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Operator: Good morning, and welcome to Vivid Seats' First Quarter 2026 Earnings Conference Call. Following management's prepared remarks, we will open the call for Q&A. I would now like to turn the call over to Austin Arnett. Austin Arnett: Good morning, and welcome to Vivid Seats' First Quarter 2026 Earnings Call. I'm Austin Arnett, Vivid Seats' General Counsel. I'm joined today by Larry Fey, Chief Executive Officer; and Joe Thomas, Chief Financial Officer. By now, everyone should have access to our earnings press release, which was issued earlier this morning. The release as well as supplemental earnings slides are available on our Investor Relations website at investors.vividseats.com. Today's call will include forward-looking statements within the meaning of federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our projections, including the risks discussed in our earnings release, our most recent annual report on Form 10-K and our subsequent filings with the SEC. Today's call will also include references to adjusted EBITDA, a non-GAAP financial measure that provides useful information to our investors. To the extent reasonably available, a reconciliation of adjusted EBITDA to its most directly comparable GAAP financial measure can be found in our earnings release and supplemental earnings slides. And now I'll turn the call over to Larry. Lawrence Fey: Good morning, everyone, and thank you for joining us today. We entered fiscal year 2026 with a clear focus and road map to enhance our market position and financial trajectory. With that focus, we delivered measurable progress in the first quarter, resulting in meaningful improvements across our business. Our first quarter results came in at the high end or above guidance. On a sequential basis, we delivered growth in GOV, adjusted EBITDA and our cash balance relative to Q4 2025. This momentum and sequential improvement support our confidence in returning to year-over-year growth in the second half of fiscal year 2026 and beyond. Our long-term strategy centers around Vivid Seats foundational strengths, leading technology and product innovation, operational excellence and a differentiated value proposition for our customers and partners. Pairing a seamless user experience with a differentiated value proposition is central to our mission. Vivid Seats strives to be the most rewarding ticketing company, and we are increasingly aligning our product, pricing and messaging around that core idea. We deliver value through competitive pricing, seamless user experiences and meaningful rewards that deepen customer loyalty over time. We are currently focusing our product innovation efforts on the core customer journey. We are improving funnel efficiency, enhancing conversion and delivering a faster, more intuitive experience. We recently deployed an upgraded app checkout experience, delivering a streamlined flow to accelerate the customer journey while improving conversion rates. We are encouraged by the early results and are excited about the pipeline of enhancements to both our app and web properties that will be deployed in Q2 and Q3. Our enhanced app value proposition continues to deliver encouraging results. In Q1 2026, Vivid Seats app GOV was up 20% year-over-year. This growth led to Vivid Seats app share of GOV exceeding 40% for the quarter. Increasing app adoption reflects the combined impact of the Vivid Seats Reward program, our lowest price guarantee and continued product improvements. Together, these investments represent a highly differentiated value proposition. App users are more engaged, return more frequently, convert at higher rates and touch paid performance marketing channels less often. As volume shifts into the app over time, we anticipate more efficient customer acquisition alongside enhanced customer retention and growing lifetime value. Alongside our app progress, we are continuing to invest in innovation across customer acquisition by working closely with leading AI platforms. This includes our recently launched ads on ChatGPT. While still in the early stages, we believe these efforts will help us capitalize on the long-term opportunities AI presents within the ticketing ecosystem. In tandem with the encouraging trends we are seeing with Vivid Seats branded properties, we were pleased to launch a significant new private label partner during Q1 with performance already exceeding our expectations. We also recently extended our agreement with a large existing private label customer, underscoring the value proposition we deliver to our private label partners. We are pleased to see the private label business deliver sequential revenue growth in Q1 2026 and believe this trend supports our expectation of a return to growth in the second half of the year. With that, I'll turn it over to Joe to walk through our first quarter financial results in more detail. Joseph Thomas: Thank you, Larry, and good morning, everyone. As Larry mentioned, our first quarter performance landed at or above the top end of our guidance, underscoring strong execution across the business. We achieved meaningful sequential increases in GOV and adjusted EBITDA compared to Q4 2025. This improvement is encouraging as we pursue a return to growth in fiscal year 2026 and beyond. Q1 2026 Marketplace GOV was $612 million compared to $581 million in Q4 2025, reflecting quarter-to-quarter growth of $31 million or 5.5%. This is particularly encouraging as the fourth quarter typically represents the highest GOV quarter each year due in part to robust sports volumes with all major leagues in the season. Q1 2026 consolidated revenue was $126 million, essentially flat with $127 million in Q4 2025. Within consolidated revenue, private label revenue grew 20% quarter-to-quarter, highlighting a meaningful growth trend in the channel despite continued year-over-year private label declines as we lap the 2025 loss of a large customer as previously disclosed. Marketplace take rate was 15.9% in Q1 2026 compared to 16.8% in Q4 2025. The lower take rate primarily reflects mix shift as private label revenue tends to come with lower take rates. We continue to expect near-term take rates to remain around 16% on a consolidated basis. Q1 2026 adjusted EBITDA was $9.5 million compared to $1 million in Q4 2025. Adjusted EBITDA grew $8.5 million, marking substantial improvement on a sequential basis and highlighting the benefit of a material reduction in operating costs relative to a growing GOV and revenue base. Cash increased over $40 million in the first quarter to $144 million. Cash flow benefited from improved profitability alongside seasonally strong working capital dynamics. Our first quarter results show significant progress across our operational and financial goals. Accordingly, we are reaffirming our 2026 outlook. For fiscal year 2026, we continue to expect marketplace GOV in the range of $2.2 billion to $2.6 billion and adjusted EBITDA in the range of $30 million to $40 million. This outlook reflects continued execution of our operating plan and financial profile. I will now turn the call back to Larry for closing remarks. Lawrence Fey: Our first quarter results indicate our strategy is working, and we are moving in the right direction. We are excited about our momentum in the Vivid Seats app, where improving conversion and increasing engagement are supporting double-digit GOV growth. We are also encouraged by the sequential trends in our private label business as we seek to return to year-over-year growth later in the year. As we move through the year, we are confident that our core strengths, leading technology and data, operational excellence and a differentiated customer value proposition will shine through. We are excited to continue executing against our strategy and to deliver long-term value to all stakeholders. With that, operator, please open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Cameron Mansson-Perrone with Morgan Stanley. Cameron Mansson-Perrone: Larry, last quarter, you highlighted that you're seeing some encouraging trends in terms of the competitive environment kind of rationalizing. Wondering if you're continuing to see that and whether there's any event category where you're seeing more or less industry competition for activity and whether competitive intensity from an event-specific angle is -- whether the rate of change is better or worse in any specific category? I appreciate it. Lawrence Fey: Yes. Thanks, Cameron. I think the moderation that we saw started in Q4 from StubHub on the paid search side has continued. That's been somewhat counterbalanced by continued aggressiveness in that channel by some other players. But no question, they've stepped back from their peak spend that we saw early middle of 2025. On the marketing spend side, I think perhaps a little surprising to us in the last few weeks, we've seen them shift to some price testing, price competitiveness. And so we continue to see, particularly in sports across the ecosystem, competitiveness across pricing, while the marketing landscape seems to have really stabilized and moderated a bit. Cameron Mansson-Perrone: Got it. Anything to follow-up on that, anything that you could add on. I think the benefits on the push to kind of drive activity in-app probably makes you a little bit more insulated in terms of the vagaries of competitive intensity in the industry. Any additional color on kind of how you think about that and what the opportunity could be as more activity shifts to in-app? Lawrence Fey: Yes. I think that's exactly right in terms of the goal and the strategy. We're happy to have exceeded 40%. I think implicitly though, at 40%, we still have exposure to the wins of paid search and marketing expense. But the objective is very much to control our own future, bring folks into the ecosystem once and then have it more about building a long-term relationship with those customers versus continually needing to go back into the pond and acquire folks. But we do benefit when things moderate, right, given the remaining piece of the business that's still out there. So we're pleased to see that. But the surface area of that exposure has shrunk quite a bit relative to what it was 2 years ago. Operator: Your next question comes from the line of Ryan Sigdahl with Craig-Hallum. Ryan Sigdahl: Larry, Joe, nice job on the sequential improvements and stabilization. I want to start on industry volume and curious what you guys saw in Q1 and then Q2 quarter-to-date, acknowledging I know April was a very tough comp, but just curious to try and compare your results relative to the industry and what you saw there. Lawrence Fey: Yes. In Q1, the data we're seeing was -- industry was probably up a smidge, so low single-digits, started pretty nice in January and then it moderated a bit into February and March. So net growth, but single-digits. And then Q2 thus far, I'd say, is roughly flat, got off to a slower start with Easter timing, but April picked up with a couple of meaningful concert on sales in the last 2 weeks. So we're back to roughly flattish. I think at the moment, generally continue to subscribe to what we had put forward at the outset of the year of modest industry growth. I think we've all seen the increase in some cancellations of certain tours over the last few weeks. I think most recent was The Pussycat Dolls, we also saw Zayn Malik, a couple of others Post Malone delayed, which I think on some level is reflecting either mispricing or some cap on potential for growth for the year. Ryan Sigdahl: Then just on market share, how that looked for you guys looking at SkyBox data on a sequential basis for the marketplace? And then secondly, on the market share, what you guys are seeing from SkyBox from your ERP customers? Lawrence Fey: Yes. So our share has been sequentially steady in our data when we look at Q4 into Q1 into Q2. As we've started to lap our most difficult comps last year, which started around now with the, call it, peak spending in the performance marketing channels, we've seen in our data, our share shift to being up year-over-year, not dramatically, but up, which is refreshing. And as you probably heard our theme throughout the call, I think we're well situated to return to growth in the back half of the year, and those are the types of metrics that you love to see flipping green in advance of that. Ryan Sigdahl: Great. Then maybe just on SkyBox too, if you're willing to comment specifically to the ERP customer market share? Lawrence Fey: Yes. There continues to be competition for those customers, but we have not seen any meaningful defections in recent months. So we're vigilant. We're continuing to reinvest and refocus on upgrading the platform to defend those relationships. But we've seen alongside our stabilizing and improving share in volumes, improvement in that dialogue and discourse with all of our sellers. So excited about the outlook on the SkyBox front. Operator: Your next question comes from the line of Ralph Schackart with William Blair. Ralph Schackart: Two, if I could. Just first on the macro environment and sort of the reads on the consumer now that we have some elevated oil prices. Larry had said that maybe there's some cap on prices. I'm not sure if those are related, but just any comments as it relates to that? And then I have a follow-up. Lawrence Fey: Yes. We -- there's nothing we could point to in terms of the kink in the curve where the Iran conflict started, oil prices moved and you can see a discernible shift in demand or purchasing in any clear way. As we touched on earlier, with some of the concert tours being canceled, perhaps that's a reflection of at least some subset of the market being tapped out. It also may just be part of the natural oscillation of some artists misprice the tours, which is, I think, the leaning at the moment. We have seen some weakness. The lower end of the Vegas market has probably been the most palpable place where we've seen the impact of potential consumer weakness. I think that's a comment I've really seen a number of the local operators reinforce, and we have continued to see that continue into the year. So in Vegas, we're really looking ahead to 2027 when supply tailwinds arrive with the reopening of the Mirage. But I think for this year, it's going to be more of a blocking and tackling type year in Vegas. Ralph Schackart: Okay. Great. And just maybe kind of switching gears to the app and some of the improvements you talked about in conversion rates. I think you said you're above 40% traffic now on the app. Maybe just kind of a sense how that's trended over the last year or so? And just any thoughts on where you think that you could take that rate over time? Lawrence Fey: Yes. We've seen really nice increases in the share of GOV coming through the app. And ultimately, the GOV function is how do you get more people into the app and how do you drive higher conversion. So our activities are centered on both of those. A lot of effort in the back half of last year on how do we make folks who see the app want to download and keep it through better messaging, the better value proposition, reinforcing the value proposition. The focus this year has shifted to the conversion side of things, how do you optimize the product experience? How do you collect more data to have better personalized information appear in front of folks, have a pretty exciting deployment calendar over Q2 and Q3 on the app side of things. So we're north of 40% in Q1. I think the ambition is for a majority of the business to come through the app. I think realistic timetable for that would be at some point in 2027 to achieve that on a run rate basis, but that's what we're aspiring to deliver. Operator: Your next question comes from the line of Brad Erickson with RBC Capital Markets. Bradley Erickson: So in terms of the return to growth, you pointed to, I think, the new private label partner giving you some added confidence there for the second half. Can you remind us any other items that could go -- kind of go right this year that gets you back to that growth in the second half of the year or at a high end of the guide type scenario? What would those drivers be? Lawrence Fey: Yes. I think as we frame why second half is where we draw the line for when we expect to flip back to growth. We lost the large private label customer in July of last year. So July and really August will be the first true clean month without that customer in there. Subsequent to losing that customer, as we noted, we brought a new meaningful private label customer on in Q1, which enabled sequential growth from Q4. I think within private label, the path to incremental upside is twofold. There's always the option of winning and bringing additional customers on. There's an interesting stick or 2 in the fire on that front. And then the other piece that we've redoubled efforts is how do we make sure our product and our support of our partners to maximize their organic performance is where it needs to be, and we're seeing encouraging progress on that front as well. With one of the big changes being any product enhancement that we are developing for the Vivid Seats marketplace, we want to make sure we make it configurable and available to our partners in short order. And some of the upgrades that get us excited on the Vivid side that they get pushed to our private label platform, I think provide an opportunity for organic outperformance in the second half of this year, but probably more prominent as you think about growth into 2027 and full year impact. Beyond that, I think the concert calendar and supply slate is largely baked at this point. So upside from here, I think, will largely be driven by fundamental performance, right? So can these new product releases that we have upcoming in Q2 and Q3 deliver the type of conversion uplift that we anticipate or event mix. And I think the World Cup is probably the elephant in the room. If you get some great matchups in the quarter finals, semifinals, finals and you have a series of Super Bowl size events, that would be a wonderful tailwind. We'll see. Bradley Erickson: Got it. And then just bigger picture, as you continue to have conversations presumably with the LLM companies, I don't know, have you seen any indications or just any updates you can give us on how you're thinking about their desire, ability, et cetera, to potentially grab economics of bringing the booking kind of closer to the 4 walls of the LLM. And then just generally, when you think about the risks related to that, remind us like what do you point to as kind of the specific points of insulation where the ticketing sector can maintain all of its economics within kind of an LLM booking environment? Lawrence Fey: Yes. I'd say on the AI journey broadly, we've actually seen to date, quite little progress on the top of the funnel disruption and quite a bit of progress on optimizing the way we operate the business on our side. So not to say it can't change, but everything we've seen to date has been more in the camp of the tools and capabilities allow us to be much more efficient and effective on a series of parameters to deliver a better customer experience, whether that's building the software more quickly, automating processes, better information sharing. It really has been a nice tailwind on the operational side, including specifically our customer service experience. If you look longer-term, nothing that we've seen indicates that the premise of like a fully captive transaction where the marketplace is boxed out is likely in the near-term or the focus of the LLMs in the near-term. I think the biggest barrier is this idea of when you have dynamic inventory in a deep vertical search category where you have a ton of individual preference. You need a lot of data. And they don't have -- the LLMs don't have that data across every subcategory that they service. So they're ultimately reliant on the folks like Vivid Seats or our competitors who have aggregated the inventory, have built the seat maps, have the dynamic real-time pricing. And so unless we compile all that information and provide to them, they won't have it. And then it's incumbent on us in the industry to make sure that we don't just give away the farm without being properly compensated. But that, I think, is at least what we're seeing today. That's a multiyear journey and not one we're seeing progress being made on the LLM front at the moment. Operator: Your next question comes from the line of Steven McDermott with Bank of America. Steven McDermott: I was wondering if we could shift a little bit to your partnership with United, kind of any updates there? And is that really driving any incrementality that you're seeing? And then I have a follow-up after. Lawrence Fey: Yes. United is a great example of one of the, call it, many partnerships and partners we have across the ecosystem. It's been a nice tailwind throughout the year. It's not an explicit needle mover of results. So it's been great to add them, excited to continue to grow the partnership and iterate on how to maximize it, but I would not consider that a primary influence on the results that you're seeing in Q1. Steven McDermott: Got you. And then as we look at your cost position after your recent reductions, do you feel as though you're kind of in a comfortable position to return to growth? And to that, can we expect a more aggressive OpEx spend in the second half of this year? Lawrence Fey: Yes. I think the cost side of the equation continues to be a bright spot. I think first and foremost, the cost reductions that we've actioned are flowing through. So they are real. Second, we have not seen any loss in productivity or capability. And in fact, I think I've actually seen our productivity and deployment rates increase alongside the efficiency gains, and that's one part optimizing and getting the right people in the right seats and one part utilizing some of these AI capabilities I was alluding to earlier. So as we sit here today, our objective is operating leverage. So as we grow, disproportionate amount of that growth flows through to the bottom line. And I think we have more opportunity to capture on the expense side as we move into next year. So there are some variable costs, right, as you complete transactions, even including in our G&A line, right, some software that's per dip and that type of thing. But I think our objective is even as we return to growth, our expenses remain steady on the G&A side. Operator: Your next question comes from the line of Thomas Forte with Maxim Group. Thomas Forte: Great. So first off, Larry and Joe, congrats on the quarter. Larry, sorry about the Illini and at least OKC is playing the Lakers in this round. My first question is more exciting. My second question is a little boring. On the more exciting front, what gives you confidence you can maintain your share and capitalize on World Cup this year? And if you're able to do that, how might World Cup contribute to your numbers this year? Lawrence Fey: Yes. I think World Cup has been a pretty meaningful tailwind. I think broadly consistent with what we've touched on in prior quarters where we framed the opportunity as something larger than an A-List concert tour, but perhaps less than Taylor Swift. What we've seen in terms of volume flowing through to date, the World Cup first went on sale in November. So we've been selling for 6, 7 months now with a couple of months to go as we approach the start of the games. It's tracking to those levels, right? So if a typical A-List tour is 1% of GOV for the year, Taylor Swift, more like high single-digits, it looks like overall, the event will be low to mid-single digits as a percentage of full year GOV. So we've had really nice performance and strength to date. These are high AOS events. And what we've generally found is that value proposition matters quite a bit when you're talking about these high AOS events. And so incumbent on us to continue to get the message out that our app is the place to purchase these high AOS tickets. And if we're able to continue doing that, I think we'll get our fair share a little bit better as we enter the playing phase of the tournament. Thomas Forte: Great. And then for my boring one, now that we're a quarter in, do you want to give your updated thoughts on cash conversion for adjusted EBITDA for '26? Lawrence Fey: Yes. I think largely consistent where if anything, our CapEx is maybe coming in a little bit lower than we had previously estimated. But directionally, net interest expense in the $20-ish million range, CapEx, cap software in the low to mid-teens and then a smidge of taxes relating to our international operations. So if you get to EBITDA in the $35 million to $40 million range, you'll be cash flow positive before considering working capital. And as we have outlined, we feel pretty good about our volume trajectory and that overall working capital will be a source of cash on balance over the course of the year. And so believe that we're tracking, assuming we continue to deliver against the numbers and guidance for a cash flow positive year. Operator: Your next question comes from the line of Kunal Madhukar with DB. Kunal Madhukar: A couple, if I could. One, on the app side, I wanted to understand how the app user demographics differs from the regular customers that you have on the website in terms of maybe age, in terms of their interest, in terms of engagement, in terms of geography, in terms of the type of tickets, concert versus sports that they are buying? And then I have a follow-up. Lawrence Fey: Yes. I think the biggest delineation between app and web users tends to be that the most frequent live event attendees, those who repeat most often are the ones intuitively, who would download an app for buying live event tickets. And that generally corresponds to the categories that have the highest recurrence, which would be sports, right? The highest recurrence example would be Major League Baseball, right? There's 81 home games. If you go to baseball game a year, there's a decent chance you'll consider going to 2 or 3. In contrast, Taylor Swift goes on tour once every 5 or 6 years. So the fact that you bought a Taylor Swift ticket might mean that you're interested in buying a Sabrina Carpenter ticket. But the fact that you bought a Cubs ticket means you're really likely to be interested in buying another Cubs ticket. So the biggest element that we see across the app is folks repeat more often, right? So if you buy on our app, the prospect for you buying again is higher. The second is that you over-index to sports because of the inherent recurrence within sports. Beyond that, there is not a lot to flag across our geography or demographics that I would say is of note. It's really more the frequency profile with a bit more sports orientation. Kunal Madhukar: Got it. And then when I was doing basic back of the envelope math, given app grew 20% and is now over 40% of the overall GOV, that suggests that the non-app GOV probably declined about 40%. And then you mentioned that we should expect that by 2027, app GOV on a run rate basis should be a majority of the business. So what kind of growth rate should we expect on the app side versus the non-app side for the remainder of the year? Lawrence Fey: Yes. First, definitionally, when we reference app GOV, that's of our Vivid Seats properties. So we're not speaking across the entire GOV footprint of the business, namely Vegas and Wavedash and our private label would not be part of that definition. So I would tweak the math a bit. I don't think we're in the business of forecasting or projecting by device type explicitly. But I think implicitly, we're expecting the business to grow, app to grow disproportionately. As we start lapping some of the most competitively intensive periods, I think we expect that we can get web back to growth. But whenever you're looking at these aggregate GOV numbers, you just have to fully decompose it, right? You have to pull private label out. We lose private label partner that is different than competitiveness in the web, competitive landscape lens us versus StubHub versus SeatGeek. So yes, it's an implicitly true statement that app was up and other parts of the business were down, but decomposing is pretty important. Operator: Your next question comes from the line of Andrew Marok with Raymond James. Andrew Marok: One, with this quarter's results coming in nicely and the reiteration of the guide, is the business just kind of becoming a bit more visible in your view? Are you able to maybe have a little bit more forecasting confidence than you have had in the past? And then I have a follow-up. Lawrence Fey: Yes. Thanks, Andrew. I think I would agree with the statement overall. Certainly, as we move through a year, right, as we get to Q4 where the concert on sale calendar solidifies and crystallizes it through the back half of Q4, first half of Q1, we sit here with a pretty good sense of what the supply side of the calendar will look like. I think the fact that we've really tightened up our expense base lowers the bar, if you will, which helps mute impact. And then the last piece is we've reduced the surface area and exposure to paid search. It's still present, but we've reduced it. I think that helps diminish volatility from things that are exogenous, namely competitive or competitor posture. So there will still be variance, right? Event mix is still a real thing, right? If we have great World Cup matchups or bad World Cup matchups, long series, short series, more concert cancellations, right? Those are all exogenous and can introduce volatility. Competitor behavior, competitor posture can still introduce some volatility. But in terms of the controllables, I think we've dialed them in quite a bit and feel better about putting outlooks in place. Andrew Marok: Appreciate that. And then maybe as it relates to the app business, I think you mentioned this a little bit in your prepared remarks, but I just kind of want to ask it directly. There's kind of this meme out there for older people, especially where big purchases are done on the desktop, right, like ticketing, hotel bookings, flights, et cetera. How do you sort of combat that to drive app growth? Is it purely demographic? Or are there kind of nudges that you can give your consumers to get them to buy on the app? Lawrence Fey: Yes. Thanks, Andrew. It's a great question because I guess this probably reveals where I sit on the age bucket. But I will do that as well, right? When you're in discovery mode, you want to be able to either consider a bunch of different events or a bunch of different seating areas. Sometimes I'll actually do some searching on the bigger screen. But I think the objective we have is to make sure folks know that there's a better value proposition available in the app. And so if you want to transact on desktop, that's great. And we're going to deliver the optimal experience for that. But if you also wanted to discover on desktop and then download the app, properly messaging that the lowest price guarantee and typically our lowest prices will be available in the app. Increasingly, we're going to have our rewards program prominently appear in the app and less so on web. So there will be material inducement to transact in the app, but we, of course, want to support people wherever their workflow wants them to transact. Operator: Your last question comes from the line of Maria Ripps with Canaccord. Maria Ripps: First, I just wanted to follow-up on your private label business. So you mentioned a new customer addition there, which is encouraging. But how should we think about that segment going forward beyond sort of returning to growth? Do you think sort of it can return to the run rate you had the business at about a year or 2 ago? Lawrence Fey: I think in absolute size, it's unlikely that we'll in the near-term, reclaim where we had been before the large customer loss. What I think we aspire to deliver is that the segment will grow at or above the broader marketplace and at or above industry rates. And so I think the 2 paths there would be enabling our existing customers to organically outpace the industry. And then what gets exciting is you have the option and the opportunity to add new customer wins on top of that organic growth. And so we're seeing all of those signs pointing in the right direction where we can have both happening in parallel, which could lead to some nice sequential growth and starting in Q3 set us up for delivering sustained year-over-year growth. But from an absolute standpoint, I don't think returning to the pre-customer loss levels that we saw in 2024 or early 2025 is a near-term target that we think we can deliver. Maria Ripps: Got it. That's helpful. And then just a quick follow-up. Can you maybe update us on your international strategy? And how important is it kind of on the list of your investment priorities at this point? Lawrence Fey: Yes. We continue to be encouraged by the international opportunity. I think we mentioned in our last call or 2 that we've achieved -- we're positive on the contribution margin standpoint in 2025. We grew GOV triple-digits in 2025. We've continued to see GOV grow into 2026. But in the spirit of focusing our efforts on the highest impact priorities, what we're focusing on are upgrades that benefit not only international, but also North America. And so as you think about things like our checkout, irregardless of your location or your geography, that will benefit the business. So the near-term road map is really focused on that type of improvement. And then as we get through these universal upgrades that will benefit international, but also benefit North America. We do have an interesting road map of international upgrades queued up. It's just a matter of if we can get to it in the next quarter or the next couple of quarters. Operator: Thank you. I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Jazz Pharmaceuticals plc 2026 first quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, John Bluth, Head of Investor Relations. Please go ahead. Thank you, and good afternoon, everyone. John Bluth: Today, Jazz Pharmaceuticals plc reported its first quarter 2026 financial results. The slide presentation accompanying this webcast is available on the Investors section of our website along with the press release and quarterly report on Form 10-Q for the first quarter ended 03/31/2026. On the call today are Renée Galá, President and Chief Executive Officer, Samantha Pearce, Chief Commercial Officer, Robert Iannone, Global Head of R&D and Chief Medical Officer, and Philip L. Johnson, Chief Financial Officer. On slide two, I would like to remind you that today's webcast includes forward-looking statements, such as those related to our future financial and operating results, growth potential, and anticipated development, regulatory and commercial milestones, which involve risks and uncertainties that could cause actual events, performance, and results to differ materially from those contained in these forward-looking statements. We encourage you to review these risks and uncertainties described in today's press release and under the caption Risk Factors in our annual report on Form 10-K for the fiscal year ended 12/31/2025. We undertake no duty or obligation to update our forward-looking statements. As noted on slide three, we will discuss non-GAAP financial measures on this webcast. Descriptions of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release and the slide presentation available on the Investors section of our website. I will now turn the call over to Renée. Renée Galá: Thanks, John. Good afternoon, everyone, and thank you for joining today's conference call, led by commercial execution across our highly differentiated products for sleep, epilepsies, and cancers. This resulted in our highest-ever first quarter total revenues of $1.1 billion, reflecting more than 19% year-over-year growth driven by the outstanding performance of Xywav, Epidiolex, Midevo, and Zepzelca. Our commercial teams generated double-digit growth across all our promoted brands, and saw strong contributions from our ongoing launches. This performance reflects the disciplined and consistent efforts of our team, working with clarity and purpose to support the physicians and patients we serve. In addition to our impressive commercial performance to start the year, we are urgently advancing the development of zanidatumab for patients with HER2-positive first-line locally advanced or metastatic GEA where the unmet medical need remains significant. The FDA recently accepted our sBLA for ZYHERA under Real-Time Oncology Review, and granted priority review with a PDUFA date of 08/25/2026. We are ready to launch ZYHERA in GEA as soon as we receive FDA approval, and we expect ZYHERA will become the HER2-targeted therapy of choice for HER2-positive first-line GEA patients given the magnitude of benefits seen across both experimental arms when compared to the trastuzumab control arm. In R&D, we continue to make progress across our pipeline, with multiple ongoing registrational zanidatumab trials, early-stage trials evaluating oncology assets, and the early development of neuroscience and epilepsy assets. The year is also off to an excellent operational start with cash flow of over $400 million in the first quarter, and non-GAAP adjusted EPS of $6.34. Our financial strength and disciplined capital allocation enable us to invest in the continued growth of our commercial portfolio and pipeline, while also positioning us to execute on business development opportunities that fit our strategic focus in rare disease. With that, I will turn the call over to Sam to share more details on commercial performance. Samantha Pearce: Thank you, Renée. Our commercial team delivered strong results across Jazz Pharmaceuticals plc's portfolio, with momentum from our 2025 launches and coordinated execution continuing into 2026. I will begin on slide seven with sleep. Xywav's net product sales increased 18% to $408 million in 2026, compared to the same period in 2025. As expected, HCPs and patients continue to drive demand for safer, low-sodium Xywav. And we saw strong new patient growth with approximately 425 net patient adds. There are now approximately 16,600 patients taking Xywav, which remains the number one branded treatment for narcolepsy based on product revenues and the only FDA-approved treatment for idiopathic hypersomnia. Our field teams continue to expand both the IH and narcolepsy markets by educating HCPs on the importance of addressing the full spectrum of daytime and nighttime symptoms. These efforts are complemented by digital and media campaigns to increase disease awareness and support patient education. Our JazzCares support services, including field-based nurse educators, support patients from initiation, through titration, and across the long-term treatment journey. These services remain important differentiators for Jazz Pharmaceuticals plc. Moving to slide eight and Epidiolex. Epidiolex net product sales increased 15% to $250 million in 2026, driven by strong underlying demand and 16% volume growth during the quarter. Expanding our reach in the adult patient population, and specifically in the long-term care setting remains a key focus and an important near-term growth opportunity. Our nurse navigator program continues to have a meaningful impact on improving patient persistency, and expanding utilization of this resource remains a priority for 2026. Finally, as part of our commitment to bring Epidiolex to appropriate patients in Japan, we have partnered with Nippon Zoki, a Japanese company with deep expertise in CNS disorders. Jazz Pharmaceuticals plc remains the sponsor of the clinical trial, and Nippon Zoki will lead regulatory, distribution, and commercial activities in Japan. Turning to our oncology portfolio, starting with ZYHERA on slide nine. In 2026, ZYHERA generated net product sales of $13 million. Feedback from biliary tract cancer physicians continues to be positive with real-world experience consistent with the clinical profile observed in our trial. We are also continuing to expand into new community-based accounts beyond academic centers, increasing awareness of ZYHERA in BTC, and building readiness ahead of a potential launch in GEA. As a reminder, there is a substantial customer overlap across our solid tumor footprint, including approximately 90% overlap between BTC and GEA accounts. We believe this positions us well to accelerate uptake in GEA following its anticipated approval and launch on or before the August 25 PDUFA date. Once approved, our existing cross-functional team will be positioned to reach target customers and support rapid adoption of this practice-changing regimen for GEA patients. Turning to slide 10 and our GEA launch preparations. Physicians are expressing excitement and interest in the potential use of ZYHERA in GEA. It has been more than fifteen years since a new first-line HER2-targeted agent became available for patients with metastatic gastric cancer. Given the unprecedented median overall survival data, of more than two years, we believe ZYHERA has the potential to become the preferred HER2-directed therapy and foundational backbone for treating HER2-positive first-line metastatic GEA. The addition of tislelizumab further improved survival outcomes in both PD-L1 positive and PD-L1 negative patients, consistent with ZYHERA's unique mechanism of action that generates an innate immune response in the tumor. ZYHERA already benefits from an established permanent J-code through its FDA approval in second-line HER2-positive BTC, which we expect will simplify reimbursement in GEA and reduce the administrative burden for providers. In addition, the compelling outcomes from the Horizon GEA trial support our expectations for favorable payer access. Finally, our comprehensive JazzCares support services, together with ZYHERA's established availability across customers' preferred distribution channels, position us to enable seamless patient access at launch. Turning to slide 11 and Midevo. Midevo generated $41 million in net product sales in 2026. This strong early performance following its launch in August 2025 reflects the significant unmet need in H3K27M mutant diffuse midline glioma, high awareness driven by advocacy groups, and the value physicians see for patients. Approximately 500 patients have been treated with Midevo since launch through the end of the first quarter. Our highly experienced neuro-oncology field teams, including medical and access colleagues, continue to support the launch. The teams remain focused on expanding reach in community settings, whilst maintaining a well-supported presence in academic centers of excellence. Robust patient-centric support services and payer coverage continue to underpin launch momentum and support appropriate access for patients. Moving to slide twelve and Zepzelca. In 2026, Zepzelca net product sales increased 60% to $101 million compared to the same period in 2025. Growth in the first quarter was primarily driven by strong uptake in the frontline maintenance setting, following FDA approval of Zepzelca in combination with Tecentriq in October. Given the strength of the AMPHORA clinical data and the opportunity to improve both progression-free survival and overall survival for patients with extensive-stage small cell lung cancer, health care providers are rapidly adopting the Zepzelca combination in the first-line maintenance setting. As a result, this new indication is driving the product's strong performance. Our commercial initiatives will continue to be focused on first-line maintenance, reflecting our ongoing commitment to this priority. For the rest of 2026, first-line maintenance adoption is expected to grow, with second-line use decreasing due to competition and fewer Zepzelca-naive patients available for treatment. Overall, we are satisfied with the impressive commercial performance achieved across our portfolio in the first quarter and remain focused on maintaining this momentum throughout the year. With that, I will now turn the call over to Rob to provide an update on our pipeline. Robert Iannone: Thanks, Sam. I will start on slide 14. This is an exciting time at Jazz. In addition to our outstanding commercial execution, we are also preparing to bring zanidatumab to HER2-positive first-line metastatic GEA patients. The data from the Horizon GEA trial definitively demonstrated that zanidatumab offers improved outcomes on all efficacy measures compared to trastuzumab, and should be the new HER2-targeted agent of choice. The data also showed tislelizumab further improved survival outcomes in both PD-L1 positive and PD-L1 negative patients. The benefit regardless of PD-L1 status may be driven by zanidatumab's unique mechanism of action, known as biparatopic binding. This enables zanidatumab to cross-link neighboring HER2 receptors, leading to receptor clustering which blocks HER2 growth signaling and also triggers the complement cascade. Zanidatumab's ability to uniquely and broadly activate the innate immune system may in part explain the additional efficacy observed when tislelizumab was added to zanidatumab, even in PD-L1 negative tumors. The triplet arm of zanidatumab, tislelizumab, and chemotherapy demonstrated improved overall survival, with a remarkable median OS of 26.4 months, representing a meaningful improvement of more than six months median OS compared to prior studies in HER2-positive patients who have a poor prognosis in the metastatic setting. Among patients who had an objective response, the median duration of response was 20.7 months. Again, this benefit was observed irrespective of tumor PD-L1 status. To put this into context, in the KEYNOTE-811 trial, the duration of response for trastuzumab and pembrolizumab plus chemotherapy was 11.3 months. We are moving quickly to bring zanidatumab to HER2-positive first-line metastatic GEA patients. Following the oral presentation at ASCO GI in January, we submitted the data for potential inclusion in NCCN guidelines. We are pleased that the manuscript has been accepted for publication by a top-tier medical journal and plan to submit the peer-reviewed manuscript to NCCN once it has been published. Our supplemental BLA for zanidatumab has received priority review, with a PDUFA date of 08/25/2026. We are actively engaged with the FDA in the review process, and we expect potential approval and launch of zanidatumab in GEA on or before the PDUFA date. Turning to slide 15 and our pipeline. We have multiple clinical trials across our pipeline from early-stage to registrational trials. We look forward to sharing data from some of these ongoing trials at the upcoming ASCO presentations on lurbinectedin and zanidatumab. The second planned interim analysis for overall survival of the zanidatumab and chemotherapy arm of the Horizon GEA trial is still expected midyear. At the time of top-line readout, this arm showed a clinically meaningful effect on overall survival with a strong trend towards statistical significance compared to the control arm. The next pivotal Phase III trial for zanidatumab is in metastatic breast cancer patients who have progressed on or are intolerant to ENHERTU. Trial enrollment is progressing well. We continue to expect to complete enrollment in the EMPOWUR trial in 2027, with top-line data anticipated in late 2027 or early 2028. Other earlier-stage trials continue to progress across new indications, including a potentially registrational pan-tumor basket trial and a neoadjuvant/adjuvant breast cancer trial. Looking ahead to later this year or early 2027, we anticipate the ongoing Phase III ACTION trial will have an interim overall survival readout. This trial is designed to confirm the benefit of Midevo and support regulatory approval as frontline therapy directly following radiation instead of waiting for signs of tumor progression before treating with Midevo. We are working with dedicated focus to both realize the full potential of our near-term opportunities and to rapidly progress our pipeline. Our in-house research and development efforts are underway, and we look forward to sharing updates on those and further pipeline progress in the future. Now I will turn the call over to Phil for a financial update. Philip L. Johnson: Thanks, Rob. I will start with high-level comments on our non-GAAP adjusted P&L as shown on slide 17. Please note that our full financial results are available in today's press release and 10-Q. The outstanding execution of our field-based teams was reflected in record first quarter revenue of $1.07 billion, driven by 45% growth in our oncology portfolio, 18% growth in Xywav, and 15% growth in Epidiolex. Strong underlying performance drove the vast majority of our revenue growth. I do want to point out two smaller items that also contributed to growth this quarter. First, we had the normal thirteen shipping weeks for our U.S. oncology products this quarter; last year's quarter had twelve shipping weeks. This contributed about two percentage points to our worldwide revenue growth rate. Second, the significant devaluation of the U.S. Dollar led foreign exchange to contribute about one and a half percentage points to our worldwide revenue growth. Moving down the P&L, our non-GAAP adjusted gross margin declined slightly year-on-year, primarily due to higher sales of products carrying royalties, namely Zepzelca and Midevo. Non-GAAP adjusted SG&A expense decreased about $164 million. You may recall that in last year's quarter, we recognized litigation settlement expenses of $172 million. Excluding these expenses, SG&A increased by $8 million driven by the inclusion of Midevo expenses. Non-GAAP adjusted R&D expenses increased by $13 million primarily due to the inclusion of Midevo clinical trial expenses and higher compensation-related expenses. Non-GAAP adjusted effective tax rate this quarter was slightly lower than our full-year 2026 guidance due to excess tax benefits from share-based compensation, while our shares outstanding for the quarter reflect the accounting effect of our higher share price on our convertible notes and employee stock plans. At the bottom line, we posted very robust non-GAAP adjusted EPS of $6.34. Supported by our strong start to the year, we are reaffirming our full-year 2026 revenue and expense guidance, including total revenue guidance of $4.25 billion to $4.5 billion. Total revenue guidance for 2026 includes the assumptions you see on slide 18. As a reminder, we assume competitive dynamics in our sleep business will increase in the second half of the year, including high-sodium generics gaining volume, and one or more daytime wake-promoting agents potentially entering the narcolepsy market. We also expect to see a decline in the Xyrem and high-sodium authorized generic revenues as generic high-sodium oxybates build their volumes over the course of 2026. And as Sam mentioned earlier, we expect a decline in second-line use of Zepzelca. Our Q1 performance and focus on disciplined capital allocation position us well to achieve our 2026 guidance. Moving to slide 19, our balance sheet remains strong. We continue to generate significant cash from our business, recording $408 million of cash from operations in the first quarter of the year. And we ended the first quarter with $2.9 billion in cash and investments. Our overall financial position and robust operating cash flow provide significant flexibility to invest in value-driving commercial and R&D programs as well as in promising corporate development opportunities to support our rare disease strategy. I will now turn the call back to Renée for closing remarks. Renée Galá: Thank you, Phil. I will conclude our prepared remarks on slide 21. 2026 builds on the successes we achieved in 2025. Our focused commercial execution led to more than 19% growth in the first quarter, and based on these results, we are on track to achieve our 2026 financial guidance. We look forward to several upcoming catalysts, including the second interim of overall survival from the Horizon GEA trial midyear. Top-line readout for overall survival for the confirmatory ACTION trial for Midevo is expected at the end of this year or early next year. And the top-line readout from the trial evaluating zanidatumab in late-stage breast cancer post-ENHERTU treatment is expected in late 2027 or early 2028. We continue to build upon our proven scientific expertise and capabilities to make a meaningful impact for patients. Supported by our strong financial position, you should expect to see us invest in our commercial brands and pipeline and business development to broaden our portfolio in key strategic focus areas of sleep, epilepsy, and oncology, in addition to other areas of rare disease. I would like to thank all our Jazz Pharmaceuticals plc colleagues for their efforts and dedication to making a difference in the patients' lives that led to an exceptional first quarter. We are relentlessly focused on continuing to deliver life-changing medicines to patients. That concludes our prepared remarks. I would now like to turn the call over to the operator to open the line for Q&A. Operator: Thank you. Wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. Our first question today will be coming from the line of Jessica Macomber Fye of JPMorgan. Please go ahead. Operator: Please go ahead. Jessica Macomber Fye: Hey, guys. Good afternoon. Thanks for taking my question. Question on zanidatumab for breast cancer. So if we assume zanidatumab beats Herceptin in breast cancer and gets approved one day for use in the post-ENHERTU setting, how do you expect physicians to make decisions about how to sequence agents in the context of a lack of data for other products post-ENHERTU, among other things? Thank you. Robert Iannone: I am happy to address that, Jess. We became very interested in this space based on good advice from many key experts in the field. And the fundamental issue is that once ENHERTU moves to frontline, there is very little data about which HER2 agent to select as subsequent therapy. So the trial that we are running, 303, will be the first time that we definitively, in a randomized setting, evaluate zanidatumab versus what would be considered a standard of care. So we expect to be out ahead with important data that will inform decisions about whether to use zanidatumab or other HER2 agents in that space. Operator: Thank you. One moment for the next question. And the next question is coming from the line of Joseph John-Charles Thome of TD Cowen. Your line is open. Joseph John-Charles Thome: Hi there. Good afternoon. Congrats on the quarter, and thank you for taking my question. Maybe one on Midevo. Do you have any updated thoughts on sort of the size of this patient population? I think historically, it was thought that it was maybe 2,000 or 3,000, but it sounds like you are already hitting, you know, 500 patients. So any thoughts on that total opportunity just given the strength of that launch? And maybe a follow-up, if I can, on M&A. What is your latest thinking in terms of where you would like to go? Obviously, we have seen a lot of activity in the past few weeks in different areas. What is the sweet spot in terms of size and area of focus for Jazz Pharmaceuticals plc moving forward? Thank you. Samantha Pearce: Sam here. I am happy to take the one on Midevo to start with. Yes, extremely pleased with the launch so far. $41 million in Q1 really gives us a lot of confidence around achieving that $500 million peak opportunity in the U.S. And as you mentioned, we have had 500 patients treated since launch. I think that just reflects the very high unmet need that we see in this space. Overall survival from diagnosis is just one year. So this product has had a meaningful impact, and it is supported by high awareness from physicians and obviously very strong patient advocacy support as well. In terms of the size of the patient population, I think our best estimates are aligned to what you mentioned there, and over time, of course, we will continue to evaluate that. But we do see potential upside in duration of treatment, as well as the size of the population. What we have seen so far is that patients are staying on treatment for longer than we initially anticipated. We will have to wait for this cohort of patients to really mature before we get a really good handle on whether the duration of treatment exceeds that that we saw in the trial, which is around about ten months. But we are extremely happy with the start. I think our teams have done an excellent job really executing this launch well in such an important area of medical need. Renée Galá: And, Joe, this is Renée. I will jump in on BD. We are highly engaged on the BD front, and I do expect us to have deals announced over the course of this year. We do have a clear strategy that is focused on expanding our presence in rare disease. In particular, we believe there is a significant unmet need, so strengthening our current areas of epilepsy, sleep, and rare oncology, also expanding into new areas of rare disease—areas we think we can leverage our capabilities and our footprint to continue to scale our business while driving further growth and profitability. In terms of the deal types, it really depends on the transaction at hand, but we are looking at licensing, structured deals, also outright M&A. I think the key here to being successful in BD is valuing or de-risking in ways that others do not see and then staying myopically focused on execution, as we did with the Chimerix acquisition and subsequent Midevo launch. We have very strong momentum now with the new Chief Business Officer on board as of January 1. Importantly, we are well positioned to execute. Phil mentioned we have a strong financial position: $2.9 billion in cash and cash equivalents on the balance sheet, strong cash flow. And while M&A has picked up, we do believe there is still a lot of substrate that is actionable and well aligned with our strategic priorities. Operator: Thank you. One moment for the next question. Our next question will be coming from the line of Leonid Timashev of RBC. Please go ahead. Leonid Timashev: I wanted to stay with—you mentioned epilepsy—just wanted to touch on that. You have been making a lot of investments in that area, both with Epidiolex, with the Cenobamate asset, you also have JZP-47 and now you mentioned potentially looking at BD there as well. So I guess just curious how you are thinking about that area, to what extent a continued focus, and how you are thinking about either synergies or risk of cannibalization across so many different assets there? Thanks. Renée Galá: Yes. Thanks for the question. This is Renée. I would say this is definitely an area of focus for us. There continues to be significant unmet need across the epilepsy space. You see a strong amount of polypharmacy here with respect to multiple medications generally on board, in particular when we are looking at serious refractory epilepsies. We think with the position that we have with Epidiolex being the number one branded product and having very long durability out to the very late 2030s, it gives us greater opportunity to continue to build around that franchise, to build scale. I am thrilled to see additional opportunities for patients with the strong data that we have been seeing come out with a number of companies, whether that is on the proof-of-concept side starting to go into registrational studies or work that is happening early in pipelines. As we think about ourselves, we think there is plenty of room and unmet need for patients to continue to see new mechanisms explored and new options. So we do think there is still plenty of substrate and a great opportunity for us as a leader in epilepsy. You will note last quarter, we said we were advancing the first molecule coming out of our labs that was not just a formulation play, but an innovative target, novel mechanism coming out of our lab that went into patients in the epilepsy space. We will continue to invest here, and we are excited about the opportunities. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Annabel Samimy of Stifel. Your line is open. Annabel Samimy: Hi, thanks for taking my question. Just want to circle up on Midevo again. Obviously, it has been exceedingly promising since the outset, and you have potential to move into first-line treatment. I guess my question is how should we think about the potential move into first-line treatment? Does it significantly expand the market? Should we think about this like we think about Zepzelca moving into first line and how it significantly inflected growth? I am trying to understand the magnitude given that most patients who are in first line progress to second line. Is it only about duration, or is there a population opportunity there? Samantha Pearce: Yes. Hi, Annabel. I am happy to take that. Yes, I think there are two factors when we consider the ACTION study and what that will do for Midevo and for patients. Some patients do not make it to second line. So, of course, there are more patients available to be treated. But having the opportunity to get Midevo to patients before they progress will mean that the duration of treatment should be longer if they can use it straight after radiation. So those two things, I think, will contribute to the $500 million peak potential, which does incorporate an assumption that we will have that first-line label. Rob, anything more to add on that? Robert Iannone: I mean, you covered it well. I would just point out that sometimes it is hard to judge progression in these patients. And then, as you point out, once it is clinically apparent in addition to imaging, the patients may rapidly progress and not benefit from second-line therapy. So the opportunity to start Midevo right after the radiation therapy really does potentially add a significant benefit to patients and ultimately duration of therapy. Operator: Thank you. One moment for the next question. And our next question is coming from the line of Marc Goodman of Leerink. Please go ahead. Marc Goodman: Sam, can you talk about Epidiolex OUS? I heard Phil talk about the FX impact, but those numbers could not have just been FX. Something is doing pretty well there. So maybe just talk—was there any particular country? Was there any buy-in? Anything unusual there? And maybe you could just comment on Rylaze as well, which happened to have a really good quarter, and what was happening there. Thanks. Samantha Pearce: Yes. Thanks for the question, Marc. Yes, it is great to see the performance outside of the U.S. for Epidiolex. Very strong growth indeed. Around about two thirds of that, I believe, was volume, and there was about a third due to FX and some gross-to-net benefits from places like the U.K. with a VPAG adjustment that happened there. I think this is just down to terrific execution by our teams. As you know, Epidiolex was launched a little bit later in Europe, so there is still quite some opportunity to continue to penetrate in the pediatric segment, but, of course, also in that adult segment, which is a focus for both U.S. and the ex-U.S. business. And then your other question around Rylaze, yes? Rylaze delivered a strong quarter, $100 million, which was 10% revenue growth. But that was comparing to quite a low Q1 2025. So I think the performance that we have seen in this quarter is in line with the prior quarters that we have seen, other than the Q1 which is a low point. What we have seen with Rylaze is the COG impact that started in 2024 has been fully realized now. Our focus continues to be on making sure that appropriate patients can receive Rylaze, that they are switched at the first sign of a hypersensitivity reaction, and the opportunity to continue growth in AYA. But I think that $100 million per quarter for Rylaze is a good kind of stable base for us currently. Operator: Thank you. One moment for the next question. Operator: And the next question is coming from the line of Analyst of Barclays. Please go ahead. Analyst: Hi. This is Jordan Becker on for Etzer Darot. Thanks for taking my question and congrats on the impressive quarter. Maybe just one, if we could expand on any second-half dynamics for oxybates now with a full quarter in the rearview. Maybe if you could provide some more color on any potential competitive pressure from Lumryz specifically. And then on that, maybe any perceived pressure to IH growth down the line if Lumryz is approved in IH? Samantha Pearce: Yes, I am happy to take that question on Xywav. We are very pleased with the continued momentum for Xywav. $408 million this quarter, 18% revenue growth and a really healthy 12% volume growth. We continue to see really good patient adds—425 net patient adds in the quarter, most of them continuing to come from 300 net patient adds for IH, which is consistent with what we have seen in prior quarters. So we finished the quarter with 16,600 active patients. And when we look ahead to the outlook for Xywav for the remainder of the year, obviously, we are very pleased with the momentum that we are taking into the second quarter. We still have continued strong payer coverage—more than 90% of commercial lives covered. Nothing has changed around the nature of our Xywav business in the first quarter of this year. And our 2026 full-year guidance does include assumptions that generics will build volumes in the second half of the year, as well as the potential for the entry of new wake-promoting agents entering the market in the second half of the year in the NT1 narcolepsy segment. But we believe Xywav will continue to have a really important place in therapy. We have invested in some really meaningful evidence generation, XYLO and the DUET studies, which show the importance of having a low-sodium option, and the DUET study, which shows just how effective Xywav is as a nighttime agent. We believe those two benefits will continue to resonate strongly with physicians and patients, of course. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Analyst of Baird. Please go ahead. Analyst: This is Charlie on for Brian. I was just wondering if you could give us a sense of the size of the opportunity for Epidiolex in the adult and long-term care setting. And maybe some more color on the initiatives you are taking there with the new formulation as well as would be curious to hear—will you be sharing any data from the Phase 1b in focal when you get that, and do you have any idea in terms of timing there as well as what your expectations are for the setting for Epidiolex? Thanks. Samantha Pearce: I am happy to take the first part of your question in relation to the adult segment, and then I will hand over to Rob to talk about the study. We are very happy with the performance of Epidiolex in the first quarter of this year, $250 million, 15% revenue growth, and 16% volume growth. As you probably recall, Epidiolex was launched initially very much as a pediatric drug, and we have seen really good penetration in that segment, a leading agent, obviously, for pediatric patients. One area that we do continue to see opportunities in is in that adult segment, particularly in long-term care facilities. So we have made some specific investments there with a dedicated team focusing on those facilities. And we have also invested in a diagnostic tool, REST-LGS tool, because we know that adult patients with LGS often go undiagnosed. So we have supported physicians to help ensure that those patients can get a definitive diagnosis and benefit from Epidiolex. In addition to that, one of the hallmarks of Epidiolex is the very long persistency that we see. But we do see an opportunity to drive that even further. We know that patients that are enrolled onto our JazzCares program, which also gets the support of a nurse navigator, stay on treatment longer, so we have a particularly focused effort now on ensuring that as many patients as possible can benefit from our JazzCares suite of services, and we believe that will drive even longer durations of treatment for Epidiolex. In addition to that, we are making quite significant investments in evidence generation. We have the EPICOM study in TSC and the BECOME survey, which has been focused on adults, which really just underlines the benefit that Epidiolex has not just for the control of seizures, but also for controlling some of the non-seizure symptoms that these patients experience as well. That is one of the very significant differentiating benefits of Epidiolex. So overall, we are very encouraged by the momentum that we have with Epidiolex but also really see a lot of long-term potential to continue to grow Epidiolex into the future, particularly in that adult segment. Robert Iannone: Thanks for the question on the focal seizure study. We are super excited about it. There is a lot of interest from epileptologists to more formally evaluate Epidiolex in this setting. As you know, doctors and treaters think about epilepsy in terms of types of seizures, and we have lots of data showing activity of Epidiolex across really every type of seizure with some preliminary evidence in focal onset seizures as well. This is an evidence generation study to go deeper into this particular population, and we would intend to publish this as soon as we have data available to do so. We have not given any specifics on that yet. After a little more time elapses and we get a good sense of the enrollment rate, we may be able to update further. Operator: Thank you. One moment for the next question. Our next question is coming from the line of David A. Amsellem of Piper Sandler. Your line is open. David A. Amsellem: Hey. Thanks. So I have a long-term competitive landscape question on your business. So your competitor has valroxabate, the sodium once-nightly, or potential no-sodium once-nightly product that is in development. To the extent that reaches the market, can you talk about how that could impact your Xywav business, both in terms of narcolepsy and the IH setting? And just in general, how are you planning to respond competitively to overall a more crowded landscape? The obvious is, of course, with the orexins, but also next-generation oxybate products as well. Thanks. Renée Galá: Maybe I can step in on that, and then I will ask Rob to comment on how we are viewing orexins. I would first point to the fact that Xywav has been competing for the last two years with a number of high-sodium options on the market. Over that time, we have not only built a strong group of patients that are relatively persistent in terms of their use of oxybate, but also the specific relief and flexibility that they receive from Xywav, and it is the only product available for IH. We have done a lot of work in the market in terms of disease awareness. One of the areas that we have invested quite a lot in that Sam has spoken to earlier is the patient support services. I think that is highly differentiating for Jazz Pharmaceuticals plc in terms of the extent of our services and the way that we have deployed those. We will continue to ensure that the unique differentiating benefits of Xywav as well as various support services are well understood in the market. I would also note that we do, from a patent perspective, have a lot of confidence in our overall patent estate. So when you are thinking about the various programs that are out there that may be for a 505(b)(2) sort of path, from that perspective, we do have robust patents that include many Orange Book–listed patents out to 2033 and 2037, and then an Orange Book–listed IH patent out to 2041. But maybe I will also invite Rob to comment with respect to orexins coming into the market and our view there. Robert Iannone: Yes, we have been following orexins carefully, and our conclusion is that it is likely to be complementary to Xywav. As Sam mentioned, alluding to the DUET study, we have significant data showing that the root cause in hypersomnia, such as narcolepsy type 1 and 2, as well as IH, has really disrupted nighttime sleep, and oxybates are the only therapy that can address the disrupted nighttime sleep directly. And Xywav, of course, is the only low-sodium formulation that we believe is safest for patients who are at a high risk for cardiovascular outcomes. Certainly, the orexins are showing to be potent daytime alerting agents. Some preliminary data are showing, though, that you can have insomnia, especially with the longer half-life formulations. The limited PSG data that are out there suggest that they certainly are not improving disrupted nighttime sleep and may actually, in the first half of the night, be impacting it negatively with the reports of insomnia. So we continue to think that this is an important space to follow. We have an orexin in development still, but we think, ultimately, this is going to be complementary to Xywav. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Mohit Bansal of Wells Fargo. Please go ahead. Mohit Bansal: Great. Thank you very much for taking my question, and congrats on all the progress. Just want to ask about the Zepzelca IP here. I see a few new Orange Book–listed patents here since 2025, so they go all the way to 2040. So how should we think about the life of Zepzelca beyond 2029 at the compound-of-matter patent at this point? Thank you. Renée Galá: Thanks, Mohit. This is Renée. We do have a strong patent estate for Zepzelca, and as you noted, we have multiple patents that extend out to 2040. We are also pursuing multiple new patents with the Patent Office that would also extend out to that timeframe, with additional applications, whether that be combo therapies, formulations, or methods of treatment. Stepping back and speaking to the ANDA filers that we have disclosed, we have filed suit against all five ANDA filers, and as the result of filing that suit, a stay of approval is in effect for up to 30 months as imposed by the FDA. While we are not going to speak broadly to active litigation, we do feel that we have a strong patent estate, and as we have more clarity and information on that, we will be certain to share that. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Jason Matthew Gerberry of Bank of America Securities. Please go ahead. Jason Matthew Gerberry: Hey, guys. Thanks for taking my questions. Just one for Phil on Xywav. I apologize if I missed this, but you, at the beginning of the year, guided to flat to mid-single-digit growth for Xywav. Given growth of nearly 20% in 1Q, just wondering if we should be assuming that we are coming in towards closer to the high end of that number? Or were there some one-time dynamics in the 1Q number to call out? And how should we think about zanidatumab pricing OUS and any MFN-related considerations? Philip L. Johnson: Thanks for the question, Jason. On Xywav in the U.S., really pleased, as Sam mentioned, with the great execution of our field-based team. In terms of underlying growth, we had volume growth of about 12% here in the first quarter. There was a bit of additional pickup coming from net price, primarily gross-to-net favorability with both mix of business and then patients successfully transitioning more quickly than in the past back onto their insurance in that first quarter reauthorization period. That is something that is more of a first-quarter phenomenon. We would not expect to see that kind of net price pickup quarter on quarter as we get into Q2 through Q4, but definitely pleased with Xywav performance in the first quarter—it sets us up nicely for achieving the full-year guidance. I think that also applies to the total revenue guidance as well, not just Xywav. And then for the MFN, zanidatumab—right now, the MFN considerations, as you know, are a bit uncertain. We have got some sort of conflicting input out there; certainly GLP and GARD are proposed to use a basket of ex-U.S. countries to provide reference pricing for the U.S. We will certainly be taking that into account as we look at the strategy for getting ZYHERA to patients outside of the U.S., which is certainly a priority of ours and one that we will need to take account of the current situation here in the U.S. as we move forward. Not sure, Sam, if you would like to add any of your thoughts from a commercial perspective, or Renée more from a corporate strategic perspective. Renée Galá: I think you covered it nicely, Phil. Jason Matthew Gerberry: Great. Operator: Next caller, please. Operator: Thank you. And our next question will come from the line of Ami Fadia of Needham & Company. Please go ahead. Ami Fadia: Hi. Good afternoon. Thanks for taking my question. I had a follow-up on the comments related to the oxybate franchise, particularly Xywav. I think at the beginning of the year, you talked about anticipating the potential for some additional headwinds either on the pricing side or just in terms of access with the entry of generics. Maybe if you could talk about some of the dynamics around whether you see any pushback on the use of Xywav, particularly in narcolepsy, and how you see the utilization in narcolepsy evolve with more generics on the market? And then just on the Midevo ACTION trial, can you talk about which interim OS analysis will be done by the time you have the data readout in late 2026, early 2027, and your confidence around the timeline of that readout? Thank you. Samantha Pearce: I am happy to take the question relating to Xywav. Yes, of course, we have seen two multisource generics enter the market in Q1. As yet, we have not seen any impact on Xywav's business. As I mentioned previously, we continue to have strong payer coverage supporting the use of Xywav, so nothing really has changed in the nature of our business for Xywav. But, of course, it is still early days for the generics in the market. We do anticipate that as their volume grows through the course of the year, then we may start to see some actions taken by payers that may include utilization management. We do not know yet. But we are very confident that Xywav offers a really important and differentiating option for patients—being the only low-sodium option, the only product approved for IH. And, of course, it has already demonstrated how effective it is as a nighttime agent and the impact that has on daytime symptoms. We have carried strong momentum throughout the last twelve months and into this year, and we are in a strong position as we go into Q2. Philip L. Johnson: Sam, just to add one thing real quickly as we think about what we are seeing with Xywav before we go on to Rob for the data. Certainly the dynamics are a bit unusual in the first quarter given reauthorization, but I do think we are seeing continued support by patients and physicians of the unique benefit that Xywav offers. Think about looking at the net patient adds. Lumryz net patient adds were announced as roughly 100 adds this quarter, like the 100 last quarter. Our numbers just in narcolepsy have been larger than that in each of those two quarters—again underscoring this unique benefit that only Xywav can offer and the safety advantage it confers being valued by patients as well as physicians. So we are in a great position from that perspective as well as we think about the back part of the year and how things could play out. Robert Iannone: Yes. So, Ami, the ACTION trial is an OS-based endpoint and there is one interim analysis and then a final analysis. The projections we gave are based on our current understanding of the events because it is an event-driven trial. Certainly, if the events slow over time, that could change. But we will update as appropriate as time goes on. Operator: Thank you. One moment for the next question. And our next question is coming from the line of Analyst of Deutsche Bank. Please go ahead. Analyst: Hey there. Thanks for taking my questions. I first wanted to ask on the timing of a potential NCCN guideline incorporation for zanidatumab in GEA. Do you have any sense of, relatively, when that might occur versus the PDUFA date, and how important is a category 1 recommendation to drive uptake? And then in breast cancer for zanidatumab, I wanted to get a sense of how you are thinking about the opportunity size in the different settings. Obviously, you are looking at post-ENHERTU, but I think you are also looking at neoadjuvant/adjuvant. I was just curious as to your thoughts on the size of the opportunity in those various settings. Robert Iannone: Great. On the NCCN guidelines, we proactively submitted the abstract data because it was available. We will certainly update NCCN with the full manuscript as soon as that is available, and we hope that gives them everything they need to make a prompt decision on that and adoption, which we expect. Certainly, we think the data speak for themselves. Head to head against Herceptin, zanidatumab definitively wins. It is clear that tislelizumab is adding and likely to be synergistic with zanidatumab, as demonstrated by the activity in the PD-L1 negative subset, supporting its use upfront with tislelizumab. We think those data speak for themselves, and that should be reflected in NCCN. Samantha Pearce: Sorry, just to finish off the remainder of that question there. NCCN guidelines inclusion is obviously important. We think that the data support a category 1 inclusion. If it comes before the launch, then that will open up access ahead of regulatory approval. Of course, we do not promote ahead of regulatory approval, but certainly that will make it easier for physicians to provide access to their patients. And yes, the breast cancer opportunity is obviously very significant—significantly larger than either the BTC opportunity or the GEA opportunity—with many more patients that can potentially benefit from zanidatumab. So we are excited, obviously, about that for the long-term potential for ZYHERA. Operator: Thank you. That does conclude today's Q&A session. I would like to turn the call over to Renée Galá, CEO, for closing remarks. Please go ahead. Renée Galá: Thanks, operator. I would like to close today's call by thanking all our partners and stakeholders for their continued confidence and support. We look forward to sharing further updates on the potential approval and launch of ZYHERA.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today At this time, I would like to welcome everyone to the JELD-WEN First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to James Armstrong, Vice President of Investor Relations. Please go ahead. James Armstrong: Thank you, and good morning. We issued our first quarter 2026 earnings release last night and posted a slide presentation to the Investor Relations portion of our website, which can be found at investors.jeld-wen.com. We will be referencing this presentation during our call. Today, I'm joined by Bill Christensen, Chief Executive Officer; and Samantha Stoddard, Chief Financial Officer. Before I turn it over to Bill, I would like to remind everyone that during this call, we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q filed with the SEC. JELD-WEN does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results. Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their most directly comparable financial measures calculated under GAAP can be found in our earnings release and in the appendix to our earnings presentation. With that, I would like to now turn the call over to Bill. William Christensen: Thank you, James, and good morning, everyone. Before turning to our results, I want to thank the teams across JELD-WEN. Even with continued market pressure, our organization is showing up every day with focus and urgency driving operational improvements, supporting customers and advancing the work needed to strengthen the company. A key element of that work is investing for our customers through improved service and customer experience. As a company, we continue to place incremental focus into service and responsiveness, and we believe that this will create value as the year progresses. The macro environment remained soft in the first quarter consistent with our expectations. As a reminder, the first quarter is the seasonal low period, and we anticipate improvement as we move through the remainder of the year. During the quarter, we also implemented a number of pricing increases, and we expect those increases to begin flowing through more meaningfully in the second quarter and beyond. Overall, we delivered the quarter within our expectations and managed through a difficult volume environment. As seen on Slide 4, sales for the quarter were $722 million. As we have previously discussed, we took deliberate actions to align our labor with current market conditions, and we continue to adapt the cost structure of the business. At the same time, we are balancing investments in our customers by maintaining the resources needed to deliver quality and dependable service. We are already seeing significant service improvements across the company including our On-Time, In-Full Rates. Adjusted EBITDA was a modestly positive $6 million for the quarter, and cash performance was generally in line with our expectations. As a reminder, the first quarter is typically the highest working capital quarter, and we would expect working capital to unwind as we move into the back half of the year consistent with the seasonality of the building products industry. As we look ahead, we continue to focus on what we can control. As we mentioned last quarter, customers are very clear that consistent delivery and follow-through are what they value most. And we continue to direct investments towards these priorities. With the improvements we are seeing, we continue to discuss opportunities to regain volume, and we now expect improved execution and service levels to contribute to incremental sales versus the 2026 expectations we shared in the fourth quarter results call. We are strengthening the customer experience through better execution and consistency, and we expect that to support improved performance as the year progresses. At the same time, we are also seeing higher cost pressure, particularly in freight and pricing remains competitive in certain areas versus what we expected previously. We are managing those dynamics, staying disciplined on what is within our control while continuing to prioritize customer service and operational execution. Finally, we continue to progress the strategic review of our European business. While the process is ongoing and we have nothing to announce at this time, we believe this review could provide meaningful liquidity and help further strengthen our balance sheet. We are also evaluating various alternatives thoughtfully with a focus on improving financial flexibility while preserving long-term value. With that, I'll hand it over to Samantha to review our financial results in greater detail. Samantha Stoddard: Thank you, Bill. Turning to the financial results on Slide 6. First quarter net revenue was $722 million, down 7% year-over-year. The revenue decline was driven by lower volume/mix. While mix was down slightly year-over-year, most of the volume/mix decline was driven by lower volume. Adjusted EBITDA for the quarter was $6 million, down 72% year-over-year and adjusted EBITDA margin was 0.9%, down 190 basis points year-over-year. The lower earnings performance was primarily driven by volume/mix, along with negative price/cost dynamics during the quarter as inflation was not fully offset by pricing. These headwinds were partially offset by significantly improved productivity year-over-year. Turning to cash flow. Operating cash flow was a $91 million use of cash in the first quarter driven by lower EBITDA, combined with a $43 million use of working capital. As a reminder, the first quarter is typically the highest working capital quarter of the year, and we expect significant working capital improvement as we move through the remainder of 2026. As a result of lower EBITDA and the use of cash, net debt leverage increased to 11.3x at the end of the first quarter. Given the seasonal use of working capital, we drew $40 million on our revolver. We continue to manage the business with a disciplined focus on cash, cost and balance sheet flexibility. Turning to Slide 7. The year-over-year change in net revenue was driven primarily by lower volume/mix. First quarter sales were $722 million, compared to $776 million in the prior year, and core revenue declined 10% year-over-year. Pricing was a slight positive, but it was more than offset by the volume/mix decline, which drove the majority of the year-over-year reduction. The comparison also reflects a $30 million tailwind from foreign exchange driven by a stronger euro relative to the dollar. Taken together, these factors explain the year-over-year change in revenue and are consistent with the market conditions we discussed earlier. Turning to Slide 8. Adjusted EBITDA for the first quarter was $6 million, compared to $22 million in the first quarter of last year. The year-over-year decline reflects a combination of cost pressure and lower volume/mix. Price/cost was a $21 million headwind as pricing was slightly positive, but it continued to be outweighed by cost inflation in areas like glass, metals and transportation. Volume/mix was also a $22 million headwind, and that impact was driven primarily by lower volumes year-over-year. These headwinds were partially offset by improved execution across the business. Productivity was a $22 million benefit year-over-year, and we also delivered a $6 million improvement in SG&A and other expense despite a $10 million other income headwind from prior year. Turning to Slide 9 and our segment results. In North America, first quarter revenue was $453 million, compared to $531 million in the prior year. The year-over-year decline was driven primarily by lower volumes and the court-ordered Towanda Divestiture which had partial impact in the first quarter of 2025. Adjusted EBITDA for North America was $4 million, compared to $16 million last year. And adjusted EBITDA margin declined to 0.8% from 2.9%. Profitability was pressured by continued inflation and lower volumes, partially offset by significant year-over-year productivity and SG&A improvements. In Europe, revenue was $269 million, up from $245 million in the prior year, an increase of 10% year-over-year. The improvement was driven primarily by foreign exchange and slightly better pricing, partially offset by continued volume decline. Foreign exchange contributed approximately 11.5 percentage points to the year-over-year revenue change. Adjusted EBITDA for Europe was $7 million compared to $11 million last year and adjusted EBITDA margin was 2.6% versus 4.3% in the prior year. Productivity was a slight positive, but those benefits were more than offset by lower volume/mix, along with higher SG&A expense. With that, I will turn it back over to Bill to discuss our updated market outlook and how we are positioning JELD-WEN for the path ahead. William Christensen: Thanks, Samantha. Turning to Slide 11. I want to walk through our market outlook for 2026 and the assumptions underlying our guidance. Importantly, our view of the market has not meaningfully changed from what we outlined previously in our fourth quarter 2025 results call. We continue to operate in a challenging and uncertain environment and our outlook reflects a cautious view rather than any expectation of a near-term recovery. In North America, we expect the overall windows and doors market to be down low to mid-single digits. Within that, we see new single-family construction down low single digits and repair and remodel down mid-single digits. We now expect U.S. multifamily to be up significantly year-over-year, while Canada continues to face more significant pressure with high single-digit declines, reflecting ongoing economic softness and continued weak housing activity. In Europe, conditions appear to be stabilizing. We expect volumes to be roughly flat year-over-year. Demand remains subdued, but we are not seeing further deterioration from current levels. At the company level, our volume assumptions are now more aligned with the underlying market. We continue to expect some impact from prior pricing actions but we are also beginning to see the benefits of improved service levels. Our guidance reflects a modest contribution from these service improvements while maintaining a clear focus on pricing discipline. Overall, our framework remains consistent. Our guidance is based on current demand levels with pricing actions largely in place and a continued focus on margin protection and execution rather than relying on an improvement in end market conditions. Turning to Slide 12. I I'll walk through our updated full year 2026 guidance. Overall, we are increasing our revenue outlook, holding our adjusted EBITDA range and maintaining cash flow expectations. We now expect net revenue in the range of $3.05 billion to $3.2 billion, up from our prior range of $2.95 billion to $3.1 billion. This reflects a modest benefit from improving service levels, which brings our company volume assumptions more in line with the underlying market. April sales have been in line with our expectations, which supports the updated view we are sharing today. As a result, we now expect core revenue to decline between 3% and 6% year-over-year compared to 5% to 10% previously. The adjusted EBITDA range remains unchanged at $100 million to $150 million. While the higher revenues progress, we are seeing incremental price/cost headwinds relative to our prior assumptions, which offset the benefit from improved volumes. Our outlook continues to reflect higher pricing and a focus on execution in a still changing demand environment. On cash flow, we continue to expect operating cash flow of approximately $40 million and a free cash flow use of approximately $60 million. We still anticipate capital expenditures of approximately $100 million that are largely maintenance in nature. Our guidance assumes no portfolio changes. However, as noted, we continue to evaluate strategic options, including our review of the European business, and additional actions to improve liquidity. Turning to Slide 13. This chart bridges our 2025 adjusted EBITDA of $118 million to the midpoint of our 2026 adjusted EBITDA guidance of $125 million. Starting on the left, market volume/mix remains a headwind of approximately $25 million, reflecting the continued pressure we see across our end markets. The next item is net share loss which we now expect to be a $30 million headwind, improved from our prior expectation of $60 million. This reflects early progress on service and a more stable customer response as those improvements begin to take hold. We now expect a greater headwind from price/cost, which we anticipate to be approximately $40 million, compared to $10 million previously. The environment remains highly competitive and as our service improves, we've been more active commercially, including targeted promotional activity to regain traction with certain customers. In addition, we are seeing higher-than-expected cost pressure, most notably in freight. These external and commercial pressures are offset by actions within our control. We continue to expect approximately $75 million of benefit from rightsizing and base productivity, reflecting actions that are largely executed and will be realized over the course of the year. We also expect about $35 million of carryover benefit from our transformation initiatives, including automation, footprint optimization and systems improvements as those efforts continue to move in a more steady state operating model. The remaining items include approximately $10 million of headwind from compensation and other timing-related factors, partially offset by foreign exchange and other items. Taken together, these elements bridge to the midpoint of our 2026 adjusted EBITDA guidance. While the mix of headwinds has shifted, the overall earnings outcome remains unchanged, reflecting both the ongoing pressure in the market and the impact of the actions we are taking to manage through it. Before we wrap up, I want to step back and highlight the progress we are making on service across our North America business. On Time, in Full delivery or OTIF, is a key customer metric and it is where we have been intensely focused. As you can see on Slide 14, our OTIF performance has improved significantly over the past year, moving to over 90%. This is a meaningful step change in how we are serving our customers, and we are seeing that reflected in the feedback we are getting across the business. Customers are noticing the improvement. We are seeing better engagement, more consistent order patterns and importantly, increased opportunities to quote and compete for new business as our service levels improve. This progress is being driven by both stronger execution and deliberate investment. Operationally, we have now deployed our A3 management system across the network, which has improved how we identify issues, solve problems at the root cause and maintain consistency as well as ownership at the plant level. At the same time, we have made conscious decisions to prioritize service, including higher transportation spend, such as shipping partial loads when needed and maintaining staffing levels despite lower volumes. These are targeted investments to support service and rebuild trust with our customers. We believe that as service continues to improve, that trust will translate into volume recovery and share gains over time. That said, we are not finished. Our goal is to consistently operate above 95% OTIF and reaching that level will require further progress, particularly with our vendor base and how we manage special order products. Overall, we are encouraged by the progress we are making. Service is improving, customers are responding, and we are beginning to see that translate into commercial opportunities. Turning to Slide 15. I'll close by stepping back and putting our progress into perspective. Over the past year, we've made significant improvements in how we serve our customers. We have invested in service, strengthened our operating discipline and focused the organization on the metrics that matter most. Cash and liquidity remain a priority. We are taking actions to preserve cash, and we continue to evaluate opportunities to strengthen liquidity and maintain flexibility in an uncertain environment. Our strategic review of Europe is ongoing, and we continue to evaluate other opportunities to improve liquidity and strengthen financial flexibility. Across the business, we are also aligning labor with current market conditions while continuing to invest in the organization for the long term. That includes work to improve culture and engagement. We recently completed a company-wide baseline employee engagement survey, and our managers are actively using that feedback to create individual action plans focused on local level engagement. Importantly, our customers are seeing the difference. Service levels have improved, performance is more consistent, and we are beginning to rebuild trust. That is showing up in better engagement and increasing opportunities to compete for new business. However, we are not yet where we need to be. There's more work to do and we know that this will not happen overnight, but we are moving in the right direction and starting to see the early benefits. At the same time, we are managing the business with a clear view of current market conditions. We are aligning the cost structure to demand, maintaining pricing discipline and staying focused on execution. As I close, I want to recognize the work of our associates across JELD-WEN. The progress we are seeing is the result of their effort and focus every day. Our customers are noticing the improvement and it is important that we continue to build on that momentum. Overall, we are becoming a more consistent and disciplined company. We are improving service, rebuilding customer confidence and managing the business with a clear focus on cash and execution. With that, I'll turn the call back over to James for questions. James Armstrong: Thanks, Bill. Operator, we're now ready to begin Q&A. Operator: [Operator Instructions] Your first question comes from the line of John Lovallo of UBS. John Lovallo: The first one is, at the midpoint, your outlook seems to imply 2Q adjusted EBITDA of about $31 million. That's versus about $6 million in the first quarter. Can you just help us kind of bridge the ramp from first quarter to second quarter? Samantha Stoddard: John, yes, this is Samantha. I can help bridge that gap. So it's primarily driven by normal seasonality with the second quarter typically benefiting from higher sales volume and then better labor absorption as well. This year, we also expect to see the benefit of pricing actions that we implemented already in Q1, but begin flowing through more meaningfully at the start of Q2. And as you heard Bill say in the earlier remarks, we are already seeing the uptick in April. So we do feel good about going into Q2. John Lovallo: Got it. That's helpful. And then on the North American decremental margin, it is around 15%, which was pretty favorable, and I think it speaks to the cost controls and the cost takeout you guys have achieved. I mean how sustainable do you think this level of decremental is? And maybe more importantly, how are you thinking about incrementals in an improving volume environment? Samantha Stoddard: Yes. So I can start, and then I'll let Bill jump in. I think that in the short term, you are going to see us holding the line with the costs in particular. So you're right in that a lot of the transformational actions and cost takeouts that we saw in '25 going into '26 are going to continue. With the improved volumes from what I just spoke about, the seasonality as well as some of the higher price, that should then flow, I would say, our normal incrementals, 25% to 30% on the upside. William Christensen: John, it's Bill. So the only thing I'd add there is what I'm really pleased with is if you look at our bridge coming out of our full year '25 guide to where we are now, we've removed about $100 million of headwind. And that speaks to the hard work that our teams are doing every day to really make things work for our customers. So we're starting to gain traction and reducing the rate of decline, which is great. So we do have some share loss that's lapping from '25, but we feel pretty good here headed into the last 3 quarters of this year. Operator: Your next question comes from the line of Susan Maklari of Goldman Sachs. Susan Maklari: My first question is on the improved service levels. It's encouraging to hear that you're seeing such a nice lift there. I guess, can you talk more about how you're thinking of the path from here, the specific programs that you are working on and putting in place to support that? And I know last quarter, we talked about standardizing some of your operating systems and processes to help with that service. Is this part of what's driving that? And where you are in that process as well? William Christensen: Yes, Susan. Thanks for the question. So absolutely, standard work across our network of sites, both in Europe and in North America is progressing very well. And you can see, based on what we showed on Chart 14 with the improvement on the OTIF metrics, clearly, there's still work to be done. But we are in a pretty choppy demand environment. And so our network needs to be very flexible and as we noted in the prepared remarks, we have incurred some additional costs based on not in full shipments, but making sure we're doing everything we can to meet our customers' expectations. So that's progressing well. I think the second thing I'd want to call out is that the teams are working extremely hard to connect with our customers and define areas of opportunity where we can lean in together with them to regain some of the share that we've lost in the last couple of years, and that's starting to show up as well. So we think this bodes well for the back half of the year, even though we still are expecting a pretty soft market environment as we outlined in prepared remarks. Susan Maklari: Okay. That's very helpful. And then can you give a bit more color on the magnitude of the inflation? How we should be thinking about that path for price/cost this year? I know you mentioned that you're starting to see some of the realization on the first quarter increase. And with that, how you're thinking about that balance between volume versus price in this environment? Samantha Stoddard: Yes. Let me go ahead and start that, Susan. So on the inflation side, I think the biggest area that we're seeing inflation is going to be around the freight and energy prices. So we're seeing that both in North America as well as Europe. On the better note, we are seeing slightly less tariff exposure that we did expect when we were starting the year. In terms of the magnitude, they're somewhat offsetting each other, not exactly, but materially, they're about offsetting. So when we think about the price/cost negativity, I think that there is some of that in inflationary pressures. And there is the affordability challenge from a price standpoint. We are seeing competitive pricing in different areas of the market. So while we have already gone out with price, that is why we're calling down some of the price/cost that we initially expected to be around negative 10% from an EBITDA bridge, we are now seeing that to be a little bit higher. Operator: Your next question comes from the line of Matthew Bouley, Barclays. Anika Dholakia: Anika Dholakia on for Matt today. So first off, for Europe, you guys mentioned that you're not seeing any further demand pressure from current levels. So I'm curious if this suggests that pricing strength can continue in this region similar to 1Q? And then just kind of going off of that, how have some of the recent geopolitical dynamics maybe impacted the review of the European business, if at all? So yes, any color on that? William Christensen: Thanks for your question. Yes. So we clearly are seeing more signals that we're at the bottom of the valley from a volume decline. So Europe has stabilized. We called it last quarter. We're seeing similar trends just to remind you, it takes 9 to 12 months post start to put our product in. So it's going to be a while until you see things tick up in the Doors world. On pricing, we've done a great job across many European markets of introducing price to offset inflation and headwinds. The macro reality is going to have a pretty significant impact in Europe on energy, feedstock input prices, transportation costs, et cetera. We're already in market with pricing to offset a number of those headwinds. So I'd say we're feeling fairly balanced currently in Europe. And then the third comment is we wouldn't really comment specifically on where we are on the strategic review and what the influences would or wouldn't be as we said in the prepared remarks, nothing further process is ongoing, but no further details today. Anika Dholakia: Okay. Great. That's really helpful. And then on the second question, so on the productivity initiatives on the $110 million, I'm curious, I think last quarter, you guys said 50% completed, 25% actioned, but hadn't hit and then 25% still needed to be actioned. Is this on track with what you guys expected? Or any updates to these numbers? Samantha Stoddard: Sure. So breaking it down, the $35 million of the transformation carryover, that is 100% completed at this point. So these are structural costs. We talked about it on an earlier question that we are seeing the benefits of and they're 100% complete. On kind of the base productivity, rightsizing of the business, I would say we're greater than 80% of those initiatives that are done. So there's still a little bit of work to be done on some of the smaller initiatives, but the majority have been banked at this point, and we'll see that carry through in Q2 through Q4. Operator: Your next question comes from the line of Jeffrey Stevenson with Loop Capital. Jeffrey Stevenson: Can you talk more about the improvement in on-time deliveries you've seen over the last year and whether it's corresponded with the stabilization in your share position over that time period of service levels continue to improve? William Christensen: Yes. So yes, that's the short answer. The longer answer is, obviously, we have a fairly broad portfolio in the North American market. So there's a number of different areas where we're performing very well and continue to do so. And there's other areas where clearly we weren't meeting expectations of our customers. And as we had described last year, there was some share loss, some pruning on our side, but also some share loss. And we're definitely regaining share in certain pockets that our North America team is very focused on partnering with our customers to give them the product at the right time at the right place. So we're pleased with the improvements. And as I said, we've probably reduced by about half the headwind that we thought we would have this year from a top line standpoint. So we're making good progress, not finished. There's more work to be done, but I think that's a good signal that we're moving in the right direction, Jeff. I think that's the important message today on the call. Samantha Stoddard: And Jeff, just highlighting back to the full year guidance bridge. As I talked about earlier with Susan, that the price/ cost, unfortunately, has become a little bit more negative but that share loss volume/mix, EBITDA impact, as Bill was talking about, has improved by about $30 million from last quarter. Jeffrey Stevenson: That's very helpful. And then thanks for the update on the Europe strategic review. But previously, you talked about divestitures of smaller noncore assets as well, such as your distribution business in North America. And I just wondered if there are still opportunities across your footprint for other potential divestitures as well. William Christensen: Yes. So Jeff, what we've said is we continue to evaluate other options in addition to the strategic review to improve liquidity, which clearly is a key focus point of ourselves given the current macro environment. And that includes assessing sale of other assets, potential sale-leaseback transactions. No further detail from our side. I think more importantly, we've said this a number of times, I want to reiterate, we expect to address our near-term maturities before they go current in December. And for the time being, as Samantha laid out in her prepared remarks, we have ample liquidity, and we're actively managing cash in this soft macro environment. So I think that important combination. We continue to evaluate options. We have a number of options, and we're staying very close to the cash situation, combine that with improvements on service and better volume outlook from our side. We're feeling good about where we are currently. Operator: There are no further questions at this time. And with that, I will now turn the call back over to James Armstrong for final closing remarks. Please go ahead. James Armstrong: Thanks, everyone, for joining us today. If you have any follow-up questions, please feel free to reach out. We appreciate your time and interest in JELD-WEN. Have a great day. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.
Operator: Welcome to the 2026 First Quarter Results Announcement Conference Call for Budweiser Brewing Company APAC Limited. Hosting the call today from Budweiser APAC is Mr. YJ Cheng, Chief Executive Officer and Co-Chair of the Board; and Mr. Bernardo Novick, Chief Financial Officer. The results for the 3 months ended 31st of March 2026, can be found in the press release published earlier today and available on the Hong Kong Stock Exchanges and Budweiser APAC websites. Before proceeding, let me remind you that some of the information provided during this result call, including our answers to your questions on this call, may contain statements of future expectations and other forward-looking statements. These expectations are based on the management's current views and assumptions and involve known and unknown risks, uncertainties and other factors beyond our control. It is possible that Budweiser APAC actual results and financial condition may differ possibly materially from the anticipated results and the financial condition indicated in these forward-looking statements. Budweiser APAC is under no obligation to and expressly disclaims any such obligation to update the forward-looking statements as a result of new information, future events or otherwise. For a discussion of some of the risks and important factors that could affect Budweiser APAC's future results, the risk factors in the company's prospectus dated 18th September 2019, the 2025 annual report published and any other documents that Budweiser APAC has made public. I would also like to remind everyone that the financial figures discussed today are provided in U.S. dollars, unless stated otherwise. The percentage changes that will be discussed during today's call are both organic and normalized in nature and unless otherwise stated, percentage changes refer to comparisons with the 2025 full year. Normalized figures refer to performance measures before exceptional items, which are either income or expenses that do not occur regularly as part of Budweiser APAC's normal activities. As normalized figures are non-GAAP measures, the company disclosed the consolidated profit EPS, EBIT and EBITDA on a fully reported basis in the press release published earlier today. Further details of the 2026 first quarter results can also be found in the press release. It is now my pleasure to pass the time to YJ. Sir, you may begin. Yanjun Cheng: Thank you, Ari, and good morning, everyone. Thank you for joining today's call. We entered 2026 with a clear focus on recovering volume through disciplined execution across our market. For Bud APAC total volume returned to a positive growth, supported by continued strong momentum in India. In China, our increased investment shows a sign of progress. With the quarter-over-quarter volume decline tightening further as we remain committed to our strategy of enhancing our in-home route to market enriching our portfolio and innovating behind our mega brand to rebuild momentum. In South Korea, we gained market share in both on-premise and in-home channels. Before we go over our financial results, I wanted to take a moment to introduce Bernardo Novick, our new Chief Financial Officer, effective from April 1 this year. Novick joined ABI Group in 2009 through the global MB program and has worked across various functions in multiple markets. He brings deep finance and global resource allocation expertise, having led projects, delivering savings and meaningful value creation. I'm pleased to welcome him to the Bud APAC team. Let me now hand over to Novick for a brief introduction. Bernardo Novick Rettich: Good morning, everyone. I am delighted to join the Bud APAC team. I would like to thank you, YJ for your trust and invitation to join the team. I joined AB InBev 16 years ago and spent 5 years in finance roles, 5 years in commercial roles and 5 years in innovation roles where I led the corporate venture capital arm in New York. Most recently, I was responsible for our global capital allocation division reporting to the global CFO. I hope I can bring this experience to grow Bud APAC's business in a profitable way. I have already had the pleasure of meeting some of you joining the call today, and I look forward to meeting many more in the next weeks and months ahead. Let me share our financial results for the first quarter of 2026 in more detail. In the first quarter, APAC volume returned to growth, even if it's just 0.1% after many quarters, driven by strong growth in India, and a sequential improvement in the industry and our volumes in China, with volume decline narrowing quarter-over-quarter. This progress was driven by both enhanced execution as well as increased investments across channels and our portfolio, which added temporary pressure to our bottom line. We also maintained strong brand momentum in South Korea, despite a soft industry and a challenging comparable last year. In India, we continue to advance premiumization, delivering strong double-digit volume and revenue growth. In summary, for Bud APAC, total volumes increased by 0.1%. Revenue and revenue per hectoliter decreased by 0.7% and 0.8%, respectively. Normalized EBITDA decreased by 8.1%, while our normalized EBITDA margin contracted by 246 basis points. Now let me cover some of the highlights from each of our major markets. In China, volumes decreased by 1.5%, improving sequentially with a quarter-over-quarter decline continuing to narrow since the second half of 2025. Revenue and revenue per hectoliter decreased by 4% and 2.5%, respectively, impacted by increased investment to support our wholesalers and activate our brands in the in-home and emerging channel. Normalized EBITDA decreased by 10.9%, impacted by our top line performance and increased investments. We continue to make progress in expanding our distribution in the in-home channel, while increasing the distribution of our premium brands. This premiumization is more clear in the online to off-line or O2O channel, which grew strong double digits in the quarter. Now let me share with you some of the investments we are making on our brands through our marketing campaigns as well as liquid and package innovations to better connect with our consumers across more occasions and increased sales momentum particularly in the in-home channel. On Budweiser, we accelerated the national expansion of Budweiser Magnum, building on its strong consumer traction and sustained sales growth. In March, Budweiser Magnum, launched an integrated nationwide campaign, anchored by a strategic partnership with global football icon Erling Haaland, and the FIFA World Cup mega platform to drive geographic and channel expansion. Regarding our Harbin family, we introduced Harbin 1900, celebrating its brewing heritage as the birthplace of Chinese beer. Position in the Core++ segment, which is the RMB 8 to RMB 10 price range. This new innovation is 100% pure malt classic lager, pairing distinctive vintage packaging with a rich authentic taste. The launch reinforces Harbin's role in driving innovation and placing new bets in this growing and important Core++ segment. In South Korea, volumes decreased by low teens and revenue decreased by mid-single digits, mainly due to a challenging comparable in the first quarter of last year, driven by shipment phasing ahead of a price increase that if you recall, was in April 2025. Revenue per hectoliter on the other hand, increased by low single digits, also comparing with the first quarter last year before the price increase. This led to a normalized EBITDA decreasing by low teens. Having said that, we maintain a good commercial momentum in both in-home and on-premise channels, and we foresee a recovery in the second quarter. Finally, India continues to grow and will play a bigger role in our footprint. Industry momentum continued in the first quarter, and we gained total market share. We delivered strong double-digit volume and revenue growth led by a strong growth in our premium and super premium portfolio. We also continue to see momentum in the moderation agenda with states like Maharashtra and Karnataka introducing changes that decreased the current relative tax advantage of hard liquor versus beer. We see this as a step in the right direction and a sign that some states understand the importance of evolving towards an alcohol tax policies that are consistent with global policy standards where high alcohol products are taxed higher than low alcohol products like beer. And with that, YJ and I are here to answer any questions that you might have. Operator: [Operator Instructions] Our first question is coming from Xiaopo Wei from Citi. Xiaopo Wei: Can you hear me now? Operator: Yes, we can hear you very well. Xiaopo Wei: I'm sorry. That -- I have two questions on China. I'll ask one by one. The first one, in the past 2 years, we have seen a few senior management leadership changes in the company. So far is any achievement or breakthrough that the company would like to share with us with the new leadership? [Foreign Language] Yanjun Cheng: I'm YJ. Let me take these questions. So let me start in English, then let me turn to Chinese, if needed. So the changes we have, mainly happened first half year last year. And the reason for the change is kind of retention between either global other between the region in China. So and also between Headquarter in China versus operation in the field in each sales region. And the reason for that is to share some best practice and to further strengthen their strengths in each area or each function and also learn each other best practice sharing. So that's kind of a normal retention changes. And to be able to share the more the answer to your question about the changes of the people. As I mentioned earlier, we keep a consistency of our strategy which is focused on portfolio, brand portfolio, which is meaning Harbin and Budweiser and also focus on in-home and market. And third one is focus on execution. So those are the 3 strategies we set up early last year and we have no changes. And also, you see the progress we have been made as Novick just mentioned, quarter-over-quarter on decline narrow quarter-by-quarter and see very good trends. And also, we see the execution in each area make a huge improvement, and we put a lot of effort to invest in our brand and also further focus on the in-home channel that the channel changes reached which and that's our further opportunity in our operation. So we see starting from second quarter last year and the fourth quarter last year, and first quarter this year, the things getting improved quarter-by-quarter. So I think that's I tried to answer your question. Xiaopo Wei: Shall I start a second question? Yanjun Cheng: Yes, go ahead. Xiaopo Wei: Okay. The second question is about the channel inventory. As far as I can recall, the company in China start destocking the channel in 4Q '24. It has been a few quarters of destocking and I remember in the last quarterly earnings call, you mentioned that actually, our China inventory actually was young and lower versus historic level. But we know that China is a very dynamic market and the changing areas on a daily basis. So were you foreseeing the future that the China channel inventory will be below historic level as a new norm? Or is any factor you expect to see before you become more exciting and try to restock the channel looking forward. [Foreign Language] Yanjun Cheng: Thank you for your question. You're right. We have been proactively taking steps to adjust our inventory given the current business environment. [Foreign Language] Operator: Our next question is coming from Ye Liu from Goldman Sachs. Ye Liu: Thanks. Can you hear me? Yanjun Cheng: Yes. Ye Liu: This is Liu from Goldman Sachs. Thanks for the opportunity and welcome Novick for your first earnings call with Bud APAC. I have 2 questions. The first one is on China. So basically, our ground check shows that there has been some volume recovery in the super premium segment, including Corona, Blue Girl in the first quarter. So how to look at the sustainability of this trend? How to comment on the on-trade consumption recovery so far, including any color on 2Q to date on the on-trade performance in China? I will translate to Mandarin by myself. [Foreign Language] Yanjun Cheng: Let me take this question. I will start the summary of the answer first, then I'm going to talk a little bit detail in sort of answer in Chinese. Indeed we grow Super Premium volume by double digit in the first quarter 2026 as we focus on premiumization in the in-home channel and O2O. In terms of on-trade recovery nightlife channel contribution was stable, and we grew volume in the nightlife the first quarter 2026. However, Chinese restaurant channel remains under pressure. [Foreign Language] Ye Liu: The second question is to our new CFO, Novick. So I would like to know what's the 3 key focus for you this year, would you please share with the investors on the call. Thank you so much. Bernardo Novick Rettich: Thank you, Liu. Nice to hear from you, and thanks for the question. So let me share the 3 priorities that me and my team will focus this year. The #1 priority is growth. And the main objective here is to stabilize the volumes in China. The second priority is to improve execution. And the third priority is value creation. So on the #1, the #1 is consistent to the business strategy that YJ was describing. And the main objective of the business is to grow volumes here, right? And in order to do that, we really need to stabilize volumes in China. And the finance role to do that is increasing investments and making the investments more effective. I think it's important here, when we manage to stabilize volumes in China, given our footprint in India and in Southeast Asia, will be able to reignite growth for the whole Budweiser APAC. Number two priority is execution. I think here, finance has an important role, collaborating with our commercial team in China to enable and upgrade our route-to-market model to help on this transition to more volume in the in-home channel. That's another important priority for us. And the third one is value creation. Here, we are reviewing internal investment decisions, improving efficiencies, cost controls. One example here, for example, we are reviewing the unit economics of different packs to make decisions that can help us be more efficient with resource allocation. But ultimately, Liu we are here for growth, and that's our main priority for this year. Thank you very much for the question. Operator: Our next question is coming from Elsie Sheng from CLSA. Yiran Sheng: Thank you management for taking my questions. Thank you, YJ, and also welcome Novick. I have 2 questions. My first question is on China in-home development. Do you have any update or progress to share on the development of off-trade channel in China. I will translate myself. [Foreign Language] I will ask my second question later. [Foreign Language] Yanjun Cheng: Thank you, Elsie. This is YJ. Let me take this question. As a channel shift to in-home channel, we are taking actions to expand in the in-home channel to adapt. As we have a relative low exposure in in-home channel, which means we have a massive growth potential. We are investing to catch up. [Foreign Language] Yiran Sheng: My second question is on China commercial investment. So previously, management mentioned that you will increase marketing this year. Is that plan still on track? And what's the marketing plan for the coming peak season and sport events like World Cup? [Foreign Language] Yanjun Cheng: Yes. So as Novick mentioned, as I mentioned earlier, in 2026, our top priority in China is a stabilized volume. To achieve this, we have given room to the team, to the commercial team to increase commercial investment. So that's the direction we set up for the commercial team. [Foreign Language] Operator: Our next question is coming from Mavis Hui from DBS. Mavis Hui: My first question is on China. Could we have some more updates on the growth of your emerging channels such as O2O instant retail and e-commerce in China. More importantly, how do margins and pricing dynamics across these channels compared with traditional off-trade and how are we managing potential channel conflict with our distributors? But let me translate first. [Foreign Language] Yanjun Cheng: Thank you for your question. I will take this question as well. O2O is one of faster emerging channel in China. We have started to make a fair significant effort to increase our presence with it. And we see this as a great opportunity for us in 2026 and beyond. We partnered with a major O2O platform to further expand our participation. [Foreign Language] Mavis Hui: And my second question is on Korea. Excluding shipment phasing effects, are we still seeing underlying share gains in South Korea? What are the key challenges to sustaining outperformance in the market? [Foreign Language] Yanjun Cheng: Thank you. Let me take this question again. Total industry in Korea have remained soft in the first quarter 2026. With a soft consumer environment continued to impact overall alcohol consumption. However, our underlying momentum in Korea continued and we outperformed the industry in both the on-premise and in-home channel. [Foreign Language] Operator: Our next question is coming from Anne Ling from Jefferies. Kin Shun Ling: I have 2 questions here. First is on the cost of goods sold in general. We saw some raw materials price volatility, and this has been coming up recently for example, like aluminum. So what will be our view on the raw material costs for year 2027? [Foreign Language] Yanjun Cheng: In 2026 of first quarter our cost per hectoliter has decreased by 0.8%, mainly driven by efficiency improvement, partially offset by commodity headwind. [Foreign Language] Kin Shun Ling: [Foreign Language]. So my second question is on the India side. So could you share with us now on the Indian market update? How do we see the market competition and our strategy over there? I understand that we are focusing on more market share. So may I know when the company will start focusing on the profitability of the market? Is it still a little bit too early? And that competition is still very keen? Should -- I mean should Carlsberg be listed? What is your view on the competitive environment afterwards? [Foreign Language] Yanjun Cheng: Thank you. In India, we are focused on sustainable and meaningful top line growth that can translate to EBITDA and cash flow growth accordingly. [Foreign Language] Operator: Our next question is coming from Lillian Lou from Morgan Stanley. Lillian Lou: And thank you, YJ and Bernardo for the detailed answer previously. Congrats to Bernardo for your new role. I have two questions. The first one is on China pricing because YJ just mentioned that the raw materials are fully hedged and were relatively stable. But on the pricing side, any price action and mix shift that you observed that could improve the overall pricing in the market in general? [Foreign Language] Bernardo Novick Rettich: I can take this question YJ. Yanjun Cheng: Go ahead. Bernardo Novick Rettich: Lilian, nice to hear from you. Thank you for the question. I think all the answers should start with the same reminder that our main priority, right, is growth and particularly to stabilize the volumes in China. It's true that in the first quarter, our net revenue per hectoliter was below last year and this was impacted by investments, mainly in 3 objectives for the investments to support our wholesalers, to activate our brands and also to accelerate the growth in O2O. But on the other hand, we had positive mix effects coming from our brands, mainly driven by our Premium and Super Premium brands. I think it's important to mention to you and the press that we expect to continue to invest in 2026. Regarding price, we will continue to monitor always the prices in the market, and we are open to adjustments if something changes. But at this moment, we don't have any news regarding price increase for China. Lillian Lou: My second question is on Korea -- South Korea market. We all know that last year, April, you had a price increase, which still benefited the first Q this year on the pricing side. But what will drive the South Korea revenue and also pricing and the EBITDA growth for the rest of the year, in particular, the industry remain a little bit soft and the competition is still there. So this is the question on Korea. [Foreign Language] Bernardo Novick Rettich: I can take this one too. Very good question, Lillian, thanks. When we think about like a medium-term margin growth for APAC East and Korea, I think there are mainly 3 things that can drive this. One is, of course, pricing. The second one, operational efficiencies. And the third one, I think it's important to mention is mix and innovations. Maybe let me talk about each one of them. On prices, of course, we always consider our pricing decisions looking at what's happening in the beer market, but also the macroeconomic situation in the country. We'll continue to monitor similar to China. We don't have anything to announce at this point. On the second part, operational efficiencies. Here, we continue to implement cost management initiatives. This is one of our main strengths at Budweiser APAC, as YJ was talking about our efficiency and excellence programs that we have so this is something that we still see opportunities. And number three, I think mix and premiumization and innovations are very important for us in the future. Maybe I can share a couple of examples one of them is the growth of Stella Artois in the on-trade. I think that's a prudent healthy growth. The other one is the nonalcoholic beer, like example like Cass 0.0. I think both of them are good examples of innovations that can both drive volume growth, but also margin expansion. So overall, I think that we see opportunities to keep recovering margins in Korea in the future. Thank you for the question. Operator: In interest of time, our final question will come from Linda Huang from Macquarie. Linda Huang: My first one is regarding for the dividend. And given that Bernardo has really taken up the CFO role. So I just want to know that whether from the group perspective, whether you will change the capital allocation approach. Especially the last 2 years, right, we -- they paid out USD 0.0566 per share dividend to the shareholders. So whether this is the dividend per share policy under review. So this is my first question. [Foreign Language] Bernardo Novick Rettich: Thank you, Linda. Nice to hear from you. Thanks for the question. So I think it's important to remind everybody, right, we are working to deliver sustainable long-term results for our shareholders, right? And the other message is that our capital allocation strategy remains the same. Our first priority continues to be to invest in our business like we are doing this year to drive organic growth. followed by M&A when we see opportunities for acquisitions. That's the second one. And then the third one to return to our shareholders, for example, via dividend, but it's also what we have been doing, right? So I think we are very proud of our dividend track record since the beginning, recently with the announcement of the $750 million dividend that we announced for 2025, which by the way, was consistent to the dividend for the previous 2024. So I think if I have to summarize, we are working towards improving our business performance this year to be able to keep this consistency in the future. Thanks for the question. Linda Huang: My second question is regarding for our products, and I think this may be YJ can help. So when we compare China to the other Western countries. I think there's always plenty of alcohol product innovation. So I just want to know that, again, whether the management can elaborate more about our product innovation plans? And then what kind of the innovation strategy will fit well for our China market. [Foreign Language] Yanjun Cheng: [Foreign Language] Operator: Thank you. That concludes our Q&A session today. I would like to turn the conference back over to YJ for the closing remarks. Yanjun Cheng: Thank you. As I mentioned on our 2025 annual results call early this year, our priority is to stabilize volume and rebuild our market share momentum in China by investing in our in-home route to market and a leading permium portfolio. The progress we have been seeing in the first quarter and have been encouraging. On this positive note, thank you all for joining us today, and I'm looking forward to speaking to you soon. Operator: Thank you. And this concludes today's results call. Please disconnect your lines. Thank you.
Operator: Hello, everyone. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coupang 2026 First Quarter Earnings Conference Call. [Operator Instructions] Now I'd like to turn the call over to Mike Parker, Vice President of Investor Relations. You may begin your conference. Michael Parker: Thanks, operator. Welcome, everyone, to Coupang's First Quarter 2026 Earnings Conference Call. I'm pleased to be joined on the call today by our Founder and CEO, Bom Kim; and our CFO, Gaurav Anand. The following discussion, including responses to your questions, reflects management's views as of today's date only. We do not undertake any obligation to update or revise this information except as required by law. Certain statements made on today's call may include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and in our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings. As we share our first quarter 2026 results on today's call, the comparisons we make to prior periods will be on a year-over-year basis, unless otherwise noted. We may also present both GAAP and non-GAAP financial measures. Additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures are included in our earnings release, our slides accompanying this webcast and our SEC filings, which are posted on the company's Investor Relations website. And now I'll turn the call over to Bom. Bom Suk Kim: Thanks, everyone, for joining us today. I'd like to cover a few things where we stand in the recovery from last quarter's data incident, how we see the path forward on growth and the nature of the temporary dislocation in margins and how we think about it over the longer term. Starting with where we are. Customer obsession, operational excellence and disciplined capital allocation have guided us since our inception, and they're the same principles guiding us through this period. As we shared previously, January marked the low point in our Product Commerce revenue growth rate. Each month since has improved on a year-over-year basis and the pace of improvement strengthened through February and March. Our recovery is powered by the same drivers that have shaped our business since we launched Rocket Delivery over 10 years ago, a relentless focus on [ WOW-ing ] customers across selection, price and service. That experience was built or many years and billions of dollars of investment and one which we believe continues to widen its lead in the market. The customer behavior we've seen since the data incident reinforces this. For example, the vast majority of WOW members never left, and they have continued to compound their spend at double-digit rates throughout this period. Of those who did leave, the majority have come back and picked up where they left off, resuming the levels of spend they were at before the incident, and they're now compounding alongside the members who stayed. Through the end of April, we've closed nearly 80% of the decline in WOW memberships that followed the incident through a combination of those returning members and strong new sign-ups. New WOW sign-ups and churn have returned to historical stable levels. Across the board, customers are reengaging in ways that reflect the conviction they've long placed in the Coupang experience. It's worth to spend a moment on how this recovery shows up in the reported numbers in Product Commerce. Year-over-year growth will take time to fully reflect the underlying recovery. The months of pause compounding from the effective period continue to weigh on the comps even as customer behavior normalizes. Our revenue growth rate trajectory from January to March is running ahead of historical patterns, and we expect the year-over-year comps to continue improving throughout the year. Turning to margins. Two distinct factors are pressuring profitability this quarter, and I want to describe them separately because they behave very differently going forward. The first is the customer vouchers we issued in response to the incident. These are onetime in nature. The bulk of the impact is contained to Q1, with a modest tail into the first part of Q2. The second is a set of temporary inefficiencies in our network. Our capacity build-out and supply chain commitments are all made well in advance, calibrated to a demand trajectory we project based on a stable, predictable customer pattern. That's how we manage cost to serve efficiently, and that's the path we were on before the incident. When an external event of this kind disrupts that pattern, actual demand falls short of what those commitments were sized for, and we carry the cost of underutilized capacity and inventory secured through the period. As demand returns to a predictable curve, we expect our capacity and supply chain to come back into balance and the inefficiencies to work their way out. We're adapting our network and supply chain through this period as we did when we came out of COVID, and we expect those adjustments will show up progressively in the P&L. Stepping back from the near term. We believe the long-term drivers of margin expansion at Coupang remain intact and continue to improve. We expect operational efficiencies across our network, supply chain optimization, ongoing investment in automation and technology and the scaling of our margin-accretive categories and offerings to drive further margin expansion over the long term. We expect annual margin expansion to resume next year, and we have strong conviction in the underlying margin potential of the business over the long term. Beyond the recovery, the work of building the business continues. Selection remains the primary lever for unlocking the underlying growth potential in our Product Commerce segment. A meaningful portion of what customers want to buy is still not available on Rocket. And we believe the combination of our first-party catalog and Fulfillment and Logistics by Coupang is the path to closing that gap at scale. Automation and AI across our services, including our Fulfillment and Logistics network, continue to improve service levels and lower cost to serve in parallel, and we expect them to be meaningful contributors to both the customer experience and margin expansion in the years ahead. Turn to Developing Offerings. In Taiwan, we're building the foundation for a truly differentiated customer experience. Our own last-mile delivery network, which guarantees next-day delivery now covers the vast majority of our volume and that coverage continues to expand. We're still in the early stages of bringing the full Rocket Delivery experience to Taiwan customers. But even at this stage, the response from customers has been remarkable. Cohort retention behavior is reminiscent of what we saw in the early years of Product Commerce in Korea. Our conviction in the long-term opportunity, both to WOW customers and to generate attractive returns on the capital we're deploying grow stronger each quarter. Given that conviction this year, our focus in Taiwan is on building the foundation for an unparalleled customer experience and durable growth over the long term. That means deliberate long-term investments in network design, last-mile logistics build-out and supply chain improvements, the kind of foundation that takes time to lay, but that will define the customer experience and competitive position of the service for years to come. In Eats, as I mentioned, the recovery is following a similar path to Product Commerce, which speaks to the strength of the customer value proposition we are building across both services. In Developing Offerings, our approach is unchanged. We start with small investments, test rigorously and deploy more capital only into opportunities we believe can generate lasting customer WOW and durable cash flows. We remain disciplined capital allocators taking the long view. Our recovery is ongoing, and we have more work ahead. We're focused on continuing to build and improve on the experience that brought customers to Coupang in the first place across Product Commerce and Developing Offerings. I'll now turn the call over to Gaurav to walk through the financials in more detail. Gaurav Anand: Thanks, Bom. As we guided coming into the year, Q1 reflected the impacts from last quarter's data incident, and our results are consistent with the trajectory we outlined in February. The underlying business has continued to strengthen as we have progressed through this period, and we expect the impacts on Product Commerce to diminish as we now move further from the affected quarter. I will first walk through the segment operating results and then speak to our consolidated performance. In Product Commerce, we reported segment net revenues of $7.2 billion, growing 4% on a reported basis and 5% in constant currency. As we look at each month within the quarter, the constant currency growth rate adjusted for timing of holidays reached its low point in January and accelerated sequentially in February and March, consistent with the recovery that we had described earlier. Product Commerce active customers for the quarter were 23.9 million, growing 2% year-over-year but down 3% over last quarter. The sequential decline reflects the lagging effect of the data incident on the metric because active customers are measured on a trailing 3-month basis and the incident occurred late in Q4. The affected period is more fully reflected in this quarter's count than in the last quarter. The most recent trend is the more meaningful signal. We have seen stabilization and improvement in the underlying metrics this quarter with encouraging momentum in account reactivations and new customer growth. The recent positive momentum in WOW membership, we spoke to last quarter has also accelerated over the past few months. As we noted, the vast majority of our members never left, and through the end of April, we have closed 80% of the decline in WOW membership that followed the incident. And the majority of WOW members who left have returned and they have resumed the levels of spend they were at before the incident. Product Commerce gross profit for the quarter was $2.2 billion, with a gross profit margin of 30.3%. This represents a contraction of approximately 100 basis points year-over-year and 160 basis points quarter-over-quarter. The decline in gross profit margin is the result of near-term factors tied to the data incident, including the impact of vouchers we issued in response to the incident and the temporary inefficiencies in our network such as excess capacity and supply chain commitments positioned against our pre-incident demand curve. We believe the long-term drivers of margin expansion at Coupang remain intact and will continue to compound, including operational efficiencies, supply chain optimization, ongoing investment in automation and technology and the scaling of our margin-accretive categories and offerings. We expect them to resume driving margin expansion and their underlying impact to become more evident as we move past these temporary inefficiencies. Segment adjusted EBITDA for Product Commerce was $358 million for the quarter, resulting in an adjusted EBITDA margin of 5%. This represents a contraction of roughly 300 basis points year-over-year and 270 basis points quarter-over-quarter, driven primarily by the gross profit dynamics I just described, along with the near-term pressure from operating costs that were sized for a pre-incident demand curve. We expect this to normalize as we work through those commitments, and we make adjustments. Turning to Developing Offerings. We reported segment net revenue of $1.3 billion, growing 28% on a reported basis and 25% in constant currency. The growth is primarily driven by the hyper growth rate in Taiwan, along with a continued high growth rate in Eats and Rocket Now in Japan. We generated $123 million in gross profit for the quarter in Developing Offerings, down 25% over last year as we continue to make investments in response to the encouraging customer engagement we are seeing across these early-stage offerings. Segment adjusted EBITDA losses were $329 million, consistent with our expected cadence of investment, underlying our full year guidance of between $950 million and $1 billion in segment adjusted EBITDA losses that we communicated last quarter. On a consolidated basis, we reported total net revenues of $8.5 billion for the quarter, representing growth of 8% on both a reported and constant currency basis. This is consistent with the 5% to 10% constant currency growth rate range we guided to last quarter. Consolidated gross profit was $2.3 billion with a gross profit margin of 27%, a contraction of approximately 230 basis points year-over-year and 180 basis points quarter-over-quarter. This margin compression reflects the temporary impact that I outlined in Product Commerce from the data incident along with the increased level of investment in Developing Offerings. OG&A expense was $2.5 billion or 29.9% of total net revenues, roughly 250 basis points higher than Q1 of last year. The year-over-year increase largely reflects 2 dynamics. Much of our cost base was sized for the demand trajectory we were on before the incident, which creates a near-term gap between cost base and current revenue. And the increase in operating costs within Developing Offerings consistent with the levels of investment we are making to support those growth initiatives. Our losses before income taxes was $255 million and we incurred income tax expense of $11 million. Our effective tax rate this quarter was elevated because the losses in our early-stage operations in Taiwan and Japan don't generate offsetting tax benefits at the consolidated level. We anticipate an effective tax rate of between 75% to 80% for the full year. We continue to expect this to normalize closer to 25% over the long term. We are reporting an operating loss for the quarter of $242 million and net loss attributable to Coupang stockholders of $266 million, resulting in a diluted loss per share of $0.15. Consolidated adjusted EBITDA was $29 million, resulting in an adjusted EBITDA margin of 0.3%. This represents a contraction of approximately 450 basis points year-over-year and 270 basis points quarter-over-quarter, driven primarily by the Product Commerce gross profit dynamics from the data incident and the increased level of investment in Developing Offerings. On cash flow, for the trailing 12-month period, we generated operating cash flow of $1.6 billion and free cash flow of $301 million. The year-over-year decrease in trailing 12-month free cash flow is primarily driven by the increased losses in Developing Offerings as well as higher levels of CapEx. This quarter, we also repurchased 20.4 million shares of our Class A common stock for $391 million. Our Board of Directors has recently approved an additional $1 billion to be added to a stock repurchase program as part of our broader capital allocation strategy to generate meaningful returns for our shareholders. Now a few final comments on our outlook. For Q2, we anticipate consolidated constant currency revenue growth of 9% to 10%. We also expect our top line growth rates to continue improving over the course of the year as the impacts from the data incident diminish. We also expect consolidated adjusted EBITDA margin year-over-year contraction of approximately 300 to 400 basis points for Q2, primarily reflecting the near-term factors from the recent data incident. As we have noted, the long-term drivers of margin expansion remain intact. As we work our way through the temporary inefficiencies in our network, we expect margins to improve throughout the year with annual margin expansion resuming next year. The levels of service and value we are able to consistently provide to customers and the response we increasingly see from those customers give us confidence that the recovery will continue to build through the year, and we remain intensely focused on delivering moments of WOW for our customers every day. Operator, we are now ready to begin the Q&A. Operator: [Operator Instructions] The first question is from Eric Cha with Goldman Sachs. Minuh Cha: I have 2 questions. First one is, would you say, given the returning WOW members and probably higher demand visibility into the second half, the timing difference of demand and investment could be somewhat resolved in second half. And if so, would the 2027 margin would have profitability expansion over 2025 level? So that's the first question. And the second question is, did the Developing Offerings guidance you gave previously, did that include the voucher impact? And I don't think it is, but any likelihood the annual guidance may be revised higher, given the annualized loss in first quarter was a bit higher than expected. Bom Suk Kim: Eric, thanks for your question. I think it's worth going a little bit deeper into the margin point that you raised. I mentioned earlier that some short-term factors are in play, like customer vouchers as well as temporary inefficiencies. On the latter point, let me take a moment to explain how our cost structure works because I think it's important context for understanding both this quarter and the path forward. A meaningful portion of our cost base is fixed and built in advance. That includes our fulfillment centers, logistics network, supply chain commitments we make to partners as well as headcount we secure to operate all of it. And none of these decisions are made on a quarter's notice. A new fulfillment center takes substantial time to plan, build and bring online. Supply chain commitments are negotiated with significant lead times. And as you can imagine, hiring and training our people is something we do well in advance of when we need them. And we size all of these against the projected demand curve. That's what we expect customer demand to look like quarters and in some cases, even years from now based on the trajectory we're on. When demand follows that curve, our fixed cost base operates at the utilization we plan for and our cost to serve looks the way it should. And that's how we've consistently expanded margins over time. When an external event temporarily disrupts that curve, demand falls short of what those costs were sized for. The fulfillment centers are still there. Supply chain commitments are still in place. The teams are still on payroll, but the volume flowing through is lower. So our utilization of those costs is temporarily below target. And that underutilization shows up directly in our gross margins and our adjusted EBITDA. It's the same dynamic that played out when we came out of COVID, when capacity built for one demand curve, we're suddenly serving a different one. And when this happens, we have typically 2 choices. The first is to make dramatic changes in the short term to try to hit some short-term number, close facilities, reduce head count and so forth. That option is available, but we believe it's the wrong one for our business and our customers in the long run. We'd be unwinding capacity that we know we'll need again as the recovery continues and unwinding now to rebuild it later, especially with the lead times so that some of these things have is not only disruptive but highly inefficient. And the second choice that we have is to absorb that temporary underutilization knowing that as growth recovers demand catches up back up to the cost base and the utilization returns to target. And that's the choice we're making. And we're making this -- we're managing this period actively. We're adapting our network where appropriate, much like we did coming out of COVID. But our overarching posture is that the cost base we've built is the right one for the path we're on, and we're not going to dismantle it for a temporary dislocation. And as the recovery progresses, utilization rebalances and the margin pressures work their way out. And that's the mechanism that gives us confidence in resuming annual margin expansion next year. Gaurav Anand: Eric, on your question regarding the DO losses, the $329 million loss in Q1 is in line with what we had expected. And our full year Developing Offerings investments remain tracking to the $950 million to the $1 billion range we had given. It includes a voucher program that we have provided. So Developing Offerings, again, is in early foundational building stages with lots of moving pieces across initiatives and a lot of decisions being made at regular intervals. We are watching -- continue to watch it closely, and we'll continue to update you as the year unfolds, if anything changes. Operator: Our next question will come from Jiong Shao with Barclays. Jiong Shao: I have 2. I'd like to perhaps ask one at a time if that's okay. I was just wondering, firstly, would you able to sort of sort of help us quantify a bit about the voucher impact in Q1 on revenue or EBITDA for Product Commerce and to deal given some vouchers for [indiscernible] some vouchers for Product Commerce or to whatever degree you are willing to share? That's my first question. Gaurav Anand: Sure. Let me take that. So regarding the $1.2 billion voucher program, our primary objective has been to ensure that our customers felt valued and supported during this challenging period. The redemption levels were consistent with our internal expectations. And from an accounting perspective, the vouchers are netted against the revenue. So they did have an impact this quarter on both revenue growth and margins. So as we noted earlier, with the voucher utilization period extending into the first few weeks of April, we do expect there to be a modest impact in Q2 also. Jiong Shao: Gaurav, if I may, just follow up on that. I believe your vouchers are expiring in about 10 days, so the impact for Q2 should be much smaller. But at the same time, you are guiding your Q2 EBITDA to be down 3 to 4 points year-over-year. Was that just because of the sort of the scale of the operation Bom talked about earlier, like you sized that up for certain scale. Now there's a lot of fixed cost? Are there other reasons that's driving the 300 to 400 basis points decline year-over-year on the group EBITDA for your Q2 guide. Gaurav Anand: Yes. Jiong. As Bom mentioned earlier, we had planned fixed capacity, both that shows in gross margin and our OG&A to be at the levels which were higher than the current trends that were created by this event. So because of that, the continued margin Q2 guidance is what we said it is. Jiong Shao: Okay. Okay. My second question is that we have seen some media reports -- my apologies if they're not final or official, that Bom has been designated as a head of the [ Jabil ]. For those of us who are not super familiar with this sort of thing in Korea. I don't know. Could you talk about like what does that mean? Does that mean anything different for shareholders for corporate governance if that matters at all? Gaurav Anand: Sure. We are aware of the recent designation in Korea and are carefully reviewing it. As always, we continue to be committed to complying with all regulatory requirements in all the jurisdictions where we operate. We'll continue engaging consecutively with all our regulators and work through all our obligations as needed. That's as much we can share at this time. Operator: [Operator Instructions] Our next question comes from Stanley Yang with JPMorgan. Stanley Yang: I have 2 questions. First question is, you mentioned already about the WOW members trend. So when do you expect your WOW users to be recovered to your pre-data bridge level? And what would be the normalized annual addition of WOW users after your full recovery? My second question is, is there any change in your Developing Offerings loss mix between Taiwan and Japan. When or at which scale do you expect Taiwan loss to pick up and start declining? I also would appreciate your comment on the operating trend of the Rocket Now in Japan? Bom Suk Kim: Stanley, thanks for your question. In terms of specific dates, I think we're focused more on the trajectory and the underlying customer behavior more than on any date for recovery. I think there are some very helpful and informative signals that we're seeing in the customer behavior that's worth noting around our WOW membership. And as we mentioned, not only is WOW membership numbers being driven by new sign-ups, but it's also driven by members who are returning. The vast majority of our WOW members never paused in the aftermath of the incident. They continue to compound at double-digit rates, the same way they have for years. And the minority who did pause are returning rapidly. And the majority of them have returned in a very short period of time. And just as importantly, they're resuming their prior levels of spend, not splitting that share of wallet with the alternatives. And we've now closed nearly 80% of the decline in WOW memberships that occurred after the event with a combination of those returning members and strong new sign-ups, which are along with churn back to historical levels. And I think what's helpful to know is that all of those patterns are consistent with an event-driven disruption working its way out, not with a structural shift in our position. And the fact that our -- the vast majority of the customers never paused, they continue to compound at double-digit rates, and the members who paused are returning rapidly and picking up their spend right where they left off and continuing to compound is confirmation of our view that we're returning to the same drivers that have been powering our growth for years in the past. Those customers continue to value the Coupang experience and are not finding that value proposition somewhere else. And that's what we believe will continue to power our growth in the years ahead. Gaurav Anand: And regarding your question on Taiwan and investment. Taiwan continues to grow at hyper growth rates. We are very excited about it and the future that it holds for us. The investments, we were not splitting out investments between different initiatives. Right now, we allocate capital, just based on where we see the opportunities are the strongest. And each initiative is at a different point in the life cycle. But... Bom Suk Kim: In Taiwan, as I mentioned earlier, we're prioritizing, building the foundation for an unparalleled customer experience. We're excited to be entering a lot of these very exciting foundational building -- foundation-building stage of the journey, such as network design, supply chain improvements. We now have provided access to our next-day delivery experience to a majority, a vast majority of consumers in Taiwan, and it already represents the vast majority of our volume, and we're continuing to strengthen that last-mile delivery network, not only to increase access, but to improve the levels of service that we provide. And we're also investing to expand aggressively the selection that customers can purchase on that network across more categories. Operator: Our next question will come from Seyon Park with Morgan Stanley. Seyon Park: I also have 2 questions. First is just on the macro picture overall. I think industry-wise, we've started to see a bit of the acceleration in e-commerce growth. And just given the K-shaped economy that we're kind of seeing, I kind of wanted to get your views as to whether we are seeing any signs of slowing for the e-commerce industry overall or whether it's some seasonal factors that are also impacting it, given Coupang is now a big chunk of that e-commerce. Clearly, the impact that we've seen from the data breach may also have impacted the growth of the overall industry as well. So I just kind of wanted to get management's view on how they see just the overall industry growth. There seems to be a lot of conflicting data. Obviously, GDP was also stronger. So any views there would be much appreciated. The second question is really on the buyback. You announced that another $1 billion has been approved. It does seem like the cadence of the buyback is starting to accelerate. And hence, just wanted to get some guidance or any comments as to whether we should see a higher cadence of buybacks in the coming quarters? Bom Suk Kim: Seyon. I think from our perspective, we're always much more focused and obsessed with our customers, how our customers are behaving. And we ultimately believe the biggest drivers of customer behavior are -- is the experience that we're providing. We've seen that consistently through ups and downs in the macro over the many years that we've served our customers and the markets that we operate in. I think there's some important, again, things to maybe point out again that we've always seen for years our customers compounding their spend, and the vast majority of customers who remain with us and did not pause continue to compound at double digits, very healthy rates. The customers who have returned, the majority of customers who -- of the minority that paused, who've returned have picked up exactly where they've left off and are now also compounding alongside them. So I think a lot of the behavior that we're seeing is still very strong on that front. I do think it's also important, maybe you are seeing some discrepancy also in the underlying behavior that I'm talking about and the numbers you may be seeing this quarter and -- because the year-over-year growth rate this quarter doesn't move in lockstep with that underlying customer behavior that I'm pointing out. And maybe I'll take this opportunity to explain also how growth at Coupang normally compounds. Each month, our existing customers grow their spend with us and new customers join and start building their spend over time. Both of those streams add to our base and keeps getting larger. That's the engine that has produced our historical growth rates. That's been remarkably consistent for us. And I think we've shared [ core ] data in the past. We shared it regularly. That's really an important health metric for us. And through again, ups and downs on the macro, that engine of existing customers continue to compound, new customers joining and building their spend over time, those 2 streams are really the engine that produces our growth rate. Now when an external event interrupts that cycle for a period, 2 things happen. First, the customers who pause stop adding to that base for the months that they've paused. And the new customers who would have joined during that period don't join at the usual pace. And second, this is the subtle part, we lose the months of compounding of that customer spend that we typically observe with both streams. And once a month is gone, you can't get it back. And now even if everything underneath fully recovers, past customers come back at prior spending levels, new acquisitions return to historical pace. The year-over-year comparison still carries the weight of those lost months. And this year's revenue is now missing the months of compounding that didn't happen during that affected period, while last year's revenue also included -- sorry, the last year's revenue included all 12 months of uninterrupted compounding. So the 2 sides of the comparison are no longer symmetric. And this effect works its way out as we've lapped the affected period. And after we've lapped the affected period, that's the point at which the comp returns to being apples-to-apples. And this also probably gets to a little bit to Eric's earlier question as well about our growth rate this year. While we see very encouraging and positive signs in our customers returning, picking up their spends where they left off, growing and compounding. We see very healthy compounding behavior underneath because of the lost months of compounding. You'll see our Y-o-Y growth lag and will be behind the demand curve that we projected for our fixed cost. And a lot of the -- that's the earlier point that I made about cost dynamics. So some of the things that Eric was asking about, I think, are -- can be gleaned from -- or some of the things that we want to point out can be gleaned from what I'm sharing here. But hopefully, this gives you a fuller picture of how we think about growth and the drivers of growth. Operator: We will now take our last question from the line of Wei Fang. Wei Fang: I have 2. First one is a follow-up on an answer to the prior question on your 2Q EBITDA guidance. I don't think you mentioned any impact from the fuel inflation. Just want to understand if that's included there and also if you can help quantify for us? And the second question is on competition. I understand that some Chinese e-commerce players are now growing their MAUs nicely in Korea as well. I think they combined maybe more than 10 million of already in terms of users. I know maybe the spending levels is not there yet, but can management give us some overview on the landscape, maybe today versus a year ago, anything has changed. And maybe anything -- any comment you can give in terms of like a 3P take rate in the business? Bom Suk Kim: Wei, thanks for your question. We've always operated in a in highly competitive markets. And we've had many new entrants, many players. It's one of the most dynamic spaces and industries that you can operate in. And over many years, what we've learned over and over again that kind of what matters most is the customer experience and staying relentlessly focused on customers and not what any set of competitors or individual competitor does. The markets that we're operating in are large. We represent just a small share in each of them, and there's room for many winners. I think what we believe ultimately drives growth is the differentiated value we provide to customers, the combination of selection, price and delivery that no one else offers. I think we're very encouraged, as I mentioned, that the customers who -- the vast majority of customers who stayed with us through the affected period over the last couple of quarters have continued to compound at double-digit rates as they have for years. The customers who've come back have not split -- have returned to their old levels of spend and have not split that spend with other alternatives. That's also, we think, a good sign that they really value what we're providing, the Coupang experience and not finding that value proposition elsewhere. And that value proposition is really the engine of our growth. It's really what we're focused on making even more valuable for our customers every day. And that's what we believe will really determine our success in the years ahead. Gaurav Anand: Yes, I'll take the -- I'll respond to your question on the impact of oil prices. So with the increase in fuel prices, not going really into effect until late Q1, we saw a very small impact on our operations this quarter in Q1. We benefit from the efficiencies created by our end-to-end owned supply chain and logistics infrastructure and processes. And looking into the near future, we keep our focus on continuing to create the best experience for consumers, while we also are driving operational excellence. We don't see this -- the oil prices having a significant or material impact in Q2 so far, and we'll continue to monitor it. On Q2, again, even though we guided our margins to where we did, there is no structural change in our entitlement and over time, what we see. Operator: This concludes today's conference call. Thank you, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Lucid Group First Quarter 2026 Earnings Conference Call. Please be advised that today's conference call is being recorded. [Operator Instructions] I would now like to turn the conference over to your speaker for today, Nick Twork, Vice President of Communications. Please go ahead. Nick Twork: Thank you, and welcome to Lucid Group's First Quarter 2026 Earnings Call. Joining me today are Silvio Napoli, incoming CEO; Marc Winterhoff, our Interim CEO; and Taoufiq Boussaid, our CFO. Before handing the call over to Silvio, let me remind you that some of the statements on this call include forward-looking statements under the federal securities laws. These include, without limitation, statements regarding the future financial performance of the company, production and delivery volumes, vehicles and products, studios and service networks, financial and operating outlook and guidance, macroeconomic, geopolitical, policy and industry trends, tariffs and trade policy, company initiatives, leadership changes and other future events. These statements are based on various assumptions, whether or not identified in this communication and on the predictions and expectations of our management as of today. Actual events or results are difficult or impossible to predict and may differ due to a number of risks and uncertainties. We refer you to the cautionary language and the risk factors in our annual report on Form 10-K for the year ended December 31, 2025, subsequent quarterly reports on Form 10-Q, current reports on our Form 8-K and other SEC filings and the forward-looking statements on Page 2 of our quarterly earnings presentation available on the Investor Relations section of our website at ir.lucidmotors.com. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as required by law. In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results is available in our earnings press release issued earlier this afternoon as well as in the earnings presentation. With that, I'd like to turn the call over to Lucid's incoming CEO, Silvio Napoli. Silvio, please go ahead. Silvio Napoli: Thank you, Nick. Good morning, everyone, and thank you for joining. This is my first earnings call with Lucid and as already had the opportunity to share with many of you, I'm extremely pleased to be here and part of the Lucid team. With not even a month with the company, I'm still at a very early stage, so I'll keep my remarks brief. Let me start by reiterating why I'm here. Lucid brings together state-of-the-art technology, a premium product platform and a unique opportunity to build a strong, enduring position in a transforming industry. And that combination is compelling. That is the reason that brought me here. Today, 3 weeks into the journey, I'm even more convinced that this is the case. In my first days, I've had the opportunity to meet with our teams in Newark, our headquarters and in some of our key markets. In fact, on the very first day, I traveled to visit a factory in Arizona, the heart of Lucid. Last week, I traveled to Saudi Arabia to witness a strong brand recognition in this fast-growing market and to see firsthand the progress of our new factory under construction. As you know, this manufacturing center is an essential part of our commitment to drive scale, profitability and to position Lucid on the world stage. While there, I've also been meeting with employees, shareholders and with local stakeholders. And everywhere I go, I'm focused on listening and beginning to understand where we are strongest and where we need to improve. And what stands out immediately is the incredible domain competence and outstanding motivation of the Lucid team and the strength of our product. At the same time, it's clear that realizing Lucid's full potential will require sharper focus and consistent execution, particularly around simplification, prioritization and speed. My near-term priorities are straightforward: recenter all our activities around our customers, ensure the organization operates with clarity and accountability, focus resources on the highest impact areas and embed a stronger culture of cost and capital discipline across the business. A central objective over time is to build a more self-sufficient company, one that progresses towards funding its own growth. And that means being rigorous in delivering on our commitments and how we allocate capital to few vital priorities. In simple words, this means making clear choices on where to invest and just as important, where not to. At the risk of stating the obvious, I'm not in the position to comment on results reached prior to my joining. Accordingly, I trust you will understand that today I will not comment on any specifics, including the outlook. My goal over the coming weeks is to deepen my understanding of the business so I can engage more fully with you in the future discussions. With that, I'll turn the call over to the team to walk you through the Q1 results. Thank you. Marc Winterhoff: Thank you, Silvio, and good afternoon, everyone. Let me start with the key takeaways. We expanded our Uber partnership to at least 35,000 vehicles, raised over $1 billion in new capital and ended the quarter with a clear cost reduction program underway. The foundation is solid, and we are building on it. We have made meaningful progress on each of these fronts. Among the highlights. First, we expanded our partnership with Uber to provide a minimum of 35,000 robotaxis, up from 20,000 previously announced and increased their investment to $500 million, up from $300 million, improving our visibility into long-term demand and revenue in a new and growing market. Further reflecting the strengthening relationship between our companies, Sachin Kansal, Chief Product Officer at Uber, has been nominated for election to Lucid's Board of Directors. Second, we significantly strengthened our financial position, raising approximately $1.05 billion, including $550 million investment from the Public Investment Fund through a private placement, reaffirming their continued support and long-term commitment to Lucid. We maintained approximately $2 billion of undrawn commitment under the DDTL after drawing $500 million of cash in April, further enhancing our financial flexibility. Pro forma for the capital raise and the DDTL increase, liquidity at quarter end would have been $4.7 billion, providing ample flexibility to continue to support development of our Midsize platform and the continued build-out of M2. Third, we continue to execute to deliver scale and profitability, delivering $282 million in revenue. Despite the unforeseen geopolitical tensions and logistical obstacles in the region during Q1, our M2 construction never stopped, and we continue to install capital equipment and work towards start of production. The plan remains to ramp up Midsize vehicle production in 2027, and we launched an aggressive cost reduction program targeting cost savings across all areas of the organization in all geographies. Let me walk you through the key updates of the execution of our strategy in detail. Following the framework we laid out at our recent Investor Day, the Lucid Air and Gravity continue to anchor our near-term growth. And our focus here remains execution, quality, delivery and customer experience. Operationally, we produced 5,500 vehicles in Q1, up 149% year-over-year. Despite a temporary disruption, which elevated costs, we exited the quarter trending back toward our cost targets. We delivered 3,093 vehicles, which was flat compared to Q1 2025. When Gravity deliveries were temporarily impacted by a supplier issue, we acted quickly, resolved it and resumed deliveries with additional quality controls. As deliveries resumed, we saw improving momentum through the quarter, including the highest March deliveries in Lucid history, up 14% year-over-year. We also experienced a strong rebound in order intake, up 144% in North America in March from February, with Gravity driving the majority of demand. In March, we regained our position among the best-selling EVs in our segments. We also continue to make progress on our partnerships for our international distribution, including the official launch of our first retail partnership in Europe, which allows us to scale more quickly in a capital-efficient way. We expect the delivery trajectory to improve through the year. Near-term demand signals are mixed, but we see tailwinds building into the second half. Apart from seasonality, which historically drives greater deliveries in second half, there are numerous other factors which may deliver a lift, including high gas prices, which tilt demand towards vehicles with more attractive operating costs, competitive dynamics, including exits from the Air and Gravity segments, lease cycles, Lucid software updates, potential tariffs on European imports and potential improvements in macroeconomic and geopolitical conditions. As a result, we continue to expect a back-end weighted delivery profile for 2026, but are confident in the long-term trajectory of demand. Our priority now is consistent and predictable conversion of production into deliveries. Central to our framework to scale and drive profitable growth is the Midsize platform. The Midsize platform brings Lucid's signature range, efficiency and driving experience to a much larger TAM and broader set of customers and is key to unlocking scale, affordability and improved unit economics. At our recent Investor Day, we provided a clearer view of the future product portfolio with the expected pricing starting below $50,000, reinforcing Lucid's entry into a more accessible segment of the market. I'm pleased to be able to share that our BOM cost position remains favorable, still tracking below our initial cost estimates. During the quarter, construction on M2 and installation of capital equipment continued, and we remain on track for production ramp-up of the Midsize in 2027. Turning to our third priority, autonomy. In mid-April, we announced the expansion of our partnerships with Uber, increasing their total investment to $500 million and expanding the planned deployment to at least 35,000 robotaxi vehicles. This represents a meaningful increase in both scale and long-term visibility for the program, which generates a new revenue stream through a partnership approach that enables rapid speed to market in a new and rapidly growing market with minimal CapEx. I'm excited to share that we have met all milestones so far in our joint project with Nuro to provide autonomous Lucid Gravities to Uber for commercial launch by the end of the year, and remaining milestones are on track. We delivered 75 engineering vehicles and testing and mileage accumulation is ongoing in several cities throughout the U.S. Starting in mid-April, Uber and Nuro employees are now able to test the end-to-end customer experience, including ordering a robotaxi within the Uber app and choosing from select destinations for drop-off. Our partners at Nuro have also received approval from the California DMV for driverless testing of the Lucid Gravity in the state, making it one of the only a handful of vehicles that have received such approval. This is a key step in paving the way for launching commercial autonomous operations later this year. Looking forward, we are targeting the following milestones as we track toward commercial robotaxi operations in late 2026. This quarter, Lucid will start our production validation builds, which are intended to reflect our production intent design and some of the key robotaxi features like exterior beaconing for customers, interior cameras and consumer interfaces. This build is expected to be completed in Q3 and allows us to begin more comprehensive end-to-end testing with our partners as well as homologation testing and validation. And following the completion of testing in Q3, we anticipate starting regular production of robotaxi vehicles for commercial sale in early Q4 at M1. As you can see, we are well on our way to achieving our goals with our robotaxi program and commercial launch is on track for late 2026. In parallel, we continue to expand advanced driver assistance features across our consumer vehicles. Over time, we expect these features to become an increasingly important source of recurring revenue with subscription-based offerings being launched starting in 2027. In closing, Q1 highlighted areas where we still need to improve execution, and we are taking clear actions to address them. I'd like to close with a few personal words. It has been a privilege to serve as Interim CEO. We delivered 2 years of consecutive record quarters when it comes to deliveries until the end of 2025. We ramped the Gravity throughout 2025, resulting in a production increase of about 100% last year. We've navigated real headwinds and the team's ability to keep moving through them is something I'm proud of. We sharpened and expanded our strategy with a clear and capital-efficient approach to provide leading autonomy solutions, both for robotaxis and personally owned vehicles. We made meaningful progress across our partnerships, including expanded commitments from both PIF and Uber. I'm confident in this team and Silvio's leadership and in where Lucid is headed. And I'm looking forward to continue to contribute as Chief Operating Officer. With that, let me hand over to Taoufiq. Taoufiq Boussaid: Thank you, Marc. I will walk you through the financial results for the quarter, the structural drivers behind them and how recent actions position us to execute against the framework we laid out at the Investor Day. Q1 was disrupted by a temporary stop sale, but the underlying business held and in March, orders and deliveries rebounded. With roughly similar units delivered and lower regulatory credit sales, revenue grew by approximately 20% year-over-year to $282 million in Q1, driven primarily by mix and pricing effects from Gravity. Let me give you the context that makes this number more useful for thinking about Q2 and the rest of the year. We produced 5,500 vehicles in the quarter but delivered 3,093. This gap reflects a combination of the impact of the temporary Gravity stop sale during which finished vehicles sat in inventory pending validation rather than converting to revenue and segment contraction. A key highlight of the quarter was Uber's expanded vehicle commitment and increased investment in Lucid. It matters for 3 reasons. It improves long-term revenue visibility. It derisks the volume ramp into the Midsize era, and it validates our vehicle platform as the reference point for commercial autonomy deployment. This is a durable addition to the capital structure and to the revenue outlook, not a onetime transaction. Gross margin for the quarter was negative 110.4% versus negative 80.7% in Q4 and negative 97.2% in Q1 a year ago. I want to be precise about the walk because the composition matters more than the headline. Three factors drove the sequential decline, lower delivery volume against a largely fixed manufacturing cost base, underabsorption of fixed cost and large regulatory credit revenue in Q4 that didn't repeat in Q1. Partially offsetting these were IEEPA tariff refunds and the lower inventory write-down versus the prior quarter. These costs were tied directly to the stop sale. With that resolved, they don't carry forward. What remains and what we are focused on is the structural trajectory, which includes, as shared at Investor Day, an average of 50% to 60% reduction in unit cost over the coming years. While we saw unit cost spike during the quarter driven by temporary disruption, it trended back towards the targeted trajectory in March. As volume scale into the second half and with the launch of the Midsize vehicle platform, we expect continued structural improvement in unit economics. I want to be clear, the underlying midterm trajectory of unit cost improvement that we described at Investor Day remains intact, and Q1 does not alter it. Turning to operating expenses. This totaled approximately $678 million for the quarter. R&D was $336 million, down sequentially from $361 million, reflecting program level sequencing even as we continue to fund the Midsize platform and our autonomy stack. SG&A increased $22 million sequentially to $304 million, primarily driven by discrete items, including a prior quarter provision reversal. Excluding these items, underlying SG&A was broadly stable. Year-over-year, SG&A increased $92 million with the comparison impacted by a $35 million noncash benefit in the prior year related to the reversal of stock-based compensation. These numbers also don't yet capture the $500 million in savings expected from our recently announced headcount actions over the next 3 years with the near-term impact most significant. Taken together, our posture on operating expenses is straightforward: protect the investments that build long-term competitive advantage, Midsize, autonomy, software and drive discipline everywhere else. Net loss for the quarter was approximately $1 billion compared to $366 million in the first quarter of 2025. The increase reflects the gross margin dynamics we discussed, continued investment in the business, particularly the Midsize platform and higher SG&A with the year-over-year comparison impacted by a discrete benefit in the prior year. Importantly, a significant portion of the year-over-year change is driven by noncash and nonoperating items, including a $274 million unfavorable change in the fair value of derivative liabilities related to movements in our stock price as well as lower interest income and higher interest expense. And as mentioned, it does not reflect the benefits of our recent headcount actions no more recently launched cost takeout initiatives. Net loss in any quarter reflects noncash and nonoperating items that move significantly with our stock price. The operating loss and cash consumption metrics give a cleaner read on trajectory. Our focus remains on improving operating leverage as we scale volumes and continue to drive cost discipline across the business. Turning to liquidity and capital structure. We ended the quarter with approximately $700 million in cash and cash equivalents and total liquidity of approximately $3.2 billion. Subsequent to quarter end, we executed a series of transactions that strengthened our balance sheet, $200 million of equity investment of common stock from Uber, $300 million from a registered common stock offering and $550 million in convertible preferred stock from PIF. In addition, PIF and Lucid announced an amendment to our delayed draw term loan, providing greater flexibility and approximately $2 billion of available liquidity following a $500 million draw on April 1. Giving effect to the capital raise and DDTL increase, total liquidity would have been approximately $4.7 billion at quarter end. This extends our operating runway into the second half of 2027 and gives us the flexibility to fund Gravity ramp, M2 construction and launch preparation and continued investment in the Midsize program and autonomy stack. On the question of dilution, which I know is on investor minds, the recent financing was structured deliberately to balance liquidity needs against dilution considerations. The convertible preferred structure with PIF reflects that balance as does the sizing of the common equity component. We will continue to evaluate all financing options, including the public markets when the appropriate conditions materialize. And our bias is toward disciplined capital deployment and with opportunistic raises. The strategic stockholder base around this company, anchored by PIF and now meaningfully reinforced by Uber gives us a structural advantage in how we think about capital over the medium term. Now on working capital and inventory. We also expect to see benefits to cash flow driven by improvements to working capital. Inventory stood at approximately $1.47 billion at quarter end, up from approximately $1.1 billion at the prior quarter and elevated by the stop sale buildup. As deliveries normalize through the year and we draw down that inventory, you should expect a higher conversion into cash. Beyond the stop sell normalization, we are tightening production to delivery alignment as an ongoing operating discipline. The new production reporting methodology, which I will cover in a moment, supports that by improving transparency on the conversion step. We took over $200 million in inventory impairments in Q1. Going forward, we expect those to decline. And as inventory reduces through the year, we expect to benefit from impairment releases. Now I mentioned our new production reporting methodology. I want to take a moment on this change to how we report production. Starting this quarter, we are moving our production metric to a process complete definition, meaning we count a vehicle once it has completed the factory gating process, regardless of whether it ships as a complete unit or in a semi-knockdown form. This change better reflects true quarterly production and reduces the volatility that the prior methodology introduced due to shipment logistics. It has no impact on inventory or days on hand reporting, both of which remain based on finished deliverable vehicles. The effect for investors is greater comparability with peers and a cleaner signal on underlying operational cadence. Under the new methodology, the normal auto industry seasonality, Q2 strongest based on working days, Q1 and Q4 softer due to holidays and planned shutdowns will appear more visibly in our reported numbers. Now let me address our outlook and guidance. With Silvio now on board and conducting his review of the business, we are suspending our prior guidance and we provide a full updated outlook at our Q2 earnings call. I want to be clear, this is a governance decision. Near-term demand conditions remain uneven, and we are managing our production cadence accordingly. Our 2026 objective is unchanged. We continue to work to closely align production with demand to avoid excess inventory. We are not constrained on capacity. We are constrained by our own discipline not to build inventory ahead of demand. As market conditions develop, we will scale production accordingly. We have launched a company-wide program to sharpen operational efficiency, reduce costs and concentrate capital on the highest-return opportunities. Q1 cash performance was affected by the stop sell action and the associated inventory reset, which we expect to normalize as we move forward. We are focused on restoring consistent cash generation and building a more durable operating foundation. Production of our first Midsize vehicle is expected to ramp throughout 2027. And our Lucid Gravity robotaxi program in partnership with Uber and Nuro remains on schedule for launch in late 2026. In closing, to put the quarter in perspective, we strengthened our balance sheet, expanded the strategic partnership that improves long-term visibility and are implementing reporting changes that improve transparency. A temporary stop sale in February was resolved, and we have taken action to address the root cause. The Investor Day framework holds. The path to profitability runs through scale from Midsize cost reduction through M2 and improved mix and operating leverage. Q1 does not change that trajectory. It reinforces the importance of disciplined execution, and that is where our focus is. The fundamentals of this business, the technology, the product and the strategic position we have built are intact. We are managing this period with discipline, and we intend to emerge from it in a stronger competitive position. With that, let me turn it over to the operator for your questions. Operator: We will now begin the question-and-answer session by taking questions submitted through the Say Technologies platform. Nick Twork: Our first question comes from [indiscernible]. How does management plan to restore shareholder confidence and address concerns about bankruptcy or potential take-private scenario? Marc Winterhoff: First, I want you to know that we hear your frustration and restoring your confidence is of our utmost importance to us. We are focused on rebuilding your confidence through disciplined execution, transparency and measurable progress against key operational and financial milestones. The business is moving from a period of heavy investment toward a phase where we can begin to leverage those assets at greater scale. We ended 2025 having scaled production, improved unit economics and maintained liquidity. And yes, we've been hit with an unforeseen operational disruption in Q1, which we solved and deliveries and orders have rebounded towards the end of the quarter. We are focused on translating operational progress into more predictable financial profile. To your specific concerns, we do not speculate on market rumors or hypothetical strategic alternatives. Our focus is on executing the plan we laid out, strengthening the company and creating long-term value for our shareholders. Nick Twork: All right. Our next question comes from Robbie S. When is Lucid going to turn a profit? What is the plan? Taoufiq Boussaid: At our Investor Day, we laid out a clear path to profitability. The target is gross margin breakeven in the midterm, building towards the mid-teens by late decade. And on cash flow, we expect to reach positive free cash flow on a similar horizon. The levers to get there are straightforward. It starts with improving fixed cost absorption as volume grow, continuing to bring down bill of material and manufacturing costs, scaling Gravity, launching the Midsize platform and developing higher-margin recurring revenue from software, ADAS and autonomy. On the Midsize platform specifically, this is a meaningful expansion of our addressable market. And importantly, it has been designed from day 1 with cost, scale and manufacturability at its core. Nick Twork: All right. The next question comes from Crystal M. Based on your current cash burn rate, how many quarters of runway does Lucid have without raising additional capital? And what specific milestones must be met before then to avoid dilution? Taoufiq Boussaid: Based on our current cash burn and the recent financing activities we have taken, including the capital raise and the extension of the DDTL, we have funding runway into the second half of 2027. That gives us adequate flexibility to support the Gravity ramp, progress M2 construction and continued targeted investments in both the Midsize platform and our autonomy software. During this period, our focus is on executing the operational milestones that moves us towards breakeven and reduce our reliance on dilutive capital. That means disciplined execution of the Gravity launch, continued manufacturing efficiency gains, measured advancement of M2 aligned with demand and sustained momentum on the Midsize program. At the same time, we are actively pursuing top line diversification through higher-margin software and services particularly around ADAS. On dilution, we are deliberate in how we approach capital raising. We have consistently favored structures that limit near-term dilution and preserve optionality. The use of preferred convertibles being a good example of managing both timing and impact. But ultimately, the strongest answer to dilution is accelerating our path to breakeven because this is what opens up a much broader range of financing alternatives. Nick Twork: That concludes the questions from the Say Technologies platform. Now I'll turn it over to the operator for live questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Ward with Citigroup. Michael Ward: Can you share any volume targets for M2 for 2027? It sounds like it's going to be a gradual type launch throughout the year. And I'm just wondering if the launch is better than expected, does that liquidity take you into 2028? Marc Winterhoff: The targets on the volume, we actually revealed at the Investor Day, and they have not changed. They have not changed. No, no. We are really laser-focused on that ramp. Michael Ward: Okay. And then the second thing I would ask is, as it relates to the robotaxis, are the volume deliveries to Uber depending on them getting certified? Or is there some sort of a schedule for those volume numbers to start to accelerate? Marc Winterhoff: Well, it's basically actually Nuro getting the certification. As we just mentioned, we make very good... Michael Ward: Nuro? Marc Winterhoff: Yes, very good progress on that. So we are on track with this. I mean still we have to have final certification to be able to do this, for instance, when we start in the Bay Area here in California. But so far, even all the development and the certifications are moving as we expected. Operator: Our next question comes from the line of Andrew Percoco with Morgan Stanley. Andrew Percoco: Maybe if I can start out on the free cash flow expectations and just your general commentary around having sufficient liquidity through or at least until the second half of 2027. Can you just maybe help provide a little bit more context around what some of the underlying assumptions are within that? I understand that you guys are pulling the delivery guidance for the year for some governance reasons, but there's anything you can kind of provide in terms of what your underlying assumptions are around demand, that would be super helpful. Taoufiq Boussaid: Andrew, I think that the first answer to your question is that you need to recall that there is a typical seasonality in the company and that we see a significantly improved cash flows during or on the back end of the year. So we shouldn't do any read-through of the cash performance as of Q1 because of 2 specific events. The first one is the stop sales, so which has led to higher cash burn, and we are saying that we will be recovering that. And the second element that you need to take into account is the typical seasonality with a step-up in the sales towards Q3 and Q4, which is helping us to manage the cash burn. So we haven't guided specifically for the cash burn. We have guided for the runway. The statement still remains unchanged. So we will be providing more visibility on that when we reaffirm the guidance in Q2. Andrew Percoco: Okay. Understood. And maybe just my follow-up is just around the commodity cost environment. A lot of your OEM peers are continuing to highlight some pressures there this year and into next year. Can you just maybe provide an update in terms of what you're seeing? I think you guys in the past have said that you've at least hedged or contracted out some of that commodity exposure. But to what extent are you seeing any kind of incremental pressure there? And might that impact that path to profitability? Marc Winterhoff: Actually, right now, that is very limited. I mean yes, there have been increases over the last couple of months on certain raw materials like aluminum. But very recently, for instance, we haven't actually seen an increase. And the other topic is the DRAM, which hits the whole industry. But even that, I mean, is compared to the rest of the BOM cost of the vehicle, a small amount. So we don't see a major impact compared to where we ended end of last year right now. Operator: Our next question comes from the line of Ben Kallo with Baird. Ben Kallo: Just maybe the first one, could you maybe talk more about the sales partnerships, which I guess will be very important, especially as you introduce the Midsize vehicle. You mentioned one in Europe. Marc Winterhoff: Yes. I mean what we're doing there is we're basically extending our approach there from a pure direct-to-consumer model into also partnering either with dealerships in an agency model, for instance, within Germany, so in areas where we already have a D2C network or with importers in new markets that we are entering right now. And we are in the midst of all this process and recently launched the first agent in addition to our D2C outlets in Germany, which gives one day to the other 2 additional cities to cover. And we have numerous LOIs. I think the recent number is like 12 LOIs that are -- we're pushing forward and hopefully get to a contract situation and launch very soon. But it allows us to much faster grow within the areas and the countries we are already in, for instance, in Germany or in the Netherlands or expand into new countries through an importership where you then use existing infrastructure and existing business relationships of those importers to scale much faster. Ben Kallo: Great. And then just on the review, Silvio's review, could you maybe talk, if possible, just about the timing or when we should expect another update? Or is there not a lot of certainty in that for now? Silvio Napoli: Thank you, Ben. I think at the moment, I'm getting to the position. I would say, as of Q2, we should start somehow getting a sense of where we are. Now in terms of by when I'll be ready to give a plan, et cetera, this, I think, is something I'll discuss with the Board at the earliest opportunity. Operator: Our next question comes from the line of Andres Sheppard with Cantor Fitzgerald. Andres Sheppard-Slinger: Congratulations on the quarter and just wanted to maybe take a brief moment to thank Marc and congratulate him on all his great efforts over the past 2 years. First question, I just wanted to clarify on the guidance. So just to be clear, you'll give us an update in Q2 regarding the production guidance as well as the CapEx guidance. But just to be clear as well, the Midsize timing, robotaxi timing and also the medium-term goals, those are all on track and unchanged. Just wanted to clarify. Marc Winterhoff: On the Midsize, this is also what we guided before. So that is also subject to the suspension right now. But I think what is important to understand is that what really counts is the ramp-up in 2027, and that's what remains unchanged. As I said in the beginning, the volumes that we're looking at is unchanged. On the start of production, that's something that we will guide after review with Silvio and the team then by the end of Q2. I also want to point out that when we talk about the start of production, that is less impactful actually than the ramp. I mean we've seen this, you probably remember with the Gravity where we had an SOP, but then we weren't able to ramp as we intended to. And that is something that we definitely absolutely want to avoid, and that's why we want to review everything and make the right decision for the business. Andres Sheppard-Slinger: Wonderful. Okay. That's super helpful. And maybe just as a quick follow-up. I wanted to touch again on the second production facility, the one in Saudi. Just given the geopolitical conflict still going on, do you foresee any bottlenecks or any issues to the time line for the construction there? Or is that on track? Just any update there would be helpful. Marc Winterhoff: Well, so far, I mean, it is going and we have never stopped doing it. I mean we had a few delays when it comes to arrival of equipment to be installed, but our team was able to mitigate that. And so yes, on that as well, we will update at the end of Q2. But so far, we haven't seen any impact. Operator: [Operator Instructions] Our next question comes from the line of James Picariello with BNP Paribas. Thomas Scholl: This is Jake on for James. First, could you give us some idea of the split between the Gravity and Air deliveries in the first quarter? And approximately how many units were pushed from the first quarter into the second by the stop sale? Marc Winterhoff: I mean as we said in the past, so the majority of our deliveries are now the Gravity. We don't give a direct projection on that. I mean on the average selling price, you maybe can reverse engineer the math somehow. When it comes to how many sales are being pushed into the second quarter, that's actually a number that I don't have handy right now. I mean the numbers of deliveries and orders rebounded in March significantly. But that exact number, I don't have handy. Thomas Scholl: All right. And then thinking a little bit longer term, you guys are targeting breakeven free cash by the end of the decade. Right now, your $4.7 billion in liquidity gets you into the second half of 2027. Is there any way to think about your total liquidity need to get from the second half of 2027 until 2029 or 2030? Taoufiq Boussaid: James, you asked us the same question during the Investor Day. I understand that it's a very important point for you. So again, the key data points that we have. So we have a trajectory of how we will be rebuilding the gross margin and how we'll be progressing over the years. So it's a very important data point for you to assess. We have also communicated the details around the different levers for us to reach the breakeven and the rough timing to get there. I think that our historical and future delivery of the key milestones will allow you to do a calibration of what it would mean, and it will help you estimate the additional capital requirement, which is required. Having said that, I would like to reemphasize 2 very important points. So what we have said is that the important component of the cash burn is related to the CapEx in M2. So we have also shared our trajectory in terms of CapEx reduction. We will have a steep decline after 2027. And as a consequence of that, we will see a significant reduction of the cash requirements that will be needed for the plan. So over time, the cash burn profile in itself will have to change and evolve. So again, I'm sharing some of the important data points. We have not historically been in a position to provide the exact quantification. We obviously have a plan. What is really important is the milestones and how we're executing against some of these important targets, milestones, be it in gross margin, be it in terms of reducing the CapEx and accelerating the trajectory to the breakeven. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. That concludes today's conference call. Thank you for your participation. You may now disconnect.
Mark Flynn: Good morning, everyone, and once again thanks for joining us. We'll cover a couple of things today with Nova Eye. Obviously the March quarter results. We'll cover the record April sales release that we've put out to the ASX and our guidance today as well. And also, we'll give you an update on how the U.S. business is scaling up at this present time. Quick reminder, this session may include some forward-looking statements. So please refer to the ASX release and the investor presentation for full details. As always, if you like to ask a question, please use the Q&A function in Zoom and we will try and get to as many as we can. I have received a number of questions ahead of the meeting. So thank you to those that have sent those through. But with no further ado, I hand you straight over to Tom. Thomas Spurling: Thanks, Mark. Thank you very much, everybody, for tuning in today. I'm always very pleased with the number of people that take the time to listen to our story. I think we've got a good story again for the quarter to 31 December -- 31 March 2026. As our disclaimer, just a reminder, it's about pressure. Glaucoma is about pressure and us intervening in the disease to open up blockages and reduce that pressure. Next slide. The messages from today, we address, Nova Eye products address a genuine and growing clinical need. So we're not trying to make people do something they haven't done before. The disease is real. The customer base is real. There is competition, but that just means that we have -- and we have an offering that participates very well. Our revenues are now up near $23 million annually and growing at 25% plus year-on-year. And they reflect that real market demand. This quarter showed that we can grow revenue while also improving profitability. I've been saying that too for a while. We were just $75,000 short, just 1% of revenue away from breakeven in Q3. We were EBITDA positive if you include our strong December in the 4 months to March, and we're forecasting EBITDA positive in Q4. So that's EBITDA positive in the second half in total. We are delivering the outcomes we committed to, and that's what I'm pleased about. We have a company with 20-plus percent growth and profit at the bottom or EBITDA. Record sales were achieved in April. We saw the need to upgrade our sales guidance as a result of that. And on the -- just a USA surgeon, I received this e-mail randomly, just general feedback about how good iTrack is, performs better with its canaloplasty than other devices. As such, it is not critical to perform a concomitant goniotomy, which is a tearing of the trabecular meshwork. There's less likelihood of postoperative blood. And for premium IOL patients, it's good. You don't want to have someone that's just had a cataract surgery, spend a lot of money on a premium IOL and come out of that surgery with blood in their eye. I hear that from a lot of surgeons, and this is just another example. Next one. A reminder about the interventional glaucoma market. It means the active surgical engagement to change the disease trajectory and remove the patient's reliance on drops. I encourage you to have a look at Glaukos. Glaukos made an investor presentation today or released it to the market. I looked at it, they give a very good definition of interventional glaucoma and how important it is. And we are part of that market. Nova Eye is part of that market. That cataract link, 1 in 5 patients also have glaucoma gives us a reason for patients going into the OR, let's fix your cataract and get you off those drops. Our stent-free tissue preserving repeatable product is what puts us in the game. We are a required part of the business, interventional glaucoma market globally and in particular in the United States. Next slide. Just a quick summary of our -- a number of you have seen this. We have an FDA-cleared product, of course. We have a good reimbursement, which is stable. That reimbursement gives economic value to all the participants in the surgery, the surgeon, the facility hosting the surgery and us. Why do doctors choose iTrack Advance, well, we're talking about restoring the natural systems of the eye. It's implant-free and tissue sparing with a single pass with now the beautiful Green Light passing around the Canal of Schlemm, gives us the advantage over other devices that call themselves MIGS devices or are MIGS devices giving that doctors can choose from. And there are many -- I have all sorts of -- we've had all sorts of slides in the past about that. But at the heart of the matter is the tissue sparing natural method of action. Next slide. Here's our sales quarter-on-quarter compared with the PCP, USD 5.8 million. There were 2 new additional sales reps in the U.S. to service the growing demand we have there. This is, that's okay. I prefer to look at the next slide, which is our trailing 12 months revenue. It's a better picture of trends. And you can see 26% globally, 27% sales excluding China. We only do that. We started doing that because of the difficulties with tariffs. Remembering we're selling from the U.S. to China. And we were -- at the commencement of this financial year, there was a lot of uncertainty associated with that. So we just measure ourselves on sales excluding China at the moment. That doesn't mean China isn't being worked on. It just means that for guidance, we go to sales excluding China. And the sales guidance was lifted $21.7 million. We had guided to $21 million minimum a week or 2 ago. We have now passed that. So we've upgraded our guidance as a result of the very strong sales in April in all markets. Very pleasing. The drivers of that sales growth, our brand and product awareness by doctors was on display at the recent Australian -- American ASCRSA (sic) [ ASCRS ], American Society of Cataract and Refractive Surgeons in Washington, D.C. We have great trade booth presence and great booth attendance by doctors. We have sales team productivity, which I challenge is up with any ophthalmology company in the U.S. The release during the quarter of our proprietary Green Light technology to provide a clearer view for better navigation of the catheter through the Canal of Schlemm. I guess it's kind of goes without saying that a Green Light with -- is better seen in the case of any blood in the operation. And the release also of our Shear Clear technology, iTrack advanced with Shear Clear technology. This is also our technology transforms the cohesive viscoelastic into a low viscosity fluid during canaloplasty. You'll recall that viscoelastic is really a biocompatible hydraulic fluid that we flush, that we push through the canal. By virtue of our delivery system, it is thin and that thin viscoelastic circulates more freely into the ocular structures, the Schlemm's canal and the outflow pathway. And after a period of latency, regains viscosity and therefore holds open those structures. We're very pleased with the Shear Clear, the outcome of -- the addition of Shear Clear to our technology. There are some surgeon videos on YouTube that are highlighting the impact of this technology on their surgical outcomes. That is why sales are going up. We have a great product. We've got a good team, and we've got a lot of awareness of our brand and, well, to be honest, a little company. Next slide. China remains -- we made our first sales in February to China of iTrack Advance. And in that regard, I draw your attention or we draw your attention to the opportunity in China compared to the U.S. The same dynamic, 1 in 5 cataract patients present with concurrent glaucoma, and the opportunity to grow our business in China is very strong. It is a big opportunity. It will take time. But we think it is very exciting. Next slide. This slide, we've had a question about dips in sales reps. Well, I also get questions about dips -- sorry, revenue per rep. So what we've got is sales growth in the United States by quarter. What I like about this slide is that I have not made any change to the scale on the left-hand side to exacerbate the growth rate. It is a commendable growth rate of 6% a quarter. What we take away from that is despite our sales, we were maintaining a very strong revenue per rep. I'm often asked, how long does it take for reps to get to $1.6 million a quarter, $1.8 million and $1.9 million. I consider our whole pool of reps as an asset. And on average, we have managed over time to keep that quite high. Sales growth, keep it quite high. And therefore, that -- the sales rep expense is quite high. So that is a driver of productivity. Sales in the quarter, on that graph, look flat quarter-on-quarter. That could be, say Nova Eye has flat sales in the United States. January and February were materially affected by winter storms and surgery. And quite possibly, those surgeries were caught up in April, quite possibly. So we have had a great April, as we said, which augers well for Q4. So we will continue to push when we find the right people because there are territories in the United States which are underserved. We will continue to look for reps that we believe can be added to our team and maintain at $1.6 million, $1.7 million, $1.8 million per rep and therefore drive the bottom line productivity as well as sales growth. Our operating result here, I call out our investment in clinical data because it doesn't actually impact the current operating leverage as they call it. You can see I'm not resiling from the fact that we're EBITDA negative. I am pointing out that we're EBITDA positive for 4 months, but not for 3 months because we had a good December. That's a small loss in a -- as a percentage of total revenue, and it's heading in the right direction. The leverage -- the gross margin is pleasing as we improve our production -- constantly improving production processes, but also pricing of our product increasing, particularly in outside the U.S. markets where we're still only transitioning in some cases, from iTrack 250A to the more expensive, for us being a more expensive -- higher price, sorry, iTrack Advance. So I think this highlights the trends in quarterly EBITDA. I draw your attention to the green arrows which show Q4 relative to Q3 for the last couple of years. So we think our outlook for Q4, if that trend continues, is very strong. A couple of periods of very close to breakeven performance, and we're forecasting an improvement that to continue during the month of -- during the April, May and June. Cash flow, we continue to invest in working capital. There was a lot of marketing expenditure upfront that we had to make. Our cash receipts will flow through. And as we said, our existing cash and debt facilities provide sufficient runway for the continued execution of our mission, which is a mission to cash to EBITDA positive, cash flow positive will follow. Next one. Recapping our guidance. There's an update from $21 million to $22 million to $22 million to $23 million. People may say that's not much, but I'm excited by it because we're proud of the work we're doing. We're only a little company, and we are delivering what we want, what we said we'd deliver. So there's some FX things there. I tend not to worry about Australian dollars, but I have to give the -- just a reminder, we have no Australian dollar revenue. We do not sell in Australia. So it's U.S. dollars for us. Next one. And that's the same, our guidance that continued targeting breakeven with a small positive in H2 FY '26 and positive EBITDA from operations that removing the effect of clinical data and ongoing improvements in cash flows. We are generating cash in the U.S. I don't want to say the U.S. is a business on its own, but because it's a very global integrated business. But all our cash is coming in euros in the U.S., which the appreciating Australian dollar doesn't help when you turn it into Australian dollars. Okay. So thank you for that. Mark Flynn: Thanks, Tom. A couple of questions coming through. One live is that the Green Light, which we've announced and is currently in use in the U.S., will that supersede the red light or will both lights remain available for surgeon choice? Thomas Spurling: It will stay the same. And that's actually our choice because doctors, we are not making it -- if someone has a red light and they ask for it and they're a good customer, well, we are not trying to build to, the better production planning thing is just to deliver green is the answer. Mark Flynn: A question from Nick Lau at Taylor Collison in regards to those U.S.A. sales. You did cover it there and also the revenue per rep, which sort of dipped a little bit. What are the factors the sales rep are seeing that may have contributed to this? And I know you mentioned the weather. Thomas Spurling: Yes. So I know the weather sounds a lot like the dog ate my homework. But in the end, the Northeast of the U.S. in January and February, which seems like an eternity ago, but to me it's not because we're still seeing the effects on our P&L account where there was -- our reps were shut down, surgeries were shut down and surgeries were canceled. That impacts. It impacts doctors bimonthly and so it impacts. The revenue per rep, it's a vexed issue. I get equally the number of times people say, put on more reps, why don't you put on more reps? Well, when we put on more reps, there must be a dip naturally because you can't get all those sales in the first month the person is there. We try and split the territories, give the person a lot of leads. But we put on reps because we know in that 2, 3, 4 months' time, we'll get back up to the [ $1.678910 ], $1.6789 million per rep, which we know drives our bottom line result. And as I said, 20% growth, 20% plus top line growth and EBITDA. That seems to me like an achievable target for our business. Mark Flynn: The sales adoption by new or established surgeons, are you able to comment on the sales pattern? Thomas Spurling: Well, you can -- that requires a lot of analysis. We are a small business, but it also -- we'd like to think that our competitors don't need to tell -- we don't need to tell our competitors about new accounts. We just deliver our sales information. I know so many people have how many facilities, what's new, what are new accounts, what are old accounts, why are the old -- why are facilities dropping off? Why are new facilities not buying if they just bought a -- in month 1, they're not buying in month 2. There are so many combinations of analysis that we could do. And they are compromised by doctors moving around between facilities, by -- in particular that and the idea that some accounts have more than one facility and more than doctor doing it versus some accounts just having one doctor. So we believe that our EBITDA, operating revenue per rep. Increasing top line sales is our goal, and we have our internal guidance as to how we're doing at each account. Mark Flynn: You mentioned Glaukos and a bit of a comparison. So I know Glaukos leads in stents and drug delivery, but where do they sit with in competition against us? Thomas Spurling: Well, it's interesting, I refer you to some of the videos that have been posted by surgeons where there is a combination going on now where there seems to be doctors are deciding to team iTrack with Glaukos products, which is interesting. And we think that we don't have any clinical evidence around why that would do it, but that's up to doctors to do what doctors do. Glaukos' investor webinar today gives a very rosy outlook for interventional glaucoma. And I know it's to service their own needs, but it does describe very well the trends. And we think that we are -- if you like, we could be on the coattails of some of those trends. I mean the trends are real. I think that's what -- a review of the Glaukos investor presentation will show you, that we have -- that Nova Eye Medical is in a real market with a real growth thing. Mark Flynn: China, I know we do exclude China, but when do you believe or when do you think that sales there will become material? Thomas Spurling: I'm just starting. We've decided corporately to just be cool on that decision and let them flow through. So we're not giving any more guidance than what we have. Operator: Thank you. We've got one here. In regards -- we haven't mentioned the manufacturing facility or clean room in Adelaide. Just a short update on that. Thomas Spurling: Yes. So we have quietly and with conviction to lower our production costs, insourced some parts into, establish Nova Eye cleanroom facility and insource some parts to lower production costs ultimately. And it also provides a test bed for new manufacturing techniques and new product testing. The Shear Clear and the Green Light are as a result of that. So it's a good capability we have here in Adelaide. And compared with other parts of the world, Adelaide is a low-cost domain. So it's good. Mark Flynn: Always a reminder that there's new people joining our webinars and asking why don't we sell this product in Australia. Thomas Spurling: So simply put, we have presented data to the U.S. Medicare and it has accepted that data as meaningful in saying that, yes, canaloplasty does work, and therefore we will reimburse patients who need it or reimburse, yes, patients effectively. In Australia, the data, they have a different level -- different standard. They don't -- they believe more data is required. The size of the Australian market does not warrant our investment in getting that clinical data, just a standalone. We do have some clinical data in the pipe, which may help, but we see the investment in an additional rep in the U.S. helps us get to our 20% plus growth, EBITDA positive down the bottom, far better than just selling in Australia, unfortunately. Mark Flynn: Thanks, Tom. I think that covers all the questions. Any final questions come through now or as always, Tom and my details are on the screen. Please send through any questions. Happy to have a phone call as well. Look forward to staying in touch. But great news from Nova Eye today, and welcome any further questions. So thanks very much for joining. Thank you, everyone.
Operator: Good afternoon, and welcome to PennyMac Mortgage Investment Trust's First Quarter 2026 Earnings Call. Additional earnings materials, including the presentation slides that will be referred to in the call as well as an Excel file with supplemental information are available on PennyMac Mortgage Investment Trust's website at pmt.pennymac.com. Before we begin, let me remind you that this call may contain forward-looking statements that are subject to certain risks identified on Slide 2 of the earnings presentation that could cause the company's actual results to differ materially as well as non-GAAP measures that have been reconciled to their GAAP equivalent in the earnings materials. Now I'd like to introduce David Spector, PennyMac Mortgage Investment Trust Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Mortgage Investment Trust's Chief Financial Officer. David Spector: Thank you, operator. Good afternoon, and thank you to everyone for participating in our first quarter 2026 earnings call. Starting on Slide 3. PMT's first quarter net income was $14 million or $0.16 per diluted common share, representing a 4% annualized return on common equity. These results were impacted by a lower contribution from our interest rate sensitive strategies primarily due to a decrease in servicing fees as a result of seasonality and a larger-than-expected MSR runoff related to higher note rate loans. These impacts were partially offset by improved results in our aggregation and securitization segment. PMT paid a quarterly dividend of $0.40 per share and book value per share on March 31 was $14.98, down 2% from the end of the prior quarter. Turning to Slide 5. I would like to note we have renamed what was previously the Correspondent Production segment to the aggregation and securitization segment. We believe this name more accurately captures the breadth of PMT's participation in the mortgage ecosystem, specifically our focus on aggregating high-quality loans for execution in the secondary market to drive organic asset creation. In total, during the first quarter, PMT purchased $4.3 billion in UPB of loans from PFSI. $2.8 billion in UPB was through its correspondent purchase agreement with PFSI, for which PMT pays fulfillment fees. The remaining $1.5 billion represented loan sales from PFSI to PMT outside of their loan purchase agreement where PMT's private label securitization platform provided optimal secondary market execution for PFSI. Slide 6 highlights the continued success of our organic investment creation engine. Similar to last quarter, we completed 8 private label securitizations totaling $2.8 billion in UPB. This activity resulted in the retention of $190 million of new subordinate bond investments in the credit-sensitive strategies and $12 million of new senior bond investments in the interest rate-sensitive strategies. We also generated $40 million of new MSR investments. Our momentum has continued after quarter end, with 2 additional securitizations completed and another 1 priced totaling $1.1 billion in UPB, and we remain on pace to complete approximately 30 securitizations in 2026, which we expect will build a substantial foundation of investments with returns on equity in the low to mid-teens to support future earnings. On Slide 7, we provided a snapshot of the high-quality investments we are creating through our private label securitization program. At quarter end, the fair value of subordinate bonds within our credit-sensitive strategies totaled $744 million. 66% of this portfolio is comprised of bonds from nonowner-occupied loan securitizations. 20% is comprised of bonds from general loan securitization with the remainder primarily from agency eligible owner-occupied loan securitizations. As you can see, these investments feature exceptional credit characteristics. including a weighted average FICO origination of 774, a weighted average LTV and origination of 72 and negligible delinquencies. Within our interest rate-sensitive strategies, as of quarter end, we held $94 million in fair value of senior and mezzanine bonds. These investments are diversified across our jumbo non-owner occupied and agency eligible owner-occupied loan securitizations. And similar to our credit-sensitive bonds, these investments are backed by high-quality collateral with weighted average original FICO scores in the 770 range and original loan-to-value ratios in the low 70s. This consistent credit quality across these organically created assets underscores our ability to produce attractive, high-yielding investments on Slide 8, approximately 60% of PMT's shareholders' equity remains deployed to long-standing investments in MSRs and our unique GSE credit risk transfer investments. Mortgage servicing rights account for nearly half of shareholders' equity, providing stable cash flows from the portfolio with a low weighted average coupon of 3.9%. Our organically created GSE CRT investments represent 12% of shareholders' equity and consists of seasoned loans with a weighted average current LTV of 46%. Turning to Slide 9, while our diversified portfolio is constructed of investments with strong underlying fundamentals, we acknowledge our earnings, excluding market-driven value changes have been below our dividend level for the past several quarters. As you can see, we are showing an average run rate return of $0.31 per quarter for the next year. And focusing on the interest rate-sensitive strategies, increased amortization on higher coupon loans as well as reduced expectations for declines in short-term interest rates, which drive financing costs have lowered expected returns on MSRs in the near term. As is our long-standing practice, we continue to actively evaluate our overall equity allocation and investment opportunities to refine and optimize our returns on a go-forward basis. We are working diligently to reposition PMT to capture the opportunities more aligned to our long-term return hurdles. Our momentum in organic investment creation remains strong, and we have successfully positioned PMT as a leader in the private label securitization market. By leveraging our unique ability to create credit-sensitive, high-quality assets, and drive our overall returns higher through disciplined capital allocation, I remain confident in our strategy to support our dividend and create long-term value for our shareholders. Now I'll turn it over to Dan to review the first quarter financial performance. Daniel Perotti: Thank you, David. Net income to common shareholders was $14 million or $0.16 per diluted common share in the first quarter or a 4% annualized return on equity to common shareholders. Our credit-sensitive strategies contributed $16 million to pretax income, generating an annualized return on equity of 17%. Gains from organically created CRT investments were $10 million, which included $7 million of realized gains and carry and $3 million of market-driven value gains from credit spread tightening. Investments in subordinate MBS from our private label securitizations generated gains of $6 million, $2 million of which were market-driven value gains. Interest rate-sensitive strategies contributed pretax income of $8 million for an annualized ROE of 3%. Income excluding market-driven value changes for the segment was $11 million, down from $21 million in the prior quarter, impacted by increased prepayment speeds during the quarter, particularly on higher note rate MSRs, which drove higher runoff of our MSR assets, as well as lower servicing fees from seasonality and lower placement fees on custodial balances as a result of lower short-term interest rates. Regarding market-driven value changes, our hedging activities during the quarter yielded a small net decline as the $40 million MSR fair value increase was more than offset by $46 million of net declines in fair value of MBS and interest rate hedges, including the related tax expense. Additionally, during the quarter, we sold $477 million of agency fixed rate MBS to capitalize on intra-quarter spread tightening, resulting from the GSE MBS purchase announcement, and we redeployed the capital into retained investments from our private label securitizations. The aggregation and securitization segment reported pretax income of $16 million compared to a pretax loss of $1 million in the prior quarter. The prior quarter amount was primarily driven by spread widening on jumbo loans during the aggregation period and lower overall margins. In total, PMT reported $28 million of net income across strategies, excluding market-driven value changes, up from $21 million in the prior quarter, primarily due to an increased contribution from the aggregation and securitization segment. I want to address our dividend in the context of our current results and the updated run rate return potential. While projections for income, excluding market-driven value changes remain below the dividend level, it is important to note that we expect to maintain the common share dividend of $0.40 per share, which is supported by our taxable income and which we expect to be sufficient to fully cover the dividend at its current level. Turning to Slide 13. We highlight the flexible and sophisticated financing structures PMT has in place to support its diversified portfolio of investments. During the quarter, we redeemed $345 million of exchangeable senior notes originally due in March 2026 using capacity from existing financing lines. And finally, on Slide 14, we continue to believe that debt to equity, excluding nonrecourse debt is the best metric for measuring our core leverage and that ratio declined to 5.6x at quarter end from 6x at the prior quarter end within our expected range. PMT's total debt to equity increased to approximately 11:1 from 10:1 at December 31 as we continue to retain investments from securitizations. The increase in our total debt-to-equity ratio reflects growth in nonrecourse debt associated with these transactions, where all securitized loans are required to be consolidated on our balance sheet for accounting purposes. As a reminder, the source of repayment for this debt is limited to the cash flows from the associated loans in each private label securitization mitigating any additional exposure to PMT. We expect the divergence between these 2 metrics to continue increasing as our securitization program grows. We'll now open it up for questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Trevor Cranston with Citizens JMP. Trevor Cranston: Question related to your comments on Slide 9 about actively evaluating the asset allocation of the company and some new investment opportunities. Can you elaborate on what you guys are looking at in terms of kind of new investments if that includes things like non-QM or home equity. And also was curious if sales of maybe some lower returning assets are part of the valuation that's ongoing? David Spector: Well, I think it's all of the above would be my response. I think first of all, if you look at Slide 9, when you look at the annualized return on equity, you can see that the -- in terms of achieving that minimum required return of, call it, 13%, 14%. Means that the sector that's really under delivering and has been the net interest rate sensitive strategies and, in particular, MSRs. And so as we look across our MSR portfolio, I mean, clearly, there's parts of that, that have real value and there's demand in the marketplace for it. And there's others that have real value that perhaps there isn't as much demand in the marketplace. So we're strategically evaluating the MSR portfolio to help accelerate perhaps the weighted average equity allocation down in that operating strategy and moving more to the credit-sensitive strategies. The point you raised in the credit-sensitive strategies, of course, there's more opportunity to do additional securitizations in nonowner-occupied loans and agency-eligible loans even jumbo loans. But given what we're seeing in the non-QM originations, both in correspondent and over a PFSI in their broker division, the ability to aggregate for securitization is very apparent to me. So I wouldn't be surprised to see us do a non-QM securitization over the next year. And to your point, there's other assets that we see in the marketplace that you can create investments that achieve our return target. And so as we've done in the past, we're going in and we're evaluating how to -- where can we recycle out of lower returning assets in the higher returning assets. Operator: And your next question comes from Bose George with KBW. Bose George: So first, just the change in the ROE expectation that you gave for the $0.31 down from $0.40, it looks like it's mainly on the Agency MBS, but can you just walk through the drivers of that change. Daniel Perotti: So the -- so really, the bigger driver of those is on the MSRs, which -- where the return came down a few percentage points in the allocation, weighted average equity allocated there is a larger proportion. The Agency MBS also did decline. That was really related to -- if you look at the expectations for short-term rates going back from last quarter versus this quarter, there was obviously a sharper decline and thus a greater expected carry from the agency MBS in that -- in the prior run rate scenario. But the bigger impact is related to really the prepayment speeds and expectations that we see in the short to medium term on the MSRs. Bose George: Okay. That makes sense. And -- the -- and in terms of the bridge now from the $0.16 you guys did this quarter up to the normalized. Can you sort of walk through just the bridge there? Daniel Perotti: Well, certainly, obviously, rates have increased a bit, and so we are expecting slower prepayments on the MSRs. But still below -- still elevated from what we saw earlier in prior quarters or in earlier quarters in 2025. And then as David has mentioned, there we mentioned some allocation out of MSRs and into -- if you look at the allocation here, for example, some ability to ramp up other investments as we move through the next few quarters. Operator: And your next question comes from Jason Weaver with Jones Trading. Jason Weaver: In your prepared remarks, you mentioned the sale of roughly $0.5 billion of MBS on tightening to redeploy towards retained securitization, which looks like a material rotation in the interest rate-sensitive book. All else equal, is this a sort of glide path we should think about for the remainder of 2026? Or was this more of a tactical rotation? Daniel Perotti: I think that was really more opportunistic or tactical. We wouldn't necessarily expect to continue to wind down that portfolio, especially, although we will adjust as we're looking at rotating out of certain portions of the portfolio. But given the returns that we expect from the Agency MBS portfolio and what we have here overall, we wouldn't expect to drawdown necessarily further on the MBS portfolio, but it's something that we'll continuously evaluate based on where spreads are in the market. Jason Weaver: Got it. And I think you redeemed about $350 million of exchangeable senior notes from the existing financing book. What is the unsecured corporate debt stack look for the next 24 months, if you can just guess. And are you targeting any sort of opportunistic refinancing or extension given current spreads? Daniel Perotti: So we issued about $150 million of additional convertible debt towards the end of Q4 last year. We additionally in 2025 issued a few unsecured baby bonds. That was effectively a pre-refinancing of the convertible debt that was retired in Q1 of this year. So we don't have a need to necessarily raise additional unsecured debt. It is something that we will continue to look at and see if there are opportunities. but no immediate plans necessarily, but it's something that we will be opportunistic with to the extent that we see opportunities. Operator: [Operator Instructions] Your next question comes from the line of Doug Harter with BTIG. Douglas Harter: As you think about the opportunity in the non-agency securitization, do you view it as more opportunity limited today or more capital constrained and as you think about the ability to scale -- continue to scale that business? David Spector: I think it's really capital more than opportunity. I think the great story about PMT is obviously, the synergistic relationship it has with PFSI and the ability to source the underlying assets, the ability to underwrite and process the loans on the front end and where we have the ability to actively select the loans that we want in our investments is a really important feature that we have in PMT. And so the -- whether it's investor or non-owner securitizations where we create subordinate bonds or general loan securitizations and even the agency eligible loans where we're not securitizing just for best execution purposes, we're securitizing to create investments for PMT. And so I think that it's really more of a capital issue for us. And I think that's why we're focused on opportunistically getting out of lower returning assets and most likely reinvesting the capital into our credit-sensitive strategies sector, which, by the way, from the very beginning of PMT is what the -- is what the investment thesis was for PMT looks to be a credit-sensitive strategy vehicle. And so that's really the guiding -- the kind of the guiding force here. We're -- I think we've done a great job in being the preeminent securitizer of these non-agency loans and creating the investments behind them. And you look at the performance of these, and they're really remarkable. And I think that we've done a nice job when CRT was discontinued to be able to move to figure out, okay, how do we create a like investment without the CRT opportunity, and that's how we ended up where we are today. But I think you're going to continue to see us grow the equity allocation in the credit sensitive strategies over time. Douglas Harter: And David, as you mentioned, you're seeing increased non-QM volume, how much crossover is there in your traditional agency originator that's a correspondent partner versus non-QM or some of these other products that you haven't necessarily gotten as large in yet? David Spector: I'm really -- I've been really pleasantly surprised and I think it's a function of the size of the market that we're seeing a good amount of our correspondent getting into non-QM lending. And so I think that they are -- they're recognizing that they need to expand their product base. And so this is where being the leading correspondent aggregator with over 700 plus [ clients ] is really an advantage to us and being really good, meaningful deliveries of non-QM correspondent. And I expect that to meaningfully grow. I think the important part of non-QM, like all non-Agency products, you have to keep an eye on the fact that you don't want to get caught in a market disruption or with spreads widening. And so we're being really diligent at least initially in selling and forward selling the non-QM product to really lock in the margin until such time as we want and we decide to do a securitization. And that's where again, the synergistic relationship with PFSI to be really valuable because similar to the correspondent side on the PFSI side, we're seeing really good receptivity to non-QM with our broker partners. And so I think when we decide that we want to do a securitization and really deploy capital there, we'll be able to do so. But by and large, I think there's part of the non-QM market that we're participating in is getting more readily accepted in the broker and correspondent communities has more akin to their credit profile and their risk management framework than when it was originally -- when a vision was born some 10 years ago and people thought of it as maybe a little less than prime. But I've been pleasantly surprised by this. Operator: We have no further questions at this time. I'll now turn it back to David Spector for closing remarks. David Spector: Well, I'd like to thank everyone for joining us on our call today. If you have any questions, please don't hesitate to reach out to me or our IR team, Dan and I look forward to speaking to all of you in the near future. Thank you. Operator: The concluded today's call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Carlsmed, Inc. first quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to turn the conference over to your first speaker today, Stephanie Vadkovich. Stephanie Vadkovich: Thank you, operator. Welcome to Carlsmed, Inc.'s first quarter 2026 earnings call. Joining me on today's call are Michael Cordonnier, chairman and chief executive officer, and Leonard Greenstein, chief financial officer. Before we begin, I would like to caution that comments made during this call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding the market in which Carlsmed, Inc. operates, trends, expectations and demand for Carlsmed, Inc. products, expectations with respect to reimbursement, statements about the company's clinical data, surgeon adoption and utilization, and Carlsmed, Inc.'s expected financial performance and position in the market. Any forward-looking statements made during this call, including projections for future performance, are based on management's expectations as of today. Carlsmed, Inc. undertakes no obligation to update these statements except as required by applicable law. These statements are neither promises nor guarantees and are subject to known and unknown risks and uncertainties that could cause actual results, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements. For more detailed information, please review the cautionary notes on the earnings materials accompanying today's presentation as well as Carlsmed, Inc.'s filings with the SEC, particularly the risk factors described in Carlsmed, Inc.'s Annual Report on Form 10-K for the year ended 12/31/2025. I encourage you to review all Carlsmed, Inc.'s filings with the SEC concerning these and other matters. Additionally, during today's call, management will discuss certain non-GAAP financial measures, including adjusted EBITDA. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in today's earnings press release. These filings, along with Carlsmed, Inc.'s press release for the first quarter 2026 results, are available on carlsmed.com under the investor section, and include additional information about Carlsmed, Inc.'s financial results. A recording of today's call will also be available on Carlsmed, Inc.'s website by 5:00 p.m. Pacific time today. Now I would like to turn the call over to Michael to go over Carlsmed, Inc.'s business highlights. Michael Cordonnier: Thank you, Stephanie, and welcome to the team. I would like to welcome everyone on our call today. At Carlsmed, Inc., our mission is to improve outcomes and decrease the cost of health care for spine surgery and beyond. To achieve this mission, we have pioneered patient-specific digital surgery for lumbar and cervical spine fusion procedures. Our vision is to make personalized surgery at scale the standard of care for spine surgery. Our AI-enabled digital surgery empowers surgeons to partner closely with patients to seamlessly create three-dimensional surgical plans and 3D-printed spine fusion devices designed to achieve predictable patient outcomes while supporting the surgeon's preferred surgical approach. We then provide postoperative outcome analytics to our surgeon users for each procedure through our Aprivile Insights as part of the MyAprivile ecosystem. We believe this personalized, outcome-driven, AI-enabled ecosystem approach represents the future standard in medical technology, one that is better for patients, surgeons, hospitals, and payers. Importantly, our model is built to scale efficiently. By manufacturing only what is needed for each specific procedure, we avoid the traditional prebuilt inventory trays of implants and instruments that have long burdened the legacy spine and orthopedics businesses. Instead, we are able to provide patient-specific, sterile-packed implants and instruments specific to each patient just in time for their surgery. This capital-light, demand-driven approach enables us to scale rapidly while maintaining a relentless focus on patient outcomes. With this vision as our guide, 2026 is off to a great start with solid execution across our business. In the first quarter, we saw strong adoption of our lumbar and cervical personalized surgery procedures, reinforcing our view that Aprivo as a platform technology is positioned to transform spine surgery. Our clinical outcome data continues to be robust, and our investments in technology continue to drive the scale and productivity needed to make personalized surgery the standard of care for spine fusion procedures. With the peer-reviewed data published on reduced reoperations with the Prevost personalized surgery procedures, we continue to execute on our mission to improve outcomes and decrease the cost of health care for spine surgery. Turning to the first quarter, we delivered strong revenue of $16.1 million, representing growth of 58% over the prior year. Our growth was driven by the continued focus on medical education and compelling clinical outcome data, driving expansion of our surgeon base and increasing procedure volumes. Operationally, we continue to leverage our investments in technology to further drive production efficiencies, reducing lead time by more than 30% to six business days in the quarter and delivering more than 200 basis points of margin expansion year over year. Our fully integrated digital system allows us to partner with hospitals, surgeons, and patients to seamlessly integrate into clinic and operating room workflows preoperatively, intraoperatively, and postoperatively for nearly all indicated patients. Our commercial growth continues to be driven by a surgeon-led adoption model and expanding utilization. I am proud to report that we grew our total surgeon user base by more than 60% year over year, reflective of the rapid clinical adoption of personalized surgery procedures. We continue to drive particularly strong engagement from early career and post-fellowship surgeons who are eager to adopt new technology to differentiate their practices and improve outcomes. With our rapidly growing base of surgeon users, we are still in the early innings of market penetration and have a long runway ahead of us. The Opdivo lumbar procedure represents the majority of our business today, where we continue to gain traction within the estimated 445 thousand lumbar spine fusion procedures performed annually in the U.S. Clinical evidence generation continues to support the early adoption of Aprivo by consistently demonstrating improved outcomes for patients compared to stock implants. In January, data published in the Global Spine Journal further validated our personalized spine surgery approach, including evidence demonstrating a 74% reduction in surgery revision rates at two years compared to stock devices. This peer-reviewed study compared two-year revision rates among complex adult spinal deformity patients receiving Carlsmed, Inc.'s Aprivo personalized interbody implants with previously published revision data from a similar patient cohort receiving conventional stock implants. Patients treated with Aprivo experienced significantly fewer revisions due to mechanical complications, showing a revision rate of 4.3% in patients treated with Aprivo compared to a revision rate of 16.6% in patients who had stock devices. To put this into perspective, over the past 25 years, lumbar fusion technologies have not published data to demonstrate significant reduction in reoperation rates at the standard two-year benchmark. In contrast, Aprivo’s patient-specific lumbar procedures have demonstrated clinically meaningful reduction in reoperations driven by significant decreases in key complications like rod fractures and proximal junction kyphosis. Importantly, this improvement is measured against procedures with traditional stock fusion devices used by the most experienced and skilled surgeons. As a further expansion of our Prevel lumbar procedure, we have announced successful completion of the first Aprivo bilateral lumbar fusion procedure in February. We are seeing great data in our limited market evaluation and are on track for our full commercial launch in the fourth quarter of this year. Carlsmed, Inc.'s Suprivo Lumbar Fusion has strong hospital reimbursement from CMS with all Aprivile lumbar fusion procedures covered by one of 11 different MS-DRG codes. The majority of Aprivo lumbar procedures are reassigned to the three elevated major complication or comorbidity MS-DRG codes. This provides hospitals with superior economic and clinical value to provide access to the Aprivile procedure for patients. On 04/10/2026, CMS published the FY 2027 proposed rule for the inpatient prospective payment system. Under this proposed rule, all Aprivile lumbar spine fusion procedures would be reimbursed by one of three new MS-DRG codes—523, 524, or 525—at a premium to traditional spine fusion procedures. If finalized as proposed, we see this development as very positive for patients, surgeons, and hospitals to establish and maintain long-term access to the Prevost lumbar spine fusion procedure. This published rule is preliminary. We anticipate the final rule to be published prior to becoming effective on 10/01/2026. Shifting to cervical, the first quarter 2026 represented our first full quarter in market commercially with the Aprivo cervical fusion procedure, which we launched in December 2025. With an estimated 370 thousand cervical fusion procedures performed annually in the U.S., we believe that this additional growth lever can provide additional momentum in our business as a further extension of the Aprivo platform. Cervical and lumbar spine fusion procedures are performed by spine surgery trained neurosurgeons and orthopedic surgeons alike. Many of the spine surgeons perform both lumbar spine fusion and cervical spine fusion procedures, demonstrating a substantial procedural overlap across spine surgeons. We believe that we can leverage our team to train and onboard many of the surgeons already familiar with the lumbar Privo technology platform on the Privo cervical platform. In the early days of launch, we have already trained more than 20% of our surgeon users on the cervical platform. The Aprivo cervical procedure is designed to address common causes of variable outcomes associated with anterior cervical discectomy and fusion (ACDF) failure, including subsidence, malalignment, and reoperations. The procedure is designed to optimize bone contact surface area to improve load distribution, bone graft loading, preserve end plate strength, reduce subsidence risk, and restore or maintain alignment. To complement Aprivo cervical and achieve progress against some of these challenges in cervical fusions, our newly announced Cora cervical plating system marks the debut of Carlsmed, Inc.'s patient-specific fixation portfolio and represents a fully personalized solution for ACDF procedures. The first procedure was performed in February 2026 at the University of California, San Francisco. We are progressing well with the limited market evaluation and are on track for the launch of Cora cervical personalized plating system in Q4. Much like the lumbar Aprivo procedure, the cervical Aprivo procedure has a strong inpatient reimbursement profile. In October 2025, the Aprivo cervical procedure received a new technology add-on payment up to an incremental $21 thousand 125 hospital reimbursement. This reimbursement program is for a three-year period, and CMS renewed the NTAP payment for FY 2027 as anticipated in the publication of the preliminary rule. Looking ahead, our strategic focus remains consistent and positions us to continue the durable, high-quality growth we have demonstrated to date. Within our first area of focus, patient-centric innovation, we continue to advance our proprietary personalized surgery platform, including AI-enabled 3D surgical planning, workflow automation, patient- and surgeon-specific devices, and single-use sterile-packed surgical instruments, and further procedural integration in the clinic and operating room. As discussed previously, we have demonstrated great early traction with the recent launch of Aprivo cervical, and we are collecting early clinical experience with the bilateral posterior Prevo procedure and personalized Cora cervical plate fixation. Our product innovation portfolio includes further advancement to drive ease of integration in the surgical workflow and further personalization of spine surgery. Our second area of strategic focus is surgeon education and includes further investments in our medical education team and programs to meet accelerating demand for Aprivo personalized surgery. We continue training new surgeons every month by leveraging success in academic centers to drive peer-to-peer surgeon education with the thought leaders in personalized spine surgery. We also continue to support education initiatives with upcoming resident and fellow courses in partnership with leading academic institutions. As previously mentioned, we have seen strong uptake with early and mid-career surgeons who are adopting digital surgical planning into their practice in their efforts to streamline workflow and improve patient outcomes. These surgeon users will continue to shape the future of spine surgery, and this is an ongoing growth driver for Carlsmed, Inc. that we believe will continue to drive adoption and utilization. Our third area of strategic focus, commercial execution, continues to center on surgeon onboarding, increasing surgeon utilization, and expanding within hospital systems. As we continue to scale, we have expanded our strategic and national accounts efforts to enable local and national access across large hospital systems. Across both lumbar and cervical platforms, hospitals are recognizing the clinical workflow benefits enabled by the Aprivoo ecosystem. By providing deeper integration within a surgeon's preoperative and postoperative clinical workflow, we believe that our platform solution can simplify the surgeon's pre-op planning, reduce time and complexity of the spine fusion procedure in the OR, and enhance surgeons' ability to provide predictable outcomes to spine fusion patients. Lastly, we will continue to generate clinical data to support medical education and market adoption of our transformative personalized surgery technology platform. We believe that personalized surgery at scale is a new standard of care for spine fusion and are committed to providing solutions to patients, surgeons, and hospitals that reduce revision surgeries, improve outcomes, and reduce the cost of health care. We are just getting started and look forward to providing further updates on our rapid market adoption. With that, I will turn it over to Leonard, who will review our financial performance. Leonard Greenstein: Thank you, Michael, and good afternoon, everyone. I will begin today with first quarter 2026 P&L highlights. Revenue for Q1 2026 was $16.1 million compared to $10.2 million in Q1 2025, representing 58% growth year over year. This growth was driven by the continued expansion of our total surgeon user base and increased unit volume sales of Aprivile, as our average revenue per procedure remains substantially consistent between periods. Gross margins were 77.1% in Q1 2026 compared to 74.9% in Q1 2025. This 220 basis point increase was driven by our stable average revenue per Aprivo procedure combined with efficiency improvements in our digital production system with investments made over the past few quarters. This now allows us to deliver the Aprivoo kit to the operating room within six business days of surgeon approval of the digital surgical plan. This lead time and the associated production capacity it enables will support our continued scale. Total operating expenses were $21.7 million in Q1 2026 compared to $13.4 million in Q1 2025. Of this amount, R&D expenses were $5.2 million this quarter, compared with $3.2 million in Q1 2025. This increase was primarily due to higher personnel cost to advance our patient-centric product development priorities and AI-enabled initiatives for our digital surgical planning processes. Sales and marketing expenses were $10.3 million this quarter compared with $6.7 million in Q1 2025. This was substantially driven by increased sales headcount to drive our commercial execution strategy and variable commissions to our sales team and independent sales agents with our revenue growth, as well as increased marketing spend. General and administrative expenses were $6.2 million this quarter, compared with $3.5 million in Q1 2025. The increase was driven by personnel additions and professional services costs and legal fees for customary corporate and intellectual property matters, as well as compliance and other public company related costs. Our GAAP net loss was $8.7 million this quarter compared to a net loss of $5.7 million in Q1 2025. EBITDA adjusted for stock-based compensation was negative $7.5 million this quarter, compared to negative $5.5 million during Q1 2025. We anticipate continued improvement in adjusted EBITDA over the coming years driven by expected revenue growth and leverage across our expense base. As we scale, expanding contribution margin dollars enabled by our capital-light, digital-first business model provide a clearly modeled pathway towards cash flow breakeven. Moving to our balance sheet, our cash and investments as of 03/31/2026 totaled $97.1 million. The outstanding principal under our $50 million debt facility remains at $15.6 million. While we have no current plans to make additional draws ahead of its October 2030 maturity, this facility provides low-cost, nondilutive standby capital and supports general corporate flexibility. Total liabilities as of 03/31/2026 were $26.5 million, of which $15.6 million relates to this debt facility. Our cash used in operating activities was $13.0 million during the quarter, compared to $8.2 million in Q1 2025. Unlike traditional medtech businesses that require capital investments and stock implant and instrument sets, our business scales without these barriers to profitability. As a pure-play personalized surgery company, our working capital can be more strategically deployed towards continued commercial investments to drive significant growth, delivery of our operational excellence priorities in digital production, and continued R&D pipeline development for our business value and growth. Turning to guidance, we are raising our full-year 2026 revenue range to be between $72 million and $77 million, representing 48% growth at the midpoint over full-year 2025. As we progress towards profitability, we continue to expect gross margins to remain in the mid to high 70s, and anticipate driving operating expense leverage in the coming quarters with expected revenue ramp in Aprivo lumbar and cervical. With that, I will turn the call over to the operator for questions. 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. To withdraw your question, please press 1-1 again. Our first question comes from David Roman of Goldman Sachs. The line is now open. Analyst: Thank you. Good afternoon, everybody. I wanted to start a little bit on what you are seeing from a surgeon utilization perspective. We did see strong surgeon adds exiting 2025. Can you maybe give us some perspective on what you are seeing year to date qualitatively, and then how you are seeing utilization across both new and existing surgeons trend in the quarter? And how you are thinking about the balance of the year? And I think, Leonard, in your prepared remarks, you mentioned that average selling prices for Aprivo were roughly flat year over year. If I remember correctly, cervical procedures do come with lower ASP than lumbar. Can you corroborate that point? Is it just that cervical is not big enough as a percentage of total to move average ASPs, and how should we think about the weighted average selling price as cervical becomes a larger percentage of total going forward? Michael Cordonnier: We feel really good about our surgeon enthusiasm for the Aprivile platform. As we exited Q4 with really strong new surgeon adds, we saw that continue to accelerate into the year. As we discussed on the call, year over year, we have added about a 60% increase to our surgeon users. With that, we continue to see ongoing increases in utilization, particularly among those surgeon users that have gone through the initial trial process and continued through adoption. So we feel really good about the utilization and surgeon user adds that we have had. Leonard Greenstein: Yes, David. Our Q1 average revenue per procedures were consistent over the prior year quarter and in Q4 as well as Q1. As we think about the future and the combination of cervical and lumbar, we are projecting our average revenue per procedure to be in the mid to high $20 thousands as cervical takes a greater proportion of revenue over time. The average revenue per procedure for cervical is less than lumbar. To answer your question directly, the contribution margin and the ability for us to further scale our business on a single Aprivile platform that serves both the lumbar and cervical indications with largely the same ballpoint provides the operating leverage in our business to continue to scale efficiently. Operator: Thank you. One moment for our next question. Our next question comes from Travis Steed from Bank of America. Your line is now open. Analyst: Hi. This is Aden on for Travis. So first quarter, first full quarter of the cervical launch, can you talk about the puts and takes and how that is progressing? I think you said 20% of your surgeon users are trained on that. What are you seeing from those accounts that have been trained so far? And are we still expecting high single-digit to low double-digit revenue contribution from cervical for the year? And then I have a follow-up. Michael Cordonnier: Thank you. We feel really good about the traction that cervical has received here in the first quarter of launch. As reported, about 20% of our total lumbar users are now trained on cervical and going through the ramp. As we see this progression, high single-digit to low double-digit percent contribution of revenue from cervical in the total plan for the company looks about right. Analyst: Great. Thank you. And then in the Q, I see a callout of cost improvements and production fees charged by your contract manufacturer. Can you double click on that and talk about if that is a one-time item, or is that something we can expect to continue going forward? Thank you. Leonard Greenstein: Yes. We have made investments in our digital production system holistically that have allowed us to hit that six-day lead time. That really provided efficiencies in our production process inclusive of those with our contract manufacturer. The investments made in earlier quarters going back to 2025 now allow us to cut out costs and time—importantly—out of the system. What we are currently reporting in that high-70s gross margin we see to be sustainable. Operator: Thank you. 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. Our next question comes from Richard Newitter from Truist Securities. Richard, your line is now open. Analyst: Hi. Thank you for taking the questions, and congrats on the quarter. I wanted to go to the CMS proposal that just came out. You mentioned a premium and also broader coverage. I think in the past those are two things that could be pretty significant tailwinds for you in 2027, assuming everything goes as proposed into the final rule. First, what percentage of your procedures currently are getting reimbursed and covered consistently, and how much would this broaden that coverage or access? Then on the premium, we did some calculations and are estimating it could be an incremental $50 thousand reimbursement for stock implant on average—there is a big range in there—somewhere around $25 thousand to $30 thousand on average today above and beyond the premium to traditional stock implants. Is that ballpark kind of the math that you have worked out? Thanks. Michael Cordonnier: Hi, Rich. Thanks for the questions. I will talk about this in two parts. First, the current state of reimbursement for the Opdivo lumbar platform. As reported in the script, we currently have 11 different MS-DRGs that cover the Aprivo lumbar platform, all with existing coverage and reimbursement. As noted, a portion of those elevate to a higher-paying DRG today. With the proposed IPPS rule, it really simplifies the coding and reimbursement such that all Aprivo procedures would map to one of three different MS-DRGs. Based on your calculations, that seems about in line with the national average, and we agree. We think this is a really great solution that CMS is proposing to give significant reimbursement to these procedures. Analyst: That is great. In terms of where you are potentially meeting resistance or there is just not great coverage currently, what could this do for you from that standpoint? Is it 50% currently? Is it 80%? Give us a sense as to how this could broaden your coverage and access. Michael Cordonnier: We really look at this as access versus coverage because we have full coverage today. Where we really think this will provide value to hospitals in particular is to remove the ambiguity and actually simplify coding for the Aprivo procedure. We see this as very beneficial to hospitals to simplify the process so that they can code procedures as they normally would and know that they will map to the right MS-DRG. Analyst: Okay. That is really helpful. If I could squeeze one more in, just following up to David's question earlier. As cervical increases as a percentage of the mix moving through the year, Leonard, how should we think of the gross margin impact if revenue per procedure gets impacted? Leonard Greenstein: As we mentioned during our prepared remarks earlier, we see gross margins being in the mid to high 70s over the coming quarters. That factors in, as Michael covered earlier, a high single-digit to low double-digit mix between lumbar and cervical. The headwinds with the lower gross margin profile of cervical—notwithstanding the tremendous contribution margin it provides and the leverage it provides in our business—are going to be offset, as we see it, with our efficiencies in digital production for lumbar. Operator: Thank you. Our last question comes from Ryan Zimmerman from BTIG. Ryan, your line is now open. Analyst: Hi. This is Izzy on for Ryan. Thank you for taking the question. Michael, I heard your comments and the discussion around the IPPS proposal for 2027. I was just curious what you have heard in terms of feedback from your hospital customers and surgeons in reaction to the proposal. I know it is going to simplify coverage, but do you expect that there could be some benefit in terms of volumes if it is finalized as written? Michael Cordonnier: Thanks for the question. It is early days, and it is a preliminary rule. We are really holding off on those discussions until the final rule goes into place. However, this is something that, as mentioned, simplifies coding and reimbursement and makes a permanent change to the Aprivo procedure at a higher reimbursement level. Net-net, we think this is better for all stakeholders. Analyst: Appreciate it. Thank you. And then, Leonard, I have heard your commentary on guidance, but as we consider contributions layering in in the back half of the year from those new product launches, is there anything that we need to keep in mind in terms of cadence on the top line? Thanks for taking the question. Leonard Greenstein: We see, over the coming quarters, Aprivo lumbar carrying the majority of our revenue and overall contribution. Certainly, we are very pleased with the early days here at cervical and the clinical results our surgeons are seeing with that indication, and how neatly it tucks into the Aprivile platform and ecosystem. We will provide additional color as we progress into the subsequent quarters with how we see additional things shaping up in the company's favor to further drive revenue beyond what we previously guided. Operator: This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the DuPont First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Ann Giancristoforo, VP of Investor Relations. You may begin. Ann Giancristoforo: Good morning, and thank you for joining us for DuPont's First Quarter 2026 Financial Results Conference Call. Joining me today are Lori Koch, Chief Executive Officer; and Antonella Franzen, Chief Financial Officer. We have prepared slides to supplement our remarks, which are posted on DuPont's website under the Investor Relations tab and through the webcast link. Please read the forward-looking statement disclaimer contained in the slides. During this call, we will make forward-looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward-looking statements. Our Form 10-K, as updated by our current and periodic reports, includes detailed discussions of principal risks and uncertainties which may cause such differences. Unless otherwise specified, all historical financial measures presented today are on a continuing operations basis and exclude significant items. We will also refer to other non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release and presentation materials and has been posted to DuPont's Investor Relations website. I'll now turn the call over to Lori, who will begin on Slide 3. Lori Koch: Good morning, and thanks, everyone, for joining our call. Earlier today, we reported our first quarter financial results, which exceeded our previously communicated guidance. Through disciplined commercial and operational execution, we delivered organic sales growth of 2%, 130 basis points of pro forma margin expansion and double-digit adjusted EPS growth. Free cash flow generation and conversion were solid in the quarter. As a result of our first quarter performance, along with price increases due to the Middle East conflict, we are raising our full year 2026 financial guidance. Antonella will provide further details shortly. We also announced that we expect to launch a $275 million accelerated share repurchase under our existing program. A clear example of how we continue to advance our strategic priority of driving disciplined capital allocation by returning cash to shareholders. On the next slide, I will cover the progress we are making on driving growth and continuous improvement. We completed the previously announced divestiture of the Aramids business on April 1. We are confident in [indiscernible] ability to continue to drive growth and opportunity for the employees and customers of the combined businesses. We also recently issued our 2026 sustainability report and announced our new 2035 sustainability goals. The progress we made in 2025 highlights the power of our innovation engine, creating sustainably advanced solutions that help our customers succeed. We continue to reduce our environmental footprint and increase the use of renewable energy sources across our operations while maintaining a strong focus on execution and discipline. Safety and culture continue to differentiate DuPont with record safety performance and high employee engagement reinforcing the connection between what we do every day and the value we create for our customers. Our 2035 goals reinforce our commitment to delivering value by embedding sustainability directly into our business strategy. These goals focus on 3 impact areas. Sustainable innovation, resilient operations and people, partners and communities. They are designed to drive growth through innovation, operational excellence and accountability across our value chain while also advancing progress in areas such as climate action, circularity, safety and responsible sourcing. Moving to Slide 4. We continue to advance our strategic priorities and are seeing direct impacts from the implementation of our business system. We strengthened our performance-based culture with a clear emphasis on growth and continuous improvement, reinforced by the launch of our refreshed core value. This is enabling greater consistency across the businesses as we drive excellence in innovation, commercial execution and operations. Starting with innovation. It remains at the core of our value proposition. Our 2025 [ Vitality ] Index was 35% above the benchmark we previously outlined reflecting the strength and relevance of our product portfolio. During the quarter, we delivered a steady cadence of new product introductions and customer wins across health care, water and diversified industrial end markets. Recent launches include upgraded FILMTEC nanofiltration elements designed to help municipalities and drinking water utilities produce high-quality water with lower energy consumption and reduced operating costs. These innovations are being enabled not only by strong R&D execution but also by continuing investments in digital and AI capabilities. Last week, we announced that we are collaborating with [indiscernible] an AI-driven platform for end-to-end product and application development, focused on accelerating development, improving cycle times and sharpening how we translate ideas into differentiated solutions for customers. This collaboration streamlines and accelerates the work we have been doing on connected lab infrastructure and digital innovation. From a commercial standpoint, we are making steady progress in demand generation and pipeline discipline. Across the businesses, we are advancing targeted sales leads that bring together our technologies and application expertise to address specific end markets where we see attractive growth and differentiated value. We continue to standardize how opportunities are identified, reviewed and advanced, supported by a clear cadence, better data quality and stronger collaboration between commercial, technical and operations team. These efforts are driving better visibility, improved conversion and stronger alignment between our commercial team and customers' highest value needs, improving the quality and durability of our pipeline. On operational excellence, our teams remain intensely focused on the fundamentals. Safety, quality, delivery, inventory and productivity. During the quarter, we delivered meaningful improvements in asset reliability and equipment effectiveness across our key facilities, which supported better on-time delivery and stronger operational throughput. At the same time, we continue to drive productivity through focused maintenance and reliability initiatives, main execution and Kaizen activity across our sites. I am personally excited as we recently kicked off our annual CEO Kaizen event, in which myself and the executive leadership team will each participate in events focus on strengthening our value creation processes across the company. We are also advancing how we operate by pairing process discipline with digital and AI capabilities. Over the last several quarters, we have expanded the use of data-enabled tools to improve maintenance, planning, accelerate defect detection and optimize asset performance. These capabilities are allowing our teams to convert operational data into actionable insights faster, improving reliability, reducing variability and reinforcing safe operations, all while delivering cost and productivity benefits. Importantly, this operational rigor positions us well as we navigate a dynamic external environment. While we are mindful of potential macro and geopolitical headwinds, our focus on productivity, automation, and structural improvement is creating resilience in the businesses. We are building a strong pipeline of Kaizen events and improvement projects for the balance of the year aimed at sustaining momentum in growth and productivity. Our first quarter results demonstrate that we are off to a great start. Our April sales were in line with our expectations, and we continue to see strong order growth trends across the majority of our businesses. Our teams continue to focus on driving growth and operational discipline and our strategic priorities position us well for long-term value creation. With that, I'll now turn the call over to Antonella to cover the financials and outlook in more detail. Antonella Franzen: Thanks, Lori, and good morning, everyone. The first quarter marked a strong operational start to the year, with results exceeding our financial guidance. Favorable top line mix and effective productivity actions drove strong operating EBITDA performance and meaningful margin expansion in the quarter. Throughout today's call, I will provide comments on our results against our prior year reported financials, as well as on a pro forma basis, which adjusts for our post-separation corporate costs, interest expense and income tax rate. This is consistent with the methodology and financial metrics that we provided at our 2025 Investor Day. Beginning with our first quarter financial highlights on Slide 5. Net sales of $1.7 billion were up 4% versus the year ago period on 2% organic sales growth and a 2% benefit from currency. Organic sales growth was led by strength in health care and aerospace, partially offset by continued softness in construction markets and logistics disruptions due to the conflict in the Middle East. These disruptions primarily impacted sales in our water business in the quarter. From a segment view, during the quarter, organic sales grew 3% in Health Care & Water Technologies with organic sales growth about flat in Diversified Industrials. First quarter operating EBITDA of $414 million increased 15% versus the year ago period on organic sales growth, favorable mix and productivity. This resulted in operating EBITDA margin of 24.6% in the quarter, an increase of 230 basis points year-over-year. On a pro forma basis, operating EBITDA increased 10%, with margins expanding 130 basis points year-over-year. Turning to cash flow. We delivered transaction-adjusted free cash flow of $147 million and related conversion of 65%, a solid start to the year. Turning to Slide 6. On a reported basis, adjusted EPS for the quarter of $0.55 increased 53% year-over-year. On a pro forma basis, adjusted EPS for the quarter was up 20% versus the year ago period. The increase was primarily driven by higher segment earnings of $0.06 with an additional $0.03 benefit coming from a lower tax rate, share count and exchange gains and losses. Turning to Slide 7. Healthcare & Water Technologies first quarter net sales of $806 million were up 6% versus the year ago period on 3% organic growth and a 3% benefit from currency. For the first quarter, health care sales were up high single digits percent on an organic basis versus the year ago period. Organic growth was broad-based, led by continued strength in medical packaging and biopharma. Broader sales were down low to mid-single digits percent on an organic basis as strength in industrial water and microelectronics markets were more than offset by logistics disruptions in the Middle East. Operating EBITDA for the segment during the quarter of $244 million was up 9% versus the year ago period on organic growth, favorable mix and productivity gains. This resulted in operating EBITDA margin of 30.3% in the quarter, an increase of 110 basis points year-over-year. Turning to Diversified Industrials on Slide 8. First quarter net sales of $875 million increased 3% versus the year ago period on a 3% benefit from currency. Organic sales growth was about flat in the quarter. At the line of business level, organic sales for building technologies were down low single digits percent on continued weakness in construction markets. Industrial technologies organic sales were up low single-digits percent as continued strength in aerospace and growth in automotive were partially offset by declines in the printing and packaging businesses. Operating EBITDA for Diversified Industrials of $200 million was up 8% versus the year ago period on favorable mix and productivity. Operating EBITDA margin during the quarter was 22.9%, expanding 110 basis points versus the year ago period. Turning to Slide 9. We are raising our full year 2026 financial guidance, given our strong start to the year as well as now including the interest income benefit from the Aramids transaction. For the second quarter, we estimate net sales of about $1.8 billion, operating EBITDA of about $430 million and adjusted EPS of $0.59 per share. Our second quarter net sales guidance assumes about 3% organic growth year-over-year. Currency is expected to be a slight tailwind in the quarter. For the Healthcare & Water segment, we expect second quarter organic sales growth in the mid-single digits percent range, led by strength in medical device, biopharma and industrial water markets. For the Diversified Industrial segment, we expect second quarter organic sales growth in the low single digits percent range on continued strength in aerospace and growth in printing and packaging, partially offset by continued softness in construction markets. For the first half, our estimated net sales of about $3.5 billion assumes growth of about 4% year-over-year. This translates into operating EBITDA of about $844 million, a year-over-year increase of about 8% on a reported basis and 7% on a pro forma basis, resulting in strong operating leverage and an incremental margin greater than 40%. Our first half net sales and operating EBITDA guidance, both represent approximately 48% of our total expected full year results at the midpoint. This is in line with our historical sales and earnings cadence. For the full year 2026 at the midpoint, we now expect net sales of about $7.185 billion, a net increase of $80 million versus our prior guide. Our full year net sales guidance now assumes about 4% organic growth, including about 1% from pricing actions taken to fully offset higher input costs due to the Middle East conflict. A stronger U.S. dollar has also reduced our expected full year currency benefit to less than 1%. Operating EBITDA at the midpoint is now expected to be about $1.745 billion, primarily reflecting our stronger first quarter results partially offset by currency headwinds. Our adjusted EPS range is now expected to be $2.35 to $2.40 per share, a $0.10 increase versus our prior guidance. Our EPS guidance now includes benefits from higher interest income due to the Aramids transaction as well as a lower tax rate which we now expect to be in the 24% to 25% range. At the midpoint, our adjusted EPS is about a 40% increase on a reported basis, and a 15% increase on a pro forma basis. With that, we are pleased to take your questions, and let me turn it back to the operator to open the Q&A. Operator: [Operator Instructions] Your first question comes from the line of Scott Davis with Melius Research. Scott Davis: Congrats on second kind of clean quarter in a row, numbers look pretty good overall. But a couple of kind of big picture questions. I mean you guys have been implementing 80/20. Where are we in that process? And what kind of impact has that had on your top line? Lori Koch: Yes. So we are well into the process within the Diversified Industrials portfolio. So we selected 4 businesses to start, and we're about 2/3 through the initial study. We didn't have any impact in the full year guide on either top line or margin with respect to any implementation, but we would expect over time to see nice margin appreciation with minimal top line impact as we look to improve the margin profile of the businesses and scope. Scott Davis: Okay. Fair enough. And then -- well, I'm going to move on to stranded costs. Where are we with stranded costs in the quarter and for the year. I can't recall what you expected? . Antonella Franzen: Yes. So Scott, we had estimated overall. There's about $30 million of stranded costs, which we committed to taking out within the first 2 years. So this year, we'll have a nice start on that. So for the full year, we'll have approximately like $10 million out from a run rate basis, we'll be actually halfway there. So I would tell you, we're right on cadence with where we expect to be. And again, we expect to have that out in the first 2 years. Operator: Your next question comes from the line of John McNulty with BMO Capital Markets. John McNulty: So I wanted to dig into the water business a little bit more. And especially just given some of the headwinds that you're seeing around the Middle East logistics. I guess a couple of things on it. Can you help us to think about the cost of navigating around some of these issues. Can you speak to also the customer base? And if there's been any -- I know there's been some [indiscernible] impact in the region. I guess any of your customers that may not be coming up, say, when things resume or the strait reopens, et cetera. Can you just help us to think about that? Lori Koch: Yes, thank you. So in the quarter, we had about $10 million of sales that weren't able to ship out of the Middle East. And so if you look at the results for water, we were down kind of low to mid-single digits. If you isolate out that impact of $10 million, we would have been about flat to slightly down. Those materials have already shipped in April, and so we continue to be on track with respect to our Q2 expectations. We didn't bake in a ton of disruption in Q2 with respect to the Middle East for the water business. We will, on a full year basis, continue to expect to be up mid-single digits for water. It's about flat in the first half and then up in the second half, really driven by the timing of some large projects. And so large projects last year were the reverse of this year where they were stronger in the first half in the second half. But the underlying kind of consumables or recurring revenue business is growing nicely each quarter. With respect to the impact from our customer base, nothing as of this point. So there have been a little bit of disruption in our site in Saudi Arabia, but nothing that we can't navigate around. We do have some large projects in the second half in the Middle East around the [indiscernible] as you had mentioned. Right now, we continue to expect them to be on track, but we'll have to watch as the broader situation evolves. John McNulty: Got it. Okay. No great results in a really tough, tough environment. I guess our second question would just be around the operational side. So the margin is clearly coming in really strong at this point. I guess how much of that is mix versus some of the operational improvements you were speaking to? And if it's more leaning toward the latter? It seems like you're -- if anything, you're solidly ahead of kind of the 150 to 200 basis point target that you had set for the next 3 years, I guess any thoughts or comments around that? Antonella Franzen: Yes. So first quarter margins were very strong, as you mentioned. And I would say we got a benefit of both actually. So mix was quite positive in the quarter. That added about 50 basis points of margin. But I would also say net productivity was about another 70 basis points of margin. So again, really strong performance as we move forward. When you take a look at our full year guidance that we have, margins continue to be strong. And even when you go to the first half to the second half, there's another incremental 40 basis points of margin expansion. So to your point, I would say we are well on our way to our 3-year targets that we laid out at our Investor Day. Operator: Your next question comes from the line of Christopher Parkinson with Wolfe Research. Christopher Parkinson: Just as it relates to your health care exposure, obviously, it seems like you're building a decent amount of momentum there. You addressed this at your Analyst Day, but I'd love to hear your updated thoughts. Just in terms of your balance between [ PB, ] biopharma, med device, and some of the larger secular trends that's going on. And do you feel you're underexposed to anything within that spectrum non pun intended? And is there anything that you think you'd like to add to the portfolio to really round it out? Lori Koch: So our overall health care segment is about $2 billion in sales. So it's about $1.2 billion of Tyvek sales and the remainder being the [indiscernible] sales and underneath Tyvek about half of that is health care packaging and the rest primarily are the [ garment. ] So we like our exposure as we sit today, we're nicely positioned in the med device profile between both spectrum on the CDMO side and then also on the Tyvek health care side with packaging needs. So we've got an intent to continue to add to that piece of the portfolio. We've got a nice robust pipeline of assets that are both accretive to growth and also affordable. So there are assets that we would like to add, whether it's around the packaging side to have a broader net packaging offering or whether on the CDMO side, they continue to round out our sales into that space. With respect to our appetite for M&A, we obviously closed the Aramids transaction on April 1. So we got about $1.2 billion of gross proceeds, about $1.1 billion net proceeds. We will continue to be balanced. We announced the $275 million ASR this morning. And we also continue to be prudent. So we're not going to lever up to do a deal. We targeted 2x leverage. We're a little below that today. So between the dry powder we have on the balance sheet as well as the remaining proceeds from the Aramids divestitures, it puts us in good position to also take advantage of potentially an accretive growth deal for us. Christopher Parkinson: And just as a quick follow-up, just kind of a broader question on pricing in terms of the second quarter and also the second half environment. Just how are you thinking about this by segment in terms of what you're seeing in your inputs, transportation, logistics cost. Just obviously, a lot of moving parts. I'd love to just hear your thoughts on strategy and how quickly you believe the organization can pivot? Antonella Franzen: Yes. So I would say the organization has done a great job pivoting as all this has started. So we already have surcharges as well as certain price increases in place to cover these incremental costs. So overall, our expectation is around incremental cost of around $90 million, which we expect to fully cover from a top line perspective related to price and surcharges. As you would expect, it's starting in Q2, so we don't have a full run rate in the second quarter, but the second half will have a full run rate. Just to put a little bit of numbers around it, the second quarter is around $25 million or so of price on the top line to cover those costs. Operator: Your next question comes from the line of Chigusa Katoku with JPMorgan. Chigusa Katoku: Congrats on a great quarter and a challenging operating environment. So I just wanted to follow up on the price cost. So margins were really strong this quarter. If my math is correct, it looks like it's going to step down to around 24% in the second quarter. So if you could just help me understand the puts and takes around this. I think that you plan to institute price increases on April 1, you had inventory. So I think meaningful raw material inflation as opposed to come be felt around maybe late 2Q, but any moving pieces here? And what's impacting the doctor margins in the second quarter? Antonella Franzen: Yes. So when you go from the first quarter to the second quarter, 2 things to keep in mind, price cost, to your point, we have pricing actions we'll have costs in the P&L. That's about a 30 basis point margin headwind. And there's about 40 basis points of a margin headwind from Q1 to Q2 related to mix. So that's your Q1 to kind of Q2 walk relative to where we're at, but underlying performance continues to remain very strong. When we talk about kind of what's embedded in terms of the full year, and the timing of that. So we did have some that started in April, I'll tell you, a majority of increases related to surcharges and price increases started on May 1 because there is some customer notification time that's needed relative to that. Obviously, every product that we have in inventory has different terms associated with it. So keep in mind that these increased costs started at the latter end of the first quarter. So we definitely have some impact related to that in the second quarter. And as I mentioned, when you take the difference between price on the top line and costs on the bottom line, it's about 30 basis points of the headwind in the quarter. Chigusa Katoku: Okay. Great. So is my understanding correct that the majority of increases started in May versus April. So you haven't been seeing the order trends. I guess, maybe put it differently, after you started some price increases in April, how have order trends been compared to March? Antonella Franzen: Yes. So as Lori mentioned, I would say our order trends in April were actually -- we have very similar demand as we have been seeing and nice increases overall on a year-over-year basis. So order trends are doing well. Operator: Your next question comes from the line of John Roberts with Mizuho. John Ezekiel Roberts: I think you noted strength in automotive during the quarter. Maybe you could comment a little bit on where that came from and how sustainable that might be since I think the auto outlook is not that rosy right now. Lori Koch: Yes. So we've got automotive. It's primarily within the industrial technologies line of business within Diversified. So we've got the predominant exposure within [indiscernible] we also have physicians in [indiscernible]. So our outperformance amid a tough market, as you had mentioned, is really based on the battery adhesive volumes that we have. So we've got about roundly $300 million of sales that go into EVs. A piece of that is battery, which is all incremental growth for us, and it's growing nicely in the year, well above kind of where the 20-ish percent EV growth expectations are because it's new volume for us and new wins. So we continue to be positioned nicely and realize the pipeline has been building over the last couple of years, frankly, as we got qualifications with the large OEMs. John Ezekiel Roberts: And then just a clarification. When you talk about desalination, is that municipal to you? Or is that industrial to you? Lori Koch: It's primarily industrial. Primarily RO as well. It's the reverse osmosis component of water. Operator: Your next question comes from the line of Josh Spector with UBS. Joshua Spector: I wanted to follow up on just the Middle East impacts around water. I think on some of the pre-closed conversations, there was messaging that there were maybe $25 million a month in sales into and out of the Middle East. And there is an inability to get material out, I guess, while the strait is closed. Just based on your comments about not really baking in much in terms of the outlook, have you found alternative routes for those materials? I guess it sounds like you've mitigated that, but I'm not 100% clear. So can you expand on that a bit more? . Antonella Franzen: Sure. So let me size up our total exposure related to the Middle East. So in total, it's around $300 million, about 4% of our top line. Half of that is related to sales into the Middle East and the other half is related to things that are sourced from the Middle East. So when you kind of do the math around that and 1 month of the strait being closed, that's kind of where the $25 million came from. As we mentioned earlier, there was about a $10 million impact to the top line in the first quarter related to products that we weren't able to get out. So that clearly tells you we have been able to mitigate quite a bit of that and obviously have taken that into consideration relative to our Q2 guidance. Joshua Spector: But I guess if I take that then in those comments, it seems like half of it is still impacting, maybe a little bit less. So is there something to the tune of $30 million to $40 million in sales and maybe 1/3 of that in terms of EBITDA impact in 2Q to assume that the impacts linger or does that lessen through the quarter and therefore, this whole map becomes somewhat not necessary? Antonella Franzen: All that math is not necessary. I would say that the teams have done a great job to find alternative routes in order to get some products out and to make sure that we have the necessary raw materials in order to be able to produce at the site as well. So again, the teams have stepped in very quickly to find alternatives related to that. We were able to have minimal disruption as in first occurred and clearly have plans in place as we move forward. Operator: Your next question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Lori, just on construction, can you talk about the weakness in those markets? And how much is it down for you guys in Q1 and your expectations for the first half of the year? Lori Koch: Yes. So we continue to expect overall construction markets to be about flat on a full year basis. We do have about 1% price in that space that will give us some slight organic growth but it's really kind of slightly down in the first half and then slightly up in the second half. So in the first quarter, we were down low single digits. Our performance was in line with the market where the resi, primarily North America resi continues to be weak and then you're seeing about flattish in the commercial and do-it-yourself base once you back out the data center volume that happened in commercial, our commercial is more on the health care, education, retail side. David Begleiter: Very good. And just on the Middle East conflict, are there any opportunities longer term from you being a more U.S. supplier, reliable supplier at lower cost overall down the road? Lori Koch: Yes. I mean I think there's always opportunities that we're looking for to be able to continue to expand both our share and our TAM. Not only are we well positioned from a share perspective, we're also well positioned with where our asset base sits, which has enabled us to navigate quite a few disruptions over the past couple of years. So starting back with tariffs, we were able to move product around our supply chain to mitigate the headwind there. And then now with the Middle East tariffs, we've been able to move volume around to be able to mitigate the impact that was felt initially within our KSA plant in Saudi Arabia. . Operator: Your next question comes from the line of Matthew DeYoe with Bank of America. Matthew DeYoe: So health care sales seem to be like accelerating quite a bit. I wanted to just dig in a little bit more on comps versus market versus owned portfolio position for 1Q. And as we look, I guess, to the guidance a bit, you're looking for 4% on the year, 1% from price. I think 1Q is probably closer to 1.5%. And so I kind of bridge this like 1.5%-ish from 1Q to 3% for the back half. It seems like maybe normalization of water, but can you fill in the gaps and maybe how that also relates to how health care should trend from here? Lori Koch: Yes. So we had a very strong quarter with health care in Q1, where our results were up high single digits organically. That was really nice volume and some nice price as well. And we continue to expect health care to be up mid-single digits as the year progresses and land at maybe mid- to high single digits on a full year basis. So we have really nice positions I had mentioned on the health care packaging side and see nice growth in procedures that influenced both the med packaging as well as the spectrum side. [ Livio, ] which is our biopharma business, a really, really nice results in Q1. So there's a nice recovery in demand there that will continue to see nice results. And then maybe just quick on water. I had mentioned that it was down in the first quarter that was really more around the $10 million of volume that didn't ship as well as the timing of large projects. So we'll be will be about flat overall in water in the first half and then we think up kind of high single digits in the second half really around the project timing volume to land at mid-single digits for the full year. Antonella Franzen: The only thing I would add to that is just around the water business, although it's relatively flat first half, high single digits in the second half, if you adjust for the timing of the projects and normalize that, you're more going from like a 4% growth to a 5% growth. Matthew DeYoe: Okay. And then quickly, so Tyvek's been able to absorb a fair amount of raw material pressure in the short time. And I'm looking at obviously, some of your suppliers talking about another $0.20 per pound for May. And I don't know we'll see if they can get it, right? But I'm wondering, is there kind of an ongoing propensity to be able to push surcharges in a world where this gets increasingly sketchy. I'm thinking almost maybe a little bit more on the building products side because I feel like health care would probably be less plastic, but maybe that's not the case. Lori Koch: Yes. I mean we had nice success with both mix of prices and surcharges that we already put in place, whether it was April 1 or May 1. And so I think if you can provide the documentation to your customers around what we're seeing with respect to input costs, as we had mentioned, are most felt on the [ HDPE ] side, as you had mentioned within TYVEK and then with the [indiscernible] side in water and [indiscernible]. But there's other pieces that we've seen as well. So I think there's -- we haven't received an abnormal amount of pushback. Obviously, there's always a discussion that needs to be had, but we're not looking to profit. We're looking to just cover it, and the conversation has been constructive. Operator: Your next question comes from the line of Vincent Andrews with Morgan Stanley. Vincent Andrews: You called out some weakness in packaging. We've been hearing sort of mixed things about the packaging arena. So maybe you could just talk about what you're seeing there what the outlook is for the remainder of the year? And I would assume there's also some inflation there that you need to push through. Lori Koch: Yes. So our impact in the packaging business weakness in the first quarter was really more around the [indiscernible] business in scope. It's really around home and office shrinking. It was a tough comp from a strong first quarter of last year. I think on a full year basis, we see the overall printing and packaging businesses normalizing being up kind of low single digits. Vincent Andrews: Okay. And I think the answer to this is there's nothing. But is there -- is there any at all update to [ PFAS ] or anything that's going on with the personal injury litigation? Lori Koch: Happily, no. Operator: Your next question comes from the line of Patrick Cunningham with Citi. Patrick Cunningham: You previously noted, I think, free cash flow greater than 90% for 2026. Is that still the case? And how should we think about working capital dynamics given the higher input costs potentially impacting cash generation cadence for the year. . Antonella Franzen: Yes. So first off, yes, free cash flow generation is still expected to be greater than 90% for the year. As I mentioned in our prepared remarks, our first quarter conversion was around 65%. So we did have a good start to the year. As you would expect, we tend to have a stronger free cash flow conversion in the second half of the year than the first half of the year, predominantly in the third quarter as we have our interest payments twice a year in Q2 and in Q4. Clearly, the increased cost in materials will increase your inventory dollar value, but the teams, I would say, are doing a good job relative to our inventory days outstanding and kind of taking those numbers down on a year-over-year basis. So we do have that embedded within our free cash flow conversion. So I would say we are managing working capital very well, and the teams are also focused not only on inventory but as well as DSO in terms of collections, which will put us in a good spot to achieve our free cash flow conversion for the year. Patrick Cunningham: Great. And then I think this is the first time you kind of explicitly called out microelectronics within water. So can you help us size the business there? What sort of growth rates we should expect? And any color on market penetration, new technology, new wins? Lori Koch: Yes. So microelectronics is primarily within ion exchange. So it's about 20% of ion exchange. We saw nice volume in the first quarter, as you would expect, just around the broader data center trend. So we continue to expect to perform nicely there with that business. . Operator: Your next question comes from the line of Mike Sison with Wells Fargo. Unknown Analyst: This is [ Avi ] on for Mike. I wanted to confirm your assumptions underpinning your full year '26 guidance. So when are you assuming the conflict in the Middle East resolved, if at all? And if it stretches to the end of the year, does that mean you're going to have to raise prices of more than 1%, offset incremental raw material inflation do you think you'd see any demand destruction if it stretches that long? Any color you can give would be helpful. . Antonella Franzen: Yes. So I would say our overall full year guidance anticipates that the current situation continues through the remainder of the year. So current oil prices, current natural gas prices, our assumption is that continues all year long. That is covered by the pricing actions that we have already put in place. Clearly, if this were to escalate or get even worse from where we are today, that would obviously have some impact on the assumptions that we've made, but we're not planning on it going away. Also, I would tell you if things were to escalate from where we are today, the teams would obviously see what other actions that we could take in order to mitigate any disruptions. Unknown Analyst: Got it. And then just pivoting back to health care, can you just talk about some of the underlying demand trends that are driving growth across the medical packaging and devices spaces. . Lori Koch: Yes, a lot of it is around the aging population and health care access. So that's one of the key global mega trend drivers for both med packaging and the health care needs. A lot of our exposure on the Med packaging side to the higher-end Class 3 devices and on the med device side with spectrum, it's really around cardiovascular and higher-end growth not elective surgery type application. So really, with the aging population and the access to health care is what's driving that megatrend. Operator: And the last question will come from Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Sorry, I was on mute. Apologies for that. I guess just 1 final question for me was given that you've had many years of portfolio transformation here, would you expect -- and maybe you can just provide us an update on the 80/20 strategy within Diversified Industrials and so -- there's any further portfolio reconfiguration that we can expect? Lori Koch: Yes. So the 80/20 work within Diversified is really to look at enhancing margin profile. So we had targeted 4 businesses to start and have been working through a really robust process on making sure that we're looking at the [ tailspin, ] looking we're investing, making sure that we're investing for growth in pockets of where there's opportunity across those businesses. I would say more broadly with respect to the portfolio, we're excited about the portfolio that we have. It's nicely balanced between Health Care & Water and Diversified Industrials. We're about 50-50 today. We've mentioned that over the medium term, we would like to get to more 2/3, 1/3 with respect to growth above market. So moving more of the company more towards that Health Care & Water space. But as of now, we're happy with the portfolio. But we'll always be looking, as I had mentioned, due to some M&A, we've got dry powder and cash from Aramids to be able to potentially take advantage of some good opportunities. Arun Viswanathan: Okay. And sorry, just 1 more. Given the $275 million ASR, is that really the last kind of accelerated repurchase activity that we should expect? Or maybe you can just comment on your outlook for further buybacks or yes, capital return. . Antonella Franzen: Yes. I would say, overall, we're always looking to see what's going to bring the best return to our shareholders. So we already had completed, as we announced in the last quarter, the $500 million ASR. We now announced this morning an additional $275 million ASR. As Lori mentioned, we do have a lot of flexibility relative to the cash in the door related to the Aramids transaction as well as the balance sheet we have. So we will continue to evaluate. As a reminder, we do have a $2 billion program, of which we've used the $500 million and now the $275 million. So we'll continue to evaluate our opportunities, and we'll act on what brings our shareholders the most amount of value. Operator: I will now hand the call back over to Ann Giancristoforo for closing remarks. Ann Giancristoforo: Great. Thank you, everyone, for joining our call. For your reference, a copy of our transcript will be posted on DuPont's website. This concludes today's call. Operator: Thank you. This concludes today's conference call. You may [ now disconnect. ]
Operator: Hello, everyone. CJ Jain: Good evening. I am CJ, head of investor relations at Strategy Inc. It is an honor to kick off Strategy Inc's first quarter 2026 earnings webinar. I will be your moderator today. We will start the call with a 60-minute presentation, starting with Andrew Kang, followed by Phong Le, and then Michael Saylor. This will be followed by a 30-minute interactive Q&A session with four Wall Street equity analysts and four Bitcoin analysts. Before we proceed, I will read the safe harbor statement. Some of the information we provide in the presentation regarding our future expectations, plans, and prospects may constitute forward-looking statements. Actual results may differ materially from these forward-looking statements due to various important factors, including fluctuations in the price of Bitcoin and the risk factors discussed under the caption “Risk Factors” in Strategy Inc's annual report on Form 10-Ks filed with the SEC on 02/19/2026, and the risks described in other filings that Strategy Inc may make with the SEC. We assume no obligation to update these forward-looking statements, which speak only as of today. With that, I will turn the call over to Andrew Kang, the CFO of Strategy Inc. Andrew Kang: Thank you, CJ. First off, I would like to officially welcome CJ Jain to his new role as Strategy Inc's head of investor relations. I also want to take a moment to thank Shirish Jajodia, our corporate treasurer, for helping establish and lead our IR function for the last 20 quarters. As our team grows, I know we will strive to continue to provide transparent and relevant information to all of our shareholders and stakeholders. So welcome, CJ. Now turning to the quarter's results. We are off to a very strong start in 2026. We now hold 818,334 Bitcoin, which is about 3.9% of all Bitcoin that will ever exist. That keeps Strategy Inc in a clear leadership position as the largest corporate Bitcoin holder in the world. Our market cap is now $62 billion, and STRC has grown to $8.5 billion outstanding, showing strong market fit and investor demand and filling a gap that has existed for investors seeking stable price and attractive yields backed by Bitcoin. So far in 2026, we raised about $11.7 billion of capital, giving us more flexibility to keep our Bitcoin position and creating long-term value for our shareholders. Andrew Kang: Turning to Q1 financial results. We reported an operating loss of $14.5 billion and a net loss of $12.8 billion. As you would expect, these results were primarily driven by the decline in Bitcoin's fair value during the quarter, and as these are largely noncash market-driven impacts tied to Bitcoin's quarter-end price, our underlying strategy remains unchanged: raise capital responsibly, buy and hold Bitcoin over the long term, and grow Bitcoin per share for our shareholders. On slide eight here, Bitcoin per share increased from 181,030 sats per share in May 2025 to 213,371 sats per share in May 2026, roughly an 18% year-over-year increase. Year to date, we have delivered 9.4% BTC yield compared to 22.8% for the full year 2025, showing acceleration year to date compared to the same point last year. We have also generated 63,110 BTC gains so far in 2026 compared with 101,873 BTC for all of 2025, having already achieved about 62% of last year's full BTC gain in just the first four months of the year. In dollar terms, that represents approximately $5 billion of dollar gain year to date versus $8.9 billion for the full year 2025. Since 2020, Bitcoin per share has grown to 213,371 sats per share as of May 2026, which is nearly a 4x increase since the beginning, delivering positive BTC yield every year across multiple market environments. In 2025, we delivered 22.8% BTC yield, and so far in 2026, we have already added another 9.4%. We remain focused on consistently increasing Bitcoin per share over time through our disciplined treasury operations and long-term conviction in Bitcoin. Here on slide 11, our track record remains constant, having acquired additional Bitcoin in every quarter since 2020 across 108 separate acquisitions. As of May 4, we held over 818,000 Bitcoin for a total value of approximately $64 billion and a total acquisition cost of about $62 billion. Our average purchase price is approximately $70,000 per Bitcoin, and our holdings now represent, as I mentioned, 3.9% of all the Bitcoin that will ever exist. Turning here to the balance sheet. Digital assets ended the quarter at $51.6 billion compared to $58.9 billion at year-end. Having acquired 89,599 Bitcoin in Q1, the change reflects the lower price of Bitcoin at the end of the quarter versus at the end of last year. Cash and cash equivalents were $2.2 billion, which largely reflects our USD cash reserve. Regarding taxes, the change this quarter was driven by the quarter-end mark-to-market movement in Bitcoin, and as Bitcoin moved from an unrealized gain at year-end—our deferred tax liability of $1.9 billion—shifted at the end of Q1 to an unrealized loss, to a deferred tax asset. A full valuation allowance against that tax asset brought the net balance sheet tax position to zero, which also resulted in a noncash tax benefit on the income statement which partially offset the pretax loss for Q1. Long-term debt remained unchanged at $8.2 billion, while equity increased to $9 billion driven by strong STRC issuance in the quarter. Overall, the balance sheet remains highly liquid and extremely well capitalized. At the end of Q4, the market value of our Bitcoin was approximately $59 billion, which is based on a Bitcoin price of about $87,500. During Q1, we recognized that unrealized fair value loss of $14.5 billion, and despite Bitcoin price volatility, we continued to purchase an additional 89,599 Bitcoin in the quarter, approximately $7.3 billion at an average price of about $80,900. We ended the quarter with a digital asset value of $51.6 billion based on a Q1 ending Bitcoin price of about $67,800. In Q2 so far, we are illustrating an unrealized fair value gain of approximately $8.3 billion as of May 1. We purchased an additional 56,235 Bitcoin quarter to date for approximately $4.1 billion at an average price of roughly $73,400 for that period. Those purchases, benefiting from the increase in Bitcoin price, add approximately $300 million of positive fair value, and as of May 1, our Bitcoin held a market value of approximately $64 billion based on a Bitcoin price of $78,035. In dollar Bitcoin reserve, implying an MNAV of 1.27, which has expanded since the beginning of the year. We have $13.5 billion preferred equity, representing 34% amplification, and net leverage of 9%, made up of the $8.2 billion of convertible debt. Strategy Inc is building around Bitcoin as digital capital. We have approximately $58 billion of equity. You can see here large traditional banks operate with liabilities-to-asset ratios above 90%. Our ratio is a mere 9%. That gives us a very different foundation made up of a very large equity base, substantial Bitcoin reserves, and structurally lower balance sheet risk. We can issue Bitcoin-backed credit products to support investors with strong collateral and continue accumulating Bitcoin over the long term from a position of strength and durability. We have approximately $6 billion of net debt, which represents just 9.3% net leverage against our Bitcoin reserve, which is effectively a 10.8x BTC rating. Our strategy is based on a disciplined balance sheet construction, modest leverage, strong collateral, and permanent capital to grow our Bitcoin over time. Our net leverage is lower than the average of the investment-grade S&P universe, and lower than every major industry sector across most S&P 500 companies. At the current Bitcoin price, our reserve is valued at approximately $64 billion compared to $6 billion of net debt, which translates to the 10.8x BTC rating. The stress case on the right shows that even after a 91% Bitcoin price decline to roughly about $7,300 per Bitcoin, our Bitcoin reserve would still be sufficient to cover our net debt at a 1x BTC rating. Our USD cash reserve has remained at $2.25 billion, and while the years of coverage has shifted down with the growth of STRC this year, we believe the stable cash along with our Bitcoin reserves and ability to raise additional capital continues to provide us with flexibility to continue supporting our dividends for the foreseeable future. On the next slide, the $64 billion of BTC reserves adds an additional 43 years of coverage. Another way to look at this: at today's reserve size, Bitcoin would need to grow by only 2.3% annually for the reserve growth to cover our current obligations. If Bitcoin grows at or faster than the breakeven ARR here, the BTC reserve alone can support our dividends without requiring any additional capital. Before I turn it over to Phong for his remarks, I would like to highlight the amendment to STRC that we have asked for your vote on. We are proposing to move STRC dividends from monthly to semimonthly, with payments twice per month on the 15th and the last day of the month, while keeping the economics unchanged. Our goal is to make STRC work better for investors by reducing reinvestment lag, improving liquidity, dampening the impact of a single monthly record date, and helping STRC trade more efficiently around the target price. Today, STRC pays out 12 times per year with one payment at month-end. Under the proposed amendment, STRC would pay 24 times a year with payments around the 15th and the last day of the month. Again, total dividend economics are unchanged and payments would simply be about half the size and paid twice as often. Under the proposed change, there would be two record dates, one on the 15th and one at the end of the month, with the related payment dates made on the next scheduled record date. If the vote is approved, the first record date would be June 30, and the first payment date would be July 15. The mechanics are pretty straightforward: same dividend economics, more frequent payments, and a clear transition timeline. We believe this change creates the highest-frequency credit instrument in the world and makes a great product twice as better, and we look forward to your support. With that, I will turn it over to Phong. Thank you, Andrew. Thank you, everyone, for joining us on this evening's earnings call. I have a few updates to make on our capital markets, on our equity, on our digital credit, and then I will conclude with updates on our capital market strategy overall. Phong Le: If you had asked us at the beginning of the year what was our target for the year in terms of capital markets raises, we would have said it was uncertain, and it really depended on the success of the STRC product. Four months in, we can say that STRC has been more successful than we had expected at the beginning of the year. One representation of that is the amount of capital that we have been able to raise for the company and ultimately for Bitcoin. Year to date 2026, we have raised $11.7 billion as Andrew mentioned—about half from issuances of our common equity, half from issuances of our preferred, primarily STRC—and no longer are we issuing convertible debt to raise capital. How does that compare to the rest of the U.S. equity capital markets? Last year, we represented about 8% of the equity capital markets in the full year 2025. We were the largest issuer, and we are again this year the largest issuer in the equity capital markets—about 10% total: 6% of common equity, 60% notably of preferred equity. We are doing what we said we would do and what we were trying to do, which was to shift our ATM more towards credit. You see this even more pronounced as we look at each month of 2026. We started in January with 20% of our equity issuances using digital credit and 80% using MSTR, and we have largely flipped that number in April, with 17% using MSTR and 83% using digital credit, which is also less dilutive to our overall shareholders. Research analysts have been consistently supportive. As we look to exit the Bitcoin bear cycle that we are in, the average price target of all of the analysts covering Strategy Inc for Bitcoin is $138,000, which is about a 70% increase. The average MSTR price target is about $323, which is an 80% increase from current levels. So let us talk about digital equity and MSTR overall. We show this chart every quarter—you can find it on our website, strategy.com. This is our annualized asset performance since we adopted the Bitcoin standard. 08/10/2020 is when we look back to. We have outperformed Bitcoin by about 50%. Bitcoin has outperformed the Mag Seven by about 50%. And the Mag Seven has outperformed the S&P 500. Our ultimate objective is for our common to outperform Bitcoin by accreting Bitcoin per share, and based on this chart, we continue to deliver on that performance. As Andrew mentioned, our Bitcoin per share is also accreting—that is our business objective ultimately. We are at 9.4% Bitcoin per share increase so far this year. You will see that has also accelerated in the last month. We started off a little bit slow in January and February—0.4%, 0.1%. The increase in March was 3%, and it really doubled in April with 6%. Last quarter on this call, we said our objective is to double Bitcoin per share in seven years. Doubling Bitcoin per share in seven years implies about a 10% annualized BTC yield, and so far this year, we have increased 9% in our BTC yield. We are well onto our annual target, and we have been happy with the success of STRC so far this year. Ultimately, MSTR continues to be one of the most widely held equities around the world and the most widely held Bitcoin proxy in the world. We are able to reach 1,400 institutions, 927,000 retail accounts, 1,300 ETFs and funds—over 100 million beneficiaries that share nearly 4% of the Bitcoin in the world. I do not think about this as concentrated amongst one company or a set of leaders, but really amongst 100 million people that we are sharing Bitcoin with per share around the world. So let us talk about digital credit, our favorite topic so far this year. The idea of preferred capital and preferred credit is not a new idea. In fact, the industrial revolution was built on the railroads, which was built on analog credit through preferred capital. During the late 1800s and early 1900s, 20% to 40% of the capital structure around the world was preferred capital. What happened in the mid-1900s and the early 2000s is the rise of liquid debt markets and increased regulation, pushing preferred capital into what I would call niche use. Now, as people are waking up to preferred capital and digital credit especially, we are seeing a reemergence. My analogy here is where preferred capital helped build the railroads—which helped drive the industrial revolution—now digital credit will help drive the digital railroads or the digital rails. It will drive the digital revolution, including the AI revolution. We are excited about bringing this back to the forefront of the world. If you look at an overview here, we have five preferreds. We have mostly been focused on STRC so far this year. I think there is an opportunity for the remaining preferreds to start to perform as Bitcoin starts to perform, but STRC is clearly the tip of the arrow as far as digital credit, and that is what I will talk about primarily. We are up to an 11.5% dividend yield. Notably, we have kept this flat for the last two months. We increased the dividend yield from 9% to 11.5%, and now we are flat for the last two months because what we have seen is the volatility has started to decrease, the price has started to remain stable, and we have seen an increase in Sharpe ratio to 2.53. The notional value is up to $8.5 billion, and we are trading $375 million a day. I will share how that compares to other preferred equities and also common equities in general. The first thing I will note is the rapid growth of STRC. In just nine months, we have raised $8.5 billion of capital. It had a running start with $2.8 billion, it slowed down, and it has really accelerated over the last couple of months. Comparatively, this is one of the most successful financial instruments ever created. In terms of capital inflows, it is second only to IBIT. Compared to other products, it has seen faster growth in terms of capital inflows than famous products like the iPhone or Google AdWords. We are very proud of the acceleration of the product, and it means that we built something that is resonating with people in the U.S. and people around the world. STRC is by far the largest tradable preferred in the world. We are nearly two times the size of Wells Fargo's preferred. Almost all of these other preferreds, save us and another one, are bank preferreds. This has gone from being an industrialized product that helped build the industrial revolution to a niche financial product, and we are excited to bring it back to being a major product in the world. The liquidity of STRC—the 30-day average trading volume—is 25x the second largest preferred. Where Wells Fargo is about half our size, it is trading one twenty-fifth of what we are trading at—$15 million versus our $375 million. With that liquidity, the turnover compared to the next best preferred, we are at 4.4%, 10x of what Wells Fargo is and some of these other products like Bank of America products. We think we have really found a new product category—digital credit—based on an old product category—preferred capital—and we are excited about where this is going. Interestingly, STRC is performing not just as one would expect in a bull market, but performing in a Bitcoin bear market. While Bitcoin has gone down 37% since October, now it is starting to rise again, and we are seeing STRC trade essentially near par and paying dividends that are increasing monthly. We have increased the dividend from 9% to 11.5% and kept it steady at 11.5% for two months, now going on three months, while Bitcoin has been decreasing. With that, we have also seen the ATM velocity of STRC accelerate, and the ATM velocity is really the net inflows into the product. Notably, in April, we had a week where we raised $1 billion, and then the subsequent week we raised $2.2 billion. We have seen tremendous demand coming into STRC. At the same time, we are seeing the volatility decrease. Our target price range for STRC is $99 to $101. We have actually seen it trading in a much tighter range, and for the last three months—March, April, May—it sat in that price range for 100% of the time. The daily liquidity is significant and growing, from $54 million to $120 million in January to $250 million in March to $300 million in April. For those who are interested in getting into the product in size—if you are a corporate or if you are a large institution and you need to have confidence that when you need to trade in and out, you need liquidity—our product is showing that level of liquidity. I will go through a series of analyses of Sharpe ratio because Sharpe ratio ultimately is a measure of the returns above the risk-free rate given the volatility of the instrument, and ultimately, if you are an investor, people are looking for high Sharpe ratios. Compared to traditional credit—junk bonds and investment-grade bonds, bank preferreds—we outperform notably. Compared to traditional asset classes—the S&P 500, even NASDAQ, etc.—we also outperform notably. And then, obviously, if you are looking for Sharpe ratio, a lot of folks go to the Mag Seven equities. NVIDIA is on a hot tear because of the AI trade. Google runs essentially a digital monopoly and has been a very solid equity over the course of the last 20 years. STRC has outperformed all of those, in all of the Mag Seven. Another place people typically go to find a high Sharpe ratio are hedge funds. Hedge funds are built with different strategies, different analyses, different quant strategies, and typically they are built to outperform the S&P 500 with lower volatility. Looking at different hedge fund strategies, STRC to date—understandably early in its maturity—is already outperforming these different hedge fund strategies, whether you are multi-strat, macro, equity arbitrage, etc. We see a lot of benefits to this emerging category of digital credit compared to hedge funds, private credit, private equity. One, it is extremely liquid. To get these levels of returns and these levels of Sharpe ratios, sometimes people subject themselves to 90-day lockups for hedge funds, 3 to 7 years for private credit, 7 to 10 years for private equity. We charge no fee. These other strategies often charge a management fee of 1% to 2% and a 10% to 20% carry—a two-and-twenty, if you will. Digital credit is homogeneous—you know exactly what is behind it: Bitcoin. These other strategies are sometimes heterogeneous with many different assets grouped together, making it very hard to ultimately assess the risk. Ours is scalable through an ATM mechanism that allows people to buy the product, and hedge funds and other strategies are discrete. We are accessible, traded via a four-letter ticker on the Nasdaq, and now, interestingly, trading on many tokenized exchanges and tokenized products. Other ones are typically restricted to those who are accredited, institutional investors, or high-net-worth individuals. We are transparent: we disclose our performance and our holdings through weekly 8-Ks and websites that update every 15 seconds. One of the big questions as we have seen STRC perform over the last four months—essentially the year 2026—is what does this mean for our capital market strategy? I will introduce this topic, and Mike will talk about it a lot more. Our objective is to double Bitcoin per share in seven years through the success of digital credit. What does that mean? We sell digital credit, and we have said that we target about 10% to 20% of Bitcoin reserves annually in digital credit volume. Of course, we will analyze that and assess that to see if that target makes sense. That will generate amplification to our common stock, which should increase the Bitcoin per share in our common stock, which is ultimately our goal. As we increase Bitcoin per share, that allows MSTR to outperform Bitcoin, which is what you have seen happen over the last six years. What allows us to flex these levers even better? If our cost of credit goes down—if we are able to decrease the yield from 11.5% to lower for a variety of factors. If we are able to sell more STRC, that increases amplification. If our MNAV goes higher—and I will talk a little bit about our MNAV—that also creates benefits, for example, our cost of paying our dividend. What has happened in the last four months is we have increased optionality for Strategy Inc. We have more sources of capital, and we have more uses of capital than we ever had before. The success of STRC gives us options to do different things from a capital markets and a treasury operations perspective to benefit our common shareholders. Our traditional sources of capital: sell MSTR, sell STRC. We could sell our USD reserve to pay dividends, which we added in November. We also have Bitcoin that we have the option of selling. We can see our other prefs start to perform and sell those into the market, and we have talked in the past about also being able to potentially sell BTC or Bitcoin derivatives. Our uses of capital: primarily today, we buy Bitcoin, we use capital to pay our USD dividends, and we use capital to build up a USD reserve. We have used capital in the past to pay down our convertible debt, our secured loans, our Bitcoin-backed loans; we may continue to do that in the future. We could also use capital, if we want to and at the right time, to retire any of our other preferreds. So what does this really mean? This means we had three trades that we have executed—and really before 2025, two trades: we sold MSTR and bought Bitcoin; we sold MSTR and bought U.S. dollars. Last year, we added STRC and prefs, and we sold STRC and bought Bitcoin. Now we are really seriously thinking about and contemplating introducing a few more trades: selling MSTR at the right MNAV, where it is Bitcoin per share accretive, to buy back debt. That could mean considering retiring, potentially early, some of our convertible notes using our common stock. Selling STRC to buy U.S. dollars—we have not done that much to date—but perhaps reserving part of our STRC proceeds to build up our U.S. dollar reserve. Selling STRC to buy back debt—you can see how that would be an accretive trade to Bitcoin per share because STRC inherently on sale is not dilutive, and buying back future dilutive convertible shares. And then the third set of interesting trades that I previewed: selling Bitcoin. This is a big statement, but our ability to sell Bitcoin either to buy U.S. dollars or sell Bitcoin to buy debt, if it is accretive to Bitcoin per share, is something that we would consider doing going forward. How do we make these decisions? Ultimately, there are two sides of the same coin. One side is our equity performance, and to our common shareholders the most important thing is to accrete Bitcoin per share, which results in higher BTC yield, which ultimately together result in a higher BTC gain. Adding more Bitcoin and BTC gain on a dollar basis is the closest proxy to earnings per share. Those are the three KPIs we look to assess equity performance. On the risk side, we have a BTC rating, which is the amount that our debt and our leverage is overcollateralized by Bitcoin. We have an MSTR duration, which is the average duration of all of our instruments. If you look at our perpetual preferreds, they have the longest duration based on a Macaulay duration basis—10 to 15 years. Our convertible debt has a shorter duration, so swapping longer duration for shorter duration is a good trade for us. Then we have MSTR risk. The BTC rating and the MSTR rating together influence the total risk profile to the company. A couple of notes before I hand it off to Mike. One, Bitcoin per share accretion is our primary goal; MNAV is an input. The threshold for Bitcoin per share accretion when selling our equity and buying Bitcoin is increasing over time. Where it used to be a 1.0x MNAV, as we add debt and as we add preferred—primarily to our structure—the breakeven increases. Right now, it is about 1.22x. That means at 1.22x MNAV or higher, it is accretive for us to sell MSTR and buy Bitcoin. Below 1.22x MNAV, it is actually more accretive for us to sell Bitcoin and pay off our dividends than it is above 1.22x MNAV. There are benefits to the way we bought Bitcoin and the holdings of Bitcoin that we have by cost-basis tier. Taking $20,000 tranches—$0 to $20k, $20k to $40k, $40k to $60k, $60k to $80k, and beyond—we bought Bitcoin at every price level. Below current prices, about $80k, we have an unrealized gain from a tax basis on that Bitcoin. Above $80k, we have unrealized losses. If we were to sell Bitcoin, our objective would be to sell high cost-basis Bitcoin to capture some of those unrealized losses and to take some of those unrealized tax benefits, of which on our balance sheet there is about $2.2 billion in estimated tax benefits. So there is a tax benefit if we were to sell high cost-basis Bitcoin, as an example, to pay down some of our dividends over time. Amplification: we are currently at about 34% amplification. A portion of that, about 10% of that, is driven by our convertible debt. The ability for us to increase amplification to the company is higher when we have long-duration digital credit than it is when we have short-duration convertible debt. As the company starts to cycle over time from convertible debt to digital credit, we can take on more amplification with lower risk levels, so we could see ourselves getting to 50% to 60% amplification levels over time and still feel like we have a high credit quality and a high risk quality to the company. The U.S. dollar reserve: we have built up a $2.25 billion U.S. dollar reserve, which at that point represented over two years of dividends and interest payments, and now with the same exact U.S. dollar reserve we are at about one and a half years. Adding to the U.S. dollar reserve reduces Bitcoin per share but improves the credit quality of the company, and so it is something that we will continue to evaluate over time—what the right level of U.S. dollar reserve is. We feel like at a minimum it should be $2.25 billion, but likely as we grow our digital credit and STRC, we will want to add to this at a certain level. To summarize how we think about managing capital markets and our balance sheet: one, our objective is to create long-term value for MSTR. We want to increase Bitcoin per share, which will increase the price of the common equity and ultimately be better for our common shareholders. Two, we are going to continue to grow demand for STRC. We have seen it to be a very popular product in the market and very beneficial to our balance sheet. We will continue to improve the features as we can, for example, moving to semimonthly dividends. Three, we are going to proactively reduce convertible debt based on market conditions, and that could mean actively purchasing back, through whatever means we think appropriate, some of the convertible debt before it comes due. Four, we are going to look at the STRC demand and credit risk to determine the size of the U.S. dollar reserve. There is a natural market mechanism that as the U.S. dollar reserve in months to cover—years to cover—decreases, the credit risk of STRC goes up nominally and could decrease the demand, and so we will monitor that to decide what is the right U.S. dollar reserve size. Five, similarly, the appropriate amplification for the company will also be based on market conditions. Mike and I and Andrew and the entire team are looking literally every day at what are the trades that are accretive to Bitcoin per share, what are the trades that create the right equity accretion, and what are the trades that manage the credit risk at the right levels. Six, maybe most notable: we will sell Bitcoin when it is advantageous to the company. We want to be net aggregators of Bitcoin— increasing our total Bitcoin—but more importantly, increasing our Bitcoin per share because we think that is what is going to be most accretive long term for MSTR and for the common. With that, I will hand it over to Michael Saylor to complete the presentation. Michael Saylor: Thank you, Phong. I will elaborate on some of the things set up till now and give you an overview of the BTC market and then our capital market strategy. Everything is based on digital capital, and Bitcoin is digital capital. That means global legitimate collateral, global property. We keep track of Bitcoin as digital capital and the consensus in the market, and what you can see here is the U.S. government has embraced it. All of our key financial regulators—the head of Treasury, the head of the SEC, the head of the CFTC, and now the incoming head of the Fed—are all digital assets enthusiasts, innovators, and Bitcoin believers, as is the President of the United States, Donald Trump, and the Vice President, J.D. Vance, along with many other cabinet members. That is a very important fact. There are a lot of bills still working their way through Congress. The most notable one right now is Clarity. The real key here is that Bitcoin is a priority in the House and the Senate, on the Hill, at the White House, and there is bipartisan support and bipartisan agreement for Bitcoin as digital capital, and for legislation that supports Bitcoin as digital capital in the world. A few months ago at our Bitcoin for Corporations conference, we saw major announcements by systemically important banks—Morgan Stanley, Citi, TD—all with intent to integrate into their operations. This is something we only hoped for three or four years ago, and now it is reality. At the point that Bitcoin is integrated into the banking system, then it is digital capital here to stay. You can just see the announcements across your ticker everywhere in the world. This is a global phenomenon. Whatever happens in the U.S. and with U.S. banks is spreading to Europe, to the UAE, to Hong Kong, to South America, etc. You are going to see these announcements accelerate, but we have crossed the event horizon. You cannot put the genie back in the bottle. Bitcoin has arrived. We try to be systematic, so we track it. We track the 15 largest or most systemically visible banks in the world, and we look at their embrace of Bitcoin: as a creditworthy instrument, will they trade it, will they offer credit against it, will they custody it, will they handle the derivatives, etc. Adoption has advanced since even last quarter, and everywhere in the world across all of these banks, there are active efforts to improve Bitcoin support. If you track the number of accounts that support Bitcoin access, you can see we are marching up into the high hundreds of millions: 840 million crypto exchange accounts, nearly a billion neobank accounts, nearly a billion brokerage accounts that all have access to some sort of Bitcoin derivative. ETFs, of course, continue to embrace. There have now been 125 ETFs with about $126 billion of capital. The capital flowing into these ETFs continues to accelerate. We were the first company to embrace, and now we are up to 194 public companies. We anticipate this will continue to grow. Lots and lots of IPOs—the public markets have embraced Bitcoin, and this is just an example of some of the notable companies that have come public just recently that have substantial Bitcoin exposure. The digital credit ecosystem has been a very pleasant surprise. It has grown very rapidly, and it has become very diverse. The way that we know digital credit is working is that companies and economic actors everywhere in the world that we have never met face to face are discovering this and building products and businesses around it. Right now, what we see is very enthusiastic support with retail investors, with corporate treasurers, with institutional investors, with crypto-native innovators, and with TradFi innovators. Five different groups of capitalists, but they are all getting very heavily involved enthusiastically and rapidly. If we drill into retail, 80% of all STRC shares are held by retail as of our last check. This is an extraordinary fact. Normally, it is very difficult to get broad, deep retail support for a public stock, and yet we have been very pleasantly surprised. We are able to trace about 120,000 individual retail accounts. Word-of-mouth is spreading this. It is spreading virally. Based upon our studies, we see that anybody that buys STRC is generally telling their friends, their family, their parents, their working associates about it, and it continues to spread by word-of-mouth. You can also see Schwab is a big distribution channel—23% of STRC is held in Schwab accounts. Fidelity is a channel. Robinhood is a channel. Morgan Stanley and E*TRADE are channels. BlackRock is a channel. Interestingly enough, Vanguard, which will not let their investors buy Bitcoin natively, actually is a channel for STRC. It is pretty exciting that we have wrapped Bitcoin into a credit instrument that is being distributed through all sorts of traditional finance channels to types of investors that otherwise would never be able to buy Bitcoin itself or would never want to. We estimate there are about 3 million households that are benefiting from STRC right now—think of it as powering a savings account for 3 million households. Phong mentioned about 100 million beneficiaries of MSTR. Well, 3 million beneficiaries of STRC in eight months is a pretty good start to the race. Our ambition is to spread this to tens of millions and then hundreds of millions of people. We are also very enthusiastic about corporate support. Corporations, unprompted by us, figured out that it was a good idea for them. Corporate treasurers and CFOs with working capital have been allocating some of their treasury capital to STRC. This is a really pleasant development, and we are starting to think that there might be thousands of companies that might allocate some amount of their treasury capital to STRC. I have had a lot of experience selling BTC to corporations. What I found is that tends to be a board-level decision—it goes all the way to the board of directors. The CEO has to be way behind it, and if one director on the board has concerns, the cycle slows down. But with STRC, it is not a board-level decision. It is more like a CFO-level decision. If the treasurer is enthusiastic, the CFO can greenlight it. They might or might not give the CEO a heads up. This is a very different value proposition. It is maybe a five-minute conversation with the CEO instead of a two-hour conversation with the entire board. For that reason, we think that STRC really is Bitcoin for corporations. It is going to spread very rapidly now. Another very exciting thing is that STRC has spread into credit indexes. BlackRock’s is a $14 billion credit ETF, and STRC is the number two holding. VanEck’s is another credit ETF, and STRC is also the number two holding. Imagine an instrument coming out of the blue—nonexistent 12 months ago—and in less than 12 months, we have gone from nonexistent to number two. Next stop, number one. We are enthusiastic about seeing STRC embedded in lots and lots of institutional credit indexes and funds. Third-party ETFs have been finding STRC and building innovative ETFs. Strive is building a digital credit ETF. 21Shares created an ETF with STRC and took it public in Europe. There are a number of ETF providers that are working with us and in the pipeline right now. We are in active discussions with four. Over time, there will be more ETFs to build STRC into their fund offering. Digital money and digital yield: we start with digital capital at 34 vol on a rolling 30-day average and 39% ARR. The one-year trailing vol of Bitcoin is almost 40. Think of it as a 40 vol, 40 ARR asset—raw economic energy. We split that asset into STRC, which is 3 vol, 11.5% yield, and then MSTR, which is 71 vol, 59% ARR. One is amplified Bitcoin—we call it digital equity—and the other is damped digital credit. Digital credit, we believe, is like the kerosene of finance. It is the monetary fuel and is a universal monetary fuel. It is high-grade, highly distilled. From here, you can build all manner of products. Layer three is digital money and digital yield. Neither would really be possible without digital credit. It is too difficult to distill pure zero-vol 8% money from a 40 vol, 40 ARR asset. You have to crack it. You have to have a crypto reactor, and you have to have $50 billion of equity capital to do it, and that is what we did to create STRC. Simple definition in our lexicon: digital money is 0% volatility, daily liquid instruments built on digital credit—like zero vol, 8% yield coin. Digital yield is nonzero volatility or it might be illiquid—it might be a three-month lockup, 5x levered, 35% yielding fund that loops digital money four, five, six times to get there. Digital yield is a levered construct, and digital money is the stripped-down construct. We think digital credit is programmable across lots of dimensions, so there are a lot of ways to add value to it. You can tokenize it, put it in a private fund, put it in a public fund, put it in a bank account. You can deploy it on a crypto exchange, on a neobank, on a real bank, or on a crypto network. You can program it to a volatility of zero or let it float up to a volatility of 10. You could program the liquidity to be continuous or daily or monthly, but you could also put in a quarterly lockup or an annual lockup in order to put more leverage on or create a different characteristic. You can program the yield from 5% up to 25% reasonably—some people might go beyond that, but we think 5% to 25% is reasonable. Then you can convert the currency—you can create Great British pounds or euros or yen or Swiss francs with digital credit starting from STRC. When you think about all these different forms, the question is, do you want to create a yield coin like a digital money coin? Do you want to create a yield fund? Do you want to create an account? Depending on what your assets are—if you are the biggest bank in Australia or if you are Deutsche Bank—you probably would do it one way. If you are a crypto exchange, you might do it a different way. The math is pretty straightforward. You start with 11.5% performance and ~3 vol right now. If we are lucky, maybe we will be able to get our vol to two or to a one handle. That is the goal of our proposal to the shareholders. I doubt seriously we get below a 1.5 or a 1 vol. One vol is sort of what publicly traded money market funds look like right now. Getting to zero vol takes a bit of work. One approach to add value is to down-strip the vol to zero, and maybe instead of 3 vol, 11%, you offer zero vol, 8%. That is digital money. The other approach is step it up: lever it three to one, pay 5% for the capital, and maybe you end up with something that is paying you like $35. Pay $10 on the capital, and you get a 25% yielding levered yield fund. These are all opportunities. We are not going to do it ourselves. Our laser-like focus is to make STRC the deepest, most liquid, most stable, least volatile, highest Sharpe ratio credit instrument in the world. That is a mission. There are a lot of crypto innovators—and you see right here on this screen a lot of very impressive companies—that are moving fast right now. Apex has had enormous success early on. Saturn is doing the same thing. Hermetica, Kraken, Ondo, Pendle, Spread, Strata—they are all doing very interesting things right now. They are very innovative and moving about 10x faster than the TradFi complex normally moves on these initiatives. There are also interesting TradFi initiatives—things you can do in a traditional finance environment with a private fund or a public fund. We see those things happening as well. Eight weeks ago, there was no STRC in the DeFi industry. In those eight weeks, we have rapidly grown to something like $270 million of exposure. This is just extraordinary—the rate at which money is flowing. Sometimes money is flowing into this complex a million dollars an hour. It is starting to feel like we may very well see more than a billion dollars of STRC enter the DeFi industry in the near future. It is moving very fast, and it is very dynamic. Outlook and our vision: we are a structured finance company. We are taking raw capital—digital capital—40 vol, 40 ARR, $1.6 trillion market cap of Bitcoin. We are stripping the currency risk, reducing the credit risk, compressing the duration risk. We are distilling a yield and damping volatility to create various instruments. Our greatest product and biggest success right now is STRC. It is taking a 71 vol down to a 3 vol, and we are targeting a 1 vol. Some important items to be aware of: the Bitcoin breakeven ARR—we calculate it all the time. It is very significant. If Bitcoin grows more than 2.3% a year— that breakeven ARR—we can fund our dividends forever without selling a single share of stock. If Bitcoin does not grow at all forever, we can fund the dividends for 43 years. We publish this on our website and update it every 15 seconds. If you go to the credit tab, you will see the Bitcoin reserve, the years of dividends (years of coverage if Bitcoin appreciates 0% a year), and the Bitcoin breakeven ARR—2.27%—updated every 15 seconds. There is a misnomer: most people think Bitcoin has to appreciate 11% or 11.5% for us to be successful or cover the dividend. Not true—2.3%. Or they think 30%—that is what we think it will do. The number that really matters is 2.27%, the BTC breakeven ARR. It is also the inflection point where STRC issuance results in more Bitcoin being stacked by our company than the Bitcoin we use to pay dividends if we choose to pay dividends with Bitcoin. We do not have to sell a single share of stock. We could stop selling MSTR common stock right now. We can fund the dividends with Bitcoin sales, and if STRC issuance is greater than that BTC breakeven number, not only will we fund the dividends forever, we will increase the amount of Bitcoin that we hold forever at the same time. If we were to sell $1.5 billion of STRC per year, we can sell Bitcoin to pay the dividends, buy more Bitcoin than we sell, grow our Bitcoin stack, and generate Bitcoin yield. We sold $1.5 billion of STRC in two days a few weeks ago. If STRC issuance equals 20%, that would equate to $12.8 billion of STRC sales this year. We might exceed it, who knows, we might be less. At 20% issuance rate, the first-order model indicates we generate a BTC yield of 17.7%, we accumulate an additional 144,000 Bitcoin, and that is after we pay all the dividends by selling Bitcoin. Occasionally, some short narratives suggest that selling Bitcoin is bad for the business. We look at it like a real estate development company: you buy land cheap, sell some land dear to fund obligations, and buy more land. Capital gains fund credit dividends. That is the essence of the business. We invest in digital capital—Bitcoin. The capital gains from the investment fund the credit dividends in perpetuity if the capital appreciates at that breakeven rate. Sometimes we will sell a Bitcoin derivative because it is in the best interest of the company, but it is not necessary. For every single capital markets transaction, we are making these decisions not just every day, oftentimes every minute of every day, based upon all the fluctuating prices of the trading pairs. Right now, our BTC rating corporately is about 3.3. The duration of our liabilities is 10.9—that is the stochastic duration. The risk centered on 818 basis points works out to a fair credit spread of 61 basis points. 818 basis points of risk means that there is an 8% chance at the end of the duration of the liabilities that you are trading in a BTC rating of 1. 61 basis points is the credit spread a rational investor needs to be paid to offset the risk. The assumptions we plug into the model: 10% BTC ARR—we assume that Bitcoin will perform about at the level of the S&P 500 over the last 100 years. We plug in 40 vol. Even with those estimates, what pops out is a credit spread of 61 basis points. The investment-grade credit spread is like 88. This is investment-grade credit even with very realistic pragmatic inputs. If you are a Bitcoin max and you think Bitcoin is going up 30% a year, there is no risk. If you are a tech investor and think 20% a year, the risk is de minimis. If you are a trader and think 10% ARR, you get the 818 basis points. If you think 0% forever, the risk increases; if you think it is going down, the risk explodes. You can calculate the risk with various Bitcoin prices and see the expected answers: Bitcoin price going up is good, Bitcoin vol going down is good. Some trades: if we sell $1 billion of MSTR stock and buy $1 billion of Bitcoin at 1.0x MNAV, it is dilutive—minus 48 basis points of yield, costing shareholders $310 million. As MNAV goes to 2.0 or 2.25, it becomes extremely accretive; at 2.0, you make $457 million in gains on the trade. It also improves our BTC rating and decreases risk—credit positive. Funding dividends: if we fund $1 billion of dividends with Bitcoin, it costs $1 billion—12,763 Bitcoin loss, 156 basis points. That is pretty similar to funding the dividends with common equity at 1.22x MNAV. Below that breakeven, it is more expensive to fund with equity; you are better off to sell Bitcoin than to sell equity if the equity is trading weak. At 2.0x MNAV, it only costs 83 basis points. Funding the USD reserve: it is more efficient at a high MNAV than at a lower MNAV; funding with BTC is constant from an equity point of view but extends duration and improves credit. Buying back converts: if we sell $100 million of STRC to buy $500 million of convertible bonds, we generate substantial BTC gains—22 to 63 basis points of yield depending on the specific convert—reduce leverage, stretch duration, slightly increase risk, and generate BTC gains. Selling Bitcoin to buy back common stock: below 1.22x MNAV, it is extremely accretive to swap BTC for MSTR. If the stock trades to 0.5x MNAV, swapping BTC for common yields 636 basis points—massive BTC gain. The opposite is intuitive. We can also sell STRC—sell credit to buy MSTR—and over time do our own levered buyback; amplification on the equity. Even at 2.0x MNAV, you can generate 85 basis points of yield; at 0.5x MNAV, 800 basis points of yield. We can sell dollars to buy common equity—carrying the USD reserve is dilutive to equity but credit positive; we could swap dollars back for common at a discount profitably. Scenarios: we can continue with our conventional strategy at 1.0x MNAV—selling credit and equity, using equity to fund dividends, holding USD reserve at 1.5 years—run a 10.6% BTC yield and accrete 263,000 sats per share over the next three years. At 1.22x MNAV, the yield expands to 12.2%. At 1.5x MNAV, 13.4%. At 2.0x MNAV, 14.6%. Alternatively, we can fund dividends by selling Bitcoin and still grow Bitcoin holdings continuously—driving a 12.2% BTC yield and passing 1 million Bitcoin on the balance sheet in the next 36 months— with a slight increase in credit spreads and risk. If we fix the USD dividend and fund dividends with Bitcoin, we can get to a 14.7% BTC yield—again, a slight increase in credit spreads and risk—without accessing the equity capital markets at all. We can also retire all the converts: if we divert 20% of STRC issuance to retire debt, we retire all the debt in the next three years, net leverage goes to zero, duration goes to 15 years, and we run with a 12.4% yield while maintaining a 1.5-year USD reserve. Key assumptions: on the equity side, 30% BTC ARR, 20% STRC issuance, 11% dividend rate; on the credit side, 10% BTC ARR, high vol. Over time, as confidence grows, credit spreads should compress, and the company has the option to lower the dividend to a floor of SOFR. SOFR has fluctuated between 500 basis points and 25 to 50 basis points historically. Considering those options, the stochastic cost of capital for STRC has to be modeled as something less than 11.5% and maybe more than the long-term rate—somewhere between 6% and 11.5%, a blended rate of about 8.75%. Our capital markets principles: we are here to drive Bitcoin per share up, and we are doing everything we can to drive per share up. The best tool to do it is STRC. We see a world where we are debt-free—sooner rather than later. We will adjust amplification, credit metrics, USD reserves, and use of proceeds based on constant market feedback. With Bitcoin—more than $60 billion—and $20 billion or more of daily liquidity in the Bitcoin market, we will not impair our asset by refusing to tap liquidity when it is in the best interest of stakeholders. We run the company in the best interest of all stakeholders—MSTR common equity, STRC creditors, and BTC investors—balancing interests to keep the concentric flywheels in harmony. When MNAV is expanding and the equity is healthy and outperforming Bitcoin, when the volatility of STRC is falling and liquidity is increasing, and when Bitcoin price is appreciating, that is indicia of success. That is what we have been doing and will continue to do, and we thank you for your support. We will now open the call for questions. CJ Jain: Before we jump into the Q&A, I would like to share with all our investors that we are organizing a special Q&A for retail investors next week on May 13. You can scan this QR code if you would like to submit questions. We will share the link on X and share more details as well. With that said, let us jump into the Q&A. I would like to invite all our guests to turn on their cameras and get ready to ask some tough questions. Let us get started with Peter Christiansen from Citi. Pete, please go ahead. Peter Christiansen: Thank you, CJ. Michael, I just want to take this call and how you have laid out all these scenarios and think about historically—pointing to last year at the end of the year—there was a false signal that Strategy Inc was selling Bitcoin, and it was taken negatively in the marketplace. Today, you outlined a lot of different optionality scenarios that Strategy Inc now has to optimize its capital stack. Should we take today's call as a signal to the market that, yes, Strategy Inc is willing to be more proactive with its capital stack, which may include the sale of Bitcoin—maybe for tax purposes or maybe for other optimization purposes—credit, what have you? Should we take today's call as a signal that, yes, Strategy Inc is going to be more tactical with its capital stack going forward? Michael Saylor: Yes, you should. I think the company got much healthier when we proactively began to utilize the equity ATM and we said it—we are going to do it; we are not ashamed of it; we will probably do it again. Then, when the company started proactively executing on the STRC credit ATM, we said we are going to do it; we are not ashamed of it; we are going to keep doing it; we think it is good; and we have a plan for it. At this point, to say we are turning on the BTC drive—we are not ashamed of it. We have $65 billion. We have a $2.2 billion tax credit that is lying on the floor. We ought to go find a way to pick up the $2.2 billion. Just like with everything else, the more optionality we create and the more tools we have at our disposal, the better it is for the equity investors. Yes, we will probably sell some Bitcoin to fund a dividend just to inoculate the market, just to send the message that we did it. Look: the company is fine, Bitcoin is fine, the industry is fine, the world did not come to an end. If you are a short seller and your thesis is the company's got to sell equity in order to fund the dividends, I would like nothing better than to rip your wings off. Peter Christiansen: I like that term, inoculate. Very well. CJ Jain: Thank you, Pete. I would like to invite Jeff Bock next. Jeff Bock: Hello. First off, congrats to the team, particularly on STRC’s accelerating region. Thanks for having me here. My question is focused on understanding how macro factors may influence the firm's acquisition strategy, particularly in regards to interest rates. As we all know, we are just a few weeks away now from Kevin Warsh’s official inauguration, and even though rate-cut odds are a little lower this year, Strategy Inc now does have an explicit growing interest rate sensitivity, as we just saw from the stochastic model. Hypothetically, if we see interest rates being lowered, STRC has this momentum that it will likely trade above par more aggressively given the nature of the floating-rate dynamic. The company then has a really interesting fork: you can either, one, issue more STRC and push the price back down to par, or you can use that moment to reduce the interest burden itself on what is outstanding. There is a healthy tension between these two things. Can you help us understand that risk framework a little better to calibrate that particular trade-off—lowering the coupon versus selling STRC? It changes the Bitcoin acquisition velocity, but it also cuts interest expenses, especially in that lower-rate environment. Any specific input parameters that you might say take priority here in your calculation? Michael Saylor: I will start, and then Phong or Andrew may have some comments. First of all, when macro indicators are moving against us, we have a headwind. Everything slows down. When we go to a restrictive monetary policy, that is bad for Bitcoin—really bad for Bitcoin. It is bad for risk assets. Bitcoin is risk assets squared; MSTR is risk assets cubed. We are like big tech cubed, and Bitcoin is big tech squared. In a risk-off environment, you can see that. In a risk-on environment or a more accommodative monetary economy, I expect you will see the opposite. Bitcoin will rally hard as squared; our equity should rally as tech cubed. The credit—presumably, we have more optionality if SOFR falls. Our bias is to grow the business responsibly but as rapidly as we can, and our bias is to grow Bitcoin. If we have the ability to accelerate our capital raising and we can raise twice as much capital in a risk-on or more accommodative monetary policy, we will run the vehicle as hard as we can, but we will not run it so hard that the capital structure does not keep up with it. The circumstances under which we would slow down or throttle the credit would be if we go to risk-on and Bitcoin does not rally and our equity does not rally, but the credit rallies. If the demand for the credit triples and somehow Bitcoin does not react to the interest-rate macro environment and/or MSTR does not, then we might very well adjust the dividend rate down because we are getting too much demand for the credit. By the way, I do not think that will happen. The likelihood that we go to a risk-on environment and Bitcoin does not rally is small. If Bitcoin rallies, our capital stack and collateral base expand, and then we can accommodate more credit. The rate of STRC issuance or credit sales is a function of the BTC growth rate or ARR. If Bitcoin grows 30%, we can expand credit aggressively. If it grows 50%, we could go faster. The second order is the equity capital markets’ enthusiasm for our business model. If the equity capital markets looked at our business and said, you are going to run a BTC yield of 20% a year and I am going to give you a P/E of 10, I am going to give you a 200% premium, and now you are trading at 3x MNAV—that would be better than we are right now. If the equity capital markets did that, our optionality increases as we grow faster. The countervailing view is, you have only been doing this for a year or two years, and the Lindy effect says I am only going to put a P/E of two on that. If we get a P/E of two, we could have a Bitcoin rally that gets us a collateral stack, but the equity does not go as fast, and that might govern the rate at which we run the credit engine. Bottom line: if the macro environment turns risk-on and Bitcoin rallies or equity rallies, it is go time. We are going to go, and we are going to go with the credit. We want to see the MNAV expand to two, three, four, five, or six. Nothing would make me happier than to rip the faces off of all the skeptics and the shorts and drive the equity to the moon. The question you have to ask yourself is: is this company going to sell $10 billion of STRC this year, or 20, or 40, or 80? The answer to how much we can sell responsibly is a function of where the Bitcoin price is, and to a lesser extent, how the equity capital markets react. If the equity capital markets are accommodating and supportive and Bitcoin rallies, the company has a lot of tools to manage the BTC rating and the collateral coverage. We can add more equity capital. We can put equity capital in the market fast—we were the biggest equity issuer last year and this year. We could also take common equity out of the market if we decided to. We will look at the interest-rate forward yield curve, how Bitcoin performs—Bitcoin performing as big tech squared—the forward expectation curve of BTC, the forward vol curve. Bitcoin vol at 40 or 35 is different than vol at 50 or at 20. When Bitcoin vol falls to 20 or 25, you can lever these things and still have investment grade—lever two, three, four, five times more and still have investment grade. Bitcoin vol being 30 right now is not the same as institutional credit investors expecting Bitcoin vol to be 30 for a decade. The forward yield curve, the forward vol curve, the forward price curve, the forward equity curve—all that gets discounted back, and we ask ourselves: what is the rational thing to do? At the end of the day, we want to drive the MNAV to the sky and drive the Bitcoin price to the sky and build STRC into the biggest credit instrument in the world. The higher STRC AUM we have, the more liquidity, and if we can get to $1 billion of liquidity for STRC, the vol will keep coming off, adoption will expand, and we get a network effect. If you gave me a choice—sell $500 billion of STRC and pay 11%, or sell $50 billion and pay 9%—knowing us, we want to gather the extra $100 billion of capital in a responsible way. Our long-term view is Bitcoin is going to go up more than 11%—30%—and if we are wrong, it is 20%. Two hundred basis points will not make the difference. But if we gather an extra $100 billion of capital, the war to determine the future of credit and the war to determine the future of money is going to be fought and won with money, and we are going to get the money if we can do it in a responsible way. If you construct a tortured scenario where Bitcoin price is not reacting and MSTR is not reacting, but everybody wants the credit, maybe we would slow down the credit machine. If equity investors are more bullish than credit investors, and BTC investors are more bullish than credit investors, the system solves its own problems—we are probably not going to be able to keep up with the expansion of our BTC collateral stack. Phong Le: I will add one short thing to this, Jeff. The scenario you lay out is in a maturation of the digital credit market—five to ten years out—when digital credit is $3 trillion on a $300 trillion market. We would run into this issue of how to manage the demand for STRC. Ten months into it, our issue is not so much what interest rate we are paying or what the Fed does to interest rates. The demand is going to be driven by awareness and marketing of the product right now. I do not think that scenario is going to be much of an issue for the short term. Jeff Bock: Got it. Thank you for those thoughtful responses. CJ Jain: Thank you, Jeff. Next, I would like to invite Andrew Harte from VDIG. Andrew Harte: Thanks for the question. I think the optionality in the business really came through clearly today. Shifting gears a bit: earlier in the slides, Michael, you talked about Bitcoin being digital capital and MicroStrategy being digital equity and STRC being digital credit. Then you also talked about innovators building digital money down the road—you called it like a layer three. Considering STRC is going to be the foundation or the building blocks for digital money at some point as the market continues to mature, what do you think that solution looks like? Are you having conversations with innovators who are out there looking to build on top of STRC and create these digital money solutions? Michael Saylor: Can you hear me? Andrew Harte: Yes, I can hear you. Michael Saylor: Okay. I think you see it with Apex and Saturn and Hermetica and a lot of the token issuers that are creating these yield coins that are powered by STRC. They are rapidly innovating. If you look at some of the DeFi protocols that are offering 2x, 3x, 5x, 10x leverage and looping—the Pendles of the world and the like—they are innovating rapidly. We do not know the final shape. I think there are a thousand different combinations of digital money and digital yield. There is a different currency in every country—I think you can create various yield coins in different currencies. In Australia, you can deploy via a regulated bank or via a token that can sell in Australia or via an ETF taken public in Australia or via a private fund in Australia. When you take the combination of currencies and platforms and containers, the sky is the limit. The people moving the fastest and most enthusiastically right now are the DeFi players, and people launching stablecoins that have to compete with Tether and Circle. The issue is: how do I convince people to put AUM or capital into my stablecoin? I need to create either a digital money—zero vol, 8% yielding—which is compelling, or a 25% ARR stake with a one-month lockup, looping three or four turns on the capital. The market will decide who it trusts and what form it wants to buy, and it votes with its money. You can literally watch the money flowing every hour. I think you will see some ETF players come, but they will come slower because there is more regulatory friction. We hold out hope that we will see a neobank offer a digital yield account. There is no reason why a bank or any neobank that is a mobile app could not say, “We will give you 8% on your money in this yield account if you want it.” Each one of these things is a different counterparty, a different platform, a different regulatory container. Eight to twelve weeks ago, we had none of these conversations going on, and now I see like three dozen initiatives. There is a Cambrian explosion. Check back in twelve more weeks—I think we will have some exciting news and partners. Or just watch my X feed because I retweet some of the more interesting digital yield and digital money offerings—they are literally happening. A lot of times, people are inventing stuff and I am finding out at the same time you are, but the market is evolving in real time right now. CJ Jain: Thank you, Andrew. Next, I would like to invite Eric Balchunas. Eric, please go ahead. Eric Balchunas: Hi. Thank you for having me today. Great presentation. My question is maybe a little more philosophical. It is about the changing ownership and identity of Bitcoin. According to River, in the past 16 months, businesses bought 560,000 Bitcoin. ETFs bought another 208,000. Governments bought 160,000. That is 1 million total Bitcoin by those entities. Meanwhile, individuals sold 730,000 Bitcoin. Some have called this the silent IPO, and it is arguably the reason for that 45% drawdown. This changing ownership is being reflected at recent Bitcoin conferences where you see an increasing number of “suitcoiners,” which you highlighted in the slide on the government and the banks. I have noticed it has made some of the native Bitcoiners a little uncomfortable and conflicted regarding the original mission, given it was made to bypass governments and banks. To me, it feels like Facebook ten years ago when everyone’s parents joined. Some people left the platform, although the user base did grow from 1 billion to 3 billion since then. I want your read on this transition—the mainstreamification of Bitcoin—and how important it is to keep the original base of investors along for the ride and keep the cypherpunk edge of Bitcoin as it goes more mainstream and gets adopted by companies, asset managers, governments, and boomers in general. Maybe it does not matter given the size of the institutional advisory market for the price to hit $1 million, but maybe it does. Just curious your thoughts. Michael Saylor: Since we got in this space, there has been something like $1.4 trillion of wealth created for people other than the suitcoiners. I do not know who got the money, but we can trace 4% to BlackRock investors—they must have 50 to 100 million beneficiaries. You can trace almost 4% to our investors—we have 100 million beneficiaries. If you look at the corporates, they are representing thousands of institutions and tens of millions of investment accounts and hundreds of millions of beneficiaries, and the network is decentralizing. It is distributing through them and maturing through them and finding its way into retiree accounts, insurance beneficiaries, trust funds, and three-year-old trust fund babies. Everybody in the world is getting exposure now. When everybody criticizes the centralization of the network, note that 85% of the network is held by others. It is held by the crypto OGs. We do not know how many people that is, but it almost certainly represents fewer beneficiaries than the beneficiaries that rely upon BlackRock’s ETF or a common public stock. The corporations have been spreading exposure to Bitcoin by an order of magnitude or orders of magnitude. If you ask who owns the trillion dollars of Bitcoin that is not public—there are Chinese, Russians, Americans, Europeans, South Americans, Ukrainians, Iranians. When you wonder who is selling it, well, it is a trillion dollars of capital held by crypto OGs that are unbanked. Maybe they are selling because the currency in Iran crashed; maybe they are selling because of some fear of a Chinese government memo. If the Chinese mined half the Bitcoin in the first 15 years, it is kind of impossible that there are not a lot of people with Bitcoin in China. Generally, the industry is maturing. It is rotating from the crypto OGs, but they are not going away. We spent $6.062 billion to get to less than 4%. It is pretty expensive to not get to the other 96%. If you look at all the money that BlackRock and us put into this— the $150 to $200 billion of capital that flowed from the institutions—it did not get 90% of the network. Ninety percent of the network is still in global crypto OG hands. I meet people everywhere in the world—someone slapping me on the back, thanking me for making them a lot of money—because literally people that you will never know who they are and will never announce it are sitting on $1.2 trillion of capital gains right now in the crypto ecosystem. I am not worried that the crypto ethos is being squashed. People with a trillion dollars probably have a lot of power to do what they will, and they are continuing to do it. The Bitcoin network is still highly decentralized. The miners are decentralized. This is a global phenomenon. If anything, what is happening is the corporates are just powering up the network. We are the people that invest the $100 or $200 billion to drive the price from $10,000 to $80,000—or from $10,000 to $100,000. When we do it, 90% of the gain goes to other crypto actors, and they power the entire decentralized digital economy. Good for them. That is good. The network is evolving in every direction simultaneously. I would take issue with anybody that says it is centralizing. It is decentralizing. Today, a lot of people with money and power are going to support and defend this network because of the success of the corporations—whether it is Coinbase, BlackRock, or Strategy Inc. If you are going to lobby for things that are good for digital assets in Washington, D.C., it is not going to be a Chinese crypto pseudonymous billionaire hiding off the grid doing that lobbying. The trillion dollars of crypto OG money is not going to fix the accounting, fix the tax code, fix the banking system, and build the technologies that actually commercialize these apps to a billion people. They are not going to give a bank account to a billion people that pays them 10%, and they are not going to put Bitcoin on every iPhone and every Android phone in the world. That is going to be corporate actors. The corporations are doing their part; the crypto OGs did their part. Everybody is in the system. There is tension—healthy tension. We welcome it. The fact that someone will sell Bitcoin because they are in Iran and some missiles got launched— that is a feature, not a bug. People are trading based upon things that have nothing to do with the way Wall Street trades the S&P index. That is what makes Bitcoin special, and that is why we welcome it as global digital capital. CJ Jain: Thank you, Eric. Next, we will invite Ramsey El Assal from Cantor. Hi. Thanks for taking my question tonight. Ramsey El Assal: Michael, you mentioned that if Bitcoin volatility were to fall as the asset pricing accelerates, you would have some options and cards to play to preserve the attractiveness of the model. Can you elaborate further on what you meant there? And then separately, can you give us a quick update on the BTC security initiative? How has that been received, and have there been any developments on the quantum risk topic worth calling out? Thank you. Michael Saylor: I will answer the first and let Phong answer the second. If you go to our credit tab on our website and type in a vol of 40, you have a BTC rating at 3—things look investment grade. When the vol falls to 30, you can have a BTC rating of 1.5 and it still looks investment grade. When the vol falls below 30, your amplification can triple or quadruple. As vol falls, credit risk falls. The forward volatility curve changes the view of credit investors and creates more demand among more traditional credit investors. It also changes the view of banking regulators and credit rating agencies. There is nuance: if vol is high, it is equity positive—options trading, liquidity, etc. When vol falls, it is very credit positive. You are going to get performance through volatility on the equity side and performance through more amplification and more intelligent leverage as vol falls. Over time, it is reasonable that Bitcoin matures from 40 ARR/40 vol to 20 ARR/20 vol. It will always be more volatile than the S&P and more useful, but if you are a credit investor, you want to be sensitive to it. The single number one issue in the market is: what is your forward volatility curve for Bitcoin? If you think Bitcoin is a 30 vol asset, everything we sell is investment grade and should be priced double or triple what it is. If vol starts to fall, there is no reason why there should not be a 10x bid on this stuff. You might lever 8 to 1 instead of 3 to 1. It will change the behavior of downstream players. Phong Le: On security, Ramsey: we have started to bring together a group of folks—calling it the Bitcoin security program or council. The objective is to bring together institutions that represent custodians, exchanges, and large Bitcoin treasury companies who have a vested interest in the success of Bitcoin, and share a combined point of view on the potential risk and time horizon of quantum, what activities are underway in the development community, and how we get to consensus. Likely in the next month or so, we will share who is in that group and our combined point of view. Right now, there are a lot of divergent points of view, and we thought it would be useful to bring together those who are interested in the success of Bitcoin. You will hear from the Bitcoin security program likely in the next month or so. Ramsey El Assal: Excellent. Thank you. Appreciate it. CJ Jain: Thank you, Ramsey. Next, Jeff Walton. Please go ahead. Jeff Walton: Thank you for including me, and I am very appreciative of your leadership. I have a two-parter. You spent a lot of the presentation talking about risk of the credit instruments. You have created a unique arbitrage surface between all of the different instruments and a unique incentive structure. It has resulted in people buying and selling the instruments right below par on STRC and some of the other instruments. First, do you find that the market agrees with you on the forward-looking volatility curve? Are the instruments trading in tandem with each other? What is the biggest hurdle in communicating that relative risk profile? Second, what is the biggest hurdle in accelerating the adoption of the digital credit instruments into the future? Michael Saylor: I think all of the credit instruments are undervalued. So no, the market does not agree with us. If the market agreed with us, then STRF would be trading at $200 a share right now, not where it is. I think the equity is undervalued. I think all the credit instruments are undervalued. I think all the bond instruments are way undervalued. We are embryonic. How do we fix it? The Lindy effect and education. Partly, we tell the story. Partly, people will have to wait. After we have been in the market for three years, they will say, “It has worked for three years,” and it will be rated up. We will be continually rerated as time goes by. We will not sit on our hands—we will communicate, publish, do investor outreach, and work with partners. As partners create compelling digital money products, that is helpful. How long will it take? How long did it take before the market thought Amazon had a good business? It took ten years. Netflix was mispriced for many years; Apple was mispriced for many years. With a revolutionary business, the market will be skeptical. It was skeptical of Google, Amazon, Nvidia, Apple—it will be skeptical of digital credit and digital treasuries for a while. Then there will be some point when it is not. We have to do the hard work of performing, laying down the track record, educating the market, and managing risk. The optimistic observation: the fact that the market is willing to buy more of STRC—that STRC is the most successful preferred stock in the world in this century—is an indication that maybe some people get it. There are a lot of indicators that it is working and spreading fast and virally, but we still have a lot of work to do. CJ Jain: Thank you, Jeff. Next, I would like to invite Randy Binner from Texas Capital. Randy, go ahead. Randy Binner: Thanks. Michael, I think this one is for you. We have talked a lot about the Clarity Act. It is important for the broader crypto ecosystem—this bipartisan compromise is good news. But for MSTR, for Strategy Inc, for your world, what would be the most important regulatory or policy change or impact? We have talked about banks and insurance companies being lobbied to recognize crypto as a statutory asset. Is it something like that? Follow-up: with so many arrows pointing in the right direction for crypto regulation and guardrails, do the midterms matter that much, and does the presidential election matter much from a policy and regulation perspective? Michael Saylor: Bitcoin is in a safe harbor. There is global consensus as digital capital. MSTR is sitting in a safe harbor—it is a publicly traded, well-known seasoned issuer that came public in 1998, governed by securities laws that date back 100 years. STRC is in a safe harbor—it is a publicly traded preferred stock based on 100-year-old tax law and securities law, trading on the Nasdaq. Everything that we are doing is sitting in a zone of regulatory clarity. I do not think we need any change in a law or rule to 10x or 100x. We can probably be 100x bigger from here without any change. We are not asking or looking for anything. Clarity is important to the balance of power regarding token issuers, DeFi exchanges, stablecoin issuers, crypto exchanges, and between the crypto industry, neobanks, regional banks, and big banks. The significance to us is sentiment. Skeptics will gloat if it slows down and will flip to cheerleaders if it passes. There is not anything that we need. It will change sentiment positively as it goes through. Long term, if I had a wish list: the Basel rules—if they are upgraded to recognize Bitcoin as legitimate collateral and not haircut it, it would be positive for banking adoption, especially credit adoption. Right now, there is still a bit of hair-cutting of it by credit rating agencies and very conservative regulated entities that want a gatekeeper or regulator to tell them it is okay. If you want an insurance company portfolio manager to buy the product without knowing what it is, it would be beneficial for the Basel rules to evolve and embrace Bitcoin as a legitimate asset. Right now, we are selling to informed investors that want to buy the best thing. If we just slurped up 10% of private credit, that is $370 billion right there. We have plenty of runway for the next decade. My wish would be for the Basel rules to be fixed and for the world to recognize Bitcoin as legitimate collateral, pari passu to gold or other capital assets on banking balance sheets and regulated entities—then it should spread faster through banks as a reserve asset and through insurance. But it is not necessary to us. We could be a multitrillion-dollar company and sell $400 billion of STRC and not have that fixed. Phong Le: One thing I will add, Randy, is STRC is already a rapidly accelerating product in the category of digital credit, and that is without clarity as it relates to tokenization of securities, which I think will either be created through the passage of Clarity or rulemaking by the SEC. That will only accelerate things. We showed $270 million of layer-two tokenized STRC from companies like Apex and offerings by Kraken. Those are sold outside the U.S., not in the U.S. When we get clarity, that will only accelerate things and accelerate layer development on top of STRC and digital credit overall. It is exciting to see what may come for something that is already an exploding asset class. Randy Binner: That is great. Thanks. CJ Jain: Thank you, Randy. Saving the best for last, James Lavish. James Lavish: Thank you, CJ. Congratulations on your new role. Phong, Michael, Andrew, thank you for having me and allowing us to ask questions. First, congratulations on your success with STRC. I am a believer in the digital credit world, and I appreciate you sharing the many levers you can now use to create value for the common shareholders while protecting creditors. With Strategy Inc’s energy and focus on STRC—which you have said before is a security you landed on through iteration—what do you see as the optimal future balance sheet structure maximizing the accretion of value for common shareholders? Would that include retiring most or all of the other debt and preferreds currently outstanding? Do you believe that is ultimately necessary to attract more of the largest institutions to invest in STRC in lieu of traditional yield-generating securities? Michael Saylor: We think we want to be debt-free completely. All six of the converts may go away by either swapping them for STRC, swapping them for equity, or paying them off with cash. There is consensus on that. There is consensus that STRC is the killer strong credit instrument. The jury is still out on the other four credit instruments. They are all long-duration credit instruments and represent important optionality for the company. Our policy will be to retire the six convertible bonds, promote and polish the jewel in the crown—which is STRC—and then watch and nurture the other four, improve them as we can, and observe whether or not they are material in generating demand. If I was designing a Bitcoin treasury company from a clean sheet of paper, the company would consist of one common equity, one monthly (or semimonthly) variable preferred equity, and a big stack of Bitcoin—and nothing else. That is my advice to anybody that asks. The other things are interesting—maybe—but not necessary. We will watch them. It is very difficult to create a publicly traded instrument like STRF, STRD, STRK, or STRE, so we will not retire them because it represents giving up billions of dollars of optionality. But what is critical for us is to manage the common stock carefully to get the MNAV up and the premium up, manage the Bitcoin stack, and manage the monthly variable-rate preferred—the digital credit instrument. Those are the things that really matter. CJ Jain: Thank you, everyone. That brings us to the end of the Q&A session. I would like to thank everyone for their questions and all the attendees for joining and listening to the earnings call. I will hand it back to Phong for any closing remarks. Phong Le: I want to first thank everybody for attending our earnings call. I know there are tens of thousands of you out there, spending two hours and fifteen minutes of your evening with us. We find that to be very gracious and flattering. Many of you are shareholders of our common MSTR and our perpetual preferred STRC. As many of you know, we have a shareholder vote coming up that is due early June to primarily modify STRC to go from, as Andrew mentioned, a monthly dividend to a semimonthly—twice a month—dividend. We believe this is beneficial to our shareholders. As we mentioned, one of our principles is to make STRC better and more attractive. We would appreciate you all voting early so that we can start to tabulate the votes, and this is how you can do it. If you have questions on how to vote for STRC and for the common, you can also go to our website. I really appreciate your time. Thank you for all the interest and the attention, and we will talk to you again—if not before then—at our next earnings call three months away. Thank you all.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Q1 2026 Revvity Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Steve Willoughby, SVP, Investor Relations. Steve, please go ahead. Stephen Willoughby: Thank you, operator. Good morning, everyone, and welcome to Revvity's First Quarter 2026 Earnings Conference Call. On the call with me today are Prahlad Singh, our President and Chief Executive Officer; and Max Krakowiak, our Senior Vice President and Chief Financial Officer. Before we begin, I'd like to remind you that today's call may include forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from our expectations. Please refer to the safe harbor statements in our earnings release and to our SEC filings for a detailed discussion of these risk factors. We assume no obligation to update these forward-looking statements in the future. Additionally, we will refer to certain non-GAAP financial measures during this call. Reconciliations to the most directly comparable GAAP measures are available in our earnings release. I'll now turn it over to our President and Chief Executive Officer, Prahlad Singh. Prahlad? Prahlad Singh: Thank you, Steve, and good morning, everyone. I have several important developments to discuss today. First, I'm really excited to report that Revvity delivered strong first quarter results with 3% total company organic growth, demonstrating the resilience and strength of our business. Our adjusted operating margins came in at 23.6%, which was above our 23% outlook. These results are a good start to the year and position us well to achieve our full year expectations, which Max will update you on in a bit. The better-than-anticipated revenue and margin performance in the quarter led to our adjusted earnings per share in the quarter being $1.06, which was solidly above the $1.02 to the $1.04 outlook that was implied in our guidance. I next want to highlight a transformative strategic decision we have made that will accelerate our growth trajectory, improve our financial profile and allow for even more focused investments. Following an extensive review, we have decided to divest our immunodiagnostics business in China, which represented approximately 6% of total company revenue last year. This decision reflects our commitment to focusing resources where we can generate the highest returns for shareholders going forward. The health care market in China, particularly diagnostics, has faced persistent policy-induced headwinds that have dramatically impacted both customer demand and pricing dynamics. Unfortunately, we see these challenges continuing over the medium term. To maintain our position in this space, it would require us to make substantial investments, including fully localizing manufacturing, supply chains and regulatory capabilities. This would require meaningful capital allocation, resulting in a deprioritization of other higher potential return initiatives available to us. Rather than deploying material dollars and management attention to address the structural challenges in the China immunodiagnostics market, we are choosing to concentrate our efforts on business areas where we have clear competitive advantages and see healthy growth trajectories. This is an intentional strategic allocation of our resources towards higher value opportunities that will drive and further improve our future performance. In fact, this selective approach is being validated by our performance in other parts of our China business. For example, our Life Sciences business in the region, which was larger in absolute revenue dollars last year than the immunodiagnostics business we will be divesting continued to perform well with reagents growing solidly above our overall reagents performance last year. We anticipate a continuation, if not acceleration, of our strong Life Sciences performance in China as we move through 2026, demonstrating our ability to succeed and grow meaningfully in China with the right products, market positioning and appropriate policy backdrop. We have signed a letter of intent with a local management-led buyer group for the purchase of this business and expect to reach a definitive agreement within the next 2 months, which would include our retaining a minority interest in the new company. The transaction is anticipated to close by the end of next year, allowing time for the buyer to establish local manufacturing capabilities and obtain necessary regulatory approvals. Until closing, we will continue to report the financial impact of these operations, but will exclude them on a pro forma basis to provide clear visibility into our ongoing business performance. The financial benefits of this planned divestiture are meaningful. On a pro forma basis, China will now only represent approximately 8% to 9% of our total revenue with approximately 7% being Life Sciences. If you were to exclude this business, our pro forma organic growth in the first quarter would have been 6%, while our pro forma adjusted operating margins would have been an even better 24% overall. We expect this change to improve our 2026 total company organic growth by approximately 100 basis points and enhance our operating margins by approximately 30 basis points. This move reflects the removal of a lower growth, lower margin business that has been a significant drag on our cash flow conversion over the last several years and was also consuming disproportionate management focus and capital resources. More importantly, this move further supports our long-range plan, which calls for 6% to 8% organic growth and double-digit EPS growth. As it pertains to our updated pro forma guidance for 2026, which now excludes the immunodiagnostics business in China, we are now looking for organic growth of 3% to 4%, adjusted operating margins of 28.4%, and adjusted earnings per share of $5.20 to $5.30, which includes a 20% reduction related to the planned divestiture, offset by $0.05 of benefit from improved operational execution throughout the year. This move will result in a more focused business with cleaner financial metrics that better reflects our core growth drivers. Turning to our end markets. We saw a modestly improved pharma and biotech spending environment in the first quarter, which led to positive low single-digit year-over-year organic growth from these customers. This was the strongest year-over-year growth we've had for reagents and instrument sales to this customer group since the first half of 2023. While customer behavior continues to remain somewhat measured as customers work through budget cycles, we are seeing early indicators that we believe should lead to future improvement. On the academic and government side, there have been some promising developments from a budget and policy perspective, which also bodes well as we look ahead. I'm encouraged by the positive mid-single-digit growth overall in the first quarter from our academic customers. And in the U.S., we also saw positive growth from these customers for the first time since the second quarter of 2023. So while we are pleased by the first quarter trends in this end market and recent policy developments, we remain mindful of the world we live in today and how quickly policies and regulations can change. Consequently, until we see a bit more consistent performance from both our pharma and academic customer bases, we plan to remain prudent with our forward-looking assumptions across each of these end markets. As it pertains to Diagnostics, we had a fantastic quarter within reproductive health as it grew in the low double digits organically overall. This was driven by a combination of continued success in our newborn screening business despite continued challenging global birth rate trends and a better-than-expected contribution from our Genomics England contract. Within immunodiagnostics, we saw challenging conditions in China as anticipated, while the business outside of China performed in line with our expectations. During the first quarter, we also continued to demonstrate strength in our ability to drive innovation, a consistent priority of ours. In our Signals software business, we introduced Xynthetica in December, our AI models as a service platform that serves as a secure marketplace, collecting computational capabilities to wet lab research. Last month, we introduced BioDesign, our cloud-native molecular design platform for biologics development. Upon its official launch at a major industry trade show next week, BioDesign will be the only cloud-based offering of its type, addressing a critical need for molecular biology teams developing the next generation of antibody cell and gene therapies. Then towards the end of this year, we'll introduce LabGistics, a novel AI-first drug discovery to drug development workflow offering, rounding out an impressive year of software innovation that demonstrates our ability to rapidly bring new capabilities to market. In our instruments business, we have been highlighting to you for several quarters that we have been seeing stronger demand for our high content screening portfolio, driven by increases in GLP-1 related research, new approach methodologies, including organ on chip development work and data generation for AI model creation and training, amongst other validation related work. Our launch earlier this year of our new flagship Opera Phenix OptIQ system will only further build on this momentum. The OptIQ's enhanced confocal imaging capabilities, advanced 3D cell analysis and automated phenotypic profiling aligned perfectly with current market trends focused on complex disease modeling and precision medicine research. This is another great example of one of our key product lines, which we believe will meaningfully benefit from increasing AI adoption by our customers in their preclinical R&D work. I think it is important to clearly address the transformational impact of artificial intelligence and life sciences research. AI is dramatically accelerating scientific discovery, enabling researchers to identify and design exponentially more therapeutic compounds and biological targets than ever before. This acceleration means more discoveries to validate and more insights to unlock through physical experimentation than ever before. To understand the opportunity, let me provide you an example to consider in where we believe we are in the AI adoption cycle. Today, we are in what would be called the infrastructure build-out phase, similar to the early days of the Internet, when companies were laying fiber optic cables and building foundational systems that would support the digital transformation. After that Internet infrastructure was established, we witnessed an explosion of value creation. Companies like Google, Amazon and Meta built entirely new business models that created fundamentally new ways of organizing information and commerce. AI in Life Sciences is following a similar trajectory. We expect our consumables, instruments and software to see significant increases in demand in the future. as they are utilized by our customers to create new insights at an accelerating rate in order to capitalize on the new capabilities that AI provides. Our offerings are used by our customers to actually uncover and translate the new data that the AI models and the infrastructure can then learn from. This value creation phase is only just beginning, and this is where the real opportunity lies for Revvity. Every AI-generated discovery will still require physical validation through wet lab experimentation. One cannot approve a drug based solely on computational predictions. It must be synthesized, tested, screened and validated through rigorous and laboratory work given that only a small fraction of human biology is well understood. We believe that as more compounds are designed and combined with new ways to develop and refine them, a continuous loop of innovation and improvement will be created. That is likely to result in a demand bottleneck in validation related work for our customers. As AI generates more promising therapeutic hypothesis at an unprecedented rate, the downstream demand for laboratory tools, reagents, and instruments to validate these discoveries will grow substantially. This inflection point sits squarely within Revvity's core strengths, providing the critical technologies that translate AI-driven insights into real-world biological validation. Looking ahead, I anticipate a third phase emerging after value creation, which is value capture. This is where our customers will begin realizing substantial returns on their AI investments through faster development time lines and higher success rates. These gains will incentivize even greater investments in research capabilities, creating a virtuous cycle that expands the entire market for scientific research tools. Beyond our external AI strategy, we are dramatically transforming our internal operations through AI adoption that I believe is quite differentiated and includes appropriately repositioning our employees and their roles. The well-known research from Gartner recently published a research paper highlighting our internal AI deployment, which stands out across the industries that they've researched. They noted how our structured approach has accelerated software delivery and enable impactful initiatives that previously would not have been feasible. With our unique rollout of multiple leading LLMs to the entirety of our global employee base, we are seeing employee adoption rates of AI well above corporate averages, and we are doing so at a fraction of the cost of traditional AI corporate implementations. We also continued to execute on our operational efficiency initiatives that we discussed on our fourth quarter call. Implementation is well underway and remains on pace to be fully completed around midyear, which will result in a greater impact on our financials starting in the second half of this year. These initiatives are a meaningful driver of the operating margin expansion we have communicated. Since the contributions from these actions will not anniversary until midyear next year, it positions us well for robust margin expansion in the first half of 2027 as well. Before turning the call over to Max, I want to make you aware and invite you to our Investor Day in New York City on Friday, November 13. This will be an excellent opportunity for us to showcase the progress we've made across our business and share our vision for where Revvity is heading in the future. Software will be a central theme of that discussion, and we are excited to provide much deeper insights into how our offerings in this space will enable long-term growth. I've never been more excited about the future potential of Revvity than I am right now. We are exceptionally well positioned in both the near and long term to lead the transformation of how preclinical research is performed, while delivering an outstanding opportunity for our shareholders as end market demand trends normalize. With that, I will now turn the call over to Max. Maxwell Krakowiak: Thanks, Prahlad, and good morning, everyone. As Prahlad highlighted, we started 2026 on a strong note as our first quarter organic growth, adjusted operating margin and adjusted earnings per share all came in ahead of our expectations, which sets us up well to achieve our full year expectations. Additionally, the plan we have announced to divest our immunodiagnostics business in China is an extremely important strategic decision for the future of the company as it allows us to continue to refine Revvity so that we can focus on the areas that we believe have the highest returns for our shareholders in the years to come. This is a bold decision and one that has a multitude of benefits for the company, including improved financial performance metrics and returns, streamlined operations and management focus and reduced future uncertainty from a market, which has been challenging over the last several years and will likely remain pressured over the medium term as the impact from policy changes continues to unfold. As Prahlad mentioned, we are actively working with a local management-led group and expect to reach a contractual agreement with them over the next few months with an expected closing of the transaction to occur by the end of next year as it will take them some time to receive the necessary regulatory approvals and to localize manufacturing. Going forward, our guidance and reported organic growth will exclude the financial impact of this planned divestiture. We have provided historical financials for 2025 in a supplement that is available on our Investor Relations website, which excludes this business so that you are able to understand what the future of Revvity looks like and how we plan to provide guidance and report our results going forward. For 2026, our plan to divest this business would result in the reduction of approximately 4.5% of our previously expected revenue. When combined with FX, which we now only expect to contribute approximately 50 basis points to our revenue growth, down from our previous 100 basis point expectation, these 2 factors represent the entirety of change and our updated 2026 total revenue outlook, which now calls for $2.81 billion to $2.84 billion in total revenue this year. We anticipate this planned divestiture will also positively impact our organic growth by approximately 100 basis points this year while also positively impacting our organic growth rate in the years to come. For 2026, we are now estimating 3% to 4% organic growth overall, which excludes the impact and contribution of the China Immunodiagnostics business. We also expect this change to positively impact our adjusted operating margins, leading to our adjusted operating margins this year now expected to be approximately 28.4%, up 40 basis points from our prior outlook. Finally, by excluding the financial impact of this business from our outlook, we also anticipate a net reduction of our expected adjusted EPS this year of approximately $0.15, resulting in a new EPS outlook for this year of $5.20 to $5.30. Another important benefit from this action is a dramatic further expected improvement in our cash flow conversion. For example, in fiscal year 2025, when excluding this business in China, our free cash flow conversion of our adjusted net income would have been approximately 300 basis points higher than the already solid 87% conversion we had reported. With these changes, I am confident that we are well positioned to be in an even stronger position to deliver accelerated top and bottom line growth in the future. Now turning to the specifics of our first quarter performance. All of the figures I'm about to provide are on a total company basis and the same format that we provided guidance on -- during our fourth quarter earnings call, which includes our immunodiagnostics business in China. I will then separately provide an update on a pro forma basis, demonstrating what our performance looked like when excluding the China Immunodiagnostics business that we plan to divest. Overall, the company generated revenue of $711 million in the quarter, resulting in 3% organic growth with an approximate 3% tailwind from FX. We also had a 75 basis point incremental contribution from ACD/Labs, our recent software acquisition. As it relates to our P&L, despite known headwinds from FX, having an extra week this fiscal quarter, tariffs and the timing of our cost efficiency initiatives, we exceeded our expectations for the quarter by generating 23.6% adjusted operating margins. Looking below the line, our adjusted net interest and other expenses were $23 million in the quarter, and our adjusted tax rate was 18.3%, both in line with our expectations. We repurchased another $86 million of our shares in the first quarter, resulting in an average of 111.9 million diluted shares in the quarter. Our adjusted EPS in the quarter was $1.06, which exceeded the high end of our expectations due to the revenue and margin upside. Moving beyond the P&L. We generated free cash flow of $115 million in the quarter, resulting in a robust 97% conversion of our adjusted net income. Our balance sheet remains strong as we finished the quarter with a net debt to adjusted EBITDA leverage ratio of 2.8x, with 100% of our debt being fixed rate with a weighted average interest rate of 2.6% and weighted average maturity out another 6 years. As we evaluate capital deployment, we still plan to pay off the roughly [ $600 million ] we have outstanding on Eurobond, which is coming due in mid-July, which will leave us with a gross leverage of below 3x as we exit the year. I will now provide some commentary on our first quarter business trends, which are also highlighted in the quarterly slide presentation on our Investor Relations website. Again, these results include our immunodiagnostics business in China and are comparable to the guidance we provided 90 days ago. The 3% growth in total company organic revenue in the quarter was comprised of 3% growth in our Life Sciences segment and 4% growth in Diagnostics. Geographically, organic growth declined in the mid-single digits in APAC, with China being down double digits overall due to diagnostic pressures, grew in the low single digits in the Americas and continued to grow double digits in Europe. From a segment perspective, Life Sciences generated revenue of $362 million in the quarter. This was up 6% on a reported basis and 3% on an organic basis. From a customer perspective, sales in the pharma/biotech grew in the low single digits in the quarter, while sales in the academic and government grew in the mid-single digits in the quarter. From a business perspective, Life Science Solutions grew in the low single digits organically in the quarter with low single-digit growth in reagents and mid-single-digit growth in instrumentation. Our Signal software business grew in the mid-single digits in line with our expectations. As it pertains to some of the software industry specific metrics, our SaaS pipeline continues to grow robustly with 40% ARR growth year-over-year leading to the business, again, growing double digits from an APV perspective. In our Diagnostics segment, we generated $349 million of revenue in the quarter, which was up 8% on a reported basis and 4% on an organic basis. From a business perspective, our immunodiagnostics business declined in the low single digits organically in the quarter, which was in line with our expectations. Our performance was strong outside of China but was offset overall by meaningful declines in China as anticipated. Our reproductive health business had a great quarter and grew double digits organically with broad-based strength across the portfolio, including in newborn screening, which grew low double digits in the quarter. Reproductive health also benefited from an increasing contribution from our work with Genomics England, as sample volumes from this project are now running slightly ahead of our initial expectations. I now also want to give you some perspective of what our first quarter performance looked like on a pro forma basis, which excludes our immunodiagnostics business in China that we plan to divest as this is how we will be providing guidance and reporting our results going forward. Overall, on a pro forma basis, we generated total revenue of $687 million in the quarter. This equates to pro forma organic growth of 6%. While there is no impact from this change on the 3% growth in our Life Sciences segment, on a pro forma basis, our Diagnostics business grew 9% organically in the first quarter. There is no impact to our reproductive health performance, but our immunodiagnostics business grew in the mid-single digits on a pro forma basis. Moving to the P&L. Our pro forma adjusted operating margins were 24% and our adjusted pro forma EPS would have been $1.04. Now moving to our updated guidance for the year. Our updated guidance is on a pro forma basis as it excludes the business we are planning to divest as this is the most appropriate view of what the company and its performance will look like going forward. As Prahlad discussed, we were pleased with our first quarter performance and believe key end markets may be starting to show signs of moving in the right direction, though we want to remain prudent in our outlook until we see more sustainable signs of concrete improvement. With this backdrop, we are now expecting our pro forma organic growth this year to be in the 3% to 4% range. FX is now expected to positively contribute approximately 50 basis points to growth, while we still expect the ACD/Labs acquisition to add approximately 75 basis points to our revenue growth this year. We expect this all to result in our 2026 pro forma total revenue to be in a range of $2.81 billion to $2.84 billion overall. We performed well from a margin standpoint in Q1, and our cost efficiency programs are in flight and progressing as planned. Consequently, we now expect our pro forma adjusted operating margins this year to be 28.4% with 30 of the 40 basis points of the improvement versus our prior guidance reflecting the impact of excluding the business in China that we plan to divest. Our outlook for net interest expense and other is now approximately $90 million and we continue to anticipate our adjusted tax rate for the full year will be approximately 18%. We also still expect our diluted average share count to continue to be approximately 112 million. This all results in us expecting that our pro forma adjusted earnings per share will now be in the range of $5.20 to $5.30. For the second quarter, we expect our pro forma organic growth to be in the 2% to 3% range, which is an improvement from our prior assumption as it no longer includes the immunodiagnostics business in China. Assuming FX rates as of the end of March and the incremental contribution from the ACD/Labs acquisition, this puts our expected total pro forma revenue for the second quarter in the range of $699 million to $707 million. We continue to expect an improvement in our margins as we progress throughout the year and anticipate them being approximately 27% in the second quarter on a pro forma basis. With net interest and other expected to be similar to the first quarter and an assumed 19% tax rate, this should all result in our pro forma adjusted EPS in the second quarter being approximately 23% of our updated full year pro forma outlook. Overall, we had a good first quarter to start the year and are on track for our full year expectations. Our decision to divest our immunodiagnostics business in China is the right one for our company and will benefit our performance going forward while removing a business that required a disproportionate amount of internal and external focus, as well as requiring near-term capital investment for what have become an increasingly small contributor to our overall company. I'm extremely excited about the direction in which Revvity is headed, and I look forward to sharing more with you in person at our Investor Day in November. With that, operator, we would now like to open up the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Patrick Donnelly with Citi. Patrick Donnelly: Prahlad, maybe on the software SaaS piece, helpful to get some data there. Can you just talk about the recent conversations with customers? I know you talked a lot about your offering with all the focus on that business. Would be curious just the recent trends. And then Max, on that business, I know there's some comp dynamics. So if you'd be able to talk through just the cadence of the software as we work our way through the year would be helpful. Prahlad Singh: Sure, Patrick. On the software side, as we've talked about both -- you heard in the prepared remarks and even during some of the investor conferences, the excitement and the engagement with our customers continued to remain high. We announced the Lilly TuneLab partnership, which is a great launch path for Xynthetica, leveraging the ecosystem that Lilly brings to the table. But more importantly, I think as we talk to our big pharma biotech customers, the question really is not really how AI is going to impact, but how are we going to leverage AI in the development of the software into bringing Xynthetica early on. As Signals continues to be on the plan of record, the excitement level around Xynthetica, BioDesign, LabGistics, as you know, these are 3 of the biggest launches that could have happened in the software business, and all of them are coming in this year. So the engagement level and excitement level continues to remain very high for that business. Maxwell Krakowiak: Yes. And then, Patrick, on the OG cadence piece, I think a couple of things to mention. First, I would say, as you look at our software business, organic growth is not always the best measure to look at the performance of this business. As we mentioned, we always quote the APV, which sort of normalizes for [ rev rec ] and that again was strong double digits in the first quarter here and a trend that we expect will continue and has been playing out over the past couple of years, especially as we bring a lot of these new products to market. It was also encouraging in the first quarter, we continue to see robust growth from a SaaS and ARR perspective, and that was north of 30% in the quarter. And then I think when you look at it from an organic growth standpoint, for the full year for this business, we are calling for positive mid-single digits organic growth. If you look at the cadence over the course of the year, it was positive mid-single here in the first quarter. In the second quarter, we do have tougher comps. And so we expect that business to be down approximately 20% in the second quarter. However, those comps ease in the second half of the year and for the second half of the year for this business, we expect it to grow in the high teens. That's how I think about it from a cadence perspective. Patrick Donnelly: Okay. Okay. That's helpful. And then maybe just on the reagents business, it sounds like that was improving a little bit, Prahlad. Can you talk about -- it sounds like ac and gov got a little bit better. Are you seeing the recent biotech funding start to show up a little bit? What do those conversations look like? Would love just some more color on the reagents business and how you're feeling there. Prahlad Singh: Yes, Patrick. I would say that I would characterize it as positively stable. We experienced better performance from this customer segment in the first quarter as our revenue was up positive mid-single digit. There might -- there has been in this market a continuation of soft trend last year, but we are definitely starting to see signs of improvement, both around the instrument and on the reagent side. And as we continue to see this uptick in the reagent behavior from our customers, it will build on the optimism that we are starting to see in this end market. Operator: Your next question comes from the line of Puneet Souda with Leerink. Puneet Souda: First one, actually, both of them high-level questions, I would say, on the portfolio side, you've obviously taken important steps early, and this appears to be another important step for -- on the China DX side. Does this change your appetite for further M&A and capital deployment in the space? I mean I appreciate the deal hasn't closed yet. But when we look at the broader tools, multiples, they took a step down further after a larger peer recently reported, but you guys are clearly showing stronger momentum versus that peer. Prahlad Singh: Yes, Puneet. I think this is the journey that we have taken in the portfolio transformation. We are starting to see the differentiation in our performance was on the end markets versus our peers. This was the intent and the idea of setting up what we have today. If you look at our performance, especially in pharma/biotech and in academia, we are diverging from the peer group in terms of what we are seeing in growth. But the journey doesn't get over. Obviously, with the China divestiture, it is a challenging and uncertain end market environment there, particularly in Diagnostics. And this was a strategic direction to address that. It brings us back to what I would say our China business would be 8% to 9% of our total revenue, of which 7% is now in Life Sciences, which is a strong growth market there, and about 1% to 1.5% is reproductive health, which we've already localized. So we feel very good with the way we have set up the portfolio. In terms of capital deployment, we'll continue to be an acquisitive company. But when we look at our share buyback performance, if you see what we've done over the last year, we'll continue to be aggressive and opportunistic on the stock buyback, too. So we have enough avenues to deploy capital in both ways. Puneet Souda: Got it. Super helpful. And then on the software side, great to see the progress. But just wanted to understand a bit more about the AI corporate implementation. What are some of the steps there that you're taking that could yield sort of an immediate or near-term result? And how are you thinking about margin uplift from that this year? Prahlad Singh: Yes, Puneet, some of this I addressed in my prepared remarks. From an internal operations perspective, the AI adoption, I would say, is going very well and is quite differentiated. I referred to the Gartner research paper that was recently published that sort of laid out what we are doing in that. We've tried to use a much more structured approach and we are starting to see the benefits of it primarily around the software development component. It is enabling initiatives in the company. We are rolling out multiple leading LLMs to our total employee global -- global employee base. And the adoption rate is well above what we are seeing in terms of peers' metrics out there from corporate averages perspective. But I think most importantly, we are doing this at a fraction of a cost that you would see from traditional AI corporate implementation. So we feel really good about it. And the feedback that we are getting from an employee -- our employee base in terms of productivity and efficiency initiatives. And in the mid- to longer term, the cost-out impact that it will have on the business will be remarkable. Operator: Your next question comes from the line of Dan Brennan with TD Cowen. Daniel Brennan: Maybe just starting on the quarter for reproductive health. Can you just unpack a little bit the strength there? You mentioned GEL strength in the quarter, you're running samples. So just kind of what's now incorporated for the full year for GEL? And just speak also on the ex-GEL reproductive health for the full year. Maxwell Krakowiak: Yes, I'd say from a reproductive health perspective, it was a very strong quarter. It grew double digits versus our expectation of high single digits. And I think when you look at the drivers of it, it was really a multitude of factors. One, we did just have stronger underlying performance from a reagents perspective but also benefited from some additional instrument placements, which will bode well for us in the years to come? And then secondly, GEL, the Genomics England partnership was a little bit stronger than what we had anticipated. I think just to answer your question on what that looks like for the rest of the full year, there's been really no change in our assumption to contributing about $20 million for us in the first year, obviously, for this year. First quarter was obviously a little bit stronger than we had anticipated, but we'll see how the rest of the quarters play out from a sample volume perspective. But just stepping back, I would say, on reproductive health, it continues to be a really strong business for us. And I think when you look at even with the challenging birth rate environments, the performance, not only in the first quarter, but over the past several years has well outpaced that and has been growing above its LRP. That's really due to the fact of, I would say, the execution of our commercial pillars where there's still 100 million babies born every year that don't get any level of testing. There continues to be differing levels of testing menus across different geographies and countries around the globe. And we continue to come out with new assays where we can test for different rare diseases. And so that business continues to have, I would say, a lot of Revvity specific tailwinds that should allow us to well exceed whatever happens from a birth rate perspective. Daniel Brennan: Great. And then maybe as a follow-up, just on the ImmunoDx business in China. Just can you speak to a little bit of like the deal itself? I mean you're kind of pulling this business out of your guide, but the deal hasn't closed yet? Like what kind of protection do you have, certainty of closing, things like that, if you could. Maxwell Krakowiak: Yes. Look, I think as we mentioned in the prepared remarks, we have engaged in a letter of intent to divest our immunodiagnostics business in China. We expect definitive agreements to be completed here within the second quarter. So I do think we have a high degree of confidence in our ability to get this done. It is being led by an internal management group as part of the buying consortium. And so obviously, we've got a lot of strong coordination there and communication. And I think we are confident in our ability to get this deal closed in 2027. Operator: Your next question comes from the line of Vijay Kumar with Evercore ISI. Unknown Analyst: Maybe Prahlad, on your Q1 pro forma organic of 6%. That came in quite nicely, excluding China, was certainly well above expectations. But when you look at the annual guide, pro forma 2 to 4 implies I think a step down to 3% for the remainder of the year. Why -- your comps don't necessarily get harder, right? So maybe talk about why the 6% slows down. Was there anything one-off in Q1? Anything that stood out? Maxwell Krakowiak: Vijay, thanks for the question. Yes, I think as you -- maybe just speaking holistically on our 2026 organic growth guidance and the cadence over the course of the year, so the way I would think about it is with our updated guidance, we're now calling for, again, 3% to 4% for the year. And with that's doing about 6% here in the first quarter on a pro forma basis and a guidance in the second quarter of 2% to 3%, we essentially are averaging about 4% in the first half of the year. So then if you look what's required for us to hit our 3% to 4% organic growth for the full year, that would imply about a 3% to 4% growth in the back half of the year. I think when you look at our assumptions, I would say for 2 of our business units for Life Science Solutions and Diagnostics, we do have conservative assumed in the back half of the year versus the trends we're seeing for the first half. I already talked about the software cadence as a result of Patrick's question. But I do look -- expect us to have, I would say, a strong performance here in the first half of the year and continued trends on that in the second half. And should markets maintain or, if not, even improve, we would expect to see potential opportunity for upside versus our current organic growth guidance of 3% to 4%. Unknown Analyst: Understood. And maybe one more sort of guidance-related questions, Max. Organic was raised by 100 basis points, EPS came down by $0.15. So one, is the organic raise, is that all driven by removal of China Immunodiagnostics or did base go up? And on EPS, does it include any contribution from proceeds, from sale proceeds? Maxwell Krakowiak: Yes. So on the organic growth, the only change of that 100 basis points was a result from the removal of the China Immunodiagnostics business. So you're correct in that. Secondly, as you look at the EPS for 2026, it does not include any benefit from proceeds, as we mentioned in the prepared remarks, the deal won't close to 2027, which is when we would expect to see the proceeds. Operator: Your next question comes from the line of Mike Ryskin with Bank of America. Michael Ryskin: Great. Let me just pick up exactly where you left it with Vijay there on impact of the divestment in the model and how to think about it going forward. So you talked through the bridge for this year. I want to dig a little bit into the future years. So I mean, I realize you haven't even announced the deal yet, so hard to talk about cash incoming proceeds, use of proceeds, anything like that. But just any high-level thoughts on how we should think about dilution in future years? You've got $0.20 impact this year. But what about future years? And the same thing on the margins and on the top line, it's 100 bps uplift this year. I think it's -- you said it's 30 bps impact to margins. Is that -- should that relatively flow through the future years as well? Or any other moving pieces to think about in the out years for adjusting the model for this? And I got a follow-up. Prahlad Singh: Yes, Mike, let me start by addressing it at the higher strategic level, right, and then Max will give you more color. This definitely further fortifies our LRP. Let me start with that, right? This was one of the overhangs, and we were over-indexed on China, especially in the end market around Diagnostics, which was in a challenging market environment. That takes away that overhang, it further fortifies our LRP. More importantly, I think from the question around what we would do with the proceeds, share buyback is a great opportunity to leverage the proceeds that we would get. And from an EPS impact perspective, the cost efficiency initiatives that we are putting that will be fully implemented starting in the second half of this year will also go a long way in offsetting the earnings-related dilution as we move into the next year. And we'll continue to see the impact from their impact throughout the first half of next year and 2027. Max? Maxwell Krakowiak: Yes, I think that's right. I mean maybe the only other color I would add is in terms of the operating margin adjustment. That is going to be a permanent change. The pro forma results are meant to represent what our business would look like excluding this business. And as a result, we're calling for 28.4%. So that is sort of I would think the new baseline exiting this year, Mike. Just to add that point on. Michael Ryskin: Okay. And then I want to dig in on 2Q a little bit as well. I think you're guiding for 2% to 3%. You previously talked to flat, give or take. Obviously, the changes in China. So I want to dig into that. Did anything change ex-China, if maybe you could give us that bridge? I think one point you called out, I think with Patrick's question was you said you expect software to decline 20% in the second quarter now. I think previously you talked down mid-teens. So can you just talk about the moving pieces in the 2Q guide? Maxwell Krakowiak: Yes. Thanks, Mike. I would say on its surface for the second quarter, the biggest change is really the removal of the China IDX business. And so again, we're calling 2% to 3% organic growth here. I mean some things might have moved around on the edges, but I would say fundamentally, the underlying business, assumptions more or less remain the same. . And just to provide a little bit of color on what those splits look like. So if you look at the 2% to 3% overall organic growth for the company in the second quarter, Life Sciences, we expect to be sort of roughly flattish with Life Science Solutions, which again, comprises our reagents and platforms business growing in the low single digits in the second quarter. And then software, we have down, as I mentioned, about 20% expectations for the second quarter. And conversely, if you look on the Diagnostics side of things, we expect Diagnostics to be up mid- to high single digits in the period with relatively similar results across immunodiagnostics and reproductive health. Operator: Our next question comes from the line of Tycho Peterson with Jefferies. Tycho Peterson: I want to dig in a little bit more on biopharma. Some of the signals you're seeing, you talked about working through budgets. When do you think you're really going to see a turn here? Maybe just unpack what it is you're seeing? Is it instrument demand, just more discussions, funnel activity? And I think there's also been a view that spending on upstream is going to go up to train the model. So how do you think about that kind of layering in over the next couple of years? Prahlad Singh: Yes, Tycho. I mean if you look on the instrument side and on the reagent side, we already started seeing modest improvements in the fourth quarter from these customers, which has continued into the first part of 2026. Our Life Sciences Solutions were up low single digit from pharma/biotech in Q1, which was the strongest core growth we've seen on both instruments and platform from these businesses from this customer group since the second quarter of 2023. Low single digit is obviously not where we want to be, but it appears to be slowly moving in the right direction. And I think that is more important that this is coming back to what normal should look like. We would like to obviously continue to see even greater pickup in the reagents before we can say things are on a clear path to improvement. But I'm optimistic that these customers are now starting to move on the right path. Tycho Peterson: Okay. And then for the follow-up, just on operating margins. Max, can you maybe just talk about some of the gives and takes in the quarter, cost inflation, incremental spending? And then maybe get us comfortable with the bridge from where you are now to 28.4% target? Maxwell Krakowiak: Yes, sure. Look, I think as you look at the first quarter results, obviously, we are encouraged by the margin performance on a pro forma basis. We finished at 24%, which is about 40 basis points above what we had in our underlying assumptions going into the quarter. I would say, that was really driven by the strong incrementals we got on the additional volume that we had in the period. Again, we were slightly above the higher end of our expectations. And so that flew through at about 45% incrementals, which is really where the beat in the first quarter came from. I think as you look over the cadence of the rest of the year from an operating margin standpoint, we will see an improvement here from the first quarter to the second quarter, going from 24% to 27% on a pro forma basis. That step-up between Q1 and Q2 is really driven by half from not having the extra week and a little bit of FX benefit. And the other half is just from the incremental revenue as you do get a seasonal pickup from Q1 to Q2. I think then when you look between the jump of 2Q to 3Q, we do expect our margins to go up about from 27% in the second quarter to 29% in the third quarter. That step-up is really driven by the cost productivity initiatives that we've put into place. We've talked about those being completed by the end of the second quarter. We're still on track to drive those costs out on that time line. And I think when you look at some of the dynamics of it, again, the majority of this is really head count driven by us driving further integrations, additional -- new centers of excellence, and just a general sort of delayering of management and layers across the organization. And there's about 1/4 of it that's from sort of non-labor operational initiatives, whether that be around footprint consolidation, sourcing, whether it be in-sourcing, renegotiating with vendors, freight optimization. And so I think we're really starting to see a lot of the revenue business model on our playbook come through here. We have a high degree of confidence in our ability to execute on those cost initiatives. On the last leg of this is then from 3Q to 4Q, again, I would encourage you to remember that we do have a seasonal step up between 3Q and 4Q from a volume perspective. And really, all you're seeing there from the margin step-up is really just a matter of that incremental volume leverage from the seasonal revenue increase. Operator: Your final question comes from the line of Catherine Schulte with Baird. Catherine Ramsey: I know we're sitting here in May, so we shouldn't be talking about '27, but you did bring it up regarding the robust margin expansion that we could see. So just hoping we could unpack your comments a bit more just to frame the opportunity there? Maybe how should we think about the margin jumping off point for next year, just given the cost initiatives that you have underway? Maxwell Krakowiak: Catherine, yes, I appreciate your caveat there upfront, too, that we are in May '26 here and aren't giving any guidance for 2027. But I think as you look at things from an operating margin standpoint, what I'd encourage you to think about is if we're talking about the cost actions being completed by the end of the second quarter, it's giving the benefit in the second half, that will mean that we will get the annualization benefit of that in the first half of '27. And so again, we're not providing formal guidance, but yes, there should be an additional catch-up from a margin perspective in the first half of '27 once we exit this year. Catherine Ramsey: And then maybe just back to Puneet's question on capital deployment. Are there other parts of the portfolio you think could be pruned? And then from an M&A standpoint, what are your priorities here? Should we just stick back tuck-ins going forward? Or would you be open to larger deals as well? Prahlad Singh: Yes, Catherine. I mean, if you look at our track record, we continue to be acquisitive and we will continue to be acquisitive to ensure that if there are any gaps in the portfolio, we fill. We don't see anything that is really compelling either from an opportunity perspective that might be large in scale. You might see some tuck-ins here and there. But really, the biggest opportunity for us continues to be the share buyback. Right now, we will continue to be opportunistic on that element. But we have a fertile pipeline on the M&A side, and we look at opportunities on both sides. Operator: There are no further questions at this time. I will now turn the call back to Steve for closing remarks. Stephen Willoughby: Thank you, Nicole, and thank you, everyone, for your time this morning. I know it's a busy day, but we look forward to touching base with you later today and over the next few weeks. Have a good day.
Operator: Greetings, and welcome to the Marriott Vacations Worldwide First Quarter 2026 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Neal Goldner, Vice President, Investor Relations. Thank you. You may begin. Neal Goldner: Thank you, and welcome to the Marriott Vacations Worldwide First Quarter Earnings Conference Call. I am joined today by Matt Avril, our Chief Executive Officer; Mike Flaskey, our President and Chief Operating Officer; and Jason Marino, our Executive Vice President and Chief Financial Officer. I need to remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, which could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the press release as well as comments on this call are effective only when made and will not be updated as actual events unfold. Throughout the call, we will make references to non-GAAP financial information. You can find a reconciliation of non-GAAP financial measures in the schedules attached to our press release and on our website. With that, it's now my pleasure to turn the call over to Matt. Matthew Avril: Thank you, Neal, and good morning, everyone, and thank you for joining us. Each quarter, I will address our prior commitments, progress made and what lies ahead. Let me start this morning from where we left off on our February earnings call. During that call, we laid out a clear set of priorities and how we expected the year to unfold. Our focus was on improving profitability and cash flow, accelerating growth, taking actions to lower costs and monetizing non-core assets. We also stated that 2026 would be a first half, second half type year. Let me begin by updating you on where we stand against those commitments. We talked about aligning our organizational structure and leadership team, reduce the scale of our Asia business, which we've done, benefiting our current year capital spend and future margins, take actions to lower costs, monetize non-core assets and most significantly, initiate our commitment to revenue growth and operational excellence. In the last 2 months, we've made demonstrable progress. We've made significant changes across the executive team and in key leadership roles to better drive overall performance, grow revenues, EBITDA and cash flow. In particular, the process began with hiring Mike as President and Chief Operating Officer, and in turn, we've added experienced leaders across sales and marketing. We have also successfully added direct frontline talent in our sales galleries. The leadership decisions taken were deliberate and a priority set when I stepped in early in the year, and they are already beginning to show results in the business. I undertook a full assessment of where we needed to build on the best of our company and also the need to infuse it with new experience and talents from outside. These actions are about positioning the business for more consistent performance and stronger growth over time, now and ongoing, including the initiatives Mike will discuss shortly during the call. We also implemented the workforce reductions we committed to on our last call, and we completed those in the middle of March. They will benefit the balance of the year and are contemplated in our guidance. We closed on the sale of the Westin Cancun hotel in January and listed additional non-core assets targeting more than $125 million gross in additional proceeds this year. We remain on track to generate $200 million to $250 million from asset sales by the end of 2027. With that context, let me turn to the first quarter. Our first quarter was a period of significant transition. We stated in February that we expected contract sales and adjusted EBITDA to be down in the first quarter, and our results were consistent with that expectation. Adjusted EBITDA declined 16% to $161 million. Contract sales were down 2% versus last year with VPG increasing 1%. Tours were down 3%. Owner sales increased 3% compared to the prior year, driven by a 4% lift in VPG. Marketing and sales costs increased 300 basis points year-over-year as a percentage of contract sales, reflecting the in-flight operating strategies from late 2025. Product costs increased 110 basis points on the same basis and was in line with our expectations. Finally, we generated $114 million of adjusted free cash flow, resulting from our deliberate actions to improve our cash generation and capital discipline. Our focus remains unchanged, consistent execution, improving profitability, strong cash flow generation, disciplined capital allocation and a clear emphasis on near-term and sustainable growth in contract sales, EBITDA and cash flow. Our financing and management businesses continue to generate stable, recurring high-margin revenue and cash flow, underscoring the durability of our business model. Importantly, given the nature of our product, our owners have already purchased their future vacations. This provides a high level of visibility for our future tours that fuels our direct-to-consumer sales model and allows us to drive demand on site. Our forward-looking indicators remain healthy. Resort occupancy is expected to be 88% to 90% in Q2 and for the full-year. 96% of our expected owner utilization for the second quarter is already on the books. We expect owner occupancy to increase as our new initiatives we are implementing begin to drive higher owner arrivals. These compelling occupancy levels reflect our strong commitment to delivering outstanding hospitality services and overall memorable vacation experiences to our owners. Lastly, the nature of our preview packages provides a highly predictable source of future tours totaling approximately 110,000 for 2026 arrivals. We are confident in what is ahead. We have executed on capital discipline initiatives, taken steps on our cost and operating structure and more recently, implemented a series of hires in sales and marketing that are already driving results. During today's call, Mike and Jason will detail these initiatives and how they are reflected in our expectations and our April contract sales results. In accepting the appointment to CEO in February of this year, it was important that I identify clear priorities and actions to be taken with respect to them. Principal among those have been the ongoing evaluation of our operating structure and personnel that started day 1 when I stepped in last November. I very much believe the best companies are able to benefit from continuity and experience in their organization and at the same time, being able to attract talent with different experiences and additive expertise to the business. I have also been committed to driving improvements in our operating culture. Being able to act with speed and commitment and decisiveness is an imperative for our organization. We have dramatically improved the cadence of our decision-making. We have added talent. We are generating improved results as you will hear more of today. It was also clear that there would be a period of transition, and that was evident in our first quarter earnings. Looking forward, we are very pleased by the significant traction we are seeing in April, during which our contract sales were up 8% year-over-year. We are increasing our contract sales guidance based on our recent trends and the impact of new initiatives underway. As we work through the first half of the year, there are certain expenses being incurred as we transition to our new operating priorities, principally in sales and marketing. Accordingly, we believe it is prudent to reaffirm our existing EBITDA guidance. With respect to our future, I'm incredibly excited about what lies ahead for the company. Game-changing initiatives are underway. They are returning us to a path of revenue growth, product enhancement, energy and optimism that now exists inside our company. Momentum is an incredibly powerful force in either direction. I will say unequivocally, there is a tremendous positive momentum inside our company. People are energized and committed. It is being built both with the infusion of new talent as well as the reinvigoration of our many associates in the workforce at Marriott Vacations Worldwide. We have long had the opportunity to represent the best brands in vacation ownership and unbelievably loyal and broad-based customer profile. The company has long enjoyed a premier position in the industry, and we look forward to reasserting that position. With that context, I'll turn the call over to Mike. Michael Flaskey: Thanks, Matt, and good morning, everyone. I joined Marriott Vacations about 3 months ago. Since then, I have spent my time diving into the business, the team and the opportunity in front of us. I've been in the field with our associates and in many of our sales centers. I've also spent time speaking with investors. What's clear to me is that we have a strong team, tremendous brands with very meaningful upside. What's encouraged me most is how much of the opportunity ahead of us is within our control, and we have already implemented several initiatives that are driving improvement. At a high level, our new operating framework is centered on improving contract sales by growing the right tour flow and strengthening our operating discipline. Expanding demand from new sources and driving incremental tours from our existing infrastructure, all while increasing average sales price. As we look at the opportunities in front of us, we bifurcated them into both near term and long term. In the near term, we have a clear focus on improving our core operations, which are already impacting our results. First, we are building a high-performance organization designed to drive revenue growth by strengthening our sales processes and talent. To achieve that, we hired a new Chief Sales and Marketing Officer with a demonstrated track record of success that I've also worked with for years, and we have several other powerful sales and marketing leaders that we have added to the team. We are also seeing a resurgence of top sales talent returning to the organization alongside exceptional new talent desiring to join us. Our transformation has the company excited, and we are seeing it across the organization. Second, we reorganized our sales and our field marketing organization, positioning us to move faster and more effectively as we execute our growth initiatives. On May 1, we restructured our sales and marketing leadership compensation packages, aligning their incentives to revenue growth and net operating income, which better aligns their compensation with the company's revenue and adjusted EBITDA performance. Third, we launched a new data-driven tour logistics initiative designed to better align tour flow with the right salesperson, improve conversion and enhance the overall selling experience through more effective use of sales center technology. We are already seeing results from this initiative. I am very happy to report that global contract sales were up 8% in April on a year-over-year basis, as Matt mentioned, powered by North America, where we were up 11%. This is very encouraging on many levels, in particular, North America, which is offsetting our planned reductions in Asia. This is a significant indicator that our strategy has taken hold. We also have several initiatives that will enable long-term sustainable growth that will meaningfully impact EBITDA in the second half of the year. For example, on May 1, we announced changes to our owner loyalty levels, adding 2 new tiers at the high end of the Marriott program. By the end of May, we will also be introducing a new buyer incentive called Dream Vacation Packages. Through these initiatives, we expect to drive a higher close rate and more predictable and quantifiable pipeline of future tours and higher VPGs company-wide. On June 22, we plan to launch our experiential event marketing program to be called Inner Circle. In my experience, this type of event platform has proven to drive higher quality incremental tour flow and VPG, while strengthening engagement across the owner's life cycle and the team that we now have introduced this concept to our industry. We feel very confident in our ability to execute on it. Importantly, Inner Circle supports our broader lifetime value strategy by enhancing the customer journey, extending owner longevity and creating opportunities for increased wallet share over time. Let me pause on this for just a moment and explain what this means. The totality of these 3 programs incentivizes our owners to return to our properties and our sales galleries in a more predictable and managed way, driving higher tours and VPGs through increased average transaction size, thereby driving higher and more profitable contract sales. Finally, we are building a national and local partnership marketing capability to expand our reach beyond our existing databases to drive incremental tour flow. This will also allow us to grow tours through affiliations with the proven Marriott Bonvoy and World of Hyatt loyalty programs. Some of these initiatives are more transformational and will take time to ramp up with meaningful benefits expected to begin later this year and into 2027. Through the launch of these new initiatives, we are focused on growing our average transaction size and VPGs. We also have a unique opportunity with our points product to create multi-week vacation packages supported by our transformed owner benefit levels and powered by our world-class brands. To support these initiatives, we are applying data-driven tour logistics to better match the right guests with the right sales executive and upgrading our programs to create more compelling reasons for owner engagement while on vacation. Particularly through initiatives like the Dream Vacation Packages and Inner Circle. To wrap up, to say I'm very encouraged by what I've seen so far is an understatement. We have a clear pathway to significantly improve our commercial performance in both the near term and the long term. The power of the talent that we've added to the company and the reenergized disposition of the existing team has improved operational execution across the board. Along with our new owner loyalty levels, the Dream Vacation incentive and our Inner Circle event platform, they have us set up nicely for a predictable and sustained growth trajectory. With that, I'll turn it over to Jason to walk through the financials and provide more detail on the quarter. Jason Marino: Thank you, Mike. This morning, I'll walk through our first quarter results, then touch on the balance sheet, cash flow and our outlook for the year. First quarter contract sales declined 2% year-over-year to $411 million. Owner sales increased 3%, offset by lower sales to first-time buyers. Tours declined by 3%, driven primarily by our planned actions in Asia, which was restructured at the end of January to improve profitability and cash flow as well as our decision to reduce tours to consumers with FICO scores below 640 starting last year. Excluding Asia Pacific, contract sales declined 1%. Development profit declined $24 million year-over-year to $55 million due to lower contract sales, lower reportability and higher product costs, all of which were in line with our expectations. In addition, marketing and sales costs increased year-over-year, primarily due to increased training costs and higher salaries, which are being addressed with the initiatives Mike mentioned. Sales reserve was 12.3% of contract sales in the quarter, lower than Q4. 120-day delinquencies were up 17 basis points compared to the prior year and were down 45 basis points compared to 2024 levels. Defaults were unchanged from prior year, and our rigorous reserve process continues to indicate that we are adequately reserved given our overall loan performance. Importantly, our more recent 2025 receivable originations are performing in line with our expectations, giving us further confidence in our reserve. As expected, rental profit declined $10 million year-over-year due to higher inventory levels and associated unsold maintenance fees. Management and exchange profit declined $2 million, largely attributable to lower profit at Aqua-Aston. Finally, excluding the change in the presentation of interest expense in our warehouse credit facility, financing profit increased $2 million. As a result, adjusted EBITDA declined 16% year-over-year to $161 million and adjusted EBITDA margin declined 370 basis points to 19%. Turning to the balance sheet. We finished the quarter with $3.3 billion of net corporate debt and leverage of approximately 4.2x. From a maturity perspective, we are well positioned with no corporate debt maturities until December 2027, providing us with meaningful financial flexibility. Our adjusted free cash flow was $114 million in the quarter, an increase of $74 million over last year, driven by lower inventory and capital spending as well as the $50 million of proceeds we received from the sale of the Westin Cancun. In April, in the midst of market volatility and increasing uncertainty, we completed our first securitization of the year, raising $460 million at a blended interest rate of 4.86% and an advance rate of 98%, further strengthening our liquidity and demonstrating continued access to the ABS market. Before turning to guidance, I want to briefly address capital allocation. We remain focused on reducing leverage over time while continuing to return capital to shareholders. As cash flow from operations and disposition proceeds materialize, we will balance debt reduction, dividends and opportunistic share repurchases within a framework to reach leverage levels below 4x. Turning to guidance. We now expect contract sales to increase 3% to 7%, which is above our original guidance, driven by the new revenue initiatives Mike discussed. We expect tours to decline in the 1% to 3% range this year, driven by the intentional reduction in Asia and for VPG to increase in the mid- to high single digits. As we highlighted in our press release this morning, we are reaffirming our EBITDA guidance for the year, reflecting our higher contract sales and higher operating expenses over the short term to support these new initiatives. We expect our operating expenses as a percent of revenue to decline sequentially over the balance of the year as we leverage growth in our revenues. In terms of quarterly cadence, contract sales and adjusted EBITDA growth remains weighted toward the second half of the year as new revenue initiatives ramp with our first Inner Circle events targeted for later this quarter. For the second quarter, we expect contract sales to be up 4% to 8% year-over-year as our new revenue initiatives start to work through the system and adjusted EBITDA to be $197 million to $202 million. Finally, our expectations for management and exchange profit, rental profit and G&A are largely unchanged from our previous guidance. From a cash flow perspective, we continue to expect adjusted free cash flow for the full-year to be between $375 million and $425 million compared to $145 million last year, and we expect free cash flow conversion this year to be in the mid-50% range. We continue to make good progress on our non-core asset dispositions, listing multiple assets that we expect to generate more than $125 million of proceeds this year on our way to disposing $200 million to $250 million in total by the end of 2027. Any proceeds from these sales will be excluded from our adjusted free cash flow. As I wrap up our prepared remarks, I couldn't be more optimistic about MVW's long-term future. The organization is energized by our new leadership team, our April sales results, the launch of new programs and culture of accountability. The transition to EBITDA and profitability growth is beginning. Our momentum is increasing, and we look forward to the second half. With that, we will be happy to answer your questions. Operator? Operator: [Operator Instructions]. Our first question comes from David Katz with Jefferies. David Katz: I feel like, quite frankly, I have about 10 questions. What I'd like to just get from the team is really just a big picture perspective on how confident are you versus where you were a few months ago when we first started talking about this in the long-term earnings power? I think that's been made clear by the incentives that you've laid out, not just near term, but longer term. What has to go right for you to achieve that long-term big picture earnings power? Matthew Avril: David, it's Matt. Thanks for the question and for joining us. I think the simple direct answer is we have to continue to enhance the experiential value proposition to our owners, drive their engagement rooted in our guidance for the rest of the year and things we're already seeing is lifting our tour flow opportunities with our owners at our properties. We have tremendous occupancy levels, and there is a lot of runway for us to do that. Secondly, as I said at the beginning of my remarks today, in any situation from my perspective, like the one when I stepped in, is you assess who and then you go assess what. I will tell you that we are, from my personal perspective, well ahead of where I could have hoped we would be a little over 2 months ago, stepping in and taking on the role in a more permanent way. We needed to have an infusion of talent, expertise and blending that into a terrific in-place workforce in order to accelerate how we put things into play in the field in our business. As we've alluded to, to see that take place in the way that it already has in April has been really gratifying and probably faster than I could have expected during that period of time. Then in terms of how you sustain that over time, there is sort of that inherent flywheel, which is as we build and create more value experientially in particular, for our owners, give them more reason for us to have more share of wallet for their travel and their vacation. It's the nature of the product that our best customers do travel and travel more, and we're committed to earning more of that share of wallet. Then over time, we'll continue to add new owners to the top of the funnel as well. The team has been assembled and is being assembled each and every day. We've been in very good shape on the team, the initiatives to add attractiveness to owning the product and experiencing it. That's the big picture that I would provide. David Katz: Appreciate it. One just a very quick follow-up. Since the Street is hyper-focused on this, and it's -- we always need something to worry about. Is there anything noteworthy with respect to loan loss or delinquencies and it may be difficult to tell at this stage in the turnaround, but just checking in. Jason Marino: Yes, David, this is Jason. Thanks for the question. Yes, at this point, we feel really good about where the portfolio is. We ran through a bunch of metrics on the call in our prepared remarks, and we feel really good with our process and what we're seeing, especially as it relates to the near-term delinquencies, which are the majority of the book in terms of the nearer-term vintages, sorry, and so we feel good. Operator: The next question comes from Patrick Scholes with Truist Securities. Charles Scholes: Question for you regarding expectations for development profit. I believe on the prior earnings call, you had expected development profit for the year to be up. It was down quite a bit in Q1. Is your -- in light of that, do you still expect it to be up for the full-year? Jason Marino: Yes, Patrick, this is Jason. That's right. As we move through the year, we expect our development profit will grow as we -- based on the implied guidance that we've given, that is the big growth driver in our business. That's what Mike is driving throughout with the higher contract sales. We expect product costs similar to the guidance we gave on the last call, we'll be up a bit year-over-year, but consistent with where we were in Q1. Then as we go through the year, we'll continue to leverage our marketing and sales costs and drive higher development profit as we move through the year, so that is our expectation. Operator: The next question comes from Ben Chaiken with Mizuho. Benjamin Chaiken: I would love to hear about some of the changes in sales and marketing, specifically on the event side. I think, Mike, you kind of suggested it actually doesn't start -- doesn't launch until later this summer. Is that correct? Then anything you can share here would be helpful. Then is it fair to say that the contract sales acceleration you've seen has not even kind of like touched that event/Inner Circle side? I guess the implication being that it's all related to changes in sales personnel. I guess I'm kind of alluding to the success in April. Then one follow-up. Michael Flaskey: Yes. Thanks, Ben. Look, from April standpoint, if you think about it, we need to be great at what we're supposed to be great at. What you saw and what Matt alluded to and I alluded to in the prepared remarks about our contract sales growth in April was from doing just that, fundamentally going in and being better at operating the business. To use an analogy like a sports team, we had to eliminate the penalties. We had to get in shape to play the fourth quarter. We had to do the basic fundamentals to win a few more games, which is what you saw. Now as we start introducing the things that we talked about like the new loyalty levels May 1, the Dream Vacation incentives towards the end of the month and then specifically your question, Inner Circle coming in June, we should really see that just turbocharge the momentum that we've already built. As you know and as you've written about, we're -- we know the event business, and we know it very well. The team that's here created the event business for the entire industry. We've never had brands like this to power it, so it's incredibly exciting, not only to our first customer, which is our sales and marketing executives, but it's also going to be a big hit with the owners. Benjamin Chaiken: Then I guess on the contract sales guidance, this is maybe a multiparter, but I guess, a, how much did you -- and I guess we can all -- we have some implication or some inference could you give us April, but how much did you bake in for these for Inner Circle specifically in broad strokes without getting like too hyper specific? Then question 2 would be, how did you think about the change in contract sales guide and no change in EBITDA? Could you maybe just help us out a little bit on that? Was there something on the cost side that you're assuming that's different than prior? Or is it just some conservatism? I know in the prepared remarks, you mentioned some sales -- some higher sales and marketing expense. If we could just open that up a little bit, I think it would be very helpful. Matthew Avril: Ben, this is Matt. Thanks again for the questions. I'll sort of do it in reverse order. From a guidance perspective, you're right in my prepared comments, I talked about sort of the word prudent. We clearly have terrific momentum, and we've got great traction raising the guidance level. I acknowledge both some of the transition costs that we're already absorbing relative to the first quarter's performance, some transition costs as we have brought on the new teams and launching the events platform, the Dream Vacations and the owner benefit levels. There's a lot of internal work that has gotten done at an accelerated rate to support those rollouts. I think our guidance being in the range simply reflects that dynamic to the degree it ultimately may turn out to be conservative. I'll tell you, we're very focused on delivering actual. The decision on guidance was simply balancing the -- what we would acknowledge is the more recent trend, but the enthusiasm and optimism and the visibility we have to what's coming on the revenue side, and we're going to work really hard on the cost side to maximize that flow-through. It was a bit of balancing those 2 competing forces, if you will. Your other question, Ben, on the front end, please remind me. Benjamin Chaiken: Yes. It was basically just how did you think about -- obviously, there's been some acceleration in contract sales from the start of the year. Then how did you balance that versus layering in the Inner Circle dynamic? I don't know to the extent how much that actually contributes to '26. Maybe it's maybe the back half. Matthew Avril: Yes, fair question, Ben. We feel like we've got a number of factors and certainly events is platform and the attractiveness of that is part of it. They all combine to drive one of our underlying metrics that are contributing to that contract sales acceleration is our increased tour flow from our owners on property and increasing the experiential aspect, those events are geared towards our best customers and our owners on site. It is embedded in that acceleration. I wouldn't do an attribution waterfall chart, if you will, this much of the increase is this, this, this. It is the totality of all of the things that we're rolling out simultaneously. Operator: The next question comes from Brandt Montour with Barclays. Brandt Montour: I apologize for my connection here. Can you just maybe break out that April metric and give us a sense of how much of that was close rate, how much of that was expanding purchase price, if there's mix benefit in terms of repeat versus new owner? Just trying to get a sense for how much of that is blocking and tackling and how much of that is mix? Michael Flaskey: Brandon, it's Mike here. Our VPGs in April were up $450, just over $450 or about 12.7% versus prior year. Our tour flow was exactly as planned with our reduction in Asia. North America tour flow was right on par. Asia was down as planned. That's kind of the mix and average transaction size is a key focus point for us going forward. In the month of April, it was actually a balance of close and average transaction size. Brandt Montour: Then maybe another one for you, Mike. You spoke about getting the right tours Take us back a little bit, when you got there, what kind of tours were you guys getting before? What kind of tours are you getting now? Why do you think it's going to be low-hanging fruit that you can use your assets to hone in on those higher hit rate tours? Michael Flaskey: Right. Well, it's a combination of things. First, by far, in my career, this is the most robust data pool that we've had to generate leads with the Marriott Bonvoy and the World of Hyatt, and we have significant runway left for first-time buyers in those databases. Let's start there. What I observed when I got here was that this company significantly underperformed versus the industry on owner arrival to tour rates, and so we have a serious opportunity to enhance that and the flow-through on those for every 1 percentage point is significant. We're very, very excited about that and that comment about the right tours was tied to that. Subsequently, when I talk about tour logistics, one of the things that we have worked diligently on in the past and that we're implementing here is kind of our proprietary model where we make sure we understand the VPG by guest type of every tour that's coming into our sales galleries and then also knowing our individual sales executives VPGs by guest type and then using logistics to match that up so that we give ourselves the highest propensity for close. That is something that really was just starting to take hold in the month of April and has significant runway for the business. Operator: The next question comes from Lizzie Dove with Goldman Sachs. Elizabeth Dove: I just wanted to see if you could expand on the new owner side of things, what you're seeing there in terms of new owner VPG versus existing and what you're kind of baking in for contract sales in terms of any mix shift in terms of new owners for the rest of the year? Michael Flaskey: I'll take the first part, Lizzie, it's Mike, and then I'll let Jason talk about the guidance. As a volume, we were at 28% in the first quarter of first-time buyers as our mix. On a contract basis, it would be higher than that. We believe that we have significant opportunity within the business to increase first-time buyer tour flow and first-time buyer sales. We're going to be very prudent about how we do that. As I just mentioned in answering Brandt's question, we have significant runway in front of us on our owner arrival to tour. It's really going to be a yield management exercise of being smart about how we grow our tour flow and balancing it as we go forward. Jason? Jason Marino: Yes, Lizzie, we ran, as Mike said, about 70% existing owner sales in Q1. We've been in that range for a bit, and so I think that's a good range, plus or minus for the rest of the year, depending on some of the things that Mike talked about with trying to drive that owner VPG and the owner capture and driving contract sales. Over the long term, we do expect to grow our first-time buyer tours, and that's something for the long term, but this year, I think that 70-30 mix is probably where we'll wind up. Elizabeth Dove: Then I just wanted to touch on Hawaii. I know there's been some inclement weather there over the last couple of months, and I think you have a reasonable amount of exposure there. Anything that you're seeing there or that we should be noting going forward on that? Matthew Avril: Lizzie, this is Matt. Thanks for the question. Certainly, the adverse weather there in the last 3.5 weeks of March was disruptive. We do have a significant presence on Maui. Candidly, just from a call perspective and how we talk about things internally, the benefit of our business model is our direct marketing and being able to bring people in. We're going to not lean on weather or disruptions or other things like that. When we talk about our results, we certainly prefer better weather. Hawaii is a tremendously important market to us, and we think there is for the reasons that Mike has outlined in our system overall are very applicable to Hawaii. We're excited about what's ahead of us in Maui and all the islands where we operate out there, and bad weather or those kinds of events are going to happen from time to time, and we get paid to work through them. Operator: The next question comes from Trey Bowers with Wells Fargo. Raymond Bowers: A couple of questions. First one, just a point of clarity. I think you guys said in the prepared remarks that the asset dispositions would not be included in the adjusted free cash flow calcs. Then there was -- it looks like there was $50 million of add-back in the adjusted free cash flow in the press release. I just wanted to make sure I understand the build of that line item. Jason Marino: Yes, Trey, that's right. Going forward, any future dispositions would not be included. When we gave the guidance for this year, we did say that we would include the sale of the Westin Cancun because that was slated as inventory in the future. That is the way that we did it for that first quarter. In connection with that sale, we also entered into a purchase commitment for future inventory in Puerto Vallarta, and that was another reason that we put in adjusted free cash flow because that inventory spend in the future will obviously hit free cash flow down the road. Raymond Bowers: Then just any update on the modernization efforts? Any change to the expectation for the dollar value there? Then maybe just if you guys could just dig in a little bit on what about those modernization efforts are transitory in nature as an operating expense? Matthew Avril: This is Matt. A couple of comments on that. As we chatted last quarter, we are incorporating benefits from modernization as well as management waking up every day how to improve the business in our guidance and in our actual results. I would say the other way to also look at modernization, there was a lot of what I would call design and architecture and trying to identify things in last year's work. This year's work is really in the implementation of those that we have identified, and that work is underway. We identify it from both an expense and capital spend perspective. We're not going to call out separately those dollars as they're showing up in our P&L, but they are benefiting our business today, and we expect them to benefit going forward. There will be other initiatives that we're layering into just call it, our project management and improve the business daily mantra. Those are a couple of brief comments I would add. There's been a big shift from assessment and evaluation to implementation on those initiatives we have emphasized and prioritized. For those that we have deferred, the benefits of that is reducing the cash flow associated with the deferred items. Operator: [Operator Instructions]. Our next question comes from Stephen Grambling with Morgan Stanley. Stephen Grambling: Actually, 2 follow-ups. First, peers have culled their management base recently in terms of their -- the properties they're managing. Do you have a similar opportunity that you're looking at? Are there any properties where you still have low occupancy or even pent-up maintenance CapEx that you could look to potentially optimize? Matthew Avril: Stephen, this is Matt. Fundamentally, that is not an area of focus or need from our perspective. In our portfolio of resorts, we're excited about all of them. We've got 1 or 2 that we'll look at from time to time, but from a systemic, we've got a clear demonstrable batch of resorts, if you will, and respecting each of us have arrived in our portfolios through different mechanisms, whether how much has been purpose-built how much people may have acquired over time, I can understand why it was a priority elsewhere. I would tell you, no, that is not a high-priority opportunity for us. Our opportunity is with the quality of our resorts that we have, the high GSS scores and the high levels of occupancy that we experienced throughout our portfolio. Stephen Grambling: Then as you're thinking about ramping up sales and trying to incentivize owners, I guess, are you changing the way that you underwrite or even as you think about the percentage that you allow people to put down, is there any change in that requirement as you look at either existing owners who maybe have built up equity or new? Jason Marino: Yes, Stephen, this is Jason. We're not changing any of our financing programs in terms of down payments. We've had the minimum debt 10% down payment now for a while, consistent with the industry, and so we're not changing anything in that regard. Owners can use their existing upgrade, again, common within the industry to use their existing equity and their existing ownership to use that as partial down payments or full down payments if they have enough in new deals, so that's not a change though. Operator: At this time, I would like to turn the floor back to Matt Avril for closing remarks. Matthew Avril: Thank you for joining us on our call this morning. It's been 6 months since I joined, and we've made significant progress executing our plans. During the first quarter, we implemented a series of actions to improve our performance. As we move forward with our plans, we will begin to see stronger contract sales, profitability, cash flow and EBITDA growth. I want to specifically thank our Marriott Vacations associates throughout the company. It has been a period of rapid and substantial change, and our teams are rallying to the vision and priorities we have. On behalf of all of our associates, owners, members and customers around the world, I want to thank you for your continued interest and support of the company. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Good afternoon. Welcome to Tigo Energy, Inc.'s fiscal first quarter 2026 earnings conference call. At this time, participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Joining us today, Zvi Alon, CEO, and Bill Roeschlein, CFO. As a reminder, this call is being recorded. I will now turn the call over to Bill Roeschlein, Chief Financial Officer. Bill Roeschlein: Thank you, Operator, and it is a pleasure to join you today from our corporate office in Los Gatos, California. Also with us is Zvi Alon, our CEO. We would like to remind everyone that some of the matters we will discuss on this call, including our expected business outlook, our ability to increase our revenues and our overall long-term growth prospects, expectations regarding recovery in our industry including the timing thereof, statements about demand for our products, our competitive position and market share, the impact of tariffs, our current and future inventory levels, charges and reserves and their impact on future financial results, inventory supply and its impact on our customer shipments, statements about our revenue, adjusted EBITDA and non-GAAP net loss for the second fiscal quarter 2026, and our revenue for the full fiscal year 2026, our ability to penetrate new markets and expand our market share including expansion in international markets, and investments in our product portfolio are forward-looking statements and, as such, are subject to known and unknown risks and uncertainties, including but not limited to those factors described in today’s press release and discussed in the Risk Factors section of our most recent Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2026, and other reports we may file with the SEC from time to time. These risks and uncertainties may cause actual results to differ materially from those expressed on this call. Those forward-looking statements are made only as of the date they are made. During our call today, we will reference certain non-GAAP financial measures. We include GAAP-to-non-GAAP reconciliations in our press release furnished as an exhibit to our Form 8-K. The non-GAAP financial measures should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. Finally, I would like to remind everyone that this conference call is being webcast, and a recording will be made available for replay on Tigo Energy, Inc.’s investor relations website at investors.tigoenergy.com. I will now turn the call over to Zvi Alon, CEO of Tigo Energy, Inc. Zvi? Zvi Alon: Thank you, Bill. To begin today’s discussion, I will highlight key areas in our recent financial and operational performance before turning the call over to our CFO, Bill, who will discuss our financial results for the first quarter in more depth as well as provide our guidance for 2026 and the full year of 2026. After that, I will share some closing remarks, tell you about the outlook, and then open the call for questions from the analysts. Business update. We delivered a strong start to 2026 despite the typical weather-related seasonality in our end market. To be more specific, in the first quarter of 2026, we reported total revenue of $25.2 million, representing a 33.7% increase compared to the prior year period. By geography, we saw seasonally stronger performance on a year-over-year basis in the EMEA region during the quarter, which comprised 69.5% of our revenue. Recently, we also announced that our enhanced Tigo GO battery is now available in the European residential market and is expected to further strengthen our European presence, with storage capacity up to 47.9 kilowatt-hours and integrated heating for cold-weather operations. Within the Americas region, which comprised 20.9% of our revenue, we saw higher performance on a year-over-year basis but lower results sequentially as buyers accelerated purchases late last year ahead of the expiration of the residential clean energy tax credit. By country, we performed exceptionally well in Italy, which grew 140.8% sequentially, and again in APAC, in Australia, which grew 64.3% compared to Q4. We also saw strong growth in the Czech Republic and Poland, where unusually cold weather patterns during Q4 had significantly impacted solar installations. As mentioned in our last earnings call, these results were offset by seasonal softness in Germany and weaker results in the UK market, where robust growth in 2025 moderated for us in the current quarter. As we look at the energy sector as a whole, energy security is an increasingly important priority for governments, businesses, and homeowners across the globe. The recent geopolitical developments in Iran continue to highlight the importance of energy independence worldwide. As energy markets remain volatile, we believe Tigo Energy, Inc. is well-positioned to support installers, homeowners, and commercial customers seeking flexible, reliable, and intelligent solar and storage solutions. Finally, as we look toward the rest of the year, I would like to share three specific growth catalysts that I expect will drive accelerated growth for Tigo Energy, Inc. First is our partnership with EG4, which is just now beginning to kick off with the first deliveries occurring this month. This partnership is expected to provide the U.S. market with IRS 45X and IRS 48E ITC credit benefits. Second is our new line of GO ESS batteries for the U.S. and EMEA markets. This provides a compelling and complete solution for TPOs in the U.S. and addresses market requirements for storage capacity in the EMEA region. And third is the positive activity we are seeing in our pipeline for large-scale utility deals, where we believe we have a competitive advantage. I will now turn the call over to Bill for the financial results. Bill? Bill Roeschlein: Thank you, Zvi. Turning now to our financial results for the first quarter ended March 31, 2026. Revenue for the first quarter of 2026 increased 33.7% to $25.2 million from $18.8 million in the prior-year period. On a sequential basis, revenues decreased 16.1% despite improved results coming from many countries in the EMEA region, including the Czech Republic, Italy, and Spain. By region, EMEA revenue was $17.5 million, or 69.5% of total revenues, and a 3.2% sequential decrease. Americas revenue was $5.3 million, or 20.9% of total revenues, and a 43% sequential decrease. APAC revenue was $2.4 million, or 9.6% of total revenues, and a 10.2% sequential decrease. By product family for the first quarter of 2026, MLPE revenue represented $20.8 million, or 82.4% of total revenues. GO ESS represented $4.0 million, or 15.8% of total revenues, and Predict+ represented $500 thousand, or 1.8% of total revenues. Gross profit for the first quarter of 2026 was $10.8 million, or 42.8% of revenue, compared to a gross profit of $7.2 million, or 38.1% of revenue, in the comparable year-ago period. Improvement in gross margin is largely due to the absence of warranty-related charges in the most recent quarter compared to the year-ago period. Operating expenses for the first quarter increased 18.4% to $13.2 million compared to $11.2 million in the prior-year period. The increase was driven primarily by bad debt expense of $1.0 million as a result of the bankruptcy of a European distributor during the quarter. We do expect a portion of this amount to be recoverable through insurance in a future period. Operating loss for the first quarter decreased by 9.4% to $6.4 million compared to an operating loss of $4.0 million in the prior-year period. GAAP net loss for the first quarter was $1.8 million compared to a net loss of $7.0 million for the prior-year period. Non-GAAP net loss, which we are introducing this quarter and reconcile from GAAP net loss solely by excluding stock-based compensation, totaled $100 thousand compared to a non-GAAP net loss of $5.4 million in the prior-year period. We believe this measure provides investors with additional insight into our progress toward achieving consistent GAAP net income. Adjusted EBITDA loss for the first quarter decreased 76.8% to $500 thousand compared to an adjusted EBITDA loss of $2.0 million in the prior-year period. As a reminder, adjusted EBITDA is a non-GAAP measure that represents net loss as adjusted for interest and other expenses, income tax expense, depreciation, amortization, stock-based compensation, and M&A transaction expenses. Primary shares outstanding at the end of the quarter were 75.9 million. Turning to the balance sheet. Accounts receivable, net, increased this quarter to $14.2 million compared to $13.9 million last quarter, and increased from $10.4 million in the year-ago comparable period. Inventories, net, decreased by $6.5 million, or 20.7%, to $24.8 million compared to $31.3 million last quarter, and increased compared to $18.9 million in the year-ago comparable period. Cash, cash equivalents and short- and long-term marketable securities totaled $11.6 million at March 31, 2026. On a sequential basis, cash increased by $3.9 million as we successfully closed a registered direct offering of approximately $15.0 million during the quarter. In addition, we closed on a credit facility with Wells Fargo Bank at the end of the first quarter. The facility provides up to $10.0 million of availability based upon a borrowing base formula consisting of certain accounts receivable and inventory held by the company. No drawdowns were taken during the first quarter. Turning now to our financial outlook for the second quarter and full year of 2026. As a reminder, Tigo Energy, Inc. provides quarterly guidance for revenue as well as adjusted EBITDA, as we believe these metrics are key indicators for the overall performance of our business. For the second quarter ended June 30, 2026, we expect revenues to range between $30.0 million and $32.0 million. We expect adjusted EBITDA to range between $1.0 million and $3.0 million. For the full year of 2026, we continue to expect revenues to range between $130.0 million and $135.0 million. That completes my summary, and I would now like to turn the call back over to Zvi for final remarks. Zvi Alon: Thanks, Bill. We are pleased with how we have started 2026 and the traction we are seeing across our key markets. The continued predictability of our business reinforces our confidence in sustaining growth through the remainder of the year, and we expect to maintain our competitive outperformance. We enter the remainder of the year with a strong foundation and a clear path forward, and we are excited about the opportunities ahead. We will now open the call for questions. Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please standby while we roster. Our first question comes from the line of Philip Shen with Roth Capital Partners. Philip, your line is live. Philip Shen: Hi. Thanks for taking my questions. I wanted to start with the potential for the EU to ban Chinese inverters, and I wanted to understand if you could be a beneficiary of that. What have you learned about this, and how quickly could this ban become effective? It seems like it could be or may be effective already. So are you seeing a change in the business at all already? Thanks. Zvi Alon: We are aware of the change. It actually started, I would say, last year sometime, and there are a couple of countries already that are banning Chinese-controlled monitoring systems and devices. We do believe that it would increase the market share for our solutions. We see it as a positive contributor for our solutions in the market. We have been touting the security of being monitored in the U.S. for quite some time, and that seems to be working with those sentiments in the market in general. Philip Shen: Are you seeing a change in demand for your business because of this, or is it hard to discern that the demand is coming from this? Zvi Alon: It is hard to say that it is correlated right now. In general, I can tell you that we saw Europe starting to wake up towards the end of the first quarter, and from that perspective, we are fairly confident it will continue. The addition of the banning of Chinese products should accelerate it and help more. Our optimizers are doing exceptionally well in what we see in the market. Philip Shen: Can you elaborate more on that mix? You had a lot of volume, most of it from Europe, in the quarter. That mix of about 70% from EMEA—do you think that stays similar through the rest of this year? And maybe give a bit more color on which countries are strong and which have been less strong but could become stronger ahead? Bill Roeschlein: We have been trending in these percentages for a bit of time—about 65% to 70% from EMEA. It was once higher than that, but the U.S. has really picked up steam for us. With the repower initiatives that we have, and now with the introduction of our new hybrid inverter and battery solution along with the EG4 partnership for optimized inverters, we think the U.S. could be a market where we pick up a good share regardless of the macro condition there. That might drive the EMEA region to be a little bit less than 70% by the time we get to the end of the year. We will see how that plays out. Within Europe, we have historically been strong in Italy and Germany, those being the two biggest economies last year along with the UK. Germany has been, by most accounts, big but sluggish. We have had decent growth, but the areas where we have seen really outsized growth that are working in our favor—and I think it will work out this way in 2026 as well—include the UK, which was really great because we came in with almost zero market share and quickly established a good revenue base. In 2026, we are making a concerted effort to go after more of Eastern Europe where, as we have discussed before, some competitors have withdrawn or reduced their footprint. That includes Slovenia, Romania, Poland, and the Czech Republic, where we have been strong for a while but there is still additional market share to be picked up. We are expanding beyond our traditional strength in Italy and Germany and going a little more east and north. Philip Shen: You mentioned repowering. Can you give us some sense of the success you are having there? If you can quantify anything in terms of how much of your total revenue or total U.S. revenue that could be for 2026, that would be helpful. Bill Roeschlein: It more than doubled. It was about 2% to 3% of 2025 and most recently was about 20%. We believe we had some pull-in orders related to the 25D expiration that muddled the overall measurement, but we are still working with the same installers who have a brisk book of business, and we expect another year of growth coming from that side of the house. We have a very unique hybrid inverter with the right form factor, the ability to accept varying voltage levels, and minimal rewiring required. There are a lot of advantages to our solution that fits well with repower. Layer in our initiative with our GO ESS battery hybrid inverter for the year along with EG4, and I think the U.S. market could be very strong growth for us this year. Zvi Alon: On the repower, one additional point is that the more those systems age, the better it is for us. We identified this market early and have been planning for it for quite some time and gaining nice momentum. As it ages, it should be better for us. Philip Shen: Last one for me. Let us move over to the utility-scale solar opportunity. As you mentioned, there is a large pipeline of opportunity there. I am guessing this is tied to Predict+, which is a software package that you have. Is this also tied to your optimizer opportunity? Give us a little more color on what that looks like and how that could drive 2026. Zvi Alon: Yes, I did mention last time that we see an increase in activity in utility scale, and that continues. I do not want to make any premature announcements, but in general we see momentum in both Predict+ as well as optimization. On the optimization, we see two main drivers. One is new installations, and we mentioned the large installation in Spain, which is now operational, up and running next to the Madrid Airport. We won that late last year. It was 142 megawatts. We see similar-sized projects in the pipeline and a number of them, so we are excited and optimistic. Philip Shen: Great. Thank you very much. I will pass it on. Zvi Alon: Thank you. Operator: Thank you. Our next question comes from the line of Eric Stine with Cowen Capital Group. Eric, your line is live. Eric Stine: Hi, Zvi. Hi, Bill. I know you talked about the EU and the outlook in 2026, but it was more from a strategic point of view. Can you dig in a little bit on the market improvement—people are starting to talk about green shoots. You mentioned that you saw that towards the end of the quarter. Where does that stand? You mentioned softness in Germany and the UK in Q1, and those are two countries where you are starting to see indications of improvement. When do you anticipate you might start to see the benefit from that? Is it Q2? It seems like that type of expectation is not necessarily part of your outlook. When might you see it, and when do you become convinced that it is a sustainable market improvement? Zvi Alon: Thanks, Eric. We started seeing an improvement in the second part of Q1. The first part of Q1 was very sleepy, which is normal. Despite that, we still saw about 30% growth year over year. We believe that Q2, by the guidance we provided, also demonstrates nice year-over-year growth, and it is based on confidence we see in all regions, including Europe, which is our largest region. We believe we will continue to see market share gains. Bill mentioned our expansion into Eastern Europe in places where competitors have left, and we have seen good momentum. Europe for us is showing good signs despite Germany being a little slow. I will highlight that we saw Germany starting to come back to life in the second part of Q1. We are not sure if it will get back to the same full strength of last year or more, but we have seen improvement there, which causes us to be more optimistic. In addition, the success in utility-scale projects—many are in Europe. This is a new area for us based on the success in Spain and new opportunities we have identified, and we believe Europe will be a very good place for us moving forward. Eric Stine: Sticking with utility scale, you have talked several times about a number of opportunities. You have set the guidance in a spot that you believe is a good place to be—it is very good growth—but you have also talked about opportunities like GO ESS and EG4 that could mean potentially significant growth in 2026. Where would you put utility scale in that? Is that something where you are starting to see good signs that is more of a 2027 event where it really starts to impact financials, or could the timing be more of a 2026 event? Zvi Alon: Let me be very clear. The increase in our utility footprint is in 2026, and not at the end of the year. I will just leave it there. Bill Roeschlein: I would add that we do not normally talk about pipeline, but the deals we are working on are getting to the point where they are ripe for a decision. There are enough of those in our pipeline where we are at least finalists that we feel confident we will have something to talk about this year. Zvi Alon: We have been conservative for quite some time. We do not share prematurely, but our confidence is high. Eric Stine: Understood. Maybe last one for me on repowering. I know the primary focus is on the inverter side, but is that also something that potentially develops from an optimizer side as these older systems upgrade and perhaps, at ten years old, decide that they want control at the panel level? Zvi Alon: That is an outstanding question. It gives us access to two potential expansions. One is the optimizer, as you described, and the second is, since our solutions provide a hybrid inverter, adding a battery is very cost effective. By increasing market share with our solutions in repower, it gives us an opportunity to sell additional batteries at a very cost-effective level compared to other solutions. Eric Stine: Thank you. Operator: Thank you. Our next question comes from the line of Sameer Joshi with H.C. Wainwright. Sameer, your line is open. Sameer Joshi: Thanks for taking my questions. A lot of topics have been covered, but I do not think we covered the GO ESS opportunity and traction enough. It seems that with roughly $4 million in revenues, it is the highest since 2023. Are you looking at meaningful contribution from GO ESS during 2026, and is it a contributor to growth? Bill Roeschlein: We believe that with our next generation, we expect it will be widely accepted by the market. The feature functionality, price point, and size are all aligned to what customers are asking for. In the U.S., with new sales, TPO opportunities, and even repower—which is a captive market for us to get battery revenue from—and in Europe, we have addressed the market’s desire for larger storage capacity for both three-phase and single-phase markets, especially three-phase. Our new generation of battery has cold-weather functionality and expansion ability up to almost 48 kilowatt-hours. That is what the market has been asking for, and that is why we are excited to introduce it now. We expect 2026 to deliver a lot of positive momentum in both markets. Sameer Joshi: Inventory was down sequentially by $6.5 million. Should we read anything into this? And how is the supply chain? How quickly can you rebuild inventory, especially given outlook for the second quarter and second half as well as the hinted progress on utility scale? Bill Roeschlein: We are still in an eight-week factory-to-customer supply-chain environment, so we are not seeing major hurdles there. As a corporate metric, we try to keep 90 to 100 days of inventory. We were trending higher than that, so bringing it down was part of running working capital at an optimal level. We have no problem meeting any big utility win. The benefit of having an outsourced contract manufacturing model allows you to scale up and down very quickly. It is not difficult to do. We have the floor space to do it, and we can add another line if and when we need to. Sameer Joshi: Understood. Lastly, on operating expenses through the year, should we expect marginal increases, or do you have enough manpower and resources so that we will not see any meaningful increase in OpEx? Bill Roeschlein: I think we are trending in the $12.5 million to $13.0 million range for the rest of the year. With a wider lens, $12.5 million to $13.5 million, midpoint around $13.0 million. We should be able to grow this year without having to add a lot of OpEx, demonstrating the leverageability in our operating model. We have been at this level around $13 million for several quarters, so I think that is the right ballpark for the rest of the year. Sameer Joshi: Got it. Thank you. Thanks for taking my questions. Operator: Thank you. At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Zvi Alon for closing remarks. Zvi Alon: Thanks again, everyone, for joining us today. I especially want to thank all the dedicated employees for their ongoing contributions, as well as our customers and partners for their continued hard work. I also want to thank our investors for their continued support. Operator? Operator: Thank you for joining us today for Tigo Energy, Inc.’s first quarter 2026 earnings conference call. You may now disconnect.