like Brazil, where bulk orders by the Ministry of Health can result in quarter-to-quarter variability. In Latin America, approximately 30 patients began commercial therapy in the first quarter, bringing the total number of patients on Crysvita to more than 950 in the region. We remain fully confident in the fundamentals and strength of the business and along with our partner, KKC in North America. Our ability to continue to find and treat patients with XLH and TIO. Shifting now to Dojolvi, where the trend of our steady growth continued six years post approval. In the first quarter, our North American team generated more than 30 start forms, far exceeding their target for the quarter. In North America, we now have more than 675 patients on reimbursed therapy. And in Europe, there are approximately 300 being treated through named patient or early access programs. The next stage of growth is likely to come from Japan where Dojolvi was granted conditional approval last year, and we look forward to the full approval and launch of the product this quarter. I'll close with Evkeeza, which is another example of our experienced team's ability to successfully commercialize rare disease products. In our region outside of the United States, we are seeing exceptional growth from this program as our international commercial teams navigate the country-by-country reimbursement process and respond to requests for early access from patients and their physicians. In total, there are approximately 370 patients across 18 countries who are receiving Evkeeza. We expect this will continue to be an important and growing contributor to our revenue base. Beyond the individual product performance, I want to step back and highlight what I believe is the true strength of this business, the scale and reach of our global commercial infrastructure. That depth of market presence across rare disease markets that require significant expertise, patient-finding capability and reimbursement navigation is a genuine advantage. It is what enables us to efficiently bring first-ever treatment to rare-disease patients. And critically, this infrastructure and experienced team are what gives me confidence as we look toward the rest of the year. My team is preparing for two new product launches, DTX401 with a PDUFA date of August 23, 2026, and UX111 with a PDUFA date of September 19, 2026. The launch readiness work is well underway across both programs and we are building on the infrastructure and expertise we have already established. With that, I'll turn the call to Howard to share more details on our financial results and guidance. Howard Horn: Thank you, Erik, and good afternoon, everyone. I'll focus on our first quarter financial results and guidance for the year. Starting with revenue. Total revenue for the first quarter of 2026 was $136 million. Crysvita contributed $93 million, including $39 million from North America, $46 million from Latin America and Turkey and $8 million from Europe, which were consistent with the anticipated quarterly timing and trends Erik just mentioned. Dojolvi contributed $18 million, consistent with our expectation for steady demand growth. Evkeeza also contributed $18 million, representing 64% growth over the first quarter of 2025 and as demand continues to build following launches in our territories outside of the United States. Lastly, Mepsevii contributed $7 million as we continue to treat patients in this ultrarare indication. Total operating expenses for the quarter were $305 million, which included cost of sales of $30 million and combined R&D and SG&A expenses of $275 million. Total operating expenses included $30 million of non-cash stock-based compensation and $30 million of expenses related to the restructuring announced last quarter. For the quarter, net loss was $185 million or $1.84 per share. As of March 31, we had $534 million in cash, cash equivalents and marketable securities. Net cash used in operations for the quarter was $197 million. Recall, in the first quarter of the year, we typically use more operating cash than in each of the subsequent 3 quarters because it includes items like the payment of annual bonuses. In addition, the first quarter of 2026 included $38 million in payments related to UX143 manufacturing activities as well as $5 million related to severance and other payments from our recent reduction in force. Net cash used in operations are expected to decrease in the remaining quarters of this year as we continue on our pathway to profitability in 2027. Shifting now to guidance for 2026, we are reaffirming the revenue guidance we provided in February. Total revenue in 2026 is expected to be between $730 million and $760 million, which represents 8% to 13% growth over 2025 and excludes potential revenue from new product launches. Crysvita revenue is expected to be between $500 million and $520 million, which includes all regions and all forms of Crysvita revenue to Ultragenyx. This range reflects growing underlying global demand, partially offset by expected timing of ordering patterns in Brazil that we anticipate will normalize in 2027. Dojolvi revenue is expected to be between $100 million and $110 million. We are also reaffirming the R&D and SG&A guidance we provided on our last call. Specifically, we expect 2026 combined R&D and SG&A expenses to be flat to down low single digits versus 2025. We also continue to expect 2027 combined R&D and SG&A expenses to decrease at least 15% in 2027 versus 2025. With that, I'll turn the call to our Chief Medical Officer, Eric Crombez. Eric Crombez: Thank you, Howard, and good afternoon, everyone. As Emil mentioned in the opening, I'll focus on the clinically meaningful Phase 1/2 data that we have generated with GTX-102, our antisense oligonucleotide for the treatment of Angelman syndrome. This data is from our Phase 1/2 open-label single-arm studies, which informed the design of the Phase 3 double-blind sham-controlled Aspire study. Given the differences in study design, these Phase 1/2 results are not necessarily predictive of Phase 3 outcomes. In our press release earlier today, we highlighted that a total of 74 patients have been treated with GTX-102 as part of our Phase 1/2 program. This is one of our largest Phase 1/2 studies we have conducted and was designed to inform the dose, dose regimen and endpoints for our Phase 3 studies. There are now 66 patients in long-term extension studies, with patients generally receiving the 14-milligram quarterly intrathecal maintenance dose. These patients have now been on continuous therapy for an average of 3 years and some patients are now in their fifth year of treatment. These patients continue to demonstrate improvement across multiple developmental domains with no new cases of transient lower extremity weakness. We took a cut of the data in March of this year to be able to highlight the long-term safety and efficacy of GTX-102 in a forthcoming manuscript, and I wanted to share a high-level summary today. Starting with the Bayley-4 Cognitive raw score, there are 53 patients in the Phase 1/2 study with a Bayley-4 Cognitive raw score at month 12. At this time point, they were approaching a mean change from baseline of 10 points, exceeding the meaningful score difference of 6 points and with longer-term follow-up, we see continuing and improving benefits in cognition. Turning to the multi-domain responder index, or MDRI, that uses clinically meaningful score differences consistent with FDA guidance as opposed to statistically driven changes to determine a positive or negative response across 5 different developmental domains. In the Phase 1/2 data set, we now have MDRI data at month 12, 24 and 36 that evaluates response across cognition, communication, behavior, sleep and gross motor. When comparing response to baseline, the p-value across all three time points is less than 0.0001. Not only is this a very powerful statistical assessment of five different measures, it is consistent with doctors and family's broader view of neurologic diseases like Angelman. It is the intersection of all these developmental changes that reflects how individual patients truly respond to a treatment in a holistic way. In the 48-week Aspire Phase 3 study, we had primary statistical alpha split between the Bayley-4 Cognitive raw score and the MDRI. This is not a hierarchal evaluation, meaning that both of these endpoints will be tested in parallel. If the Bayley cognition hits less than 0.04 or if MDRI hits less than 0.01, we will have a statistically successful Phase 3 study. We also took a look at expressive communication in our Phase 1/2 study assessed by the Bayley-4. Similar to cognition, we saw meaningful improvements in expressive communication that continued and improved in longer-term follow-up. Based on the totality of data generated in our Phase 1/2 program, I remain confident that the developmental progress and continued learning of new skills in these patients support the meaningful benefit of using this ASO to provide UBE3A from the paternal allele. I'm looking forward to seeing the results from our Phase 3 studies and the potential to replicate these results in larger controlled studies. I'll now turn the call back to Emil to provide a reminder of our catalysts for 2026 and some closing remarks. Emil Kakkis: Thank you, Eric. I'll close with a few of the catalysts we have later this year. A full list can be seen in the corporate deck posted to our website. Starting with DTX401 for the treatment of glycogen storage disease type 1a. We continue to work well with the FDA and look forward to our PDUFA action date of August 23. The FDA has also informed us that an AdCom is not planned. Next, for UX111 for the treatment of Sanfilippo syndrome, the BLA that was resubmitted earlier this year is being reviewed with a PDUFA action date of September 19. Lastly, GTX-102 for the treatment of Angelman syndrome is on track to read out top line Phase 3 data from the Aspire study in the second half of the year. Ultragenyx has been one of the most productive companies -- rare disease companies in the industry and taking programs from early research to approved therapies for patients who have no other options. We've done it across multiple modalities, multiple therapeutic areas, and we look forward to bringing the next set of first-ever treatments to the patients who need them. The surge in late-stage programs in the last few years has challenged us like it would anyone. But the benefit is once we turn the corner on these programs into approved products, we have the potential for a significant acceleration in our growth that will be a special moment in the history of Ultragenyx. With that, let's move on to your questions. Operator, please provide the Q&A instructions. Operator: [Operator Instructions] Our first question comes from Tazeen Ahmad with Bank of America. Unknown Analyst: This is Daniel on for Tazeen. I was just wondering if you could comment on the new update for Angelman, like what level of consistency are you seeing for patients improving on the Bayley-4 and the MDRI? And kind of how we should think about variability between the 2 endpoints for the Phase 3? Emil Kakkis: I'll touch on it and maybe Eric can add some more. I think the Bayley that we're conducting is being done with -- primarily with an outside firm that's coming and doing the test at the site. So this is -- we're running a very high-quality operation in terms of how we will measure the test to help reduce variability. I think the consistency is something we can't comment on at this point in a Phase 3 study, but we can talk about what -- how it looked in Phase 2. I think it should -- we expect it to be similar to what we've seen before. And I think the MDRI has been a very robust and consistent measure just in its nature because it's multiple domains that we've seen strong results, and I think Eric just talked about them. So Eric, what do you think about the Bayley-4 consistency? Eric Crombez: Yes. So I think looking at the results from Phase 1/2 and very much applied to how we designed Phase 3. The most important thing we did was include patients with full deletions. This means they're expressing no UBE3A and gives you a very consistent patient population, driving those consistent results we saw in Phase 2 and what we think will be replicated there. And then again, as a reminder, bringing patients with other mutations that add variability into our second Phase 3 study, Aurora. Emil Kakkis: It's a very good point, Eric. Consistent genetic type will definitely help us get consistency, particularly consistency in what the placebo or the untreated sham will do because without treatments, patients with Angelman do not gain on the Bayley-4 significantly. Operator: Our next question comes from Joseph Schwartz with Leerink Partners. Joseph Schwartz: So a couple of questions on GTX-102. In Aspire, are you stratifying randomization or prespecifying subgroups by any baseline factors? It seems like in rare pediatric trials, even modest imbalances in baseline severity could be important, and there's some literature in Angelman that this could influence variability. I'm just wondering how confident you are that Aspire is protected against any potential baseline imbalances? Emil Kakkis: I'll let Eric answer specifically. In general, for all of our programs, we are very aware of this whole skewing issue on the randomization. So we will always -- for primary endpoints will stratify our primary end point to do our best we can. However, nothing is perfect. So what are we doing for Angelman. Eric Crombez: Yes. So specifically for Aspire, both by age and cognitive raw score, that being our primary end point, we want to make sure we have consistent balance there. Joseph Schwartz: Okay. And then we noticed that you haven't narrowed the timing for Aspire top line data yet. Do you have any sense when during second half of '26, you might report the data? Is late third quarter a good assumption since you finished enrollment in late July last year? Emil Kakkis: It's fun, isn't it? Keeping you in the dark about exactly when that's happening. Yes. I think you probably can guess based on the timing of things. The question is that when you close out an international study, a lot of end points, you do want to do it carefully. And so we're not being precise not only because we want to give ourselves time to get everything straight before we do unwinding. We've said the second half, but you can tell by when last patient in was roughly when the trial should have the last patient out. But the timing it takes to finish up a study with sham, there's EEG, there's a lot of things in there that will take a little time. So we get a Phase 3 program, we want to take the time to make sure we're being a little nonspecific now, but it's all on track. Operator: Our next question comes from Maury Raycroft with Jefferies. Maurice Raycroft: The Phase 1/2 longer-term commentary is helpful. Just clarifying, could we see the detailed Phase 1/2 data ahead of the Phase 3 top line? And it seems like you're seeing a clear static signal on MDRI in the Phase 1/2. And based on the point improvement you mentioned for cognition, I'm wondering if you're seeing a static p-value for cognition versus your -- versus the natural history study data set. Emil Kakkis: I think we've commented on the primary endpoint natural history comparison before is our powering analysis. I think we've said that, that we would we would be well powered. So I think that, that's already served as analysis. MDRI is just extremely powerful method. I think it's the way forward for neurologic diseases. Your question asked, will you see the detailed data? Probably not. I think we haven't set which science meeting the data will come out yet. I would assume, be later in the year. We have often presented things at the FAST conference, but we haven't set at this point, a plan for the Phase 2 data, but it's not necessarily ahead of Phase 3 at this point. But we wanted to put out a little bit of data now just to give people confidence about what's going on and just give you a sense of the magnitude and outcome and the fact that we're confident about how the drug looks. And it continues to show good safety and the kind of cognitive benefit and the right benefit that gives us confidence in the design and what we're conducting in Phase 3. Maurice Raycroft: Got it. That's helpful. Maybe one other question. Just wondering if prior to the database lock in stats plan, do you have to have any discussions with FDA on magnitude of improvement on the primary endpoints? Or is it just showing a static benefit? Is that sufficient? Emil Kakkis: Yes. There's no regulatory step between us and unblinding at this point. We're all agreed. And there is no defined required minimal change for the Bayley. I think that is something that we don't need in the design, it's a continuous variable. However, we will always have what is known as a clinically important change of 5 points. We'll always look at data that way, but the powering of the primary endpoint for a Bayley cognition is based on a continuous analysis, which is really the appropriate thing to do. But if you look at the numbers we just told you, 10, that is almost twice the minimally important difference already. So I think we're at a pretty good place. Operator: Our next question comes from Anupam Rama with JPMorgan. Joyce Chang Robbins: This is Joyce on for Anupam. Maybe just one on the two upcoming gene therapy launches, DTX401 and UX111 in the back half of the year. Could you just discuss where you are in terms of commercial manufacturing and product scale-up and just your overall readiness from a launch -- from a CMC launch perspective? Emil Kakkis: Yes. No, good question. I think we've been manufacturing actually since last year. And for DTX401, the drug substance and drug product both made at the plant and in Bedford. And then for UX111, we have a contract manufacturer that's making drug substance in Ohio, and we're making -- or finishing the fill-finish in our Bedford plant. We've been running around last year and this year and that's part of our expenses that we're spending money on is actually building inventory, and that's been going well, and we're building inventory and feel like we should be in a reasonable position at the time of launch at this point. So I think we're ready. I think the launch teams have been working on their work. I think the two PDUFA dates are quite close to each other, but the doctors we're going to are actually the same doctors. And there's certain synergy that will happen by having the same -- most of the centers will be doing both products, some may do one or the other. But the qualified treatment centers are getting set up, contracts in place. And I think the synergies of having two of them will be real, and we're excited about the possibility. Of course, we still need to get approval. But at this point, from both manufacturing and commercial standpoint, we're set up and moving forward, excited about the prospects of launching two gene therapy products. Operator: Next question is from Eliana Merle with Barclays Bank. Eliana Merle: Just can you give us any more color on how we should think about the time lines for getting data from the Aurora study? And if the data are positive in the Phase 3 Aspire trial, how are you thinking about what your base case will be for the ages in a potential Angelman label? And if this will include adults? Emil Kakkis: So Aurora is how we're going to expand the label to other indications, genotypes and ages. So the main Aspire study is 4 to 17, all deletion. And so we have a younger group, the older group and the other genotypes involved in Aurora. The study is still continuing to enroll and enrolling well, but it's also an international study, and we'll continue to collect data. So we'll have some data at that time. We haven't really said through anything about how we'd approach our filing launch at this point in time. We're going to wait and see what the data look like and our -- put together our plans. The study with Aurora though is still more enrollment to do. Operator: Our next question comes from Yaron Werber with TD Securities. Steven Ionov: This is Steven on for Yaron. I really appreciate the color on Angelman. You mentioned the 14 mg was generally the maintenance dose being used. Can you give us some color on whether there might be more than one dose being used, why that might be happening and whether there could be more than one maintenance dose in the label? And secondly, in terms of profitability projections, given that PRVs are selling for substantially over $100 million at this point. Any color on what you're modeling in terms of PRV monetization and whether we can expect that full year '27 profitability to be sustainable? Emil Kakkis: Okay. Well, I'll touch on the dose at a high level. I don't know if Eric has anything more to add, but then I'll let Howard deal with the -- PRV is a profitability question. So the vast majority of patients are 14. And from the main trial, the protocol actually is Aspire brings them to 14 in terms of how it's done. There are some patients that have certainly been on drug for a longer period of time in various regimens. So I don't know if there's anything else to add it. We think it's a very high fraction of around 14. Eric Crombez: Yes. And that is what we expect to label on. So we expect a maintenance dose of 14 milligrams every 3 months. Once we get into commercialized setting, we have our DMP, we can explore potentially a different dosing. Maybe some patients would benefit from every 2 months, some could benefit from a higher dose there, too. But our plan is to prior -- after discussions with the FDA with a 14-milligram maintenance dose. Emil Kakkis: That's really the main source of what you're going to see. So Howard... Howard Horn: So with regard to the PRV, we watch this with interest to see how they've been selling. As part of our plans, we have two PRVs we plan to monetize, one for 111 and one for 401. We -- I think we've stated in the past that we've baked it into our model at a little over $100 million each. So anything above that would be upside. Of course, there's also an opportunity for a PRV with 102, which would also be upside to our model. So that's how we're thinking about monetization. And I think you'd also asked the question about sustainability of profitability post '27. Our plan is to not just hang out at the Raiser's Edge, but to continue to grow profitability. And depending on the launches we have and their success, we'll figure out how much we can reinvest back into the pipeline versus drop to the bottom line. But that will be a fun conversation to have in due course. Operator: Our next question comes from Salveen Richter with Goldman Sachs. Salveen Richter: Ahead of the Phase 3 Angelman's data in the second half, can you speak to the path forward in the event that MDRI hits, but Bayley-4 doesn't? Emil Kakkis: I think as Eric noted today in the script is that we still consider that a positive study. That is, we have essentially two ways to succeed. The Bayley Cog can succeed and the MDRI provides maybe a more robust option. We negotiated this position with the FDA, I think while their tendency is to stick with single primary endpoints as their approach, we think the MDRI is actually a smarter and better way to go for neurologic diseases. This is an opportunity to move in that direction. Our expectation is, as Eric had said, that a missed Bayley-4, but a positive MDRI is still a demonstration of efficacy in the program. Obviously, that would assume that, let's say, Bayley cognition just missed and then MDRI hit. That would be one potential scenario. We would not expect, for example, Bayley cognition to go negative and then have an MDRI positive, have that work out. So the question really be, could Bayley miss for some reason and MDRI provides an insurance policy and support for efficacy in the product that's broader than just cognition. So we feel like there's ways -- it's two ways to win for the program, and we're actually expecting both to hit. But as you know, we can always miss in our best intentions in a randomized controlled trial, but I think the combination of both gives us a higher chance of being positive regardless of what happens in the patients. Operator: Our next question is from Kristen Kluska with Cantor Fitzgerald. Kristen Kluska: For this latest Angelman cut that you looked at for the Phase 1/2 data. Can you tell us how the 1-year plus data is stacking for cohorts A and B relative to what you saw across different measures for cohorts 4 and D? And whether that's further strengthened your position of the dosing regimen and techniques you took forward in Phase 3? Emil Kakkis: Okay. Yes. So we've shown the cohort A and B before, and I think the cohort A and B is continuing to behave. And I would say -- remember, that's the most of the patients. C and D is relatively few patients. It's really mostly A and B. So I think what we're talking about is cohort A and B extending now through the full year, and that's the data we're talking about. So it's really driven off of A and B. That A and B is, we think, is pretty comparable to what you're seeing in the Phase 3 because the A and B was in all the international sites. So that included the 7 or 8 countries that we're also doing studies, including a high overlap with the sites that we're actually using. So I think that the A and B cohort, which is the primary driver of the data you heard about today, is very replicable with regard to what we're doing in Phase 3, both from a sites, countries and patient type. So I think it is a good model. I think the data should be in line with what we expect in Phase 3. Operator: Our next question comes from Maxwell Skor with Morgan Stanley. Selena Zhang: This is Selena on for Max. On Angelman, could you describe the contribution of caregiver input to Bayley-4 cognition in the Phase 1/2 and how that changes over time with the longer follow-up data? Emil Kakkis: Well, thank you for that very technical detailed question. I'm not sure everyone knew about caregiver input. But just to be clear, in the raw scores that we're using for the Bayley-4, the FDA does not want us to include caregiver input, all right? So all the analysis has to be done by the psychologist tester. And so we are not including any caregiver input in the Bayley-4 primary endpoint per FDA request. Now out of the -- I'm getting the number, is it 20 or 30 items or something? There's like a couple of items where caregiver input -- 2 or 3 that can have an effect. So when we look at raw scores with or without caregiver input, we don't think for Bayley-4 cognition, there's significant issue. If you're doing the expressive Bayley, there's actually a lot more caregiver input potential. And so it might have more effect on the -- I'm sorry, expressive communication than on cognition. So it's only a couple of 2 or 3 things we haven't seen it have an impact, but we are doing it without caregiver input in the Phase 3 trial. Joshua Higa: Emil and Eric, I think the question was maybe more around the Phase 1/2 data that we've talked about if we were able to look at that without the caregiver input, and I don't think that's how the Phase 1/2 was run. Eric Crombez: Yes, that's correct. For Phase 1/2, we did use caregiver input, and it was part of the conversation designing Phase 3 that the FDA made that request. We actually performed the test both ways in Phase 3, but the primary endpoint does not use caregiver input. And that's important to eliminate bias, and that's true for both your actively treated and your control group. So it's a reasonable request. Emil Kakkis: So we can analyze without those items, they will not have a meaningful impact. That's what I said that if we drop them out, they're not impacted because there's only a couple of items out of a very large number where it might impacting, right? Okay so the situation is those 2 or 3 items. If the caregiver says that they think they're developing, but the doctor doesn't see it, If they see it, they could score a point or 2. But we're saying if you drop those out, it's still -- it's fine in cognition. So our point would be that we see in Phase 1/2 is -- would be consistent with or without caregiver input, right? Does that answer the question, Josh? We're good? Boy, we're getting deep on COA. Operator: Our next question is from Jack Allen with Baird. Jack Allen: Congrats on the progress. So I wanted to ask about what your expectations are as it relates to the sham performance in the Aspire study. I know there was a limited data set from Angelman, but are there any other surrogate neurodevelopmental indications that you've looked at as it relates to sham performance? And then my other follow-up was on the profitability. And any comments you can make as it relates to what you need as it relates to success from the gene therapy programs in Angelman that's baked in for assumptions for profitability. Do you account for those in the profitability guidance, or is it just the current base business? Emil Kakkis: Well, I'll let Howard deal with the profitability question, but let me deal with the sham performance. Well, obviously, we would not expect sham to have an effect. And we haven't looked at all possible studies, but certainly in our own -- in Angelman and the control studies we've seen -- we haven't seen much change. I would say to you that when you're talking about the performance of development, these kids are not going to have a placebo effect exactly, right? Because they're not thinking, "Hey, I'm getting a treatment, I should be better." They're not going to think this way. They're not -- developmentally changing by not having caregiver input, which is maybe why the FDA doesn't want it, it allows there to be a more objective assessment of what's happening. So we're really saying could they get better on their own without anything happening. What we're saying is that the deletion patients just don't. So we're pretty comfortable that sham performance will not be important. I don't know that there's other developmental disorders that are comparable, maybe Rett syndrome or other types like that. But at this point, we don't feel that the sham should be any different from a natural history and the deletion patients are pretty stable in terms of their Bayley cognition scoring. They do not change much, and we're talking about less than 1 point a year. So whether it's a randomized trial or even a natural history. So at this point, we're comfortable with it. But I understand your point right now, we seem comfortable with it. And we have adequate power even if there was a higher background signal, we should have power to overcome that with the treatment effect we expect. Howard Horn: And Jack, regarding profitability and launch success assumptions, right now, what we've said for top line is that we assume continued double-digit growth from our current products plus contribution from upcoming launches, which could include 111, 401, 102. We haven't said much more than that, but maybe what I can say is that it certainly doesn't require all of them to be successful for us to get to profitability. And we have different levers we can pull to make sure we can live up to our promise of 2027 path to profitability. Operator: Our next question comes from Ben Burnett with Wells Fargo. Benjamin Burnett: I wanted to ask about the GTX-102 program and great to hear about the long-term data. I think you mentioned there were 66 patients in the long-term extension. Could you comment on sort of the reasons for discontinuations? And then I have a follow-up. Emil Kakkis: Yes, we can do that. It's actually been a little here and there, but it's mostly often in the beginning. Maybe you can comment on that, Eric, for him. Eric Crombez: Yes. So very consistently, it was all due to burden of study participation. I mean we do need to remember that some of these patients live very far away from treatment sites, and it does become a burden for these families. So that was across the board, the reason for those discontinuations, study burden. Emil Kakkis: It sometimes happened kind of early, too, because some people realize they just couldn't do it. But yes, so it wasn't safety related. Benjamin Burnett: Okay. Okay. And then the other question I just want to ask is just around Crysvita. So I appreciate kind of the commentary you gave on the call just around some of the variability around sort of ordering patterns. But I guess the question is to what visibility do you have kind of going forward through the next couple of months? And sort of what gives you sort of the confidence in kind of the yearly guidance number for Crysvita? Emil Kakkis: Yes. I'll let Erik comment a little bit because Erik is very close to the team at caring on what's going on. But I think one other element of this is that every year, we're going to have one other factor, which is the way the royalty is in the first part of the year, it's a little bit lower than it crosses the threshold and it goes up. So whatever revenue is coming, our percentage goes up as the year goes on, and that's why the quarterly revenue goes up as well. So it's an ordering pattern thing, and there's going to be this continuous ramp-up of our percent in the royalty stream. So it's just going to reset, every year and crawl back up. Erik what gives you confidence in Crysvita going forward in the North American territory? Erik Harris: Yes. No, it's quite simple. We're very confident in the underlying demand that we continue to see with finding patients and patients wanting to be treated across our regions, which is why we reaffirmed our guidance. And consistent with prior years, we expect the same sawtooth pattern that we've seen previously with lower Q1 and a rebound in Q2 and softer Q3 and a strong Q4. So we expect, as we have in previous years to continue to deliver on our commitment to the street. Emil Kakkis: Yes. I think the thing that we would see in Q1 though is like the start forms. What's the start? That's the demand you talked about. And so -- and continuations and so forth. So demand is strong in Crysvita. It's a great product. People stay on it when they get on it. And they continue to grow it, and we're here to support them and do our own work where we're commercializing. But we -- Crysvita has continued to grow and do well. And we just have to understand there's always this corollary plan that's going to happen almost the same every year. So we feel comfortable how the year will go. Operator: Our next question comes from Yigal Nochomovitz with Citigroup. Yigal Nochomovitz: I was curious about the long-term extension data, and you mentioned that you've seen the positive improvements in multiple domains and patients are continuing to improve developmentally. I'm just wondering how you assess those metrics with respect to sufficient powering on the endpoint for the Aspire trial for the Bayley-4 cognition. Do those observations in the long-term extension study development improvement, give you confidence that the powering on the Bayley-4 is sufficient for the Aspire trial? And what would be the clinically meaningful delta that you'd want to see on Bayley-4? Emil Kakkis: Yes, Yigal, thanks for the question. I think, look, we -- I think Eric just talked about hitting around 10 points, let's say, in the 1-year time frame. So that's the part of the A and B cohort and the others together that has gotten to the 1-year mark. Some people are at the 3- to 5-year mark. What we're saying is that 1 year, they're hitting a number, which is pretty close to what we've been expecting the whole time, and that size gives us -- shows that we're adequately powered and it's well above the MID at 1 year. So we're feeling comfortable about that size. And by the way, most people that know that just that test are shocked at how much change there is because it usually doesn't move at all for most people or expert, including Kim Goodspeed, who's our physician, who's a [Angelman] specialist. She says, you just don't see this thing move. So 10 points is a big number. What we are saying and what Eric put forth is that when you continue to follow these kids over the longer haul, they continue to go up in Bayley cognition. And so that kind of tells us that the patients are having a sustained benefit of the ASO on their function in their brain and they're continuing to gain ground. That to me is really important. And that's what the long term is telling you. I think Phase 3, of course, is very important for getting filed approval. But what is the commercial potential of a product? I think the long-term safety and product treatment and continuing to gain ground tells you this is a treatment that has the ability to help kids over a long period of time in the post-market setting. And so with Phase 3 in hand, being able to get to a commercial setting, I think this gives us more confidence that the potential of the drug to be a long-term benefit for patients with Angelman syndrome. Yigal Nochomovitz: Okay. And then one on UX111. Since the resubmission, have you had any other requests for information since the acceptance in April? Or any other inspection requirements post acceptance of the BLA? Emil Kakkis: Yes. We're having what I would call routine discussion with the agency. We normally don't discuss the details of those. We've had what I would call routine discussions on the BLA, and those continue. And at this point, we feel that business is normal moving forward. And we won't really comment in detail about it until something, a decision gets made. We're excited about the potential of that program and are planning for a launch, assuming we get approval. Operator: Next question comes from Gavin Clarke with Evercore. Unknown Analyst: This is [indiscernible] for Gavin. So two from us. One is for Angelman MDRI end point. So just a full clarification for the stat analysis, so what is the delta versus sham control is actually defined? Is there a difference in the median net response between the 2 arms or the difference in the proportion of the patients that are treating a net response in at least on domain? And secondly, we have a question about 106 in GNE myopathy, which we saw recently got IND clearance. So wondering what is the key difference between this new molecule versus previous one that looks like also run through the same indication that failed in the Phase 3. What are some key takeaways we can learn from that history study to inform the current trial design? Emil Kakkis: Sure. Thanks. So for the MDRI, what we're looking at is net domain improvement. So each patient will have a number of domains that they hit, right? And we look at net domain improvement comparing the distribution curve of the treated patients to the distribution curve of the control patients, right? So it's a net domain improvement, how many positive wins per patient do you see? And we've shown before that we had often two domains or more on average per patient around that in that range. But those domain can be variable. There can be various combinations. There are some patients that had as many as four or five domains of improvement. So we'll look at those distribution curves for the net domains per patient, right? That's the statistical comparison. For GNE myopathy, I've been involved with that program from the very beginning. It's a horrible muscle disease, we think maybe around 10,000 patients out there, and we think it's very chronic and terrible disease. The original molecule of sialic acid replacement didn't work as well because the sialic acid just didn't penetrate. What the new drug is a prodrug, one that we designed, that has an enhanced hydrophobicity that helps target uptake into muscle and gets released and transported by a sialic acid transporter. So it allows it to get taken up into the lysosome and cleared across the lysosomal membrane into the muscle. And that improved hydrophobicity mechanism will allow us to, in the animals or in dogs to deliver large amounts of sialic acid to the cells substantially better than the other molecules, like many, many fold better. So we think the potency is just dramatically better, and that puts us in a better position to actually achieve the replacement therapy that's required. And we know from the prior work and particularly the biopsy work that these patients have an 85% depletion of sialic acid in their muscle. This drug should take us back to complete replacement, if not above replacement levels of sialic acid. So we have greater hope this can be an effective drug for GNE myopathy. It's a program I should point out, is funded through a venture philanthropy agreement with the patient group and who are very interested in the product moving forward. And we were able to do that even under our financial constraints with the fact that they were funding it. So they're funding us through the Phase 2 proof of concept, which is allowing this program to move forward at this point in time. Operator: Our next question comes from Luca Issi with RBC Capital Markets. Luca Issi: Congrats on the progress. Maybe Emil and Eric, circling back on a couple of prior questions. What is your relative level of conviction on Bayley-4 cognition versus MDRI? It feels to me that during the call, it came across as incrementally more positive on MDRI versus Bayley-4 cognition. One, would that be fair? And two, if so, can you still amend the protocol to potentially reallocate more alpha to the MDRI versus the Bayley-4 cognition? Again, any color there, much appreciated. And then maybe super quickly on OI, I did not see anything in the press release or in the prepared remarks. So should we assume that you have discontinued that program? Eric Crombez: That we've discontinued OI. Emil Kakkis: Oh, I see. I missed it. So the MDRI is a more powerful measure. It has five endpoints in it. They gain power from all those endpoints. It is a very powerful way. We've been promoting it. We used it in our Mepsevii program. It's just new for regulators. And so at this point, in our agreement with regulators, we put 80% of the power into the Bayley-4, which is actually where you need the power because it's -- there's a sort of a smaller magnitude effect. The MDRI hits very strong statistical significance. So you don't really need more alpha upside MDRI even if you have higher confidence in it because it's a tremendous amount of power in it. So I think what we've done is the appropriate proportion and we don't really need to shift it more. The OI, we continue to do evaluations and discussion. We put a little bit in the release on this. We'll inform the street when we have a decision what we're doing, but we did not discontinue the program. It continues at the moment and until we complete and get answers to key questions and make a determination. Operator: Our last question comes from Raghuram Selvaraju with H.C. Wainwright. Amit Dayal: This is Amit for Ram. Just have a question about the PDUFA dates coming up in the second half 2026. Can you frame the cadence of the commercial rollout and when to expect a meaningful revenue from both UX111 and DTX401. And then the second question is on the GTX-102 in Angelman. You mentioned discontinuation rates due to non-safety burden. Are you preparing any way to reduce discontinuation rates in the commercial setting? Or do you not foresee that being an issue? Emil Kakkis: Sure. So obviously, launch of gene therapy is complicated, the reimbursement part of it and so forth. We're not guiding on any revenue, what the revenue would be for this year, but we're certainly planning to move forward on getting the launch together. I'm sure Erik could go through this in great detail. I'll just summarize for you, Erik, that there'll be obviously various policies at launch we'll have to manage. But eventually, we are talking to payers and appropriate meetings now to help lay pipe for the planning process for that. But the reimbursement will be some of the process, and then we'll have to work through to get patients treated. So our expectation is that there will be some time from PDUFA date to be able to get things going. We're trying to work as hard to get it going within a few weeks and to see how we can get it going. We expect to have product available, and it's more a question of getting the commercial process going. But I think the team has been working aggressively on getting all the pieces in place that would take. And I've been participating with them on some of the payer meetings that look at what the plan is, what the policies were and how to navigate the process to get the best outcome for patients. For discontinuation rates, we actually find the discontinuation rate very limited. Actually, it's really small handful. And usually, the treatment effect that patients start seeing is so meaningful that, that's something that patients have been looking for their -- patient families have been looking for their whole lives. So we don't expect a big discontinuation rate. But as we move forward in it, we will clearly need to manage the accessibility and convenience. And this may involve bringing in a device to help make lumber punctures easier. But we're going to do our best to make sure this is as burdenless as possible. And I would say to you that a randomized trial or any kind of clinical trial has way more burden than getting something clinically in terms of what you have to do. So I think the amount of tests and stuff is a lot. And I think for an Angelman family, that was probably more of a factor. So at this point, based on what we've seen, we're not expecting discontinuation to be a big deal. But we are also going to do our best to take care of patients before there's an issue and give them the best patient experience we can in terms of a convenience for a treatment that involves an intrathecal delivery of an ASO. Operator: We have reached the end of the question-and-answer session. I would now like to turn the call back to Joshua Higa for closing remarks. Joshua Higa: Thank you. This concludes today's call. If there are any additional questions, please contact us by phone or at ir@ultragenyx.com. Thank you for joining us. Operator: This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.
Operator: Hello, everyone. Thank you for joining us, and welcome to Bumble First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I will now hand the conference over to Will Taveras, Head of Investor Relations. Please go ahead. William Taveras: Thank you for joining us to discuss Bumble's First Quarter 2026 Financial Results. With me today are Bumble's Founder and CEO, Whitney Wolfe Herd; and CFO, Kevin Cook. Before we begin, I'd like to remind everyone that certain statements made on this call today are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of factors and risks that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in today's earnings press release and our periodic filings with the SEC. During the call, we also refer to certain non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Reconciliations to the most comparable GAAP measures are available in our earnings press release, which is available on the Investor Relations section of our website at ir.bumble.com. With that, I will turn the call over to Whitney. Whitney Herd: Hello, everyone, and thank you for joining us today. This is a period of real transformation at Bumble. Over the past few quarters, we have executed a deliberate reset of our member base. We made a clear choice to prioritize quality over quantity, focusing on well-intentioned engaged members. That decision reduced overall scale, but meaningfully improved the health of our ecosystem. Importantly, this quality reset was not isolated. It was the first step in a broader strategy to reestablish Bumble as the brand that sets the pace for innovation in our category. We focused first on strengthening the underlying supply of our platform because scale without quality degrades the experience and stifles the outcome people are seeking: high-quality, relevant connections. At the same time, we continued rebuilding our technology and product platform to better serve our members' demand for real dates and in-real-life connection. These moves required short-term trade-offs, but they were deliberate and necessary. Now with healthier supply and stabilization in our member base, we are entering the next phase, activation. This phase is anchored by 2 innovation initiatives. First, the introduction of our new technology platform. Second, the launch of a fully reimagined experience for Bumble members, including a new interaction model and profile system. The new Bumble platform and experience will roll out over the balance of the year, beginning with the first stage of the new tech platform in the coming weeks. Our direct member engagement and our research, including our work with author and professor, Dr. Arthur Brooks reinforces a key insight. The biggest friction in dating today is not discovery. It is the gap between online interaction and real-world connection. People get stuck in that in between. This is a central challenge faced by every scaled dating app. Everything we are building is designed to close that gap and drive real in-person dates between high-quality connections. Accelerating each member's progression towards finding that connection and getting out on a date is our priority. We've been doing foundational work on this problem ahead of introducing our new platform and reimagined experience. We have improved profiles, strengthened intent signaling, enhanced safety and built more dynamic onboarding. These changes have helped members show up better even within the limits of our legacy systems. We are also continuing to improve the current Bumble experience by addressing core member pain points, improving recommendations and enhancing usability. Early tests are showing promising results, including improvements in matching behavior and monetization trends, but results are expected to be relatively limited on the legacy tech stack. We have more to do here in the months ahead. What comes next will go much further. The innovation starts with our technology platform. As we shared last quarter, we have been actively rebuilding our new cloud-native AI-enabled tech stack. This modern platform will allow us to move faster, iterate more efficiently and begin to unlock entirely new product experiences. Today, making meaningful changes to our recommendation engine or introducing new features can take months. This has been a real constraint on the rate of innovation. Our new tech platform is expected to eliminate this constraint. As the platform rebuild nears completion, we are ramping development of the next-generation Bumble Date application, a merging of the new back end and the reimagined member experience, launching in select markets in Q4 of this year. Between now and then, elements of our new technology platform will begin powering a parallel roadmap of incremental improvements in the existing product. With our new app experience, the opportunity is not just to improve the current interaction model, but to evolve beyond it. We are designing a system that shortens the distance between intent and outcome, eliminating the friction caused by multiple steps between interest and connection. Clearer signals drive more mutual engagement and faster progression towards in-real-life connection. Early reactions to this new model have been very positive. Our AI layer, Bee, is expected to play a key role in the reimagined experience. Testing Bee and onboarding new members has been especially encouraging, not just in Bee's effectiveness, but in members' willingness to engage deeply and share richer context about who they are and what they are looking for. Bee's ability to capture more signal and process information quickly improves our understanding of each member and will strengthen our recommendation engine. Onboarding is just the first step in how Bee will be used in the new experience. We also expect Bee to help facilitate connection and to suggest and plan real dates among other roles. Bee is a great example of what we can accomplish on the new modern tech stack and how AI will be an important catalyst for our business. It is important to note that we built Bee separate from the legacy system. I have said a lot here. So let me summarize. First, demand for love and human connection is as vital as ever before. We have done the heavy lifting to reset our business with healthy supply that is ready to engage. We are giving them the tools to show up authentically as their best selves. Next is our new platform, which will accelerate product innovation. Right behind that will be an entirely transformed Bumble experience, which dramatically reduces friction and gets members to in-real-life connection faster. We believe this is our path to deliver what daters are seeking today. This is the path to restoring revenue growth, and we are already at work building the monetization model behind it. That is the core of the Bumble app transformation, but it's only part of the picture. Beyond dating, we are also investing in broader connection, which we see as both a critical need in the world and a competitive advantage for us. We have expanded groups on Bumble BFF and are seeing strong early traction with total group joins nearly doubling between December and March. This success is driven by Gen Z women who comprise the largest cohort on the platform, highlighting our opportunity with this core demographic. Overall, more than 80% of BFF members are women, reinforcing the durability of our overall brand. We will continue to expand on group connections and in-real-life meeting for platonic purposes through BFFs, but we are also bullish on the opportunity of romance beyond one-to-one in terms of how people come together and meet for love. We are testing new ways to bring people together for both platonic and romantic purposes, including a new product beta launching next month, which we are super excited about. Across all of these efforts, our approach remains consistent: test, learn, iterate and do it quickly. We are data-driven, member-obsessed and more passionate about the opportunity and problem we are solving than ever before. In terms of timing, members will first experience the rollout of our new platform, delivering a faster and more reliable experience starting in the coming weeks from a back-end standpoint. From there, we expect to introduce the initial features of our new interaction model and profile. This is our big thing. It will start to roll out to select markets in Q4, backed by a 360 marketing campaign. Then we'll continue to refine the experience into 2027, including adding features like group dating and expanded access to Bee. Ahead of our upcoming unveil, we are continuing to deliver innovations in the current Bumble experience that helps members show up better, more confident and ready to engage. Not all of these improvements will be immediately visible to members, but the critical signal enhancements they enable will drive more relevant connections on the back end. And the UI/UX will be on our modernized back end, which will enable the rollout of our transformed experience later this year. As we execute this transformation, we remain disciplined. We delivered a strong Q1 compared to our expectations, and we are managing our cost structure carefully while continuing to invest in product, technology and selective marketing. Of note, we have reduced our performance marketing spend to less than 50% of pre-quality reset levels. We are starting to see the benefit of organic marketing again, including positive word of mouth now that we have improved the member base quality. Despite tech limitations, we've been able to drive meaningful improvements, which we believe signals the opportunity ahead with a modern tech stack in place. To close, we have been hard at work rebuilding our foundation. Now we are focused on translating that into a meaningfully better product experience, which members will start seeing in the coming months. We cannot wait to reignite our brand, product and mission as we transform Bumble and our category. We look forward to sharing more in the months ahead. Thank you so much for your time. And now I will turn it over to Kevin. Kevin Cook: Thank you, Whitney, and hello, everyone. In the first quarter, we delivered results in line with our expectations as we move past our quality reset to focus on product and technology innovation. As Whitney noted, we're seeing signs of stabilization in our member base as we enter the next phase of activation. I'll review our quarterly results before turning to our outlook. Unless otherwise noted, my comments are on a non-GAAP basis, and comparisons are year-over-year. Total revenue for the first quarter was $212 million compared to $247 million in the year ago period. Foreign currency exchange rates contributed $9 million to revenue in the quarter. The loss of revenue from Fruitz and Official equate to approximately 1 percentage point of headwind in the quarter. Bumble App revenue was $173 million compared to $202 million a year ago. Foreign currency exchange rates contributed $6 million to Bumble App revenue. Adjusted EBITDA was $83 million, representing a margin of 39% compared to $64 million and 26% in the prior year period. Higher adjusted EBITDA despite year-over-year revenue decline is a function of how we have executed through our reset period, most notably with more intensive operating discipline and thoughtful marketing spend. Selling and marketing expense was approximately $26 million or 12% of revenue compared to approximately $60 million or 24% of revenue in the prior year period. In addition to the reduced overall spend, we've increased our focus on lower cost and higher return organic and targeted marketing channels. This strategy brings us back to our historical marketing strengths, which we believe also supports long-term brand health. Product development expense was approximately $25 million or 12% of revenue compared to approximately $24 million and 10% in the prior year period. Our product development spending is focused on core product innovation and platform modernization. General and administrative expense was approximately $24 million or 11% of revenue compared to approximately $26 million or 10% of revenue in the prior year period. I'll now turn to the balance sheet and cash flows. For the quarter, we generated $77 million in operating cash flow, $74 million of which converted into free cash flow. We ended the quarter with $246 million of cash and cash equivalents and continue to generate substantial cash flow while maintaining a strong liquidity position. In April, we completed the refinancing of our term loan that had been previously announced. Consistent with our plans to continue deleveraging, we paid down $114 million of debt in connection with the transaction. Pro forma for the refinancing, we had $150 million of cash and cash equivalents at the end of April. Turning to the outlook. As we move beyond the quality reset, our focus is now on activating our higher-quality member base through product innovation and improved member experience. This transition will unfold over the balance of the year as we introduce our new tech platform and accelerate the introduction of new member experiences. While this work will take time to be reflected in our financials, we believe it best positions us to drive more durable engagement and monetization. For the second quarter, we expect total revenue in the range of $205 million to $213 million, including Bumble App revenue of $168 million to $174 million and adjusted EBITDA of $65 million to $70 million, representing a margin of approximately 32% at the midpoint. As we move through 2026, we expect revenue headwinds to moderate as the most acute effects of the quality reset dissipate and we transition from stabilizing to rebuilding the member base. Adjusted EBITDA margins are expected to normalize over the remainder of 2026 as we increase investment in technology and talent to modernize our platform and drive product innovation. We also plan to increase marketing spend to support our innovation initiatives, organic member growth and brand strength. In closing, we've made meaningful progress on our transformation and are now focused on executing the next phase of the business, pairing a healthier, more engaged member base with a modernized platform that will enable faster product innovation and more effective revenue generation over time. Operator, let's take some questions, please. Operator: [Operator Instructions] Your first question comes from the line of Eric Sheridan from Goldman Sachs. Eric Sheridan: Whitney, I want to come back to some of the comments you made in the prepared remarks and go a little bit deeper. When you think about the tech stack and how it will iterate going forward, I wanted to ask a 2-parter. One, how should we be thinking about the velocity of innovation and your speed in terms of going to market that will result from that as we continue to monitor the business from the outside in? And what do you think about your opportunity around personalization and how much of it will be either AI-driven or non-AI-driven when you think about what the tech stack might enable you to do in the years ahead? Whitney Herd: Thank you, Eric. Great to hear from you. So I'll take this piece by piece. I think before we talk about the actual incredible opportunity we have ahead with this new tech stack, just to double down on a couple of the prepared remarks I had around what we've been dealing with. We have had extraordinary tech debt. What do I mean by this? We have frankly not been able to make the changes that both our members are wanting, commanding, needing, demanding, but that we have wanted to roll out. So all of the results you've seen to date are done on the back end of a very legacy system, which really does inhibit the second part of your question, which I'm going to get to in a moment, the personalization of the experience. So let's talk about velocity, my favorite word. Velocity is going to go up in such a way with this new tech stack. So as an example, if we wanted to make a change to the recommendation engine right now, which is the algorithm essentially, right, it could take us months. It's extremely clunky. It's extremely cumbersome. It's extremely difficult to navigate. On this new tech stack, we're talking we can put tests in immediately. We can be monitoring in real time. We can have A/B testing going at levels we've never been able to access before. And frankly, we can make changes in a matter of days or weeks versus months or even, frankly, years. So when you really start to wrap your head around the opportunity there, I think you can understand why I am personally so excited about this new system finally hitting members' back end here -- in the back end of the system here in the coming weeks. Let's talk about personalization. So this is the name of the game. What's the one reason why people come to a product like ours, particularly Bumble. They're not coming for entertainment. They're not coming to use it like a social media platform. They are coming to meet people. And if you want to meet someone, the baseline is you have to be showing people you want to see and that you want to meet. And so what we're able to do with this new system and this next-gen recommendation engine, which kind of goes side by side with the new -- with the new tech infrastructure, we will be able to personalize the system in ways that we just frankly never had access to. It's not lack of innovation. It's not lack of road map. It's not lack of talent. It has been lack of technical capability. So you will see extreme personalization. Turning to the last part of your question, AI or not AI. It's a hybrid. So I think it's important to maybe just spend a quick moment on how I look at AI for this business. AI should never replace human authenticity or human connection. And frankly, I've been saying this for a long time, but I certainly hope that the rest of the world is starting to see it the way I am in the sense that human connection is starting to matter more now than ever before and real authentic human connection. For those of you that have been following and watching people fall in love with AI bots, I mean, this is not the future we want for ourselves or the next generation. So this is why I'm at work. I'm giving it my all to make sure that we can bring people closer to real -- in-real-life, face-to-face, human, meaningful relationships and connections. So we will leverage AI to enable that, but we will not use AI to replace that. So I hope that answers the question. I could talk about this for 6 hours, but I want to give other folks an opportunity to jump in. But thank you again, Eric, for your question. Operator: Your next question comes from the line of Shweta Khajuria from Wolfe Research. Shweta Khajuria: As we think about the time line, could you please talk to what gives you confidence post the activation phase of the renewed tech platform in 2027 or in Q4 of 2026 into 2027? You will start seeing potentially market improvements in the refreshed tech platform. So could you point to what you saw in your test that gives you that confidence? And what should we be looking for starting in Q4 into next year? Whitney Herd: Shweta, it's great to hear from you. So let's talk about these different kind of work streams. I want to be very clear that the back-end tech rebuild is different than what the front forward-facing member-facing interaction model and profile redesign are. So these are 2 separate things that will converge into each other. However, one comes before the other. That is the back-end technology migration and enablement and rebuild. That is coming here in the coming weeks for select members, and we will start to roll out globally and more broadly, obviously, over the weeks following and the months following. So that is the enabler of everything. That is where we can go in and make algorithmic improvements. We can start to make matching and recommendation economics better for folks and really make sure that you are seeing who you want to see. Now very importantly, so that's the back end, and that will start to enable everything. But very importantly, I fundamentally believe, and I feel that I am a trusted source here because I've been on the front line of this industry from its kind of mobile explosion inception, if you will. I fundamentally believe the interaction model is outdated, not just for us, I'm talking about the industry at large. And I believe it's time to leapfrog anything that currently exists and help people break through these areas of friction where these cliffs exist. So right now, to get somebody from first sight to first date is extremely difficult. There are so many areas of drop-off opportunity where that mutuality of needing to like each other, needing to chat to each other, needing to keep the conversations going on this double-sided format, it's quite difficult to get you to a date. And frankly, Shweta, we're a dating app. We're not a matching app. We're not a swiping app. But have we really been behaving like that? And that is the impetus of the new interaction model. So we have listened to our members. We have been in the trenches with them. I personally have been on the front lines of research and deep in the data. So that forward-facing, member-touching interface interaction transition and profile redesign, that is what you will start to see in a major market in Q4 and then, of course, rolling out more broadly through the end of Q4 and early into '27. So let me actually try to answer your precise question. When do we start to see a rebound in the numbers you're all looking for? Well, the answer is very simple. When our technology and our next-gen recommendation engine can actually help better connect people more compatibly and show people who they want to see and then get them out on great dates, that's where the magic happens. And every single thing we are doing, I'm spending every waking hour of my life right now in effort of serving that one goal: get people out on great dates. So I hope this starts to answer your question, and thank you again for taking the time. Operator: Your next question comes from the line of Nathan Feather from Morgan Stanley. Nathaniel Feather: Digging in a little bit more on that kind of pipeline from discovery to actually getting out on dates. What do you feel are the current real pinch points that cause people to maybe have a match, but not actually convert that into an in-person connection? And to what extent can you actually solve that problem? Is there any issues from a perspective of a lot of people have different preferences? There's local markets? Are there ways that you can kind of solve those? And so that's the first part of the question. And then second, continue to see really strong performance on gross margin. Can you give an update on what you're seeing in terms of payment adoption? And do you think about the uplift that's driving EBITDA? Whitney Herd: Thanks, Nathan, for the question. I'll take the first half. I'll kick the second part to Kevin. So the reality is, you're right, everyone has different dating preferences. But the one thing everybody can kind of agree on at this point is everyone is exhausted from this passive model of just low-effort -- like low-effort interest that there's very little follow-through. And frankly, the industry, at large, and us included, we've made it just too easy to express low-intent interest. And so we are turning that on its head. I can't say much more. I really believe that this is going to be category defining, and we want to keep it close to the chest. But what we will tell you is the early testing has come back remarkably positive. There is very little concern that this is not the right direction. But to your point, every market is different, culturally different, preferences are different. We have no issue with being really agile and making sure that we test our way into the appropriate sequencing and the appropriate rollout strategy to make sure that those nuances are accounted for. But I really -- listen, I'm now 36. I've been doing this since I was 22. I cannot tell you how much this is needed right now for people to really feel reinvigorated with finding love. And there's a few frank realities. We are on our phones more than we've ever been on our phones before, much more so than when I started this company. The need for human connection and love is greater right now than ever. We are more disconnected. Everything is working in our favor. The only thing that has been going wrong is our ability to execute on product innovation, and that is simply due to legacy tech debt, and we are working extraordinarily hard. The teams are incredible, and they are so close on getting us to a place where we can finally innovate and deliver a modern product to our members so that they can continue to make meaningful connections in the real world. Kevin? Kevin Cook: It's Kevin. So the improvement in gross margin is primarily a function of increased adoption of alternative billing methods and therefore, a reduction in aggregator fees. So you're right to point out that we had very strong gross margin in the quarter, about 300 basis points than the prior year period, and we continue to see strong adoption of our Apple Pay program, for example, in the U.S., and that program is slightly ahead of expectation, but we expect to see alternative billing be a tailwind to margin throughout 2026. Operator: Your next question comes from the line of Andrew Marok from Raymond James. Raj Solanki: This is Raj dialing in for Andrew Marok. So as it relates to the post-reset disclosures made today, could you update us through March and April and explain how the curves for registrations, retention, MAUs and payer penetration trended from October until now? Given that this is the first month -- that was the first month of post-quality reset, which metric should best predict payer recovery going forward? Kevin Cook: Yes. Ron (sic) [ Raj ], thanks for the question. So obviously, the disclosures were provided specifically as a way for us to meet a contractual obligation to prospective lenders to cleanse data that we shared with them in connection with the refinancing. That information is all for the periods provided. You can see them outlined there in the specific disclosure on the website. They're all reflected in our current financials. They're out-of-date, stale, and have no sort of import in terms of the business today. The only thing I can share is that the business has stabilized with respect to KPI performance. And in particular, on registrations, I think you see highlighted there the steps that we took quite intentionally to bring the member base down to what we viewed as a healthier, higher-quality ecosystem from which now we can build. So that's all I have for you on that. Operator: Your next question comes from the line of Ken Gawrelski from Wells Fargo. Kenneth Gawrelski: As you look out a couple of years in success as you kind of transition the business, can you talk about how you see -- how you could see the financial profile of the business just relative to [indiscernible] built up in the past. You obviously don't want that to recur. Could you just talk about any changes we might see to the financial profile of the business as you kind of get back to growth in '27, '28? Kevin Cook: Ken, it's Kevin. So apologies, you broke up. Can you repeat the question or summarize the question quickly? Kenneth Gawrelski: Sure. Sorry. Is that better? Can you hear me better, please? Whitney Herd: It's still a little shaky. Try one more time. Kenneth Gawrelski: I'm sorry. Is this better? Sorry. Kevin Cook: So why don't you go ahead and we'll do our best. Kenneth Gawrelski: Yes. My quick question is this, are you -- when you think about the future kind of financial profile of the business, if you go out 24 months, 36 months relative to what we've seen in the business in '22, '23 time frame, how may it look different in your view? Different tech stack? You didn't -- don't want to -- and maybe a different kind of marketing go-to-market strategy. So can you just talk a little bit about what the changes in the financial profile might look like? Kevin Cook: Of course. Okay. So you're right to point out 2 key things. First, in the time frame you referenced, it was a marketing-led business, not a product- and technology-led business as it has been since Whitney returned as CEO. So what you'll continue to see is a much more efficient marketing spend. It will never return -- marketing should never return to the levels that you observed in '24 and '25. Marketing is used as -- in support of and as a tool to enhance product and contribute to new product introduction launch and of course, to some degree, brand. You will see a higher rate, overall, in technology and spend or product development. We're in a period of investment now. You see us beginning to gently increase product development expense to deliver all of the innovation that Whitney was describing and is expected for the second half of the year. So overall, with steady revenue or revenue growth, there would be substantial operating margin in the business. So you should expect to see continued adjusted EBITDA margin expansion, again, so long as revenue is stable or revenue is increasing. Let me know if that answers the question. Kenneth Gawrelski: Yes. Operator: At this time, there are no further questions. This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Good day, and welcome to the Accuray Third Quarter Fiscal Year 2026 Financial Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Stephen Monroe, Vice President of Financial Planning and Analysis. Please go ahead. Stephen Monroe: Thank you, and good afternoon, everyone. Welcome to Accuray Incorporated's conference call to review financial results for the third quarter of fiscal 2026, which ended 03/31/2026. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Stephen LaNeve, Accuray Incorporated's President and Chief Executive Officer, and Ali Pervaiz, Accuray Incorporated's Chief Financial Officer. Before we begin, I would like to remind you that our call today includes forward-looking statements. Actual results may differ materially from those contemplated or implied by these forward-looking statements. Factors that could cause these results to differ materially are outlined in the press release we issued just after the market closed this afternoon, as well as in our filings with the Securities and Exchange Commission. We base the forward-looking statements on this call on the information available to us as of today's date. We assume no obligation to update any forward-looking statements as a result of new information or future events except to the extent required by applicable securities laws. Accordingly, you should not put undue reliance on any forward-looking statements. A few housekeeping items for today's call. All references to a specific quarter in the prepared remarks are to our fiscal year quarters. For example, statements regarding our third quarter refer to our fiscal third quarter ended March 31. Additionally, there will be a supplemental slide deck to accompany this call which you can access by going directly to Accuray Incorporated's Investor Relations page at investors.accuray.com. As you review our prepared remarks and guidance today, please note that our outlook represents our current estimates and reflects the operating environment as we understand it today, including, among other things, current tariff impacts and geopolitical conditions. As always, the situation remains dynamic and we will continue to update investors as visibility improves. With that, let me turn the call over to Accuray Incorporated's Chief Executive Officer, Stephen LaNeve. Stephen LaNeve: Thank you, Stephen. Good afternoon and thank you for joining us. Since joining Accuray Incorporated last October, I have spent time with teams across the company and in our key markets. What stands out is the strength of our technology, the commitment of our people, the conviction health care providers and patients have in our solutions, and the scale of the opportunity ahead of us. Turning to the quarter, total revenue was approximately $105 million, up 3% sequentially but down 7% year-over-year. In the third quarter, we had product shipments planned to certain customers in the Middle East, North Africa, and Pakistan that have been delayed indefinitely due to increased geopolitical disruption in the Middle East, which is also impacting our service revenue in those regions. We do not know how long this regional dynamic might continue. Additionally, our business in China continues to face headwinds that we discussed during our last earnings call which pertain to geopolitical tensions and ongoing tariff uncertainty. These are markets that remain strategically important to Accuray Incorporated over the long term, but the current environment has added volatility and uncertainty that is largely outside of our control and difficult to predict. That said, restating our strategy, we are prioritizing investment in innovation, product reliability, service solutions, workflow efficiency, and partnerships that expand our reach and strengthen our platform. Additionally, we are relentlessly focused on executing on our transformation program initiatives that did not take effect until the middle or end of the third quarter, which, coupled with the geopolitical factors I have mentioned, have masked their impact to date. While we remain confident in our ability to execute against our transformation plan, the current geopolitical environment, including the conflict involving Iran and its ripple effects across the Middle East, as well as my earlier comments about our business in China, has created significant unpredictability for both the product and the service sides of our business. Given such uncertainty, we believe the responsible approach is to withdraw our financial guidance at this time. We will provide an update on the business when we report fiscal fourth quarter results. Now turning to our transformation plan and the progress we have made. We launched a comprehensive strategic, operational, organizational transformation plan. This plan was designed to sharpen accountability, tighten cost control, and accelerate execution, while positioning Accuray Incorporated for sustainable, profitable growth over the long term. The foundation of this plan was to establish clear product and service strategies supported by a set of critical enablers we believe are necessary to execute at a higher level. The first of those enablers was rightsizing our cost structure while improving efficiency through better processes and the use of our ERP system and business intelligence tools. This was paired with an organizational realignment that centralized key functions, outsourced non-core activities, and reinforced accountability, speed, and commercial focus across the business by reducing approximately 15% of our workforce. At the same time, we reallocated engineering resources toward higher ROI programs, particularly those that integrate third-party solutions and more directly reflect the voice of the customer. Taken together, these actions were designed to structurally improve operating profitability by approximately $25 million on an annualized basis, with roughly $12 million expected to benefit fiscal 2026. As of the end of the third quarter, we have already achieved approximately $10 million of those improvements, and we are well on track to exceed the $12 million we originally targeted for fiscal year 2026. We continue to believe that at least $25 billion of these improvements should be realized in fiscal year 2027. We remain encouraged by the pace, the quality of execution, and the sustainability of these actions to date, and we will provide an updated view on these annualized improvements on our fourth quarter earnings call. To put some color around what this looks like in practice, let me briefly highlight a few initiatives that are already underway. First, we are expanding and diversifying our service portfolio to better monetize our installed base and enhance customer value. During the quarter, we launched new training and educational solutions, which can be included in service agreements or sold standalone. Additionally, we will launch packages to add software solutions to our service agreements, which we believe strengthens recurring revenue opportunities and improves customer engagement over time. Our strategy is to better leverage our substantial and growing installed base and to drive significant value creation through our service business. Second, we are making meaningful progress toward a more disciplined distributor partnership model. In markets where distributors are essential to our reach, we are implementing clear performance standards, improved transparency, stronger alignment, and better support models to drive consistent, high-quality execution. During the quarter, we advanced this effort with several concrete actions, including the appointment of a Vice President of Distributor Partnerships, a new and strategically important role for Accuray Incorporated focused on elevating distributor performance and accountability globally. Third, we are implementing systems, processes, and controls to help ensure we are fully and appropriately compensated for the work our service teams deliver every day. During the quarter, we have made enhancements to our service systems, which are designed to improve cash conversion and margin quality. Fourth, we continue to optimize pricing across our product and service portfolio to better reflect the clinical and economic value our technology and our service solutions deliver. This work is designed to support competitive wins at appropriate margins and is expected to translate into stronger sales quality and margin expansion over time. Finally, an essential element of the transformation is strong commercial leadership. I am very excited that Paul Maielli has joined Accuray Incorporated as Chief Commercial Officer. Paul brings more than two decades of experience leading and scaling global capital medical device businesses across the Americas, EMEA, and APAC regions. His track record strongly aligns with Accuray Incorporated's priorities in terms of building effective commercial operating models, reactivating the installed base, expanding service and solutions monetization, and accelerating capital equipment sales, specifically in the areas of imaging, navigation, and robotics. In prior roles, his leadership helped drive the reversal of revenue decline trends and helped deliver double-digit annual growth. Paul and his team will play a critical role in strengthening our top line, improving profitability, and supporting sustainable, long-term value creation. With our internal transformation well underway, I would like to now turn to strategic partnerships, which is an area that is playing an increasingly important role in shaping Accuray Incorporated's future. A core principle of our transformation is focus. We are being very deliberate about where we invest our internal resources and where partnering allows us to move faster, scale more efficiently, and deliver greater value to our customers. Over the past several months, we have made meaningful progress aligning with partners that strengthen our execution today and fortify our long-term position as an innovative leader in radiation medicine. One of the most exciting areas of progress is how we are leveraging partnerships with the goal to convert one of Accuray Incorporated's most distinctive capabilities—real-time adaptation to patient and tumor motion during treatment—into a durable clinical evidence engine. Radiation medicine is entering an era where precision is increasingly defined not just by the treatment plan created in advance, but by what happens during treatment itself. Recent high-impact prostate SBRT data have reinforced that delivery-side factors, intrafractional motion management, can meaningfully impact outcomes. Accuray Incorporated's installed base gives us access to one of the largest repositories of real-world motion-tracked treatment data in the industry, spanning hundreds of thousands of treatment fractions across multiple disease sites. By pairing these insights with a multicenter registry sponsored by the Radiosurgery Society, we are working to define the clinical value of real-time correction, inform future product development, and help shape emerging standards of care. Importantly, this effort strengthens our differentiation, supports our product roadmap, and reinforces our focus on clinically meaningful innovation. Our new partnership strategy is built around creating an ecosystem of aligned partners that amplifies our strengths. We are building a constellation of strategic collaborations with many leading organizations, including the University of Wisconsin–Madison, Tata Consulting Services, as well as many others. Each brings distinct capabilities across imaging, software, workflow innovation, clinical research, treatment continuity, and operational execution. Together these partnerships allow us to deliver more comprehensive solutions to radiation medicine teams while improving speed to market and capital efficiency. This partnership-driven model is an important pillar of our transformation and a key component of how we intend to create enduring value for customers and shareholders alike. In addition to the momentum we are seeing across our transformation and partnerships, we are very excited about the upcoming European Society for Radiotherapy and Oncology conference in Stockholm later this month. ESTRO is an important global forum for radiation medicine and a key opportunity to engage directly with our customers. At ESTRO, we plan on highlighting a series of practical, customer-driven product enhancements and new partnerships that reinforce our commitment to clinical excellence, workflow efficiency, and continuous innovation. As I have said before, these are areas where we believe Accuray Incorporated can make the biggest difference for patients and where we can meaningfully differentiate ourselves in the market. In summary, while the external environment remains challenging, the transformative progress we are making across execution, innovation, and partnerships gives us confidence that we are building a stronger, more resilient Accuray Incorporated for the future. With that, I will hand it over to Ali to take you through our financial results and key financial metrics. Ali Pervaiz: Thanks, Stephen, and good afternoon, everyone. I would like to begin by thanking our global cross-functional teams for their continued dedication and hard work as we execute on our transformation plan. Turning to the third quarter results, net revenue for the quarter was $104.8 million, which was down 7% versus the prior year and down 10% on a constant currency basis. On a sequential basis, revenue increased 3%. Product revenue for the third quarter was $49.7 million, down 13% versus the prior year and down 15% on a constant currency basis, representing the majority of the year-over-year decline. Similar to earlier in fiscal 2026, most of this came as a result of ongoing macroeconomic headwinds in China and, more recently, geopolitical tensions in the Middle East. Service revenue for the third quarter was $55.1 million, down 1% from the prior year and down 5% on a constant currency basis. As a result of our global installed base and service network being negatively impacted by Middle East tensions, we had a $1.2 million negative impact to service revenue. The company's contract capture rate, defined as a percentage of active systems covered by a service agreement, continues to be at nearly 90% across our active installed base. As Stephen discussed, optimizing pricing to reflect our true clinical and economic value has been a key piece of our transformation plan. This includes a significant focus on pricing on service contract renewals. While the pricing secured in renewals spans over the next two to three years, we did experience $0.6 million of price favorability within service revenues in the third quarter. Product gross orders for the third quarter were approximately $49 million and represented a book-to-bill ratio of 1.0 in the quarter, with a trailing twelve-month ratio of 1.2. We ended the third quarter with a reported order backlog of approximately $356 million, defined to include only orders younger than thirty months. Our overall gross margin for the quarter was 24.1% compared to 27.9% in the prior year. This decline was primarily due to service margins, which were 26.1% compared to 33.3% in the prior year. Driving this decrease was higher net parts consumption of $3.2 million, which negatively impacted service gross margins by approximately 600 basis points. As we have mentioned in prior quarters, the timing of parts consumption can fluctuate quarterly depending on the volume and extent of service requirements. In the third quarter, our higher-than-anticipated service parts consumption also required higher-than-average logistics and duties costs. Additionally, tariffs adversely impacted service margins by $0.8 million, or 150 basis points. Product gross margins in the third quarter were 21.9% compared to 22.7% in the prior year. The year-over-year incremental cost from higher tariffs was $2.6 million, which adversely impacted product gross margins by approximately 530 basis points. Tariffs have been quite fluid recently, and although IEPA tariffs have been invalidated, we continue to monitor how the tariff landscape evolves over the near term and how that impacts our profitability and cash flow. Operating expenses in the third quarter were $34.4 million compared to $30.6 million in the third quarter of the prior fiscal year. The current-year third quarter includes $6.5 million of nonrecurring expenses, which includes severance costs and other costs directly related to our restructuring and transformation plans. Additionally, the prior-year third quarter benefited from a $3.2 million reversal of unrealized accrued compensation from fiscal 2025. Adjusting for these discrete items, third quarter fiscal 2026 operating expenses decreased $6 million, or 18%, versus prior year, which illustrates that the cost actions taken as part of our transformation have taken hold. As stated above, during the third quarter, we recognized $6.5 million of nonrecurring restructuring expenses. As our transformation plan progresses, we expect restructuring costs to sequentially decrease from these third quarter levels in future quarters, with a significant portion of the restructuring costs recognized by the end of the fiscal year. Operating loss for the quarter was $9.1 million compared to income of $1 million in the prior year. Adjusted EBITDA for the quarter was $3.8 million compared to $6 million in the prior year. We describe the reconciliation between GAAP net income and adjusted EBITDA in our earnings release issued today. Turning to the balance sheet, total cash, cash equivalents, and restricted cash as of quarter end amounted to $44.4 million compared to $47.9 million at the end of last quarter. The restricted cash related to required postings for cash flow hedging and tariffs amounted to $0.4 million in the current quarter as compared to $6.6 million at the end of last quarter. Net accounts receivable were $64.6 million, up $3.6 million from the prior quarter, largely due to higher sequential quarter revenue. Our net inventory balance was $156.6 million, up $5.7 million from the prior quarter. At the end of the third quarter, we had $5 million outstanding on our revolving credit facility. As Stephen noted earlier, we continue to execute our transformation strategy and remain ahead of plan to achieve the $12 million improvements we had originally forecasted. By the end of the third quarter, we had already realized approximately $10 million of these transformation-related improvements, which were largely achieved through workforce and discretionary spend reductions, as well as pricing realization. And with that, I would like to hand the call back to Stephen. Stephen LaNeve: Thank you, Ali. I remain excited about the opportunities ahead for Accuray Incorporated and continue to have strong conviction in the differentiation of our technology and the value it brings to customers and patients. We believe the impact of our strategic focus and the transformation plan we initiated will become increasingly evident over the coming quarters, with 2027 and 2028 financial performance expected to reflect the benefits of the actions we are taking today. As we look ahead, we believe our progress should be measured against a clear set of priorities. Number one, driving top-line growth with our product and service business lines through a focused commercial strategy. Number two, relentlessly executing on our transformation plan to improve gross margins and strengthen EBITDA through tighter cost management. And number three, prioritizing innovation grounded in voice of customer as part of our product and service development programs. We will now open the call for questions. I will turn the call back over to the operator for Q&A. Operator: We will now open the call for questions. The first question comes from Marie Thibault with BTIG. Please go ahead. Marie Thibault: Just wanted to ask about the decision to remove guidance. I know that the Iran war started after your last quarterly earnings call, but your prior commentary had pointed to a close understanding of timelines in these various regions. Why not just revise the guidance to remove some of those specific customers or those revenue installs in those regions? Why remove entirely? Stephen LaNeve: Thank you, Marie. This is Stephen. I appreciate the question, and obviously, we have spent a lot of time thinking through this very carefully. As we noted in our remarks earlier, the shipments to customers in the Middle East, North Africa, and Pakistan particularly have been delayed indefinitely due to these tensions, and that directly impacts both product revenue and all the associated service revenue. Just given the dynamic nature of these disruptions and the difficulty in predicting when these installations will resume, we collectively thought it was more appropriate to withdraw guidance. EMEA is the largest region for Accuray Incorporated, and within EMEA, the Middle East and North Africa are the fastest-growing subregions. Given the interdependencies that exist between other regions around the world, we felt this was the most prudent course of action. Marie Thibault: Okay. And then I know you are ahead of schedule on some of your cost-cutting efforts, but it looks like adjusted EBITDA came in well below what we were expecting and certainly does not really keep you on track for your prior outlook. I understand that has been removed. What is going on there? I think that excluded things like the restructuring charge. So what is going on there? And is there a way to see improving profitability despite some of this macro uncertainty? Ali Pervaiz: Hey, Marie, it is Ali. Thanks for the question. We are really excited about the fact that the transformation is moving along well, and we are ahead, just like you said. In terms of the savings, we have made a lot of progress to date. You heard about the workforce reductions and the reorganization that we have done. We have made a lot of progress in terms of overall cost and spend rationalization, and we will continue to execute on the transformation. The main pillars associated with the transformation relate to continuing to focus on our service business, making meaningful progress in our distributor partnership model, and focusing on optimizing pricing. All of those are going to take some time to come into play, and the timing of those is really hard to anticipate. We think we are still going to see a solid annualized benefit in fiscal year 2027. Marie Thibault: Thank you, Ali. You took my question out of my mouth. I was going to ask about the timing of some of those potential benefits. I will hop back in queue. Thank you. Stephen LaNeve: Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Accuray Incorporated's President and Chief Executive Officer, Stephen LaNeve, for any closing remarks. Stephen LaNeve: Thank you all for joining our call today, and we look forward to speaking with you again in the summer when we report our fiscal 2026 fourth quarter earnings results. This concludes our earnings call. Thank you again. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.