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Operator: [Operator Instructions] With that, I'll hand it over to CEO, Jan Rindbo; and CFO, Martin Badsted. Mr. Jan, please go ahead. Jan Rindbo: Thank you very much, and hello to everyone. Thank you for joining. Let me start by just giving you just a brief introduction to NORDEN. We are a leading global operator transporting the essential commodities for industrial customers worldwide. We have a capital-efficient fleet strategy combining owned and chartered vessels, which enable us to navigate market cycles and deliver competitive returns. So today, we will take you through our performance and the strategic positioning of the company. So let's dive straight into it, and let's do that with probably one of the most discussed topics at the moment, the conflict in the Middle East, which obviously are having big impact on both the markets and operations. So we see, obviously, on the tanker side, strong support on the tanker rate. We've seen surging spot rates where tankers are in high demand to help rebalancing oil markets in view of the lack of the oil supply that's coming out of the Middle East. The dry cargo market reaction has been more muted. And here, it's probably more the additional operational impacts and costs that affect the business. We have seen, obviously, with higher oil prices, a significant increase in the bunker costs. So they're up roughly around 50% since the start of the conflict. That does not directly impact NORDEN because we hedge the directional risk of the oil price, but we are seeing physical delivery premiums have spiked that cannot be hedged. NORDEN has, as you can see here on the map, we have 7 vessels inside -- trapped inside the Persian Gulf, 6 dry cargo vessels and 1 tanker. And we have obviously suspended all new business coming into the region. But we'll obviously touch much more on the situation in the Middle East later in the presentation. If we look at the highlights, the financial highlights of the quarter, we've made $11 million net profit in the quarter, which is giving us a return of just under 8% on the return on invested capital. We have a very strong operational cash flow of $172 million in the quarter. And what is probably the most significant development overall in the quarter has been this increase in the net asset value of our business and our fleet of 11% since the end of the year. So in just 1 quarter, the net asset value of the company has actually gone up by 11% to now stand at DKK 422 per share. And we continue to return cash to investors. In this quarter, we are continuing with a quarterly dividend of DKK 2 per share. And on top of that, we have a share buyback program of $25 million, and that brings the total payout to $35 million for this quarter. When we look at the group fleet overview, we continue to be very active in optimizing the fleet. We have, in this quarter, sold 7 vessels, 4 of those are from declared purchase options. We also continue to lock in longer-term earnings through time charter out. So we've done 8 long-term deals on time charter to secure forward earnings. We also continue to add ships. So we have actually added more ships than we have sold. We've added 11 vessels in the quarter, 8 leases with purchase options, and then we have purchased 3 vessels. And we continue to sit on this big portfolio of purchase options. We have 91 in the portfolio, of which 33 can be declared over the next 2 years at prices that are currently 22% below current market prices. And if we dive a little bit more into the fleet and look at the fleet composition, you will notice here that we are mainly on the ships that are exposed to what we call the positioning margin. So that's more the ships that are dependent on directional market calls. So typically, the larger dry bulk vessels, but also the MR ships. So here, we have specifically sold 1 Cape and chartered out 3. We've sold 2 Panamaxes. On MRs, we have sold 2 ships and time chartered out 5 ships. So quite a lot of activity on these large and medium ships but predominantly reducing exposure in those segments. And then the ships that we are adding to the fleet have all been in what we call the smaller vessel sizes. They are more exposed to the base margin part of the business. This is the core operating margin that is not dependent on the market direction, but this is where a combination of cargoes, reducing ballast time, loading more niche type cargoes add additional margin. And here, we have added 2 Handysize ships to the core fleet and then 9 Multipurpose ships. So we now have built a core fleet of Multipurpose ships of 22 vessels. And strategically, this is sort of one of the areas that we are focused on building. Most of these ships are newbuildings. The first one will deliver later this year, and then this fleet will deliver in the coming years. One deal stands out in the quarter, and that is that we have signed a newbuilding contract for two ice-class multipurpose vessels. Those ships are ordered against a long-term contract that we have signed with a Swedish mining company, and the ships will be used partly to perform that contract when they deliver in 2028. With that, I will hand you over to Martin, who will talk a little bit more about our NAV. Martin Badsted: Thank you very much. Yes, as Jan already alluded to at the highlights page, the NAV developed quite positively during the quarter, up 11% to DKK 422 per share. And it was actually a broad-based increase in the value of assets, both in dry and in tankers. You'll see from the table here that currently, actually, in terms of our own fleet, the majority of the value, $800 million lies within dry, whereas $200 million are in tankers. But when you look at the value of the TC portfolio, including purchase options, it's actually a little bit overweight tankers with $263 million. On the right-hand side, you will see a sensitivity analysis of what happens to the DKK 422 per share if we change both the forward curve and the asset values by 10% or 20%. And you will see the outcome ranging from DKK 308 to DKK 559 per share, all actually either in line or above the current share price. Sorry for that. It's a little bit slow. So looking at the market development in dry, it was actually a fairly strong quarter. When you look at the turquoise line in the middle of the graph, you will see that the spot rates for Supers, as an example, were far higher than 2025. Actually, they were up 41% over the quarter. And that was mainly driven by the standard commodities, iron ore, bauxite, grains, whereas coal was actually quite weak, although we are seeing that changing currently. We do have a firm view on the long-term outlook for dry cargo, not least based on a favorable supply side, where you'll see on the right-hand side that the order book is actually matched more or less by the share of the fleet, which is over 20 years. So there's good reason to believe that you can actually still have favorable fundamentals in the dry cargo market going forward. Looking at our earnings in dry cargo, you will see that we made on an EBIT level, a loss of $45 million, which is, of course, unsatisfactory. It was mainly driven by dry operator large and small, which both made a loss in the quarter. Of course, some of this was related to cost as a result of the Persian Gulf conflict, where we both have vessels stuck within the Persian Gulf, but certainly also the regional bunker premium that Jan talked about in the beginning, which are hedged to the extent possible, but there is still some non-hedgeable items of the bunker exposure we have that has costed us quite dearly during the quarter. Of course, it's not all the Persian Gulf. It's also what we call regional positioning, which really means that we have decided to reposition some of our vessels from the Pacific into the Atlantic in expectations of higher Atlantic rates. The benefits from this have yet to materialize, but we still expect some of that to show up in Q2 earnings, and we do see gradual improvement in earnings in dry operators going forward. In tankers, it was a super strong spot market during the quarter, of course, driven by the dislocation of trade flows following the closure of the Strait of Hormuz. You'll see the graph here actually coming up to close to $70,000 a day. That was actually an average of very large regional discrepancies where the U.S. Gulf ramped up exports quite aggressively and paying rates close to $100,000 a day, whereas it was a little bit more muted, but still good rates of, call it, $30,000 a day in the East. The development in rates has turned around in recent days. And of course, the underlying problem here is that with the closure of the Strait of Hormuz, we are lagging 15% to 20% of volumes that will normally have occupied a lot of seaborne capacity. But also here, actually, fundamentally, we are not so worried about the supply side, as you will see on the right-hand side also here, the order book is matched more or less with the share of the fleet being more than 20 years old. But we do think some of this order book is starting to accelerate deliveries during the second half that should put some pressure on rates going forward. In tankers, we made a total EBIT of $47 million, and it was actually mainly in the dry owner, which has some spot exposure through our NORDEN product pool. The tanker owner made $37 million and the tanker operator just over $10 million in the quarter. And that brings me to the full year guidance, which, as you know, we upgraded end of April, and we raised it by $40 million to a new guidance of $70 million to $140 million and that includes a reservation of $30 million to cover possible costs for the 6 TC vessels that we have stocked within the Persian Gulf, which is really based on an assumption that those vessels may stay there actually until the end of the year before they can get out. The earnings that we expect for 2026 are quite front-end loaded, meaning that much of it should come in Q2 and then taper off within the second half of the year. And in terms of risk exposure, we have about 2,300 open tanker days and close to 7,000 open dry cargo days, all being long against the market. That concludes my part of the slides, and I'll hand you back to Jan. Jan Rindbo: Thank you, Martin. So this is just a reminder of the key drivers in the business model and how we approach markets. So we have these 4 drivers: dry cargo and tankers are 2 and then asset heavy and asset light the operating business. So we have these four. Our exposure to the prevailing market conditions. And what we are seeing now is that in a very, very high tanker market, we have decided to reduce exposure there and move more of that exposure towards dry cargo. And as we explained earlier on some of the previous slides, we have done a few deals to both sell tanker vessels but also take longer-term time charter contracts on tankers. And we now have, on average, around 80% cover for our tanker business until the end of 2028. So taking advantage of these high tanker rates and locking in long-term profits in that part of the business. That means that we have more exposure in the dry side. And within the dry cargo business, as we explained on one of the previous slides, we are moving exposure more towards the smaller segments where we have more impact on the earnings than just being driven by the market. And we think this flexibility in the business model where we have several drivers, realizing that it's not always all 4 drivers that will go at the same time. But over a rolling 5-year period, we can see that this generates higher returns than industry peers that are more specialized in just one segment. So this ability to switch between the segments actually has a lot of value for NORDEN in the long run. If we move to the next slide and then look a bit more at the direction we are taking towards 2030, we see an opportunity to go even deeper in our relationships with customers. At a time where there is a lot of focus on supply chains and geopolitical uncertainty, NORDEN stands out as a reliable service provider in the freight industry, and that is something that we want to leverage and continue to build both more cargo networks with complementing contracts, but also have more efficiencies in the way that we operate the cargo book and the fleet. The expansion towards the smaller vessel sizes within dry cargo is also with a view to focus more on what we call the base margin, the core operating margins in the business and thereby reduce the volatility in our earnings because in the smaller segments, project cargo, minor bulk commodities, but also the logistics part of our business, it is less exposed to market fluctuations and thereby giving more stable returns through the expertise that we can provide in those segments. We will, however, continue to be focused on this adjusting our exposure and remaining what we call asset agile and continue to take the opportunities that we see in the market. So both buying and selling our vessels as an example, is largely driven by the opportunities that we come across in the market. And that sort of is an important part of providing strong upside in better markets. And that's exactly what we're seeing right now through the whole optionality portfolio where we have a lot of extension options and a lot of purchase options in our fleet. And in rising markets, there's a lot of value there that we can realize. And that brings me just to the last slide and just a few points here on the investment story in NORDEN. When you zoom out and look at the industry, we think actually the macro view of the industry is fundamentally very positive because when you take a longer-term view towards 2030 and beyond, we see an aging global fleet, both in dry cargo and in tankers. And we currently have a low order book, especially on the dry cargo side. So this replacement need of all these older vessels is not currently being met by the order book. And as we've also previously explained, all the geopolitical uncertainty and the dislocations are creating longer distances for transportation. And that means that we have a very healthy market balance as we see it. And even if -- even at times of lower economic activity, the inherent risk of a prolonged oversupply situation is much, much smaller than what we have seen historically over the last couple of decades. Our business model, point #2 here that we can adjust to the different markets that we are in, gives us huge flexibility to manage the risk through the market cycle and deliver better returns compared to a pure-play company. And then we have the strategic focus on expanding in areas where we believe we have even more impact ourselves in terms of our operating capabilities and really building this business that is more sophisticated, not least with the AI-driven opportunities that we also see in enhancing our decision-making and really bringing out the -- what we call the NORDEN platform, the value of being one of the largest operators in the industry and having a global network of offices close to our customers bring out all of that value as an important part of our strategic focus. And then the last point we're making here is that we continue with a relatively asset-light approach in our business model, but with the upside from purchase options on the asset upside that enables us to return a lot of cash to shareholders and have this disciplined capital allocation that over time, at least historically have driven a ROIC outperformance compared to the industry. I think with those words, let's turn over to the Q&A session. And hopefully, there are questions where we can put a little bit more color to some of the points that we have made here today. Operator: Thank you, Jan and Martin. And yes, we are now ready for the Q&A session. [Operator Instructions] But let's start off with a couple of the written questions here. They were originally in Danish, so this will be our translation. So the energy company, MASH Makes, which among other things, was supposed to produce biofuel for DS NORDEN's fleet, has gone bankrupt. It is reported that they were unable to raise capital for the next phase. You have been invested in the company since 2023. Can you tell us what loss you'll be taking in NORDEN's future financial reports in connection with this bankruptcy? Martin Badsted: Yes, I can respond to that. So when you look at the future financials, this will have no impact because all of it has been provided for in the current accounts already. So of course, we have been very happy to work together with the team behind MASH Makes and I think they have a very interesting technology. But I think the phase that they are coming into now means that they will need new investors to take this forward. Operator: And a follow-up question in connection with this. Can you tell us how this will affect your transition to biofuel? Are there new partners on the horizon or any concrete partnerships in the works? Martin Badsted: Our efforts to work on decarbonization and offering that also as a product or service to some of our clients is unaltered. So we have a strong belief still that biofuel is part of the answer for the shipping industry, and we are working with several partners to help them actually realize zero emission transportation based on our products. Operator: And the next question here is, as an investor, one has noticed that the bulk/dry cargo market for what is by now an almost excessively long period has not been optimal for NORDEN. The tanker market, on the other hand, is booming. Looking a bit into the future, where we also see risk of, for example, lower Chinese growth, wouldn't it make good sense for NORDEN to look more towards the tanker market over the coming 1, 2 years and prioritize this business leg more heavily? And do you agree with this analysis is also stated? Jan Rindbo: Yes. I think let me start by saying that going back to the business model that we have, both being in dry cargo and in tankers, there will be periods where one leg is more attractive than the other. And only a few years ago, it was the dry bulk business where we actually got the same question, why are we not just focusing on that? I think we've shown over time that the strength of having both activities, that's important. If you talk about the risk reward from where we are today, yes, clearly, tanker earnings are very strong right now, and it's attractive to be in tankers. But to invest further in tankers right now is also very expensive and quite risky. So the risk reward, we think, is more skewed towards the dry cargo side. That's also why we're running with relatively high coverage on the tanker business. We have actually made money overall in dry cargo last year. We are, of course, having a more difficult first quarter in dry bulk, which Martin also explained, there are some different drivers, some repositioning costs that will come back. So we do expect better dry cargo performance in the coming quarters. And of course, our focus is on obviously ensuring that we have the best possible performance. It also, a little bit, ties in with the strategic choice of going towards the smaller vessels where we have more impact on the results through our own operation and not just being driven by the market. Operator: And then a question related to the current situation in the Middle East. It goes, how do you see the scenario for yourself when the Strait of Hormuz is reopened, and peace returns to the region there? One would imagine you'll be extremely busy for an extended period with simultaneously high freight rates primarily for tankers. Do you agree with that expectation? If yes, how long might one expect it to last? And would you also have a positive impact on the dry cargo from this? Martin Badsted: Yes. So that's a very good question or a number of questions actually baked in there. But I think overall, our view is that the closure of the Hormuz Strait as we are seeing now is fundamentally negative for the tanker market. Yes, there have been some super short-term spot rate earnings in the last couple of months, but we think those are temporary. And after that, if it continues for that long, there will be a lag of 15% to 20% of normal seaborne volumes, which we think if such a demand hits that the market will be under pressure. But of course, if the Strait of Hormuz were to open tomorrow, I think you're right that there could be an added employment for, again, a temporary period because countries and companies would need to restock, and there would be quite a lot to do in that case. So it's very dependent on the time frame that we are discussing here. It's less of an issue on the dry side, where I think the impact on the market is more indirect through the impact on the macroeconomic environment. So if global economy suffers because the oil price goes to $150 a barrel, then that will also lead to pressure on demand within dry cargo. But overall, we think it's a fundamentally negative story with some very strong positive temporary effects that we have experienced in the last couple of months. I hope that answers your question. Operator: And then a more specific question towards the Tanker segment. Rindbo mentioned earlier today in the radio show Millionaerklubben that NORDEN has already secured coverage of 80% of the tanker order book through the end of 2028. Is that understood correctly? And does that mean you're looking to bring more tanker vessels into the business going forward? Jan Rindbo: Yes. So that is correct that we have covered now around 80% of our tanker capacity until the end of 2028. And bringing more tankers into the book probably right now in terms of long-term deals, so time chartering in ships on long-term contracts and buying ships. Right now, we don't think that that's the right time to do that. Prices are very high; rates are very high. That's why we've done the opposite, selling ships and taking in cover by charting out ships. Now, of course, how the market plays out in the coming quarters, if there's an opportunity, for example, in the scenario that Martin described that if there is a softening in tanker rates, then that could be an opportunity then to step in and take more capacity on again. So that is obviously part of the playbook in our business model that we can do that. But right now, we feel that the risk reward is not there to add tanker tonnage. Operator: A question related to this, tanker outlook beyond Q2. You say the market eases or expect to be easing in second half of '26. How severe could this easing be if Hormuz reopens quickly versus stay closed? Martin Badsted: Yes, that is a very difficult question. As I said before, if it opens immediately, there will be some short-term benefits from, I think, desired restocking. But if it lasts for a very long time, then we think, as we said, then the easing will come and being driven to a large extent by the lack of volumes, but also by newbuilding deliveries that will accelerate in the second half of the year. Operator: And we will then look at the dry cargo segment. There are a few questions here related to this. There's one here. Entering Q1, you were short on the dry bulk market. How much of the dry cargo loss can be attributed to a wrong positioning? Jan Rindbo: Yes. So that is part of the explanation, but it's not actually the main driver of the results in the first quarter, and we now have a long position also in dry going forward. The main driver of the results in the first quarter is the additional costs that we've seen following the conflict in the Middle East and then this repositioning of ships on lower-paying backhaul routes from the Pacific into the Atlantic and the benefit of then positioning those ships back at fronthaul rates will only come in the coming quarters. Operator: And another question related to dry cargo. Could you provide more detail on the bunker price impact in dry cargo during Q1, especially while the sharply higher regional bunker prices following the Persian Gulf conflict could only be partially hedged? And how much of this impact you expect to reverse or normalize over the coming quarters? Martin Badsted: Yes. So that's actually a very interesting question. And I think there are multiple sorts of impacts on the oil market overall. What you normally see based on quotes in the media and so forth is typically the development in the standard barrel of oil, where you've seen rising prices may be from $70 before the crisis up closer to $120, $125 per barrel. But on top of this, when you look at the diesel and gasoline and some of these refined products, then the price changes have been even more vehement and if you then look into the specific prices when you actually go into a bunker port in different regions, you've seen spikes that we probably have never seen before. And this goes to explain why even though we have a hedge framework that actually hedges all our flat rate exposure, if you will, sort of the standard price of oil, then you can't hedge what happens in local bunker ports here and there because there are no price indices, there are no derivatives to do the hedging. And that means that when you have to perform a cargo and you go into bunker, then suddenly you are met with very unpredictable and in this case, very high bunker prices that will then seriously affect the voyage results that you can incur. Operator: And another question to the dry operator segment here, you're still loss-making at USD 9.2 million. When do the multipurpose Handysize additions start to show up positively in this segment? Jan Rindbo: So the core fleet that we are building, so the 22 ships that we referred to earlier, the majority of those ships are newbuildings that will deliver in the future. And the first newbuilding will deliver to our fleet during Q3. That is the latest estimate for that delivery. And then it will ramp up through '27 and '28. So it will come over the next sort of 2 to 3 years in terms of that core fleet. And that includes these 2-ice class newbuildings that will deliver in 2028. Operator: And then a question related to the fleet and the options that you have here, let me just have a look. You sold 7 vessels year-to-date and then you have 33 purchase options in the money at strikes 22% below broker values. What's stopping you from declaring more of these now while asset values are at a multiyear high? Jan Rindbo: Well, one thing is that the underlying charter rate is very attractive compared to the current market rates, and then we have options to extend that as well. So in addition to the purchase optionality that we have, and there is also value in that. And when we look at the development on asset prices, we are quite optimistic that the prices are not going to decline substantially from the current levels because new yards are full with newbuildings. The markets, especially on both dry and tankers, underbuilt the current asset values. So we would like to both get the value out of the extension options and then subsequently also get the value out of the purchase options. And then I think it's also important to highlight that we are also from time to time, declaring purchase options without necessarily also selling the vessels at the same time. So we could also -- and we are also looking at declaring some of these options and then actually keeping the vessels in our fleet as owned vessels. Operator: And then a question related to your net asset value and capital allocation and what now seems to be the last question. Now it's up to DKK 422 per share, while the share price is around DKK 294, that's a 30% discount. You're distributing around USD 35 million for Q1. That's DKK 2 in dividend and a buyback of $25 million. With the share-trading well below now, would you not lean more aggressively into the buybacks rather than dividends? Martin Badsted: Yes, that I think it is a good question and something that we, of course, also have discussed. There is one problem, which is really that there are some legal limitations as to how big a share buyback program you can undertake compared to the general liquidity in the share in the market. So we can't actually do much more on the share buyback side than what we are doing. So we actually agree in the argument that it's trading at a discount. So it's a good place to actually invest, but we have maxed out on that opportunity already. Operator: Thank you. There seems to be no further questions. So I will leave the word to management for a final remark. Jan Rindbo: All right. Well, thank you for tuning in. Thank you for great questions related to the Q1 report. So thank you again for joining us here, and we look forward to seeing you again for the next quarterly presentation. Thank you. Martin Badsted: Thank you.
Operator: Thank you for standing by. My name is Jordan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2026 Vanda Pharmaceuticals Inc. earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Vanda Pharmaceuticals Inc.’s Chief Financial Officer, Kevin Moran. Please go ahead. Kevin Moran: Thank you, Jordan. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceuticals Inc.’s first quarter 2026 performance. Our Q1 2026 results were released this afternoon and are available on the SEC’s EDGAR system and on our website, vandapharma.com. In addition, we are providing live and archived versions of this conference call on our website. Joining me on today’s call is Mihael H. Polymeropoulos, our President, Chief Executive Officer, and Chairman of the Board. Following my introductory remarks, Mihael will update you on our ongoing activities. I will then comment on our financial results before we open the lines for your questions. Before we proceed, I would like to remind everyone that various statements that we make on this call will be forward-looking statements within the meaning of federal securities laws. Our forward-looking statements are based upon current expectations and assumptions that involve risks, changes in circumstances, and uncertainties. These risks are described in the cautionary note regarding forward-looking statements, Risk Factors, and Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of our most recent Annual Report on Form 10-K, as updated by our subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the SEC, which are available on the SEC’s EDGAR system and on our website. We encourage all investors to read these reports and our other filings. The information we provide on this call is provided only as of today, and we undertake no obligation to update or revise publicly any forward-looking statements we may make on this call on account of new information, future events, or otherwise, except as required by law. With that said, I would now like to turn the call over to our CEO, Mihael. Thank you very much. Mihael H. Polymeropoulos: Good afternoon, everyone, and thank you for joining us today for Vanda Pharmaceuticals Inc.’s first quarter 2026 earnings conference call. Vanda delivered strong commercial execution in the first quarter, highlighted by 26% year-over-year growth in Fanapt sales, the groundbreaking U.S. launch of Nirius with its pioneering direct-to-consumer platform at nirius.us, and the FDA approval of Dysanti. We believe that these achievements, combined with meaningful pipeline progress and our raised 2026 revenue guidance, position the company for continued growth and value creation. Financial highlights. Total net product sales reached $51.7 million in Q1 2026, a 3% increase compared to $50 million in Q1 2025. Fanapt net product sales were $29.6 million, up 26% year-over-year. Full-year 2026 revenue guidance was raised to $240 million to $290 million, including $10 million to $30 million from newly launched Nirius. Commercial highlights. Fanapt saw continued strong momentum with total prescriptions (TRx) up 32% and new-to-brand prescriptions (NBRx) up 76% versus 2025. In April 2026, weekly TRx for Fanapt reached an eleven-year high of over 2.6 thousand prescriptions for the week ending 04/24/2026. Nirius is now commercially available nationwide through nirius.us, Vanda’s innovative direct-to-consumer platform. This pioneering patient-centric model enables convenient ordering online with rapid direct delivery, eliminating traditional pharmacy barriers and providing a seamless modern access experience. As the first new prescription therapy approved for the prevention of vomiting induced by motion in adults in more than forty years, Nirius represents a breakthrough in both science and patient access. Some key regulatory and clinical development highlights. Dysanti (milsoperidone) received FDA approval for the treatment of bipolar I disorder and schizophrenia. Dysanti is protected by data exclusivity through 02/20/2031 and multiple patents, the latest of which expires on 05/31/2044. Vanda’s ongoing late-stage clinical studies are progressing rapidly and are expected to generate top-line results in 2026 or early 2027, including the Phase 3 study of Dysanti as a once-daily adjunctive treatment for major depressive disorder with results expected in Q1 2027; the third Phase 3 study of Nirius for the prevention of vomiting in patients receiving GLP-1 receptor agonist therapies with results expected in 2026; and the Phase 3 study of VQW-765 in the treatment of adults with social anxiety disorder with results expected by 2026. The FDA accepted the Biologics License Application for imsidolimab in generalized pustular psoriasis, with a Prescription Drug User Fee Act target action date of 12/12/2026. The results of the pivotal clinical study were published in the 04/28/2026 issue of the New England Journal of Medicine Evidence. In summary, 2026 is developing into a transformational year for Vanda Pharmaceuticals Inc. with an extensive and diversified portfolio of commercialized products that include Fanapt, Hetlioz, Hetlioz LQ, Ponvory, Nirius, Dysanti, and potentially imsidolimab by year-end. Our recent innovative launch of Nirius through the nirius.us platform revolutionizes customer experience through a convenient ordering system at a significantly discounted cash-pay price. Finally, our late-stage pipeline, with several Phase 3 studies, is poised to further diversify our portfolio and strengthen Vanda’s commercial presence for years to come. With that, I will turn now to Kevin to discuss our financial results. Kevin Moran: Thank you, Mihael. I will begin by summarizing our first quarter 2026 financial results. Total revenues for Q1 2026 were $51.7 million, a 3% increase compared to $50 million for Q1 2025, and a 10% decrease compared to $57.2 million for Q4 2025. The increase as compared to Q1 2025 was primarily due to growth in Fanapt revenue as a result of continued commercialization efforts for Fanapt in bipolar disorder, partially offset by decreased Hetlioz revenue as a result of generic competition. The decrease as compared to Q4 2025 was primarily driven by the impact of insurance plan disruptions and deductible resets that are typical in the industry at the beginning of the year. Let me break this down now by product. Fanapt net product sales were $29.6 million for Q1 2026, a 26% increase compared to $23.5 million in Q1 2025, and an 11% decrease compared to $33.2 million in Q4 2025. The increase in net product sales relative to Q1 2025 was attributable to an increase in volume partially offset by a decrease in price, net of deductions. Fanapt total prescriptions, or TRx, for Q1 2026, as reported by IQVIA Xponent, increased by 32% compared to Q1 2025. Fanapt new patient starts, as reflected by new-to-brand prescriptions, or NBRx, for Q1 2026, as reported by IQVIA Xponent, increased by 76% compared to Q1 2025. The decrease in net product sales relative to Q4 2025 was attributable to a decrease in volume and price, net of deductions. Fanapt TRx for Q1 2026 decreased by 1% as compared to Q4 2025. The decrease in volume was primarily driven by the impact of insurance plan disruptions and deductible resets that are typical in the industry at the beginning of the year and that we have observed with Fanapt and the broader atypical antipsychotic market in prior years. Historically, Fanapt inventory at wholesalers has ranged between three and four weeks on hand, as calculated based on trailing demand. As of the end of Q1 2026, Fanapt inventory at wholesalers was slightly above four weeks on hand, generally consistent with the level of inventory weeks on hand as of Q4 2025, but slightly above the historic range. Turning now to Hetlioz. Hetlioz net product sales were $15.9 million for Q1 2026, a 24% decrease compared to $20.9 million in Q1 2025 and a 3% decrease compared to $16.4 million in Q4 2025. The decrease in net product sales relative to Q1 2025 and Q4 2025 was attributable to a decrease in volume as a result of continued generic competition in the U.S., which has contributed to declines in expenses for both comparative periods. Of note, for Q1 2026, Hetlioz continued to be the leading product from a market share perspective despite generic competition for over three years. Hetlioz net product sales can be impacted by changes in inventory stocking at specialty pharmacy customers from period to period. Hetlioz net product sales have fluctuated and may continue to fluctuate from quarter to quarter depending on when specialty pharmacy customers need to purchase again. Hetlioz net product sales may decline in future periods, potentially significantly, related to continued generic competition in the U.S. And finally, turning to Ponvory. Ponvory net product sales were $6.2 million for Q1 2026, a 10% increase compared to $5.6 million for Q1 2025, and an 18% decrease compared to $7.6 million in Q4 2025. The increase in net product sales relative to Q1 2025 was attributable to an increase in volume and price, net of deductions. The decrease in net product sales relative to Q4 2025 was primarily attributable to a decrease in price, net of deductions, partially offset by an increase in volume. The specialty distributor and specialty pharmacy inventory on-hand levels during these periods were in line with normal ranges. Of note, underlying patient demand was essentially flat between Q4 2025 and Q1 2026, even in light of the negative impact of insurance plan disruptions and deductible resets at the beginning of the year. Additionally, as we have previously discussed, an amount of variable consideration related to Ponvory net product sales is subject to dispute, of which approximately $3 million was recognized for the three months ended 12/31/2024. For Q1 2026, Vanda recorded a net loss of $48.6 million compared to a net loss of $29.5 million for Q1 2025. The net loss for Q1 2026 included income tax expense of $100 thousand as compared to an income tax benefit of $7.9 million for Q1 2025. As a reminder, the company recorded a one-time tax charge in 2025 to establish a valuation allowance against all of Vanda’s deferred tax assets. Tax expense is expected to be nominal going forward until such time that a valuation allowance is no longer required. Operating expenses for Q1 2026 were $101.9 million, compared to $91.1 million for Q1 2025. The $10.8 million increase was primarily driven by higher SG&A expenses related to spending on Vanda’s commercial products as a result of the continued commercialization efforts for Fanapt in bipolar disorder and Ponvory in multiple sclerosis, expenses associated with the preparation for Nirius and Dysanti commercial launches, and higher legal expenses. These increases were partially offset by lower R&D expenses on our imsidolimab program, partially offset by an increase in expenses for our Dysanti major depressive disorder program, VQW-765 social anxiety disorder program, and other development programs. Q1 2025 included an upfront payment to Anaptys for the exclusive global license agreement for the development and commercialization of imsidolimab. On the commercial side, during 2024 and 2025, we conducted a host of activities as a result of the commercial launches of Fanapt in bipolar disorder and Ponvory in multiple sclerosis, including an expansion of our sales force and the development of prescriber awareness and comprehensive marketing programs. Additionally, in 2025, we launched our direct-to-consumer campaign, which has driven meaningful gains in brand awareness for the company and our products, Fanapt and Ponvory. Throughout 2025 and Q1 2026, we maintained strategic investments in our commercial infrastructure, including increased brand visibility through targeted sponsorships, with the goal of supporting long-term market leadership and future commercial launches. Vanda’s cash, cash equivalents, and marketable securities (referred to as cash) as of 03/31/2026 were $202.3 million, representing a decrease of $61.5 million compared to 12/31/2025. The decrease in cash was driven by the net loss in Q1 2026, as well as a one-time milestone payment of $10 million made to Eli Lilly in Q1 2026 for the approval of Nirius in the U.S.; seasonal compensation and benefit payments, which generally hit during the first quarter of the year, of approximately $7 million; and payments to third parties for manufacturing of commercial and clinical product of approximately $11 million, which is significantly higher than recent quarters. As a reminder, payments made in advance of production are capitalized as a prepaid expense. Commercial products are capitalized as inventory on our balance sheet after production, while pre-commercial products are generally expensed as research and development costs as incurred. The timing of manufacturing of pre-commercial products may result in future variability of our R&D expense, depending upon the timing of production. When adjusting the decrease in cash for these items, the change in Q1 2026 would have been closer to $40 million. With regard to the launches of Fanapt in bipolar disorder and Ponvory in multiple sclerosis, the launches were initiated in 2024, and we continue to enhance our commercial efforts through 2026, with the impact of these commercial efforts contributing to revenue growth in 2025 and expected to continue to contribute to our revenue growth in 2026 and beyond. We have already seen significant growth in our commercial activities. Several lead indicators suggest a strong market response to our commercial activities related to Fanapt for bipolar disorder, including total prescriptions (TRx) increased by approximately 32% in Q1 2026 as compared to Q1 2025. In April 2026, weekly TRx for Fanapt reached an eleven-year high of over 2.6 thousand prescriptions for the week ending 04/24/2026. New patient starts, as reflected by NBRx, increased by 76% in Q1 2026 as compared to Q1 2025. Of particular note, Fanapt was one of the fastest growing atypical antipsychotics in the market throughout 2025 and into 2026, based on several prescription metrics. Our Fanapt sales force continues to expand. Our Fanapt sales force numbered approximately 160 representatives at year-end 2024 and increased to approximately 300 representatives at year-end 2025. These expansions have allowed us to significantly increase our reach and frequency with prescribers. To that end, the number of face-to-face calls in Q1 2026 was more than 80% higher than the number of face-to-face calls in Q1 2025. In addition to our Fanapt sales force, we have established a specialty sales force to market Ponvory to neurology prescribers around the country and have grown this sales force to approximately 50 representatives. Fanapt performance remains the focus of Vanda’s commercial initiatives and encourages us to continue to invest in this differentiated medicine and the franchise-extending launch of Dysanti. Before turning to our financial guidance, I would like to remind folks that with Fanapt, Hetlioz, Ponvory, and now Nirius already commercially available, and with Dysanti recently approved for bipolar disorder and schizophrenia, and a Biologics License Application for imsidolimab now under review by the FDA, Vanda has five products currently commercially approved and could have six products commercially approved by year-end 2026. Turning now to our financial guidance. Vanda is raising its full-year 2026 total revenue guidance to reflect the potential contribution of newly launched Nirius while maintaining prior ranges for Fanapt and other products. Vanda expects to achieve the following financial objectives in 2026: total revenues from Fanapt, Hetlioz, Ponvory, and Nirius between $240 million and $290 million. The midpoint of this revenue range of $265 million would imply revenue growth in 2026 of approximately 23% as compared to full-year 2025 revenue. This compares to previous guidance of total revenues from Fanapt, Hetlioz, and Ponvory of between $230 million and $260 million. Fanapt net product sales of between $150 million and $170 million. The midpoint of this range would imply Fanapt revenue growth in 2026 of approximately 36% as compared to full-year 2025 Fanapt revenue. This guidance is consistent with the previously communicated revenue guidance. Assuming consistent gross-to-net dynamics between 2025 and 2026, the bottom end of the range assumes high single-digit to low double-digit sequential quarterly TRx growth for Fanapt in the remainder of 2026. The top end of the range assumes mid-teens to high-teens sequential quarterly TRx growth for Fanapt in the remainder of 2026. Other net product sales of between $80 million and $90 million. This range assumes a further decline of the Hetlioz business due to generic competition and modest growth of the Ponvory business, where we are seeking to significantly improve market access to the product. Depending on our success in these efforts, we could see meaningful improvements in patients on therapy, prescriptions filled, and prescriptions written by prescribers. This guidance is also consistent with the previously communicated revenue guidance. Finally, Nirius net product sales of between $10 million and $30 million. This guidance was not previously provided and is being introduced as part of the Q1 earnings update. Vanda is currently making conditional investments to facilitate future revenue growth, both in the form of R&D investments, commercial manufacturing, and potentially outsized commercial investments, which could vary moving forward depending on the success of these commercial strategies. As previously communicated, Vanda is not providing 2026 cash guidance at this time; however, it is likely that Vanda’s 2026 cash burn will be greater than the cash burn in 2025. With that, I will now turn the call back to Mihael. Mihael H. Polymeropoulos: Thank you very much, Kevin. At this point, we will be happy to answer your questions. Operator: As a reminder, if you would like to ask a question during this time, please press star followed by one on your telephone keypad. Your first question comes from the line of Olivia Brayer from Cantor. Your line is live. Olivia Simone Brayer: Hi. Good afternoon. Thank you for the question. Can you run through what the pushes and pulls are that you are using for that $10 million to $30 million guidance range for Nirius? It seems like somewhat of a big range given that it is so early in the launch, so I am curious what the higher end of the range assumes versus the lower end. And then on Dysanti’s launch, what is the progress on getting that to patients at this point? And should we assume that any contribution from Dysanti this year is essentially embedded in your Fanapt guidance, or is it just too early to start attributing revenues there? Mihael H. Polymeropoulos: Maybe, Olivia, I will start off by saying it is very early on the new launch, and you have seen that we are approaching it as a broadly available commercial product with a direct-to-consumer platform, which is in the early days. Of course, we are working through all the dynamics and logistics of that. We will have a better idea on progress by our next call. In terms of the $10 million to $30 million, we are excited about the opportunity. We know we are tapping a market of potentially 70 million people with motion sickness, and a good percentage of them suffering from severe motion sickness that is not properly treated today. The $10 million to $30 million is a relatively wide range, but it is not informed by experience; it is more modeling from the total market opportunity and other treatments for motion sickness. I will turn it to Kevin. Kevin Moran: That is right, Olivia. That is what is driving the range; it is not informed by actual data at this point. It is informed by modeling and what we have seen in some of our qualitative and quantitative research. As we gather more information, we will be able to provide additional context as the year progresses. On the Dysanti side, what we previously communicated is that we were looking to have the product available in the back half of the year, and that is still on track. We are working to bring that product to market. As far as the revenue contribution goes, it is still pre-launch, so a little early. I would not think about it as embedded in the Fanapt revenue item because we expect that we will see demand for Dysanti independent of Fanapt. For any demand that we see for Dysanti that replaces Fanapt demand, we are expecting to see meaningful net price favorability, which would lead to a larger revenue contribution from a Dysanti unit versus a Fanapt unit. Olivia Simone Brayer: Got it. So for Dysanti specifically, is it just a matter of waiting until it is officially commercially available before providing any sort of revenue numbers around that, or is 2026 maybe just a little bit too early to start modeling Dysanti? Kevin Moran: We have not committed to providing revenue guidance on Dysanti at a specific point in time, but the launch is going to be critical to us having better visibility. We will be looking to provide additional updates, and it is not necessarily too early depending on the time at which we launch the product. Olivia Simone Brayer: Okay. Thank you. Helpful. Operator: Thanks, Olivia. Your next question comes from the line of Raghuram Selvaraju from H.C. Wainwright. Your line is live. Raghuram Selvaraju: Thanks so much for taking my questions. First, I was wondering if you could provide us with some additional color regarding the timeline to reporting of top-line data for the tradipitant study assessing its ability to attenuate nausea and vomiting and other GI side effects associated with GLP-1 drugs. Kevin Moran: Thanks, Ram. In the press release today, we said results by the end of 2026, and our timing is consistent with what we communicated most recently in our initial launch of the program. We are actively enrolling patients at this point, so that timing is informed by actual activity. Raghuram Selvaraju: Can you talk a little bit about what your expectations are for that dataset—what you would consider to be a clinically meaningful result—and if you are also going to have additional information regarding the impact of tradipitant use on adherence and efficacy outcomes on the GLP-1s for patients enrolled in the study? Mihael H. Polymeropoulos: Thank you, Ram. First of all, the Phase 3 study is of a very similar design to the Phase 2 study for which we reported positive results in November. That is a week of pretreatment with tradipitant or placebo, and then a single injection of Wegovy at 1 mg and follow-on for another week. We aim to confirm the previous finding of the significant reduction in vomiting episodes. That was highly clinically meaningful. On your question about adherence, with this short study, we will not have that information. It is widely known that decreased GI tolerability, especially around dose escalation to higher doses, is a significant contributor to decreased adherence. Raghuram Selvaraju: Can you comment on the possibility or likelihood of any off-label use of tradipitant, given the fact that it is now an approved drug for motion sickness among those folks taking GLP-1 drugs, who may potentially have obtained them via some consumer health initiative, to assist them in achieving long-term adherence? Mihael H. Polymeropoulos: The keyword here is label. We cannot promote off-label use, especially when in the midst of clinical studies and certainly not before approval in that indication. We do not have insights to share on off-label use. We certainly hope that upon approval there will be significant interest. Raghuram Selvaraju: Last question for me is with respect to the long-acting injectable formulation of iloperidone. Can you provide us with an update on that and how rapidly you expect to be able to advance the product candidate at this juncture? Mihael H. Polymeropoulos: For context, this is the long-acting injectable iloperidone being used in a study to measure relapse prevention in schizophrenia. The study is ongoing in the U.S.; however, it is recruiting slowly. We think that is a phenomenon in the field with these studies and the required design of a placebo-controlled relapse prevention trial. We are concerned that this exact model that has worked extremely well for Fanapt oral and other antipsychotics is becoming less amenable to studying new drugs. We are thinking and potentially discussing with the FDA soon that not only is recruitment slower in the U.S. for this type of placebo-controlled schizophrenia relapse prevention study, but the rate of relapse on placebo has been significantly reduced compared to historical data. It is too early for us to say what the exact placebo relapse rate will be in this study, but we already believe it will be much lower than in our prior oral iloperidone relapse-prevention study. Together, these suggest concerns about timing and progress, but we have several ideas and plan to engage the FDA in a constructive discussion and perhaps modify the development plan. Operator: Your next question comes from the line of Madison Wynne El-Saadi from B. Riley. Your line is live. Madison Wynne El-Saadi: Hi, thanks for taking our questions. Maybe I will ask about the recent New England Journal publication on imsidolimab in GPP. We are looking at a potential Christmas-time approval again. Are you taking steps now to lay the groundwork for a potential year-end commercial launch? Would this likely be something where there is a one-quarter cushion before the launch? And is the expectation that you would receive approval in both the acute and the maintenance settings out of the gate? Mihael H. Polymeropoulos: Thank you very much, Madison. You are correct. We are very excited with the publication in a high-caliber journal, the New England Journal of Medicine Evidence, a testament to peer-review scrutiny around these impressive data. On indication, we believe that the data from the GEMINI-1 and GEMINI-2 studies support both immediate treatment of acute flares with a single injection and maintenance of response in responders with once-every-four-week injections. That is our proposed indication with the FDA. We are also making progress toward regulatory filings in Japan and in Europe, but they are much earlier than the FDA submission. In terms of launch timing, this is a complex product to manufacture, being a monoclonal antibody. We do not expect that we will be commercially launching right after the PDUFA date. There will be some lag time, but we hope we can launch within 2027. Madison Wynne El-Saadi: Understood. On the Fanapt prescription data and the reacceleration in April—Dysanti was approved late February—was there a halo effect, or was that purely the sales force you described? Kevin Moran: Thanks, Madison. Historically, including this year, we have seen the first quarter have seasonality with both Fanapt and the broader atypical class. This first quarter was no exception. In line with our expectations, we saw a flattish first quarter on prescription demand, consistent with last year and years prior. Last year, after the first quarter, we saw an acceleration and sequential quarterly growth in the double-digit range in the second, third, and fourth quarters. That is our expectation this year and is supported by what we see in the April data, which includes our highest TRx number in over eleven years—over 2.6 thousand. The pattern we have seen in prior years and expected to see this year has played out to date. Mihael H. Polymeropoulos: I agree, and also want to emphasize that the commercial infrastructure is mature. We have approximately 300 representatives, well trained and developing their relationships in the field, supported by a significant speaker program and our brand awareness direct-to-consumer marketing. Madison Wynne El-Saadi: Understood. Thank you. Operator: Your next question comes from Les Solisky from Truist. Your line is live. Les Solisky: Great. Thank you for taking my questions. First, on Fanapt, do you have a sense of what portion of the TRx and NBRx are coming from bipolar versus schizophrenia? And with inventory running above normal, should we expect any wholesaler destock in 2Q? And then on Dysanti, can you rank the launch priorities—new patient starts versus switches from Fanapt—and targeting Medicaid-heavy patients? And third, I see the MDD readout was moved to 2027 from year-end 2026. What drove the timing shift? And I have a follow-up. Thank you. Kevin Moran: Thanks, Les. On the split, while we do not analyze the data at an indication level, our expectation is that the primary driver of Fanapt growth is the bipolar label expansion we got in 2024. That has informed our targeting strategy, call points, and call guidance. As for stocking, historically we have seen Fanapt inventory levels at three to four weeks. At the end of Q1 2026, Q4 2025, and as far back as 2024, inventory levels were at or slightly above four weeks on hand. The inventory at the end of the first quarter is consistent with what we have seen recently and what we would expect for a product that is growing. Because it is measured off trailing demand, if demand is growing, the calculation lags. I would not expect a destock; I would expect inventory levels to maintain at this level as long as Fanapt continues to grow. On prioritization of new patients versus switches from Fanapt to Dysanti, we will prioritize both. Dysanti will be detailed as a newly approved atypical antipsychotic, and we will deploy commercial strategies to move appropriate prescriptions from Fanapt to Dysanti. With the Dysanti launch in the back half of this year and the potential Fanapt loss of exclusivity at the end of next year, we have about five quarters where both products will be in the market, enabling a switch strategy while executing a launch strategy as well. Mihael will address the MDD timing. Mihael H. Polymeropoulos: Les, you are correct. We moved the timing of end of study and results for the MDD study to 2027 from 2026. We are still working hard to get results as soon as possible; it could be by year-end. We have better data now on recruitment speed, especially bringing on new sites in Europe. It is a reflection of projections from the actual recruitment data. Les Solisky: Thank you. On commercialization in motion sickness, can you provide some color around patient access to the drug and how net pricing looks outside of the website via the retail pharmacy channel? Lastly, I am curious about your pricing strategy given the competing NK1s out there and how this would translate to the GLP-1 adjunct opportunity. Kevin Moran: Thanks, Les. As we look at the insurance reimbursement landscape, with the product relatively recently approved, that process will play out over coming quarters and years as payers conduct their clinical assessments and periodic reviews. We expect to have more information to share on Nirius access and progress as we move further into the launch. Securing coverage is something we would like to achieve in addition to the cash-pay model, but the cash-pay model is our immediate focus with the innovative platform we have deployed. On pricing strategy, in the competitive NK1 class, per-dose pricing ranges from about $200 up to about $600. Our pricing strategy positions us in the middle to lower end. With an eye toward gastroparesis and, if we are successful on the regulatory front, the GLP-1 market, we believe that pricing will be competitive for those patients as well. Considerations included having the appropriate price for the motion sickness market while anticipating potential gastroparesis and GLP-1 markets. Mihael H. Polymeropoulos: I would add that we chose this commercial model because we believe motion sickness is a prototypical consumer product. As you can see on our website, we provide the product in increments of two capsules, which may be enough to supply someone for their business or personal travel where they may experience motion. We are receiving good comments on being very patient-centric. While in recent years we have seen a cash-pay model at discounted prices emerge for drugs like GLP-1 analogs, this is the first instance we know of where you can directly coordinate with the manufacturer. This is an innovative system we have built at Vanda that works in conjunction with a mail-order pharmacy to get the product to patients expeditiously. We are also working to add value-added services, including a telemedicine platform so that patients can conveniently obtain prescriptions. It is focused on the customer experience, and we want this to be an example for others to follow. You mentioned other NK1 antagonists. Yes, there are other approved drugs in the class; none have been studied or approved in motion sickness or as an adjunct to GLP-1 therapy. The lead product there has been aprepitant by Merck in chemotherapy-induced nausea and vomiting and postoperative nausea and vomiting. There are key label differences that can make Nirius more attractive for our consumer base, including the absence of interaction in the midazolam study, which differentiates Nirius from aprepitant, and aprepitant’s contraindication or warning around contraceptive use. Those and other items on the prescribing information, we believe, can make the product attractive for this approved indication. Les Solisky: Thank you. Just to clarify, would you consider a dual-model approach for the GLP-1 adjunct opportunity, meaning rolling it out with a DTC plan and a traditional insurance channel as well? Mihael H. Polymeropoulos: Our premise is broad access. Any way people want to acquire the product, we want to make it available. At the same time, we recognize the difficulties people are going through with the “middlemen”—pharmacy benefit organizations, plans, pharmacies—and price markups. There is a national discussion around that. The WAC price, the list price of $255 a capsule, is within the range of other NK1 antagonists. However, on cash pay, we are offering it at more than a 65% discount—from $255 to $85 a capsule—making it affordable for folks who travel for business or pleasure or engage in activities that cause motion sickness. We are also making the drug available to pharmacies and ensuring that wholesalers will either stock the drug or make it available upon demand. The premise is access, and access is not just insurance negotiations; it is appreciating independence and convenience by individual patients in accessing this drug. We think this dual model can achieve that. Operator: Your final question comes from the line of Andrew Tsai from Jefferies. Your line is live. Andrew Tsai: Hi. This is Faye on for Andrew. Thanks for the updates and for taking our questions. We have two questions. Number one is about milsoperidone. We want to gauge your views on its likelihood of success in the Phase 3 MDD trial. We know that not all antipsychotics work in MDD, so can you talk about your confidence in why milsoperidone should succeed, and is there any existing Fanapt data to support any of its benefits as an adjunct? Mihael H. Polymeropoulos: Yes, we are quite confident—that is why we are running this study, and we are running it with once-daily Dysanti. We think the study is properly powered to detect a clinically meaningful improvement in symptoms of depression. Generally, atypical antipsychotics are effective as an adjunctive treatment in major depression. The pharmacology includes dual dopamine and serotonin receptor antagonism and a strong, unique-in-class alpha-1 receptor antagonism. Whether that will be necessary to achieve the effect in major depression will remain to be seen, but we remain very confident in Dysanti’s ability to achieve the effect. Andrew Tsai: Thank you. The second question is for Nirius. It launched earlier this month, and you briefly touched on the pricing strategy. Can you talk about the sales cadence for this drug later this year moving into 2027? Mihael H. Polymeropoulos: With us launching mid–second quarter, we would expect revenue to grow as the year progresses, driven by the passage of time and the increase in our promotional activities. Operator: Thank you. There are no further questions. I would now like to turn it over to Vanda Pharmaceuticals Inc. management for closing remarks. Mihael H. Polymeropoulos: Thank you very much, all, for joining this call and for your questions. We look forward to talking to you soon. Operator: That concludes today’s meeting. You may now disconnect.
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: Welcome to the Philips First Quarter 2026 Results Conference Call on Wednesday, 6 of May 2026. During the call hosted by Mr. Roy Jakobs, CEO; and Ms. Charlotte Hanneman, CFO. [Operator Instructions]. Please note that this call will be recorded, and replay will be available on the Investor Relations website of Royal Philips. I'll now hand the conference over to Mr. Durga Doraisamy, Head of Investor Relations. Please go ahead, ma'am. Durga Doraisamy: Hello, everyone, and welcome to Philips' First Quarter 2026 Results Webcast. I'm here with our CEO, Roy Jakobs, and our CFO, Charlotte Hanneman. Our results press release and presentation are available on our Investor Relations website. The replay and full transcript of this webcast will be available on our website after this call concludes. I want to draw your attention to our safe harbor statement on the screen and in the presentation. I will now hand over to Roy. Roy Jakobs: Thanks, Durga, and good morning, everyone. Thank you for joining us today. I will start with an overview of our Q1 results and our outlook for the balance of the year. Charlotte will take you through the quarter and our guidance in more detail. We started '26 with a clear proof that our strategy is delivering, growth, margin expansion and strong order momentum despite the volatile environment. At the same time, we remain closely connected to our customers and employees. This includes those impacted by the situation in the Middle East. We continue to prioritize their safety, support and continuity of care. Against this current backdrop, we reiterate our full year guidance. Looking at Q1. Order intake grew 6%, reflecting continued momentum. Comparable sales increased 4% with growth across all business segments, led by personal health. We also expanded margins. Adjusted EBITDA margin improved by 40 basis points to 9%, despite higher tariffs. This marks our sixth consecutive quarter of delivering on our commitments, even as we operate in an uncertain and dynamic environment. Disciplined execution and focus on what we can control underpins our progress. We are on track to deliver the full year outlook we set in February, which includes currently known information within an uncertain macro environment. Our strategy remains anchored in three pillars: focused value creation, innovation-driven growth and disciplined execution. Let me take you through the first quarter in that context. Starting with our first pillar, focused value creation. We execute specific strategies by segment. And we invest with discipline, focusing on interventional monitoring to drive growth. We also drive growth geographically with North America as the key engine. You can also see this in our Q1 results. Equipment order intake grew 6% and with solid growth across D&T and Connected Care. North America led the growth, building on strong prior year comparison. Europe also performed strongly across several modalities. Looking at D&T, Order intake increased in the mid-single digits. Growth was driven by sustained momentum in image-guided therapy as our market-leading Azure platform continues to drive strong demand. Precision Diagnosis delivered solid order growth outside China. Globally, MR order intake was solid, with increasing interest in our healing free systems. Last year, 75% of our MR systems shipped were Helium free. For our customers, resilience and MRI is being tested more than ever. Helium supply is tightening geopolitical developments in the Middle East are adding further pressure to that. Costs continue to rise. As a result, health systems are seeking uninterrupted imaging and reliable service in everyday clinical practice. Philips is leading the shift to helium-free imaging with our high-performance BlueSeal technology, we are setting the new industry standard in MRI resilience, enabling uninterrupted operations and reducing dependence on scarce helium. We have installed more than 2,200 systems globally, saving over 6 million liters of helium. Building on this, we also unveiled the industry's first helium-free 3.0T MR systems. We expect regulatory clearance in 2027, positioning us to transition to a fully helium-free MR portfolio and extend our lead over competitors. In CT, we are seeing a strong funnel for our spectral technology. In the quarter, Verida, the industry's first AI-enabled detector-based spectral CT gained traction following its launch at RSNA last December, with initial orders secured in Europe. The first system installed in Q1 is already delivering results. At Nuestra Senora de Rosario University Hospital in Madrid, it is demonstrating seamless workflow integration and clinically relevant insights and importantly, without added operational complexity. Turning to Connected Care. Order intake grew in high single digits, mainly driven by monitoring and supported by enterprise Informatics. Demand was broad-based across all regions with particular strength in North America and Europe building on a strong prior year comparison. We continue to expand enterprise partnerships with large integrated delivery networks. These customers are investing in enterprise patient intelligence medical device integration and cybersecurity. They are increasingly adopting our enterprise monitoring as a service model to improve clinical, operational and economic outcomes. This reinforces our position as a partner of choice for enterprise-wide data-driven care delivery. Moving to Personal Health. This segment delivered another quarter of broad-based growth, driven by strong consumer sellout and continued market share gains. We drove this through active expansion and diversification of our channel footprint, adding more than 3,000 distribution points in Europe. At the same time, we strengthened our presence with key global retail partners through increased listings and expand placement. This included IPL expansion broader distribution of interdental products and more than doubling on bay distribution in the U.S. Our second pillar, innovation, is another key driver of both momentum and growth. Across modalities and products, we are accelerating innovation towards scalable AI-enabled hardware and software platforms. And that is already translating into stronger regulatory momentum for approvals of new product introductions. In Q1, we received 20 510(k) clearances and premarket approvals, more than doubling year-on-year. In MRI, we received FDA 510(k) clearance for SmartHeart our AI-powered cardiac MR solution. Just like SmartSpeed is a clinical application that extends software and AI-led innovation across the installed base. SmartHeart automates complex planning workflows in 1 click and does that under 30 seconds, simplifying operations and boosting productivity. It also reduces patient breaths by up to 75%, improving patient experience in a big way. NCP, we received FDA 510(k) clearance for both spectral CT Verida and our Rembra Wide-bore CT. Launched at the 2026 European Congress of Radiology this platform features an industry-leading 85-centimeter bore. It is designed for high throughput environment with an AI-enabled workflow and improve diagnostic confidence. In Image Guided Therapy, we received clearance for DeviceGuide, an AI-driven solution, fully integrated with our Azurion platform. It enables real-time automated detection and visualization of mitral valve repair devices during minimally invasive procedures. We also launched IntraSight plus ,integrating intravascular imaging and physiology into a single system to simplify workflows and improve efficiency in the cath lab. Looking beyond product innovations to our future transformative interventional platform introduced at our CMD in February. We made progress in advancing clinical validation. Building on our ecosystem of more than 100 clinical partnerships, we added a share of our Research Consortium in Q1. Seven clinical studies are now underway to demonstrate the benefits of AI and robotics assisted workflows and minimally invasive treatments for brain aneurysms and liver tumors. In Personal Health, AI is embedded in our propositions. For example, the Philips High-end Shaver 9000 Prestige Ultra. It uses intelligent sensing and AI-driven adaptation to respond to each user skin and hair type. Delivering a more personalized shave every time. This innovative proposition not only won the TIME's invention of the year for the groundbreaking features, with also significantly increased sales and margin demonstrating our leadership in this domain. Since creating the hybrid shaving category, we have sold more than 50 million OneBlade handles and 100 million blades. This growing installed base supports profitable recurring revenue from consumables with strong replacement blade performance in the quarter. In Oral Healthcare, we infused new Philips Sonicare 5700 to 7300 series models in the U.S., featuring next-generation Sonicare technology. In China, we launched Sonicare 7000 at the South China Dental Show, reinforcing our position as a professional or care leader and strengthening momentum with the dental community. Across Philips innovation continues at scale throughout our portfolio. We remain the largest medtech applicant as the European Patent Office in 2025, a strong proof point of the depth of our innovation engine. And this is not just about today. This leadership is fueling the next generation of innovations coming through our pipeline and positioning us well to drive accelerated growth. In our third pillar, disciplined execution, it all starts with patient safety and quality, our top priority. It ensures we bring innovation to market with the high standards of patient safety and well-being. We're making strong and steady progress building on the improvements delivered over the past 3 years. And importantly, we are now benefiting from the work we have done to make Philips simpler, leaner and more agile, strengthening the foundation of our execution. Field actions were reduced by about 20% year-to-date. This is on top of a reduction of around 40% in 2025, reflecting increased discipline and process effectiveness. Importantly, these improvements in our quality processes are also enabling the innovation momentum I highlighted earlier. We also maintained close and constructive engagement with global regulatory authorities including ongoing leadership level dialogues with FDA and other regulatory bodies worldwide. This underscores our commitment to quality, compliance and continuous improvement in serving our customers. It carries through to our supply chain, a critical enabler of execution. Over the past 3 years, we have simplified, regionalized and localized our operations to be closer to our customers. Our focus is clear: deliver on consistently superior customer experience through a high-performing supply chain, day in, day out. During the quarter, developments in the Middle East increased volatility across logistics and input costs, including materials and components. Through active management of our logistics network, we maintained stable supply chain operations while stepping up cost mitigation activities, which Charlotte will further discuss. Importantly, customer service levels remain strong and in line with previous quarter and we remain vigilant in managing ongoing developments in supply and cost. And as we look ahead, we will continue to deepen the simplicity, agility and resilience as these are critical capabilities for navigating the increasingly turbulent environment. Turning to commercial and service excellence. In Connected Care, we saw further traction in our enterprise monitoring as a service. As health systems adopt enterprise monitoring, demand for enterprise informatics solutions is also increasing. These solutions now represent a growing share of both our order book and sales across various periods. In the quarter, we saw strong demand for capsule device integration and clinical surveillance across care settings driven by effective cross-selling across our enterprise informatics and monitoring platforms. In Diagnostic Imaging, we expanded our partnership with AdventHealth through a 5-year enterprise service agreement. It enables our full service model across modalities, while supporting a long-term imaging infrastructure focused on quality and performance. Turning to the regions. Fundamentals remain supportive across our markets, particularly in North America where demand remains strong and the landscape continues to segment. We continue to see stable activity levels across hospital systems with no signs of disruption among larger systems. Cost pressures and workforce shortages persist, driving further consolidation among larger health systems. Demand for secure productivity and cybersecure enhancing platforms is increasing. This reinforces our expectation that North America will remain a key growth engine in 2026 and over the medium term. In Europe, capital spending remained broadly stable with an improvement in some markets during the quarter. Demand conditions remain stable, supporting our execution in the region. Select international regions continue to increase investments in health care and digitalization as reflected with strong wins in India and Brazil. In China, centralized procurement continued to increase in Q1. particularly in modalities such as ultrasound and CT, which have shorter lead times. This is driving longer decision cycles and a more price-focused environment. As a result, we are seeing lower order conversion consistent with recent trends. These dynamics continued in the quarter, contributing to ongoing pressure on equipment demand. At the same time, underlying health care demand remains intact, particularly in procedure-driven segments. We remain focused on maintaining competitiveness, selectively driving our portfolio and executing with discipline in this more price-sensitive environment. In Personal Health, consumer demand remains healthy in North America, and momentum continues across several markets globally, even as geopolitical developments create uncertainty. We are managing these dynamics with agility while maintaining a strong focus on execution. Charlotte will now discuss our first quarter performance in more detail and our outlook for 2026. Charlotte Hanneman: Thank you, Roy. I will start with segment level performance. In Diagnosis & Treatment, comparable sales increased by 2%. Image Guided Therapy delivered high single-digit growth, continuing its multiyear momentum and building on a strong prior year comparison. Performance was broad-based across all regions with particular strength in North America, led by the premium configurations of our Azurion platform, higher service revenues and coronary intravascular ultrasound. We are reinforcing this momentum by leveraging AI to automate product testing, reduce release cycle times by 25% and accelerating time to market for new innovations. Precision Diagnosis sales declined in the low single digits in Q1, as expected, mainly due to order book rebuilding and the segment's higher exposure to China. Innovations, including EPIQ CV, point-of-care ultrasound, BlueSeal MR and CT 5300 continued to drive growth with solid uptake in markets such as Western Europe and Latin America, reflecting their scalability. Adjusted EBITDA margin rose 30 basis points year-on-year to 9.8%, driven by sales growth, underlying gross margin from recently launched innovations productivity measures and favorable mix effect. These favorable impacts were partially offset by higher tariffs, cost inflation and currency effects. Now moving to Connected Care. Comparable sales increased by 3%. Monitoring delivered mid-single-digit growth with particular strength in North America and Europe. Growth was driven by higher installations of IntelliVue patient monitors and continued traction in enterprise monitoring as a service. Sleep & Respiratory Care grew in the low single digits with the obstructive sleep apnea portfolio, delivering strong double-digit growth outside the U.S. led by particular strength in Japan, our second largest market. Enterprise Informatics sales declined slightly, reflecting inherent quarterly unevenness and lower implementation and deployment cycles. Adjusted EBITDA margin declined by 60 basis points to 2.9% as sales growth and productivity measures were more than offset by higher tariffs, cost inflation, lower cost absorption and currency effect. In Personal Health, comparable sales increased by 9% in Q1 with all 3 business contributing. Growth was broad-based, led by double-digit growth in North America and a strong contribution from international regions. China contributed modestly, benefiting from an easier comparison base. Sellout remains strong globally with channel inventory maintained at appropriate levels. This momentum was supported by strong demand for recently launched innovations, including the high-end i9000 shaver with AI-powered SenseIQ technology and the Sonicare 5000 to 7000 series. Adjusted EBITDA margin expanded by 60 basis points to 15.8% as growth and productivity measures more than offset the higher tariffs, cost inflation and currency effect. Advertising and promotion spend increased year-on-year, consistent with our commitment to continue investing in the business to drive consumer recruitment and sustain long-term demand for our recently launched innovations. We are also leveraging AI to strengthen consumer engagement, embedding it across 94% of digital assets and generating over 27.8 billion searchable data points, 100x increase. This enables more personalized consumer interactions, improves content reuse efficiency and enhances our ability to drive future sales through more targeted and effective marketing. Finally, sales in segment Other of EUR 177 million increased by EUR 37 million compared with the first quarter of 2025, mainly reflecting activities related to a divestment. These activities are excluded from comparable sales growth and contribute only an insignificant amount to adjusted EBITDA. Adjusted EBITDA for the segment increased by EUR 7 million to EUR 11 million, mainly driven by lower costs. Now turning to group results. Comparable sales increased by 3.7% in the first quarter with growth across all segments and regions, led by North America and Western Europe. Adjusted EBITDA margin increased by 40 basis points year-on-year to 9%. Margin expansion was driven by sales growth, favorable mix effects and productivity measures, partially offset by higher tariffs and cost inflation. Product productivity delivery in 2026 is off to a solid start with Q1 delivery of EUR 126 million, on track to deliver our EUR 1.5 billion 3-year savings commitment. Execution is progressing at pace, underpinned by plans already in place. Actions in Q1 were led by operating model simplification, including streamlining central functions and reducing organizational layers as well as procurement initiatives such as SKU rationalization and supplier consolidation. We are also seeing early contributions from footprint optimization and AI-enabled efficiencies. Service productivity was another contributor, including through more remote troubleshooting and fewer on-site visits with benefits most visible in ITT and across Europe. In parallel, we continue to execute tariff mitigation actions. Overall, we remain on track with good visibility to deliver our 2026 productivity objectives. Against the backdrop of rising input cost inflation, we are accelerating mitigation actions, further sharpening our focus on productivity, cost discipline and structural efficiencies. Adjusting items came in at EUR 61 million, less than half of last year's EUR 143 million. This significant improvement reflects our continued focus on structurally reducing adjusting items. A one-off gain in Diagnosis & Treatment from the reversal of an acquisition-related provision and cost phasing also contributed to the year-over-year reduction. Income tax expense increased by EUR 17 million in the quarter, primarily due to higher income before tax. Financial income and expenses were EUR 47 million, broadly in line with the prior year. And net income rose to EUR 146 million, primarily due to higher earnings. Adjusted diluted earnings per share from continuing operations were EUR 0.23 in the quarter. compared with EUR 0.25 last year, primarily reflecting the adverse currency effect on nominal earnings and a higher diluted share count. Free cash flow in Q1 was an inflow of EUR 28 million. Excluding the impact of the prior year U.S. Respironics settlement payout, free cash flow improved by EUR 94 million year-on-year. This improvement was driven by higher earnings, improved working capital and lower adjusted items. Moving to the balance sheet. We ended the first quarter with EUR 2.6 billion in cash after a $265 million payment for the SpectraWAVE acquisition announced late last year. This acquisition reflects the disciplined, value-focused M&A strategy we outlined at our CMD, including a disproportionate resource allocation to our interventional platform to reinforce our coronary leadership. Integration is progressing well with the core foundations in place and commercial momentum building as planned, positioning the business to scale and capture growth in coronary interventions. Net debt was EUR 5.5 billion at the end of Q1. The leverage ratio improved to 1.8x on a net debt to adjusted EBITDA basis from 2.2x in Q1 2025, driven by higher earnings and reflecting our disciplined capital allocation. Now turning to our outlook. Amidst continued macro uncertainty, we remain focused on disciplined execution of our plan. Based on the current status, developments in the Middle East are expected to impact sales in the remainder of 2026, though not materially at the group level. At the same time, supply chain and logistic constraints are expected to drive cost inflation. Against this backdrop and based on our Q1 performance, our outlook for the full year remains unchanged. We expect comparable sales growth of 3% to 4.5%, with growth in each quarter within this range led by North America and the international region. We continue to expect comparable sales in China to be stable this year with growth in Personal Health, offsetting a slight decline in health systems against the backdrop of subdued near-term market conditions. Across segments for the full year, we continue to expect growth within this range with Connected Care and Personal Health at the upper end and diagnosis and treatment at the lower end. We are encouraged by the better-than-expected adjusted EBITDA margin performance in Q1, driven by innovation, productivity and cost discipline with some benefit from lower-than-anticipated tariff impact. Consistent with last year's approach, our full year 2026 outlook includes currently known tariffs, which are marginally more favorable than assumed in our February outlook. However, uncertainty remains. Also, while we are pursuing tariff refunds related to the International Emergency Economic Powers Act, our 2026 outlook does not include any potential benefits from these refunds. We are also seeing input cost headwinds, including freight, electronic components and plastics as well as other inputs affected by higher energy costs. We are actively mitigating these pressures. Over the course of the year, we expect to offset these pressures through supply chain optimization, productivity and selective pricing actions. At the same time, we continue to closely monitor cost developments across our supply chain. For the balance of 2026, we expect some near-term pressure on margins consistent with our plan, reflecting the annualized impact of tariffs, higher inflation and foreign exchange. As a reminder, last year, the higher tariffs did not impact our adjusted EBITDA meaningfully until Q3 due to the natural lag between inventory and a flow-through to the P&L. Accordingly, we reiterate our full year adjusted EBITDA margin guidance range of between 12.5% and 13%. Our full year free cash flow outlook also remains unchanged at between EUR 1.3 billion and EUR 1.5 billion. As previously indicated, our outlook excludes the ongoing Philips Respironics-related proceedings including the Department of Justice investigation. With that, I would like to hand it back to Roy for his closing remarks. Roy Jakobs: Thanks, Charlotte. To close. We delivered a solid start to the year and order intake momentum continues. In April, we signed a long-term strategic partnership with WellSpan Health in the U.S. It expands our role as the preferred provider across all imaging modalities and advances a system-wide approach to imaging and diagnostic technologies. Importantly, this partnership is also a strong validation of our innovation and platform strategy, bringing together our capabilities to deliver integrated long-term value for customers. It underscores strong customer trust and our value proposition and long-term partnerships. These relationships matter even more in the current operating environment. Our strategy is clear, and we remain focused on advancing our strategic priorities, driving innovation and strengthening our differentiation and competitiveness. At the same time, we are executing with discipline, staying focused on what we can control and closely monitor the evolving macro environment. Against this backdrop, we reiterate our full year outlook, which includes currently known information, but an uncertain macro environment. Thank you, and we will now open the line for questions. Operator: We will now open the line for questions. [Operator Instructions]. Your first question comes from Hassan Al-Wakeel of Barclays. Hassan Al-Wakeel: Roy, Charlotte, a couple, please. Firstly, if you could please talk to the building blocks of the mid-single-digit order growth in D&T for the quarter. the sustainability of U.S. market strength based on your customer conversations? as well as the softness in China precision diagnosis given centralized procurement and how your share is progressing here across the different modalities and related to this, I wonder if your thinking has evolved for China order and revenue stability this year across D&T. And then secondly, Charlotte, another strong quarter on margins, and you've been consistently talking about gross margin benefits from innovations. It'd be great if you could help break up the quarter's EBITA performance across productivity, mix and innovation and how sustainable you think each of these are. And also what you're seeing from cost inflation, specifically around freight and memory chips and what's assumed in guidance? Roy Jakobs: Let me go to the first one. The mid-single-digit D&T growth. So if you look to the buildup of that, actually, that is a continued very strong order intake in IGT which actually is trending at high single digits and above. So very, very strong and that, of course, over multiple quarters. Then you see that we also had mid-single-digit PD order intake outside of China. But then, of course, China is affecting the PD order book as well. But we see a very strong overall mix, and we see increased demand, and particularly also for MR. We called out, of course, the helium-free, but also we have seen just a broad-based interest in the MR solution really growing also as a modality in itself. And that also gives us confidence for the further conversion in due course of the year into the latter part of the year from a sales perspective. Then U.S. is a strong contributor to that, has remained very strong. And actually, also from our customer dialogues, see that strength continuing. Actually, we see a very healthy market where patient volume is strong, the procedures are growing. But as we also said before, it's not evenly spread across all health systems. So the bigger systems are winning more. And that's also we are well positioned with our platform-based solutions. So that's actually where we see that we kind of are continuing to close these long-term partnerships. You also saw that in the quarter with Advent, with WellSpan so we had more. So that's really working out, and we see that U.S. actually will continue to be a strong contributor for us. Then Europe actually was also strong. So I think I want to call that out that Europe was doing well and is picking up, but then China at the other hand, is showing continued cautious development. Q1 was in line with our performance expectations. So it's not that it's unexpected that it's not performing that strongly. We do see differentiated performance by modality. So IGT and MR are solid. CT and ultrasound are the most exposed to centralized procurement and therefore, they have the biggest impact. And then on the consumer side, you saw that actually PH grew but was on easier comps but we do see some sales sellout momentum in PH. And that's also what we expect for the rest of the year, and essence of similar trend of subdued kind of medtech portfolio that PH contributing and therefore, actually, the full year China sales are expected to be stable, and that's also as we have planned it. So in that sense, kind of this is tracking alongside what we plan for, where the biggest growth has to come from North America, Europe and international region. China is contributing as the market gives the opportunity. So we are not relying on the China recovery in the rest of the year. We are actually counting on strong momentum in North America and Europe, in particular, to do that. And in that perspective, actually, we see that where we have been focusing our strategy, it's really coming also to fruition because North America, IGT, extreme Stronghold. Monitoring is doing really well as well there. We see the other momentum going up. So I think we're well positioned to execute our plan as we have built it for the year on the growth side. And maybe that's a nice bridge to Charlotte to then also talk to the margins. As, of course, we have revolving developments there. Charlotte Hanneman: Thank you very much, Roy. And hello, Hassan. So indeed, as you said, we were pleased with how the margin has developed with a 40 bps expansion in Q1 despite the impact of tariffs. So if I break that down for you in a little bit more detail. Yes, we saw a positive impact coming from volume, from the business mix. But indeed, as you mentioned, also from higher gross margin from innovations. So CT 5300, I called it out before, is helping us from a gross margin perspective. We also see point-of-care ultrasound, which we recently launched also at a higher gross margin, also helped lift our margin. And then we see the continued momentum also from our MR BlueSeal at a higher margin as well. So that is certainly helping us. Of course, we continue to do our productivity work. We are pleased with our EUR 126 million of productivity in Q1. You've seen it last year. We finalized our EUR 2.5 billion program last year. It's a real strong muscle we have built and that we are now expanding spending on, which is really creating self-help in what is a turbulent situation. So with this productivity, we're nicely on track there. Of course, offsetting that is tariff and also a little bit of input cost inflation. One thing that's good to mention is that the tariff impact was a little bit lower than anticipated initially, also after, of course, the Supreme Board struck some of the tariffs. So if I then look forward, Hassan, based on your question, what does that mean for the outlook. So a few different components here. Of course, we started well in Q1 which is helping us we are seeing inflation and to your point, also in freight, in components and in plastics. But offsetting that is us really leaning in to mitigating that with supercharging AI, further reducing our bill of material cost and also doing selective pricing. And then the other component is also tariffs being a very modest tailwind for us versus our expectations as well for 2026. Operator: Your next question comes from Richard Felton of Goldman Sachs. Richard Felton: Two questions for me, please. First one is on China. You called out central procurement for ultrasound and CT. How much exposure does Philips have to those modalities in China now? And what level of price adjustments are you seeing perhaps linked to that, how much of the low single-digit decline that you called out in precision diagnostics was due to China? That's the first one. Second question is sort of slightly sort of longer-term question, I suppose, on the sleep business. ex U.S. in kind of broad terms, how has performance been as Philips has returned to the market OUS in terms of growth market share? Could you also perhaps talk a little bit about your innovation strategy in sleep? Roy Jakobs: Yes. Thank you, Richard. So on China, we have seen indeed that kind of the centralized procurement is being applied mostly on ultrasound and CT. That is because the specifications are being seen as more generic and therefore, they put them under the centralized procurement to a bigger extent. We have seen that, that also has significant margin implications in terms of the pricing pressure that you see in those segments. So volumes are actually holding, but you see that the value is decreasing, and that is putting the downward pressure. Actually, in our IGT and MR business, we see that they are for biggest majority outside of centralized procurement because they are so specific and also don't have the alternatives that they don't put them into the centralized procurement. So that's something in the centralized procurement approach in China that we see currently as they expand that across the country. In terms of the devices, kind of, you see that it's a very small part of it. So actually, there's not a big hit. But the biggest hit is indeed in PD with the ultrasound and CT on. So that's kind of also, therefore, hitting the performance in the first quarter, and we can expect that also to pressure the rest of the year, which means that actually the dialing up in the other parts of the world will be really crucial. And as you know, that's also working. Now if you look to the BI China part, as we said earlier, kind of, that is around 15% of global. And in the mix, you see that kind of MR is 50% of that. So that's better protected. The bigger pressure is indeed on the CT and the ultrasound part. And then you have IGT percentage in China is slightly bigger than the 15%, but it has, of course, a strong contribution also from the other parts, and it's better protected from centralized procurement. So that's a bit of what I can say about the mix. And maybe lastly, it also really calls that we have the right strategy chosen for China because we said we want to compete in segments that we find we can differentiate. And still where we find we can differentiate is the MR BlueSeal for sure, and we see also that actually they are kept that out of the CT for biggest part. It's our IGT franchise, which is really differentiating. There's no kind of alternative in the market. We see ultrasound cardiac actually also being better performing. But of course, that's a smaller part of the cardiac -- of the ultrasound market in China. That's why you see that in the other ultrasound parts, there's bigger pressure. Then n sleep, I think if you look at sleep outside of U.S., we see strong double-digit growth that's led by Japan, but also it's coming from the markets where we are coming back. That's offset by the ongoing respiratory pruning effect. So that's kind of where you see the mix effect coming in. where the comparison is normalizing towards end of the year. So that also should improve towards the end of the year. And from an innovation perspective, actually, we have seen good resonance also driving that double-digit growth by the new masks portfolio that we have been introducing together with the device, the software updates we are dialing in. And that actually the ecosystem is still very strong. Actually, people are still waiting also in certain markets really for us to get back and to get back on our platform because they really appreciate the patient interface that we have built. And that's given us also a strong way back into the market. Maybe the other part on SoC, of course, we are working strongly on the mitigation of the regulatory part. So that's something that we're also making good progress on. We said kind of we cannot comment on what it will exactly mean, but we are still hitting every single mark in terms of milestone with the FDA and that's actually forging ahead also as planned. Operator: Your next question comes from David Adlington of JPMorgan. David Adlington: So maybe on cost, I think you may have addressed some of this. But obviously, GE, called out cost inflation, most notably on memory chips. I just wondered if you could sort of help give some further color there and maybe quantify the exposure? And then secondly, obviously, another great quarter for Personal Health care in terms of growth. I'm not sure if you quantify the contribution of price or not, that will be useful. And as we get into the second half and more difficult comps, how you're thinking about the growth profile in PH. Charlotte Hanneman: David, let me take the first one. So from a cost inflation perspective, and maybe a few things. So as I said earlier, we do see cost inflation impacts. We do see that, and we've taken that into account in our guidance. And we -- the expectation we have is that the elevated levels that we see today in freight, electronic components, plastic, we will see that come through for the remainder of the year. But at the same time, we've included mitigation actions that we are taking, including, for instance, reducing our bill of material cost even further, going hard after AI-enabled savings and also selectively increasing our prices. And we have a lot of confidence based on the muscle we've been building over the past few years and also what we're seeing again transpire in Q1 from a productivity perspective. On top of that, some of the tariff tailwinds that we're seeing after February are also helping us. So there is a little bit on that. And then your second question on Personal Health and the effect of pricing. So we had another stellar quarter in Personal Health in Q1 with particularly North America doing very well with double-digit growth in North America. Of course, we were a bit helped by China, but only relatively little. Pricing from a pricing perspective, it is relatively flat. We saw a slightly positive pricing, which is probably mostly attributable to the innovations that we've been seeing like the 9000 shaver, like the new Sonicare range that we've introduced. So that has helped pricing a little bit. If I look to the remainder of the year or the full year, I should say, so we have reiterated our guidance from 3% to 4.5%. And we've also said that PH will be at the higher end of the guidance, and we're reiterating that today because, as you said, the comps are getting a little bit more difficult as we get through the remainder of the year. At the same time, we see very good momentum in Personal Health as well. Roy Jakobs: And maybe one addition. What is also helping it, David, is, we have been re-expanding our retail distribution. So actually, we have been getting listings and placements in the web shelf and particularly of big retailers. And that actually we gives us additional sustainable growth opportunity for the quarters to come. So it's the combination of really great innovation, but also now having a better access event the consumers that actually gives us confidence that this is a sustained growth path and that we are in line with the guidance that Charlotte just provided. Operator: Your next question comes from Veronika Dubajova of Citi. Veronika Dubajova: I will keep it to two, please. One is kind of big pick your question on patient monitoring. Obviously, one of your sort of competitors suppliers of changing ownership. I'm just curious on how you're thinking about what impact that might have on your business and whether this is strategically positive and negative and net neutral is this an asset that would have made sense in the context of Philips, if you can kind of share your thoughts on that, that would be super, super helpful. And then my second question, is just circling back to some of the inflation commentary. Maybe Charlotte, can you give us a flavor for why you think you are in a better position to mitigate some of the headwinds than GE Healthcare. Would just love to understand what you think you have in your back pocket that's obviously enabling you to maintain your margin. And if you very briefly could comment on your Q2 margin expectations, that might also be helpful. Roy Jakobs: Yes. Thank you, Veronika. Let me take the first one. So on the patient monitoring. So you saw that actually the strong momentum continues, strong order intake. Actually, we are playing a platform play there that actually really resonates well with our customers. And as part of that, actually, we have strong partnerships. Masimo is part of that. We don't think that actually there will be any change. That's also not what kind of has been signaled because we have the biggest access to customers globally in terms of monitoring base. So there's a real intrinsic interest to actually connect with us to the customer. And there's also mutually interest from us to actually be providing in a vendor-neutral way consumable solutions that are out there in the market. And that has been benefiting the partnership with Masimo in past years, and we believe that will be also going forward. So we see it as at least net neutral. And I think we are excited to work also with any new owner there to kind of grow the franchise and make it work for our customers. And to differentiate also first competition because this is one of the strongholds the combination that we have a very strong cybersecure platform with the broadest data reach with the medical device integration and the consumables actually makes it very appealing in a very complex environment for our customers to do business with us, and that has been driving all these long-term partnerships and also the share gains in monitoring along the way. Charlotte Hanneman: Yes. Thank you, Roy. Let me take your second question, Veronika on inflation. And if I think about where we are in the year, let's first start with, in Q1, we had a very solid Q1 with margin expansion ahead of our expectations. So that gives us confidence that, again, we are able to not only compensate some of the headwinds we're seeing, but even expanding our margins despite that. Then, of course, we're seeing cost inflation. We're seeing it in freight, and we see it in electronic components and in plastics, but we have already started taking mitigation actions. Those will -- we started building them. Those are a little bit back-end loaded, and they will start coming in the second half of the year. And to take you through what we're doing. First of all, we're doubling down on bill of material productivity. We've always said there's more to go after, and we're now doing that with increased feed. We're going after our AI-enabled efficiencies, where we've seen some early progress already in Q1, and we continue to see that as well. And then as well, we're doing selective pricing as well. So the other element is really the tariff tailwind that we're seeing a little bit that we -- we're seeing also in Q1, and we'll see that versus our expectations being a little bit better going forward. Now you also know that we've been a little bit prudent in the way we've put our full year guidance out as well. So that, of course, has given us a little bit of buffer as well. So now to your question on Q2 specifically and Q2. So if we think about Q2, a couple of things that I think are important to realize, of course, Q2 is the last quarter where we still didn't have the full impact of our tariffs in 2025. So -- and you know, we've spoken about it a lot of times the way the tariff impact flows into our P&L, which first goes into inventory, and then it flows into our P&L. So we have, again, a tough comparable from a tariff perspective. And then also, we see the cost inflation, of course, starting to hit us. We have already taken the mitigation actions, but it will take a little bit of time before that starts positively impacting our P&L. So we, therefore, expect our mitigation impact to be a little bit more back-end loaded. Operator: Your next question comes from Julien Dormois of Jefferies. Julien Dormois: The first one relates to the mitigation initiatives that you are taking, and you mentioned selective pricing initiatives. So could you just walk us through what are the segments where you have the more leeway and at what speed we could see those pricing initiatives contribute to margin? And the second question is more specific on Enterprise Informatics. You indicated that sales were down low single digits in Q1, and you mentioned the usual unevenness in revenue generation. But if you could shed more light on why that happened specifically and then what we should expect for the remainder of the year and maybe also in the midterm, that would be helpful. Charlotte Hanneman: Julien, let me take your first question on pricing. So yes, we've called out also last year, you might remember, selective pricing as well, and we've already put some of that in place last year. We, of course, focus there where we have leading positions, and that's where we increased our prices. So I'll give you a few examples. We're increasing our prices in Image Guided Therapy. We're doing that in hospital patient monitoring. We're doing that in some of our service contracts. We're doing that in some of our time and materials. So we have a very granular plan in place to increase prices where we can. As you rightfully mentioned, some of that will flow through in 2026 and some of that will take a little bit longer as it needs some time to flow through the order book and will then benefit us in 2027. But I think it's fair to say that we've learned from COVID. And also there, we've been able to build up a much stronger muscle when it comes to price increases and price discipline, which is now helping us implementing that with a little bit more speed. Roy Jakobs: Let me then go to EI. So in EI, we see a couple of trends as we also alluded to when we had the Capital Markets Day. One is actually, we see continued order uptake. We saw that picking up strongly in the second half of last year. We also saw it again in the first quarter, and we have a very good funnel. So we see that there's healthy demand that's also on the back of the cloud migration and the cloud offering that we have, but also the integrated diagnostics trend that we see coming out in the market is really generating increased interest. If you then look at the sales trend, this is indeed more patchy. Sales drills orders quite a bit in EI. Furthermore, you see that if customers migrate in or out, those give quite big hiccups because actually that's the lumpiness that's kind of inherent to that business. The other part is that you also see that the orders that we are taking now more and more also go into a SaaS model, where you see that kind of the revenue flows in over a longer period of time. And that actually gives you more recurring attractive revenue stream for the longer run, but of course, it gives a bit of a hiccup in these quarters. So we see positive interest. We see the integrated diagnostics story really picking up with customers and of course, fueled by AI and the data play, and we are really working how we can tap into that. And we see the funnel growing also supported with what we're doing with Amazon. And then lastly, you also saw that kind of on the monitoring side, the Capsule and HPM combination is already working. So you see also this kind of combination play really driving impact. So we are kind of positive on that notion as well that, that will come through in due course of the year. Operator: Your next question comes from Hugo Solvet of BNP Paribas. Hugo Solvet: I have 2, please, quick ones on margins. First, short term. Charlotte, on the Q2 margin, could you maybe just clarify your earlier comments? Is there a scenario where margin in Q2 be within the full year guidance range? And second, a bit more long term, when we think about the full year 2028 targets, you have around 600 to 700 bps of buffer for wage input cost, tariff macro and so on. What's the level of confidence that this buffer can accommodate for higher input costs given where they are at the moment? Charlotte Hanneman: Yes. Thank you very much, Hugo. So let me start with your first question on Q2 margin. So based on what I just said, first of all, the incremental tariffs weren't in effect in Q2 2025. as well as the cost inflation that we're seeing with the mitigation timing being back-end loaded, I expect the Q2 margins to be lower year-on-year in Q2. I also feel very confident that in the back end of the year, we will be able to get those mitigation factors in because we have very, very strong plans in place and very granular plans in place to start offsetting that. But Q2 in that sense will be a little bit of a lower quarter from a margin perspective. Now to your second question on the longer-term margin outlook, as we said in February, we -- of course, as we stood there in February, we knew that the world was a turbulent place. We didn't quite know how turbulent it would get, but we absolutely did take into account that there would be something that we would be seeing. So as a result, and we were also very transparent about the buffer that we took at that point in time, especially given the ability we have to also step up from a mitigation perspective, I don't -- I feel equally confident as I was in February that we'll be able to get to the mid-teens adjusted EBITDA margin by the end of 2028 based on what we know today. Hugo Solvet: Thank you very much and congrats on EBIT. Operator: And your next question comes from Aisyah Noor of Morgan Stanley. Aisyah Noor: My question is just on D&T and your competitive outlook in Europe following the launch of an ultrasound by United Imaging in this space. And as well on the recent launch of Verida for you, just how that's progressing and how we should be thinking about the sales contribution for 2026? Roy Jakobs: Yes. Thank you, Aisyah. And I already called out Europe actually picking up and performing well in Q1. And that's also in particularly for D&T, where we see actually that -- and then within D&T also PD actually is doing really well in Europe. So we see a few trends. One, MR already was picking up strong. So we see that continued. And also if you look to the BlueSeal penetration now, actually, that's really kind of going well, and we see a good funnel. on the MR side. Then also with the new Verida launch, actually, we see very strong interest in Spectral and how that now with a better workflow is really helping to support high-volume throughput at high-quality imaging. We've secured the first order already. We have an installation ongoing. So actually, very good reference as well, very strong clinical support. So actually, we have a kind of good expectation that Verida will be doing really well in Europe, and we see the first proof points of that coming through. Then lastly, ultrasound. Ultrasound actually is also doing well. Indeed, we had some competitors as well in this space, but actually ultrasound in Europe has been already starting last year, picking up very strongly after we kind of came out with our latest EPIQ launch and also the Flash. We have good order momentum of ultrasound in Europe, strong positioning. So actually, we are quite excited about the momentum in Europe, how that is increasing and especially also how our AI-based, but also, I would say, high productivity and performance solutions really hit the mark in a market that needs to be also kind of conscious of the spend in the environment that we are in, but that seems to work well. Operator: Due to the time, the last question today comes from Graham Doyle of UBS. Graham Doyle: Just 2, please. Just the first one, just on inflation again. Just to get some context on this. Obviously, you guided in Feb, and there's been obviously volatility. But is there any -- how meaningful is the incremental headwind? So is it something that was comfortably within your buffer? Or are you doing other things to sort of mitigate? And then, Roy, just on China, you mentioned a few times at the CMD and then today about kind of playing to win in certain segments. Is there any way within reason that you kind of identified to us the areas where you understand that perhaps you can't win and therefore, you've built it into your guidance that you kind of know that there's areas where you're probably deprioritizing. Is that possible to maybe contextualize that for us? Charlotte Hanneman: Graham, thanks. Let me take your first question on the inflation. So indeed, yes, we guided in February only 3 months ago, although a lot has happened. So as I said before, we are seeing an incremental headwind in plastics, in also freight. It's good to know as well that energy, we have hedged for 2026. So we will not see any impact from higher energy -- direct highly energy prices. There are a few components here, right? It's -- first of all, we did already better in Q1 than we thought. So we are a little bit ahead of where we thought we would be, which is giving us confidence. The second component is we are -- after the Supreme Court struck some of the tariffs in February, we're seeing some tailwinds as a result of that, that we are that we are taking into account as well, which is offsetting some of the inflation. And then the third component is we have launched already additional mitigation activities, including bill of material price reductions, including also optimize the way we look at freight and where we use air freight versus boat in order to also optimize the spend there and also leaning in even harder in what we know and do very, very well, which is driving further cost discipline. We've also -- we've always said there's more to go after. So we're doing that now with double speed as well. And putting that also in the context of what I said earlier that we have put a prudent guide out, all of that actually comes to a place where we can reiterate our guidance of 12.5% to 13% for the full year. Roy Jakobs: And then on China, indeed, I think the differentiated play is becoming more important. And to give you some examples where we see that actually, we have really the right to play and to win is, I called out MR. Actually, we have one of the biggest installed base of the helium-free already in China. And we just go also the notion that we have a green part support from the regulatory body and PMA to kind of get an accelerated approval for the 3T because they're so excited about the new innovation that this will bring to China. So that's a good example on MR. IGT is also really doing well, and we have a kind of good momentum, and we see that also well in demand in the market. And also sound, I called out there's different dynamics. You see that the cardiovascular, we are still unique, but it's, of course, a smaller segment in totality and you see quite brutal competition on GI. The same with CT spectral, Actually, we have, again, one of the stronger installed bases of CT Spectral in China. But if you look to the more generic CT, that's really very strong competition. So that's kind of where we said that's not our game play. And then we exited DXR because we said that's so commoditized. That's not our game in China. We also exited the value play in China, which is the lowest price segment because that will be very strongly locally favored and also at price points that are not attractive to us. So -- so we made distinct choices. Actually, within those segments, we also see that we are really trending with market or even kind of doing well within the market momentum. But yes, there is just a subdued overall market environment that we have to operate in. But I think we have been making the right choices. We're sticking to that. It's also in line with the plan. And also, as we showed in the results, it's also in line with the results that we have in Q1 and also for the full year expectation. So, in that sense, I think we derisked China in our plan. We're playing there to tap the opportunity that we have. And last but not least, China is not only a demand market, of course, there's also innovation happening in China that we want to stay close to, including AI innovation that's going very rapid. Robotics is developing very rapidly in China. And then, of course, there's also still components and sourcing that we get from China. So that China for us is a wider market than demand only, and that's why we kind of keep a strong footprint there, but in line with demand, we have kind of opted for a more selective go-to-market. Operator: That was the last question. Mr. Jakob, please continue. Roy Jakobs: Yes. Thank you all for attending the call, as you saw, we have a strong start to the year with growth orders and sales and margin expansion despite a very turbulent environment we operate in. We have the confidence reiterated our full year guidance. Of course, a lot of work to be done, but we have the actions in place, the plan in place and the team that is working it. So thank you for your attention again. Have a further great day. Operator: This concludes the Royal Philips First Quarter 2026 Results Conference Call on Wednesday, 6th of May 2026. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to Red Violet, Inc.'s First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call is being recorded. I would now like to introduce your first host for today's conference, Camilo Ramirez, Senior Vice President, Finance and Investor Relations. Please go ahead. Camilo Ramirez: Good afternoon, and welcome. Thank you for joining us today to discuss our first quarter 2026 financial results. With me today is Derek Dubner, our Chairman and Chief Executive Officer, and Daniel MacLachlan, our Chief Financial Officer. Our call today will begin with comments from Derek and Daniel, followed by a question-and-answer session. I would like to remind you that this call is being webcast live and recorded. A replay of the event will be available following the call on our website. To access the webcast, please visit our Investors page on our website, redviolet.com. Before we begin, I would like to advise listeners that certain information discussed by management during this conference call are forward-looking statements covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with Red Violet, Inc.'s business. Red Violet, Inc. undertakes no obligation to update the information provided on this call. For a discussion of the risks and uncertainties associated with Red Violet, Inc.'s business, I encourage you to review Red Violet, Inc.'s filings with the Securities and Exchange Commission, including the most recent annual report on Form 10-Ks and subsequent 10-Qs. During the call, we may present certain non-GAAP financial information relating to adjusted gross profit, adjusted gross margin, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, and free cash flow. Reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures are provided in the earnings press release issued earlier today. In addition, certain supplemental metrics that are not necessarily derived from any underlying financial statement amounts may be discussed, and these metrics and their definitions can also be found in the earnings press release issued earlier today. With that, I am pleased to introduce Red Violet, Inc.'s Chairman and Chief Executive Officer, Derek Dubner. Derek Dubner: Good afternoon, everyone, and thank you for joining us. Before I walk through the quarter, I want to recognize our team. The results we are reporting today—record revenue, record margins, record EBITDA, and one of the strongest quarters for new customer onboarding in our company's history—are a direct outcome of disciplined execution. This is a team that consistently delivers, and that consistency is what drives the results you are seeing today. Now to the quarter. Revenue for the first quarter was a record $25.8 million, up 17% year over year. It is important to note that the prior year period included $1.2 million of one-time transactional revenue, so the underlying growth this quarter is stronger than the headline suggests. Adjusted gross profit increased 20% to $22.0 million, resulting in a record adjusted gross margin of 85%. Adjusted EBITDA increased 27% to $10.7 million, with a record margin of 41%. Adjusted net income was $6.6 million, producing record earnings of $0.46 per diluted share. Operating cash flow increased 32% to $6.6 million. This marks yet another quarter of consistent execution with high-teen growth and continued expansion in margins and cash flow. On the customer front, IDI added 400 new billable customers, one of the highest quarterly additions in our history, bringing total customers to 10,422. FOREWARN grew to more than 417,000 users with over 640 realtor associations under contract. These metrics reflect increasing adoption, deeper integration, and the growing reliance our customers place on our platform in their daily operations. At the same time, we continue to see a significant and expanding opportunity set in front of us, particularly as AI continues to unlock new capabilities across analytics, data aggregation, and customer interaction. Given the strength of our model and the level of cash flow we are generating, we are well positioned to invest proactively into that opportunity. Importantly, our opportunity in AI is not just about access to tools. It is about the foundation that we have built that those tools operate on. Our longitudinal identity graph, built and refined over time through real-world usage, is what enables us to generate actionable signals, not just data outputs. AI enhances our ability to analyze the foundational graph, identify patterns, and surface risk and insight with greater speed and precision. Similarly, our ability to aggregate and fuse new data is directly tied to our ability to resolve that data to unique individuals within our identity graph. Aggregating data is one thing, but correctly attributing it to the right individual over time is something entirely different. Whether it is distinguishing between thousands of individuals with the same name, resolving generational differences, or identifying underbanked consumers with limited public data, our platform is architected to unify fragmented data into a persistent, accurate identity—a continuously maintained and correctly attributed view of an individual over time, all powered by our proprietary engine. As we bring in additional data inputs, AI further enhances our ability to validate that data against our graph, then link and extract meaningful insight, reinforcing and extending the advantage we have built over the past. Across customer workflows, AI is also enhancing how our solutions are experienced, improving responsiveness, deepening integration, and increasing the utility of our platform in day-to-day decisioning. Internally, we are seeing accelerating adoption of AI across the organization, from engineering and security to operations and customer support, driving significant gains in productivity and development velocity. Within our technology organization in particular, development velocity has accelerated materially with teams leveraging AI and agentic tools to code, test, and deploy at rates we have not previously experienced. What historically required multiple resources can now often be accomplished by a single engineer operating with AI augmentation, significantly increasing our pace of product development and innovation. What we are observing is a compounding effect. As adoption deepens across the organization, the pace of improvement is accelerating, driving efficiency gains internally while simultaneously strengthening the value we deliver to customers. We are just scratching the surface. The net effect is that AI is acting as a force multiplier, increasing the value of our data, accelerating our pace of innovation, strengthening our position within the markets we serve, and further enhancing our AI-embedded layered architecture, which is fundamentally differentiated from the legacy technology stacks of our competition. Switching topics for a moment, I also want to revisit something we said several years ago, and Daniel will go into it in more detail. At that time, we outlined what this business would look like at a $100 million annual revenue run rate—specifically, adjusted gross margins exceeding 80% and adjusted EBITDA margins in the range of 35% to 40%. We had our skeptics, but that was guided by this team's knowledge and experience building similar businesses over the past three decades. Today, at our current scale, we already are delivering 85% adjusted gross margins and 41% adjusted EBITDA margins. This level of performance reflects the durability of our business and the operating leverage inherent in the model as we grow. We ended the quarter with $43.5 million in cash. We currently have $15.6 million remaining under our stock repurchase program after repurchasing 73,250 shares at an average price of $41.90 per share during the first quarter and through 04/30/2026. We will continue to allocate capital with discipline, balancing share repurchases with continued investment in our platform, data assets, and go-to-market capabilities. This was a strong start to 2026, and a continuation of the consistent, disciplined execution that defines who we are. With that, I will turn it over to Daniel. Daniel MacLachlan: Thanks, Derek. Good afternoon, everyone. We are off to an excellent start in 2026, delivering the highest revenue, adjusted gross profit, and adjusted EBITDA in our history—results that reflect the strength of our platform, the expanding reach of our solutions, and the consistency with which we are executing. I want to take a moment to put these results in context, because I think it speaks to something important about this team and this business model. As Derek mentioned, in March 2022, we laid out a framework on our earnings call of what this business looks like at $100 million in annual revenue. At the time, our run rate was approximately $45 million, our adjusted gross margin was 75%, and our adjusted EBITDA margin was 25%. We told you that at $100 million in annualized revenue, you could expect adjusted gross margin to exceed 80% and adjusted EBITDA margin to be in the range of 35% to 40%. We meant it, and we built toward it. This quarter, we crossed that revenue threshold for the first time—on $25.8 million in quarterly revenue, a $100 million-plus annual run rate—we delivered adjusted gross margin of 85% and adjusted EBITDA margin of 41%. Disciplined execution against a multiyear road map at the margins we said we would deliver is not something every management team can point to. But we can, and we are just getting started. At maturity, this business model is capable of adjusted gross margins in excess of 90% and adjusted EBITDA margins approaching 65%. The 2026 performance is evidence we are on the right path to get there. But we take a long-term view of this business, and we are not managing to a near-term margin target. We are managing toward the full potential of what we have built. Over the past decade, we have constructed a differentiated data and analytics platform—one that ingests, normalizes, and delivers intelligence at scale across a broad and growing set of use cases and end markets. The foundation we have built is what makes our AI actionable. AI is accelerating how we develop and deploy new capabilities, compressing development cycles and broadening the solutions we can bring to market. It is enhancing how our customers interact with our products, improving the speed and precision with which identity intelligence is surfaced and acted upon, and it is reshaping how we think about operational efficiency and scale, enabling us to accelerate productivity across the entire business. We are already seeing these benefits, and we expect their impact to compound. As we continue investing in AI, product development, and go-to-market capabilities, we expect adjusted EBITDA margins in the near term to trend in the mid- to high-30% range. We view that as a reflection of deliberate investment in the long-term growth of the business. The path to 65% adjusted EBITDA margins runs directly through the investments we are making today. Turning now to our first quarter results. For clarity, all the comparisons I will discuss today will be against the first quarter 2025 unless noted otherwise. Total revenue was a record $25.8 million, up 17% over the prior year. As Derek noted earlier, Q1 2025 included $1.2 million in one-time transactional revenue from two significant customer wins. Normalizing for that, our underlying growth rate this quarter would have been greater than 20%. We generated $22.0 million in adjusted gross profit, the highest to date, delivering a record adjusted gross margin of 85%, up two percentage points. Adjusted EBITDA came in at a record $10.7 million, up 27% over the prior year. Adjusted EBITDA margin expanded three percentage points to 41%, a new high. Adjusted net income increased 29% to $6.6 million, resulting in adjusted earnings of $0.46 per diluted share—both new highs. Turning to the details of our P&L, as mentioned, revenue for the first quarter was $25.8 million with solid performance across the business. Within IDI, we saw broad-based growth across our verticals, with particular strength in financial and corporate risk, and investigative. We added 400 billable customers sequentially to end the quarter with 10,422 customers. Financial and corporate risk was our fastest-growing vertical, with background screening leading the way with exceptional growth, continuing to benefit from the targeted product development and go-to-market investments we have made over the past year. Financial services delivered strong growth driven by deeper customer integration and volume expansion. In addition, both corporate risk and insurance contributed meaningful growth, rounding out a solid showing across the vertical. Investigative posted robust double-digit gains across every industry, including law enforcement, private investigators, bail bonds, and process servers. Law enforcement, in particular, continues its impressive trajectory, and we remain focused on deepening our penetration of the public sector. This vertical is expanding as a share of our total revenue, and we see significant runway ahead. Collections delivered steady gains this quarter. The recovery dynamic we have discussed in prior quarters remains intact, and we continue to see volume expansion from our existing customer base as the industry works through elevated delinquency levels. The vertical is maintaining its steady recovery, and we view it as a meaningful tailwind to our growth outlook. Emerging markets delivered healthy underlying expansion this quarter. The $1.2 million in one-time transactional revenue in Q1 2025 we noted earlier concentrated in this vertical, which creates a tough year-over-year comparison. Normalizing for that, the underlying growth rate was robust and in line with the demand momentum we continue to see across these industries. Retail, government, legal, repossession, and marketing all contributed meaningful growth. We remain encouraged by the breadth of activity throughout emerging markets as a significant long-term growth driver for the business. Lastly, IDI's real estate vertical, which excludes FOREWARN, delivered modest growth year over year, but is starting to show signs of stabilization following the prolonged pressure that elevated rates and affordability constraints have placed on housing activity. While the macro environment remains a headwind, we are encouraged by the trajectory and believe we are well positioned as conditions gradually improve. As to FOREWARN, the platform continued its impressive performance, delivering strong double-digit revenue expansion this quarter. We exited the quarter with over 417,000 users, up from 325,000 users a year ago. FOREWARN continues to gain traction with real estate professionals, who rely on it as an essential part of their daily workflow. We now have over 640 realtor associations contracted to use FOREWARN. Overall, contractual revenue accounted for 75% of total revenue in the quarter, up one percentage point from the prior year. Gross revenue retention remained strong at 95%, down one percentage point. Moving back to the P&L, our cost of revenue, exclusive of depreciation and amortization, increased $0.1 million, or 4%, to $3.8 million. Adjusted gross profit increased 20% to a record $22.0 million, resulting in a record adjusted gross margin of 85%, up two percentage points from the prior year. Our sales and marketing expenses increased $0.5 million, or 8%, to $5.9 million for the quarter, driven primarily by higher personnel-related expenses. General and administrative expenses increased $1.7 million, or 28%, to $7.9 million, driven primarily by higher personnel costs and acquisition-related activity. Depreciation and amortization increased $0.2 million, or 10%, to $2.8 million for the quarter. Net income increased $1.0 million, or 28%, to $4.4 million for the quarter. Adjusted net income increased $1.5 million, or 29%, to $6.6 million, the highest to date, resulting in record adjusted earnings of $0.46 per diluted share. Moving on to the balance sheet, cash and cash equivalents were $43.5 million at 03/31/2026, compared to $43.6 million at 12/31/2025. Current assets totaled $57.3 million, compared to $56.5 million at year-end, while current liabilities were $5.1 million, down from $7.9 million. We generated $6.6 million in cash from operating activities in the first quarter compared to $5.0 million in the same period last year. Free cash flow for the quarter was $3.1 million, a 24% increase from $2.5 million a year ago. In the first quarter and through 04/30/2026, we purchased 73,250 shares of company stock at an average price of $41.90 per share under our stock repurchase program. As of 04/30/2026, we had $15.6 million remaining under the repurchase program. In closing, crossing the $100 million revenue run rate threshold this quarter is a milestone worth acknowledging, but it is not a finish line. The same discipline and focus that got us here is what will take us to the next level. We have a clear line of sight to continued margin expansion, a platform that is scaling efficiently, and a team that has constantly and consistently delivered on what it said it would do. We are confident in our ability to build on this momentum, and we look forward to updating you on the progress throughout the year. We will now open the call for questions. Operator: Thank you. We will now open the call for questions. As a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. Please stand by while we compile the Q&A roster. Our first question today is from Eric Martinuzzi with Lake Street Capital Markets. Your line is open. Eric Martinuzzi: Hey, congrats on the $100 million run rate. That is a very significant milestone that I know you guys have been working a long time to achieve, so great to see that. Question regarding we are always looking for kind of what is next. And given the achievement of those targets that you laid out back in March 2022, you talked a little bit in your prepared remarks, Daniel, about the at-maturity type model having in excess of 90% gross margins and then approaching 65% on the adjusted EBITDA. Obviously, that is the goal. Is there a timeline you are willing to communicate? Daniel MacLachlan: Thanks, Eric, and I appreciate the question. We are really excited about crossing that revenue threshold. That is a milestone and a good marker for us, but as I said earlier, it is just the beginning; it is not a finish line. When we talk about timelines to get to that maturity, we are not going to put a timeline on that today because we do not issue formal guidance, and pinning a year on a maturity-state outlook would be inconsistent with how we manage the business. What it comes down to is the structure of the business model. We operate a data and analytics platform with a largely fixed cost base. Once the platform is built and the data is in place, the marginal cost of an incremental transaction is very small. That means as revenue scales, an outsized share of every dollar flows to the bottom line. Our cost structure is built to support a meaningfully larger business than where we are today, and we are continuing to invest in that cost structure to enable future growth. So 65% at maturity is not a forecast and is not a target. It is the model output when you take a high fixed-cost, low marginal-cost platform and you let it scale to its natural operating leverage. For timelines, it is really about continuing what we are doing—building a good foundational business—and moving as quickly as we can toward those underlying metrics. Eric Martinuzzi: Okay. And then the other notable achievement here was new customer onboarding. As you went through the different verticals you serve, I did not really pick up on anything that was a substantial change versus your commentary last quarter, and maybe I am incorrect there. But what do you attribute the strength to? Is Q1 typically a time when you do onboard a significant number of new customers? Is there something going on in the macro or with the brand that is allowing you to achieve those numbers? Derek Dubner: Thanks, Eric. Q1 is generally strong. Industries tend to enter the new year with a little bit of wind in their sails. Maybe they are ready to deploy those budgets and get going. But I think what we would say is we have produced near-record onboarding—or at least at the very highs of our 12-month average—for quite a while now. We have always said that those are a great leading indicator of the revenue generation and success of the business in the out months, and that is bearing true, and that is why we use it as exactly that—a leading indicator. It is a confluence of many things ongoing within the organization. I think we are doing a very nice job of marketing ourselves, being present at conferences, engaging with our customers, and delivering what they want in products and solutions. We have always said we are very customer-centric, and we will never change. When we think about the next series of developments—whether it be functionality within an application for a certain industry—we are talking to our customers. We are finding out what they want, what they do not see in the competitive environment, and we execute upon that. I am very proud of the organization. That is why I started out with a thank you to the team. It is really brilliant execution over the last 18 months. We have an extraordinarily strong road map, and because of the AI implementations across the organization, we are seeing acceleration there. It has us very enthusiastic that we are well positioned for the future. Eric Martinuzzi: Got it. Last question for me. You talked about the growth in the quarter—up 17%—but really would have been even stronger when you back out the $1.2 million from the year-ago quarter. My math has the kind of apples-to-apples growth at around 24%. I know you are not in the business of giving guidance, but seasonal trends in the business historically would have Q2 up from Q1. Is there any reason that trend would be different this year? Daniel MacLachlan: Thanks, Eric. Historically, the first quarter has always been a really strong quarter for us. We noted Q1 2025 had a little additional in there in one-time transactional revenue, but going back historically, we have always had a good first quarter out of the gate. We try to replicate and grow that in Q2. Last year, if you look, we were probably down sequentially by about $200,000, but of course we were going against that transactional comp. We are not providing any formal guidance. For us, when we think about the business—and going back to 2024 and 2025—we talked about reaccelerating the growth rate. Obviously, we were able to do that. It is one foot in front of the other and continuing to execute. From a sequential basis, we have a great foundation coming out of the gate at $25.8 million. The expectation is we can leverage that and, over the next couple of quarters, grow from there. For the first quarter, April for the most part is closed, and what we saw in April was an extremely strong month. We are excited about what is happening in the business and looking forward to continuing to perform for the near, medium, and long term. Eric Martinuzzi: Great. Thanks for taking my questions. Operator: Our next question comes from Josh Nichols with B. Riley Securities. Your line is open. Josh Nichols: Yes, thanks for taking my question, and great to see the company taking back some stock this quarter. I wanted to ask two questions. One, about scaling up the go-to-market strategy. Historically you have been a little bit more narrowly focused, but when we think of that broadening out—inside sales, strategic sales, and distribution—what are your plans to grow those channels this year, and how are you investing in that? Daniel MacLachlan: Yeah, thanks, Josh. I will take that. If you look historically, especially in that go-to-market line—we provide some supplemental metrics around our sales and marketing personnel—we have invested there. We have invested on the marketing front, bringing in a highly skilled leader to build out that team. As Derek talked about earlier, we are at the conferences we need to be at, we are at the trade shows we need to be at, and we are continuing to engage with customers. That starts with a solid marketing foundation and builds out from there. On sales go-to-market, we have built out an extremely efficient and productive inside sales team. I think of that as the engine of the organization—highly skilled, verticalized subject matter experts across a broad group of industries and verticals. Tactically, over the last several years, we built out more of our strategic side in a number of areas where we have made investments. We have built out the strategic team. So growth is not only in some of those pockets where we have been investing; it is also across the broad and diverse industries and verticals we serve. We call out five main verticals in which we operate and break down revenue, but when you look at the amount of industries that roll up into that by verticals, it is around 25 or 26 different industries. The great thing about the growth we have seen this quarter—and have seen consistently—is that it is broad-based. It is in a number of areas, and it is not concentrated in one use case or one customer. That gives us a lot of confidence today to talk about how the business has been and how we expect it to perform in the future. Derek Dubner: Yeah, Josh, I know you are aware, but I will state it unequivocally that we are an early-stage company sitting in front of an enormous market opportunity, and we are very fortunate that we are generating very healthy cash flow. With that opportunity in front of us, the summary of our call today is that we are going to invest. The opportunity is that large. Our goal is not to set necessarily a record EBITDA margin tomorrow. We are building a very healthy foundational business with a view of 10 years out. The answer across the board is we expect to grow our team. This team is going to be methodical, deliberate, and directly in line with where the opportunity demands it. That includes go-to-market, your question, but also product, data, and definitely AI-driven capabilities. Over time that will create an inflection point. We will get to where revenue scales meaningfully without a commensurate increase in headcount because of what we are doing today and tomorrow. That is the model. We are not one of those companies that has bloated through the pandemic or is using AI as an excuse to eliminate personnel or a missed quarter or anything else. Net-net today, more employees—but a team that is going to operate at a fundamentally much higher level of productivity. Then that will flatten out, and you will see those margins just drive. Josh Nichols: Thanks. Then, Derek, you touched on it—always good to hear you talk a little bit about your thoughts on technology and the impact and tailwinds that you think that is going to bring to the business. Clearly, it is a rapidly evolving environment. Agentic capabilities with AI are something that has gotten a lot of focus recently. I am curious how you are thinking about investing in that, enhancing the company's agentic capabilities, and what that could do for the business as that scales up over the next few years. Derek Dubner: Yeah, sure, Josh. Thank you for the question. We spent some time on this in the fourth quarter in our earnings and full year, but I am happy to revisit it. AI, we do not perceive that as a threat to our business. It is a tailwind for us. I will restate it again: AI alone cannot replicate our data. We have built this longitudinal identity graph. It is billions of unified records, and it is tested and modeled and refined over years of actual usage. That is the foundation that AI needs to run on. For us, we have this healthy foundation built, and we can layer AI on top of it and better serve our customers in all different ways. In the risk signals we are generating, through an API connection our customers see it when they come into the office in the morning versus the competition’s solutions. Our competition is working on trying to complete migrations to the cloud from other architectures. We are cloud native, AI embedded from day one. We are using AI to compress development cycles and implement more AI across the organization. It is pulsating through the products and what we are doing every day—pair programming, agentic tools. We are very excited because as customers, especially small and medium size, become more adept at using it and getting agents into their workflow, we are completely usage-based and volume-based. That means they will access our products in much faster fashion—less manual activity—and more demand for the identities that we can clear every single day. It is necessary to come back to us. One person’s data on a given day to open a new bank account is only good for that moment in time. The next day, that person’s identity and profile may have changed. They might have been arrested the night before, they might now be divorced, they might have financial stress that occurred—a bankruptcy filing, a very large judgment. The next time the commercial or public sector sees that consumer, they need to clear that identity again and make a critical decision about that individual. We have been building for this for the last 11 years. We have built this identity graph to be extraordinarily high confidence. AI can only be directionally correct. We need to be accurate. Law enforcement is making critical decisions every day using our products, as are financial services and all of our industries. We are really well positioned. We are very excited about the innovation that is going on and the product road map, and very excited about introducing new products and updating you on that. Daniel MacLachlan: Thanks, Josh. Operator: Thank you. I am showing no further questions at this time, so I would like to turn it back to Derek Dubner for final remarks. Derek Dubner: Thank you. As we close, I want to reiterate that our performance this quarter reflects the strength of our strategy, the resilience of our business model, and the continued trust of our clients and partners. We remain focused on disciplined execution, responsible growth, and delivering long-term value to our shareholders. While the macro environment continues to evolve, we are confident in our positioning, our technology, and our team. We appreciate your continued support, and we look forward to updating you on our progress next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good 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, ladies and gentlemen, and welcome to the Veolia publication of Q1 Financial Information Conference Call with Estelle Brachlianoff, CEO, and Emmanuelle Menning, CFO. [Operator Instructions] Estelle Brachlianoff: Thank you very much, and good morning, everyone. Thank you for joining this conference call to present Veolia, because you know the line is a little bit blurred. So I thought you had finished your introduction. No anyway, I will go on. I'm accompanied by Emmanuelle Menning, our CFO, to present Veolia's Q1 key figures. I will start on Slide 4 by highlighting the key achievements of the first quarter. We delivered a strong Q1, resilient growth and solid EBITDA progression, fully in line with our annual guidance in spite of a difficult environment. Our unique multi-local model has proven its value again, combining resilience with growth potential based on a sustained demand for essential services, which has led to limited impact from the Middle East conflict and even future opportunities. I will come back to that in a minute. We are continuing our strategic transformation towards international markets and technology-driven solutions with new tuck-ins in Q1. I will also come back to innovation after our dedicated day recently held in London as it is core to our strategy, fueling growth and efficiency targets for years to come beyond the GreenUp plan. I, of course, will fully confirm our 2026 guidance as well as our GreenUp trajectory. These results demonstrate that Veolia's business model and strategy is robust, diversified and well positioned to navigate uncertainty while capturing growth opportunities in essential environmental services. Now let's look at the specific numbers for Q1 2026, and I'm on Slide 5. Revenue reached EUR 11,427 million -- so EUR 11.4 billion, up 2.1% at constant scope and ForEx and excluding energy prices. This represents resilient growth in a geopolitical wait-and-see environment and very comparable to the second half of 2025. Our EBITDA came in at EUR 1.766 billion, up 5.1% at constant scope and ForEx and up 5.8% when including tuck-in acquisition. And I recall, without any contribution of Suez synergies that we enjoyed during the previous quarters. This performance is therefore excellent, especially in a complex macro and geopolitical environment. Particularly noteworthy is our EBITDA margin expansion of 73 basis points year-on-year, reaching 15.5%. This margin improvement is fueled by our strategic choices and operational efficiency. Current EBIT reached EUR 971 million, up 7.2% at constant scope and ForEx, demonstrating strong operational leverage. Our net free cash flow improved significantly by EUR 144 million compared to Q1 2025, driven by strict management of both capital expenditure and working cap requirements. Net financial debt stood at EUR 20.8 billion, which is fully under control. And this result gives me strong confidence for the full year 2026. I'm now on Slide 6 and wanted to recall what makes Veolia truly unique, which is our positioning that combines both resilience and growth. We are an international environmental services leader operating in 44 countries across 5 continents, which gives us the firepower to lead in technology and innovation, thanks in particular to our 14 R&D centers and over 5,000 patents. We rank in the top 3 in Europe, the Americas, Asia and the Middle East, which gives us pricing power. But no capital employed in a single country exceed 10% outside the U.S. in order to derisk the group. This is a choice. Our customer base is diversified, roughly 50-50 between municipal and tertiary and industrial clients. Our multi-local delivery model is anchored in local communities. That means we have no impact from tariffs, no impact on margin rates for ForEx volatility, only translation effects and no dependency on subsidies or government contracts. Our long-term contract on an average of 11 years in duration with 70% being inflation indexed. We estimate that 85% of our business is macro immune and commodities are essentially pass-through in our contracts. By the way, and in addition to what I already said, we offer a unique way of integrating solutions combining waste, water and energy services. This combination of growth potential and resilience is rare in today's markets. Slide 7. Given the current headlines, I want to address the Middle East situation directly. I believe it is a perfect illustration of the multiple strengths of our business model. We can see this first with the sustained demand for social services. In the region, we maintain constant and direct daily connection with local authorities and clients to ensure the continuity of critical services. This includes operating desalination units, for instance, which can account for up to 95% of the water supply. These direct contacts confirm that our partners are already preparing for the post-crisis phase and require partners like Veolia to be by their side. Furthermore, our multi-local model ensures our direct financial exposure remains very limited with EUR 1.3 billion revenue in 2025 and capital employed around EUR 300 million in the region, which is less than 1% of the group's total. Consequently, the local impact on Veolia has been largely neutral, only limited operational disruption like a little bit lower hazardous waste volumes and a slowdown or I going to say more a delay in water technology projects being signed. Regarding consequences on other geographies, we are well protected against rising costs. Our long-term index contract covers 70% of our contracts and covers all our cost base with some lag effect. For the remaining 30%, we have proactively already put in place specific fuel surcharge when needed, particularly in the waste business, and we've secured key supply. I'm on Slide 8. In a way, this crisis in the Middle East highlights the power of our unique Veolia offer and explains why it may even lead to a few opportunities. Our proprietary solutions help secure access to water supply, which is as critical as oil, if not more, as we see now. Our solution give access to an untapped reservoir of local energy at fixed price instead of import. You can imagine how important it is and lots of people realize it. In addition to that, our solution can contribute to securing supply chain, thanks to the circular economy. And those solutions can as well depollute industrial sites and protect human health. You will understand, I'm sure, why I'm very confident about our future performance as we have built with Veolia a unique positioning as the environmental security powerhouse, addressing critical needs for our clients. Slide 9. Our international footprint has largely contributed to our good results in Q1. I would like to highlight the continued standout performance in our region outside of Europe, which grew by a strong 3.1% and even 5.3% at constant ForEx. I will insist on the performance of the U.S.A., which grew by 7.5% at constant ForEx in spite of extreme cold weather conditions, which impacted hazardous waste volumes in January and February. The demand for our services is very strong. We also passed the main steps in the Clean Earth acquisition process, which secures the closing at midyear as announced. The Water Technologies segment performed quite well, up 4.3%, excluding the project business line, which was penalized or even more like delayed in signing by the crisis in the Middle East and continued to deliver a remarkable EBITDA growth in this segment. In Europe, we grew by a solid 3%, anchored by strong performance of Central and Eastern Europe, the U.K. as well as Spain, all enjoying strong commercial momentum and positive weather. Finally, France and Hazardous Waste Europe was resilient in spite of adverse weather conditions, which has penalized a bit waste activities. I expect Hazardous Waste Europe to grow faster in the coming quarters without the Q1 disturbances. Looking out at our top performance by business line on Slide 10, we see resilient growth and solid EBITDA progression across all our activities. Our stronghold activities, municipal water, solid waste and district heating generated EUR 8.4 billion in revenue, up 2.5% at constant scope and ForEx and excluding energy price. Our booster activities, Water Tech, Hazardous waste and Bioenergy, generated a little bit more than EUR 3 billion in revenue, up 2.2%, including tuck-ins. You have to remember again that Q1 was quite specific with negative impact from the Iran war on the delay of signing specific projects with Water Tech, added to extreme weather events and timing effect in Hazardous Waste. The demand for our booster activities keeps being very strong. If we were to exclude Water Technology project delay, our boosters would have grown by 4.6%. The combination of Strongholds and Boosters now represents already 30% of our revenue, demonstrating our strategic evolution towards high-growth, higher-margin activities while maintaining the stability of our core business. Emmanuelle will give you all the details by activity in a moment. I'm now on Slide 11. Veolia continues its transformation as set up in GreenUp towards more international, more technology-driven activities, which is our Boosters. We are very active, sorry, in strategic portfolio management with EUR 8.5 billion of assets, which will have rotated over 4 years. You remember that 2025 was a pivotal year as we successfully achieved the Suez integration, but we've also crystallized strategic moves with 2 major acquisitions signed or closed. First, EUR 1.5 billion invested in Water Tech to enhance our combined technology portfolio capabilities. We have already extracted 1/3 of the planned EUR 90 million synergies, which is EUR 30 million, including EUR 10 million in Q1. And of course, $3 billion with the acquisition of Clean Earth in the U.S. We have obtained both the antitrust clearance and our shareholders' approval on Monday, which means we are fully on track to close the deal midyear. Both acquisitions already create value, but also will enhance the group's profile going forward. Lastly, we announced EUR 2 billion of nonstrategic asset divestitures in the 2 years following the Clean Earth closing. Process has started with clear list and various scenarios. We have already achieved several small and medium divestments of mature assets or not in the top 3, which you know are some of our criteria, and we will continue pruning our portfolio. On Slide 12, I would also like to say a few words about our exciting growth ambition related to innovative offers through 2030, which we have explained in a dedicated session last April. I will start with our new offer dedicated to AI industries, covering data centers and chips manufacturing. Those industries are in high demand to secure steady water supply for cooling systems, continuity of supply of untapped water and they use a large amount of high-quality solvent and acids. Data centers are starting to see resistance from local communities to be granted permits given the intensity and resource consumption. Our DATA CENTER Resource 360 new offers help secure local acceptance and license to operate with recycled water technologies and heat recovery as seen in our recent contract with AWS in Mississippi. We already grew very quickly in those AI industries from $150 million in 2019 to $560 million in 2025, and we're now targeting approximately $1 billion by 2030. We have a unique set of assets and technologies to support this growth. Patented technologies such as electrodeionization for ultra-pure water, ZeeWeed membranes for water recovery, without mentioning a new Taiwan-based electronic-grade sulfuric acid recovery, which is really promising, but also a worldwide installed base of hazardous waste treatment facilities. In addition, we'll soon have a presence in all 50 states of the U.S. with the Clean Earth acquisition. I'll remind you that the offer we launched in 2024 on PFAS is already very successful, and I'm very confident we'll reach our ambitious EUR 1 billion revenue by 2030. We had 0 revenue in 2022 to EUR 259 million in 2025, which is up 25%. And our recent acquisition of soil remediation specialists in Australia at a very reasonable multiple will complement nicely our comprehensive solution portfolio and offer duplication opportunities. This innovation-driven growth are testimony of the group transformation towards more value-added offer and services as an environmental security powerhouse. On Slide 13, we will also derive from digital and AI, innovative tools and an increasing contribution to our efficiency plan. In 2025, 23% of our operational efficiencies were already derived from AI and digital, and we aim at 50% by 2030. This is by scaling up AI-based tool we've already tested to maximize plant productivity, to reduce energy or chemical consumption or to help detect leaks. Our Talk to My Plants tool dedicated to plants maintenance operator is particularly very promising. It is a very exciting journey, and we are only on the very beginning here. Slide 14. I just want finally to fully confirm our 2026 guidance, which is reminded fully on this slide, in particular, with EBITDA to grow 5% to 6% organically and current net income by 8% at constant ForEx and before PPA. And this is, of course, excluding Clean Earth. Additionally, assuming a mid-2026 closing, the Clean Earth acquisition will be accretive to current net income from 2027 before PPA, confirm as well our GreenUp trajectory. This reflects our confidence in our business model and strategic execution. Emmanuelle, the floor is yours to elaborate on Q1 results. Emmanuelle Menning: Thank you, Estelle, and good morning, everyone. Revenue in Q1 amounted to EUR 11.4 billion, up 2.1%, excluding energy prices. Organic growth of EBITDA was 5.1%, in line with our annual guidance, which is an excellent performance as we no longer benefit from the synergies. And our EBITDA margin continued to increase by 73 bps to 15.5%. We continue to enjoy a strong operating leverage, leading to a 7.2% progression of current EBIT. Net free cash flow increased by EUR 144 million, thanks to tight CapEx control. And net debt landed at EUR 20.8 billion, including the seasonal reversal of working cap. ForEx impact on EBITDA was EUR 33 million as forecasted due to a lower U.S. dollar, British pound and LatAm currencies. ForEx is moving, notably due to the crisis in the Middle East and the final impact on 2026 EBITDA is hard to predict. It will be lower than initially expected with the current exchange rate. We will see, but remember that as a multiple -- multi-local group with very limited international trade, ForEx does not impact our businesses or margin rate and ForEx has a very limited impact at net income level. Moving to Slide 17, you can see the revenue and EBITDA evolution by geographies. As Estelle mentioned earlier, growth outside Europe was quite satisfactory at plus 3.1% and even plus 5.3%, including tuck-in. Most regions registered mid-single-digit growth. U.S.A. grew by plus 5.2% and 7.5%, including tuck-in in spite of adverse weather conditions, which impacted hazardous waste volumes in January and February and hazardous waste in the U.S. grew by 5.7%. Pacific grew by plus 8.1%, including the successful acquisition in Australia, which strengthens our leadership in hazardous waste and PFAS treatment. Africa/Middle East revenue increased by plus 4.4%. And by the way, Middle East succeeds to be up plus 3% in a complex geopolitical context. Water Technologies was quite resilient, excluding projects and progressed by 4.3% like last year. And as I remember, 70% of our activities are recurring corresponding to products, services and chemicals, while 30% is more volatile by nature, what we call projects. In Q1, projects were impacted by several booking and milestone delays due to the Middle East crisis, and we forecast this to continue in Q2. Above all, Water Technologies continued to deliver a strong EBITDA growth, fueled by our business refocusing and efficiencies and synergies. Europe grew by 3%, excluding energy prices, fueled by favorable weather in urban heating and by good water activities. And finally, France and Hazardous Waste Europe were resilient. Now let's take a look at our performance by business. I will start with water. It represents 40% of our revenues and 50% of the group EBITDA. Water revenue was up by 2%. Water operation benefited from good indexation in Europe and in the U.S., except in France, due to the lower electricity prices. Volumes were on a very good trend, up 1.1% in France, 2.4% in Central Europe, 2.9% in U.S. regulated. And as I just explained, the underlying growth of Water Technologies, excluding the timing of project delivery remained quite strong at 4.3%. Moving to waste, representing 35% of our revenues. Waste activities succeeded to stay flat despite an helpful macro and are very comparable to previous quarters. Indeed, excluding external factors as weather recycled or electricity prices, waste revenue was up plus 1% at constant scope and ForEx. Starting with solid waste, we did not experience in Q1 any significant impact of the higher diesel costs. In terms of diesel price increase, I remind you that it's pass-through. The group diesel purchases for the waste activity amounted last year to EUR 218 million, half for multiple contracts with automatic pass-through in indexation formula with 3 to 6 months lag and half for C&I clients with immediate fuel surcharge. In terms of volumes and commercial developments, performance was mixed in Europe, slight volume decrease impacted by bad weather, icy road and frozen waste. Good incinerators availability rates and activity continued to progress in the rest of the world. Hazardous waste grew by plus 1.7% and plus 6%, including tuck-in. Europe was slow due to the combination of adverse weather and maintenance outage timing with rebound planned in Q2. Growth remained strong in the U.S., plus 5.4% with average price increase of 3.6% and volume up despite unfavorable weather conditions. For Q2, we expect further price increases alongside fuel surcharge and better volumes. The performance of last year's tuck-in in the U.S., Brazil and Japan was very good. Finally, moving on to energy, I'm on Slide 20. Regarding the evolution of gas and fuel prices, I remind you that our energy business model is very strong as we demonstrated in 2022 and 2023, it is regulated and our margins are protected. We can also marginally take advantage of higher electricity prices and volatility of our midterm. For 2026, we are largely hedged in terms of gas, CO2 cost and electricity revenue. Energy prices were down as expected, but to a much lesser extent than last year. Excluding the energy price impact, Q1 growth was quite good, plus 4.1%, thanks to good volumes, helped by a colder winter and with a resilient activity for the booster. The revenue bridge on Slide 21 explains the driver of our resilient growth in Q1. ForEx impact amounted to minus 2.3% due to U.S. dollar, GBP, Argentinian peso and yen. Scope was positive by plus EUR 69 million, including hazardous waste tuck-in. We expect the consolidation of Clean Earth in the second semester 2026, and we are pleased to have now obtained both the antitrust clearance and on very shareholder approval. The impact of energy prices was as expected, more than divided by 2 compared to Q1 last year. Recyclate prices were almost neutral and the weather effect amounted to plus EUR 66 million due to a colder winter in Europe, partially offset by adverse weather impact for waste activities. The contribution of commerce volumes and pricing was plus 1.6%. Pricing in water and waste remains sustained, contributing to plus 1.4%. Let me walk you through the EBITDA bridge, which illustrates our strong operational performance. We experienced ForEx translation impact of EUR 33 million. It's important to remember that ForEx has no impact on our margin rate. It's purely translation effect since our revenues and costs are in the same currency in each of our countries. Scope effect from tuck-ins contribute positively plus 1% EBITDA increase, showing good revenue to EBITDA conversion and fueling future EBITDA growth. Energy and recycled material prices had an impact of minus EUR 16 million. Weather effect contributed positively to 1% EBITDA growth. And the most impressive component is our growth and performance contribution of 5.1%. This breaks down into EUR 62 million from net efficiency gain with a very good retention rate, thanks to action plan implemented across Europe. And we have also EUR 10 million from water technology synergies. The volumes and commerce contribution was limited and in line with revenue. This represents organic growth of 5.1% at constant scope and ForEx, which is quite good. As mentioned, we do not benefit anymore from the 1.5% contribution of the Suez synergies. A few highlights on the efficiency gain. I am on Slide 23. We delivered EUR 96 million of efficiency gain in Q1, in line with our annual target. Two important characteristics you need to consider regarding efficiency. First, efficiency was indeed a permanent lever for value creation. It's embedded into our operation. Efficiency gain at Veolia are not discretionary cost-cutting program, but they come from a very diversified series of initiatives in our thousands of plants. In case of headwinds, we can and we know how to boost efficiency program as we demonstrated in the past by specific plan like the one we have conducted in China, in Spain and in France. Second, digital and AI gain, which already accounted for 23% of our recurring operational efficiency in 2025 will continue to increase, and we have set an objective of 50% of digital gain in 2030. Let's now analyze our performance below EBITDA. I am on Slide 24. Going down to current EBIT, this slide illustrates perfectly the operational leverage of our business model, 2.1% revenue growth, 5.1% EBITDA growth and 7.2% EBIT increase. Current EBIT grew to EUR 971 million at a faster pace than EBITDA. And let me highlight amortization and OFA, which were slightly up at constant scope and ForEx and industrial capital gain provision were stable, showing a continued strong quality of results. Now free cash flow generation, which is key and net financial debt, I am on Slide 25. I am satisfied with the progression of the net free cash flow of EUR 144 million, which we achieved despite the seasonality of working capital. And thanks to a tight CapEx control, you see a strong discipline on industrial investment at minus EUR 860 million compared to more than EUR 1 billion last year. Limited increase of taxes and financial charges linked to Water Technology acquisition. Working cap reversal was close to last year. Net financial debt is, therefore, well under control, reaching EUR 20.8 billion, and this increase of EUR 1.1 billion is due to the seasonality of working cap and financial investment for minus EUR 172 million. Our net debt is 85% fixed. Our net group liquidity is very solid, EUR 6.7 billion, and our balance sheet, therefore, remains very strong. Both rating agency confirmed strong investment-grade rating beginning of 2026. Before concluding this slide reminds you of our 2026 guidance, which Estelle fully confirmed earlier, continued solid organic revenue growth, excluding energy prices, our EBITDA organic growth between 5% and 6% current net income of minimum 8% at constant ForEx, excluding Clean Earth, which we will close mid-'26, leverage ratio equal or slightly above 3x with Clean Earth acquisition. And as usual, our dividend will grow in line with our current year. As you see, we are very confident for 2026. We delivered a strong Q1, resilient growth and solid EBITDA increase. fully in line with our annual guidance. Thank you for your attention. Estelle Brachlianoff: Thank you, Emmanuelle. And now we are ready, Emmanuelle and myself to take the questions you may have. Operator: [Operator Instructions] First question comes from Ajay Patel from Goldman Sachs. Ajay Patel: I have 2 areas I wanted to dig a little deeper. Firstly, on cost cutting and the retention rate over this quarter was quite a bit higher than you normally guide. I just wondered how should we think about that in the context of the full year? And then I guess maybe alongside that, you talk of AI increasingly becoming a proportion of the overall cost-cutting efforts increasing in size. I just wondered, is the retention rate on the cost savings that you make on the AI side higher than that of maybe the non-AI side? Just to understand if there's any dynamic there that we should understand? And then the last one is just referring to the bridge on Slide 22. If you could help us with the volumes and commerce element being a limited contribution. Just what headwinds maybe break out a little bit more of the headwinds that you experienced over Q1? And how should we think about that variable over the course of the year? Estelle Brachlianoff: Thank you for your question. So first on cost cutting, you're right. It's EUR 62 million out of EUR 96 million basically that we've retained, so which is higher than the usual, don't translate it into times 4 for the entirety of the year. Our good target is usually between 30% and 50%. But it's fair to say in the recent quarters, we've been more around the 40% to 50% than the lower part of the range. That's a good proxy for me. With regard to your second half part of the first question on AI. You're not wrong. As in our AI cost cutting is mainly on operational things, like that's why I mentioned the example of AI helps us to reduce energy consumption to help us increase the plant efficiency and so on and so forth. And this type of gains are typically more retained than what would be, say, SG&A type of a cost cutting. So you're right. The more we can retain of the cost-cutting gain or efficiency plan, the happier we will be. There always will be some leakage, let's call it that way, because it's part of our business model with our customer. When we renew contracts, we give some productivity back to the customer, and then we find other ways of gaining productivities in the years following the renewal of the contract. That's why there will always be some type of leakage. And of course, we try to retain the maximum possible. In terms of the second part of your question, I would not highlight anything which would look like -- I mean, there is no slowdown in revenue. When you look at H2 2025 and Q1 2026, we are exactly in the similar type of range of 2-point-something revenue, excluding energy price. In the pluses and minus of this quarter in terms of commerce, so commerce is very good. No question about that, retention of our contract or renewal of our contract is very good. On the plus side, we had a little bit of weather effect in Eastern Europe. On the minus side, we had a little bit of weather effects on the negative side in the U.S. and in Europe on haz and waste. You may have noted that there was 2 times a week or 1.5 weeks of the Eastern parts of the U.S. being totally blocked by minus 15, minus 20 degrees Celsius type of temperature with everything being closed. Of course, that means less volume in the end. The trucks are not even allowed to be driven into any type of road. So that's why pluses and minuses, but nothing which looks like a slowdown. And April is good. The demand of our services is sustained. And again, the same type of pace in revenue as we had enjoyed in the second part of last year. Ajay Patel: May I add one more question? It was just the other thing just on the opening comments, I think then we were talking about that conflict at the moment. Just wondered if -- what -- how does the disruption work in your business model in terms of if a certain component doesn't turn up on time or there are some restrictions on how you operate in terms of some form of rationing. I know that we're not at this level yet, but if these types of impacts happen, are they passed through? Or is there some exposure on that side? I didn't quite necessarily get that from when I was listening to the presentation. Estelle Brachlianoff: So when it comes to the Middle East activity, we have not seen disruption in supply chain. The thing we've seen is like a few days on and off in the refineries, which were nearby our sites. Therefore, a little bit less activity from one day to the next. But we don't depend on very sensitive component with our chemicals, which only go through -- a lot of it goes through the Strait of Hormuz, if it's your question. We are very decentralized in our supply chain. So we have -- we have, of course, some centralized procurement, but we usually are more on a regional basis anyway. So honestly, we have not seen any disruption, and I don't anticipate any disruption in the supply of everything Veolia needs to operate. We cannot hear you. The line is super blurred. We cannot hear you. Emmanuelle Menning: I think, Arthur, please go ahead. Arthur Sitbon: Yes. Can you hear me well? Emmanuelle Menning: Yes, perfectly, please. Estelle Brachlianoff: Apparently, the only line which doesn't work well is that of the operator, which is not exactly helpful, but we'll try to go ahead anyway. Please go ahead. Arthur Sitbon: So the first one would be just on the headwind to waste organic growth that you mentioned related to bad weather in Europe in January, February and plant outage. I was wondering if you could quantify that negative effect on EBITDA in Q1. And I was also wondering, basically, more generally speaking, how should we expect waste volumes to look later in the year, in particular, you're mentioning a bit of a slow start in January, February. How was it looking in March and April? I suspect you already have some indications of trends for those 2 months. And the second question is just on what's happening in the world at the moment, which is higher inflation due to the geopolitical uncertainty. I was wondering about the sequence of events for Veolia. Is it possible that basically you have a slightly weaker end to 2026 because of the slower volumes and higher costs and then a recovery or a more positive effect in 2027 with your inflation clauses that you flagged that have a little bit of a lag? Estelle Brachlianoff: Thank you. So I guess I would like to highlight, by the way, some opportunities, and I will start with that. What we discover, we discover or the general public realizes when it comes to the one in the Middle East is the dependent on imports is never a good idea. We rely on supply of water, otherwise, nothing happens. And everybody is super concerned by their health and that of their kids. That's exactly what Veolia offers solutions to. So in a way, in my opinion, the crisis reveals anything but the strength of the business model of Veolia and its positioning. To answer specifically your question, there is no slow start to the year in terms of volume when it comes to say economy underlying this, even in waste in the first part of the year. We haven't seen that. The only negative, again, was weather related. There's a number of days where we cannot even circulate it. Our customer could not. So they haven't generated waste, and that was it. But don't take it as a start [Audio Gap] as a slowdown in or a slow start to the year in terms of underlying trend because I think that would be a mistake. So the underlying trend is exactly the same as the end of last year. That's exactly what we've seen to answer your second part of your question in March and April, which were exactly good. When you exclude the weather effect elements, which were a few days here and there and even 2 weeks in the U.S. that's the only component. But again, the demand is sustained. So the volumes are there, and they are coming back once you can transport them, if I may. In terms of the impacts beyond the Middle East itself of the Middle East crisis on costs, if I understand your second question. As we've demonstrated through the war in Ukraine in a way, we have the ability to pass on the cost to protect our margin. We've demonstrated it. There is a little bit of lag effect, but we have a little bit of positive as well in terms of commodities and things like that. So that's why I can confirm fully our guidance for the year. So we will maintain our 5% to 6% EBITDA margin growth for the year. Operator: So I think the next question is coming from Philippe Ourpatian from ODDO. So let's move to Olly from Deutsche Bank. Olly Jeffery: Two questions for me, please. One is just on the free cash flow. There's a bit of improvement versus Q1 last year. Does this put you on track, do you think, to see a similar improvement for the full year for net free cash flow versus 2025, so we can see a bit more meaningful growth there? And then just coming back to the inflation point, I mean, presumably with inflation expectations where they are currently, and we could see those continue to increase perhaps. If there's any benefit from that with your tariff indexation, presumably the bulk of that would start to come through in 2027. If you could just confirm the mechanics of that again, that would be very helpful? Estelle Brachlianoff: Emmanuelle, on free cash flow. Emmanuelle Menning: Yes. Olly, so as mentioned, we are very satisfied with the progression of free cash flow beginning of the year. As you have seen, it has increased by plus EUR 144 million. And part of it come from the very strong discipline we had on CapEx. I mentioned it. We spent EUR 860 million when it was more than EUR 1 billion last year. You know that we are very committed to have a strong free cash flow generation to be able to cover our dividend. We are fully committed, and we have a lot of action regarding that, working on the time to invoice, putting control our CapEx, improving the collection. So our target remains for the year to have a strong free cash flow to be able to cover our dividend. And as you may see, we have a very strong liquidity, EUR 6.7 billion and a very strong balance sheet for 2026. Estelle Brachlianoff: So our aim is always to grow free cash flow on a yearly basis. We don't give guidance because there is seasonality in this in Veolia. But of course, we always try to do our best to improve the free cash flow generation of the group, which allow us then to decide where to invest. I remind you that it's free cash flow after growth investments, by the way, which is in our hands. In terms of inflation, maybe I was not clear enough. So Emmanuelle, do you want to get to have a go at that and fuel surcharge maybe? Emmanuelle Menning: Yes. So your question, Olly, was on the impact of inflation and fuel surcharge. So as mentioned by Estelle, you know that we -- our model is well protected against cost increase. We have 70% of our portfolio, which benefits from indexation formula, and we have 30%, which -- where we have strong pricing power and where we can do price surcharge. Coming to the specific element on inflation, we showed in the past that our model was very strong and able to pass the cost to our clients in 2022, 2023. And what we have done since the beginning of the year is to be very agile and very reactive on the 30%, specifically on the fuel surcharge. We start beginning of March. It has been put in place. We can have a small time lag, but it's very efficient. We demonstrate -- you may remember that in 2022, '23, we are able sometimes to do 3 to 4x increase when it was necessary. So it's fully put in place. The element to have in mind is that for our municipal clients, which is 50%, we may have a time lag of 3 to 6 months. But we have put in place all our action plan, as mentioned before, to have really strong discipline on cost to not accept automatically the increase of our supplier to have restricted move or the placement if it's not necessary and of course, to increase our strategic inventory when necessited. Estelle Brachlianoff: So for the 70%, which is indexed, if there is a little bit of lag effect on the revenue, there could be a lag effect on our supplier in a way in our cost base in other terms to protect our margin. And for the fuel surcharge, it's already in place. And if you have to do 2, 3 this year or 1 will be enough, we will see, but it's already in place now as we speak. I would like to highlight again, if I may. I said it in my speech first, the type of discussion we have with customers is not only about cost protection. Actually, it's quite the opposite. And I just wanted to share this with you. It's incoming calls on can you help us with energy efficiency? Of course, energy is higher in price. Therefore, can you help me with that? It's -- can you help me with securing local sources of energy? It looks like you do that, Veolia. Can you help me with that because it helps. Same with circular economy. When you recycle, it avoids importing from far away and be dependent, therefore, from the ups and downs of commodity prices. So all that means we have a lot of incoming calls of customer where for them, the war means I want more of Veolia type of services, starting in the Middle East, by the way, where they already are preparing for the postwar and discussing about how can we be even more resilient going forward and in terms of the infrastructure reconstruction or depollution of sites. Operator: The next question comes from the line of Philippe ODDO. Philippe Ourpatian: Not Philippe ODDO, I will be more rich than I am. But Philippe Ourpatian from ODDO. Just one question. Most of my questions have been already answered. Concerning the divestments, you mentioned in your slide that 3 operations means the top 3 program have been already signed or being closed in the coming months, I would say. Could you just give us, as you have also mentioned that there is your plan and several scenarios are prepared, could you have the idea -- could we have the idea of what's the amount of divestments already under bracket secured versus the EUR 2 billion targeted? Without mentioning any specific operation, but just to give us where you are exactly '26 and '27 because I do suppose that it's already started and you have some discussion and some assets which have been already determined to be divested... Estelle Brachlianoff: Thanks for your question. A few things. We said we will divest EUR 2 billion in the 2 years following the closing. So we're talking about from now until mid-'28. So we have plenty of time and given our balance sheet is compatible with the time scale I just gave. In terms of what we've already done of the criteria, as said, non-top 3, so things which we are #5, #6 on the market, and we don't see any possibility to be up very, very quickly. Mature as in we don't see how we can grow the EBITDA or the EBIT even with our best efforts going forward or nonstrategic like we've done with SADE, which was an activity in construction, we didn't want to go on with. So that's the typical criteria. That's typically in the criteria of what we've already like signed and closed, secured. We're talking about smaller and medium objects, which are listed there, plastic in Korea, industrial cleaning in Belgium. So altogether, it will be a bit in excess of EUR 100 million, EUR 200 million, this type of order of magnitude, if I remember well. In terms of the larger objects, I will consider them secured when they are signed and when they will be signed, they will be announced. And you will have to wait until that date to have them secured. But I'm very confident I'm very confident because we've done a few market testing. And we have alternatives in case for whatever reason, one doesn't go ahead in the type of price range we were expecting. So we have plan A and plan B, if you want. So we will secure this EUR 2 billion in good condition in the 2 years following the closing. Philippe Ourpatian: May I have an additional comment because it's very interesting what you said concerning your capacity to choose some assets. In order to do EUR 2 billion, what's going to be your, let's say, global potential of divestment? Are we discussing about EUR 3 billion, EUR 4 billion, EUR 5 billion means the bucket of -- or the basket of potential disposal regarding the size of your group and the numbers of subsidiary you have around the world? Just to have an idea about where we are exactly when you mentioned 2, you can pace your calculation on how much more than that? Estelle Brachlianoff: We have enough headroom to be able to be very confident. That's the only thing I can say. But those businesses, it always is a choice. The businesses which are plan B are businesses we like. They are on the money. They are a little bit less interesting than others. So we have no problem in selling them, but they still are good businesses. So we don't have any problematic one in the list. Therefore, like I guess, like we have sufficient security on the achievement of this program, I can tell you. Emmanuelle Menning: Just one element I wanted to share with you. So we told you already a very clear plan. We know what we want to do. We have different scenarios, allowing us to be agile. There is no pressure on timing because our balance sheet is very strong. We don't need to do the divestments to be able to finance Clean Earth. That's not the issue. And you may have seen that in terms of transactions delivery and execution, we have been showing an amazing track record. So not under pressure of time. We also shared with you before that we will divest part of the EUR 2 billion will be a business which will be divested. The other one will be and 1/4 and 1/3 will be linked to the portfolio cleaning that we have also launched before and that we will continue. So we don't need to do everything everywhere. We have a very clear picture on where we want to do, on where we want to go and a very good track record in terms of execution. Estelle Brachlianoff: Just to illustrate what we said by portfolio pruning, we said plastic in Korea. It doesn't mean that we don't like plastic or we don't like Korea, but it looks like plastic in Korea, we were not in the top 3 and not being able to get in the top 3. That's why we sold it. In terms of our industrial cleaning activities in Belgium, it was more of the nonstrategic criteria here. Industrial cleaning is not a priority for the group. And therefore, have no ability to be duplicated anytime soon in nearby geography. So we decided to sell it each time with value-added sales. So it was a good sale for us. So that's -- I think it gives you an idea of what Emmanuelle said by the smaller ones, which are more portfolio pruning type of activities of disposal. Operator: So I think next question is coming from [indiscernible]. Unknown Analyst: Yes. May I ask what is the impact of the delays in terms of projects in the Middle East in terms of EBITDA impact or the order of magnitude? Estelle Brachlianoff: So basically, Water Tech EBITDA has progressed very, very, very well in the first quarter, like it had been in the quarters before. So the answer -- the short answer to your question is none. As we always said, projects are lower margin type of activities within Water Tech. It's only 25% of the business. We like it because it fuels potential buy of membranes and stuff like that in the end, positive margin still, but lower than the average. So the answer is none, roughly. Very nice improving of the EBITDA in the first quarter in Water Tech. So again, Water Tech, excluding project was plus 4.2% revenue increase, which is very nice. EBITDA increased by even more than that. Thanks to, again, the usual cost efficiency and so on and so forth, added to the EUR 10 million synergies we've delivered in the first quarter in addition to the EUR 20 million we already had delivered for the second part of last year. So no impact is the answer. And I'm very confident again that it's only delays in signing, and we still have discussion with the customers about not only signing whenever they will be able because the world will be like a bit more under control. And we even have specific orders like of mobile units and stuff like that in emergency type of situation in the Middle East in Water Tech. So it has created even some opportunities. Operator: Next question is Alex from Bank of America. Alexandre Roncier: Two follow-ups and one question on guidance, please. The first follow-up on the weather headwinds for waste. I don't think that was a specific item that was disclosed in the revenue bridge before and maybe because the impact was just always much smaller than this quarter. But is that something we need to consider on a more recurring basis given climate change around the world? And similarly, on phasing, just to expands on some of the earlier question, should we not see good volumes in Q2 to catch up on the missed rounds you've had in Q1, which would then normalize in Q3? Second follow-up on disposals. Why not perhaps rotate capital more rapidly? I think you mentioned that you had a lot of headroom beyond the EUR 2 billion of asset disposal target. But if these assets are not # 3 -- well, I'm sorry, top 3 mature and nonstrategic, why not also increase the pace of disposals and perhaps get money back to shareholders or even create plenty of headroom for yourself to do some more strategic acquisition? Question and last question on guidance. Given the operating leverage of the business, revenue up 2%, EBITDA plus 5%, EBIT plus 7% is the plus 8% net income guidance not too conservative for the year? Or are there any below-the-line items we need to be mindful of? Estelle Brachlianoff: Okay. So weather on the bridge, Emmanuelle? Emmanuelle Menning: Yes. Alex, so regarding the bridge on the column weather, we have always -- we have the same methodology than before. It's just that in the past, we are not facing this type of weather conditions. So you had in the past, mainly in the weather column, the energy impact almost all time. And you had one or twice some effect from waste when it was the case, but it was more an exception than the rules. You were mentioning the impact of volume. So you're right, we benefit in Q1 in terms of -- of weather from good impact on energy. So we'll not have that in Q2. We will not have this positive effect, but we will benefit from a form of rebound as we will not have, as we had in Q1, the weather impacting -- having impact on icy road, icy waste, no project on some remediation. So we'll have a formal rebound in Q2. That's for sure. And we are starting to see that in April, which is positive. And as we are speaking a bit on the month of April, what we could see is that we have plus and minus. On the waste, as mentioned, there will be -- so yes, we had more outage in Q1, and we'll not have that in Q2, Q3, Q4. We'll not have the negative impact of the [indiscernible]. We'll have a slight -- we may have a slight fuel surcharge or delay, but between 3 and the 6 months like we have mentioned. On the energy side, we had the positive effect of weather that we had in Q1 are not going to be in Q2. And we may have a small impact on energy prices, as I mentioned, linked to fuel surcharge. But we have opportunities for the non-top which has been hedged that we are -- we have full visibility of the energy margin. On the waste business, we have part of the electricity, we are hedging 85%. So for the 15%, we can have a positive impact. Also positive impact, as mentioned before by Estelle potentially on the recyclate, notably on the plastic side. It's marginal because you know that we have put in place back-to-back to contract. And on water, we spoke already about the Water Technology timing effect on project top line. And we see the good trend we have seen on water, especially in terms of pricing and in terms of volumes, we don't see any change of trend in April. Estelle Brachlianoff: So altogether, April will be -- has been good. And we haven't seen any change in underlying trends. You have the ups and downs of weather, but apart from that, nothing specific. And no, there is no -- it was really exceptional in waste. It never happens. It happens every -- I don't know, like 5 to 10 years, this type of circumstances, it was really, really exceptional. So I don't anticipate that it will come again very much. In terms of the capital allocation, yes, we have headroom. That's a question you always ask, what about we sell this and that and then we give money back to the shareholders. I'm really keen on, one, we still create value with those assets by increasing, thanks to our operational efficiency, thanks to everything we are doing. We are creating value. Shall I remind that we've increased the dividend quite a lot in the last few years and the net result by basically 12% year-on-year in the last 2 years and double the net result in the last 5 years. So this creates value. So we already are giving to the shareholders like some element via dividends. We have topped up that starting last year by first in the history of the group, which was the share buyback to avoid the dilution program. So I guess I'm very focusing on delivering shareholder value, but I think we do create shareholder value with the business model we have. In terms of the -- will we stop there irrespective of the -- I mean, irrespective of the buying opportunity, we are doing the pruning of portfolio anyway. The non-top 3 is a strategy which was in the GreenUp plan. You may remember that. So we've tried in typically in the plastic in Korea, I just mentioned, we've tried for 2 years to try to see if we could be in the top 3. We didn't manage to be successful. Therefore, we decided to sell it. That's more the way to see it. There is an up or out strategy here, which we are implemented. And yes, I can confirm that we are very confident about the 8% net income. But Emmanuelle, do you want to elaborate on that? Emmanuelle Menning: Yes, with pleasure. So you know that when you look at our performance this year, very strong performance with the increase of EBITDA of 5.1%, as mentioned before, without the synergies, meaning that we are cruising at the same pace, showing that our strategic decision to go for faster growing and higher-margin activity is delivering results. Down the line, we will, of course, continue to benefit from our operating leverage. We have shown that before, plus 2.1% revenue increase, plus 5.1% EBITDA increase and plus 7.2% EBIT increase. So as you see, we keep a tight cap -- tight control on CapEx so that our DNA will not increase significantly. Our total cost of financing, which decreased slightly in 2025 will only grow in 2026 a bit linked to the financing, for instance, of Water Tech acquisition we did last year in June. And we believe we can sustain a tax rate between 25% and 26%, meaning that we are fully confident to confirm our target in terms of current net income for the year. Operator: I think the next question is coming from [indiscernible]. Unknown Analyst: It's just a follow-up as most of the questions have been already answered. I want to have more clarity on the net income guidance because you signaled that the closing for Clean Earth is expected on June after the 2 major steps in the AGM and the antitrust clearance. So can you help us quantify the expected net income effect from the integration for 2026 as you signaled the 8% growth is ex Clean Earth with a positive contribution from 2027. So what is the expected net income effect that you expect to have from the integration of Clean Earth for '26? Estelle Brachlianoff: So I will refresh what we've said in a way, which we can confirm on when we've announced the acquisition of Clean Earth, which will be assuming it's midyear. Therefore, since we publish, so we can have -- if we were to do accounts at midyear with everything and dividend and so on and so forth, which is not the case, it would be a different story. But basically, given the fact that it's likely to be midyear, it means it will be accretive before PPA, the Clean Earth acquisition from 2027 and accretive even after PPA by from 2028. The PPA, we don't know yet what it's going to be. So we have a few uncertainties on dates on things like PPA. So we cannot give you numbers, but it will be accretive very soon in a way before PPA from year 1 and even after PPA from year 2. That's what we've announced, and we're confident we will deliver. In terms of integration, you remember, we plan over 4 years of synergies. So we have not included any synergies in 2026. It will start in 2027. But again, all that depends on the date and the detail of it. Of course, if we are able to manage some synergies this year, we will be very happy with it. But it is not what we've included in our business plan or what we've announced so far. [Technical Difficulty] We talk about access to local sources of energy, when we talk about securing supply chains, this is exactly what Veolia offers to its customer. And if anything, the crisis in the Middle East is reinforcing the importance of our services and the demand for our services. So I'm very confident not only in confirming the guidance for this year, but in the years to come. And the last point is, of course, we'll have various opportunities, myself, Emmanuelle and the Investor Relations team to see some of you in the roadshows to come. So I'm sure you will have plenty of opportunities to ask a detailed question. And see you otherwise in July for H1 results. Thank you very much. Emmanuelle Menning: Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Cricut First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand over the conference to your first speaker today, Michael Hoade, Vice President of Finance. Please go ahead. Michael Hoade: Thank you, operator, and good afternoon, everyone. Thank you for joining us on Cricut's First Quarter 2026 Earnings Call. Please note that today's call is being webcast and recorded on the Investor Relations section of the company's website. A replay of the webcast will also be available following today's call. For your reference, accompanying slides used on today's call, along with a supplemental data sheet, have been posted to the Investor Relations section of the company's website, investor.cricut.com. Joining me on the call today are Ashish Arora, Chief Executive Officer; and Kimball Shill, Chief Financial Officer. Today's prepared remarks have been recorded, after which Ashish and Kimball will host a live Q&A. Before we begin, we would like to remind everyone that our prepared remarks contain forward-looking statements, and management may make additional forward-looking statements including statements regarding our strategies, business, expenses, tariffs, capital allocation and results of operations in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the Risk Factors section of Cricut's most recently filed Form 10-K or Form 10-Q that we have filed with the Securities and Exchange Commission. Actual events or results could differ materially. This call also contains time-sensitive information that is accurate only as of the date of this broadcast, May 5, 2026. Cricut assumes no obligation to update any forward-looking projection that may be made in today's release or call. I will now turn the call over to Ashish. Ashish Arora: Thank you, Michael. In Q1, we began to see the early benefits of our platform-first strategy with guided onboarding, bundles, guided flows in Design Space and services working together for a simpler, more compelling user experience. We successfully introduced our newest machines and launched Cricut's first service offering. Both reflect the strength of our platform in delivering a guided experience that helps users make what they want more easily. We're also encouraged by the positive response to the added value in our new machine bundles, which reinforces our strategy. We are pleased to see growth in active users year-on-year. Simplifying the user experience remains a key focus to drive engagement. We are pleased with profitability, growth in platform revenue and growth in global machine sell-out units. However, those gains did not yet translate into total company sales growth, which declined less than 2% year-over-year in Q1. We are moving with urgency to create a more compelling mass market experience, accelerate our development cycles and compete more effectively. Today, I will discuss what went well in Q1 2026, where we can improve and our priorities for the year. Kimball will then cover the financial details and our outlook for 2026. We delivered solid Q1 profitability despite early headwinds. Platform revenue increased nearly 6% and strong machine sell-out units gave us a solid start to the year. During the quarter, we launched 2 new cutting machines, Joy 2 and Explore 5, offered exclusively in bundled options designed to improve user onboarding while delivering compelling price points and value. We also launched the next generation of our handheld heat presses, EasyPress SE in the popular 9x9 and 12x10 sizes. To support these launches, we introduced several new materials and accessories and continue to improve our software platform, including new AI capabilities and easy-to-use guided project flows. We are encouraged by the initial results and user feedback. We are proud to be the recipient of Michaels' Best New Product Launch Award. Michaels is the world's largest craft retailer and an important partner for Cricut. We're also focused on increasing our speed of execution and are accelerating investments in hardware development, materials and engagement to support future growth. You can already see the early results of those investments in our 2026 launches so far. We plan to maintain a marketing and promotional cadence similar to last year, and we are excited about the road map ahead. We remain focused on acquiring new users and increasing engagement across our platform, which together drive our monetization flywheel of subscription and accessories and materials. We believe Cricut is a growth business, and we are intent on improving it. Let me talk about our priorities. At the top of the funnel, our goal is to broaden awareness and bring new consumers into the brand. Our research tells us that to do that successfully, Cricut has to feel relevant and approachable. Put simply, we need more consumers to believe that Cricut is for someone like me. That is the core objective of our influencer strategy today, and it will also be a central message in the broader marketing campaign we are preparing to launch this summer. As consumers move from awareness into consideration, we see 2 barriers that matter most. They need to believe that Cricut is easy to use and affordable. Our strategy is designed to address both. We are continuing to invest in onboarding, guided flows, software and platform improvements and bundle-only offerings. Together, these efforts help simplify the learning curve, improve affordability and perceived value and make it easier for new users to get started and succeed early in their journey with Cricut. We saw encouraging signs of progress in Q1. We continue to invest in marketing to expand our audience and deepen engagement with the brand. We gained momentum across key channels, driven in part by strong results from our influencer activations, along with continued improvement in overall digital marketing performance. These efforts were further supported by the halo effect of our late Q4 campaigns and promotional activity. Altogether, that contributed to strength in connected machine sell-out in Q1 with particularly strong consumer demand early in the quarter. While we did not grow products revenue in Q1, we did continue to see global machine sell-out increase year-over-year and quarter-to-date trends remain positive. At the same time, we are building the experience in a way that supports stronger adoption over the long term. In 2026, we are leaning into a bundle-only consumer experience as we launch the next generation of our cutting machines. These new bundles combine the machine, tools and materials with tightly integrated guided software flows to create a more cohesive out-of-box experience and help users succeed from their very first project. In Q1, we began to see early benefits from this approach, which I'll speak to more when I get to engagement. We also made important progress in innovation during the quarter. We introduced 2 next-generation cutting machines built on all new architectures, Cricut Joy 2 and Cricut Explore 5. We launched our direct-to-film service, Cricut's first service offering, which is another strong example of how we are reducing complexity for consumers. It combines the power of our creative platform with the simplicity of guided flows, enabling users to create vibrant full-color designs that are delivered directly to their doors. We believe this is the beginning of a new era for Cricut, one where we expand the top of the funnel, remove barriers to adoption and deliver a more seamless end-to-end experience that helps more users create with confidence from day 1. We continue to make progress stabilizing engagement trends, ending the quarter with active users up 1% and 90-day engaged users down 1%, representing improvements year-on-year and sequentially. We are encouraged by the early response to the initiatives we launched in late Q4 and into Q1, including guided flows for full-color stickers and insert cards, expanded vinyl decal use cases, our AI-assisted project designer tool and improved project preview visualization. We now have 6 guided flows, which cover our most popular use cases and dramatically simplify the user experience. In addition, we began rolling out AI Project Designer, which allows users to design and make a project through a conversational interface. Taken together, these launches reflect how our platform is evolving to become simpler, more intuitive and more compelling for a broader set of consumers. A key leading indicator of future growth is how effectively we engage new users. In Q1, cut intensity among our 2026 onboarder cohort in their first few weeks reached its highest level for a Q1 in the past 2 years. Users onboarding with our newly launched Joy 2 and Explore 5 machines are now guided through a broader range of projects that utilize a full set of materials included in their bundles. We also introduced additional improvements late in the quarter to further reduce friction and drive repeat engagement. These include enhanced educational content within guided flows, improved accuracy of our AI assistant chatbot and gamification designed to encourage exploration of machine capabilities and repeat visits. Among returning members, we are seeing early signs of progress as well. Members who joined in recent years and returned to create projects in Q1 demonstrated higher cut intensity compared to prior year. At the same time, as the large 2020 and 2021 cohorts continue to decline as a percentage of our active user base, we are seeing a moderation in overall engagement erosion. Our engagement marketing efforts, which focus on bringing users back into our platform are also becoming more effective and efficient. For example, using AI to generate and personalize life cycle campaign messaging has consistently improved click-through rates. The product improvements experienced by returning users in Design Space are positively impacting perception among both members and independent influencers. Looking ahead, we are excited about our upcoming platform innovations, which we believe will continue to make the creative experience faster, more intuitive and more delightful. In Q1, paid subscribers increased 104,000 or over 3% year-on-year to almost 3.08 million as we saw platform revenue increase nearly 6% to almost $84.8 million year-on-year. We did see a drop of 13,000 subscribers sequentially from Q4 2025, reflecting lower promotional activity in Q1 as we emphasize revenue growth in the quarter. As discussed in earlier calls, there is some natural subscriber attrition. So subscriber growth may be challenging until we increase the pace of machine sales and new user acquisition. We saw some of this pressure manifest in Q1. That said, we continue to see healthy sign-up rates from our new members and are achieving a higher revenue growth rate. Additionally, at the end of Q1, we started testing new subscription plans and pricing tiers on new sign-ups, using AI credits and shop benefits as differentiators. Early conversion signals and higher tier adoption are encouraging, but it is still early. We will continue to test new plans and price points as we add more value and benefits for our subscribers. Earlier, we also rolled out a price increase on new subscribers through the iOS App Store, while simultaneously offering alternative payment options to purchase via Cricut at the lower legacy price. We have been watching this test and have seen positive results in shifting users to the Cricut payment options or a higher price purchase via the App Store without significant impact to overall expected sign-ups. We have a rich road map to continually increase the value proposition for subscribers. Our goal is to make it incredibly compelling to be a subscriber to leverage our content, software tools and services. This remains a highly competitive category, particularly in material types with low barriers to entry, where we continue to see pressure from private label offerings at retail as well as new entrants across online marketplaces and store shelves. We are not satisfied with our position in part of this category, and we are moving aggressively to refresh the portfolio, improve value and sharpen our channel execution. Those efforts produced mixed results in Q1, but there were encouraging signs. We saw double-digit growth in value materials online, and we made share gains in iron-on, vinyl and cutting mats. At the same time, share in heat presses was pressured as we move through product line transitions. Overall, our view is clear. When we bring the right combination of innovation, quality and affordability to market, we can improve our share position while enhancing the making experience for our users. Innovation remains central to that effort. For example, with the launch of Joy 2 and Explore 5, we introduced omni pen, our new universal pen system, which has been well received for its performance and compatibility. Across Q1 and Q2, we are expanding the portfolio with more than 200 new SKUs and executing a meaningful retail refresh with key partners. We're also continuing to invest in core categories such as Smart Iron-on and Vinyl, with new colors, finishes and a broader assortment. At the same time, we are advancing our full-color strategy through continued innovation and printables across inkjet and sublimation along with refreshed tools and accessories. In heat presses, we are broadening our lineup to address more price points and use cases. EasyPress Mini LT, which we launched in Q4, is helping address affordability and early results suggest much of that demand has been incremental. In Q1, we also launched EasyPress SE in the popular 9x9 and 12x10 sizes, which expands our ability to compete more effectively across markets with a professional quality, easy-to-use heat transfer solution. We also launched Cricut's first service offering with our Direct-to-Film or DTF service, which leverages our creative platform content and new guided flows. Customers create vibrant full-color designs that we print and deliver to them, which they can then press on to fabric or other substrates. While still a small experiment, this service is an important example of how we can monetize our creative platform beyond cutting machines. Early response has been encouraging. So far, over 80% of orders are coming from subscribers and around 1/3 of orders have already come from repeat customers. Over time, we believe this can deepen engagement and further increase the value of our subscription offering. Stepping back, we are moving with urgency on both innovation and cost discipline. We have more product innovation ahead. We are equally focused on execution, improving the end-to-end customer experience and driving greater efficiency across the business. Our conviction remains the same. When we make it easier and more affordable for people to create, we increase engagement, materials usage and long-term value creation. With that, I will turn the call over to Kimball. Kimball Shill: Thank you, Ashish, and welcome, everyone. In the first quarter, we delivered revenue of $159.5 million, a 2% decline compared to the prior year. We generated $20.3 million in net income or 12.7% of total sales in Q1. Breaking revenue down further, Q1 2026 revenue from platform was $84.8 million, up nearly 6% year-over-year. ARPU increased 4.8% to $55.65 from $53.10 a year ago. Platform revenue was up primarily due to the year-over-year increase in paid subscribers and foreign exchange. As mentioned in our last call, as we shift to our bundle-only strategy where we will only sell next-generation connected machines bundled with materials, we will no longer provide the supplemental revenue breakdown of connected machines and accessories and materials in our SEC filings and data sheet. We will continue to report platform and products revenues and costs as we currently do in our consolidated statement of operations and comprehensive income. Q1 revenue from products was $74.7 million, down 9.6% year-over-year. Product revenue was down primarily due to the lower average selling prices from increased promotional activity and mix as we cleared out end-of-life inventory in preparation for our Q1 product launches. As Ashish mentioned, global machine sell-out units were positive in Q1 year-over-year. As a reminder, we don't have perfect coverage for sell-out data in all channels, so treat this as directional. In terms of geographic breakdown, international sales grew over 16% year-on-year to $40.9 million. International revenue represented 26% of total revenue in Q1 2026, up from 22% in the prior year, reflecting continued progress in expanding our global footprint. Foreign exchange benefited international sales in Q1 by 10.3%. Our targeted pricing and marketing investments in Europe and Australia drove solid results, delivering year-over-year growth across these regions. We also saw strong momentum in our emerging markets with our early-stage investments in Asia and Lat Am driving strong year-over-year growth. In contrast, we experienced a challenging quarter in our META region, which declined year-over-year, partly due to the ongoing geopolitical pressures. Importantly, our exposure to this region remains limited. Looking ahead, we plan to accelerate our investments in our international markets with a focus on increasing brand awareness and driving member acquisition throughout 2026. As Ashish mentioned, we ended the quarter with just under 3.08 million paid subscribers. We expect to see seasonal pressure on subscription rates in Q2 and Q3, which could result in flat to declining quarter-on-quarter subscriber growth rates. We remain focused on driving growth for the full year, supported by new product introductions, improved onboarding, ongoing investments in engagement and promotional support. Regarding engagement, in our published data sheet, Q3 and Q4 2025 active users, 90-day engaged users and platform ARPU were updated post earnings to reflect immaterial corrections. Moving to gross margin. Total gross margin in Q1 was 58.1%, which was down 2.4% year-on-year. Breaking gross margin down further, gross margin from platform in Q1 was 89%, a decrease compared to 89.2% a year ago. As we've mentioned previously, we are excited about our AI investments, and there may be some gross margin pressure as we continue to ramp AI features. Gross margin from products was 23.1% compared to 32.7% in Q1 a year ago. The decrease in gross margin for Q1 was primarily driven by inventory write-downs from end-of-life programs, lower monetization of previously reserved inventory, tariffs and increased promotional activity. Total operating expenses for the quarter were $69.8 million and included $6.3 million in stock-based compensation. Total operating expenses increased just over 1% from $69 million in Q1 2025. As Ashish mentioned, we are focused on increasing our speed of execution and are accelerating investments that will help drive future revenue growth for hardware product development, materials, engagement and marketing. So we expect to see greater increases in year-on-year operating expenses. Operating income for the quarter was $22.9 million or 14.4% of revenue compared to $29.3 million or 18% of revenue in Q1 last year. The Q1 2026 tax rate declined to 19% from 26.7% last year, primarily due to higher R&D tax credits from increased investments. For the quarter, net income was $20.3 million or $0.10 per diluted share compared to $23.9 million or $0.11 per diluted share in Q1 2025. Turning now to balance sheet and cash flow. We continue to generate healthy cash flow on an annual basis, which funds our inventory needs and investments for long-term growth. In Q1 2026, we generated $26.9 million in cash from operations compared to $61.2 million in Q1 2025. We ended Q1 2026 with cash and cash equivalents of $256 million. We remain debt-free. Inventory decreased by $8 million year-over-year to $106 million, reflecting improved inventory management and normalization as we exited end-of-life machines. As discussed on prior calls, inventory is now at levels that generally support the business with normal fluctuations as products transition. Accordingly, we typically use cash in the first half and into Q3 to build holiday inventory, then generate cash in Q4. During Q1, we used $12.2 million of cash to repurchase 2.8 million shares of our stock. As a result, $29.1 million remain on our approved $50 million stock repurchase program. During the quarter, we paid approximately $21 million for the declared $0.10 per share semiannual dividend on January 20, 2026. The Board also approved a recurring semiannual dividend of $0.10 per share, supported primarily by our profitable operations. The dividend will be payable on July 21, 2026, to shareholders of record as of July 7, 2026. Recall, we do not give detailed quarterly or annual guidance, but we do want to offer some color on our outlook for 2026. We are focused on bringing excitement to our category. We are doing this by accelerating our investments in R&D, new product launches and marketing, including international markets and continuing our promotional strategy to drive affordability. We remain optimistic about the year overall despite a more challenging first half. In Q2, we do not expect total company revenue to grow year-over-year, primarily due to a difficult comparison against Q2 2025, which benefited from revenue pull-forward amid tariff-related supply chain uncertainty. That said, we expect platform revenue to grow each quarter, while subscriber trends follow their typical seasonal pattern with softness in Q2 and Q3. With a strong road map ahead, we remain confident for growth in the second half. Previously, we talked about the headwinds that tariffs presented to our business. Given the recent Supreme Court ruling overturning IEEPA tariffs and associated dynamics, we are not providing any guidance on margin impact. We expect to be profitable each quarter and generate cash flow from operations for full year 2026. We also expect to continue to be active with our authorized $50 million stock repurchase program, which has $29.1 million remaining, and the Board approved a recurring semiannual dividend of $0.10 per share, payable on July 21, 2026, to shareholders of record July 7. While tariff uncertainty remains a reality, we are also navigating broader cost pressures, including input costs, supply chain dynamics and a more cautious consumer environment in certain markets. Our team continues to operate proactively and with discipline, adjusting where needed while maintaining our focus on strategic investments to position the company for growth. With that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Erik Woodring with Morgan Stanley. Dylan Liu: It's Dylan Liu on for Erik Woodring. So first, 90 days ago, you did mention a difficult comp, as you mentioned in the prepared remarks, for product in the first half of this year. So you posted 10% of product revenue decline for the first quarter. And how did that compare with your expectations? And as we are now 2/3 of the first half, has the first half headwind tracking better or worse than you had anticipated and why? And also, I'm curious about why you're confident that the second half will be better. Kimball Shill: Dylan, this is Kimball. Thanks for the question. So the story in the first half really is a story about average selling price declines on a year-over-year basis, and let me break that down for you in a second. But first, I want to highlight that we talked about machine sell-out units continue to be up year-over-year. And that I'll add that sell-in units are also up double digit in the first quarter. And why that's important is that's the start of our flywheel. So a consumer buys our connected machine, and then that gives us the opportunity to monetize them through subscriptions and accessories and materials. And so we're very pleased with those results. And it really is a story about lower selling prices this year versus last year and as we launched 2 new machines. So we launched this year Joy 2 and Explore 5. And last Q1, we launched Explore 4 and Maker 4. And the average selling price last year was much higher. So our Joy our Joy 2 machine has an entry point for U.S. consumers of $99 to $129. And that is comping against Maker 4 that had an entry price point of about $399 last year. And so part of it is we're just selling less expensive machines in the first half than we did in the first half of last year. Our continuing products in the market. So Maker 4, for example, continues forward in the market. And last year, when it was first launched, there was no promotionality. And as we move through the natural product life cycle, we are exercising promotion on that machine, but that also puts further pressure on the margins. And then we also saw some continued erosion in our accessories and materials business. Now as we move forward with our new bundle-only strategy on next-generation machines, there was some offsetting goodness that came from that where there's materials bundled with each machine in this next generation, but it wasn't enough to fully offset that trend. And then looking to Q2, we expect to see these trends continue. In addition, we also talked about our difficult comp in Q2 set up by last year where we had a pull-in related to tariff uncertainty, and we had retail partners asking for support, and we saw an opportunity to accelerate revenue last year that does set up that difficult comp. And so we don't expect to grow in the first half. That said, as we move to the back half, we expect to reverse that trend, right? We have more new products to come. We're excited about those products. We're confident in our road map. And so while I'm not prepared to give more detail than that, we do have more confidence in the back half, and we do expect to grow platform revenue each quarter as we move through the year. Ashish Arora: And Dylan, this is Ashish. Let me kind of reinforce a couple of things that Kimball mentioned. First of all, I think the thing that we feel really pleased about is the continued sell-out of machines, and that's a leading indicator. It's up to us of how we monetize that, but we believe that, that creates a healthy trend for our business. And as we said, we've seen that in Q1, and we continue to see that in Q2. The areas that we're going to lean in on -- I mean international is clearly one of them. We're going to continue to -- we have continued to lean in on international, continue to make marketing investments and other personnel investments, and we expect that to be a tailwind for the second half of the year. I also think that -- and we've talked about this for some time now. We've been working very hard for the last several quarters on driving innovation and new product introductions. So you'll see the impact of that in the second half. We are focusing on a new brand campaign of really addressing -- while we are addressing ease of use and affordability, we also want to make Cricut feel like that is for someone like them. So we -- hopefully that, that marketing campaign will deliver. And finally, as we go through the year, I think the availability of our higher-priced bundles will also have a positive impact. So we think that it's the year of the 2 halves. The first half had some headwinds as long as we continue to execute and we will see second half to have some tailwinds behind us. Dylan Liu: Got it. Just one follow-up, if I may. So on gross margins. So product gross margins recovered almost 5 points sequentially to 23%. What is your product gross margin outlook for the year? I do notice that at least for the international market, there are quite some -- there were quite some tailwind from FX side in the first quarter. With that in mind, how should we think about 2026 product gross margins? Kimball Shill: Dylan, thanks for the question. So gross margins are falling in line with expectations and consistent with what we talked about last quarter. And just breaking it down, I mean I think if you look at year '24 gross margins, on average, that kind of sets where you expect. But let me kind of break it down into pieces because we do expect lower gross margins this year than last year, right? And we are down as we have kind of 3 factors going. One, we have some E&O impairments related to end-of-life machines as we transition from old generation to next generation. There is less monetization of existing excess and obsolete inventory this year than last year, and that's consistent with the expectations we've talked about before. And there continues to be tariff pressures on margins. And that kind of breaks down into 2 pieces. We have IEEPA tariffs that a lot of the inventory we brought in have those built into our COGS and that continues to throw P&L -- flow through the P&L. We have applied for tariff refunds. And so if and when those happen, we'll take credit for them kind of in a one-time accounting entry, but there's no adjustments so far in that. And then even though the IEEPA tariffs have been overturned, the administration immediately put an additional 10% tariffs on everything. And so the way I think about that flowing through our business is 25% of our business roughly is international, not subject to tariffs. A little over half of the business this last quarter was platform. That's not subject to tariffs. But for the balance, it's subject to tariffs, and we had guided last time to about an average tariff impact of 20% going forward. That's closer to a 10% once we get through the noise of the IEEPA tariffs. And so tariffs will continue to be a bit of a headwind. On your question on international, we are excited about the continued growth in international. It was 16% for the quarter and about 10 points, as you called out, was related to foreign exchange. It's worth calling out that the benefit from foreign exchange started in Q2 last year in June. And so we'll lap that pretty soon. But even with that, we continue to have organic growth across our international segments. And we called out in the prepared remarks, solid growth in Europe and Australia and New Zealand and strong growth in some of our more nascent markets in Latin America and Asia. Let me add one more thing. So we talked about average selling prices in my last answer. That's really a story about revenue. We haven't seen the lower average selling prices pressuring margins. And that's because we've largely offset the lower prices on machines and materials with supply chain efficiencies and cost-out in reengineering. And so it's those 3 factors I talked about pressuring gross margins, not the fact that we're selling different units at lower prices as we move to next-generation products. Operator: Our next question comes from the line of Adrienne Yih from Barclays. Angus Kelleher-Ferguson: This is Angus Kelleher on for Adrienne Yih. I wanted to ask about retailers and your retail partners. Just given the recent uptick in energy prices and broader consumer pressure, are you seeing any change in retailer ordering behavior or demand signals either in terms of caution on forward buys or shifts in mix toward lower-priced offerings? Ashish Arora: Angus, this is Ashish. So I think overall, and just as I speak globally, right, I would say the headline is that our retailers are very excited about the road maps, the innovation that Cricut is driving. And I would say, across the board, there's general enthusiasm for driving innovation in the category. That's kind of the overriding theme. The second is we -- obviously, we changed our strategy from a stand-alone machine to bundles and primarily all our retailers today worldwide carry the bundles. And our goal in offering the bundles was to address ease of use so that people have everything that they need in the bundle as well as affordability. Those are the 2 things that -- and the retailers have been very pleased. As we said, Michaels gave us the new product launch award for the launch of Joy 2 and Explore 5. So today, that's what we hear from our retailers, is general enthusiasm for the category and general reception to the launch of bundles. They also see the platform improvements that we are making. I mean I would say, for the most part, we don't see a significant retailer shift in buying -- at least in their buying behavior from -- based on the economy or based on consumer sentiment today. Kimball, I don't know if you want to add anything to that, but that's -- I wanted to give a broader -- what are we hearing from retailers and today's enthusiasm... Kimball Shill: I agree. Retailers is enthusiastic. As we did mention in the prepared remarks, I mean we have seen some consumer caution, but that's primarily in Europe. We haven't seen a pullback in U.S. even as we're all watching oil prices and seeing how that evolves. Ashish Arora: That's great. I would say, if anything, even though it hasn't manifested itself, if this was to continue, we could see disruptions in supply chain or cost of plastics or shortage of certain things. But today... Kimball Shill: Well, so let me add to Ashish's comments. So on the supply side, anything that is oil stock related, we've seen some runs on that material, but we have been locking in our supply to make sure that we have continuity of supply. And so we're managing that risk proactively. Angus Kelleher-Ferguson: Great. That's great color. And then I just kind of have 2 housekeeping items. First, on the App Store dynamics, how meaningful has the shift toward Cricut direct payments been for subscriber economics so far? And then second, on the IEEPA-related tariff refunds, can you update us on the expected like magnitude of those? And I ask that because we've seen some of our branded peers monetize those receivables, but it sounds like you have not sold your receivables there. Kimball Shill: Yes. So let me take those down. So we actually have seen -- as we launched the parallel path on the iOS App Store, we have seen a majority of consumers choose the Cricut payment option and -- where they're able to access the legacy price. That said, there's still a significant minority choosing Apple Pay. And the good news across both is we haven't seen a significant impact to overall expected sign-up rates. And so we've learned that some consumers are willing to pay more for our offering without it really affecting sign-up rates. And I'll just add to that. At the very end of the quarter, we started some other tests not related to the iOS store, where we're testing new plans and higher pricing across multiple tiers. And so there's multiple tests that we're doing where we're learning more about consumer behavior and pricing relative to our subscription offering and largely differentiated by quantity of AI credits and some shop benefits. But it lets us learn on that without putting our entire installed base at risk with an across-the-board price increase. So we're pretty excited about that. And then on the IEEPA tariffs, we aren't sharing the number. We have applied for refunds. We had an ongoing duty drawback program, and so it was ordinary course for us to apply for those refunds. I will say it is material for us. We're not monetizing or factoring them because at this point, we have $256 million in cash. We have no debt. And so we can be patient to get that money back when we get it. But when we get it, we will make an accounting entry that credits COGS at the time and then keep moving forward. But at this point, we're just -- we're waiting to see how that process plays out. Operator: Thank you. This concludes the question-and-answer session, and thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
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: Good afternoon, and welcome to AtriCure's First Quarter 2026 Earnings Conference Call. This call is being recorded for replay purposes. [Operator Instructions] I would now like to turn the call over to Marissa Bych from the Gilmartin Group for a few introductory comments. Marissa Bych: Great. Thank you. By now, you should have received a copy of the earnings press release. If you have not received a copy, please call (513) 644-4484 to have one e-mailed to you. Before we begin today, let me remind you that the company's remarks include forward-looking statements. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond AtriCure's control, including risks and uncertainties described from time to time in AtriCure's SEC filings. These statements include, but are not limited to, financial expectations and guidance, expectations regarding the potential market opportunity for AtriCure's franchises and growth initiatives, future product approvals and clearances, competition, reimbursement and clinical trial enrollment and outcomes. AtriCure's results may differ materially from those projected. AtriCure undertakes no obligation to publicly update any forward-looking statements. Additionally, we refer to non-GAAP financial measures, specifically constant currency revenue, adjusted EBITDA and adjusted loss per share. A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures is included in our press release, which is available on our website. And with that, I would like to turn the call over to Mike Carrel, President and Chief Executive Officer. Michael H. Carrel: Great. Good afternoon, everyone, and welcome to our call. AtriCure is off to a strong start in 2026 with worldwide revenue of $140 million in the first quarter, reflecting 14% growth year-over-year. We are building on the momentum we established in 2025 from new product launches with this quarter marking an acceleration in our worldwide growth rate from the preceding quarter and comparable quarter last year. Fueling this acceleration is our U.S. business, which drove approximately 15% in the quarter from expanding adoption of AtriClip FLEX-Mini and PRO-Mini devices, cryoSPHERE MAX probe and continued strength from our EnCompass clamp. In addition, we generated $17 million in adjusted EBITDA, nearly double the first quarter of last year. Our results this quarter once again demonstrate our ability to deliver durable, double-digit revenue growth and expand profitability. Beyond our financial results, we have made exceptional progress in our BoxX-NoAF clinical trial. Since initiating trial enrollment in the fourth quarter of last year, we have enrolled approximately 300 total patients. To date in this 960-patient randomized controlled trial, we are tracking well ahead of our original time line and now expect to complete enrollment around the end of this year, nearly 1 year ahead of plan. The pace of enrollment in this trial reflects an extremely high level of engagement from surgeons who experienced firsthand the impact postoperative Afib has on their patients. As a reminder, up to half of cardiac surgery patients without pre-existing Afib will develop postoperative Afib, which is the most common complication of cardiac surgery. Because there is no established treatment today, postoperative Afib is a substantial burden on the health care spending, with estimates exceeding $2 billion annually in the U.S. alone. We are confident that our BoxX-NoAF clinical trial utilizing our EnCompass clamp and AtriClip device has the potential to meaningfully change treatment outcomes for this patient population and address the significant unmet clinical need. BoxX-NoAF is also highly complementary to our LeAAPS clinical trial, studying stroke reduction benefit of left atrial appendage management in cardiac surgery patients without atrial fibrillation. We expect both of our landmark clinical trials to generate robust clinical evidence in support of preventative treatment for cardiac surgery patients, unlocking a massive global market opportunity for AtriCure while establishing new standards of care in cardiac surgery. We at AtriCure are well positioned to realize these significant catalysts for our business in the coming years. Now on to updates covering franchise performance in the first quarter. Pain management once again led our portfolio growth, increasing 28% year-over-year. The cryoSPHERE MAX probe continues to be the primary driver of growth, contributing roughly 70% of our pain management sales this quarter. Surgeons across both new and existing accounts recognize the significant time savings and clinical effectiveness it provides, leading to more patients having their postoperative pain managed effectively. Building on our legacy of innovation, we are also pleased that our cryoXT probe for amputation procedures is beginning to gain traction. We continue to receive outstanding feedback from each new surgeon that uses this device and through our registries are capturing clinical outcomes for this therapy. We are still in the early innings for cryoXT for the cryoXT therapy development and adoption. However, we remain confident in cryoXT contributing more meaningfully as we move to the back half of 2026. Within our cardiac ablation franchises, worldwide open ablation revenue grew 15% in the first quarter, led by steady adoption of EnCompass clamp in the United States and Europe. EnCompass is delivering growth from both new and existing accounts even as we approach the 4-year anniversary of our U.S. full market launch. As mentioned in our fourth quarter earnings call, our efforts to drive treatment of Afib in cardiac surgery patients was validated with a recent announcement from the Society of Thoracic Surgeons' Annual Meeting, including concomitant Afib treatment as a quality metric. There is strong precedent for the impact of quality metrics in cardiac surgery, and we believe this change will support increased adoption for surgical Afib ablation and appendage management, serving as a durable tailwind for growth for years ahead. Our minimally invasive ablation franchise continued to face headwinds in the first quarter. We believe there is a role for hybrid therapy in the current and future treatment landscape and remain committed to providing a solution for the unmet need for patients with long-standing persistent Afib. Finally, turning to our appendage management franchise, which saw 16% growth worldwide, driven by both our open and minimally invasive appendage management products. Our open left atrial appendage management business benefited from strong adoption of AtriClip FLEX-Mini in the United States, where we exited the quarter with FLEX-Mini contributing approximately 40% of our open appendage management revenue. More importantly, we believe our FLEX-Mini device has been impactful in driving share gains in this market. Surgeons using our trialing competitive devices are impressed by the small form factor of AtriClip FLEX-Mini, along with robust clinical evidence and superior product performance of our AtriClip devices. In minimally invasive procedures, AtriClip PRO-Mini is building upon that adoption in the U.S., providing a pricing uplift that offsets pressure of our hybrid AF therapy procedure volumes. It remains clear that differentiated innovation plays an important role in maintaining our position as the leader in appendage management in cardiac surgery, and we continue to prioritize investments in this platform. In our international markets, we are growing adoption across our legacy left atrial appendage management devices. Following the first quarter, we received CE Mark under EU MDR in Europe for both AtriClip FLEX-Mini and PRO-Mini devices and expect to launch both products in Europe later this year. New product launches in Europe, the United States, China and Japan, coupled with the future of LeAAPS clinical trial outcomes, provide a long runway for growth in our appendage management franchise. In closing, the performance we delivered this quarter underscores the power of our innovation and focus on execution. While the rapid progress in our BoxX-NoAF clinical trial reinforces the significant opportunity ahead at AtriCure. We remain committed to advancing standards of care, scaling responsibly and delivering durable growth with improving profitability for our shareholders. And with that, I'll turn the call over to Angie Wirick, our Chief Financial Officer. Angie? Angela Wirick: Thanks, Mike. Worldwide revenue for the first quarter of 2026 was $141.2 million, up 14.3% on a reported basis and 12.8% on a constant currency basis versus the first quarter of 2025. Our performance reflects substantial growth driven by the continued adoption of key new products in the United States and many regions throughout the world. On a sequential basis, worldwide revenue increased approximately 1% compared to the fourth quarter 2025. First quarter 2026 U.S. revenue was $116.2 million, a 14.9% increase from the first quarter of 2025. Open ablation product sales grew 17.3% to $39.1 million, fueled by the strong and sustained adoption of our EnCompass clamp across new and existing accounts. U.S. sales of appendage management products were $48.4 million, up 14.9% over the first quarter of 2025, driven primarily by increasing adoption of our AtriClip FLEX-Mini and PRO-Mini devices. U.S. MIS ablation sales were $6.4 million, a decline of approximately 25% over the first quarter of 2025. And finally, U.S. pain management sales were $22.4 million, up 29.5% over the first quarter of 2025, led by the cryoSPHERE MAX probe, which contributed approximately 70% of pain Management sales in the quarter, driving increased adoption in both thoracic and sternotomy procedures. International revenue totaled $25 million for the first quarter of 2026, up 11.5% on a reported basis and up 3.3% on a constant currency basis as compared to the first quarter of 2025. European sales were $16.1 million, up 13.2% and Asia Pacific and other international market sales were $8.9 million, up 8.4%. International growth was tempered by continued uncertainty in the U.K. as well as lower distributor sales in Asia. Offsetting these headwinds, we saw significant growth across franchises in other major geographies, largely driven by our direct markets. Gross margin for the first quarter of 2026 was 77.4%, up 246 basis points from the first quarter of 2025. The increase was driven primarily by favorable product and geographic mix with strong U.S. performance propelled by our new product launches and adoption. Transitioning to operating expenses for the quarter, total operating expenses increased $10.2 million or 10.3% from $98.6 million in the first quarter of 2025 to $108.8 million in the first quarter of 2026. Rapid enrollment in our BoxX-NoAF clinical trial, which offsets a decrease in LeAAPS clinical trial costs, along with increased headcount focused on product development initiatives, resulted in a 7.6% increase in research and development expense from the first quarter of 2025. SG&A expense increased 11.2% from the first quarter of 2025 as we continue to support growth while driving leverage across the organization. Completing the P&L, first quarter 2026 adjusted EBITDA was $17.1 million compared to $8.8 million for the first quarter of 2025, representing a 95% increase. We recorded net income of approximately $100,000 compared to a net loss of $6.7 million in the first quarter of 2025. Earnings per share and adjusted earnings per share were both breakeven at $0.00 compared to a loss per share and adjusted loss per share of $0.14 in the first quarter of 2025. Our results reflect a balanced approach to allocating capital towards area we believe will sustain and accelerate growth, all while continuing to improve profitability. Now turning to our balance sheet. We ended the first quarter with approximately $146 million in cash and investments. Cash burn for the quarter was slightly improved from the first quarter of 2025 and reflects our normal pattern of cash usage, driven by share vesting, variable compensation and operational needs. As we move through the remainder of the year, we expect positive cash flow, resulting in full year cash generation that is moderately higher than 2025. Our balance sheet remains healthy and supports both current operations and our investment in strategic initiatives that we believe will drive long-term value creation. And now on to our outlook for 2026. We are reiterating our expectations for full year revenue of $600 million to $610 million, reflecting growth of approximately 12% to 14% over full year 2025 results. Consistent with our first quarter results, we expect performance over the remainder of the year to be driven by our pain management, appendage management and open ablation franchises and partially offset by continuation of headwinds from our MIS ablation franchise, along with certain international markets. For the second quarter, we anticipate typical seasonality translating to mid-single-digit sequential growth. On gross margin, while our first quarter 2026 results were exceptional as a result of extremely favorable mix. We continue to expect modest improvement in full year 2026 gross margin over full year 2025. Product and geographic mix are expected to be favorable in the near term. However, we will bring our expanded manufacturing facilities online in the second half of 2026, which will increase manufacturing cost burden, moderating the full year gross margin outlook. Turning to operating expenses. As Mike mentioned, the accelerated timing for full enrollment in our BoxX-NoAF clinical trial has placed us significantly ahead of schedule, and we now expect full enrollment of the trial around the end of this year. As a result, over the next 3 quarters, we expect additional R&D investment. While the cost of BoxX-NoAF acceleration is incremental to our plan, we continue to drive strong gross margins and operating leverage, reflecting discipline across our business. With that in mind, we are reiterating our expectations for full year 2026 adjusted EBITDA of $80 million to $82 million and full year net income, translating to earnings per share of approximately $0.00 to $0.04 and adjusted earnings per share of approximately $0.09 to $0.15. Consistent with our 2025 performance, our quarterly outlook for adjusted EBITDA is largely informed by normal top line cadence and the timing of R&D spend. As a reminder, 2025 R&D spending included LeAAPS enrollment costs for the first half of 2025 only. Therefore, we expect a slightly higher increase in R&D spending in the second half of 2026. In conclusion, our first quarter results highlight the durability of AtriCure innovation and continued improvement in our financial profile while funding investments in growth catalysts for the future. We remain energized by the opportunities in front of us and the exceptional AtriCure team who will make 2026 a success. With that, I will turn the call back to Mike. Michael H. Carrel: Thanks, Angie. 2026 is off to a good start, and our team is fully committed to our patients, our partners and our shareholders. As we look ahead, we are confident in our ability to execute with discipline, sustain operational excellence and build on the momentum that we've created, delivering meaningful progress throughout 2026 and well beyond. And with that, I'll turn it over to the operator for any questions. Operator? Operator: [Operator Instructions] And our first question comes from Bill Plovanic with Canaccord Genuity. Zachary Day: This is Zachary. Can you talk about the progress you're making on PFA integration? Any milestones that we should be on the lookout for this year? And then can you talk quickly about the RF enhancements you're making to come with the next-generation catheter? Michael H. Carrel: Sure. I'll take that on. I appreciate the question. On the PFA, we're making great progress on that. We've done our first in-human over in Australia so far. We're now starting first in human in Europe as well. It's not really first in-human anymore, but we're going to be doing an additional 30 to 40 patients in Europe. And so that will obviously lead for our submission for the trial that we expect to start running sometime next year. And so we're on pace, doing great. No additional commentary at this point in time, but we're really pleased with the results that we've seen so far and feel like there aren't any specific milestones other than really submission to the FDA later on this year, acceptance of the IDE and then beginning to enroll as we kind of look into 2027 at some point in time. So we'll give more details as we kind of get forward on that. We really want to focus today's effort on, obviously, the great progress we've made on the BoxX-NoAF clinical trial because we're so far ahead of plan that we wanted to make sure that we got that out there. 300 patients in a very short period of time put us well over a year ahead of plan, and we thought that was just a big, big milestone for us as we kind of close out this year being able to finish up enrollment around the end of the year. That's something we're super excited about. As for the RF advancements, they are embedded in there. We've got both the RF and also the dual energy combined in some of those first-in-human playbooks, and that will all be indicated and looking forward to kind of seeing that in trials sometime next year. Operator: Our next question comes from Matthew O'Brien with Piper Sandler. Matthew O'Brien: The first one, Mike, I know you can't grow this pain management business 30% every quarter but just talk about what you saw in the quarter from a growth perspective in terms of new accounts, existing accounts with cryoSPHERE MAX? And then also on the ortho side of things, just maybe the contributions that you got from those different buckets and how do we think about the growth trajectory for that business? And then I do have a follow-up. Michael H. Carrel: Yes. I'll start and just say that the cryo business, the pain business, is as we talked about our Analyst Day about a year ago, this is something that's got -- it's multiple billions of dollars of opportunity. Obviously, thoracic is an area that we've been established in for a long period of time. We're now starting to see some traction on the sternotomy side, and we're just starting on this, obviously, below-the-knee amputation area. We're just scratching the surface in my mind in all the areas that people undergo surgery and have a lot of pain afterwards, both from other parts of the body and other types of surgeries to looking into and researching the impact that you can have on actually phantom limb pain, which affects over 3 million people. I mean these are big, big numbers when you look at it. So we've got decades worth of growth in my mind here. Whether or not we can grow 30% for decades, obviously, the numbers get bigger and that becomes more difficult. But the good news is we've got multiple places to actually grow this market for many, many years to come. And with that, I'll turn it over to Angie to give you some of the specifics on the numbers. Angela Wirick: Yes. Matt, from an account perspective, we are about 70% of our pain management accounts have adopted cryoSPHERE MAX, and we continue to see every quarter since we've launched, we continue to see nice uptake. It was about 10% growth in the cryoSPHERE MAX accounts within the quarter. So this is clearly becoming the dominant device that's being used. I think surgeons are very compelled by the quick freeze times that they're seeing and just exceptional outcomes for their patients. Matthew O'Brien: Got it. That's great to hear. On BoxX-NoAF, in my experience, Mike or Angie, when these things enroll faster, it's because doctors are seeing good outcomes. That's why they're doing more of these cases. Can you just talk about any kind of anecdotal feedback you're getting from the clinicians as far as outcomes here? And then kind of what's expected from these outcomes? And then given the time line for finishing enrollment, could we see -- because I think the follow-up is pretty short. Could we see data at ACC or HRS next year? Michael H. Carrel: Yes. Great question. I think you're right that, that is kind of what you said. We don't have any specific information because it's obviously a blinded trial. I don't know exactly what's happening within the trial relative to the individual patients or the randomization on that front. That being said, we do know sites that have utilized this technology for their postoperative pain. We've seen it in all the preliminary work that went into going into the trial. And what we saw was significant reductions as a result of that. So much in fact that we have several sites and even more. We've got 5-plus sites or so that have decided to adopt this and will not come into the trial because they're seeing such good results relative to using the EnCompass clamp plus the AtriClip to see significant reductions in that. If you look at the STS database, what you see is it's about 35% to 40% of all patients that undergo cardiac surgery go into postop Afib, sometimes you'll see up to 50% in some studies where you'll see it as high as that. And we're seeing in the trials in different areas that it's less than 10%. We don't need that to win the trial, though, and to have a meaningful clinical impact on it. So we feel really confident and really good about where this is going and the results that we'll wind up seeing. In terms of timing of results, you're correct. We think it's going to be around the end of the year based on the pace of enrollment we're seeing right now. I said around because it could be sometime at the end of December or early January time frame that we might have full enrollment in place. Then you're right, we've got about 30 days of follow-up from that last patient. And then we'll have to obviously adjudicate all of that data. So if you start to do the math, as you just described, probably not HRS, more likely a surgical congress that we would do some sort of late breaker. The surgical congress that is out that late is AATS next year. If we got the data earlier, STS is in the January, February time frame. Obviously, that is highly unlikely to make it that quickly, but we're hopeful that we can conclude the trial, get those initial results and get some data out there as a late breaker sometime at the AATS, which is around the same time as HRS next year. Operator: Our next question comes from Marie Thibault with BTIG. Marie Thibault: I wanted to spend a minute here on your international business. I think you called out some uncertainty on the U.K. side, which I know isn't brand new and also some lower distributor sales from APAC. So can you tell us a little bit more about what's going on behind the scenes there? And any visibility on when things might start to improve? And then it sounds like the direct markets, OUS have been healthy. So just any more color on those markets as well. Angela Wirick: Yes. Marie, you called out the 2 kind of headwinds that we're facing within our international business. The U.K. within Europe, we had anticipated that being a drag and talked I think, at length within our guidance that we've baked in a run rate that looks very similar to how we exited 2025. That held true for the first quarter of 2026 as we started the year. And then just with our larger distributors in Asia, inherently, distributor orders can be lumpy. We expect that pressure to be transient as we think about the rest of 2026. You mentioned it, but I'll remind everybody. I'd say outside the headwinds, we saw really good growth in our franchises in our direct markets in Europe, Australia and Canada. We continue to be excited about bringing new products into each of those markets and seeing the progress that the teams are making there and continue to focus on the NHS and making sure that our pain management device. And then kind of any other budgetary pressures, what we can control that we are addressing quickly to get this market to a rebound. So guidance does not assume any kind of recovery in the U.K. and then strong business in other areas within Europe and the distributors in Asia that that's expected to be transient again. Marie Thibault: Okay. Great detail. And then maybe my follow-up on the Convergent procedure side, just wanted to understand kind of how your view of that market has been evolving. Obviously, the PFA landscape has evolved quickly. So would just love an update on what you're seeing there on the ground. Michael H. Carrel: Yes. On the ground, we kind of talked about it very briefly during my remarks. There's definitely a continued headwind in that area. What we're seeing is the data is still incredibly strong and these patients benefit from using the Convergent platform. That being said, they're getting multiple PFA catheters first. They're trying one than another. Some are going up to 3. That's obviously delaying that pipeline and those patients coming through. That's why it becomes tough to predict exact timing for us on that. That being said, if you talk to most people that are actually using it, they actually do believe in it. They're just seeing fewer patients or they're trying to catheter out one more time before they actually send that patient on. So that's the reality that we're dealing with right now. That's why we've set the expectations as we have. But we really feel like those that are utilizing technology are getting incredible benefit, and we're having lots of -- we continue to have lots of good conversations with the EPs. And we do think that it's a solution that matters, and we have to continue to support. Operator: Our next question comes from Lily Lozada with JPMorgan. Unknown Analyst: This is Henry on for Lily. I just wanted to pivot a little bit to talk about the guidance. You were able to beat on the top line but you reiterated the revenue guide. Can you talk a little bit more about why that's not flowing through into the full year guide? And are there any headwinds in particular you'd like to call out for the remainder of 2026? Angela Wirick: Yes. I think on the top line guide, we came in ahead of our expectations, both top and bottom line, a positive start to the year, but it is still early in the year and want to see continued outperformance before we revisit the guidance. I think that's very much in line with our philosophy and track and impact years. We are guiding to numbers that we feel very confident that we can achieve and look to beat and raise throughout the year. The headwinds we just touched on is primarily within our international business and then in our hybrid ablation business in the U.S. and in the areas of outperformance, very similar to what you saw in the first quarter results. Expecting continued really strong growth within our pain management franchise, our open ablation franchise and appendage management as well. Operator: Our next question comes from Mike Matson with Needham. Joseph Conway: This is Joseph on for Mike. Maybe just one on international first, China and Japan. I was wondering if you guys could just maybe give a broad overview on where you are now with the portfolio in terms of approvals or launches and maybe where that portfolio could sit in China and Japan by the end of this year? Angela Wirick: Yes. Pretty comparable between both our China and Japan markets. You have the basic RF ablation devices. Neither market has EnCompass at this point in time. We just recently put China -- put our AtriClip in China. So that's a newer product launch in that market. And then within Japan, we've had different versions of our AtriClip on market and got expanded clearances for the mini devices more recently there and are working on other product launches. I think with any market that you enter into, you're looking at the product set and what the market can absorb given economic considerations, so on and so forth. But it is a subset of the overall products that we've got launched and are selling within the U.S. market. Joseph Conway: Okay. Great. Makes sense. And then one on appendage management. So obviously, a very strong year in 2025 and with new products, it's looking good as well. But with the increased competition, it's just, I guess, trying to get a handle on basically where they are, where your competitors are with trialing and incentives. Has that kind of steadied off? Are you seeing increased incentives for them to trial the product from your customers? Just trying to understand how these new entrants are affecting your sales or not affecting. Michael H. Carrel: Yes. And just right now, there's only one entrant in the market that's Medtronic. They do have a product that we compete with today. And as I mentioned in my comments, what we saw was they kind of peaked in market share back in the kind of summer time frame, late summer, early fall time frame. And we've seen with FLEX-Mini gaining more and more adoption at more and more sites that we're actually gaining some of that share back. We still have the predominant market share in the United States. We feel like the innovation that we put out there with FLEX-Mini, with PRO-Mini with obviously clinical evidence that we'll generate that will be very specific to our product that we're going to be in a very good place both in terms of who we're competing with right now and also if Edwards does come into the market. Obviously, they've mentioned that they're going to be coming into the market later on this year, and we will be ready for that. Again, the way that we know how to compete is to build the best products that are what the market really wants to meet those needs. We continue to innovate. On top of that, we've invested heavily in clinical evidence that's very specific to our product, both in the LeAAPS and in the BoxX trial, which both include the appendage, looking for the benefits that we can get for stroke reduction on that, that will be very specific to our product and our product only. And putting that level of evidence is something that none of the competition has actually started a trial down that pathway, and these are long trials. So it gives us a great deal of confidence in terms of the future for that. So. Continue with the innovation, continue with the clinical evidence gives us confidence that when competition comes in, whether it's the ones that are out there, the ones that are talking about coming into the market and there may be more in the future that we are going to be incredibly well positioned. We also believe, as I've mentioned on this call before, that competition coming into the market means it's a big market. It means that it is a multibillion-dollar market that can take on competition like this. All great markets in medical devices typically have several players in there, and we believe that, that's actually a really good sign that this is a big and robust market on the international scale. Operator: Our next question comes from John McAulay with Stifel. John McAulay: Just want to put a finer point on the 2026 guidance commentary you gave. So reiterating the top line range and adjusted EBITDA range. I just want to understand the intention there as you beat on both. Would you expect that we let numbers for the rest of the year sort of stay where they are to reflect the strength in the quarter or the hybrid and international headwinds you called out, you expect that those sort of offset the $2 million of upside as we look ahead to the rest of '26? Angela Wirick: John, no different from our philosophy on guiding. We are putting out numbers that we believe we cannot only meet, but that we've got a pathway to beat. I think with one quarter in, you're still early in the year. And specific to the top line, felt like the right and prudent thing to do at this point in the year was just to hold the guide and expect that we've got the ability to outperform no different than when we started the first quarter. On the bottom line, I'd say more of a shift in we are -- with the pace of enrollment on BoxX-NoAF, those costs are incremental, pulling enrollment in by a year into 2026, that is incremental to our plan in 2026 for the full year. We had a very strong margin -- gross margin in the first quarter, expect for there to be improvement over 2025. But that being said, some of the favorability on the margin side is transient, again, with the mix of the international business primarily. You take that kind of whole calculus and the diligence that we're seeing across the business to see improvement in leverage that positioned us really well to be able to absorb the additional trial costs and hold the bottom line guide where it's at. And again, no different are putting numbers out there, we expect not only to meet but to be. John McAulay: That's helpful. And just to make sure I'm understanding the dynamics OUS. So in the quarter, you highlighted 3.3% constant currency growth. Is that what we should be expecting for the year ahead? Or what are the drivers of acceleration or reacceleration we should be looking at in that business? Angela Wirick: Yes. Good question. I'd say the -- we are expecting our international business to grow on a reported basis closer in line to the overall company guide. So that would be kind of double-digit growth for our international business. You saw more favorability from a currency in the first quarter, expect for that to lean a bit as we think about the rest of the year. Strength in our direct markets in Europe, we expect for that to be a continued driver there. You've got newer product launches in that market. EnCompass is a big driver in our European market and then a bit of a rebound in our Asia distributors. Again, I think ordering patterns can be kind of lumpy there. So expecting that to rebound as well. And that's the calculus to get to kind of that mid-double-digit growth expectation for the year. Operator: Our next question comes from Danny Stauder with Citizens. Daniel Stauder: Just first one on pain management. Great to see the strong quarter. You noted improved market penetration in thoracic and sternotomy. But just on the latter of the 2, it's nice to hear you're starting to see traction. But I was just curious what was driving this of late. We've talked about sternotomy and that opportunity for a bit now. So I just wanted to see if there was any newer developments that's leading to this? Michael H. Carrel: Yes. Great question. I think what you're seeing here, Danny, is that you're seeing it works in sternotomy. It just takes a little bit longer to get there. With the MAX product that has reduced the time in half that really has improved adoption and the willingness of somebody to even try it. And then once they try it, they see really good results pretty quickly, and then it becomes a lot more sticky at that point in time. So I'd say that's really what you're seeing. It's not something that you'll ever get a hockey stick curve off of, I don't believe, but I think that you're going to continue to see nice robust growth within this area as we add more and more accounts. So we've got many accounts that are actually doing this now. It's no longer just a handful across the country. People are talking to each other. They're talking about the results, whether it's at trade shows or other places like that or peer-to-peer conversations, and that's really what's driving it. Daniel Stauder: Okay. Great. And then just one follow-up on the FTS quality metric update. Could you give us a little more color on this? First when will it start? And should we be thinking of this more as a longer tail growth over the next few years versus more near-term uptick? Just any more information on how we should think about this in terms of incremental adoption or just frame the potential revenue opportunity here would be really helpful. Michael H. Carrel: Sure. I'll start by saying just a reminder to everybody that in the U.S., about 35% of all patients that have Afib that undergo cardiac surgery actually get an ablation. And so that is obviously a very low number. You still have 65% left to go. The quality metric is meant to address that. It's meant to say that -- and what they put out there was that there'd be 70% of the patients actually get treated. That number will likely grow. That was the commentary that was at STS back in January of this year. They anticipate that they'll put some teeth into it. They wanted to roll out that this is becoming a quality metric. And that quality metric will go into effect sometime in 2027, at which point in time there will be some teeth in it in terms of they'll be measured on it. It will be recorded in the STS database. How that's all -- the specifics behind that are still not disclosed yet by STS, but that is coming out. To give you some perspective, I mentioned in the call that previously, the last time they did any kind of therapeutic view like this, it was the Lima to the LAD. And when they made it a quality metric, it went from about 10% adoption up to 99.8% adoption or so today. So quality metrics matter. They make a difference. People look at them, hospitals look at them, they affect their ratings. And so we do anticipate that on the Afib side of things, we should see some uplift relative to the Afib side in 2027 as they're kind of rolling this out. And obviously, that will continue into '28 and beyond. So we think that's going to be a big boon and positive for us on the ablation side to improve that penetration from 35% in the U.S. to hopefully obviously getting it closer to 80%, 90% or so at some point over the next 3 to 5 years. So we've got a lot of room for growth. This is a little bit of -- I don't know, you can call it care or stick depending on how you want to look at it, but it's an incentive either way for people to do the treatment. On top of that, obviously, we're going to have data that comes out on the non-Afib patients. And we believe you combine that with the quality metrics and the fact that the EnCompass clamp is so easy to use that we will start to see some really nice adoption overall over the next 3 to 5 years in a big way. Operator: Our next question comes from Keith Hinton with Freedom Capital Markets. Keith Hinton: I just have a quick one on AtriClip. Can you just talk a little bit -- and I apologize if I missed this, I'm jumping around a little bit. But can you talk a little bit about the use of FLEX-Mini versus the prior generations in open appendage? And then more broadly, can you just talk about the current ASP for AtriClip in the U.S. and how we should think about those dynamics going forward as uptake continues for FLEX and PRO-Mini? Angela Wirick: Yes, I'll take this one. The AtriClip FLEX-Mini, what we are seeing is a pretty steady conversion from our last-generation AtriClip device, the AtriClip FLEX fee, less so from the original AtriClip device, which is still on the market. But between the 3 products, you've got different price points, and you've also got the ability for a surgeon to choose depending on the approach that they want to take for managing the appendage. Exiting the first quarter 2026, we were up to about 40% of the revenue in the U.S. in open appendage management in the FLEX-Mini clip. We exited last year a little over 35%. So we continue to see steady share gains by that new product launch. And from an ASP perspective, we're well positioned by offering a range here as low as $1,100 with the original AtriClip device for accounts where pricing is a sensitivity and the FLEX-Mini clip up to $2,250. Operator: Our next question comes from Suraj Kalia with Oppenheimer & Co. Suraj your lines is open, please unmute your button. I am showing no further questions at this time. I would now like to turn it back to Mike Carrel for closing remarks. Michael H. Carrel: Great. Well, I just wanted to thank everybody for joining for the call today after an exciting Q1 and what's starting to be a great 2026 overall. So thank you for joining. We appreciate it. We look forward to talking to you again in July. Talk to you soon. Operator: This concludes the question-and-answer session. This concludes today's conference call as well. Thank you for participating. You may now disconnect.
Operator: 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: 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: Welcome to the SuRo Capital's First Quarter 2026 Earnings Call. My name is Ellen, and I will be your coordinator for today's event. Please note this call is being recorded. [Operator Instructions] I will now hand you over to your host, Evan Schlossman, to begin today's conference. Evan Schlossman: Thank you for joining us on today's call. I am joined by the Chairman and Chief Executive Officer at SuRo Capital, Mark Klein; and Chief Financial Officer, Allison Green. Please note that a slide presentation corresponding to today's prepared remarks by management is available on our website at www.surocap.com under Investor Relations, Events and Presentations. Today's call is being recorded and broadcast live on our website, www.surocap.com. Replay information is included in our press release issued today. This call is the property of SuRo Capital, and the reproduction of this call in any form is strictly prohibited. I would also like to call your attention to customary disclosures in today's earnings press release regarding forward-looking information. Statements made in today's conference call and webcast may constitute forward-looking statements, which relate to future events or our future performance or financial condition. These statements are not guarantees of our future performance, or future financial condition or results and involve a number of risks, estimates and uncertainties, including the impact of any market volatility that may be detrimental to our business, our portfolio companies, our industry and the global economy that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including, but not limited to, those described from time to time in the company's filings with the SEC. With respect to the externalization, these risks and uncertainties include, but are not limited to, the ability to obtain the required stockholder approval, the ability to retain key personnel, the ability to realize anticipated benefits of the externalization and the impact of the externalization on the company's business, financial condition and results of operations. Management does not undertake to update its forward-looking statements unless required to do so by law. To obtain copies of SuRo Capital's filings, please visit our website at www.surocap.com or the SEC website at sec.gov. Now I'd like to turn the call over to Mark Klein. Mark Klein: Thank you, Evan. Good afternoon, everyone, and thank you for joining us. This is a defining moment for SuRo Capital. Our strong performance in 2025 carried directly into the first quarter of 2026. For the quarter, our net asset value increased from $8.09 per share to $14.24 per share. That is a $6.15 per share increase or approximately 76% quarter-over-quarter. This is the largest quarter-over-quarter NAV increase in our history. This increase reflects the strength of our portfolio and the quality of the companies we have invested in. It also reinforces the strategy we have followed for more than a decade, giving public market investors access to high-growth venture-backed private companies that are otherwise difficult to access. We believe this access is especially valuable when it is paired with selectivity, identifying important private companies before they're strategic is broadly reflected in public market awareness. At the same time, NAV is a point-in-time measurement. It does not, by itself, capture the full opportunity we believe remains ahead. The larger story is what is in front of us as our portfolio companies continue to mature, scale their businesses and move toward potential liquidity events. Several recent financings illustrate the larger story. WHOOP recently announced a $575 million Series G financing at a $10.1 billion valuation. The company reported that 2.5 million members globally, 103% year-over-year bookings growth in 2025, a $1.1 billion exit run rate and positive operating cash flow in 2025. For us, WHOOP sits within a broader shift towards health, longevity and actionable self-knowledge. As the category evolves, we believe WHOOP can benefit from AI's ability to convert personal data into more useful individualized guidance for users. OpenAI closed its latest financing round with $122 billion in committed capital at an $852 billion post-money valuation. This financing speaks to the scale of capital formation around artificial intelligence. AI is no longer a narrow software category. It is becoming a foundational technology layer across compute, data centers, enterprise software, developer tools, healthcare, education and productivity. VAST Data was valued at $30 billion in its recent Series F financing, more than tripling its prior $9.1 billion valuation from 2023. The round included approximately $1 billion of primary and secondary capital and reflects continued demand for infrastructure supporting artificial intelligence, including data centers and high-performance computing. Canva launched an employee stock sale at a reported $42 billion valuation, led by existing shareholder, Fidelity, with JPMorgan Asset Management joining as a new investor. The transaction came as Canva continued investing in AI tools for its more than 265 million monthly active users. Taken together, these are not isolated events. They tell a consistent story. Private market capital is concentrating around scaled private companies with durable growth, strategic relevance and credible path to liquidity. These financings are significant not only for their scale, but for what they signal. Private market capital continues to validate the companies and infrastructure layers that we believe are becoming increasingly important to the next phase of technology. Our objective is to build exposure to those opportunities with discipline before they are broadly available. We are not simply observing this market. We continue to participate in it. Recent hyperscaler results continue to reinforce the scale of demand behind AI infrastructure. The next phase of AI growth depends not only on models and applications, but also on the compute capacity, power, data center infrastructure and specialized systems required to support them. During the quarter, we funded $5 million to a Magnetar special purpose vehicle invested in TensorWave. This investment was part of a commitment of up to $20 million. The remaining commitment of up to $15 million is subject to the satisfaction of certain conditions, including company-level operational milestones. TensorWave fits within our broader investment strategy and further expands our exposure to AI infrastructure. We view it as the type of opportunity we seek to identify before it becomes more broadly familiar to the broad investor base. The company is positioned around a significant technology shift with meaningful room to scale in part of the market where demand for performance, capacity and specialized infrastructure remains structurally important. That approach is consistent with the discipline we applied in building our exposure to CoreWeave, where we sought exposure to an important infrastructure company before its role in the AI ecosystem was more broadly recognized. We also believe the stage structure gave us a measured way to increase exposure to TensorWave within a framework tied to execution. More broadly, we intend to remain disciplined in how we deploy capital while being decisive when we see opportunities aligned with our strategy and with areas we believe long-term value is being created. This participation continued after year-end. Following quarter's end, we made a new investment of approximately $10 million in ClickHouse, a company we believe is well positioned at the intersection of data infrastructure, artificial intelligence and real-time analytics. ClickHouse helps enterprises query, analyze and act on massive volumes of data quickly and efficiently, a capability that is becoming increasingly important across observability, security analytics, product telemetry, cloud data warehousing and AI-driven applications. This matters because as AI moves from experimentation to deployed enterprise use cases, the infrastructure required to store, analyze and act on data at scale becomes increasingly critical. ClickHouse's relevance is already visible in demanding AI environments, including Anthropic, which ClickHouse has publicly described as using its technology to scale observability for all AI workloads. ClickHouse is another example of the kind of company we seek to invest in. It is already a scaled venture-backed technology leader, but we believe its strategic relevance is becoming greater as real-time data infrastructure becomes more important to enterprise AI deployment. For SuRo, the opportunity is to build exposure while companies like this remain private. Because this investment was made after the quarter's end, it is not part of our March 31 net asset value. It is, however, an important example of how we intend to build the future portfolio. Now I want to turn to what we believe is one of the most important strategic steps in SuRo Capital's history. Our Board of Directors approved a proposal to transition SuRo from an internally managed BDC to an externally managed structure through Neostellar Advisors LLC, an adviser jointly owned by members of our current team and Magnetar. The proposal remains subject to stockholder approval. This is not a sale of the company. The company will continue to be a publicly traded BDC, and our investment focus will remain centered on high-growth, venture-backed private companies. While the core strategy will remain the same, we believe the proposed structure will enhance the platform, supporting the strategy and better positioning us to pursue high-quality investment opportunities. Since 2019, our internally managed structure has served us well. Our team has built the portfolio, navigated volatile markets, returned significant capital to stockholders and delivered meaningful value. The NAV increase this quarter is evidence of that work. At the same time, the market has evolved. Leading private companies have more choices today, and they increasingly look for investors who can bring more than capital, including scale, relationships, strategic support, capital markets experience and a long-term partnership. We believe the proposed partnership with Magnetar positions us to compete more effectively in this environment. Magnetar brings significant scale with approximately $18 billion in assets under management, more than 20 years of investment experience and a track record of investing in differentiated technology, venture-backed companies across artificial intelligence and technology-enabled sectors. The strategic logic is straightforward. We are preserving the investment strategy and leadership continuity that brought us to this point while adding Magnetar scale, sourcing reach, diligence capabilities, portfolio support and institutional infrastructure. In addition, Magnetar's experience across the AI infrastructure ecosystem gives us additional depth in one of our core focus areas and in a market we believe will be increasingly important to broader technology growth. As many of these businesses become more capital-intensive, Magnetar's experience with cost of capital, balance sheet management and transaction structuring becomes even more relevant. We also expect the proposed structure to strengthen our origination and diligence capabilities while creating a broader platform to support portfolio companies. Put simply, we believe this gives us greater scale, broader capital solutions and deeper institutional capabilities to support private companies as they grow. If approved by stockholders, we believe this combination would position us to be one of the largest platforms focused on publicly traded access to venture-backed private companies. Public venture capital has historically been a fragmented market, and we believe greater scale, stronger infrastructure and deeper sourcing capability can matter in competing for high-quality private company investments. This would be a significant change and positive for us in our competitive position. For stockholders and portfolio companies, we believe the benefit would be a broader platform, deeper resources and a stronger ability to support ambitious private companies building in large markets. I want to speak directly about shareholder alignment. Being shareholder-friendly is not just a slogan for us. It is how we evaluate major decisions. The value created in the existing portfolio belongs to our shareholders. Under the proposed advisory agreement, pre-existing investments are not included in the incentive fee calculation. In plain English, the value already created in this portfolio is preserved for stockholders and is not subject to a new incentive fee simply because we are changing the management structure. We believe this is an important and stockholder-friendly feature. Additionally, subject to the conditions described in the proxy materials, an affiliate of Magnetar is also expected to invest $20 million in our company. We believe this is a meaningful signal of commitment and alignment. Magnetar and the Board think like owners because we are owners. Our goal is not simply to report a higher NAV. Our goal is to convert portfolio value into long-term stockholder value. This means disciplined investing, thoughtful liquidity management, expense discipline, transparency and continued focus on returning value to our stockholders. Let me close with this. This is one of the most important moments in SuRo Capital's history. We delivered the largest quarter-over-quarter NAV increase we have ever reported. Our NAV increased approximately 76% quarter-over-quarter. This is not a routine result. It reflects the strength of our portfolio, the quality of companies we have backed and the power of our strategy, giving public stockholders access to high-growth venture-backed companies aligned with important technology trends. We do not view the quarter as the finish line, but as the beginning of the new chapter. Our recent investment activity, including TensorWave and ClickHouse, reflects the same discipline, identifying private companies where strategic relevance is emerging, building exposure selectively and giving public stockholders access to opportunities that remain largely outside of the public markets. Our proposed partnership with Magnetar through Neostellar Advisors is designed to provide SuRo Capital with greater scale, stronger infrastructure, broader sourcing reach and deeper diligence capabilities as we seek to invest in and partner with the next generation of high-growth private companies. NAV captures the progress we have made, the opportunity is what comes next. Our focus now is straightforward, build on this momentum, maintain our discipline and translate portfolio progress into lasting shareholder value. To our stockholders, thank you for your continued trust and support. With that, I will turn the call over to Allison Green to review our financial results. Allison Green: Thank you, Mark. I would like to follow Mark's update with a review of our investment activity and portfolio company realizations during the first quarter and subsequent to quarter end, a high-level review of our investment portfolio as of quarter end, including the investment theme breakdown and a more detailed review of our first quarter financial results, including our current liquidity as of March 31. I'll also touch on notable items during the first quarter and subsequent to quarter end, including our announcement of the Board-approved externalization. On December 31, SuRo Capital's $20 million to Magnetar Opportunity 2025-4 LP, a special purpose vehicle invested in TensorWave, Inc. During the quarter, on January 2, SuRo Capital funded $5 million of the $20 million capital commitment. As of May 5, $5 million of the $20 million capital commitment to Magnetar Opportunity 2025-4 LP had been funded. The remaining commitment of up to $15 million is subject to the satisfaction of certain conditions. Throughout the first quarter, we sold 440,246 common shares of GrabAGunDigital Holdings Inc following the removal of lockup restrictions on January 15. These sales resulted in net proceeds of approximately $1.4 million and a realized gain of approximately $891,000. As of March 31, we hold 599,754 public common shares or approximately 58% of our original position. Additionally, during the quarter, we received a distribution from our True Global Ventures 4 Plus venture capital fund investment for approximately $246,000. Subsequent to quarter end, on April 8, SuRo Capital completed a $225,000 investment in the common stock of Huntress Labs, Inc. through a secondary transaction. Additionally, on April 22, we completed a $9.5 million investment, excluding fees, in the Series A preferred shares of ClickHouse Inc. through a secondary transaction. Subsequent to quarter end, SuRo Capital received 2 distributions from CW Opportunity 2 LP, totaling approximately $3 million in net proceeds. CW Opportunity 2 LP is an SPV for which the Class A interest is solely invested in the Class A common shares of CoreWeave, Inc. SuRo Capital has invested in the Class A common shares of CoreWeave, Inc. through its investment in the Class A interest of CW Opportunity 2 LP. The distributions were categorized in aggregate as approximately $902,000 of return of capital and a $2.1 million realized gain. The realized gain is calculated based on the current reporting by the fund and confirmed through our accounting, but may be subject to change or adjustment due to the impact of performance fees that may be charged by the fund. I would now like to turn to our portfolio as of quarter end. Our top 5 positions as of March 31 were WHOOP, OpenAI, VAST, Blink Health and CW Opportunity 2 LP. These positions accounted for approximately 72% of the investment portfolio at fair value. Additionally, as of March 31, our top 10 positions accounted for approximately 88% of the investment portfolio. Segmented by 7 general investment themes, the top allocation of our investment portfolio at March 31 was to consumer goods and services, representing approximately 43% of the investment [Technical Difficulty] and Software as a Service were the next largest categories with approximately 29% and 12% of our portfolio, respectively. Approximately 6% of our portfolio was invested in education technology companies and the Financial Technology & Services segment accounted for approximately 5% of the fair value of our portfolio. The Logistics & Supply Chain accounted for approximately 4% of the fair value of our portfolio, and SuRo Sports accounted for 2% as of March 31. We ended the first quarter of 2026 with a net asset value of approximately $361.6 million or $14.24 per share, which is consistent with our financial reporting. The increase in NAV per share from $8.09 at the end of Q4 2025 was primarily driven by a $6.25 per share increase from the net change in unrealized appreciation of our investments, a $0.04 per share increase resulting from net realized gain on our portfolio investments during the quarter, and a $0.02 per share related to stock-based compensation. The increase in NAV per share was partially offset by a $0.16 per share decrease due to net investment loss during the quarter. At March 31, there were 25,387,393 shares of the company's common stock outstanding. Finally, regarding our liquidity at quarter end. We ended the quarter with approximately $46 million of liquid assets, including approximately $43.3 million in cash and approximately $2.7 million in unrestricted public securities. Not included in our unrestricted public securities are approximately $15.9 million of public securities subject to lockup or other sales restrictions as of quarter end. This represents our remaining investment in CoreWeave via our Class A interest of CW Opportunity 2 LP. Subsequent to quarter end, the purchaser of 6.5% convertible notes due 2029 elected to exercise their conversion option on multiple occasions and convert a total of $5 million of principal into 682,815 shares of SuRo Capital's common stock and $19.56 in cash in lieu of fractional shares. Upon completion of these conversions, the remaining principal balance of the 6.5% convertible notes due 2029 was approximately $30 million. As Mark mentioned, subsequent to quarter end, on April 2, SuRo Capital's Board of Directors, including all of its independent directors, unanimously approved a proposal to transition from an internally managed BDC to an externally managed structure through a new investment advisory agreement with Neostellar Advisors LLC, an entity jointly owned by certain current SuRo Capital employees and Magnetar Holdings LLC, which is affiliated with Magnetar's multi-strategy alternative investment platform. The externalization is expected to process to enhance investment sourcing and due diligence capabilities through Magnetar's fully integrated platform, preserve all realized gains on the company's existing portfolio for the benefit of stockholders through the exclusion of pre-existing investments from any incentive fee calculations and result in an annual expense savings. In connection with the externalization, an affiliate of Magnetar will make a $20 million investment in the company and the company's current management team, including Mark Klein and myself, will continue in our current capacities. The externalization is subject to stockholder approval and additional details are set forth in the company's current report on Form 8-K filed with the Securities and Exchange Commission on April 7. That concludes my comments. We would like to thank you for your interest and support of SuRo Capital. Now I will turn the call over to the operator for the start of the Q&A session. Operator? Operator: [Operator Instructions] We will take our first question from Alex Paris, Barrington Research. Alexander Paris: Congrats on the superb Q1 and the plan for externalization. So that's going to be my question, the externalization. As I recall, prior to 2019, the portfolio was externally managed. You took it in and now you're externalizing it again. So point number one. Point number two, I had a quick review of the process, and I see not only are you creating a joint venture with Magnetar under the name Neostellar Advisors LLC, but actually SuRo's name will be changed to Neostellar Capital Corp. under the symbol NSLR. I guess it's a 2-part question. Number one, I think the shareholder meeting, the special shareholder meeting is scheduled for June 10. When do you hope to close this transaction? And then the related question is both you and Allison noted that this is expected to result in cost savings. So I'm wondering if you could just provide a little additional color on how that's done. You're obviously going to pay the external manager a management fee plus an incentive fee. What costs are we eliminating from the internal management of the fund? Mark Klein: Thanks, Alex. That's the longest one question ever, but I appreciate it. So let's start with we were externally managed. We made a determination to be internally managed as we took the management -- the group that managed the portfolio and brought it in-house. As I noted in my prepared remarks, I think a lot has changed in the public venture capital markets. And we came to the conclusion that in order for us to be at the top of the pyramid of all have the largest asset management platform available to invest in public markets, having greater depth from both investment, sourcing, diligence, support, infrastructure, et cetera, to partner with a firm like Magnetar, which we have done an awful lot of investing with over the years, just simply made sense. It makes us the largest platform to invest as a public investor in venture-backed securities. I think that matters right now. I think size matters, I think scale matters. I think the ability to bring other aspects to portfolio companies as opposed to just writing a check matters. And if you look at the success Magnetar has enjoyed and the fact that we invested with them in CoreWeave, we're investing with them in TensorWave, they are really on top of the game in the venture space. And as capital becomes more important and different capital solutions become more important to private companies, they are a great partner and significantly enhance what we are doing. And again, we're the first ones ever to do it, and we started 15 years ago, and we continue to pioneer as having a terrific partner. As far as cost savings, it's in the proxy, this will be less expensive for our investors, certainly to start in respect to expenses related to the management of the portfolio. As far as incentive fees, we made a point of saying that the entire portfolio and all the unrealized gains and all the success that has occurred to date and will occurs up until the externalization. There's no incentive fee being charged at all. That is for all of our shareholders in the future as we invest money and we realize profits on those new investments, there may be an incentive fee on that at that point in time, which candidly will be quite some time away from now. So we are really excited about this. This is really differentiated. This makes us as significant as we are now, much more significant. And it was a decision our Board took and we took as management, and we're really excited about that. The vote is on June 10. This -- upon approval by our shareholders, we will enter into a management agreement with Neostellar. We will rebrand to Neostellar, and that will be effective on July 1. Thank you. Operator: We will take our next question from Marvin Fong, BTIG. Marvin Fong: Congrats as well and looking forward to the externalization. I just have a big picture question after all the success, we can all see that the private and public markets around AI are quite excited here. Can you just kind of talk about what you're seeing now in terms of investment opportunity and ClickHouse is another you were able to get in on. But can you -- are you seeing opportunities like you're done with TensorWave to -- that are milestone based and can offer some protection and that these companies actually have to succeed in order to gain access to further capital. Can you expect kind of more structures like that? Or just kind of describe in general what are you seeing out there? Mark Klein: Thanks, Marvin. Great question. And I'll answer it in 2 parts. First of all, we are really excited about ClickHouse. ClickHouse has quickly become the de facto real-time analytics platform. They position themselves to benefit from AI applications, which demand real-time data. This company is growing at 250% year-over-year. It's phenomenal. It provides they're 10x that the rate, the speed of their competitors at approximately 1/10 of the cost. It is truly an amazing company. I suspect most people on this call probably haven't heard about it. We view this as we're in front in the same way we were in front with VAST when no one heard of it or even CoreWeave when no one heard of it. That's how we view ClickHouse. And I suspect as we move towards the end of the year, they will become more notable. That's one. Two, I think -- and you and I have talked about and I talked about it publicly, the markets are robust or perhaps broadly in the AI space, specifically in the private market side. We see an awful lot. We are seeing more deals now than we've ever seen before. And as we talked about it, you have to start is -- are you in the right -- are the tailwinds still there? Are you in the right sector, subtenant sector? Are you one of many in the space or one of a few? Do you have the right to win? Once you get to all that, can we actually [ invest ], whether it's like TensorWave, which I think is extremely well structured, or can we simply price it in a way that there's an opportunity to invest and see returns. And that leaves an awful lot of companies that candidly at this point in time are tough to invest in. But we have found opportunities, whether it was ClickHouse and TensorWave, as we've discussed before, we are really set up to win. They are to AMD what CoreWeave was to NVIDIA. As most of you can probably see, AMD just reported a blowout quarter. TensorWave is going to be where they're housing their AMD chips. It's an extremely exciting investment. The investment is structured in a way that we put $5 million in, $15 million will be following on, assuming certain conditions are met. And we think that's going to be an absolute [ raging ] success. We're really looking forward to TensorWave's future. Operator: We will take our next question from Jon Hickman with Ladenburg. Jon Hickman: I have a question about -- in the past, the top 5 positions have generally around -- they've been around 50% of your portfolio. And currently, the Top 5... Mark Klein: Jon, you still there? Operator: Participant line disconnected. We will take our next question from Brian McKenna, Citizens. Nate Saur: This is Nate Saur on for Brian McKenna. So first of all, congrats on the great moves this quarter and the especially impressive results so far this year. Maybe just extending the discussion on externalization real quick. I was wondering if you guys could provide a little -- or get a little bit more specific on the timing? Like why is right now the... Mark Klein: I think we lost him as well, operator. Operator: Yes, we lost Brian's line. We will take our next question from Alex Fuhrman, Lucid Capital Markets. Alex Fuhrman: I'll try to ask it real quick here and sneak it in. But congratulations guys on the really strong start to the year. I wanted to ask about your portfolio composition here in terms of your sector allocations. Obviously, your investment in WHOOP has been tremendously successful here when you think about that as well as the wind down in your position [Technical Difficulty]. You're kind of at a unique moment here where health and wellness is actually a really large percentage of the portfolio right now. Should we expect to see incremental investments kind of back in that AI area to get that part of the portfolio back up? I guess you already did that subsequent to the quarter here with ClickHouse. But just any kind of high-level thoughts on sort of the composition of your portfolio by sectors and what we should expect to see going forward? Mark Klein: Sure. Thanks, Alex. Yes, in some ways, I guess, we're victims of our own success with WHOOP as WHOOP just completed a $575 million funding over a $10 billion valuation. It's obviously been sort of knocked it out of the park with that. That was -- that is a unique situation for us. It's a great situation, but unique. As you can see, we did just put $10 million into ClickHouse. We're funding another $15 million into TensorWave. And you will see the concentration more into the technology, AI, AI infrastructure, et cetera, again, be the largest focus of our fund. But as you did note, right now, with the success of WHOOP, that has caused a bit of concentration in that space. Operator: There are no further questions on the line. So I will now hand you back to your host for closing remarks. Mark Klein: Thank you all for joining this call. We greatly appreciate it. Sorry for a couple of the problems apparently with the questions. But we're very excited here. We had obviously the best quarter we've had on a quarter-over-quarter basis ever. We're extremely excited about our partnership with Magnetar and the rebranding to Neostellar. We're always available for your questions or comments, feel free to reach out to us. And thank you again for attending the call. We greatly appreciate it. Operator: Thank you for joining today's call. You may now disconnect.
Operator: Welcome to Tobii Q1 2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Fadi Pharaon; and Interim CFO, Asa Wiren. Please go ahead. Fadi Pharaon: Good morning, everyone. This is Fadi Pharaon speaking to you, CEO of Tobii. I'm joined today by Asa Wiren, our Interim CFO; and Rasmus Lowenmo Buckhoj, who leads our Communications team. And thank you, everybody, for joining our Q1 2026 earnings call. So let's start with the quarter. Q1 was a quarter with clear areas of progress, but also challenges that we are addressing. As you can see, the reported net sales decline year-on-year was 17%. However, organic sales actually increased by 5%. We additionally had an improved gross margin for the group by 7 percentage points. And furthermore, during and shortly after the quarter, we secured strategically important design wins. All of these developments together show that despite currency and timing-related headwinds, we continue to see underlying momentum in parts of our business. We've continued our disciplined focus on cost reduction and operational efficiency. So during this quarter, we reached SEK 48 million in cost reductions if you compare to Q2 2025. Since that point, we've actually achieved SEK 120 million in total cost reductions, which actually exceeds our previously communicated target of SEK 100 million. And still, we have one more quarter to go in that program. If we move to free cash flow, that was positive for the second consecutive quarter now at SEK 17 million. And our cash position stands at SEK 39 million, even after repaying the SEK 39 million of deferred COVID-related taxes and the SEK 47 million of our previously utilized revolving credit facility. We've also agreed on a revolving credit facility with our bank for an amount of SEK 25 million. Let's now review the performance of our three business units. For those who are new to the call, Tobii has 3 business units, each addressing different use cases and customer segments. If we start with Products & Solutions at the top here, it's a unit that delivers vertical solutions to thousands of customers annually. The portfolio ranges or the segment, I would say, ranges from university research labs to enterprises and PC gamers. So in Q1 of 2026, Productd & Solutions represented 48% of Tobii's net sales. The EBIT for the segment was negative SEK 12 million. And this was partly due to the strengthening of the Swedish krona and partly due to delayed implementation of the 5-year plan policy in China, which has affected our sales in that market. At the same time, though, we saw organic growth in EMEA and the U.S. markets as well. During the quarter, we also launched a new rental model for our wearables portfolio. And the aim of that is to lower the initial barrier for customers who want to evaluate how eye tracking and attention computing can actually create value in their operations. In addition, we have launched a Remote Live review for Tobii Glasses X, a feature which I will return to a bit later in the presentation and talk more about. If you go to the second row, which is the Integrations business unit, that unit serves customers who embed Tobii's technology into their own offerings. There you can see segments like Assistive & Augmentative Communication solutions as well as XR technologies. This business, as we know, can be lumpy, and we've seen that bookings and revenue recognition may vary significantly between the quarters. So for Q1 2026, the Integrations represented 25% of Tobii's net sales and the EBIT was positive SEK 5 million. After the end of the quarter, we secured a design win with a global technology provider to integrate Tobii's Webcam eye tracking software into one of their premium tablets. And on the third row then, the Autosense business unit, which develops and provides Driver and Occupant monitoring solutions to automotive OEMs as well as Tier 1 suppliers. And in Q1 2026, Autosense represented 27% of Tobii's net sales, which actually is a significant increase compared with last year. And this was mainly driven by revenues related to the DMS technology licensing agreement, which was signed in Q4 2025. The Autosense EBIT was negative SEK 21 million, and this was mainly due to project mix and timing effects, and also will come back to that. Autosense won a new design win. And here, we will be providing our Driver monitoring system to a premium sports car European OEM. Additionally, we'll also be extending an existing DMS design to a new commercial vehicle platform. Now in regards of the Integrations and Autosense design wins I just mentioned, we are very pleased to secure deals with globally recognized brands. However, these wins are not expected to be financially meaningful, but they are very strategically important because they demonstrate the continued relevance of Tobii's technology in demanding customer environments. And this will strengthen our credibility with other global customers, and it reinforces actually our position as a leading innovator in efficient computing. Now continuing with Autosense, I'd like to share that we are managing a dynamic and developing sales pipeline and supported by continued customer engagement and increasing market relevance for Driver and Occupant monitoring solutions. And considering that, let me shed some light on Autosense staged business model. In the short term, customer programs will or may generate nonrecurring engineering, we call NRE funding, which supports custom development and integration and validation work. Now the larger long-term opportunity typically comes later. And that's when the awarded vehicle platforms enter the production. And then revenue is then generated through licenses that are tied to vehicles that are using our technology. Also, good to note that the tenders take place usually 2 to 3 years ahead of start of production. With that, I'd like to invite Asa to walk us through the financials, please. Asa Wiren: Good morning, everyone. Let's take a look at Tobii's financials for the first quarter of 2026. I'd like to highlight three areas to start with. Net sales amounted to SEK 164 million, which is a decrease compared to the previous year. However, last year included nonrecurring revenue of SEK 27 million and the stronger Swedish krona had a negative impact of SEK 15 million. Adjusted for these factors, we had organic growth of 5% and the gross margin, as Fadi mentioned, increased to 84% compared to 77% last year. Operating profit EBIT was minus SEK 28 million, a decrease of SEK 40 million compared to the same period last year. This decline is not only due to lower net sales, but was also affected by increased depreciation of SEK 20 million and an impairment of SEK 6 million. Free cash flow for the quarter improved by SEK 31 million despite the lower sales. The main explanations are improved working capital, reduced operating costs and lower investments. Let's also look at developments over the past 2 years with Autosense fully included from the second quarter of 2024. When reviewing performance, looking at net sales, it's important to note that the Swedish krona has strengthened during the period. The quarters from Q2 2024 to Q2 2025, each included a portion of nonrecurring revenue linked to the image business following the acquisition of FotoNation. And Q2 2025 was affected by the volume transaction by -- with the Dynavox transaction. Turning to EBIT. There was -- we also see an impact from other operating income and expenses that vary between quarters. In Q1 2025, for example, we divested some noncore patents, SEK 15 million, and operating profit in the fourth quarter of 2025 was significantly negatively affected by goodwill impairments. During 2024, 2025, the savings program was executed which reduced noncash operating costs by SEK 263 million. Furthermore, the savings program launched in the third quarter of 2025 has reduced costs by SEK 120 million over 3 quarters. Altogether, the company's cost structure has improved significantly over the past two years. For example, administrative costs per quarter have been reduced by approximately SEK 20 million. Today, we see a more rightsized and cost-conscious Tobii. So a few words about the Products & Solutions business area. Fadi previously reported on market development, which are reflected in the figures as lower sales compared to the previous year. The gross margin stands at a strong 71%, thanks in part to a more efficient delivery organization. The savings measures implemented have reduced OpEx by approximately SEK 25 million compared to last year. As a result, EBIT is broadly in line with the previous year, minus SEK 12 million. As regards to Integrations, we see a decline in net sales as last year's quarter included nonrecurring revenue of SEK 27 million. Gross margin has increased slightly. And here, too, OpEx has fallen by over SEK 10 million. Integrations delivered a positive operating profit of SEK 5 million. The Autosense business unit reports its highest ever sales, SEK 45 million, thanks in part to the DMS license agreement announced in the fourth quarter of 2025. Costs have also been substantially reduced, but are offset by higher depreciation triggered by license sales. The Autosense business mainly consists of two different revenue cost models linked to what Fadi previously described. One is the NRE project part where revenue and costs are recognized as the project advances, so-called percentage of completion. And another part, the product project development, where relevant time and expenses are recorded as assets on the balance sheet. Once license revenue starts coming in, these costs are gradually written off as depreciation, which shows up in the financial results. This also explains the gross margin of 100%. We see the effects of this in the quarter as depreciation increased by SEK 20 million compared to last year, partly as a result of the DMS deal. So finally, let's spend a moment on our cash flow and balance sheet. Free cash flow improved, as mentioned earlier, by SEK 31 million compared to 2025. Our cash balance at the quarter end was SEK 39 million. During the quarter, SEK 39 million was repaid to the Swedish tax agency, the COVID-related tax reliefs, and the credit facility was repaid by SEK 47 million. After the end of the quarter, an agreement was reached with the company's bank for a credit facility of SEK 25 million. We assess that this is sized according to our operational needs. Given the debt structure in the coming years, there remains a risk that Tobii may not have sufficient financing for the coming 12 months, addressing this is our top priority. And by that, I'll hand over to Fadi for some final comments. Fadi Pharaon: Thank you, Asa. But before I go to the final comments, I just will talk like a little bit about thought leadership and product innovation. And I'd like to take a moment to highlight one example of how we continue to expand the practical value of Tobii's technology. So we recently launched the Remote Live View for Tobii Glasses X. And in simple terms, this capability means that it allows a remote expert or a researcher or a trainer to actually see what the person wearing their glasses sees and importantly, also understand what that person is actually looking at. And it's a distinction that matters because if you look at traditional video, we can show the scene. But when you add eye tracking, it gives that element of attention and gives the context to the human behavior in real time. So this feature opens up several important use cases. A remote technical support, a field technician can share both their visual environment and their attention with an expert who is located elsewhere. If you look at the field of auditing and assessment, maybe a facility inspections or insurance claims, you can have a central expert team who can support more accurate documentation and support decision-making remotely. If you go to research or UX studies, we can have distributed teams who can monitor data collection live and help ensure that the quality of the data is maximized. So the customer value is quite straightforward, less need to travel, reduced downtime and improved operational efficiency. And the reason I'm highlighting this example is because it illustrates the range of our offering from capturing attention data to enabling real-time insight and better decisions in operational workflows. And this is an important part of how we see the long-term value of attention computing. Okay. So now let me summarize the quarter. Q1 was a quarter with clear areas of progress, but also challenges, which we are addressing. The reported net sales declined, but the organic sales and the gross margins increased, and we continue to see constructive customer dialogues across the business. Our focus now is on converting these dialogues into commercial wins and revenue growth. We also continued to execute on our cost reduction program, and we've exceeded our previously communicated targets. The free cash flow, very important for us, was positive for the second consecutive quarter in a row. And we've also renewed our revolving credit facility, which gives us continued liquidity flexibility. Now let me address the topic that I know remains important to investors and all stakeholders, which is our debt profile and financing situation. And this is in relation to the obligations that we have beginning in 2027 and continuing through 2029. During the quarter, the Board and management's strategic review has led to concrete discussions with external parties, including evaluation of various structural or transactional alternatives such as business divestments, partnerships or capital raising. Now these discussions are ongoing, and there's no guarantee that this will result in any transaction decision or other actions. And I fully respect your eagerness to know more, but we will not be commenting anything more about this topic during the Q&A. Now as I now have had 100 days in the role as CEO of Tobii, I think it would be a good time to share some of my early impressions of the company. My conclusion is that Tobii has valuable strengths. It has differentiated technology, deep competence in eye tracking and visual computing and strong positions in customer categories where these capabilities matter. We also operate in a market environment that continues to broaden as we see more categories and customers who actually understand the value of attention, behavior and human machine interaction through eye tracking and related technologies. We believe that this relevant can expand further with the increasing adoption of AI and robotics. Because once you have a better understanding of human attention and intent, that actually could help make human machine interaction more natural, efficient and effective. So from a strategic standpoint, I believe Tobii is well positioned in an area that is seeing increasing relevance. At the same time, we have to be clear about where we are today. Our reported sales declined, and that's clearly not where we want to be. So this means we need to improve how we convert our strengths into commercial results. We need better sales execution, sharper prioritization and a higher pace of product renewal. We need to bring the right products to market faster and execute with greater consistency in how we capture this demand. This is a core priority for me and the leadership team. Now in the near term, our focus is very straightforward: improve the execution, continue improving on the cash profile of the business, maintain our cost discipline and prioritize the areas where we see the strongest potential to create customer and shareholder value. In the longer term, our ambition is for Tobii to translate its technological leadership and market relevance into a stronger, more scalable and more sustainable business. I believe the opportunity is real, and we have to earn the right to capture that opportunity by delivering better outcomes. Thank you very much. And Rasmus, I hand over to you, so we can open the Q&A, please. Rasmus Buckhoj: Thank you, Fadi. Thank you, Asa. Now before we open for questions, I would like to briefly set expectations for the Q&A. We, of course, welcome your questions as always, and we will aim to be as transparent and helpful as possible in our answers. At the same time, there are certain areas where we will not be able to provide detailed information such as individual customer relationships, specific project revenues or other commercially sensitive details. This is to respect our confidentiality commitments and to ensure that we communicate in a consistent and fair manner to all stakeholders. And where we cannot go into that level of detail, we will do our best to provide relevant context at an aggregated level. And with that, we're happy to take your questions. Rasmus Buckhoj: We will begin going through the written questions that have been submitted. And we will start with a question from [Jeppe]. The Autosense SCDO design win date back to when Xperi still owned Autosense. Given the lack of new OEM design wins for SCDO, should this be interpreted as an indication that competitive intensity is higher than expected with peers offering solutions that match or even exceed yours? Fadi Pharaon: Thank you for the question, [Jeppe]. I think very important to bear in mind that Tobii Autosense is not an SCDO unit. Tobii Autosense is a DMS and OMS provider. Single camera and SCDO is one of the innovations we've had. And as we just released this morning with the quarter, we received actually a new DMS win and extended another one with an existing customer. So it is, for sure, a competitive market, but it's also a market that is quite big to absorb multiple players. We've been -- if I look at SCDO in particular, which is part of our offering, it's been quite successful in the premium segment. It's been validated in the market. And as I mentioned a bit earlier, we're seeing quite a lot of buzz now in the pipeline post the launch of SCDO in the market from other potential customers that we are working with. And we are working as hard as we can to ensure that we translate that pipeline into further steps into what everybody would like to see, which is, of course, a contracted end or design win. Rasmus Buckhoj: Thank you. Another question also from [Jeppe]. Tobii often emphasizes that single camera interior sensing delivers very high value. However, since competitors such as Seeing Machines and Smart Eye also have single camera interior sensing in production, I don't see the Autosense has any clear advantage. Could you elaborate on this? Fadi Pharaon: I see the advantage of Tobii Autosense in our capabilities with visual computing. This is where we have the algorithms. This is where we have the capability to create fantastic data collection and ensure that there are as few false alarms as possible. Single camera is an innovation that we are very proud of, and it's one kind of delivery systems. We are also open to work with multiple cameras. Single camera advantage is that when it fits the OEM's choices for the use cases, it can actually translate in quite significant cost savings because then you don't need other types of sensors, for instance. And of course, you save money on the amount of cameras that needs to be put on. But we are not defined only by the single camera innovation we have put forward in the market. Again, if you look at the majority of our existing contracts, they are actually DMS and these work with multiple cameras. Rasmus Buckhoj: Thank you. Question from [Per B]. Which are the top 3 risks of not meeting the Tobii objectives you see going forward? And how will you mitigate? Fadi Pharaon: Thank you, [Per]. Well, I mean, the most obvious first risk is, of course, that we wouldn't have a strong enough operational cash flow to sustain our business operations. And that risk has been mitigated for two years now. Clearly, a large part of that comes from our cost and operational efficiencies, which today have yielded an accumulated savings, I would say, about SEK 380 million by now. And as you can see, I mean, we are very proud of the fact that we have now two consecutive quarters of positive cash flow. So mitigations are in place. But more important for us and the mitigation is also to continue increasing the sales. We don't see that cost efficiencies is what will determine the future of Tobii, but rather our growth in an expanding market. The second risk I would bring up is, of course, the debt obligations that we have starting in 2027 and run to 2029. And I've already commented that in my previous input, and I cannot add anything more to that. Rasmus Buckhoj: Thank you. Another question from [Jeppe]. While Tobii has surpassed 1 million vehicles on the road, its competitor, Seeing Machines reported today that its Q1 2026 deliveries alone exceeded that number. How can a small player compete in the automotive industry? Fadi Pharaon: Yes, absolutely. I mean we are the challenger in the automotive industry, and we have never claimed otherwise. I think where we are really focusing on is the strength of our innovation that was proven by single camera, for instance. But coming back to what the talent that we have, visual computing and data collection and data management, is where we'd like to continue delivering. And if you could look at the track record, we've been doing well in the premium segment. So of course, with the previous large win with the premium automotive player in Europe and the one we announced this morning is premium sports car OEM, we are actually living up to very high and technically stringent and quality requirements. And this is where we would like to place our future and work with anybodies who see a way to bring in-cabin sensing to have more value to their own customers. Rasmus Buckhoj: Thank you. We have a question from Jacob. Has the majority of the DMS licensing deal been recognized during Q1 '26? Or is there an equally big part in Q2 '26? How should we think? Asa Wiren: Thanks for the question, Jacob. Since we don't mention the exact numbers, I can say it will be about the same in Q2 as in Q1. Rasmus Buckhoj: Thank you. We have a question from [Emil]. Why does Autosense have no hardware revenue? And should investors expect that to remain the model going forward? Fadi Pharaon: Thank you, [Emil]. Well, our focus and our strength lies in developing software that accumulates visual computing and that can actually work with different sets of hardware that's out there in the industry. Of course, compatibility with the chipset platform that OEM chooses and the ECUs that are in the car. This is our forte, and this is where we see the largest expansion for us considering what we are doing. So yes, we are continuing to focus on providing software stacks. And we, of course, in that collaborate and partner with relevant hardware providers who can act as well as partners in enlarging our own pipeline. Rasmus Buckhoj: Thank you. A question from [Per B]. Where do you see Tobii in 5 years still as an independent company or acquired by a larger player? Fadi Pharaon: I would like to see that Tobii succeeds with all of the plans that we have in motion. I think an incredible amount of development -- positive development has been done on the metric of cost efficiency and operational efficiencies. Very important for us and the leadership team is to focus on our sales conversion, ensuring that we bring that sales growth that we all want to see and that we grab a larger share of a growing and expanding market. Rasmus Buckhoj: Thank you. A question from [Emil]. How much of the Q1 Autosense revenue was recurring or license-based versus one-off engineering or milestone revenue? Asa Wiren: Thank you, Emil, for the question. And not going into too much details in this call, I refer to Page 9 in the quarterly report, where you can see the split between hardware, software, services and by time of sales category. So you can find the details not only for Autosense, but for all the segments on Page 10. Rasmus Buckhoj: Thank you. Looking to see if we have any additional questions. We have a question from [Bo Engvall von Scheele]. How many Autosense design wins totally are from SCDO? Fadi Pharaon: Thank you, Bo Engvall. So SCDO has been our prime initiative and we have one large European -- premium European auto manufacturer who has adopted that. We've done the homologation. It's been installed and the models are actually going out in the market. So it's valid. And if we remember, I would say, by summer last year, there was skepticism in the industry about getting a single camera DMS and OMS to work because nobody has done it before. But with the support of our premium Automotive, that has actually proven to work. It is launched, and that has garnered us now much more interest. And that's why I was referring to the pipeline that we are working upon and building to a pyramid. So of course, our focus is to conclude more deals, be it DMS on single camera or DMS and OMS on multiple cameras. But for sure, single camera is now of interest in many parts of the pipeline. Rasmus Buckhoj: Thank you. And we have a question from [Emil]. When will investors get a concrete outcome from the strategic review? Fadi Pharaon: I've already referred to the statement. And as I said before, we will not be adding any more flavor to that. Rasmus Buckhoj: A question from [Anders]. Could you elaborate on the smart glasses business and if possible, give Tobii's effort in this segment? Fadi Pharaon: So of course, smart glasses is -- multiple parts of the industry are looking on that, a lot of ideas. What's important for us is to understand how eye tracking plays a role. There are multiple use cases one could think of, but we are interested to ensure that we find use cases that can scale. So we are, of course, in -- clearly through the XR business, that's what we do every day in dialogues with different providers of smart glasses. And once something materialize into a commercial deal, of course, we will communicate that at that point. Rasmus Buckhoj: Thank you. Are there any additional questions? There does not appear to be any additional questions. And we will, therefore, hand over to Fadi for closing. Fadi Pharaon: So I would like to thank the entire team of Tobii and the Board of Tobii for all the incredible support and for the hard work that's been put as a relative newcomer to the company, I'm extremely excited to what's ahead of us and the transformation we're doing. And I'd like to thank all of our shareholders and people who have also called in today for all the support in that journey as well. And with that, we wish you an excellent day.
Nichol L. Ochsner: Good afternoon, and thank you for joining Zevra Therapeutics, Inc.'s First Quarter 2026 Financial Results and Corporate Update Conference Call. Today's call is being recorded and will be available via the Investor Relations section of the company's website later today. The host for today's call is Nichol L. Ochsner, Zevra Therapeutics, Inc.'s Vice President of Investor Relations and Corporate Communications. Thank you, and welcome to those who are joining us. Today, we will provide an overview of our recent accomplishments, followed by a review of our first quarter 2026 financial results. I encourage you to read our financial results news release, which was distributed this afternoon and is available in the Investors section of our website. Before we begin the call, please note that certain information shared today will include forward-looking statements. Actual results may differ materially from those stated or implied in any forward-looking statements due to risks and uncertainties associated with Zevra Therapeutics, Inc.'s business. Forward-looking statements are not promises or guarantees and are inherently subject to risks, uncertainties, and other important factors that may lead to actual results differing materially from projections made, and should be evaluated together with the Risk Factors section in our most recent quarterly report on Form 10-Q, our annual report on Form 10-K, and our filings with the SEC. I am pleased to welcome Zevra Therapeutics, Inc.'s management team members participating in today's call: Neil F. McFarlane, Zevra Therapeutics, Inc.'s President and Chief Executive Officer; Joshua M. Schafer, our Chief Commercial Officer; and Justin Renz, our Chief Financial Officer. Our Chief Medical Officer, Adrian Quartel, will also be available for today's question and answer session. Now it is my pleasure to hand the call over to Neil. Neil F. McFarlane: Thank you. And welcome to everyone joining our quarterly call this afternoon. We are building a durable rare disease company grounded in disciplined execution, financial strength and a commitment to patients. We continue to advance our strategic plan, delivering strong performance and positioning ourselves for long-term growth. We made substantial progress in establishing MyPlifer as a foundational treatment for Niemann-Pick disease type C, or NPC, in the U.S. by delivering meaningful clinical impact to patients and pursuing multiple pathways to expand patient access globally. We are also advancing our late-stage asset, ciliprole, through a Phase III study for the treatment of vascular Ehlers-Danlos syndrome, or VEDS, and executing several approaches to accelerate its development. To sharpen our focus on high-impact activities and remove operational distractions, we optimized the portfolio by divesting non-core assets with the sale of the FDX portfolio to CommAv Therapeutics for $50 million and concurrently resolved the legal dispute. Our balance sheet is strong, with a cash position of $236.8 million and no outstanding debt, providing financial flexibility to drive growth. In the first quarter, total net revenue was $36.2 million, which is a 78% increase over Q1 2025. We have now reached a total of 170 prescription enrollment forms for MyPlifer from launch through March 31, nine of which were received in the first quarter. Recall, the estimated prevalence of NPC patients in the U.S. is approximately 900, of whom 300 to 350 are currently diagnosed. Thus, we have successfully reached roughly half of this patient population and continue to have traction with newly diagnosed patients. This is a significant early launch achievement and remains consistent with the meaningful opportunity ahead for continued growth. As a reminder, we have established a solid patent position for MyPlifer. It received orphan drug designation in the U.S., enabling marketing exclusivity through 2031. Consistent with our strategy to maximize the potential growth drivers for our business, we are pursuing a patent term extension through the U.S. Patent Office and await their decision, which could provide coverage beyond 2031. Through our Global Expanded Access Program, or EAP, we are able to deliver a much-needed treatment to patients with NPC in certain European countries and select territories outside of Europe, including the U.K. As of the end of the quarter, we have a total of 122 patients enrolled in the EAP across geographies. Our global EAP is comprised of multiple access programs, including compassionate use and named patient reimbursement. Within each, we expect variability in enrollment and reimbursement over the first few years until the patient base has stabilized, consistent with our experience in the French EAP program. In Europe, there are an estimated 1,100 individuals with NPC. Diagnosis rates exceed those in the U.S., largely because the earlier approval of miglustat established physician awareness and enabled patient identification. To support the geographic expansion, with a potential approval of aramcholamol in Europe, we have a marketing authorization application under review by the European Medicines Agency, or EMA. We submitted our responses to the EMA's 120-day list of questions within the 90-day clock stop period and are progressing along the standard review process to make aramafamol available to the European NPC community. As a reminder, we have also received orphan medicinal product designation in Europe for the treatment of NPC. Turning to our late-stage pipeline, our Phase III DISCOVER trial is evaluating saliprolol for the treatment of VEDS, a rare inherited connective tissue disorder caused by COL3A1 gene mutations that weaken the walls of blood vessels and hollow organs, and can cause arterial rupture or dissection, among other complications. Approximately 90% of patients experience an event by the age of 40. There are roughly 7,500 individuals living with VEDS in the U.S. Filippool is a selective adrenoceptor modulator that works by inducing vascular dilation and smooth muscle relaxation, and thereby reducing mechanical stress on tissues of the arterial wall and hollow organs. Currently, there are no approved therapies for VEDS. Our commercialization strategy for saliprolol is focused exclusively in the U.S.; there is a clear opportunity to fill an unmet need. While not approved in Europe for VEDS, saliprolol is the primary off-label treatment in several European countries. This use is supported by the results of several studies, including long-term European cohorts. We have enrolled a total of 62 patients in the DISCOVER trial, with 10 patients enrolled in the first quarter. This is an event-driven study, and we have two confirmed events out of the 28 events required to trigger the interim analysis. We continue to implement activities aimed at driving enrollment, including building a network of genetic testing centers to improve diagnosis, as well as strengthening connections with key specialists who manage these patients. In parallel, following the FDA Type C meeting we had in the first quarter, we are preparing for a follow-up meeting in the second half of the year to explore pathways to accelerate its clinical development. In summary, we have a clear vision to become a leading rare disease therapeutics company, and we are motivated by the momentum and the opportunity that this phase of growth brings. I will now turn the call over to Josh to review our commercial performance in more detail. Josh? Joshua M. Schafer: Thank you, Neil, and good afternoon. Before reviewing the quarterly progress with MyPlisa, I will provide a quick background on NPC. NPC is a rare lysosomal storage disorder caused by mutations in genes that impair intracellular cholesterol and lipid trafficking, leading to the abnormal lipid accumulation in the brain, liver, spleen, and other organs. The onset and course of disease are heterogeneous, ranging from infancy to adulthood, with progressive neurodegeneration that can vary in both speed of onset and clinical presentation. The extensive data generated for MyPlife in NPC has shown long-term meaningful patient outcomes through the most expansive clinical development program in NPC to date. We have more than five years of data across more than 270 NPC patients worldwide through clinical studies, including our pivotal trial, open-label extension study, global EAP, and pediatric sub-study, all demonstrating MyPlifer's efficacy and safety. Notably, MyPlifer in combination with miglustat is the first and only disease-modifying therapy shown to halt disease progression at 12 months in a randomized controlled trial based on the validated NPC Clinical Severity Scale. The onset of benefit is rapid, with improvements noted at the first clinical evaluation time point of 12 weeks, and has durable efficacy with treatment effects sustained for over five years. We are pleased to announce that MyPlayFo was added to the NPC clinical practice guidelines, which were recently published in the Journal of Inherited Metabolic Disease, marking the first update to the guidelines since initial publication in 2018. These guidelines discuss the heterogeneity of the disease and reinforce that the NPC Clinical Severity Scale and genetic testing are the most reliable clinical endpoints in confirmation of diagnosis. The guidelines also point out, consistent with our messaging, that early detection is critical to delay disease progression. MyPlifer's mechanistic and clinical differentiation is resonating with prescribers and patients and is driving adoption. As Neil shared, we have received a total of 170 prescription enrollment forms since launch, with nine enrollment forms coming in Q1. Our commercial strategy is focused on three key priorities: accelerating time to diagnosis and treatment, driving demand, and facilitating access to MyPiper. NPC remains significantly underdiagnosed and often diagnosed late due to heterogeneous symptoms. To enable earlier diagnosis, we have focused on education and engagement within the medical community through a strong presence at medical conferences where we regularly present data, and through our ongoing disease awareness campaign called Learn NPC, Read Between the Signs. Additionally, we have built a custom AI-driven targeting model to find likely NPC patients and have collaborations with providers of genetic testing to accelerate their diagnosis. As a result, we continue to see new enrollments from previously diagnosed as well as newly diagnosed patients. We are also finding patients and seeing demand for MyPath increase outside of the centers of excellence. Our prescriber base is expanding to include community-based prescribers, which we believe reflects the success of our targeting and education efforts. Many of these new prescribers did not know that they had NPC patients in their practice and were previously unfamiliar with the disease and treatment options. We help facilitate medical education efforts through various initiatives such as the recently launched Expert Connect, which connects HCPs unfamiliar with NPC to experts who can address questions regarding disease state and available treatment options. Our patient mix has grown to include adults and children equally. These trends give us confidence in the estimated prevalence of 900 people in the U.S. living with NPC. We remain focused on reaching as many patients as possible and expanding the total addressable market. From a market access standpoint, we have stable coverage of 69% and continue to achieve reimbursement through the medical exception pathway. Payer engagement continues to be focused on emphasizing robust clinical safety and efficacy data and the extensive real-world evidence seen in clinical practice that supports MyPlifer's value. We believe we are differentiating MyPlifer through its clinical benefit, support services, and broad patient access. Independent market research suggests MyPlaza is the preferred NPC therapy most trusted by clinicians and shown to improve balance, swallowing, cognition, and speech, and reduce falls. We receive heartwarming letters from families noting how positively impacted they have been by MyPlayfa and the support of our Amplify Assist patient services program. Together, this feedback reflects the impact of our commercial activities and sets the stage for continued growth. With that, I will turn the call over to Justin to review our financial results. Justin Renz: Thank you, Josh. In addition to the financial details included in today's call, we encourage you to refer to our quarterly report on Form 10-Q for more detailed information, which we intend to file shortly. As Neil mentioned, in Q1 2026 we generated net revenue of $36.2 million, which was an increase in total net revenue of $15.8 million compared to $20.4 million in Q1 2025. This is comprised of $24.6 million from MyPlifer net sales in the United States, $300 thousand from OLPUVA, $10.2 million in net reimbursements from the global EAP for aramcholamol, and $1.1 million in royalty revenue. It is worth noting that we had one less shipment week of MyPLYFA in the U.S. due to the first quarter delivery calendar, and as a result, channel inventory fell below the low end of our targeted range. Turning to recent business transactions, in March, we executed an agreement with CAMAi Therapeutics for the sale of the SDX portfolio for $50 million, monetizing assets that were not central to our core investment thesis. Per our contractual obligations, Aquestive Therapeutics received 10%, or $5 million, of gross proceeds. In the first quarter, we received $40.5 million of the $45 million in net proceeds. We received a final payment of $4.5 million in April. In connection with this transaction, we reviewed our capital allocation strategy and retired our debt early, saving on average approximately $8 million a year in future interest expense. We are now debt free, strategically positioned for growth, supported by a clean balance sheet. These one-time transactions impacted our first quarter financials. Accordingly, we recorded a one-time gain of approximately $43.3 million, partially offset by an approximately $10 million expense associated with the early extinguishment of debt, which is noted in the other income and expense section of our financial statements. Pivoting back to normal operations, during Q1 2026 our operating expenses were $25.2 million, which was an increase of $2.4 million compared to the same quarter a year ago. R&D expense was $4.4 million for Q1 2026, which was an increase of $1.1 million compared to Q1 2025, due primarily to increases in third-party costs and professional fees. SG&A expense was $20.8 million for Q1 2026, which was an increase of $1.2 million compared to Q1 2025, primarily due to an increase in professional fees, partially offset by a decrease in third-party spending. We utilized the vast majority of our usable net operating loss carryforwards, and as a result of the multiple one-time transactions that we recorded in the first quarter, we incurred an estimated tax provision of $6.9 million. Net income for Q1 2026 was $37.9 million, or $0.62 per basic and $0.60 per diluted share, compared to a net loss of $3.1 million, or $0.06 per basic and diluted share, for the same quarter a year ago. Excluding the one-time transactions as well as the related tax provision, for clear comparability across periods the estimated quarterly net income reported would be $11.5 million, or $0.18 per diluted share. As of March 31, 2026, total cash, cash equivalents, and investments were $236.8 million, which was a decrease of $2.1 million compared to December 31, 2025. As mentioned earlier, this decrease is attributable to deleveraging driven by our debt payoff, partially offset by the non-dilutive capital proceeds from the sale of the SDX portfolio and supported by our operating income. Collectively, these factors have further fortified our balance sheet. We remain well positioned with the financial capacity to execute on our strategic priorities independent of the capital markets. And now I will turn the call back to Neil for his closing remarks. Neil? Neil F. McFarlane: Thanks, Justin. Our corporate profile has evolved significantly with the execution against the strategic pillars we introduced a little over a year ago. We are delivering strong commercial execution while thoughtfully monetizing the assets that are not core to our business. We relocated our corporate headquarters to Boston, a hub of biotech innovation, and we strengthened our leadership by attracting seasoned professionals to our executive management team and board of directors, bringing valuable experience and perspective. These efforts, combined with prudent financial stewardship, are positioning us to deliver on our vision. As we advance through 2026, we are anchored by a clinically meaningful commercial product with multiple opportunities for global growth, a late-stage pipeline, and a strong financial position. Our collective team at Zevra Therapeutics, Inc. is energized by the numerous opportunities we have to expand our impact for people living with rare diseases. Operator? Please open the line for questions. Operator: Thank you. And our first question today comes from Kristen Kluska with Cantor Fitzgerald. Your line is now open. Analyst: This is Iain on Kristen's line. Congrats on the quarter updates here, and thank you for taking our questions. First, now that MyPIFA has been added to the NPC clinical practice guidelines, we are just wondering what this means for physician adoption. Are these doctors now formally advised to consider MYCFR when treating these patients? Neil F. McFarlane: Thank you for the question. We are really pleased that, as we have been previously communicating, these guidelines were in process and really came out quite fast after the introduction of new products that were approved in the U.S. It really reinforces the NPC severity scale as the tool that shows disease progression, the genetic testing as a key endpoint and diagnostic tool, and the complexity of the disease. When we think about the heterogeneity of both infantile versions and adult versions of the disease, it is really important to detect early in order to be able to delay progression. But really importantly, the combination therapy being considered for NPC was one of the major takeaways. I will ask Josh to talk a little bit about some of the impacts that we see and, quite frankly, hurdles that are lowered with these guidelines that have been published. Joshua M. Schafer: Yes. Thanks, Neil. Just to add to what Neil said, we are also really pleased that the guidelines addressed the need for early detection and that early treatment helps delay progression. It also went on to talk about the importance of using combination therapy in patients who have been diagnosed with NPC. This is really important because these are the opinions of a select group of key opinion leaders that we are now able to use and communicate and help build confidence and consistency in the way that some HCPs who might not be as familiar with NPC can now use this as a consistent guide for their treatment. Analyst: Thank you for that color. And then second, do you have a sense of the proportion of the patients that are identified through the genetic testing that you are conducting and the AI-driven predictive model that ultimately convert onto the drug? I guess, and just related to that, I was wondering what feedback you hear from the physicians that are managing these patients in terms of how they are reacting to these data-driven identification approaches that you are using? Thank you so much. Neil F. McFarlane: Wonderful question, and thanks for outlining our commercial strategy really clearly for us. Let me ask Josh to touch on some of the key priorities we are executing against and some of the feedback that we are getting. Joshua M. Schafer: Yes. We mentioned in the prepared remarks, we have three key priorities from a commercial perspective. The first is to accelerate the time to diagnosis and treatment, and we are seeing that through our disease awareness campaign, as well as some of the collaborations with the genetic testing companies. Our second priority is to really drive demand, and you are seeing that in the enrollments that we have been able to get over the past quarter and more. And then facilitate access, with 69% of covered lives currently able to access MyPlifer and the others we are able to do through medical exception pathways. So we feel really confident in our line of sight for more patients given what we are seeing today, which is a nice mix of newly diagnosed as well as previously diagnosed patients. Operator: Thank you. And our next question comes from Kambi Ziyazi with BTIG. Your line is now open. Analyst: Hi, team. EAP revenue growth was quite robust. Is France driving that growth or other countries? And how should we think about geographic composition of the EAP as a leading indicator where commercial demand may concentrate post EU approval? Neil F. McFarlane: Thank you for the question. Welcome to the analyst coverage. As we reported, 122 patients enrolled in Q1 2026. This really encompasses multiple access programs we have and multiple territories. In Europe, we have had outstanding, for quite some time, our French EAP experience, which we have previously guided and consistently receive about $10 million net per year now that our patient base has stabilized in that territory. And that was per year. Today, we have new markets that are coming on, and that variability in ordering pattern and the rates of new enrollments, and the reality is that we have both compassionate use as well as named patient reimbursement ability that we continuously guide towards. It is early. We have new distributors. We are really pleased, though, with our new distributors and actually all of our distributors and how fast they are able to be able to get the named patient requests for individual patients and then drive that. We are really [inaudible] with the continued inbound in these markets. And our goal is to really expand access to as many markets as we can while still focusing on our key territories in the U.S. and expanding the diagnosis and treatment, along with our global expansion, i.e., Europe and the EMA as well. Analyst: Any quantitative milestones or leading indicators you are tracking internally around your bespoke AI-driven patient identification and genetic testing efforts and identifying newly diagnosed NPC patients? Neil F. McFarlane: Let me ask Josh to work on some of those strategies that are starting to really give us confidence in the TAM. Joshua M. Schafer: Yes. And we monitor and measure a number of [inaudible] internally, but we are measuring how many patients we find that are newly diagnosed. We are looking at how many new prescribers we are able to bring into the mix as well. And then other interesting dynamics. They may have been on the [inaudible] look to really understand as much as we can about these patients. This program is working extremely well. And [inaudible] who we know are diagnosed with NPC clinicians in accelerating their diagnosis and [inaudible] treatment. Neil F. McFarlane: Heterogeneity of the disease, the patient journey [inaudible] of rare diseases it is, you know, one patient, you know, one patient. We are talking [inaudible] been developed over many, many years and has been really [inaudible] child based. We saw that it was about 50% of the patients that were [inaudible]. Now that means that we have to continue to learn how we can then make the tools and continue to evolve NPC. So this is early in our launch. Sumant Satchidanand Kulkarni: Good afternoon. What does your competitive intelligence tell you about your share versus the competitor [inaudible] in the [inaudible]? And do you know of any cases where payers are allowing [inaudible]? Neil F. McFarlane: Thanks, Sumant. We will take one question at a time here. To double click on this a little, you are correct that [inaudible] because of the complexity of the disease as well as [inaudible]. And we are actually seeing success in getting those patients [inaudible] able to get them covered from a commercial perspective. These guidelines, I think, are going to continue to [inaudible]. We believe that that bodes really well for us, our label disease modification, halting the progression of the disease, and the durable effects that we see. Joshua M. Schafer: A little bit more in practice, clinicians want to be able to treat patients with as many different angles as possible. And so we have seen treatment guidelines. The patients that we are treating now, some of them very likely [inaudible] marketplace. And so we can see coverage is continuing to get that through direct formulary. We are able to get coverage even for combination [inaudible]. Sumant Satchidanand Kulkarni: On seliprolol, we know you plan to meet with the FDA again in the second half of the year to move faster to bring this product to VEDS patients. Neil F. McFarlane: Last call, we had a Type C meeting in Q1, and the conversation is constructive, also informative. We are now, you know, this is the early part of 2026, and quite frankly, it is too early for us [inaudible]. One, to continue to boost enrollment activities and the other [inaudible]. Operator: Our next question comes from Lynn with Guggenheim Securities. Your line is now open. Analyst: Apologies if this has already been asked. I am jumping between a few calls. Do you have any update from the 120-day—day 120—on the updated CHMP opinion? Thanks. Neil F. McFarlane: Within the responses that are there, I will not get into the specifics. I would continue to say is that since we have not actually seen any new questions that we did not see that we were able to then provide. So the substantial [inaudible]. As a reminder, it is the totality of the data is over [inaudible]. We have an open-label extension study that has five years of data, our EAP and [inaudible] path, and we look forward to our next engagement with the European regulators. Operator: Thank you. Analyst: Our next question—thanks for taking the question. Jason Nicholas Butler: And again, speaking to the HCP community here, how heterogeneous are they? Diagnosis is delayed, and then channel inventory was below the lower end of the preferred range at the end of the quarter—any additional context? Neil F. McFarlane: Thank you, Jason. Let me start with the “when you know one patient, you know one patient.” One patient may present with a primary symptom that is epilepsy. Another may present with other challenges. And because of that, as Josh talked about, the predictive modeling, claims data, all the things that we are doing, we are performing how we go at [inaudible] and try to continue to expand. And as I mentioned, we have talked about the prevalence of the non 300 to 350 and the 900—we are somewhere [inaudible] patient population. So let me ask Josh to talk a little bit about some of the characteristics [inaudible] of newly diagnosed patients? Joshua M. Schafer: Yes. Just to bring an example, there was a case of a toddler who had an enlarged spleen, and that is what we are seeing. On the other end of the spectrum, there was an adult who had been misdiagnosed with MS for years, and then underwent genetic testing and confirmed that it was NPC. So it really runs the gamut, but there are some similarities and some patterns that we are able to really identify, and we are continuing to educate physicians. We have a strong presence at medical conferences. We publish a lot of— Neil F. McFarlane: And Jason, let me hand off to Justin to keep him going here this evening on the [inaudible] in the U.S. than typical. End of our targeted range. And so [inaudible] we do expect this to fall back within our targeted range by the end of the second quarter. Operator: Next question will come from Brandon Folkes with H.C. Wainwright. Brandon Richard Folkes: Maybe just two from me. Any color on the time from submitting an enrollment form to getting on product and how that is trending at this stage of the launch? And then secondly, is there a difference in net revenue realized per patient if it goes through a medical exception versus a patient whose insurance falls into the 69% of covered lives currently? Thank you. Neil F. McFarlane: Thanks, Brandon. Let me ask Josh to talk a little bit about the enrollment numbers that we are seeing now. Joshua M. Schafer: Yes. I think your question was really around the time from when an enrollment comes in and then once a patient receives therapy, and it is varied. It is largely dependent on the payer type, whether it is government or whether it is commercial. We are seeing in Q1 we had a number of patients who went through a reauthorization process, which is very typical at the beginning of the year, as patients might either change plans or plans might change their policies. And so that had an impact on the first quarter, and we are working through those reauthorizations. So it is a little difficult to give you what the average or the standard is just because of the reauthorizations that took place in the first quarter. Brandon Richard Folkes: Your second question might have to—this is about, I guess, like, you know, what is the priority to grow the 69% of covered lives given your market? And, think, strong. Revenue per patient that goes through insurance versus— Neil F. McFarlane: And I will ask Josh to opine. But the 69% of covered lives allows for you to be on a formulary. It does not necessarily have a preferred position on the formulary, and it does speed up the process. A lot of our education that has gone to payers so far has really allowed us to be able to educate on the clinical benefits with the medical directors of the plan and achieve what we believe is a really good covered life plan. The important component of the question I think you just asked, which is maybe getting into potential for gross-to-net as well: we do not contract currently today. So it is standard government discounts along with distribution margins and the like. So the net price has not really changed except for the variability in gross-to-net on a quarter-over-quarter basis. Joshua M. Schafer: Yes, and I think you are asking a very salient question around the 69% and our intent to grow that. We absolutely do, and we are making steady progress in that area, largely by talking about the clinical differentiation of MyPlifa. The guidelines certainly will help those discussions as well. But as you point out, it really does not impact overall ability for a patient to receive MyPlypha because every plan has a medical exception pathway. What it does is it reduces a little bit of the time; it reduces some of the burden. We have very robust patient services resources that we provide to help patients and offices navigate this. And so our goal is to make MyQuaifa as accessible to patients as possible, and we do that both through increasing the covered lives but also providing these patient services. Brandon Richard Folkes: Great. Thank you very much. And congrats again on all the success. Analyst: Thank you. Operator: Thank you. This concludes the Q&A portion of today's call. I will now turn the call back to Neil for any additional or closing remarks. Neil F. McFarlane: Thank you for joining our call today. We look forward to keeping you apprised of our future progress. Have a wonderful evening. Analyst: Thank you. Operator: This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
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.
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