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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: Greetings, and welcome to Gulfport Energy Corporation's First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Jessica Antle. Please go ahead. Jessica Antle: Thank you, Carrie, and good morning. Welcome to Gulfport Energy Corporation's first quarter 2026 earnings conference call. I am Jessica Antle, Vice President of Investor Relations. Speakers on today's call include Michael Hodges, Executive Vice President and Chief Financial Officer, and Matthew Rucker, Executive Vice President and Chief Operating Officer. I would like to remind everybody that during this conference call, the participants may make certain forward-looking statements. Actual results and future events could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we may reference non-GAAP measures. Please refer to our most recent earnings release and investor presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures. An updated Gulfport presentation was posted yesterday evening to our website in conjunction with the earnings announcement. Please review at your leisure. At this time, I would like to turn the call over to Michael Hodges. Michael L. Hodges: Thank you, Jessica, and thank you for joining our call today. Before we begin, I would like to take a moment to welcome a new leader to Gulfport that I know many of you are already familiar with. Last evening, we announced that Nick Delazzo will be joining Gulfport as our President and Chief Executive Officer beginning May 28. Following a thorough search process, the board unanimously agreed that Nick is the right leader at the right time to propel Gulfport into its next chapter. He brings more than two decades of energy industry experience, a sharp focus on operational and financial discipline, and a proven track record of delivering value to shareholders. Nick is joining Gulfport at a time when the company has never been stronger, and we are excited to work with him to create long-term value for all stakeholders. Nick looks forward to engaging with our employees and shareholders in the coming months, and joining us to take your questions on our next quarterly call in August. With that said, we are off to a great start to 2026 at Gulfport, highlighted by the successful completion of our previously announced discretionary acreage acquisition program and a record quarter of share repurchase activity. I will share additional details on our land acquisition accomplishments a bit later, but we believe the swift and decisive actions we have taken over the past three years in the Ohio Utica have delivered significant value to the company as the demand for high-quality, low breakeven inventory across the industry continues to increase. When combining these initiatives to grow net asset value with our ability to repurchase nearly 10% of our market cap over the past two quarters at prices well below the underlying value of our business, it has been a very successful close to 2025 and start to 2026. Turning to our first quarter results, it was an especially strong kickoff to the year financially as the company generated $264 million of adjusted EBITDA and $119 million of adjusted free cash flow, driven by strong commodity pricing and the continued development of our high-quality asset base. Average production totaled 997 million cubic feet equivalent per day, which was consistent with the expectations we provided in February and keeps us on track to deliver on our previously stated full-year production guidance of 1.03 to 1.055 billion cubic feet equivalent per day. Cash operating costs for the first quarter totaled $1.38 per million cubic feet equivalent, also in line with our expectations and similar to last year. We expect this to be a quarterly high point for Gulfport as we anticipate declining per-unit cost as we move through the year. With our production cadence expected to accelerate later in 2026, the fixed charges embedded in our operating costs are expected to decline on a per-unit basis over the course of the year and land within the range of our full-year guidance. For full year 2026, we are reaffirming our per-unit operating cost guidance, which includes LOE, midstream, and taxes other than income, of $1.23 to $1.34 per Mcfe. On the capital front, we incurred a total of $118 million related to drilling and completion activity and $4 million related to maintenance, land, and seismic investment while achieving the significant operational success that Matt will address in his comments. Most importantly, and as I mentioned earlier in the call, we wrapped up our previously announced discretionary acreage program, investing approximately $102 million over the past four quarters to add more than two years of high-quality inventory adjacent to our core positions in Belmont and Monroe Counties. These acquisitions were made at an average cost of just over $2 million per net location, significantly below implied recent valuation metrics from larger inorganic transactions in the immediate area. We have focused our efforts over the past few years in the wet gas and dry gas windows of the Ohio Utica, areas that generate some of the strongest returns in our portfolio and where we can convert these locations into producing assets in short order. As a reminder, since 2022, our targeted discretionary acreage acquisitions have added over 4.5 years of high-quality net locations, enhancing the durability of our asset base and reinforcing the significant value uplift we are achieving through the execution of our ground game leasing program. We continue to monitor opportunities to further strengthen our leasehold footprint and increase our resource depth. We believe these opportunities continue to rank extremely high as we evaluate the uses of free cash flow in 2026 and beyond. Turning to the balance sheet, our financial position remains strong and we recently completed our spring borrowing base redetermination, adding 10% to elected bank commitments and reaffirming the borrowing base at $1.1 billion. Our trailing twelve-month net leverage exiting the quarter was approximately 0.9 times and, pro forma for the increase in elected commitments, at the end of the first quarter, Gulfport’s liquidity increased by $100 million and totaled $872 million, comprised of $2.9 million of cash plus $869.3 million of borrowing capacity under our revolver. We greatly appreciate the support of our bank group as we position the company to opportunistically deliver value to our shareholders, and our liquidity position is more than sufficient to fund our development needs for the foreseeable future, providing significant financial flexibility as we continue executing on our capital allocation strategy. As I mentioned earlier, with this balance sheet strength and liquidity in place, we continue to deploy capital towards shareholder returns through our share repurchase program. During the first quarter, we repurchased 866 thousand shares of common stock for approximately $172.8 million, representing the highest quarterly investment in company history and well ahead of our previously announced plans in February. As of March 31 and since the inception of the program, we have repurchased approximately 8.2 million shares of common stock, including the preferred redemption in 2025, at an average price of just over $133 per share, more than 30% below our current share price and totaling nearly $1.1 billion of capital returned to shareholders over the past four years. Over just the last two quarters alone, we have allocated over $300 million towards repurchasing what we believe to be our undervalued common stock, resulting in the retirement of nearly 10% of our shares outstanding. Given our current valuation and the strength of our underlying fundamentals, we expect share repurchases to remain an attractive capital allocation priority and plan to maintain an active repurchase program through 2026, supported by adjusted free cash flow and available revolver capacity, all while maintaining leverage at or below one times. In closing, Gulfport is delivering consistent financial results, maintaining disciplined capital allocation across asset bases, and returning significant capital to our shareholders, all while preserving flexibility to navigate market conditions and pursue value-enhancing opportunities. With a strong foundation in place, and a proven leader joining our company, we are confident in our ability to continue executing our strategy and creating durable long-term value for our shareholders. Now I will turn the call over to Matt to discuss our operational highlights for the quarter. Matthew H. Rucker: Thank you, Michael. Operationally, during the first quarter, the company completed drilling of eight gross wells, comprising of two Utica wet gas wells, four Marcellus wells, and two SCOOP Woodford wells. We entered the year with three operating drilling rigs running and, as planned, released the SCOOP rig at the end of the first quarter and currently have two rigs drilling ahead in Ohio. We plan to release one rig at the end of the second quarter, transitioning to a one-rig program in Ohio for the remainder of 2026. On the completions front, we brought five gross Utica dry gas wells online during the first quarter, including our first two U development wells, which continue to perform consistent with recently developed straight lateral offsets. Importantly, this activity has unlocked approximately one year of additional high-quality inventory that can be strategically placed in our future development plan, providing additional flexibility. Looking ahead, we have an active completion and turn-in-line schedule with approximately two-thirds of our remaining 2026 turn-in-lines expected to include a significant liquids component in their production profile. This mix highlights the company's balanced approach to developing our assets and provides exposure to dynamic market conditions, allowing us to capture value across changing commodity price environments. Lastly, I would like to compliment our team's continuous focus on operational improvements, as we delivered strong results during the quarter. In the period with our highest level of activity, the operational teams executed with zero recordable incidents or spills, underlying our commitment to safety and the environment in tandem with best-in-class operations. Our drilling team delivered an exceptional quarter, achieving incremental efficiency gains in each area of our core operations. In the Utica, we maintained our record all-in footage per day realized in 2025, and as we continue to extend lateral lengths across our asset base, we have concentrated our efforts on improving performance in the vertical section of the drilling phase to enhance overall cycle times. During the quarter, our average top-hole drilling days improved by 8% compared to full year 2025, and we set a new company record for the fastest Utica top hole drilled for Gulfport to date, completing the section in just 5.4 days. Not only did we set a single-well record, the four-well pad delivered an average top-hole record of 5.9 days per well, demonstrating the opportunity for long-lived efficiency gains. In the Marcellus, we finished drilling a four-well pad during the first quarter, and when compared to the prior two Gulfport-operated pads in the area, we delivered a 20% improvement in footage drilled per day. Lastly, and perhaps most notably, I am extremely proud of our team's performance in the SCOOP and the drilling results achieved on our recent HERO pad. On average, the team delivered the pad with a spud-to-rig-release time of approximately 40 days per well, beating our internal expectation of 55 days. These results highlight the team's ability to apply learnings from our best-in-class operations in Ohio and deliver more consistent execution in the SCOOP, where drilling is more challenging. Collectively, these results underscore the strength of our operating team's leadership and our ability to consistently deliver best-in-class execution across all of our operating areas. As we have discussed previously, the completion side of our operations has been continuing to perform at very high levels and our emphasis there remains on maintaining those efficiencies. With that consistency, we have been able to deliver our first two pad turn-in-lines of the year on time and on budget. In summary, our operational results this quarter mirror the broader performance Michael outlined—disciplined execution, continuous improvement, and a focus on creating long-term value. The consistency we are seeing across our operating areas positions us well to support Gulfport's strategy. And with Nick preparing to join our team, we are confident our operations are well aligned to support the next phase of execution and deliver durable returns over time. With that, I will turn the call back over to the operator to open the call up for questions. Operator: Thank you. We will now be conducting a question and answer session. We will now open the call for questions. Our first question will come from Neal Dingmann with William Blair. Neal Dingmann: Good morning, all. Michael and Matt, thanks for the details. My first question is probably for you, Michael. It is on capital allocation. Specifically, how do you all think about allocating for further discretionary acreage—which, again, the stuff you have done seems to have fantastic upside—versus your stock buybacks, where you have been very active? And maybe add one more twist to this: in a quarter like the one we are in now, which is probably your lowest free cash flow quarter of the year, would you consider using debt to do either of those if the opportunity existed? Michael L. Hodges: Hey, Neal. Thanks for the question. I think it is an excellent one. Our approach has been consistent over the last few years—it has been to capture as many of those high-quality locations as we can. The opportunity set there has been available to us, and we think those generate some of the highest returns when you can drill those in the near term. That has been a priority for us and continues to be a priority. We believe there is still more running room there, and we will likely update the market a little later in the year on what that looks like for the rest of the year. I would say that has consistently been a high priority. We think the equity is still undervalued; it has been a good opportunity for us to get that back at what we think are attractive prices. So I would say it is a combination of the two. The health of the balance sheet allows us that flexibility, as you pointed out, to lean on that a little bit in quarters where we may have a little bit less free cash flow. As we go into the second quarter, we do still have quite an active development program that Matt talked about. If we see opportunities to use the revolver to get some equity back at a good value, we would consider doing that. Our approach has been dynamic; we have stayed away from formulaic approaches, and that has worked well for us. I would summarize it by saying it is a combination of all of them, and it is something we evaluate continuously. The priority around locations over the last few years has been a strategically advantageous move for us, and we think others are starting to follow along more closely with that. We will keep you updated as we have more details, but that will continue to be one of the highest priorities. Neal Dingmann: Great to hear. Your inventory sort of speaks for itself now. Secondly, on marketing—you talked about optimizing the marketing strategy. How has that evolved, and how are you thinking about that strategy? Do you have any constraints if you wanted to crank up production—thinking more about takeaway—if you wanted to expand production? Michael L. Hodges: It is a good question, Neal. There are really not any constraints around that. We have a very strong firm transportation portfolio that gives us good access to various locations, and that has been an advantage over the last few years. We have Gulf Coast access that gives us LNG-type pricing. We have Midwest exposure that we think is advantaged, certainly in the seasonal periods—the winter season tends to trade very well. We are able to sell gas locally as well. There is a lot of excitement around data center demand, and, as we talked about on the last call, there is some improving outlook for prices even in the Northeast. So no constraints around being able to sell additional gas. We are always thinking about maximizing free cash flow, and so far we feel like the right way to do that has been to keep our production relatively flat. Certainly, if there were a signal that would be rewarded—or an opportunity to move the needle from a pricing perspective—it is something we could consider. But the strategy has been very successful the last few years and, at least at this point, makes sense for our company. There are no constraints around midstream or downstream markets that would keep us from considering that type of option. Operator: And our next question will come from Zach Parham with JPMorgan. Benjamin Zachary Parham: Yes. First off, congrats on Nick joining the team. I think that is a great hire. My first question for Matt—you talked a lot about drilling gains in both the SCOOP and in Appalachia. Could you unpack that a little bit more? Where do you think we are in the evolution of those drilling gains, and what is the runway in front of you to continue to shave days and hours off? Matthew H. Rucker: Yes, sure. Thanks, Zach. I would categorize that as kind of the sixth inning, if you will, in a baseball analogy. We have talked for a while about our completion side of the business achieving things like 22-hour pumping days, and obviously there are only 24 hours in a day, so it is really about maintaining efficiency there. We have talked a lot about the drilling side and the opportunity set in front of us. This quarter demonstrates that focus that the team has had and the ability for us to keep chipping away at that. What I am most proud of is hitting that in all three core areas and finding those gains. In the Utica, where we have been operating for a long time, outside the curve and lateral we are finding opportunities in the top-hole section of the wells, which are incremental days you can gain back. The Marcellus is relatively new to us as a company, but not to our operating team, and just now on our third pad there, we have been able to see that 50% increase even with the longest laterals that we have drilled in that play to date. Then in the SCOOP, being able to achieve roughly 40-day cycle times in a pretty challenging environment speaks to us becoming a more consistent program in that asset where we feel more comfortable continuing to deploy capital. I think there is more room to go, to be fair, but we have made great headway heading into 2026 where that has been a key focus area for us. Benjamin Zachary Parham: And my follow-up—are you seeing any inflation on service prices at this point? There has been some volatility in the commodity, but we have seen some modest activity adds, and some service providers think there is more coming—maybe not so much in Appalachia, but in other parts of the U.S. What are you seeing? Matthew H. Rucker: We are certainly seeing it around diesel. That is not only straight fuel price, but it can bleed into logistics and trucking as well. I would say that is where we are seeing the biggest move. A lot of our heavy service contracts around pressure pumping, rigs, and things like that, we do a good job of locking in for the year ahead or being constructive around that. So no real impact to the capital—we are not changing guidance. Some of these efficiencies we have talked about could help offset those recent impacts around diesel. We try to mitigate those things by maintaining and improving our efficiencies and continuing to work with our service providers in this challenging fuel environment. All in all, I would say we are kind of net neutral at this point, but keeping an eye on it and working with our providers as the year progresses. Operator: We will hear next from Tim Rezvan with KeyBanc Capital Markets. Timothy A. Rezvan: Good morning, folks. Thank you for taking our questions. Mike, I want to start on repurchases. You gave specific targets the last two quarters—I know you exceeded it in the first quarter. You did not give one going forward. You used more ambiguous language about it being an attractive use of capital, and we are looking at the first quarter, which was about half of the total for 2025. Should we think about 100% of free cash flow and land there in the ballpark for this year? And is there a reason you did not put a number now and why you did put a number the last couple of quarters? Michael L. Hodges: Hey, Tim. Thanks for the question. If you think back to the fourth and first quarters: in the fourth quarter, we had some CapEx where we were doing appraisal work and had some acceleration of capital. There was logic around giving a target to ensure the Street understood that we were not borrowing against what we had otherwise allocated to share repurchases—that the accelerated capital was in addition to that. That was the thought process there. We got into the first quarter, saw some opportunity in the equity, and also had the wrap-up of our discretionary acreage program. Those were the quarters where we gave more of a target, and as you noted, we ended up exceeding it in the first quarter because we saw some opportunities with a block we were able to pick up and changes in what we felt like the underlying value versus the opportunity to buy at was. Going forward for the rest of the year, we will be more consistent with what we have done the last four years—think about things on a full-year basis, not marry ourselves to a formula, and be dynamic. We will not allocate quarter by quarter; we think about it annually. The balance sheet, at nine-tenths of a turn, gives us some opportunity with a lot of free cash flow coming later this year. We have a lot of liquids development coming up, and we see the environment for liquids as pretty positive right now. I do not think we will allocate all in the later part of the year; we will see what near-term cash flows look like—second quarter, third quarter, even into fourth quarter—see where the equity trades, and allocate accordingly. I understand it is a little bit ambiguous—it is intentionally that way because we want to be dynamic—but we do see a lot of value and plan to continue the repurchase activity. Timothy A. Rezvan: Okay. That makes sense. As a follow-up on liquids—you put a bar chart in your deck showing the increase in liquids skew. Can you help us ballpark that? Is that like a 15% exit rate or back-half liquids skew? You were at 9% liquids in the first quarter. Should we assume you are going to lean in and maybe be at a 15% plus level going forward? Michael L. Hodges: I think the nice thing is we have the option to make those changes. Thinking back a few years ago when Matt and I joined, Gulfport did not have that flexibility in the program. Now those things are available to us. You are right—we will become a little more liquids heavy as the year progresses. We have a couple of wet gas Utica pads coming up, some Marcellus development, and our SCOOP, which has the liquids component. There is a fair amount of liquids coming online for us at a very opportune time. As we go into 2027, we can make those decisions as well. In terms of being 15% liquids—we are a gas company with a mature asset base, so moving that needle to that level may be a bit ambitious. But I do think as we go through the year, you will see us get to more of a low-teens liquids percentage, with the opportunity over time to take that even higher. For this year, back-half weighted, call it low teens, and then we will assess where we want to go for 2027. Operator: Our next question will come from Carlos Escalante with Wolfe Research. Carlos Escalante: Hey, good morning to you. Thank you for taking our question. Matt, on the North Marcellus pad or appraisal that you are drilling later this year, can you outline this for us? What is the gross resource that the well spud is testing for, and what is the EUR you need to see to justify a programmatic Marcellus North development versus considering maybe a one-off? I know that there is some production from one of your competitors up there that looks good, but wondering if you see anything particular in your specific area. Matthew H. Rucker: Sure, Carlos. Thanks for the question. I would bracket that there is not as much delineation for us. When we think about the types of EURs and deliverability we will see there, we approximate it very similarly to our Marcellus South. Quite simply, for us it is a new pocket of development without an infrastructure component at the moment with a third party. We are going in with a two-well approach—one north, one south—to confirm our assumptions and make sure the liquid percentage—both NGLs and oil—and composition are understood so that we can then go to our potential midstream providers to get the best economic outcome for that block of acreage. There is nothing specific we need to see to pull the trigger; it is more about confirming our type curve from a liquids-weighting perspective and then immediately going into contract negotiations with a midstream and processing provider to unlock that development with good economic parameters. Carlos Escalante: Thank you. That is very helpful. A quick follow-up for Mike on hedges. You are targeting roughly 30% to 40% hedge coverage in 2027. Presumably you would start to work on that in the near term. At what NYMEX level do you accelerate that or contract that? Is there a floor below which you choose to stay unhedged on the view that the curve is too low? Michael L. Hodges: It is a good question, Carlos. On the hedging side, we try to remain flexible. Your observation on where we sit for 2027—we have talked previously that we like to be in the 30% to 70% range as we enter a year. We are near the lower end of that if you think about 2027. We have six or seven months left here in 2026. We are pretty bullish on gas going into next year. The volatility earlier this year, and what some of our peers have talked about, indicates there will be opportunities to create value through the hedge program. We like that we have that baseline amount in place already for 2027. From here, we can nibble when there are opportunities. I do not feel like we have to go do anything in the near term unless we see those opportunities, and typically this time of year is not where you get a lot of them. As we get into next year, we will continue to adjust. There have been years where we are a little more bearish and at the higher end of the range, and years where we are more bullish. Right now, we are a little on the bullish side, so we may keep that a little bit lower, but it will be a dynamic process as we continue to assess what 2027 looks like. Operator: We will go next to Jacob Roberts with TPH. Jacob Phillip Roberts: Good morning. I wanted to start on the SCOOP. Obviously, decent results there. You have said in the past that the SCOOP was competitive with your Northeast assets, and the implication here is that it has become even more competitive. What do you need to see in the market to allocate a more meaningful amount of capital to that asset, and where do you see this asset participating in that growth scenario you spoke about if the market calls for it? Matthew H. Rucker: Thanks for the question, Jake. I will start and Michael can add his comments. The results on the drilling side are a great step in the right direction for us. We have talked about the last couple of years really being about finding operational execution consistency in the SCOOP. If we are able to get those drilling days to 40, sub-40, and do it consistently and repeatably, it gives us a lot more confidence in that asset if the time calls for us to flex activity there. On a single-well IRR basis, it competes in our portfolio. When you blend that in, it is still a capital-intensive asset with longer cycle times, and we are very mindful of that when we think about our calendar-year cadence and what that does for the company. For this year, we will get these wells completed and turned to sales later in 2Q, evaluate those results, and then it will be part of our program going forward. To the extent we flex more into that in later years, we will always be looking at that within our overall capital allocation program. It is really about seeing that consistency every time we go to drill. With this one being the best we have done so far, we would like to see that again before we make any radical changes. Jacob Phillip Roberts: Thank you. That is helpful. As a follow-up, on liquids hedging—I saw you added some swaps in addition to the collars on the oil side during 2027, as well as some propane swaps for 2027. What is the thinking there, and should we expect that number to move higher throughout this year? Michael L. Hodges: Great observation, Jake. That market improved in the last couple of months, and we really did not have a lot in place for that component of our revenue stream. We saw an opportunity to put a position in. As I mentioned earlier, we like to be in that 30% to 70% range, so we layered those in. That is an area where you have to monitor geopolitical events and decide whether they get resolved in the near term or longer term. We are not going to try to get too cute with it. If there are opportunities where we can capture a little more value, we could do that, but we made some good progress looking out into next year at prices that are very attractive based on where we have seen realizations for both WTI and NGLs. We will assess our program for 2027. To the extent that we want to continue to lean in on the liquids side, we have unhedged barrels that you can always shift around, and that is a way of adjusting your hedge percentages through your own activity. We will continue to monitor this as we think about the right blend for 2027. Operator: Moving next to Peyton Dorne with UBS. Peyton Rogers Dorne: First question on my end, maybe for Mike. Gas pricing was really strong in the first quarter. Could you provide some color on how you see differentials trending in 2Q and as we progress into the summer months? Michael L. Hodges: Hey, Peyton. Thanks for the question. I want to give a pat on the back to our marketing team. A number of operators in the Northeast saw opportunities with the setup going into February and captured some of the first-of-the-month pricing. Our team did an excellent job there, which led to some outstanding differentials and overall realizations for the quarter. That is something we work on consistently. It does not get a lot of airtime because it is a routine process here. Looking forward, we are still bullish on differentials overall. We talked about this on the last call, and some of our peers are starting to talk about it as well: a lot of the demand we are seeing coming in the Northeast—specifically around data centers and power demand—seems to be lifting the long-term view on basis in the Northeast. It is an important component of our differential. We have exposure to the Gulf Coast and the Midwest, but still do have some Northeastern exposure that we think is only going to rise going forward. Our full-year guide on differentials is still appropriate. I think there is opportunity for some improvement as we go into later years—2027/2028—as some of that demand starts to show up. Those are meaningful to our company. Even a $0.05 move in differentials can be important to free cash flow and EBITDA. We are set up well for the year and feel bullish about where things are headed in the future. Peyton Rogers Dorne: Great, thanks. Just to go back to the Valerie pad in the Marcellus—it was nice to see the drilling efficiencies you obtained there. I know you changed the completion design a bit in the Marcellus when you went from the Hendershot pad to the Yankee pad and targeted the formation a bit differently too. How did you attack Valerie, and what learnings did you incorporate from Hendershot and Yankee into this most recent pad? Matthew H. Rucker: Some of the completion design testing you spoke of was around the Hendershot being a two-well, one-in-each-direction unbounded delineation test initially. The Yankee four-well pad was more of a true development on our spacing. We learned a lot from that and landed our spacing assumptions where we wanted them. The designs around the Valerie are more about optimizing economics—well spacing and how much sand and water you need to effectively drain the wellbore. We took those learnings and applied them here to look at the best economic outcome. On this pad, that is what we did. With the ability to have four wells, we did a bit of incremental testing on two of the inter-laterals as well—minor tweaks to continue to get more economically efficient. More to come there, but that is the evolution of what we have been doing. Peyton Rogers Dorne: Sounds great. Look forward to seeing those. Thanks a lot. Michael L. Hodges: Thanks, Peyton. Operator: We will go next to Gabe Daoud with Truist. Gabe Daoud: Thanks, operator. Good morning, everyone. Thanks for the time and congrats on bringing Nick aboard. Mike, on the back of your comments around in-basin pricing improving later this decade, are there any transport agreements that could be rolling in that period that you would let roll to provide a tailwind to the cost structure and margins? Michael L. Hodges: It is a good question, Gabe. We are always assessing what we have. There are always smaller pieces within the portfolio that are not as critical and that you consider letting go from time to time, which can help a little bit. There are also opportunities to optimize your book and offload some of those on a shorter-term basis to other operators that need space. As basis improves in the Northeast, there are probably more netback decisions you can make around your firm portfolio and whether it makes sense to hold all of it. From a strategic perspective, we feel really good about the diversity we have and the exposure to different basins. I would not forecast making significant changes. Having exposure in the Midwest and at the Gulf Coast—and even the diversity from a risk mitigation perspective—makes a lot of sense. You may see some small improvements on the cost structure within the portfolio around our Northeastern position, but nothing I would describe as a wholesale strategic shift for Gulfport at this point. Gabe Daoud: Got it. Thanks, Mike. That is helpful and makes sense. David Adam Deckelbaum: As a follow-up, your discretionary land program has been pretty successful over the last several years extending inventory life. How should we think about that program for 2026 and moving forward? Michael L. Hodges: I am glad you asked, David. It really has been a big part of our success over the last few years. We are in the process right now of formulating our thoughts around it. We like to have a very clear path when we come out and talk about it. We think there continue to be some exciting opportunities around the basin. It is typically something we talk about around midyear. Our next call is likely to be in August. Over the last few years, we have done somewhere between $50 million and $100 million of discretionary acreage programs annually. To the extent that we have been successful—and we have—we like that allocation of capital. I think there is a strong likelihood we will have something to talk about midyear that is a pretty exciting opportunity to capture more land this year. It is not unlimited—you have to be smart about it. There are areas where we can find locations that move into the near-term development plan, which is what enhances the economics the most. It is not a carpet-bombing exercise; it is us going out and making sure we have that line of sight before we allocate the dollars. We will talk about it more later this year, but you can probably sense in my tone that I am pretty excited about what we will have to share later on. David Adam Deckelbaum: For sure. Thanks, Mike. Great color—really appreciate it. Gabe Daoud: Great. Operator: This now concludes our question and answer session. I would like to turn the floor back over to Michael Hodges for closing comments. Michael L. Hodges: Thank you, operator, and thanks to everyone for taking the time to join the call today. Should you have any questions, please do not hesitate to reach out to our Investor Relations team. This concludes our call. Thank you and have a great day. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Operator: Good morning, and thank you for attending Unifi, Inc.'s Third Quarter Fiscal 2026 Earnings Conference Call. During this call, management will be referencing a web presentation that can be found in the Investor Relations section of unify.com. Please familiarize yourself with page two of that slide deck for cautionary statements and non-GAAP measures. Today's conference is being recorded, and all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Our speakers are listed on page three of today's presentation and include Albert P. Carey, Edmund M. Ingle, and Andrew J. Eaker. I will now turn the call over to Albert P. Carey. Please turn to page four of the presentation. Albert P. Carey: Thank you. Good morning, everyone, and thanks for joining our call. We are pleased to report that our yearlong effort to reduce our cost base and improve cash generation is providing results. As a matter of fact, we are a bit ahead of expectations for Q3. Andrew is going to take you through the full story in a few minutes, but here are the three top headlines. The Madison plant closure is complete. Number two, the much improved efficiencies in our current plant. And three, we have optimized our product lines and SKUs so that we do not have products that contribute no profitability to our lineup. These actions set us up for improved profitability, especially as revenue begins to pick up and we are able to see higher levels of capacity utilization. There was one area that did not see a reduction in cost over the last 12 months, and that was the work that we are doing on product innovation. These products will provide revenue growth for the future, so they are very important. We have begun to get traction with our customers on these products, and that will move us into a very important priority right now, which is to begin to commercialize these innovations. The innovations are, first, textile-to-textile recycling, second, products for categories that are outside of apparel and provide higher profitability, and third, products with performance benefits that customers and consumers are looking for. Now Edmund is going to take you through the full story on that in just a minute. The textile industry still has plenty of headwinds, especially as our customers navigate around the tariff complexities and the oil prices. We believe those headwinds will diminish and our profits will improve even in the current environment that we are in right now. I would like to say one last thing and turn it over to Edmund. We are very proud of our team, the executives, the managers, and the front employees as well. Over the last 12 to 15 months, it has been a rough road. But the team has worked through the challenges collaboratively. There really is a special resiliency about the people from Unifi, Inc., and their loyalty has been very evident throughout this entire time frame. So we are grateful for their big efforts over the last several months, and we are looking forward to returning to growth. So now I would like to turn the call over to Edmund and Andrew who will provide you with the full story. Thank you. Edmund M. Ingle: Thanks, Al. And, as Al just noted, this really was a stronger quarter for Unifi, Inc., and it clearly highlights the benefits of the actions we have taken to realign our cost structure, optimize our operations, and improve the conversion margins through portfolio management and, of course, targeted pricing that Al has inferred. We have kept our inventories flat. Spend was managed with discipline, and the margin improvement that you see in the numbers in part reflects this strong operational progress. We are a significantly more resilient business today, and despite geopolitical headwinds, we have managed our balance sheet very effectively. Structural changes to our customer contracts, combined with faster commercial decision-making, have positioned us well to be able to respond more proactively to today's market conditions. I am going to turn the call over to Andrew now to walk you through the financial details for the quarter, and then I will come back shortly to discuss our near-term priorities, our innovation progress, and what lies ahead for Unifi, Inc. Andrew? Andrew J. Eaker: Thank you, Eddie, and good day, everyone. I will start off by discussing our consolidated financial highlights for the quarter on slide four. Consolidated net sales for the quarter were in line with our expectations, down 11% year-over-year but up 7% sequentially. Our markets continue to be impacted by geopolitical events, as well as trade- and tariff-related uncertainties. Consolidated gross profit was 9.1 million dollars, and gross margin was 7% during the period compared to a gross loss of 400 thousand dollars and gross margin of negative 0.3% for the prior-year period. SG&A was 11.2 million dollars during the quarter, a 9% improvement from one year ago, while adjusted EBITDA during the period was 4 million dollars, a nearly 9 million dollar improvement on a year-over-year basis. These stronger results during the quarter, as Eddie and Al mentioned, reflect serious operational improvements, both on the cost and efficiency side, that we have implemented over the last several quarters now translating into real results. Turning now to slide five. In the Americas, net sales were down 16%, as the region continues to face volume headwinds. Despite the lower sales during the quarter, we did generate gross profit of 3.6 million dollars in that segment. This is the first time we have been able to deliver positive gross profit in the Americas for some time now, which further highlights the benefits of footprint consolidation and cost actions we have taken to improve our domestic operational efficiency. Slide six displays our Brazil segment, which saw net sales increase by 1 million dollars and gross profit decline just slightly by 200 thousand dollars. Overall, the performance in Brazil during the period was solid due to a particularly strong March with both volume and pricing contributing. This March for Brazil was our best sales volume month on record because of cost and price dynamics where the scales tipped in our favor. While this dynamic may normalize soon, we expect to see robust results in the fourth quarter for Brazil. On slide seven, our Asia segment net sales and gross profit declined to 22.6 million dollars and 2.7 million dollars respectively, primarily due to lower sales volumes associated with the tariff uncertainties and pricing dynamics in the region. Margins have continued to hold up well in Asia given the asset-light model we employ there, and we did see some momentum in the region improve during March that we are hopeful will continue. Slide eight outlines our improving balance sheet and capital structure. During the third quarter, we generated 7.2 million dollars of free cash flow, bringing year-to-date free cash flow to 20.5 million dollars. The positive free cash flow in the third quarter was a major beat against our expectations, as we were originally anticipating that we would experience some cash burn during this quarter. But thanks to our operational improvements and diligence, we experienced a nice increase in cash flow generation. CapEx for the quarter came in at just 800 thousand dollars, and our CapEx on a year-to-date basis was 3.9 million dollars, a 50% decline compared to the prior-year period as we continue to closely manage all spending. Net debt was reduced to 68 million dollars, a stark improvement from recent levels, and our working capital remains balanced, healthy, and lower due to our leaner operations in the U.S. This significant improvement to our balance sheet and capital structure was directly attributable to the hard work that our whole team has executed across the globe over the last few years. We aligned our cost, consolidated our footprint, and drove improved efficiencies, all of which have helped us establish a more efficient manufacturing base in the U.S. Looking at the fourth quarter, we do anticipate a moderate increase in working capital to accommodate a modest increase in sales and the higher-cost raw materials purchased thus far. We estimate between 4 million and 7 million dollars of working capital impact to the fourth quarter, which will obviously fluctuate in terms of amount and duration based on current geopolitical events. This concludes my financial review, and I will now pass the call back to Eddie. Edmund M. Ingle: Thank you, Adrian. And as you have just heard from Andrew in quite a amount of detail, we are continuing to see the benefits of our operational improvements and the business is demonstrating improved resilience and flexibility in what I would consider an ever-changing business environment. So let us turn to slide nine for an overview of our priorities going forward. As we look ahead, our focus continues to remain on returning Unifi, Inc. to long-term growth and enhanced profitability. In order to achieve this goal, we are keeping our efforts focused on four key areas. First, we will continue to build on the operational improvements that we have implemented and ensure we do not lose any of the enhancements to the business that we have made. At the same time, we will continue to invest in our capabilities and technologies and reinforce and scale our platform of sustainable solutions. Next, we have a culture built around innovation, and as Al mentioned, we have not given up on those efforts. In new product developments, we will continue to invest in resources necessary to advance the customer adoption of our innovative solutions to support future growth. And finally, we are focused on making sure we do everything we can to navigate the current trade and geopolitical environment that is creating some challenges for us. We are also maintaining a sharp focus on positioning the business to drive more consistent top-line growth as some of these global economic headwinds subside. It is good to see some momentum in a number of our innovative initiatives, especially in the U.S., with what we have called Beyond Apparel. You have heard us talk a lot about the potential we are seeing for our Beyond Apparel business, and while Q3 was still a work in progress, we are seeing real commercial success in Q4. Moving on to slide 10. A key highlight for the last quarter was the global launch of Luxel, a new yarn technology that delivers the look and feel of linen while adding performance benefits like moisture management, wrinkle resistance, and odor control. It is made with REPREVE recycled polyester, including a minimum of 30% textile-to-textile recycled content with our REPREVE Take Back. Luxelle is designed to help brands reduce environmental impact while maintaining the look and feel of linen with easy care. The innovation can be used in a wide range of applications from footwear, apparel, and home goods. And Luxelle is just another example of how we at Unifi, Inc. have continued to develop yarn technologies that can replicate the performance of natural fibers and enhance the technical performance beyond what nature can actually provide. And in our military and tactical markets, much of the success we are seeing is centered around our Fortisyn brand. We are seeing success here because we offer enhanced strength nylon yarns, natural white, all with color embedded into the yarns, and in addition, these products can be made with REPREVE nylon as the base polymer. These advancements that we have made in this market, with the performance promise backed up by Unifi, Inc.'s quality systems, alongside a sustainable offering, are finally starting to move into the serious commercialization stage. So alongside the Beyond Apparel growth of military and tactical, carpeting is getting more traction. Packaging has continued to perform well, with volumes growing in both these markets too. We expect to see further growth in the periods ahead. In Asia, we are beginning to see more activity in both REPREVE Take Back, our textile-to-textile fiber platform, and Thermal Loop, our innovative circular insulation product. In a couple of quarters, I expect to be able to discuss openly which additional brands and retailers have been adopting these offerings once they themselves go public. Turning to slide 11. In February, we released fiscal year 2025 sustainability snapshot highlighting progress in scaling our REPREVE recycled materials platform and advancing sustainable manufacturing. We announced a new goal to recycle 65 billion plastic bottles by 2030, and updated our other established goals, such as converting the equivalent of 1.5 billion T-shirts worth of textile waste into REPREVE products. The sustainability snapshot, as we call it, really helps telegraph to the brands and retailers how serious we are about helping them meet their sustainability targets and, of course, how committed we are at Unifi, Inc. to product innovation and building out our already substantial sustainable product portfolio. Turning to slide 12. In April, which is recognized globally as Earth Month, we celebrated our partners through our Champions of Sustainability program, announcing the winners of our ninth annual REPREVE Champions of Sustainability Awards, recognizing brands and mills who are advancing circularity and responsible manufacturing across the textile industry. This year's program introduced new textile waste awards to spotlight partners accelerating circular solutions, reinforcing our commitment to scaling recycled and traceable materials globally. And since the event was held in our main U.S. manufacturing location in Yadkinville, North Carolina, it gave those who attended a view into the production of REPREVE Take Back and the process. Moving to slide 13 for an overview of our outlook and how we anticipate sustaining our financial momentum. For the fourth quarter, we expect to see our Brazil segment benefit financially from the supply chain dynamics that currently exist in the market, and we will be able to leverage the long supply chain to our advantage in the coming months. In the Asia segment, there is an expectation that we will see increased adoption resulting in revenues from our technologies and circular solutions. The Americas segment should improve in terms of volumes and revenues, primarily from pricing actions and our value-added Beyond Apparel portfolio. However, we are still facing some demand challenges with our underlying business, specifically in Central America. To wrap up, we are encouraged by the progress that we have made, which is now being reflected in our financial results. Our business is in a stronger position today than it has been in some time, and we are continuing to remain focused on ensuring that our operational enhancements translate into sustained financial improvements that will help create value for our shareholders. And before I hand the call over to the operator, I would like to acknowledge that the improvements to the business were a team effort, and I want to take the opportunity to thank each of the teams in the regional businesses for their hard work and efforts. With that, let us open the line for questions. Operator? Operator: We will now begin the question-and-answer session. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your question comes from the line of Anthony Lebiedzinski with Sidoti. Your line is open. Please go ahead. Analyst: Good morning, everyone, and thanks for taking the questions, and yes, certainly nice to see the improvement in the earnings results and also the pretty good cash flow in the quarter as well. So first, just can you talk about pricing versus unit volumes in Q3 and how that might change in the fourth quarter here given the increased input costs and some of the supply chain dynamics? I think Brazil is probably the one where you would probably see the most in terms of pricing actions, but just wondering if you could comment on the quarter that you just reported, plus also give some more details about the pricing and volume dynamics that you may anticipate here in the fourth quarter? Andrew J. Eaker: Sure, Anthony. It is Andrew. A bit of a mixed bag. I will try to go slow on some of that and ask Eddie to help as well. But if we start from a year-over-year perspective, we have the majority of decline in the Americas is volume-based. There is some price and mix in there, but predominantly volume. When we look at Brazil, their year-over-year was predominantly price movement—again, Q3 versus Q3—that was based on a lot of the competitive activity, lower prices coming from imported product. And third, in Asia, year-over-year, we did have a larger pricing impact versus volume impact as well. So now when we look sequentially, Q3 to Q4, like you asked, we do see generally flat volumes in the Americas but certainly some pricing as we have had to make some responsive pricing actions given the movement in petrochemical markets. In Brazil, we will also see meaningful pricing increase, but also a bit of volume. And in Asia, we see a mix of volume and price there, again partly with petrochemical-related inflation and partly with some of the recovery that we mentioned beginning with the month of March in Asia headed into Q4. And I will ask Eddie to add on any more there. Edmund M. Ingle: Yes, he has covered most of it. I just want to add one specific thing around the velocity of the pricing. We are in a situation today where more of our pricing is order-to-order and not index like it had been in the past. So we are able to react more responsibly. We are being careful, of course, to talk to customers and be responsible suppliers. But because of the nature of the raw materials and the speed at which they have increased, we have had to react faster than we normally do. So during the fourth quarter, especially by the time we exit, we expect to be caught up on any raw material increases, unfortunately, that we have to pass on. Analyst: Got it. Thank you both. So just to clarify, you expect the pricing actions to essentially fully offset any of the cost headwinds that you are seeing at the moment, right? Edmund M. Ingle: I think there will be a little bit of lag in the U.S., but primarily most of the cost increases will be passed on as we move through this quarter, and we are seeing that already. Analyst: Got it. Okay. Thanks for clarifying that, Eddie. And then, in terms of the Asia segment, you highlighted that you expect improved adoption of innovative and sustainable platforms. Can you give some additional details in regards to that? And then as far as some of the new products that you have talked about, which one do you think has the most potential to make a difference in terms of the sales contributions? Edmund M. Ingle: Yes. Here in the U.S. on the Beyond Apparel, in Q4, we are expecting to see about a 2 million dollar uplift in the quarter from these Beyond Apparel initiatives, which is primarily from our military and tactical Fortisyn programs, our carpeting business, and also the packaging business that we have. These are all margin-accretive opportunities for us, and we are—especially on the Fortisyn product—we spent a lot of time. We talked a lot about this on the calls. It takes a long time to get traction, primarily because it is just such a technically difficult product to make, and then of course the customers are very sensitive to make sure that if they do make a switch, that they are switching to a product that can sustain itself and give them the advantages that we have described to them. We are at the point now where we are getting adoption, and I am very excited about that. I think the volumes potentially, overall for the whole market, will increase because of what is happening with Iran. But overall, we are certainly very positive about that market and where it can bring us in the next few quarters, but specifically in this quarter. It is not going to be huge, but we have got commercial programs that we did not have just a quarter ago. And then in Asia, it is a mixture of our Thermal Loop—which most of the insulated jackets are made actually in Asia, so we do not expect to see any of that here in the Americas—and we are starting to get traction. This is the season to make insulation for the fall jacket sales. We have good programs there. We have good programs in our REPREVE Take Back, which is our textile-to-textile, and also our technologies such as TruTemp 365 and SolveJek; they are also starting to create traction. So our revenues in Q4 will be up in Asia, primarily driven by our technologies. And in Brazil, they actually have increased the ratio of value-added sales, which is in part why the revenues will go up. Analyst: Thanks so much for all that color. This is more of a longer-term, bigger-picture kind of question. As we look at the Americas, it is your very asset-heavy segment where you have taken out a lot of fixed costs. So even with lower revenue, you were able to generate much better gross profit here in Q3. As the segment recovers at some point, how should investors think about gross margin potential here in this segment with better revenue that you may see at some point? Andrew J. Eaker: Sure, Anthony. I will start that and ask Eddie to add any. We are certainly proud of what was achieved in this third quarter, again beating expectations on what the team was able to accomplish in terms of getting cash back, cost out, and improving efficiencies in the facilities that remain. From a long-term perspective, we certainly want to get back to some of those better levels that were in the around 10 years ago. Those margin levels were certainly healthy in the Americas, and with a lot of what Eddie has outlined in terms of new programs, new customer penetration, and continued efficiencies and cost management in the Americas, we do see that as a relevant goal and an achievable goal when those catalysts do hit. Edmund M. Ingle: Yes. I just want to add, we are very, very careful about our spend—more than we ever have been before—and it is across every part of the organization. It is a new mindset. All we need is a little bit of volume to really get those margins that Andrew was talking about. We still expect it to come back, especially in Central America. We are getting the bright signals, but we are still just waiting patiently. While we are waiting, we still believe we can manage our spend relative to the revenues that we have to continue to give us positive profit in the Americas. Albert P. Carey: Anthony, this is Al. I would add one thing to the Central America business. In many conversations with customers, all indications are they are going to use Central America for near-shoring because it is a good option for them to not be so dependent on China, and it is also a good option for close-in supply chain. We are just waiting. I think what is happening in the sourcing organizations of these companies is they are trying to determine, with the tariffs changing so much, is it a better deal to buy from the U.S.? Is it better to ship from China to Vietnam over to the Americas? It is going to happen, but it has just been very confusing. We are waiting for it to happen. All indications are it will happen. Analyst: Understood. Thanks for all that color. And somewhat of a similar question in regards to Brazil. Obviously, the near-term picture looks bright there, but just looking back over the last few years, there has been quite a lot of volatility in the Brazil segment in terms of sales and gross margins. Maybe if you guys could talk about what is different now, other than the supply chain dynamics, and how should we think about the longer-term opportunities and challenges beyond the current quarter? Edmund M. Ingle: Thanks for the question, Anthony. The market is still continuing to grow because of the population and because of the general economy down there. We are the only large player down in that market. We have talked about the dumping that has been going on from Asia into Brazil. With this higher-cost dynamic, we are advantaged a little bit. So we do expect our margins to become a little bit more stabilized. Like we have said on this call, Q4 should be pretty strong, and going forward, we should get back to more normal EBITDA and more normal gross profits in Brazil on that business segment. The dumping has lessened simply because the Asians appear to be a little bit more constrained from a petrochemical perspective, and they are passing those costs on to the market. Analyst: Got it. That is very helpful context. Thank you very much, and best of luck. Andrew J. Eaker: Great. Thank you, Anthony. Operator: There are no further questions at this time, and this concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day. Operator: And welcome to the Spire Inc. Second Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Megan L. McPhail, Managing Director, Investor Relations. Please go ahead, ma'am. Megan L. McPhail: Good morning, and welcome to Spire Inc.'s fiscal 2026 second quarter earnings call. We issued an earnings news release this morning, and you may access it on our website at spireenergy.com under Newsroom. There is a slide presentation that accompanies our webcast, which can be downloaded from our website. Before we begin, let me cover our safe harbor statement and use of non-GAAP earnings measures. Today's call, including responses to questions, may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements regarding our expectations, plans, and objectives for future performance, future operating results, earnings guidance, capital investment plans, and the expected timing and benefits of, and risks associated with, acquisitions, dispositions, and related integration and transition activities, including the acquisition of the Piedmont Natural Gas Tennessee business; the sale of Spire Marketing; and the announced sales of Spire Storage and Spire Mississippi. Our forward-looking statements on today's call speak only as of today, and we assume no duty to update them unless required by law. Although our forward-looking statements are based on estimates and assumptions that we believe are reasonable, various uncertainties and risk factors may cause future performance or results to be different than those anticipated. These risks and uncertainties are outlined in our quarterly and annual filings with the SEC. In our comments, we will be discussing non-GAAP measures used by management when evaluating our performance and results of operations. I want to highlight that our results and guidance discussed today are presented on a continuing operations basis. This reflects the classification of Spire Marketing and Spire Storage as discontinued operations and is intended to provide a view of the earnings profile of the business going forward. As a part of this change, we are no longer presenting separate midstream or gas marketing segments in results or segment earnings guidance. The MoGas pipeline, which was previously reported in the Midstream segment, is now included in Corporate and Other. Explanations and reconciliations of these measures to their GAAP counterparts are contained in both our news release and slide presentation. On the call today are Scott Edward Doyle, President and Chief Executive Officer, and Adam W. Woodard, Executive Vice President and Chief Financial Officer. With that, I will turn the call over to Scott Edward Doyle. Scott? Scott Edward Doyle: Good morning, and thank you for joining us. This has been an exciting and transformative period for our company. Since announcing the acquisition of Piedmont Tennessee on July 29, 2025, we have successfully closed that transaction and taken decisive steps to further strengthen our portfolio. We announced agreements to sell Spire Storage and Spire Mississippi along with the sale of Spire Marketing, which have enabled us to fund the Tennessee acquisition without the need for external equity, while also sharpening our strategic focus on our regulated gas utility businesses. Together, these actions enhance the quality and visibility of our earnings, improve our overall risk profile, and position the company for more consistent long-term value creation. I want to take a moment to thank our colleagues at Spire Marketing for their professionalism, dedication, and meaningful contribution over many years. Their work supported our customers, strengthened the organization, and helped to position the company for success in the future. Turning now to performance for the quarter on slide four. On a continuing basis, we delivered second quarter adjusted earnings per share of $3.76 compared to $3.17 in the prior year. Underpinning that result is what we focus on every day: safe, reliable natural gas delivery along with continued disciplined cost management and customer affordability. On the regulatory front, we received approval from the Missouri Public Service Commission for a $16.5 million increase in our Infrastructure System Replacement Surcharge, or ISRS, request. Rates were effective in March and are supporting cash flow and recovery on infrastructure investment. In addition, in March, we filed an accounting authority order, or AAO, with the Missouri PSC related to the impact of lower weather-driven usage we experienced during the winter months. Adam will touch on our proactive approach to addressing these extraordinary conditions in a moment. Looking ahead, we are providing a fiscal 2026 adjusted EPS guidance range on a continuing operations basis of $3.90 to $4.10 per share. At the same time, we are reaffirming fiscal 2027 adjusted EPS guidance, which includes results from Spire Tennessee; our 5% to 7% long-term growth target; and our $11.2 billion 10-year capital plan. This underscores the durability of our strategy and the strength of our regulated growth platform. Slide five highlights our strategic approach concentrating the company around our core regulated gas utility businesses. Today, our business profile is centered on regulated gas utilities and our FERC-regulated pipeline, with growth driven by disciplined capital investments. With the sales of our non-core activities including marketing and storage, we have removed market-based earnings exposure from our growth profile. As a result, the company's earnings profile has become more straightforward and more predictable, with improved long-term earnings visibility. Looking ahead, long-term growth is anchored in our regulated utility, supported by rate base growth and constructive regulatory mechanisms. Moving to slide six. Building on our key messages and new business profile, I want to take a moment to walk through our 2026 business priorities, which reflect the recent actions we have taken and how we are managing the business going forward. First, operational excellence remains core to our strategy. We continue to focus on the safe and reliable delivery of natural gas, disciplined deployment and recovery of capital across our regulated utilities, and maintaining a strong emphasis on customer affordability through effective cost management. From a regulatory perspective, we remain focused on achieving constructive outcomes across our jurisdictions while continuing to advance the regulatory path forward in Missouri, including preparation for a future test-year rate case filing later this year. Financially, our priority is to deliver adjusted earnings within our fiscal 2026 guidance range from continuing operations, maintaining balance sheet strength, and a disciplined approach to financing. Finally, from a strategic transactions and integration standpoint, we are executing against our priorities—successfully integrating Spire Tennessee, divesting non-core assets, and maintaining our focus on regulated utility growth, reliability, customer affordability, and long-term shareholder value. Together, these priorities support a simpler, more concentrated business mix with improved earnings visibility and a strong foundation for long-term growth. Turning now to slide seven for an update on the Tennessee acquisition. We completed the transaction on March 31, marking an important milestone for Spire Inc. The approval process with the Tennessee Public Utility Commission took just six months from filing, highlighting the constructive and efficient regulatory environment, with continuity of rates and a clear framework that supports disciplined investment and long-term planning. With this acquisition, we have added Spire Tennessee to our portfolio as a leading regulated natural gas utility in one of the fastest-growing markets in the country. Spire Tennessee is now serving more than 200 thousand customers across the Greater Nashville area and surrounding counties. From a financing standpoint, the transaction is now fully funded without the need to issue common equity. The balance financing mix includes $900 million of junior subordinated notes, $825 million of Spire Tennessee senior notes, and proceeds from our recently announced asset sales. To bridge financing until the closing of the asset sales, we entered into an $800 million term loan to be paid as funds are received. Integration is also progressing smoothly. More than 200 employees transitioned to Spire at close, and we have an 18-month transition services agreement in place to support a seamless handoff. Our teams are already working closely together to align systems, processes, and safety practices. Overall, we are very pleased with the execution around this transaction—from financing to close to early integration—which we believe positions Spire Inc. well for long-term value creation. Moving to slide eight. The sales of our marketing, storage, and Mississippi businesses are deliberate actions to better align the company with where we see the strongest long-term value and the most consistent earnings profile. We reached agreements with strong buyers for each of these businesses. The sale of marketing to Boardwalk Pipelines was completed on April 30, just one month after announcement, and the transactions to sell storage and Spire Mississippi are expected to close in the coming months. From a capital standpoint, these sales generate meaningful cash proceeds, providing flexibility to fund the Tennessee acquisition and continue investing in our regulated infrastructure. More importantly, from a strategic perspective, these actions further concentrate Spire Inc. to regulated natural gas utilities where we have scale in each state. This improves our business risk profile and enhances earnings visibility while allowing management to stay focused on operating excellence, customer service, and disciplined growth. When these transactions are complete, Spire Inc.'s business portfolio will be fully regulated, positioning us well going forward and directly supporting our long-term strategy of investing in infrastructure, customer affordability, and delivering steady, predictable value for shareholders. Overall, we delivered solid second quarter results from our continuing operations, advanced our portfolio simplification strategy, and remain focused on executing in our regulated gas utilities. While lower weather-related usage in Missouri weighed on results, our underlying performance and long-term growth outlook remain intact. With that, I will turn the call over to Adam to walk through the financial results and our updated guidance in more detail. Adam W. Woodard: Thanks, Scott, and good morning, everyone. I will begin with our quarterly results, which are presented on slide nine. With Marketing and Storage now classified as discontinued operations, the results we are presenting today provide a more straightforward and transparent view of our overall performance and the key factors driving performance. For the second quarter, we reported adjusted earnings of $224 million, or $3.76 per share, compared to $189 million, or $3.17 per share, a year ago. Gas Utility earnings totaled $235 million, an increase of over 20%, or $40 million, compared to the prior year, driven primarily by the implementation of new rates in Missouri and Alabama. Importantly, this increase reflects recovery of earnings on approximately $1 billion of incremental Spire Missouri rate base placed in service since rates were last updated. Favorable run-rate operations and maintenance expense performance also contributed to earnings growth. These benefits were partially offset by the impact of Spire Alabama customer refund provisions under the RSC framework, which include a reversal of a provision in 2025 and a refund provision in 2026. Lower customer usage in Missouri, net of weather mitigation, further offset earnings relative to the prior year, with current-year usage also coming in significantly below our expectations. Earnings were additionally impacted by higher depreciation expense and taxes other than income taxes, a portion of which is recovered through new Missouri rates as amortization schedules are updated. Interest expense was modestly higher in the current year, primarily reflecting higher long-term debt balances. Finally, Other activities reported an adjusted loss of $11 million, approximately $5 million higher than the prior year, reflecting higher corporate costs and higher interest expense in the current year. Turning to slide 10, let me walk you through the weather-driven usage impacts we have seen in Missouri so far in fiscal 2026, and how we are managing through them. Customer usage was materially below historical patterns and below the assumptions embedded in Missouri's weather normalization mechanism, driven by an unusually mild and uneven winter. Missouri heating degree days were 11.5% below normal through 2026, with residential usage per heating degree day during the winter heating season being 7% below 2024, which is the historical test year used to establish current billing determinants. The specific customer usage pattern we experienced was not fully mitigated by the weather normalization mechanism, and the lower-than-expected usage resulted in a margin shortfall versus our year-to-date expectations. In addition, Missouri rate design has shifted a greater portion of margin to the winter heating season, increasing sensitivity to weather and usage. We have been proactive on the regulatory front. In March, we filed an application for an accounting authority order with the Missouri Public Service Commission seeking recovery of the volumetric margin shortfall caused by this extraordinary weather pattern. This dynamic is the primary driver of the reduction in our full-year Gas Utility guidance. The margin impact is mechanical and weather-driven; it does not reflect any change in strategy or in the regulatory framework that continues to support our long-term growth plan. We are confident parties understand the significance of this shortfall and look forward to working with the Commission and other key stakeholders on a constructive solution. Turning to slide 11, today we are reaffirming our long-term 5% to 7% adjusted EPS growth target, anchoring to the original 2027 guidance midpoint of $5.75. This outlook continues to be supported by strong rate base growth in Missouri and Tennessee, steady regulated equity growth at Alabama and Gulf, and execution of our 10-year $11.2 billion capital plan. Focusing on near-term guidance, our 2026 adjusted EPS range from continuing operations is now $3.90 to $4.10 per share. This excludes earnings related to Marketing and Storage and, consistent with our previous guidance, also excludes any results from Spire Tennessee for the year. We are updating our adjusted earnings targets for the Gas Utilities segment and Other to reflect first-half results and expectations for the rest of the year. We are lowering the Gas Utility range to $275 million to $295 million, primarily due to the impact of lower usage and weather-related margin headwinds. We do not expect the year-to-date impact to change materially through the balance of the year due to the volumetric nature of our earnings. The Corporate and Other loss is expected to be in the range of $40 million to $46 million. That range includes earnings contributions for the MoGas pipeline and also reflects higher-than-anticipated interest expense due to the timing of financings, as well as allocated costs that remain following the divestitures. The rate design changes and updated amortization schedules implemented in the last Missouri rate case have shifted the intra-year earnings profile. While it is not our practice to provide quarterly guidance, we have outlined our expected earnings per share distribution for the remainder of the year on slide 11 to assist in quarterly modeling. Looking ahead to 2027, we are reaffirming our adjusted EPS range of $5.40 to $5.60 per share. This outlook reflects a full year of expected earnings from Spire Tennessee and excludes earnings from Storage, Marketing, and Mississippi. Overall, our earnings outlook remains firmly anchored by capital investment, constructive regulatory jurisdictions, and a regulated business profile. Moving to slide 12. In the first half of the year, we invested $386 million in capital expenditures driven by system upgrades, infrastructure modernization, and new business connections at the Gas Utilities. Year-over-year CapEx spending declined primarily due to the completion of the advanced feeder upgrade program in Eastern Missouri. We expect full-year 2026 capital expenditures of $797 million across our utilities, consistent with our 10-year $11.2 billion capital plan. These investments support rate base growth of 7% in Missouri and 7.5% in Tennessee, with 6% regulated equity growth in Alabama and Gulf. This disciplined long-term investment strategy underpins our confidence in delivering 5% to 7% adjusted EPS growth over time. On slide 13, we provided an update to our financing plan, which is largely consistent with what we previously outlined. In February, we issued $400 million of Spire Inc. senior notes, with proceeds used to refinance notes that matured March 1 and to support our ongoing general corporate needs. Importantly, following the recently announced divestitures and the resulting reduction in business risk, we have lowered our FFO-to-debt target to 14% to 15%. This adjustment better aligns our targets with the company's more focused regulated business profile, and we expect to achieve this over the next few years. That concludes our prepared remarks. We will now take your questions. Operator: Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. At this time, we will pause momentarily to assemble the roster. The first question will come from David Arcaro with Morgan Stanley. Please go ahead. Analyst: Hi, this is Alex Zimmerman on for Dave. Good morning. Starting with the weather normalization, what are your latest thoughts and your strategy to improve the weather normalization in Missouri? And is this something you would consider addressing in the next rate case? Scott Edward Doyle: Good morning. Sure. A couple of things. As the comments that we made in the script indicated, we have filed an accounting authority order with the Commission. A procedural schedule has been put in place, with a hearing scheduled for September 9. We do believe that the Commission sees this as an important issue and one that we are spending time having dialogue on and providing information to them as we experienced the weather that we did. In the next rate case, there is also an opportunity to address it as well. For us, we are taking a look at the timing of the rate case. Our initial plan is to file in the fall, around November, but we will look at that timing depending on how we are able to work through this process with the Commission. Analyst: Got it. Very clear. And then shifting to dividends—now that you have the funding of the Tennessee acquisition addressed and higher cash flow visibility from the regulated business, how are you thinking about the dividend trajectory going forward? And where do you see the optimal payout ratio for the company? Adam W. Woodard: We remain unchanged there. The payout ratio, as we have said in the past, is typically in the 55% to 65% area, and we would expect the dividend to grow along with earnings. Analyst: Perfect. Thank you so much. Operator: The next question will come from Alex Kania with BTIG. Please go ahead. Analyst: Good morning. Thanks for taking my questions. First question, as a follow-up on the accounting request—just want to make sure I understand the mechanics. Given the procedural schedule, it looks like it would be tough to have a sizable impact on earnings for this fiscal year. Is it just a question of recovering over time the cash representing the lost margin, or would it have a subsequent earnings impact in future years if the outcome goes as you requested? And second, post-divestitures of the Storage and Marketing businesses in particular, how do you think about the underlying cadence of growth that is possible here? In the past, Marketing and Storage were seen as relatively low growth. Now, shifting to the fully regulated footprint, do you think there is an opportunity to finance growth? Scott Edward Doyle: Sure, Alex. Adam and I will collectively answer. On the mechanics of the AAO, traditionally the AAO sets up a regulatory asset for future recovery. That is how they traditionally work, and we will want to work with the Commission through this process and work toward a constructive outcome. With regard to the divestitures and our growth profile going forward, when you looked at how we invested in storage in the past, those were step-up opportunities as we made capital investments and then were able to pull that into earnings over longer periods of time. With those divestitures and now the concentration of the portfolio into utilities, we have a more normal growth trajectory that is centered on that 5% to 7% earnings profile. Adam, if you want to comment any more clearly about that? Adam W. Woodard: It really would be rate base–driven and recovery-driven from there. As we have talked about, the relatively linear paths in each of our jurisdictions on a go-forward basis should create a pretty predictable growth trajectory. Analyst: Great. Thanks very much. Operator: The next question will come from Paul Fremont with Ladenburg. Please go ahead. Paul Fremont: Thanks. My first question has to do with the fact that we thought weather normalization was dealt with in the last GRC. What exactly, in terms of the changes that you made, did not work? Scott Edward Doyle: Good morning, Paul. Good question. We very directly worked on weather normalization in the last case. What we saw in this particular winter weather was really a decoupling of usage from the HDDs that underpin the usage assumptions that underpin the weather normalization adjustment. As a result, because that was extraordinary, that is why we filed the AAO in particular. We saw the greatest breakage taking place in January, where our usage was actually 28% lower than what our base year that is used to set up the weather normalization adjustment would indicate. Those are the reasons why we have put this back in front of the Commission—to both have a dialogue about it, quantify it, and work toward a constructive solution. Paul Fremont: Is it possible, you believe, to get weather normalization that is essentially reflective of whatever change in usage actually occurs? And is that going to be your goal on a go-forward basis? Scott Edward Doyle: Yes. That is the simple answer. I will let Adam comment a little more specifically. Adam W. Woodard: Absolutely—that is the goal, Paul. It is frustrating for us as well that, as Scott mentioned, the usage set in the last GRC that went into effect last October was based off of 2024. We saw a very high correlation in the usage-per-HDD averages going into 2024 and off the 2024 numbers, and felt secure with that. As Scott mentioned, usage per HDD came down quite a bit over those two years. Paul Fremont: What led to your decision to sell Mississippi? Clearly, it was not in any of your original plans that you shared with investors. Can you give us an idea of why, last minute, you announced the sale of the Mississippi subsidiary? Scott Edward Doyle: Sure, Paul. This was something we had been in dialogue with Delta for quite some time leading up to the sale. As you know, the business that we have in Mississippi is subscale—18 thousand customers. There is quite a bit of capital investment that needs to take place, and the capacity of that customer base to support that investment can be challenged from time to time. By them folding into a larger utility within the state, it allows them to spread some of those costs over a broader base. As a result, Delta was a natural owner for them and it worked to a very good outcome. We still have to get approval—that is going to take a while this year as we go through the regulatory process—but we believe this is a benefit both to our customers and to Delta utilities as well. We look forward to bringing that to a conclusion later this year. Paul Fremont: The timeline for getting a decision in your AAO filing—and if the decision is favorable, how would you treat the earnings impact for this year? Or would it be treated as non-operating? Adam W. Woodard: Great question, Paul. It really depends on the timing of an order—we are getting closer to our September 30 year-end—as well as the wording of that order. Both of those elements would impact what we would recognize in earnings. Paul Fremont: So a simple follow-up—if they were to agree to setting up a regulatory asset before your year-end, should we assume that could result in an adjustment in guidance for 2026? Adam W. Woodard: It really depends on what the wording of that AAO is, Paul. There are a lot of things that dictate what our decision tree would look like on that. Paul Fremont: Great. Thank you very much. Scott Edward Doyle: Thanks, Paul. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Scott Edward Doyle for any closing remarks. Scott Edward Doyle: Thank you again, everyone, for joining us this morning. We look forward to seeing many of you at the upcoming AGA Financial Conference later this month. Everyone have a good day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Rifka, and I will be the conference operator today. At this time, I would like to welcome everyone to the Bowman Consulting Group First Quarter 2026 Conference Call. All lines will be placed on mute for the presentation portion of the call with the opportunity for questions and answers at the end. Please note that many of the comments made today are considered forward-looking statements under federal securities laws. As described in the company's filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and the company is not obligated to publicly update or revise those forward-looking statements. In addition, on today's call, the company will discuss certain non-GAAP financial information such as adjusted EBITDA, adjusted net income, and net service billing. You can find this information together with the reconciliations to the most directly comparable GAAP information in the company's earnings press release filed with the SEC and on the company's Investor Relations website at investors.bowman.com. Management will deliver prepared remarks, after which they will take questions from research analysts. A replay of this call will be available on the company's Investor Relations website. Mr. Bowman, you may begin your prepared remarks. Gary P. Bowman: Great. Thank you, Rifka. Good morning, everyone, and thank you for joining our first quarter 2026 earnings call. Bruce J. Labovitz, our CFO, and Dan Swayze, our chief operating officer, are with me today. First, I would like to welcome all Bowman Consulting Group Ltd. employees on today's call, including those from Smith and Associates Land Surveying in Las Vegas, who are the newest members of the Bowman Consulting Group Ltd. team. After my introductory remarks, I will turn the call over to Bruce who will cover our financial performance and technology initiatives. Dan will provide more detail on the opportunities we are seeing across our end markets. Now turning to the first quarter. From a performance standpoint, we delivered double-digit growth in gross contract revenue, net service billing, and adjusted EBITDA. Our backlog reached a record level of over $650 million. These results were driven by both organic execution and continued contribution from our acquisition strategy. We saw growth across our diversified end markets. Demand remains robust, and we continue to benefit from markets where we have deep expertise, strong client relationships, and increasingly integrated service delivery. Our capabilities are increasingly important in high-barrier, high-demand sectors where our expertise, national scale, and ability to self-perform work position us to win and execute consistently. All this reinforces what we are seeing in the business: strong demand, durable revenue streams, and increasing opportunities to expand both organically and through targeted acquisitions. Based on our performance and outlook, we raised our full-year 2026 guidance and now expect over 20% revenue growth for the year. For 2026, we expect net revenue to be in the range of $520 million to $540 million, and we expect to report adjusted EBITDA margin between 17.25% and 17.5%. With that, I turn the call over to Bruce. Bruce J. Labovitz: Thanks, Gary, and good morning, everyone. I will begin with a review of our financial performance for the first quarter, and then I will turn the call over to Dan to bridge Q1 to year end. After that, I will return to share some thoughts on how we are thinking about technology and automation, and begin to draw a line towards its impact on the future of Bowman Consulting Group Ltd. The first quarter culminated with a record March that capped off a solid start to 2026. Our results reflect the durability of our end markets, the scalability of our operating platform, and disciplined execution of our long-term strategic plan. Gross contract revenue of $126.5 million represented a 12% increase over Q1 last year. At a 90% net-to-gross ratio, net service billing was $114.2 million, up 14% year over year. The increase was anchored by 6% organic growth enhanced by strong performance from recent acquisitions. Looking ahead, we expect to see our net-to-gross ratio come down by about 3 to 5 points based on new awards and new service lines with higher subcost ratios. Power was our fastest-growing sector, with 37% growth of gross revenue year over year. Transportation followed at 13%, with natural resources at 6%, and building infrastructure at 1%. Dan will talk more about where growth is coming from. Growth of organic net service billing was 6% year over year with the highest organic growth rate coming from natural resources at 16%, followed by transportation at 13%, power at 5%, and building infrastructure at 2%. I will point out that there is a significant amount of organic growth embedded in power and utilities revenue characterized as inorganic for now. Our mix of gross revenue continues to evolve with power up to 28% and building infrastructure down to 41%. In just one year, data center activities have more than doubled to a bit over 6% of revenue. Over the course of the next few quarters, we do expect to see a noticeable shift in mix as natural resources will expand by virtue of a significant new award being classified in that category. Contract costs represented approximately 48% of gross contract revenue at a 52% gross margin. When we combine a bit of a slow start in January and February with mobilization costs for assignments that begin in Q2, total overhead as a percentage of revenue was up around 50 basis points compared to last year. I will also point out that 2026 is the year we exit emerging growth company status, which generates some incremental costs this year that will normalize next year. With accelerating revenue and relatively stable overhead, however, we expect to see total overhead once again trend down as a percentage of revenue moving forward. For the quarter, we reported a GAAP loss of $3.7 million. Unlike adjusted EBITDA, that result includes noncash amortization of acquired intangibles, acquisition-related expenses, financing costs, and other nonrecurring items, including those associated with the CEO transition. Adjusted EBITDA was $16.8 million, up 14.7%, at a margin that expanded year over year. We generated $11.6 million of cash from operations in the quarter, representing approximately 70% conversion of adjusted EBITDA to cash. It is nice to finally report a quarter with no deferred R&D tax adjustments on the cash flow. During the quarter, we used cash to repurchase approximately $9.2 million of our stock and advance future organic growth initiatives through investments in data capture, automation, and internal-use software, among others. Big fund spending on geospatial and data collection assets associated with specific new future revenue opportunities represented about half of our CapEx in the quarter, along with another $1 million or so of OpEx spending which is not added back to adjusted EBITDA. To accommodate anticipated increases in CapEx this year, we expanded our revolving credit facility to $250 million, which provides sufficient liquidity to support continued investment in organic growth and acquisitions. Backlog increased to approximately $653 million, 56% year over year and 36% sequentially from year end. Backlog growth in the quarter was entirely organic. Net of one unusually large organically generated contract award, backlog grew at a 20% annualized pace. As Gary mentioned, we are raising our 2026 net revenue guidance to a range of $520 million to $540 million and increasing our margin forecast. The guidance increase implies more than 20% growth of organic net revenue this year and nearly 28% year-over-year growth of adjusted EBITDA at the midpoints. In terms of revenue cadence, we expect the remaining three quarters will build on each other as some consequential assignments ramp up through the second half, with third quarter being at or near the midpoint of the second and fourth quarters. It is notable that this is a bit of a change from prior years. With that, I am going to turn the call over to Dan. Dan Swayze: Thank you, Bruce. Today, I am going to spend a few minutes bridging the revenue gap from Q1 to our full-year forecast. Backlog is a foundation of any revenue bridging exercise, and we have discussed in prior calls that somewhere between 70% to 80% of our backlog typically converts to revenue within a 12-month period with timing influenced by contract structure, phasing, and notice to proceed. For the remainder of the year, approximately 60% of our expected revenue is supported by existing backlog, with the balance driven by sell-and-deliver activity. As we move through the year, the mix naturally shifts more heavily towards backlog conversion. Looking at Q2 through Q4, approximately $250 million of our remaining revenue is supported by backlog, leaving the remaining 40% or roughly $170 million to be delivered through new bookings within the year. When accounting for normal conversion timing between bookings and revenue, that translates to just under a 0.7x book-to-burn ratio to meet our full-year guidance. This remains at a manageable level given our ability to deliver book-to-burn above 1x on a consistent basis. The priority is ensuring our resources and capacity are aligned at the right time to deliver high-quality, on-schedule outcomes for our customers, something we actively plan for and manage every day. Let me cover where I believe our greatest opportunities are for new bookings. Transportation is in a strong position to continue delivering results. Required book-to-burn is lower than average based on substantial existing backlog coverage for this year's forecast. With many long-term and recurring revenue assignments across infrastructure design, construction engineering, corridor management, and inspection services, we are well positioned to deliver. Power and energy: Longer-than-desired timelines to secure power from the traditional grid are forcing end users to develop their own power solutions. When our customers move forward with alternative power solutions, we expand our wallet share. Recent acquisitions have significantly broadened our reach and opportunities within the energy services vertical. They have also transformed the characteristics of our assignments to include higher-velocity sell-and-deliver opportunities. To deepen our engagement with customers, address the resource void in the marketplace, and become more entrenched in long-term durable revenue, we have expanded to offer procurement services across the sector. Awards for services relating to midstream pipeline infrastructure, energy reliability centers, compressor stations, and terminal operations have shown meaningful increase of late and show no signs of abating. We are also seeing increased demand for renewable energy solutions, particularly as customers respond to upcoming expirations of IRA incentives. Natural resources includes a wide range of services and is a sector in which we will report the large government contract award going forward, as Bruce previously advised. It is also much of where our industry-agnostic geospatial data collection efforts are reported. Recent upgrades to our fleet of data collection assets have already been impactful, opening opportunities for new streams of revenue. As an example, a recent manned aerial award from a long-standing government agency customer was nearly triple that of last year. Accelerated activity in mining and renewed demand for water resources have likewise supported sustained demand. Geospatial, while not a vertical, is a service that sits at the core of everything we do across all our markets. High-resolution 3D imaging and complex GIS-embedded point clouds are increasingly the basis of infrastructure planning and management. Availability of intuitive and predictive real-time analytics is rapidly becoming a post-operational imperative. Having a comprehensive suite of data collection assets has led us to be engaged earlier and longer with customers. The key takeaways are these: We see the strongest bridge from work to revenue coming from mission-critical and adjacent energy infrastructure markets, along with transportation engineering and geospatial services. Our outlook for outsized organic growth this year is rooted in booked backlog conversion and predictable booking levels that are supported by a strong pipeline, a broad and expanding portfolio of capabilities, and disciplined execution. Continuing to ensure we have the capacity to deliver, the discipline to convert demand into profitable revenue, and the tools to innovate remain our top operational priorities. With that, I will turn the call back to Bruce. Bruce J. Labovitz: Thanks, Dan. Before turning the call back to Gary, I want to briefly address the narrative surrounding AI and automation in engineering, specifically in the context of pricing, margins, and long-term customer engagement. During our year-end call, I said, and I quote myself, we need to be sure we are prioritizing investments in processes and services relating to deliverables sold at stable values as opposed to efficiencies that merely cannibalize the value of work sold by the unit. That was true then, and it is still true now. But that was two months ago—a lifetime in this moment of technological change—and the message is expanding as we execute on our strategy. There is a misconception in parts of the market that AI will cause an unsustainable compression in pricing and margins across all engineering services. In a vacuum, without a broader understanding of what is really happening inside the industry, the concern that AI leads to fewer hours, which equates to lower billable revenue, sounds reasonable, but it is not a plausible reality for established multidisciplinary engineering firms. Before we go any further, let us acknowledge that engineers and infrastructure professionals operate in an environment where tolerance for error is nonexistent and where the deliverables are foundational to public safety and reliable infrastructure performance in the face of ever-changing environmental stresses. As a result, professional judgment, real-world experience, technical expertise, and accountability remain central to the engineering services value proposition, regardless of efficiencies deployed in the workflow. It is important to remember that this is not the first time technology has presented opportunity for process evolution in engineering. Our client engagements are not transactional; they are relationship-oriented, and that matters. A majority of our assignments are priced on a fixed-fee and not-to-exceed basis, where customers compensate us based on the value our deliverable produces over the entire life cycle of the asset. It is rare that we are engaged for one discrete individual hourly task. Where work remains on a cost-plus or time-and-materials basis, it is generally with large public clients who prioritize professional intermediation and judgment over expedience and bargain hunting. These clients understand the inclusion of indirect costs such as compute and processing on burdened rate structures, and are grounded in the long-standing foundations of professional accountability and dependability. It is important to remember that engineering services represent a relatively small portion of total infrastructure project cost. The larger opportunity is combining AI-enabled automation with engineering know-how to help clients improve outcomes beyond construction to the broader asset life cycle. As professional accountability, AI, process automation, and data analytics become more intertwined, we believe the conversation shifts from the pricing of individual tasks to the value of better decisions, reduced risk, and improved asset performance. The tools we are building are based on both inference and deterministic routines. Without getting too technical, this architecture allows for the harnessing of decades of engineering, construction, and operating knowledge in a platform that facilitates leveraging the collective expertise of everyone in the value chain. To date, we have developed and introduced more than 25 proprietary tools to our operations, with additional capabilities in process that include an integrated operating environment designed to better connect us and the data embedded in all of our systems both internally amongst ourselves and externally with our clients post-operationalization. While our architecture is designed to minimize the operating cost of compute, the tools are focused on generating higher-value deliverables to customers through better execution and faster delivery. With all that said, do not view the impending wave of AI as a driver of commoditization. Rather, we see it as an opportunity to enhance differentiation for firms that invest in the right capabilities at the right cost structure and integrate the tools effectively into empowering operating environments. From where we sit, this is not a race to the bottom. To the contrary, it is a race to the top. I am now going to turn the call back over to Gary for concluding remarks. Gary P. Bowman: Great. Thank you, Bruce. Stepping back, what this quarter demonstrates is that our strategy is working. We are building a business with strong visibility, diversified demand, and a scalable operating model that continues to deliver. The combination of record backlog, consistent growth across our end markets, and continued investment in our capabilities—whether through technology, integrated service delivery, or targeted acquisitions—positions us extremely well for the future. We are seeing a clear path to sustained growth, margin expansion, and strong performance, not just through the balance of 2026, but into 2027 and beyond. We will now open the call for questions. Operator: 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 1-1 again. The first question comes from the line of Aaron Michael Spychalla of Craig-Hallum Capital Group. Your line is now open. Aaron Michael Spychalla: Yes, good morning, Bruce, Gary, and Dan. Thanks for taking the questions. First for me, any more details you can share on the government contract—what you are doing and the cadence of revenue? It sounds like a little higher, maybe subcontract mix, so just your confidence in execution there. And then just broadly, it seems like you are starting to see some larger awards. Can you talk to the scale and capability and other drivers that are driving that? Bruce J. Labovitz: Aaron, good morning. I am going to take the first question on the government contract and reply that there is a limited amount of information that we can disclose based on nondisclosure agreements associated with the award. However, you are correct to infer from our commentary that it will operate at a slightly lower-than-average net-to-gross ratio, higher-than-average gross spread. If you think about the math behind lowering it by five points or so, that would indicate probably somewhere in the ~75% range for net-to-gross there. And that contract, as we have talked about, has a 36-month term to it and has a not-to-exceed value in total of about $177 million. We are mobilizing for it and have been mobilizing for increasing activity there as we speak. As the commentary suggests, we would think that it would have most consequential impact on the second half of this year and into next year. Aaron Michael Spychalla: Thanks for that color, and can appreciate that. And then on the margin front—you just hit on it—but it sounds like a slow start to the year for a couple months and then maybe ramp ahead of this and other projects. Just your confidence in the outlook for margin improvement and thoughts going forward there as you invest for growth? Bruce J. Labovitz: We have looked ahead at where revenue growth is going to be and assessed that relative to overhead growth and the multipliers that we will be able to achieve on work in the remaining three quarters of the year, and we feel confident that we will be able to deliver margins in excess of where the year guide is, because in order to compensate for first quarter, those obviously have to be at a higher rate than the 17.25% to 17.5% that we have guided to. We think about it from the perspective that it does not take a whole lot more machine to support the contribution margin coming from incremental revenue. It is not a zero-sum game, but it is a margin-expanding exercise. Aaron Michael Spychalla: Alright. Thanks for taking the questions. I will turn it over. Bruce J. Labovitz: Thanks, Aaron. Operator: One moment for our next question. Our next question comes from the line of Liam Burke of B. Riley Securities. Your line is now open. Liam Burke: Thank you. Good morning, Gary, Dan, Bruce. Bruce, I guess the fixed-price contracts are a competitive advantage for you. It is also a nice source of a pretty consistent margin. If I look at your backlog, is there a larger percentage of fixed-price contracts, or is the ratio pretty much the same? And on permitting, which is one of your competitive advantages, are you seeing any increase in that process to move projects along faster, or is it pretty much the same? Bruce J. Labovitz: I think we are seeing a migration to a higher percentage of fixed-price contracts as the mix is changing a little bit. I would not characterize it as off-the-charts dramatic in its movement, but it is steady-state moving. It is also that some industries we work in are really just resistant to that—it is the way it has always been done. But in any opportunity where we have a chance to price on a fixed price, that is where we are driving contracting. Dan Swayze: This is Dan Swayze speaking, Liam. Nice to talk with you. It is generally the same. We are seeing some hints that people would like to move faster, but we have yet to see a material shift that makes the permitting move faster than where it has been. Bruce J. Labovitz: And that is not necessarily a negative. The effort involved is the service we provide. Yes, we like to be able to do more of it more quickly, but it is also— Dan Swayze: We are hopeful we do see a shift on the NEPA front related to NEPA-type permits in the future, but we have yet to see it. Liam Burke: Great. Thank you. Bruce J. Labovitz: Thanks, Liam. Operator: One moment for our next question. Our next question comes from the line of Tomasano of JPMorgan. Your line is now open. Tomasano: Hi, good morning, everyone. I would like to ask about the 6% organic net service billing growth. What is the contribution from pricing, volume, new clients, and deeper penetrations of existing clients? And how sustainable do you see this growth for the next couple of quarters? Bruce J. Labovitz: Tom, the organic growth that we have delivered historically is related to increased workload and not a function of pricing. I would not say that it is always a zero contribution from pricing—there is always some appreciation there—but when we look at the growth of our workforce and the sustained utilization of our workforce, we see that it is more people doing more work for more customers. It is really about increased capacity, increased volume of assignments, and increased wallet share with existing customers. When we look ahead at organic growth over the course of this year, we expect it to be in excess of 20%, so we do not think that the 6% is unsustainable in any way. In fact, we think we are going to achieve a significantly greater amount of organic growth this year. Tomasano: Thank you. And then a follow-up on margins, especially SG&A as a percentage of the gross contract revenue, was up significantly year over year. What are the main causes, and how will you control these costs? And also, Bruce, you talked about adopting AI—do you see it becoming a key tool for improving SG&A efficiency going forward? Bruce J. Labovitz: The total cost of SG&A was about 50 basis points higher this quarter than last year's first quarter. The absolute amount grew, but the percentage of revenue grew modestly, and we acknowledge that. We think it will begin a downward trajectory again as higher-revenue quarters absorb more of that overhead. There is a level of cost to run the machine, and as we move forward to future quarters, we expect that to start coming down sequentially. Compared to last quarter, it was up about 200 basis points, but I think that is really a function of revenue, not anything else. Tomasano: I was asking about the SG&A percent of GCR, which was 57.8%, plus 730 basis points compared to last year. Bruce J. Labovitz: If you are talking about COGS, we generally try to focus more on total SG&A cost because the way we allocate labor cost into the payroll line can vary from quarter to quarter based on how timesheets are allocated. I think movements there are less consequential than overall movements in the overall cost of labor and SG&A. Tomasano: Okay. That is clear. Thank you. And any comments on AI with SG&A opportunity? Bruce J. Labovitz: Certainly. Part of what we are building are tools that will make operations—back office and front office—more efficient. Technology continues to provide process improvement opportunities throughout the business. I think that is going to be a natural evolution of technology. The higher-value orientation is really towards client engagement, client assignment, and client connectivity. We are not uninterested in what is going on in the back office, and yes, I think there are some points of improvement to be had there, but our primary focus is really on the front office. Tomasano: Thank you. Appreciate it. Operator: One moment for our next question. Our next question comes from the line of Mincho of Texas Capital Securities. Your line is now open. Mincho: Good morning. Thank you for taking my question. You had mentioned that data centers were about 6% of revenue. Can you remind us how many data center projects you have worked on in the past and what that looks like today? And can you talk about data centers in your current backlog? Bruce J. Labovitz: I am not sure any of us could give you an exact number of how many data center projects, other than to say that the fact we do not know exactly how many means it is a lot. I would also add that many of the data center clients are very strict about nondisclosure, so it is hard for us to talk about a specific project. When you aggregate all of the experiences that the collective here has had—between us getting into data centers early in the Northern Virginia cycle and extending that to what is now really a power solutions play for data centers—the intersection with data centers that we have has grown faster than the number of projects has grown. We are doing more for more data centers, including existing clients. I would say that even where the project is the same, we are doing more things for the project today. And I would say that it is relatively aligned in our backlog, maybe slightly disproportionate to recognized revenue. We see that as a continually growing space and, particularly coming off of the E3I, Laysen, and RPT acquisitions, there is just so much momentum in the space surrounding energy consumption—not just data centers, but other large-scale utility-size consumers—that it is a growing portion of our backlog. Dan Swayze: From an operations perspective, there is not a week that goes by where we are not trying to shift resources to accommodate additional data center work. It is continuing to come in, and it is quite a substantial portion of our growth. Mincho: Perfect. Thank you. Also, you announced the smaller acquisition of Smith and Associates. Can you talk about how that fits into your broader geographic and service expansion plan? And more broadly on M&A, how the pipeline is looking—are you still looking at smaller or larger projects—and any change in valuations recently? Gary P. Bowman: Hey, Minh. On Smith and Associates, the play was really adding talent and productive capability to an existing big client we have in that geography, in addition to expanding into the geography. We already had a small presence in Vegas; the client was demanding a lot more, so it is a production capability play. The pipeline is still robust. We are evolving to be more narrow, focused, and strategic in what we are looking at. We will continue to look at a mix of large and small ones. As we go to more strategic targets, the market is not driving multiples up—we see that fairly steady—but as we go to more strategic targets, the multiples are going up a bit because of the high demand in the energy markets, the utility markets, and so forth. Bruce J. Labovitz: I think Smith is a good example of “we acquire to generate organic growth.” It is a little bit of one of those conundrums of yes, it is acquired, but it is for an organic opportunity. Mincho: Got it. Okay, I think that does it for me right now. Thank you very much. Bruce J. Labovitz: Thanks, Minh. Operator: 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. One moment for our next question. Our next question comes from the line of Jeffrey Michael Martin of ROTH Capital Partners. Your line is now open. Jeffrey Michael Martin: Thanks. Good morning, guys. I wanted to dive into the decision that went into going after this large government contract. It is not the norm for Bowman Consulting Group Ltd. to pursue something like this. If you could walk us through the thought process and the competitive approach that you went in pursuing this contract, and secondarily, is this something that we could anticipate becoming more frequent in the future? Bruce J. Labovitz: Jeff, part of what happens is as you ascend through the tiers of size, opportunities present themselves to you that might not have otherwise presented themselves to you. I would not characterize this as a deliberate multiyear chase for an opportunity. We had assembled the right capabilities in the right place at the right time to meet the demand that a client had for work, and so it was opportunistic, but it was not accidental that it happened. In terms of contracts like it in the future, we certainly hope so. I think this establishes a precedent. It establishes a foundation and a threshold for the kinds of work that we can accept and complete. While I do not know that there is one in particular of like size, like kind sitting in our pipeline today, that does not mean that there will not be tomorrow. Dan Swayze: Just to further expand on what Bruce was saying, this contract and the reach-out that occurred to us aligns directly with some of our strengths in our core services. This was not a reach at all for us to submit a proposal, provide the required scope, and meet their objectives, because it is the core services that we provide and that we are really good at. Gary P. Bowman: Jeff, from a broad point of view, this contract really expands our paradigm internally of what we can do and what we go after. It has very positive cultural effects that are really cool to see. Jeffrey Michael Martin: Well, congratulations on the contract. Bruce, I wanted to dig in on scaling up the resources that you need on this contract. Is there any short-term margin impact that comes back to you in the back half of the year? How should we think about utilization? I know in the past you have staffed up in anticipation for contracts coming on. Is that the case in this situation? Bruce J. Labovitz: Yes. We have talked about margin in the business being a bit of a roller coaster based on the timing of notice to proceed and the accumulation of the resources needed. We do not capitalize any costs associated with future work in anticipation of it; it just gets expensed as incurred. There was definitely staffing up for the project. It is going to be consequential enough through the rest of the year that we are not really calling it out as any particular item, other than to point out that the revenue we are going to deliver through the rest of the year that is in backlog does take staffing in real time, and so it does have some drag on Q1 from a multiplier perspective across the portfolio, because there is labor that was not as productive as it will be. But that is absolutely a variable in the margin expansion equation. It is not just for that project, but for other projects as well—this was not a one-trick quarter. Backlog grew another ~5% independent of it, which also suggests having to staff up for growing revenue. Jeffrey Michael Martin: Appreciate the time. Operator: Ladies and gentlemen, as there are no further questions, we will conclude today's conference call. Thank you for joining. Gary P. Bowman: Thank you. Bye.
Operator: Good morning, and welcome to Sixth Street Specialty Lending, Inc.'s First Quarter ended March 31, 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded on Wednesday, May 6, 2026. I will now turn over to Ms. Cami Senatore, Head of Investor Relations. Please go ahead. Cami Senatore: Thank you. Before we begin today's call, I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Sixth Street Specialty Lending, Inc.'s filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. Yesterday, after the market closed, we issued our earnings press release for the first quarter ended March 31, 2026, and posted a presentation to the Investor Resources section of our website, www.sixthstreetspecialtylending.com. The presentation should be reviewed in conjunction with our Form 10-Q filed yesterday with the SEC. Sixth Street Specialty Lending, Inc.'s earnings release is also available on our website under the Investor Resources section. Unless noted otherwise, all performance figures mentioned in today's prepared remarks are as of and for the first quarter ended March 31, 2026. As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Bo Stanley, Chief Executive Officer of Sixth Street Specialty Lending, Inc. Robert Stanley: Thank you, Cami. Good morning, everyone, and thank you for joining us. With me today is our Head of Investment Strategy, Ross Bruck, and our CFO, Ian Simmonds. Before I begin, I'm pleased to announce that effective May 21, Mike Fishman will become Chairman of our Board of Directors, following our previous announcement regarding Josh Easterly's retirement from the role. Mike is a respected industry veteran with decades of experience in credit investing and asset management. As an early member of Sixth Street, and a Director of SLX since 2011, including tenure as CEO, he has been instrumental in building our business. His combination of deep industry expertise and platform understand him -- make him uniquely qualified for this position, and we look forward to his contributions as Chairman. For our call, I'll review our first quarter highlights and pass it to Ross to discuss investment activity in the portfolio. Ian will review our financial performance in detail, and I will conclude with final remarks before opening the call to Q&A. Yesterday, we reported first quarter net investment income of $0.42 per share or an annualized return on equity of 9.9%. Inclusive of our movement in fair value of our investments, we reported a net loss per share of $0.27. Our net loss per share this quarter was largely driven by unrealized losses on our investments as we incorporated the impact of wider market spreads and lower market multiples in our fair value determinations, more on that in a moment. At quarter end, our net asset value per share declined by approximately 4.3% from $16.97, which includes the impact of the Q4 supplemental dividend to $16.24. Of this decline, $0.58 per share or nearly 80% was attributable to the movement in fair value from the market inputs, which are unrealized. That included $0.40 per share from unrealized losses in our debt portfolio tied to credit spread widening seen in the broader market and $0.18 per share from lower market valuations and in our limited equity portfolio. $0.08 per share of the decline is related to portfolio company-specific performance and the remainder from the payoffs and realized gains. Ian will walk through the NAV bridge in more detail. These results reflect a period of market-driven volatility rather than a change in the underlying strength of our business. Our portfolio remains healthy. Our balance sheet is strong, and we are well positioned to capitalize on opportunities as the market continues to evolve. Volatility in Q1 was driven by several factors, including market concerns around the impact of AI on software investments, increased redemption requests from shareholders of nontraded BDCs and heightened geopolitical uncertainty, the latter of which was not something we anticipated at the time of our last earnings call. These dynamics contributed to spread -- credit spreads widening in a subdued transaction environment. LCD first-lien spreads widened by 48 basis points and second-lien spreads widened by 256 basis points during the quarter. I want to reiterate our approach to valuation, which incorporates changes in market-wide credit spreads when determining the fair value of our investments. Our process is designed to reflect the price in an orderly transaction at the measurement date. That's not just our perspective. It's the regulatory requirement designed to maintain the integrity of the balance sheet. For additional detail regarding our valuation framework, we encourage you to read the -- our stakeholders' letter on the topic from August 2022 available on our website. We have consistently applied this valuation framework since inception, including periods of volatility, such as Q1 2020 related to COVID and Q2 2022 related to the interest rate hiking cycle. During those quarters, net asset value per share declined by approximately 7.4% and 3.6%, respectively, driven primarily by the impact of wider credit spreads. These unrealized losses reflected in earnings and NAV, are noncash in nature and do not reflect our view of permanent credit losses. As such, we expect these unrealized losses related to credit spread movement to reverse over time as market conditions change, and our investments approach realization or maturity. Our track record of long-term value creation is demonstrated by the 4.7% cumulative growth our net asset value per share since our 2014 IPO through March 31. This compares to an average NAV decline of 7.3% for our public BDC peer group from our IPO through the end of 2025, representing significant outperformance, irrespective of the volatility we experienced in any quarterly period. Market volatility also impacted net investment income through lower activity-based fee income. In Q1, we earned $0.05 per share of activity-based fees, which is below our 3-year historical average of $0.09 per share. As we've discussed in prior periods, activity-based fees, which are primarily driven by early repayments, are inherently episodic. During periods of heightened market volatility our experience is that many borrowers and asset owners defer capital markets activity. As a result, both funding and repayment volumes typically contract as valuation gaps widen and transaction activity slows. While we recognize that the current environment will take time to fully play out, as the market undergoes a period of price discovery, our experience has consistently shown that these periods of volatility create some of the most attractive investment opportunities. We believe we are well positioned to capitalize on that opportunity set. In our earnings release yesterday, we announced a change in our base dividend level from $0.46 to $0.42 per share. This decision was informed by what we believe is a responsible and sustainable dividend policy. As we assess the current environment, we have always believed it is appropriate to align our base dividend with the forward earnings power of the business. That forward view reflects the level of uncertainty we see around near-term activity, including the rate and spread backdrop and also the market volatility caused by geopolitical uncertainty that has occurred since our last call. Our perspective is also informed by historical periods of dislocation, which suggests that activity-based fee income can take several quarters to normalize following a market dislocation. While this segment may differ, history reinforces our decision to take a measured and prudent approach today. The pre-2022 environment provides a baseline for where our dividend level stood before rates began to increase. We had a base dividend of $0.41 per share. Our earnings power increased with higher base rates and wider spreads, we raised the base dividend to $0.42 in Q3 2022, $0.45 in Q4, and $0.46 in Q1 2023, representing a total increase of 12.2%. While we see potential for an increase in transaction activities as the year progresses, the timing and magnitude of that pickup and the resulting impact on our activity-based fee income remains difficult to forecast with conviction. That said, our view on base rates through the forward curve and new issue spreads is more visible. This adjustment establishes a distribution level that is sustainable across a range of potential activity outcomes. At quarter end, we had approximately $1.57 per share of potential activity-based fee income embedded in the portfolio, including unamortized OID and call protection. If activity accelerates, that embedded income provides meaningful upside. Our supplemental dividend framework captures and distributes that upside to shareholders as it's realized. Yesterday, our Board approved a base quarterly dividend of $0.42 per share to shareholders of record as of June 15, payable on June 30. This corresponds to an annualized dividend yield of 10.3% on our March 31 net asset value per share, which we believe is aligned with the core earnings power of the portfolio and with our target return on equity for the year. Ian will speak more on that in a moment. With that, I'll pass it to Ross to discuss this quarter's investment activity. Ross Bruck: Thanks, Bo. In Q1, we provided total commitments of $338 million and total fundings of $135 million across two new portfolio companies upsizes to four existing investments and an initial investment in our previously announced joint venture Structured Credit Partners, or SCP. A key advantage for SLX is our deep integration with the broader Sixth Street platform, which manages over $130 billion in assets. This connectivity allows us to leverage the collective expertise of hundreds of investment professionals to conduct the deep proprietary diligence required for today's complex investment landscape. By combining this expertise, the firm's platform-wide sourcing engine, and our disciplined underwriting, we remain well positioned to execute on investments that we believe create long-term value for our shareholders. Our recent investment in Mindbody is a good example of how the platform comes together in practice. Given our history with the business dating back to 2021, we had a differentiated understanding of the company, and we're well positioned to lead the new financing. This was a cross-platform and cross-border effort with our direct lending teams working closely with our consumer team to deliver a bespoke solution. The business benefits from significant network effects with a scaled 2-sided ecosystem across consumers and wellness partners that we believe supports growth and strong underlying business quality, ultimately driving attractive risk-adjusted returns for our shareholders. Our other new investment was Labrie, a leading North American manufacturer of premium refuse collection vehicles and related aftermarket parts. Labrie operates in a recession-resistant market with predictable demand and structural tailwinds. The company's sticky dealer and customer base, combined with a consistent high margin and capital life financial profile, make this a compelling investment aligned with our approach of lending to businesses with attractive unit economics. On repayments, payoffs moderated versus levels seen throughout 2025. We experienced $113 million in repayments from 4 full and 4 partial investment realizations resulting in $22 million of net fundings for the quarter. Of the 4 full payoffs in Q1, 2 were refinancings and 2 were sales of liquid investments. Of the 2 refinancings, both were completed at lower spreads with one executed in the private credit market and the other in the broadly syndicated loan market. Our largest payoff was Galileo Parent, which refinanced its senior secured credit facility originally structured to support Advent's 2023 take-private transaction. Sixth Street served as agent on the original deal and the company refinanced with a broadly syndicated loan priced at SOFR plus 450 basis points compared with SOFR plus 575 basis points on the existing facility. SLX was repaid with call protection generating an asset-level IRR and MOM of 15% and 1.4x, respectively. Our other refinancing was MadCap, a provider of authoring, publishing and content management solutions, which refinanced its existing credit facility in March. Sixth Street originally provided capital in December 2023 to support an acquisition with an underwriting thesis centered on MadCap's robust product offering, granular blue-chip customer base and strong unit economics. Having executed on its business plan, the company was able to transition to the bank market for a lower cost of capital. SLX was repaid in full, generating an asset level IRR and MOM of 16% and 1.3x, respectively. During the quarter, we had one addition and one removal from nonaccrual status, resulting in no change to the total number of investments on nonaccrual at 3 names representing approximately 1.4% of the portfolio at fair value and 1.9% at amortized cost. The addition was our investment in Bed, Bath & Beyond. While the path of this credit has not followed our original expectations, we have driven recoveries through secondary sources of repayment and have received approximately 85% of our cost basis through March 31. While we believe we are well positioned to realize meaningful additional recoveries over time, uncertainty around the timing and ultimate resolution of remaining claims led us to place the investment on nonaccrual effective January 1. The removal was our investment in Astra Acquisition Corp., which was reorganized in Q1 following the company's Chapter 11 process. This had no impact on the quarter's NAV as the position was already fully marked down. Moving on to portfolio yields. Our weighted average yield on debt and income producing securities at amortized costs decreased slightly quarter-over-quarter from 11.3% to 11.2%. The decline primarily reflects the decline of reference rates during the quarter. Across our core borrowers for whom these metrics are relevant, we continue to have conservative weighted average attachment and detachment leverage points of 0.4x and 5.2x, respectively, down from 5.3x in the prior quarter with weighted average interest coverage of 2.3x. As of Q1 '26, the weighted average revenue and EBITDA of our core portfolio companies was $425 million and $127 million, respectively. Median revenue and EBITDA were $174 million and $54 million. Before turning the call over to Ian, I'd like to provide an update on our existing portfolio companies highlighting key metrics. The performance rating of our portfolio continues to be strong with a weighted average rating of 1.19 on a scale of 1 to 5 with 1 being the strongest. We continue to see stable top line growth and earnings durability, which signal a healthy demand environment across our end markets. Across our core portfolio companies, LTM revenue and EBITDA growth were both 9%. The overall stability in these metrics continues to reflect proactive actions by management and sponsor teams. With that, I'd like to turn it over to Ian to cover our financial performance in more detail. Ian Simmonds: Thank you, Ross. For Q1, we generated net investment income per share of $0.42, and net loss per share of $0.27. Our reported and adjusted metrics converged this quarter as there was no impact related to capital gains incentive fees. Total investments were $3.3 billion, in line with prior quarter as a result of net funding activity offset by lower valuations. Total principal debt outstanding at quarter end was $1.8 billion, and net assets were $1.5 billion, or $16.24 per share. Our average debt-to-equity ratio decreased slightly quarter-over-quarter from 1.17x to 1.14x, and our debt-to-equity ratio at March 31 was 1.18x. The increase in this ratio was largely due to the impact of widening spreads on fair value versus net funding activity. We continue to have ample liquidity with $1.1 billion of unfunded revolver capacity at quarter end against $249 million of unfunded portfolio company commitments eligible to be drawn. Post quarter end, we further enhanced our debt maturity profile by closing an amendment to our revolving credit facility, maintaining the pricing and key terms of the facility while extending the final maturity through May 2031. All of the 19 banks in our syndicate were supported and participated in the amendment, an extension that closed on May 1. Adjusted for the revolver extension, our weighted average remaining life of debt funding is 3.9 years compared to a weighted average remaining life of investments funded by debt of only 2.5 years. At quarter end, our funding mix was represented by a 68% unsecured debt. Moving on to upcoming maturities. As we mentioned on our last earnings call, we have reserved for the $300 million of 2026 notes due in August under our revolving credit facility, after adjusting our unfunded revolver capacity as of quarter end for the repayment of those notes, and our revolver amendment, we have liquidity of $649 million, representing 2.6x our unfunded commitments eligible to be drawn at quarter end. Our balance sheet remains well positioned, allowing us to play offense in the current market environment. We believe the ability to invest capital opportunistically in what we're seeing as a wider spread environment today is a meaningful advantage for our shareholders. Pivoting to our presentation materials, Slide 8 contains this quarter's NAV bridge. As Bo mentioned, the impact of credit spread widening and movement in market multiples on the valuation of our portfolio was by far the most significant driver of NAV movement this quarter, including $0.58 per share from fair value marks. Again, absent permanent credit losses, we would expect to see a reversal of these unrealized losses related to credit spreads over time as our investments approach their respective maturities. The estimated impact of broad market credit spread tightening since quarter end represents approximately $0.12 per share, or 30% of the unwind of unrealized losses on our debt portfolio that we saw during Q1. Walking through the other drivers of NAV movement this quarter, we added $0.42 per share for net investment income against a base dividend of $0.46 per share. There was a $0.07 per share decline in NAV from the reversal of net unrealized gains from paydowns and sales. Other changes included $0.04 per share increase in NAV from net realized gains on investments and an $0.08 per share reduction to NAV primarily from unrealized losses from portfolio company-specific events. Moving on to our operating results detailed on Slide 9. We generated $93.4 million of total investment income for the quarter compared to $108.2 million in the prior quarter. Interest and dividend income was $87.8 million, down from prior quarter, primarily driven by the decline in interest rates. Other fees representing prepayment fees and accelerated amortization of upfront fees from unscheduled paydowns, were lower at $3.4 million compared to $10.9 million in Q4, driven by lower payoff activity in Q1 relative to the elevated level experienced in Q4. Other income was $2.2 million, up from $1.9 million in the prior quarter. Net expenses were $52.4 million, down from $56.4 million in the prior quarter, primarily driven by the decline in base rates. This contributed to our weighted average interest rate on average debt outstanding decreasing approximately 50 basis points from 6% to 5.5%. Lastly, on undistributed income, we estimate that to be approximately $1.15 per share at the end of Q1. Turning to our outlook for the year. Our original guidance was based on an assumption of 30% portfolio turnover in line with our long-term historical average. Given the moderated pace of repayments in Q1, we anticipate an ROE of 10% to 10.5% if turnover remains below 20% for the full year, and an ROE above 10.5% should we experience higher repayment activity. While we are taking a more measured view on forward portfolio activity, our fundamental return hurdle remains unchanged. We will continue to prioritize investing capital into opportunities that generate returns in excess of our cost of equity, maintaining the same discipline that has characterized our platform since inception. We may prove to be moving early on the base dividend adjustment, but our supplemental dividend framework provides the flexibility to capture upside should activity accelerate. With that, I'll turn it back to Bo for concluding remarks. Robert Stanley: Thank you, Ian. While the market environment remains dynamic, our conviction of the path forward is rooted in the platform we've built, over the last 15 years. Our historical outperformance through varying market conditions is underpinned by the depth and continuity of our people from this team sourcing and underwriting the risk to the professionals managing the portfolio and working through complex situations, this is a group with years of experience navigating every part of the credit cycle. We've been through these environments before and remain fully committed to the same disciplined approach that has guided the firm since day 1. Looking ahead, we're excited about the investment opportunity set to come as the markets reset our thematic sourcing engine and the breadth of the Sixth Street platform provide us with a significant advantage in identifying and executed on high-quality transactions. We believe the actions we are taking today position SLX to continue delivering strong risk-adjusted returns for our shareholders over the long term, and we are energized by the road ahead. In closing, I'd like to encourage our shareholders to participate and vote for our upcoming Annual and Special Meeting on May 21. Consistent with previous years, we are seeking shareholder approval to issue shares below net asset value effective for the upcoming 12 months. To be clear, to date, we have never issued shares below net asset value under prior shareholder authorization granted to us for each of the last 9 years, and we have no current plans to do so. We merely view this authorization as an important tool for value creation and financial flexibility in periods of market volatility. As evidenced by the last 12 years since our initial public offering, our bar for raising equity is high. We've only raised equity when trading above net asset value on a very disciplined basis, so we would only exercise this authorization to issue shares below net asset value if there was a sufficiently high risk-adjusted return opportunities that would ultimately be accretive to our shareholders through overearning of our cost of capital and any associated dilution. If anyone has questions on the topic, please don't hesitate to reach out to us. We have also provided a presentation which walks through this analysis in the Investor Resources section of our website. We hope you find the supplemental information helpful as a way of providing a clear rationale for providing the company with access to this important tool. With that, thank you for your time today. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Finian O'Shea from Wells Fargo. Finian O'Shea: To start with the dividend, I wanted to ask about why it's framed on activity-based fees where it feels like to us more good old-fashioned spread compression, credit loss which happens. You've kept a dividend for a very long time. But with that framing, is it a signal of some kind of shift in strategy, say, more toward flow lending, that's where the market is? Or is it more transient because, say, your software book won't refi for a long time and -- but you'll still focus on the same style and eventually recover in the sort of fee income line. Robert Stanley: Fin, thanks. It's Bo. I appreciate the question. There's a lot to unpack there. I'll attempt to get through it all. So first of all, first principles for us is we want to set our dividend level at a sustainable and responsible level. I think that has been from day 1, we've talked about that. We framed I want to take a step back, first of all, and talk about what we have signaled to the market, both for the space and for Sixth Street over the past 12 months and even before that. But I think we wrote a letter in April of last year, outlining what we believed were the path forward for ROEs in the sector, given the interest rate curve and spread compression that we've seen both in the market and at Sixth Street and SLX during that -- in that letter, we laid out what we believed was the path for ROEs for the sector and for Sixth Street. I think we had the forward curve at that day. So 12 months forward, ROEs of 10.3% for Sixth Street in SLX, which is coincidentally where we've set the base dividend level on a yield basis today. So just starting there. The framing of activity-based fees is exactly that for -- as we thought about forecasting ROEs last quarter, we forecasted normalized levels of activity-based fees, which have been generally around $0.08 to $0.09 per share since inception. Last year, on an LTM basis, that was closer to $0.12 per quarter. And this quarter, it was $0.04 because there was muted activity levels -- this is very consistent with what we've seen in the past when spread levels increase. And when you think about it intuitively, Fin, as spreads increase, you're going to have less repayments because people are not going to refinance you into higher-yielding loans. So your activity-based fees are really going to be focused on M&A activity, which was also muted in the quarter. Here's the good news, and what we feel good about is it's a better spread environment. We said last quarter that we believe ROEs for the sector were troughing and for Sixth Street, we still believe that. We think it's a better spread environment. That's going to slowly work through the book. We also are ramping SEP, which should continue to add support, but that's going to take time as well. And eventually, we will return to normalized activity-based fee levels. Historically, that has taken several quarters. Post rate-hiking cycle, it took 6 quarters to get back to normalized activities. I'm not sure it's going to take that long, we shall see. But just as we thought about setting a responsible dividend policy, we took all of those factors into consideration. Also, the great news is, and we commented this in the script, there continues to be high levels of activity-base fees embedded in the portfolio, should that activity return, and we believe it will eventually. So hopefully, that answered your question and it was a comprehensive answer. Finian O'Shea: Yes. No, it's definitely helpful. Like it will be a bit of a drought maybe sooner, maybe later, they hopefully come back in, I guess, sort of in the meanwhile, like that sort of call pro, correct me if I'm wrong, that's been pretty instrumental to NAV preservation, right? Like that's your sort of formula for gains, which is obviously a very critical input over time. Do you have any like backup plan or approach to solve for that issue in the meanwhile? Or do you think it's sort of also a NAV headwind? Robert Stanley: Yes. So, Fin, the great news is, I think our call protection as a percentage of book today is at 94%. Is that right? Finian O'Shea: 94.1%. Robert Stanley: It's 94.1%, that is -- that's versus a historical level of 94.7% since inception. So there continues to be a lot of embedded economics within the book. I would also note that, and I think you've heard from others that we're seeing a better investing environment and that includes higher spreads, but also it's better fees. We're seeing better both upfront fees and call protection. And I think that makes us happy about investing in the future. And then lastly, I would say we have seen a pickup of what I would call special situation type deals that have always been a hallmark of our platform and consistent historically, probably of 30% to 35% of what we've done. That had been muted activity. We're seeing a handful of opportunities in the current pipeline that excite me. All of that would support strong activity-based fees in the future when they begin to return. Again, the 2 biggest components that drive that are M&A activity, which we are seeing early signs of stabilization there. I think geopolitical concerns will really be the determinant if that returns, and then repayment activity, which we do believe will be muted for some time because, again, it's a better spread environment and it's just natural if you're -- if new loans are getting created at better spreads than historic, you're not going to have a lot of payoffs. Operator: Our next question comes from Brian McKenna from Citizens. Brian Mckenna: Okay. Great. So I'm curious, when did the Board make the final decision on the dividend? Was it in and around the end of the first quarter because if it was, I'm curious if the decision was made, call it, this week or today versus roughly a month ago, would that have changed the outcome on the dividend given the broad-based recovery in sentiment and risk assets over the past 5 weeks, similar related to the sharp recovery we saw post Liberation Day last April. Robert Stanley: Well, the formal decision was made yesterday at the Board meeting. We, as a team, have been working through this over the past months, given that we saw the muted levels of activity-based fees and have some forward visibility, albeit it's usually no more than 4 to 5 weeks on those activity-based fees. So I would -- so the answer is we've been working on it for some time. Again, we had talked about ROEs for the sector and for Sixth Street in a couple of letters, both in April and November. So this is something we've been thinking about for some time but didn't come to a final conclusion until the final weeks. You're right, there has been a stabilization generally in the credit markets. But again, the spread environment is a more attractive environment and that is going to mute activity levels, at least from refinancings in the meantime. And what we did is really did a thorough analysis of the data, we always when we have questions that are hard to answer turn to the data, and look at periods of historical spread widening in the past, and it always has taken several quarters to return to those activity-based fee normalization levels. Ian Simmonds: And maybe if I add to that, Brian, just to color up some of the data that Bo was referencing. That means that we went back and looked at every quarter back to 2014 to understand the characteristics of our earnings profile, what was generated from interest income and dividend income alone, what was generated from activity-based fees. We looked at that on a quarterly basis. We looked at that on an annual basis. We overlaid periods of credit spread widening and/or dislocation. So we looked at what was the behavior of our earnings profile during and post COVID, during and post the rate rise cycle in '22, and what are we seeing today? And all of those inputs into a determination about what is our level of conviction about the right level for our base dividend. And so as Bo said, it was data intensive as part of the framework for the discussion with the Board. Brian Mckenna: Okay. That's helpful. And then just looking at spreads on new deals in the quarter, I think these totaled around 600 basis points versus the recent pace of around 700 basis points. So is the 600-plus basis points going to be the new run rate for spreads on new deals? Was it just a one-off quarter? Like I'm just trying to think through where things settle in on the spread front. Robert Stanley: Yes, it's a good question. It was very idiosyncrat. There are only really 2 new originations. Both of those were -- we had been working on free the spread widening environment. Activity in general was muted. So it's -- we've had volatility from quarter-to-quarter given volumes come and go. And by the way, Q1 is always a low volume quarter. What I would tell you is, what we're seeing on the forward is a much better investing environment, wider spreads, more importantly, lower leverage, better documentation standards, better fees and call protection. So the whole package seems to be a better investing environment. I also mentioned with Fin, we're seeing more special situations than we had seen in the past. That's always been a driver of over earning relative to the space. So all of that would point to increasing spreads over time, which we're excited about. Operator: Our next question comes from Robert Dodd from Raymond James. Robert Dodd: Thanks for the color on the quarter. I wanted to like the $1.57 that you said was kind of embedded call protection in the portfolio right now. I mean, what's the half-life on that? Obviously, it ages out over time. I mean, if we look at low levels of activity, say, for 12 months, and I don't know, half of that $1.57 ages out over those 12 months, then even if activity rebounds a year from now, you still got structurally lower activity-based fees for a period after that as well, right? So I mean, the deals you're onboarding right now, are those sufficient to kind of maintain that total embedded core protection in the portfolio over kind of a prolonged period? Or is the aging phenomenon kind of going to drag it out even further if you have, say, 12 months, maybe it's not 12 months, but 12-month period of? Robert Stanley: I think that's a great question. Again, just turning that $1.57 into a metric that I think that we've talked about before, just to contextualize as a percentage of fair value on the call price is 94% today. That's versus a historical means of 97%. What we're seeing in new activity today, we'll have better call protection than what we've seen in the last couple of years, especially as it relates to some of the special situation deals, which generally have non-call features. What I would tell you is as far as half-life generally speaking, call protection is between 2 to 3 years when you see a number like 94%, which is above historical means, it means it's closer to the earlier vintages where we have that embedded that makes sense given portfolio turnover has been elevated over the last couple of years. So there's a long runway for that half-life. And what we're replacing, and what we're putting in a new deals will continue to actually add to that. When -- I actually don't have these in front of me, Cami, but when we returned after 2022, to the post kind of normalized fees, which took us 6 quarters, about 1.5 years, we started at a slightly less, if you look at 3 years, it was 94.5%. And what we're -- once we returned, I think those embedded numbers were well above historical means of $0.08 per share. We'll get you that data. So there is a shelf life kind of early into those vintages. What we're seeing from new deals, it's better call protection. I think all of that protects what we think should be normalized activity into the future. Robert Dodd: Got it. And a kind of tied follow-up. I mean, obviously, one of the issues here is spread widening, maybe that slows down refinancing to the point who wants to refinance that higher spread. Where spread widening has been greatest so far, anecdotally, at least, is in the software segment, which is obviously your biggest single sector, so to speak. How much of this expectation of low activity is tied to software given that spreads have widened more in that sector than elsewhere in the market right now? Robert Stanley: It really didn't go into the calculation. We think there's actually for names that are not deeply AI-impacted, and that's a very small percentage of the portfolio. As we've said before and also in our letter about a month ago, there continues to be what we think is a refinancing market for software names, albeit at wider spreads. Again, just looking back at the data historically, whenever there's been spread widening regardless if it was sector-based, it's just you've had muted levels of activity, and that's why we thought it was prudent to set the dividend level where it's at. I would also note that the portfolio continues to be very healthy earnings growth close to 10% in software and technology names are in line with that. In fact, I think the earnings power of those businesses continues to increase as EBITDA margins are expanding as growth slows a bit. Those also would point you to deleveraging over time and being able to refinance. We had, as we mentioned, MadCap was a software name that we had refinanced this quarter by a bank. It had executed well. It had delevered. You could argue whether it was going to be AI affected or not, but it was refinanced into a much cheaper paper. So that did not go into our calculus. Operator: Our next question comes from Arren Cyganovich from Truist Securities. Arren Cyganovich: The amend and extend of the credit facility with no increase in pricing was a positive sign given what we've seen in some press articles about banks looking to increase pricing on these types of -- or I guess more specifically, it was bilateral facilities, but were there any pressure from the banks in terms of that process to raise the pricing? And maybe you just talk a little bit about that process and how the banks have been supportive? Ian Simmonds: Yes, I'll take that, Arren. It's Ian. I would say there was no pressure, but that's really a factor of continued delivery on what we tell the banks that we're going to do. We view those banks as our capital partners, and so they're pretty in tune with our business. But I'd also point out that these syndicated BDC facilities are pretty well structured to protect the banks that actual LTVs are very low. And given the development of the unsecured market as another form of financing, it's actually a very supportive way to build the capital structure. So I would characterize this as really just ordinary course discussions collaborative in nature and the outcome was the supportive renewal that we achieved. Arren Cyganovich: That's good to hear. In terms of the investment activity slowing down, and I know that you don't have a crystal ball and you don't know when things might pick up. But in terms of whether or not it's discussions with sponsors or what have you, are there any kind of green shoots of activity in areas other than software that are showing some signs that you might see some stronger deal activity, maybe in the second half of the year? Robert Stanley: I'll start and then pass it over to Ross. Look, I think the pipeline has rebounded, and there's some -- definitely some green shoots I mentioned, more special situations than we had seen in the past, and that's across a lot of our core thematic areas, whether it's retail ABL, ABL, Energy ABL, some technology, special situations. So that is encouraging. As we speak with sponsors, there seems to be a renewed focus on platform activity and finding new deals. I think a lot of that M&A activity is really going to -- what's going to matter is the geopolitical concerns and where energy prices go over the next quarter. I think that's going to be the big determination. But the reality is, if you think about the robustness of our originations platform, especially the thematic platform across industries and specialties. I think that piece is really picking up here from what we can see. Ross, you should add anything to that. Ross Bruck: Yes. I think in addition to either platform acquisitions or full platform refinancings, our portfolio continues to be active on the M&A front. Our management teams, and our sponsors are looking to continue to drive growth and a large portion of our activity on the amendment side, this quarter was to support that growth or support acquisitions, which creates options for us to reprice existing facilities, provide new capital into credits that we know well or catalyze exits where the risk-return doesn't make sense any longer at what's being offered. So there continues to be a fair amount of activity within the portfolio itself. Arren Cyganovich: Very helpful. And just one quick one. The software exposure, I think last quarter, you said it was 40% in the portfolio. You had a refi. What's the exposure as of 3/31? Robert Stanley: Yes. Look, as you know, we don't think of software as an industry. We gave that number as a proxy to what we believe others in the space, including enterprise software. That has not meaningfully changed. In fact, we had one payoff. So if anything, it's down a bit, but it's not meaningfully changed quarter-over-quarter. Operator: Our next question comes from Rick Shane from JPMorgan. Richard Shane: Look, and you talked about this a bit in your response to Fin's question, but there's a lot of conversation about how terms and structures have changed since December. If you can help us understand sort of specifically what types of changes you're seeing, not only in terms of spreads, but in terms of structure, in terms of covenants that would be great. And more importantly, if you can put where we are today in the context of the historical continuum, because I don't think we're in sort of this dislocated market. I think, we're probably more in the middle, but I'd like to understand how you guys see things and also valuations on the underlying equity positions. Robert Stanley: Yes. I'll take a first swing at that, and then I'll pass it to Ross. So I think that's the right characterization, which is the pendulum is starting to swing back towards the middle from where it was to historic tights, both in pricing fees, and structures. The encouraging thing is all of those are actually improving. We're seeing anywhere from 50 to 75 basis points of spread widening across all industries. I think more encouragingly for us and 1 of the reasons that we were not participating in the market as robustly as others over the past 2 years is that underwriting standards are getting better. You're getting more access to management teams, you're getting better data. Your ability to underwrite and prove your core thesis is better. That is what was keeping us from being able as much as pricing from being able to participate in the market. Those dynamics are better. I would say leverage on average is probably down 0.5 turn to 1 turn in total from what we were seeing at the historic tights. Documentation standards are getting better. So all of those things are contributing to a much better environment, but to your point, I think that pendulum is swinging more to the middle than to look, what would be a deeply distressed environment where you've seen us grow by leaps and bounds in times of past. But that's how I characterize it. Ross, do you have anything you'd add? Ross Bruck: I don't have a lot to add. The other thing I'd say that we're seeing is better preservation of the headline economics. So things like carve-outs to call protection, we're seeing pared back where step-downs are set versus headline spread. Those are all things that have been important to us and that we've selectively decided not to participate in transactions where we're not getting the terms to preserve the bargain for economics, and I think we're seeing it come back our way a bit. Richard Shane: Got it. Okay. That's helpful. I mean, is it -- should we think of it that last year you would get sort of an RFT and the request would be, okay, here's the docs, or here's the valuation pack and you have 2 weeks to respond and this is all the information you're going to get now the due diligence time frames are extended to 4 weeks? Like I'd love to anecdotally sort of think about how this has changed from your perspective. Robert Stanley: Yes. I'll take that because I've been pretty vocal about this. And actually, in my letter to the team starting the year, this is one of the headlines, which is we will not be velvet roped in processes if we're not getting access to management and the data to underwrite our credit thesis, we don't participate in those deals, literally is almost verbatim what I said to the team. There was this velvet roping by issuers, both private equity and corporates because of the tight markets that, at least in our view, we're contributing to looser underwriting standards and very, very intense time lines, very little access to management, if at all, no real Q&A. And as a result, not only did we shrink the portfolio last year, but if you look at our originations that we did do, they were predominantly nonsponsor away from kind of the traditional channels. We lean very heavily on the thematic originations platform that we've built for -- to be robust through all environments. What we're seeing so far, and this could change is just better access all around. Access to management teams, actual management meetings. I actually think our team is -- this is -- our team is at a management -- all day management meeting today on a special situation deal. It's an 8-hour session. Those are the types of environments that contribute to the full understanding of the businesses, the ability to underwrite your credit thesis, and we do believe that is returning to the broader market and the credit environment as well. Hopefully, that's helpful. Richard Shane: It's very helpful. I appreciate it. And it will be interesting to see how things continue to evolve. Operator: Our next question comes from Kenneth Lee from RBC Capital Markets. Kenneth Lee: One more on the ROE outlook there. Wondering whether you've been embedding any assumptions or benefit from potentially wider spreads on new investments or at least less spread compression for any kind of prepayments and refis. Just wondering whether there's any impact on the assumptions there. Robert Stanley: Yes. From where we set our base dividend, it did not have an impact. But as we think about the future, we do believe that's going to slowly roll through and spreads will increase over time. We do think we are nearing trough levels just based on what we're seeing in the pipeline and in the markets in general. Ian, you're closer to kind of the projections, anything to add to that? Ian Simmonds: Yes, we did not update our new issue spreads for the purposes of this exercise. I think if you think about the volume of new deals relative to the size of the portfolio, you need to have quite a significant amount of origination activity for that to move the needle. Our business from an ROE perspective in the near term is much more oriented towards repayment activity. Robert Stanley: Yes. The one thing, because I think this is important as you think about the future, not only should you see spreads begin to increase over time through the book as you layer on new deals. There are opportunities, obviously, to -- with amendment fees, et cetera, as our portfolios come back to us as they're doing M&A, et cetera, to slowly reprice the book as well. That did not go into our numbers in the near term, but that should show up in -- after several quarters. So that's one of the things that leaves us pretty encouraged about the future earnings of the business. Kenneth Lee: Got you. Very helpful there. And it looks like you made some initial investments related to the SCP JV, just given the discussion around the geopolitical uncertainty and just the general backdrop there. What's sort of like the outlook in terms of how fast could you ramp up further in terms of that JV there? Ross Bruck: Yes. Thanks for the question. This is Ross. So in Q1, SLX invested $14.7 million into SCP, so 0.4% of SLX investments at fair value. This was the first quarter of activity when we put the program in place. Our base case expectation was that it would take about 2 years to 2.5 years to get to fully ramped. That continues to be our expectation. We've continued to invest into the program over the course of 2Q. So there were two CLOs that were priced before the end of Q1 that closed in 2Q. And overall, we are pleased with the results that we think we're achieving in the program. We were able to take advantage of some of the periods of dislocation in 1Q to build the portfolio at attractive prices. And despite the volatility, we're able to price the liability side of those two CLOs at levels that are consistent with the returns target for the program. Operator: Our next question comes from Paul Johnson from KBW. Paul Johnson: Yes. I was wondering if you could provide just kind of a very general update in terms of roughly what percent of the portfolio was sort of originated pre-2022. I think last quarter, you said roughly about 20% of it was kind of pre-2022 originated. I was just curious if that's changed at all since last quarter. Robert Stanley: No. It's very similar percentage. It has not changed. So pre-2022 is now 8% of the portfolio. No, no, I'm sorry, 18% of the portfolio. I missed the bar, but yes, about 18% of the portfolio. Paul Johnson: Okay. And then I was just curious, Mindbody that refinanced during the quarter. So there's some evidence obviously that the market is still there in terms of software companies. But I'm curious, in the last quarter, you also kind of talked about a little bit of slowing economics just within the software space in terms of the lending within that space. But I'm just curious, kind of based on some of the recent transactions, if there's anything that could be deduced from that in terms of what the common thread is of companies within the software space that are able to transact like that, refinance loans, and those that might have a much tougher time doing so. Ross Bruck: Yes. I think the trends that we're seeing within our software portfolio is consistent with the commentary that we gave in the prior quarter. So while top line continues to grow at a high single-digit rate on a broad basis, there has been a bit of deceleration in that number. But our portfolio companies are expanding margins and improving leverage profiles, which we think is ultimately supportive of refinancing activity. We talked about MadCap as an example of that transitioning from the private credit market into the bank market, given the deleveraging that the company had been able to achieve. And overall, as we look at our portfolio, we view management teams and sponsors generally as being forward-footed in finding ways to continue to drive organic growth as well as selective inorganic opportunities in order to sustain the deleveraging that we see within our credit book. Robert Stanley: Yes. And the only thing I would add to that because I think one of your questions was what we're seeing as far as spreads and leverage for new deals, there was muted activity of new deals in the technology space. In general, there were a couple of proof points. There's one in particular that was a U.K.-based software provider that priced maybe 50 bps wider than it would have been -- would have a year ago, but it was -- it's still a pretty robust package. I think it was 7.5x leverage so for 5 to 5.25. We did not participate in that. We were lower in leverage and wider on pricing, but there seems to still be a pretty robust market for anything other than what people perceive as having immediate AI disruptive risk. Operator: Our next question comes from Derek Hewett from BofA Securities. Derek Hewett: Since this is generally a better spread environment and really maybe even just more of a lender friendly environment, how should we think about capital issuance, assuming the shares continue to trade above book, which could potentially help pare back a little bit of the software exposure? And then to the extent that capital issuance makes sense, would you be leaning more towards just ATM issuance at this point? Or would you be willing to do overnight transactions? Ian Simmonds: Derek, it's Ian. Thanks for the question. I think there's no change to the framework that we've talked about in the past about the conditions that we want to see for considering new issuance. And so we want to have high conviction about the pipeline. We want to have high conviction about the ability to drive earnings as a result of accessing growth capital. So that's a really important piece for us. As to the tool we use, the way we communicated it 12 months ago when we put in place the ATM is it's an efficient tool. So I think our mindset is always how can we be efficient with our shareholders' capital and how can we generate the best outcome if there is an opportunity to raise capital? So without specifically answering which methodology, it's really going to come back to our view on the pipeline before we think about the tool that we apply. Derek Hewett: Okay. And then maybe a quick follow-up. Just in terms of circling back to the software portfolio. What is the -- like either the median or average EBITDA of the software portfolio? Or like how would you characterize it relative to the overall weighted average EBITDA? Robert Stanley: Do you want to go, Ross? Ross Bruck: Sure. Overall, we see margins in the software portfolio as broadly consistent with the overall portfolio, but also expanding at a quicker pace in the overall portfolio. So hopefully, that helps give a little bit of context. Robert Stanley: EBITDA margins are a bit higher, and they're expanding. I think quarter-over-quarter, they're up from 20% on average to 22% margins. That's been the historical trend, right? You've seen businesses continue to have slowing growth, which was maybe 2 years ago in the low to mid-teens on an average basis to high single-digit revenue growth, earnings growth continues to trend above that as companies move more to profitability. That has really been the trend post COVID when it was really a growth at all cost environment. And when we believed both public and private markets were kind of missed reading the signals from unit economics and the valuations were not in line with those declining unit economics, but it continues to be healthy, broadly in line on a growth basis, but probably more on the margin, just more profitable businesses in general. Derek Hewett: But what about on the absolute level? Is it -- are the software companies, are they similar in terms of the top line with the overall portfolio in terms of EBITDA? So the weighted average EBITDA for the overall portfolio was a little under $130 million for software. Robert Stanley: Yes, I would -- I don't know that we have that number in front of us. I would guess they're broadly in line, but we'll have to get back to you. Operator: Our next question comes from Ethan Kaye from Lucid Capital Markets. Ethan Kaye: Most of mine have been asked and answered, but maybe just a quick one. It looks like commitment activity was relatively kind of in line with historical average was really the funding activity that was maybe a bit lower. I'm curious whether perhaps that suggests, maybe there are some deals like towards the end of the quarter that were closed but not funded? Or if you can just help us kind of reconcile that delta between the commitments and fundings for the quarter? Ian Simmonds: Yes, Ethan, it's Ian. That's a good observation. Just to be clear, that commitment figure includes the full commitment to the structured credit partners JV. So Ross made the comment earlier that we funded about over $14 million in the quarter, but the commitment was $200 million that was previously disclosed. So that's in the commitment number. Ethan Kaye: The full -- okay, the full SCP, $200 million. Ian Simmonds: Yes. I point you don't read too much the gap. It's sort of very specific given we commenced operations of the JV in this -- in Q1. Operator: I'm showing no further questions at this time. I would now like to turn it back to Bo Stanley for closing remarks. Robert Stanley: Great. Well, thank you, everyone, for the thoughtful questions. Thanks to the team for the preparation here. And I just want to wish everybody Happy Mother's Day weekend. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Utz Brands, Inc. First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Trevor Martin, Senior Vice President, Head of Corporate Finance. Please go ahead. Trevor Martin: Thank you, operator, and good morning, everyone. Thank you for joining us today for our live Q&A session of our first quarter 2026 earnings results. With me today on today's call are Howard Friedman, CEO; and BK Kelley, CFO. I hope everyone has had a chance to read our prepared remarks and our presentation, all of which are available on our Investor Relations website. Before we begin our Q&A session, I just have a few administrative items to review. Please note that some of our comments today will contain forward-looking statements based on our current view of the business and that actual future results may differ materially. Please see our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance. Today, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials. Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials posted on our website. Now operator, we are ready to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Peter Galbo with Bank of America. Peter Galbo: Howard, maybe to start, just -- you had some commentary on the second quarter in your prepared remarks kind of addressing some of the softness to start 2Q, particularly in April. So I was hoping maybe you could expand a little bit just on that point as well as whether or not you think April represents kind of the bottom within the quarter, and then we should see improvement in May and June. So maybe I'll start there and let you kind of elaborate on your commentary? Howard Friedman: Yes. Thanks for the question, Pete. So a couple of things. Look, I think, first of all, we always expected that April was going to be sort of -- it would be a more difficult lap for a couple of reasons. Beyond sort of the Easter shift, we have year-over-year programming that we had done in the prior year. Specifically, you see it on Boulder Canyon, and you can see it on the cheese business. We also had some laps in some larger customers where there's some merchandising timing that actually shifted. So as you look at the year-over-year, we expected the quarter to start out a little bit softer than the run rate had been. I think if you look at the food channel overall, 50% of our business, I think it's a pretty good indicator of our underlying strength, which continues to be positive. And as we progress through the second quarter, you'll actually see some incremental activations coming. Boulder Canyon has some activity behind Tallow. You'll see new product innovations start to hit. And obviously, California will continue to grow. So I think we're off to where we expected to be in the second quarter and largely through the -- through Q1 as well. Peter Galbo: Great. And BK, just maybe as a follow-up, you left the guidance unchanged for the year, actually reiterated all elements of it. I think there was a bit of concern out there in the market that just given maybe less of a scaled DSD platform, things like freight, resins might hit you a bit sooner. So maybe you could just talk a little bit about the hedging program and kind of how you're locked on freight and go forward for the rest of the year. William Kelley: Yes. Thanks, Pete. Thanks for the question. So first of all, I would say we're covered for most of the year on fuel, ags and freight. Our productivity program that we've touted a bit here at approximately 4% is going well, and we'll continue to build on those plans in H2. And that will help us offset any incremental inflation, which we think comes from primarily a small impact from fuel for us, but mostly packaging driven by the resin impact. We'll continue to maximize the other levers that we have, the RGM tools around price pack architecture, and we'll be using AI to improve our promo effectiveness, and we'll continue to improve our sales mix. The net impact for us is that we have many levers to address potential inflation, but we are mostly covered on the fuel, ags and freight pieces to your point. Operator: Your next question comes from the line of Michael Lavery with Piper Sandler. Luke Maloney: This is Luke on for Michael. I just wanted to ask on marketing spend. You increased marketing spend by 35% in the first quarter, and I believe your long-term target is for 3% to 4% of sales. How close do you get to that target this year and in 2027? And then also, where do you see the biggest opportunities for return on marketing spend? Howard Friedman: Thanks for the question. Look, I think what we've said, we're largely in line with what we would have expected on the marketing investment for the year. We will expect to add [indiscernible] about 40% year-over-year, and we continue to have conviction that, that's the right place to be. We're still many -- probably a couple of years out from being able to get to that 3% to 4% longer-term target because as you can imagine, when we start to think about the available resources we have and the opportunities we have to grow, whether it's with westward expansion, continue to drive capabilities as well as marketing and innovation, there is a reasonable competition for those dollars. I would tell you that we feel great about the innovation this year, and I think it's probably the strongest lineup we've certainly had in the -- in my time here. I think in terms of where we see ongoing investment, I think there are a couple of places. One is obviously supporting our Power Four Brands, Utz, Boulder Canyon, Zapp's and On The Border. Boulder Canyon has new advertising that will be out this year to support the momentum on that brand, which continues to grow very quickly. Second is in our expansion markets where we're introducing the brand. In California, we'll obviously get investment as we continue to scale that area. And then the last is in supporting our core where it's a little bit more traditional competitive dynamics for us within the category. So I think over time, you'll continue to see us grow our advertising and consumer spend, and we'll remain focused and disciplined on how we deploy those resources. Luke Maloney: Okay. That's great. And your household penetration increased just over 1 point. What's working there? And what opportunities are ahead? Howard Friedman: Yes. So look, I think part of our household -- we feel very good about the household penetration trend we've been on. I think equally important to us is that the loyalty rates continue to grow because, obviously, as you grow penetration, you're introducing yourself to newer users, and they may not repeat quite as much. And what we're seeing is very strong loyalty rates as well, which I think is a testament to the quality of our products and the variety of items that we offer. I think that the major drivers, again, are going to be -- partially it's going to be about expansion geographies which obviously, for the Utz brand is as we're moving westward and for the remaining Power of Three, it's also bringing it into Utz's core geography. So we're introducing new households in both places. Second, our innovation is introducing products into households that they may not have had before. We feel very good about the early start on Tallow. And then lastly is just driving incremental advertising, which is also doing a good job of being both effective and efficient, but also driving our brand story. So I think we're kind of hitting on most of the cylinders right now and lots left to do. Operator: Your next question comes from the line of Scott Marks with Jefferies. Scott Marks: First thing I wanted to ask about in the prepared remarks, you made a comment about not seeing any need to change commercial plans because of competitor activity. Wondering if you can expand on that a little bit and just help us understand what you're seeing out there from a competitive perspective and how some of the recent changes within the category may or may not have impacted your own business. Howard Friedman: Yes. Thanks for the question, Scott. Look, I think overall, we feel like we're where we expected to be at this point in the year and that our commercial plans are holding. And a lot of the innovation expansion and investment in marketing consumer, I think, is going to deliver on the goals that we've had for the year. I think with respect to what we're seeing competitively, I'd tell you what we've observed is, obviously, the Bell-Mark prices or the on-pack price has come down, and we have seen some sharper promotional price points with some customers in some of the subcats. And this isn't wildly different than what we had seen in Q4 as we were going through the -- observing the early testing. And we do believe that at this point, it will continue to be a targeted and focused activity from the competition. From our perspective, we feel pretty good. I think if you look at the first 2 major merchandising windows of the year, Super Bowl and Easter, we were able to take dollar share. We grew our distribution 7% on TDPs, and we increased marketing to, as we said, to 35%, while also being mindful of where our price gaps need to be to remain competitive. So I think we feel confident in our drivers for the year. I think we feel confident that California will continue to build and that we've invested in our revenue management capabilities to make sure that we are able to compete. And the nice thing about our company is we can be fairly agile and with productivity giving us more resources potentially to deploy it if we had to, we feel like we can compete in a variety of contexts. Scott Marks: Appreciate the thoughts there. And then just a follow-up for me. A lot of comments in today's remarks about the bonus bags. Hate to bring up the term again, but obviously, it's in there. You obviously helped us -- give us a little bit of context in terms of what the numbers look like, excluding the Bonus Packs. Wondering if you can break that down between core markets versus expansion markets. What would the impact have been if we exclude the bonus bags just in terms of price versus volume and kind of where that growth has come from? Howard Friedman: Yes. So a couple of things. I think -- I know we haven't broken it out between core and expansion geographies. It's kind of more difficult for us to do just given the nature of the fact that bonus bags were actually the same UPC. So we have to do quite some additional work to be able to offer that. I think what you can take [indiscernible] is that bonus bags broadly were mostly in the core geography because that's where the majority of our distribution is with respect to things like Utz and On The Border, which is where it was. But we tried to give you a perspective of on a 2-year basis, we're holding up quite well competitively and that both volume mix and price are being similar contributors to our overall growth rate, which is I think really kind of the point we wanted to make sure we got across. Operator: Your next question comes from the line of Rob Dickerson with BTIG. Robert Dickerson: Yes, just a quick question on the category. I realize you're using retail dollars in the quarter, category is not flat, right? It was up, I think, over 2% based off of what you spoke to, the guidance that you've been talking for a while of kind of expecting kind of flat for the year. Is it just kind of -- obviously, the market is very dynamic right now, kind of we're still in the early or at least first half of the year. So there's no need to say, oh, we actually think the category could be more than flat this year and maybe we'll be in line with the category. I'm just trying to gauge a sense of kind of where your head is right now sitting in early May with respect to the category and maybe its potential for the year and then kind of how you could maybe operate vis-a-vis that category growth? Howard Friedman: Yes. I think -- first, I think when you think about the beginning of the year, we have continued to project a more flattish category, just given how early it has been in the year, and there is a very -- it's certainly been noisy in the first 3, 4 months of the year. So I think at this point, we're just continuing to take a conservative view on the category. I think what we would expect is that as the year continues and as the category sort of starts to demonstrate more consistency, then we would -- we'll relook at that, look at our assumptions. But from our perspective, obviously, we've never been solely dependent on the category for our growth. The expansion geographies remain a significant area of white space for us and our increases in innovation in A&C, we believe, puts us in a position to make sure that we are delivering against the guidance that we've provided as we go forward. And obviously, if the category continues to improve, then we'll take a different decision as we continue to navigate the year. Robert Dickerson: All right. Super. And then I guess just on the innovation front, I think you mentioned you were saying like Beef Tallow going for $20 on auction. And then I know you have flavored tortillas coming and Utz Protein, some Utz Protein SKUs. There are a few other competitors that might have some healthier options coming in as well. But just as we think about kind of consumer reengagement, right, in the category like Boulder is clearly doing very well, engaging well with the consumer. Again, kind of coming back, I guess, to Utz, but then also to the category, it just feels like there's clearly action in motion that would support kind of category improvement potentially as we get through the year, but especially just within consumer reengagement. I don't know if that makes sense. Just to hear your comments. Howard Friedman: Yes, it does. Look, we think that there are kind of 3 areas where consumer engagement really kind of matters to us. I think the first, to your point, is around better-for-you, and we're certainly seeing many people entering into the better-for-you category, larger scale competitors and smaller guys. We feel really good about Boulder Canyon's ability to compete. Tallow has gotten off to a great start. It was a new one for me to go on to an auction site and see the product there, but really around better-for-you attributes and non-seed oil and that business continues to grow in both the Natural and conventional channels. I think we've also seen that it's actually able to stretch with, to your point, both unflavored and now flavored tortilla chips, which we feel very good about the authorizations and early consumption trends on that business is strong. I think Protein in Utz is introducing that brand into what we call an elevated performance, not necessarily all the way to the Boulder Canyon side, but the presence of positives, we think, is a big territory for consumers who are looking to incorporate more protein in, and we'll continue to try and work on the better-for-you attributes across. We have Snacking Made Simple on our Utz brand is our sort of our organizing idea, which highlights the simple ingredients that are in our core products. The next 2 areas really are around flavor and value. And those 2 areas also are places where I think consumers have always engaged in this category and we will continue to do so as we go forward. So I do think you're going to see more effort by everybody to continue to introduce presence of positives. I think it's a consumer trend, but I also think flavor and value you'll also see. Robert Dickerson: All right. And then just maybe a quick one for me, too, for BK. Just on the free cash flow front, is there kind of anything to call out as we get -- as we're now in early May, for the year. And I'm really just kind of speaking to that expected kind of sequential improvement in free cash flow this year and then kind of that ability to hit that larger target longer term. That's all. William Kelley: Yes. I think the -- thanks for the question. Our confirmation of our guidance included the $60 million to $80 million of free cash flow that we were chasing this year. The Q1 for us is always going to be a quarter where we burn cash as we build for the seasons. I think the improvement in our leverage year-on-year is something that is indicative of the improvement we're making in our processes and capabilities in this area. We continue to think that, that will build over the year, and we'll be on track for the free cash flow that we expect to generate as well as the leverage targets that we set. Operator: [Operator Instructions] Your next question comes from the line of Jim Salera with Stephens. James Salera: I wanted to circle back on the pricing actions you mentioned by large competitors and kind of the limited impact on the commercial plan. From some of the work that we've done, it seems like those pricing actions are most pronounced in mass, particularly the largest mass retailer. I wonder if you could share how you're thinking about your pricing maybe on a kind of channel basis relative to peers and if we should see maybe a more strategic opportunity for you to differentiate yourself in channels outside of mass? Howard Friedman: Yes. Thanks for the question. Certainly, we've seen similar performance in the mass channel, which is not that much of a surprise to us. I think you've seen that -- we've seen that historically, which kind of goes back to the original point of the nothing that we're doing -- we've seen so far has been all of that surprising to us. And if you think about how our commercial strategy kind of unfolds, we have got a wide range of competitive dynamics across the price ladder. So we continue to grow very nicely in the Natural channel. We've been making good progress in Club behind some of our premium brands, notably Boulder. Our expansion geographies and frankly, the food channel overall continues to perform for us with the larger national grocers as well as the regional players. And so we will compete there. Obviously, our [ rev man ] capability really comes through in the food channel because that's where promotional effectiveness and timing can really kick in. And then I think more broadly, as you think about sort of the rest -- the remainder of the mass channel, we are feeling very good about the performance of our business there. We've seen distribution gains. So overall, we are -- it is a subcat by subcat, channel-by-channel game for us. And that's -- again, I think we have a lot of different ways to get to our goals and our objectives. And I think that's kind of what you're seeing in the first quarter. James Salera: Great. And then if I could shift gears and ask a quick one on California. You mentioned in your prepared remarks, California was up high single digits. It might be too early, but I want to ask if -- do you have any sense for the repeat rates in California given your brand is going to be new to a lot of folks out there. Curious to see kind of the initial loyalty response. Howard Friedman: Yes. It's early for us to see. We have to get through a couple of purchase cycles before we really be able to give you a better sense of loyalty. What I can tell you is if you look at our overall marketing metrics nationally, which, of course, our expansion geographies are a significant portion of our growth, you continue to see loyalty and repeat rates actually fairly consistent across. So I think that, that gives us quite a bit of confidence that even with a lower relative brand awareness on a brand like Utz that the product once in consumers' hands and pantries will have -- will earn its right to stay there. I think beyond that, remember that Boulder Canyon and Hawaiian are also brands that exist in that marketplace today. And so that -- it's also the opportunity for us to expand distribution of those items, which are more familiar to the California market. So it will be a full suite of our Power Four Brands and some of our targeted brands as we kind of mature that geography over time. But like I said, high single digits, a couple of weeks in, call it, 5, 6 weeks into it, we feel pretty good about where we are in California, lots to do, but we're excited about it. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Please stand by. We are about to begin. Good morning, ladies and gentlemen, and welcome to Genworth Financial, Inc.'s First Quarter 2026 Earnings Conference Call. My name is Jess, and I will be your coordinator today. As a reminder, the conference is being recorded for replay purposes. We will facilitate a question and answer session towards the end of this conference call. I would now like to turn the presentation over to Christine Jewell, Head of Investor Relations. Please proceed. Christine Jewell: Thank you, and good morning. Welcome to Genworth Financial, Inc.'s First Quarter 2026 Earnings Call. The slide presentation that accompanies this call is available on the Investor Relations section of the Genworth Financial, Inc. website, investor.genworth.com. Our earnings release and financial supplement can also be found there and we encourage you to review these materials. Speaking today will be Tom McInerney, President and Chief Executive Officer, and Jerome Upton, Chief Financial Officer. Following our prepared remarks, we will open the call for questions. In addition to our speakers, Jamala Arland, President and CEO of our Closed Block Insurance business, Greg Caruana, General Counsel, Kelly Saltsgeber, Chief Investment Officer, and Samir Shah, CEO of CareScout, will also be available to take your questions. During this morning's call, we may make various forward-looking statements. Our actual results may differ materially from such statements. We advise you to read the cautionary notes regarding forward-looking statements in our earnings release and related presentation as well as the risk factors of our most recent annual report on Form 10-K as filed with the SEC. Today's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. In our investor materials, non-GAAP measures have been reconciled to GAAP where required and in accordance with SEC rules. Additionally, references to statutory results are estimates due to the timing of the statutory filing. And now I will turn the call over to our President and CEO, Tom McInerney. Tom McInerney: Thank you, Christine, and thank you all for taking the time to join our first quarter earnings call this morning. In the first quarter, we continued to execute across our strategic priorities and have once again generated strong shareholder value. We advanced our long-term growth strategy through CareScout, and we further strengthened the self-sustainability of our closed block. Before turning to our results, I would like to briefly address an update to how we present and evaluate our core operating earnings. As we have discussed, our closed block of legacy insurance products is separate from our other business lines and self-sustaining, and the quarter-to-quarter GAAP volatility does not reflect the underlying economics or how the business is strategically positioned for the long term. As a result, going forward, we will report Genworth Financial, Inc.'s consolidated adjusted operating income excluding the closed block. We believe this view of our operating performance better aligns with our strategy and capital allocation framework, driving current and future shareholder returns through Enact and long-term growth opportunities with CareScout. We will continue to report the adjusted operating income for the closed block separately in our disclosures. For the first quarter, Genworth Financial, Inc. reported net income of $47 million with adjusted operating income, excluding the closed block, of $109 million. Our results this quarter were led by continued strong performance from Enact, with adjusted operating income of $140 million. The holding company ended the quarter with a solid liquidity position, holding $166 million of cash and liquid assets. Turning to our strategic priorities, I am pleased with our progress as we execute with discipline across the businesses. First, we continue to create shareholder value through Enact's growing market value and capital returns. Our approximately 81% ownership stake in Enact remains a key source of cash flows to Genworth Financial, Inc. and helps fuel our disciplined approach to capital allocation. This strategy includes returning capital to shareholders through share repurchases while also investing in our long-term growth opportunities through CareScout. This balanced approach enables us to drive near-term value while still positioning the company for sustainable long-term growth. In the first quarter, we received $99 million in total capital returns from Enact. Supported by these strong cash flows, we continue to execute on our share repurchase program. Since the initial authorization of our current buyback program, we have bought back a total of $875 million worth of shares at an average price of $6.38 as of April 30, 2026. Turning to our next strategic priority, we continue to drive growth from CareScout, which represents a significant long-term opportunity given the growing demand for aging care, including from 70 million baby boomers now aged 62 to 80 in 2026. We are building a comprehensive aging platform designed to help people understand, find, and fund the quality long-term care they need, all in one place. We do this in three ways. First, comprehensive solutions, providing access to a full suite of services across the aging journey from care planning and guidance to finding providers to funding care. Second, expert guidance, leveraging our data, technology, and decades of claims experience to match individuals with the right care provider options and help them make informed decisions with confidence. And third, technology-enabled human connection, delivering that expertise through trained advisers who provide personalized local support and help families navigate what is often a complex, fragmented, and emotional process. Under Samir Shah's leadership, we are integrating these capabilities across the platform to deliver a seamless experience and build a capital-light, scalable business for long-term growth. During the first quarter, we continued to expand the CareScout Quality Network, or CQN, at an impressive pace across both home care and senior living communities. In the first quarter, we added our first senior living communities to the network. This development marks another important step in broadening access beyond home care and expanding options available to consumers in the marketplace. As we continue to integrate senior living communities from our acquisition of SeniorLeaf, we are building a more comprehensive network that can support people across different stages of the aging journey. By the end of 2026, we anticipate having more than 1,000 home care locations and approximately 2,000 senior living communities as part of the CQN. As a reminder, our revenue model for senior living communities differs from our home care model, with CareScout earning a one-time placement fee upon a successful move-in, consistent with how the broader industry operates. Over time, we expect this to complement our existing home care discount model and contribute to a more diversified, scalable, and substantial stream of revenue in the business. In home care, our network now covers approximately 97% of the U.S. population aged 65 and older. We continue to see strong interest from more providers every day as we expand into additional markets and strengthen coverage in geographies with high demand. As the network grows, we remain focused on optimizing coverage and pricing efficiency while ensuring quality, consistency, and long-term scalability. We facilitated approximately 1,500 matches between care seekers and providers in the first quarter, reflecting strong sequential and year-over-year growth. This was driven in part by the expansion beyond home care matches and into senior living communities. The Q1 figure includes our first direct-to-consumer matches, which we are making in both home care and senior living communities. While quarterly pacing may vary, we are building momentum and remain on track toward our previously discussed target of approximately 7,500 matches in 2026, compared to 3,255 matches in 2025. As our network continues to scale and brand awareness grows, we expect to drive increased traction across the platform. We also expect a higher share of Genworth Financial, Inc. policyholders to utilize CQN providers and benefit from more efficient care coordination by our team, helping to stretch their benefit dollars further while generating claim savings for the closed block over time. We also continue to work with other insurance carriers managing closed LTC blocks to leverage the CareScout Quality Network. Integrating other LTC insurance carriers along with select affinity groups represents an important opportunity to introduce more consumers to the CareScout brand, extend our platform beyond Genworth Financial, Inc., and generate additional fee-based revenues over time. In parallel, we are scaling our fee-for-service offerings that generate recurring revenue streams and create additional pathways for CareScout's growth. Overall, we continue to expect $25 million of CareScout service revenues in 2026, and we are making steady progress towards that goal. Turning to CareScout Insurance, we continue to build out our differentiated product offerings and expand our distribution capabilities. Our new CareAssurance product is clearly differentiated in the LTC insurance market by giving customers and their families access to a more holistic aging experience through our services business, including access to the CareScout Quality Network, wellness support tools, and care planning services. We believe this integrated approach provides a distinct advantage in a market that remains fragmented and very underserved relative to the growing demand for long-term care over time. Looking ahead, we plan to launch our CareAssurance worksite product later this year. The worksite channel will broaden access through employers and associations. We are also developing additional offerings, including hybrid LTC insurance products with innovative designs that pair a minimum LTC benefit with low-cost fixed income and equity accounts designed for accumulation. Hybrid products offer a broader set of funding solutions designed to meet evolving customer needs and solve critical gaps in retirement income and retirement security in the marketplace. As the U.S. population ages, CareScout will continue to broaden its capabilities with a focus on ensuring families can more easily access the support, guidance, and resources they need to navigate the complexities of aging. Turning to our third priority, we continue to actively manage our self-sustaining, customer-centric closed block of LTC, life, and annuity products. This business is being managed with a focus on delivering high-quality policyholder experiences, maintaining capital discipline, and ensuring long-term sustainability as we position Genworth Financial, Inc. for growth through CareScout. Our multiyear rate action plan, or MYRAP, remains our most effective lever for maintaining that sustainability. In the first quarter, we secured $5 million of gross incremental premium approvals. We have built on this progress in the second quarter, already achieving another $45 million. As we enter the later stages of the MYRAP program, we expect premium approvals to be lower and benefit reductions to be higher because the future premium runway is shortened as Genworth Financial, Inc. policyholders age, as shown on Appendix Slide 20. That said, we expect full-year 2026 premium approvals and benefit reductions to be broadly in line with 2025 levels, contributing approximately $1 billion of economic value on a net present value basis. Since the program began in 2012, we have achieved approximately $34.5 billion in net present value through a combination of premium increases and benefit reductions. We remain focused on executing this program with discipline to ensure the long-term self-sustainability of the closed block. Next, I will provide a brief update on the Absa litigation. The appeal hearing is scheduled for July. We expect the Court of Appeal to reach a decision within approximately three to six months of that hearing. If the judgment is ultimately upheld and all appeals are favorably resolved, we expect to recover a total sum of approximately $750 million, subject to exchange rates at that time. We do not expect to pay taxes on this recovery. As we said previously, any potential recoveries are not factored into our capital allocation plans. If proceeds are received, we would deploy them in line with our existing priorities: investing in CareScout, returning capital to shareholders, and reducing debt. Before I turn it over to Jerome, I would like to briefly address the current macroeconomic backdrop. We continue to closely monitor an uncertain and dynamic external environment, including uneven consumer spending and the potential for higher inflation and interest rates. We believe Genworth Financial, Inc. is well positioned to navigate a range of market conditions in 2026 and beyond. Enact continues to operate from a position of strength supported by disciplined underwriting and a strong capital position and provides Genworth Financial, Inc. with strong free cash flow. We continue to integrate new technology and operational capabilities across the organization, enabled by artificial intelligence. We have several AI and generative AI initiatives underway with key partners focused on improving efficiencies in claim management, enhancing the policyholder and customer service experience, and supporting more scalable growth across CareScout. Even as we advance these capabilities, our approach remains grounded in the tech-enabled, human-centered support our policyholders rely on throughout the aging journey. In closing, we are pleased with the progress we have made in the first quarter across our strategic priorities, supported by another quarter of strong performance from Enact. As we move towards the midway point of the year, we remain focused on disciplined execution and building long-term value for our shareholders. And with that, I will turn the call over to Jerome. Jerome Upton: Thank you, Tom, and good morning, everyone. We entered 2026 with strong momentum, and as Tom highlighted, we continued to execute against our strategic priorities while enhancing our financial flexibility and positioning the company for long-term success. Enact's first quarter results reflected continued strategic and operational strength underpinned by its strong balance sheet and liquidity profile that continue to create value and fuel our capital allocation priorities. We also made further progress scaling CareScout and strengthening the self-sustainability of our closed block. I will begin with an overview of our first quarter financial results and key drivers, followed by a discussion of our investment portfolio and holding company liquidity. I will then cover our capital allocation priorities and provide an update on our guidance for 2026 before we open the call for Q&A. Starting with the financial results on Slide 9, as Tom mentioned, going forward, we are updating the presentation of our consolidated earnings to exclude results from our Closed Block segment to better align with our strategy and capital allocation framework managing the closed block on a standalone basis. We will continue to report the adjusted operating income for the closed block separately in our disclosures. First quarter adjusted operating income, excluding the closed block, was $109 million, driven by strong performance in Enact, partially offset by losses in Corporate and Other. Enact delivered another strong quarter of performance with adjusted operating income of $140 million to Genworth Financial, Inc. Results included a pretax reserve release of $39 million reflective of continued strong cure performance. Results are down versus the prior quarter reflecting a lower reserve release and up versus the prior year reflecting increased investment income and favorable expenses. In Corporate and Other, we reported an adjusted operating loss of $31 million for the quarter, reflecting continued investment in CareScout and ongoing holding company debt service. The prior quarter included a benefit from favorable tax-related items. Our Closed Block segment reported an adjusted operating loss of $32 million. This was driven by a liability remeasurement loss related to the actual variances from expected experience, or A to E, of $36 million pretax, primarily in LTC. Our results in LTC were favorably impacted by net insurance recoveries in the quarter of $65 million pretax. Mortality in both LTC and life insurance was seasonally higher sequentially but lower than the prior year. While results can vary quarter to quarter, we expect to see A to E losses in the range of approximately $300 million for the full year 2026. As a reminder, these GAAP fluctuations do not impact our cash flows, economic value, or how we manage the business. Now taking a closer look at Enact's performance underlying its strong financial results beginning on Slide 10, new insurance written of $13 billion in the quarter decreased versus the prior quarter primarily based on seasonal trends but increased versus the prior year as a result of lower interest rates early in the quarter. Primary insurance in force increased year over year to $272 billion supported by the growth in new insurance written and continued elevated persistency. Earned premiums in the quarter were $243 million, down slightly versus the prior quarter and prior year. As shown on Slide 11, Enact's favorable $39 million pretax reserve release drove a loss ratio of 15%. Enact's estimated PMIERs sufficiency ratio remains strong at 162%, or approximately $1.9 billion above requirements. Genworth Financial, Inc.'s share of Enact's book value, including AOCI, was $4.3 billion at the end of the first quarter, down slightly from $4.4 billion at year-end 2025, driven by movements in the market value of the investment portfolio as a result of increased interest rates. While maintaining its strong balance sheet, Enact has continued to deliver significant capital returns to Genworth Financial, Inc. We received $99 million from Enact in the first quarter. Looking ahead, Enact remains well positioned to navigate the current macroeconomic environment supported by its strong balance sheet and disciplined underwriting. Turning to our Closed Block segment on Slide 12, we continue to proactively manage and reduce LTC risk and improve self-sustainability through prudent in-force management, including benefit reductions and premium rate increases. As of the end of the first quarter, we had achieved approximately $34.5 billion of benefit reductions and premium increases on a net present value basis since 2012. As part of our multiyear rate action plan, we offer a suite of options to help policyholders manage premium increases while maintaining meaningful coverage. These benefit solutions enable us to reduce our exposure to certain higher-cost features, such as 5% compound benefit inflation options and large benefit pools. Cumulatively, about 61% of policyholders offered a benefit reduction have elected to take one, lowering our long-term risk. These initiatives have helped reduce our exposure to the riskiest LTC policy features. Notably, our exposure to the 5% compound benefit inflation option has decreased below 36%, down from 57% in 2014, and the percentage of our policies with lifetime benefits has decreased to 11%. We remain committed to managing GLIC and its subsidiaries as a closed system, leveraging their existing reserves and capital to cover future claims. We will not inject capital into these companies and, given the long-tail nature of our LTC insurance policies, with peak claim years still over a decade away, we also do not expect capital returns. Turning to Slide 13, our investment portfolio remains resilient and is conservatively positioned. The majority of our assets are in investment-grade fixed maturities held to support our long-duration liabilities. New money yields continue to exceed those on sales and maturities, with cash in our life insurance companies being invested at yields of approximately 6.3% for the quarter. Our alternative assets program is largely comprised of diversified private equity investments and has targeted returns of approximately 12%. Quarterly realizations fluctuate, with first quarter transactions affected by geopolitical tensions. We remain committed to growing our alternative assets portfolio within regulatory limitations due to its robust track record of returns, diversification benefits, and natural fit with long-term liabilities. Next, turning to the holding company on Slide 14, we ended the quarter with $166 million in cash and liquid assets. When evaluating holding company liquidity for the purpose of capital allocation, and calculating the buffer to our debt service target, we excluded approximately $50 million of cash held for future obligations, including advanced cash payments from our subsidiaries. Moving to capital allocation on Slide 15, our priorities remain unchanged. We will continue to invest in long-term growth through CareScout, return cash to shareholders through our share repurchase program when our share price trades below intrinsic value, and opportunistically retire debt. During the quarter, we repurchased $66 million of shares at an average price of $8.61 per share. We repurchased an additional $19 million through April 30, 2026. We also retired approximately $5 million of principal debt in the quarter, bringing our holding company debt down to $778 million. We maintain a disciplined capital structure with a cash interest coverage ratio on debt service of approximately nine times. I will now turn to our outlook for 2026 and provide an update on the guidance we shared in February on our fourth quarter earnings call. As announced yesterday, Enact has increased its quarterly dividend and continues to expect to return approximately $500 million of capital to its shareholders in 2026. Based on our approximate 81% ownership position, we continue to expect to receive around $405 million to $450 million from Enact for the full year. Second, we continue to create value for our shareholders through our share repurchase program. For the full year 2026, we now expect to allocate between $195 million and $225 million to share repurchases. As we have said before, this range may vary depending on market conditions, business performance, holding company cash, and our share price. Third, turning to CareScout. As Tom indicated, in the services business, we continue to target approximately 7,500 matches in 2026, including matches across both home care providers and senior living communities. CareScout services generated $6 million in revenue in the first quarter, and we continue to expect revenue in this business of $25 million for the full year. We plan to invest approximately $50 million to $55 million in services in 2026 as we continue scaling the business and expanding its reach. These investments will support the continued build-out of our technology platform, the addition of new products and care settings, and growth across both consumer and B2B channels. We are also deepening carrier partnerships and enhancing operational infrastructure to support higher volumes, recurring revenue, and long-term scalability. For insurance, we currently do not expect any additional investments in 2026 following our $85 million investment to launch our inaugural product last year. As we expand our product suite, grow our distribution network and sales levels, and refine our operating platform, we will make appropriate investments in the business. We have made good progress overall with CareScout and remain confident in its continued growth in 2026. As we have noted previously, scaling these businesses and achieving breakeven will take time. In closing, we are delivering on our strategic priorities and enhancing financial flexibility while proactively managing our liabilities and risk. Our focus remains on driving durable growth through Enact and CareScout, which serve as a foundation of our long-term value creation strategy. At the same time, we are strengthening the self-sustainability of our closed block, maintaining our commitment to return capital to shareholders through share repurchases, and opportunistically retiring debt. These actions position Genworth Financial, Inc. to deliver long-term value for our shareholders. We will now open the call for questions. Now, let us open up the line for questions. Thank you. Operator: Ladies and gentlemen, we will now begin the Q&A portion of the call. As a reminder, please refrain from using cell phones, speakerphones, or headsets. Please press star 1 to ask a question. We will go first to a question from Joshua Estrach with Credit Insights. Your line is open. Please go ahead. Analyst: Hey. Good morning, folks. Thanks for taking my question. So, modest decline in the estimated RBC ratio at GLIC at quarter-end, and I know you folks have been adamant for years that no capital contributions to life entities are planned. But I am wondering if there is, like, a specific RBC ratio level at which you would either be forced or consider contributing capital, or, you know, alternatively, if there is a lever you can pull to bolster RBC in the life units to the extent it becomes necessary without a capital contribution. Tom McInerney: Thank you for your question, Josh. Our target is to have RBC at $250 million or more, and so we are very comfortable with where we are. Obviously, the RBC did go down in the first quarter because of the statutory loss, but that is why we have quite a bit of room. There is no requirement from a regulatory perspective. I mean, we are well above, at almost three times required capital, what the regulators require. Jerome Upton: Josh, good morning. Thanks for the question. Look, we felt some pressure in the first quarter, as Tom indicated, down to 2.89. That is still a good ratio. We did see mortality; it went up in the quarter, but it certainly was not at the level that we would have expected. I think that impacted LTC, but I believe that was felt across the industry as well. We also saw some life pressure from our post-level term block coming through and some reserve build. We do not expect that to continue. What I would highlight to you is we are going to continue to execute our strategy. That strategy and our statutory results are premised upon our ability to get the multiyear rate action plan, which, as Tom highlighted, has been very successful, our benefit solutions, and our Live Well, Age Well program as well as our CareScout Quality Network. We are active in achieving those benefits, and those will be key drivers of our RBC and our statutory results going forward. Operator: Thank you very much. Analyst: And if you do not mind, maybe I can sneak in one more here and pivot a little bit. I appreciate the color and the commentary you gave earlier on the investment portfolio front, but if maybe you can give a little bit more detailed color on the private credit portfolio, maybe even just at a high level, the characteristics either from a ratings or asset class or sector basis, and maybe you can just briefly tell us how you perhaps source the investments or any of the partnerships you might have to bolster your private credit capabilities. Jerome Upton: Sure. Thanks for the question. Kelly is on the call, so we will ask Kelly to comment. Kelly Saltsgeber: Yes, thanks, Josh, for the question. Private credit has been referred to in the media of late really as what we call direct lending or middle market loans, which are private loans to small companies, and we have very minimal exposure there. We have about 1% of our portfolio in middle market loans, and we access that market through a well-regarded and experienced manager through a separately managed account. Our direct lending portfolio actually has no exposure to what is classified as the software category, and so it is very different from what you are reading about with some of the BDCs. Now, we have other private investments. We have been in the private placement market for decades, and that is an investment-grade portfolio. We also have recently started accessing private asset-based finance, also primarily through external managers, and that is an investment-grade mandate with an average rating of single-A or triple-B. We also access the private equity market mainly through advisers that are very experienced in the space, including Neuberger and JPMorgan. I would say our private exposure is almost exclusively investment grade with the exception of the 1% in middle market loans that I mentioned. Analyst: Got it. Thank you very much. I appreciate everyone's time this morning. Jerome Upton: Thanks, Josh. Operator: Once again, ladies and gentlemen, it is star 1 if you have a question. It appears there are no questions at this time. Ladies and gentlemen, I will now turn the call back over to Mr. McInerney for closing comments. Tom McInerney: Thank you all very much for joining the call today and for your continued support and interest in Genworth Financial, Inc. At this point, I will turn the call back over to Jess to have her close it. Operator: Thank you, sir. Ladies and gentlemen, that will conclude the call. We thank you for your participation. You may disconnect at this time.
Operator: Good afternoon. My name is Carmen, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Fastly First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would like to turn the conference over to Vern Essi, Investor Relations at Fastly. Please go ahead. Vernon Essi: Thank you, and welcome, everyone, to our first quarter 2026 earnings conference call. We have Fastly's CEO, Kip Compton, and CFO, Rich Wong, with us today. The webcast of this call can be accessed through our website, fastly.com, and will be archived for 1 quarter. A copy of today's earnings press release, related financial tables and supplements, all of which are furnished in our 8-K filing today can be found in the Investor Relations portion of Fastly's website, along with the investor presentation. During this call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, products and services, sales and growth, strategy, long-term growth and overall future prospects. These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or implied during the call. For further information regarding risk factors for our business, please refer to our filings with the SEC, including our most recent annual report filed on Form 10-K and quarterly reports filed on Form 10-Q filed with the SEC and our first quarter 2026 earnings release and supplement for a discussion of the factors that could cause our results to differ. Please refer, in particular, to the sections entitled Risk Factors. We encourage you to read these documents. Also, note that the forward-looking statements on this call are based on information available to us as of today's date. We undertake no obligation to update any forward-looking statements, except as required by law. Also during this call, we will discuss certain non-GAAP financial measures. Unless otherwise noted, all numbers we discuss today other than revenue will be on an adjusted non-GAAP basis. Reconciliations to the most directly comparable GAAP financial measures are provided in the earnings release and supplement on our Investor Relations website and filed with the SEC. These non-GAAP measures are not intended to be a substitute for our GAAP results. Before we begin our prepared comments, please note that during the second quarter, we will be attending the William Blair 46th Annual Growth Stock Conference in Chicago on June 2 and the D.A. Davidson 2026 Technology and Consumer Conference in Nashville on June 11, and also mark your calendars for our Investor Day, taking place on September 23 at the Nasdaq MarketSite in New York. Now I'll turn the call over to Kip. Kip Compton: Good afternoon, everyone, and thank you for joining us. We had a great start to the year at Fastly. In Q1, we delivered $173 million in revenue, up 20% year-over-year and near the high end of our guidance range. Fastly's value proposition is resonating with our customers, driving strong performance and growth in security and compute. Our focus on traffic engineering and platform efficiency continues to deliver results with another quarter of record gross margins. Security growth accelerated to 47% year-over-year and represented 22% of our total revenue. Our industry-leading WAF continues to perform well, and we are also seeing increasing momentum across our portfolio. In fact, among instances of security products sold to new customers in the quarter, almost half were of our newer products, DDoS Protection, Bot Management, and API Discovery and Inventory. We believe these are clear signals that our broader security suite is opening opportunities for wallet share expansion with existing customers while attracting new customers to the Fastly platform. Increased demand for our Compute offering drove the other category up 67% year-over-year, marking our largest quarter-on-quarter revenue step-up ever in this category. We expect continued momentum in compute as customers address increasingly demanding edge workloads and prove out high-value AI use cases. On a combined basis, security and other saw impressive growth of 50% year-over-year, and we anticipate these product lines will exceed the $200 million annual run rate milestone by late 2026. In Network Services, our platform's superior performance, reliability and value are driving continued share gains and delivered 11% year-over-year growth in the quarter, roughly double the market growth rate. We believe the Fastly platform's appeal is fueling momentum across the portfolio as customers increasingly prioritize secure, reliable and innovative solutions where performance matters. Our go-to-market execution continues to deliver strong results, including growth in new customers across key verticals in Q1. At the same time, our continued expansion within our existing base remains robust and drove LTM NRR to 113%, as Rich will discuss later in the call. We also saw broad-based strength year-over-year across all geographies. We are continuing our investment in APJ, highlighted by the recent opening of our new office in Singapore. Following key leadership hires in Q1, we remain committed to scaling our regional presence with additional strategic talent this year. To further accelerate the momentum of our go-to-market transformation, we hired Joan Jenkins as our new Chief Marketing Officer. Joan brings over 2 decades of experience leading global marketing organizations at world-class companies, including Informatica, Druva, Oracle and Cisco. Joan has a proven track record of building high-performing teams, driving category leadership and importantly, strengthening the AI narrative to drive growth. Joan will be instrumental in bringing the Fastly platform story to a global audience, and we are excited to have her on the leadership team. Turning to AI. We see the rise of autonomous agents as a long-term growth driver. The edge has become critical for scaling and securing AI across multi-cloud environments. Fastly's flexible programmable platform is built for this moment. For our customers, traffic generally passes through the Fastly platform regardless of where agents are hosted. We are co-innovating with them to secure and scale their AI use cases and helping them manage and optimize a massive new wave of automated traffic. AI Bot Management is an early example of this. Most importantly, this strategy is working. It is actively building our pipeline. As a result, we believe AI is a tailwind for our business. Now let me shift gears and provide details on some outstanding customer wins in Q1, including several 7-figure deals. We closed a multimillion-dollar ARR full platform win to support a large social media platform's API and Video-on-Demand operations. By meeting rigorous availability and security standards, we mitigated downtime and data breach risk and enabled 24/7 continuity for millions of users. To enhance user trust, a privacy-first browser customer leveraged our platform to power a native in-browser VPN. The Fastly platform enabled them to fulfill their core privacy promise critical to their brand at global scale and support long-term user retention. A global social media corporation chose Fastly in a critical cross-sell security win. After a high-profile industry outage, the customer turned to Fastly, an established and reliable partner to help secure its global API traffic. By adding Fastly, the customer reduced their infrastructure risk, improved reliability and supported uninterrupted platform availability. Lastly, a multinational tech company chose Fastly for our network, security and privacy offerings to accelerate and secure their critical workloads. We are also seeing momentum in AI Bot Management wins in conjunction with our leading NG WAF offering, including an enterprise cloud storage provider replaced a fragmented legacy setup by consolidating app security and delivery on the Fastly platform. Deploying our Next-Gen WAF and Advanced Bot Management provided robust, scalable security compliance without sacrificing performance. Facing daily malicious AI bot traffic, a long-standing media customer added ContentGuard, a new product in the Fastly security portfolio introduced this quarter to protect their intellectual property without compromising the reader experience. A leading digital payment conglomerate expanded its Fastly footprint by adding 10 new products and services on our platform. With this expansion, they maximized network availability, safeguarded revenue and enabled 24/7 availability against cyber incidents. We were especially pleased to see a partner-enabled deal with a Japanese financial services provider. Working through a regional partner, offering 24/7 local support, this customer chose the Fastly platform to enable and secure a critical international expansion. Through the adoption of Fastly's Security and Network Services offerings, the customer was able to build a highly reliable, compliant infrastructure for its regulated business-critical payment systems. This is an example of our international go-to-market expansion at work. As these wins illustrate, our flexible platform and continuous innovation uniquely position Fastly to capture growing AI demand, and our expanded security portfolio directly drives customer wins and growth. Highlights of our expanding security portfolio from Q1 include ContentGuard. Managing the exploding AI bot landscape requires more than just a simple switch. It requires continuous intelligence. We launched ContentGuard to give publishers precise control over access to their content. Leveraging Fastly's pre-cache inspection, customers can stop unauthorized AI agents without sacrificing the speed or performance of their authorized traffic. This unmatched visibility provides the critical data our customers need to secure and monetize their intellectual property. API Security. As AI accelerates code delivery, it creates security blind spots through shadow APIs. We have addressed this customer need by enriching our web application and API protection portfolio enabling enhanced API Discovery and inventory tools. Automated API cataloging gives enterprises continuous at-scale visibility to secure their ecosystems without slowing developer velocity. Fastly Agent Toolkit. We released a toolkit that equips AI coding agents with Fastly-specific skills. This toolkit accelerates the customer development life cycle, enabling customers to build, deploy and secure edge services faster and with expert-level precision, ultimately driving quicker time to value on the Fastly platform. We also enhanced our Compute and Security offerings by adding support for additional programming languages. This completes the core suite of languages requested by our enterprise customers, extending our premium security layer to a wider set of edge applications. Given these highlights, we are proud that Fastly was named one of only 2 leaders in The Forrester Wave for Edge Development Platforms. Fastly also earned a perfect score for innovation and was the only vendor to receive a top 5 out of 5 rating for workload and network isolation as well as observability. This recognition underscores our platform's differentiated strength, built-in resilience and the observable actionable insights we deliver to customers. Additionally, Fastly was the only company to receive a halo designation, highlighting superior customer feedback and our continued commitment to delivering business value for our customers. Next month marks my first year as CEO of Fastly, and I'm incredibly proud of what we have accomplished. We have a leadership team in place that is deeply committed to our core mission, making the Internet a better place where all experiences are fast, safe and engaging. We believe our platform is the gold standard for flexibility and resilience without compromising performance. We see our story resonating with the market, and we are delivering tangible value through our expanded portfolio and relentless customer-centric approach. As we scale, Fastly is positioned to drive better business outcomes for our customers and long-term value for our shareholders. Rich will now walk through our Q1 financial results and guidance in more detail. Rich, over to you. Richard Wong: Thank you, Kip, and thank you, everyone, for joining us today. I'd like to remind you that unless otherwise stated, all financial results in my discussion are non-GAAP based. Revenue for the first quarter increased 20% year-over-year to $173 million coming in at the high end of our guidance range of $168 million to $174 million. This result was a record high for Fastly and was driven by continued success in our go-to-market upsell and cross-sell motions with our expanded product platform, highlighted by strong security momentum. In the first quarter, Network Services revenue of $126.2 million grew 11% year-over-year. Our typically flat Q1 revenue seasonality was amplified this year by a record-breaking Q4. Despite the seasonality and strong Q4 results, we delivered quarter-over-quarter sequential revenue improvement in Q1. Security represented 22% of revenue or $38.8 million, both record levels. This represented growth of 47% year-over-year, our fourth consecutive quarter of accelerating security revenues and 9% sequentially. This was due to the expansion of our security product portfolio, which has resulted in larger 7-figure wins in the first quarter. Additionally, we are seeing new security wins expanding beyond our WAF product and into DDoS protection, Bot Management and API Discovery and inventory. This sets us up very well for the long-term growth opportunities with new and existing customers. Our other products revenue of $8 million grew 67% year-over-year, driven primarily by sales of our compute products. As Kip mentioned, other revenue grew a record $1.6 million quarter-over-quarter as we are seeing momentum in our compute revenue driven by new customer requirements in AI and related areas. In the first quarter, our top 10 customers represented 34% of revenue and grew 25% year-over-year. Revenue from customers outside our top 10 grew 17% year-over-year. Also, no single customer accounted for more than 10% of revenue in the first quarter. No affiliated customers that are business units of a single company generated more than 10% of the company's revenue for the quarter. As we mentioned in our previous earnings call, we have made changes to our customer metrics. Given that typically over 90% of our revenue has historically been generated by our large customers, formerly referred to as enterprise customers in prior reporting periods, we believe it is a more meaningful metric to track our customer acquisition compared to total customers. Thus, as previously mentioned, starting this quarter, we will no longer disclose our total customer count on a go-forward basis. Our large customer count, which represents customers with more than $100,000 in annualized revenue in the quarter was 634 customers. Our trailing 12-month net retention rate was 113%, up from 110% in the prior quarter and up from 100% in the year ago quarter. The quarter-over-quarter and year-over-year increases were due to revenue increases across a broad range of customers. Note that the LTM NRR is shifting from primarily being driven by our largest customers to now extending into our mid-market customers. We exited the first quarter with record RPO of $369 million, growing 63% year-over-year. This is our fourth consecutive quarter of accelerating RPO. The current portion of RPO was 75% of total RPO and grew 77% year-over-year. Our improved RPO continues to benefit from improved go-to-market discipline with our customer onboarding, which resulted in larger upfront commitments. I will now turn to the rest of our financial results for the first quarter. Our gross margin was 65.1% in the first quarter, a record high for Fastly. Gross margin was 110 basis points above our guidance midpoint of 64% and up 780 basis points from 57.3% in Q1 of 2025. This outperformance was primarily due to a 190 basis point onetime benefit from a change in accounting policy regarding server useful life to align with industry standards. Our incremental gross margin flow through on a trailing 12-month basis increased to 89% in the first quarter, up from 54% a year ago. Operating expenses were $93.5 million in the first quarter. OpEx was in line with our expectations for increased expense levels as we encounter a seasonal payroll impact in the first half of the calendar year. We continue to execute with OpEx spend discipline while balancing our growth investments in headcount. We had operating income of $19.1 million in the first quarter, coming in above our operating income guidance range of $14 million to $18 million. We intend to continue to drive leverage in our operating results as we scale our revenue. This is demonstrated by our operating margin expanding from negative 4% to positive 11% in the first quarter, an expansion of approximately 1,500 basis points year-over-year. This is underscored by our incremental operating margin flow through of 68% of revenue on a trailing 12-month basis, significantly above our long-term target of 25% to 40%. In the first quarter, we reported net profit of $22.9 million or $0.13 per diluted share compared to a net loss of $6.6 million or negative $0.05 per diluted share in Q1 of 2025. Our adjusted EBITDA was $29.5 million or 17% of revenues in the first quarter compared to $7.8 million or 5% of revenues in the first quarter of 2025. Turning to the balance sheet. We ended the quarter with approximately $330 million in cash, cash equivalents, marketable securities and investments, including those classified as a long term, a sequential decrease of $31 million over Q4 2025. This was primarily driven by the retirement of our current portion of the long-term debt totaling $39 million that became due in March 2026. Our cash flow from operations was positive $28.9 million in the first quarter compared to positive $17.3 million in Q1 2025. Our free cash flow for the first quarter was positive $4.1 million, representing a $4.1 million decrease from $8.2 million in the Q1 2025 quarter. This was primarily due to a year-over-year increase in infrastructure spend of $18.4 million offsetting an operating cash flow increase of $11.6 million. Moving to our CapEx plans and strategy. Last quarter, we shared that we will focus only on infrastructure capital expenditures and remove capitalized internal use software which is not a meaningful indicator of our capital spend. We believe this change more accurately represents the inherent capital costs to growing our business and more aligns reporting to our peers. Our infrastructure capital expenditures were approximately 12% of revenues in the first quarter. As we highlighted in our last earnings call, approximately $10 million in CapEx was pushed to 2026. This delay in CapEx resulted in our Q1 infrastructure CapEx spend coming in at the high end of our 10% to 12% full year expectation. Normalizing this timing impact, infrastructure CapEx would have been 6% of revenue in the first quarter. I will now discuss our outlook for the second quarter and full year 2026. I'd like to remind everyone again that the following statements are based on current expectations as of today and include forward-looking statements. Actual results may differ materially, and we undertake no obligation to update these forward-looking statements in the future, except as required by law. Our revenue model is primarily based on customer consumption, which can lead to variability in our quarterly results. Our revenue guidance reflects these dynamics in our business and is based on the visibility that we have today. As Kip discussed, we saw revenue strength from successful upsell and cross-sell motions highlighted by new customer velocity in our bookings across the platform. Additionally, our newer security features are proving to be strong vectors into existing and new customer wallet share, supported by Compute and Network Services growth. In the second quarter, we expect revenue in the range of $170 million to $176 million, representing 16% annual growth at the midpoint. We anticipate our gross margins for the second quarter will be 64%, plus or minus 50 basis points. As a reminder, our gross margin performance is dependent upon incremental revenue increases or declines as demonstrated by our improving gross margin through 2025 on accelerating revenue growth. It is also dependent on our infrastructure levels, which will serve as a modest headwind in 2026 as we invest in our platform capacity. For the second quarter, we expect a non-GAAP operating profit of $12 million to $16 million, reflecting an operating margin of 8% at the midpoint. We expect a non-GAAP net earnings per diluted share of $0.05 to $0.08. For calendar year 2026, we are raising our revenue guidance to a range of $710 million to $725 million, reflecting annual growth of 15% at the midpoint. We anticipate our 2026 gross margins will be 64%, plus or minus 50 basis points. We are increasing our non-GAAP operating profit expectations to a range of $58 million to $68 million, reflecting an operating margin of 9% at the midpoint, and highlighting our improved profitability compared to 2025's operating margin of 4%. We expect our non-GAAP net earnings per diluted share to be in the range of $0.27 to $0.33. We are closely monitoring supply chain dynamics, particularly regarding memory components and have taken strategic actions to mitigate potential impact. Our software-defined infrastructure is continuously improving, typically with lower capital requirements for expansion than legacy providers. We are also implementing server component upgrades in our fleet to efficiently expand our capacity. This structural efficiency underpins our expanding gross margins, positioning us to stay ahead of global traffic trends while maintaining strict capital discipline. For 2026, we continue to anticipate our infrastructure capital spend will be in the range of 10% to 12% of revenue compared to 5% in 2025 as we ramp our capacity to meet our growth objectives. As demonstrated in Q1, we believe the spend will be front loaded to ensure we have adequate equipment given recent supply chain constraints. We are actively monitoring our capacity plans relative to demand in this dynamic environment and may increase our capital infrastructure spend in the back half of 2026. As a result, we maintain our 2026 free cash flow guidance in the range of $40 million to $50 million. Before we open the line for questions, we would like to thank you for your interest and your support in Fastly. Operator? Operator: [Operator Instructions] Our first question comes from Jackson Ader with KeyBanc Capital Markets. Jackson Ader: First one is on Network Services. It came in kind of light of our, and I think consensus expectations. So just curious what was the driver there to the pretty big material slowdown in the year-over-year growth? And then also, like what role -- can we get an update on what role agentic use of the Internet is playing in your kind of core Network Services and maybe even the attach rates for security? And then I have a quick follow-up. Richard Wong: I'll take the first question, then Kip can answer the second part of it. [indiscernible] Remind that Q4 was particularly strong. We had particular strength in network services in Q4 for two primary reasons, we had a gaming download that was overperformance where we did see record traffic in Q4. And then we also have a seasonally strong e-commerce online holiday shopping. And so despite that strength of Q4, we did see a little bit of a dip, but it's not related to pricing. It's really just the seasonality that we would normally see in the business. Kip Compton: Yes. I would just add, we've not seen a material change in the pricing environment. And I think in Q4, we mentioned that we saw a stronger-than-expected seasonality. And of course, coming off of that, you might expect a little bit more of a drop out of that seasonality because, after all, the seasons do change. On agentic, we are seeing tailwinds across different parts of our business. Certainly, in network services, there's a volume component that we believe is being driven by agentic traffic. In terms of security attach, frankly, it may be more pronounced in the security part of our business as we have customers looking to protect AI workloads and provide privacy capabilities to agentic workloads and AI cloud compute use cases that require privacy. So we are seeing significant security there, security uplift that I think we could attribute to those trends, likewise on compute, so we see kind of an increase in volume over time on network services, but more specific attach in some of those other businesses. Jackson Ader: Okay. Okay. Cool. And then you guys mentioned pricing a couple of times. I know that some competitors in the network services market are explicitly raising prices because of the memory component prices that are impacting you and others. I'm just curious, what is your current strategy on maybe passing some of those component pricing on to your customers or whether you're taking this as an opportunity to be a little strategic on price? Richard Wong: Sure, Jackson. From a Q1 perspective, pricing environment was very similar to Q4. I think in the last earnings call, I mentioned the Q4 kind of price erosion in the mid-single digits. We did see a very similar mid-single digits in Q1. I think a good reminder is that price erosion is a year-over-year metric. And as customers spend more on our platform and as they increase the volumes, they're actually unlocking additional volume discounts and even the cross-selling. So we're actually going to naturally see some of the price erosion. There's also another reminder is that this only applies to our network services business. That phenomenon is not on our security or our compute business. And so we continue to focus on the value we create for our customers and the pricing discipline reflects this. With regard to what Akamai is doing and then what we're doing, we feel it was the right thing to do was to maintain the pricing that we negotiated with our customers, and we're honoring the contracts that we have with our customers. And as they continue to unlock those volume discounts, we are going to continue to honor that. We think it's the right thing to do from a customer relationship perspective. Kip Compton: Yes, I would just add maybe two things. First of all, of course, we see pricing changes when we experience renewals with our customers, not on a continuous basis. So there is some lag in seeing changes in market pricing just driven by when customers renew, and that is the time when prices are negotiated or potentially change, not generally mid-contract. So if you think about actions that others have said they're taking in the market starting in April, we're very closely monitoring that. We've not seen a change in the pricing environment yet. But it's conceivable that those changes are simply going to take a few more months to filter through the market as others have renewals and as our customers' renewals come up as well. The other thing I'll add, we said and I'll say again that we believe that we have a more efficient platform. It's a more modern platform. And I think if you look at the capital intensity of our business compared with some of the other similar platforms out there, you can see that it is more efficient. That does, in our view, give us a potential sort of structural advantage in an environment with rising component costs. They certainly affect us, but it appears likely that may affect us less than our competitors. And so we may not have as many cost increases that we need to pass through to customers. Operator: Our next question comes from the line of Frank Louthan with Raymond James. Frank Louthan: Great. Two quick ones. What is the percentage of your revenue that has revenue commitments with it now? The first question. And the second one, your network is deployed largely in Equinix and DLR data centers or something similar with power and connectivity. Is there a reason that you could not facilitate distributed compute nodes to GPUs, combined with your network delivery out of those? And is that something you're pursuing? And what would it take to have a product like that? Richard Wong: Yes, Frank, I'll take the first one, and I'll let Kip take the second one. In terms of the kind of revenue commitment, I think the best number to really point you to is the current portion of RPO. So we mentioned on the earnings call that we had RPO of $369 million, which grew 63% year-on-year. The current portion represents the next 12-month component of that. That was 75% of the total that was -- so taking 75% of that, it's $275 million as a next 12-month commit. And that actually, if you look at current RPO on a year-over-year basis, our current RPO is growing 77% year-on-year. Kip Compton: So to your question on GPUs and the opportunity that our global network presents there. We're in a very close contact with component vendors, including in the GPU space and looking strategically at that market. The observation I'd make is our network, most of our peers' networks is highly distributed around the world. And we don't concentrate as much capacity and compute power in a single location as, for example, a centralized cloud does. And when training was the primary driver of GPU demand, that meant that -- with training being extremely large scale, that meant that our network was not well positioned to drive training and therefore, GPU-based demand. As we are seeing, and I think many in the industry are seeing the workloads and the focus shift from training to optimal inference and how different chip architectures can help with a very high performance and highly efficient inferencing, that may very well open up a bigger opportunity for us given the way our network is built and given how software defined it is. So that is yes, absolutely something that we're tracking very closely. Operator: Our next question comes from the line of [ Charlie Zhou ] with Evercore. Unknown Analyst: This is Charlie on for Peter Levine from Evercore. It was great to see the step-up in compute revenue this quarter. Rich, could you maybe help us frame how we should best think about the trajectory of that business from here? Particularly what needs to happen for compute to become a more meaningful contributor to overall growth? And Kip, maybe could you walk us through some of the use cases where Fastly is seeing the strongest customer interest for edge compute today? And how do you expect AI edge inference to evolve over the, let's say, next 12 to 18 months? Richard Wong: Sure. Thank you for the question. I think from a compute perspective, we did report $8 million in our other bucket, which was a nice kind of 67% year-over-year growth in our other business. I think when we think about compute, that's a good business to -- and then we're co-innovating with our customer base right now on agentic and AI and what we're doing there. I do think that as the agentic kind of market really starts taking off and maturing, those co-innovations that we're doing become like much better and real products that we will go out to market with. So I think for now, from a co-innovation perspective, we are working with some of our best customers on the biggest and hardest opportunities and problems. And I think those are really unique opportunities for Fastly in that space. Kip Compton: Yes. I would add just to echo Rich's comment, I mean we've definitely seen an uptick in customers' interest in additional optimizations and features in our compute platform, specifically related to interoperability with LLM so that they can drive some of those workloads from the edge. And as Rich described, we're actively working with them to optimize and continue to enhance the platform. So I think the edge compute opportunity is a large opportunity overall and one that we're certainly well positioned to garner a good share of. Operator: Our next question comes from the line of James Fish with Piper Sandler. James Fish: Just curious what you guys are seeing at this point from some of the competitor exits, the Edgio side of things in terms of traffic and how that's kind of rolling through? And is it still that roughly 90% of the time you guys are replacing some of those legacy CDN providers, more incumbents like Akamai? Richard Wong: Yes, James, thanks for the question. I think that we have lapped Edgio probably for about 2 to 3 quarters now in terms of that opportunity. We are -- what we are doing on the network services, I think, as Kip mentioned on the earnings call, we are growing almost 2x the market. And the way we're doing that is increasing share with existing customers. So we continue to really support them and increase volumes with our existing customers. But we also do have takeout campaigns. And we've been pretty good about doing that where we go out there, sell the value, which is we win where performance matters, where customers care really about speed, reliability, security in their network. And so that's probably more the last 2, 3 quarters in terms of being able to kind of beat the growth rate of the market is doing those takeouts versus our competitors versus the ones that went out the business, which we lapped 2 to 3 quarters ago. James Fish: Yes. I mean at the end of the day, those guys are seeing renewals that kind of shift over and mix shift anyways. But my follow-up question was more around the emergence of Anthropic's Mythos? And how do you see the value of your portfolio in security changing with some of the advancements there? Kip Compton: No, it's a great question. We believe that the threat environment is only becoming more dynamic and more challenging for our customers. As these technologies come out, they could be quite disruptive on the security landscape. So we're seeing actually more interest in our security products, not -- to be clear, not less. I think there's an interesting market reaction when Mythos was first announced. We actively use AI technologies in our security work. So we believe that we have a modern approach there that's well equipped to respond to these evolving threats. And we see more and more customers seeing value in products like web application firewall because as the velocity of threats increases, they can't patch all of their systems in time. So having something like web application firewall that can be patched quickly and that can be managed by a company like Fastly, who sees the global threat landscape in real time is very attractive in terms of reducing their time to protect their workloads. So we think it's an evolution of the security space that makes perhaps platforms like ours even more important. Operator: Our next question comes from the line of Rudy Kessinger with D.A. Davidson. Rudy Kessinger: It's been a lot of noise and bigger questions around AI traffic. Could you help us just maybe break it down a bit further or provide more color. When you look at the year-over-year growth and the traffic on your network in Q1, what percent of that was driven by AI chatbots and agentic traffic? Kip Compton: I don't know that I have a robust number on exactly how to break that traffic out for you. I mean what we have seen is that, that traffic is growing faster than human browsing traffic. So we see it becoming a greater share of traffic over time. But I'm looking at -- I don't think Rich or I have like a percentage or a number that we could share on this call. Rudy Kessinger: Okay. Fair enough. And then on security, really another really strong step-up in the revenue on a quarter-over-quarter basis and the year-over-year growth acceleration. Were there any large deals in that in Q1 that contributed to that, that we should be mindful of, similar to Q3 last year, I believe it was? Or was that pretty broad based? Richard Wong: Yes. Security this quarter was more broad-based. I would say that we did not highlight it because it's multiple customers that we won security. I would say that compared to Q3, where we mentioned we had one kind of big customer deal. Here, I think we mentioned multiple 7-figure deals that we closed in the quarter that involve security. Beyond just those three, we also had a number of smaller ones that are also using security. I think as we see agentic traffic increase, our customers are getting more focused on the use of security and the use of compute on our platform. And so it's for us, we're seeing it much more broad-based than we did see in Q3. Kip Compton: I mean, I guess, the one thing I'll mention before we move on to the next question. Another characteristic, and I think we talked about this a little bit in the earnings script is we're seeing broader interest across our expanded security portfolio. So there are different ways to quantify it. But our newer products are starting to perform very well alongside the Next-Gen WAF, which obviously continues to perform well. So from a revenue concentration perspective, we saw a lot of different sized deals during the quarter. I would say, from a product diversification perspective, we saw broader interest and adoption across our portfolio, which is exactly our strategy. Operator: Our next question comes from the line of Jonathan Ho with William Blair. Jonathan Ho: I wanted to maybe start out with the hiring of Joan and the potential opportunity that you see in terms of the CMO role and maybe what the biggest opportunity could be for the business to accelerate just given the hiring there? Kip Compton: No, absolutely. We see a big opportunity there. We're proud of the efforts that we've made in marketing, but really look forward to Joan helping us take those to the next level, especially as we reach more markets around the world. I think there's a significant opportunity to better position the value of our platform and of our services with specific buyers and specific verticals. And I think there's also an opportunity to build awareness and particularly APJ, but other markets where we believe that we're underpenetrated from a market perspective. And I'm just obviously very impressed with Joan's background, and she has a very systematic and scalable and repeatable approach to marketing. And I think that's going to serve us well, especially as we work to expand our brand recognition to include, but be a lot more than our world-class network service and delivery products, but really as a first-class security and edge compute brand. Richard Wong: I think the one thing I would add to that is that I think we were founded by technologists. We've always been very technology-first company, and I think our brand really resonates really well with a lot of technologists who are so deep in the Edge platform. I think bringing Joan brings this level of, hey, how do we speak about the performance that we have and the technological capabilities we have beyond just a technologist organization. And I think that's pretty exciting to me because being able to appeal to a broader audience beyond just technologists is very important. Jonathan Ho: Got it. Got it. And just in terms of a follow-up, I mean, just given the strength in your security business this quarter, and what's -- can you help us understand what's maybe driven the strong uptake and what inning we're in, particularly given how early agentic rollout is around some of these use cases that you mentioned? Kip Compton: Yes. I mean, it's a great question what inning we're in. I'm not sure I know how to quantify that. But what I can say is we've had a few different things come together to drive that growth higher. As Rich mentioned, one was new deals and some significant new deals in the quarter. We've also had continued robust expansion of some of the deals we've won in the last several quarters. And so we continue to see growing volume and growing adoption. As I mentioned earlier, another thing that's happening is over the last 5 or 6 quarters, we've dramatically expanded our security portfolio, essentially from what was really one product, a phenomenal product in our Next-Gen WAF, but nonetheless, one product to include 5 or 6 very solid products that solve important business problems for our customers. So I think another thing that's sort of compounding into that growth is us being able to land more customers with that broader portfolio and having existing customers adopt more of the portfolio. I think it's hard to quantify, but AI, I think, is a driver here. We have seen increased interest in our privacy products that are part of our security portfolio and also in our API governance products, which includes our API Discovery and schema enforcement products and that appears in many cases, to be driven by AI use cases. And so we'll continue to monitor that. But as I said earlier, we see some significant relevance with aspects of our security product and important AI use cases. Richard Wong: Yes. The one quantification area I would -- may try to chime in with is that if you think about the midpoint of our guide for the full year 2026, that's a $93.5 million increase on the incremental revenue perspective. If you look at where that incremental revenue is coming from based on the growth rates of the various businesses, more than half of our incremental revenues will actually come from security and other, which I'm very positive and bullish on, right? I think that those are areas that we're investing in, those are areas that we think create the biggest opportunities for Fastly, and you can see that reflected in our growth rate, and you'll see that reflected in incremental revenue year-on-year for 2026. Operator: It comes from the line of Jeff Van Rhee with Craig-Hallum Capital Group. Jeff Van Rhee: A few for me. First, on the network side, I think you said last quarter bit growth was in the mid-20s. Just wanted to confirm it's sort of still in that range. And then what are the assumptions implicit in the annual outlook? Richard Wong: Yes. So network services, we've talked about traffic growth kind of being in the mid-20s. And then we talked about kind of the mid-single-digit kind of price compression. Nothing right now is really changing that. I think that from a prudence perspective, we are seeing kind of still mid-double-digit kind of traffic growth rates and then that's offset by price kind of erosion that we see in the mid-single digits. When we see the contracts coming up for renewal from a prudence perspective, we do still layer in expectations of both volume discounts that our customers start unlocking plus some price discounting that we do give. And so from a modeling perspective, we are still kind of doing the low double-digit kind of renewal assumption, which is again prudent thing to do, given the environment we're in. Jeff Van Rhee: Yes, agreed. And that's helpful. And on the CapEx side, just like-for-like on hardware, what is the assumption in terms of increased prices on the hardware built into your CapEx outlook? Richard Wong: Yes. So basically, from a hardware perspective, we guided 10% to 12% of revenues. That implies roughly a $70 million to $80 million infrastructure CapEx spend for the full year. We are front-loading that spend. So the majority of that infrastructure CapEx will come in Q1 and Q2. We have placed all the server orders already from an ordering perspective for the year. And as a matter of fact, the server orders, we've already received it in Q1. One of the things you may notice in our financial statements is that you'll see a big pickup in AP. The orders that we placed arrived in Q1, and we have not yet made payment. They arrived literally the last kind of 2, 3 weeks in the quarter. And so that's a normal thing. And those prices have been locked in, we've already received the equipment. And so we're good to go on the hardware side. We did see the price increase, I mean, in some of the areas we did see increases of 2 to 3x, especially when it comes to memory pricing. Jeff Van Rhee: Yes. Okay. And then just last, in terms of the high-level revenue guide, can you help us just in terms of what you're thinking network versus security, what's implicit in that annual guidance in terms of growth rates for those subsegments? And if you don't want to get too precise, even just some ranges would be helpful. Richard Wong: Yes. From a business-by-business outlook, we think network services is probably like 6% -- 5% to 6% market grower. For us, I think that from a growth rate perspective, we could be anywhere between 9% to 11% kind of year-on-year growth in network services. I think from a Security perspective, we should continue to see growth in this area. I think that it wouldn't be unheard of to be in the kind of 25% to 30% kind of year-on-year growth perspective, especially after delivering a 47% quarter in Q1. And then the other is just kind of the delta between what we've guided for the full year unless those two growth rates. Operator: Our next question comes from Param Singh with Oppenheimer. Paramveer Singh: I actually had a couple. First, I really appreciate the insight you've shared so far on the agentic AI side and some of the products that you're bringing on the security side. Now in that vein, when you talk to your customer base, what do they feel is missing so far either from a security or a compute perspective, that should help them deploy and manage the agentic AI platform. And how would you price some of these incremental products versus how you're pricing the current platform to the customer base? And then I have a follow-up. Kip Compton: That's a great question. A question I think a lot of people in the industry have. What we're seeing is with enterprises, it's relatively early days in terms of agentic adoption. Many of them are seriously looking at how their processes evolve to embrace agentic AI and get the full capabilities out of it. We've certainly seen interest, as I said before, in the security area. If they have agentic coding tools, writing code and executing it, how can they perhaps use API Discovery and Schema enforcement to make sure that they're comfortable with what that code is doing to other systems. I mentioned the privacy aspect. We've had a lot of interest in that. But I would characterize our work with customers is relatively early for the majority of enterprises. And that's why we talked about the design partner program where we're working very closely with those customers to make sure that we meet their needs. In terms of specific products and pricing, it's probably premature to comment on it, certainly not in this forum at this time as we continue to develop those products and work with our customers and assess the value creation potential. Paramveer Singh: Understood. That's really helpful. Maybe one for Rich. If I'm not mistaken, you still have some converts at 7.75%, that's a pretty high interest rate. How are you thinking about kind of rejiggering your financial structure at this point, taking advantage of the market and your stock price? Richard Wong: Yes. So the 7.75% convert we have outstanding. It's not due until June 1, 2028. And so we have a little bit of ways to do it. It is high interest rate relative to the interest rate environment we are in. These bonds are trading at a significant premium to where they are. So a refinance opportunity is quite expensive given the trading values they're at. Right now, we're focused on just what we have. And I think that from a liquidity perspective, I think that we sufficiently have the liquidity, and we feel good about the kind of maturity in 2028 and 2030, that they're a ways out to have to focus on that and focus on growing the business and really operating the business the way we've been doing. Paramveer Singh: And Rich, do you feel you're sufficiently capitalized to fund the CapEx to extend to all this growth opportunity you have in front of you? Richard Wong: Absolutely. I think we guided free cash flow for the year, even after the CapEx spend of $40 million to $50 million. And so we feel very good about how we're operating the liquidity we have with $330 million in cash and still generating cash flow. Operator: [Operator Instructions] Our next question is from Max Persico with RBC Capital Markets. Maximillian Persico: Great. I've got two for you. And I'll just give them both to you right away. On the security side, as we think about kind of the broadening portfolio and the traction you're seeing with the products outside of the core WAF solution, can you just help me understand like are you seeing customers and maybe net new customers actually land with the newer solutions? Or is it still predominantly a cross-sell upsell motion? And then separately, on the Network Services side, as we think about kind of -- I think what would be fair to describe as like a fluid macro environment with ongoing conflicts in the Middle East and higher energy prices, supply chain disruptions, et cetera, and the impact that, that could have on like consumer budgets, particularly at the low end. Could you just remind me like how much of that business is impacted by e-commerce traffic? And like how are those contracts structured? Like really, the question is like could that could slower traffic show its head or show its face in the numbers over the near term? Or are you somewhat insulated from those kind of macro trends that may or may not show up? Kip Compton: Sure. Thanks. I'll take the first question. I'll -- maybe a comment on the second question, but Rich may be able to offer a more quantitative lens on that. In terms of security and the newer products, we absolutely have customers starting on our platform with multiple of our security products at the same time, including, obviously, the newer products like Bot Management, DDoS and API Security. So absolutely, at this point, we see customers starting their journey with us with multiple security products, often also including WAF, to be clear. But starting with more than just the WAF and with those other products. So we're definitely seeing the attractiveness of those. I think that's something that we've talked about in the past is that we felt like as we completed the web application and API protection portfolio, as some of the analysts call it, which I think with the API releases we have, we expected to see some pickup on the security business as we were able to fully meet some, for example, RFP requirements of enterprises. And in those scenarios, they do adopt a bunch of products upfront at once. And so that is absolutely what we're seeing. We're very proud of our Next-Gen WAF, but there's sort of an opportunity for these other products as they come into their own in our portfolio. On the macro environment, I would not describe us as insulated from macro environment or geopolitical risk, for sure. But I think if you think about our business, it's to me, complex to predict exactly how it will have an impact. I have experience in past lives in industries where, for example, when the economy was not strong, people retained cable subscriptions and things like that because they were not going to be going out as much. So it's not as clear at the consumer level exactly how it affects the different lines of business that our customers are in that we support. So I don't know if I can draw a direct line but Rich may have some numbers or some further thoughts. I'm not sure. Richard Wong: No, I think, Kip, you answered it really well. I think that, that comment around like what people do in a recessionary environment is completely accurate. I think the other part of your question was around like how much exposure on e-commerce in terms of a recessionary downturn. I do think that we -- in our network services business, we win where performance matters and e-commerce is certainly one of those areas where performance is required and performance matters, but we are also very important to a lot of other verticals as well. And so, one, the exposure to e-commerce is not like magnified huge. But I think, two, we have seen in the past in a recessionary environment, there is a little bit slightly more resilient demand than what we see with in other areas. And so we are monitoring and we are watching because, of course, we care about this. But we are a little bit more resilient on the e-commerce front. Operator: And as I see no further questions in the queue, I will conclude the Q&A session and pass it back to Kip Compton for closing comments. Kip Compton: Thank you, everyone, for joining and for your interest in Fastly. We look forward to you -- seeing you at our Investor Day in September, which Vern mentioned earlier, and we'll be sharing more about as it approaches at the Nasdaq MarketSite in New York. Lastly, I want to thank our Fastly employees for all of their contributions, our customers for their trust and partnership and our investors for their continued support. Thank you. Operator: This concludes our conference. Thank you for participating, and you may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Mayville Engineering Company, Inc. first quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We will now hand the conference over to Stefan Neely with Balum Advisors. Please go ahead. Thank you, operator. Stefan Neely: On behalf of our entire team, I would like to welcome you to our first quarter 2026 results conference call. Leading the call today is Mayville Engineering Company, Inc.'s President and CEO, Jag Reddy, and Rochelle Lair, Chief Financial Officer. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements. Further, this call will include the discussion of certain non-GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release, which is available at mecinc.com. Following our prepared remarks, we will open the line for questions. With that, I would like to turn the call over to Jag. Jagadeesh A. Reddy: Thank you, Stefan, and good morning, everyone. Our first quarter results exceeded our expectations, driven by strong top-line momentum in our data center and critical power end market. At the same time, the first quarter reflected an ongoing transition across the business. Our teams remained focused on positioning resources, completing tooling requirements, and preparing for the launch of numerous data center and critical power programs throughout 2026. During this transition, we continue to incur and retain variable costs as we position the business for successful program execution. As a result, our margins remained pressured during the first quarter. That said, performance improved late in the quarter as several data center and critical power programs transitioned from the launch phase into full production. We expect that momentum to continue building through the second quarter, which reinforces our confidence in the sequential improvement reflected in our financial guidance. While many of our data center and critical power programs have yet to launch or are still in the early stages of ramp, execution to date has been strong. This reflects the upfront time, planning, and resources we have invested to ensure a smooth and repeatable onboarding process across our legacy manufacturing footprint. As additional programs enter production, we are seeing consistent improvement in operating leverage and fixed cost absorption driven by better asset utilization across our manufacturing network. Importantly, the strength we are seeing in data center and critical power continues to contrast with mixed conditions across our legacy end markets. While each market has its own dynamics, we have not yet seen clear indications of a broad-based or material recovery in legacy customer demand. Starting with commercial vehicles, demand continued to soften in the first quarter. Net sales declined approximately 24% year over year as North American Class 8 production reached a low point in the current cycle. In its most recent report, ACT again revised its full-year 2026 outlook upward, now projecting a 9.2% increase in Class 8 production. This improved outlook reflects greater clarity around the 2027 EPA emissions standards, anticipated prebuy activity, and strong Class 8 orders earlier in the year. That said, current OEM production levels remained largely consistent over the past six months and do not yet indicate a meaningful cyclical recovery. Combined with elevated fuel cost and recent tariff policy changes, our near-term view of this market remains cautious pending a material improvement in OEM activity. In construction and access, revenue increased approximately 3% year over year in the quarter, which was ahead of our expectations. Performance was supported by continued strength in nonresidential activity, although demand remains more customer specific than broad based. In powersports, net sales increased approximately 5% year over year, driven primarily by incremental volumes from discrete short-cycle customer programs. This was partially offset by continued softness among legacy ATV, UTV, and motorcycle OEMs, as well as lower sales within the marine propulsion market. Within data center and critical power, we delivered organic growth of approximately 71% year over year, supported by growth from legacy OEM customers and early project launches tied to AccuFab-related cross-selling opportunities. Overall, demand from OEM customers in the data center and critical power market remains strong. Our qualified opportunity pipeline exceeds $125 million, and the value of projects scheduled to launch in 2026 is approximately $50 million to $60 million. Combined with continued growth from our legacy OEM customers, we continue to expect data center and critical power to represent more than 20% of our revenue in 2026. Customer demand in this end market remains robust, and we continue to evaluate the right approach to balancing the needs of our legacy customers while meeting accelerating demand in this rapidly evolving space. As data center infrastructure advances, customers are increasingly seeking adaptable solutions that address their evolving needs and enable faster speed to market. These shifts are redefining how customers approach large-scale deployments and their selection of partners. As we move into the second half of the year, and with the potential for recovery across certain legacy end markets, we are actively managing capacity and prioritization to support long-term diversified and profitable growth. Before turning the call over to Rochelle, I want to highlight several areas of commercial momentum that reinforce our confidence in the growth trajectory for 2026 and beyond. Across all of our end markets, customer engagement and bidding activity remains strong. During the first quarter, we secured approximately $50 million in new project awards with data center and critical power customers. This amount surpasses the total awards we secured in this end market during the second half of last year. For the full year 2026, we currently expect total bookings across all of our end markets to exceed $150 million, supporting profitable growth as our legacy markets move toward a cyclical recovery exiting 2026. Within our legacy end markets, share gains continued with commercial vehicles customers as they launch new products ahead of the 2027 EPA regulation changes. These awards support future growth and are expected to enter production in late 2026 and 2027. In addition, new contract wins supporting legacy military vehicle platforms were secured during the quarter. This provides stability to our core base military revenues. Within the data center and critical power market, approximately $50 million of awards secured in the first quarter were primarily driven by demand from new customers in this end market. As these customers scale their programs, the intent is to serve as a long-term strategic metal fabrication partner. The awarded scopes of work span power distribution units, static transfer switches, and switchgear. Turning to capital allocation, our priorities are disciplined and well balanced. In the near term, we are deploying capital in a targeted manner to support existing project commitments and the evolving needs of our data center and critical power OEM customers, including investments in equipment and capacity. At the same time, we remain focused on prudent balance sheet management and reducing debt. Longer term, the focus remains on strengthening the balance sheet and maintaining sustainable financial flexibility. Our long-term net leverage target remains 2.5x, and we expect to make steady progress towards this objective through earnings growth, consistent cash generation, and disciplined capital deployment. Importantly, the demand environment in data center and critical power is creating a meaningful opportunity to invest organically in the business and expand our capacity. In certain areas, customer demand is already exceeding our current available capacity, and we believe targeted investments in equipment, automation, and operating capabilities can deliver attractive returns while enhancing our ability to serve this fast-growing end market. Although we are still assessing the full scope of this opportunity and the related capital requirements, we expect growth capital investment to increase above the $5 million to $10 million level we have historically averaged. In 2026, that investment will remain focused on supporting current program launches and selectively expanding capacity where visibility, customer demand, and return thresholds are strongest. Over time, we believe this market may support a broader and highly attractive organic investment opportunity. As always, we will pursue that opportunity within a disciplined capital allocation framework, balancing growth investment with deleveraging, cash flow generation, and balance sheet optionality. In closing, I am encouraged by the discipline and execution our team has demonstrated so far this year. As we navigate this next phase of growth, our focus is on prioritizing operational agility, efficient program execution, and improved cash flow conversion as volumes ramp. We believe that consistent disciplined execution over the coming quarters will position Mayville Engineering Company, Inc. to deliver stronger operating performance and create a solid foundation for sustainable growth. With that, I would like to turn the call over to Rochelle. Rachele Marie Lehr: Thank you, Jag, and good morning, everyone. Total sales for the first quarter increased 6.8% year over year to $144.8 million. Excluding the impact of the AccuFab acquisition, organic net sales declined by 8.2% compared to the prior-year period. Our manufacturing margin was 7% for the quarter compared to 11.3% for the prior-year period. The decrease in our manufacturing margin was due to $1.2 million of data center and critical power-related project launch costs, nonrecurring restructuring costs, and lower volumes in our legacy end markets. These factors were partially offset by the higher-margin sales contribution from the AccuFab acquisition. Other selling, general, and administrative expenses were $9.2 million, or 6.3% of net sales for the quarter, as compared to $8.7 million, or 6.4% of net sales for the same prior-year period. The increase in these expenses primarily reflects incremental SG&A expense associated with the AccuFab acquisition. Interest expense was $3.7 million for the quarter as compared to $1.6 million in the prior-year period. The increase was driven by higher borrowings resulting from the AccuFab acquisition, which was completed during the third quarter of last year. Adjusted EBITDA margin was 4.5% for the quarter, compared to 9% in the prior-year period. The decrease reflects lower legacy end market volumes and $1.2 million of project launch costs, partially offset by the benefit of the AccuFab acquisition. During the quarter, we also continued to execute our previously announced footprint optimization actions, including the consolidation of four warehouse locations and one manufacturing facility. We expect these actions to generate annualized savings of approximately $1 million to $2 million and they are already contemplated within our full-year outlook. Turning now to our cash flow and the balance sheet. Free cash flow during the quarter was a use of $6.9 million as compared to $5.4 million provided in the prior-year period. The year-over-year decrease was primarily driven by lower operating cash flow as a result of reduced profitability, together with a $1.2 million increase in capital expenditures. The increase in capital spending was primarily related to equipment investments supporting the launch of new data center and critical power programs. At the end of the first quarter, our net debt was $219.2 million, up from $80.4 million at the end of 2025. Our increased debt resulted in our bank covenant net leverage ratio of 4.4x as of March 31. Now turning to a review of our outlook for the second quarter and the full year. For the second quarter of 2026, we currently expect net sales of between $145 million and $155 million and adjusted EBITDA of between $10 million and $13 million. Our second quarter outlook reflects continued launch-related costs and margin pressure early in the quarter, with improvement expected as the quarter progresses and additional data center and critical power programs move into full production. For the full year, we refined our financial guidance by raising the low end of our previously announced guidance while maintaining the high end of the range. We now expect net sales of between $590 million and $620 million, adjusted EBITDA between $52 million and $60 million, and free cash flow of between $25 million and $35 million. This outlook reflects a full year of AccuFab ownership, $50 million to $60 million of incremental cross-selling revenue, and a gradual improvement in legacy end market demand primarily in the second half of the year. In summary, our first quarter results were consistent with the operating conditions we outlined coming into the year. While profitability and cash flow were affected by launch-related costs and continued softness in legacy markets, those pressures are temporary and remain embedded within our outlook. As production levels increase and utilization improves, we expect better absorption, stronger margin conversion, and improved cash generation over the remainder of the year. With continued working capital discipline and targeted capital spending, we believe we are positioned to support growth while also making measurable progress on deleveraging. With that, we are ready to open the line for questions. Thank you. 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, 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 Michael Shlisky with D.A. Davidson. Your line is open. Please go ahead. Michael Shlisky: Yes, hi. Good morning. Thanks for taking my questions. I wanted to ask maybe a two-part question about the non-data center end markets and legacy end markets here, and your commentary in the slides. The ag market you were saying was going to be down mid-teens, and now you are saying it is flat. So my question is whether that change in outlook from down mid-teens to flat is due to how you feel about the very end of the year and what OEMs are telling you about ramping up for 2027, asking suppliers like Mayville Engineering Company, Inc. to build stuff in late 2026. If that is the first part of the question, then on the construction and access side, I have sensed so far this early season that most construction companies, including the largest ones, are taking their outlooks up, mostly construction equipment OEMs. You took your outlook here down from last quarter. So I am curious whether there is some kind of a year-end dynamic where they are asking you to slow down in advance of some challenges they might be seeing in 2027. Just some more detail about both those end markets would be appreciated. Jagadeesh A. Reddy: First of all, Mike, on the ag market, we are seeing good strength in the small ag turf care segment. We are approximately 45%/55% mix between large ag and small ag. So the small ag and turf care segment strength is offsetting the declines in the large ag segment. That is the reason for our change in our outlook for the ag segment. On construction and access, again, as you recall, we are approximately 45%/55% heavy construction versus access. Our heavy construction segment continues to show a good amount of strength driven by nonresidential demand, some of it driven by data center buildout as well. But in the access segment, we anticipated, coming out of last quarter’s earnings call, the access segment to accelerate this year. So far, we have not seen that. Hence, our change in our assumptions for the construction and access segment to be flat versus slightly up. Michael Shlisky: Turning to data center, I would like to get a feel for more detail as to how you are looking to accommodate some of the demand that has been rolling in or some of the quoting you have been doing. I think you mentioned elsewhere in the business you closed some footprint, so I want to make sure you have a plan. Do you plan to open brand-new footprint at this point, given the level of demand, or are you still looking to convert existing buildings to data center? Just some more detail as to how this might all play out, and the investments that you are making now. Are those in people or in machines to accommodate some of that near-term demand? Jagadeesh A. Reddy: Let me address that, Mike. We announced closure of four locations. Those are mostly warehouses that we consolidated into our manufacturing sites. That was the restructuring we announced last year in the second half, and we just wrapped those up. We are not in the process of closing any manufacturing footprint. We have converted approximately six plants, going to potentially a seventh plant as well, to data center manufacturing. So we are retooling between six and seven plants as we speak to produce data center products. We continue to add capital as needed in these locations and to offset existing manufacturing assets to take on additional data center volumes. We do see significant growth in the data center volumes. Every quarter, as you all have seen, we continue to step up our cross-selling synergies. Pre-acquisition closing, we were in the single digits; now we are up to $50 million to $60 million of cross-selling synergies in 2026 alone. I continue to be very bullish on data center volumes. At the same time, we have not exited any of our legacy customer programs. We continue to be able to support our legacy customers with their volumes. As we talk about multiple end markets, we really have not seen broad-based recovery in our legacy end markets, so at this stage, we are able to support our legacy customers as they continue to ramp and also take on incremental data center volumes in these seven locations. Michael Shlisky: A lot of headlines and stories about changes in the Section 232 tariffs and cost of steel and other metals. Could you outline how any of this might be impacting you directly over the last few months? Are you a beneficiary since you are almost entirely U.S. based? Are you seeing some customers, old and new, coming to you to say, how can you help us best structure ourselves for these tariffs? Jagadeesh A. Reddy: 100% of our steel is procured from domestic sources. That way, we have been reasonably insulated from supply challenges. We pass on any increases in steel prices to our customers, so I would say that it has not impacted us. At the same time, approximately 30% to 40% of our aluminum is imported from Canada, and we are trying to mitigate that, but it is challenging. The rest of our aluminum is sourced domestically. We are able to support many of our aluminum customers with their demand and needs. We are seeing some challenges where some of our customers are going on allocation with other suppliers on aluminum. Fortunately, we are in a good position to continue to support our customers as their demand increases or they switch from another supplier that is unable to supply aluminum to Mayville Engineering Company, Inc. In general, on tariff impacts, I would say that we have not been either positively or negatively impacted. You have seen some of our customers and their competitors publicly talk about it. It has not really impacted our mix so far. Operator: Your next question comes from the line of Ross Sparendlik with William Blair. Your line is open. Please go ahead. Ross Riley Sparenblek: Hey, good morning. Rachele Marie Lehr: Morning, Ross. Jagadeesh A. Reddy: Sounds like you guys have been busy with the problems I have here. Ross Riley Sparenblek: Maybe starting with the new customer wins and continued momentum in data centers in the first quarter. Anything one-time in nature to call out, or are you sensing that customer buying patterns have started to change here within the data centers power market? Jagadeesh A. Reddy: Good question, Ross. In the data center market, some of the significant wins we had in Q1 actually came from two brand-new customers to Mayville Engineering Company, Inc. and AccuFab. We never did business with them pre-AccuFab. Those two customers significantly contributed to the wins in Q1. We expect those two customers in particular to continue to grow with us as the year progresses and into the future. We are seeing a significant switch in our data center OEM customer purchasing behavior where, similar to our legacy end markets, many of these customers are looking to completely outsource fabrication and step up their manufacturing process to someone like Mayville Engineering Company, Inc. Think about our legacy customers in ag or construction or commercial vehicles — over the decades, they exited fab operations to suppliers like us. We are seeing a similar process happening, slowly but steadily, in data center and critical power customers. We see that as a long-term secular tailwind for the fabrication industry, and being the largest fabricator in North America, we are able to offer significant capacity to these OEMs and capture a significant portion of that outsourcing that is starting in this industry. All of those are positives and tailwinds for the industry and for Mayville Engineering Company, Inc. going into the future. Ross Riley Sparenblek: When we think about the larger potential OEM customers out there within data centers, can you give us a sense of where your penetration rate is as you think about the pipeline of opportunities and who you are speaking with? Jagadeesh A. Reddy: Our penetration at this point, taking the top 10 potential or existing customers, is low single digits or less. We are sub-5% penetration, and hence my optimism for the industry and for our customers is that as we go into the rest of this year or the second half, we continue to get significant inquiries. We continue to qualify these opportunities. Even after raising our cross-selling synergies for the year, our qualified pipeline remains really strong and gives me a lot of comfort that this is a multiyear secular growth opportunity for Mayville Engineering Company, Inc. Ross Riley Sparenblek: It sounds like the whole market is heading for a capacity squeeze. If the broader end markets start to recover here, how do you feel like you are positioned to handle legacy customers? Jagadeesh A. Reddy: Our intent is to continue to serve our longstanding legacy customers as they build out their volumes into the second half and into 2027. We are constantly evaluating plant by plant, manufacturing operation by manufacturing operation, and continue to see where we have to offset some capital to increase capacity. Some of my comments in our prepared remarks allude to the fact that we are looking at, potentially in the long run, a significant organic investment opportunity as we think about expanding capacity for data center customers while continuing to serve our legacy customers. Ross Riley Sparenblek: Would that imply the optionality at Hazel Park? I believe you still have additional square footage there. Jagadeesh A. Reddy: Absolutely. That has been a long time coming, the Hazel Park story. We just put approximately $55 million of data center products into Hazel Park in Q1 and Q2. We are ramping approximately $55 million worth of data center products in Hazel Park. We think we can fill up Hazel Park, and we have always said that. The current space we have — not the sublease space — supports $100 million worth of capacity. What we do need is some capital assets to continue to go in because the mix of operations for data centers is slightly different than our legacy customer products. With all of that, we continue to be bullish on Hazel Park being filled up in the next year or so. Ross Riley Sparenblek: Very nice quarter, all things considered. I will pass along. Jagadeesh A. Reddy: Thank you, Ross. Operator: Your next question comes from the line of Greg Palm with Craig-Hallum. Your line is open. Please go ahead. Jagadeesh A. Reddy: Good morning, Greg. Greg Palm: Thanks. Can you talk about how some of these early launches in data center and critical power are going, just in light of the comments last quarter? It seems like everything is on track, and you are starting to see the margin improvements. What else is top of mind as we launch more of these projects this quarter and in the second half? Rachele Marie Lehr: As we pointed out in the prepared remarks, we invested in these product launch costs and we spent about $1.2 million in Q1 and in Q4, and those were to be ahead of these launches. We see that continuing into Q2, but then after that, as we hit full run-rate production levels, we are seeing improvement. In fact, in Q1, as we exited the quarter, we saw that improvement happen as we had several programs hit full production run rate. We are very optimistic that we made those investments and did the right thing to create an effective onboarding program so that as we do new programs and new launches, we know what the upfront investment is, and then when we hit full run-rate production levels, we are back to the margin levels of the overall end market. Greg Palm: On the existing customers in data centers, what are you seeing in terms of order progression? Are orders getting larger because they are outsourcing more business to you, or because they are winning a lot more business themselves? It feels like you are going to have a big ramp from existing customers and will be layering on brand-new customers as well, which presumably would follow a similar path of accelerated activity. Walk us through those dynamics. Jagadeesh A. Reddy: You are asking in the context of data center customers, existing versus new. That is right. As I mentioned, we brought on two brand-new customers to Mayville Engineering Company, Inc. since the acquisition closed. We expect a couple more brand-new customers that are in the works to become our customers later this year. Outside of those brand-new logos, AccuFab’s legacy data center customers continue to ramp significantly. That has been another tailwind. I shared examples in the past about volumes doubling, tripling, quadrupling on products that AccuFab historically manufactured for some of these customers as they win significant new projects and volumes for their own product lines. Hence, those legacy customers are looking at their own footprint and resources and making choices around outsourcing additional work to suppliers like us. So there is new customer growth, existing customer volume growth, and existing customer market share gains. That is how I would position the growth we are seeing in this end market. Greg Palm: I want to follow up on a comment about Hazel Park. I think you said you could generate $100 million out of that facility, specifically related to data center. Is that correct? Jagadeesh A. Reddy: No. That is the total capacity. Historically, we have always thought of Hazel Park being a $100 million plant. As I just said, we put $55 million worth of data center work into that plant. We still have another $15 million to $20 million of legacy customer work in that plant today. You can do the math and say, can we put another $25 million of data center work into Hazel Park? Absolutely. That is what we are trying to do. Greg Palm: Last question from me is about the full-year guide. Backing into the second half, it implies an EBITDA run rate on a quarterly basis that is pretty close to $20 million. We would already be at low double-digit margins in the second half if that is the case. I assume next year, as volumes recover further and mix gets more positive from data centers, it would support even higher margins. It is a big step-up in both absolute EBITDA and margins that is being considered for the second half of this year. Rachele Marie Lehr: When you look at our legacy business, you can look back to 2024 when we were hitting roughly $600 million in that base business alone. Our margins were at that point well in excess of where we are today. We are on our way towards that 15% plus that we would like to be long term. You throw in 20% plus in the data center and critical power, which is 20% margins, and yes, we see a clear path to that 50/15% plus as we move into the future. Greg Palm: Thanks. Jagadeesh A. Reddy: Thanks, Greg. Operator: As a reminder, 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. Your next question comes from Edward Randolph Jackson with Northland Securities. Your line is open. Please go ahead. Edward Randolph Jackson: Thank you very much. Congrats on the quarter. Jagadeesh A. Reddy: Good morning, Ted. Edward Randolph Jackson: I want to touch on the second quarter guidance. You are looking for a midpoint of $150 million. It is comfortably above the consensus view. The legacy markets themselves, at least in the first part of this year, are underperforming, with a better outlook maybe in some of them as you get to the second half. To hit the midpoint, that would tell me that perhaps you are going to see more business coming out of the data center and power side of things than perhaps you thought going into the year. Do you see that business being able to hit your 20% of revenue target in the second quarter alone? Rachele Marie Lehr: In the second quarter alone, no. We still really look at that being second half of the year when it is going to hit those levels and actually almost outperform at that point. In Q2, we will still be launching programs and probably will not hit full-run production rates until late in Q2. So really, it is a second-half focus for data center and critical power being at full production run rates. Edward Randolph Jackson: What is a full production run rate for data center and critical power? Jagadeesh A. Reddy: We have always targeted, and publicly commented, that our ambition is to be at 25% of our total volumes in the data center and critical power end market. I do see that target within our reach on an exit run rate for 2026 and certainly for 2027. Edward Randolph Jackson: Shifting back into the second quarter, is there any particular legacy market that you are expecting to have some kind of bulge in terms of ability to generate some revenue that then falls away? Powersports comes to mind because you have had some performance there, but you keep highlighting it has been driven by very project-oriented stuff, and it is not long-tailed customer wins. I am trying to understand how to get to the $150 million if it is not coming from a faster ramp in the data center and power market. Jagadeesh A. Reddy: We looked at commercial vehicles ramping starting in May. May and June could have a slightly higher commercial vehicle run rate as our OEMs ramp. Powersports is probably not the end market that I would expect to help us in Q2. We continue to see significant outsourcing to Asia from our powersports customers. The discrete programs we talked about were specific aluminum-related projects. As we had the materials and the capacity, we took on some quick-run projects that will exit in Q2. That is not a long-term run-rate type of business in powersports that is going to help us in Q2. Edward Randolph Jackson: Shifting over to capacity, you have one of the better problems that a manufacturing company can have, which is demand pushing you to capacity constraints. Given your current footprint and the potential for a lot of your legacy to turn around at the same time that the data center market is coming, how much revenue do you think you could run through your existing footprint, and what does it take to do it? At your current level, where could you take your revenue run rate to, and then, all else being equal with the same footprint, how could you take your revenue higher over the steps? Jagadeesh A. Reddy: I will give you a couple of numbers, Ted. As we look at our current capacity and current programs that we have won and those of our legacy customers, we are going to top out, with no further investments, around $850 million in revenue. What that means is we have to continue to invest. Given the mix differences between data center products and our legacy products, we will potentially run out of capacity after $850 million of revenue. More importantly, we probably have to think about an organic investment somewhere on the Eastern Seaboard, where we are currently running out of capacity for data center customers. We have capacity in the Midwest, but some of the products we are manufacturing for some data center customers are large in volume and significantly expensive to ship across the country. That is something that we are evaluating. We are at the early stages of that analysis: how to fill existing capacity first, the timeline by which we will run out of our existing capacity, and how we expand our capacity organically. Edward Randolph Jackson: That $850 million run rate without further investment — is that running the same shift counts, or are you getting there by adding shifts? Jagadeesh A. Reddy: We are feverishly adding people and shifts to our plants in the last four to five months. Some of our plants are running seven days a week. Some are running full 24 hours and five days a week. We are running 10% to 12% overtime in many of our plants right now and continuing to hire in many plants that are seeing volume growth, particularly driven by data center customers. Edward Randolph Jackson: It seems like the problems that you are solving are a lot of fun. It is pretty exciting to see what is in front of you. I will get out of the line. Thanks again for taking the questions, and congrats on the results. Jagadeesh A. Reddy: Thank you, Ted. Operator: There are no further questions. Oh, apologies. Your next question comes from the line of Andrew Kaplowitz with Citibank. Your line is open. Please go ahead. Natalia Bak: Hi, good morning. This is Natalia on behalf of Andy Kaplowitz. Jagadeesh A. Reddy: Morning, Natalia. Natalia Bak: As you continue to highlight strong momentum within data center and critical power, yet your broader other end market outlook is flat for FY 2026, can you help us unpack what areas within that category are offsetting the data center and critical power-related strength? I think you mentioned on your side there is modest activity from those growth initiatives. Jagadeesh A. Reddy: As we mentioned earlier, Natalia, ag is flat, construction and access is flat. Powersports we actually think will be a headwind for us in the second half and into 2027. Our commercial vehicle market — our current forecast guidance assumes a 240 thousand unit build for the year. That is higher than what we started the year with, but at the same time it is lower than what ACT is projecting today. We have not seen that ramp yet. We are in the window right now. We should see that in May and June going into Q3 with our commercial vehicle customers. That is giving us a bit of a pause in terms of legacy end markets all in, while we see strength in our data center and critical power market. Natalia Bak: I appreciate that, but I was curious about your “other” end market on your slide with the outlook. Rachele Marie Lehr: I think the biggest thing here is as we have been growing in data center and critical power, we have really been focused on growth initiatives there. “Other” is things that come in more as one-off pieces of business or different opportunities. Our extrusion business has a lot in here, but the extrusion business we are winning is actually data center and critical power classified. So we are seeing a big piece of what maybe would have been growth in extrusion here in “other” be extrusion growth in data center and critical power. Some of this is really reclassification from “other” into data center and critical power. Natalia Bak: Got it. Makes sense. Much appreciated. One last question: margins are still under pressure and leverage is elevated. What gives you confidence that Mayville Engineering Company, Inc. can generate sufficient free cash flow to both delever and continue investing in these growth initiatives? Rachele Marie Lehr: We are focused on delevering. That has been something that we have a proven track record of doing as we do acquisitions. There is a 12- to 18-month time of absorbing the acquisition and then working to pay that down. What we see as the true opportunity is as we move into the second half of this year and have both strong sales for data center and critical power at higher margin, plus some expectation of the commercial vehicle market coming back in the second half, we will be able to generate additional cash flow to focus on delevering, with the goal of being below 3x as we exit this year. It is very second-half weighted, but with what we are seeing with the launches and the confidence we gained exiting Q1 — sales coming to fruition and the margin and results associated with it — we feel good about it. Natalia Bak: Great. Thank you so much. Operator: We have a question from Greg Palm with Craig-Hallum. Your line is open. Please go ahead. Greg Palm: Thanks. I thought this one would have gotten asked, so since I am back in the queue, I will ask it now. As it relates to commercial vehicle, I understand and can appreciate your conservatism. Let us assume, hypothetically, that the build rate or the production increase ends up being at the 9% rate or something in the high single digits for fiscal 2026. Is there a reason why your segment results would deviate significantly from that? Jagadeesh A. Reddy: They should not, Greg. If the market actually builds up that 9% plus build rate — and let me remind you that the 9% is retail sales, which is how ACT would report, and that is pretty close to the build rates anyway — but if it is approximately 9% build rate, we should see a very similar tailwind for our segment revenue. Greg Palm: Going back to data centers, are most of the awards or contracts you are seeing today more project-based with a definitive timeline, and are there potential discussions to enter into more long-term frame agreements or multiyear capacity arrangements? Jagadeesh A. Reddy: Since the acquisition, a significant portion of our wins have been for long-running products. These customers continue to offer into various data center projects. I can only think of maybe one program where it was one customer-specific program, a small program. Generally speaking, these are long-tail, long-run product lines where we are winning. At the same time, we are beginning conversations with these customers regarding potential capacity reservations and potential long-term agreements. Those are the conversations our teams are beginning to have with our data center and critical power customers. Greg Palm: Appreciate the color. Jagadeesh A. Reddy: Thank you, Greg. Operator: And this concludes today’s Q&A session. I will now turn the call back to Jag Reddy for closing remarks. Jagadeesh A. Reddy: Before we conclude, I want to again thank our team members for their continued strong focus and execution, and our shareholders for their ongoing support. While we recognize the near-term challenges in several of our legacy markets, we are confident in the progress we are making to position Mayville Engineering Company, Inc. for durable, high-margin growth in the years ahead. We look forward to sharing our continued progress with you. Thank you for joining us today. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Good day, and welcome to The Manitowoc Company, Inc. First Quarter 2026 Earnings 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 Ion M. Warner, Senior Vice President of Marketing and Investor Relations. Please go ahead. Ion M. Warner: Good morning, everyone, and welcome to our earnings call to review the company's first quarter 2026 financial performance and business update outlined in last evening's press release. Joining me this morning with prepared remarks are Aaron H. Ravenscroft, our President and Chief Executive Officer, and Brian P. Regan, our Executive Vice President and Chief Financial Officer. Earlier this morning, we posted our slide presentation to the Investor Relations section of our website, www.manitowoc.com, which you can use to follow along with our prepared remarks. Please turn to Slide two. Before we start, please note our Safe Harbor statement in the material provided for this call. During today's call, forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 are made based on the company's current assessment of its markets and other factors that affect its business. However, actual results could differ materially from any implied or projected due to one or more of the factors, among others, described in the company's latest SEC filings. The Manitowoc Company, Inc. does not undertake any obligation to update or revise any forward-looking statement, whether the result of new information, future events, or other circumstances. And with that, I will now turn the call over to Aaron. Aaron H. Ravenscroft: Thank you, Ion, and good morning, everyone. I would like to take a moment to thank The Manitowoc Company, Inc. team for their unwavering commitment to serving our stakeholders. Over the last twelve months, the team has continued to execute our Cranes+50 strategy, enabling us to weather the downturn in the crane cycle and be better positioned for the next leg up. Although there is a great deal of uncertainty in the Middle East, Ukraine, and even in the United States with respect to tariffs, the overall market has been resilient. Our orders during the first quarter were almost $650 million, and our backlog ended the period at $940 million. In addition, rates in April remained strong. Please turn to Slide three. Starting with the Manitowoc Way, I recently challenged our organization to eliminate hammers, similar to what we did with ladders a few years ago. We are simply too reliant on hammers. They create quality problems and are a major source of safety risk. In our Katy Grove plant alone, we had over 1,200 hammers in use. Thus far, we have eliminated 264. As you can see on this slide, the organization has quickly developed a variety of improvements ranging from simple to ingenious solutions. Eliminating hammers not only helps create a safer workplace but also supports the Manitowoc Way culture as we consistently drive for continuous improvement and innovation. Ultimately, the goal is to have zero injuries. In terms of new product development, in March we unveiled an 80-ton boom truck and an 800-ton eight-axle all-terrain crane at CONEXPO. Both received outstanding feedback from customers and crane operators. The eight-axle crane was a real head turner at the show, and I really look forward to getting the first units into the field in 2027. Please move to Slide four. Turning to our Cranes+50 strategy, our non-new machine sales for the quarter grew 3% year over year. On a trailing twelve-month basis, we improved 8% to $696 million. Growing this part of our business, which is less impacted by economic cycles and produces higher returns, is a key part of our strategic plan and is working well. As I preach to our teams, for us to continuously grow our non-new machine sales, we have to focus on four major buckets. Number one, we are adding more service locations. For example, in Australia we doubled the capacity of our Sydney facility, and we recently approved new service centers in Brisbane and Melbourne. Brisbane will host the 2032 Olympics, and we are preparing for a lot of activity in the region. Number two, we are adding more aftermarket sales representatives and field service techs. We ended the first quarter with 567 field service techs, up 50 techs in just three months. The growth was driven by two major actions. First, we reorganized our approach to talent acquisition in North America by enhancing our recruiting team. And second, in India, we transitioned from a dealer model to a direct model in order to better service our customers. The third bucket, we are increasing sales of complementary lifting accessories. In Europe, our tower crane team has introduced anti-intrusion panels to reduce theft and to discourage curious social media influencers during the off hours. In addition, the team has introduced urinals to replace the less-than-desirable traditional bucket system. In the UK, our mobile team has started selling outrigger pads and a rear-mounted storage compartment, which they designed in-house. Our goal is straightforward. We want to make our customers' lives easier so they can focus on executing lifts. And the fourth bucket is the fact that we are leveraging technology. I have mentioned our implementation of ServiceMax a few times. This tool has several different modules to help us better track machines and more effectively fix and bill crane repairs. In April, we completed the implementation of ServiceMax’s asset management system. We are now under the development of the dispatching and work order module, which increases our visibility to service work and enables us to capture more incremental revenue opportunities. Please move to Slide five. For my regional update, let us start with the Americas. First and foremost, overall customer sentiment at CONEXPO was very positive. Crane rental houses were quite optimistic about the market outlook. While everyone is unhappy with tariffs, customers told us project work is abundant. In addition, dealer inventory levels declined during the first quarter, which is a great sign that folks are buying again. For example, all-terrain crane inventory levels are at a ten-year low. In Europe, the crane business feels pretty good. Demand for tower cranes continues to grow with new machine orders up 76% year over year. Mobile demand has remained relatively steady. In the Middle East, many big projects like the new Dubai Airport continue to move forward. Not surprisingly, Saudi Arabia has pulled back on the home front, and considerable development activity remains underway in Riyadh. Given the circumstances around the Iran conflict, we find ourselves in a wait-and-see mode as we monitor the situation, but I am very encouraged by the level of optimism in the region, with construction companies eager to get back to business. Finally, Asia-Pacific continues to gain momentum with increasing demand in Hong Kong, Vietnam, Australia, and South Korea. I recently visited the new SK Hynix and Samsung semiconductor projects where roughly 100 POTAIN tower cranes are currently operating. Korean construction companies continue to leave me in awe of their scale and speed. The Samsung site alone will reach 70,000 workers at its peak. I left South Korea very optimistic about demand in the coming quarters. With that, I will hand it over to Brian to walk you through the financials before I make a few closing remarks. Brian P. Regan: Thanks, Aaron, and good morning, everyone. Please turn to Slide six. Our financial performance for the quarter tracked largely in line with expectations, which supports reaffirming our previously issued guidance. We anticipated difficult comps as tariffs were a headwind to the quarter versus the prior year. The tariffs introduced in 2025 fully impact us until the second half of the year. Moving to the numbers, we had orders of $646 million in the first quarter, relatively flat from a year ago on a currency-neutral basis. Order activity was solid and broadly consistent with recent trends. Keep in mind, order comps were difficult in Q1 due to the post-election bump in 2025 and the large stocking orders we received at the end of the year. Backlog ended the quarter at a strong $940 million, up $146 million from where we exited 2025 and up $10.442 billion year over year. This supports our revenue expectations for the full year. Net sales in the quarter were $495 million, essentially flat on a currency-neutral basis. Non-new machine sales in the quarter were $166 million and, on a trailing twelve-month basis, reached a record $696 million, up 8% from the prior year. While growth lagged our expectations in the first quarter, mainly due to used sales, the overall mix of non-new machine sales favored our higher-margin categories. SG&A expenses were $91 million in the quarter. On an adjusted basis, SG&A was up $7 million, with foreign currency accounting for $3 million of the increase. The remaining increase was driven primarily by the CONEXPO trade show and inflation from other employee-related costs. Adjusted EBITDA in the quarter was $20 million, down $2 million, or 10% year over year. As expected, tariffs impacted our results by $2 million. Please turn to Slide seven. Net working capital ended the quarter at $536 million, an increase of $47 million year over year, driven primarily by inventory. The higher year-over-year inventory was driven by $26 million from foreign currency, $15 million from tariffs, and $10 million in prototypes, and was partially offset by operational improvements. Moving to cash flow, operating activities provided $27 million of cash during the quarter. Capital expenditures were $8 million, including $6 million for our rental fleet, resulting in free cash flow of $19 million. This was a $17 million improvement year over year, driven by increased collections on accounts receivable. We ended the quarter with $316 million in liquidity, and our net leverage ratio was 3.1 times. In April, S&P upgraded our corporate credit rating from B to B+. This upgrade underscores the progress we are making in strengthening our financial profile through the cycle while investing in long-term growth through our Cranes+50 strategy. Looking ahead, first quarter results did not change our expectations for the full year, and as such, we are affirming our previously issued guidance of net sales of $2.25 billion to $2.35 billion and adjusted EBITDA of $125 million to $150 million. With that, I will turn the call back to Aaron. Aaron H. Ravenscroft: Thank you, Brian. Please turn to Slide eight. Standing back and looking at the forest through the trees, I think there are many reasons to be optimistic. Number one, Europe is on the rebound. For sure, towers have rebounded more aggressively than mobiles, and there is still a big need for residential housing and power generation. Number two, in the Middle East, all things considered, folks are pretty optimistic to get back on track. In normal times, all construction would have dried up overnight with such regional conflict. Number three, in Asia, our strongest markets are pumping even in the face of weaker currencies. Number four, in LATAM, copper has traded above $6 per pound. With several new governments in the region, I believe we will start to see more investments in brownfield and greenfield mining projects. Number five, in the U.S., although fleet ages continue to increase, customers are begrudgingly making purchases. Data centers continue to expand rapidly, and there is a strong need for additional power generation and transmission infrastructure. And finally, number six, the success of our Cranes+50 strategy is increasingly helping us weather this economic cycle and positioning us for a higher-margin profile in the long term. Of course, there is still a lot of uncertainty in the market, but I believe that we are starting to see light at the end of the tunnel. Keep in mind, we have been living in this mode essentially since 2020. There is plenty of pent-up ambition from folks to renew and expand their businesses, which is why I believe that the markets have held up steady. With that, operator, please open the line for questions. We will now open the call for questions. Operator: Yes, thank you. We will now begin the question-and-answer session. The first question comes from Jerry Revich from Wells Fargo. Aaron H. Ravenscroft: Good morning, Jerry. Morning. Analyst: This is Kevin on for Jerry. I just had a question on the changing tariff dynamics as it relates to your outlook. It would be helpful to get more color on that, maybe bifurcating between impacts from the AIIPA overturn and the new Section 232 ruling. Brian P. Regan: Yep. Thanks, Kevin. A lot is going on with the tariff landscape, as you can imagine. I will start by saying that the net go-forward impact of what is in place today is in line with what we thought coming into the year. There are no real changes to our expectations based on those changes. With that said, there is still uncertainty regarding what the Section 301 country-by-country tariffs will be and what net effect they will have on us versus the Section 232 current tariffs. Related to AIIPA, we did file our refund through the process. We paid approximately $25 million in AIIPA, so we are in a wait-and-see mode as far as that process goes. Additionally, you will see in our Q, we voluntarily submitted a prior disclosure to Customs related to potential errors in our methodology in calculating the 232 steel and steel derivative tariffs. This will allow us to review our calculation to determine if any adjustments are required. To give some perspective, we paid approximately $18 million prior to the April change in the 232 tariffs. Analyst: Got it. Very helpful. And then given that Q2 is typically a seasonally strong quarter for both net sales and margin, how should we think about performance versus normal seasonality? Any one-time impacts we should be thinking about from Q1? Brian P. Regan: As I said in the prepared remarks, from a comp standpoint, the second half is going to look better because of the impact of the tariffs. They really hit us more in the second half than the first half. With that said, we talked about restructuring in our plan, and that is still in place. Again, that is going to affect us more favorably in the second half. So, I think Q2 will be better than Q1, but the second half is going to be better than the first half. Analyst: Understood. Thank you. That is all I have for questions. Ion M. Warner: Thanks, Kevin. We received several emails this morning, and I would like to read them to you. The first question that I received online was: Could you provide more color on these lifting accessories as part of your Cranes+50 strategy? Aaron H. Ravenscroft: Yes. The analogy that I use with our team internally is that the crane business is a lot like a restaurant. When you think about the restaurant, it is the steak that brings us all to the restaurant—it is that main platter. But the reality is the restaurant is living off of the appetizers, the desserts, and the wines. I think that the crane business is exactly the same. Obviously, you have to have a great crane to be in the lifting business, but there are a lot of accessories that go around that product and really add value to our business and to our customers. What really brings it all home is great service. A great recent example: we got an order in France for seven tower cranes for €6.5 million, and on the back of that, the sales team was able to add commissioning and dismantling services for €900,000 and then several accessories for a total of €300,000. On top of the normal crane order, they added anti-intrusion panels, lighting, cameras, anti-collision software, aircraft warning systems, and lifts. To me, that is a great example of what the team can add when they think outside of the box and have a bigger view of the customer and how we service those customers. Hopefully, that color helps. Ion M. Warner: Thanks. We received another email: What were your orders in April? Brian P. Regan: Yes. As Aaron mentioned, orders were strong. We are still rolling up the numbers, but we expect between $225 million and $250 million of orders in April, which is a little bit higher than the run rate we saw in Q1. Ion M. Warner: Okay. I just received this email: You seem more optimistic on this call. How should we think about the full-year guidance? Aaron H. Ravenscroft: We reaffirmed our guidance, but orders have been strong, and April, as Brian just said, is looking good. Backlog is strong. Dealer inventory is on the low end in the United States, and we are really starting to see some momentum in places like South Korea. So I think there is a lot of optimism and a lot of opportunity. The big question mark is just how the Strait of Hormuz situation plays out because we still have plenty of orders that need to make their way into the Middle East through that strait, and as of right now, it is shut down. So there are some good opportunities, but there is still some uncertainty in terms of our ability to execute within the year depending on how that situation plays out. Ion M. Warner: I received another email, and I will read it to you: How is the implementation of the Manitowoc Way lean practices impacting the aftermarket business? Aaron H. Ravenscroft: We traditionally were manufacturing-focused, so we are still figuring it out, and I think we are in the early innings, but we are starting to see some good gains. I think when you look at what we did in terms of our new hires of field service folks during the quarter, that is a good example of how we are gaining. We continue to tweak our approach to recruiting and how we manage each organization, and it looks like we have found the right formula. That is a real success of us trying to continuously do a better job and be more effective at it. We have some good kaizens going this year; they are more than just a one-week kaizen. It will take us a few weeks to work through those. We do pre-delivery inspections at our dealerships. We have never really gotten good feedback; there are a lot of fixes that happen that people just do not report. So we built a system around that to start to get feedback closer to our assemblers, and I think that is going to yield good results for us. In our Jeffersonville distribution center, this is where we typically ship out parts, but there are a lot of kits that go with encore work and upfit and some bigger projects. I could best describe that as a terrible IKEA project at the moment. There is a lot of work for us to do and improve in terms of the kitting because, when we do that, that is going to drive a significant productivity gain at our service centers when they are doing that work, because it is hard to figure out all the different nuts and bolts and parts that are in some of these boxes. I think that is great. And then a big shout-out to our team in Chesapeake. She has done a fantastic job. She was a Manitowoc Way winner last year for improvements, and in the first quarter, she put forward an improvement around using QR codes to manage TPM on forklifts. I love the amount of creativity we have in those locations. To me, the big challenge and why I say we are in the early innings is just around how we collaborate and share all these lessons learned. It is a lot of cats to herd in all these different locations, but we are gaining speed. I am really looking forward to what we are able to do as we move forward. Thank you. Those are the questions that we received in the queue. Ion M. Warner: Operator, any other questions in the queue? Operator: No, sir. There is nothing at present. Ion M. Warner: Very well. Please note that a replay of our first quarter 2026 earnings call will be available later this morning by accessing the Investor Relations section of our website at www.manitowoc.com. Thank you, everyone, for joining us today and for your continued interest in The Manitowoc Company, Inc. We look forward to speaking with you again next quarter. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. 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: Greetings, and welcome to the Greenlight Capital Re First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to David Sigmon, Greenlight Re's General Counsel. David, please go ahead. David Sigmon: Thank you, and good morning. I would like to remind you that this conference call is being recorded and will be available for replay following the conclusion of the event. An audio replay will also be available under the Investors section of the company's website at www.greenlightre.com. Joining us on the call today will be our Chief Executive Officer, Greg Richardson; Chairman of the Board, David Einhorn; and Chief Financial Officer, Faramarz Romer. On behalf of the company, I'd like to remind you that forward-looking statements may be made during this call and are intended to be covered by the safe harbor provisions of the federal securities laws. These forward-looking statements reflect the company's current expectations, estimates and predictions about future results and are subject to risks and uncertainties. As a result, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may impact future performance, investors should review the periodic reports that are filed by the company with the SEC from time to time. Additionally, management may refer to certain non-GAAP financial measures. The reconciliations to these measures can be found in the company's filings with the SEC, including the company's Form 10-K for the year ended December 31, 2025. The company undertakes no obligation to publicly update or revise any forward-looking statements. With that, it is now my pleasure to turn the call over to Greg. Greg Richardson: Thank you, David. Good morning, everyone, and thank you for joining us. We reported net income of $35.8 million in Q1 2026, driving an increase in fully diluted book value per share of 4.7%. Our net income was driven by a combination of strong investment performance with the Solasglas portfolio returning 6.8% in the quarter, an excellent result in a challenging market and an underwriting profit of $6.2 million, which equates to a combined ratio of 96.0%. Our underwriting results in the first quarter includes a $5 million provision linked to the Middle East conflict. This added 3.2 points to our combined ratio. As we referenced on our earnings call in early March, the Middle East conflict remains a fluid situation. While a cease-fire is currently in place, and we hope the conflict will end soon, significant uncertainty remains. In Q1, we received an immaterial amount of formal loss notifications. However, given the high degree of uncertainty, we felt it was prudent to establish a $5 million general provision for potential losses. On our Q4 2025 call, I provided an update on our 1/1/26 renewal season and the market environment at the time. While April 1 is not a major renewal date for us, market trends are unchanged with softening across most lines. April 1 is the primary renewal date for Japanese business. Due to significant rate decreases this year, we decided to nonrenew our direct Japanese cat business. Given the relatively small amount of premium, the limited margin potential no longer made sense for the portfolio. We remain disciplined. We expect Open Market reinsurance written premium this year to be lower than in the prior year given the soft reinsurance market. On the other hand, we expect our Innovations segment premium to continue to increase, given the organic growth of our existing client portfolio, a strong flow of new business opportunities, more favorable rate trends and our ability to monitor and influence terms and conditions. As a management team, we are focused on delivering consistent profitability over the long term. While our shares have been trading at a discount to our growing book value, we have all along maintained that strong underwriting and investment results will ultimately be reflected in our share price. We have started to see this recently following the release of our full year 2025 results. Meanwhile, we have returned $14.5 million of capital to our shareholders year-to-date via share repurchases under our Board-approved share repurchase plan. As I have noted previously, we are optimistic about the opportunities ahead and Greenlight Re's positioning. Now I'd like to turn the call over to David. David Einhorn: Thanks, Greg, and good morning, everyone. The Solasglas fund returned 6.8% in the first quarter. The long portfolio contributed 1%, the short portfolio contributed 5.7% and macro contributed 1.2%. During the quarter, the S&P 500 Index declined 4.4%. The largest positive contributors were long investments in gold, Acadia Healthcare and DHT Holdings. The largest detractors included our macro position in short-term interest rates and our long investments in Kyndryl Holdings and Graphic Packaging. Gold was the largest positive contributor as its price advanced 8% during the quarter. Gold spiked through the end of February amid dedollarization concerns leading to gains in both our physical and call option positions. We took some profits, which lowered our total exposure and allowed us to preserve most of our gains in gold as it declined in March. Acadia Healthcare shares advanced 65% during the quarter. We established a small position in late 2024 when the shares came under pressure following the New York Times investigation into patient treatment. The decline continued as the company's aggressive expansion strategy weighed on results. In late January, shares recovered when the company removed the incumbent CEO and announced the return of its well-regarded former CEO. Should the company be successful in improving occupancy to its target levels, we believe annual earnings per share can double. DHT Holdings shares advanced 53% during the quarter. The company owns and charters very large crude carriers, which were in short supply even prior to the war. With day rates increasing to 5x the long-term average level, these elevated rates, we expect will allow the company to pay a dividend that is nearly quadruple this year. The largest detractor for the quarter was our long SOFR futures position. After the war began and oil prices spiked, the market [indiscernible] to doubt the Fed's ability to cut rates, resulting in losses for the quarter. We maintained the position as we view the oil price shock as ultimately a headwind to growth, creating a viable pathway for the incoming Chairman of the Federal Reserve to lower rates. Kyndryl shares declined 58% during the quarter. We owned Kyndryl for more than 4 years through a successful turnaround following its spin-off from IBM. Recently, it became more difficult for the company to win new business and the shares were on [indiscernible] back near our entry price. Fortunately, along the way, we took some profits at higher prices. We exited our remaining position during the quarter. Graphic Packaging shares declined 33% during the quarter. The company missed earnings expectations and lowered guidance as costs for its new paper mill came in well over budget. Also, the company replaced its experienced CEO with a new one who recently oversaw a major disappointment at its prior company and has yet to outline a clear strategy. While the shares have suffered, we believe they are extremely cheap relative to reasonable mid-cycle operating results. We initiated a medium-sized position in Versant Media Group following its recent spin-off from Comcast. Shares declined after the spin-off as Comcast shareholders sold stock they received, and the index removals triggered additional selling. This resulted in Versant trading at under 4x adjusted EBITDA and an implied cash flow yield that we believe will allow the company to return almost all its entire market cap to shareholders within 4 years. Prior to the war, we cautiously positioned with relatively low gross and net exposure. While most market participants are optimistic that the conflict will be resolved soon and with minimal repercussions, we continue to prioritize capital preservation and maintain some dry powder. Our net exposure at the end of the quarter was about 41% compared to about 40% at the end of 2025. Solasglas returned 0.4% in April, bringing the year-to-date 2026 return to 7.2%. Net exposure in the investment portfolio was approximately 30% at the end of April. We continue to be pleased with the performance of the company's underwriting portfolio and investments. We remain disciplined in our capital allocation and are being deliberate on where we can generate the best returns on our invested capital given the many levers we have at our disposal, including share buybacks. And now I'd like to turn the call over to Faramarz to discuss the financial results in more detail. Faramarz Romer: Thank you, David. Good morning, everyone. During the first quarter of 2026, Greenlight Re reported net income of $35.8 million or $1.05 per diluted share. Total underwriting income was $6.2 million, resulting in a combined ratio of 96%, which was 8.6 points better than the same period last year. The 2026 first quarter combined ratio benefited from 10.5 points of improvement due to lower cat and event losses contributing 5.8 combined ratio points compared to the same period last year, which included 18.1 combined ratio points related to the California wildfires. Favorable loss development contributed 4.1 points of improvement in the combined ratio and was offset by 4 points of higher acquisition cost ratio and 1.2 points of higher expense ratio. Our net investment income for the quarter was $40.4 million compared to $40.5 million in the first quarter of 2025. $33.7 million of the investment income related to our investment in Solasglas, which posted a strong 6.8% return in the quarter, the remainder related to interest income on our collateral and funds withheld balances. I will now break down the first quarter results by segment, starting with the Open Market segment. The Open Market segment reported a pretax income of $11.9 million composed of underwriting income of $6.8 million and investment income of $5.1 million. For the quarter, the Open Market segment net written premiums decreased by 22.7% to $151.3 million, while net earned premiums decreased by 13.8%. A decrease in net earned premium was expected as it related to the casualty book, which we had decided to nonrenew early in 2025. The remainder of the decrease was mostly related to downward premium adjustments on quota share specialty property and multiline contracts. The Open Market combined ratio for the first quarter improved by 11.2 points to 94.8% compared to the same period in 2025 due to favorable loss development and lower cat losses. First quarter favorable reserve development was 2.2 percentage points compared to adverse development of 3.3% in first quarter last year. Cat losses were $5 million related to the Middle East conflict in the first quarter of this year versus $27 million relating to the California wildfires in Q1 last year. The improvement in combined ratio was partially offset by higher acquisition cost ratio due to higher commissions reported on the FAL programs and higher expense ratio attributed to performance-based long-term incentive compensation. Overall, the Open Market segment had a strong performance during the quarter. Now let's turn to the Innovations segment. The Innovations segment produced an underwriting loss of $0.6 million and an investment income of $1.1 million. During the quarter, the Innovations gross written premiums increased by $20.1 million or 73% to $47.6 million, mainly driven by new business and exposure growth from existing treaties in casualty, financial and specialty lines, combined with growth in Syndicate 3456, which is presented under Multiline. We renewed our Innovations whole account retrocession program on January 1, 2026, increasing the ceded share from 28.5% to 33%. Therefore, the ceded premiums in the first quarter increased due to the combination of growth in underlying business and a higher portion ceded. The net earned premiums for Innovations segment increased by $6.2 million or 32% to $25.2 million. The combined ratio for the Innovations segment was 102.3% during the first quarter, which included 1.4 points related to adverse prior year development compared to 3 points of favorable development in the first quarter last year. The attritional loss ratio was 4.4 points higher, mainly related to a financial lines program where the past loss experience warranted a higher current year loss ratio. The expense ratio for this Innovations segment was unchanged at 8.2% in spite of the increase in earned premiums. We continue to invest in talent and technology in readiness for future growth of this segment. During the first quarter, we repurchased 298,701 shares for $5 million at an average price of $16.7 per share. Subsequently, during the month of April, we repurchased an additional $9.5 million of shares, bringing our year-to-date repurchases to $14.5 million. On April 28, the Board approved a new share repurchase authorization of $40 million effective May 15, 2026, and expiring at the end of May 2027. At the end of the first quarter, our fully diluted book value per share was $21.40, an increase of 4.7% for the quarter. Our primary metric continues to be growth in fully diluted book value per share, and we are pleased with the first quarter 2026 results. That concludes our prepared remarks. The operator will now open the line for your questions. Operator: Thank you. We'll now be conducting your question-and-answer session. [Operator Instructions] Thank you. As there are no questions at this time. Should you have any follow-up questions, please direct them to Jeremy Hellman at -- The Equity Group Inc. at ir@greenlightre.ky, and he'll be happy to assist you. This does conclude Greenlight Re's First Quarter 2026 Earnings Conference Call. Thank you. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Chegg, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. The question and answer session will follow the formal presentation. Please note that this event is being recorded. I will now hand over to Tracey Ford, VP of Investor Relations. Please go ahead. Tracey Ford: Good afternoon. Thank you for joining Chegg, Inc.'s First Quarter 2026 Conference Call. On today's call are Daniel Rosensweig, President and CEO, and David Longo, Chief Financial Officer. A copy of our earnings press release along with our presentation is available on our Investor Relations website, investor.chegg.com. A replay of this call will also be available on our website. We routinely post information on our website and intend to make important announcements on our media center website at chegg.com/mediacenter. We encourage you to make use of these resources. Before we begin, I would like to point out that during the course of this call, we will make forward-looking statements regarding future events, including the future financial and operating performance of the company. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important factors that could cause actual results to differ materially from those in the forward-looking statements. In particular, we refer you to the cautionary language included in today's earnings release and the risk factors described in Chegg, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission, as well as our other filings with the SEC. Any forward-looking statements that we make today are based on assumptions we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. Our GAAP results and GAAP-to-non-GAAP reconciliations can be found in our earnings press release and the investor slide deck found on our IR website, investor.chegg.com. We also recommend you review the investor data sheet, which is also posted on our IR website. Now I will turn the call over to Dan. Daniel Rosensweig: Thank you, Tracey, and thanks, everyone, for joining Chegg, Inc.'s first quarter 2026 earnings call. Q1 was a strong quarter. We exceeded our expectations for revenue, profitability, and free cash flow while still significantly reducing debt, and we continue to optimize our cost base and capital expenditures. These results reflect the deliberate work we have done to re-architect Chegg, Inc. Our financials, our corporate structure, and our product experience are all optimized around AI, and the results are showing. The business is leaner and better positioned for future growth with high margins. Leveraging artificial intelligence, we provide a differentiated experience as we personalize learning paths, identify where learners are struggling, and trigger targeted interventions from coaches or systems before a learner falls behind. AI also allows us to create and update curriculum fast enough to keep pace with how quickly skills, especially AI skills, are evolving. All of this allows us to deliver better outcomes without increasing costs. We continue to expect double-digit revenue growth in skilling for the full year 2026, with acceleration as the year progresses. We are seeing positive traction broadly across skilling, including the addition of new enterprise partners and channel partners and momentum in the global category leaders across manufacturing, consulting, professional services, and technology. Notably, we recently signed a partnership with Cornerstone, a leading learning and talent management platform. This is expected to open up a meaningful enterprise distribution channel for Chegg, Inc. Skills and connect us with customers at scale. And for the first time, we are expanding our skilling platform through accredited offerings. With Wolf, a partnership we announced last quarter, we are launching our first AI master's program, combining applied learning with recognized credentials. We take the same AI-first approach in our language learning offering, as we are moving beyond structured lessons towards real-time, in-workflow coaching, helping learners apply skills in the moments that matter the most. What differentiates our offering is that AI enables us to surface skills performance data that HR and learning and development leaders can act on, shifting the conversation from reporting on learning activity to demonstrating measurable language capability in the workflow. Skilling is a large and growing market, and we believe we are building the most credible, outcomes-driven platform in the space. In our 2026 Skills for Business Impact report, more than [inaudible] of graduates surveyed report applying their new skills immediately. 43% say they are working more efficiently, and 41% report improved quality of work. On AI specifically, 75% of graduates report increased confidence, and 43% are actively applying those skills on the job. The impact extends to employers as well. 80% of the graduates we surveyed report a positive career impact, and 92% remain with their employers six to twelve months after completing the program, with 62% citing employer-sponsored education as a key reason for staying. Our investments in skilling are funded by the strong free cash flow being generated by Chegg Study, which outperformed our expectations in Q1. While search headwinds continue to impact traffic for Chegg, Inc., retention remains strong, an indicator that students continue to find real value in our product. The financial foundation we have built is what makes everything we are building possible, and it reflects the kind of focus and discipline this team has. Six months ago, I returned to Chegg, Inc. because I saw a company with all the ingredients to win: a trusted brand, proven curriculum, outcomes data that demonstrated a real return on investment for our customers, and an expanding global network of enterprise and institutional partners. What we needed was focus and clarity to lean into the opportunities ahead of us. In the last six months, this team has removed approximately 40% of our costs, put us on a path to zero debt, increased our free cash flow, and retooled the business to be AI-first, giving us a strong foundation to grow from. As a result, I am confident about the category we are in, the momentum in our skilling business, and the strength of our balance sheet. I feel confident about the opportunity in front of us and our ability to drive value for our shareholders and our customers. I look forward to updating you on the next call. With that, I will turn it over to David. David Longo: Thank you, Dan, and good afternoon. Today, I will review our financial performance for 2026 along with the company's outlook for the second quarter. Building on the progress outlined in our last earnings call, we delivered a strong first quarter, which exceeded expectations. Our results reflect continued execution on our priorities and increasing momentum in our businesses. Our strategic focus on the large and growing skilling market positions us for long-term sustainable growth with strong margins, while we leverage AI across the organization to improve efficiency and drive meaningful improvements in profitability and cash generation. In the quarter, Chegg, Inc. Skilling generated $17.6 million in revenue, representing 9% growth as we continued to invest in the business. We also signed exciting new distribution deals which we expect to contribute in the second half and help drive double-digit skilling revenue growth for the full year. Academic Services revenue was $45.7 million. We continue to manage this business with a focus on maximizing cash generation, which exceeded our expectations this quarter. While traffic remained under pressure, monthly retention rates were very strong in the quarter, further extending the operational runway of the business. Turning to expenses, non-GAAP operating expenses were $36.4 million, reflecting a reduction of $44.1 million, or 55% year-over-year. These results reflect our disciplined approach to expense management. We will continue to identify additional opportunities, including enhanced use of AI, to drive further efficiency. Importantly, these actions are generating cash flow that we can invest in our future growth. Adjusted EBITDA for the quarter was $15.5 million, representing a margin of 24%. We also delivered positive net income in the first quarter for the first time in two years. First-quarter CapEx was $1 million, down 88% year-over-year. For 2026, we are targeting a 60% reduction in CapEx with approximately 90% dedicated to our growing skilling business. Free cash flow in the quarter was $3.1 million, which includes approximately $12.9 million of severance payments related to prior restructuring actions. We expect an additional $2.1 million of severance payments in the second quarter. Despite these items, we expect to generate meaningful free cash flow in 2026. Looking at the balance sheet, we ended the quarter with $67.9 million in cash and investments and a net cash position of $34.1 million, providing us flexibility as we execute on our priorities. Looking ahead to Q2 guidance, we expect Chegg, Inc. Skilling revenue of $17.5 million to $18 million, total revenue between $49 million and $50 million, gross margins in the range of 51% to 52%, and adjusted EBITDA between $5 million and $6 million. In 2026, our capital allocation priorities remain focused on maximizing free cash flow, strengthening our balance sheet, and fully repaying our convertible debt by September. Additionally, we will continue to evaluate opportunities to deploy capital, including through our remaining securities repurchase authorization, with a disciplined approach aligned to long-term shareholder value. In closing, we have taken deliberate actions to position the company for long-term success. We are leaner, more efficient, and well positioned for double-digit growth in our skilling business and meaningful free cash flow in 2026, putting us on a clear path to sustained growth, profitability, and increased shareholder value. With that, I will turn the call over to the operator for your questions. Operator: We will now open the call for questions. Ladies and gentlemen, we will now be conducting a question and answer session. Please note, for participants making use of speaker equipment, it may be necessary to pick up your handset before pressing the star keys. If you would like to ask a question, please key in star and then one. You may key in star and then two to leave the question queue. Our first question comes from Ryan MacDonald of Needham & Co. Please go ahead. Ryan MacDonald: Thanks for taking my questions. Daniel, maybe on the Chegg, Inc. Skilling business, the trends you are seeing there, can you maybe unpack the two segments a bit in Q1? What were you seeing across B2B language learning versus Chegg, Inc. Skills? And then as you think about the back-half-of-the-year acceleration in growth and getting to the double digits, what kind of visibility do you have, or do you get from the partners, as you add those and those additional channels throughout the year? Daniel Rosensweig: Yeah, great question. It is exactly what we look at. So the trend in the first quarter was very strong because there were three things that we wanted to accomplish. On the cost side, we reinvented the way we are able to build content utilizing AI and the user experience, allowing us to scale at a lower cost with a higher quality using AI versus necessarily using humans. And we applied that across both what you would call the traditional skilling and the language skilling. We combine those businesses because whether we sell through channels in the U.S. or directly to corporations or businesses—or “corporate,” they call them in Europe—they actually buy them both as skills. So we are working to combine package and offerings to be able to offer both of those things. What you will see going forward is some pretty exciting capabilities that AI allows us to have, which is real-time intervention inside the course or inside the use of language, which we think will make them extremely valuable, and we expect to be able to see increased retention and utilization of those products going forward. They are rolling out now. The question over how these accounts build: So before I came back, Chegg, Inc. had one channel distribution, which was Guild, and we still have Guild, and Guild is still a terrific partner. However, we needed to renegotiate the contract with Guild to allow us to work additional partners, which we did not have the ability to do before. So what you have heard from us from announcements is that since the beginning of the year, we were able to renegotiate that and sign on a number of distribution partners for the combined assets of our skilling. So whether it be the skills, the skills with the language, or the language—all of those have yet to launch. We have signed those agreements, and we are building the courses, and we expect them to launch somewhere around—some of them—somewhere in this quarter, and then to build over the course of the year. So the reason we feel very comfortable at this moment in time is because we have set each of those to build revenue over the course of the year and then really accelerate going into 2027. So we are excited about that. So the first step was redesign the products and services to be more AI-centric—lower cost, better quality of outcome for the students. Second one was liberate ourselves from a single deal to be able to sign more deals, then sign more deals, which we have. You heard the Cornerstone, which we signed and announced today. You heard us announce Wolf on the last call. We have others signed that are not yet announced because our partners would prefer not to announce them until they actually launch, because they do not want to confuse the people in their channel. So we feel good about the fact that we have signed a number of deals that should build over the course of the year. None of them have to build particularly large for us to achieve the 10% year-over-year growth rate target that we desire for this year, and we expect that they will roll out shortly and continually over the course of the year. So it is pretty exciting. Ryan MacDonald: Really helpful. And then a trend and theme we have been hearing in the enterprise skilling and learning market this year is more commentary about learning in the flow of work—essentially the concept of if I am in my day-to-day role and whether I am interacting with Salesforce or whatever system I am in, it is pushing more learning as I am going through and using those tools. As you think about your content catalog, are you shifting what type of content you are building or the format you are building in to meet this new kind of thematic demand, if you will? Daniel Rosensweig: Yeah, that is exactly correct. You have tapped into—you know, I am used to three-letter acronyms, but this is the new terminology in terms of what people want to do. What does it really mean? It means that whatever you are teaching them should be able to be used while they are actually using the capability inside their company, and agents allow for that to happen in particular. So I will give you an example on the language side, which may be easier to understand. Let us say you are using VUSU to learn a language to be able to negotiate deals because you are in business development or legal or business affairs or something of that nature. The capability that we are building in—which goes to exactly what you said—is something that we will call Pulse, and so you might be negotiating in real time, and Pulse will be able to prompt you, in real time and in the flow of work, what language or capabilities or techniques you might need to use. So it goes beyond just the language, but into actually not only what to say, but how to say it. So yes, it all has to be inside the workflow. And within Skills, even within our Academic Services, we are building some of those capabilities, which we think is some of the reason that we are able to slow down the decline and extend the length of time, which will generate more cash for us. It is because you can go right inside and say, “Listen, do you want to learn how to do this right while you are here?” So think of it as just real-time intervention at the moment for what the person needs, where the technology can blend into what you are doing and what it is capable of doing. And yes, that is exactly why we retooled the company. In addition to that, there are a couple of elements that I believe the AI era is ushering in. They all seem pretty common sense, which is speed—how quickly can you do something? So some of our partners are requesting content every two weeks now rather than every quarter or every year. The other one is reduction of friction, which is at least partially what you are talking about, which is how do you remove all friction from the experience—for the users of it as well as the creators of it, as well as the distributors of it, as well as the buyers of it. So every step that you could take out of the way, you can do for the person while they are in it, is what you do. And then quality—the ability to do consistency of quality at scale, which is something difficult for humans to do and less difficult for machines to do. So all of that is at the core of what we are building. We think we are ahead of most people, and at least our partners hear we are ahead of most people, which is why we have been able to sign so many deals so quickly. Ryan MacDonald: Awesome. Appreciate all the color there. Thanks for taking my question. Daniel Rosensweig: You bet. Great question. Operator. Operator: Apologies, sir. Ladies and gentlemen, with no further questions in the queue, we have reached the end of the Q&A. This concludes this event. Thank you for attending, and you may now disconnect your lines.
Operator: Good morning. I would like to welcome everyone to Kennametal's Q3 Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Michael Pici, Vice President of Investor Relations. Please go ahead. Michael Pici: Thank you, operator. Welcome, everyone, and thank you for joining us to review Kennametal's Third Quarter Fiscal 2026 results. This morning, we issued our earnings press release and posted our presentation slides on our website. We will be referring to that slide deck throughout today's call. I'm Michael Pici, Vice President of Investor Relations. Joining me on the call today are Sanjay Chowbey, President and Chief Executive Officer; and Pat Watson, Vice President and Chief Financial Officer. After Sanjay and Pat's prepared remarks, we will open the line for questions. At this time, I'd like to direct your attention to our forward-looking disclosure statement. Today's discussion contains comments that constitute forward-looking statements and as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results, performance or achievements to differ materially from those expressed in or implied by such statements. These risk factors and uncertainties are detailed in Kennametal's SEC filings. In addition, we will be discussing non-GAAP financial measures on the call today. Reconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the slide deck and on our Form 8-K on our website. And with that, I'll turn the call over to Sanjay. Sanjay Chowbey: Thank you, Mike. Good morning, and thank you for joining us. I will begin with an overview of the quarter, including end market commentary followed by a discussion on unit volume trends. From there, Pat will cover the quarterly financial results and the fiscal year '26 outlook, along with an early look at fiscal '27. Finally, I'll make some summary comments, and then we'll open the line for questions. Turning to Slide 3. Let me begin by addressing some of the highlights from our strong third quarter. Our global commercial teams continued to advance our strategic growth initiatives. The infrastructure team delivered solid growth. In construction, we saw volume growth from strong product performance and the advantage we have as a secure source of tungsten in a tight supply environment. Additionally, we received large orders in our defense business, further securing ongoing growth in this market as we head into fiscal '27. In metal cutting, we continue to increase our share of wallet with key accounts, especially in aerospace and defense and build upon our momentum in energy from AI power generation initiatives. In general engineering, we have been winning new customers through targeted promotional campaigns and improvements to our digital customer experience, especially for our small- to medium-sized customers. As you know, we continue to prioritize above-market growth as a strategic imperative, and these wins position us well in our key end markets. Turning now to the broader tungsten environment. Prices continued their unprecedented increase throughout the quarter, rising from approximately $900 per metric ton to $3,000 as the supply of material continued to be constrained. This tungsten price and supply environment have created both challenges and opportunities. On the challenges front, we have seen a highly competitive market for material, but our supply chain has held up relatively well. We have and will continue to implement pricing actions in response to these rising tungsten costs and remain confident in our ability to secure that price. We are also focused on managing the working capital and balance sheet implications of higher tungsten costs. In terms of opportunities, our vertical integration has been a real strength in this market, providing us better supply chain control and flexibility compared to some competitors. For example, as competitors are turning away orders or extending lead times, we are well positioned to capture business that is aligned with our strategic priorities. During the quarter, we capitalized on these opportunities in each of our business segments, specifically earthworks within infrastructure and aerospace and defense in metal cutting. These new opportunities also facilitate shaping our product portfolio away from lower margin to higher-margin solutions. As such, we are seeing a unique combination of three factors that are opening the door to sales opportunities. First, continued market recovery; second, solid execution on our strategic growth initiatives; and third, a window of opportunity from the current tungsten market, which is likely to persist in the near term. Given those dynamics, we are prioritizing our time and attention on growth opportunities over restructuring initiatives in the near term. And we are shifting the time line for facility closure actions we had previously planned to complete in fiscal '27. We will provide additional detail on the restructuring time line as appropriate. Even with that shift, we are still targeting approximately $110 million in savings from cost takeout actions by the end of fiscal '27, which is $10 million above what we outlined at Investor Day. Now let's move to our quarterly results, which once again exceeded our sales and EPS outlook. Compared to outlook, sales were mostly driven by increased price realization and better-than-expected volume in both segments. EPS benefited from the additional price raw timing of $0.09, positive volume and lower-than-anticipated tax rate. Year-over-year, sales increased 19% organically. Please note, this was our third consecutive quarter of organic growth, driven by additional price realization, strategic growth initiatives and continued recovery in several end markets. Adjusted EPS increased to $0.77 compared to $0.47 in the prior year quarter. And adjusted EBITDA margin was 20.8% compared to 17.9% in the prior year quarter. Cash from operating activities year-to-date was $70 million compared to $130 million in the prior year period. Free operating cash flow year-to-date was $18 million compared to $63 million in the prior year. Free cash flow was adversely impacted by increased working capital requirements related to tungsten prices. Finally, we returned $15 million to shareholders through dividends. As it relates to our outlook, today, we are raising our sales and EPS outlook for fiscal '26. This update reflects the additional price due to the continued rise in tungsten and additional volume. Pat will provide more details on our updated outlook shortly. In summary, we are pleased with this quarter's results and how the team is navigating these unique business conditions. As I mentioned, there are opportunities and challenges in this market, and we remain focused on delivering on our commitments throughout fiscal '26 and setting ourselves up for a successful fiscal '27. Now let's turn to Slide 4 for an end market update. As a reminder, our full year outlook reflects forecast of specific market drivers and general market conditions. The top half of this slide reflects our sales outlook at the midpoint and includes price, volume and market factors. My comments will focus on the bottom half of the slide and address transportation and energy, which are the only end markets that changed since our last call. IHS estimates for transportation slightly improved from the previous estimate, up in the low single-digit range, mostly driven by improvements in Asia Pacific market. Energy improved slightly relative to our prior outlook as customer sentiment improved. The tone is now cautiously optimistic, which is an improved stance compared to what customers were previously signaling. Turning to Slide 5. As we have talked about over the last several years, customer activity rates and our sales volumes have been below the pre-COVID peak. I want to take some time to provide insight into unit volume and how those trends have improved over the last few quarters. This chart uses units sold volume and excludes the impact of price and foreign exchange. It also excludes infrastructure defense sales as these are lumpy and not tied to industrial production metrics. Now let me spend a moment on what is driving the volume recovery and just as importantly, why we believe it's sustainable. As the call-out indicates, we are now experiencing the second consecutive quarter of year-over-year trailing 12-month unit volume growth despite a macro backdrop that has been uneven. Volumes are strengthening in the Americas and Asia Pacific, but EMEA continues to lag, and that is consistent with what we are seeing in PMI and industrial production data. A key driver continues to be aerospace and defense, which remains strong across both metal cutting and infrastructure. Importantly, this strength isn't simply tied to OEM build rates, which are still roughly 20% below pre-COVID levels, but rather to share gains and deeper penetration with tier suppliers. That gives us confidence there is still additional runway as production rates normalize over time. We are also starting to see early signs of stabilization in general engineering and energy, even while headline indicators remain soft. In Energy, power generation continues to see meaningful momentum. And while U.S. land rig counts are still about 30% below pre-COVID levels, we are seeing enough stabilization to suggest we are past the trough. In infrastructure, earthworks has delivered volume gains for 2 consecutive quarters, driven by share gains. Stepping back, if you look at the chart, global volumes are now up approximately 3% from the Q1 fiscal '26 trough following 36 months of stagnant industrial production. Our performance is not just the result of a market recovery. It's shaped by where we compete, how we allocate resources and where we are winning share. We know we operate in cyclical end markets, but we are quite confident in the long-term growth potential of these markets and our ability to capture share within them. Now let me turn the call over to Pat, who will review the third quarter financial performance and the outlook. Patrick Watson: Thank you, Sanjay, and good morning, everyone. I will begin on Slide 6 with a review of our Q3 operating results. Sales were up 22% year-over-year with an organic increase of 19% and favorable foreign currency exchange of 5%, which was slightly offset when adjusting for the divestiture we concluded last year. Sales volume in the quarter was up low single digits. At the segment level, organic sales increased 30% in Infrastructure and 12% in Metal Cutting. On a constant currency basis, Americas sales increased 27%, Asia Pacific sales increased 25% and EMEA was up 2%. The sales performance this quarter exceeded the expectations we provided last quarter on higher sales volumes from better market conditions and share capture. We also had higher-than-expected price, primarily in infrastructure from the continued rapid increase in tungsten prices. By end market, on a constant currency basis, Earthworks grew 43%, Energy increased 28%, Aerospace and defense grew 23%, General engineering grew 14% and Transportation increased 1%. I will provide more color when reviewing the segment performance in a moment. Adjusted EBITDA and operating margins were 20.8% and 13.8%, respectively, versus 17.9% and 10.3% in the prior year quarter. The margin increase was driven by favorable price raw of $39 million within the Infrastructure segment, pricing and tariff surcharges in Metal Cutting, increased sales and production volumes and year-over-year restructuring benefits of $7 million. These are partially offset by higher compensation costs, which are mostly performance-based, tariffs and general inflation and a prior year benefit from an advanced manufacturing tax credit of approximately $8 million that did not repeat in the current year. Adjusted earnings per share was $0.77 in the quarter versus $0.47 in the prior year period. The main drivers of our EPS performance are highlighted on the bridge on Slide 7. The year-over-year effect of operations this quarter was positive $0.36. This reflects approximately $39 million of favorable timing of price raw material costs, price and tariff surcharges in Metal Cutting, higher sales and production volume and incremental restructuring benefits of $7 million. These are partially offset by higher compensation costs, tariffs, general inflation and higher raw material costs in Metal Cutting. There was a headwind of $0.08 related to the net prior year manufacturing tax credit. You can also see the $0.02 of transaction gains related to preferential Bolivia exchange rates. Currency, other and pension impacts offset each other. Slides 8 and 9 detail the performance of our segments this quarter. Reported Metal Cutting sales were up 18% compared to the prior year quarter with 12% organic growth and favorable foreign currency exchange of 6% Regionally, excluding currency exchange, Asia Pacific increased 18%, the Americas increased 17% and EMEA increased 3%. Looking at sales by end market on a constant currency basis, Aerospace and defense increased 27% year-over-year due to improved build rates in Americas and easing supply chain pressures in EMEA, combined with our global focus on deeper market penetration. Energy grew 17% this quarter from data center power generation wins. General engineering increased 13% year-over-year due to price, volume gains in Asia Pacific and stronger distribution sales in the Americas. And lastly, transportation increased 1% year-over-year due to price and market softness, primarily in EMEA. Metal Cutting adjusted operating margin of 11.2% increased 160 basis points year-over-year, primarily due to higher price and tariff surcharges, higher sales and production volumes and incremental year-over-year restructuring savings of approximately $5 million. These factors were partially offset by higher compensation, tariffs and general inflation and higher raw material costs. Turning to Slide 9 for Infrastructure. Reported Infrastructure sales increased 29% year-over-year with organic growth of 30% and favorable foreign currency exchange of 4%, partially offset by a divestiture effect of negative 5%. Regionally, on a constant currency basis, Americas sales increased 42%, Asia Pacific increased 35% and EMEA sales were flat. Looking at sales by end market on a constant currency basis, Earthworks increased 43% from higher demand in construction as we were able to provide product to customers who are unable to source product from other players and share gain in underground mining. Energy increased 34%, mainly driven by price. General engineering increased 18% due to price and higher powder demand in Asia Pacific, partially offset by lower demand in EMEA. And lastly, Aerospace and Defense increased 17% due to defense orders, driven by continued focus on growth initiatives and timing in the Americas. Adjusted operating margin increased 680 basis points year-over-year to 18.3%, primarily from the favorable timing of pricing compared to raw material costs of $39 million and year-over-year restructuring savings of $2 million. These items were partially offset by higher compensation costs and a prior year manufacturing tax credit of $8 million that did not repeat in the current year. Now turning to Slide 10 to review our free operating cash flow and balance sheet. Our third quarter year-to-date net cash flow from operating activities was $70 million compared to $130 million in the prior year period. This change was driven primarily by higher working capital from higher tungsten prices and increased volumes of tungsten to secure our supply chain. Our third quarter year-to-date free operating cash flow decreased to $18 million from $63 million in the prior year, primarily due to the increased primary working capital changes I just referenced, partially offset by lower capital expenditures. On a dollar basis, year-over-year, primary working capital increased to $819 million from $654 million. On a percentage of sales basis, primary working capital increased to 32.4%. It's important to note that from both an earnings and cash flow perspective, the business is operating as it normally would when the price of tungsten rises. In periods of rising tungsten prices, we always experienced favorable price raw timing effects in sales and earnings, while we experienced headwinds to cash flow as primary working capital grows based on tungsten valuation. What is unique about the current circumstance is the magnitude of the rise in tungsten prices. In no recent time have we experienced a ninefold increase. Due to the uncertain nature of tungsten pricing and the corresponding pressure it has placed on working capital, we once again made the decision not to repurchase shares. Net capital expenditures decreased to $52 million compared to $67 million in the prior year quarter. In total, we returned $15 million to shareholders through dividends. Inception to date, we have repurchased $70 million or 3 million shares under our $200 million authorization. We remain committed to returning cash to shareholders while executing our strategy to drive growth and margin improvement. We continue to maintain a healthy balance sheet and debt maturity profile. At quarter end, we had ample liquidity to support the business with combined cash and revolver availability of approximately $742 million. And as always, we remain well within our financial covenants. The full balance sheet can be found on Slide 16 in the appendix. Now on Slide 11, regarding our full year outlook. We now expect FY '26 sales to be between $2.33 billion and $2.35 billion, with volume ranging from 2% to 3%, net price and tariff surcharge combined of approximately 16%, and we anticipate an approximate 2% tailwind from foreign exchange. The increased outlook reflects additional pricing actions related to the increase in cost of tungsten since our February call. Specifically, within the fourth quarter, we expect net price and tariff surcharges combined of approximately 35% compared to the prior year quarter. We now expect adjusted EPS in the range of $3.75 to $4. This outlook includes approximately $2.45 related to the timing of price raw benefit due to the rise in tungsten prices, the significant majority of which affects the Infrastructure segment. This effect increased $1.50 from the prior outlook. On the cash side, the full year outlook for capital expenditures is now anticipated to be approximately $85 million. And free operating cash flow is expected to be approximately negative 30% of adjusted net income, reflecting the working capital pressure from the rising cost of tungsten as discussed earlier. It's important to note our outlook does not include any effects from the conflict in the Middle East. The other assumptions in our outlook are noted on the slide. While it is earlier than normal, I would like to take a moment to provide a bit of a framework to help you think about FY '27. First off, our current assumption is that tungsten prices will remain elevated for some period of time going forward. That implies there will be significant carryover pricing given the 35% price expectation for the fourth quarter. This carryover pricing will diminish as FY '27 progresses since we would fully lap it in the fourth quarter. Keep in mind that this assumption holds price at the fourth quarter level. Also, we would expect price raw timing benefits in a flat tungsten environment will continue through the first half of FY '27 with the bulk of the benefit occurring in the first quarter. Outside of tungsten, we would expect normal cost inflation going into FY '27. However, we would see performance-based compensation reset the target, providing a $20 million tailwind. We will also see additional savings from restructuring and continuous improvement of $10 million. We will provide the rest of the details, including market expectations for FY '27 on our call in August. Back to you, Sanjay. Sanjay Chowbey: Thank you, Pat. Turning to Slide 12. Let me take a few minutes to summarize. We have delivered 3 strong quarters so far in fiscal '26, driven by price and modest improvements in various end markets, project wins on the commercial side and productivity and cost improvement actions. Going forward, we will remain focused on the strategic growth initiatives and lean transformation we have underway while also exploring ways to strengthen our portfolio over time. Additionally, we will continue to actively manage our tungsten supply chain. And in summary, we remain confident in our plan for long-term value creation for shareholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] And today's first question comes from Steve Volkmann with Jefferies. Stephen Volkmann: Can we just start with what do you think -- what was the incremental margin on the volume in the quarter? Patrick Watson: Yes. I think the volume incremental margin was pretty normal for us, Steve. I think there's a couple of things, obviously, in the quarter that are kind of masking that because we've got some big numbers being thrown around there. Obviously, you've got the $39 million worth of price raw timing benefit coming through. In the prior year, we had that $8 million advanced manufacturing tax credit. And then I'd say the third component there that's just unusual for us is variable compensation. So last year, we would have been on the low side of accruing for variable compensation. This year, given performance, we're a bit on the high side. In the quarter, that's like an $18 million number there in and of itself. And then, of course, you have some benefits coming through for restructuring. But when you pull all that back, volume leverage is pretty normal for the business. Stephen Volkmann: Okay. And then it sounds like you've adjusted price. You obviously have a big forecast for the fiscal fourth quarter. Are we like where we need to be today in terms of price? Or will there be more price that sort of flows through in the fourth quarter and maybe even later into the summer? Sanjay Chowbey: Yes. Steve, this is Sanjay. As you know, this is a very dynamic situation that we are managing, and we'll continue to monitor how that moves. As even the last call, you talked about that how it was moving on a daily basis, hourly basis. So that's why we will just tell you that we are looking at different market variables. And our -- definitely, our goal here is to fully offset the cost implication of tungsten. Patrick Watson: I would just add to that, we did put price in here in the market, various states by region, but effectively in the April, May time frame. Stephen Volkmann: April, May... Operator: And the next question comes from Steven Fisher with UBS. Steven Fisher: Congrats on managing all the complexities here. Just a follow-up on that last question. Just curious about the differences between metal cutting and infrastructure. I know with infrastructure, it does tend to be fairly quick to capture that pricing. I'm just curious -- confidence that you can really fully pass on the price increases within the metal cutting and what the frequency of timing you can put that through? Essentially, are the customers that are going to these distributors, are they really seeing a 35% increase on the shelf there from these products? Just curious if there's any real differences there in dynamics between metal cutting and infrastructure. Sanjay Chowbey: Yes, sure, Steve. I think, first of all, like in the past, we have talked about the metal cutting is a list price business. And also when you look at the material flow, even there is more lag in that, but infrastructure sees that first. And based on the different product, we also have like different content of how much tungsten is used. So that will reflect -- when you look at the growth numbers, sales growth numbers by different end markets within the different segments, you will see, in some cases, very, very high number. Many cases, those are driven by the higher content of tungsten. So we have in infrastructure, many customers who are on the index price basis, but many others are not. And we do move relatively quicker on infrastructure pricing. In metal cutting, there's a 3- to 6-month lag generally. And then based on the list price change, we implement that. Steven Fisher: Okay. And then maybe just a little more color on what you're seeing in energy and how you see that evolving for the next few months. Just curious what you are hearing from your customers there? And is that something you're preparing for kind of a bit more of a ramp-up? Sanjay Chowbey: Yes. On the energy, I'll divide the equation into two pieces here. First is the AI power generation-related energy demands, which we see more so in the metal cutting side. Definitely, as you know, there's a lot of industrial activities driven around the world, but a lot in the U.S. also. And we are very well positioned with our innovative solutions, application support and custom solutions for our customers, and we are doing a pretty good job in winning share there. And I do believe that, that will continue. And as you have seen in even this quarter report, we talked about that quite a bit. When it comes to the other side of energy, which is more or less, let's say, oil and gas, it will definitely touch a little bit metal cutting, but a lot more in the infrastructure side. As we talked about it, that there is a little bit of optimistic view, but it's cautiously optimistic view. The rig count projection right now has gone from 527 to 532. But if you look at the market, there are 2 camps. There are people who are saying that there will be a lot more investment coming up here. And there are people who are saying that this is temporary and things like that. But our overall conclusion based on what we see, the trough is behind us, and we should see some steady improvement going forward. Operator: And our next question is from Julian Mitchell with Barclays. Julian Mitchell: Just maybe a first question, just to try and clarify the tungsten related sort of tailwind to EPS, I think you said $2.45 for fiscal '26 in aggregate. In the fourth quarter, is it around $1.75? Is that roughly the right math? Just wanted to check that. Patrick Watson: Yes. I think if you kind of back into that, Julian, we had about an EPS terms of about $0.16, I think, in Q2, $0.39 here in Q3. And so we just forced the rest out of Q4. Julian Mitchell: That's great. And then maybe, Pat, help us understand those moving parts around the sort of cash flow, year-ending leverage, when you might look to resume the share repurchase program? Help us understand what that free cash flow in the fourth fiscal quarter is looking like? And how quickly does it sort of reverse following that based on where tungsten is today? Patrick Watson: Yes. So I would think about it this way, and we talk about this from a -- how does the cost structure lag from an income statement perspective, that obviously, the balance sheet is following that, too. So as tungsten has ramped, we're going to continue to see inventory build on a valuation basis here in the fourth quarter. That's really what's driving that negative free operating cash flow for the full year. And so as that kind of builds up, we would anticipate you get about a quarter or two out. Again, from a change in tungsten, we would kind of get flatlined. The business would then move back to its normal pattern in terms of its cash generation ability. Obviously, as I said kind of in the scripted remarks here, the magnitude of what we're dealing with here is just significantly larger than what we've seen in the past, right? Think about that from a share repurchase perspective. Look, we've been very committed to returning cash to shareholders through the dividend program as well as through our repurchase program. Our desires have been at a minimum to offset dilution from equity compensation programs. We just fundamentally think that's good housekeeping. In the current environment, what would we want to see to really resume that? We really want to see some stabilization and clarity about where tungsten is headed. Our obvious thesis here at the moment is that tungsten should be relatively stable. That being said, it's a very dynamic marketplace today. Operator: The next question is from Steve Barger with KeyBanc Capital Markets. Steve, you may be muted on your side. Steve Barger: You talked about good activity in aerospace and defense and some share gains in infrastructure and earthworks. But at the same time, I think you said some competitors are turning away orders, presumably on price cost. So can you talk about what you think is happening with prebuy and just people scrambling to get product due to inflation? And then how does that map to the longer-term durability of share gains? Sanjay Chowbey: Yes. Steve, this is Sanjay. I'll take that first. First of all, we did see some prebuy, but it was mostly in the infrastructures earthwork construction business. Beyond that, there was not much material impact on prebuys in the rest of the business. We did see opportunities also in the earthworks business within infrastructure and also in aerospace and defense in metal cutting, where we did see some evidence, where we were able to capture, where competitors were not able to either provide proper lead time or even just meet the demand. So that's how we saw that. Does that answer your question? Steve Barger: I think so. Just so I'm clear, why do you think the competitors are not able to meet demand right now? Sanjay Chowbey: Yes. What we have seen some competitors are definitely having problem in getting raw material. And even if they're getting raw materials, they're also pretty booked and they're putting longer lead times. So in some cases, we are able to provide a better lead time, and that's how we got it. Patrick Watson: I would say that, I mean, the opportunity, obviously there, Steve, is that there is short-term disruption in the marketplace. That gives us an opportunity to quote and win business that maybe we wouldn't normally have seen the same opportunities on. The opportunity for us and the challenge to our sales organization, quite frankly, is to convert that to permanent long-term share capture. Sanjay Chowbey: Yes. One more thing, Steve, I will add to that. I think for investors who may be listening to us first time, I do want to mention that this situation that we have with tungsten is not driven by higher demand. It is driven by supply constraints. As in past, you have seen some of the times, tungsten went up. At the same time, oil and gas and some of the other industry, which consumes a lot of tungsten went up. This time, it is because of supply constraints and also export controls. So just simply, in a big portion of market, there is less supply right now. Steve Barger: Yes. Understood. That actually is a good segue to my next question. If I heard you right, you're slowing facility closures. And last quarter, you expected restructuring savings of $125 million. Now that's $110 million. Are those 2 things related? And if so, why -- maybe I missed it, why are you slowing facility closure? Sanjay Chowbey: Yes, very good question. As we said in the prepared remarks, and I will clarify that a little bit more. Obviously, we are seeing right now more growth opportunities, which is driven by all 3 factors: market improving, then also share gain through our routine strategic growth initiatives that we have talked about it in the past. And on top of that, a window of opportunity from the tungsten situation. So we look at how we can create the best value for all our stakeholders. And we feel right now that allocating more resources on growth opportunities and driving our routine business leverage will create more shareholder value for now. And that's how we are making the shift. However, we are not stopping the work on footprint optimization. We'll continue to work on it. Time line will shift a little bit. We'll come back and give you more information on that at appropriate time. Operator: Our next question is from Tami Zakaria with JPMorgan. Tami Zakaria: First question is on tariffs. I think IEEPA got struck down. Do you expect to file any refunds? And if so, what kind of -- what amount of refund would you expect to collect? Sanjay Chowbey: Yes, Tami, First of all, as you know, this is also one of the very dynamic situation. We still have tariffs in place. And so we are not taking any hasty action on this yet. I think we'll continue to monitor. And based on that, we'll make decisions. So nothing more to share at this point in today's call. Tami Zakaria: Understood. That's fair. And my second question is, for the fourth quarter, I just wanted to clarify, do you expect volume growth to be in that 2% to 3% full year range or it could come in above that? Patrick Watson: Yes. It's the full year range. I would say it's depending on where you're at in that range, Tami, it's going to be low to at the high end, maybe up into the mid-single digits. You obviously factor in 35% price we talked about from a script perspective. Don't forget, we had a divestiture in the prior year, and you got a little bit of FX in there as well. So that kind of is the math there in terms of you think about the top line. I would emphasize, as we just think about the profitability that obviously, we're going to see sequentially profitability step up pretty significantly here based on that price raw. And given the circumstances that we're in today, it is unusual, we're going to have some of that price raw realization in Metal Cutting, too. So when you think about, again, the margin performance of the business as a whole in the two segments, pretty big ramp-up for both of them. Operator: And the next question comes from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Just maybe first, I wanted to start out on the market share gains. That's been a meaningful driver, I guess, of the organic growth that you've been seeing. Just curious if you could unpack that a little bit more. I guess I'm trying to understand if it's possible to, I guess, separate how much of the share gains you think was maybe driven by value proposition or project wins that tend to be a little bit stickier versus where it's maybe related to kind of competitor supply constraints. And in particular, I guess, to the latter bucket, curious if you kind of expect that over time as kind of supply perhaps normalizes, if you would expect to kind of get that back or if there's any kind of stickiness to some of those shifts that we might be seeing on the kind of supply-driven angle? And also if you could comment on the promotional campaigns you talked about as well, that would be helpful. Sanjay Chowbey: Yes. Sure, Angel. First of all, again, it is a combination of all 3 factors: market improving, and we think that, that should continue. Then second will be in our strategic growth initiatives, and we have talked about in the past, those will include, for example, what we have done in aerospace and defense and energy and general engineering, earthworks and so on and so forth, how we have gone about winning bigger share of wallet with existing customers, but also going out and winning business at different tiers of the supply chain or our customer value chain. And those I will tell you that are very sustainable because we're winning those using our core competencies from product and innovation and our commercial excellence and our operational capabilities. Now the third piece of the volume that we have also talked about, the window of opportunity we have from tungsten Dynamics. We also think that those are sustainable, at least in the near term that we see that. In the long term, we'll see how that plays out. But we are being very strategic about which opportunities that we go and capitalize. We are selective on what opportunities we think are going to be longer-term sustainable for us. So all in all, of course, it's a mix of 3 things, and I won't be able to quantify break down or don't want to disclose it in public domain on that. But I can tell you that as we have talked about in past, that driving growth above market has been one of our strategic imperatives, and it will continue to be. In last 2 years, 3 years, actually, I will go a little bit beyond that, we have shown our ability to outperform or at least hold our own in our metal cutting business where we have in public peer data. And this is going to continue to be one of the focus. So in short, I will just say that it is going to be a meaningful piece of our overall volume story. Angel Castillo Malpica: Very helpful. And then if you could bear with me, I guess, a 3-part question here just on tungsten. Hoping to better understand, I guess, a couple of things. One, any more color you can add in terms of the sourcing that you're doing and how that differs versus competitors that allows you in a market that you described as very competitive in terms of sourcing to make sure that you're able to have the right amount of supply. So just any color you can add on that? And then maybe a little bit more longer term or medium to longer term, on the tungsten side, I think your preliminary fiscal year '27 outlook talked about that as being kind of stable at current levels. Just anything you can add in terms of the supply-demand that you're seeing progressing from here in terms of -- I think there might be some capacity that's coming online in 2027. So just to the extent that, I guess, any implications from that or the recently kind of lower prices of tungsten in China as to what -- where that commodity heads in 2027? And then just kind of lastly, implications of that to the price and the market share gains that you talked about on the supply basis. Patrick Watson: Yes, certainly. So I'll try to take each one of those in terms. When I think about the advantages we have, I want to go beyond, quite frankly, just the sourcing aspect. And from a sourcing perspective, -- as we've talked about in the past, we do not use significant amounts of Chinese material outside of our Chinese operation. Outside of China, we've got a diversified supply base and partners we've been with for a long period of time in getting material from Bolivia, other East Asian sources and as well as a nice slug of recycled material. But a lot of the strength that we have as a company vis-a-vis some of the competition that's out there is also the integrated nature of our supply chain, right? So we are -- we have the ability basically to take in tungsten materials at various stages and turn them ultimately into a final product. You think about that from our ability to take raw materials, which is virgin ore in and process that, there is only a handful of companies in the industry that can do that as well. And so that provides us, I think, a durable strategic advantage here in this set of circumstances. As you think about where it is from an overall pricing perspective, yes, our assumption at the moment is the tungsten prices are stable. I think the last couple of quarters that we've gone through in terms of the magnitude of this price change, I don't think that many market participants would have envisioned us going from a couple of hundred dollars a ton to over $3,000 a ton, excuse me, as we have over the last 12 months. Certainly, there has been some softening in China the last week or so in terms of the prices, unclear at the moment in time, whether or not that's indicative of a larger trend that will be more durable. We'll obviously continue to monitor and watch that. And then your last question in terms of what supply is coming online, yes, there's a variety of new mine projects that are out there that will come online. We would anticipate in the fullness of time, that would help moderate the tungsten prices here a little bit on a global basis. I think the other reality of the situation here is, in particular, we've got the export controls in China that are in place, number one. And then number two, we've got lower Chinese mine production over the last 2 years as it relates to -- based on some information in the public domain, lower quality ore potentially out there as well as I would emphasize lower mining permits provided by the Chinese government. So the market has been in a period of shortage, additional supply obviously would help alleviate some of that. And as that market continues to unfold, obviously, that will inform our pricing decisions and how we set, I'll say, our inventory objectives here in terms of holding inventory as well. Operator: And the next question is a follow-up from Steve Barger with KeyBanc Capital Markets. Steve Barger: Pat, just to level set expectations for the models. You said price raw timing benefit from tungsten flows through into the first half, mostly in 1Q. Is the right way to think about FY '27 kind of reverse order from this year, high point by far in 1Q trailing back down to your quarterly average of like $0.40 towards the end of FY '27. Patrick Watson: Yes. A couple of ways that I think about that. Steve, first off, just let me give you some like the basic walk, and I'll start from the midpoint, right? Midpoint of the outlook this year is $3.88. We said we've got $2.45 of price raw in there, probably have about 0.20 worth of variable compensation that would reset. So let's think of like a clean FY '26, removing those items, about $1.63 in EPS terms, right? And then kind of moving forward next year, you're going to add $0.10 in for the additional restructuring that we talked about. That gets you down to like about $1.73 before you get to, what I'll call is additional price raw, which again should exist in that first half, right? And then whatever the volume assumption is that you guys make at this point in time, obviously, we'll give some clarity about that in August. The second thing I would say about that in terms of now taking that cadence and thinking about the year, yes, I think the right way to think about this, again, this is assuming a relatively stable tungsten environment would be first half, we're going to see the benefits of price raw. Back half of that year, we'll get back to what I would call it is a normal level of profitability, right, absent the price raw tailwinds. Operator: The next question is a follow-up from Julian Mitchell with Barclays. Julian Mitchell: This will be a quick one. Maybe just flesh out a bit more the cadence of kind of volume demand. You had that very interesting chart on cumulative volumes going back several years. So that was interesting. And you've clearly seen a pickup, as you said a couple of times. There's some prebuy, I suppose, in that. So maybe give us any color you can on sort of how base volumes are performing, if you can really get to that level of detail from your channel partners and so forth? And have you seen an improvement in base demand in the last couple of months? Or it's difficult to disentangle that from prebuy movement? Patrick Watson: So I'll take that first, and then Sanjay will hit most of it. But just to clarify that chart to make sure we're all talking about the same way, right? That chart is based on a 12 trailing months basis. Julian. So based on that, you can think about it as an annualized chart, it's going to kind of flatten out any sort of short-term prebuying issues, right? Because again, we're talking about an annual type number. And with that, I'll turn it over to Sanjay. Sanjay Chowbey: Yes, Julian, with regards to rest of the drivers at this point, Q4, we are confident in what we are saying that we do see impact from improving market condition, which is again moderate. And then on top of that, our share gain opportunities that we have, those will definitely play out. I think with respect to fiscal '27, we'll come back and talk about that in August, but the initial signs are -- seems like things are definitely stabilizing. Operator: And this concludes today's question-and-answer session. At this time, I would like to turn the conference back over to Sanjay Chowbey for any closing remarks. Sanjay Chowbey: Thank you, operator, and thank you, everyone, for joining the call today. As always, we appreciate your interest and support. Please don't hesitate to reach out to Mike if you have any questions. Have a great day. Operator: Thank you. And as a reminder, a replay of this event will be available approximately one hour after its conclusion. [Operator Instructions] And today's conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.
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: 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: 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: Thank you for joining us, welcome to Q1 2026 Hecla Mining Company Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. I will now hand the conference over to Mike Parkin, Vice President of Strategy and Investor Relations. Please go ahead. Mike Parkin: Thank you, Hillary. Good morning, and thank you for joining us for Hecla Mining Company's first quarter 2026 results conference call. I am Mike Parkin, Vice President of Strategy and Investor Relations. Our earnings release that was issued yesterday along with today's presentation are both available on our website. On the call today with us is Robert L. Krcmarov, President and Chief Executive Officer; Russell D. Lawlar, Senior Vice President and Chief Financial Officer; Carlos Aguiar, Senior Vice President and Chief Operations Officer; Kurt D. Allen, Vice President, Exploration; Matthew Blattman, Vice President, Technical Services; as well as other members of our management team. At the conclusion of our prepared remarks, we will also be available for questions. Turning to slide two, cautionary statements. Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and involve risks as shown on slide two, in our earnings release, and in our 10-Q filing with the SEC. These and other risks could cause results to differ from those projected in the forward-looking statements. Non-GAAP measures cited in this call and related slides are reconciled in both the slides and the news release. We have also published our 2025 sustainability report earlier this week, which is available on our website. Please note, as we discuss financial figures and projections throughout this presentation and in the earnings release we are referring to our continuing operations unless otherwise noted. This reflects the sale of the Casa Berardi operation that closed at the end of March. I will now pass the call over to Robert. Thank you, and good morning, everyone. Robert L. Krcmarov: Before I get into the quarter, I want to take a moment to acknowledge where we stand as a company now because I think the context matters. Eighteen months ago when I joined Hecla Mining Company, this company carried nearly $550 million of net debt. Today, we carry no long-term debt, none. That transformation and what it unlocks for shareholders is really what this call is about. So turning to slide three. Hecla Mining Company enters 2026 in the strongest financial and strategic position in the company's recent history. As North America's premium silver producer, we have six core attributes that really distinguish us from our peer group: a silver legacy stretching back to 1891; operations exclusively in the United States and Canada; peer-leading silver exposure in both revenue and reserves; a reserve life roughly double that of our peer group; a deep and advancing project pipeline; and a cost structure that positions us as the lowest cost producer in our peer group. These will help to support our premium valuation and make us a premier destination for silver investors. Turning to slide four. The Casa Berardi sale in March was a deliberate, well-timed decision. We harvested the cash flows to that point, secured substantial value including a 9.9% equity stake in Orezone and the deferred cash consideration, and we freed ourselves to do what we should be doing: directing our capital and management's attention towards our silver growth platform. And then on April 9, about four weeks ago, we redeemed our final $263 million of senior notes. So Hecla Mining Company is now free of long-term debt, for the first time in many years. We have a fully undrawn $225 million revolving credit facility and a cash balance that is building on strong operating performance in the silver market. What excites me is what comes next. Across the portfolio, from the Greens Creek pyrite concentrate circuit and tailings reprocessing project to the Midas restart opportunity in Nevada, we have a set of organic value creation opportunities that are compelling because of what they share in common. Each is screening to have lower capital intensity than a conventional mine development, though that assessment remains subject to ongoing evaluation, particularly for the early stage projects. That means the potential for robust returns on invested capital and real per share value creation. We believe in this value, and we are working hard to unlock it. Beyond these near to medium-term opportunities, I am very excited about our 2026 exploration program, representing a near doubling of exploration investment from 2025, which could be the thing that reshapes the long-term picture of this company. Turning to slide five. The numbers this quarter speak for themselves, and I am proud of what this team has delivered. Revenue from continuing operations exceeded $410 million, up 13% from the prior quarter and double what we generated in Q1 2025. Record adjusted EBITDA of $265 million and record consolidated free cash flow of $144 million with every single mine free cash flow positive, every one. We produced 3.9 million ounces of silver, roughly 3% more than the prior quarter, cash costs at nearly negative $3 per ounce and all-in sustaining costs below $10 per ounce. At today's silver prices, those are exceptional margins. The quality of those margins reflects how the transformation of this business is showing up in the numbers. Turning to slide six. Slide six puts our production outlook in perspective. We are guiding to 15.1 million to 16.5 million ounces of silver in 2026, a strong operational baseline. What I want you to see is the trajectory beyond that. Our project pipeline supports a potential pathway to 20-plus million ounces annually, and that is driven by Keno Hill's gradual ramp to 440 tonnes per day and the potential restart of Midas in Nevada. And beyond that, a potential Keno Hill expansion and possibly more growth from the Aurora and other mines in Nevada as well as the Libby project in Montana. But before we get to Midas, there are two near-term opportunities associated with our flagship Greens Creek mine in Alaska that I am particularly excited about. I want to make sure that they get the proper airtime today. So Matthew Blattman, our Vice President, Technical Services, will give an overview on those, and then give you an update on the Midas restart project. Matthew, over to you. Thanks. Turning to slide seven. First, I will discuss the Greens Creek pyrite concentrate circuit. Matthew Blattman: We are evaluating the feasibility and economic potential of developing a pyrite concentrate circuit at the Greens Creek mill. If successful, this project would generate an additional marketable concentrate stream, boosting overall silver and gold recoveries from the mill while potentially reducing the mine's reclamation liability significantly. There is also additional upside through potential reserve expansion, as the inclusion of lower-grade silver in our sulfide blocks could grow the underground mineral reserves. The project is currently estimated to be low in capital intensity and could provide cash flow in about two years. We expect to provide another market update on this project in late 2026 or early 2027. Second, the Greens Creek tailings reprocessing project. We introduced this project to the market during our investor day this past January in New York. I want to be clear about where this sits today. We are still in the evaluation stage. We will make a development decision once the test work is done. What makes this project compelling is what is sitting in the dry stack facility at the site: an estimated 10.4 million tons containing an estimated 50 million ounces of silver and nearly 600,000 ounces of gold, along with several other critical minerals. At year-end 2025 prices, the gross metal value of what is in the facility was approximately $6.8 billion. I stress gross value because that is before recovery rates, processing costs, and the capital required to actually extract the metal. We have a third-party partner advancing phase-three metallurgical test work which we expect to complete around mid-2026. That test work, along with confirming a suitable processing facility, is what will determine whether and how we move forward with this work. Early results have been encouraging, and the indications are that this does not require the kind of capital you would need to build a new mine from scratch. We will have more to say on that once the test work is in hand. On top of the potential cash flow, reprocessing the tailings has the added benefit of potentially reducing the mine's long-term reclamation liability, turning what is currently a liability into a source of value. Finally, the Midas restart project in Nevada. As you know, Nevada is considered one of the best jurisdictions in the world for mining, and we have three highly compelling projects in the state that we are planning to advance this year through exploration and other work. Midas, the most advanced of the three, is a historically high-grade silver and gold operation we acquired as part of the Klondex transaction. It has fully permitted infrastructure that meaningfully reduces the capital required to bring the asset into a cash flow state. We are evaluating a hub-and-spoke operating model, where ore sources from multiple regional properties, including the nearby Hollister project, are transported to and processed through the existing 1,200-ton-per-day permitted mill. The site also has an adjacent permitted tailings facility with approximately 15 years of storage capacity. We have allocated $16 million to Nevada exploration in 2026, more than three times last year's investment. Kurt D. Allen will give you an update on the latest drilling results in a moment. Our goal is to establish a resource big enough to warrant investment and a restart. Let me be clear. With the grades we are hitting, the target is well below a million ounces of gold equivalent to get started. This targeted resource is expected to form the basis for a restart PEA. Now I will turn the call over to Carlos for the operations review. Carlos Aguiar: Thank you. Before I walk through the mines, I should mention that we have reiterated our production and cost guidance for the year. You can find that summary on slide 22. Turning to slide nine, starting with Greens Creek. In the first quarter, the mine produced 2.2 million ounces of silver and 13,000 ounces of gold. Total cost of sales came in at $82 million, with cash costs of nearly negative $12 per ounce and AISC of negative $8.39 per ounce, both after by-product credits. Those are best-in-class numbers, and they reflect the strong by-product revenue we are getting from gold, zinc, and lead. Cash flow from operations was $131 million and free cash flow was $126 million, a very strong quarter. One thing we are highlighting operationally: Greens Creek set a record for underground backfill placement this quarter, placing nearly 164,000 tons, which is 16% above the 2025 quarterly average. That is a meaningful achievement because it gives us more operational flexibility and better ground stability as we move through the rest of the year. Turning to slide 10. Lucky Friday produced 1.2 million ounces of silver in Q1. Total cost of sales was $49 million. Cash costs were $12.07 per ounce and AISC was $23.78 per ounce, both after by-product credits. Free cash flow was $49 million. On the operating side, truck haulage was up 10% over the prior quarter, although that was partially offset by an 11% decline in the mill grade. That is a fairly typical outcome given the grade variability you naturally see at Lucky Friday, and we do expect average silver grade to improve in the second quarter. On the surface cooling project, construction is 81% complete, and we are on track to finish by mid-year. This is an important long-term investment designed to expand cooling capacity over the mine's roughly 15-year reserve life so we can continue mining safely and productively at depth. Turning to slide 11. At Keno Hill, we produced nearly half a million ounces of silver in Q1, and free cash flow was $16.3 million. I want to point out that this marks four consecutive quarters of positive free cash flow at Keno Hill, demonstrating profitability at current throughput rates and silver price. Production in Q1 was impacted by two things: reduced power supply from Yukon Energy Corporation due to the extreme cold weather that carried over from Q4, and lower silver grades as we mined through a lower-grade zone of the Bermingham deposit. The good news is both of those headwinds are behind us. We expect mill rates to improve in Q2 as we mine into higher-grade areas, and the power constraints have been resolved. With that, I will hand it over to Russell for the finance update. Russell D. Lawlar: Thank you, Carlos. As we turn to slide 13, let me take you through our financial results. As Mike noted in the cautionary statements, what I am about to discuss is based on results from our continuing operations, meaning that the impact from our sold asset, Casa Berardi, is excluded from these figures. The first quarter was record-setting for a number of financial metrics. Revenue from continuing operations was more than $410 million, up 13% over the prior quarter and double the level from the first quarter of last year, reflecting continued operational execution and significantly higher realized silver and gold prices. As you can see on slide 13, 73% of our revenues came from silver, and all of that revenue came from either the United States or Canada. This fundamentally sets Hecla Mining Company apart from peers in both categories and provides significant value to our shareholders. What is more important, though, is the return on these revenues. As you can see from the graphs on the bottom of the slide, we realized a margin of 90% of the realized silver price during the quarter, which is truly phenomenal. This margin translated to substantial free cash flow from all our mines, which as expected was led by Greens Creek at nearly $126 million for the quarter. However, Lucky Friday was also impressive at almost $50 million, while Keno Hill generated $15 million even though it is still in the ramp-up stage. I will speak more about how we will allocate this capital in a couple of slides. Turning to the balance sheet, we ended the quarter with $588 million in cash and total debt of $266 million, resulting in a net cash position of $321 million. This is a significant strategic inflection point and a significant milestone. The chart on this slide in the upper right-hand corner illustrates just how dramatically this picture has improved in a fairly short period of time. As Robert mentioned, it is something that materially de-risks this company and adds substantial shareholder value. After quarter-end, we redeemed our remaining $63 million of senior notes, leaving Hecla Mining Company with no long-term debt for the first time in many years. We now carry a fully undrawn $225 million revolving credit facility with a $75 million accordion, representing the strongest balance sheet in the company's recent history. Turning to slide 14. I would like to turn our attention to what the entire suite of assets can do over time at different price decks. The chart you see on the slide has been updated for Q1 results and illustrates projected 2026 consolidated free cash flow across a range of silver and gold prices. At $100/oz silver and $5,500/oz gold, we project over $900 million of consolidated free cash flow for the full year. At price assumptions of about where we are today, $75 silver and $4,500 gold, we project over $700 million. This incredible cash generation capability provides substantial flexibility and strategic alternatives we will discuss on the next slide. Our capital allocation framework on slide 15 reflects a disciplined, priority-ordered approach. Safety and environmental excellence comes first. It is the foundation of our license to operate. Investment in these priorities is nonnegotiable. As we move to investing in sustaining and growth capex where we see target returns in the 10% to 15% range, these investments are the lifeblood of our company and provide future value for further investment. We will hear from Kurt in a minute on exploration. However, our potential to add shareholder value through the drill bit is exceptional. We have increased our investment this year as we de-risked our balance sheet, freed up cash flows, and would expect, with success, the potential to continue to increase these investments—investments in the future. I discussed the balance sheet strength and deleveraging and the value that this brings to our investors on the previous slide. However, we will continue to add cash to our balance sheet while maintaining high-quality investments in our business. Strategic investments are evaluated on a return on invested capital and per share accretion basis, but do not come around often, and thus, we need to maintain a strong balance sheet to be able to make these investments when those opportunities arise. Additionally, considering our best-in-class mines with long lives, low costs, in the best jurisdictions, we do not feel rushed to make any strategic investments. We will be in a position to do so when the time comes. And finally, shareholder returns round out the framework. With a debt-free balance sheet and record free cash flow, we are focused on securing a cash balance capable of funding our project pipeline and surfacing value for our shareholders. And as we do so, we will begin to consider capital return to our shareholders. We currently have a share repurchase plan which has been board-approved for 20 million shares. I want to put that in context for a moment because I think it speaks to something that distinguishes Hecla Mining Company from our peer group. Our peers have pursued growth aggressively through M&A over the past five years—deals that diluted their shareholders by more than 50% in some cases. Hecla Mining Company's share count has grown at a fraction of that rate, and the result on every per share metric that matters—silver production, reserves, revenue—we rank first among our peers. We are the only silver producer in our peer group to have grown silver production per share over that period. That is the discipline we intend to carry forward. So as we accumulate cash, and if we see dislocation in our value versus the underlying fundamentals, we will not hesitate to deploy capital through buybacks, as long as it meets our return on capital criteria. I will now turn the call over to Kurt for the exploration update. Kurt D. Allen: Thank you, Russell. Turning to slide 17. 2026 marks the transformational year for Hecla Mining Company's exploration program. We are investing $55 million in exploration and pre-development, which is an all-time record. We structured the programs across three priority areas, and I expect more and more activity across a number of sites as we move into the warmer months. At our producing assets, we are aiming to more than replace reserve depletion, and I am very excited about our Nevada growth projects, with drilling ongoing at Midas, starting up at Hollister in June, and at Aurora in July. The Aurora gold and silver project in western Nevada really has me most excited. It is earlier stage than Midas, but arguably carries the greatest long-term discovery potential. With historic grades averaging over two ounces per ton gold equivalent, and seven drill-ready targets now defined across the large land package, Aurora has the hallmarks of a district that has been underexplored rather than exhausted. Critically, Aurora has its own 600-ton-per-day permitted mill on-site, which means that if exploration delivers a compelling resource, the capital threshold to production is materially lower than a blank-sheet development. While I have been to Aurora multiple times, Robert has recently visited the project, and we are both very eager to see our initial drill targets tested. Turning to slide 18. Our drilling on the Center Offset Vein at Midas continues to build our understanding of this high-grade gold and silver system. Drill hole DMC-476 returned 0.21 oz/ton gold and 1.6 oz/ton silver over 2.3 feet, extending the known vertical extent of narrow high-grade mineralization along the Center Offset structure to more than 500 feet. We have now defined the strike length of this structure over 1,350 feet, and drilling will continue to step out to the southeast, where the structure remains open, as well as to the northwest. Two additional holes also intercepted parallel high-grade structures, reinforcing the prospectivity of this area. We will be providing regular Nevada exploration updates throughout 2026. I will now turn the call back to Robert for closing remarks. Robert L. Krcmarov: Thank you, Kurt. Let me start with the market, because it really sets the stage for everything else. Recently, the World Silver Survey was released, and it confirmed 2025 as the fifth consecutive year of supply deficit, with cumulative stock drawdowns now exceeding 700 million ounces since 2021. That is the kind of structural tightness that does not resolve overnight, and we are not seeing new mine supply coming online in any meaningful manner over the medium term. Prices have been volatile year to date—that is the nature of this market. The gold-to-silver ratio sits around 65 to 1 today, well above the trough that we saw in the last silver bull market, and history tells us that ratio compresses as silver outperforms. We do not know exactly when that is going to happen, but what I do know is that Hecla Mining Company—debt free, with record free cash flow, and the best silver exposure in the sector—is a really compelling way to be positioned for when it actually does. The six attributes on this slide—legacy, jurisdiction, silver focus, reserve life, project pipeline, cost structure—they are not just a list. They are the result of deliberate choices made by this team over the past eighteen months. I believe they represent a differentiated investment case that the market will increasingly recognize: debt free, record free cash flow, clear organic growth pathway at low capital intensity. We are just getting started, and I look forward to keeping you updated throughout the year. We will now 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, 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 stand by while we compile the Q&A roster. Your first question comes from the line of Heiko Felix Ihle from Wainwright. Heiko, your line is now open. Heiko Felix Ihle: Hey. Good morning, Robert and team. How are you? Robert L. Krcmarov: Good morning, Heiko. We are well. Heiko Felix Ihle: Given the current commodity price environment, are there any longer-term capital projects that you are now more inclined to undertake at any of your currently operational sites, say in 2027 and beyond? You have mentioned a bit about the pyrite concentrate circuits and the tailings reprocessing project, but are there other things that maybe are not yet built into analyst models on a three-year plan, maybe? Robert L. Krcmarov: Thanks for the question, Heiko. Not really. We have basically highlighted the projects that we are focused on in the next several years. Some of them are obviously shorter term, like the pyrite concentrate project, which was discussed. That is a very near-term opportunity, perhaps coming on in the next couple of years. Beyond that, nothing really longer term unless we have spectacular success at Aurora. Operator: Thank you very much for your question. Your next question comes from the line of Wayne Lam from TD. Your line is now open. Wayne Lam: Hey. Thanks. Morning, guys. Maybe just curious—at Keno Hill, can you remind us what the permits are that are outstanding there that are limiting you from ramping up throughput? And if I recall, was that just on the back-end capacity with the dry stack tailings? And just wondering, with the potential resolution of the Victoria Gold sales process recently announced, do you view that as maybe providing some visibility to permitting that would allow you to ramp up the mining rates there? Robert L. Krcmarov: Thanks for your question, Wayne. On Victoria Gold, it does not really affect us other than at some point, when they are ready, they are going to be competing for a little bit of permitting bandwidth. But I do not expect anything is going to happen there in a hurry. Some of the outstanding issues there—the leakage that is still happening that needs to be resolved; a robust relationship like the one we have with the First Nation in Na-Cho Nyäk Dun that we have built and maintained—that needs to be established, all that credibility. So I cannot see that really affecting us in the short term. On the permits question, I have Matthew Blattman, our VP working on permitting. I am going to defer to him because he has been very heavily involved with it and his team. Matthew. Matthew Blattman: Thanks, Robert. Keno Hill's permitting path involves two processes. First, we have to submit a project proposal to YESAB, which is the Yukon Environmental and Socio-economic Assessment Board. We expect to do that by year-end, then YESAB takes about twelve months to complete its review. After which we will submit two permit applications: the QML, which supports the mining license, and a water license amendment. Those amendments are really about removing some of the long-term constraints. Those constraints include constraints on waste rock, on tailings, and on water treatment as well as some other things like power and camp space. Our current estimate is that the amended permits could be received sometime around mid-2029, although, of course, there is variability around permitting. In the short term, between now and the time we receive those permits, there are a few constraints that continue to hold Keno Hill back. In the near term, we need approvals on our Phase Two West tailings from the regulators, which would allow us to expand the Phase Two tailings. Then after that, waste rock potentially becomes a limitation under both the QML and the water license. Receiving these long-term permits in mid-2029 is critical to our long-term success. We are running up against waste production limits and storage capacities in the near term, but we are actively engaged with the regulators to get some short-term relief until we receive those permit amendments. Wayne Lam: Okay. Thanks. So I guess you had previously outlined a very gradual phase ramp up there. So I guess there is no potential to kind of fast track the ramp up of development on, say, Bermingham or Flame & Moth or some of those infrastructure items so that when you get the permits, you would be in position to quickly accelerate to the 440-permitted rate or even 600 imminently? Robert L. Krcmarov: The 440 rate is going to be a gradual ramp up. Again, it is a sequence of permits. In the meantime, we need to manage the water. The more development you do, the more water you expose and the more water you need to treat. All these things are tied in. I cannot see that there is really a way to meaningfully accelerate this project. I would say there are some risks with permitting, but I would think of any potential curtailment as really a bridge problem—it is not an asset problem. The reserves do not change. Obviously, if there is a delay, that has time value of money impact on IRR, but we have a 16-year reserve life. We have very, very strong economics even at $30 silver. That does not go away. Our focus again is on that permitting work that keeps us running. And I would note what we talked about earlier in the call—$15.3 million in free cash flow at Keno Hill in Q1—and that is the trajectory that we are protecting. On the 600 tonnes per day and beyond, that is really future; that is going to require a whole new wave of capital investment and additional permitting. We are not focused on that. We are really focused on the here and now. Wayne Lam: Okay. Understood. Thanks. And then maybe just with the high-yield notes paid down—obviously the balance sheet is in pretty great shape. In a very different market, you guys had previously rolled back the silver-linked dividend component. But in the context of your peers now increasing capital returns and linking those returns to cash flows, is that something that we could see sometime soon with a similarly linked component given the cash generation projected ahead? Russell D. Lawlar: Thanks, Wayne. I can take that. Certainly, in our prepared remarks, I mentioned that we are looking at capital returns. But we do believe that investment in our business brings better returns than it does in terms of shareholder returns. However, we do have a strong balance sheet, like you said, and we have deployed significant cash to debt redemption as compared to, if you look at our peers, many of our peers have refinanced or kept the debt on their balance sheet. So we have a little bit of a different strategy there to try to return long-term shareholder value that way. But we will be discussing with our board how and what our return on capital strategy should be. I would say stay tuned to that. We will continue to discuss that with the market as time goes along. But we want to make sure that we adequately fund all of the growth opportunities that we have internally. That is really where the value is created in this business. Operator: Thank you for your time. Your next question comes from the line of Cosmos Chiu from CIBC. Your line is now open. Cosmos Chiu: Hi. Thanks, Robert and team. Maybe my first question is a follow-up. In the MD&A, you mentioned that the 440 tonnes per day at Keno Hill is a medium-term target. But what is medium term? It sounds like you might need the permits. So is medium term 2029—you are not going to be able to hit the 440 tonnes per day until you get those permits sometime in 2029. Am I reading that correctly? Robert L. Krcmarov: Yes. As Matthew pointed to, there are a couple of key permits that we really need to get by 2029. Until we get those, it remains a challenge between now and the time we get our permit amendments. That really unlocks the value. We are expecting that to be mid-2029. Cosmos Chiu: Understood. And then maybe at Greens Creek, and elsewhere as well, I saw that there was a bit of inventory buildup. There was inventory buildup last quarter. I think you are working through it. So, for example, silver and zinc is now kind of—sales equating to production—but precious metals, you are working it through, but it is still not completely worked through. Lucky Friday sales were lower than production in Q1. So holistically, what is causing the inventory buildup? When do you think you can work through some of that through sales in subsequent quarters, and how long is that going to take? Russell D. Lawlar: Thanks, Cosmos. I will take that. In terms of inventory and accounts receivable, keep in mind that at Greens Creek we have our own deepwater port that we control. That is actually a huge strategic asset to us. But what that means is our shipments go out generally once a month, and they are very lumpy. So depending on when the ship leaves the port, you may have inventory that is sitting at the port, or you may have AR that is sitting in your accounts receivable. We do have opportunities to advance the receipt of accounts receivable, but when we take a look at it, especially with the balance sheet that we have, it is really accretive to our investors for us just to wait and get those funds in the normal course of business. So that is what you have seen probably more in the past year than previously—we are making those decisions with a longer-term view because of the lack of debt and less leverage. I would suggest it is really a timing difference, and quarter to quarter it is going to be challenging to determine exactly when those ships will leave and when the AR might be collected. What I would say is that the accounts receivable that we had on our books as of the end of the quarter was mostly collected in the next thirty days. We also see, because we are concentrate producers, as the price of silver goes up, the pricing on shipments will be a future month, so we see the value of the accounts receivable go up as well. So that is part of what you are seeing in accounts receivable. As it relates to Lucky Friday, we generally ship on a weekly basis, and therefore it depends on when during the week the month falls, which determines what the AR or the inventory is. Cosmos Chiu: Great. Then in terms of Greens Creek, it sounds like there are interesting projects that you have in place, and it is good that you have announced the pyrite concentrate project as well. In terms of return on invested capital, what kind of hurdle rate are you looking at for some of these projects? And for the pyrite concentrate project, to the extent that you can share, any potential penalty elements in that concentrate and what is the market like right now for pyrite concentrate? Robert L. Krcmarov: In terms of return on invested capital, we have not isolated it for that particular project, but it would be very compelling given that it is a fairly low capex project. I am going to guess around $40 million to $50 million for a circuit as a starting point. So I would expect the return on that investment to be really quite compelling. Our corporate target is 12% to 15%, and this will easily fit in that. With regards to the pyrite concentrate market, my understanding is it is very strong, and that is why we are looking at it. This also potentially unlocks more reserves as well as contributes to revenue. Russell D. Lawlar: The only thing I would add, Cosmos, is that we have run these things internally, but we are very early in the process. I do not want to give a specific number that we would have to reel back because there is a lot of work left to do. In the work that we have done, looking at treatment charges and refining charges for both gold and silver and the payabilities, we are being conservative. Even with what I would hope are conservative, longer-term treatment and refining charges, it is still very compelling. That is about all the detail we have right now until we are able to do a bit more work and really put a holistic study around it. Robert L. Krcmarov: The other thing I forgot to mention is that it also reduces our reclamation liability. Multiple benefits here. We are very excited about this project and also the fact that it is low capital intensity and near term. Cosmos Chiu: If you do get the go-ahead for it sometime down the road, can these projects happen concurrently—the tailings recovery and the pyrite concentrate? Robert L. Krcmarov: Spot on, Cosmos. We are working on both streams. They are not going to land at the same time—the pyrite concentrate is obviously much shorter term. Just to remind you, for tailings reprocessing, our phase-three testing is underway at the moment. The samples have arrived in the laboratory. If we get success on that, we will update the market later on this year. The next stage would be progressively scaling up to a pilot plant potentially, and then scaling up beyond that. That is earlier stage and probably not going to deliver before the pyrite concentrate, but we are working on both of them at the same time. Cosmos Chiu: Great. Thanks, Robert, Russell, and team for answering all my questions. Operator: Your next question comes from the line of Alexander Terentiew from National Bank. Alexander, your line is now open. Alexander Terentiew: Good morning, and congrats again on another good quarter. I just want to follow up on Keno Hill. To get to the 440, you are talking about mid-2029 to get those permits. You previously talked about slowly ramping up over the next few years. Is that still the plan with that timing, or should we assume more steady state until then? Matthew Blattman: Hi, Alexander. I think we are looking at more steady state. Some of that will be dependent on ongoing discussions with the regulators, trying to provide short-term relief. But I think you can expect a steady state or, in some cases, slowing down a bit to make sure that we are maintaining capacity. Alexander Terentiew: Great, thanks. On capital returns, you noted you are going to have some discussions with your board on capital return strategy. You also mentioned you have a share buyback in place. Is this something that you plan to have as a program or be more opportunistic? How are you approaching that? Russell D. Lawlar: We need to discuss that with our board and ensure that we are all aligned on a holistic strategy. I would also suggest that any investments we do make from a shareholder return perspective still have to meet the return on investment criteria that we have outlined for investments we make in our business as well. We will be looking at it from that perspective. Alexander Terentiew: That makes sense. Last question, if I may. Greens Creek had another really good quarter here—beat my numbers at least based on grade. If you look at annual guidance, this was above 25%. Was that in line with expectations, those better grades? Do you see any planned downtimes or lower-grade phases that we could expect for the rest of the year? Is there room for the guidance to possibly even be improved a little if you are hitting better grades than expected? Carlos Aguiar: We are reiterating our grade and cost guidance for Greens Creek, and we are expecting similar grades for the remainder of the year. Alexander Terentiew: That is good to see. Thank you. That is it for me. Operator: Thank you for your questions. Your next question comes from the line of John Tumazos from John Tumazos Very Independent Research. Your line is now open. John Tumazos: Thank you for taking my question. How should we compare the new Midas mine to the old one that Dr. Ken Snyder and the team started up? Should we think of it as 500 tons a day, half an ounce gold, 10-to-1 silver? Might the tons be more? Robert L. Krcmarov: Thanks for your question, John. I would say it is almost certainly going to look different from the old Midas mine. Two things here. The starting resource at Sinsa, which I have flagged previously, is roughly between 180,000 to 200,000 ounces at very high grades. It is a narrower orebody. The extensions that Kurt and his team have found are again narrow and very high grade. The mill is rated at 1,200 tonnes per day, so that is what we have to play with. We are looking at potentially multiple ore sources from the Sinsa area. We are also relooking at any potential remnant mining at Midas itself. That is a study underway, and you will recall that Midas was closed at a significantly lower gold price than where we are today, so there are potentially some wins there. We have potentially multiple ore sources, and it is not going to look exactly like the previous Midas operation. The one thing that is constant is that there is a permitted limit of 1,200 tonnes per day for the mill. John Tumazos: Thank you. I am unfamiliar with Aurora. Could you tell us whether it is an open pit heap-leach target, what the range of grades might be, whether it has much silver in it, or whatever we know thus far about Aurora? Robert L. Krcmarov: Thanks for that. I am going to ask Kurt to chip in in a minute, but I have to say, as Kurt pointed out, I went out to Aurora about four weeks ago. I had heard Kurt talking very excitedly about Aurora in the past, and when I went out there, I get it. You walk around on the surface and there are historic open pits and historic undergrounds. There are veins with incredible intensity that just run for kilometers. And Kurt's favorite target has never had a single drill hole in it. Kurt? Kurt D. Allen: Our targets that we have defined are underground mineable targets. We are not focused on open pit mineralization there at this point. There has been open pit mining at Aurora in the past, but we are really focused on high-grade underground mineable targets. Really excited about this project. John Tumazos: Is it gold only, or is it gold and silver? Kurt D. Allen: It is gold and silver, probably a one-to-one ratio. For the most part, it is high-grade gold, but there is associated high-grade silver with that as well. John Tumazos: Thank you. If I could ask one more. Coeur and Pan American each made large silver acquisitions in Mexico. I know you are sticking to the U.S. and Canada. Now that your balance sheet is very strong, is it possible to consider an acquisition, and if so, would it be limited to the U.S. and Canada? Most of the silver targets are in Latin America or spread around the world. Robert L. Krcmarov: Good question. One of the things that really differentiates us, as I pointed out in the opening slide, is that we operate in safe jurisdictions. You have to go where the silver is, and given the scarcity of primary silver deposits, we would consider other jurisdictions, but again, that has to be in relatively safe jurisdictions. As a rule of thumb, anything in the top third of the Fraser Institute index we would do a proper analysis on. We would not accept it at face value and would understand those risks before we moved. So we would potentially go offshore, but in a safe jurisdiction. On M&A, we have outlined our organic growth projects. That is really what we are focused on. Obviously, we continue to look at opportunities—you never stop looking in this business—but we are not really interested in getting bigger for its own sake. Scale alone does not create value, and I think Russell discussed the dilution that comes with doing M&A. It is an easy trap to fall into and one we have consciously rejected. Again, what we are really focused on is long-term shareholder value creation on a per share basis, and that governs all the decisions that we make. We are going to be disciplined if and when we do M&A. It is really going to be about jurisdiction—safer jurisdictions—precious metals focused with a strong silver bias. Exceptional gold assets we will consider, but only if they are compelling cash generators that would really fund our overall silver strategy. Silver first. We would also have to see a clear competitive advantage for us in operating the asset, whether that is district consolidation, leveraging existing infrastructure, our technical capability, or exploration upside—whatever that is, we would need to see a competitive advantage—and financial returns, obviously, as Russell talked about. Right now, the M&A environment is pretty active. There is competitive pressure to move. We understand that, but we have seen what happens when companies acquire out of fear of missing out rather than conviction, and we are not going to do that. We are not acquisition-dependent for growth. Our internal pipeline is our main focus, but we will obviously be opportunistic. John Tumazos: Thank you and congratulations. Operator: This completes the time allocated for questions. If you have additional questions, please reach out to Mike Parkin via the Contact Us link on the website. I will now turn the call back to Robert L. Krcmarov, President and CEO, for closing remarks. Please go ahead. Robert L. Krcmarov: Thank you, Hillary, and thank you all for your time and your questions this morning. This team has worked hard to get Hecla Mining Company to this point—debt free, cash generative, and with the best silver exposure in the sector. The fundamentals are with us and we are just getting started. Have a great day, everyone. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
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.