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Operator: Greetings, and welcome to the INmune Bio's 2026 First Quarter Earnings Call. As a reminder, this conference is being recorded. A transcript will follow within 24 hours of this conference call. At this time, it is my pleasure to introduce Mr. Daniel Carlson, Head of Investor Relations of INmune Bio. Daniel Carlson: Thank you, operator, and good afternoon, everyone. We thank you for joining us for the call for INmune Bio's 2026 First Quarter Financial Results. Presenting on today's call are David Moss, CEO and Co-Founder of INmune Bio; Dr. Mark Lowdell, Chief Scientific Officer and Co-Founder of INmune Bio; and Cory Ellspermann, INmune Bio's CFO. Before we begin, I remind everyone that except for statements of historical fact, the statements made by management and responses to questions on this conference call are forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that can cause actual results to differ materially from those such as forward-looking statements. Please see the forward-looking statements disclaimer on the company's earnings press release as well as risk factors in the company's SEC filings, including our most recent quarterly filings with the SEC. There is no assurance of any specific outcome. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made as the facts and circumstances underlying these forward-looking statements may change. Except as required by law, INmune Bio disclaims any obligation to update these forward-looking statements to reflect future information, events or circumstances. Now my pleasure to turn the call over to INmune Bio's CEO, David Moss. David Moss: Thank you, Daniel, and good afternoon, everyone. For our first quarter 2026 earnings call, today, I'll review key takeaways and provide an update on our platform programs. Following my review of recent developments at INmune Bio, I will pass the microphone to Dr. Lowdell, INmune Bio's CSO and inventor of CORDStrom, who will provide an update on our CORDStrom MSC platform and particularly our RDEB program. Next, Cory Ellspermann will provide our financial results, after which I'll conclude our prepared remarks. We entered 2026 with clear priorities and strong momentum across our platforms. Most importantly, our CORDStrom platform remains on track, and we are now approaching a key milestone with our regulatory filings. Based on the progress of our analyses, manufacturing readiness and regulatory preparation, we expect to file for approval beginning in the near term, and we remain confident in the time line that we previously outlined. CORDStrom represents a potential first systemic therapy for RDEB, and we believe the data continue to support both its clinical benefits and its broader platform potential. Execution against this filing is our top priority. Turning to XPro. While CJ is not speaking today, I want to emphasize that we continue to make meaningful progress. We are advancing additional imaging analysis from the MINDFuL study, including MRI data focused on myelin preservation and structural integrity. These data sets are important as they further characterize XPro's potential as a disease-modifying therapy. At the same time, we're exploring potential rare disease trials for XPro and potential partners as we define the path forward, including regulatory alignment late-stage development strategies. Naturally, we'll update the markets as these milestones develop. Overall, we believe we're well positioned across both platforms as we move through a catalyst-rich period for the company and a marked change potentially for the company as we get closer to commercialization. With that, I'll turn the call over to Mark Lowdell to provide more details on CORDStrom. Mark? Mark Lowdell: Thank you, David, and thank you to everyone that's joined the call. As David said, since our last earnings call, we've moved forward significantly in bringing CORDStrom to market, and it is our central aim. First, we submitted the pediatric investigation plan known as a PIP to the U.K. medicines regulator in February, and we were approved for rapid assessment and receiving their response on the 9th of April. No substantial issues were raised, and we anticipate submitting our final response in the next few days. The approval of the PIP is an essential step to complete prior to submission of the marketing authorization application in the U.K. and then to the EMA for Europe. We've started the first of the 3 process validation manufacturing runs on time and the remaining 2 are scheduled to meet our MAA submission deadline. Most significantly, we've concluded negotiations with the Anthony Nolan U.K. Cord Blood Bank this month to ensure secure supply of umbilical cords and allow testing by U.S. laboratories to meet the requirements laid down by the FDA in our Type B meeting last year. This agreement was signed yesterday and is the final step in getting the UCMSC isolation part of manufacturing process validated, ready for commercial manufacture. Facilitating our ability to manufacture consistent batches of CORDStrom, we're pleased to announce that we recently signed an amended material transfer agreement with Anthony Nolan. This expanded strategic collaboration secures the long-term reliable supply of these high-quality umbilical cord tissues from their world-class cord blood bank to further our CORDStrom platform. Having a consistent supply is essential for us, not only for regulatory authorities, but also to enhance our ability to take the CORDStrom platform forward into other disease indications. The marketing authorization application submission requires completion of a very significant body of documents in 5 sections. These are now well underway. And as part of the product definition section, we've had to determine the formal names for CORDStrom as applied to RDEB to show it's different to other formulations targeting other diseases in the future. The active ingredient was named by the World Health Organization as pobistrocel, and we've chosen a commercial drug name of Ebstracel for the formulation to be used in recessive dystrophic EB. In 2 weeks' time, we will meet with the MHRA for further advice about the marketing authorization submission filing in the U.K. and then start to finalize those documents. Some minor regulatory delays have meant that we expect to submit to the MHRA in early Q3, and we've contracted a U.K. company, TMC Pharma, with expertise in rare disease submissions to run the EMA and the FDA submissions in parallel to meet the end of the year deadline that we described before to you. Finally, I had the great privilege to speak at the Cure EB Annual General Meeting in London last month, which is one of the largest EB charities in the U.K. I presented our data and our plan was overwhelmed by the response from patients and carers who attended. They're desperate for us to get Ebstracel to the market and to open the next phase of the clinical trial in the U.K. We're doing our utmost to deliver on our promises to them and to you to get into commercial manufacturing and supply in 2027. I'll hand over to Cory now for an update of the current financials. Cory? Cory Ellspermann: Thank you, Mark. At this time, I'll provide a brief overview of our financial results. Net loss attributable to common stockholders for the quarter ended March 31, 2026, was approximately $5.4 million compared with approximately $9.7 million for the comparable period in 2025. Research and development expenses totaled approximately $3.6 million for the quarter ended March 31, 2026, compared with approximately $7.6 million for the comparable period in 2025. General and administrative expenses were approximately $2.2 million for the quarter ended March 31, 2026, compared with approximately $2.3 million for the comparable period in 2025. And at March 31, 2026, the company had cash and cash equivalents of approximately $21.4 million. Based on our current operating plan, we believe our cash is sufficient to fund our operations through Q1 of 2027. And as of May 7, 2026, the company had approximately 26.6 million shares of common stock outstanding. And now I'll hand the call back to David. David Moss: Thank you, Cory. To close, our focus is straightforward. We're executing towards regulatory filings for CORDStrom, which we believe represents a major inflection point for the company. At the same time, we're continuing to build the case for XPro through additional imaging data, exploring the future rare disease trials and ongoing partnership discussions aimed at advancing the program efficiently. We believe these efforts position INmune Bio for a significant year ahead with multiple opportunities to create value for both patients and shareholders. Due to travel schedules, we'll not be taking questions, and this concludes our prepared remarks. If you have further questions, please reach out to the contacts at the end of our press releases, Dan Carlson or myself via those phone numbers or e-mails. Thank you for joining us today. Operator: And thank you, ladies and gentlemen. This concludes today's conference call. We thank you for your participation, and you may now disconnect.
Operator: Thank you, everyone, for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2026 Financial Results Conference Call. [Operator Instructions] And now I would like to turn the call over to Steve Webb, the Senior Vice President of Marketing and Communications. Please go ahead. Steve Webb: Thank you, operator, and welcome to Serve Robotics First Quarter 2026 Earnings Call. With me today are Serve's Co-Founder and CEO, Ali Kashani; and our CFO, Brian Read. During today's call, we may present both GAAP and non-GAAP financial measures. If needed, a reconciliation of GAAP to non-GAAP measures can be found in our earnings release filed earlier today. Certain statements in this call are forward-looking statements. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not want to undertake any obligation to update any forward-looking statements we make today, except as required by law. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as the risks and uncertainty described in our most recent annual report on Form 10-K and in other filings made with the SEC. We published our quarterly financial press release and our updated corporate presentation to our Investor Relations website earlier this morning, and we ask you to review those documents if you haven't already. And with that, let me hand it over to Ali. Ali Kashani: Thank you, Steve, and good afternoon, everyone. Thank you all for joining us. We are in the early days of this robotics revolution, but our first quarter results show how quickly this market and Serve are moving. Q1 revenue was nearly $3 million, above our expectations and up nearly 7x year-over-year and nearly 3.5x sequentially. Last year, our focus was deploying 2,000 robots across 20 cities while also seeding the work to open new revenue streams and new market opportunities for our technology. This year, those investments are beginning to compound. Fleet revenue grew by an order of magnitude from about $200,000 in Q1 of last year to nearly $2 million this quarter. In addition, about 1/3 of our total revenue during Q1 was from software services, and just under half of total revenue is now recurring. Last quarter, I said that 2026 would be a year of compounding return. Three months in, we are on track to deliver the $26 million of 2026 revenue we guided to on our last earnings call. Q1 is a clear proof of Serve's evolution. We are at the forefront of physical AI, not by just making big promises but by launching real robots in the real world at real commercial scale. With this early mover advantage, our focus now is growing the revenue streams that we've already built while also creating new one. At the same time, we are advancing our technology, deepening our moat, introducing our platform to new markets that expand our opportunity and strengthening Serve's data and AI flywheel with new proprietary data. So let me go a level deeper. First, our autonomous food delivery operation continues to scale. Our deployed fleet is now 7x larger than in Q1 of last year, while daily active robots are up 10x and daily supply hours are up 13x over the same period. Put differently, as we expanded the total sidewalk fleet over the last 12 months, we activated robots more quickly in each market and generated even more hours from each robot. Combined, Moxie and Serve robots now provide over 10,000 robot supply hours to our partners every day with more than 800 robots active every single day. To be clear, I don't expect every quarter to look like Q1, where we increased the active fleet and the fleet revenue by an order of magnitude year-over-year. Periods of growth often follow periods of investment, and they often need to be followed by more investment to support future growth. We expect Q2 growth to be slower as we work on expanding our geographic coverage and partnerships and capabilities in anticipation of the second half of the year when the growth picks up again. Case in point, in the first half of the year, we are not deploying additional sidewalk robots beyond the 2,000 that are already in the fleet. Our focus is on operational growth and efficiency instead. That is getting the full delivery fleet running daily and improving utilization by activating more merchants as well as integrating more delivery platforms and expanding into new cities and neighborhoods. That is the worst that's in front of us now, and we expect it to drive significant growth over the course of the year, in line with our $26 million revenue guidance for 2026. Our health care business, Diligent Robotics, we joined at the start of this year, is also performing in line with the plan that we laid out at announcement. The combined company is generating revenue and momentum across 2 distinct domains as we build toward a single autonomy platform. Since this is the first quarter Diligent is reflected in our results, I want to spend a moment on that business. Since closing, I spent a lot of time with Andrea and the Diligent team. A few observations that stand out. First, the team is excellent. They have long-standing experience operating in some of the most demanding environments in robotics, and they're also already teaching us a lot about indoor environments. Second, the financials are in line with the plan that we laid out and the hospital pipeline for new business is healthy. Finally, Diligent continues to operate and grow, and I'm excited about the possibilities that are ahead. First, to bring our technology to more hospitals and over time, to extend it to additional indoor and outdoor environments. Now looking at the overall business again. The combination of our sidewalk and health care operations now gives us a footprint across 44 cities in 14 states with nearly 2 million deliveries completed across these domains. That is a meaningful expansion from where we ended 2025. The growth came from 3 sources: new autonomous delivery markets that went live, including Buckhead, Fort Lauderdale and Alexandria, which we previewed previously; the hospital networks that came in with diligence; and continued expansion in our existing markets. I also want to say a word about safety. Our robots share space with people every day and earning the right to operate in those spaces is the foundation everything else is built on. To put the scale in perspective, during our operating hours each day, our robots collectively travel a distance greater than walking from New York to Los Angeles. That's every single day. And they do that with a stellar safety record. Our robots have orders of magnitude less kinetic energy than cars. And to date, we've never had an incident resulting in a serious injury or anything approaching one. Every delivery completed by one of our robots is a delivery not made by a car. That matters for cities, for pedestrians and for our mission of making cities we operate in safer and more pedestrian-friendly. We are holding ourselves to a very high standard of safety across all environments we operate in. So to sum up, in operating terms, Q1 was a strong proof point. We are running a scaled footprint, growing our revenue rapidly, improving margins, maintaining our reliability and safety records and expanding the markets that we are operating in. Stepping back and as we have discussed in previous calls, the foundation of everything we do is sales data and AI flywheel. Our fleet runs across more environments than anyone else in our category. The data those robots collect is richer than ever. The data trains better AI models, which makes every robot more capable. And as that suite becomes more capable, each robot can operate in more places and generate more value. Every robot will learn from every other robot even across different environments. We have discussed our long-term vision for a self-fleet reaching 1 million robots deployed globally across cities and hospitals and other complex environments where robots and people share space. Over time, robots will become embedded in the core fabric of how modern cities and economies function. On the path to 1 million robots, we are still early, but we are building the platform across more fronts and more domains and a broader footprint than ever before. That gives us a stronger foundation to create a platform for robots of many future forms and functions and to navigate safely and effectively around people as the industry advances. What we are building is genuinely hard, making one autonomy stack work across multiple physical environments at scale is one of the hardest problems in robotics today. We have always known this requires patience and persistence and rigorous execution. I'm really excited about the progress that we are making, and we'll keep sharing that progress with you every quarter. With that, I'll hand it over to Brian. Brian Read: Thank you, Ali. Good afternoon, everyone. Q1 was an important quarter for Surge. Revenue scaled meaningfully. We began integrating Diligent Robotics, and we continue to broaden ways we monetize the autonomy platform through fleet, software, branding, data and health care automation revenues. Our focus this year is straightforward: improve robot productivity, increase revenue per robot and per operating hour, grow recurring revenue and translate those operating improvements into a stronger financial model. Q1 showed continued progress as we scale. Serve is building a network of robots that can operate across multiple real-world use cases, including food and health care today with opportunities for package delivery, health care logistics and other commercial tasks. The common thread is simple, robots operating safely and reliably in complex human-centered environments. In Q1, our robot base continued to expand and our delivery network showed strong capacity growth. On an as-reported basis, daily active robots during the period was 812, up approximately 48% sequentially. Daily supply hours in the period averaged over 10,000, up approximately 54% sequentially. Those are strong capacity metrics, but the more important point is what comes next. Our objective is not simply to increase the number of robots in the field. Our objective is to convert every active robot in every supply hour into more revenue. We are managing this through specific levers within the environments we operate in, whether that is market-level density, partner integrations, merchant coverage, speed, operational productivity and most critically, the autonomy improvements that reduce human touch points. The integration of Diligent expands the same platform into health care, where robots operate in hospitals and support recurring customer workflows. It gives us another operating domain, another data source and a revenue profile that is more recurring in nature. Strategically, this strengthens the autonomy flywheel Ali discussed. Sidewalks and hospitals are different environments, but both require robots to navigate safely around people, adapt to real-world complexity and perform reliably at scale. Put simply, 2025 is about proving we could scale the fleet. 2026, the focus is converting that scale into stronger revenue per robot and better operating leverage across the platform. Total revenue for Q1 was approximately $3 million, up 238% sequentially and approximately 578% year-over-year. On a pro forma basis, including Diligent, Q1 revenue increased approximately 28% sequentially and 30% year-over-year. Fleet revenue was approximately $2 million and software revenue was approximately $1 million, continuing to demonstrate the attractive margin profile for software and platform-based revenue layered on top of the deployed robotics base. This remains an important proof point for the broader platform model. Q1 included approximately $1.4 million of recurring revenue with the remainder from usage-based, project-based and other nonrecurring revenue streams. The broader point is that Serve is no longer monetizing only food delivery. While that remains the primary growth engine, the revenue base now also includes branding, software, data and health care automation. This provides us more ways to monetize the same underlying autonomy stack and more levers to improve the long-term financial model. Gross loss for the quarter was approximately $9 million, and gross margin was negative 302%. That remains an investment-stage margin profile, but it improved materially from Q4 as revenue scaled and software revenue contributed positive gross margins. There are 2 different economic layers in the quarter. Fleet gross margin remained negative as we supported a substantially larger fleet, integrated our health care fleet and built the operating structure required for a multi-domain robotics platform. Software gross margin was positive, which highlights the benefit of layering software and platform revenue on top of the robotics base. We believe the path to an improved margin is clear and measurable, more revenue per robot and operating hour, better operational productivity and a greater mix of recurring software and platform revenue. This is why our focus this year has evolved. Total robot count is still relevant, but it is not sufficient. GAAP operating expenses were $42.8 million in Q1. Excluding stock-based compensation of $7.4 million and amortization and acquisition-related expense of $3.6 million, non-GAAP operating expenses were approximately $31.8 million. As expected, R&D remained our largest investment area. GAAP R&D expense was $19 million or approximately $15.5 million, excluding stock-based comp. This investment is directed towards autonomy development, AI model improvements, fleet softwares, data infrastructure and integration across our platforms. G&A expense was $15 million or approximately $8 million on a non-GAAP basis. Operations expense was $7 million or approximately $6.7 million on a non-GAAP basis. Sales and marketing expense was $1.9 million, approximately $1.7 million on a non-GAAP basis. Our discipline is not about underinvesting in the opportunity. It is about aligning investment with the operating milestones that matter, revenue quality, margin improvement and platform differentiation. Every dollar should strengthen the autonomy platform, improve our fleet productivity, expand our commercial reach or increase the durability of revenues. GAAP net loss for the quarter was $49 million or negative $0.65 per share. Non-GAAP net loss was $38 million or negative $0.50 per share. Net cash used in operating activities was $41.4 million, while investing cash outflows were $19.6 million, driven primarily by acquisition activity. Capital expenditures were approximately $1.4 million in the quarter. We ended the quarter with $197.4 million in cash and marketable securities. This liquidity position remains a strategic advantage. It gives us the ability to continue investing in autonomy and new market opportunities while maintaining discipline around the timing and scale of capital deployment. Turning to our outlook. We reiterate a total 2026 revenue guidance of $26 million. We continue to stay focused across the company with a priority to grow sustainable revenue quality and margin progression. We want to increase the mix of recurring revenue while continuing to bring down our unit costs through focused investments in autonomy and operational efficiencies. Accordingly, we maintain our previously communicated non-GAAP operating expense guidance of $160 million to $170 million during 2026. Let me close with this. Q1 was a quarter of integration and continued scale. On a reported basis, first quarter 2026 revenue was greater than our total 2025 annual revenues. Curve is building a robotics platform, not a single-use delivery fleet. The investments we are making today are designed to improve autonomy, expand monetization and compound the value of our proprietary data across domains. We believe this, in turn, will improve robot monetization, capitalizing on our early leadership in physical AI to create a durable operating and financial model. With that, we'll open the line for Q&A. Operator: [Operator Instructions] And your first question comes from the line of Colin Rusch of Oppenheimer. Colin Rusch: Guys, you talked about the cadence of delivery times and speed of delivery being a key lever for you guys. Can you talk a little bit about the cadence of improvement in autonomy and how much is coming from scheduling and how you see that evolving over the course of the balance of the year? Ali Kashani: Yes. Thanks for the question, Colin. This is Ali. We are improving a number of pieces, a lot of investments going into things like autonomy, which is a big factor because robots move faster than they are using their kind of capabilities and sensors to perceive the world than any other mode. The autonomy and speed basically going hand in hand. So as the robots become more capable, they can move more quickly. And that's one of the biggest areas of investment that we've continued to make from early days, but especially now. Colin Rusch: Okay. I'll follow up off-line. And then with the communications platform that you guys have built and put together, it's clear that you've got a differentiated capability there. Can you talk a little bit about your potential to monetize that capability outside of your own internal usage? Ali Kashani: Yes, that's already in progress. Hopefully, we'll have more to share about that soon, too. But there are a number of customers already using that service. For folks who are not familiar, one of the first pieces of software that we are commercializing in our robotic platform as a whole is the connectivity layer because having robots in the field in thousands that can reliably connect to the Internet so that they can share their data, but also receive support when they need it. It's a pretty important piece that pretty much every robotic and autonomy team or company needs. And we have a piece of technology that we believe is really superior to whatever is out there. So we have been commercializing that. There's investments made, and there will be more to share in the next few months. Operator: And your next question comes from the line of Alex (sic) [ Mike ] Latimore of Northland. Mike Latimore: Great quarter, guys. I just want to start from the top with some broad strokes here. Can you talk about demand as you're seeing it? Will the market still take pretty much as many robots as you can deliver? Anything there would be great. Ali Kashani: Alex, yes, again, I can take this. This, to me, feels like the closest thing to infinite TAM because it's such an expensive thing to move things in last mile right now. And we are seeing a lot of opportunities for new use cases or new customers that have never used the service. So we haven't really seen any constraint as far as demand goes. I think the parts of the problem that has to be solved as we scale has to do with policy and societal acceptance, obviously, building, deploying robots and getting it operationalized. Also integration into services that people use every day that takes effort and time. But as far as the TAM and the total kind of opportunity, I'm very bullish on that. Mike Latimore: Great. And then also now that you're moving towards optimization more trying to increase the daily revenue per robot, what are some of the key takeaways that you've learned just from going through head down on optimization flywheel here? And are there any notable changes given that experience? Ali Kashani: I guess I'm trying to understand the question. Do you want to maybe state that differently? Mike Latimore: Yes, yes. Just from focusing on optimization, I was wondering if there are any key learnings that you can take going forward towards incorporating new robots that you manufacture or just optimizing the rest of the fleet. Ali Kashani: So from an operational point of view, I mean, the learnings come every day. It's about where do you send a robot in the morning. It's about where do you send a robot after it completes the job. It's about what's the range of deliveries you accept because if you accept longer deliveries, that means the robot is spending more time on that delivery. So you need to always kind of balance what's the distance of jobs that you accept and where do you put the limit on that. So there's a lot of interesting variables that are actually very market dependent. And as we go to new markets, we basically have to customize that per market and sometimes even per neighborhood. So I wouldn't say there's anything really large as a learning because we've been out in the market for 7 years or something doing deliveries. It's mostly kind of ongoing learnings and then enabling the platform to do those customizations, so we can make neighborhood-based adjustments. Mike Latimore: Awesome. And then just one more quick one. As you're looking to add robots in the second half, is it mainly going to be current city expansions or through adding new cities? Ali Kashani: Yes, that's a really good question. So we are looking at basically both in the markets we are, but also in new cities and even international. So we are exploring all of them. For example, just last night, City of Vancouver in Canada approved the motion to enable the robots to deploy there in a pilot. That's not a done deal yet. We still have to work with them in the province, but it's very exciting. It would be the very first such deployments in Canada. So we are very actively working on unlocking these new markets and new cities, including some international auctions. And then as any of them firm up, we would obviously make announcements. Operator: [Operator Instructions] And your next question comes from the line of Taylor Manley of Guggenheim. William Taylor Manley: Kind of expanding on that. So you mentioned Vancouver, which is very exciting. More generally, there are some markets that you are in that kind of have established regulatory frameworks such as Los Angeles? Kind of on the flip side, you've highlighted ambitions to enter cities where AV delivery doesn't exist like New York. So kind of how does regulation inform your thinking on which markets to expand to or not, if at all? Ali Kashani: Yes, it absolutely does. Our thinking is if you look at, again, the broader size of the opportunity, there's a lot of places to go and a lot of options to choose from. So we don't need to force ourselves anyway. We want to go to places that are receptive. There are really 3 kind of legs of the stool. You have the permit to operate. You have the demand, say, partners and platforms that we are working with. And then, of course, you have our operational side. We are pretty good at getting our operational set up in a new city. So the other 2 variable is what we focus on to open a new market, which is, are they receptive? Is this a place we want to be? Do they have a framework? Do we need to help them develop it? So there are a lot of investments we are making to kind of create a strong pipeline of markets. And again, that includes both in the U.S. and international. And then at the same time, working with platforms, including new platforms besides Uber and DoorDash, to access the demand in those markets. So these are all investments that we are making simultaneously. William Taylor Manley: Helpful. And then second, any insight on how to think about kind of revenue contribution from fleet services versus software services for the balance of the year? Obviously, software services was pretty strong in the first quarter. So just anything -- should we expect kind of similar mix or any changes there moving forward? Brian Read: Yes. Taylor, this is Brian. So yes, we had a really strong Q1 with respect to software services. And I think we're going to continue to invest in some of those opportunities. In the back half of the year, as we continue to scale up with the revenue per robot per supply hour focus, I think we're going to see more growth on the fleet side. Obviously, we're not going to give guidance with respect to fleet versus software, reiterating and anchoring on the $26 million overall is the objective and monetizing those robots the best we can is our first focus. Operator: And your next question comes from the line of Jeff Cohen of Ladenburg Thalmann. Unknown Analyst: This is [ Destiny ] on for Jeff. I was wondering if we could talk a bit about Moxie and the hospital segment in general. Can you just talk about how you plan on maximizing revenue per hospital or robot and then how that may contribute to the top line and the cadence of how that will contribute to the top line going forward? Ali Kashani: Yes, happy to. There's a number of, again, parts to this. So if you think about it very first principle, the main question is how much are the robots helping the staff in the hospital. So we have very explicit KPIs that we track to make sure that not only are we doing enough, we are improving and increasing the number of tasks and really deliveries that these robots complete, and that's trending always in a good way. And then, of course, as we do that, we can continue to work on the pricing with the hospital networks that we are working with. Often, what we like to do is increase the number of robots because the more productive they are, the more they can support the staff in different ways. So one of the ways to maximize that revenue is to actually increase the fleet size. Brian Read: And Destiny, this is Brian. Just to add on to that. I think to Ali's last point of increasing the fleet size, I think that's an opportunity we have for the remainder of 2026 to support the diligent efforts of the team through additional robots and thus ensuring we can grow that top line throughout the rest of the year. Unknown Analyst: Okay. Perfect. And then one more for me. You've been very successful with M&A over the last several months. I'm wondering if you could hypothesize on what other verticals you think your autonomy stack would be suitable for, but recognizing that you've been clear that you're focused on optimization, not necessarily expanding into other verticals, just theoretically. Ali Kashani: Yes. No, I appreciate that you calling that out. So we, even in the past, haven't been kind of proactively trying to look for expansion. It's been that we are very conscious of where the market is right now. A lot of investment on the private capital side has been made into various sectors in robotics. And right now, it's a very good time for consolidation. So we've been opportunistic, and we found some really amazing opportunities, obviously, Diligent being one of them. So if you want to look at it more broadly, it's really anywhere where robots and humans have to coexist in an environment, but you don't really have control to limit that environment in any way for the robots. For example, in a warehouse, you have a lot of control over the environment, you can tell people how to behave next to the robots because they're all your employees, but in a shopping mall, you don't have that choice; at an airport, you don't have that choice; on a sidewalk, in a hospital. So I would say actually most environments that we are in would classify as that. So any place where robots can help, whether they're moving things or monitoring things or just accessing in general would be a good place for this. And we'll keep our ears to the ground and when good opportunities show up, we'll react. Operator: [Operator Instructions] And there are no further questions over the audio. I would like to turn the call back over to Steve for any e-mail questions. Steve Webb: Yes. Thank you. We have one e-mail question, which is, what is the status of DoorDash? What's your relationship with DoorDash? Ali Kashani: I can take that one. So a lot of great progress there. Our delivery volume with DoorDash has been growing faster than other partners. It's been about 6x in terms of merchant count just since the beginning of this year. So we are seeing really good momentum, and we are going to continue to build on that momentum. Steve Webb: And that wraps it up. Thank you, everyone. Operator: That concludes our session for today, ladies and gentlemen. Thank you, everyone, for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to Excelerate Energy's First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Craig Hicks, Vice President, Investor Relations and Strategy. Please go ahead. Craig Hicks: Good morning, and thank you for joining Excelerate Energy's First Quarter 2026 Earnings Call. Joining me today are Steven Kobos, President and CEO; and Dana Armstrong, Chief Financial Officer. Also joining the call are Oliver Simpson, Chief Commercial Officer; and David Liner, Chief Operating Officer. Our first quarter earnings press release and presentation were published yesterday afternoon and are available on our website at ir.excelerateenergy.com. Before we begin, please note that today's discussion will include forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially. We undertake no obligation to update these statements. We'll also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found at the end of the presentation. With that, it is my pleasure to pass the call over to Steven Kobos. Steven Kobos: Good morning, everyone, and thank you for joining us today. Before I get into the quarter, I want to take a moment to acknowledge something that goes beyond the financials. We have employees, seafarers and partners operating in and around the Arabian Gulf. Our thoughts and prayers are with them and with their families during what is a difficult and uncertain time. The safety of our people is always our top priority, and I want them to know that they have our full support. Against that backdrop, I am proud of how Excelerate performed this quarter. We delivered $122 million of adjusted EBITDA and achieved a 99.8% reliability rate across our asset portfolio. Those results reflect the strength of our contracted asset portfolio and the dedication of the teams who operate them every day. This strong performance is a direct result of how we built this business. Excelerate is a global LNG and power infrastructure company. We own and operate assets that deliver reliable downstream LNG and power solutions to countries who depend on us for their energy security. That responsibility is central to how we operate, how we invest and how we manage risk. Our operations span 4 continents, and that geographic reach translates directly into revenue and earnings diversification. It is a core reason we are able to perform across market cycles and limit the financial impact of regional disruptions. As the global energy landscape grows more complex, the ability to deliver energy safely and without interruption matters even more. That brings me to the macro environment, which provides an important context for today's discussion. As we've highlighted previously, the global LNG market is moving into a period of meaningful and sustained supply growth. Despite recent geopolitical events, approximately 200 million tons of new LNG supply will still come online between now and the end of the decade. The conflict in the Middle East is accelerating the push for greater geographic diversification of supply. This will result in even more LNG volumes reaching the market. Those volumes will only intensify the need for more regasification capacity. In recent weeks, we've heard commentary around pricing dynamics, potential project delays and market hesitation in certain regions. While those near-term dynamics are real, they should be evaluated separately from the structural need for regasification as new supply enters the market. The fact is long-term contracted LNG pricing has been and remains affordable. That is why many of the countries and markets we are targeting continue to turn to LNG as a fuel source. In this environment, Excelerate's role is clear. We provide the downstream infrastructure that connects new supply to the customers who need it most, and we do it under contract with assets we own and operate. That's the structural backdrop. Now let me walk you through how it is showing up in our operations. I'll start with the Middle East. Since the conflict began, our focus has been on the elements of the business within our direct control. We optimized our asset portfolio to protect earnings, maintain operational continuity and demonstrate the rigor our customers and investors expect. Our terminal services operations performed as we expected, and we saw limited financial impact during the quarter, in large part due to the quality of our contracts and the nature of the services we provide. The two FSRUs operating in the UAE, the Explorer and the Express are fully operational and our crews are safe. We are proud to support Dubai, Abu Dhabi and the broader UAE as a component of their energy infrastructure for more than a decade. Turning to our LNG supply agreements. In March, as a result of the conflict, we received a Force Majeure notice from QatarEnergy related to our supply agreement. We subsequently issued a corresponding FM notice to Petrobangla, our customer in Bangladesh. These agreements are structured on a back-to-back basis with delivery obligations aligned to supply commitments and supported by contractual FM protections. This structure is allowing us to manage the current disruption in an orderly way. Based on our current assessment, we expect the financial impact to be approximately $1 million per month while the Strait of Hormuz remains closed. Our commitment to the region extends beyond the UAE. Let me update you on the Iraq terminal. The fundamentals supporting this project have not changed. Iraq faces chronic power shortages and limited domestic gas processing capacity. These structural deficits are not going away. The need for scalable gas import infrastructure is as real today as it was when we signed the contract in Q4 '25. Current conditions have only heightened that need. Our customer shares the same view, and we are committed to working with them on the best path forward. What has changed is the near-term path to startup. The conflict in the Middle East has created logistical constraints that have delayed jetty reinforcement and construction of the fixed terminal infrastructure. As a result, we no longer expect the terminal to commence operations in Q3 '26 as we previously disclosed. Project startup is now expected in '27. This is a shift in timing, not a cancellation. The contract is structured as a 60-month agreement that begins once operations commence. We are taking a measured safety-first approach with construction resuming as conditions allow. Once underway, we expect approximately 6 months before operations begin. We are managing this project for the long term and remain confident in the opportunity. With the Iraq project now delayed, we have been evaluating opportunities to optimize the Excelerate Acadia, our newbuild FSRU in the near term. In early April, the Acadia was delivered successfully from Hyundai Heavy Industries. This week, we executed a 9-month time charter party agreement with Jordan's National Electric Power Company or NEPCO to deploy the Acadia to the country's existing LNG import terminal in Aqaba. The Acadia is expected to commence operations in Jordan by mid-'26, and the deal will generate roughly $20 million of adjusted EBITDA this year. The interim deployment enhances Jordan's energy security by providing additional regasification capacity and generates incremental earnings. It does this while we continue to advance the Iraq integrated import terminal. It also underscores the continued demand for our assets and the commercial resilience of our business, even amid broader regional disruption. Now let me turn to Jamaica, where our integrated platform continues to deliver. A year ago this month, we added the integrated LNG power platform in Jamaica to our asset portfolio. Jamaica is a core component of our business and one of the strongest proof points of Excelerate's strategy. In the first quarter, the Jamaica platform delivered reliability of 99%. That consistency underpins the contracted cash flows that have contributed meaningfully to our overall growth. Beyond operations, we are making commercial progress on the island. Gas volumes are growing through new customer agreements and incremental sales to existing customers. We are pleased to be a partner with the Jamaican government and look forward to advancing new opportunities in Jamaica and throughout the Caribbean. The financials this quarter reflect the operating momentum I've described. Next, Dana will take you through the numbers, our capital priorities and the updated outlook. Dana? Dana Armstrong: Thanks, Steven, and good morning, everyone. Excelerate delivered solid financial results for the first quarter. We reported net income of $50 million, a sequential increase of $11 million or up 28% as compared to the fourth quarter of 2025. Adjusted EBITDA for the first quarter was $122 million, up roughly $10 million or up about 9% versus the prior quarter. The net income and adjusted EBITDA increases were driven primarily by vessel optimization and higher LNG gas and power margins. Adjusted EBITDA increased compared to the first quarter of last year due to an increase in LNG gas and power margins, mostly driven by the impact from the Jamaica acquisition. For the first quarter, maintenance CapEx was $8 million and committed growth capital was $17 million. Now let's turn to our balance sheet. As of March 31, 2026, total debt, including finance leases, was $1.3 billion with $540 million of cash and cash equivalents on hand. The full $500 million of capacity under our revolver was available as of quarter end. Net debt was $714 million and trailing net leverage was 1.5x. From a capital allocation perspective, our priorities are unchanged. We are focused on investing in accretive growth while delivering consistent shareholder returns through dividends and opportunistic share repurchases. Last week, the Board approved a quarterly dividend of $0.08 per share or $0.32 per share annualized payable on June 4, 2026. In December 2025, our Board authorized a $75 million share repurchase program, providing added flexibility to return capital while continuing to invest in our growth priorities. During the first quarter, we repurchased roughly 148,000 shares or just over $5 million of our Class A common stock at a weighted average price of $34.07 per share. With that capital framework in mind, let me walk through our updated financial outlook for the year. We have revised our full year 2026 adjusted EBITDA and committed growth capital guidance to reflect the delayed start-up of the integrated Iraq LNG import terminal. As Steven described, this is a timing shift driven by the Middle East conflict. We continue to view Iraq as an attractive opportunity and construction will resume as soon as conditions allow. Adjusted EBITDA for the full year is now expected to range between $480 million and $510 million. Consistent with that shift, we now expect 2026 committed growth capital to range between $270 million and $300 million, reflecting the deferral of certain Iraq-related construction activity into 2027. To be clear, this revised committed growth capital guidance does not yet include costs associated with our FSRU conversion. Negotiations for the conversion work are ongoing. We have signed a letter of intent with the Seatrium Shipyard in Singapore, and we'll provide additional updates once final contracts with the shipyard are executed. Our 2026 maintenance CapEx guidance is unchanged at $100 million to $110 million. With respect to dry dock timing, we continue to refine schedules through close coordination with our customers to identify the most efficient and least disruptive maintenance windows. Our current plan assumes that the Express will proceed with its scheduled dry dock at the end of its current contract in the third quarter of this year. Once that work is completed, we expect the Express will redeploy to Pakistan to substitute for the Exquisite, which is now anticipated to enter dry dock in the fourth quarter of this year. This updated outlook reflects careful planning, solid underlying fundamentals and a continued focus on building durable contracted earnings. Looking beyond 2026, the growth path through 2028 remains intact. On our February call, we outlined a framework for sequenced earnings growth through 2028, supported by a defined set of executable initiatives. While the Iraq start-up has shifted due to external factors, we maintain visibility to growth through actions within our control. First, the Express is expected to be redelivered at the expiration of its current contract. We have high confidence in redeploying that vessel at improved economics, which we expect to support incremental EBITDA in 2027. Second, our planned FSRU conversion provides an additional source of earnings growth in 2028, following completion of the conversion and commercial deployment of that vessel. This represents the next major capital deployment after Iraq and supports continued earnings expansion. Third, as Steven discussed, we are focused on driving additional growth through a range of scalable LNG solutions, including in Jamaica and the Caribbean and throughout the rest of the world. Together, these initiatives provide a sequenced pathway to extend growth through 2028 and beyond. With that, let's open up the line for questions. Operator: [Operator Instructions] And our first question comes from the line of Elias Jossen with JPMorgan. Elias Jossen: Just wanted to start on the supply portfolio and think about how you guys are approaching diversification going forward. Obviously, the Qatar situation is ongoing and developing, and I think you laid it out well in your opening remarks. But how should we think about your overall strategy to ensure supply in the longer term? And what options do you have there? Steven Kobos: It's Steven. Let me jump into that. First, we like to give customers what our customers want to receive. So, some of those don't want to make it too simple. It's going to be reactive in terms of what our customers want to have their portfolio deliveries look like. Now remember, of course, we're talking about the component of LNG that we control. That's largely the integrated projects, the Iraq's when it comes online and of course, the 1 million tonnes into Bangladesh and some of the Caribbean growth. The vast majority of our earnings and our revenue, as you know, are simply the capacity payments of our infrastructure through which that unfolds. But I feel like we have good diversification already. We have from different continents, we haven't gotten into it in complete detail, but we have 4 contracts coming from divergent locations. So, I think we've done a good job so far in building up geographic diversity. Kudos to Oliver's team for that. And I think we will continue to do that, but being sensible to geographical time lines as well. So, we are taking it into account already, and we will continue to take it into account. So, I think what I want to emphasize, Eli, is what we've always said. We're pretty boring about this. We like to buy and sell on the same index. You don't see us taking commodity risks. We're determined to be that sort of boring infra provider that integrates molecules. Elias Jossen: Yes. That's helpful color. And then maybe thinking about sort of the increased capital allocation and optionality there. Obviously, you have a really strong growth platform in Jamaica, and this is a temporary sort of situation. So, as the cash and overall flexibility builds, what should we think about as kind of the key growth priorities this year and heading into next year? And what else might we see sanctioned on the growth front? Steven Kobos: I have a little bit of color since you mentioned Jamaica, Eli just had a very grateful for U.S. Embassy in Kingston, just hosted Excelerate for a big reception there last week for all of the Jamaica business leaders and for the Jamaican government. And then we had our Board of Directors visit our facilities there. Very proud of that platform, looking for great things from it. I would say that our view on what we've outlined for CapEx requirements in the Caribbean that we're expecting, remains intact from what we've guided you all to before. It's somewhat opportunistic. We're already seeing increased sales of gas, new customers, increased gas sales in Jamaica, but we also want, obviously, to be expanding throughout the Caribbean, adding more spokes to that hub, and we're eager to be doing that. We are doing some of that. If they're too small, we probably won't bring it to anyone's attention. When they're larger ones, we'll announce them as they write them. Operator: And our next question comes from the line of Chris Robertson with Deutsche Bank. Christopher Robertson: Yes. Maybe to start with just following up on the conversion project here. I know Dana mentioned kind of the time line and CapEx devoted to it and some discussions there. But just thinking about it in terms of any commercial discussions or plans regarding more integrated type project, given the current volatility in the Mid East, how are you thinking about where to potentially look for a subsequent integrated project or to deploy that asset? I know it's maybe a couple of years off here, but just has anything changed in your mind about how you're strategically thinking about positioning the asset given the current situation? Steven Kobos: Yes. Let me, this is Steven, Chris. Thanks for the question. I would say first point is, no, our strategic priorities haven't changed. The markets we like before the conflict, we still like. This is a near-term supply disruption. It is not demand destruction. So the first thing I would say is we're not pivoting from where we were out there with hunting license before the war. We continue to be in the same markets. Second thing I would say is that you will have seen with the announcement of the Iraq project and with the Jordan Charter yesterday and today, that was the first anybody heard about it. We have a number of opportunities we're pursuing in the pipeline, but you should expect moving forward, that will probably be the cadence. You will hear about them when we are announcing them. That's just the best way to commercially approach these things. So we're looking on every continent, I assure you, we're looking throughout the Caribbean, and we continue to be focused on those markets that we've highlighted before, such as South Asia and East Asia. Operator: And our next question comes from the line of Craig Shere with Tuohy. Craig Shere: So on the Jamaica and Eli's question, I think you had mentioned, Steven, that you're already seeing some organic upside on the island. And there was kind of a bifurcation that maybe wasn't laid out explicitly as well about the growth opportunity in Jamaica with some incredibly low-hanging fruit with capacity utilization upside that really doesn't involve a lot of CapEx and could at least be notable in terms of EBITDA driver, combined with a larger CapEx opportunity that is accretive that could hit by decade end. Could you elaborate on the cadence of this and opportunity set, what might come even before we see tens of millions of dollars of investment? Steven Kobos: Craig, I'm going to pass that to Oliver. I would, I don't know if I ever said very low-hanging fruit. And that sounds like the mango is actually on the ground instead of just being; look, we are seeing some early, and that's the point, Craig. If it's de minimis CapEx, it's just going to show up in performance over time, likely later in '26 on some of these. But let me hand it to Oliver. I don't think we're going to change our view on cadence of how the Caribbean unfolds. Oliver Simpson: Yes. Thanks, Craig. And yes, I think the bifurcation you speak to is correct, right? There's opportunities using the platform that we have today and some that we've been able to capitalize on already and continuing to look at those. I think when you think of the timing of those, it's really around, as this LNG wave comes on in the U.S., I'd expect to see a good correlation to the LNG coming on to some of these opportunities as the affordability of that long-term supply is able to displace the fuels in some of these markets in the region. I think some of the higher, sort of higher CapEx is also, I mean, obviously, we continue to look at that. We continue to be confident that those opportunities are the most affordable and most, sort of economical solutions for the markets we're looking at. And likely, those are shifting probably towards the later end of the scale. But we feel confident that over the period, you've got those, you've got some good opportunities in the near term and that will build, move us into some of those higher CapEx opportunities on the back end of that range. Craig Shere: And maybe I could also follow up on Craig's question. I think you were talking about the FSRU conversion opportunity there. But you've talked about both the opportunity to redeploy Express in 2027 and the potential Shenandoah conversion into 2028. And both those opportunities or asset redeployments potentially supporting entirely new downstream opportunities. And over time, you have mentioned a few of those from Vietnam to Bangladesh and beyond. So I guess my question is and you said, Steve, you're not going to give any more color until you actually have something commercial to announce. But is it unreasonable to think that the redeployment of these assets into '27 and '28 could combine into tens of millions of dollars of EBITDA run rate upside? Steven Kobos: That's not unreasonable at all, Chris. This is Steven. I mean what I would say is, as we've told you, we're going to evaluate there are a lot of things you look to with your counterparty, and we're not going to dictate what the customer should want or want. We want to be a good partner for the long term. We want to be a reliable partner. And it's going to, some deals will continue to be our, I don't even like to say legacy, but just our capacity type business. Some will be integrated if we can integrate it on a predictable basis where the addition of the molecule has a payment performance that looks like our infra. So, we're going to be both and we're not going to be hidebound and just have one approach to the world. mean we feel strongly that the future of LNG is regas, regas capacity. There aren't enough of it. We are among the only ones focused on it, and it is critical for dealing with this. So, there is opportunity. There's going to continue to be opportunity. I think what you're seeing with our announcements, and I don't wish to be coy at all, but we've got teams around the world working on that pipeline. Opportunities are staggered. I'm confident that we're going to continue to have sustained growth, as Dana mentioned, sequence growth through '28. It remains intact. And I possibly have never felt better about the market, the future of regas, the future of Excelerate than we do at this moment. Operator: And our next question comes from the line of Bobby Brooks with Northland Capital Markets. Robert Brooks: I thought it was pretty impressive how quickly you recontracted the FSRU Acadia on that 9-month deployment in Jordan. And I think it should really remind investors of the flexibilities of these asset class. What I was curious to hear more on was sort of how quickly the conversations went from, 'okay, this Iraqi terminal is going to be delayed. Let's look and see if we can deploy the Acadia somewhere short term to actually getting that Jordan deal signed. ' Steven Kobos: Bobby, this is Steven. If our regional teams haven't been reaching out to everyone around the world every quarter, and just sharing ideas and talking with them, so they're aware of what the opportunities are, I'd be very disappointed. So, I suspect if you drill into it, the relationship and the contact has been going on for years. We just needed to activate that. So that's the virtue of having these regional teams, having the experience around the world, not being somebody who's a one-off or a 2-off. You've built the knowledge of each region and what might come up. And you point out something great, Bobby. These are floating assets. They are redeployable. They can be flexible. You can take advantage of this. If you're building a power plant somewhere in some continent and you get a slowdown, it's not like you're going to float that somewhere else. So, we love this asset class. This is partly why our investors should feel comfortable, we believe, in our ability to take advantage of the TAM that's out there in front of us. Robert Brooks: Awesome to hear. And it was also exciting to hear the new customer agreements and growing sales to existing customers in Jamaica. Just was hoping to get a little more context of how much of an increase is that and maybe how much more opportunities you see to do more of that? And maybe just how infrastructure expansions in Jamaica would look like versus through the broader Caribbean? Oliver Simpson: Bobby, this is Oliver. I'll take that one. So, we haven't spoken specifically to the volume increase. And I think as Steven mentioned earlier, you'll sort of see that aggregation come through in sort of plan as we sort of give guidance on this. But we've seen, I think, some of the near-term gains or near-term increases have been in the Jamaican market. I think we've talked about before on the small-scale side through the trucking, it's pretty easy to just deliver incremental volumes through the platform that we have. So that's something that we continue to look at. We've got the team on the ground, knocking on the doors, chasing those opportunities, and we continue to see the growth there just that will happen just organically over the coming months and years on that. And then sort of more broadly in the region, it's really using the Jamaica platform. We've got the, the FSRU in Jamaica is a big storage tank in the Caribbean that we can use to then reach the other markets, the spokes that we have, we've spoken about. The nature of how that can be, I mean, that could be through ISO tank deliveries. It could be using the small-scale vessel we have to make deliveries to other sort of small-scale assets that we develop in the Caribbean. So, I think we're, ultimately, we're agnostic to the technology. It's all about how we get that demand, how we build up that demand. And with our technical solutions, I think we've got a wide array to meet the different needs of the different markets. I think as Steven said that we want to give the customers what they want as an energy solution. And I think that also applies to the technology solutions. It's different for each different island in the Caribbean. Operator: And our next question comes from the line of Wade Suki with Capital One. Wade Suki: Just quickly, just a housekeeping item, just so I'm clear on the timing here. I think I heard you say the Express will be in dry dock in the third quarter, then moving to Pakistan in the fourth quarter with the Exquisite going into dry dock. Is that right? David Liner: Wade, this is David. Yes, that's correct. We expect, our current plan is for Express to go into dry dock at the end of the third quarter and then have a replacement for Exquisite when she comes out in around fourth quarter. Wade Suki: Got it. Got it. Okay. Great. And just maybe just to dovetail off Bobby's question, I think. Just thinking about the longer-term solution in Jordan, is that a possible, I know you guys don't necessarily like to speak to specific commercial opportunity, but is there an opportunity longer term in Jordan for the Express possibly after the Acadia moves on? Steven Kobos: Wade, this is Steven. I would say once people get LNG once, and look, Jordan's had LNG for 10 years. They had 12 cargoes last year, 10 of those came from the U.S. I think they'll reach even more markets from there. And a lot of respect for what they've done. We would certainly love to be part of that. We love people who already have access to LNG because we know that people that have access to LNG inevitably want more LNG. Operator: And our next question comes from the line of Zack Van Everen with TPH. Zackery Van Everen: Maybe just following up on some of the time lines asked on the last question. With the Acadia deal starting midyear and being a 9-month contract, and then I believe you said once activity starts back up in Iraq, it will be about 6 months. If the Iraq project were to start up again in June and completed by the end of this year, could you use the Express or other flexibility to start that project? Or would you have to wait for the Acadia to complete its agreement in Jordan? Steven Kobos: Zack, this is Steven. Man, you mentioned this very possibility last earnings cycle. And yes, I took that to heart, I have been thinking about it. I mean you have a keen insight. These are floating assets. We routinely bridge with one asset to another asset. So, I can't speak to what we're going to do here, but we routinely take advantage of the flexibility of having an asset that can float and can be redeployed. So, what I can tell you is we'll be able and we intend to serve Iraq as soon as we can stand it up. But we can't guide not knowing what the conditions are, I don't intend for us to be any more clear than Dana's in my comments that start-up would be in '27. Zackery Van Everen: Got you. No, that's super helpful. And then maybe just a macro question. I know you guys mentioned the 200 million tons coming online between now and 2030. We're in that same ballpark. I'm curious where you guys stand on the global demand side. I know historically and just with your asset base, you do benefit from lower prices just with some of the markets that are more price sensitive. But do you guys have a view on the demand supply mismatch coming into the end of the decade? Steven Kobos: I mean, Zack, that's why I'm telling everybody, we're telling everyone the future of LNG is regas. like this is supply disruption. This is not demand destruction. I mean what's TTF right now, $15 or something with 20% of the global LNG offline. This isn't what you saw in '22. This is a disruption of supply. Long-term contracted LNG is affordable. It remains affordable. I think you're going to see that movement that went to long-term contracted supply continue. There may be some geographic diversification riders that people want on top of that. But we think that the supply and the wave justifies the company we've built with the balance sheet, which can integrate a molecule because we know people are going to want this, and they're going to want it on as easy and as quick a basis as possible. And that's the company that we've built at Excelerate. Operator: And there are no further questions at this time. I will now turn the call back over to Mr. Steven Kobos for closing remarks. Steven Kobos: Thank you all for joining us today. As I just said, there is and will continue to be an enormous need for the growth of regas capacity around the world. That's why we know that the future of LNG is regas and Excelerate is the global leader. Operator: Thank you. This concludes today's call. We thank you for attending. You may now disconnect.
Operator: Good day, and welcome to the RingCentral First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I'd now like to turn the conference over to Al Petrie, Investor Relations for Ring Energy. Please go ahead. Al Petrie: Good afternoon, and welcome to RingCentral's First Quarter 2026 Conference Call. Joining me today are Vlad Shmunis, Founder, Chairman and CEO; Kira Makagon, President and COO; and Vaibhav Agarwal, CFO. Our remarks today include forward-looking statements regarding the company's business operations, financial performance and outlook. These statements are subject to risks and uncertainties, some of which are beyond our control and are not guarantees of future performance. Actual results may differ materially from our forward-looking statements, and we undertake no obligation to update these statements after this call. If the call is replayed after today, the information presented may not contain current or accurate information. For a complete discussion of the risks and uncertainties related to our business, please refer to the information contained in our filings with the Securities and Exchange Commission as well as today's earnings release. Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons. A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide presentation, which you can find under the Financial Results section at ir.ringcentral.com. With that, I'll turn the call over to Vlad. Vladimir Shmunis: Good afternoon, and thank you for joining us. We are off to a strong start to the year as we delivered another solid quarter with total revenue at the high end of our guidance. Importantly, we are also making meaningful progress in the quality of our operating model. We delivered record GAAP and non-GAAP operating margins, reduced stock-based compensation, paid down debt and returned capital to shareholders, including our first ever dividend. These are important milestones and reflect the business that is becoming more efficient, more profitable and more durable over time. As to free cash flows, we now expect approximately $600 million of free cash flow this year, which is approaching $7 per share that we believe is among the best in our peer group. Moving forward, we plan to continue to reduce SBC with a path towards our medium-term target of 3% to 4% of revenue. And we are steadily building toward our goal of 20% GAAP operating margin in the next 3 to 4 years. Our strong financial performance is rooted in operational discipline that is underpinned by our unwavering commitment to innovation and a strong competitive position. As one of the original cloud-native SaaS providers, we revolutionized customer communications by taking it from on-prem legacy infrastructure to the multi-tenant cloud. On the strength of that innovation, we've built a $2.7 billion ARR business that is growing, generating a healthy amount of cash and is returning value to shareholders in a meaningful way. RingCentral's original success was rooted in the convergence of broadband, mobility and cloud computing. We leveraged these megatrends to transform how hundreds of thousands of businesses and millions of users worldwide communicate with their customers. Today, we're at the start of an even bigger innovation namely AI, and specifically the rise of agentic voice AI. AI builds on top of all the world-class assets that RingCentral has created over the years. It plays directly to our strengths. With our robust platform, massive amounts of rich data, omnichannel communication capabilities and global GTM and innovation at scale, we are well positioned to leverage AI as a key driver of our long-term growth and profitability. While agentic AI is very powerful and will be transformational to how businesses interact with consumers, our core belief is that it won't replace all humans. AI can and will do a lot and it will make remaining humans in the loop more effective. RingCentral's secret sauce is to deliver agentic voice AI experiences at every stage of consumer-to-business interactions, while enabling businesses to get human agents involved at the right time. RingCentral's differentiated approach is to make both AI agents and human agents smarter by working together seamlessly, resulting in better customer outcomes and greater cost efficiencies. This hybrid human-in-the-loop model is where RingCentral excels. More specifically, our ability to orchestrate AI and human interactions at scale on a single platform across voice, text and video and do this at a global scale with industry-leading reliability, security and quality of service. This is our structural advantage and a defensible competitive moat. RingCentral processes tens of billions of minutes and billions of calls and messages each year. As the front door to consumer to business interactions at scale, we are uniquely positioned to deploy AI across every stage of the journey before, during and after human involvement. We offer a modern end-to-end customer engagement platform spanning all consumer-to-business interactions. Our portfolio includes RingEX for Cloud PBX, RingCX and RingCentral Workforce Engagement Management or RingWEM for full features contact centers, and our recently introduced Customer Engagement Bundle or CEB for informal contact center capabilities. We embed agentic voice AI across our entire platform. Our agentic voice AI portfolio or RCAI is currently comprised of AI receptionist or AIR and AIR Pro, which automate customer interactions from the get-go; AI Virtual Assistant or AVA, which assist the human agent in real time; and AI Conversation Experts or ACE, for deep conversational analysis and coaching. Overall, we are good at helping businesses connect with more customers, resolve issues faster and more cost effectively, capture more leads and make remaining human agents more effective. Adoption of our AI product portfolio is strong. Customers using our AI adopt more products, spend more with us and stay longer, driving higher ARPU and net retention well above 100%. ARR from customers who utilize at least one of our [ Ring ] AI products, which we refer to as our key AI utilizing customers, has more than doubled year-over-year and is growing in double digits sequentially with favorable ARPU and retention metrics. Kira and Vaibhav will provide more details. In summary, I'd like to leave you with these 4 takeaways. First, RingCentral has a deep and defensible moat in an expanding market. We have built a carrier-grade communications platform with the scale, reliability and trust required for mission-critical customer interactions. As AI expands the scope of customer engagement, we believe that our market opportunity is only getting larger, and we are uniquely positioned to capture it. We are currently investing over $0.25 billion per year in innovation with a meaningful and increasing portion dedicated to RCAI. This is another sustainable competitive advantage, and we're confident in our ability to keep investing in innovation while continuing to further improve our operating metrics moving forward. Second, we are at the front door and top of the funnel for consumer-to-business communications. We sit where interactions begin, where customer intent is first expressed and where routing and resolution decisions are made. This gives us access to the real-time context and workflow intelligence that are increasingly valuable in the AI era. Third, we have a complete customer engagement platform powered by RCAI. This allows us to bring together AI agents and human agents on a single platform across voice, messaging and video. This is delivering real value for customers, and we are already seeing solid early adoption, growing monetization, higher ARPU and strong retention across our RCAI utilizing customer base. Important to note is that all of our RCAI and customer engagement products are fully owned by RingCentral with attendant benefits to control over the road map, time to market and owner economics. We believe this to be another important competitive moat. And fourth, we're delivering strong financial performance. We're improving non-GAAP and GAAP profitability, reducing SBC, generating meaningful free cash flow and free cash flow per share that is among the best-in-class and returning capital to shareholders via buybacks and dividends. Our results speak for themselves, and we could not be more excited about the road ahead. With this, let me turn it over to Kira. Kira Makagon: Thank you, Vlad, and good afternoon, everyone. Vlad laid out our vision, a complete customer engagement platform built on a hybrid model of AI and humans working together, delivering seamless customer experiences and better business outcomes. Here's an example of this vision becoming reality. Meet Cartelligent, a California-based automotive broker, deployed our entire RCA portfolio, AIR, AVA and ACE. Previously, their high-value leads were being routed to an answering service where many calls were dropped. With AIR, they decreased lead abandonment to 0, connecting 100% of live leads during business hours and achieved an 85% lead to sign-up target. AVA eliminated manual note taking, ACE delivered visibility and coaching to keep improving. As the result of all 3 ACE working together with human in the loop, they achieved a 9.85 out of 10 customer satisfaction score. Let me unpack these solutions further. AI Receptionist, or AIR, is designed for front office workers who demand it just works, deployable in minutes, no developers required, built for businesses of any size. AIR can now receive customer inquiries over voice and text messages. AIR is also integrated into call queues, handling overflow and missed calls to improve responsiveness without adding operational overhead. The market is responding well. We ended Q1 with more than 11,800 paying AIR customers, up more than 40% quarter-over-quarter. For customers requiring more complex configurable use cases, we recently introduced AIR Pro. With AIR Pro, customers can create multitude of fit-to-purpose agents, leveraging over 100 prebuilt integrations, including EHR, CRM, scheduling, e-commerce and billing. Users simply describe what they need their AI agents to do. AIR PRO builds and deploys it, executing multistep workflows. We already have our first paying customers with health care emerging as a natural early fit given AIR Pro ability to address rich workflows while maintaining ease of deployment. One example is a federally qualified health center that was already running RingEX, RingCX and ACE. They added AIR Pro to handle real-time shuttle routing for patients. The agent recognizes the caller's location, [ hearing ] time and live shuttle status to guide patients to the right pickup point. It sounds simple. The underlying workflow is not. That's exactly the point. AIR Pro makes complex orchestration effortless for the customer and for the business, and once the conversation ends, ACE takes over. ACE now has more than 5,200 customers, up 85% year-over-year. Sales, marketing and compliance leaders use it to automate interruption reviews, connect conversation intelligence into their CRM and ticketing systems, and replace mail evaluations with complete visibility across every call. Take ATB, the largest financial institution in Canada. They added RingEX seats and ACE to eliminate the time lost on manual analysis, a strong example of AI and humans working together. With human agents handling customer interactions, ACE delivers the post-call analysis, surfacing sentiment, gaps and next steps, giving supervisors a clear picture of every conversation, scoring agents and the coaching data to continuously improve human agent performance. As Vlad mentioned, we have an extensive R&D spend with a wave of new innovations opening up new use cases and expanding our TAM. These investments are leading to tangible results. Last week, we introduced branded messaging via Reach Communication Services, also known as RCS, delivering a verified business identity directly into customers' native messaging app. This pairs up with enterprise branded calling, which displays a company's name and logo on outbound calls, driving higher answer rates from the first moment of contact. We also expanded support for SMS notifications with local numbers to 190 countries, so businesses can engage their customers wherever they are with the same reliability they expect from RingCentral. Building upon our hybrid model of AI and humans working together, SMS is an important customer engagement channel for both. Customer Engagement Bundle or CEB is our latest product introduction, and it is off to a strong start. CEB already has more than 5,000 customers with nearly 40% attach rate of our paid AI products. CEB brings informal contact center capabilities to RingEX, including contact center grade [ focus ] and SMS shared inboxes. One example of a customer using these capabilities is Worldwide Steel Buildings, a Missouri-based company already using RingEX and ACE. They added CEB to manage queues, eliminate missed inquiries, and now get a complete view into every interaction, all on one platform. Importantly, CEB is now available for Microsoft Teams, embedding voice, call queues, SMS inbox, intelligent routing and analytics inside Teams, effectively turning Teams into an informal contact center. As to formal contact centers, RingEX now has more than 1,700 customers, up over 70% year-over-year with more than half utilizing AI. For example, Excelsior Orthopaedics in Amherst, New York was struggling with a 22% call abandonment rate and hold times averaging 30 minutes. With RingCX and ACE Quality Management, they cut abandonment to 8% and reduced wait times tenfold, down to just 3 minutes. Together, CEB and RingCX give customers powerful rightsized options across both informal and formal contact centers and a clear path to grow with us as their needs evolve. The combination of our RingEX, RingCX and AI portfolio, robust platform, omnichannel capabilities is fueling ongoing migrations from on-prem to cloud. For example, this quarter, Coca-Cola United, the third largest Coca-Cola bottler in the U.S. with 60 locations is migrating thousands of seats to RingEX. A large Fortune 500 insurance company replaced their on-prem system and is further expanding RingCentral enterprise-wide deployment with tens of thousands of RingEX seats. The New York Mets are replacing a decade-old on-prem system with RingEX, RingCX and our call queues booster. A major Internet and streaming provider added RingEX to their existing RingCX deployment, along with AI capabilities, including ACE to drive greater operational efficiency. [ Casio ], an iconic consumer electronics company, consolidated their legacy systems onto RingEX and RingCX and added ACE quality management to automatically score calls and improve visibility across every customer interaction. Our innovations continue to be well received by the channel and our GSP partner community, in particular. Multiple GSPs partners are now extending their offerings to include our AI products. Cox Communications recently began deploying our native AI-powered contact center to their customer base. And this quarter, TELUS and Spectrum Business have also started bringing our AI portfolio to their customers, expanding our reach and reinforcing platform's value at scale. In summary, we're delivering significant value to businesses and the industry analysts are recognizing this. This quarter, we were named a leader in both the inaugural 2026 IDC MarketScape for worldwide communications engagement platforms and the 2026 Omdia Universe for customer engagement platforms. From serving SMBs to enterprise and addressing simple to complex needs, and with our unwavering commitment to innovation and a well-differentiated GTM, we're in a strong position to deliver a modern, complete, AI-first customer engagement platform at scale. And with that, I will turn it over to Vaibhav. Vaibhav Agarwal: Thank you, Kira, and good afternoon, everyone. We started 2026 with another solid quarter and delivered against all the commitments we laid out entering the year. Q1 reflected continued consistency in our execution and further strengthening of our financial profile. Let me turn to our first quarter results. Starting with growth. Total revenue was approximately $644 million, up 5.3% year-over-year and at the upper end of our guidance. Subscription revenue was approximately $623 million, up 5.6% year-over-year. Customer trends remained healthy, including steady new customer additions and monthly net retention above 99%. These metrics continue to reinforce the resilience of our recurring revenue model and the mission-critical role our platform plays for customers. As Vlad noted, we are seeing encouraging early momentum in our AI-led new products. Customers using at least one AI product now represent more than 10% of the base, have doubled year-over-year and are growing in double digits sequentially. Within these cohorts, we see stronger ARPU and net retention rates above 100%. Our growth profile remains durable and newer products are increasingly contributing to both expansion and overall revenue quality. Turning now to profitability. We delivered another quarter of strong margin performance. Subscription gross margin remained stable above 80%. Non-GAAP operating margin reached approximately 23%, up 110 basis points year-over-year and at the high end of guidance. We continue to view this margin expansion as structural. It is being driven by the underlying leverage in a high recurring revenue model at scale, combined with disciplined hiring, expanded offshoring, vendor consolidation, greater internal use of AI and continued focus on our highest return go-to-market and products. SBC as a percentage of revenue declined approximately 400 basis points year-over-year to 9% in Q1. For the full year, we now expect SBC to be approximately 9% of revenue in 2026, down from approximately 11% in 2025. This continued improvement reflects our disciplined approach to equity management and gives us confidence in our path forward toward a steady-state level of 3% to 4% in the medium term. The combination of stronger non-GAAP margin and lower SBC drove a record GAAP operating margin of 7.8%, improving by more than 600 basis points year-over-year in Q1. For the full year, we now expect GAAP operating margin to improve from 4.8% in 2025 to more than 9% in 2026. That is a meaningful step forward and reinforces our confidence in reaching our target of 20% over the next 3 to 4 years. Turning to cash flow. We generated more than $140 million of free cash flow in the quarter, up 8% year-over-year. This reflects strong operating performance, continued efficiency gains and improvements in working capital. We generated free cash flow per share of $1.62, up 15.4% year-over-year. Recurring revenue, strong gross margins and improving operating efficiency continue to translate into substantial cash generation. As a result, we are now raising our full year free cash flow outlook to approximately $600 million or a 13% improvement year-over-year. Now let me turn to capital allocation. Our approach remains balanced and disciplined. We are investing in growth, delevering the balance sheet and returning capital to shareholders. During the quarter, we addressed the $609 million convertible maturity by refinancing it with the undrawn Term Loan A. We reduced overall debt by approximately $46 million and lowered net leverage to 1.6x. We continue to make steady progress towards our goal of reducing gross debt to $1 billion by the end of 2026. Importantly, we now have no maturities until 2030, and we maintained $355 million of undrawn credit capacity. We also continued to return capital to shareholders. During the quarter, we repurchased approximately 2.5 million shares for $81 million. At the end of Q1, we had approximately $418 million remaining under our repurchase authorization. The diluted share count declined 6% year-over-year to approximately 87 million shares, and we paid our first quarterly dividend of $0.075 per share during the quarter. With that, let me turn to guidance. For fiscal 2026, we are raising subscription revenue to be $2.54 billion to $2.56 billion, representing growth of 4.7% to 5.5%, raising total revenue to be $2.62 billion to $2.64 billion, representing growth of 4.2% to 5%, raising GAAP operating margin to 8.9% to 9.6%, expanding 450 basis points year-over-year, raising non-GAAP operating margin to 23.3% to 23.7%, expanding 100 basis points year-over-year, raising free cash flow to $590 million to $605 million, up 13% year-over-year. SBC in the range of approximately $240 million to $245 million, improving 180 basis points year-over-year as a percent of revenue. Fully diluted share count of approximately 86.5 million to 87 million shares, 5% lower year-over-year, raising non-GAAP EPS to be between $4.85 to $5.01, up 13% year-over-year. This results in free cash flow per share of $6.78 to $6.99 for the year, up 18% year-over-year. For Q2 2026, we expect subscription revenue of approximately $628 million to $633 million. Total revenue of approximately $648 million to $653 million. GAAP operating margin of 6.6% to 7.6%, up 110 basis points year-over-year. Non-GAAP operating margin of approximately 23% to 23.2%, up 50 basis points year-over-year. Non-GAAP EPS of $1.15 to $1.17, up 10% year-over-year. SBC in the range of approximately $58 million to $62 million, improving 130 basis points year-over-year as a percent of revenue. Fully diluted share count of approximately 87 million shares, lower by 6% year-over-year. In closing, Vlad has stated 4 key takeaways, namely deep and defensible moat in an expanding market, RingCentral as the front door and the top of the funnel for consumer-to-business interactions, complete customer engagement platform powered by RCAI and strong financial performance. To double-click on the last point, we have an efficient business at scale and a durable compounding free cash flow model. With approaching $600 million of expected free cash flow in 2026, we have the flexibility to reinvest for growth, strengthen the balance sheet, all while returning capital to shareholders, and I couldn't be more excited about the opportunities ahead. With that, let's open the call for questions. Operator: [Operator Instructions] Today's first question comes from Tim Horan at Oppenheimer. Timothy Horan: Great quarter, and congratulations on expanding the margins and creating a lot of new products. Vlad, you kind of -- well, you invented the UCaaS industry and had great vision there. Can you talk about where this new AI hybrid agent communications industry will be 5 or 10 years from now? How pervasive will AI be in voice communications? Can you talk about maybe any new products and services we'll see? And how rapidly are AI models improving at this point? How rapidly are your services improving as you see it even right now? Vladimir Shmunis: Yes. Great. Tim, you're too kind, but thank you. Look, I'll go right to left. How fast are things improving? Speed of light, I don't know. These models are getting progressively better, progressively more independent. They are absolutely changing the way things are done across everything. And we -- RingCentral, we are actually in a very interesting position to where we are both very heavy users of AI internally, and spending quite a bit of attention and effort on that, but as well as, of course, providing frontline, customer-facing AI tools. And some of these AI tools are designed to basically get the human out of the loop and some of them are specifically designed to enhance human productivity. So to the first part of your question, what we see moving forward, I don't know, 10 years is a long time, but say, for the foreseeable future, basically more or less a hybrid world. What I mean by hybrid is some interactions are best handled by AI. That will only increase and AI will become more and more powerful. But we still very much see room for a human in the loop. And this comes in where, look, I mean, AI, at least for the foreseeable future, is probably not going to be able to address each and every inquiry. And you know what, I'll give you a simple example, and sometimes people oversee this. There are things that AI will not be allowed to do legally, okay? For example, AI is probably not going to be in a good position to provide medical advice if it is on behalf of a licensed medical provider. So for the foreseeable future, we don't see AI being licensed as a practicing physician or someone who can do prescriptions and so forth. And where it all comes together is that, let's say, you have a customer inquiry or a patient inquiry coming into a medical provider and AI answers whatever it can and it can do quite a lot. It can answer billing questions, it can set up appointments, it can maybe even read your test results without commenting. But at some point in time, you well may want to ask for some specific advice and AI then has to connect you to an actual human being. And this is why when we talk about our key AI portfolio, we talk about AI before a human gets involved, AI while a human is involved and then AI after either an AI agent or a human agent is done with the call. So then we have AI processing recordings and transcripts, getting learnings from that. And then the extreme and amazing power for all of this, it gets all fed right back in. So next call, both AI agents and human agents can be smarter, more productive, more efficient. So that may be a little bit longer answer maybe, but we think that world is going to be neither all AI nor all human, but a bit of both. And where we, RingCentral are just very fortunate to find ourselves is we are one of a very, very small handful of providers that can actually serve both needs of the same platform. Because if you think about it, you have legacy providers, especially some of the on-prem legacy providers to this day that can bring no AI basically. And then you have lots of start-ups, but they cannot really connect to a human. They have to integrate with third parties. RingCentral, we are able to serve both needs, okay? So single platform, single invoice, single SLA, single bill, all kinds of efficiencies and cost savings across the board. And we are able to, again, field this complete, well-integrated hybrid human agent, AI agent portfolio, so that's what we're banking on. Operator: Our next question today comes from Catharine Trebnick at Rosenblatt. Catharine Trebnick: Nice quarter. So I have 2 questions, and I'll be brief with them. One is it looks like you've really stabilized your revenue growth, roughly 5% in the last several quarters and full year guide implies at the same range, same dance. So you cited AI ARR more than doubled year-over-year, now approaching 10% of total ARR. RingCX is gaining traction. You've got Mitel, Avaya pipeline. So can you explain to me where you think the business is going to break decisively above 5%? Vladimir Shmunis: I'll take a stab. Hi Catharine, a really good question. Look, one is thank you for noticing. Yes, I mean, we -- numbers speak for themselves. I don't need to really cite them. So look, we're a large company. We're still growing. We are growing steadily to restate what you all are extremely well aware of right now is we have made a major pivot towards profitability, including GAAP profitability and free cash flow and free cash flow per share. We're very proud that all of the positive changes that we were able to effect, and we really are pretty close to best-in-class at this point on FCF basis. And as far as growth is concerned, look, we have meaningful portions of the portfolio going in double -- strong double and in triple digits, and in certain cases, double or triple digits sequentially, okay? And I can tell you that when I was IPO-ing this company back in 2013, if you were to take our AI portfolio or our customer engagement portfolio, we'd be independent publicly traded companies just based on that, probably worth more than RingCentral was worth at the time of our IPO back then, right? So we absolutely have these green shoots. But it is a $2.6 billion business. Industry is going through transformation. We are certainly seeing price rationalization, especially at the high end. And as we discussed before, we're still lapping some -- we still have some COVID lapping contracts even to this day, so they are being repriced as they come up for renewals. But look, I think future is bright. Future is bright. We are hitting on all cylinders. Eventually, our AI-led products -- and by the way, all of our products are AI-led, given the growth vectors and given size of the market that we're seeing, we are very, very confident that we have a lot of room to grow. There is still -- obviously, there is execution. Nobody -- we're not taking anything for granted here, but there is a market, we have a strong team. We're spending $250 million plus on R&D alone. We have a differentiated channel, literally tens of thousands of feet on the street between our direct sales force and partners and global service providers that's unique in the industry. We're in a good position. I think we're in a good position to continue delivering shareholder value, which is in our book is a combination of growth and shareholder -- returning value to shareholders in other ways as well. Operator: And our next question today comes from Siti Panigrahi with Mizuho. Unknown Analyst: This is Sameer calling in for Siti. I was just wondering, as you make investments in the AI initiatives, how do you balance growth and margin priorities in those? And how does that square off against your overall 20% GAAP operating margin targets? And if you can share like a glide path or kind of like your view into how are you going to achieve those targets, that would be great. Vaibhav Agarwal: Thank you, Sameer, for the question. So look, from an operating margin standpoint, we are very pleased with the trajectory that we've been on for the last 3 to 4 years. We've doubled our operating margins from, call it, 12.5% to almost 23%, 24% now. And Q1 was another proof point of that. I mean we ended the quarter with record operating margin, and we are raising our guide for the full year, further expanding margins now by 100 basis points. And we are doing this while we are investing in innovation. So let's call it the power of and, which is we are growing, investing in innovation and expanding margins and free cash flows at the same time. And the margin expansion is structural. We have -- Vlad talked about a large recurring base. We have a $2.5 billion recurring revenue model, ARPUs are strong, net retention rate is strong, gross margins are high, so that gives us leverage. There is embedded operating leverage in the model wherein our revenue growth continues to outpace expense growth. And it's also driven by disciplined cost management. So we are disciplined in terms of hiring and offshoring vendor consolidation, increasingly using AI within the company, so the margin drivers are structural. We are also looking at operating margins in the context of reducing SBC, GAAP profitability and free cash flow and free cash flow per share. So as you saw, we further reduced SBC this quarter. Our trajectory for this year is going to take down SBC by 200 basis points, and we have outlined the long-term outlook -- sorry, a medium-term outlook of 3% to 4%. So we are well on our way to doing that. As a result, GAAP operating margins are growing faster. In Q1, we are expanding GAAP operating margins by almost 600 basis points. So we ended the quarter at nearly 8%. And this year, we'll be close to 9.5%, doubling year-over-year. So that puts us on a trajectory to get to our GAAP operating margin target of 20% as well. And then these structural improvements, reduction in SBC is also converting into free cash flow and eventually free cash flow per share which we guided to close to $7. And again, as Vlad noted, it's the best in our peer group. So overall, we feel good about how we've guided. We have structural drivers in terms of our recurring revenue model. We have a large base that is very sticky. We have a diversified customer base and an improving GAAP and non-GAAP operating margin profile. So overall, we feel good about where we are. Vladimir Shmunis: I just want to add -- that's right. Thank you, Vaibhav. But I just want to add at a very high level. I think maybe the question behind the question is, hey, isn't AI good for growth, but eating margins. And we don't think that, that's the case necessarily. Customers are willing to pay for AI, if it's good AI. And again, we have this natural, very deep moat with our ability to deliver both AI and human to human at scale globally, okay? And there are -- and we have lots and lots of really smart engineers. And one of their tasks is to optimize AI. In human speak, use the right model for the right job. It's all just a tool set. But with what we're seeing out there in the foundational AI community or ecosystem, and just how fast what used to be a state-of-the-art is no longer the very state-of-the-art, but it's still very, very good. And very soon, a matter of months, it becomes open source anyway. There is just a lot happening. We don't think that AI is going to commoditize or become free or virtually free. But for now, we've been able to keep approximately the same gross margins even for our RCAI products. And we're hoping and also working hard that, that's going to continue. And then everything else that Vaibhav said, we are confident that we will be able to continue growth, continue more AI, which means more stickiness, better ARPUs as well and importantly, continuing our margin expansion and cash flow generation. Fingers crossed. Operator: Our next question today comes from Brian Peterson at Raymond James. Unknown Analyst: This is John on for Brian. I wanted to ask on the free cash flow. Really strong quarter of free cash flow, raised the outlook here. But I think if we look at the trajectory and the potential run rate, it suggests you guys are on path to generate cumulatively like multiple billion dollars of free cash flow over the next several years. So first, am I thinking about the trajectory of free cash flow right as we move forward? And then maybe talk about how you're prioritizing the deployment of capital. And then I have a quick follow-up. Vaibhav Agarwal: Yes. Thank you, John, for the question. Look, again, we are very pleased with the trajectory we have been on. So we now have a consistent track record of expanding free cash flows over the years. 3 to 4 years back, we were a sub-$100 million free cash flow generating company, and we've guided to $600 million, so that's a 6x improvement. And Q1 was another proof point, strong free cash flow, free cash flow per share, raising the guide for the full year, all while again, investing in innovation. And again, the free cash flow that we are driving is because of the structural drivers that I outlined in the previous question. And the other important point to note is that the quality of free cash flows is also improving for us. It's -- our operating margins are converting very closely into free cash flow now due to working capital efficiency. And again, while we are not providing targets beyond 2026, the $600 million of free cash flow gives us a lot of optionality in terms of capital allocation. And I've outlined a disciplined approach there, which is investing in or reinvesting dollars back into the business to fuel innovation. And again, Vlad talked about the traction that we are seeing with our AI products, so we are balancing expansion, free cash flow expansion with investing in growth. We've outlined a target of reaching $1 billion of gross debt by the end of 2026, so that's a second use of cash wherein we are continuing to delever the balance sheet, and we are on our path to doing that. And then at these valuation levels, buybacks remains an attractive opportunity, and we are returning cash in the form of buybacks, which we executed in Q1. We have another approximately $400 million outstanding in terms of our authorization. And we paid our inaugural dividend this quarter, which we expect to continue to do. So overall, I think takeaway is multiple structural drivers, again, to drive free cash flow, both because of the operating leverage and the discipline that we have in terms of costs. And look, we are becoming a compounding free cash flow story that's built on a very durable operating foundation because of the large base that we have built, our recurring customer base and our growing portfolio of AI products. Unknown Analyst: Okay. That was really good color there. And then on GSPs, I did want to ask, it's been a really good growth vector for you guys. I think it's been growing above the sort of the company average there. You guys have been expanding the product set. So can you maybe talk about the early receptivity you're seeing from GSPs around your newer solutions? Maybe what's contemplated in the guidance from GSPs? And maybe talk about like medium-term targets of where that can go to with the new solutions. Vladimir Shmunis: We see good receptivity. I think we even mentioned some of this in the prepared remarks. We're seeing multiple GSPs lining up and now expanding their footprint with us by reselling some or all of our RCAI products. So directionally, we are very, very pleased. It is, of course, very, very early. We are not in a position to change the guide at this point. I would say that they're performing -- it's early. They're performing as expected at this point. And look, our history with GSPs is that they're a wonderful amplifier, but -- and we're the starter engine. We still have to get it working right and tune just right with our direct customers. Fortunately, we have lots of them as well. And then we take this playbook with the GSPs. And then, of course, they have their massive brands and massive networks that they can use to amplify. So I would think that overall, GSP, RCAI in GSP story is probably not so much for this year, but '27, '28 from that. Operator: And our next question today comes from Michael Funk at Bank of America. Michael Funk: Two for you, Vlad. First, wondering how you see the pricing model changing over time with AI? And then also AI related, just wondering if you could talk a little bit about the barriers to competition in AI. What's going to prevent other AI solutions from decoupling your own AI and becoming a competitive threat, whether integration or capability? Vladimir Shmunis: Well, again, taking the second question first, is nothing prevents them except that they don't have this global network that's processing lots of tens of billions of minutes per year and billions of calls and billions of SMS stacks. And we continue our leadership in the UCaaS space, and we are making major inroads in the CCaaS space, now both [ equipped ] with AI. So this is what gives us a pretty strong footing, I think, competitively. And again, what my answer to the very first question on this call was that in the world of hybrid, it's very hard to see any start-up do -- be able to replicate what we have when the job is to get AI agents and human agents on the same platform without getting third parties involved. And that's a huge, huge, huge competitive advantage we feel that we can come in with a turnkey Swiss Army Knife solution and say -- tell customer, look, right tool for the right job and you only get a deal with us. And if nothing else, it gives us pricing power and flexibility because we also don't have any third parties to pay to. And by the way, I do want to double-click, when we talk about RCAI, this is our native AI, okay? So we're not paying -- we're consuming tokens, of course, and we're paying foundational LLMs, but we're not -- when we talk about -- these are not products, third-party products that we sell, okay? Okay. So that's the second part of the question. Sorry, repeat the first one, please? Vaibhav Agarwal: Pricing model. Vladimir Shmunis: Yes, pricing model. Yes. Look, people talk about this a lot. I can tell you what we're seeing. We're seeing, again, more of a hybrid combination model. I think people initially got all excited about, well, it's all going to be outcomes-based. I don't -- not really personally aware of too many people who are actually truly pricing outcomes. If anything, people are pricing usage. But I tell you more and more what's coming into focus, into [ Vogue ] are these hybrid approaches to where there is some minimal commitment the company makes, whether it be seat-based or some other measure, whatever. In our case, maybe minutes consumed or questions answered or something like that. But people need some predictability on both sides of the equation. Customers need some predictability and frankly, providers do as well. And this is what we started out with. So when you look at our, for example, AIR portfolio, it is -- it's very simple. You get -- it's still a monthly subscription plan. You get certain allocation of minutes, so unit of measurement is minutes here. And if you're over that allocation, you upgrade into the next tier or you buy another basket of minutes. What we find with our customers is that a business model that resonates is good for smaller customers because it gives them predictability. And this also works for larger customers because they really have enough analytics to know exactly what they're using. So frankly, for them, it doesn't matter. You can price per seat, per minute. For enterprise, like everybody knows what they're consuming. We know our costs. They need -- they understand their spend. It's all open book anyway. So again, short answer, still hybrid and right tool for the job, depending on... Operator: And our final question today comes from Elizabeth Porter at Morgan Stanley. Unknown Analyst: This is Jamie on for Elizabeth. Great to see the continued momentum that you're seeing with the AIR solution and realizing that it's still super early days for the Pro variant. Just curious how you view the opportunity to maybe upsell some of those existing customers to the Pro tier. Kira Makagon: It's existing customers of both AIR and also non-AIR are both opportunities to upsell AIR Pro. AIR fundamentally is a preconfigured fit-to-purpose agent, very easy to deploy, reception can deploy, meant to do very simple tasks, answer questions, route calls, book appointments. AIR Pro comes to studio and has ability to do much more complex workflows, complex tasks, and they complement each other. So we're right now in the process with AIR Pro being an early access program, open to select customers and seeing those customers actually with AIR also buy into AIR Pro for different use cases, work in tandem, work together. So generally, the 2 products will be sold in parallel out there and one can talk to another as well. Operator: Thank you. That does conclude today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the N-able First Quarter 2026 Earnings Call. [Operator Instructions]. I will now hand the conference over to Griffin Gyr, Investor Relations. Please go ahead. Griffin Gyr: Thanks, operator, and welcome, everyone, to N-able's First Quarter 2026 Earnings Call. With me today are John Pagliuca, N-able's President and CEO; and Tim O'Brien, EVP and CFO. Following our prepared remarks, we will open the line for a question-and-answer session. This call is being simultaneously webcast on our Investor Relations website at investors.nable.com. There, you can also find our earnings press release, which is intended to supplement our prepared remarks during today's call. Certain statements made during this call are forward-looking statements, including those concerning our financial outlook, our market opportunities and the impact of the global economic environment on our business. These statements are based on currently available information and assumptions, and we undertake no duty to update this information, except as required by law. These statements are also subject to a number of risks and uncertainties, including those highlighted in today's earnings release and our filings with the SEC. Additional information concerning these statements and the risks and uncertainties associated with them is highlighted in today's earnings release and in our filings with the SEC. Copies are available from the SEC or on our Investor Relations website. Furthermore, we will discuss various non-GAAP financial measures on today's call. Unless otherwise specified, when we refer to financial measures, we will be referring to non-GAAP financial measures. A reconciliation of certain GAAP to non-GAAP financial measures discussed on today's call is available in our earnings press release on our Investor Relations website. Now I will turn the call over to John. John Pagliuca: Thank you, Griffin, and welcome, everyone, to our call this morning. Today, we'll review our first quarter results, discuss key trends we're seeing through recent industry engagements and highlight how AI innovation is tangibly expanding our software opportunity. We will focus particularly on our AI innovation, where we are automating work historically delivered through labor-intensive services, helping organizations operate more efficiently and securely while also growing our TAM. This progress matters now as advancements in frontier models are fundamentally rewriting the threat landscape, compressing response times for defenders and empowering attackers to exploit vulnerabilities at unprecedented speed and scale. We believe our end-to-end cyber resilience platform is purpose-built for this moment, positioning N-able to lead as cybersecurity reaches an inflection point. Let's jump right in. Starting with the quarter, our results were strong. First quarter ARR was $548 million, growing 8% year-over-year in constant currency, and adjusted EBITDA margin was 27%. Quarterly gross and net revenue dollar retention both improved quarter-over-quarter and year-over-year, with trailing 12-month net retention now at 106%. Let's walk through the drivers of that performance. First, we continue to see momentum upmarket. The number of customers with over $50,000 of ARR grew by 13% year-over-year, and this cohort now represents 62% of N-able's total ARR. In addition, customers with over $100,000 of ARR represent 41% of our annual recurring revenue. This upmarket progress is further exemplified by our selection as Manchester City Football Club's official cybersecurity partner. As the club operates at global scale on the field, N-able protects its critical data and systems, securing its digital environment off the field. The partnership underscores our ability to serve complex, high-profile organizations. More broadly, given the strong retention in our upmarket cohorts, we believe our success in this segment provides a solid foundation for future growth. Second, our channel expansion strategy is working. 4 of our top 5 new customer wins in the quarter, including the Manchester City deal, were through value-added resellers, or VAR channel. With an established MSP motion that counts 25% of CRN's top 150 MSPs as customers and our scaling VAR presence, our broad channel footprint enables us to capture demand across the market. Third, the depth and breadth of our platform is resonating. Strength in cross-sell and upsell underpinned improvement in both gross and net retention as customers realize value in expanding and consolidating with N-able. From a category perspective, security operations and data protection continue to outpace total company growth as customers prioritize advanced remediation and recovery capabilities in the face of rising cyber risk. Reflecting on the quarter, the business executed well and our strategy delivered strong results. Let's now switch gears and discuss key observations from recent industry engagements. During the quarter, we engaged across the ecosystem through our annual customer conference in power, a major industry event such as RSA and ongoing dialogue with third-party research firms. One major takeaway is that we believe cybersecurity continues to experience strong secular tailwinds. We are consistently hearing from customers that the worsening threat environment and rising IT complexity are driving increased need for stronger cybersecurity solutions. This sentiment is reinforced by our internal data and third-party research. Our 2026 state of the SOC report, which is informed by telemetry and frontline response data from N-able SOC, we observed an alert every 30 seconds. We also saw a dramatic rise in perimeter-based attacks with 50% of attacks bypassing endpoint controls entirely. Manual triage approaches are not able to keep pace with the scope and velocity, emphasizing the need for modern, machine-driven defense. Industry research firm, Futurum, reported a similarly challenging attack environment. In their 2025 Cybersecurity Global Enterprise decision-making survey report, Futurum highlighted that 46% of organizations surveyed experienced more than 3 significant security incidents over the past year. We do not see these dynamics abating, particularly as advances in AI continue to lower the barrier to entry for increasingly sophisticated cyberattacks. Together, these factors give us confidence that our mission to protect businesses from evolving cyber threats is underpinned by strong market demand. Another takeaway is that customers are struggling to balance the need for powerful layered defense with practical constraints such as managing vendor sprawl, staffing challenges and budget limitations. This pain point validates our platform strategy. Spanning unified endpoint management, security operations and data protection, our platform enables customers to efficiently manage complex IT environments, detect and stop threats in real time and safeguard and recover critical data. We deliver coverage across the entire life cycle before, during and after an incident, helping customers stay secure while operating efficiently. We are also hearing strong conviction that AI is a meaningful growth driver for MSPs. Our conversations at our customer conference in power reflected a broadly bullish sentiment, improve efficiency and create new revenue streams for MSPs. While adoption is still early, customers are clear that they want a trusted partner to help them navigate the technological wave so they can focus on operating their businesses. In summary, our industry engagements reinforce our view that industry demand is strong and increasingly favors AI-powered integrated platform-based approach. This brings us to our innovation and how our software is expanding our opportunity by automating work historically delivered through services. Our platform is rapidly evolving from a system of record to a system of action, increasingly completing tasks previously handled by technicians. This evolution unlocks significant economic opportunity. Industry analysts such as Omdia estimate annual security services spend at about $200 billion, roughly twice the size of security software spend. We see a similar labor-heavy cost structure within our MSP customer base. Our field work indicates MSPs operate at approximately 10% EBITDA margins with a sizable portion of their cost structure composed of labor. As our intelligent software completes workflows historically owned by labor, we help our customers operate more efficiently and improve margins while expanding our monetization surface from software budgets into a much larger labor-driven services opportunity. A concrete example helps illustrate the opportunity we are driving. Technicians are the revenue engine for MSPs. The more IT assets, including AI that each MSP technician can manage, the more revenue an MSP can generate. The challenge is that technicians have practical limits. A common industry benchmark is roughly 1 technician for every 200 devices. This creates a growth ceiling in the structurally tight IT labor market and pressures MSPs profitability as they must continually hire additional technicians to support more customers. Our aim is for our software to improve that ratio, empowering a single technician to manage 500, 1,000 or even more IT assets. Delivering this creates a win-win for our customers and N-able. Our customers can scale their businesses without linear increase in labor costs, and we can gain market share as MSPs consolidate around platforms that can help them grow their businesses more efficiently. Importantly, this is not a future state. We are delivering progress today. In UEM, we recently introduced N-zo, our AI workflow assistant and our custom model context protocol, or MCP server. These advancements mark an important step forward in AI-driven IT operations. For certain tasks, N-zo delivers up to 70% faster IT operations by enabling teams to interact with their environments using natural language and agentic workflows. Our MCP server goes a step further. Securely connecting external AI tools like Claud, ChatGPT and Microsoft Copilot directly to live operational data inside N-able UEM. This means AI no longer just tells customers what's wrong. It helps fix it real time with the control and governance our partners require. Together, these capabilities are empowering IT teams to move faster, reduce manual effort and act directly within the environments where they already work. This progress directly improves the technician to managed device ratio we discussed earlier. UEM's value proposition is showing clearly in execution. 6 of our top 10 new customer lands flowed through our UEM solution. A standout example is one of the fastest-growing quick service U.K. restaurant brands that was looking for a trusted partner to ensure the digital operations work seamlessly. They deployed our UEM in late 2025 across 100 locations, gaining real-time visibility into the devices, automating routine fixes and significantly reducing downtime. We recently built on that success, signing the U.S. group and expanding the relationship significantly. We are also automating historically manual-intensive work in data protection, where we recently introduced Disaster Recovery as a Service, or DRaaS. We are eliminating the need for customers to manage backup infrastructure themselves, reducing cost, time, risk and operational headache. This shifts backup management from a labor-intensive activity to a software-led capability. Beyond efficiency, DRaaS meaningfully strengthens customer security posture. In the event of data loss, businesses can there instantly recover critical systems, minimizing their downtime and maintaining their operations. We also expanded our anomaly detection capabilities, which help identify changes to backup environments. With threat actors increasingly using identity-based attacks to steal credentials and target backups from inside the organization, including altering retention policies or deleting servers, this advancement has real impact. Building on that momentum, we are excited about the planned addition of Google Workspace backup coverage later this year. From a broader perspective, we continue to see durable demand drivers for data protection. With time to exploit turning negative and adversaries exploiting vulnerabilities before patches exist, the criticality of our ability to protect and restore data is heightened. As we look ahead to a world with agents owning more workloads for businesses, the possibility of agents making costly mistakes also rises. We see the need to effectively undo agent mistakes and restore operations through a clean prior state as a potential demand catalyst for our data protection solution. Our execution and value are showing up in the numbers. Data protection has now surpassed 3.5 million Microsoft 365 users and led our net new ARR growth in the quarter. Finally, in security operations, we are extending the same system of action approach into one of the most labor-intensive areas of cybersecurity. Businesses are facing more complex attacks and N-able is helping them operate, contain and scale security without standing up their own SOC. Our security operations solution is a system of action at its core as AI handles the bulk of our threats automatically. This is a critical differentiator. With breakout time shortening to minutes, the ability to neutralize threats in real time could be the difference between a contained event and a successful breach. Customer count has nearly doubled since the second quarter of 2025, reflecting our traction here. A recent customer win demonstrates the solution in action. A compliance-focused MSP serving regulated industries was facing challenges managing a fragmented security stack spanning multiple EDR, MDR and semi tools. We standardized the security operation, replacing multiple legacy providers with a unified scalable model, driving ARR of nearly $500,000. Importantly, AI reinforces the role our platform plays in the Agentic world. From an operating standpoint, AI is embedded into our platform, and we are deeply embedded in our customer environments and workflows. This positions us to serve as a control plane to govern and secure agents as they become more prevalent across their IT and security environments. Customers can access AI where they already operate. We pair that accessibility with a technical experience built on proven infrastructure, extensive data, deterministic workflows, domain context and rigorous compliance standards. From a demand perspective, we see AI increasing both the volume and severity of threats while also expanding the amount and criticality of data that must be protected. These forces directly drive the need for our solutions. Our trusted brand and established go-to-market further positions us to translate innovation and demand into real-world adoption. To close, we're executing with discipline as we pursue the large and compelling cybersecurity opportunity. We believe AI is expanding our software opportunity by enabling us to automate more workflows and reinforcing the critical role we play in helping customers navigate a more complex and hostile digital environment. With that, I'll turn it over to Tim and then circle back for closing remarks. Tim? Tim O?Brien: Thank you, John, and thank you all for joining us today. Our first quarter performance reflected the execution drivers John discussed, including continued upmarket momentum, strong contribution from both our MSP and VAR channels and expanding platform adoption. Our innovation is also broadening the scope of what our software can deliver, unlocking significant opportunity as we automate work historically delivered through services. From a strategic and capital allocation perspective, our focus remains investing behind durable demand for cybersecurity solutions while delivering a robust financial profile. Before diving into the results and outlook, I also want to share perspective on how we believe our business is positioned for growth in an increasingly agentic era. Our revenue model is diversified. We have meaningful monetization across data growth, servers and cloud assets alongside more traditional drivers such as users and devices. We believe this diversified exposure powers multiple paths to growth. Looking ahead, we see a significant new monetization opportunity as customers increasingly adopt agents and other non-human identities across their environments. As these new IT assets introduce requirements around security, governance and resilience, we believe we are well positioned to help customers secure, govern and back up these new IT assets. At the same time, we intend to continue innovating by delivering our own agents, building on our existing platform capabilities and system of action. Taken together, we believe these dynamics reinforce the durability of our model and create additional long-term growth opportunities as the market evolves. I'll now walk through our first quarter results, provide additional detail on the drivers of our performance and discuss our outlook for 2026. First, let's discuss our results for the first quarter. For our first quarter results, total ARR was $548 million, growing at 11% year-over-year on a reported basis and 8% on a constant currency basis. Total revenue was $134 million, $2 million above the high end of our guidance, representing approximately 13% year-over-year growth on a reported basis and 8% on a constant currency basis. Subscription revenue was $132 million, representing approximately 13% year-over-year growth on a reported basis and 9% on a constant currency basis. We ended the quarter with 2,710 customers that contributed $50,000 or more of ARR, which is up approximately 13% year-over-year. Customers with over $50,000 of ARR now represent approximately 62% of our total ARR, up from approximately 58% a year ago. Dollar-based net revenue retention, which is calculated on a trailing 12-month basis, was approximately 106% on a reported basis and 103% on a constant currency basis. Approximately 46% of our revenue was outside of North America in the quarter. Turning to profit and margins. Note that unless otherwise stated, all references to profit measures and expenses are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliations provided in today's press release. First quarter gross margin was 80% compared to 81% in the same period in 2025. First quarter adjusted EBITDA was $37 million, representing approximately 27% adjusted EBITDA margin. Unlevered free cash flow was $22 million in the first quarter. CapEx, inclusive of $3 million of capitalized software development costs, was $4 million or 3% of revenue in the first quarter. We ended the quarter with approximately $118 million of cash and an outstanding loan principal balance of approximately $399 million, representing net leverage of approximately 1.8x. Non-GAAP earnings per share was $0.09 in the first quarter based on 189 million weighted average diluted shares. Turning to our financial outlook, which assumes FX rates of $1.17 for the euro and $1.34 for the pound. For the second quarter of 2026, we expect total revenue in the range of $137.5 million to $138.5 million, representing approximately 5% to 6% year-over-year growth on a reported basis and 4% on a constant currency basis. We expect second quarter adjusted EBITDA in the range of $39.5 million to $40.5 million, representing an adjusted EBITDA margin of approximately 29%. As a reminder, revenue growth is impacted by the timing and magnitude of on-premise deals and related revenue recognition dynamics, and we continue to view ARR as the best velocity metric for our business. For the full year 2026, our total revenue outlook is approximately $554 million to $559 million, representing approximately 8% to 9% year-over-year growth on a reported basis and 7% to 8% on a constant currency basis. Our full year ARR outlook is $581 million to $586 million, representing 8% to 9% year-over-year growth on a reported and constant currency basis. We expect full year adjusted EBITDA of $167 million to $171 million, representing an adjusted EBITDA margin of 30% to 31%. We are raising our unlevered free cash flow outlook and expect our unlevered free cash flow to be approximately $116 million to $120 million. We expect CapEx, which includes capitalized software development costs to be approximately 5% of total revenue for 2026. We expect cash interest payments of approximately $27 million, assuming interest rates remain in line with current levels. We expect total weighted average diluted shares outstanding of approximately 189 million to 192 million for the second quarter and $188 million to $192 million for the full year. Finally, we expect our non-GAAP tax rate to be approximately 24% to 27% for both the second quarter and the full year. Now I will turn it over to John for closing remarks. John Pagliuca: Thanks, Jim. We delivered another quarter of consistent execution with solid ARR growth, strong margins and practical AI innovation. As cyber threats continue to evolve and agent adoption grows, we remain focused on helping our customers prevent incidents, recover quickly and operate with confidence while delivering durable value for our shareholders. With that, operator, we'll open the line for questions. Operator: [Operator Instructions]. Your first question comes from the line of Mike Cikos with Needham & Company. Michael Cikos: This is Matt Cory on for Mike Cikos over at Needham. Great to see the uptick in growth and retention. I wanted to dig in on the revenue beat was a bit more modest than we've seen over the last couple of quarters, and it didn't flow through to EBITDA margin or the full year guide. Can you give us some color on what you're seeing in the market in terms of sales cycles and linearity as well as how that influenced guidance construction? John Pagliuca: Sure. Thanks for the question. This is John. I'll talk a little bit about sales cycle, and I'll pass it over to Tim on some of the compare. Look, as we continue to go upmarket, we are seeing a little bit of a lengthening of the sales cycle and a little bit more of a scrutiny around the ROI. I think some of this is a natural expectation. We're now landing deals. We referenced 1 or 2 during the call, a $500,000 ACV deal. We're seeing more and more 6-figure deals. We're seeing multiyear 7-figure deals. As you go upmarket, you'll start to get requiring CEO sign off and actually, in some cases, we're starting to see Board level sign off. As you're going upmarket, we're starting to see a little bit of a lengthening of the sales cycle. Overall, I'd say a little bit more of a scrutiny on the ROI. Frankly, we feel we're in a good position with that. We pride ourselves on delivering really strong TCO across the portfolio. In Cove and our data protection, it's the software, but it's the labor, and so as there's more scrutiny on ROI across the landscape, we believe we're well positioned to win in that category because it is one of our strengths. How do we allow MSPs to do more with their dollar, both from the software point of view and from the labor point of view. I think that's the one trend that we're keeping an eye on. I think it's somewhat expected as we continue to go up market. Michael Cikos: Then you mentioned agent mistakes as a demand driver, which is extremely topical finding following reports of the Rogue PocketOS agent that its production database and backup. Have you seen a noticeable uptick in demand or initial conversations following, like incidents like this sounds like it's becoming more prevalent sort of as you alluded to? Or is there any other color you can provide on the data protection growth during the quarter? John Pagliuca: It's much more top of mind. I think there's a realization across the landscape that the need to recover and the need for business resilience and continuity in the world of this agentic era is going to become more and more top of mind. If you think about backup in general, the last couple of years, it's been dominated by this cybersecurity bit, right, ransomware or attacks from threat actors and the ability to back it up. Right along for a long time, there's also friendly fire. In other words, if an employee unintentionally or intentionally deletes a bunch of data. Well, now we have all these agents in some state in an autonomous state that if not governed the right way, have the same ability to go delete data. I think there's a realization that this will happen. This could happen across small organizations or large organizations and the ability to get back up and running is top of mind. Frankly, that's why we pitch business resilience, not cyber resilience. That's what -- we know when we're talking to our MSPs and we're talking to mid-market companies and small, medium enterprises, what they're really worried about is avoiding disruption. If there is disruption, how quick can we get back up and running. That's why we're really excited about DRaaS. DRaaS provides an immediate failover or near immediate failover. If something happens via a threat actor or friendly player or because an agent goes rogue on you, you have the ability to fill over and keep your business going. All of these things are creating a bunch more demand. There is, I'd say, a realization across the industry that this is more and more of a real thing as agents continue to proliferate across the IT environment. Operator: Your next question comes from the line of Jason Ader with William Blair. Jason Ader: A couple of things. First on the macro environment, John, can you talk about any impact? Has it changed given the situation in the Middle East, the supply chain tightness going on out there? In Q1, did you see any variance from what you've seen throughout 2025 on the macro front? John Pagliuca: Jason, thanks for the question. As it relates to some of the geopolitical issues, no, we're not seeing any slowdown from any geopolitical issues. We are very international. A good amount of our business is in the U.K., a good amount of our business is in Western Europe. No, we're not really seeing any impact from what's going on related to what's going on in Iran. Jason Ader: Then, Tim, for you, just can you talk about the -- I guess you've had a 2-point NDR improvement over the last several quarters. Can you just talk through what is driving that improvement? Tim O?Brien: Yes. On the NRR, Jason? Jason Ader: Yes. Tim O?Brien: Yes. On the operational front, a lot of it is on the heels of the execution we've had with cross-selling MDR into the customer base. That's continued to be very successful and demand remains very healthy from that perspective. We also have some benefit from FX on the NRR rate as well. The combination of those 2 things are the key drivers of the NRR improvement. Jason Ader: Then I guess, last thing for you, John. What's the #1 thing you want people to take away from the print? John Pagliuca: Yes. Look, I think the #1 thing is that we're really well positioned in this agentic era, and that's not a future state. That's a now state. we've introduced N-zo, which is an AI assistant in our UEM offering, which is really going to take a lot of the high-volume operational work off the load of our technicians. This is our first really or our continuation of turning labor into software. We're excited about that. We plan to do it, and we are doing it across all 3 fronts. We pride ourselves on being the platform of choice for MSPs before the attack, during the attack and after the attack. We're layering in an agentic technology to take the labor off of our MSPs, making them more efficient, making them more profitable. In turn, we expect better GRR, better NRR and being more of a critical piece of the MSP and the internal IT departments go forward. The best way of doing that, frankly, is to make sure that AI is helping them run their business and driving the efficiency. And we believe we're well positioned there. Operator: Your next question comes from the line of Joe Vandrick with Scotiabank. William Vandrick: John, can you talk about if you're seeing frontier -- Cyber developments like Mythos and GPT 5.5 cyber changing customer urgency around N-able's core products. I'm thinking especially around the automated patching and maybe endpoint, but backup and recovery as well. Are you seeing that show up in pipeline or maybe even just in customer conversations? John Pagliuca: Joe, definitely in customer conversations. I wouldn't say it's necessarily showing up in pipeline. Look, patching and vulnerability management is a fundamental layer in cyber resilience and an overall business resilience. We've been preaching that for a while. I think it just makes it more top of mind and folks need to make sure that they have a level of autonomous patching and vulnerability management regardless of the environment. As it relates to backup, I think I brought this up earlier with the previous call from Mike and his team, it just provides another tailwind as to the use case, why you need to be able to back things up and more importantly, recover and recover in a near-time way. I think it's really just driving a lot more conversation and awareness across the industry. By and large, my MSPs that are in the upper quartile, they've been practicing this layered security approach. We've been helping them with that layered security approach. Again, this is why we think our best-of-breed platform approach is the right one for our customers and because it helps tie in together and drive a lot more efficiency before the attack, during the attack and after the attack, whether it's agentic or not. It's definitely making some of these conversations that might have been out of vogue, more in vogue, but -- and that's overall good for the community, good for the industry and good for N-able. William Vandrick: Maybe one tactical one for Tim. How should we think about net new ARR for the remainder of the year? Is there any commentary that you can provide that could help us understand the trajectory throughout 2026? Tim O?Brien: Yes. We talked on slightly last quarter that it was going to be more back half led than front half led, more so due to some of the new offerings that we're bringing to market throughout the course of 2026. That's specifically more so on the data protection side with DRaaS and Google Backup that John touched on. Operator: Your next question comes from the line of Eric Suppiger with B. Riley Securities. Erik Suppiger: I apologize if this was asked on balancing a couple of calls. Just curious, has the developments with Anthropic and Mythos highlighting new or highlighting zero-day attacks, has that changed your customer behavior in terms of the way they're using N-able to do patch management and trying to move forward on more of an accelerated path to implementing patches in response to kind of a threat landscape that's getting more difficult? John Pagliuca: Erik , yea, we talked about this a little bit before. What it's really done is just, I think, making patching and vulnerability management, which is a fundamental layer and cyber resilience more top of mind for the -- overall for the industry. Look, an internal IT department and/or an MSP who is established, that is growing their business that practices the right proper layered security that is driving more of a compliance forward type of business is executing on these areas already. It really just puts the -- our solution more to the center of what it needs. That's why, again, we believe the way that we're positioned before the attack, and we talk about before the attack, that is patching, that is vulnerability management that is monitoring and managing and during the attack with our threat hunting and our XDR, which is AI infused and then, of course, recovery if you need to get things back up and going, we believe that's the right formula for internal IT departments and MSPs. Tying these all together and adding an agentic layer that takes away from some of the high-volume operational work from a technician, that's the right formula because at the end of the day, what AI will also do for the bad guys is accelerate their speed and their volume for the threats. We need to be able to give our customers the ability to fight fire with fire and provide them AI-infused or AI-led technology so they can keep up with the speed. Often, a human is the bottleneck, and it's our job here at N-able to give them the software. It's not a labor burden, but it's on technology to, one, keep their customers safe and also drive their efficiency. We mentioned in the prepared remarks, an average MSP has an EBITDA of 10%. A lot of that's because of the labor and on the high-volume mundane tasks. As we usher in the AI technology, our hope is to really break that linearity in the model, number one, to help them improve their EBITDA, but also be able to make sure that they're thing off any threats as a result of some of the AI in the wrong hand type of thing. All of this, frankly, is pointing, I think, to an area where cybersecurity will see a tailwind and it's making it more top of mind. Operator: [Operator Instructions]. Our next question comes from the line of Keith Bachman with BMO. Adam Holets: This is Adam on for Keith. I wanted to circle back to the new products and ask that now that disaster recovery and N-zo are formally launched, what are adoption trends and uptake there relative to your prior expectations? Then inclusive of those as well as the Google Workspace launch expected later this year, are you guys embedding any expectations into the guide for revenue or ARR? John Pagliuca: Adam, thanks for the question. It's good. I want to clarify. DRaaS is in limited preview right now. It's in customers' hands. We'll do the full launch a little bit later on in the back half of the year. To Tim's point, that's why we have the ARR building more to the back half of the year. It's early days. I'm happy to report that so far, so good. We're building the pipeline. We have customers in preview. The experience so far, again, it's early days, has been really positive, and so we're excited there. On N-zo, it's also promising. Now in N-zo, we're not going to directly monetize this in this first phase, but what we're seeing is MSPs coming back saying, "Hey, that saves me hours. You're improving certain tasks that I'm doing by 70% and the feedback has been good. That being said, the use cases are limited right now. Our plan is to continue to expand those use cases as we continue to get some of those reviews and savings from the labor. DRaaS, just to be clear, that one will be directly monetizable. N-zo in its initial phase is really going to be about helping the customer experience, driving our GRR and helping them improve their profits as well. Then we'll layer in coworkers and other monetization paths as we continue on the Agentic lane. As it relates to Google, that's more to the back half of the year. We actually have customers in the queue and doing some limited preview there, but because of where that sits in the year, we're not necessarily baking that into our financial plan just yet. just because that's a little bit closer to the back half of the year. Good question. Look, this is also DRaaS and backup for Google are the top 2 areas that people were requesting for backup and data protection for the last couple of years. Just as a reminder, as it relates to data protection, this will help us improve our win rate now that we have these offerings. It will help us with the expansion, of course, because we'll be able to cross-sell, and it should help us with the GRR as well because now we have that one complete offering that an MSP is looking for. We're cautiously optimistic. Cove continues to be a fantastic offering and our data protection area is our largest ARR area. We expect this to just accelerate the data protection story. Adam Holets: Just a follow-up, if I may. I just wanted to ask about packaging and pricing changes. I believe you previously mentioned there's going to be a 1- to 2-point net benefit for FY '26. Is that still the expectation? John Pagliuca: Yes. I would say it's probably closer to the 1, but yes, we're still expecting to get a slight benefit from pricing and packaging overall on the year. Operator: There are no further questions at this time. I will now turn the call back to CEO, John Pagliuca, for closing remarks. John Pagliuca: Thank you, everyone, for joining N-able's quarterly results. We'll see you next time. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Hello, everyone, and welcome to the Johnson Outdoors Inc. second quarter 2026 Earnings Conference Call. Today’s call will be led by Helen P. Johnson-Leipold, Johnson Outdoors Inc.’s Chairman and Chief Executive Officer. Also on the call is David W. Johnson, Chief Financial Officer. Prior to the question-and-answer session, all participants will be placed in a listen-only mode. After the prepared remarks, the question-and-answer session will begin. If you would like to ask a question during that time, please press star then the number 11 on your telephone keypad. This call is being recorded. Your participation implies consent to our recording this call. If you do not agree to these terms, simply drop off the line. I would now like to turn the call over to Allison Gitzaro from Johnson Outdoors Inc. Please go ahead, Ms. Gitzaro. Allison Gitzaro: Good morning, and thank you for joining for a discussion of Johnson Outdoors Inc.’s results for the 2026 fiscal second quarter. If you need a copy of today’s news release, it is available on our website at johnsonoutdoors.com under investor relations. I also need to remind you that this conference call may contain forward-looking statements. These statements are made on the basis of our current views and assumptions and are not guarantees of future performance. Actual events may differ materially from those statements due to a number of factors, many beyond Johnson Outdoors Inc.’s control. These risks and uncertainties include those listed in our press release and filings with the Securities and Exchange Commission. If you have any additional questions following the call, please contact David W. Johnson or Patricia G. Penman. It is now my pleasure to turn the call over to Helen P. Johnson-Leipold. Helen P. Johnson-Leipold: Thanks, Allison. Good morning, everyone. I will begin by sharing perspective on our second quarter and year-to-date results as well as give an update on each business. David will review the financial highlights, and then we will take your questions. Improved retail conditions and ongoing success of our product innovation helped drive 15.5% revenue growth in the second quarter, with all business segments contributing to the improvement. Operating income for the second quarter was much improved versus the prior-year second quarter due to increased sales volume, and our cost-savings initiatives continued to boost profitability as well. Year to date, our net sales are 21.5% higher than last year’s fiscal six-month period, with operating income and gross margin also up for the fiscal year-to-date period. We are pleased with our second quarter and year-to-date results and are particularly proud of our market-leading brands, which continue to resonate with consumers and reinforce our leadership position across our portfolio. Our Fishing business delivered strong results in the second quarter, driven by improved trade conditions, continued robust demand for Humminbird’s Explorer Series and MEGA Live 2 fish finders, and Minn Kota’s full lineup of trolling motors, as well as pricing action. These factors combined to reinforce our momentum and position in the marketplace. We remain focused on investing in innovation to deliver fishing technology that sets the standard for anglers worldwide. In Camping and Watercraft, growth during the quarter was supported by our expanding digital and e-commerce capabilities, with Old Town and Jetboil maintaining their leadership position in competitive categories. During the quarter, Jetboil also launched TrailCook, a new innovation designed to expand the brand beyond boiling water into broader backcountry cooking. In both brands, we will continue to build on our strengths to drive sustained growth through innovation and deep engagement with outdoor enthusiasts. Lastly, in our Diving business, improved conditions across the global markets and continued growth in e-commerce helped drive a solid increase in second quarter sales. Digital engagement continues to play an increasingly important role, enhancing connectivity between our SCUBAPRO brand, retail partners, and consumers. As we continue to lean into digital channels and strengthen our global footprint, we are optimistic about SCUBAPRO’s ability to grow and further reinforce its position in the market. Overall, we are pleased with the quarter and year-to-date results. By investing in and executing our strategic priorities—consumer-driven innovation, digital and e-commerce excellence, and operational efficiencies—we are strengthening our market position and taking the right steps to navigate macroeconomic uncertainty while building long term. Now I will turn the call over to David for more detail on the financials. David W. Johnson: Thank you, Helen. Good morning, everyone. Our strategic cost-savings program remains critical and continues to deliver meaningful benefits to our bottom line. Gross margin for the second quarter improved to 38.8%, up 3.8 points from the prior-year quarter. Overhead absorption from higher volumes and cost savings were the main drivers of the improvement in gross margin. Year to date, gross margin is 37.9%, up 4.9 points from the prior year-to-date period. Operating expense increased 11.2 million from the prior-year second quarter, due primarily to increased sales-volume-related costs as well as increased variable compensation costs. Profit before income taxes for the second quarter was 10.2 million compared to 4.2 million in the previous-year quarter, driven mostly by the improvement in operating income. As we prepare for the upcoming selling season, we modestly increased inventory levels. Our inventory balance at the end of the second quarter was 186.9 million, up about 6.8 million from the previous year’s second quarter. Our balance sheet remains debt-free, and we continue to pay a meaningful dividend to shareholders, with the Board approving our most recent dividend announced in February. Looking ahead, despite ongoing economic uncertainties, we remain firmly focused on financial discipline and actively managing the business to balance near-term pressures while continuing to invest in priorities that support sustainable growth. Now I will turn the call over to the operator for the Q&A session. Operator: Thank you, ladies and gentlemen. If your question has been answered and you wish to remove yourself from the queue, please press 11 again. One moment for our first question. Our first question comes from Anthony Chester Lebiedzinski with Sidoti. Your line is open. Anthony Chester Lebiedzinski: Thank you, and good morning, everyone. Certainly nice to see the really strong revenue growth, especially in Fishing. So as it relates to Fishing, how much was revenue helped by pricing versus better market conditions and a stronger competitive position? David W. Johnson: We saw strong unit volume growth in our business, and that was a big driver for the quarter. Pricing certainly helped, and we are also seeing really strong demand for our broad line of trolling motors. That is very helpful. Anthony Chester Lebiedzinski: Gotcha. Thanks, David. So do you think this is perhaps a sort of replacement cycle from the bump from COVID, or is there something else going on? Helen P. Johnson-Leipold: The market is very hard to predict, but we have innovation that continues to drive purchases. Consumers are a little cautious with all the things going on, but innovation is the catalyst to get things moving. We are hoping this is the beginning of an upward trend, but it is going to be challenging, and innovation will be the key going forward. Anthony Chester Lebiedzinski: Gotcha. Okay. Thanks for that. So as far as the other two segments, you highlighted the increased sales through e-commerce. Can you expand on that a little bit and, if possible, give us some numbers as it relates to the growth you saw in the quarter? And how are you thinking about the rest of fiscal 2026 as it relates to Diving and Watercraft and Camping? Helen P. Johnson-Leipold: E-commerce is one of our growth initiatives, and we have put a hard core press on that. It reaches a much broader consumer base, and we are really excited about it. Our bricks-and-mortar partners remain important, and both channels complement each other. We have been up and running in a true digital mode for only about a year, so it is early, and we have a lot to learn, but it is a good opportunity to reach a broader audience. I think it will continue to grow. It is a smaller piece of the pie than our other sales, but from a growth standpoint it is helping us. We do not do a lot of forward-looking commentary, but as we look at the third quarter, the signs in the second were good and better than they have been in the past. The world is complicated, and consumers have a lot going on, but it comes back to the product line, the brand, and our positioning in the market. We feel really good about where we are as a brand and as a company, and we are hoping the markets cooperate as well. It is good to have a quarter that feels very strong. Anthony Chester Lebiedzinski: That is very helpful context. As far as the world out there, as you talk to your retail customers, since the Iran conflict started in late February, gas prices have gone up quite a bit. From the point-of-sale data you can access, have you seen any notable impact for your brands? David W. Johnson: I would say not yet, Anthony. We have not seen a direct impact, but like a lot of companies, we are looking at inflationary pressure and higher input costs. Helen P. Johnson-Leipold: And we are mindful of worried consumers whose confidence levels are down. David W. Johnson: So far it is okay; we have not seen a direct impact, but we are looking at things in a neutral fashion over the next couple of quarters. Anthony Chester Lebiedzinski: Understood. As far as gross margin, you had a strong improvement versus last year. You talked about fixed-cost absorption and cost savings. Was that kind of a 50/50 split? And second, regarding cost pressures, how should we think about gross margins for the rest of the fiscal year? David W. Johnson: Most of the improvement was operating—so fixed-cost absorption. Our cost-savings program is also critical and helped as well. We are seeing cost pressure going forward. Like many companies, electronic industry component costs are dynamic for us, and that is something we have our eye on and are monitoring. That could be a bit of a headwind over the coming quarters, so it is a good thing we have our cost-savings efforts in place to help offset that. Anthony Chester Lebiedzinski: Got it. In terms of operating expenses, they came in higher than we expected. Roughly, how much of the year-over-year increase came from sales-volume-related costs versus incentive compensation? And how should we think about operating expenses for the rest of the fiscal year? David W. Johnson: A decent portion was volume related—probably about a third—and then we had some variable compensation accrual adjustments that made up about a third. There are some other items in there that we did not call out, like certain health care costs and consulting expense. But the two big ones were the volume-related items and the variable compensation. Anthony Chester Lebiedzinski: And do you expect that to continue near term? Any general comments there? David W. Johnson: The expense structure will probably settle down a little bit. Volume drives some of that, but in terms of our spending and our ability to manage, I think it will settle down over the next couple of quarters. Helen P. Johnson-Leipold: We are investing and putting foundational systems in place, and we are investing against our key priorities. It is good spend, and it may not be long term. As David said, it will settle down, and we are investing in the right things to set us up for long-term success. We will get more efficient on the other side of this. David W. Johnson: Agreed. We expect to be more efficient as these investments mature. Anthony Chester Lebiedzinski: Lastly from me, the tax rate came in lower than we expected. David, can you address that and how we should think about the tax rate for the balance of the fiscal year? David W. Johnson: Because we have the valuation allowance on the U.S. income right now, the tax rate will be up and down depending on the mix of profits we see in the quarter and what we are forecasting for the full year. A practical way to think about it is probably 4 to 5 million of tax expense for the year. How that is spread over the quarters depends on the mix of profit, so it is hard to give you a rate quarter by quarter. Anthony Chester Lebiedzinski: Understood. That is definitely helpful. Thank you very much, and best of luck. David W. Johnson: Thanks, Anthony. Operator: I am not showing any further questions at this time. I would like to turn the call back over to Helen P. Johnson-Leipold. Helen P. Johnson-Leipold: Thank you, everyone, for joining us today. If you have additional questions, please contact David W. Johnson or Patricia G. Penman. Have a good day. Thank you. Operator: Thank you, ladies and gentlemen. This concludes today’s presentation. You may now disconnect, and have a wonderful day.
Operator: Good day, and welcome to the Reinsurance Group of America, Incorporated First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to J. Jeffrey Hopson, Head of Investor Relations. Please go ahead. J. Jeffrey Hopson: Thank you. Welcome to Reinsurance Group of America, Incorporated’s first quarter 2026 conference call. I am joined on the call this morning by Tony Cheng, Reinsurance Group of America, Incorporated’s President and CEO; Axel Philippe Andre, Chief Financial Officer; Jonathan William Porter, Chief Risk Officer; and Jason Bronchetti, Chief Investment Officer. A quick reminder before we get started regarding forward-looking information and non-GAAP financial measures: some of our comments or answers may contain forward-looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ from expected results. Additionally, during the course of the call, the information we provide may include terms that are discussed on our website along with reconciliations to GAAP measures. Throughout the call, we will be referencing slides from the earnings presentation, which is posted on our website. I will now turn the call over to Tony Cheng for his comments. Tony Cheng: Good morning, everyone, and thank you for joining us for today’s call. We appreciate your continued interest in Reinsurance Group of America, Incorporated. As you have seen from our first quarter results, we delivered a strong start to the year with excellent performance across many regions and businesses. The quarter reflects disciplined execution, strong underlying fundamentals, and the benefits of the diversified global platform we have built over time. Building on our strong 2025 performance, we believe our results this quarter further demonstrate that we are successfully executing on our strategy. Our focus remains on well-balanced earnings growth, capital allocation, and delivering attractive returns over the long term. Looking at the financial results, the strength in the quarter was broad-based across our regions and products. I will highlight a few specifics in the quarter. Asia Pacific had another strong quarter, driven by ongoing growth and strong execution. We closed a number of notable transactions in the region, particularly in Japan, spanning both in-force and flow deals that include both asset and biometric risk. EMEA’s earnings continue to reflect good new business, with results exceeding expectations. Performance was supported by favorable overall experience and continued momentum in longevity. We closed additional longevity transactions during the quarter by leveraging deep, long-standing client relationships, and we remain optimistic given our leadership position and differentiated competitive strengths. In the U.S., adjusted operating performance was strong, supported by favorable claims experience and the contribution from recent new business. Activity in U.S. individual life remains robust, demonstrating sustained momentum in large part driven by our strategic underwriting initiative. I am pleased with our U.S. group results, which are in line with our 2026 expectations. Moving to claims experience in the quarter, our economic claims experience was favorable across all regions. While one quarter of claims experience should not be overly emphasized, when considered as part of the cumulative experience since 2023, the favorable experience demonstrates the strength of our pricing, underwriting, and risk selection. Additionally, we continue to see profit emergence from business written and capital deployed over recent years. This profit emergence is tracking in line with expectations as asset portfolios are repositioned prudently over time and claims continue to be in line with expectations. This quarter was another demonstration of the strategic optionality in our global platform. Most of the deployment into in-force transactions was in Asia, where we saw the most attractive opportunities from a risk-reward perspective, primarily driven by our range of innovative solutions. Additionally, we continue to have very good momentum with our flow business in the U.S., where our value-added underwriting solutions and outsourcing efforts set us apart from competitors. Equally important to our flexibility is that we are comfortable not proceeding with transactions that do not meet our risk-return trade-off. That discipline continues to be a key feature of both our strategy and our culture. Now I want to take a brief step back from the details of the quarter and reinforce how we think about Reinsurance Group of America, Incorporated’s positioning and strategy. At its core, our approach is straightforward. We focus on life and health risk. We operate globally, and we deploy capital selectively where we believe we have competitive advantages and can earn attractive risk-adjusted returns. Specifically, Reinsurance Group of America, Incorporated has several unique strengths, including strong biometric expertise, asset management capabilities, a global platform, a market-leading brand, and flexibility to partner across the industry. What is critical is that these strengths do not operate in isolation. They reinforce one another, creating a competitive advantage that is difficult to replicate. When we combine this competitive advantage with a proactive business approach, we create win-win transactions, generating higher returns for Reinsurance Group of America, Incorporated and greater value for our clients. Let me share a few examples from this quarter. In North America, we extended a long-standing U.S. client relationship into Canada, where the client was seeking a reinsurer to partner on evolving product offerings. Our global platform enabled an exclusive relationship while our biometric expertise and collaborative partnership model differentiated us and drove a successful outcome. In Asia, we closed multiple coinsurance transactions by leveraging our ability to reinsure both sides of the balance sheet, combining asset management and biometric expertise. These wins across both flow and in-force transactions reflect the strength of our local presence and our position as a trusted counterparty. Lastly, in EMEA, we completed an exclusive transaction with an insurance company that leveraged our biometric expertise to unlock value from its in-force portfolio. The structure generates incremental capital to support the partner’s growth, and we expect to replicate this model in EMEA and other parts of the world going forward. On the capital front, we again repurchased shares, allocating $50 million this quarter. A balanced use of excess capital is an important part of our strategy to generate long-term shareholder value. Looking ahead, our confidence in the outlook for 2026 and beyond remains high. The fundamentals of our business are strong. Our pipeline is healthy. Our competitive advantages are durable. And our strategy is consistent with what has driven value creation at Reinsurance Group of America, Incorporated for the past five decades. We are confident that our disciplined execution of our strategy will enable us to deliver on our intermediate-term financial targets and long-term value for shareholders. With that, I will turn the call over to Axel Philippe Andre to walk through the financials in more detail. Axel Philippe Andre: Thanks, Tony. Reinsurance Group of America, Incorporated reported pretax adjusted operating income of $611 million for the quarter, or $6.97 per share after tax. For the trailing twelve months, adjusted operating return on equity, excluding notable items, was 16.2%. We delivered another strong quarter, reflecting disciplined execution across our businesses. Results were driven by continued earnings emergence from business written in recent years, favorable underlying experience, and solid investment performance. As Tony mentioned, we continue to leverage our strategic advantages, reinforcing our confidence in delivering on our targets in 2026 and beyond. We deployed $338 million into in-force transactions in the quarter. We remain selective in our capital deployment and are pleased with the quality and expected returns of new business generated. On the traditional side, our premium growth was 5% compared to prior year, which benefited from good growth across EMEA and APAC. In the U.S., traditional premium growth was up approximately 1% over prior year, as the strategic recapture of certain treaties as a result of management actions in 2025 impacted results. Overall, we continue to see very strong momentum in our strategic underwriting initiatives, including record volumes in the quarter and pipeline opportunities for block transactions, which reinforce Reinsurance Group of America, Incorporated’s biometric expertise advantage. It is worth reminding everyone that the premium generated from the Equitable transaction last year is included in our Financial Solutions results and not reflected in the traditional premium growth metrics. We completed $50 million of share repurchases in the quarter, bringing total repurchases to $175 million since we reinstated buybacks in the third quarter of last year. Our capital position remains strong, and we ended the quarter with estimated excess capital of $2.4 billion and estimated next twelve months deployable capital of $2.9 billion. The effective tax rate for the quarter was 24.4% on adjusted operating income before taxes, above the expected range due to the jurisdictional mix of earnings and an increase in the valuation allowance on tax credits. Turning to biometric claims experience, economic claims experience was favorable by $117 million in the quarter, with a corresponding favorable current-period financial impact of $4 million. Over half of the economic experience was driven by U.S. individual life, and every region had favorable experience. Most of this experience was deferred to future periods due to uncapped cohorts, and the portion included in the current-period income was partially offset by unfavorable experience in EMEA traditional capped cohorts. Claims experience in U.S. group was in line with updated expectations, and we continue to believe that our remedial actions taken last year will generate solid results in 2026. Taking a step back, since the beginning of 2023, economic claims experience for the total company has been favorable by $343 million. As a reminder, the favorable economic experience that has not yet been recognized through the accounting results will be recognized over the remaining life of the business. On slide seven, we highlight certain key considerations for the quarter, including actual-to-expected biometric claims experience, variable investment income, and other key items. After considering these impacts, we view run-rate EPS for the first quarter at approximately $6.70 per share. As a reminder, for 2026, we are assuming a 7% variable investment income return. This is below our longer-term expectations of 10% to 12%, primarily due to a still muted environment for real estate sales, which is when income from these investments is recognized. As indicated in this table, there were no material in-force management actions in the quarter. We remain active in managing our in-force blocks, but the timing and size of these actions is difficult to predict. Moving to the quarterly segment results, the U.S. and Latin America Traditional results reflected favorable claims experience in individual life and good individual health results. As mentioned, experience in U.S. group was in line with expectations. The U.S. Financial Solutions results were in line with our expectations. Canada Traditional results reflected favorable individual life and group claims experience, while the Canada Financial Solutions results were in line with expectations. In the Europe, Middle East, and Africa region, the Traditional results reflected the timing benefit on an annual premium treaty, partially offset by unfavorable claims experience in capped cohorts. Economic claims experience was favorable. EMEA Financial Solutions results reflected the contribution from recent new business and favorable overall experience. Turning to our Asia Pacific region, Traditional had another good quarter, reflecting favorable overall experience and the benefits of ongoing growth. Financial Solutions results reflected the timing impact of new business portfolio repositioning and unfavorable foreign currency impacts. Finally, the Corporate and Other segment reported an adjusted operating loss before tax of $65 million, primarily due to the timing of certain compensation expenses and slightly unfavorable variable investment income. Moving to investments, the non-spread book yield, excluding variable investment income, was 4.85% in the first quarter. While the new money rate was lower at 5.64% in the quarter, primarily driven by tactical allocation towards high-quality public corporates, it remains above our portfolio yield, thus providing a continued tailwind to our overall book yield. Total company variable investment income was modestly below our 7% yearly return expectations, by around $8 million. Overall, our portfolio quality remains high, and credit impairments are favorable relative to our long-term expectations. Before moving on, I want to spend a couple of minutes discussing our private credit strategy. We included updated information on our portfolio in the earnings presentation. Our allocation to private credit has been a measured and important part of our long-term investment strategy for many years, and we manage this exposure through a rigorous asset-liability management framework. We invest selectively in a diverse range of private credit assets when they are a good match for our stable liability profile and deliver attractive risk-adjusted returns through incremental illiquidity premiums with greater downside protection. Private credit represents approximately 9% of our total portfolio and is highly diversified across many issuers and multiple asset categories, including investment-grade private placements, private asset-backed securities, fund finance, infrastructure debt, and middle market loans. The majority of our private assets are rated investment grade. In addition, the vast majority of our below-investment-grade private assets are comprised of first-lien senior secured loans underwritten by our experienced internal team, which provides better visibility into underwriting, tighter covenants, stronger downside protection, and more control over credit selection. Overall, fundamentals across the portfolio remain healthy. Credit performance has been in line with expectations, and we manage this portfolio with the risk discipline you expect from Reinsurance Group of America, Incorporated. Turning now to capital, our excess capital ended the quarter at an estimated $2.4 billion, and our next twelve months deployable capital was an estimated $2.9 billion. It is important to note that we manage capital across multiple frameworks, including internal economic capital, regulatory capital, and rating agency capital frameworks. We maintain ample regulatory capital across jurisdictions we operate in while supporting strong ratings that underpin our counterparty strength. Across these frameworks, we remain very well capitalized. Additionally, we will continue to balance capital deployed into the business with returning capital to shareholders through quarterly dividends and share repurchases. We intend to remain opportunistic with share repurchases and expect total shareholder return of capital to range between 20% to 30% of after-tax operating earnings over the long term. We also expect to allocate $400 million of excess capital to reduce financial leverage during 2026. During the quarter, we continued our long track record of increasing book value per share. As shown on slide 16, our book value per share excluding AOCI and the impact from B36 embedded derivatives increased to $167.92, representing a compounded annual growth rate of 9.9% since the beginning of 2021. To summarize, this was another strong quarter for us, and we are confident in our ability to achieve our intermediate-term financial targets. The underlying fundamentals across our business are solid, new business momentum is healthy, and investment performance continues to support earnings growth. Capital deployment remains disciplined, focused on transactions that meet our return thresholds and fit our risk framework, while continuing to return capital to shareholders. Our priorities are unchanged: deliver attractive, sustainable returns while appropriately managing risk and deploying capital where we see the best long-term value. This concludes our prepared remarks. We will now open the call for questions. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Please limit yourself to only one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from Suneet Kamath with Jefferies. Please go ahead. Suneet Kamath: Great. Just wanted to start on capital deployment. In the past, we have spoken about needing $1 billion of deployment to hit the 8% to 10% EPS growth. Considering the debt maturity that is coming, your excess is $2 billion, your deployable is $2.5 billion. Do you think you have enough opportunities to meet or exceed that $1.5 billion, or is that still the base case for this year? Axel Philippe Andre: Thanks, Suneet. When we look at capital deployment for the quarter, we are tracking right in line with our expectations. As always, we will continue prioritizing quality over quantity, just as we did this quarter. We are pleased with the types of transactions and the return expectations that we are generating. We have strategic optionality embedded in our platform, and we will continue to allocate capital towards the most compelling opportunities across the globe, as well as returning capital to shareholders. We believe that we can achieve our financial targets through this combination of capital deployment and return of capital to shareholders. Suneet Kamath: Okay. And then on the Equitable transaction, now that Equitable and Corebridge are planning to merge, does that impact your flow reinsurance agreement that you have with Equitable, and are there any other concentration issues that we should think about as those two companies come together? Axel Philippe Andre: Thank you for the question. We do not want to comment too much on any one client. Obviously, we have a strong partnership with Equitable and expect this to continue. We remain very pleased with the transaction executed last year and do not expect any impacts as a result of this news, either on the in-force or the flow transaction. Tony Cheng: To bring it up a level, for the U.S. overall, we remain very confident as we continue to benefit from our strategic positioning around our biometric and underwriting strengths. Operator: The next question comes from Analyst with UBS. Please go ahead. Analyst: Hi. Thank you. Good morning. Just wondering if you could dig into the mortality favorability in the U.S. It has persistently been surprisingly favorable. I feel like you must have among the best data across the space in terms of the underlying trend. Could we dig into that a little bit? Jonathan William Porter: Hi. I am happy to address that. Speaking to our own experience, our Q1 claims experience was favorable, and that was due to a lower frequency of claims, both large claims and non-large claims. Uncapped cohorts were favorable and capped cohorts were in line. I would say there are no other significant trends to call out in our own data or experience that we saw in the quarter. Bringing it up to a population level, the flu season was more moderate this year than last year based on CDC data and peaked in December. Population mortality, when you look over 2024–2025, continues to be modest. We are seeing reasonable trends there. Analyst: What I really mean is, over a longer-term period, Axel mentioned a $300 million economic benefit that you have not recognized yet. I know there is probably an element of COVID pull-forward and there are GLP-1s coming on. That was more of what I meant. Jonathan William Porter: Certainly, we are pleased to see that there are some favorable tailwinds in the future on the horizon. You mentioned GLP-1s specifically. To reiterate, we have not made any material changes to our assumptions due to GLP-1s, but the benefit we expect to see does give us more confidence that our existing mortality improvement assumptions will be realized in the future. We continue to see signs of positive momentum related to GLP-1s in 2026, including the recent approval of oral GLP-1s reducing prices and broadening access, including Medicare and Medicaid coverage in the U.S. That is a trend we continue to follow and, if and when appropriate, we would reflect that in our assumptions. Analyst: Thanks. And on the excess capital, I saw in the slide deck you mentioned there was a $200 million negative impact from a correction to subsidiary regulatory capital. Could you run through that math and what drove it? Axel Philippe Andre: Happy to take that. Each year, we update our excess capital estimates as part of the completion of our annual regulatory and rating agency capital models. The adjustment discussed on the slide reflects, first, a correction in one of our subsidiary regulatory capital calculations; second, annual experience and assumptions updates; and third, changes to subsidiary excess capital from finalizing year-end calculations as well as additions to the entities included in the analysis. Importantly, we remain very well capitalized across all our legal entities and capital frameworks. That provides us with significant financial flexibility to deploy capital into the business and return capital to shareholders. Operator: The next question comes from Wesley Collin Carmichael with Wells Fargo. Please go ahead. Wesley Collin Carmichael: Good morning. My first question is on earnings seasonality. In the past, especially before LDTI, we thought about the first quarter as being weaker from an earnings perspective, particularly from mortality in the U.S. In a post-LDTI world, how should we think about the seasonality in terms of the first quarter versus the rest of the year? Jonathan William Porter: Thanks for the question. We do expect some higher claims in the winter months, as you point out, both from the flu and from other causes. Our assumptions reflect the seasonality, which is incorporated into our reserves. An average flu season is essentially built in as a higher Q1 claims expectation. Under LDTI, we would expect any differences to that higher expectation to be partially offset from an earnings perspective, although this is dependent on how the experience emerges by type of cohort. This seasonality assumption is something we routinely review as part of our annual assumption process. Because we take the seasonality into account, it largely levelizes what you would expect from an earnings perspective, other than potentially some seasonality that comes through on uncapped cohorts. Under LDTI, there should be less earnings impact from that than you would have seen in the past. Operator: The next question comes from Wilma Jackson Burdis with Raymond James. Please go ahead. Wilma Jackson Burdis: Good morning. Just to make sure I understand correctly, the $26 million benefit will slip to be negative, ending the year at zero. Is that correct on the margin? And then will it come out evenly across the next three quarters? Help us understand that piece a little bit. Thanks. Axel Philippe Andre: Hi, Wilma. For the EMEA segment, this relates to an annual premium treaty where the premium from an accounting perspective is recognized all in the first quarter, while the claims come through the four quarters. This is something that we had already last year and before. Assuming those treaties stay in place, that pattern of earnings would continue in the future. Wilma Jackson Burdis: Thank you. And could you talk a little about what you are seeing on new in-force block transactions? There has been a lot of strong interest in the market in general, but maybe some ebbs and flows. What are you seeing on spread expectations and the level of interest in more complex deal structures? Tony Cheng: Sure. There is a lot there. Let me start with our pipeline. We see the pipeline remain strong, high quality, and, very importantly, diversified across the globe. In Asia, activity continues to be strong both in product development—serving the middle class—and in Financial Solutions as clients adjust to new capital frameworks in markets such as Japan and Korea. In the U.K. longevity market, we continue to be a market leader and are seeing continued business momentum driven by our immensely strong team. In the U.S., we continue to benefit from strategically repositioning around our biometric and underwriting strengths, as well as the industry realignment that is taking place. I want to reiterate that our focus is very much on our sweet spot, which combines both biometric and asset capabilities, and we will not hesitate to walk away from any transactions that do not meet our risk-return trade-off. Operator: The next question comes from Thomas George Gallagher with Evercore ISI. Please go ahead. Thomas George Gallagher: Good morning. First question is on the slower growth you saw in U.S. Traditional. Can you talk about what is going on in that market more broadly? Is the market slowing somewhat? Are companies ceding less, or has that been stable? I am wondering if the broader industry is becoming more constructive on mortality and whether companies might look to retain more themselves. Thanks. Axel Philippe Andre: Hi, Tom. I can get started and pass it to Tony for more color. In 2025, we had some strategic recaptures as part of management actions that reduced ongoing premiums, making the year-over-year comparison more challenging. This is a good thing, because the recaptures tended to be lower quality and less profitable blocks, and this also reduces volatility. Let me remind you that the premiums associated with the Equitable block are now reported in the Financial Solutions segment. Ultimately, we are pleased with our U.S. Traditional business as we continue to improve the overall risk profile and as we see strong momentum in our strategic underwriting initiatives. We are confident that this performance will be reflected in our results over time. Tony Cheng: Not much to add to what Axel said, except that we had a very strong 2025 in U.S. Traditional. The type of transactions we focus on leverage our underwriting and biometric capabilities. That momentum continues into 2026. We remain very optimistic about our prospects in U.S. Traditional—winning very high-quality business at very good returns and adding a lot of value to our client partnerships. Thomas George Gallagher: Do you have any sense of cession rates for the industry more broadly? Has that been stable or changing? Tony Cheng: We do not have that at our fingertips. We focus on delivering comprehensive solutions—product development, underwriting solutions, and more. By focusing on solving our clients’ problems and creating win-win solutions, we feel we can control our own destiny, independent of broad cession rate trends. Operator: The next question comes from Joel Robert Hurwitz with Dowling Partners. Please go ahead. Joel Robert Hurwitz: Earlier this year, you brought up the prospect of potentially launching a sidecar for complex liabilities like long-term care and universal life with secondary guarantees. Could you provide an update on that potential vehicle and whether you are seeing parties interested in committing capital to it? Axel Philippe Andre: Thanks, Joel. Third-party capital remains a core element of our capital management strategy. It enhances our flexibility to fund growth and return capital to shareholders, while also generating incremental fee income for shareholders over time. Our current focus is on fully deploying Ruby Re, which is still expected this year. There are pros and cons to various sidecar structures and types of liabilities, but it is too early to be specific as we focus on completing Ruby Re capital deployment. We will update you as appropriate. As it relates to ULSG and long-term care risks, these risks are less than 10% of our balance sheet today, and we expect it to remain this way going forward. Joel Robert Hurwitz: On Ruby Re, how much capital do you have left to deploy this year? Axel Philippe Andre: We have the last piece of capital identified in terms of the blocks of business that are going to go to the sidecar, and we are in the process of getting that approved by the investors and working through the process with our regulator. Operator: The next question comes from Analyst with JPMorgan. Please go ahead. Analyst: Thank you. First, there is a widely held view that as the P&C cycle softens, the large multiline European reinsurers tend to be more competitive on the life side. Do you agree with that view? If so, how do you think competition from that part of the market unfolds given price softening in P&C? Tony Cheng: I have heard both sides of that view as P&C cycles soften or harden. Addressing competition more broadly, in our sweet spot—transactions with both biometric and asset risk—competition continues to be very stable. We focus on this area by leveraging our key strengths, our strong local presence and relationships. In some ways, we feel Reinsurance Group of America, Incorporated is unique—one of one—in that space. In addition, with our global platform, we have strategic optionality to pursue the best risk-adjusted opportunities around the world. With that in mind, we remain very excited about our business momentum and disciplined positioning in the reinsurance market. Analyst: My second question is also about competition but from a different angle. An increasing number of U.S. primary insurers are setting up internal reinsurance captives to generate capital efficiencies, and some have started writing third-party business. Some have set up sidecars not that different from Ruby Re. What is your view on this trend? Is it just enormous market opportunity, or is it an ambiguous sign of more competition entering this space? Tony Cheng: We have definitely seen increased competition in various markets, but that competition is really more for vanilla asset-intensive transactions. That is what many of those vehicles are being set up for. Our sweet spot is transactions that have both asset and biometric risk. We feel we are uniquely positioned to do that. Whether in Japan, where the market is large, or in the U.S., we are very optimistic about our ongoing momentum. Q1 was a strong proof point of our success in executing on our strategy in this area. Operator: The next question comes from Analyst with Barclays. Please go ahead. Analyst: Good morning. On in-force management actions you have done over time, it felt like there was a heightened element over the last few years. Where are we in that time frame—still more to do, or more normal course now? Specifically on older-age experience, are you still seeing the need to do actions on those blocks? Axel Philippe Andre: Managing our in-force business is a core part of our strategy and will continue to be. We have had very good success with these efforts over the past several years. In the first quarter, we did not have any notable in-force management actions. We expect to remain active going forward, but the timing and size of these actions are unpredictable. We are projecting a more limited financial impact compared to recent experience in the near term. Analyst: Thanks. Second, in the U.K., there is proposed regulation around captive reinsurance and limiting some uses of that. Is there anything around that that could be an opportunity or a risk to your structures? How might that impact you? Jonathan William Porter: I believe you are referring to the recent PRA information related to counterparty charges. It is very new, but at this point we do not expect it to have a big impact on our business. It is related to funded reinsurance, and the majority of our longevity business in the U.K. is done on a swap basis, where we take just the longevity risk and not the asset risk. About 90% of our in-force longevity block is on a swap basis. Initial industry takeaways are that there might be a compression of overall economics for ceding companies due to the higher charge, but there will also be increased linkage to reinsurer credit quality and collateral strength that should favor strong counterparties like Reinsurance Group of America, Incorporated. Operator: There is a follow-up question from Wesley Collin Carmichael with Wells Fargo. Please go ahead. Wesley Collin Carmichael: Apologies. Can you hear me? My follow-up is on the economic biometric experience—the $343 million that is going to be recognized in future periods. Is it material over the next twelve months? How much of that comes in, or is the duration longer so that it is probably pretty small? Axel Philippe Andre: Thanks for the question. The difference between the economic claims experience that has not yet been recognized through the accounting results has grown in recent periods and will come through the accounting results over a long time period. The current annual impact to future earnings is baked into our expectations. It is approximately $20 million a year. Wesley Collin Carmichael: Got it. Thanks, Axel. And a regulatory follow-up: over the past year and a half, the NAIC has worked on Actuarial Guideline 55 on asset adequacy testing for reinsurance. I think it is disclosure only, but is there any impact to Reinsurance Group of America, Incorporated? Is this material for the industry? Axel Philippe Andre: In the U.S., our standard business practice utilizes our flagship U.S. entity, RGA Re, as a reinsurer facing clients. As an onshore entity, our clients can confidently transact with a AA-rated counterparty and be exempt from AG 55. We believe that is an attractive option for our clients, especially combined with our broader solutions and the partnership mindset that we bring to long-term reinsurance relationships. We constantly model transactions across a variety of accounting and capital frameworks and have an open dialogue with our regulators on the expected impact of any regulations. Our business model does not rely on any particular regulatory regime, so the additional requirements of AG 55 are really just an extension of our existing practices from a regulatory perspective. We do not expect it to have a material impact for Reinsurance Group of America, Incorporated. Operator: This concludes our question and answer session. I would like to turn the conference back over to Tony Cheng for any closing remarks. Tony Cheng: Thank you for your continued interest in Reinsurance Group of America, Incorporated. We are pleased with the strong start to the year, and we look forward to continuing to deliver in the future. This concludes our Q1 conference call. Thank you. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good afternoon, and welcome to Sezzle's First Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Charles Youakim, CEO and Executive Chairman of Sezzle. Please go ahead. Charles Youakim: Thank you, and good afternoon, and welcome to Sezzle's First Quarter 2026 Earnings Call. I'm Charles Youakim, CEO and Executive Chairman of Sezzle. I'm joined today by our CFO, Lee Brading, and my Co-Founder and Company President, Paul Paradis. In conjunction with this conference call, we filed our earnings announcement with the SEC and posted it along with our earnings presentation on our investor website at sezzle.com. To retrieve the documents, please go to the Investor Relations section of the website. Please be advised of the cautionary note on forward-looking statements and the reconciliation of GAAP to non-GAAP measures included in the presentation, which also covers our statements on today's call. Before diving into the quarter, I want to start by touching on the big picture for 2026. We believe it is going to be an exciting year for Sezzle. 2025 was about enhancing our current consumer ecosystem. We improved the app experience, expanded engagement features, leaned back into higher-value consumers and continue to give our users more reasons to come back to Sezzle. But in 2026, we are pushing that strategy further. We are moving beyond being a product consumers think about only at checkout. Our ambition is to serve our consumers more broadly in their everyday lives and in the way they manage everyday spending. That means continuing to build around payments, but also expanding into areas like deposit accounts, card products, enhanced lending options, our recently launched Sezzle Mobile plan and more. The goal is simple: to create more value for the consumer, create more reasons to engage with Sezzle and over time, make Sezzle a critical part of our consumers' daily lives. The strategy is working. In the first quarter, we delivered strong growth, strong profitability and improved engagement across the platform, and we are raising our full year guidance as a result. We are still very early in what Sezzle can become for the value-focused consumer. With that, let's dive in. The first quarter followed a similar and important pattern to the first quarter of last year. Better-than-expected credit performance helped drive strong margins and bottom line results. The strength in repayment trends also gave confidence to approve more volume while staying disciplined on risk, helping drive GMV that nearly matched the fourth quarter holiday period. We also saw the benefits of the investments we made throughout 2025 to create a more engaging product ecosystem. Average quarterly purchase frequency increased by a full purchase across the consumer base, reaching 7.1x in the quarter compared to 6.1x in the first quarter of last year. That's a meaningful increase, and it tells us our consumers are coming back to Sezzle more often and finding more ways to use us. Those factors helped drive the results you see on Slide 3. GMV grew 37.3% year-over-year. Total revenue grew 29.2%, and our gross margins reached 74% of total revenue. We also generated $51.3 million of net income, representing a 37.9% profit margin and $71.1 million of adjusted EBITDA, representing a 52.5% adjusted EBITDA margin. Given the strength of the first quarter and the growing engagement we're seeing across the platform, we are increasing our full year 2026 guidance across the board. We are raising total revenue growth guidance from 25% to 30% to a new range of 30% to 35% -- we are also increasing adjusted net income guidance by $10 million to $180 million and raising adjusted EPS guidance to $5.10 from $4.70 with some benefit from repurchase activity in the first quarter. We will provide more detail on guidance later in the call, but overall, this reflects our confidence in the momentum of the business. A key factor in the recent growth of our business has been the payoff of our reinvestment and refocus on our subscribers, our highest LTV users on the platform, which you'll see depicted on Slide 4. Our investment continued to pay off in the first quarter with total subscribers increasing by 44,000 to 714,000. The overall total mods sequential decrease is due to the decrease in monthly on-demand users, a drop which reflects the seasonality of our platform from the busy holiday shopping period to the lower activity we see in the quarter after, along with the deemphasis or a renewed focus on our subscribers. Turning to Slide 5. Much of that subscriber momentum traces back to the continued investment we are making in marketing. Since we began leaning harder into this effort in late 2024, we have tested a number of campaigns, funnels and pathways to reach new consumers. Like most things at Sezzle, there is a trial and error along the way, but I think it's clear that we are starting to catch our stride in finding the most effective ways to win subscribers and drive greater engagement across the consumer base. The best part is that we have been able to push spending higher while still maintaining attractive returns. Marketing spend increased again in the first quarter, but we continue to see a payback period of less than 6 months. That gives us the confidence to keep investing where we are seeing performance. To be clear, the goal is not just to acquire any user at any cost. The goal is to acquire and retain consumers with the highest lifetime values. The ones who transact more frequently demonstrate stronger loyalty and give us more opportunities to create value over time. In practice, that means subscribers, repeat users and consumers who engage across multiple parts of the Sezzle ecosystem. The Earn tab is a great example of how our product and marketing strategies reinforce each other. Since launching in June 2025, the Earn tab has generated 4.8 million visits. And consumers show a 55% increase in BNPL conversion within 30 days after their first Earn tab activity. This is exactly the type of engagement loop we want to build. That brings us to Slide 6. Pay-in-4 has been the foundation of the business, but consumers are asking for more, more utility and more ways to use Sezzle beyond a single checkout moment. In the first quarter and shortly after quarter end, we made progress on several fronts. We expanded short-term installment optionality with Pay-in-5, launched an enhanced long-term lending capability across the entire BNPL product suite, introduced the virtual card in Canada with select integrated merchants and launched the Sezzle Mobile plan on AT&T's network with an unlimited wireless plan starting at $29.99 for Sezzle Anywhere members. Each of these products has slightly different use cases. but the strategic theme is the same, expand what a Sezzle relationship can do for the consumer. Turning to the next slide. AI continues to be a major focus across Sezzle. We are not treating AI as a side project or a small productivity experiment. We are embedding it into how we build products, support consumers, analyze data and operate the business. On the consumer side, we recently launched our AI support chatbot, and it's already resolving approximately 60% to 70% of the chats without escalation. That improves speed for the consumer while allowing our support organization to handle greater volume with the same disciplined cost structure. We are also testing our AI shopping assistant, which is driving stronger click-to-order conversion and helping consumers find the right products with less friction. Internally, we are using AI everywhere in the company to improve efficiencies and automation. We're using it to help analyze chargebacks, improve business intelligence, increase support quality, improve access to company data and speed up engineering workflows. Taken together, these efforts do three things: improve the consumer experience, increase output across the company and scale the business while keeping expense growth well below revenue growth. All of this points to a broader vision, which the next slide lays out. Sezzle started with Pay-in-4, but we are no longer just a Pay-in-4 company. We are building an all-in-one services platform for the value-focused consumer. The strategic goal is to make Sezzle more useful in more moments. The more value we provide, the more reasons consumers have to come back. That drives engagement, supports retention and strengthens the consumer relationship over time. We still have a lot ahead of us, including products like bank accounts and greater post-purchase split capabilities among other ideations. And overall, the real test of the strategy is engagement. If the product ecosystem is working, we should see consumers using Sezzle more often across more merchants and across more use cases. That's exactly what we saw in the first quarter, as seen on Slides 9 and 10. In the first 2 boxes, mods and quarterly purchase frequency prove out the ROI across products and marketing. Even the sequential increase in quarterly purchase frequency seen on Slide 10, jumped to a whole new level, reaching a half purchase more than our busiest quarter of the year. To me, all of these metrics you see on Slides 9 and 10 are a clear sign that we are moving in the right direction. We are still early, but the flywheel is getting stronger. And with that, I'll turn it over to Lee. Lee Brading: Thanks, Charlie, and good evening to everyone joining us. I will start on Slide 11. But before getting into the details, I want to highlight the seasonality in our business. From a revenue yield standpoint, which is simply total revenue divided by GMV, Q1 is typically the peak of the fiscal year as some payments from Q4's holiday season spill over into Q1. The quarter is also typically the best performing quarter in terms of our provision for credit losses as a percentage of GMV because our consumers generally benefit from tax refunds at the start of the year, thus leading to better loss rates in Q1. As a result, Q1 is usually the best quarter in terms of margins. While we would love to just annualize a unit economic margin of 74%, we can't. And if you look back to last year's results, you will recognize that dynamic. Even though we had a tough year-over-year comp this quarter, you can see the strong momentum in our business as we reached all-time highs in adjusted EBITDA margin and total revenue less transaction-related costs as a percentage of total revenue. As noted earlier by Charlie, our marketing spend more than doubled year-over-year in the quarter. Nonetheless, we were able to leverage non-transaction-related operating expenses by 30 basis points year-over-year. Top line growth and leveraging our nontransaction-related OpEx, combined with strong unit economics resulted in net income outpacing total revenue for the quarter. For those playing the Rule of 40 game at home, which we measure as revenue growth plus EBITDA margin, we exceeded a score of 80 in Q1. On Slide 12, you can see the strong momentum in our business as Q1 GMV of $1.1 billion nearly surpassed Q4's holiday season GMV of $1.2 billion. Sequentially, our revenue yield rose to 12.2% from 11.2% due to seasonality, which I addressed in my earlier remarks. Year-over-year, however, revenue yield declined 80 basis points due to the mix in merchant and virtual card activity, plus a reduction in the number of consumer fees charged. Slides 13 through 15 dive into our unit economics, which are powering our bottom line results. As a reminder, transaction-related cost is a non-GAAP measure that combines transaction expense, provision for credit losses and net interest expense. You might hear us refer to gross margin and net transaction margin, which is total revenue less transaction-related costs. Let's jump to Slide 14 and review the 3 cost components of transaction-related costs. Each of the 3 components had a favorable year-over-year move. Transaction expense consisting mostly of payment processing costs continues to experience the benefits of us driving consumer adoption toward lower-cost payment channels such as ACH. Meanwhile, our provision for credit losses fell year-over-year because of the better-than-expected performance in the current year's portfolio as well as prior year vintages. Further, we are not seeing any unusual strains on the consumer. And as noted earlier, seasonally, this is our best quarter for provisioning for credit losses. But the story is not simply about consumers doing better than expected. Our team continues to enhance their toolkit and decisioning. Our underwriting team is exploring new data sources, accelerating model iterations and utilizing new machine learning techniques and collections. All of these add up to improvements as we scrutinize every lever of our underwriting inputs. Lastly, net interest expense remained low at 0.3% of GMV. There is further room for improvement here as we move forward with refinancing our current credit facility, which matures next April. Slides 13 and 14 demonstrate our hyper focus on unit economics and its components. It is evident how it all comes together on Slide 15. We continue to find ways to improve our economic model and not sacrifice growth. We recognize the importance of profitability as it allows us to pursue strategic initiatives that will further propel the business. As we have stated in the past, our goal is to drive our business and profitability with revenue less transaction-related costs in the 55% to 65% range. Our hyper focus on cost does not stop at the unit economic line. It extends to our nontransaction-related operating expenses, too, as shown on Slide 16. Even as we more than doubled marketing spend year-over-year, we continue to generate operating leverage across the business, particularly in personnel costs. While our team has grown, we have scaled thoughtfully and remain disciplined in where we add resources. Looking ahead, we expect to continue leveraging our operating expense base while still investing in the areas that are delivering attractive returns. We did incur minor costs related to our corporate strategic projects during the quarter. Our antitrust suit is currently ongoing and something we cannot elaborate further on. We are making progress on the banking charter process and have moved beyond the discovery phase as we are now actively hiring executives and nonexecutive directors. We anticipate submitting our application mid-2026. We recognize this process is long and not guaranteed, but we believe it is an important strategic opportunity to pursue. Sezzle's significant momentum is evident in our bottom line results shown on Slide 17. Driven by a healthy unit economic story and leveraging our nontransaction-related OpEx, net income outpaced our top line growth. For the quarter, GAAP net income reached $51.3 million, representing a 37.9% profit margin. Adjusted net income was $50 million, and adjusted EBITDA was $71.1 million, a 52.5% margin. Each of these reflects an all-time high for Sezzle. Our liquidity remains strong as shown on Slide 18, as we ended the quarter with $147.4 million in cash, including $26.9 million in restricted cash. In addition, we had $69 million in availability under our line of credit. Working capital did build relative to previous quarters due to the launch of Pay-in-5 in January. But as noted, we have plenty of liquidity. The strength of our liquidity and cash flow generation is further exemplified by us repurchasing $24.8 million worth of common stock during the quarter, which will be disclosed in our 10-Q that will be available tomorrow. On Slide 19, we update our guidance. We are raising our guidance across the board. We now expect revenue growth of 30% to 35%, adjusted net income of $180 million and adjusted net income per share of $5.10. Before passing the call over to the operator for Q&A, I want to remind investors of a few items. First, we target total revenue less transaction-related cost margin of 55% to 65%. And within this margin calculation, we target a provision for credit losses in the 2.5% to 3% of GMV range. Second, we expect to continue to leverage our nontransaction-related OpEx as we anticipate growth in the top line to outpace our spending. Third, do not forget about the seasonality in our business that I discussed earlier in the call. And last, this guidance does not reflect any projections for new products currently in development. With that, I would like to turn the call over to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Mike Grondahl with Northland. Mike Grondahl: Congrats on the strong quarter and progress. I'm looking at Slide 6. Pay-in-5, virtual card in Canada, the mobile plan and enhanced long-term lending. Charlie, if you had to project out a year or guess, what do you think is going to be the most important out of those four? Or could you kind of rank them? Charles Youakim: Yes, I would say Pay-in-5. I mean, just because it's already proven to have results for us. I know it's -- I know many of the people on the call are not our target customer. But our target customer, Middle America, value-seeking consumers, we surveyed, we asked and even though Pay-in-5 seems to just that incremental change over paying 4, there was a big demand among our consumer base for that incremental change, and we've seen it in the implementation. So the other product, virtual card in Canada, it's not quite fully launched. Our goal with that virtual card in Canada product is to get that to truly anywhere. You can see in the subscript, it's closed end at the moment. As soon as that goes live, I would say that also has some pretty serious potential, but it's also in Canada, which is 10% of our volume. So it's going to help us, but it's 10% of the potential volume. And then several mobile plans, enhanced long-term lending, they're just really early. Mobile plan not really designed to drive revenue, gross margin, more designed to increase retention, deliver value to consumers. So financially not going to be delivering massive numbers, I think, at any point for investors to look at. And then enhanced long-term lending, that's always been more of a nice sidecar for us as a product. We've had that in our history. We're just making it better. And it's also never been a massive driver in and results in terms of financial results at least. But a product consumers do like, yes. Mike Grondahl: Got it. And then maybe just a question on marketing. What channels or where are you getting sort of the best returns there? And then what's kind of your outlook on marketing spend the rest of the year? Charles Youakim: Well, marketing spend, we still have the Timberwolves. We've got that deal going here another year. And by the way, go Timberwolves. I really hope they beat the first tonight, planning on it, but we want to see them in the championship. But yes, we've got the Timberwolves sponsorship going. But that's more of like brand awareness type of play. The actual channels that deliver the results for us are advertising channels, and it's really the usual suspects, web ads, social media ads, in-app ad networks. We're pushing more into connected TV, basically like the YouTubes of the world, connecting those ads. And basically just testing across the board, where we see better results, we just keep on pumping a little bit more. And that's -- if you look at our results, you can basically see like just -- we keep on feathering on the marketing spend as the results keep on playing out. Mike Grondahl: Yes, that's fair. That chart is helpful... Lee Brading: And Mike, I'll just add a little more color too on that marketing spend. Just if you look from a year-over-year in absolute terms, Mike, it's definitely up. But if you think about it also looking as a percent of our revenue, it's fairly reasonable and actually slightly lower than where it was if you look at Q2 last year. So we do have the ability to leverage that spend. Operator: The next question comes from Kyle Peterson with Needham. Kyle Peterson: Really nice results. I wanted to start out on the credit costs. I appreciate the commentary and reminders of the seasonality. But I guess just looking at it, the losses as a percentage of GMV were still better than expected and down year-on-year. So I guess like how should we think about some of the puts and takes and what your expectations are of getting back to that 2.5% to 3.5% range, especially as like Pay-in-5 and some of these other products scale. I just want to see like what's conservative versus mix and if there's some potential upside to that number? Charles Youakim: Kyle, I'll let Lee follow up. Lee, if you think I missed anything here. But part of the thing to consider when we look at our quarterly results is part of the result is actually reconciliation of the -- because it's a provision. It's reconciliation of the prior quarter. So every quarter that we post is an estimation of what the loans for that quarter will be in terms of their estimated loss rates. And so we basically had some, you call overestimation in prior quarter that leaks in or underestimations. In this case, we had overestimation leaks in the first quarter, affecting that a little bit to the downside. So always I think take that with -- I think trend lines on the provision are a really good idea because of the fact that we have to estimate. And it usually is two quarters' worth. And then once we got first quarter posted, it's basically washed out fourth quarter estimations. But that's always something to consider. Also, we have seasonality. But I think we're still spot. The plan is still to see 2.5% to 3% for the provision for the year. Part of that is because we're expanding our marketing spend. Marketing spend increases new users, new users have higher provisions. I would say Pay-in-5, one of the trade-offs with Pay-in-5 is that it does just logically have a slightly higher provision inherent to the idea. But the way we've designed the product mix, we think we account for that in terms of like a matching principle on potentially the fees that are collected from some of the failures. So it almost like financially plays out as a wash, but where it doesn't play out as a wash is it could potentially increase provision a bit. So I think we're comfortable with what we projected. Every time we provision, it's actual provision and actual pure estimation. But again, estimations are almost 100% guaranteed be incorrect one way or the other. I don't know, Lee, anything to add? Lee Brading: I'll just reemphasize what you said. I think, yes, Q1 is -- I don't want to say an anomaly, but it is the easier or tougher comp, I guess, so to speak, from a standpoint of collections and the provision standpoint. So I get where you guys on the outside looking in, looking at the challenge going wow, such a great quarter. We'd love to annualize this. But as the year progresses, we get a little more aggressive, too, from the new, as Charlie mentioned, bringing in new users. And not to mention that Pay-in-5 is just getting started, and we would expect to have probably initially a little higher loss rates on that as well. So I think our -- we're very comfortable with our 2.5% to 3%. Kyle Peterson: Okay. Great. That's really helpful color. And then as a follow-up, I wanted to ask about the partnership you guys have announced with Pagaya. I guess from the sounds of it, I guess, is this kind of a way that you guys can get into some more longer-term lending? And how will this partnership scale and be funded? Like are you guys contributing anything there? And I guess, if not, like what's your kind of path to monetization as that scales? Lee Brading: Yes, good question. In terms of monetization, it's really just a take rate on the like an MDR. We're not sharing in the risk on that product, although we're trying to help Pagaya with their results as much as possible because they're a partner of ours. But it's really just like a skin off the volume that goes through that, that comes to us for running the product through our platform. And then for the consumer value, I would say it's primarily to help the company win merchant deals. That's primarily why we've got the product in there because there are a number of merchants that have average order values that span a larger range than our core products, core sweet spot, which is like more $100, maybe $80 to $200 for a sweet spot. And when a merchant has AOVs that rise above that, like a general merchandiser they want to see that you have the capability to help them on some bigger ticket items. So by having this partnership, it helps our sales team win some more of those merchant deals. But then our plans are also mix this into some of our D2C products as well. And that's more about just providing as much value as we can to our consumer through our product mix. We like staying in the shorter-term products, which is why we've always partnered on longer-term products. We like the nature of our product and the terms, et cetera, just all the financial metrics around it. We're very comfortable with it. And we think give that longer-term product to people that specialize in it and Pagaya is one of those partners. Operator: The next question comes from Hal Goetsch with B. Riley Securities. Harold Goetsch: Could you give us some color on any middle market merchants, enterprise customers? Are you generally just seeing broad new merchants coming from subscribers who are taking their virtual cards and their anywhere subscriptions to many, many more merchants. Could you give us any color on that? Charles Youakim: Yes, we're seeing basically a continued trend on the -- I mean, our business is becoming more and more and more direct-to-consumer, more and more and more open loop. Just I think that's where the trend is in our entire industry, which I think actually mimics things -- none of us probably old enough to know the actuals of what happened in the credit card industry. But basically, from my understanding of reading back to the credit card industry days, a lot of things started closed loop and then they moved to open loop. I think the BNPL space is going to do the same thing. It's going to -- we all started closed loop fully realizing customers love the product so much they want to use it everywhere, which leads to open loop. And so I think what we're seeing is our consumers using us in more and more just general purpose locations like more shopping with grocery, more shopping with general merchandisers. We're seeing more and more and more of that, which matches that ideology or the want to use the product in more places. But our sales team is still out there, and we have new products, we have new services, new features that helps them land more enterprise merchants because we're not -- it's probably take 5 years to 10 years for this transition to open loop to completely play out. In the meantime, we can still deliver a lot of value to merchants on the spot. And I think if you look at the credit card industry, it's always -- there's always been some sort of closed-loop aspect. You still have private label products out there with the credit card ecosystems. So I think we'll continue to have the sales channel on merchant. We've got on-demand now, which we can offer merchants that have thinner margins, the ability to pass on some of the fees to the consumer. That's helping us win some more deals. We've got the Pagaya launch that just occurred. That's going to help the sales team win more deals. And so I think we're going to have this as a part of our ecosystem and one that generates even more returns for us. So it's an area of the business we're going to keep on growing. That's probably not going to be growing as fast as the D2C because we're just seeing incredible growth on that right now. Lee Brading: I would add too, Charlie, that we view merchants primarily as a customer acquisition channel. As we've pushed more into marketing channels, as Charlie just mentioned on this call, social advertising, app store advertising, merchants are a great channel for us to acquire new customers in. And that's why we're going to continue selling into those merchants, but it's becoming a less important part of our overall business. Harold Goetsch: Terrific. And on the marketing and advertising, nice commitment to spending growth year-over-year and sequentially from Q1 of last year and Q4. Would you expect the level of dollar spending to move incrementally higher from here or flattish quarter-over-quarter? What are your thoughts on the spending commitment in marketing this year? Lee Brading: I think we expect it to continue to rise quarter-on-quarter because the team is finding more and more places to place ads and our mandate to them or our guidance to them is if you can find places to get the return we're looking for, we want you to place the ads. So their job is to go out hunting for more and more places to place the ads where they can get the return. And if they can do it, we're telling them to do it. Harold Goetsch: Excellent. And last question for me. Can you just give us your thoughts on the macro? We've had -- you sort of a value-focused customer. You've had a pretty good amount of narrative in the news about affordability over the last 6 months and now this gas price spike. And I just want to get your thoughts on what you're seeing real time in the business. Lee Brading: Yes. In terms of our customer base, I think that we're -- people have asked us about like macro trends, are you guys seeing anything? I don't -- the only thing we've ever seen in our history that I can call out in our numbers where I really have seen something is COVID, both the spike down disclosures and the spike up once people got stimulus checks. Outside of that, we really don't pick up anything. And it seems like our customers are perfectly healthy to us when we look at the numbers. We're not seeing anything now. So I know people have brought that concern about like gas prices that really hits mid- to low-income consumers more. But maybe the mid- to low-income consumer just works a bit more, which is natural. Like if you're realizing your pinch a little bit, you've got to go out there and work a little bit more. I don't know, I'm just postulating. I just we're just not seeing anything. Operator: The next question comes from Rayna Kumar with Oppenheimer. Anthony Cyganovich: This is Anthony Cyganovich filling in for Rayna. I was just curious if you could just talk about some of the drivers of what you think might be accelerating revenue from the kind of 29% that you reported in the first quarter to that 30% to 35% range that you gave. Are you including any kind of uplift from Sezzle Mobile or Pay-in-5 this year? Charles Youakim: Well, Pay-in-5 is included now because it's part of our existing product mix. Sezzle Mobile long term just launched. So that's not anything we're projecting at this point. I think we are seeing some really nice momentum in subscriber growth. you've seen -- as we reported, on-demand down quarter-over-quarter. Some of that is -- I would say a lot of that is holiday, but some of that is also our renewed emphasis on subscribers. And we really like to focus on subscribers. We think it builds a rolling snowball, which helps us. So I think that probably is the primary reason behind it. I don't know, Lee, anything else to add to that? Lee Brading: Yes. No, I think that's spot on. The only other thing I would add is just a little bit of the choppiness maybe or seasonality with our revenue yield when you look at versus GMV. I think if you look -- like this quarter was a tougher comp. I think next quarter, we'll have an easier comp from a revenue yield standpoint. And then I think you'll see a smoothing out or a more consistent from Q3, Q4, similar to Q1. But in the first half of last year, we had some movement within our revenue side. And that's, you saw that spike last year, and we were down a little bit this year, but I think you'll get the smoothing out as we go through the quarters. Anthony Cyganovich: That's helpful. And I guess as a follow-up, I'm just looking at Slide 8. There's a lot of new products that are on your road map here. I mean, can you help us think about kind of a time line for you to become this kind of all-in-one services platform? And then secondarily, like are you utilizing AI at all to help you develop any of these financial tools to kind of gain a little bit more operating leverage in your business? Charles Youakim: Yes. I mean I think based on the list of items we see here, this is probably all these items completed, launched and scaling by the end of 2027, the ones we have outlined here. But I don't know if we ever will say the end is there in terms of innovation. We've always believed that we want to keep on innovating. But I think we'll have a really nice platform by the end of 2027 in terms of like much more fully featured in terms of offerings to the consumer. We'll definitely have the deposit accounts in place by then. Secured credit card, I could see potentially in that time period, but we'll see how things play out. Every time we announce products and product road map, we always have new conversations. So that's I'm hesitant that I'd say probably because there might be things that come up in the meantime that we think are more important for the consumer. But I think over the next couple of years, I think we'll -- end of 2027, we'll have a really nice product mix. And it's really interesting, your question on AI, definitely. I mean we have had some products thus far where the vast majority of the product development has been AI-driven. I remember our product team in their internal calls calling out this product thus far has been 100% developed with the assistance of AI from the visualization, the screen, the flows, the plan flows to the code, upwards of 80% of our code is now being developed by AI was reviewed by our team. It's incredible. And our goal, the way we view it internally is we're asking our team to be more productive. I know we see out there in the market. I think it's -- some people talk about using AI to cost cut. I think it's just such a half-glass empty way to look at things. I think our view is AI makes you a superpowered person, use it, use it to increase our product development instead of launching one product this quarter, let's launch three, speed up, allow us to be a team that looks like 4,000 instead of 500 that we have with us. So that's our -- that's the way we utilize it. We're injecting it everywhere. We're basically mandating it everywhere. If you're a leader in the company that doesn't want to embrace AI, you're probably not going to be in the company much longer. But that's not an issue. We already have the embrace it. So I'm just saying like that's how much we believe in it. We believe it's a necessary product that you have to use. Operator: The next question comes from Ryan Tomasello with KBW. Ryan Tomasello: In terms of the product pipeline, I think you previously alluded to a cash advance product that's in the works. I was hoping you can give us an update on how that rollout was progressing. Anything you can share on engagement pricing and also on the underwriting? And particularly on the latter with underwriting, Charlie, curious if you envision an opportunity to push more into direct cash flow linked underwriting to support that rollout and if that could eventually support the broader kind of BNPL core credit product as well. Charles Youakim: Yes. We're testing a lot of different variations of our cash flow management product. And we've seen great engagement. which is nice. We definitely can tell the customer likes the product. Because of the regulatory environment we're in, we're very cautious about how we launch the product as well. So the current plan is to have the product more mimic what we do with BNPL. So it would be like almost a Pay-in-4, pay and 5 to yourself, kind of a cash flow product, probably limited to subscribers only is the idea as a tool or another benefit for those subscribers. And we think it will be favorably viewed by the consumer base because of the pricing to that product. So it'd probably be like one of the more lower-cost cash management tools available to a consumer, albeit they have to be one of our subscribers, but that's the whole point. We want to create more and more tooling that provides more and more value to get consumers into the subscription ecosystem and keep them there. And that's what we've seen from some of our testing. We've done some small-scale testing. It increases engagement. It increases retention, increases happiness. So it's one of those products that we -- and we plan to launch here in the next few months. So probably the next 3 months, we'll have that product out in the market in a more serious way. Ryan Tomasello: Great. And then sticking on the product pipeline topic with the checking product. Can you just talk about the timing there and how you envision going to market with the product? Any carrots that you might offer to help drive uptake? And then just elaborating on like the marketing investment that might be needed to support awareness and adoption? Charles Youakim: Yes. We -- that's another product coming in the next few months as well, definitely by end of third quarter, it would be our estimation. But in terms of like the actual like planned pitch around the product and the plan integrations, nothing yet really concrete to speak of at this time. But we just -- the whole point is we want Sezzle to be the one-stop shop for the consumer. And we'll try to figure out give and takes or customer, you give us X, we'll give you Y kind of arrangements. We think that that's the way we kind of like to mix our value to the customer. It provide this value to the customer if they join up for X, Y or Z. So we don't have those nailed down, but we'll try to figure out some way to build it into the fold and create a compelling reason for consumers to join it. And by doing so, I think we're seeing deposit accounts or thinking deposit accounts are a great way to increase retention. Operator: The next question comes from Huang Lin with TD Cowen. Hoang Nguyen: Congratulations on the quarter. I want to ask on the revenue less transaction cost margin since you guys have been doing so well in that over the past couple of years, and it looks like it just keeps going up. If I look at 1Q this year, I think it's up like 4 points versus last year. So I mean, can you talk about -- is this -- is there something that is making your margin, I guess, structurally higher year-over-year? And maybe can you talk about some of the levers that you can continue to pull to further improve on the margin? Charles Youakim: Yes. I'll answer some of that and pass off to Lee for more detail. But some of these things on the COGS side, they're just helped by scale. So transaction expense, as we have more scale, we get better payment processing rates. We're also, in some ways, incentivizing consumers to move over to ACH in some ways versus card processing. So that's been helping our transaction expense, but scale always helps there. Net interest expense, as we get scale, we have lower cost of financing available to us. We're also packing on cash. We're a cash-generative business. So we don't have to actually borrow as much from our line of credit, which also reduces the net interest expense. So we've had some of that benefit. Provision, there are probably a bit of a scale benefit there as well. The more -- we find repeat customers have better loss rates. So as you scale up, we have more repeat customers generally. Of course, I always think it's like a good problem if we can scale growth of users in a big way. So that one, if we hit some of our goals, it might go the other direction if we are able to break through some finding that helps us scale users even faster. But generally, steady state, that also goes down because of our repeat user engagement. And then on the top side, I think the fact that you have subscription products as a driver, that tends to create a rolling benefit for the company on the top line. So I think that's probably why you're seeing that. But as Lee mentioned a couple of times, I just also want to reiterate for listeners that the 74% gross margin that we basically posted here in the first quarter, don't annualize it. We want to make sure investors know the fourth quarter, first quarter, there are some seasonal elements to that. And I'll just explain it again because I think I want to make sure people understand it. The seasonal elements are mainly on the revenue side, but a little bit on the cost side with provision. As volume slows, the way we recognize costs -- that's the best way to say it. The way we recognize costs we do it through provision. So provision, we estimate right away in the quarter what the provision will be. So if you have a quarter like fourth quarter where volumes typically higher steady state because of holidays, we're taking all the costs and putting them into that fourth quarter. But the revenues or the -- what will be likely revenues are recognized on the payments, which come into the first quarter. So you have a typically higher volume quarter, fourth quarter due to the seasonality of payments rolling in, where the revenue is recognized into the first quarter. So we get more revenue coming into the first quarter from the fourth quarter on a lower volume seasonally adjusted. We almost topped our fourth quarter volume, which speaks to the growth of the company, but we still have lower volume in the first quarter than we did the fourth quarter. So you'll have a generally higher revenue take rate in the first quarter as well. So we want to -- that which increases your gross margin in the quarter. So we want to make sure people keep that into consideration as they're looking at what happened this quarter. I don't know, Lee, anything else to add? Lee Brading: Yes. I'd just emphasize that we generally talked about being a 55% to 65% area from a gross margin or revenue less transaction-related costs. And we've definitely been trending on the higher end of that, the 60% to 65%, I would say. And I think Charlie hit on it, but just to emphasize kind of the three key areas, as you know, on the transaction side or processing side, we have seen a move to more ACH, and we've been able to emphasize that. So that's obviously going to help us there. Also interest expense, I do expect us to get -- as I mentioned in my comments, on the line of credit side, you get some improvements there as we progress through this year as we refinance our facility. So that's to come, but I expect that to happen. And then on the provision, it's a little bit of a wildcard, but we -- that can be a big swing factor as you saw the year-over-year improvement there this quarter, which also drove that outperformance if you look on a year-over-year basis. We aren't necessarily booking in that same kind of outperformance going forward, but that's something else to be aware of. Hoang Nguyen: Got it. And maybe if I can throw one more in on the bank charter, I think, I mean, one of the benefits is that it could help you guys launch more products as you guys currently cannot launch with the bank partners. So can you talk about the kind of products that your own bank charter would allow you guys to launch that you currently may not be able to do so with your bank partner? Charles Youakim: Not necessarily. You can actually -- in today's environment with banking and service partnerships, you can pretty much launch every type of product out in the financial services world. The main reasons for the bank partnership, I would say, more defense from a regulatory perspective. We just think that it basically solidifies what we're doing. And there are some regulators out there and some states that are chopping away at the bank partnership model sadly because it's a great model, but we're well aware of it. And so getting to the ILC or to becoming a bank helps you basically push further away from that potential of that becoming an issue. And then it does move a variable cost stream to a fixed cost stream because you basically have your fixed cost of your own bank and your staff versus the arrangement we have with WebBank currently, where it's more of a variable, a cost percentage of our volume. So over time, as our volumes grow, you move to a fixed cost structure, you're going to save. So it's more savings, more regulatory defensibility. Maybe there is some like benefit on the product side. Maybe you can launch things faster because your bank is more hyper focused on what you're doing. So when you're talking to your regulator, you don't have 19 other partners like banking-as-a-service partners and have to talk to the regulator about all of them. You just talk to the regulator about what you're doing. So I can see it being faster potentially, but not necessarily limiting on what you can build. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Charles Youakim for any closing remarks. Charles Youakim: Thank you, operator. I'd like to leave with something Charlie Munger said that stuck with me. He said, "I think you can try to make your money in this world by selling other people things that are good for them. And I think that's a fair description of what we're doing at Sezzle. We're a company that thinks about this all the time. We believe our core products are much safer and less costly than existing financial products. We also go out of our way to find ways to help our consumers save money. We're helping our customers, and that feels good. The growth, the margins and the cash generation we walked through today are the downstream effects of getting that right. Customers who improve their financial lives come back. They refer their friends, and they graduate up the platform through Sezzle Up. That's the flywheel. And it not only spins with the alignment and it only spins with the alignment if with the consumer is real. We've got a long way to go and the environment around us is dynamic, and we're going to keep on earning our place one consumer at a time. Finally, a big thank you to the team for another quarter of disciplined execution, and thank you to our shareholders for the trust you continue to place in us. We'll talk to you next quarter. Thanks. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, everyone, and thank you for joining us, and welcome to Mach Natural Resources LP First Quarter 2026 Earnings Call. During this morning's call, for the reconciliation from non-GAAP financial measures to the most directly comparable GAAP measures, please reference the press release and supplemental tables available on Mach Natural Resources LP’s website and their 10-Q, which will also be available on their website when filed. Today’s speakers are Tom L. Ward, CEO, and Kevin R. White, CFO. Tom L. Ward will give an introduction and overview, Kevin R. White will discuss Mach Natural Resources LP’s financial results, and then we will open the call for questions. With that, I will turn the call over to Tom L. Ward. Tom L. Ward: Thank you, Daryl. Welcome to Mach Natural Resources LP’s first quarter earnings update. Each quarter, we reiterate the company’s four strategic pillars that have guided us since our founding in 2017. The first pillar I will discuss is disciplined execution. We bought only free cash flowing assets at discounts to the producing properties’ PV-10. This allowed us to purchase producing assets without paying for any upside, even though over time we have proven significant upside exists. Each year, Mach Natural Resources LP publishes every well we have drilled and the overall IRR based on the year’s price for oil and gas. We have averaged approximately 50% rates of return on our drilling program since it started in 2018. Said another way, we have invested more than $1.3 billion in properties that others would give no value to and returned excellent results. You can see on Page 9 of our investor presentation that our free cash flow breakeven pricing is best in class for both oil and natural gas. It is rare, if not unheard of, to be a leader in both. It would be difficult to duplicate what we have built. In 2017, we had a strong opinion that the market was entering a time of distress. We focused on buying free cash flow at valuations most sellers would not even consider at first. We called it the stages of grief. Ultimately, we did not deal with management teams but their lenders, either through forced sales or the March bankruptcy process. We did not anticipate the COVID event, but we did anticipate investor rejection of our industry from the poor results of the previous decade in chasing growth with high debt. The result was that our initial unitholders prospered by receiving more than twice their investment through distributions and still owning a company with an enterprise value of more than $3 billion. The purchases we have made continue to bear fruit through their cash flow streams, midstream systems, land that is held by production, and continued drilling on properties we did not have to pay for. Even our purchases since the IPO have been contributing to our drilling program. One would have thought that post the 2022 run-up in prices it would be hard to purchase any viable drilling locations without paying for upside. However, as we review our potential 2026 locations, we are drilling on acquisitions from XTO, Paloma, Cheyenne, Flycatcher, Sabinol, and iCAV, which were all made post December 2023. The second pillar to discuss is disciplined reinvestment rate. We maintain a reinvestment rate of less than 50% of operating cash flow to optimize distributions to shareholders. We did not establish Mach Natural Resources LP to grow our production through drilling; our drilling program is set to stabilize our production. As I mentioned, our inventory is best in class for both oil and natural gas reinvestments. In 2026, a move down in natural gas is being offset by a move up in oil prices. Mach Natural Resources LP has a unique ability to react to these commodity price changes by pivoting from one commodity to another to maximize rates of return. Therefore, we have prioritized our drilling schedule to take advantage of these price changes. Starting May 1, we moved in our first rig to start drilling for oil in the Oswego formation in Kingfisher County, Oklahoma. This is an area that is well known to us. We have drilled more than 250 Oswego locations since 2021 with very good results. In the presentation, we are showing that at $75 flat oil, the changes in 2025 Oswego rates of return move from 39% to 90%. At $85 flat oil prices, the program returns move to 145%. We let pricing dictate where we spend capital. We will also move in a rig to drill Southern Oklahoma Ardmore Basin assets that we acquired from Cheyenne and Flycatcher purchases in 2024. The third oil-weighted rig will be moving into the Red Fork sand of Western Oklahoma. The majority of Red Fork locations were acquired by our limited leasing program and trades with others from our Cimarex acquisition in 2021. This shift in drilling will amount to adding three oil-weighted rigs by postponing the Deep Anadarko dry gas program. We may also delay the completion of our San Juan Mancos program until 2027 to add another rig in the Clear Fork formation from the Sabinol acquisition. By making these changes, we can keep our reinvestment level below 50% of operating cash flow in 2026 even though we remain optimistic about the long-term potential of our natural gas assets in the Deep Anadarko Basin and San Juan Basin. We now have five wells with more than 90 days of production in the Deep Anadarko. These five wells have averaged 90-day cumulative production of more than 12 MMcf of gas per day while our 15 Bcf gas type curve is projected to be 10.6 MMcf of gas per day. In the San Juan, we have begun our 2026 drilling program where we have one rig working drilling Mancos shale wells. The San Juan Mancos is fast becoming known as a world-class natural gas asset with potential for meeting the growing demand that we expect to see in the Western markets over the next five years. We have 575 thousand acres that are held by production that can be developed at any time the market allows. Currently, we will drill seven wells during the summer’s drilling window. We continue to believe that we will be substantially lower than historical drilling costs as we bring in new service providers from the Mid-Con and work with existing service providers in the San Juan alongside our dedicated staff. Our San Juan drilling program in 2025 was exceptional. We drilled five wells that came online last fall and have produced more than 14 Bcf of gas and continue to produce over 60 MMcf of gas a day. These wells have been compared to the best set of wells drilled in the U.S. The San Juan gives us long-term natural gas optionality. When we acquired iCAV, we inherited a volumetric production contract that runs through 2030. Given our limited drilling program, we can keep our production in the San Juan flat at approximately 300 MMcf of gas per day. We currently have approximately 65% of the volumes from the San Juan on this contract at a price of $1.72. If basis continues to be low, we have an effective hedge, and if basis moves higher, we will benefit from our drilling program as the production payment amortizes. This is one of the larger volumes of natural gas headed to the growing Western markets as they develop. Mach Natural Resources LP has 3 million acres of land that are not going anywhere. We have time because our assets are held by production, with few lease expiration dates. This large inventory of investment opportunities was the result of acquisitions made over time since 2018 and gives us maximum flexibility to choose where and when to drill to deliver best-in-class results. Our third pillar to discuss today is to maintain financial strength. This pillar is designed to keep our leverage in check. Historically, we have kept our leverage at or below 1x. The iCAV and Sabinol acquisitions last September have moved our leverage up to approximately 1.3x. Our goal is to move that ratio back to our desired level before we make any more acquisitions that require substantial debt. Therefore, our acquisition strategy is currently on hold unless we find an acquisition that is accretive to our cash available for distribution using equity to lower our debt levels. In the meantime, we can continue with our drilling program and let time move our leverage ratio down. We continue to have interest by sellers to exchange production for equity where we might be able to lower leverage by increasing our cash available for distribution to maintain the status quo. Our goal is to not move away from our current method of distributions unless we feel it is necessary. In that case, we can always use some of our distribution for debt reduction. It is safe to say that our debt levels are very manageable, but they are a pebble in my shoe that I would prefer to move away from and get back to 1x leverage. Our final pillar continues to be the most important: maximize distribution to equity holders. This pillar is the culmination of all we work for. Since inception, our goal is to find and acquire cash flowing assets at distressed prices, reinvest less than 50% of our operating cash flow, keep our leverage low, and maximize this pillar. We have been and continue to be successful. The evidence is in our industry-leading distribution. You can see this in two ways. Our company has had a cash return on capital invested of more than 20% every year since our inception. We have averaged 35% CROCI over the last five years. I believe we are in rare air here. Only a few tech companies can match our CROCI. We have also averaged a 15% yield since 2024. Both are industry leading. I will now turn the call over to Kevin R. White for the financial results. Kevin R. White: Thanks, Tom. The quarter, our production of 158 thousand BOE per day was 16% oil, 70% natural gas, and 14% NGLs. Our average realized prices were $69.73 per barrel of oil, a 20% increase from the fourth quarter, $2.74 per Mcf of gas, and $23.75 per barrel of NGLs. Of the $366 million total oil and gas revenues, the relative contribution for oil was 42%, 45% for gas, and 13% for NGLs. On the expense side, it is worth pointing out our lease operating expense was $101 million, or only $7.12 per BOE. Cash G&A was approximately $5 million, or only $0.37 per BOE. We ended the quarter with $53 million in cash and $305 million of availability under the credit facility. Total revenues including our hedges and midstream activities totaled $286 million, adjusted EBITDA was $195 million, and we generated $170 million of operating cash flow, spent $75 million in development CapEx, which represents 40% of our operating cash flow after interest. In the quarter, we generated $107 million of cash available for distribution, resulting in a distribution of $64 per unit, which will be paid on June 4, 2026 to holders of record on May 21, 2026. With that, Daryl, we will turn it back to you. Operator: We will now open the call for questions. Analyst: I want to see if your shift back to the oilier Oswego drilling program can move the needle. You are maybe at 16% oil now. Can that get to 20% to 25% oil over the next few years? Or does the productivity from your gas assets offset that with higher volumes but at the same mix? Tom L. Ward: It basically keeps our oil production from declining. By moving to the oil side of the business, we might grow a percent or so a year, but really it is maintaining oil production rather than continuing to see a decline. Analyst: That makes sense. And then the second one, your low CapEx requirements continue to impress. I want to understand if there is inflation built into that or maybe built into your LOE given some cost changes we are seeing as a result of the Iranian conflict. Do you have some of that locked in with your vendors and maybe over certain durations? Tom L. Ward: We do not have anything really locked in. We can move rigs at 30- to 45-day intervals, so we really can move back and forth from different areas as needed for higher rates of return. We are seeing some oilfield inflation, thus why it is important to move quickly before inflation hits. As always, oilfield services’ job is to get our rates of return down to 20%, and we want to drill wells that still have high returns. In fact, the lowest we have on the 4/30 curve of the oil wells we will be drilling this year as of the 4/30 curve was 80%. So it is really just chasing the best areas and spending CapEx as our operating cash flow allows us to. The goal of the company is that we will allow growth if it happens, like if prices move up, but not spending more than 50% of our operating cash flow. So it is not that we are restricting growth; our high rates of return allow us to grow by spending less, and that is what we anticipate continuing to do. Remember, that is really because of all the assets we bought during the darker days. They continue to throw off free cash flow. Anytime you are making acquisitions at $20 oil, it pays big dividends in later years. We will reap those benefits for decades. Analyst: That makes sense. Sounds like you are staying flexible. Thank you, guys. Operator: Thank you. Our next questions come from the line of Michael Scialla with Stephens. Please proceed with your questions. Michael Scialla: Good morning, guys. With the new plans, do you maintain your guidance, and do you anticipate putting out any new guidance with the shift in the drilling plans? It sounds like you might change your completion plans in the San Juan Basin. When would you make that decision if you do decide to hold off on completing those wells? Tom L. Ward: We are going to delay—we are planning on delaying the Mancos—but go ahead, Kevin. Kevin R. White: Sure, just to answer your question around guidance, we think the CapEx guidance holds. As you noted, as we shift to oil, we may actually see an acceleration of production versus spending the CapEx on gas drilling, particularly in the Mancos. We will look to revise guidance as we move to the oil program, probably midyear if and when it is appropriate. As we look at the model, cycle times on these wells are shorter than some of our deep gas drilling, so it should actually help this year’s cash generation. Tom L. Ward: And it is not that hard of a decision. Usually, once we spend the capital to drill a well, I would want to not leave it as a DUC. But whenever we can move to a Clear Fork location that at today’s prices is going to have a 100% rate of return, it is just really difficult not to defer the gas whenever basis today in the San Juan is low. We think it will improve, but still we do not want to just guess going into the winter. So we will probably move that until after the first of the year. Then in the Mancos it will really depend on weather for when we can frac. We cannot do anything on the New Mexico side until April, I believe, but we can on the Colorado side as long as we are on the Southern Ute Tribe, weather permitting. And sorry, Mike, if I did not catch all your questions, please ask again. Michael Scialla: That addresses it. It sounds like even with the shift, there is no change to CapEx; it is going to remain the same. You probably anticipate some minor shift in mix of production and certainly leave some upside for cash flow with the higher oil mix. I wanted to follow up on the Mancos. The five wells that you completed last year, it looks like they are performing extremely well. I think iCAV completed a couple of those and you guys completed three of them. Did you, in fact, cut back on the proppant on the wells that you completed? You had said you felt like they were being overstimulated and you could save some money there. Did those results play out the way you thought? Tom L. Ward: We did not change the amount of proppant that was used. iCAV did use—and we will use—less proppant than the industry was using earlier. I think that is the direction we are moving. In the San Juan in general, there were proppant sizes up to 3 thousand pounds per foot; we were using closer to 2 thousand pounds, and I think it was totally adequate. We were able to save some money even last year through a few other different methods, but not in the proppant size. Michael Scialla: Okay. So that line of sight to savings—what did you save per location? Tom L. Ward: I think we are saving about $1 million per location. Kevin R. White: Yes, $1.5 million per location, just from the changes that we made, but it was not in proppant. Michael Scialla: Got it. So you still feel good about that $15 million target that you talked about? Tom L. Ward: Yes, I feel good about something lower, but we will see. Yes, I feel good about $15 million. There is no reason to spend $15 million drilling these wells. Michael Scialla: Sounds good. Thank you, guys. Operator: Thank you. Our next questions come from the line of Jeffrey Grampp with Northland Capital Markets. Please proceed with your questions. Jeffrey Grampp: Good morning, thanks for the time. Tom, a question on the distribution strategy. It seems like in recent history you have been comfortable maintaining the 100% payout with current leverage mid-1x, but the pebble-in-your-shoe comment makes it seem like perhaps you are reconsidering that just to retain some cash for debt paydown. Is that a fair comment, and how do you think about payout ratio over the next few quarters? Tom L. Ward: I hope not. I do think that over time it takes care of itself. If you were to look at our model, actually the EBITDA goes down as oil prices have moved. If oil prices move higher and gas goes where I think it will, it naturally takes care of itself. Private credit really likes us because we have so much free cash flow. If you have a 19% yield and you might get 10% for a while as you pay down debt, it is not the worst thing. But I am a holder just like the rest of the unitholders, and I like having Christmas four times a year. Jeffrey Grampp: Fair enough. For my follow-up, it sounds like the bias based on today’s commodity price dynamic is to defer those gas completions and add that Clear Fork rig. When are you targeting potentially adding that Clear Fork rig, and is it as simple as looking at gas and oil prices over the next few months and the strip to make that decision? Tom L. Ward: We have fairly well made it—just yesterday. The Clear Fork is clearly superior rate of return at today’s prices than completing the Mancos. We could start that July 1 and have kind of a 30-day turnaround. So more than likely, unless something changes fairly dramatically between now and a month from now, we will delay the Mancos and bring on a Clear Fork rig. Jeffrey Grampp: Got it. Understood. Thank you, guys, for the time. Operator: Thank you. Our next questions come from the line of Carson Coronado with Raymond James. Please proceed with your questions. Carson Coronado: Good morning. Are you going to continue to focus M&A in the current basins you operate in, or is there a willingness to step into new basins? And does the current commodity price environment make it harder to get deals done with bid-ask spreads potentially widening? Tom L. Ward: I do not think it is any harder to get deals done in the ones that we have a niche in, which is really staying away from asset-backed security projects where they can fund. Larger deals are not so good, and areas where you pay for a lot of upside are not so good, like the Marcellus or Haynesville or now even the San Juan. The areas where we are pretty good are assets that are $100 million to $300 million in size that others are not chasing, where we can see some distress for whatever reason. It might be that gas goes to Waha where an ABS really cannot go in and hedge very well over a period of time and they cannot compete with us. There is always a way to find things that work. Our issue right now is that we have too much debt to really take on more debt. We want to move down our debt levels so that we can get back into making those $100 million to $300 million acquisitions. We can be more aggressive—not on paying for upside—but more aggressive in size if the seller would want to take equity. That is the only way we could really compete in size right now. Carson Coronado: Thank you. I also had a follow-up question on maintenance CapEx. The low decline rate helps keep the reinvestment rate under 50%. What would be a reasonable maintenance CapEx estimate for us to use? Kevin R. White: I think looking at our existing CapEx guidance is appropriate. If we are measuring based on volume, then when we are drilling gas wells, there is more volume that comes into the system, and if we are drilling oil wells, the equivalent volume is a little bit lower. But as you mentioned, our base decline rate is probably among the lowest, if not the lowest, among the independents. That gives us the ability to essentially stay the same size, grow a little bit, or shrink a little bit based on just half of our operating cash flow after interest. I would largely equate our guidance CapEx with being kind of maintenance CapEx, if not a little bit more productive than CapEx. Tom L. Ward: Yes, that is right. Our drilling program is designed to keep our production flattish. That could be down three or four to up three or four percent depending on what prices are. You will not see tremendous growth from drilling; that allows us to distribute more back to unitholders. Carson Coronado: Great. Thank you. Operator: Thank you. Our next question comes from the line of Ron Sanchez. Please proceed with your questions. Ron Sanchez: I was wondering what your average breakeven price on natural gas would be, and do you have hedging? Kevin R. White: It is basically around $1.72, and we have just today posted a new investor presentation with a slide on that—Slide 9—where we show our breakeven for both gas drilling and oil drilling. It is among the best in the peers. For us, as Tom has mentioned many times before, those are good numbers that we are able to achieve with good cost control, but we are generally just chasing the highest internal rate of return in our portfolio. Ron Sanchez: Thank you. Operator: Thank you. Our next questions come from the line of Derrick Whitfield with Texas Capital. Please proceed with your questions. Derrick Whitfield: Good morning and thanks for taking my questions. Going back to your 4Q commentary on divestitures, does the current higher crude price environment change your view on the need to pursue some of the monetizations you were talking about during 4Q? Tom L. Ward: Yes, Derrick. We were talking about maybe having a partner in the Deep Anadarko. I do not know if that is going to happen or not. We did go out to a few parties. Gas prices have been lower. I am not sure that we would get paid enough to give up any production that is already flowing now, and I am not really a seller at today’s gas prices. So it becomes harder to do until prices move. We really were not looking at selling any oil projects. It was more around whether we could sell some non-EBITDA-generating assets like leases in order to pay down some debt. I doubt that happens, but we will know more next quarter. Derrick Whitfield: That makes sense. Then with respect to the Permian, while not as economic as your Oswego, are there levers there you are considering to increase production in the current environment? Tom L. Ward: Yes. The Clear Fork is in Robertson County, on the shelf. Having a rig there, depending on what our operating cash flow looks like and how close we can get to 50%, we could keep a rig there for the rest of the year. We will see how it all looks, but right now, we are going to have a rig there moving down from Oklahoma by the first of the year. That is in the Permian and those wells are right at 100% rates of return. Derrick Whitfield: That is great. One more on service cost. Could you speak to what you are seeing in the Anadarko at present and your expectations if oil prices remain elevated? Tom L. Ward: If oil prices stay where they are, it would take a fairly high gas price to make us move back to drilling gas wells. Last year that happened as oil prices fell, but today, even at the Cal ’27 strip of $72, that is good enough for us to keep rigs working. The flexibility of moving between oil and gas is good. We have a tremendous backlog of oil locations. We can move in several rigs and drill different locations across Western Oklahoma and in the Permian. It is really price dependent, but it is astounding that we were able to put together 2 million acres without having to pay for it in one of the most oil- and natural-gas-rich basins in the world, the Anadarko Basin. Like our production, it will pay dividends to us for decades. Derrick Whitfield: And on service costs specifically in the Anadarko if we remain in this higher oil price environment? Tom L. Ward: Bits are going up, steel is going up, labor costs are going up, and fuel surcharges are going up. We are starting to see the effects of inflation. We know from 2022 that it comes fairly quickly. It all has to be put into the calculation for how much we can drill depending on what prices we are paying. We are still using our current AFEs; we change AFEs every month depending on where prices are. We price out every well and series of wells we do, so we are fairly quick to react to both oil and gas prices and service costs. Derrick Whitfield: Great update. Thanks for your time. Operator: Thank you. Our next questions come from the line of Charles Meade with Johnson Rice. Please proceed with your questions. Charles Meade: Good morning, Tom and Kevin. Tom, you mentioned four oily plays today: the Oswego, which you gave a lot of detail on, the Ardmore (really more the location than the play), the Red Fork, and the Clear Fork. Can you give us an idea how those plays rank in your appetite for more drilling and how much running room you have in those? Tom L. Ward: Sure. The Sycamore, which is a Mississippian member of the SCOOP in what we call the Ardmore Basin at the Sho-Vel-Tum field, basically in Stephens County, Southern Oklahoma—that is going to have very, very high rates of return at today’s oil price. They are fairly deep, expensive wells, but very good. Continental has most of that area, and maybe a private company, Citadel, as well. It is very good. We only have three locations to drill there, so then we look to have consistent operations elsewhere. The next best is the Oswego, and that is more consistent, and we have dozens, if not hundreds, of locations left to drill in the Oswego. We could even move from Stephens County after we complete those wells to two rigs in the Oswego if oil prices remain elevated. Then the Clear Fork, which we picked up from Sabinol, would be number three, and as I mentioned, we have a rig going there in July. Lastly, because it is a little more gassy, is the Western Oklahoma Red Fork, and if gas prices were to move up, it could move up in the hit parade. But today, that would be our fourth of four. Charles Meade: That is great detail, Tom. Even there, the Red Fork is going to be about 80% rates of return? Tom L. Ward: Yes. Charles Meade: My follow-up is on San Juan Basin supply, demand, and marketing. When you bought that asset from iCAV, you gave a lot of detail about where that gas can go and the options. Prices are pretty tough out there right now, and a lot of gas wants to get to the Gulf Coast, but you have Permian and Waha between you and the Gulf Coast if you wanted to go that way. What are the dynamics we can watch that would signify or be precursors to more favorable pricing in that basin? Kevin R. White: Yeah, I mean— Tom L. Ward: At the time we bought the iCAV assets last summer and closed in September, I would not have thought that our basis hedge was a benefit. We have 65% that we bought on a long-term contract from BP that expires in 2030, effectively at $1.72. Since that time, really due to weather—winter not coming to the West—basically we almost stand alone among public companies in the San Juan in having low basis. Now our realized price has hovered around a dollar in what we receive. I do think that is coming back. To answer your question, it is really more pipe getting out going West, having a larger LNG facility in Mexico, and getting gas to Asia via LNG. That all happens over time. It is pretty good for us now that we did not have to pay up for that gas—we bought it at $1.72 or less. As it amortizes over time, that gives us time for the LNG market to expand, which I believe it is going to. There is a new pipe going across the Navajo Nation that I believe will be FID’d, and along with that, getting gas to the data center buildouts and Southern California, especially the Phoenix market, which seems to be expanding. There is some interest in getting our gas farther West into the upper Western markets and even into the Pacific Northwest. There will be expansion of gas coming out of the West, and really between Hilcorp and us in the San Juan, we control the vast majority of it. It is a good place to be as long as you are patient. It is a five-year program. Charles Meade: Got it. That is great detail. Thank you, Tom. Operator: Thank you so much. We have reached the end of our question and answer session. This concludes our call. We appreciate your participation. You may disconnect your lines at this time and enjoy the rest of your day.
Operator: Good day, and thank you for standing by. Welcome to the first quarter 2026 The E.W. Scripps Company Earnings Conference Call. At this time, 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Becca McCarter, Senior Director, External Communications. Please go ahead. Becca McCarter: Thank you, Didi, and good morning, everyone. Thank you for joining us for a discussion of The E.W. Scripps Company's financial results and business strategies. You can visit scripps.com for more information and a link to the replay of this call. A reminder that our conference call and webcast include forward-looking statements based on management's current outlook and actual results may differ materially. Factors that may cause them to differ are outlined in our SEC filings. We do not intend to update any forward-looking statements we make today. Included on this call will be a discussion of certain non-GAAP financial measures that are provided as supplements to assist management and the public in their analysis and valuation of the company. These metrics are not formulated in accordance with GAAP and are not meant to replace GAAP financial measures and may differ from other companies' uses or formulations. Reconciliations of these measures are included in our earnings release. We will hear this morning from Chief Financial Officer Jason P. Combs, then Scripps President and CEO, Adam P. Symson. Here is Jason. Jason P. Combs: Good morning, everyone, and thank you for joining us. We are coming into this morning's call with strong momentum and good news about our financial performance and other activity. Here are a few of the highlights. We are progressing rapidly on executing our comprehensive transformation strategy, which has helped drive significant improvement in our first quarter net leverage to under four times. Our Local Media division delivered a strong performance with industry-leading 7% core advertising revenue growth, driven by our unique live sports strategy. We launched the Scripps Sports Network, a premium free streaming channel. We are entering a midterm election cycle with strategic market exposure in key battleground states. And we continue to optimize our portfolio through strategic asset transactions, generating $123 million in gross proceeds from recent sales of two stations. We also continue to work towards the closing of our station swaps with Gray and pursue additional M&A activity to support debt reduction and enhance operating performance. In addition to those recent highlights, we are pleased to have just successfully completed a new affiliation agreement with our largest network partner, ABC, covering 17 ABC affiliates. With that overview as a backdrop, I would like to review our first quarter financial results, and then I will discuss second-quarter guidance, followed by details on our improving debt position. I will conclude with a review of our EBITDA improvement plan. I will present our first quarter Local Media division results on a same-station or adjusted combined basis, removing the Q1 2025 results of the two TV stations that we have now sold and reflecting our addition of the Lexington ABC affiliate. During the first quarter, our Local Media division revenue was $331 million, up 5.8% from first quarter 2025. Core advertising increased 7%. Our services, automotive, and gambling categories all grew in the quarter. Local core advertising year-over-year growth was largely driven by advertising sales tied to our National Hockey League telecasts. We saw a strong contribution from the addition of our newest rights agreement with the Tampa Bay Lightning, and beyond this new partnership, we also saw strong growth in our existing NHL deals with the Vegas Golden Knights, Utah Mammoth, and Florida Panthers. Our strategy is designed to drive year-over-year growth across both our existing deals and new partnerships. And last month, we announced a fifth full-season NHL sports rights agreement with the Nashville Predators to start this fall. The Winter Olympics and the Super Bowl also contributed to our Q1 core advertising growth. Political advertising revenue was nearly $9 million as we begin what is expected to be a record-breaking spending cycle for the midterm elections. This year, we forecast strong spending in our markets due to U.S. Senate and gubernatorial races in Arizona, Colorado, Michigan, Nevada, Ohio, and Wisconsin. We also are watching growing competitive situations in Florida and in Montana. Local Media distribution revenue increased 2% again, on a same-station basis. Expenses for the division increased about 2.4% year over year. Excluding the impact of our expenses tied to our new NHL team deal, expenses were flat. Local Media segment profit was $44 million compared to $32 million in Q1 2025. For the second quarter, we expect Local Media division revenue to be up low single digits. We expect core advertising to be down low single digits, without the benefit of live sports for most of the quarter. We expect Q2 Local Media gross distribution revenue to be impacted by our impasse with Comcast, which ran from March 31 to May 5. Based on that timing, we still expect full-year gross distribution revenue to grow in the low single-digit range but now expect net distribution revenue to grow in the low double-digit range, a slight change from our previous guidance. We expect second-quarter Local Media expenses to be flat to 2025. Now let us review the Scripps Networks division first quarter results and second-quarter guidance. Once again, I will be presenting the results on an adjusted combined basis, in this case adjusting for the impact of the Court TV sale. In the first quarter, Scripps Networks revenue was $174 million, down 9.5% from Q1 2025. Connected TV revenue was up 26% from the same quarter last year. The division's expenses for the quarter were $126 million, up 1%. Scripps Networks segment profit was $47.5 million compared to $66.8 million in the year-ago quarter. For the second quarter, we expect Scripps Networks division revenue to be down about 10%. The networks are facing a softer market from macroeconomic conditions impacting the direct response marketplace and external measurement pressure from Nielsen due to recent methodology changes. Adam will talk more about this in a moment. We expect Scripps Networks Q2 expenses to be up in the low single digits. Turning to the segment labeled Other, in the first quarter we reported a loss of $6 million. Shared services and corporate expenses were $26.6 million. In the second quarter, we again expect that line to be about $27 million. Higher medical claims and increased insurance premiums are causing that line to go higher than usual. For the first quarter, the company is reporting a loss of $0.20 per share. The loss included a $30 million gain on the sales of Court TV and two television stations, WFTX in Fort Myers, Florida, and WRTV in Indianapolis. These sale transactions decreased the loss attributable to shareholders by $0.25 per share. In addition, the preferred stock dividend has a negative impact on earnings per share even when we do not pay it. This quarter, it reduced EPS by $0.18. We had $20 million outstanding on our revolving credit facility at the end of the quarter. On April 30, we entered into an agreement to extend the July 7, 2027 maturity date of our revolving credit facility to July 7, 2029 with commitments of $200 million. For the first quarter, cash and cash equivalents totaled $84 million. Net debt was $2.2 billion as defined in our credit agreement. Also during the quarter, we paid down $10.2 million on our B-2 term loan. In addition, we paid down $20.4 million on our B-3 term loan. Since the end of the quarter, we have paid down an additional $30 million on the B-2 term loan, for a total of just over $60 million in term loan paydowns since the beginning of this year. Net leverage at the end of the quarter was 3.9 times, per the calculations in our credit agreement, which includes certain pro forma adjustments relating to our transformation efforts. As we announced in February, our company transformation plan includes growing enterprise EBITDA by $125 million to $150 million. Our EBITDA improvement plan balances rightsizing our current expense structure with implementing new ways to grow revenue and profitability. You will start to see the financial benefits of our plan in the second half of this year. We expect total in-year EBITDA impact of $20 million to $30 million and an annualized run rate of about $75 million as we move into next year. And now here is Adam. Adam P. Symson: Thanks, Jason, and good morning, everybody. At Scripps, we are in the midst of executing a significant transformation, moving now from the detailed planning stage into execution, and I am pleased to report that we are right on track. I like to say that this transformation is a refounding of the company. We are bringing the values, ethics, and mission of our founder, Edward Willis Scripps, forward 150 years to set the company up in a way I would like to think he would were he here today. I have been doing a lot of research on our founder. E.W. was fiercely protective of his newsroom journalism and editorial independence. He was entirely committed to serving the people in the communities where he operated, and he was well known, maybe even notorious, for his dedication to operating with efficiency to ensure he would have the margin to carry out the mission. A hundred and fifty years ago, E.W. focused on his consumers' problems and commercialized the solution. The assets that make up our company may be different today, but our transformation is grounded in the same customer-first focus. Here is an example of what this is looking like. In our newsrooms, we have already been changing the model. We are moving from a broadcast-centric operation that has historically served our audiences during defined time periods to news operations that leverage automation, AI, and technology to serve consumers when and where they expect to get their local news, especially as they have moved to streaming. Leveraging technology has allowed us to deepen our commitment to local news, getting more of our teams out of the newsroom and into the community, putting more reporters in the field to live in the geographic areas where they cover. All of it is in service to our vision: we create connection. This is not incremental change. It is a complete realignment of our newsroom operations, our business models, and our culture around the opportunities we see clearly: streaming platforms, productivity-enabling technologies, and our unrivaled ability to create connection for the people and the businesses in the communities we serve. This is just one example at Scripps of how we are upending what needs to be changed, fueling the fire where we see top-line growth, as we see in streaming, and going farther and faster with what is working well, like our sports strategy. Let us talk about sports. In Local Media, our live sports helped Scripps deliver an industry-leading core advertising performance in the first quarter, up 7%. As Jason said, this came from new partnerships and from organic growth in every one of the markets where we are executing the strategy. And we are far from done. Just a few weeks ago, we announced the new full-season local broadcast agreement with the NHL's Nashville Predators, and I expect more core growth-fueling opportunity to come. Now for the second quarter, the live sports action shifts to our Scripps Networks and the WNBA and the NWSL. The WNBA's preseason game between the Indiana Fever and the New York Liberty on April 25 was ION's most watched preseason game ever. Tonight, the WNBA regular season tips off with a doubleheader on ION, with tremendous excitement about the return of Caitlin Clark and this year's class of exceptionally talented draft picks. Scripps Sports will once again broadcast the most WNBA games of any network, bringing a WNBA doubleheader every Friday night all season long to fans nationwide. Advertiser demand is high for women's basketball, as well as for our full slate of women's sports. It is now clear that Scripps is the leader in women's sports, showcasing women's athletic achievement with rights for the WNBA, NWSL professional soccer, PWHL hockey, MLV volleyball, Athlos track, college basketball, pro cheer, and our newest partner, PBR's premier women's rodeo, which we will be bringing to our network GRYT and ION. We recognized early that Americans were embracing the quality and professionalism of women's sports, and we are pleased to have become the go-to platform for the brands that want to connect with fans. Next week, the Professional Women's Hockey League's Walter Cup finals will begin on ION. We are very pleased to bring this to national television for the first time and to have Amica serving as our presenting sponsor and Discover as an additional sponsor. They are just two of the hundreds of blue-chip advertisers we have brought onto our platform through our sports strategy. In March, to capitalize on the marketplace growth and our success in connected TV revenue, we launched the Scripps Sports Network, a new streaming channel that leverages our existing sports rights, some efficiently acquired new rights, and sports-themed programming. We are streaming more than 100 live games a year along with original sports programming, documentaries, and talk shows. And we have secured broad distribution across the major streaming platforms, including Roku, LG, and Samsung, making it easy for fans to find the sports, teams, and players they love. Connected TV continues to be a growth driver for Scripps, up 26% in the first quarter, and I expect we will continue to leverage our premium programming and live sports to make this a differentiator for us among our peers and competitors. While we expect to capitalize on live sports on ION in Q2 just as we have with our Local division in Q1, we are navigating some external challenges with national advertising revenue. As Jason mentioned, we are seeing some market softness due to the volatile economy. Networks' direct response ad spending, in particular, has been impacted as consumers feel the pain of higher prices, especially now at the pump. We have also been affected by a recent Nielsen audience measurement change that has artificially shifted household viewership weighting in favor of cable networks. Because all Scripps networks are distributed over the air, this change has negatively impacted audience delivery. Nielsen's new methodology is inexplicably resulting in frustratingly inaccurate reports of ratings declines for over-the-air viewing and streaming. This disproportionately impacts the measurement of our multicast network viewers who are most vulnerable to affordability issues, including those in rural communities, people of color, and older Americans. The fact is that we have seen no let-up in the demand for our advertising products in the general market, and sales execution is on point. But Nielsen's overnight change suddenly impacted our supply of impressions, impacting our revenue. We began seeing a revenue impact from Nielsen's methodology change in March, and since then, our team has been advocating aggressively for Nielsen to make a public disclosure outlining the magnitude of the discrepancy in their data. Of course, I cannot end the discussion on advertising without at least a nod to what we expect to be this year's political revenue windfall as a result of our excellent station footprint, our focus on sales execution, and the record amount of money expected to be spent on the upcoming midterms. We are off to a good start and expect political to be a great story on top of this year's industry-leading core revenue performance we are putting up this year. I would like to take a moment now to celebrate some important recognition of the work we do on behalf of our viewers and communities. Scripps has received recent awards and recognitions from three important national organizations. We were honored with six nominations for national News and Documentary Emmy Awards, including five for Scripps News and one for WEWS in Cleveland. Scripps News also was recognized with three prestigious National Headliner Awards, including a Best in Show honor, and two Deadline Club finalist nominations. Our local station KNXV in Phoenix also received three National Headliner Awards and WTMJ in Milwaukee received one. We are proud of the recognition of our commitment to journalism that improves the lives of those we serve, holds the powerful accountable, and upholds the tenets of our democracy. Serving our democracy is one of the things Scripps has done best for nearly 150 years. There is a lot of uncertainty in the world today, from macroeconomic to the media sector. At Scripps, we are acting with urgency on what we can control by employing new technologies to create operational efficiencies, capitalizing on accessible growth areas such as sports and CTV, and improving our balance sheet. This is the essence of our transformation plan, and you are beginning to see how this plan will carry us into the next bountiful chapter of our long history. We will now open the call for questions. Operator: As a reminder, to ask a question, please press 11 on your telephone. Our first question comes from Daniel Louis Kurnos of Stifel. Your line is open. Daniel Louis Kurnos: First and foremost, Jason, thanks for the recast; super helpful. Just a couple of housekeeping questions. The guide that you gave for Q2, that is relative to the adjusted combined recast, not the as-reported from February last year, correct? And then, Adam, on Scripps Sports Network—super smart—you have been leading the charge in CTV. You had your upfront in late March and launched the network before then. You picked up PWHL, PBR, and now women’s PBR. You have got a real leadership position on the women's side. Can you give us your thoughts on advertiser feedback and commits as we look ahead? And you have been very clever with rights acquisition in an inexpensive manner. Sometimes there is confusion between what you can show on streaming and what you can show on traditional broadcast, so help us think through that equation too. Jason P. Combs: That is off of the adjusted combined recast that we provided. Adam P. Symson: First and foremost, Dan, I like to think that we have embraced women's sports, not put it into a stranglehold, but I appreciate what you are getting at. We have been very intentional in the way we have been acquiring sports, both on the local side and the national side, and see our opportunity as recognizing the value of the distribution we bring to the table. Whether it was with our initial deal with the WNBA, the NWSL, or any of these other sports deals we have done, we have been looking for partners who recognize that we bring the opportunity to showcase their league, their games, their athletes, on the most ubiquitous platform available, because ION is uniquely positioned to be available on OTA, on pay TV, and on streaming. The launch of Scripps Sports Network is a continuation of that strategy because it not only positions certain parts of our broadcasts in additional new real estate in the streaming space through simulcasts—allowing us to take some of ION's most premium time periods and now simulcast them on streaming platforms, essentially expanding the reach of those games and our network—it also allows us to carefully and efficiently acquire new rights for insurgent or ascendant leagues looking to get distribution for their games and allows us to test and learn. For example, many of the PWHL games and Major League Volleyball are available on the Scripps Sports Network, and then the finals end up being broadcast on ION. Our move to put all of that on ION has been about really serving the advertising environment. We see significant demand from advertisers looking to invest behind women's sports, and we went to the marketplace knowing there was already demand for the assets we were acquiring. That will benefit us in linear and in the streaming space. We will continue to be careful and efficient in the way we acquire rights but also really aggressive in the way we demonstrate the value of our distribution. Relative to the ad marketplace, there has been no let-up in demand for live sports. When you look at our performance relative to general market cable and broadcast networks, you see the benefit of our sports strategy. We are just now moving into the second quarter where we have that benefit going into the summertime; we did not see that in the first quarter. Nevertheless, there has been some softness in the national ad market, and I think Jason can provide a little more color on the national ad marketplace and even a midterm view of what we expect from Networks margins. Jason P. Combs: We guided to down 10% for Scripps Networks in Q2, and that is driven by a couple of things: ratings declines tied to changes in Nielsen methodology that Adam talked about, as well as macroeconomic and geopolitical conditions that are driving uncertainty and have created a weaker marketplace for national advertising. Networks that over-index on over-the-air carriage are seeing pressure versus cable networks that are generally seeing significant ratings increases under the new methodology, and we will continue to engage because we believe that methodology is flawed. Beyond that, the current macroeconomic environment is impacting performance-driven advertisers in the direct response space. Inflationary pressure and higher fuel costs continue to weigh on the American consumer, and geopolitical instability has created some hesitation and ripple effects. In the short term, that has created a drag on revenue and margin in our segment. We worked hard to get Networks back to a 30% margin business. As you look at the implied guide for Q2 and our results for Q1, I would expect our second-half margin to be higher than our first half. Q3 is the heaviest sports quarter in terms of inventory, and Adam talked about the excitement we continue to see for premium sports inventory. Q4 also brings in seasonal healthcare ad dollars, and you will start to see some impact from the transformation efforts in the second half as well. We remain committed to the Networks business as a 30% margin business. Daniel Louis Kurnos: Understood. On monetization, we are seeing more live sports move towards programmatic, especially in CTV. How do you think about pushing deeper into DSP relationships, leaning into the ad tech ecosystem, and getting better fill—even if CPMs come under pressure—to ultimately improve monetization? Adam P. Symson: I would argue we are operating a best-in-class CTV platform. Going back to the earliest years of digital and CTV, we have been focused on maximizing the opportunity with direct sales and programmatic. The leadership we have at the Networks level focused on monetizing our CTV across the enterprise is second to none, and we are well invested. You can see that in the 26% growth, following significant growth in prior years. We have not just been riding market growth; we have been catalyzing our own opportunity—improving our programmatic stack, strengthening ad tech relationships, and leveraging our significant position with distributors. We represent some of the most watched premium channels in the CTV marketplace, which gives us leverage to negotiate terms and partnerships that benefit us and the platforms. There is incremental opportunity ahead, including leveraging technology to improve monetization in CTV and local CTV, and significant opportunity with political in CTV. We are already seeing that this year, allowing us to sell connected TV advertising out of our political office outside of the markets where we have local stations. Today, we sell nationwide, and a fair amount of the connected TV political advertising we saw in the first quarter came from outside our markets. We are off to a really good start there and will keep the pressure on. Operator: Thanks, Dan. Our next question comes from Craig Anthony Huber of Huber Research Partners. Your line is open. Craig Anthony Huber: Thank you. Can you give us an update on the $125 million to $150 million transformation program—specifically where you think the annualized run rate will be at year-end and any changes on that front? Jason P. Combs: Last quarter, we gave an annualized run rate of $60 million to $75 million for this year. We adjusted that this earnings cycle up to about $75 million, and we would say we are making good progress. I will also point out the move we had in leverage this quarter and explain that a bit. When we announced the transformation initiative, we did a lot of work to lock down our bankable plan of initiatives expected to be implemented over the next 12 months. Per the terms of our credit agreement, we are able to reflect those retroactively back into our trailing eight-quarter EBITDA for purposes of leverage calculation. That is the driver behind the move in leverage this quarter down to 3.9 times, tied to initiatives we expect to have fully implemented by the end of Q1 next year. Adam can talk a bit more about the bigger picture. Adam P. Symson: We are executing a comprehensive plan that allows us to rethink everything about how we deliver service to our customers—both audiences and advertisers. We spent months examining the opportunity to remake the company across every corner of the business, front office and back office, and now we are in implementation. I received a lot of comments about how confident I sounded last quarter when I said “take it to the bank.” I am as confident today that we are going to improve EBITDA by more than 30% to emerge a stronger, more nimble, and more aggressive company oriented for growth. It is all about our customer, and it is being done through the lens of our vision: we create connection. Much of it involves technology, AI, and automation and is oriented toward growth. Importantly, we are on track to achieve exactly what we set out to do. Craig Anthony Huber: On AI, can you give a bit more flavor on how you are using it for services and efficiency? Is it possible to quantify how much of the $125 million to $150 million improvement comes from AI? Adam P. Symson: I cannot quantify that yet. As we roll out different initiatives, when they are in the rearview mirror, we can provide more color. Broadly, technology has opened the door for all companies to be more effective and efficient. Traditionally, the broadcast industry has been too slow to adopt these technologies. We are now stepping back and rebuilding the company in both the front office and back office. Several years ago, we pioneered a new way of producing newscasts that leveraged technology to reallocate resources—putting more reporters in the field and paying higher wages. That became the basis for our neighborhood news strategy and geographic beats. We continue to have more reporters in the field than competitors, which is what consumers care about, and we are leveraging AI and automation to facilitate that. We also see significant top-line upside from technology in revenue yield management and account executive productivity—tools that let AEs spend more time prospecting and closing and less on administrative work. These are not themes; they are plans with real business cases developed by our employees. Even the cost savings opportunities will improve our product—both content and advertising—improving service to audiences and advertisers and generating additional top- and bottom-line value. Craig Anthony Huber: Lastly, on the macro environment, is it letting up or getting worse? Any categories beyond direct response that you would call out? And in Q1, did you see changes tied to geopolitical events, and has that continued? Jason P. Combs: On the Networks side, the impact is tied to macroeconomic conditions and geopolitical conditions—inflation, gas prices, all those things—which are creating headwinds in national advertising. We have not really talked about the Local ad marketplace yet. In Q1, Local core was up 7%, the best in the industry. For Q2, we guided to down low single digits, which is better than our peers. Unlike Q1, Q2 does not have the same level of premium sports inventory, and we are seeing a little noise in some categories, but all in all, from a Local core perspective, things are pretty stable. Operator: Thank you. Our next question comes from Avi Steiner of J.P. Morgan. Your line is open. Avi Steiner: A couple of questions on the ad environment. Can you refresh us on your exposure to direct response advertising and how quickly it typically snaps back in prior down cycles? Is it leading or lagging? Jason P. Combs: It varies by network, but we do have a material portion of Networks revenue tied to direct response advertising. DRA is tied to broader macro trends and can both downturn quickly and bounce back quickly as well. We are seeing some noise now tied to macroeconomic and geopolitical factors and the Nielsen methodology changes impacting ratings. Adam P. Symson: From a speed perspective, it snaps around quickly. A good example is what we saw in the fourth quarter: at the beginning, we were a little soft with DRA due to the government shutdown’s impact on employment and Medicare enrollment. When the shutdown ended, it snapped back. Uncertainty is not good for the American consumer; the greater the certainty, the easier things will be in the ad marketplace. Avi Steiner: On the enterprise value growth via cost savings and revenue growth initiatives, what is the cost to achieve for the transformation initiatives and timing? Jason P. Combs: We guided to EBITDA lift of $125 million to $150 million. We estimate $40 million to $50 million of cost to achieve, with the largest portion falling in the back half of this year. Avi Steiner: The recast financials in the supplemental disclosure were helpful. Could you provide the LQ8 EBITDA for the same base of assets underlying that disclosure? And what is left to close, and dollars in and out? Jason P. Combs: The LQ8 that supports the 3.9x leverage calculation is $568 million. We are awaiting closure of our swaps with Gray and also have a transaction with Inyo before the FCC and DOJ. On dollars, I do not have the specific number readily available on this call. The transformation-related cost savings embedded into that LQ8 are a little over $100 million annualized; in our most recent announcement, we cited $53 million, with the exact contribution dependent on timing. Operator: Thank you. Our next question comes from Shanna Qiu of Barclays. Your line is open. Shanna Qiu: Thanks for taking my questions. Could you give us a sense of how much of the Scripps Networks top-line guide decline in Q2 is related to the overall macro and ad environment versus the Nielsen methodology change? Jason P. Combs: We are not breaking it down specifically, but both are driving a material impact to the revenue guide. Adam P. Symson: On the Networks side, we sell impressions, and the impressions are determined by your currency. In mid-February, overnight, Nielsen's methodology change did not impact sales execution or demand; it impacted how many impressions we had to sell. We are working with Nielsen to right that ship and making changes on the marketing and programming side to bolster our programming strategy and increase impressions. That is separate from some of the macro softness in DRA. The general market has held up nicely, likely due to our sports strategy and strong sales execution. Shanna Qiu: You mentioned you expect full-year gross distribution revenue growth of low single digits. Any thoughts on the pending Charter–Cox merger, and is that reflected in your gross distribution guide? Jason P. Combs: We do not generally talk about specific contracts, but we feel good about that guide. We went through an impasse in the second quarter with Comcast and were able to maintain our guide on gross and make only a small change in our net guide from low teens to low double digits. While it creates a short-term blip in Q2 financials, we are pleased with what that deal means in the midterm and long term for us. Operator: We have a follow-up from Craig Anthony Huber of Huber Research Partners. Your line is open. Craig Anthony Huber: On the Nielsen change, are you willing or able to talk about the percent hit to impressions and how you view it? And has Nielsen provided any recast numbers? Adam P. Symson: I do not think quantifying it publicly benefits us. You have heard similar references from other companies with national broadcast network exposure. This is something all the broadcast networks and streamers are dealing with. We are working with Nielsen to address this so the ad marketplace can make decisions with a methodology that reflects what is actually happening. It is obviously not the case that cable is growing while streaming and OTA are declining. Everyone recognizes changes have to be made to improve accuracy. As for recasts, I cannot speak for Nielsen. The changes went into effect in mid to late February, and we have not seen public recasts. Operator: Thank you. Our next question comes from Steven Lee Cahall of Wells Fargo. Your line is open. Steven Lee Cahall: Thanks for fitting me in. Jason, can you help us understand the sequential change in Local core ad growth going from plus 7% to down low single digits? There is the change in local sports and the Comcast blackout. What does the underlying core look like within that—how much of the deceleration is sports versus underlying trends? Jason P. Combs: Q1’s up 7% had a significant benefit tied to our NHL deals and also the Olympics in the marketplace. If you take out the sports impact, the overall core marketplace is pretty consistent and not significantly impacted by broader economic factors. The down low singles we guided to for Q2 is better than most in our industry, which have guided down low to mid singles. From that standpoint, core is a strength right now. Adam P. Symson: I hope investors and analysts recognize that our first quarter performance is cause to celebrate because we are executing a strategy that creates significant growth opportunity—cyclical as it may be. As we move to Networks in Q2 and Q3, we will see that benefit there. Running a strategy that allows you to vacuum up more core revenue in a local market comes with cyclical dynamics tied to sports windows. Steven Lee Cahall: On Networks growth, Q3 is the biggest for sports, but sequentially 1Q to 2Q has more sports as well with WNBA restarting. If the market has not changed as we get past Q3, do we see a big drop-off in the rate of decline, or are there other levers—programming or pricing with the upfront—you will pull in the back half? Jason P. Combs: From a margin perspective, we expect the second half to be higher than the first half. We have some sports in Q2, yes, but they ramp to a full quarter in Q3. I would expect year-over-year changes to improve in the back half. You also pull in healthcare in Q4, and transformation benefits will start to roll through. Even though we are trending below the 30% target now, we remain committed to making the decisions needed to get Networks back to a 30% margin. Adam P. Symson: It is too early to talk about upfront volume or pricing. While Nielsen’s change may have negatively impacted impressions for OTA and streaming, the ad marketplace is responding very well to our upfront message: our distribution platform that grows OTA and streaming and our differentiated programming—live sports, specifically women’s sports. Advertisers recognize what is going on in cable and are shifting dollars into more premium products. That is behind significant new advertisers coming onto our platform, like Amica as presenting sponsor for the Walter Cup finals on ION, historically not an advertiser on our platform but now moving spend to reach their audience with our product and distribution. Steven Lee Cahall: Lastly, on leverage and preferreds: you are able to take advantage in your credit agreements of the transformation initiatives, which gives you some breathing room. Does that mean you can start to devote this year’s free cash flow toward the accumulated pref dividends or otherwise negotiating the pref? How are you thinking about it? Jason P. Combs: We were already well under our covenants, so while the transformation provides a benefit to our leverage calculation, there was already significant cushion. On the Berkshire preferred dividend, based on last year’s refinancings, we cannot pay the dividend until 2027 unless our leverage is below 4.25x—which we are—and we have less than $50 million outstanding on the B-2 term loan. Think of it this way: those are the requirements to begin paying the dividend. Once we meet them, we would intend to start paying the dividend again. Once we get leverage into the low to mid 3x, we would begin looking to address principal, not all at once but likely in $60 million increments. Operator: This concludes our question-and-answer session and today’s conference call. Thank you for participating, and you may now disconnect.
Operator: Hello, and thank you for standing by. My name is Pat, and I will be your conference operator today.?At this time, I would like to welcome everyone to the Privia Health First Quarter Conference Call.? [Operator Instructions] I would now like to turn the call over to Robert Borchert, SVP Investor Relations of Incorporated Communications. Robert, go ahead. Robert Borchert: Well, thank you, Pat, and good morning, everyone. Joining me are Parth Mehrotra, our Chief Executive Officer, and David Mountcastle, our Chief Financial Officer. This call is being webcast and can be accessed in the Investor Relations section of priviahealth.com, along with today's financial press release and slide presentation.? Following our prepared comments, we will open the line for questions. Please limit yourself to one question only and return to the queue if you have a follow-up to get as many questions as possible. The financial results reported today are preliminary and are not final until our Form 10-Q for the quarter ended March 31, 2026, is filed with the Securities and Exchange Commission.? Some of the statements we'll make today are forward-looking in nature, based on our current expectations and view of our business as of today, May 7, 2026. Such statements, including those related to our future financial and operating performance and future business plans and objectives, are subject to risks and uncertainties that may cause actual results to differ materially. As a result, these statements should be considered along with the cautionary statements in today's press release and the risk factors described in our company's most recent SEC filings.? Finally, we may refer to certain non-GAAP financial measures on the call. Reconciliation of these measures to comparable GAAP measures is included in our press release and the accompanying slide presentation posted on our website. Now I'd like to hand the call over to our CEO, Parth Mehrotra. Parth Mehrotra: Thank you, Robert, and good morning, everyone. Privia Health delivered a strong first quarter as we continue to execute extremely well and drive growth across our markets. This morning, I'll summarize our first quarter performance and business highlights, and David will discuss our first quarter financial results and our updated 2026 guidance before we take your questions.? Privia Health's outstanding operational execution and the strength of our diversified business model clearly demonstrate our ability to perform in all types of market and health care regulatory environments. We are proud to deliver on our mission to achieve the quadruple aim, better outcomes, lower costs, improved patient experience, and happier and more engaged providers.? New provider signings and implementations remain strong. This provides great visibility through the remainder of 2026. We ended the first quarter with 5,535 providers, a 13.6% increase year-over-year, and with 1.6 million value-based attributed lives, up 26.5% from a year ago. The combination of implemented provider growth, attribution growth, and value-based care performance helped increase practice collections 14.6% from the first quarter last year.? We continue to show strong operating leverage across the platform and G&A expenses. Adjusted EBITDA for the quarter increased 36.3% to $36.7 million, with EBITDA margin as a percentage of care margin expanding 290 basis points to reach 28.5%.? Given our strong Q1 performance, we feel confident about our annual guidance across all metrics. Since it's still early in the year, we are maintaining our 2026 guidance, except for increasing our range for attributed lives given the strong first-quarter attribution growth.? Our ongoing business momentum is expected to drive EBITDA growth of approximately 20% at the midpoint of the guidance, while converting approximately 80% of EBITDA to free cash flow. Privia's national footprint now includes a presence in 24 states and the District of Columbia. Our 5,535 implemented providers care for over 5.9 million patients.? We continue to demonstrate very high gross provider retention and patient Net Promoter Score across our footprint. Our growth and momentum have positioned us as one of the leading primary care-centric medical groups and value-based care organizations in the country. We expect to expand our presence in existing and new states, both organically and inorganically, given our balance sheet strength.? Privia's diversified value-based platform serves over 1.6 million patients through more than 130 commercial and government contracts. Our total attributed lives increased over 26% from a year ago. This was driven by new provider growth and the addition of the Evolent ACO business.? Commercial attributed lives increased more than 17% from last year to reach 913,000. Lives attributed to CMS Medicare programs were up 62%. Medicare Advantage and Medicaid attribution increased 20% and 36%, respectively, from a year ago. We remain highly focused on increasing attribution and generating positive contribution margin across our value-based book.? Ultimately, our goal is to achieve consistent and sustainable earnings growth for our physician partners and shareholders. David will now review our first quarter financial results and updated 2026 guidance. David Mountcastle: Thank you, Parth. Privia Health's strong operational performance continued through the first quarter. Implemented providers grew 155 sequentially from year-end 2025 and increased 13.6% year-over-year. Implemented provider growth, along with solid value-based performance and ambulatory utilization trends, led to practice collections increasing 14.6% from the first quarter a year ago to reach $914.8 million.? Adjusted EBITDA, which is reconciled to GAAP net income in the appendix, increased 36.3% over the first quarter last year to reach $36.7 million, representing 28.5% of care margin. This 290 basis point margin improvement continues to highlight significant operating leverage.?We ended the first quarter with $219.5 million in cash and no debt following typical Q1 cash outflows from value-based care payments to providers and employee bonuses.? We are reiterating our full-year 2026 guidance metrics following our strong performance in the first quarter and raising our guidance range for attributed lives at the year-end. This guide implies adjusted EBITDA growth of approximately 20% at the $150 million midpoint, and we expect 80% of full-year EBITDA to convert to free cash flow as we become a full cash taxpayer.? While our guidance assumes no new business development, we have a robust pipeline of existing market expansion and new market opportunities. We will remain disciplined and strategic while leveraging our healthy balance sheet to grow the business and compound our EBITDA and free cash flow.? Over the last 2 years, our EBITDA growth rate has averaged 32%. Achieving the midpoint of our 2026 guidance will result in EBITDA more than doubling over the last 3 years. Our consistent growth and ability to compound EBITDA and free cash flow across economic, health care, and regulatory cycles over the past 9 years validate the strength of the Privia business model.? Privia's business momentum is powered by the consistent execution of our provider partners and our employees. This has positioned us well to continue to drive growth and profitability as we build and scale our national footprint. I would like to take this opportunity to thank each one of them for their hard work. Operator, we are now ready to take questions. Parth Mehrotra: Pat, we're ready for questions. Operator: [Operator Instructions] First question comes from the line of Jailendra Singh from Truist Securities. Jailendra Singh: This is Jailendra Singh from Truist Securities. Congrats on a strong start to the year. So you guys reported strong Q1, but now you are deciding to maintain the outlook on most metrics, except attributed lives. Is this you guys just doing the Privia approach of being conservative? Or are there any items we should be aware of in terms of puts and takes for the rest of the year compared to Q1? And related to that, are you guys still expecting shared savings to be flat year-over-year? Q1 figures are pretty strong. So just give us any color about the guidance here. Parth Mehrotra: Yes, I appreciate the question, Jailendra. Yes. So look, I mean, it's still early in the year. You've seen how we've done this for the last five years since we went public. Our approach is just to keep executing every quarter. There will be some puts and takes. But as we get more data, we get comfortable in then adjusting guidance. We just gave guidance about 50 business days ago. So if this continues, then obviously, hopefully, we'll just do what we've been doing in previous years. But I don't think shared savings should be flat if this trend continues, but we'll just see what data we get for any prior period stuff in the current year across our value-based book. But if the trend continues, then it should grow year-over-year. Operator: The next question will come from the line of Jessica Tassan from Piper Sandler. Jessica Tassan: So I know you emphasized just the focus on attributed lives. So I'm interested if you guys can discuss your perspective on Medicare Advantage, just given the final year V28. Is the space emerging as more attractive as you guys hear payers describe kind of prioritization of margin over growth for '27? And then just interested to hear what your appetite for that business is, whether you're seeing a sustained effort from the payers to subcap lives, or any change in payer appetite? And just any directional commentary on how we might think about the capitated business from here? Parth Mehrotra: Yes. Thanks for the question, Jess. So our answer is not that different from what I think came up on the last earnings call as well. MA has overall good tailwinds with the demographic changes that we'll see over the next 5, 10, and 15 years. So I think it's a pretty important program, whether you do it with CMS directly or through payers. We are really focused on the MA book. I mean, you can see now we have over 550,000 MA attributed lives between MSSP and then Medicare Advantage. And so I think we're highly focused on growing that book, both attribution and then performing in that. I think as it relates to capitation or subcapitation, I mean, you've seen our view that doing full capitation is not the only way to perform well in MA. We believe in sharing the risk. That view remains consistent. It avoids any potential conflict of interest as payers adjust in each state, in each local geography, with baseline trends, utilization, or their program designs or attribution changes. So I think as V28 flushes through, I think there are some other adjustments that CMS has announced that they will do with the program across the board. I think just generally having good hygiene around the program. So I think we'll just continue to work with the payers. The value we really bring is very low-cost, dense networks in all of our geographies. I think that's Privia's value proposition to any payer. That, I think, will speak for itself because we have the doctors, we have the patients. The patients don't leave the doctors, no matter what happens to V28 or the MA program or what some particular payer might do or not do. That relationship is what we bring to the table, and our ability to influence the total cost of care with that patient, starting with the lowest cost setting, I think it's very, very positive for our business and the tailwinds we have. So I think we'll continue to work with the payers. As long as our doctors get rewarded for taking risks, we will take more risks. We prefer the shared risk model. Some of our books will be capitated going forward as it is today. Some would be shared risk with a lot more upside. So we'll just see how this plays out in every geography because you're contracting at the ZIP code level, in different risk pools. And so even though the macro environment may get better and the payers come out of the last couple of years, how we contract with them just varies by geography. Operator: And the next question will come from the line of Matthew Gillmor with KeyBanc. Matthew Gillmor: I had a bigger picture question just on growth. Our thought is that there's going to be some washout with the industry, and perhaps you're seeing that already, and that stronger organizations with good balance sheets will benefit from that. Is that something you're seeing either from the business development pipeline or with M&A? Are there more opportunities than you've seen in the past? Or would you describe it as steadier? Parth Mehrotra: Yes, I appreciate the question, Matt. I think you're right. There were a lot of investments done, VCs entering the space, and private equity being very aggressive. I think with all of that dissipating, I think it bodes well for a business like Privia with a very strong balance sheet and free cash flow profile. I think also medical groups with ownership structures, which were pretty unique across the landscape, with physicians owning certain assets, small businesses owning certain assets, and smaller private equity firms owning certain assets. I think as they look for exit or they look for a much more permanent capital structure, I think they've seen what they have to see in the last four, five years. And I think they realize what a company like Privia is from that kind of ownership, permanent capital perspective. So I think our business development pipeline is really strong. We're looking at deals across the spectrum. And as you know, our platform is really broad in terms of acquiring service entities, tech platforms, ACO entities, medical groups, and tax IDs. So, it's really broad in terms of what we can do and how we can uniquely structure these deals. Ultimately, with the objective of creating these dense medical groups, ACOs, and full tech and services platforms in every state in a very integrated fashion. I think that's a very unique value proposition that we bring to the table for any physician group, any patient, any specialty, any type of value-based arrangement. So, I think we're keeping busy, and we'll continue to deploy capital to keep compounding the business. You've seen us do that last year. I think we'll continue to just do it, just be disciplined around it, just be patient with valuation expectations. But I think as there are less and less exit opportunities for some of these assets, I think we've become a pretty attractive option. Operator: The next question will come from the line of Elizabeth Anderson with Evercore ISI. Elizabeth Anderson: Congrats on the quarter. Maybe just to piggyback off of what Matt was saying. I mean, you've obviously built Privia around primary care and the entry point, expanding that. But it's like the network maturity grows, how do you think about adding more specialty or perhaps changing the mix? Is that sort of something that you just think will happen sort of naturally? Is there any change in how you're thinking about that as an attractiveness in terms of the mix? Parth Mehrotra: Yes. Thanks for the question, Elizabeth. So, I think that's already happening very naturally. It varies by geography because the physician mix is different in every geography we are in, and who we partner with initially is different. So today, even today, it's a 60-40 mix trending towards a 50-50 mix. And we define primary care pretty broadly. So, who's the first point of contact for somebody in the family to include pediatricians for the children, OB/GYNs, family medicine, internal medicine, and so on, and so forth? So, I think it's already happening. And even on the specialty side, we're not really focused on the surgical specialties. But over time, as volumes move outside of the health system, and we can focus on the total cost of care for certain procedures, surgeries move to the ASC setting. I think that becomes pretty attractive for a multi-specialty medical group like ours. And so, I think you'll continue to see us expand on that strategy. And we are set up really well to do that. 80% of the total cost is downstream from the PCP, with a lot of reimbursement still in fee-for-service. And so, I think the engine that we have today to add value to those practices, I think, is also very differentiated. And then over time, as value-based arrangements and programs evolve that include those specialists, I think we are very well positioned to capitalize on that opportunity. Operator: The next question will come from the line of A.J. Rice with UBS. Albert Rice: I thought I might ask you about this new lead program and your thoughts on that. We're hearing that some providers that maybe historically haven't been particularly well-positioned for some of the value-based care that this program is offering them some opportunities. And so, I wondered how you see it? And do you see this as something incremental that you have an interest in? Parth Mehrotra: Yes, I appreciate the question, A.J. So, really similar to REACH when that came about three years ago or so, I mean, we evaluate all the programs from CMS. I think given what we see today, it's unlikely we'll move our MSSP ACO into lead, just given how well we perform, the nature of the program, you can do one versus -- you can't do both with the same tin. So, you've got to pick one, really. And I think MSSP is designed really well. Our hope is that some of the elements of lead as CMS experiments with these and changes some of these programs to make them more long-term sustainable. I think you could see more convergence between MSSP and Lead as an example, because a lot of the baseline program structure is pretty much the same, with some added benefits in Lead. So again, it's a new program. It comes into effect next year. We'll evaluate it. I don't think you should expect us to move our existing MSSP book, but we have the flexibility to add new providers and lives into lead in new geographies, or if we acquire a business that has reach, it makes sense to move them into lead. I think we'll look at that. So, like any other program, we just evaluate it, but we think it's a step in the right direction, and CMS continues to evolve its thinking and take out some of the program structures that make it more attractive for a certain set of providers, like health systems, and so on and so forth. So, we'll just see how it comes about. Operator: Next question will come from the line of Sean Dodge by BMO Capital Markets. Thomas Kelliher: This is Thomas Kelliher on for Sean. On the attributed lives on the commercial side of the business, the number of lives where you're taking downside risk is up about 60% over the last two years. Can you walk us through how risk works in commercial? And then how does the shared savings potential per individual and the volatility of that shared savings compare to some of the government programs? Parth Mehrotra: That's a great question. I appreciate it, Tom. So look, I think it speaks to the value prop that Privia brings to payers, where, just backing off of what I said earlier, once you bring a very large, dense, low-cost medical group structure in any geography, we are one of the very few entities that can do commercial value-based at this scale. OptumHealth does it really well in certain geographies. And I think the value prop is really converting the traditional fee-for-service payment stream into helping the payer take care of these lives, manage the total cost of care, having some quality metrics around different subsets of populations, whether it's children, whether it's working adults, whether it's pre- The Medicare population is between 50 and 65. So, we are converting some of the work we do into our ability to take some risk on those lives, helping the payer manage their MLR really better. And honestly, the payers are willing to compensate us in addition to the fee-for-service reimbursement on a care management PMPM basis, as well as certain quality-based bonus payments, and then ultimately, shared savings if we bend the MLR cost curve for them. So over time, we're not going to take a lot of risk at this point because it's an open-access product. The commercial patient has the ability to go wherever it likes, pretty much for different needs, especially if there's a specialty event. But again, we have corridors at risk. But as you're seeing, we are working with more and more payers across our geographies to implement some of these contracts and try to perform well. Our objective remains the same. We give value to the payers. It reduces their MLR. Our doctors and medical groups need to get compensated for it. And it's really an effort to move some of the traditional fee-for-service payments into a more value orientation. It's still, give or take, 50% of the population is commercially insured, give or take the geography.?And so this is really trying to do value-based care at a very, very broad scale for the working-class population. Operator: All right. That concludes our question-and-answer session. I will now turn the call back over to Robert... Robert Borchert: I'm sorry. Pat, we're still taking questions. Operator: So the next question will come from the line of?Matthew Shea?with Needham. Matthew Shea: I wanted to touch on technology. We picked up, I think, in April that you guys brought on a new Chief Technology Officer. Seems to bring a good background to an interesting moment, particularly as you're expanding the implementation base. So would love to hear what gets you excited about this appointment. And I know you touched on some of the tech investments you were making last quarter, but it seems like AI is becoming a louder theme in health care. So curious if the new hire changes any of your thinking or maybe accelerates some of your initiatives. Parth Mehrotra: Yes, absolutely. Appreciate the question. So we had Konda join us from Optum Insights, really good background. It's on the website. And then Chris Foy, our long-standing CTO, finally retired after a very long career. He's been working tirelessly with us since the inception of Privia, pretty much. So we're just lucky that we don't lose our great people to any competitors.? So look, I mean, we are really excited. Konda brings a great background and renewed enthusiasm to the team. We talked a lot about our tech stack and what we are doing with AI across all aspects of our business. And we have to link that with the margin profile of the business ultimately. So I think I'll just reiterate that we are looking to implement different AI applications across our whole tech stack in 3 broad buckets. Whether it's the Privia Enterprise, which is our core corporate functions, care center operations, and those are broken into fee-for-service, value-based care, and then again, patient interaction.? And then the third ultimately is care delivery. And then in each of those buckets, we are working with a lot of existing players, like we're on Google Suite and Gemini for all our corporate functions. We have Salesforce and Workday. We are also focused on every single function where we could use generative AI to increase productivity, ultimately reduce costs, or, as we grow, do not add costs, existing partnerships with Snowflakes on their Coreex AI as an example. So I think this will evolve as applications are just getting better every 3 to 6 months.? And then on the care center side, we're looking at literally every single workflow in the doctor's office. On the fee-for-service side, some examples we have iterated last time were prior auth, autonomous coding, and referral management. On the value-based side, we are focused on care gap closures, chart prep, patient scheduling, and patient interaction, which is a big focus with Agentic AI. We're looking at automated outreach, Agentic AI engagement with the patients, self-service tools, virtual health, obviously, I think we'll get much more efficient.? And then ultimately, with care delivery, you're looking at completely accurate coding, clinical decision support, suspect medical conditions, things like that. So I think there are a whole host of companies that are coming about. I think you'll see us just evolve this strategy, again, using our build-to-partner approach. But I think a company like ours, with 6 million patients, with 1.6 million in value-based lives, complex workflows around physician practices with our scale, I think we're just set up really well to benefit.? Then I think we talked about the margin profile. I mean, we are already approaching the low end of our long-term margin target, EBITDA to care margin of 30% to 35%. Our guidance this year gets us close to 29%. I think if we look at the next 5 years with everything we see that we can do with AI, I think we'll easily be close to the high end, if not exceed the high end of that margin target. So we're really excited on what we could do with all the innovation and really excited about what our new CTO can bring to the table here. Operator: [Operator Instructions] So the next question will come from the line of Andrew Mok with Barclays. Andrew Mok: Just wanted to follow up on the shared savings revenue. Could you elaborate a little bit more on the drivers of strength in the quarter, including how much corresponds to prior year performance versus current year performance? And related to this, it would be helpful to hear an update on how the Evolent assets are performing. Parth Mehrotra: I appreciate it, Andrew. So look, like last past quarters, I mean, we don't usually break down. I mean, there's always some dry period at this point in the year as 2025 closes out, and it's across the book, commercial, MSP, and MA. And then there's obviously, we get good data, and then we see what our actuaries believe about how we can perform in the current year. So there's always a mix between the 2. It varies quarter-by-quarter. So for me to give you something, it's going to change next quarter. So I think if you just look at a rolling 12-month basis, you'll see the increase over time. But it's pretty much across the book. There was not one particular area that stood out, which just bodes well for us. Andrew Mok: Sorry, could you repeat the second question? I thought I was. Just an update on the Evolent assets. Parth Mehrotra: Yes. So I think it's going really well. I think we're ahead on the integration. We feel really good about the asset. It's a core MSSP and some commercial lives. So I think we're really excited that the team is pretty integrated in the first 3 months. The tech stack is pretty much integrated. We're ahead on schedule a little bit there. So kudos to the team for doing a very hard job out of the gate here. And we look forward to working with those provider partners and continuing to increase their performance. So I think hopefully, if all that works out well, that will be good for shared savings as well as we close out this year. Robert Borchert: [Operator Instructions]. Operator: The question will come from the line of?Daniel Grosslight?with Citi. Daniel Grosslight: I actually had a similar question to the last part of the previous question, but I was hoping to get a little bit more granular detail, specifically on the sell-through of the full Privia platform into the physician base.? What's been the early reception there? Are there any metrics you can give us on what that sell-through has been and the progress you're really making in the six new states? Any stats or quantification you can give us where Evolent gave you that beachhead in those newer states? Parth Mehrotra: Yes, I appreciate the question. I mean, it's still early days. The cross-sell takes time. We're just less than five months into the acquisition, which closed in December. So job number one was making sure the team is integrated, making sure the tech stack is integrated, making sure we reach out to the practices and implement how we work on these programs, on MSSP in particular. So I think that's been our focus. Our sales team obviously reaches out to these practices to deliver the full Privia stack, but that happens usually over time. Our sales cycles are three to six months. When you're cross-selling, it's a new relationship, and you just don't want to disrupt what's there initially. So I think that will come over time. We just don't break out externally what portion of those practices move over. I think that's just part of our existing book. So you'll see that in the implemented provider numbers, which only reflect the providers that are on the full stack and part of the single-TIN from a fee-for-service perspective. So that will just happen over time. Operator: The next question will come from the line of Brian Tanquilut with TD Cowen. Unknown Analyst: This is Will Spak on for Brian. Most of my questions have been asked, but I guess, is there any color you can provide around the $11 million repurchase of NCI in the quarter? And then just a quick one on, it didn't seem like there was a major impact, but anything from weather and weaker respiratory on ambulatory utilization in the quarter? Parth Mehrotra: So, on the repurchase of the noncontrolling interest, we just acquired the minority interest in some of our markets. We expect it's going to lead to better cash flow and net income. We're constantly looking in our current markets where we have minority interests for these opportunities, and we just executed on a couple of those in the quarter. On the second part, look, I think it's important to distinguish, as we've said before, ambulatory and community doctor utilization for flu or other respiratory diseases versus the inpatient setting. We didn't see any major swings relative to previous years. The flu season comes and goes. Some years it is better, some years it's worse. Our book is very diverse. So we didn't experience the kind of change that I guess you all wrote about for some of the hospital companies reporting results in the past quarter. I think inpatient care can vary a lot more than ambulatory. Preventative care continues to be pretty good around flu, people getting their vaccinations, going in if they have symptoms, and so on and so forth. Even with snow days, telehealth is fully embedded in. It's really efficient. People know how to use it. So that's reflected in our results. You didn't see practice collections dip because of that. I think it just speaks to the diversification of our business. Operator: Next question will come from the line of Whit Mayo. Unknown Analyst: The press release didn't mention $600 million of cash at year-end, probably nothing really to read into that, but just maybe update on expectations for cash this year. And Parth, just wanted to maybe take your temperature on how you guys are thinking about buybacks at some point. Parth Mehrotra: Yes, I appreciate the question, Whit. The guidance is the same. We reiterated 80% of EBITDA would convert to free cash flow if you exclude any BD line items, including things like purchasing minority interests. So really, if you look at what cash was at the end of the year and just add free cash flow to it, which is cash flow from operations less CapEx, I think you should get close to that number. I don't think our guidance is changing there. But that does not include, obviously, the business development line or any spending on acquisitions, which is not included in our guidance. So that $600 million round number, excluding that, remains if things go well. And then look, our preference is, given the TAM out there and the opportunity to continue to consolidate different assets in this industry around community-based physician groups, ACO entities, IPAs, MSO entities, and so on and so forth. I think the best value creation opportunity for shareholders here is for us to keep compounding the business. Using our balance sheet cash to acquire these assets, integrate them, synergize them, and then just keep running that playbook, that's focus number one for deploying our cash. You've heard us say we like to keep some "sleep-well-at-night" money for a rainy day, pandemics happen, hurricanes happen, and so on. And then look, we always have the flexibility to return capital. That's an easy trigger if the value in the stock price is well below what we think is the intrinsic value for the company. But our preference is to compound earnings and free cash flow and continue acquiring businesses with our balance sheet cash. It just depends on when BD deals happen. So you can have cash accumulate, and then we could do larger transactions that are more meaningful and value-creating. We'll just see how that plays out over the next 24 months. Operator: The next question will come from the line of Jeff Garro with Stephens. Jeffrey Garro: I wanted to ask about the strong implementation of provider growth. One question, but I'll throw three parts at you. First, any callouts by market or specialty? Second, any update to contributions from provider-to-provider referrals? And third, how is the current visibility into the signed-but-not-yet-implemented providers and the current pipeline of provider prospects? Parth Mehrotra: Yes, I appreciate the question, Jeff. I'll take them in order. Look, I think given now that we are in 15 states with the single-TIN model and then another nine with the ACO-only model, the market or specialty mix just varies by quarter and by geography. As a sales team builds its pipeline, they convert, and then some markets get hot one year or one quarter, and then the others catch up. So, given the diversification of the book, it really varies each year. I think the strength of the overall business just speaks for itself. As we get bigger, we've talked about this earlier, the snowballing effect happens in this business. In our most mature markets, 50%, sometimes even 60% or 70%, of the referrals are from existing Privia practices to their colleagues. They are the best salespeople, our doctors. They've worked with us. They know what this model is. We perform for them. So, for them to refer another physician who has very high conversion rates. The LTV to CAC is off the charts in this business, some of the best that I've seen. We've talked about our payback period being less than a year. LTV to CAC is well over 10 years if somebody even decides to leave, and then our attrition rates are very, very low. So, provider-to-provider referral is very strong. And then the visibility is exceptional in this business. I mean, this is our sixth year reporting as a public company. You've seen the track record. It's a three- to six-month sales cycle, a four to five to six-month implementation cycle, given just the length of the size of the group. And so by this time of the year, pretty much every provider that has to be implemented is pretty much sold. So the visibility is over 90 percent at this point in the year. And that's why we're really confident about the guidance. And that hasn't changed much. If anything, it improves as the book of the business gets bigger. So again, the metrics around the business, the conversion rates, all are trending really, really well. We're really pleased with how we're performing. Operator: The next question will come from the line of Ryan Daniels with William Blair. Ryan Daniels: Parth, maybe a strategic one for you, and you alluded to this earlier, but it seems like there's a lot going on in real time with acute care hospitals and health systems and movement of volume to lower-cost settings. So you've got teams rolling out with entire episodes of care. You've got things like the inpatient-only list being dissolved. And I'm curious what that is doing strategically with your conversations with health systems as a potential partner to help them deal with all these pretty big changes they're facing. Parth Mehrotra: Yes, I appreciate the question, Ryan. That's a good one. Look, I do think the pressure on the traditional health system model and how they were kind of monetized is going to be higher for all the reasons you outlined. You could add the 340B program if something changes there, inpatient-only list, the willingness for them to employ primary care doctors, or certain nonsurgical specialties, and subsidize them. I mean, a lot of you have written about that over the years. I think it's going to be tough. The changes to the Medicaid or the ACA exchange population and how that filters through different health systems are also going to add pressure. So look, I think it bodes well for a business like ours as physicians look to come out of these settings into more outpatient settings and as different health systems figure out their strategy. I think it's going to vary by health system, different strategies in different communities. They have a different mandate. A lot of them are not-for-profit and are delivering care to really low-income populations. So I think it will vary by geography. But generally speaking, I think as these pressures mount up, we should expect this consolidation that's happened with physician practices at the health system setting to start to unwind a little bit, and physicians looking at businesses like ours to be a natural landing spot or even as they complete their residency as a very viable option to start or join an existing independent practice. And then it also adds to the question that was asked before around certain specialties and ASC opportunity, and our willingness to have a very strong referral base with primary care doctors having the pen in directing where the patient goes. So I think we're going to look at all of those strategies to keep expanding our network. And just given our platform that focuses on creating large multi-specialty groups in every single geography that we are in and then offering that to payers of health care in unique ways, mainly on the commercial population as well, it's a big differentiation. And I mean, you're seeing that in the results somewhat. They're very stable across cycles. And I think it's part of all of these strategies is playing out. So I think we're just going to keep looking for opportunities that we can keep compounding with that. But great question. Operator: [Operator Instructions] So the next question will come from the line of Constantine Davides with Citizens. Constantine Davides: Yes. Just two really quick ones for me. David, it looks like capitated profitability really stepped up in the first quarter. Just wondering if there's anything to call out there? And then second, Parth, you just talked about Medicaid and low-income populations. And you guys had a really nice or pronounced step-up in your Medicaid attributed lives. So, just wondering if you can talk about your Medicaid arrangements and what's prompting that growth. Parth Mehrotra: Yes. Thanks for the question. Yes. So again, this is just the first quarter of the year. The timing of data can vary quarter-to-quarter. As we always like to say in the capitated, both look at the full 12 months and a rolling 12 months. This quarter, we did get some prior year adjustments that benefited both revenue and margin. So I would say our prudent approach to the book is, at some level, paying off as we continue to see more data. We continue to get some good news there. And again, we just continue to follow our same consistent and prudent, I'll say, accrual methodology. It's a long period of time we need to review this information. But again, as good news comes in, we're able to see a little bit of additional good news. And then on the second part, Constantine, look, I think we service the entire panel in every physician's office. So organically, as we grow in existing states or new states, some part of the panel is Medicaid patients. So I think the strength of our implemented provider growth and what our sales team is able to do in certain geographies, I mean, this organic Medicaid attribution growth. We continue, again, to work with payers to figure out the right value-based strategy in that book. The gap between what any provider business would like to do and what it could get paid for is still very big, especially for the population. I mean, they have special needs, transportation needs, nutrition needs, just getting people to see the doctors, single mothers, very low-income families, so on and so forth. So I think while we can do a lot more, the willingness of the payers to reimburse us for some of those strategies is there, but there's still a gap. So while we'd like to continue to grow that book, as you can see in our Slide 6, it's all 100% upside-only deals, where again, we are taking the network to the payers, asking them much like our commercial book where we can do certain things with the population, impact the annual well visit rates with the children, with women, with working adults, making sure that they're at least seeing the doctors, getting the vaccinations, getting their screenings done. And for that, the payers are willing to pay a certain PMPM, a certain quality bonus. And then if we impact the MLR, there's shared savings to be had. But to take a risk in that book is tough. Unless the payer is really willing to get behind us and solve for some of these things. So I think we'll continue to grow it. I don't think you should expect us to take downside risk in Medicaid unless there's a unique opportunity. Operator: The next question will come from the line of Jack Slevin with Jefferies. Jack Slevin: Nice job on the quarter. I guess maybe not to backtrack over this too much, but just on the Medicare Advantage discussion, because there's pretty palpable excitement across payers and the value-based care space around that environment improving. My understanding or my read is really that many investors think that some of the moves you took to pare down risk meant that you don't necessarily participate in upside in the same way on some of the tailwinds that are now behind the industry. Maybe just breaking down that book across the 71% in upside only, the 19% upside, the downside, and the 9% cat book. Can you just talk a little bit about how better rates or more margin favorable payer bids flow through to you in each sleeve of the book there? Parth Mehrotra: Yes, it's a great question. I think the biggest dichotomy lies in the fact that broad industry sentiment does not necessarily translate into the ground-to-ground payer contracting discussion with any particular payer in one geography with a certain book of business in MA. So I think overall, I don't think reimbursement is going to increase massively over time. I think what CMS is trying to do is make sure that everybody is getting reimbursed appropriately, whether that comes through star scores or risk adjustment or whatever other mechanism they can look at. I think they had a one-time adjustment. The system got a shock. Some of the payers, I mean, these cycles have happened with MA payers over the last 20 years. You can see every 4, 5 years, payers grow their book, they overshoot, they make a correction, and then the lives move from one to the other, and then somebody is left holding the bag until the cycle repeats itself. So I think while you're coming off the trough from a payer perspective and you're seeing those results after the last 2, 3 years, how a provider business contracts at the ground level kind of remains the same. We're going to look at each geography, each book of business. And then we continue to believe, I think, this broad-based view that capitation is the only way to capture the upside. I think it's certainly myopic. I mean that you've seen the last 5 years play out. I mean, it's not like any other provider group was making a lot of money in capitation 5 years ago in '21 when they were really talking about it, and we'll see how the next few years play out. And then there's an economic profit that is there to be shared between the payers, the doctors, and the providers. Our view is that economic profit should be shared and not just captured, or the risk should not be borne by one while the economic profit is shared. So I think it's a shared risk arrangement is much more sustainable. I think you prevent some of the anomalies, some of the potential conflicts that can happen. So I think we'll just continue to work with our payers and continue to capture the upside based on the value that we provide. It does not necessarily have to happen in a capitation. Some businesses might like that volatility and play for that extra risk for the additional downside potential. But our view is to have, as we've said, sustainable earnings is sustainable earnings. And you've seen us do that over the last 6 years as a public company and then even before that. So our strategy is going to be the same. And if there are opportunities for us to take more risk, we'll take more risk. Operator: All right. The next question comes from the line of Ryan Halsted with RBC Capital Markets. Ryan Halsted: Most of my questions have been answered. But maybe just a question, any views or thoughts about payers reform on prior authorization policies, I would think certainly potential implications for your fee-for-service business, perhaps opposite implications on value-based care, but just any thoughts on that would be helpful. Parth Mehrotra: Yes. I mean, look, there's a lot of noise in the media around it these days. I think the focus there is for higher value claims, probably in the acute setting, more so than the ambulatory settings with community-based doctors. 95% to 99% of claims are resolved on the first pass. It's mainly at the specialist level where you need prior authorizations. I mean, for a primary care-centric group, it's pretty low-value claims in the first place. Ultimately, I think, look, with AI, there will be an equilibrium where the payers and the larger providers in the acute setting will just settle out on prior auth. I think it's in everybody's interest not to have extended timelines for those. It doesn't bode well for the ultimate patient who gets stuck in the middle of these, either as a surprise bill after care has been delivered or is just waiting for prior auth. So I think everybody's interest is aligned with that patient ultimately, but I think we just go through a period where some of this stuff will just get settled out. But I don't think it really impacts our business in that big of a way relative to the acute setting. I think we obviously continue to work with payers in making sure that if there are certain areas of specialties where we feel there's some friction, we smooth that out. And I think a lot of the payers have the right intent to continue to not have this as a source of friction, especially when it impacts patient care. Operator: And our last question comes from the line of David Larsen with BTIG. Jenny Shen: This is Jenny Shen on for Dave. I was wondering if you could comment on medical cost trends, how that compares to a quarter ago, and maybe a year ago? And then also, any updated thoughts on your general appetite for risk? It sounds like it's pretty consistent, but whether that has changed at all. Parth Mehrotra: Yes, I appreciate the question, Jenny. So the medical cost trend is pretty consistent. I mean, you've seen that result in our value-based book and how we perform. Again, we like to look at it over a 12-month rolling basis, as David was saying, and that's broadly across our book. So nothing jumped out quarter-over-quarter here for us. There are some impacts of the flu season, but that happens every year. So we'll just continue to look at data and then see. But from our perspective, what's in our accruals, what's in our guidance is pretty consistent. If anything, we like to be pretty prudent. And if we are wrong, there should be upside, like we've always said. So I think that's how we look at it. And I think we answered the other question previously already in terms of our ability to take risks. Operator: All right. That concludes our question-and-answer session. I will now turn the call back over to Robert Borchert, SVP, Investor of Corporate Communications, for closing remarks. Thanks. Robert Borchert: I'll hand it over to Parth. Parth Mehrotra: Thank you for listening to our call today. We appreciate your continued interest and look forward to speaking to you again in the near future. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, and welcome to the Q4 2026 Haemonetics Corporation's earnings conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Olga Guyette, Vice President of Investor Relations and Treasury. Please go ahead. Olga Guyette: Good morning, and thank you for joining us for Haemonetics' Fourth Quarter Fiscal Year 2026 Conference Call and Webcast. I'm joined today by Chris Simon, our CEO; and James D'Arecca, our CFO. This morning, we released our fourth quarter and full fiscal 2026 results and issued fiscal year 2027 guidance. The materials, including our earnings release and supplemental earnings presentation, are available on our Investor Relations website and also in this morning's press release. Before we begin, I'd like to remind everyone that we will use both reported and organic revenue growth rates that exclude the impact of FX, the divestiture of the whole blood product line, and the exit of certain liquid solutions products. Organic growth ex-CSL also excludes the impact of the previously disclosed transition of CSL's U.S. disposable business. Our fiscal year 2027 organic revenue guidance is also adjusted for the impact of the 53rd week. We'll refer to other non-GAAP financial measures to help investors understand Haemonetics' ongoing business performance. Please note that these measures exclude certain charges and income items. A full list of excluded items, reconciliations to our GAAP results and comparisons with the prior year periods are provided in our earnings release. Our remarks today include forward-looking statements, and our actual results may differ materially from the anticipated results. Factors that may cause our results to differ include those referenced in the safe harbor statement in today's earnings release and in other SEC filings. We do not undertake any obligation to update these forward-looking statements. And now, I'd like to turn it over to Chris. Christopher Simon: Thanks, Olga, and good morning, everyone. We delivered fourth quarter revenue of $346 million, up 5% reported and 9% organic ex-CSL, with adjusted EPS of $1.29, up 4% year-over-year. For the full fiscal year, revenue was $1.3 billion, and adjusted EPS was $4.96 per share with improved adjusted earnings, higher adjusted margins, and stronger free cash flow than in the prior year despite $153 million of nonrecurring revenue from portfolio transitions. Our performance reflects the strength of our core platforms with plasma and TEG driving momentum, margin expansion, and reinforcing our leadership in attractive end markets. This foundation enabled targeted investments to position interventional technologies to contribute to growth in fiscal '27 and beyond. At the same time, we advanced our innovation agenda with U.S. FDA clearance of Persona PLUS, the expanded indication for VASCADE MVP XL, a submission to expand the VASCADE label in Japan and the acquisition of Vivasure. Moving on to our business unit results. Hospital revenue was $160 million in the fourth quarter and $588 million for the full year, growing 8% in the quarter and 4% for the year, or 7% and 4% on an organic basis, respectively. Results were supported by strong performance in blood management technologies, partially offset by interventional technologies, consistent with trends we've discussed throughout the year. Blood management technologies delivered a record quarter with broad-based performance driving revenue growth of 21% in the quarter and 14% for the year. Hemostasis management grew in the high teens, fueled by sustained strength in TEG 6s, higher disposable utilization, continued capital placements and strong European momentum following the HN cartridge launch. Transfusion management delivered outsized growth in the quarter, contributing nearly half of the franchise growth as we continue to gain share through the adoption of our integrated solutions that enhance hospital safety and efficiency. In interventional technologies, revenue declined 10% in the quarter and 9% for the full year. Vascular closure was down 8% in the quarter, reflecting 6% decline in MVP and MVP XL in electrophysiology and continued softness in lower growth coronary and peripheral procedures. Performance in EP was affected by share loss in the first quarter of fiscal 2026 and evolving procedure dynamics. Sequentially, EP grew 8% and sensor-guided technologies returned to growth, partially offsetting the continued impact of PFA on esophageal cooling. Over the past year, we strengthened our commercial organization, equipped our teams with better tools and advanced our product portfolio. Q4 was our strongest quarter of fiscal '26, and we have renewed confidence in the trajectory of IVT. Importantly, the headwinds that drove approximately 80% of the decline in fiscal '26. First, OEM-related softness in sensor-guided technologies. And second, PFA impacts on esophageal cooling have now been lapped or reduced to a nonmaterial base. With the expanded MVP XL label and the anticipated release of PerQseal Elite, we are strengthening our competitive position and reenergizing the business as we enter fiscal '27. Turning to plasma and blood center. Plasma momentum continued with another quarter of growth driven by category leadership, differentiated innovation, and strong market fundamentals. The franchise delivered $130 million in revenue in Q4, up 3% reported and 13% organic ex-CSL as we annualized the last of the discontinued CSL U.S. disposable supply agreement. Full year revenue was $524 million, down 2% reported, but up 20% organic ex-CL (sic) [ ex-CSL ] above our revised guidance range of 17% to 19%. Market fundamentals remain highly attractive, supported by resilient immunoglobulin demand and continued global expansion in plasma collections. Our share of U.S. plasma collections grew in the high single digits in both the quarter and full year with double-digit growth in Europe as customers increasingly rely on our platform to drive efficiencies. Persona PLUS is the next step in our innovation cycle, further strengthening our competitive position by enhancing percent yield by mid-single digits on average, supported by a large randomized clinical trial of over 30,000 donations and underpinned by our proprietary patent-protected technology. It has been met with strong customer enthusiasm with multiple adoptions underway. Blood center also contributed positively to the fourth quarter, generating $56 million in revenue, up 1% reported and up 6% organic. For the full year, revenue was $221 million, down 15%, reflecting the whole blood divestiture, but up 5% on an organic basis. Performance was driven by continued strength in global plasma demand and stable and growing U.S. red cell collections despite our ongoing portfolio rationalization efforts. For the full year, total company revenue declined 2% reported due to portfolio transitions, but grew 10% organically ex-CSL, at the upper end of our guidance. We expect growth to continue in fiscal '27 with projected revenue growth of 4% to 7% reported and 3% to 6% organic adjusted for the extra week in FX. In hospital, we expect mid-single-digit growth with both franchises contributing. We anticipate continued expansion of the TEG 6s installed base and increased HN cartridge utilization in blood management technologies. In IVT, we are ending the year with a stronger commercial organization, improving market dynamics, and a more competitive portfolio, supported by the MVP XL label expansion. With most headwinds now behind us, we are focused on translating these improvements into consistent growth. Our guidance excludes any contribution from PerQseal Elite, which is currently undergoing FDA review. In plasma, consistent with our FY '26 approach, our mid-single-digit growth outlook is grounded in controllable drivers, share gains, the rollout of Persona PLUS and modest collection volume growth while retaining upside if collection trends remain strong and/or adoption accelerates. We remain confident in the durability of growth and our ability to further extend our leadership in this attractive market. In blood center, strong plasma-driven demand and customer relationships will continue to support performance. However, ongoing portfolio rationalization remains a near-term headwind, and we expect revenue to decline in the mid-single digits. We're encouraged by our progress, and we remain focused on consistent execution to deliver growth and sustainable value for our customers and our shareholders. James, over to you. James D'Arecca: Thank you, Chris, and good morning, everyone. We closed the year with strong execution and meaningful progress in strengthening the quality of our earnings, expanding margins, improving cash flow, and further aligning our portfolio with higher growth, higher-margin markets that will continue to support our growth aspirations in the long run. Adjusted gross margin in the fourth quarter was 59.7%, down 50 basis points year-over-year, primarily reflecting the absence of the prior year CSL shortfall payment and the impact from tariffs enacted earlier in the year, partially offset by a structurally higher margin portfolio. For the full year, adjusted gross margin expanded 280 basis points to 60.3%, driven by portfolio transformation, strong volume growth in plasma and blood management technologies, and continued strong demand for our market-leading innovation. Adjusted operating expenses in the fourth quarter were $122 million, up 5% year-over-year, largely driven by the addition of Vivasure and the impact from tariffs, coupled with higher-than-expected costs from the self-insured portion of our benefits plan, higher performance-based compensation, and a deliberate step-up in targeted investments to strengthen our commercial capabilities. Together with the adjusted gross margin dynamics in the quarter, this resulted in adjusted operating income of $85 million and adjusted operating margin of 24.4%, down 50 basis points year-over-year. Adjusted operating expenses for the full year were $465 million, up 2%, driven by continued investment in R&D and selling and marketing, the acquisition of Vivasure, and higher performance-based compensation. Adjusted operating margin for the year expanded 140 basis points to 25.4%, reflecting structural improvement from portfolio transformation even as we continue to invest for future growth and absorb macro cost headwinds. The adjusted tax rate was 24.8% in the fourth quarter and fiscal year '26 compared to 22.2% and 23.2% in the prior year, respectively. Adjusted EPS increased 4% to $1.29 in the fourth quarter, inclusive of a modest benefit from share count, which was more than offset by higher interest, tax, and FX. For the full year, adjusted EPS was $4.96, up 9%, demonstrating the strength of the underlying business and disciplined capital allocation that helped offset the impact of portfolio transitions, which are now fully behind us, partially offset by higher interest and tax. Now turning to the balance sheet and cash flow. Cash generation continues to be a defining strength of the business and a key source of strategic flexibility. With our major device investments and productivity initiatives largely behind us, the business has returned to a strong and sustainable cash flow profile. In the fourth quarter, we generated $45 million of free cash flow, bringing the full year free cash flow to $210 million with the free cash flow to adjusted net income conversion ratio of 89%. While free cash flow in the quarter was down versus last year, mainly due to the timing of income taxes paid and accounts receivable, full year free cash flow increased by $65 million, largely driven by better working capital management and less CapEx. We ended the year with $245 million in cash after deploying $175 million to repurchase over 3 million shares, investing $61 million in the Vivasure acquisition and continuing to fund organic growth, reflecting a balanced capital allocation approach that supports both organic growth and shareholder returns. We enhanced capital structure flexibility and positioned the business for continued deleveraging that can be supported by strong cash flow. While total debt remained unchanged at $1.2 billion, we refinanced $300 million of convertible notes with the revolving credit facility, ending the year with $700 million of convertible notes due in 2029, $239 million of term loan A debt and a revolver balance of $300 million with a net leverage ratio as defined in our credit agreement at 2.73x EBITDA. On that note, let's move on to discuss the rest of our fiscal year '27 guidance. Consistent with the strong foundation and momentum Chris outlined, we expect fiscal 2027 revenue growth of 4% to 7% reported and 3% to 6% organic. We expect continued margin expansion with adjusted operating margin improving 50 to 100 basis points year-over-year, driven by continued strong momentum across our growth franchises, innovation, and operating leverage as we begin to scale IVT. Also included in that expectation is a full year of dilution from the Vivasure acquisition with no associated revenue in our fiscal year '27 guidance, additional impact from tariffs, ERP-related costs, and continued investment in targeted high-return growth initiatives. At the earnings level, we expect adjusted EPS to grow broadly in line with revenue as improvements in operating leverage and mix benefits are assumed to be largely offset by higher interest and tax, which is expected to be higher by about 100 basis points than in fiscal '26. Importantly, the business is expected to continue to demonstrate strong earnings quality, supported by a highly recurring revenue model and disciplined capital deployment. We expect free cash flow conversion of approximately 80%, reflecting a disciplined approach to working capital that preserves flexibility to manage inflationary and tariff pressures and invest in growth while enabling organic investment, deleveraging, and opportunistic share buybacks. With that, I'll turn it back to Chris for closing remarks. Christopher Simon: Thanks, James. I want to share a few closing thoughts about our journey over the last 4 years. Fiscal '26 marked the culmination of our long-range plan for transformational growth, whereby we fundamentally repositioned Haemonetics into a more focused, higher quality, and more resilient company with significantly stronger growth, margins, and cash flow. We evolved and rebalanced our portfolio. In plasma, we drove broad adoption of NexSys and Persona while advancing the next wave of innovation with Express Plus to reduce procedure times, Persona PLUS to further improve yield and Device360 to digitize and streamline center operations. We rationalized our blood center portfolio, including the divestiture of whole blood to drive margin expansion. We broadened the clinical utility of TEG 6s with the HN cartridge, extending into high acuity settings such as cardiovascular surgery and liver transplantation and advanced international expansion with CE Mark certification. We strengthened the VASCADE platform with MVP XL for larger sheath procedures, enhanced our clinical evidence, scaled commercially, and expanded into large bore closure with PerQseal Elite. We also revamped the operating model of the company, advancing operational excellence, scaling and automating our manufacturing and supply chain capabilities, progressing our ERP digital transformation, and building the commercial and clinical infrastructure required to sustain growth, including a robust NexSys capital cycle to support ongoing global share gains. The results, low teens compounded average organic revenue growth ex-CSL, high teens adjusted EPS CAGR, low 60s adjusted gross margins, 660 basis points of adjusted operating margin expansion, and $636 million of cumulative free cash flow, results achieved while investing for growth, navigating dynamic markets and macro environments, and overcoming $153 million of nonrecurring revenue from portfolio transitions. With the transitions behind us, we expect growth to reaccelerate and become more consistent, supported by a structurally more attractive mix of recurring revenue from high-growth, high-margin platforms. Our priorities for fiscal '27 are clear: Continue to win in plasma, extend our leadership in TEG and reinvigorate growth in vascular closure while driving greater operating efficiency. Quality earnings growth will further strengthen our balance sheet and create opportunities for value creation through disciplined capital allocation, including organic growth, delevering and opportunistic returns of capital to shareholders via buybacks when appropriate. Thank you, operator. Please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Andrew Cooper from Raymond James. Andrew Cooper: Maybe first on plasma. I don't think you shared, and apologies if I missed it, but U.S. collection volume trends you saw in the quarter at kind of the market level. And then as you think about the end market views for '27, given discussions with fractionators, would love just kind of the latest and greatest thinking that's included in the guide. And then secondly, if you could give a little bit more on the Persona PLUS rollout in terms of how the base has adopted it, how much has adopted it thus far? And then are you able to take some price with that? Or is this more of a tool to extend contracts, ensure stickiness, et cetera? So just would love kind of how that rollout is shaping up. Christopher Simon: Andrew, thanks for the question. Look, FY '26 was a record year for plasma. We overcame that hangover that's been out there for a bit now and had what we describe internally as the trifecta of growth, where we had price from the remaining Persona rollout. We had a meaningful uptick in share gains, which is something we're obviously quite proud of and a return to double-digit growth on collection volume in the latter part of the year. So real strength there. In the fourth quarter, in addition to the normal seasonality, we lapped our price gains on Persona. So that was not a meaningful contributor in the quarter. We do have some ongoing share gains from earlier transformation, earlier transitions, modest tick down in collection volume. But again, quite consistent with what we see as kind of the long-term trend for growth. FY '27 guide, we took a page out of our playbook for FY '26, and we're really only talking about the things that we directly control, the annualization of share gains and the committed upgrade to Persona PLUS. We didn't really include any collection volume, I think 0% to 2% again this year. We don't control that. Obviously, as I said in the prepared remarks, if collection volumes remain hot and/or the pace of adoption of Persona accelerates, then we have meaningful upside from what we otherwise view as very prudent guidance with mid-single-digit growth for the year. In terms of PLUS, it's the next stage of our advancements. Nobody can match it. It's another -- Persona on average gave 10% benefit. This is another 5% on average above that. Tremendous acceptance into the market. We've already begun the upgrade cycle. And while we don't talk about price explicitly, the value of dropping that additional 5% yield to our customers creates a lot of room for mutual benefit, right? So you should absolutely expect price to be part of the equation as we roll forward this year. But as our convention, we won't put it into the guide until it's fully contracted and we have a committed timeline for implementation. So more to come there. We think it gives us some breathing room as the year progresses, some potential upside, but really excited about it, puts just another step forward for the platform to advance and really be unrivaled in the market. Andrew Cooper: And if I can just ask one more, maybe on margins. I think you sort of forecasted the 50 to 100 basis points as a reasonable starting point, but you're coming off a little bit lower of an exit rate here. So when we look at 4Q for you, James, maybe you called out increased investments, some of which I assume will persist versus things that are maybe a little bit more onetime in terms of benefit costs. I think you called out performance comp and tariffs. So just if you could break that down for us a little bit more and lay out how those things flow into the '27 guide as well. James Owens: Yes, sure. Thanks, Andrew. On Q4 operating margins, the results certainly were lower than we initially expected, and it really comes down to the 3 items, which I think you mentioned. First, tariffs were higher than anticipated. We saw roughly 60% of the annual impact in Q4 as our plasma inventories were depleted. Second, as you mentioned, we had the higher claims expense for our self-insured medical plans. And third, we stepped up sales and marketing investment ahead of our FY '27 launches, including MVP XL and PerQseal Elite. When I look to FY '27, we expect the operating margin expansion to be driven primarily by gross margin improvement, but also by greater operating leverage. So on gross margin, we expect the benefits from our plasma innovation cycle, which Chris just talked about, including Persona PLUS, along with volume-driven leverage. And we also expect a favorable mix shift as hospital, which runs close to 70% gross margins contributes more of the growth. Offsetting some of that, we did incorporate higher tariff costs into our standard costs and we're assuming a 15% tariff level versus the current 10% that we're paying. So that differential is already built in. Overall, on operating expenses, I'd say we're investing. So expenses are going to be up, including with Vivasure, but we're expecting operating leverage as revenue growth and gross margin expansion outpace expense growth. We're staying disciplined, and we're looking to protect our profitability while funding the launches. So overall, we do think some of those items will recur like the tariffs we're building in, higher costs for medical, and we do have those bigger investments in there for S&M. But that's all built in to the guide. And we look forward to improved operating margins next year. Operator: Our next question comes from the line of Marie Thibault from BTIG. Marie Thibault: Maybe I'll pick up where Andrew left off and ask about hospital. I thought it was really encouraging to hear. You're feeling reenergized about the interventional tech trajectory. So just want to get a little bit more detail on the dynamics you're seeing stabilization, signs of improvement. Certainly, you've got the expanded label for MVP XL. So I would love more details on that and the cadence for how you think fiscal '27 could unfold for this part of the business? Christopher Simon: Yes. Thanks, Marie. We -- I think quite clearly, whether it's 6 or 9 or 12 months from now, we will look back at this point and say that was the inflection point. Fourth quarter of fiscal '26 is when Haemonetics IVT turned the corner. And we understand we were down 9% for the year. When you step back from that number, and there's no apologies here, but the reality is fully 80% of that 9% decline was attributable to 2 factors: the releveling of the guidewire OEM business with J&J's acquisition of Abiomed, they took the inventory down, rebalanced their sourcing a bit, and that was a big chunk of the hit. The other hit, of course, was ensoETM, which is on the wrong side of the PFA adoption curve. The good news is we've lapped the first, and the second is now at a level where roughly $2 million per quarter, it can't hurt us. So what you will see from us going forward is threefold. You will see a return to growth at or above market rates for vascular closure led by electrophysiology. You'll see SavvyWire, the direct retail business that we control, growing disproportionately. And with any luck, we'll launch the PerQseal Elite product later this year, and we think that's a novel offering for large-bore closure, which gives us a lot of encouragement. In short, the enthusiasm you're hearing from us is a better team, better tools, a better product and a more accommodating market overall. So we understand our win-loss ratio. We understand what this team is capable of. We've equipped them. You heard from James, the investments we've made throughout the year, but especially in the fourth quarter, to position them for stellar performance in FY '27, and that's exactly what we expect. Marie Thibault: A quick one maybe for James here. Free cash flow conversion, I think you cited 89% this fiscal year, which is tremendous. You're pointing to 80% conversion next fiscal year. Obviously, nothing to sneeze at. It's still very impressive. But what's behind that trajectory, the 80% versus the nearly 90% this year? James Owens: Yes. For the most part, Marie, that's just a bit of conservatism being built in. We know that we have to increase our inventory levels. So it's working capital related really driving most of that, but also a healthy dose of conservatism in there. Operator: Our next question comes from the line of Anthony Petrone from Mizuho. Anthony Petrone: Maybe one on plasma, one on IVT. On plasma, maybe just a recap on the landscape there. Some chatter that there's some discounting going on by some of the fractionators in that space. And then in addition to that, there's a shift as it relates to CIDP prescriptions. In other words, the FcRn competition question. So maybe what's the latest in terms of what you're hearing just on just finished good IG inventory as well as FcRn competition in CIDP? And I'll have a quick follow-up on VASCADE MVP. Christopher Simon: Hello, Anthony, it's Chris. Thanks for the question. We remain really bullish on plasma. It defines durable growth in our portfolio and is a major source, not only of earnings, but free cash flow and return on invested capital. So we look at this. There are certainly others that are more expert beginning with our customers. But our understanding is quite positive with regards to the long-term demand of IG-derived pharmaceutical therapies. What gets lost in the chatter, I think, is that fully half the market -- more than half the market and a disproportionate source of growth of the category is primary and secondary immune deficiencies, which tragically are being driven incidence and prevalence by cancer therapy. And so there is no alternative to IG in that space, and we see that growth unabated. On the other side, autoimmune, what we look to primarily is new patient starts. And what we see is IG remains the standard of care. Now I think folks misinterpret that when they see growth in VYVGART that, that must come at the expense of IG. And the reality is that's just a misinterpretation of the facts. The reality is both can grow because the primary use for VYVGART in those autoimmune categories is as secondary therapy for when their patient is nonresponsive to IG or that they want to overlay anti-FcRn in addition to IG to get an optimal result. There's very few examples of naive IG patients being started on the alternative therapy. And there's none that I'm aware of where someone is being switched off of IG who was otherwise well tolerated and well treated. Some of that's economics, some of that's just the base underlying efficacy of IG therapy. So there will always be noise in the system. There will always be a degree of cyclicality. Inventory levels are more art than science as we understand it. But we remain very bullish on the near, the intermediate, and the long-term demand for IG therapy and the need to collect accordingly. Anthony Petrone: And then just quick on MVP, VASCADE. All of the PFA companies reported here, it looks like the market for cardiac ablation slowed a little bit in 1Q. Just from the vantage point of Haemonetics, where does it see just the underlying market for EP volumes? Christopher Simon: Yes. Thanks, Anthony. I think one of the positive silver lining, if you will, of the pace of PFA adoption and the changing modalities associated with it is that it is very quickly settling in, which is helpful for us because we have a dual effect. Higher procedure volumes is obviously a good thing, but the reduction in access sites works against demand for our product. Because this is now leveling, you will increasingly see demand for closure track with the underlying demand for procedures, which is meaningfully ahead. When we go back and estimate FY '26, the underlying growth in access sites was probably mid-single digits, perhaps as low as 3.5% or 4%. What we expect for this year is certainly higher than that, probably in the mid- to high-single digits, which bodes well for us given our aspiration to grow at or above the market fairly quickly here. So from our vantage point, we're ubiquitous, particularly with the label expansion and the added clinical evidence, which is really outstanding. We are indifferent between which therapy is used. We have the best access closure for small and mid bore, soon to be large bore as well. And so from our vantage point, we think we can grow at or above market. If the market modulates down a tad, that probably just gives us a chance to catch our breath and get back on our front foot. Operator: Our next question comes from the line of Allen Gong from JPMorgan. K. Gong: I guess like one that I have is on PerQseal. I know you're not including any contribution in your current guidance, but just remind us on the pathway to market there and potential upside to the guide from that. Christopher Simon: Yes. Hello, Gong. As is our convention, we've included all of the launch expense, which actually began last quarter to prepare the team, the product and the market for a truly outstanding launch whenever that comes this year. The product has been submitted to FDA. It's under review. We'll have the normal ongoing process. I don't want to comment about the timeline. It's just unpredictable in that regard, particularly in this current environment. But we really like the data submission. It's based on a set of trials that have been well vetted by the academic community. And so we feel quite confident in the product's profile and its eventual approval. We didn't include any of the revenue because we don't control it. And so whenever it comes, we will be ready to go. And we think this will really be a meaningful novel offering for large-bore closure up to 26 French outer diameter. And so we think it will strengthen our play, not only in vascular closure more broadly, but in structural heart as well. So it's a nice complement. It's a true tuck-in. We don't need to add additional resources beyond what we already have in place. We just need to make sure those resources have the tools and are properly trained and equipped to be able to create launch intensity, which we expect later this year. K. Gong: And then just as a quick follow-up to an earlier question just on plasma supply. I just wanted to confirm when we think about some call-outs of maybe abnormal stocking and potential destocking dynamics in the quarter, that's not something that you're seeing. That's not something that you're necessarily concerned about for the rest of the fiscal year. I just want to make sure that's the right way to think about it. Christopher Simon: Yes, Allen, I'd just go back to our guidance at mid-single digit. We have included 0% to 2% collection volume growth for the year. So if what you are describing is right, we're indemnified from it, right? We didn't anticipate collection volume growth. Anything that is above that 0% to 2% is going to be upside for us as the year progresses. What we'll lean into is an expedited rollout of Persona PLUS, where we have meaningful innovation-based pricing that will really help the market. There have been -- in prior yield rollouts, there have been trade-offs made where folks collect less because -- less total collections because they're getting more per collection from us. That's part of our value proposition. It drives margin expansion, and it helps with the overall profitability and the durability of what we're doing. But the actual inventory levels, I think the numbers get confusing because you've got individual customers at very different stages in the life cycle. So for us, with north of 50 share of the total collection market between the U.S. and Europe, we have more ability to kind of balance that out perhaps than some. Operator: Our next question comes from the line of Larry Solow from CJS Securities. Lawrence Solow: It's [ Pete Lucas ] for Larry. Just following up on PerQseal. Should we expect incremental sales and marketing investment in fiscal year '27 ahead of when approved? And how should we kind of think about that? Christopher Simon: Yes. I'll let James walk through the details of it, Pete. But we -- our guidance of mid-single-digit growth for hospital and 100 basis points of margin expansion fully anticipates the resourcing of that launch for success. And good news is we were able to do a bunch of that work in the fourth quarter. Some of it will continue into the year, but it's fully reflected in our guidance. What's not reflected from my answer to the prior question is any revenue attainment. We'll -- if and when, we'll adjust accordingly. James Owens: Yes. When you look at the numbers, it was -- Vivasure was roughly $0.05 or so dilutive in Q4. If you take that and multiply it by 4, that would give you about $0.20 dilution for Vivasure for the full year. Operator: Our next question comes from the line of David Rescott from Baird. David Rescott: Two quick clarification questions and then I had a follow-up. And it sounds like you kind of just answered part of the first one as it relates to the contribution from these launch investments for Vivasure. But maybe can you think about or help us think about when we look at the margins in the quarter, I think operating margins in plasma was down 650 basis points year-over-year. If you know, what maybe that baseline operating margin, overall was in -- in your mind, maybe taking out that $0.05 kind of gets you to what that adjusted ex-Vivasure number is. And then as it relates to the guide for 2027, you called out EPS growth comparable to that of revenue. Just curious if that's specific to the reported revenue growth or the organic revenue growth guidance for the year? And then I had a follow-up. James Owens: Yes. On the second one, the EPS is commensurate with the reported revenue growth because that includes all 53 weeks. On the operating margin question on plasma, there's a couple of things that drove the decline versus Q4 in the previous year. One, I would say, as I mentioned, was we had some tariff expense that came in, in the quarter that was higher than what we anticipated. That pushed it down. The other thing that pushed it down was as we got into the fourth quarter, we hit some of the higher tiers on our volume-based pricing, and that also pushed it down a bit as well. But the baseline plasma operating margin, if you took the average of the year, excluding the $16 million that was in the first quarter for software, that should get you something close to a baseline amount there for plasma. Christopher Simon: David, it's Chris. If I could just jump in on that, if I may, because I think one thing that may get lost in the shuffle is we fully expect FY '27 to be a robust year of product launches. It will include the heparinase neutralization cartridge, which is now in Europe, but we will take more broadly, the MVP label expansion, which gives us tremendous cache at IDNs and ASCs and just a broader opportunity to promote the product directly in the market. We talked about Persona PLUS and what we think that will mean. We expect everyone to adopt that over the course of time here. And then PerQseal Elite when it comes. And so we factored in what we believe are the costs associated with making sure this goes. That's part of the guide. If we surprise ourselves positively, then the revenue forecast and the associated margins with that will look prudent in hindsight. David Rescott: And then maybe on the assumptions for the plasma guide in the year. I appreciate the color you provided on that already. But when we look back to the NexSys Persona Express Plus launch a couple of years ago, you had the improved yield benefits coming out of that in the period exiting that, the underlying plasma market growth declined or was slower than expected. And I know we don't definitively know what the reason was, but perhaps you could assume that better yield was a factor there. As you think about launching the new Persona PLUS system with a better yield enhancement coming with it, how, I guess, do you potentially expect that to impact the overall plasma collections if, again, perhaps the reason why you had slower growth in the prior couple of year period may have been related to the initial new product launch? And feel free to tell me if you think that's wrong as well. Christopher Simon: David, I don't think we have clairvoyance on this, right? We continue to believe plasma will play an outsized role in terms of durable growth, free cash flow and return on invested capital. The guidance of mid-single-digit growth for FY '27 includes the annualization of share gains, which have already been implemented, right? So share gains, we grew 20% in fiscal '26, as you know, fully half of that growth or share gains. And so that is still annualizing as we speak and will continue certainly through the first part of the year. Innovation-based pricing, important lever for us. We've annualized all the Persona gains previously built in. What we will have is potential upside associated with the Persona PLUS and accelerated adoption there, given what that means to the market. In terms of volume, again, 0% to 2% because we don't control it. The dynamic you described is very much what took place for the second wave of Persona rollout where some of the largest collectors took the 10% yield and met their annual objectives, and we're able to meaningfully lower cost per liter as a result. The first wave of Persona rollout was the opposite effect, which is folks that were intended to grow 10% for the year grew 20% to meet their individual demand at the time. So it will vary by individual customer. It's really difficult to call. We feel like we're well insulated at that mid-single-digit overall guide given that 0% to 2% is what's attributable to volume at this point. Operator: Our next question comes from the line of Mike Matson from Needham. Unknown Analyst: This is [ Joseph ] on for Mike. Maybe just one on plasma and then a quick follow-up on Vivasure. So 4Q looks like plasma growth ex-CSL maybe slow compared to the last 3 quarters. But I'm just wondering, was there any weather disruptions early in the quarter that affected plasma there? And how should we be thinking about Q1? I believe it's usually the seasonally weakest. So should we expect sequential decline from here? And then just with fiscal '27 being, I guess, the first clean year without the impact from CSL. Can you maybe tell us if there's any residual impact on the business that maybe investors aren't considering? Or is it completely headwind free from here? Christopher Simon: Yes. Hello, Joe, thanks for the questions. Let me answer them in reverse order. I used the phrase in a public setting recently that the fog is clearing and it's going to reveal the forest for the trees. I think the $153 million of overhang or hangover depending on who you're talking to, does clear entirely. And it will be nice to be able to talk with you guys without the asterisks and the but fors and what sounds like a list of apologies, just durable growth, cash flow and return on capital, which that business is known for. So yes, we are very much looking forward to a clean print in FY '27 and beyond. In terms of the fourth quarter, first quarter dynamic, you are right in the seasonality. Actually, our fiscal fourth quarter, which is the first calendar year that we just concluded, typically is the weakest collection period of the year. There's lots of things that get attributed this year to your point. Yes, we had some heavy storms that prevented donors from getting into the centers back at the very beginning of the quarter, that seemed to normalize and correct out. There are a lot of speculation about tax refunds and given the changes in the tax laws that refunds were larger, but then some were delayed. And so I don't really know how to handicap the ups and downs on that. We had a good quarter. Plasma did what we needed it to do to round out the year. In terms of first quarter softness, it's not what we're experiencing, but again, we don't control it. So we're going to remain prudent and conservative around that. But typically, first quarter begins to build, and it gains real momentum in second and third quarter, and we would expect this year to look similar. Unknown Analyst: And then yes, just a quick one. Are you guys seeing any early commercial signals? Obviously, not launched, but any early signals with your customers for interest in the Vivasure platform, PerQseal? And maybe how large could that opportunity be in fiscal '27? I know it's more of a second half later in the year launch, but any help -- any color there would be helpful. Christopher Simon: Sure. The early signals are overwhelmingly positive. I think the readout of the various DCT and HRS and elsewhere have been uniformly positively met that there's a novel new therapy coming for large-bore closure where there's just tremendous unmet need in the market today given the existing therapies. The product is approved for sale in Europe. We've intentionally not leaned in because as part of our integration planning, we have work to do in terms of manufacturing scale-up, reduction in cost of goods sold, make the product accretive, not just on a top line basis, but also to our margin expansion. So we are working diligently on that. What we see in Europe, though, because we've done a very controlled process where we're working with major academic centers around Europe is really meaningful interest and excitement about what the product means for the marketplace. When we step back on a global basis, we estimate the TAM for that opportunity at roughly $300 million. And we know where we sit vis-a-vis the competition. We know what we need to do to be successful on the launch. Let's wait for the release from FDA and the ultimate label that we receive, and then we'll be more than happy to drill down on exactly what this means. And when I use the term launch velocity, we'll put numbers behind it, that will be easily quantified. Operator: There are no questions at this time. I would like to thank you for your participation in today's conference. This does conclude our program. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to Informa TechTarget First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to Charles Rennick, General Counsel and Corporate Secretary. Please go ahead. Charles Rennick: Thank you, and good afternoon, everyone. The speakers joining us here today are Gary Nugent, our Chief Executive Officer; and Dan Noreck, our Chief Financial Officer. Before turning the call over to Gary, we would like to remind you that in advance of this call, we posted a press release to the Investor Relations section of our website and furnished it on an 8-K. You can also find these materials on the SEC's website at www.sec.gov. A replay of today's conference call will be made available on the Investor Relations section of our website. Following opening remarks from Gary and Dan, they will be available to answer questions. Any statements made today by Informa TechTarget that are not historical, including during the Q&A, may be considered forward-looking statements. These forward-looking statements, which are subject to risks and uncertainties, are based on assumptions and are not guarantees of our future performance. Actual results may differ materially from our forecast and from these forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors section of our most recent periodic report filed on Form 10-Q and the forward-looking statement disclaimer in our earnings release filed earlier today. These statements speak only as of the date of this call, and Informa TechTarget undertakes no obligation to revise or update any forward-looking statements in order to reflect events that may arise after this conference call, except as required by law. Finally, we may also refer to certain financial measures not prepared in accordance with GAAP. A reconciliation of certain of these non-GAAP financial measures to the most directly comparable GAAP measures to the extent available without unreasonable efforts accompanies our press release. And with that, I'll turn the call over to Gary. Gary Nugent: Thank you, Charlie, and good afternoon, everyone. As always, we appreciate you taking the time to join us today. I am pleased to share our Q1 2026 results, which demonstrate continuing progress with our strategy and our commitment to delivering top and bottom line growth on an ongoing sustainable basis. In Q1 2026, we delivered revenues of $106 million, representing a 2% increase year-over-year, whilst achieving an adjusted EBITDA of $7.4 million, an increase of 27% year-on-year. These results reflect the durability of our business model, a model that is built upon our proprietary first-party market data and our permission membership data. They are also the reflections of the early returns of our combination program completed in 2025. From today, we also report the results of our 2 operating segments, Intelligence and Advisory; and Brand to Demand, offering deeper insight into the makeup of the business and the key drivers of growth. I see durability as Q1's results, and I suspect the remainder of this year are set against the backdrop of ongoing geopolitical and macroeconomic uncertainty in addition to the broader digital transformation that is accelerating across B2B markets as AI changes, how buyers are informing their buying journey and how sellers are reaching out and trying to stand out to prospects and customers. I spent much of Q1 and April on the road, meeting with clients and colleagues. It's always my favorite thing to do. In the main, our clients who are B2B technology vendors are in good health. However, they continue to prioritize capital to R&D investment as they seek to stay current with the AI arms race. This is subduing investment elsewhere for now, specifically in go-to-market. However, as a future indicator of demand for our business, it is incredibly positive. And ultimately, they will need to seek a return on those R&D investments. Our story of the indispensable partner with the breadth and scale to enable our clients and address their ambitious growth objectives resonates loudly. And it's clear that we are only just scratching the surface in terms of how and where we can help them accelerate their growth and in doing so, drive our own growth. The trends we are observing and the needs and wants of our clients directly correlate to our strategic focus. First, -- our clients are themselves experiencing the impact of the shift from a search engine economy to an answer engine economy. And as such, their ability to raise awareness and generate demand by and of themselves is becoming more difficult. And with that reality, they are increasingly recognizing the value of working with a partner that itself has direct reach and relationships and influence with the prospects and customers. Second, there is a growing realization that better marketing outcomes are achieved when the marketing effort is aligned and integrated across the life cycle, from strategy through to execution and that the breadth and scale of Informa TechTarget makes us one of the few companies that can deliver value across that life cycle. This is encapsulated in our unified demand playbook that we launched at the beginning of Q1 and which has been very well received in the marketplace. And finally, we're seeing clients prioritize working with partners that can integrate seamlessly with their sales and their Martech landscape and then join the dots in terms of attribution to demonstrate measurable performance and return on investment from their marketing investments. Again, that is something that we can provide and are getting increasingly good at, further differentiating us from others. In numbers, revenues from our strategic focus on our largest customers, who are the largest players in the industry we serve were up double digit as a result of this focus and the investments in product, sales, delivery and customer success in Q1. Staci Gullotta, our new CMO, has gotten her feet well and truly under the table, launching a bold and ambitious marketing strategy designed to raise awareness and generate demand in the broader $20 billion addressable market. As a part of this, we recently leveraged the Forrester B2B Summit in Phoenix to showcase how we are leveraging the breadth and scale of Informa TechTarget to partner with our clients and transform their go-to-market and deliver tangible results. One example of this was the work that we've been doing with Tanium. Tanium are a cybersecurity company that helps enterprises manage and protect mission-critical networks. Tanium partnered with Informa TechTarget to move beyond a fragmented siloed marketing approach towards a fully integrated always-on, go-to-market model, choosing us not just as a vendor but as a strategic partner for our unmatched audience access, high-quality intent data and ability to influence buying groups before their sales teams are engaged. By activating our platform across portal, BrightTalk, content syndication and targeted editorial environments, they were able to precisely identify and engage in market accounts at scale. The results were substantial, over 5,000 leads delivered, equating to $1.2 billion of influence pipeline, an ROI of over 2,800 times. And importantly, this has translated directly into real revenue growth. As a result, they signed a new 2-year deal immediately following the program, representing over a 50% increase in their annual investment. On the subject of our membership and our audience members, as buyers increasingly rely on AI-powered research and zero-click search behaviors, we fundamentally adapted our operational approach to meet them where they are. Our content creation and distribution strategies now prioritize AI discoverability while maintaining the editorial excellence and thought leadership that our audiences have come to expect. With a focus on quality over quantity and engagement over acquisition, this dual-focus continued to deliver for us in Q1 with our permission membership continuing to grow in low single digits and our active membership in priority personas, such as Chief Information Officers and Chief Information Security Officers, up high single digits in the quarter. This all being despite ongoing disruption to traffic. In addition, we added four leading U.K. media-based brands to our portfolio through the period. Accountancy Age, the CFO, Bob Guide and the Global Treasurer. This expands our first-party permission members in the financial services and Fintech space and is in line with our strategy to grow by extending our vertical audiences into new geographical markets, and we're already seeing strong engagement from these new community members. And in recognition of the power and the value of our authoritative, trusted and original content in the age of AI, our editorial teams recently won 3 coveted awards at the B2B Industries Oscars, the Neal Awards. And we've also been shortlisted for 15 awards at the forthcoming ASB Nationals. On the product front, our investment in the product pipeline continues to bear fruit. By popular demand, we launched the new BrightTalk nurture demand product with 12 customers piloting this new offering in Q2. We also announced to the market the commercial partnership and technical integration of our NetLine demand product with the Demandbase ABM platform. In direct response to the shift from a search-based to an answer-based economy, we have leveraged all of our experience as a digital publisher to launch our AI LLM content audit and consulting services designed to help clients understand how discoverable and citable their content is and to work with them and how to improve upon it. And only last week, we launched the Omdia AI Search Assistant, a further example of how we are leveraging AI technology to improve our products to improve upon how our customers discover and consume our original authoritative content and extract maximum value from their subscriptions. The Omdia AI Search Assistant enables our clients to submit natural language queries to the Omdia Knowledge Center and receive answers that are in an intelligent composite of all Omdia's data and analysis. They can also return those answers in over 70 languages, increasing the global applicability of our product. This launch builds upon what were already very encouraging KPIs in the Omdia business, with users, user engagement and the Net Promoter Score all up double digits in the first quarter. And as we move through to the second and the third quarters, you will see more examples of how we are applying AI technology, specifically conversational interfaces to our data and content that will improve discoverability, ease consumption and unlock value for our clients and our members. And in June, our AI search for our audience members will undergo a significant upgrade based upon the lessons learned from the pilot of the past 6 months, further improving the audience experience. We're also leveraging automation and AI technology and tools extensively across the business to improve upon our productivity and quality in marketing, and sales, and research, and editorial, and operations, and our experience is that this is a game of continuous improvement, and we're already banking clear benefits. By way of example, in Q1, our time to first lead for our core demand products decreased by 38% year-on-year, accelerating time to value for our customers and accelerating time to revenue for ourselves. I think Q1 demonstrates delivery to our plan financially, strategically and operationally, growing our revenues and adjusted EBITDA, simplifying and focusing the business, embracing and capitalizing upon the opportunities that AI presents. Our priorities for 2026 are clear: deliver value to our customers and growth for our shareholders. This will give us the momentum and put us in a strong position to continue to invest in innovation and build upon our core strength of trusted expertise, proprietary market and permissioned audience data and a unified portfolio of products with the breadth and scale to deliver for customers across their life cycle. We are wholly committed to this plan and to growing revenues and adjusted EBITDA in 2026. I look forward to updating you on our continued progress in the quarters ahead. And now I'll turn the call over to Dan to discuss our financial results and guidance in a little more detail, and then we'll be happy to take your questions. Daniel Noreck: Thanks, Gary, and good afternoon, everyone. In the first quarter of 2026, we delivered revenue of $106 million, representing approximately 2% year-over-year growth compared with the first quarter of 2025. While market demand remains subdued and the environment cautious, our results reflect solid execution and early benefits from our sharpened operating focus following the combination and organizational realignment. As Gary mentioned earlier, we are now reporting our results through two operating segments. In brand and demand or the B2D segment, which represented around 70% of total revenues and is where we generate revenues by providing clients with services that help them raise brand awareness, engage with buyers and target more qualified potential customers, we saw good revenue growth of around 5% year-over-year with particular strength in our unified demand offering. In Intelligence and Advisory or the I&A segment, which represented around 30% of total revenues and is where we generate revenues primarily through subscription services to our intelligence products, including first-party data and specialist analyst research content as well as advisory services that provide clients with strategic support and bespoke solutions, our revenues were around 4% lower year-over-year, primarily reflecting a decrease in our go-to-market strategic consulting. Both segments improved profitability in terms of segment operating income, which we define as being revenue less allocated direct and indirect costs, but prior to unallocated costs such as central functions, facility and related overhead expenses. Operating margin also improved for both segments. Encouragingly, we delivered company adjusted gross -- adjusted EBITDA growth of 27% year-over-year to $7.4 million with an adjusted EBITDA margin of 6.9% compared with 5.6% in the prior year. This improvement reflects continuing cost discipline, the streamlining of operations and the initial realization of integration efficiencies following last year's combination plan even as we continue to invest selectively in growth, product innovation and go-to-market capabilities. On a GAAP basis, our net loss narrowed to $70.8 million. This included a $45 million of technical non-cash impairment of goodwill as well as ongoing acquisition and integration costs and other non-cash charges. Turning to the balance sheet and liquidity. We are in a strong financial position. We ended the quarter with cash and cash equivalents of $47 million and had almost $130 million undrawn on our $250 million revolving credit facility, giving us liquidity of approximately $178 million. Our net debt at the end of March of around $72 million represented around 0.8 adjusted EBITDA for the prior 12 months, similar to the leverage level at the end of 2025 and the end of 2024. Our free cash flow in the quarter reflected the seasonal dynamics of the business as well as the phasing of integration and restructuring activities from 2025. On an adjusted basis, we delivered meaningful cash flow, demonstrating the attractive underlying cash generation characteristics of our business model. Turning to guidance. We are reiterating our commitment to deliver growth in 2026. To this end, we are maintaining our full year 2026 adjusted EBITDA guidance of $95 million to $100 million. We are pleased with the progress we've made simplifying the business, improving operational efficiencies and positioning the company for growth. While the macro environment remains uncertain, we continue to see opportunities to expand customer engagement, increase wallet share and improve margins as the year progresses. In summary, Q1 represented a solid start to 2026 with revenue growth, adjusted EBITDA improvement and continued progress integrating the business and sharpening our operating focus. We believe we are well positioned to execute through the remainder of the year and deliver on our financial objectives. As a reminder, our financial model is built to scale efficiently. As we return to growth, every additional dollar of revenue delivers substantial incremental margin, giving us the ability to grow profitability and free cash flows significantly over time. And with that, we're now happy to answer your questions. Operator, will you please open up the line for Q&A. Operator: [Operator Instructions] Your first question is from Bruce Goldfarb from Lake Street Capital. Bruce Goldfarb: It's Bruce. Congratulations on the solid quarter. So the first is, are any inflationary pressures in the business that would put your $95 million to $100 million EBITDA guide at risk? Daniel Noreck: Bruce, thanks for the question. This is Dan. I don't think we're seeing anything out of the ordinary from inflation that would put that at risk right now. We're still very confident, which is why we reiterated the $95 million to $100 million adjusted EBITDA target. Bruce Goldfarb: Great. And then how are growing AI search volumes impacting your membership sign-ups and paid subscriptions? Gary Nugent: So I'll take that one, Bruce. Nice to talk to you. Well, I mean, we've talked about this on occasion actually in the past. We've certainly seen the shift in traffic and the mix of traffic that we receive as a business as search has become disrupted and Answer engines are becoming more prominent. We continue to see that Answer engine traffic converts at a much higher rate to membership than search traffic used to. But interesting enough, we're also seeing search traffic conversion rates improve as well. I think that's largely as a result is that what we're now getting from search is still more qualified. Effectually, what you're beginning to see is that the effect of an Answer engine environment is that it qualifies out people who are not really serious researchers and serious buyers. So actually, the reality is that whilst traffic might be disrupted and down, because conversion rates are up, we're still seeing solid membership and therefore, our membership is modestly growing. And in particular, the membership and the activity of members who are the key personas is growing quite nicely. Bruce Goldfarb: My next one, how are churn rates trending in the small to medium enterprise market segment? Daniel Noreck: Bruce, this is Dan again. So from a churn perspective, obviously we don't show those metrics. But what I would say is that the churn is still higher, clearly because our portfolio accounts have grown. So we are seeing a bit more churn at the lower end of the range. But what I would say to that is we're starting to see a stabilization of that. And so it gives us confidence as we look out for the rest of the year as it relates to those particular client segments. Bruce Goldfarb: Great. And my last question, how is business trending internationally in EMEA and APAC? Gary Nugent: I'll take a look at that. I spent a couple of weeks. I was on the road for some time. I was actually in APAC traveling through Singapore and then through Shenzhen and Beijing in China before finishing off in Seoul in Korea. I would say that actually, the environment was encouragingly optimistic and building. I mean the vast majority of our business in that part of the world is the intelligence and the advisory business. But there's certainly a huge amount of demand from APAC companies to grow their business internationally and to expand into markets such as the United States and Europe, and that's a great opportunity for us. And similarly, there's still an appetite from big American brands to build their business, particularly in markets like Japan and Korea. So generally speaking, I was actually really encouraged by the demand there. And I would say that the business has been trending inline with the rest of the business actually in the first quarter, no sort of material difference in pattern. The one obvious exception to that is the Middle East and Africa region as a result of the ongoing situation in Iran. That there, we've definitely seen customers begin to slow down their investments and slow down their decisions. Operator: Your next question is from Jason Kreyer from Craig-Hallum. Unknown Analyst: This is Thomas on for Jason. I know you touched on it a little bit, but could you give a little more commentary on the environment you're seeing for software sales, particularly like a Priority Engine that has more of a recurring nature to it? Do you feel like tech companies are still sort of hesitant to lock-in longer-term deals? Gary Nugent: I actually -- I'm going to pick up on that subject more broadly. I would certainly say that we've definitely seen the multiyear environment is not as strong as it was 2 years or so ago. That's definitely true. We're seeing customers, and we've said for some time that customers are shortening their contractual commitments really through 2025 and I don't think that's really -- it's not picked up in 2026. It's interesting in what is potentially an inflationary environment because usually, there's a bit of tension in the marketplace between customers wanting to lock in pricing for multiple years vis-a-vis making those long-term commitments. So it will be interesting to see how that plays out. I think generally, in terms of commitments to software in general across the marketplace, I haven't really seen a lot of change in the customer's appetite. But one of the things that we have spoken about is the need for us to actually integrate our data directly into our customer's platforms. especially in the intent space as customer's Martech stacks and sales tech stacks have become more mature and more settled, it's absolutely imperative that you are able to integrate and play nicely with their environment. So we -- you heard us talk about this a lot when we're talking about the investment in the Intent product is that actually a lot of our investments are now on the subject of integration and -- integration, not just with APIs, but also increasingly with MCPs in the AI world. And that's really where I think the game is being played now and the game will be played in the future in 2027. Unknown Analyst: Great. That's helpful. And then maybe just one follow-up. With the moves you made to position NetLine in a more down market, does that carry any incremental churn or volatility? Or do you still have pretty good visibility into NetLine production? Gary Nugent: NetLine continues to perform incredibly well for us. It's a very exciting story within the company, and it's going from strength to strength. As we said, we have done a very thorough analysis -- forensic analysis to see whether it was cannibalizing any of the business elsewhere. And actually, that's not the case. These are different customers. They are different personas within our existing customers. They are different budget pools. It forms part of the unified demand portfolio and in actual fact, the unified demand story that we're now telling where we have, I think, the broadest portfolio of demand products to meet any demand problem a customer might have is playing really nicely for us. Operator: [Operator Instructions] There are no further questions at this time. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the GoodRx First Quarter 2026 Earnings Call. As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's call, Aubrey Reynolds, Director of Investor Relations. Ms. Reynolds, you may begin. Aubrey Reynolds: Thank you, operator. Good morning, everyone, and welcome to GoodRx' earnings conference call for the first quarter of 2026. Joining me today are Wendy Barnes, our Chief Executive Officer, and Chris McGinnis, our Chief Financial Officer. Before we begin, I'd like to remind everyone that this call will contain forward-looking statements. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including, without limitation, statements regarding management's plans, strategies, goals, and objectives, our market opportunity, and our anticipated financial performance. Underlying trends in our business and industry, including ongoing changes in the pharmacy ecosystem, our value proposition, our long-term growth prospects, our direct and hybrid contracting approach, collaborations and partnerships with third parties, including our point-of-sale cash programs and our integrated savings program, our e-commerce strategy, and our capital allocation priorities. These statements are neither promises nor guarantees but involve known and unknown risks, uncertainties, and other important factors. These factors, including the factors discussed in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2025, and our other filings with the Securities and Exchange Commission, could cause actual results, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call, and we disclaim any obligation to update these statements even if subsequent events cause our views to change. In addition, we will be referencing certain non-GAAP metrics in today's remarks. We have reconciled each non-GAAP metric to the nearest GAAP metric in the company's earnings press release, which can be found on the overview page of our Investor Relations website, @investors.goodRx.com. I'd also like to remind everyone that a replay of this call will become available there shortly as well. With that, I'll turn it over to Wendy. Wendy Barnes: Thank you, Aubrey, and thank you to everyone for joining us today. We delivered a strong first quarter with performance driven by continued momentum across our strategic growth priorities. We are seeing strength in revenue, disciplined execution on profitability, and healthy engagement across the platform. Overall, we feel confident these results validate that the strategy we laid out last quarter is working and that we are building a sustainable value proposition designed to deliver resilient long-term growth. That momentum is coming from the parts of the business we've been investing in. Pharma Direct continues to scale, supported by strong demand for manufacturer-sponsored pricing programs and continued momentum in GLP-1 access. Our subscription offerings, led by GoodRx for weight loss, are growing and driving deeper consumer engagement. Rx Marketplace is delivering performance in line with internal expectations, supported by the continued expansion of our e-commerce footprint and the strength of our direct contracting model. At the same time, the broader health care environment is evolving in ways that align with our strategy and create meaningful opportunities for us to capture additional value. Coverage gaps are widening, out-of-pocket costs remain elevated, more Americans are finding themselves uninsured, and consumers are demanding greater transparency in how medications are priced and accessed. As a result, affordability is becoming a more central factor earlier in the patient journey, with consumers and providers actively evaluating cost before prescribing and filling, pharmaceutical manufacturers accelerating direct-to-consumer strategies, employers looking for new ways to support high-cost therapies, and pharmacies adapting to more transparent, digitally driven models of fulfillment. As these dynamics evolve, how affordability is presented and experienced by consumers is becoming increasingly important, shaping not just awareness, but whether patients ultimately move forward with treatment. GoodRx is well-positioned to respond to these changes. Over the past several years, we have been focused on evolving our platform from an affordability destination into a true access infrastructure. We have built a digital storefront where consumers can easily understand pricing across generics and brands and access those options through a more integrated experience. At the same time, we have developed the underlying capabilities that allow manufacturers to leverage our platform to deliver self-pay programs directly to consumers at scale. This is expanding the role GoodRx plays in the prescription journey and positioning us to be at the center of how medications are evaluated, accessed, and filled. With that, I'll walk through our business updates, starting with Pharma Direct. GoodRx Pharma Direct continues to be a key growth engine for the business. In Q1, Pharma Direct saw 82% growth year-over-year, reflecting the continued expansion of manufacturer-sponsored pricing programs on our platform. We now have more than 125 self-pay programs live, reinforcing the growing role GoodRx plays in enabling modern pharmaceutical access. A key driver of momentum in the quarter was our continued support of highly anticipated GLP-1 launches and expansions. Since the start of the year, we have helped enable access to Ozempic Pill, Wegovy HD, Wegovy Pill, Boundeo, and Zepbound KwikPen. To provide a sense of the scale we are driving, a third-party source indicates that we accounted for approximately 1/3 of all Wegovy Pill transactions in the first 2 months post-launch. This reinforces the increasingly central role GoodRx plays in helping manufacturers bring therapies directly to the patients who need them with transparent pricing and broad pharmacy access from day 1. Beyond GLP-1s, we are continuing to expand Pharma Direct across therapeutic areas and program types. In the quarter, we announced a collaboration with Viatris to support savings availability for 17 of its established brand medications. We also introduced significant discounts from Pfizer on more than 30 of its essential medications, spanning women's health, migraine, arthritis, and rare disease, made available through a dedicated Pfizer-branded storefront on GoodRx and on TrumpRx as part of our integration. As these programs scale, our focus is shifting from launch to how affordability is surfaced and discovered by consumers. In response, we are developing new ways for manufacturers to engage patients on GoodRx. Branded storefronts are a key example, providing a simple, trusted entry point for consumers. Turning to explore a manufacturer's full portfolio of savings in one place. And when manufacturers leverage GoodRx as a channel, those programs are available across our nationwide pharmacy network, supporting broad consumer choice and convenient access. We believe this model represents a more cohesive and consumer-friendly way to present affordability offerings at scale. We are also seeing encouraging traction from TrumpRx, where GoodRx enables pricing for many of the brands available on the platform. Early data shows strong demand concentrated in GLP-1 therapies and, importantly, the volume appears to be incremental, expanding access to new patients rather than shifting existing demand. That is a meaningful signal for manufacturers and reinforces the value of transparent pricing delivered through consumer channels. Overall, Pharma Direct is evolving GoodRx beyond the pricing solution into a broader consumer access platform for pharmaceutical manufacturers, enabling them to reach patients directly, convert clinically appropriate demand, and deliver pricing seamlessly at the pharmacy counter. Now diving into the Rx marketplace. In Q1, Rx Marketplace delivered steady prescription transaction performance that was in line with internal expectations, supported by continued operational execution across the business. Monthly active consumers were flat quarter-over-quarter, reinforcing consistent engagement on the platform. Following the significant expansion of our e-commerce retail network late last year, Q1 performance demonstrated the scalability of our model, with both order volume and total claims more than doubling quarter-over-quarter. As more consumers seek convenient digital ways to access medication, expanding our e-commerce capabilities remains an important part of improving the GoodRx experience and capturing a greater share of the prescription journey. At the same time, we continue to make progress on strategic initiatives designed to strengthen the long-term economics of the marketplace. This includes advancing direct retailer agreements. We have direct contracts in place with 9 of our top 10 retail pharmacies nationwide, and are enhancing our pricing capabilities, including partnerships that enable pharma direct net pricing claims to be delivered directly at the pharmacy counter. These initiatives improve the consumer experience, create operational efficiencies for retailers, and support healthier marketplace economics over time. Turning to subscriptions, which is a key growth priority for the business. In Q1, our subscription offerings continued to scale, and the number of subscription plans returned to year-over-year growth, driven by purposeful investment, growing consumer adoption, and continued expansion across our condition-specific programs. We are seeing increasing engagement as more consumers choose GoodRx, not just for savings, but as a more integrated way to access and manage their care. GoodRx for weight loss remains the primary driver of momentum within this category. Since our last call, we expanded the platform to support all available FDA-approved GLP-1 therapies, with the Wegovy pill performing particularly well since launching at the start of the year. More broadly, our weight loss offering continues to demonstrate the value of the integrated experience we are building. By combining clinical care, transparent self-pay pricing, and broad pharmacy availability, we are creating a seamless path for evaluation to therapy initiation, helping consumers easily start and stay on treatment. Beyond weight loss, our ED and hair loss offerings continue to contribute to growth while also demonstrating the broader applicability of our subscription model across additional conditions. Overall, we believe subscriptions are becoming a more meaningful part of how consumers engage with GoodRx and are strengthening our ability to build deeper, more recurring consumer relationships over time. Combined with our Pharma Direct solutions, it also creates a strong foundation to extend our model into the employer channel. Through GoodRx Employer Direct, self-insured employers can offer manufacturer-sponsored pricing to their employee populations and choose to directly subsidize the amount with employer contributions layered seamlessly on top of the manufacturer's approved price. This creates a clear, reduced out-of-pocket cost for employees while giving employers a more flexible and predictable way to support high-impact therapies. We are already seeing this model in practice through our work with Eli Lilly and Company on Zepbound KwikPens, which enables employers to subsidize Lilly's $449 price across all doses. This is a clear example of how pharma direct pricing can be extended into the employer channel without requiring changes to the core benefit structure. We are also extending our subscription offering into this channel. Employers can offer a customized version of GoodRx for weight loss, integrating clinical care, transparent pricing on FDA-approved therapies, and broad pharmacy availability into a single streamlined experience. This approach allows employers to address coverage gaps without redesigning their core pharmacy benefit while delivering meaningful savings and improved access for employees. I will now turn the call over to Chris to discuss Q1 results. Christopher McGinnis: Thank you, Wendy, and good morning, everyone. For the first quarter, we delivered revenue of $194 million and adjusted EBITDA of $58.3 million, representing an adjusted EBITDA margin of 30%. Looking at revenue in more detail, prescription transactions revenue was $113.7 million, down 24% year-over-year, reflecting the continued lapping impacts from 2025 as well as the unit economics pressure we previously discussed. Importantly, volume trends stabilized with monthly active consumers flat sequentially at $5.3 million. Pharma Direct revenue grew to $52.2 million, up 82% year-over-year, driven by strong momentum with manufacturer partnerships and continued expansion of our self-pay pricing, specifically with the successful launch of the Wegovy pill. Pharma Direct delivered consistent sequential growth throughout 2025, which continued into the first quarter of 2026, supporting the year-over-year increase and reflecting the ongoing ramp of our consumer direct pricing offering. Subscription revenue increased 16% year-over-year to $24.4 million, supported by the ongoing adoption of our condition-specific offerings. For the full year 2026, we are raising our guidance and now expect revenue to be in the range of $765 million to $785 million and adjusted EBITDA to be at least $235 million. While we expect continued pressure on prescription transactions revenue in 2026, our increase in guidance is driven primarily by stronger-than-expected performance in Pharma Direct as we continue to build momentum in our consumer direct pricing offering. Consequently, we now expect Pharma Direct revenue to grow over 50% year-over-year. Subscription revenue is also expected to build throughout the year as our condition-specific programs continue to scale. With that, I will turn the call back over to Wendy. Wendy Barnes: Thank you, Chris. Q1 was defined by execution, but more importantly, it was a quarter where we saw a clear validation of the strategy we're executing and the sustainable value proposition, we believe it creates. We delivered strong performance in Pharma Direct, accelerated growth in subscriptions, and stable engagement in the Rx marketplace, reflecting progress against the priorities we outlined coming into the year. Across the business, we are making it easier for consumers to access medications and navigate the prescription journey while creating value for manufacturers, employers, and pharmacy partners. As the market continues to evolve, we believe this positions GoodRx to play a more central role in how patients evaluate affordability and access to treatment. That momentum gives us confidence in the opportunity ahead, and we remain focused on disciplined execution as we continue to scale the business and drive durable long-term growth. With that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Cherny of Leerink Partners. Michael Cherny: Maybe just one quick one first for Chris, so I can understand the change in guidance. It seems that Pharma Direct has gone up, I think this implied subscription has gone up. What is the change in view, if any, on the PTR revenue base that's embedded in the new guidance? Christopher McGinnis: Yes. Thank you, Michael, for the question. First of all, prescription transaction revenue met our internal expectations. I know we didn't guide specifically to it, but I think when you look at the MAC sequentially, it was slightly up-rounded to flat, but slightly up quarter-over-quarter, and then the reflected unit economics that we talked about, I think it was largely in line. Relative to the full-year guidance, I think being down in this 24% range is probably in line with how we thought about it. I would think about the year-over-year full year as about the same. And then obviously, we're focused on the pharma Direct and the building momentum in our condition-specific subscriptions offering as well. Michael Cherny: And so that leads me to my, I guess, follow-up second question is on that subscription side. It's great to see the condition-specific growth playing out. We all know this to be a highly competitive market, with both established and fly-by-night players. As you think about what's driving your improvement in the subscription base, what do you think it is that GoodRx is doing better, differently, that's allowing you to drive that improved stability? Wendy Barnes: Michael, it's Wendy. I'll start, and Chris, by all means, chime in if you've got additional thoughts. Look, I think it's a combination of a couple of things. One, our brand recognition and consumer engagement have long positioned us as really the #1 digital drug pricing platform. So, that top-of-funnel connection we already have with consumers is, in fact, strong. And when you tie that and point that back to conversations with pharma, where they look at the connectivity we have with consumers, that absolutely drives an engagement on the brand deals that they want to strike with us, which, of course, then feeds into the success of those subscription offerings. Yes, you've got to have exceptional service in those programs, but you've also got to have competitive pricing on the drugs that those patients are seeking, in addition to potentially telemedicine. I would also say our connectivity to a broad and unbiased retail network is a competitive advantage. We are not purposely launching these programs where you've got to use a specific home delivery provider. But I would footnote, we're happy to support home delivery or retail. At the end of the day, it's really about consumer choice. And so, when you think about those 3 elements, again, our connectivity on brand, NPS with prescribers, in addition to that vast retail network, we believe that is what gives us a competitive advantage and why we're finding success and also aligns to our reason for investing in the business when we originally outlined that thesis, I think, mid last year. Anything you'd add, Chris? Christopher McGinnis: Yes. I would say from a financial perspective, Michael, what I'm encouraged by is that we largely started to build momentum on the subscription offering without a lot of marketing dollars pushed in. If you look year-over-year, we're actually down a little bit from Q1 from a marketing spend perspective. So that is reflective, I think, of Wendy's point about the volume of consumers that are visiting our platform organically, and we got a lot of tailwinds from that. We're pushing marketing dollars. I expect to spend more dollars throughout the rest of the year on marketing and specifically towards our condition offerings. So, I think we're encouraged by the early momentum we're building, and I think we'll continue to invest dollars there throughout the year. Operator: Our next question comes from the line of Jailendra Singh of Truist. Payton Engdahl: This is Payton Engdahl on for Jailendra. I wanted to hit on the Surescripts' partnership you guys announced. It's been about like 5 months since that partnership was announced. I was wondering if you could provide just an update on that, and also if that had led to any type of outperformance in the quarter. Wendy Barnes: Yes, I would say nothing material at this point. We remain partnered but continuing to figure out how best to deploy that offering. Not a lot to comment on at this point, but we appreciate the question. Christopher McGinnis: Yes. From a financial perspective, nothing material and really nothing built into the guide on that either. Payton Engdahl: And then I also just want to hit really quickly on the ISP. You guys noted some volume reduction in one of your integrated savings programs. Just any color on that, that you could provide. And if this was the same ISP partner that you guys saw last year as well, the same issue. So any color would be helpful. Christopher McGinnis: Yes. Thanks for the question. And for clarification, there's no volume reduction in 2026. Anything we've referenced is a volume reduction associated with 2025 in the past. So, we are only referencing it as a comp relative to the lapping impact, and the year-over-year impact from the volume that was included in '25 is not recurring this year. But so far this year, the ISP programs are performing consistently with our expectations, and the volume looks relatively stable. Operator: Our next question comes from the line of John Ransom of Raymond James. John Ransom: Just a couple for me. This is a little tangential to what you do, but some other players who focus on manufacturers, particularly on the software side, have noticed a pause in their marketing spend, Novo being called out specifically. What behavior, I mean obviously, your numbers didn't show any of that, but would you call out any changes in behavior as you're having dialogue with these folks in terms of how they're thinking about marketing spend and go-to-market, that either is a good guy or a bad guy? Wendy Barnes: John, good to hear from you. No, we're actually not seeing any impact. I would say quite the opposite. I mean, having recently returned from Asembia, not that we're not engaged continually with these same partners, but obviously, that's a forum where you get to see everybody in the span of about 48 hours. Feedback continues to be leaning in even more so, I would say, I think largely as a result of the success we've had to date. Laura, I believe, joined us for our last call, where she indicated that we're seeing success even earlier in the year than we had previously, and that a lot of that revenue was pulled forward that we typically book. So far, we are demonstrating exceptional ROI for the dollars that pharma is investing with us. And I'll give the regulatory environment a little bit of credit here, too, to suggest that the push on affordability and direct-to-patient programs coming out of various sources is continuing to help fuel pharma's motivation to do deals and/or expand with us. Christopher McGinnis: John, I would say the first of all, the one thing to note is that our point-of-sale buydown programs are not a part of those marketing budgets. So, that's not impacted in terms of what you may be seeing in the marketplace. And the only dynamic I think that we really noted is Laura, who joined us last quarter, who's the President of our Pharma Direct businesses, noted that the number of deals was down a little bit, but the dollar amount of those deals was higher. So net-net, we're up across the board across Pharma Direct. So we're seeing positive contribution from all aspects of that line of business. John Ransom: And then just going back to the old core business, Rx Marketplace. I know it's been a slog, but are you implying at least stabilization in terms of transactions and monthly MAC and transactions subscriptions? Do we look for that to stabilize and flatten? Or is there continued longer-term pressure there? Christopher McGinnis: I think it's a great question, John. I appreciate it. So, I do believe that our MAC will, I would call it, flatten. If you look back to last year, certainly with the impacts from the Rite Aid store closures and the ISP programs, other things we noted, we saw sequential declines. As I noted in my prepared remarks, we're actually slightly up. It rounds to flat quarter-over-quarter. We've modeled in some continued erosion in MAC, but much more flatlined relative to last year's trajectory. So, I do expect that to stay a little bit under pressure. But look, the start to the year was strong. It built some momentum, but I think we're taking a very conservative approach for the rest of the year. John Ransom: I mean, we look at like CVS, for example, and clearly, they're on offense, taking share. I don't know what's going on with Walgreens anymore, but sorry, -- my dog is going crazy. But if the retail marketplace continues to concentrate to the winners, is that neutral, flat, good for GoodRx, or is it not? Wendy Barnes: For clarification, John, do you mean primarily just cash customers that CVS is attracting? I want to understand what you mean by the CVS comment or other retailers. because, of course, we don't work with all of them. John Ransom: What I mean is that the stronger players in retail pharmacy are taking share from the weaker players. And so is that neutral positive to GoodRx or not? I mean, I know the loss of Rite Aid was a bad guy, but let's assume the retail market stabilizes and the strong get stronger. How do you view that in terms of your position in the market? Wendy Barnes: I mean, look, in general, I would say we work with all of the top players. I mean, full disclosure, of course, we do have slightly different economics depending upon who the retail player is. But all things in the aggregate, all of our retailer partners are quite happy with the profitability they're experiencing in partnership with us. Again, you heard us talk through historically how we are prioritizing margin accretion to retailers with the direct deals that we've been striking. So, having said that, we, on the whole, in the aggregate, are somewhat indifferent to where our consumers choose to go. Again, not to disregard the fact that, of course, we do have slightly different economics, but not materially so. Rite Aid was the outlier at the time, which, of course, was why the impact was, I think, so significant last year. But beyond that, we're focused on striking fair deals with each such that we're not in that situation again, whereby any type of shift of our consumer set to a different retailer should things end up not going well with the retailer shouldn't provide such an outsized impact to us again. Operator: Our next question comes from the line of Charles Rhyee of TD Cowen. Charles Rhyee: Chris, maybe I can ask this question for you. So obviously, we have the manufacturer-direct bucket, which is doing very well. We have the older PTR. And obviously, it's good to see that MAC is flattening out. Subscriptions are growing. If we think about all those buckets together, and maybe think about what the total prescriptions processed by GoodRx were in the quarter? And what was that growth year-over-year? And is it may be better for us because I know we've all been very focused on MAC and PTR? But as the model shifts, is it better to look at what our total prescriptions are that we are touching and processing? And maybe if you can give us a sense for what that looks like and what growth has been, that would be helpful. Christopher McGinnis: Thanks, Charles. Appreciate the question. I think it's a fair question to ask about additional metrics that we might point to. We haven't disclosed the consolidated prescription transactions across the entire business. So, let us take that away and think through it a bit. But I think part of your underlying point to the question is that if our business model works correctly, there is some cannibalization of our core business into pharma Direct. And if you think about GLP-1s is a great example that last year, prior to the pharma-sponsored point-of-sale programs, retailers and consumers were paying full price, and that was clearly coming through our PTR line, and it had higher PTR per MAC, et cetera. If those same consumers are getting that same prescription through now a point-of-sale buydown program, it shows up on the pharma Direct line. So, there is interplay in terms of one side of our business cannibalizing the other, and that's actually preferred to us. It's a much longer-term, durable revenue stream for us. But I think the point of your question is the takeaway for us and let us think through that. Charles Rhyee: And that would be great in the future. But do you have a sense right now whether, if you looked at all the prescriptions that you touched, regardless of what bucket was in, would you say that we're seeing growth? Are we seeing up slightly, flat? Just curious, any commentary there? And then maybe one other would be a lot of other companies have called out weather impacting the first quarter, obviously, with a lot of the storms earlier in January and February. Just curious if that had any impact in the quarter? And if you could size that for us. Christopher McGinnis: Let me take your first one first. In terms of your first question, if you imply with our MAC count, which is largely driven by the prescription transactions revenue, that was flat, right? And pharma Direct is growing. So, I think the implied impact is that our total prescription service on a consolidated basis is up overall. In terms of weather impacts, I mean, the flu season was a little bit longer and later than we thought. We didn't see really… Wendy Barnes: I can take that question. I mean, I will say, look, we track volume by geography just like a large retailer does. And true to form, you're not wrong. Whenever there's a random storm, yes, on the whole, volumes dip, but you almost always see those recover in the following week. So follows a similar cycle to pharmacies, if you will, in that regard, because that, of course, is where our consumers, in fact, get billed. But usually, if a consumer is motivated to get a prescription, they'll just then push it into the following week if they were unable to do it based on whatever natural event took place. Operator: Our next question comes from the line of Steven Valiquette of Mizuho Securities. Steven Valiquette: I guess for me, I just have a couple of quick confirmatory questions around the accounting and revenue recognition on the subscription side. So just mathematically, the revenue per subscription is moving up from, call it, roughly $10 to $11. And I'm wandering around the GLP-1s. Are you just booking the $39 per month for the unlimited online care in the subscription revenue? Just want to confirm that first, and that's why maybe that's why that's moving up. I just want to get more color on that first. Christopher McGinnis: That is correct, Steven. Steven Valiquette: And then, as far as some of the other companies around booking the drug revenue, some of your peers are booking the compounded drug revenue on their P&L, but not the branded drug revenue. So, I don't know if there's any clarification on that on your P&L one way or the other, and where that's showing up, if at all, but I just wanted to get just a quick confirmation on that as well. Christopher McGinnis: It's helpful. Thank you. So as I said, the $39 you referenced, which is a monthly subscription fee, is hitting the subscription line. To the extent it's going through our point-of-sale buy-down programs, you're seeing that portion of the revenue actually getting picked up in Pharma Direct. It does not get grossed up treatment the way you're suggesting others do it, especially like the compounders. We don't do any compounding. We only deal with the FDA-approved drugs that are branded drugs on the Pharma Direct side. So we don't have any gross-up of the drugs included in our revenue. Operator: Our next question comes from the line of Brian Tanquila of Jefferies. Brian Tanquilut: So, maybe just to follow up on some of these discussions. When we think about the pull forward in Pharma Direct that you spoke about earlier, should we still expect sequential growth going forward this year in that? And then, can you just give some more color on the growth in that space? Like when you think about or talk about the shift of claims and high cost branded from core to the Pharma Direct segment, like how much of this is actually affecting either line item? Christopher McGinnis: Thanks, Brian. Appreciate the question. The answer is yes. If you look at our guide of 50-plus percent growth and the $52 million we put in Q1, I think you would imply continue sequential growth throughout the rest of 2026 for Pharma Direct, and we have pretty strong conviction at 50-plus percent growth on Pharma Direct for the remainder of the year. Wendy Barnes: This is Wendy. I'll take the second half of your question. So, as we think about just a longer-term outlook and what does the runway looks like for Pharma Direct, look, in our ongoing conversations and partnerships with these same manufacturers, they truly are starting to view us as the best channel solution for engagements with patients. So that continues to bolster our confidence in the pipeline of opportunity, not just this year, but well into the out years. I mean, added to the wraparound regulatory environment, which would suggest there will be more motivation for manufacturers to strike direct-to-patient deals, no doubt, GLP-1s have been a significant component of the growth we've experienced this year. But to be clear, there are a number of other GLP-1 molecules that we'll be launching. And outside of GLP-1s, we've continued to see material growth in our pharma Direct business. So, that continues to give us confidence that we're going to continue to see this line item grow. Hence, our commentary on that being one of our key strategic growth drivers for the business. Operator: Our next question comes from the line of Allen Lutz of Bank of America. Allen Lutz: Wendy, at the top of the call, you talked about 1/3 of all Wegovy Pill transactions in the first 2 months coming through GoodRx. I mean, congratulations on that. That's really, really strong. Can you talk about the trajectory from launch to maybe the March exit rate or anything you're seeing early in April? How should we think about the contributions from that over the course of the quarter? And then how are you thinking about contributions from that through the remainder of the year? Wendy Barnes: Sure. Well, I'll start maybe more philosophically, just saying that this is just an exceptional example of what a brand launch with a cash strategy or point-of-sale buydown can do in the market. We have been partnering very closely with Novo on the timing, the PR tied to it, and the marketing elements. They, of course, owned their portion of what needed to happen, including embedding an EHR such that prescribers could see the doses of the pill to readily be able to write for it. They had gotten well ahead of ensuring that supply was available so that pharmacies could, in fact, dispense the same medication. And so all of those things tied together pointed to just an incredibly strong performance out of the gate. I will also say, I think there's something to be said for utilizing the same brand name that was used in their auto-injector. So, there was consumer familiarity with just the brand name, which we can discount if you want, but we do think it made a meaningful difference. And how that program has continued to perform. As we look into the future and how we're anticipating the performance of that drug, look, we don't see demand abating for GLP-1 therapies. And so for that reason, we continue to be pretty bullish on its performance, of course, even amidst other molecules launching, which, of course, will provide more consumer choice. And I think if the economics continue to hold the way most brands continue to launch, and then you end up with multisource brands, maybe pricing will come down further in the back half of the year. I mean, these prices for all of these programs continue to fluctuate, and we're keeping our finger on all of it such that we will be positioned to win both through the weight loss subscription program or for consumers who simply want to get their fill without utilizing the weight loss program. Allen Lutz: And then one for Chris. As we think about the composition of revenue at GoodRx, a little bit less emphasis on PTR, a little bit more emphasis on subscribers, and the Pharma Direct business. I guess, Chris, conceptually, as we think about where you're advertising and where you're spending marketing dollars, 2025 versus 2026, is there anything that's materially changing in terms of where those dollars are going? And would love to get a sense of if there are some of the early ones you've had there. Christopher McGinnis: Thanks, Allen. Appreciate the question. We have pivoted our marketing budgets to me, more directed at our condition-specific subscription offering. We believe that there continues to be a brand halo effect from that specific advertising. So in the past, where our marketing dollars were more generally brand, we are targeting the subscription offering much more heavily in 2026 comparatively. Operator: Our next question comes from the line of Craig Hettenbach of Morgan Stanley. Jialin Jin: This is Jialin on for Greg Henck. I just want to follow up on the comment that PTR is in the down 24% range. I know it's early but just wondering if you can share any thoughts on the trends beyond 2026. When you say like the lower unit economics in exchange for durability, is there like an expected timeline for when that process would bottom out? Christopher McGinnis: Thanks. I appreciate the question. In terms of down 24%, I do think Q1 is probably in the range of how we think about the year-over-year comp for 2026 relative to 2025. I think that when you think about macroeconomic trends, something we're watching closely with MAC being up sequentially, we've got early information, but obviously, we're dealing with 1 quarter, and we're thinking about how to think about that for the rest of the year. We know there's a change in the macroeconomic environment relative to 2025. You've got more people uninsured this year. You've got some underinsured. You've got Medicaid eligibility changes. You've got the subsidies for the ACA lives. So, there are a lot of factors that we're watching pretty closely to try to understand what's going to happen to the business over 2026 and beyond. But I think relative to like beyond 2026, we don't really have a lot of guidance for the longer term, but I think the business largely can flatten out throughout this year. We'll watch our MAC pretty closely. And then as we get to the back half, we can start to provide some more color around how we think about 2027. Operator: Our next question comes from the line of Louis Mario Higuera of Citi. Luismario Higuera: This is Luis on for Daniel. I know you described the TrumpRx platform as incremental to volume on a net basis, but can you give any details on what the economics of the partnership actually look like? And would it represent a meaningful revenue opportunity? Or is it more strategic positioning? Wendy Barnes: Thanks for the question. This is Wendy. Look, we have been overt in commenting that most of the volume we're seeing come through, to be clear, is largely GLP-1s coming out of TrumpRx, and there are, of course, a number of other drugs that we support on that same platform. But for now, our analysis would suggest, in fact, most of that volume is, in fact, incremental. There are new consumers on our platform who have previously not claimed with us. From an economic perspective, just as a reiteration, I think we may have talked about this previously, these are actually our direct deals with pharma. So, we do not have a contractual relationship with TrumpRx, nor does anyone else. It's just reflective of our pricing. And then in turn, when a consumer goes to choose said pricing, they're utilizing our same flow pricing economics that we have directly with the manufacturer. So there is no distinction in the economic model for us. It is our brand point-of-sale deal, no different than if someone had come to us distinct and separate from TrumpRx, if that's helpful. Operator: Our last question comes from the line of Maxi Ma of Deutsche Bank. Maxi Ma: This is Maxi on for George Hill. The GLP-1 space has become increasingly competitive with manufacturers, telehealth platforms, and pharmacies all building direct-to-consumer capabilities. Could you talk about how you differentiate your GLP-1 offering from others? Wendy Barnes: Sure. Happy to take that question and thank you for it. I think, similar to the question that may have been phrased a little differently earlier in the call, it largely has to do with where we sit in the ecosystem. So one, we have the benefit of really being the top brand recognition for consumers when it comes to looking for drug pricing, whether it's through web or app, so effectively our digital assets. We also have incredibly high NPS and brand recognition with prescribers, so they routinely use it in their workflow and in their conversations with patients. Not only do they check GoodRx for themselves, but we also have a product whereby there's their own provider portal where we will present pricing to them in their unique environment, in addition to just how consumers engage with the platform. Then, of course, you've got our connectivity to a really broad retail network. We do work with most retail pharmacies in the U.S. and some home delivery providers. And when you stack up all of those things and think about consumers engaging with us routinely already for checking their basket of drugs in combination with being able to choose where they get fulfillment, and/or if they want to utilize our subscription offering, to your point, that really is a key differentiator compared to these other programs that aren't tapping into a broad retail network. Sorry, did you have a follow-up there? Hopefully, that answers your question. It sounds like maybe you had a follow-up there, but we couldn't hear it if you did. Operator: Hearing no response. This does conclude the question-and-answer session. I'd like to 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 First Quarter 2026 Gogo Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jim Golden with Collected Strategies. Jim, go ahead. Jim Golden: Thank you, and good morning, everyone. Welcome to Gogo's First Quarter 2026 Earnings Conference Call. On the call today to discuss the company's results are Gogo's CEO, Chris Moore; and CFO, Zach Cotner. During the course of this call, Mr. Moore and Mr. Cotner may make forward-looking statements regarding future events and the future performance of the company. Participants are cautioned to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements on this call. Those risk factors are described in the earnings release filed this morning and in a more fully detailed note under Risk Factors filed in the company's annual report on 10-K and 10-Q and other documents that the company has filed with the SEC. In addition, please note that the date of this conference call is May 7, 2026. Any forward-looking statements made today are based on assumptions as of this date, and the company undertakes no obligation to update these statements as a result of more information or future events. During this call, Mr. Moore and Mr. Cotner will present both GAAP and non-GAAP financial measures. A reconciliation and explanation of adjustments and other considerations of the company's non-GAAP measures to the most comparable GAAP measures is available in the Gogo's first quarter earnings release. The call is being webcast and available at ir.gogoair.com. The earnings release is also available on the website. After management comments, Mr. Moore and Mr. Cotner will host a Q&A session with the financial community only. I'll now turn the call over to Mr. Moore. Christopher Moore: Thank you, and good morning. The defining theme of the first quarter has been the deliberate transition of our legacy base services in air-to-ground and global satellite services into our next-generation technology portfolio. Consistent with prior earnings calls, I will focus on the continued demonstratable progress made across the compelling new product portfolio. These include Gogo Galileo with two models, HDX and FDX, both of which are providing game-changing increases in capacity, functionality, speed and global consistency as well as our 5G rollout and our existing GEO offerings. We are making steady progress on shipments, installations and early activations across both 5G and Gogo Galileo. I will also highlight our recent fleet wins and long-term growth prospects from our military and government customer base. We believe these next-generation products are not only enhancing the value we deliver to existing customers, but also expanding our addressable market and creating a reoccurring revenue stream that sets the stage for free cash flow growth and long-term strategic value in the future. Let's start by reviewing Gogo Galileo, our global low earth orbit or LEO service in which we have two products, HDX and FDX and where we continue to see encouraging progress. HDX serves as our entry point LEO solution, purpose-built for smaller aircraft, while FDX extends that capability to mid- and large cabin aircraft with higher performance connectivity. And together, they position Galileo as a scalable full fleet solution spanning the breadth of our customer base globally. Our Q1 shipments were largely in line with what we projected. We shipped 92 units in the quarter, including 82 HDX and 10 FDX. This brings our total number of LEO terminals shipped to 410 units since launch and across 35 commercial supplemental type certificates or STCs. Our 35 STCs cover a total addressable market of approximately 7,000 aircraft. We have 14 additional STCs underway to be completed in the next few quarters, addressing another 1,500 aircraft for a total of 8,500 aircraft. Building on this progress, I want to highlight some significant fleet wins for our Gogo Galileo offering. VistaJet is rolling out Gogo Galileo across its fleet with approximately 100 aircraft currently in scope as part of the broader plan to equip more than 270 aircraft globally. Installations began in Europe and are now expanding into the U.S. with a steady cadence of roughly 1 aircraft every 9 days, supported by continued STC progress. Wheels Up, another significant fleet win is also rolling out Galileo across its 80-plus aircraft in coordination with its fleet modernization strategy. Finally, we plan to have fully rolled out the committed aircraft with NetJets Europe in the first half of 2026, which currently make up half of our Galileo units online and have also started installations with NetJets North America. We remain confident with our Galileo projections given the strong pipeline, which is demonstrated with the rollout at major fleet operators. We expect a great ramp of shipments as important installations at multiple OEMs are expected to start in the second half of the year with Galileo becoming a line fit option. Turning to our air-to-ground or ATG network. We are seeing significant momentum with our 5G rollout. Even though customers have been waiting a long time for 5G, we're seeing strong enthusiasm for the service. We sold an all-time record of 511 air-to-ground units this quarter, of which 52 were 5G, and we anticipate a very robust rollout throughout the rest of the year with units online ramping in late Q3 and Q4. We have a very robust total pipeline of over 500 units. In terms of our legacy products, we reported record C1 conversions of 254 in the first quarter. This momentum reflects a growing wave of customers upgrading to C1 to ensure a seamless transition from our EVDO network to our LTE network. Additionally, I'm also happy to announce that we've secured an extension from the FCC regarding our classic product migration with the program completion deadline now extended to November 8, 2026. Under the FCC reimbursement program, we've also allocated our full approved amount of approximately $334 million to cover the cost of removing and replacing covered foreign equipment across the U.S. network and ATG aircraft. We believe this gives us the necessary flexibility to transition our customers from our classic service to our C1 and AVANCE products, giving them the room they need to operate seamlessly between the old service and the new and adding robustness to our overall 5G and LTE rollout. We're also seeing strong support from our MRO and OEM partners in the network transition, including Duncan, who is outfitting their demonstration aircraft with 5G as well as Textron, who is updating all of their STCs in the quarter. We are getting more customers exposed to our exciting new 5G network, which will continue to improve, especially with the new LTE network, which we expect to be fully operational by the end of 2026. Finally, let's now turn our attention to our Geostationary Earth Orbit or GEO business. GEO units online declined by 15 in the quarter, a moderate reduction from the net reduction of 22 we saw in Q4, reflecting continued resilience in our installed base and demonstrating the strength of our OEM partnerships. Looking across the balance of the year, we do expect some attrition in our GEO fleet, driven by broader market evolution towards next-generation LEO and hybrid satellite solutions. and we are closely monitoring ARPU dynamics within our customer base. We continue to view GEO as a strategically valuable component of our network offering, particularly for customers whose mission profiles benefit from the global coverage and redundancy where LEO has regulatory restrictions and proven reliability and accessibility of geostationary networks. As recently announced, our Plain Simple Ku-band platform continued to gain traction in the first quarter across both commercial and military end markets. AirX selected our Plain Simple Ku-band solution to upgrade its Challenger 850 fleet. The selection was driven by the simplicity of installation and our ability to provide a fully integrated end-to-end connectivity solution for a high utilization global fleet. We were also pleased to receive U.S. Air Force Mobility Command approval to offer our Plain Simple Ku-band tail-mount. -- on the C-130 platform, opening access to a fleet of more than 1,000 aircraft and representing a meaningful new avenue of growth for our GEO franchise within the military and government vertical. I now want to spend some time on our important military and government end market in which we see significant expansion and growth for Gogo. Military and government service revenue increased by 7% sequentially compared to the fourth quarter of 2025, marked the second consecutive quarter of growth. Geopolitical uncertainty and a focus on sovereign communication requirements are creating a sustained need for secure, reliable connectivity and our network military and government offerings have proven to be well positioned to meet that demand in an unpenetrated market. As a result, we are seeing a distinct rise in communication spending that extends well beyond the United States and NATO as global governments actively invest to modernize their secure and airborne networks. During the quarter, we secured several contracts, the first being with the National Oceanic and Atmospheric Administration, or NOAA, totaling more than $8 million over a 5-year period. This represents a meaningful addition to our long-term backlog and a strong endorsement of our network-neutral platform's reliability for mission-critical applications. We also secured business with a U.S. civil government customer worth over $3 million for Galileo and 5G on their small to midsized airframes. We expanded further into the growing global UAV market with customer wins for both GEO and LEO services for border protection and surveillance with major drone manufacturers anticipated to deliver over $15 million in revenue over the contractual periods. Another major milestone in the quarter also demonstrated the importance of avoiding vendor lock to OEMs as we adapted the HDX so it can be fitted under an existing STC and the Escape hatch for a major airframe OEM for European deployment. Building on the growth we've delivered over consecutive quarters within our military and government end market, we are seeing high demand for our existing services driven by ongoing conflict in the Middle East, where the operational environment is also accelerating the cadence of adoption for next-generation communication systems across our global military customer base. The U.S. government can access our technologies quickly because of our blanket purchase agreement, which serves the U.S. Department of War. Outside the U.S., our partnerships with leading aerospace integrators and OEMs continue to deliver with strong demand for Galileo from international government customers. Taken together, this momentum has meaningfully strengthened our competitive position in the military and government end market for the long term. An important point to mention is that the following sunsetting of our legacy EVDO network, Gogo will operate the only fully U.S.-based data sovereign ATG network. Our data originates in the U.S., lands in the U.S. and is entirely protected within the U.S., which makes our offering more appealing than our competitors. This transition away from EVDO, which is expected to open up new opportunities since the EVDO hardware utilize foreign components that lock us out of certain opportunities due to national security requirements. Before I turn the call over to Zach, I want to highlight a few financial themes that his remarks will detail. The first is that our product portfolio shift is expected to ultimately increase the durability and resilience of our revenue as customers made the significant capital commitment to install these next-generation products on their aircraft as well as diversify our revenue across multiple connectivity solutions and mission profiles. Secondly, the expansion of our military and government business, which is based on longer contracts compared to shorter-term business aviation contracts should add to this revenue as heightened military and government activity continues. Lastly, our top capital allocation priority in the near term is to aggressively pay down debt. I will now turn the call over to Zach to walk through the Q1 numbers. Zachary Cotner: Thanks, Chris, and good morning, everyone. Our first quarter performance met our expectations as we built upon our strong finish to 2025. The quarter was driven by C1 and 5G demand, positive Galileo momentum, along with sustained growth in our military and government service revenue. This performance helped balance anticipated service revenue softness as we navigate ATG aircraft deactivations. Gogo's total revenue for the quarter was $226.3 million, down just 2% compared to both Q1 2025 and Q4 2025. Service revenue was $187.7 million, down 5% year-over-year and 2% sequentially. Total equipment revenue showed continued strength at $38.6 million, an increase of 22% compared to Q1 2025 and flat sequentially. Sustained activity with record C1 shipments and increasing adoption of our 5G-ready AVANCE LX5 platform for total ATG equipment sold of 511, up 8% compared to Q4 2025. We sold 184 AVANCE units, a 5% increase compared to Q4 and 327 C1 units, an increase of 10% sequentially, bringing our cumulative C1 units sold to 1,063. Gogo C1 solution is a simple box swap designed to allow connectivity for classic ATG customers on Gogo's new LTE network, which is expected to come online later in 2026. Galileo equipment shipments totaled 92 for the quarter, bringing our cumulative Galileo shipments to 410. Turning to our aircraft online. Total ATG AOL of 6,116 decreased 11% compared to the prior year quarter and 4% sequentially for the reasons Chris outlined in his comments. Advanced AOL now comprises 79% of our total ATG aircraft online and average monthly service revenue per ATG aircraft online, or ARPA, was $3,351, a 3% decrease compared to Q1 2025 and flat sequentially. Broadband GEO AOL increased 2% year-over-year to 1,306 but decreased 15 units from Q4 2025, largely due to aircraft sales in the quarter. Moving to our bottom line. Net income for the quarter was $13.1 million, a significant increase on a sequential basis. In Q1, net income benefited from 3 noncash items: first, a $4.9 million pretax reduction to the SATCOM direct earnout accrual; second, the nonrecurrence of a $10 million litigation accrual that occurred in Q4; and third, a $4 million pretax charge to reflect the change in the fair value of the convertible note that also occurred in the prior quarter. Adjusted EBITDA was $53.3 million in the quarter, a 14% decrease year-over-year, but a 41% increase on a sequential basis. Q1 2026 adjusted EBITDA includes $6.1 million of litigation expenses versus $8.4 million in Q4. The sequential increase in adjusted EBITDA of $15.5 million was primarily driven by improvement in equipment profit resulting from a favorable product mix and lower inventory reserves as well as a reduction in ED&D expenses. Year-over-year, the 14% adjusted EBITDA decrease of $8.7 million was largely driven by a drop in service profit stemming from declining ATG revenues. However, we partially mitigated this impact through disciplined OpEx management and strong execution on the synergy front with annualized synergies reaching $40 million, exceeding our prior targets. In addition, ED&D expenses benefited from the reimbursement of costs related to the FCC reimbursement program. Turning to our strategic initiatives. In Q1, our 5G program incurred $0.2 million in operating expenses and $1.4 million in CapEx. In addition, our Galileo project spend included $0.8 million in OpEx. Regarding our efforts to reduce our debt and improve our leverage profile, which, as Chris mentioned, remains our top capital allocation priority, we made a $21.1 million principal payment on the HPS term loan facility in April. This payment was executed as an excess cash flow or ECF sweep. Turning to our net debt leverage ratio. We ended the first quarter at 3.6x. Based on our 2026 forecast, we anticipate this leverage ratio will increase slightly in Q2 and Q3 before dipping back within our target range by the fourth quarter. Moving to free cash flow and the balance sheet. Net cash used in operating activities was $7.2 million and free cash flow was negative $19.2 million for the quarter, down from $30 million in Q1 2025 and down from negative $4.9 million in Q4. Our cash story this quarter was heavily influenced by a $14 million cash outflow related to our annual bonus payout as well as a reduction in accounts payable associated with our inventory ramp related to the Galileo product launches. We ended the quarter with $103.5 million in cash and cash equivalents. In our earnings release this morning, we reiterated our 2026 financial guidance. We project total revenue in the range of $905 million to $945 million. We expect adjusted EBITDA in the range of $198 million to $218 million, which includes $3 million in strategic investments and $8 million of ongoing litigation expense. Finally, we anticipate free cash flow in the range of $90 million to $110 million. This implies a 12% year-over-year growth rate at the midpoint, driven by the winding down of new product investment, sustained cost synergies and an expected strong ramp of new product revenue. Our guidance includes $30 million slated for strategic investments, net of any FCC reimbursements and net capital expenditures of $20 million, assuming $45 million in FCC reimbursement. To summarize, our first quarter results reflect continued strong execution, record ATG shipments and a 41% sequential increase in adjusted EBITDA. We are managing through near-term pressures in legacy service revenue while investing behind the two initiatives that we believe will define our next phase of growth, our 5G network and Galileo Broadband. We also repaid $21.1 million on our HPS loan in April, further strengthening our balance sheet. Together, these actions should expand our addressable market and position us to deliver long-term value to shareholders. I want to express my continued gratitude to the Gogo team for their hard work in driving our transformation and their commitment to outstanding customer service. Operator, this concludes our prepared remarks. Please open the queue for questions. Operator: [Operator Instructions] Our first question comes from Scott Searle with ROTH Capital Partners. Scott Searle: Nice to see you guys reiterating the outlook for 2026. Chris, maybe to start from a high level. It seems like there are a lot of shipments going out the door as it relates to Galileo and 5G, yet AOL has been slow to come online. I'm wondering if you could talk us through the comfort that you have in terms of that ramping up into the second half of this year in terms of dealer channel support, STCs, which seem like they're very much on track. And just maybe help us understand the competitive landscape out there, particularly as it relates to Starlink? Christopher Moore: It's going to take time. We've got the building blocks in place. We have the real estate. Our equipment revenue is up 22% year-on-year. We've got record ATG unit sales. Galileo AOL grew 50% sequentially and adjusted EBITDA grew 41%. And then if you look at the current shipments on Galileo, then most of that's with MROs at the moment. And really, as we've stated in previous calls, the OEMs come online really in Q3, Q4, and then you see that ramp going from there. So actually, we're really excited about what we're seeing with Galileo, and it's going to plan at the moment. Regarding competition, we're not really seeing any changes. I think the good news is this is probably the fastest product we've ever launched and the customer confidence is kind of showing with our results. Scott Searle: And Chris, I'm sorry, my phone blocked out for the 5G commentary. I'm wondering if you could just reiterate that quickly. Christopher Moore: Yes. I mean if you look on equipment revenue is up 22%. And then we've got year-on-year record ATG unit sales as well, which we said on the call. So if you look at 5G from a standing start, the pipeline is over 500, and it's a really solid start. We're seeing already partners like Textron already completing all their STCs. We've got good product shipments, good reliability. So we're very, very confident about 5G. It's actually a really good start to the product. Scott Searle: And then quick two follow-ups. Maybe just in terms of the classic conversion, what you're ultimately hoping that looks like by the end of this year? I know you got an extension there, but what's -- what do you think the attrition is versus retention and conversion over? And then lastly, just as it relates to the traditional SATCOM business, I'm wondering, given the growth that you're seeing in the military opportunities, when -- what's the long-term growth opportunity when you look at the traditional SATCOM business? And how much do you expect military to comprise of that as we start to look out 2 years to 3 years? Christopher Moore: Yes, that's a lot. All right. So let me start with kind of air-to-ground. If you look at record 254 C1 conversions this quarter and 1,058 overall, and our AVANCE base grew 3% year-over-year. So I think the tendency is just to focus on the quarter on suspensions, deactivations on the classic customers. They're not all deactivations. Some of those are suspension. So we expect some to come back. We, in the previous call, said that we expect to lose like 1,000 customers over the year. I think that's kind of holding. I think the big thing there, though, is the transition that we're showing with the new products is all of our customers have somewhere to go with a broadband experience, which they didn't have previously, which is pretty exciting. And we continue to believe the ATG portfolio kind of will be a very, very important part of our business moving forward. Going on to the Milgov business, I think just what we're seeing with the wins that we discussed today is kind of a very robust business unit that's growing, which is really exciting. And the value of the commercial-based products that we're putting into that, lower cost support global capability, robust cybersecurity and then the drone market, we see that as a really exciting area for the business to grow into and service revenue up 14% year-on-year, 7% from the last quarter. So we're really excited about that revenue segment for us. Operator: Our next question comes from Justin Lang with Morgan Stanley. This is Gaby Knafelman on for Justin Lang. Gaby Knafelman: You had mentioned that NetJets Europe will fully roll out Galileo in the first half of the year. I'm curious if you could give us a sense of expectations for the overall Galileo domestic international split through the end of the year? Christopher Moore: Yes, that's a good question. So let me just clarify a little bit on NetJets. I think there's a lot of misunderstanding around our NetJet relationship. And I want to clarify this is really going very well. If you look at the confidence in the broader fleet relationships along with NetJets, we're completing and rolling out NetJets Europe. We're starting to roll out NetJets North America. And we're also starting to see real big traction with VistaJet aiming for 270-plus aircraft, Wheels Up in their transformation with new aircraft, Luxe Aviation, Avcon Jet, AirX. So the confidence in the fleet operators, I think, speaks volumes for the business. And that 60-40 split is 60% North America, 40% overseas is really exciting for the business because previous to the Satcom Direct acquisition, Gogo was predominantly just a U.S. supplier. So we're seeing that kind of international expansion, confidence in the fleet operators and NetJets is still in the fold with Gogo, and we're excited about rolling out with them. Gaby Knafelman: Got it. Super helpful. And I'm just curious if you could comment on how GEO AOL figures this quarter compared against your expectations and whether or not you're thinking any differently at all about some of the pressures you had flagged around GEO coming into the year? Zachary Cotner: Yes. So effectively, GEO has held up exactly as we thought it would. The 15 units is sort of what we thought. I think the other kind of positive sign is, as we telegraphed in Q4, the minor drop was largely related to aircraft sales. I can tell you that's the same trend in Q1. So our sales guys are beating down the door to try to find the new owners and win those back. So I think GEO continues to be robust. The ARPA is down a little bit, but again, that's what we thought. So I think we've got a pretty good handle on GEO as of now. Operator: This concludes today's earnings call. Thank you for your participation in the conference. You may now disconnect.
Operator: Good morning. My name is Aaron, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the Better Home & Finance Holding Company First Quarter 2026 Results Conference Call. [Operator Instructions] And with that, I'm pleased to turn the call over to Tarek Afifi, Senior Corporate Finance and Investor Relations Manager. Tarek, with that, you may begin. Tarek Afifi: Welcome to Better Home & Finance Holding Company's First Quarter 2026 Earnings Conference Call. My name is Tarek Afifi I'm Better's Corporate Finance team. Joining me on today's call are Vishal Garg, Founder and Chief Executive Officer of Better; and Loveen Advani, Chief Financial Officer of Better. In addition to this conference call, please direct your attention to our first quarter earnings release, which is available on our Investor Relations website. Also available on our website is an investor presentation. Certain statements we make today may constitute forward-looking statements within the meaning of federal securities laws that are based on current expectations and assumptions. These expectations and assumptions are subject to risks, uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results. We assume no responsibility to update forward-looking statements other than as required by law. During today's discussion, management will discuss certain non-GAAP financial measures, which we believe are relevant in assessing the company's financial performance. These non-GAAP financial measures should not be considered replacements for and should be read together with our GAAP results. These non-GAAP financial measures are reconciled to GAAP financial measures in today's earnings release and investor presentation, both of which are available on the Investor Relations section of Better's website and when filed in our quarterly report on Form 10-Q with the SEC. More information as of and for the period ended March 31, 2026, will be provided upon filing our quarterly report on Form 10-Q with the SEC. I will now turn the call over to Vishal. Vishal Garg: Thank you, Tarek. Good morning, everyone. Q1 was a strong quarter for Better. We generated approximately $1.64 billion in funded loan volume, exceeding the high end of our prior guidance and growing funded loan volume approximately 89% year-over-year. Revenue from continuing operations grew approximately 52% year-over-year to $47.5 million, and our adjusted EBITDA loss was approximately $19 million, which was a 48% improvement year-over-year. Just as importantly, we continued scaling the Tinman AI platform and expanding our partnership ecosystem, which remain the core drivers of our long-term strategy. Before discussing product innovation and partnerships, I want to address the macro environment directly and explain how we are thinking about the business in the current rate backdrop. The company entered 2026 with strong momentum, generating funded loan volume of $450 million, $521 million and $673 million in January, February and March, respectively, a month-over-month growth of 16% and 29% in February and March. What's more in late April, pre-approval volume for our biggest Tinman AI platform partner went from approximately $100 million per day in preapproved customer volume to over $200 million per day in pre-approved customer volume. That being said, the prolonged conflict in the Middle East has started to show a market impact on interest rates across the mortgage industry with rates for consumers on our platform growing from 5.75% to well over 6.5% in the last few weeks. And this is causing consumers to get stuck in the middle of the funnel, hesitating to lock at a higher rate, particularly if they feel the rate increase is temporary due to the situation in the Middle East. With our partners' help, we are converting some of these customers who need cash now to HELOCs. But for those looking just for savings per month, we are in a waiting pattern where we will go back to them with a lock as soon as rates come back down. So the bad news is that conversion rates are down from where they were in Q1 due to macro factors. The good news is that partner volume continues to increase dramatically as the partner opens us up to a broader section of their customer base and products. Despite the macro noise, we are structurally better positioned than most mortgage platforms for three reasons. Our partnership model creates structurally lower customer acquisition costs and scalable distribution and doesn't require us to spend money upfront, which then can get hung up when conversion cycles blow during volatile market periods. Tinman AI continues to improve conversion efficiency and operating leverage. Our diversified product mix spans across purchase refi and HELOC. And when refis become more difficult, we can convert a segment of those into HELOCs, which is a tool we didn't have in prior rate cycles. That positioning is reflected in our Q2 guidance. We expect funded loan volume of approximately $1.65 billion, representing approximately 37% year-over-year growth, slower than what we had originally anticipated going into Q2. Importantly, while funded loan volumes are expected to remain approximately flat sequentially, revenue is still expected to grow meaningfully due to continued mix shift towards higher-margin HELOC products. We currently expect approximately 15% sequential revenue growth in Q2, which we believe is an important signal that the strategy works and the platform works despite the macro backdrop. We also continue to believe the business is positioned for substantial operating leverage as volumes recover. At the same time, we want to be direct with investors. The timing on when we achieve our $1 billion monthly funded volume target will depend in part on the rate environment. It looked highly doable this time last month. And right now, sitting for this month, it looks like it's going to be deferred. The long-term trend remains intact, but near-term visibility continues to be impacted by macro volatility and what that does to consumer benefit on a refi. That said, if rates improve meaningfully, we believe the lead funnel is already in place and positions us to accelerate towards that target relatively quickly. Regardless of the environment, we continue to execute aggressively. In April, we announced a series of deliberate steps to strengthen operations and continue our progress towards profitability. These actions are on track and are even more important against the backdrop I just described. First, we're removing at least $25 million of annualized costs from our operations beginning in Q2 2026. Second, we expanded our total warehouse capacity by 48% to $850 million since the start of Q1. And third, in early April, we raised $69 million in equity that further strengthened liquidity and operational flexibility. All of these actions, along with greater focus on AI efficiencies, deep cuts in corporate overhead and the adjusted revenue growth and the change in the mix to HELOC versus refis means we remain in sight of the target of adjusted EBITDA breakeven by the end of Q3 2026. Turning to partnerships. Our Credit Karma Finance of America and top five non-bank originator partnerships are all live and ramping. These partnerships are especially important because they leverage existing customer ecosystems rather than paid acquisition channels. For example, an increasing portion of Credit Karma's 140 million members are exposed to Credit Karma Home Loans powered by Better at zero upfront CAC to us. We believe that structural CAC advantage will become increasingly important as the industry consolidates. In late January, we marked the one-year anniversary of our partnership with NEO. NEO grew from a $1.5 billion run rate at onboarding to $2.9 billion in March 2026. Our Tinman AI platform generated approximately $821 million in funded loan volume during Q1, accounting for approximately 50% of total funded loan volume, up from 44% in Q4. That progression is important. Tinman represented 0% of funded loan volume in 2024, approximately 36% in full year 2025 and now approximately half of total funded loan volume. We expect that percentage to continue increasing in the coming quarters ahead. Now to product innovation. We had two recent launches I want to highlight, both of which serve buyers in this environment. Last week, we announced the launch of the Better Home Equity card in partnership with Stripe. The card is a Mastercard linked to a Better HELOC, letting customers spend funds drawn from their line with a single flight. Even more, customers get 1% cash back on all spend, which further lowers their total cost of financing and extends their stickiness in the Better ecosystem from a one-time transaction to a 30-year relationship. We believe HELOC demand remains durable across rate environments, and this product materially simplifies homeowner access to instant long-term liquidity against the value of their home. In March, we also launched the first Fannie Mae eligible token-backed mortgage in partnership with Coinbase. Qualified customers of Coinbase can pledge Bitcoin or USDC as collateral to fund their down payment without liquidating their holdings, triggering a taxable event. We have a large pipeline of Coinbase customers who are signed up on waitlist for the official commercial release of the product in Q2. We see digital assets increasingly becoming part of mainstream consumer finance infrastructure, and we intend for Better to lead that transition inside mortgage origination to leverage refi technology to fundamentally lower the interest rates on home finance products for consumers. We believe the foundation is now in place for Better across our tech platform. Our distribution partnerships, our product expansion and our cost structure and the proof points are becoming visible in revenue growth and path to profitability in sight despite a choppy macro environment. With that, I'll turn it over to Loveen. Loveen Advani: Thank you, Vishal. The Q1 financials reflect continued progress and growing operating leverage from our platform and improving efficiency in our business model. Funded loan volume grew approximately 89% year-over-year to $1.64 billion, while revenue from continuing operations increased approximately 52% year-over-year to $47.5 million. Importantly, total expenses grew approximately 27% year-over-year. That spread between revenue growth and expense growth reflects the operating leverage embedded within the Tinman AI platform. As Tinman AI volumes scale, revenue growth outpaces headcount and infrastructure growth. In Q1 2026, our adjusted EBITDA loss was approximately $19 million. That's a 48% improvement year-over-year and a 16% improvement quarter-over-quarter. Looking at product trends in Q1, refinance grew 542% year-over-year. Home equity grew 30% year-over-year, and purchase grew 2% year-over-year. By product mix, 50% of funded loan volume in Q1 was refinance, 36% was purchase and 12% was home equity. By channel, approximately half of funded loan volume in Q1 came through the Tinman AI platform and the other half through direct-to-consumer. As Vishal discussed, we're starting to see the impact of the prolonged conflict in the Middle East on rates. However, one of the most important dynamics in our model today is mix shift. HELOC products carry materially higher gain on sale economics, which allows revenue growth to outperform funded volume growth, which is reflected in our Q2 guidance. In Q2, we expect funded loan volume of $1.575 billion to $1.725 billion, of which the midpoint represents 37% growth year-over-year. We expect total net revenues of $53 million to $56 million, of which the midpoint represents 28% growth year-over-year. We also expect an adjusted EBITDA loss in the range of $12.5 million to $14 million, of which the midpoint represents 42% improvement year-over-year. Importantly, we continue making progress on our path towards breakeven while simultaneously strengthening the balance sheet and improving liquidity. We previously announced at least $25 million of annualized cost reductions beginning in Q2. These reductions are underway and include lower corporate overhead, vendor rationalization and the planned divestiture of our U.K. bank. On the balance sheet, we ended Q1 2026 with approximately $136 million of liquidity, which includes cash and cash equivalents, restricted cash and net assets held for sale. This does not reflect our recent capital raise of $69 million, which closed after quarter end. We believe the balance sheet today is materially stronger and appropriately positioned to support our path towards profitability. In addition, we expanded warehouse capacity from approximately $575 million at year-end to approximately $850 million today, representing a 48% increase. That expansion reflects both lender confidence in our platform and the infrastructure required to support future partnership growth. As Vishal discussed earlier, based on our current operating structure and ongoing cost initiatives, we remain focused on adjusted EBITDA breakeven by the end of Q3. The timing for reaching that level will depend in part on the macro environment and the pace of rate normalization, but the operating model continues to move in the right direction. We believe Better today is materially more efficient, more diversified and more scalable than it was even 12 months ago. With that, I'll turn back to the operator for Q&A. Operator: [Operator Instructions] Our first question for today comes from the line of Kyle Peterson with Needham. Kyle Peterson: I guess I just wanted to first start off and clarify a couple of the moving pieces in the guide. I guess, one, have you guys assumed that the macro and kind of this frozen pipeline due to some of the Middle East tensions, have you assumed any improvement or resolution in the back half of the quarter or more of a status quo? And then I guess also, could you guys just give us a quick reminder on some of the relative gain on sale rates, specifically on the HELOC side. Obviously, it seems like that's really offsetting some of the volume difference, but I think a reminder there would be helpful for everyone on the call. Vishal Garg: Sure. I mean we are assuming no resolution. And so I think we've been very conservative with respect to what we're guiding towards because going into April, we knew that volume top of funnel was about to almost double. And going into April, we were very confident in the number that we were quoting, which was $1 billion of volume. And then the rate spike, the escalation in the Middle East, basically, all that new volume came top of funnel. I think we shared that it went from about $100 million a day top of funnel for pre-approval volume to $200 million a day in the back half of April. But those customers are not converting at nearly the same rate. We're converting a bunch of them to HELOCs, but a bunch of them that come in just to do a rate term refi or do a debt consolidation to bring down all the rates. They're going to save more if they wait it out than they would getting into it right now. And so we have to give them the right advice for them, and that's what we've always done, prioritize the long term over the short term. So that's what we're doing. And we think that, that's a coiled spring for when things die down in the Middle East, you're going to see some bumper months as we convert all those customers who are effectively on a wait list to lock when rates come back down. On the gain on sale, HELOCs are averaging between six to seven points total gain on sale in combination of origination fees and gain on sale premium, whereas traditionally, mortgage on D2C has averaged 2.5 points and on NEO has averaged 3.5 points. Kyle Peterson: Okay. That's really helpful. And then I guess a follow-up on the HELOC card initiative that you guys have launched. That seems like a really interesting product, I guess. How are you guys thinking about when that goes live later this year, ways whether that increases engagement gives you a competitor edge or monetization opportunities? Just any more color there on how you think that fits in and could potentially help you guys kind of continue to accelerate growth in HELOCs would be great. Vishal Garg: Yes. So I think there are many utility functions of the home card. The first utility function is it tracks all your home spend. So it helps you effectively monitor that, and it provides discounts on things that you use for your home. Two, you get 1% cash back. So for a customer, they're effectively getting their rate or fees bought down as a result of that 1% cash back. Three, it creates a 30-year relationship with the consumer for us versus having a onetime transaction, which means that recurring refis for that consumer, cash out refis will be nearly instant and super -- creates a super engaged customer base for which then we can market other products like what we've done with homeowners insurance, which typically comes up for renewal every year, life insurance, any of these other products that we've traditionally had, we can then have an always-on relationship with the consumer versus a once every three-, five-, seven-year relationship with the consumer. I think it moves into basically Better being a home finance home operating system for the consumer rather than just a onetime home transaction system. And we think that our partners have already started asking for it. It's just another really good way for a partner to service their customer and maintain that. So a number of our partners are already asking us to replicate what we're doing internally for our D2C business for that. So it gives us another feather in our cap when we go and pitch HELOCs or home equity as a service to other companies or mortgage as a service to other companies. Operator: Our next question is from the line of Ramsey El-Assal with Cantor Fitzgerald. Ramsey El-Assal: Has the more challenging macro backdrop caused any slowdown in your partnership discussions or partnership pipeline conversion? Vishal Garg: I think it's accelerated, especially within the traditional mortgage broker and retail mortgage lender channel. A lot of people were hoping '26 was the year that they were going to thrive in. And it's looking like with the Middle East conflict, things are tougher. So more and more banks are still looking to get into the business. Of course, the Middle East conflict and higher elevated rates and oil prices has an impact on the number of customers eligible for refi, but it has an even bigger impact on unsecured consumer credit. And so we're starting to see a lot of inbound from other fintechs, other large consumer credit companies to pivot from their traditional unsecured offerings into a secured offering like a HELOC. Ramsey El-Assal: Okay. And could you also comment on the loan mix between Tinman and direct and kind of how the changing environment might play out in terms of your target there. I think it was 60% Tinman by the end of the year. I was just curious if the changing backdrop here has any impact on that target. Vishal Garg: I think we're well on our way to achieving that target. Loveen Advani: Yes. I think, Ramsey, you're hitting on a great point. Had we been a traditional D2C play, we would have spent money on these leads upfront and not have them convert. Because we're now relying on our partnership volumes, right, we're somehow derisking ourselves from that eventuality. Operator: Our next question is from the line of Rohit Kulkarni with ROTH Capital Partners. Rohit Kulkarni: One kind of just comparison of unit economics to the extent you can, can you just flag what's the difference between Tinman platform generated volume versus D2C specifically, like relative kind of CAC profile gain on sale? And longer term, do you see a scenario where the contribution margin for the platform volume would actually be structurally higher than your traditional D2C business? Vishal Garg: That's a great question. Right now, we try to price our platform partnerships. So, we make the same amount of contribution margin. Revenue can change, right, because different partners are asking us to do different services for them. But we try to make the same contribution margin that we do on D2C in our platform business. And so as we scale, we're hoping to make sort of around $2,000 per loan contribution margin on mortgage and slightly less than that on HELOCs in our Tinman AI platform business. Over time, as it becomes -- the sale becomes more and more software, like margin profile is much better on Tinman AI platform. But in the right now, the gains from AI are captured first in D2C, which is why you saw our continued improvement in our unit economics on the D2C business. And then we port those things that work in D2C into the Tinman AI platform business. Rohit Kulkarni: Okay. Got you. And regarding the current macro environment and rate kind of changes in the last 45 days. Historically, what is the typical lag in consumer behavior and how that impacts your business, assuming there's a pathway towards more stable macro in the next 60, 90 days. How does that -- how do you anticipate that to impact your business? And over what duration and -- sorry for a multi-quarter here and that, are you assuming any improvement in macro in your 2Q guide? Vishal Garg: We're assuming no improvement in the macro in our 2Q guide. And so, we're being conservative there. And we are -- the typical cycle is you can start to see on refis in particular, on rates on refi, in particular, you can see immediately within a week, if a consumer comes in as a pre-approval, if they're going to lock or not or if they're hesitant. And usually, when they are hesitant, we register in our data, the price point at which they would transact and then we hold them until they come back, kind of like -- think of it like a limit order in stock trading. And then -- so we see that behavior manifest itself out in refis. Purchase, as you know, is like a six-month cycle. And HELOC, depending on the use case, if it's for debt consol, it can take the consumer a month to decide on what debt to pay off or not and what things that they care about or not. If it's more for home improvement or tuition or other things like that, they typically have a need that needs to be satisfied within a week, two weeks, three weeks. Loveen Advani: Yes. Rohit, I think to go with this is, as we think about beyond the second quarter, if the environment stays where it is, we'll have increased indexation towards HELOCs and less so towards refi. And if the macro changes, then that equation will flip. Rohit Kulkarni: I see. I got you. And then I know you reaffirmed breakeven EBITDA by end of Q3. Q2 is still close to negative $13 million in EBITDA. Can you help us kind of what specifically bridges that Q2 to Q3? What are the factors under your control? And maybe just layer in the $25 million cost reduction program, how much of that is in Q2? And what other levers do you have in Q3? Loveen Advani: Absolutely. Yes, that's a great question. So today, our current financials exclude the U.K. business, which is we're considering that as discontinued ops, right? As we think about getting to our breakeven targets, our current cash OpEx is about $68 million. That's the guidance that we're giving, right? So for us to get to profitability by the end of Q3, we'll have to get to a revenue mix or a revenue component of around low to mid-70s for us to breakeven at the end of Q3. Operator: Our next question is from the line of Owen Rickert with Northland Capital Markets. Owen Rickert: Could you talk a bit more about how some of those newer partnerships are ramping today? Are you seeing encouraging trends in engagement and conversion rates so far? And how have those partnerships trended on a monthly basis throughout the quarter? Vishal Garg: The newest partnership are ramping extremely well. I mean we literally in the month of April, went from $100 million a day top of funnel to $200 million a day top of funnel. $200 million a day top of funnel just multiplied by 250 business days is $50 billion of pre-approval volume. And we're still just scratching the surface. Our biggest partner, Credit Karma, we are exposed in many of the products to less than 1% of their customer base. for the top five retail lender, we're just ramping up their salespeople on the HELOC product, and they have hundreds of billions of dollars of MSR on their books that we're going to be targeting, which has a very, very high conversion rate. Our top three fintech, they're scaling. They're becoming a reasonably decent size of our HELOC volume. And so you've seen like monthly HELOC volumes start to continue to trend up. A little bit of that has been. And then we've got a couple of banks in the queue off of our ChatGPT announcement that we did, I think, about two months ago, and we're hoping to get them closed and operational and live shortly. Owen Rickert: Got it. And then on the technology side, where are you seeing the biggest operational or customer-facing benefits from tools like Betsy, Tinman AI and the broader machine learning initiatives? Vishal Garg: The biggest benefit is in customer contact capability where consumers are now able to transact with Betsy 24/7, 365. And we're increasing the exposure of Betsy branded for our partners in their funnels. So I think the biggest uplift is going to actually be when we are able to fully deploy Betsy in our partner funnels, not just in our D2C funnel. Operator: [Operator Instructions] Our next question comes from the line of Kartik Mehta with Northcoast Research. Kartik Mehta: Vishal, one thing you've talked about are partnerships and your partnerships are growing. If in the interim, the mortgage market stays soft, but all of a sudden, we get a big bump up, the war is over and all of a sudden, you get a lot of activity. How do you manage the infrastructure if demand spikes? Vishal Garg: We are already getting geared up for something like that. The best thing that we can do is in the old days, we have to rely on humans to staff up and pick up the phone, work late shifts, work weekends. And now we are able to simply leverage Betsy. Betsy loan officer, Betsy loan processor, Betsy loan underwriter. And in preparation for some of that, we're actually taking off some of the gloves where Betsy was recommending a particular task or a particular path to both a consumer or an internal person and then the internal person was sending it out. We're now just having Betsy be on autopilot after close to over 1.5 years of learning data. And so I think that, that's just going to crush the operating cost framework and allow us to capture all the volume as it comes in. Kartik Mehta: And Vishal, on a couple of partnerships, you're not the only mortgage provider, but it seems as though you have a competitive advantage because of your technology. Have you seen your partners or talk to your partners about comparing your ability to serve their customers versus others that might be on the platform? And if so, what type of advantage is that giving you? Vishal Garg: Our partners typically see an improvement of 2x relative to the incumbent in terms of both productivity and customers served. So that's really the promise that we make to them is "We're going to help you double revenue, and we're going to help you cut your cost structure by 30% to 50%, and you'll make 4x, 5x, 6x more money." And that's how it's playing out for our existing partners. That's why there's a waitlist of people to get on the Tinman AI platform, the ChatGPT Enterprise Edition. We just are -- we're continuing to work through that and the value prop to the partners is high. But as you know, like the mortgage industry is an industry that the Internet basically forgot. And so we have lots and lots and lots of mortgage people who are still operating on really old antiquated systems. And what we're also finding is that their staff are used to just those systems. So frequently, we go in and they tell us that, "Hey, we'll keep this staff and then the rest of them, why don't you like adapt them to the new system?" And what they find eventually is that we have to do it all for them. So I think that is also upside in the margin profile that we land with a particular product or a particular implementation and then we expand from there. Operator: Our next question is from the line of Brendan McCarthy with Sidoti. Brendan Michael McCarthy: Just wanted to ask a quick question on Birmingham Bank, the U.K.-based bank. I know you classified it as discontinued operations held for sale. Can you give us any detail on when we might expect a sale regarding timing? Can you give us any color on potential capital release from that sale or perhaps sale proceeds? Loveen Advani: Yes. So Brendan, this is Loveen. We're in an active sale process. We had an investment bank to lead that. We're in active discussions with potential buyers, right? That's all I want to disclose at this time, given that we're in active discussions. Even if we do sign, there's a regulatory approval process in the U.K., which is going to take about two to four months. So think of the impact in Q4. Brendan Michael McCarthy: Understood. Looking at the Coinbase partnership with the crypto-backed mortgage product, can you kind of walk us through the economics of that, the revenue profile there and perhaps the launch time line of when we might see an impact in the P&L? Vishal Garg: The currently publicly stated launch time line is sometime in late Q2. The revenue profile from that product is starting to manifest itself. Obviously, we have more pricing power in that product than we do in your traditional direct-to-consumer product. And so you should start to see like NEO-like margins on that product. Brendan Michael McCarthy: Got it. That's helpful. Last question, just back to the Q3 breakeven guide for adjusted EBITDA. Just to clarify, I know you mentioned you're assuming a pretty stable environment as it relates to the macro. But is there any risk to achieving that breakeven if rates move meaningfully higher or maybe the Middle East conflict is more prolonged than expected? Vishal Garg: We're going to have to cut costs deeper. I think we're pretty committed to that number. Operator: And ladies and gentlemen, that will conclude our Q&A session for today. Vishal, I'd like to turn it back over to you for any closing comments. Thank you. Vishal Garg: Thanks, everyone. Q1 was a really good quarter for us. We signed a bunch of really big deals, and we executed on our plan and we beat guidance. I know it's disappointing for the Q2 guidance for us to not get to the $1 billion mark of loan originations that we had planned to in May, but we're going to make up for that in the context of cost cutting, deeper cost -- change to a HELOC product, which doesn't have a $350,000 balance, has a $100,000 balance, but makes basically the same amount of revenue and using that to continue to drive revenue growth and a path towards profitability, which is what we are expecting in our Q2 guidance, and we're confirming again that we will achieve by the end of Q3 2026. So, thank you all for continuing to have an interest in believing in Better, and we appreciate you all. Operator: Thank you, everybody. Have a great day.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the BlackSky Technology First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Aly Bonilla, Vice President of Investor Relations. Aly, please go ahead. Aly Bonilla: Good morning and thank you for joining us. Today, I'm joined by our Chief Executive Officer, Brian O'Toole; and our Chief Financial Officer, Henry Dubois. On today's call, Brian will provide some highlights on the quarter and give a strategic update on the business. Henry will then review the company's first quarter financial results and updated outlook for 2026. Following our prepared remarks, we will open the line for your questions. A replay of this conference call will be available later today. Information to access the replay can be found in today's press release. Additionally, a webcast of this earnings call will be available in the Investor Relations section of our website at www.blacksky.com. In conjunction with today's call, we have posted a quarterly earnings presentation on the Investor Relations website that you may use to follow along with our prepared remarks. Before we begin, let me remind you that we'll make forward-looking statements during today's conference call, including statements about our plans, objectives and future outlook. Actual results may differ materially as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our Form 10-K. BlackSky assumes no obligation to update forward-looking statements, except as may be required by applicable law. In addition, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and cash operating expenses. Definitions and reconciliations between our GAAP and non-GAAP results are included in our earnings press release and presentation, which are posted on our Investor Relations website. At this point, I'll turn the call over to Brian O'Toole. Brian? Brian O’Toole: Thanks, Aly, and good morning, everyone. Thank you for joining us on today's call. Beginning with Slide 3. I'm happy to report that we are off to a strong start to 2026. With up to $160 million in contract awards, we are rapidly growing backlog, accelerating revenues and on track to deliver strong earnings growth driven by demand for our Gen-3 solutions. This quarter, we achieved a clear inflection point in our business as Gen-3 capabilities are now fully operational and delivering mission-critical intelligence to customers worldwide. Demand for our Gen-3 capabilities has never been stronger. And as a result, we are growing our pipeline and transitioning new and existing customers from early pilot programs into long-term 7 and 8-figure subscription contracts. Based on the strong year-to-date sales performance, in-year revenue visibility and accelerated pipeline growth, we are increasing our revenue and adjusted EBITDA forecast and full year guidance. As we move through the year, we expect this momentum to continue, driving increased revenues, margin expansion and improved profitability. Now let's move on to key highlights across the 3 major elements of our business. Moving on to Slide 4 and our space-based intelligence and AI services. Gen-3 continues to exceed expectations, delivering exceptional 35-centimeter imaging performance at a time when real-time space-based intelligence has never been more important. With 4 Gen-3 satellites in operation, we are now unlocking significant revenue growth from new and existing customers. We won over $60 million in new contract awards from major international and U.S. government customers that will contribute to in-year revenue performance, improve margins and drive out-year backlog growth. At the same time, we continue to onboard new customers and expand existing accounts as interest for Gen-3 on-demand and assured subscription services grows. During the quarter, we secured the next wave of new Gen-3 customers and expect these accounts to grow over time as part of our land and expand strategy. It is important to note that subscription-based contracts drive predictable revenue and strong visibility into future growth as these are highly sticky accounts with almost no churn. The major wins so far this year have us on track to grow this element of our business in 2026 by over 50%, achieving a projected annual run rate of over $100 million. This highly profitable subscription revenue is on track to deliver gross margins of around 80%, which is accelerating improving adjusted EBITDA margins. The operating leverage, capital efficiency, unit economics of our constellation and the scale of our business model is translating directly to bottom line performance. Looking forward, we expect to continue strong growth internationally and are starting to see momentum from the U.S. government as funding from the fiscal year '26 budget is moving through the system, which is further improving our visibility this year. Turning to Slide 5. Customers around the world are rapidly integrating our advanced 35-centimeter imaging and real-time AI analytics into their operations at a time when conflict and geopolitical tensions around the world are driving an increasing need for assured, responsive and low-latency space-based intelligence, which is essential for critical national security missions. To give you a sense of how we are supporting typical customer operations today, users are casting hundreds of images over the course of a few days within a specific area of operations. Our dynamic tasking services and Spectra support a rapid and responsive cadence as operators are reacting to changing conditions on the ground. Once collections are casted by the user, we are achieving imagery delivery time lines consistently less than 40 minutes, including processing for AI-enabled analytics. Over the course of several days of an operation, our AI analytics detected and classified over 5 million objects as part of customer workflows, providing vital real-time intelligence. Our automated Spectra platform is compressing time lines dramatically, enabling end users to make informed decisions while providing maximum tasking and operational flexibility to respond to developing situations. This combination of high-resolution imagery, AI-powered automated analytics and rapid delivery time lines is driving customer adoption and service expansion. Moving on to Slide 6. Our AI capabilities are operational today and are delivering critical intelligence. Our proprietary AI capabilities are purpose-built for real-time geospatial intelligence and have been validated by major defense and intelligence organizations as a trusted solution. What differentiates BlackSky is that we have moved AI into real-world deployment where our capabilities are embedded directly into customer workflows and are driving daily decision-making. Our Spectra platform is continuously processing high revisit Gen-2 and very high-resolution Gen-3 imagery, applying automated detection and classification and delivering actionable insights in minutes. This allows customers to move from data collection to decision advantage faster than ever before, which is vital in today's dynamic geopolitical environments. At scale, we are processing millions of AI-enabled detections, monitoring large areas of interest simultaneously and enabling persistent automated surveillance across critical global assets. This is not just improving efficiency but fundamentally changing how intelligence is generated, reducing reliance on manual analysis while increasing speed, accuracy and mission impact. Turning to Slide 7 and an update on our Gen-3 constellation. In March, we successfully launched our fourth Gen-3 satellite, which delivered first light imagery within hours of launch and was commissioned into operations in less than a week. By reducing the commissioning time line to just days, we're providing customers with rapid access to new capacity while maximizing the operational lifespan and return on investment of our constellation. This ability to quickly and reliably move from launch to mission operations is a distinct advantage for our customers. With 4 Gen-3 satellites in operation, we achieved a major operational milestone with daily revisit rates for very high-resolution 35-centimeter imaging services across key regions of interest worldwide. When combined with our Gen-2 constellation, we have added very high-resolution imaging to our dynamic hourly monitoring services. This is providing customers with assured and flexible collection operations. We are continuing to expand the Gen-3 constellation with our next Gen-3 satellite ready to be shipped and remain on track to meet our objectives of at least 8 Gen-3s on orbit this year. Now let's move on to Mission Solutions on Slide 8. Our sales pipeline continues to grow due to the on-orbit success of Gen-3 and our ability to deliver industry-leading 35-centimeter imaging performance at compelling economics and attractive delivery schedules. Having proven on-orbit performance is an important criteria for customers that are making important acquisition decisions now that will impact their road maps and long-term investment strategies for their sovereign programs. We're seeing increasing interest from international customers and acquiring more expansive end-to-end solutions that not only include satellites and ground infrastructure, but now include enhanced secure operations and AI-enabled analytic capabilities. The combination of best-in-class Gen-3 satellites and industry-leading software and AI capabilities operating in a proven real-time architecture has us well positioned to address this growing market opportunity. Turning to Slide 9 and our advanced technology programs. While we are making great progress scaling our core space-based intelligence and Mission Solutions business, we are also advancing our lead in space through the rapid evolution of the Gen-3 platform, the development of AROS, our new wide area collection system and the advancement of new leap-ahead payload technologies that can change the future of earth and space domain observation. We were pleased to announce this quarter a major new contract worth up to $99 million with the U.S. Air Force Research Lab for the development of an advanced large aperture optical payload. This is an advanced technology that we have been developing for the past several years and is now at a point where the approach has been assessed and validated by industry-leading government experts. As a result, we were awarded a multiyear sole-source contract to move ahead with the development and demonstration of the critical payload technologies. This program represents significant customer-funded investment that not only reinforces our technology strategy, but offsets internal R&D and is in strong alignment with U.S. government priorities to advance innovative commercial space-based capabilities. Moving to Slide 10. As we advance our technologies through customer-funded R&D, we are transitioning these innovations into our space portfolio. At the core of this portfolio is our Gen-3 platform. As we iterate and enhance this architecture, we are incorporating next-generation capabilities such as on-orbit processing and optical intersatellite links or OISL, which will enable low-latency space-based communications that is critical to reducing delivery time lines and increasing resiliency. Looking ahead, we are advancing AROS, our next-generation wide area search and mapping system. This new constellation, when combined with real-time AI processing, will overcome the limitation of traditional mapping systems through transformative always-on intelligence and information services. This is an expanded market opportunity that will address a wide range of applications, including broad area monitoring and change detection, maritime surveillance and the delivery of 3D digital twins in support of rapidly growing opportunity for AI-enabled autonomous systems. As we move forward into the details of the AROS design, we see strong interest from a number of key customers and partners for this capability. We will have additional details to share on our progress as we move forward throughout the year. In summary, we are excited with the strong start to the year and the progress we are seeing across all aspects of our business as the need for space-based intelligence has never been more important. The progress we've made so far this year reflects a major inflection point for the business and is a clear indication of the traction we are gaining in the market. With that, I'll now turn it over to Henry to go through the financial results. Henry? Henry Dubois: Thank you, Brian, and good morning, everyone. I'm pleased with the strong start to the year. With the recent wins and our market momentum, we're excited for 2026. Now let's begin with Slide 12. Our first quarter revenue was $20.8 million. With Gen-3 coming into commercial operations, we started to see a return to growth in our space-based intelligence and AI services revenue, which was up 14% over the prior quarter. When comparing this quarter's total revenue to Q1 of 2025, keep in mind, Q1 of 2025 benefited from a $9 million revenue milestone for our Mission Solutions program. With strong year-to-date sales, we are expecting to further increase space-based intelligence and AI services revenue by over 50% this year, achieving a $100 million annual run rate. With the momentum we are seeing for Gen-3 services, we are increasing our revenue guidance for the year from our previous range of $120 million to $145 million to an updated range of $130 million to $150 million, representing an overall growth rate of over 30% at the midpoint as compared to 2025. Turning to Slide 13. You can see that our cash operating expenses, which excludes stock-based compensation, depreciation and amortization expenses remained flat as compared to our prior first year quarter operating expenses. On Slide 14, our first quarter adjusted EBITDA was a loss of $5.1 million, in line with our internal expectations. Given our growing revenue streams, which we believe will translate into strong adjusted EBITDA performance, we are increasing our guidance for adjusted EBITDA for the year from a previous range of $6 million to $18 million to an updated range of $12 million to $24 million, yielding a 13% adjusted EBITDA margin at the midpoint. Let's move on to our cash and liquidity position, as shown on Slide 15. With cash CapEx for the quarter of $15.8 million, we ended the quarter with $117.5 million in cash, restricted cash and short-term investments and total liquidity of over $195 million. This liquidity gives us substantial flexibility to fund strategic growth initiatives, continued Gen-3 investments and provide for the operational infrastructure investments needed to support our rapidly growing customer base. Even though we are increasing our revenue and adjusted EBITDA guidance, we are not increasing our capital expenditure targets, demonstrating the leverage we are achieving in our capital deployed to develop our Gen-3 constellation. In summary, I'm pleased with the strong year-to-date sales momentum, which is continuing to grow our backlog, strengthen our financial position and further validate the operating leverage in our business model. I mentioned earlier and as shown on Slide 16, we are raising revenue guidance to be between $130 million and $150 million, adjusted EBITDA guidance to be between $12 million and $24 million and reaffirming our capital expenditure guidance of $50 million and $60 million. With that, back to you, Brian. Brian O’Toole: Thanks, Henry. In closing, we have clearly reached an inflection point in our business with the success of Gen-3, which is now delivering mission-critical intelligence to major customers around the world. We are proud to be a trusted mission partner and support the day-to-day operations of important national security missions, both now and in the future. The proven operational performance of our real-time space-based intelligence services is leading to strong sales performance and rapid customer adoption, which in turn is accelerating revenue and margin growth. We are pleased with the momentum in the business and that our year-to-date sales are ahead of plan, which is driving the raise of our full year guidance. This concludes our remarks for the call and we'll now take your questions. Operator: [Operator Instructions] Your first question comes from the line of Jeff Van Rhee with Craig-Hallum. Jeff Van Rhee: Congrats, numbers look good. So just a couple of questions. Brian, as it relates to the pipeline, can you talk to -- you've talked about these pilots coming in and then obviously, customers are getting a sense of Gen-3 and converting. Can you put a little finer point on the quantity of pilots coming in the top of the funnel? Give us a sense of the magnitude of the pipeline, how many have converted, how many are there? How many you've added in this last quarter? Any quantification about funnel and particularly pilots? Brian O’Toole: Yes. You may have seen this week, we had a release on securing our next wave of customers. This was in the scale of a couple of dozen. And we're seeing that momentum really pick up. So they all start with 6-figure type pilots and you're seeing, as a result, that moving into 7 and 8-figure subscription contracts. They're all in different points in the pipeline. So it's difficult to kind of quantify timing and all of that. But we're just seeing strong momentum and the pipeline is looking good. Jeff Van Rhee: Is there -- if I could follow up on that, is there anything you could share with respect to what I'd call the mega deals? Obviously, you've got a lot of sovereign momentum out there. A number of players in the space are talking about 9-figure deals working through their pipe. Can you give us any sense of the frequency in which you're seeing those and seeing those work through your pipeline? Brian O’Toole: Yes. I think we announced the $30 million 1-year subscription contract. That started with a 6-figure pilot about 6 months ago. And we are seeing a lot of that type of activity, particularly as customers now have had an opportunity to evaluate Gen-3 performance tied to the operational flexibility, the timeliness and the quality of the imagery and how that can integrate into their operations. And so these are major customers and we're seeing a pretty strong pipeline of those worldwide. It's hard to, again, quantify the timing of some of these deals. But you can see we also announced another large deal as well. So a lot of momentum with these larger contracts. Jeff Van Rhee: Yes. Real nice traction on the signings. Just 2 other quick ones, if I could. Spectra and analytics, what are you seeing in terms of new customer attach rates on the analytics side? What do you anticipate based on pipeline? Brian O’Toole: Well, Jeff, that's why our pipeline and the conversion rate is going so well. It's not just the attachment rate. It's the fact that all of these things are integrated into the service. So it's highly flexible access to dynamic monitoring and tasking with the AI integrated as part of the service and then the short delivery time lines, which are really critical to what -- as you can imagine, the things are happening around the world today. So it's the combination of those 3 things that has us differentiated in the market and what customers are responding to. And as I mentioned in our remarks, our AI is operational and it is embedded in our customer workflows. And so it's not just a tech demo or some offline processing capability. It's happening in real time and it's delivering real information intelligence. Jeff Van Rhee: Yes. Got it. That's helpful. And then just lastly on Gen-3. I know maybe sometime last year, you were thinking 8 Gen-3s early-ish in the year. It looks like you're now thinking that later this year, if I caught your comment in the script. Just curious to what extent that influences your ability to book customers, influences your ability to sign incremental revenue if you're capacity constrained in any way, assuming it doesn't present any gating factors. I was just kind of trying to figure out how I should think about that capacity and its potential influence on your ability to sign new business. Brian O’Toole: Yes. Jeff, as I said, we're on track to get 8 up this year. The real inflection point, as I'll say, in customer adoption was the performance of Gen-3. I've always said, once we have a few up there and get to a daily service, it provides customers a very good experience. So that's now happened. And the growth and what you're seeing in that line of business is not limited by our capacity and we're in good shape this year with what we have and we'll just continue to grow the constellation. Operator: Your next question comes from the line of Timothy Horan with Oppenheimer. Timothy Horan: [Technical Difficulty] compared to what you've done historically and how do you think that's going to ramp? And are there any kind of new areas or new customers that are surprising you or new use cases? Any color would be helpful. Brian O’Toole: Yes. I mean, the customer sales and adoption cycle is not surprising. We've had very good visibility in our pipeline and there has been lot of interest by a lot of major customers in our Gen-3 capabilities. So now that we're getting over the hump on that and they're getting firsthand experience with it, we're just seeing a natural growth in that business. As we mentioned in our remarks, we announced several large contracts, but we now are expecting the space-based intelligence and AI services, which is our primary subscription business to grow over 50% this year. This is our high-margin business. So you're also seeing how that is translating directly into improving EBITDA margins and performance, particularly because that part of our business has -- is delivering about 80%-type gross margin. So no surprises in the sales pipeline. If anything, current events are accelerating opportunities as the demand for this type of capability has never been stronger. And we're in a good position where we're now just converting the pipeline into new contracts. Timothy Horan: And can you talk about the sovereign satellite capability? Are you seeing more interest there? Brian O’Toole: Yes. As I mentioned, we are seeing demand increase. There is major investments happening worldwide in space programs by governments around the world. We're seeing both opportunities for large constellations and opportunities related to countries that are just getting started. We have seen a pick-up in interest around Gen-3 because it's proven on-orbit performance at this 35-centimeter capability is a really important factor as they're looking at other options in the market and our ability to manufacture Gen-3 at scale and also deliver that under a very competitive time lines is an attractive offering. So we have a lot in the pipeline. We're pursuing a number of opportunities and moving them through and we expect this to be picking up as we go out through the year and into next year. Timothy Horan: Lastly, Henry, can you give us a sense of the revenue -- quarterly revenue or maybe exit run rate at the end of the year? How should things pace? Is it linear? Is it hockey stick? Any color there would be helpful. Henry Dubois: Sure, Tim. We'll be filing the Q this afternoon in there. You'll see how we've got our backlog -- our backlog -- full backlog is about $351 million as of March 31st, but that does not include the -- some of the large contracts that we signed in early April. So that would be total backlog, including those about $380 million. Of that $380 million, we would expect about $90 million to be already booked for 2026. There will be some step functions in there and we've got a lot more pipelines coming in as well. So we do expect the second half of the year to be a much stronger than the first half. And as we go, we'll hit that -- we do expect to get to that $100 million run rate by the end of the year. Operator: Your next question comes from the line of Edison Yu with Deutsche Bank. Unknown Analyst: This is [ Laura ] on for Edison. So firstly, I want to ask about how the Middle East conflicts impacting your growth? Has that led to like large increase in usage year-to-date? And how you see that trend continue? Brian O’Toole: I would say, if anything, we've already -- we already had a very strong sales pipeline for Gen-3 capability and you're seeing that we're converting that into long-term subscription contracts. I think if anything, the conflict in the Middle East is amplifying for other customers the need to lock in long-term contracts for capacity in the event these types of crisis events occur. And that's been traditionally how the market operates is because we serve the national community -- national security community. The business is not driven by singular events. It's driven by day-to-day needs for a range of national security missions. So we don't see ebbs and flows around these events. But if anything, they amplify the importance of entering into these long-term contracts. But also, I will say the capabilities that we have are -- do shine in these type of events when you're really trying to -- you can see the importance of really rapid and flexible intelligence that these operations need to monitor what's going on. Unknown Analyst: Okay. Got it. Appreciate it. Also want to follow up on this -- your AI efforts. So how should we think about the AI road map over the next 12 to 24 months? And what are the priorities there? And would you try to bring in some AI partners on either the model side or some cloud platform, et cetera? Brian O’Toole: Yes. I think the first major point is our AI is a proprietary capability. It was purpose-built for real-time space-based intelligence. So it's -- it was really designed to operate in customer workflows at scale and at speed. So we will continue to expand over time the -- our ability to not only detect and classify important objects and things of that nature, but then how we start to see patterns and changes that are important to customers. That's really the bottom line. AI is really just an enabler, but it's really all about providing that actionable intelligence to decision-makers at rapid time line. So we do incorporate a lot of third-party technology. But at the core, it's our proprietary capabilities around this mission set that has us leading in the market. Operator: Your next question comes from the line of Austin Moeller with Canaccord Genuity. Austin Moeller: So just my first question here, is there a critical mass of Gen-3s that need to be launched in order to get access to more contract dollars from either EOCL or Luno? Or is it just a matter of the '26 budget being in place and task orders going out now from the program executive offices? Brian O’Toole: Yes. I would say our growth in that line of business is not dependent on a rate of launching satellites. We've got a core amount of capacity on orbit. And you have to remember, when combined with Gen-2, we have over 15 satellites up there that are providing dynamic hourly monitoring capability. So now that Gen-3 is proven, we're just seeing a ramp in those contracts. More satellites means more capacity. And improve frequency and the very high-resolution capability. But we don't have anything right now that will be triggered by more satellites. We'll just continue to grow. Austin Moeller: Okay. And can you comment on how Spectra's AI object classification capabilities compare with some of your peers that have expertise in mapping and geo data analytics? Brian O’Toole: I would just say that, as I said in my remarks, we are delivering this operationally today. They've been validated by major defense and intelligence customers. So they trust the results that we're delivering and we're constantly improving and refining the training of those algorithms. The models are operational real-time. So that's a major differentiator. It's not an offline process. But all I can say is you've seen our performance on Luno in the past in winning contracts because of the performance of our AI. And now you're seeing it working operationally. And I think that should give you a sense of why that capability is winning in the market right now. Operator: Your next question comes from the line of Greg Burns with Sidoti. Gregory Burns: Just a follow-up on the last question around EOCL. Does the updated guidance still contemplate revenue levels at the current level where they exited last year? Or are you expecting that to build back up to where they were prior to when they were haircut last year? Brian O’Toole: Yes. I think the assumption we have now is they remain at the current levels, the levels we exited last year. There are multiple funding lines that were in the fiscal year '26 budget for commercial imagery that are in the process of being allocated to specific programs and contracts and we're actively following the process. We'll see better visibility throughout the quarter. But for now, we've been conservative, assuming the levels we exited the year at. It's also important to note that, as we talked about, we're seeing the increase now on that business line. And these large contracts we're winning have significantly diversified our customer base. And international is now a much larger percentage of our revenues. So we've minimized the impacts of some of the annual budget effects of the U.S. government. Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies. William Healey: This is Billy on for Sheila. Just continuing on the international side, there's a lot of momentum there. And how do you think about the pipeline and untapped opportunity going forward? And how do we think about progression of current customers expanding versus new customers? Brian O’Toole: Yes. I think we're seeing growth from a couple of dimensions. We are expanding the revenues with customers we've had for a long time as they start transitioning in scaling the use of Gen-3. So we're seeing that. And then in parallel, we're adding new customers and I talked about that earlier. And then we're continuing to grow the pipeline to continue bringing a wave of those new customers into service. So the other thing I'll mention is the quality of Gen-3 is demanding a higher premium than Gen-2 because of the 35-centimeter capability. So the dollars per sold capacity are increasing. You're seeing an expansion of existing contracts. We're seeing new customers coming online and then the translation of those new customers in small initial pilots transitioning to 7 and 8-figure type subscription. So there's multiple growth vectors as we bring new and existing customers into higher levels of service. William Healey: Great. And then just like following up on that. In terms of international mix, like it's higher now. How do we think about that going forward? And how do we think about domestic versus international contributing to the 50% plus growth for the rest of the year? Brian O’Toole: Yes. As I mentioned earlier, we're -- we've assumed the U.S. government EOCL kind of maintains its current level. The majority of the growth is coming internationally. Although we did announce a new subscription contract this quarter from another U.S. government agency that's leveraging the capacity of our Gen-2 constellation, so we are seeing new opportunities emerging with the U.S. government as well. So -- but the revenue mix will be growing significantly internationally as compared to the U.S. government. Operator: Your next question comes from the line of Chris Quilty with Quilty Space. Christopher Quilty: I wanted to follow up on something that was already discussed. Just regarding the typical customer journey, is that accelerating, slowing down, staying the same? Are there any reasons that you're seeing a change in how quickly they're converting? Brian O’Toole: Yes. We're seeing an acceleration. As I mentioned, I think getting Gen-3 operational at a daily service level and putting that in the hands of customers to experience that firsthand is driving an increase in the pipeline and it's increasing the rate at which things are moving through the pipeline. So -- and it's all -- it's really -- it's fundamentally based on the level of service that's available to these customers when combining 35-centimeter imaging with low-latency, flexible tasking operations with integrated analytics. That's a first-of-its-kind capability in the market that's giving customers operational intelligence faster than ever and a lot of flexibility in how to leverage that capability across a lot of different mission sets. So it's not just about the pixels. It's about the level of service and how that's being integrated and used in a dynamic environment. Christopher Quilty: Got you. So for Henry, I mean, you did $16.5 million in the space-based intel and AI in the first quarter, which is the average of what you did all last year. So obviously, to ramp to $100 million, you're going to see a significant quarterly step-up. Is that due simply to the contracts you have in backlog and those just falling in? Or is there a higher level of book and ship type business that you expect this year? Henry Dubois: We've got a couple of things that are going to help that step up. You recall, we just announced that roughly $30 million 1-year subscription contract. If you take that and divide that by 4, you've got a pretty big step-up on that one contract alone. That contract we signed in early April. So that should be kicking in here in the second quarter. So then when you take a look at our total backlog, we will -- we've got a lot of that already booked and we've got some additional renewals coming on board as well in the near term. So we feel pretty comfortable on it. We're going to get a step-up here in the second quarter, but bigger step-ups as we go into the third and fourth. Christopher Quilty: Got you. And remind me, the backlog in terms of the breakdown, I think you said $90 million to ship this year and which business segment that falls across? Henry Dubois: We don't break it down between the different business segments and business elements. But for the most part, a lot of that is Gen-3 subscription, most of it is Gen-3 subscription. Christopher Quilty: Got you. Brian, also a follow-up on the EOCL. Back when that was awarded like 3 years ago, I was always under the impression that the uptake in the revenue because it didn't have a material impact at the time, but that the upside to the contract was based on Gen-3 capability being added into the contract. Is that not correct? Are they simply paying on the number of satellites and volume and not on resolution improvement? Brian O’Toole: Chris, if you remember, when it was originally awarded 10-year contract heavily back-end-loaded around Gen-3 services that grew over time. So the initial service levels were primarily around Gen-2 capacity. And that was really the subscription that we've been operating under the last couple of years. Gen-3 is -- they are looking at integrating Gen-3 into that subscription this year. There's a lot of interest in that. And as I said, we're watching how this -- the funding from the fiscal year '26 budget is going to flow through. But we are at a point with Gen-3 that's an attractive offering to the U.S. government and we'll have better visibility in that, I think, by the time we get through the second quarter. But there's a lot of interest in Gen-3 and the contract is primarily back-end-loaded for that capability. Christopher Quilty: Okay. Great. And Brian, you mentioned earlier the latency of the content delivery and goals to improve it. Can you talk about like what would be your sort of mid to long-term goals for where you think latency should get? And does that drive higher revenue as you drive the latency down? Or is that just becoming the table stakes of being in this business? Brian O’Toole: I think there's 2 ways to think about it. I think low latency is a requirement these days. You -- we're responding to dynamic events on the ground. And Chris, as you know, we've built a -- this is a purpose-built capability around responsive tactical operations. So to us, it is a required part of the service and it's what customers are asking for. We -- in addition to the basic commercial service, we've also -- have the ability to directly downlink into customers' environments and that brings that down into minutes as well. And so what you'll see from us continuing is just a constant improvement in that latency, not only in the imagery tasking and delivery time lines, but as we're processing more and more AI, we're doing that in real-time. So imagine we're interrogating this imagery and looking for objects and activities across a lot of things in parallel. So -- but we see it as really a core part of our offering and it's what customers are really looking for. Christopher Quilty: Got it. And maybe if I can, a final question. I know you don't do backlog breakdown, but I'm going to ask you a question on pipeline breakdown. Can you just give us a general sense when you talk about your business pipeline, either where you're currently seeing the largest area of pipeline or alternatively, where you're seeing the greatest growth in pipeline opportunity? Brian O’Toole: I think proportionately, we're seeing growth in all 3 aspects of our business. We're seeing growth in the pipeline around our space-based intelligence and AI services as you're seeing that translate into new contract wins. I already talked about the Mission Solutions pipeline as the demand for sovereign is increasing and we're seeing an acceleration of those types of programs. And we're also seeing a lot of interest in the advanced technology programs. As you know, Chris, as you know as well as anybody, space is a long game. And so customers are understanding that it's not only about what you have now, but where this is going to be in the future in the next 3 to 5 years. So we're seeing a step-up in that part of it as well. And we see that as a key part of our strategy is leveraging those investments and then translating that into the innovation and a leadership position in our space portfolio. So we're seeing growth across all 3 aspects of the sales pipeline. Operator: Your next question comes from the line of Scott Buck with Titan Partners. Scott Buck: I think most of my questions have been answered, but just one. Brian, as demand for sovereign increases, are you seeing more [Technical Difficulty]. Henry Dubois: I'm sorry, Scott, can you repeat that? Scott Buck: Yes, yes, sure. As demand for sovereign increases, are you seeing more competition for these opportunities? Brian O’Toole: I think, yes, there are a lot of -- there are -- there is increasing competition, but they're from a number of companies that have really not demonstrated proven operational performance. And as I mentioned in my remarks, having a capability like Gen-3 that is delivering the quality of 35-centimeter imaging at the level of performance that we're seeing -- and then having that on orbit and proven and operational at the economics of that spacecraft is a really compelling proposition for customers. As you know, these types of customers aren't going to risk their long-term road maps on unproven space capability. And so we feel like we have a very good advantage there. Gen-3 worked right out of the box and it has been exceeding expectations and that is giving customers a lot of confidence in our ability to support their long-term programs. So we feel we're really well positioned. There are not -- Gen-3 is a best-in-class capability and we're seeing that in the opportunities that are coming at us. Operator: Your final question comes from the line of Preston Graham with Stonegate. Preston Graham: Preston sitting in for Dave. You touched in the prepared remarks on land and expand. And so I guess for customers and pilot programs for Gen-3, are most using the broader full analytics suite from the beginning? Or do they typically start with imagery and then expand into analytics over time? Brian O’Toole: Yes, I think the way you have to think about it is they have access to a platform and that platform has a lot of different capability that they can tap into. And so they can task imagery from Gen-2 and Gen-3 satellites. They can also, as part of that tasking operation, request different types of AI-enabled analytics as part of the natural workflows. So what we typically see is customers start with the basic operations, which is a dynamic tasking. And then as they integrate that, then they start adding the AI analytics as part of the service. So I think it's an important comment in that it's a full service offering that we have through the platform. And again, that's not typical in the market. So that's another factor of what's driving the increase in our demand and the customer traction. Preston Graham: Got it. So you wouldn't even say it's not like 35-centimeter, the quality of the imagery is the main driver. It's the platform, it's the whole suite. It's all of it. Brian O’Toole: It's all of it. 35-centimeter is an important aspect because very high resolution matters. The more resolution you have, the better insights you get from the imagery, but also the level of analytics you can extract with AI goes up as well. So -- but I'll also say timeliness matters and time diverse collection throughout the day matters as well. So it's a combination of all those things. And keep in mind, just a few years ago, this went from really commercial being mapping capabilities. So now we're in dynamic monitoring with real-time intelligence from space. So it's a major paradigm shift around our purpose-built capability. Preston Graham: Understood. And then maybe just one final one. You've talked about in the past kind of vertical integration gives you better visibility into production and deployment. Are there any kind of current supply chain constraints that could impact Gen-3 production or launch timing or still feeling good about the road map? Brian O’Toole: As I said, we're on track. We did bring LeoStella into the company over a year ago now to improve our visibility in the supply chain and streamline production operations. That's going very well. We have ordered long lead supply components so that we can maintain a regular cadence of production of Gen-3. And through that cadence of production, we can use those satellites to expand our commercial constellation or accelerate deliveries on Mission Solutions contracts, which is a competitive advantage in the market. So the vertical integration we've achieved is paying off and you're going to see that scale as we move throughout the year and into next year. Operator: There are no further questions at this time. This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Xometry's Quarter 1 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Shawn Milne, Vice President of Investor Relations. Shawn, go ahead. Shawn Milne: Good morning, and thank you for joining us on Xometry's Q1 2026 Earnings Call. Joining me are Randy Altschuler, our Chief Executive Officer; Sanjeev Singh Sahni, our President; and James Miln, our Chief Financial Officer. During today's call, we will review our financial results for the first quarter of 2026 and discuss our guidance for the second quarter and full year 2026. During today's call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, strategy, long-term growth and overall future prospects. Such statements may be identified by terms such as believe, expect, intend and may. These statements are subject to risks and uncertainties, which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed before the market opened today and in our filings with the U.S. Securities and Exchange Commission, including our Form 10-Q for the quarter ended March 31, 2026. We caution you not to place undue reliance on forward statements or undertake no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in our expectations. We'd also like to point out that on today's call, we will report GAAP and non-GAAP results. We use these non-GAAP financial measures internally for financial and operating decision-making purposes and as a means to evaluate period-to-period comparisons. Non-GAAP financial measures are presented in addition to and not as a substitute or superior to measures of financial performance prepared in accordance with U.S. GAAP. To see the reconciliation of the non-GAAP measures, please refer to our earnings press release distributed today and our investor presentation, both of which are available on the Investors section of our website at investors.xometry.com. A replay of today's call will also be posted on our website. With that, I'd like to turn the call over to Randy. Randolph Altschuler: Thanks, Shawn. Good morning, and thank you for joining our Q1 2026 earnings call. Our accelerating growth and record Q1 results demonstrate the success of our AI-native marketplace in the massive, complex and highly fragmented custom manufacturing market. The record performance we are reporting today reflects the investments and changes we've been making in our product, technology and go-to-market strategies. Q1 was a record quarter for Xometry across many fronts, including revenue, gross profit and adjusted EBITDA. Q1 revenue growth accelerated, increasing 36% year-over-year, a 600 basis point acceleration from Q4, driven by 40% Marketplace growth through our expanding networks of buyers and suppliers and increasing wallet share. Alongside strong enterprise growth, we are seeing improving broad-based strength across the marketplace driven by our product initiatives. Q1 net adds were strong and we grew active buyers 20% year-over-year. We expect continued strong growth ahead as we further tap into this largely off-line market. Q1 adjusted EBITDA increased to $10.5 million, an improvement of $10.4 million year-over-year as we deliver expanding margins on top of accelerated growth. In addition to our record financial results, today, we announced a strategic partnership with Siemens, the world's leading industrial software company, who is embedding Xometry's AI capabilities natively into Siemens Xcelerator and investing $50 million in Xometry Class A common stock to back that conviction. By natively integrating Xometry's marketplace capabilities directly into Siemens integrated design to manufacturing software ecosystem, including the Siemens Design Center, this partnership puts Xometry's manufacturability, pricing and sourcing intelligence in front of Siemens' global customer base at the moment design decisions are made. Through this embedded experience, engineers will receive real-time feedback on design feasibility, manufacturing options, pricing and lead times directly within their existing design workflow. They can also seamlessly place and track orders through to delivery. The result is a continuous digital thread from design decision to delivered part. Xometry is uniquely equipped to power this partnership with over a decade of proprietary transactional data, real-world manufacturer feedback and closed-loop production outcomes across our global supplier network. These serve as the foundation of our manufacturability, pricing and sourcing intelligence, and they are what makes this experience possible at scale. In addition to the Siemens Design Center integration, the partnership will include the integration of Thomas, Xometry's North American industrial sourcing network with Siemens Supplyframe to bring deep design to sourcing intelligence for both electronic and mechanical components to completely source the bill of materials for Siemens customers. As Xometry's enterprise installed base deepens with more accounts embedding us into their core engineering and procurement workflows, the Siemens partnership extends that intelligence upstream into the design environment itself, helping teams move from digital intent to physical production with fewer handoffs and greater transparency. And this also accelerates the expansion of Xometry's installed base in the process. Together, this strategic partnership will accelerate our collective penetration of the massive, highly fragmented custom manufacturing market with Siemens global platform extending Xometry's reach across all commercial markets. Our teams are actively working on the integration road map, and we look forward to sharing milestones as the partnership develops. We're thrilled to be working with Siemens to further strengthen the design digital thread. For those new to our story, Xometry has operated as an AI-native marketplace since its inception with data science, machine learning and core AI models integrated into operations. Xometry's core AI models, which manage the custom orders to part manufacturing journey are trained on proprietary transactional data. Xometry's proprietary pricing and sourcing models are embedded directly within live marketplace transactions, integrating digital quoting, supplier selection, production performance and delivery outcomes into a closed-loop learning system. Each completed order strengthens future predictions, increasing accuracy, speed and reliability across the network. By embedding design to fulfillment intelligence directly into engineers' workflows, Xometry reduces information asymmetry in manufacturing procurement and is transforming what has historically been a fragmented manual coordination problem into a scalable competitive advantage ground in both digital intelligence and physical world execution. Our strong Q1 financial results marked 3 consecutive quarters of accelerating revenue growth and 4 quarters of increasing EBITDA margins. At the same time, we've invested in and strengthened our platforms to deliver robust secular growth and expanding profitability in the coming years. We're off to a strong start in Q2, and we expect robust growth to continue in 2026, which James will discuss later in the call. I will now turn it over to our President and incoming CEO, Sanjeev Singh Sahni, to discuss some of the initiatives that are driving our strong growth and increasing profitability. Sanjeev Sahni: Thanks, Randy, and good morning. The strong Q1 results we are reporting today are direct evidence that the product-led strategy formulated last year is working. This quarter validates our strategic thesis and marks the clear acceleration of our path to a new trajectory. We are defining the e-commerce playbook in custom manufacturing and raising the experience bar for buyers and suppliers everywhere. Our teams are beginning to inflect the growth curve and build a path to this new trajectory. Today, I will focus on sharing some developments from our strategic elements focused on our proprietary and core AI models, e-commerce marketplace experience and expansive supplier network. Our new strategic partnership with Siemens is very exciting as it will help us serve ever more engineers and transform their buying journeys. The Siemens partnership is a strong external proof point that our core AI models are becoming the infrastructure for how the industrial world designs and sources parts. In Q1, we made significant progress on proprietary core AI models. Our proprietary intelligence is crucial for creating value across the entire marketplace. Our strategy over the past year has been to establish our core AI models as the differentiators. They are the reason why Xometry continues to take significant market share. Our models are laser-focused on improving pricing, speed and selection for both buyers and suppliers. The ability to translate a decade plus of proprietary data into immediate operating leverage and long-term Marketplace growth is what underpins our confidence in accelerating the move to the next S-curve of growth. First, we launched a new enterprise machine lead time model that represents a significant expansion of Xometry's predictive intelligence capabilities. The new lead time model represents a significant expansion of Xometry's predictive intelligence capabilities, leading to a superior prediction accuracy for custom model parts. Enabled by the scale of performance data from the global supplier network, the model enhances operational throughput by driving a reduction in standard lead time offerings and expanding rapid delivery to facilitate 1-day lead times across a growing catalog of materials and geometries. Our updated model leverages a training data set 4x larger than its predecessor and now integrates critical factors like specialized certifications, new materials and advanced finishing options. Enterprise customers are not experimenting with us anymore. They are expanding. Second, we shaped several new journeys on our e-commerce marketplace experience. Our customer and supplier online journeys are rapidly defining the e-commerce playbook in custom manufacturing. One of our core beliefs and something I feel strongly about is that the B2B buying experience in manufacturing should be every bit as good as what people experience in their personal lives on Amazon, Wayfair, or Alibaba. The days of clunky B2B procurement software, multistep checkout processes and waiting for days for an e-mail code are simply over. What we are seeing is a generational shift in who is making manufacturing purchasing decisions. The engineers, procurement buyers and supply chain lead roles are now full of dynamic digitally native individuals. They expect the same frictionless journey at work that they have in their personal lives. And when they find that Xometry can deliver to that, they become Xometry champions inside their organizations. That's true whether they are at a Fortune 500 company or a high-growth start-up. With our focus on improving the customer journeys on the platform, we introduced 2 features. First, we launched the Name Your Part feature, which enables customers to match their internal name conventions to what they have on Xometry, creating a unified part and SKU-like structure on our platform. This is an important feature that is already reducing buyer friction and substantially simplifying the reordering process. We can see in recent activity in Teamspace, the name your Part feature is gaining traction as Xometry becomes increasingly part of customers' bill of materials. Second, we enriched our pricing models to include greater personalization of customer pricing. We enhanced the dynamic pricing logic that powers the pricing intelligence layer of our Instant Quoting Engine. We see this drive higher conversions, balance margin outcomes and drive higher overall growth while enabling better outcome for our customers. In Q1, we continued to improve our injection molding offering in the U.S., adding 6 new materials and 3 additional finishes to give buyers greater choice and selection, increasing instant coding of injection molding parts by over 15%. Xometry's proprietary AI-powered platform manages the full cycle of injection molding needs from instant quoting to delivery and reordering in one of the largest custom manufacturing markets in the U.S. The platform enables a spectrum of injection molding options from prototype and low-volume bridge tooling to high-volume multi-cavity production tooling in approximately 50 different materials, colors and finishes. Finally, we are ever more focused on expanding our global supplier network and improving supplier experience. Our global supply network of approximately 5,000 suppliers is a significant strategic advantage, giving buyers unmatched speed, capacity and resilience, allowing for immediate scaling and offering sourcing flexibility across 50 countries on 4 continents. We continue to add more suppliers with higher levels of specialized certifications to support the growing needs of customers in specific industries. In 2025, demand for certified manufacturing surged with jobs requiring certifications increasing 35% on our platform. For our suppliers, we continue on improving their experience through new technology and tools in Workcenter, including the recent release of on-platform communications. By centralizing job-related communications directly within Workcenter, we are shifting more engagement online, improving visibility and further reducing friction for our suppliers. Insights we draw from suppliers' interactions on our platform give us significant sourcing insights to drive margin outcomes. This quarter confirms our strategic path and the power of our AI-driven flywheel. As I prepare to take on the CEO role in July, I'm very excited about the trajectory ahead. And I look forward to leading Xometry through its next product-led growth curve that we have already embarked on. I will now turn the call over to James, for a more detailed review of Q1 and our business outlook. James Miln: Thanks, Sanjeev, and good morning, everyone. Our results for Q1 underscore the continued scaling and increasing efficiency of our marketplace, driving both accelerated growth and expanding profitability. Revenue growth increased for the third quarter in a row, and Marketplace gross profit dollars saw even faster growth, exceeding 50% year-over-year. This accelerating top line was paired with yet another quarter of improved adjusted EBITDA profit margins. These achievements demonstrate that our Marketplace is becoming the essential infrastructure for a predominantly offline and fragmented industry. Q1 revenue grew 36% year-over-year to $205 million, a 600 basis point sequential acceleration from Q4. Q1 Marketplace revenue was $191 million and services revenue was $13.8 million. Q1 Marketplace revenue increased 40% year-over-year, a 700 basis point acceleration from Q4, driven by strong execution, expansion of buyer and supplier networks as we continue to capture significant market share. Q1 active buyers increased 20% year-over-year to 85,581 with a net addition of 3,760 active buyers, the highest number of net adds in 9 quarters. Strong Q1 net additions were driven by our product-led growth strategy and efficient corporate marketing initiatives. Q1 Marketplace revenue per active buyer increased a robust 17% year-over-year, primarily due to increasing wallet share. We view accounts with at least $50,000 spend at the top of the enterprise funnel. In Q1, the number of accounts with last 12-month spend of at least $50,000 on our platform increased 21% year-over-year to 1,864 with a strong net adds of 104. Enterprise investments continue to show strong returns. Our enterprise strategy focuses on our largest accounts, which we believe each have $10 million plus in potential annual account revenue. Services revenue was roughly flat quarter-over-quarter as we stabilize the core advertising business. We are focused on improving engagement and monetization on the platform, which remains a leader in industrial sourcing, supplier selection and digital marketing solutions. Q1 gross profit was $78.5 million, an increase of 39% year-over-year. Q1 gross margin for Marketplace was 34.7%, an increase of 290 basis points year-over-year. Q1 Marketplace gross profit dollars increased a robust 53% year-over-year. We are focused on driving Marketplace gross profit dollar growth through the combination of top line growth and gross margin expansion. Our commitment to strong discipline and rigor in capital and resource allocation across all teams while continuing to invest in growth initiatives is reflected in our Q1 operating costs. Total non-GAAP operating expenses for Q1 were $68.2 million, a 21% increase year-over-year, a rate significantly lower than our revenue growth. In Q1, sales and marketing decreased 110 basis points year-over-year to 14.2% of revenue. This reflects improving enterprise sales execution and disciplined advertising spend. Marketplace advertising spend was a record low 3.9% of Marketplace revenue, down 60 basis points year-over-year as we delivered accelerating growth and expanding profitability. In Q1, operations and support decreased 70 basis points year-over-year to 8.2% of revenue. We are focused on driving increasing automation with AI across operations and support. Q1 adjusted EBITDA was $10.5 million compared with $0.1 million in Q1 2025. Q1 adjusted EBITDA improved $10.4 million year-over-year, driven by strong growth in revenue, gross profit and operating efficiencies. Alongside accelerating revenue growth, we delivered expanded adjusted EBITDA margin of 5.1% compared with 4.4% in Q4 2025. Q1 U.S. segment adjusted EBITDA was $13.3 million, a $10.3 million improvement year-over-year. Q1 U.S. segment adjusted EBITDA margin was 7.7% compared to 2.4% a year ago, driven by expanding gross profit and strong operating expense leverage. Our International segment adjusted EBITDA loss was $2.8 million in Q1 2026 or 8% of revenue, a 400 basis point improvement from a loss of 12% in Q1 2025. We expect continued improvement in International segment operating leverage in 2026. At the end of the first quarter, cash and cash equivalents and marketable securities were $224 million. We generated $14.6 million in operating cash flow and $4.8 million in free cash flow in Q1 2026, driven by strong operating leverage and working capital efficiency. In the first quarter, we invested $10.6 million in cash CapEx, almost entirely software-related, reflecting our technology investments in the platform and accelerating product rollouts. We are focused on improving cash flow conversion given our asset-light model and limited capital spending. Our disciplined execution has led to strong revenue and gross profit growth in our AI-native marketplace, coupled with significant operating leverage and increased operating cash flow generation. We are focused on strategically balancing future investment with a relentless pursuit of operating leverage, given the vast market opportunity and our low penetration rates. As we rapidly approach a $1 billion run rate, we have a clear trajectory for improving adjusted EBITDA margins while sustaining our investment in growth. Now moving on to guidance. We are raising our outlook for the year. For the second quarter, we expect revenue in the range of $214 million to $216 million or 32% to 33% growth year-over-year. We expect Q2 Marketplace growth to be approximately 35% to 36% year-over-year, driven by ongoing momentum from our growth initiatives. We expect Q2 services revenue to be largely flat quarter-over-quarter as we continue to work through the transition of the recently launched Thomas ad serving platform and search upgrades. In Q2, we expect adjusted EBITDA of $11 million to $12 million compared to $3.9 million in Q2 2025. For the full year 2026, we are raising our revenue growth outlook to at least 27% to 28% from 21%, driven by approximately 30% Marketplace growth. We expect 2026 Marketplace gross margins to be higher than 2025 as each quarter of growth and technological advancement incrementally fuels margin performance. For 2026, we expect services approximately flat year-over-year with modest growth in the second half of the year as we expect that revenue in the second half begins to increase quarter-over-quarter. For the full year 2026, we expect incremental adjusted EBITDA margins of at least 20%. Before we open it up for questions, I want to recognize our team. The results we've discussed today reflect their execution, and I'm equally excited for what those results make possible going forward. We have real momentum, a large market in front of us and a team that has demonstrated it can deliver. That combination gives us genuine confidence in what's ahead. With that, operator, can you please open up the call for questions? Operator: Our first question comes from Cory Carpenter of JPMorgan. Cory Carpenter: I wanted to ask about the Siemens partnership, in particular, maybe for some of us more on the Internet side, less familiar. Could you just help us frame how meaningful is this for you? Kind of what exposure does this get you that you did not have before? And then how should we expect it to layer in some of the KPIs like active buyers in the coming quarters? Randolph Altschuler: This is Randy, and thanks for joining. And I'll jump in and maybe our President and incoming CEO, Sanjeev, will join as well. So we think, this is a big deal. I mean, Siemens is the leading industrial software company globally. It has millions of users. As you know, we have 85,000 active buyers. So their user base dwarfs ours, and we are embedding directly into their PLM and CAD software. So right where we want to capture the engineers and the procurement people, that is Siemens business. This will extend our reach into -- globally, it will extend our reach into all different sectors across different industries. So it could be a very big deal for us. I think from a KPI perspective, just as I alluded to, with millions of users, it could really boost up significantly our active buyer count. So lots of good things. And it also can improve our profitability as you can think we're capturing these -- these are Siemens customers. Logically, our sales and marketing spend will be dramatically less here as we're getting them here natively into their software. Sanjeev Sahni: Just to add on to that, I think, Cory, the way to think about this opportunity is that we are truly integrating directly into the Siemens software as a native embedded solution deployed within their SaaS and on-prem premises environments, which means real-time data connectivity to the engineer who is designing their product and being able to price it right there in their flow. So without having to break their flow, they would be able to get pricing on parts from Xometry, which would be a very, very big improvement to the user experience and their ability to move from price to placing the order very seamlessly, something that does not exist today at all. Operator: Our next question comes from Brian Drab of William Blair. Brian Drab: Randy, congratulations and congrats to the whole team, but well, what an accomplishment. I wanted to just follow up on the Siemens question. So first of all, can you talk about how that business is going to be structured in terms of margins for you? I know you just said it's going to require less selling and marketing. But Siemens is obviously kind of acting sort of like a distributor, you're using their platform, and they're going to take some value. But the sales through that platform, you're saying should be accretive to overall EBITDA margin. Is that right? Randolph Altschuler: So Brian, we're going to monetize. We're going to -- the gross margins that those should be very similar, Brian, to what we see today. We'll also be recognizing revenue similar to what we're seeing today. And as we said, we'll have less OpEx associated with it. So we think from an incremental margins from this revenue should be more profitable. Brian Drab: In terms of recent performance in the first quarter, have you seen or can you talk about in any more detail, strength relatively across different end markets like aerospace, space defense, I imagine, continues to be very strong, or is it just broad-based? And then are you seeing any benefit to your business from the disruption to the global supply chains related to the war et cetera. Randolph Altschuler: Yes, absolutely. So I think, first of all, like we really saw growth across all of our industries, Brian. It was very broad-based, which is very exciting for us across many different customer segments. And I think we -- certainly, the macro has been improving. The ISM data, manufacturing data has been improving. But in general, we just continue to gain more and more market share, and that's been a big driver of our growth. I think when you think about all the disruptions that have happened now for years since COVID, I think it just underscores to buyers the need for resilient supply chains, the need for digital supply chain flexibility, and that's what Xometry is. It enables people instantly to source from different regions, make changes. We strongly believe this is the future of manufacturing supply chains and we're the leader in it. And so I think that's just helping us gain more and more adoption by users and more and more market share. James Miln: I was just going to build on that. I mean, what Randy was saying, you saw accelerated net adds on the buyers, accelerated net adds on our accounts over 50,000, continued success on the enterprise front as well as continued success on the product-led strategy. So creating a broad-based offering and building out broad-based momentum. Brian Drab: Can I ask just one more quick one? So there was, I think, some anxiety on the call last time with the report because of the succession of Sanjeev coming in. Randy, you said very clearly, I'm not really going anywhere. I'm going to be working on some significant partnerships. Now that's materialized. We know exactly what you're talking about in terms of a partnership. My question is, are there -- you used the term partnerships, plural. Is this a sign of potential further -- is this indication of like other partnerships that we could see down the road? Randolph Altschuler: Yes. I mean, absolutely. Look, first, we're building a very special partnership with Siemens, a very unique one. So we're excited and grateful for that. But we're certainly hopeful that there'll be other partnerships, Brian, to say, down the road. And I'm excited to focus my time on those and assist Sanjeev here, who's been crucial to building this partnership as well as our execution. As James said, this is really about our product. I mean, Siemens is excited about our product, integrating our product. This just validates our product-led growth strategy that Sanjeev, since he joined us last year has been leading and where we go in the future. But certainly, more good stuff to come and hopefully more partnerships, but love the unique one that we built, special one that we built with Siemens. James Miln: Yes. And I think it really validates the custom manufacturing TAM that we see, $275 billion. These are the sorts of relationships that we want as the infrastructure, as the platform for custom manufacturing to be able to accelerate our growth and continue to execute really well on the product, improve that and get in front of more buyers and more suppliers. Operator: Our next question comes from Andrew Boone of Citizens Bank. Andrew Boone: Can we double-click on active buyer? It was the strongest net adds in 2 years. Can you help us understand that outperformance? And then how should we think about that going forward? And then as we think about AI just in terms of a bigger picture view as a tool that you guys are now inserting across the business. Can you talk about this very specifically within the Instant Quote engine? What is that unlocked in terms of accuracy or any other benefits you guys want to highlight as we think about the evolution of what Instant Quote can be? Randolph Altschuler: Yes. I'll start with the active buyers and then hand over to Sanjeev to talk about the AI integration and what that means. So look, I think -- and I appreciate, Andrew, pointing out, this is the biggest add that we've had for 2 years. I think you can expect to see more exciting numbers from the add perspective as we continue to further develop our technology platform to be more personalization as we extend the reach through our product and through our marketing, we're getting broader adoption. Partnerships certainly like the one, the unique one we're building with Siemens here will accelerate that. And I think the other great thing is not only did we have record net adds the last 2 years, but we grew the spend per buyer as well. I think that grew 17% year-over-year. So that's also an indication not only we're getting more buyers, but our share of wallet is increasing. And that's -- we think there's opportunity to continue to grow that share even as we grow that number of active buyers. Sanjeev Sahni: Yes. I would also say, Andrew, Shawn -- you can see in the slide in the deck that we grew the active buyer number was strong. At the same time, the ad spend as a percent of Marketplace revenue declined 50 basis points year-over-year. Shawn Milne: Andrew, to your question on AI and what we're continuing to do there and how we're embedding the Instant Quoting Engine. As you can see, I think part of our focus with the product-led growth has been to double down on the predictive intelligence capabilities that our proprietary AI model brings to us. I mentioned on the call that over the last several cycles, we've been focused on improving and expanding the model itself. Our updated model leverages the training data set, which is now 4x larger than its predecessor and even integrates new factors that actually help us price better, be more specific to new materials, even have advanced finishing options, which we continue to see more and more of as a need from our customers. Truly, I think this is most exciting for our enterprise customers whose needs are super expansive, but also to make sure that they now can come to us with a trust that we'll be able to deliver irrespective of the need. Operator: Our next question comes from Greg Palm of Craig-Hallum. Greg Palm: Yes, I'd like to offer my congratulations on basically all the above as well. I wanted to maybe go back to the Siemens announcement. I don't know if you can give us just a little bit of background on sort of kind of how that came about mostly from their end. I'm also a little bit confused and it looks like a great deal for you, but what's kind of in it for them? And I mean, as I think about them and their global sort of installed base and exposure, I mean, do you think this could be a good really helpful catalyst to accelerate growth internationally? Randolph Altschuler: Yes. So look, I think we're building something very special with Siemens, and I think that's going to give their users a very unique opportunity to access our data to improve their intelligence in terms of pricing and sourcing. It's being built natively within the Siemens system. So it is very special and unique. And I think that will be a huge value add for the Siemens users. I think as you said, it obviously, Greg, is great for us and they do have a massive user installed base, obviously much, much larger than ours, and it is truly global. And as we've talked about and as you can see in the press release, this is a global rollout that we expect. So this should help us not only here in the United States, but across all of our regions. So very exciting. Sanjeev Sahni: Greg, to your question specifically on how it helps them. This is Sanjeev. Very specifically, if you think about it, this actually embeds the entire Xometry experience within the Siemens platform, which means that the Siemens user actually never has to leave the Siemens platform to actually price the part and then track the journey of the part being manufactured and delivered to them, which is going to be very unique and puts them also in a very different category compared to any of the other competitors that they face off on a daily basis in the spaces of CAD and PLM. Now being able to make sure that their engineers and the users have a very unique journey, we think is a true differentiator for them as well. Greg Palm: I guess I'm looking or thinking about the full year guide, in light of what's going on in the macro, given the Siemens partnership. I mean, the full year guide based on what you've done in Q1 and the guide Q2, I mean, implies not just a pretty big deceleration in Marketplace growth in the second half but implies a major deceleration in net adds. It implies no growth in revenue per buyer. So I guess I'm just asking in light of all of that, maybe it's just conservatism. There's still a lot of year left, but just wanted to get your quick thoughts on that as well. Randolph Altschuler: Yes. Let me just -- first of all, our guide doesn't include anything about Siemens at all. So let's just -- that is not baked into our numbers. And as that partnership develops, we'll certainly update and if that impacts or when it impacts our numbers, we'll certainly share that. I think just to level set here, we did raise our guidance in Q2 or implied guidance pretty significantly here the 32% to 33% growth. And our guidance also -- and that includes -- that 35% to 36% Marketplace growth in Q2. Our guidance also implies higher growth in the second half of the year, higher than the guidance that we just gave about 1.5 months ago. And I just want to say that the trends remain strong. We have started Q2 very strong. And so as things continue, we will continue to update as we've done all along. But so far, the trends remain strong. And again, we've raised our guidance not only for Q2, but for the second half of the year as well. James Miln: Just build, Greg, I think we're really excited. I mean, I think now at 27% to 28% for the full year, that's an acceleration from 2025 growth of 26%. So another year of Marketplace growth of 30%, which is what we did last year. We're excited about the trends we see, very excited about this relationship with Siemens. I'll just note as well that there's a couple of slides in the earnings presentation on Siemens. So you can reference those as well as you're digging in here. And I think the strength in the product road map, the strength in enterprise, what that does is says in terms of the opportunity ahead of us, the TAM that we have to penetrate, we still feel very early. There's a lot of opportunity ahead. But when it comes to guidance, it's still early in the year, and we'll update you as we go through. Randolph Altschuler: Yes. I mean, just to be clear, we're not seeing anything that would imply deceleration, but we're being smart here. Greg Palm: Yes, makes sense. We'll be looking forward to those updated guidance metrics throughout the year. Operator: Our next question comes from Troy Jensen of Cantor Fitzgerald. Troy Jensen: First off, congrats on the great results. I guess I also want to dive in a little bit on Siemens. I think you hit on it a little bit, but just to confirm, there's no exclusivity associated with this and you guys would be able to do similar stuff with like an Autodesk and SolidWorks? Randolph Altschuler: Yes. We're building something -- thanks for joining us. So we're building something special and unique and proprietary with Siemens. So that relationship is. But we will continue to work with other companies, other beyond companies and others. But I just want to say what we've done with Siemens is very unique and special to them. Troy Jensen: The $50 million investment, was that something that happened after the quarter closed? Or can you just touch on it a little bit more? James Miln: Yes, that's after the quarter closed. So it will be -- you'll see it in the Q as a subsequent event. Troy Jensen: James, just maybe one for you, if I could throw it in quick. What revenue level do you think you need to reach like an EBITDA breakeven for your international business? James Miln: Yes. I mean, I think we're there overall globally. I don't think -- we're not going to guide to that on a segment basis. We're really pleased with the progress we're making. As you know as well, we were free cash flow positive in the quarter and we're getting close to the level which we mentioned last quarter in terms of where we think that that's sustainable at $225 million a quarter in revenue. I think we're really excited about the growth opportunity in international and seeing the margin continue to improve. So we think those losses will continue to improve as the year goes on. Operator: I am showing no further questions at this time. I would now -- I would like to 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, and welcome to Howard Hughes Holdings Inc. First Quarter 2026 Earnings Conference Call. Currently, 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. To remove yourself from the queue, you may press star 11 again. I would now like to hand the call over to Joe Vilain, general counsel. Please go ahead. Joe Vilain: Morning, and welcome to the Howard Hughes Holdings Inc. First Quarter 2026 Earnings Call. With me today are William Albert Ackman, Executive Chairman; Ryan Michael Israel, Chief Investment Officer; David R. O’Reilly, chief executive officer; Carlos A. Olea, chief financial officer; Jill Chapman, who leads investor relations at Pershing Square; and Mark Grandison, who joined the Howard Hughes Holdings Inc. board just yesterday. Before we begin, I would like to direct you to our website, howardhughes.com, where you can download both our first quarter earnings press release and our supplemental package. The earnings release and supplemental package include reconciliations of non-GAAP financial measures. Howard Hughes Holdings Inc. believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions; we can give no assurance that these expectations will be achieved. See the forward-looking statement disclaimer in our first quarter earnings press release and the risk factors in our SEC filings for factors that could cause material differences between forward-looking statements and actual results. We are not under any duty to update forward-looking statements unless required by law. I will now turn the call over to our Executive Chairman, William Albert Ackman. Thank you, Joe. William Albert Ackman: Those of you on the call probably have seen a presentation we put out providing some perspectives on how we think about Howard Hughes Holdings Inc. from a valuation perspective. The company is going through a transition in terms of its business model, and I think there has been a pretty meaningful transition, or at least the beginning of the transition, in our shareholder base. We thought this was a good time for us to share how we think about the company and to provide some, I would say, better metrics to think about valuation going forward. So our plan for the call is we are going to start with David R. O’Reilly giving a comprehensive brief update on the quarter. I will talk a bit about KPIs. Ryan will speak briefly about valuation, introduce Mark to the group, and then we will leave the substantial majority of the time for Q&A. So why do we not start with David? Go ahead, David. David R. O’Reilly: Thank you, Bill. Good morning, everyone. I am going to start with the first half of the presentation, and as you probably saw, it is organized into two parts. The first part really focuses on the first quarter results of Howard Hughes Holdings Inc. Communities’ real estate business. Using the slides from the supplemental, I am going to be covering the four key performance areas of our communities: master planned communities, operating assets, condominiums, and then other expenses along with our debt and liquidity position. As you saw, we are introducing several new KPIs this quarter, and we believe these better reflect how we manage the business and how long-term value accrues within each segment. I will reference those as I cover the results. Then we will turn to the second half of the presentation, where, as Bill mentioned, he and Ryan will do a deeper dive in what those new metrics reveal about our current valuation and the long-term growth of this platform. The goal is always to give investors a more complete picture of where Howard Hughes Holdings Inc. is headed, and why we believe the stock represents a compelling opportunity. I am also sure you noticed that our earnings release no longer includes annual guidance. Given the pending acquisition of Vantage, we have elected to remove annual guidance expectations and will instead shift our focus to longer-term objectives by platform, consistent with how we allocate capital and measure success internally. With that said, the first quarter results I am about to review, and specifically our land sales and MPC EBT, were ahead of our expectations. And if not for the transaction, we would have increased MPC EBT guidance for the year. With that, let us talk about the first quarter performance, starting on slide four with the company highlights. It was a strong start to 2026. The real estate engine did exactly what we needed it to do: it grew cash, it provided pricing power, and it converted more land into long-duration income. We saw strong MPC earnings growth, continued leasing momentum across the operating assets, and the company ended the quarter with substantial liquidity. On slide five, as part of this new supplemental, we are providing a simpler road map to show how performance of our communities connects to the overall valuation of this platform. We will be focusing on the following four key areas that we will step through in turn: Master Planned Community EBT and margin-affected residual land value; operating asset adjusted maintenance free cash flow; condo gross profit; and other expenses, which includes G&A and net interest expense. So let us start on slide six with the MPCs. Earnings before taxes was $84 million in the first quarter, up 33% year-over-year driven by higher residential land sales. In Bridgeland, we closed 62 acres at an average price of $60.188 million per acre. That compares to 37 acres and $605,000 per acre last year, with net new home sales in Bridgeland up 12%. In Summerlin, custom lots averaged $7.2 million per acre, and super pads averaged $1.8 million per acre. New home sales in Summerlin were up 6%. The point is not just that volumes were higher. The point is that we are converting scarce entitled, developer-ready land into cash at an increasingly attractive price in markets where we effectively control supply. We are not selling land. We are harvesting scarcity. As our communities mature, price becomes a primary driver of MPC value, which means we can generate more cash from fewer acres while protecting the long-term economics of the land bank. Shifting to operating assets on slide seven. Our operating asset NOI grew 2% year-over-year and 7% on a trailing twelve-month same-store basis. Within the portfolio, multifamily and office were the primary drivers of same-store growth, supported by continuing leasing activity and the burn-off of rent abatements. More important than the quarterly print is what this segment represents for the holding company we are building. Operating assets are the steady cash flow engine. As we move land into vertical development and lease-up, we convert one-time MPC proceeds into a growing, recurring base of NOI diversified by asset type, tenant, and market. This quarter, we are also introducing adjusted maintenance free cash flow because we believe this metric gives a cleaner read on the recurring property-level cash flow that is actually available to redeploy. Turning to condos on slide eight. At Ward Village, we completed ‘Ōlana and broke ground on Lē‘ahi, which is already 70% presold. Across the platform, we have approximately $5 billion of estimated future GAAP revenue at sell-up. Condo gross profit was roughly breakeven in the first quarter as expected and will increase meaningfully in the second quarter with Park Ward Village closings. Condo profit is always going to be recognized in large blocks when towers deliver, so the quarterly pattern is going to remain lumpy even though the underlying economics are largely locked in through presales. These projects are largely de-risked well in advance of GAAP recognition. We typically presell the majority of the units, fund construction with buyer deposits and nonrecourse construction loans, and lock in our margins years before delivery. Estimated future condo gross profit—the total projected gross profit from condo towers under construction or in active predevelopment, the vast majority of which are already presold—highlights the embedded condo cash flow well ahead of when it appears on the income statement. I want to spend a minute because I think the capital mechanics here are worth walking through. They make the economics of condo development unusually compelling. Our primary contribution to these projects is land, along with a modest amount of cash. We contribute that land, and that modest cash is our equity. From there, buyer deposits are collected at signing, often years before towers deliver, and they fund a meaningful portion of construction cost. Nonrecourse construction financing covers the majority of the remaining required capital. The result is that we are delivering towers worth hundreds of millions of dollars with very little of our own cash actually at risk. When units close, buyers pay the full purchase price, we repay the construction loan, and the profit flows to us. It is a model where our buyers and lenders are essentially financing the construction and we collect the upside at the end. That is what we mean when we say condos are a self-financing capital recycling tool. And it is why this business generates returns that are difficult to replicate. Beyond condos, projects like 1 River Row, 1 Bridgeland Green, and others in our pipeline follow that same land-to-income pattern: convert entitled land into durable NOI, grow the recurring cash engine, and raise the long-term earnings power of the platform. On slide nine, we will turn to other expenses. G&A expense was $25.8 million in the quarter, including $3.8 million of Pershing fees and $3.4 million of Vantage-related transaction costs. Net interest expense declined year-over-year due primarily to the amount of interest income we received from our invested cash balances during the quarter and on a trailing twelve-month basis. On slide 10, I will turn to the balance sheet and wrap up. We completed a $1 billion refinancing at the tightest credit spreads in the company’s history during the first quarter. Importantly, this execution occurred after announcing the Vantage acquisition, which we view as a strong external validation of both our balance sheet and our strategy. The transaction extended our maturities and added $230 million of incremental liquidity. We also closed on a $300 million mortgage at Downtown Summerlin. At the end of the quarter, we finished with $1.8 billion of cash, comprised of $[inaudible] at the HHH level, and $929 million at the HHC level, and significant additional liquidity. That position, combined with the Pershing preferred commitment, fully funds the Vantage acquisition and supports our current development pipeline, while continuing to preserve our flexibility for future capital allocation decisions. So the overall takeaway for the quarter: the real estate foundation of Howard Hughes Holdings Inc. is doing its job. It is generating strong cash flow, demonstrating pricing power in our MPCs, expanding our base of recurring NOI, and recycling capital in a way that supports our evolution into a multi-engine holding company. The first quarter performance primarily reflects the resilient demand in our communities that lead to bottom-line results. MPC earnings will continue to be lumpy quarter to quarter depending on when large parcels close. But what matters for us, and what I encourage you to focus on, is the multiyear growth in recurring cash flow and the value embedded in the land and condo pipeline, rather than the precise results of any given quarter. The new metrics Bill and Ryan are going to walk through in a minute are designed with exactly that in mind: to make it easier to connect reported results to intrinsic value. And with that, I will turn it over to Bill. William Albert Ackman: Thank you, David. So what we are doing here—maybe just to back up for a second. I think historically, the company had tried to create a quarterly number that shareholders could annualize and maybe put a multiple on. The vast majority of companies are valued that way. Analysts estimate earnings, the market assigns a multiple based on the inherent growth and predictability of that earnings stream, and that helps people come to a value. The problem with that metric is it does not really work for Howard Hughes Holdings Inc. We really have three different segments. Perhaps one of them, the operating asset segment, you could certainly value at a multiple of a metric. But the other two are a bit unusual. Our MPC business is really a business of owning land, and the goal of these communities is to make them really attractive places to live. And we have developed assets to meet that demand in our operating asset segment. Over time, what that has done is bring more residents into the communities, increase demand for land. That has led to continuous—well in excess of inflation—increases in the value for our land portfolio. But putting a multiple on the GAAP profit from a portion of the land sales for a quarter is not a particularly helpful metric. What really matters is: how much cash do we generate from our land sales during the quarter, and what is the value of our remaining land? And so our new metric is going to focus on those two levels. What is interesting about these communities is every acre of land, we know for a certainty we are going to sell. We do not know precisely which quarter we are going to sell it in. And so what matters to you is: how much cash do we generate during the quarter; what price did we achieve; and what is the value of the remaining land that we own? So that will play into the metrics we are talking about. With respect to operating assets, adjusted maintenance free cash flow—what are we doing here? We are starting with NOI and we are getting to an actual “free money we can spend” metric after all the costs associated with owning these assets. Our condominium business—so we do not have an infinite supply of land in Honolulu. We have a finite supply of land. We have an amazing team, and that team is actually a valuable asset of the company that we are not today assigning value to. We do think over time we will have more opportunities to access more land and continue that business. But today, for the purpose of keeping these metrics simple to understand and also conservative, what we are saying is: we have a finite amount of land today, and on the basis of that finite amount of land, we intend to build a certain number of condominiums. We estimate a gross profit. That is how we get—and we present value that today to keep track of the remaining value of that portfolio. So if we go to page 13 on the new metrics, we are going to give you the residual value of our remaining acreage, undiscounted and uninflated. What we mean to say is if we sell acres for $1.8 million in Summerlin, we are going to use that to value the remaining residential land portfolio at the end of the quarter. Now that, I believe, is a conservative metric because land values have compounded at rates well in excess of the cost of capital that you should discount them at at Howard Hughes Holdings Inc. And let me just make my case for that for a second. We have compounded land values at the teens in Summerlin. Correct? Correct. Okay. So let us pick a number. It has been what over the last five years? 15%? Five years, it has been just under 15% in Summerlin, and it has been, okay, 6% to 8% in Woodlands Hills—in Bridgeland. Okay. So in Summerlin, which is a further built-out community, you have got land that has appreciated at 15% per annum. Again, because it is a certainty we will sell this land—because these are fully developed communities—the discount rate I would use there would be a relatively modest spread over Treasury. So using today’s value for the land is one that I think is a very conservative measure of remaining land. If the land continues to appreciate at these kinds of levels and you discount them back at lower levels, the land values are even greater than what we are showing. For operating assets, adjusted maintenance free cash flow: we are starting with NOI and getting to the free cash after all the costs associated with maintaining assets and leasing. Then we project the profits from our remaining condominium deliveries. It is pretty straightforward to do this because, for example, for the units that we have under contract, we know exactly what price we are selling for. We generally have GMP contracts; we lock in, for the most part, the cost to build them; and then it is a present value calculation. With that, we are not going to take you through every page of the deck because we want to leave a lot of time for answering questions. Ryan is just going to focus on some summary valuation pages. We will start with today’s value and how we get to thinking what is possible over the next five years. Ryan Michael Israel: Sure. Thank you. So what we wanted to do, as Bill mentioned, in the pages that we provided that we will not walk through all the detail on this call, is show you how, using the metrics that we believe are the right way to think about long-term value—what we use in our own internal evaluation as well as tracking our progress over time. I will just highlight on page 27 the takeaway. We believe today, using those metrics, and as Bill mentioned, conservatively trying to come up with a value for Howard Hughes Holdings Inc., we think that the intrinsic value of the business based on those metrics is about $104 a share, which is more than 60% higher than the roughly $65 share price today. And when you look at that in detail, nearly 80% of that is coming from the Howard Hughes Holdings Inc. Communities real estate business, and about 20% of that is coming from the economic ownership percentage that Howard Hughes Holdings Inc. will have in Vantage, which we are on track to close very shortly. So we believe that the shares are very undervalued relative to our estimate today. If you go to page 42, what you will see is really our benchmark for how we believe we can grow the intrinsic value of Howard Hughes Holdings Inc. over the next five years. And we actually think that we have the ability—and it is one of the reasons we are so excited to have Mark join us, as he will be very helpful as we achieve these metrics—to grow the intrinsic value of the business to roughly more than $200 a share. We have about $211 that we have derived conservatively for our valuation in 2030, which is about 3.3 times the current share price of $65, or a 233% increase. And what is interesting about that metric is today, nearly 80% of the value of Howard Hughes Holdings Inc. is coming from the real estate business. But we actually think over the next five years we are going to have much more of the value coming from Vantage, other insurance, and some of the high durable growth companies we seek to acquire. So that ratio will shift to about two-thirds coming from things that are not related to real estate. And the way that we get there at a very high level is that we will be looking at the Howard Hughes Holdings Inc. Communities real estate business, and we will be using a lot of the excess cash we do not think is needed for reinvestment into the communities that could be allocated to higher returns in other parts of the business, particularly insurance. We have about $2.5 billion to $3 billion of cash that we are expecting we will be able to generate over the next five years, which can be somewhere in the order of 65% to 80% of the current market cap of the company, and we believe the insurance business—particularly having Mark’s help—will be a very valuable place to put that. With Vantage, which we are very excited about given the business and given the team that is there, we believe we can improve the returns on equity from something in the low to mid-teens to something that could be in the high teens or even better. If we can do that, we can allocate a significant portion of that $2.5 billion to $3 billion of free cash flow over the next five years to build up the capital base. And as the returns on equity at Vantage improve, the multiple that the market—and we—would assign to Vantage for being a higher return on equity business should also increase. As a reminder, we are buying this business at a headline purchase price of 1.5 times book value, but we believe by the time we close, given the accretion of the book value, it will be about 1.4. We think we can increase the intrinsic value of this business to something that is worth north of two times over the next five years. And so that is going to be a significant reason why the value at Vantage will be growing so quickly over the next five years and will really help become the driving force of the increase in intrinsic value of Howard Hughes Holdings Inc.’s equity over time and make Vantage really the leading asset that we will have in insurance—a key focus of that business. William Albert Ackman: Thank you, Ryan. I thought to introduce Mark Grandison, and he will be available, obviously, to answer questions. We actually began a conversation with Mark well more than a couple years ago in connection with an investment that Arch made in the Pershing Square management companies. We got to know Mark a bit there. Then we learned of his departure when we read about it in the press when Mark stepped down from being CEO of Arch Capital Group. In light of our plans for Howard Hughes Holdings Inc., a year ago we started a conversation with Mark. He was still otherwise encumbered at the time, and he was trying to decide what he wanted to do with his life and thinking about all kinds of different things. We kept the conversation going. We took a very significant step in signing an agreement to acquire Vantage, and we kept talking to Mark. Our thoughts here are, well, Ryan and I—other members of the Pershing Square team—have analyzed insurance companies from the perspective of an investor. Neither one of us has any operating experience in the insurance industry, and it is an industry where you can make a lot of money and it is an industry where you can lose a lot of money if you do not know what you are doing. While we are buying a company with a very capable team, I think it is as important that at a board level, we have one or more directors who really understand the industry. Mark was by far our number one choice—there really was not a close second—in terms of, without embarrassing him, really the iconic executive of the last, I would say, couple decades. Almost twenty-five years at Arch building one of the most profitable, most successful insurance platforms. We thought that experience was incredibly relevant. We were delighted to bring Mark to Howard Hughes Holdings Inc. So maybe, Mark, could you just give a little background because not everyone knows who you are, and then we will open it up for questions for the group? Mark Grandison: Well, thanks, Bill, for all the wonderful comments. I feel very honored and privileged to be part of the group. I am very happy that we got to this landing, and I am looking forward to help the whole team really develop your vision—your collective vision—of having a diversified platform with insurance being an anchor. I think, like you, I firmly believe if you do it well, it can really lead to wonderful results. I also like the fact that you are collectively wanting to wait for it. There is a timing issue going along, and it is not a quick hit, and it is really if we deliberately build it the right way, this will be a formidable business. I have been thirty-five years in the business. I was most recently ACGL CEO. I was one of the founding members back in 2001 after the terrible events of 9/11, with a very similar vision that you would hear me talk about all the time, which is about underwriting excellence, focusing on the cycle, focusing on allocating capital to the right places where it gives good returns, and really surrounding yourself with a good team—good talented individuals—focusing on underwriting expertise. The difference between a top quartile performer in insurance and the bottom quartile is 20% to 30%—meaning the ones at the bottom are actually losing and actually going by the wayside, and we have seen many of them. Bill just alluded to that. I am excited to join because I like the vision. I am here to help the board to understand the business, to demystify some of the things. I know it is not as easy to understand from the outside world. It can be opaque. A lot of the investors and shareholders of Howard Hughes Holdings Inc. have built, perhaps, no expertise or exposure to insurance, and we are going to make sure—or try to make sure collectively—that we are bringing you along into that journey altogether. What else am I going to bring to the table? Looking forward to working with everyone here, obviously, and also with Greg and his team. I have known Greg for twenty-five years. We were neighbors in Bermuda, and he is a great executive. The platform they built at the right time, right after the market turn in 2019—beautiful timing. Hard E&S legacy. It was highlighted in the package before, and it is really hard to create that kind of platform, and they did a very, very good job. It is both insurance and reinsurance, so it allows the company to really participate across the board in as many opportunities as possible—and again, being selective on the underwriting. I am very much looking forward to help demystify, help teach the board and the investors, and it is going to be a long-term play for everyone here. I have seen it before, and I think the playbook is there. It has worked. I have seen it work. I think we have all the elements to make it one of the best emerging and surging insurance platforms, alongside the real estate platform and whatever else Bill and Ryan will find along the way, to create something very unique and once in a lifetime. I am very excited to be here. Thanks for having me here, Bill. William Albert Ackman: Thank you, Mark. We will now open the call for questions. Operator: Star 11 on your telephone. To remove yourself from the queue, you may press 11 again. Our first question comes from the line of Anthony Paolone of JPMorgan. Your line is open, Anthony. Anthony Paolone: Great. Thanks. Good morning. First question, maybe for Bill. I am not that close to all the different things happening at Pershing Square and the specifics around that. Can you talk to whether anything on the capital-raising side there has any direct implications back to Howard Hughes Holdings Inc.—whether mechanically you have to buy shares or whether there is a greater commitment—or just anything we should think about related to Howard Hughes Holdings Inc. from the activities at Pershing Square? William Albert Ackman: Sure. Last week, we did two listing transactions: an IPO of an entity called Pershing Square USA, which is a U.S.-listed closed-end investment company listed on the New York Stock Exchange, and we also did a direct listing, in effect, of the management company that some people might call the GP of Pershing—the entity that receives fees from various funds that we manage. As part of the IPO pitch for Pershing Square Inc., we pointed out that it is a bit of an unusual alternative asset management company. Think analogies would be Blackstone or KKR or others, in that we are small relative to others in terms of scale, but the capital base is very unusual in that 98% of our assets are in permanent-capital vehicles. The three examples we gave were our London-listed entity, an entity called Pershing Square Holdings; Pershing Square USA, which is this new entity we launched; and then Howard Hughes Holdings Inc., which we put in the same camp. It is not an investment company per se; it is an operating company, a C-corp. But it is a very important, I would say, leg to a three-legged stool. I would say the significance of that transaction is not that we are—we actually cannot buy more stock in Howard Hughes Holdings Inc. We are contractually—our agreement with the board is to stop at 47%. But I would say the importance of Howard Hughes Holdings Inc. to the Pershing Square platform was something we emphasized to a great degree as part of the IPO transaction. We described Pershing Square—this is a permanent holding. We intend to be a forever owner of Howard Hughes Holdings Inc., and our goal is to build a valuable, diversified holding company led by this insurance platform over the next many decades. That is the idea. Anthony Paolone: Okay. Thanks for that. And then my second question is you show the demonstration of value and how much insurance plays a role in that. With it being such a big driver, why continue to hold things like multifamily or some of the other assets in real estate, and should we see that kind of move over to potentially add more to the insurance side over time? William Albert Ackman: Sure. If you look at Howard Hughes Holdings Inc. over the fifteen years we were a dedicated real estate company, basically every dollar of cash we generated we reinvested in real estate. For example, we bought another MPC as a result of having excess cash that we actually could not deploy in our existing MPCs. What the transaction accomplished a year ago is it widened the aperture of things that we could do. I think what we have learned over time is a dedicated pure-play real estate development MPC business is not one that the market will assign a high value to—or another way to think about it, the market assigns a very high discount rate to those kinds of cash flows. All that being said, as demonstrated by our expectations of $2.5 billion of cash that we are going to generate from that business over the next five years, it is a meaningful cash flow generator. So I think the pivot we are making is we are not going to reinvest every dollar of excess cash into things only in real estate. But our definition of excess cash is not just free cash flow. We intend to continue to build out—“the golden goose” for the real estate company is that we want The Woodlands, we want Summerlin, we want these communities to continue to be amazing—ranked in the top handful of places to live in America. In order to do that, we are going to be building apartments; we need more apartment buildings. We are going to be building office buildings; we need more office buildings. But there are some number of assets that may be non-core—that are not critical for us to own—that we are going to look at and examine and say, does it make sense for us to own this asset forever because it is critically important to our market share—say, in The Woodlands in office space—or is it a tertiary asset where there is a buyer who will pay a much higher price than our cost of capital would allow? That is an examination that we are going to do over time. The nature of the Howard Hughes Holdings Inc. real estate business is it is sort of self-liquidating, in a manner of speaking, in that we have a finite amount of land that over the next whatever number of decades we are going to sell. We have a finite amount of condominium development land, and we are going to build out those units and generate a bunch of cash. We have cash flows that come from our operating asset portfolio. We would expect those cash flows to grow on a same-store basis, and we expect them to grow because we are going to continue to develop whatever the communities need to make them really attractive places. But I would say, on the margin, if it is not critical and core, it becomes something that, if a stabilized asset is better owned by someone else, we will sell. Operator: Thank you. Our next question comes from the line of Alexander David Goldfarb of Piper Sandler. Your line is open, Alexander. Alexander David Goldfarb: Hey. Good morning, Bill and David, and welcome aboard, Mark. First, I want to say I love the new disclosure—much more streamlined, much more to the point, and much easier to comprehend. Thank you. Bill, on the Vantage deal, is there anything that could delay a second quarter closing? Any regulations, paperwork, anything like that, or are we on track that this will close in the second quarter? William Albert Ackman: This will close in the second quarter. We have a scheduled hearing date, which is May 19, with the Delaware regulator. Transactions typically can close within a couple weeks of that hearing date. I think we will beat our quarter-end estimate absent something unexpected happening, but I do not expect the unexpected here. Alexander David Goldfarb: Okay. Second question is I think you said the value of the company currently, as you do your math, is $104 a share. Bill, you bought your stock into the company at $100 a share. Is that the delta versus what you previously disclosed—$118 a share for the company’s value? I was a little surprised by the $104, but maybe it is just the math on the dilution. I would assume you guys have better insight into the value of the company versus what we estimate from the outside. William Albert Ackman: Yeah. I think, number one, we are being conservative because of the way we are looking at the— I mean, the true value of the company, you would build a DCF on the MPC community, and you would compound the land values over time and discount them back at a discount rate that I believe would be lower than the rate at which you would appreciate them. What we are saying is: let us come up with a simple metric that is hard to argue against. We are also—with the value of the commercial land—we are assuming a sale to a third party. Obviously, when you sell land to a third party, you are giving up the opportunity for a development profit and everything else. If we develop that land ourselves, we get the benefit of that development profit. So this is a quite conservative way to think about the value of the company. There is obviously some dilution associated with our $100 a share primary investment. Ryan, do you want to add anything else? Ryan Michael Israel: The $104 figure—another way to look at this. We tried to give a very conservative snapshot. Outside of the Howard Hughes Holdings Inc. context, when we value businesses at Pershing Square, we often think about what the business will produce over the next five years, and then we think about that as a value. We might discount that future value back to today. One thing you would note on page 42: we conservatively estimate $104, but we also then roll forward—we believe by 2030 the value will grow to $211, which is a 16% growth rate in intrinsic value over that period. The way to think about that is focus on the $211 and discount that back. I think we would argue that you should discount that back at a substantially lower rate than 16%, given the high-quality nature and the increasing predictability and high growth of the business. If you were to do something like that—using a more modest discount rate—you could get to numbers that are easily 25% to 30% higher than the $104 figure. So, to Bill’s point, there are a lot of different ways to look at this. The $104 would be by far the most conservative way to look. We just wanted to lay out a very simple explanation for people as to how they could start to think about the most conservative value for Howard Hughes Holdings Inc. relative to the current share price. William Albert Ackman: Another way to say it is I think of $104 as basically like a liquidation value of the company. It is after tax, after all various expenses. As opposed to almost like a going-concern type value where the expectation would be we would be building out all the commercial land, embedding a certain profit margin, assuming that we would be selling land at higher prices in the future and discounting it back at much lower discount rates. Those would all accrue to a higher value. But I think this is a very fair way to think about the company and provides a relatively straightforward metric for us to judge the company every quarter. It makes everyone’s life easier. I think simplifying the way people think about the company—in particular, the real estate assets of the company—will go a long way to making this a more ownable stock by a broader array of investors. Alexander David Goldfarb: That is helpful. And then the final question for you. Obviously, data centers are a huge topic these days. You guys have a lot of land. I realize the value of Summerlin or the Houston portfolios may not make sense to add a data center to that. But when I think about West Phoenix, you have a huge amount of acreage, and it would seem like that would be potential to have a colocated power generation/data center, etc. As you look at your land holdings and what is per-sellable for residential versus potentially if there is a bid from a tech company to do data center or a power plant combo, is that at all an option? Or is the view that residential is still the highest and best use, and as far as maximizing the MPC, you want to stick with the formula you have to date versus trying something new? Ryan Michael Israel: Yeah. I would say we have an extremely open mind with respect to West Phoenix. William Albert Ackman: It is an amazing asset. It has all the attributes that you have talked about—access to power, access to water—in a very, I would say, pro-business, favorable environment, and we have enormous scale. We bring a lot of value to any one of those players. There are AI companies raising money at trillion-dollar valuations. In the context of that, you look at this very, very valuable land we own—it might be an interesting transaction to ask someone not only where they want to build data centers or power, but there are some pretty aspirational people in the technology world that want to build cities, and they want to build a community around the company that they are building. One great outcome for us is we bring in a partner who writes a big check, and then we become an asset-light developer of whatever that community is. We make it an ideal place to live in the way that the company has historically built communities—for example, The Woodlands or Summerlin. We do the same in Phoenix. But the anchor is someone for whom having access to everything from nuclear power—to these small nuclear reactors—and all the interesting technology, and they do it with a blank sheet of paper. I think it is a pretty good opportunity. That is something we are totally open to and something that could be transformative in terms of value creation for the company. We are valuing that asset at cost in this context. We bought that asset, what, six years ago or so? David R. O’Reilly: Just over three years ago. William Albert Ackman: Three years ago. Okay. It seems like six years. But the world has changed, I would say. The world has moved at least six years in the last three years in terms of what that property can be used for. Alexander David Goldfarb: Thank you. Operator: Sure. Okay. Next question, please. Thank you. Once again, to ask a question, press 11 on your telephone. Our next question comes from the line of John P. Kim of BMO Capital Markets. Please go ahead, John. John P. Kim: Thank you. I have had some technical issues, so apologies if you have already addressed this. On the KPIs that you introduced as far as MPC residual value and the condo remaining profits, does that essentially incentivize you to maximize price going forward and, in essence, not sell and not generate as much current cash flow? William Albert Ackman: Our goal—we, and maybe David can speak to our approach—we generally take an approach to optimize the combination of volume and price and make sure that we are not stuffing—we do not want a bunch of homebuilders with excess land inventory, and we do not want to manage the supply in a manner where we can continue to grow the per-acre value of the assets. It is not critical to us whether we sell X dollars of land in any particular quarter. What matters to us is we are building these amazing communities, and we are managing our scarce asset in a thoughtful way. But, David, maybe you want to speak to that. David R. O’Reilly: I think, Bill, you summarized it perfectly, which is we are not selling assets to maximize any metric. We are selling assets to maximize the value of the company. We do that by selling just enough land to homebuilders to keep up with underlying home sales. Sell them too much land and they are oversupplied, and in a downturn, they will make a terrible decision that will negatively impact the rest of our dirt. Sell them too few, and we are going to strangle affordability in our communities. So we are tracking underlying home sales in each of our communities daily, making sure that we are preparing the right amount of lots to keep up with those home sales to maintain equilibrium as best we can across our communities. William Albert Ackman: Said another way, simply because we are changing the KPI, that is really just to help the market better understand the company—understand our progress in creating intrinsic value—but it has really no impact on how we think about how we auction land each quarter. John P. Kim: Okay. Makes sense. The KPIs—that information was already there before, but you just want us to focus more on the remaining values of your land and condo profits. William Albert Ackman: Look, one of the concerns I had is that people were looking at the company and saying, “I want to put a multiple on a next-twelve-month estimate of MPC EBIT.” It is really just not the right way to think about an asset like land, which you are going to sell over time and where the land values are going to appreciate over time. The right way to think about an asset like that is either on a present value basis or—maybe the simplest way to think about it is—how much did we sell during the quarter, how much cash did we take in, and what is the remaining land worth? It is a bit like we have oil in the ground. Unlike oil in the ground, which is incredibly volatile, our oil gets more valuable over time as people move into the communities. But there is a finite amount of it, and we want to be smart—kind of like OPEC. We do not want to dump it on the market at any one time. We want to be thoughtful about how we extract it and how we convert it into cash over time. But we do not want you to put a multiple on the amount of drilling that happens in any one quarter, because that is really just a function of, sometimes, rates. Sometimes rates back up a bit, and there may be a pause in sales. One thing is certain: people want to live in The Woodlands. People want to live in Summerlin. They want to live in our communities, which means we will sell this land, and the land just gets more desirable over time. We are at a place in The Woodlands now where there are really no more residential lots; it is only commercial acreage. We will get there at some point in Summerlin as well, which means we are going to sell every acre of residential land over time in Summerlin. I cannot tell you exactly what date, but I am confident that the land we sell in future years is going to be worth a lot more than land we sell today. That is why we are never in a rush. We would certainly not want management thinking about, “Oh, I put out a guidance number, and I want to make the number—let’s just discount the land a bit.” We want people to be focused on the things that matter for growing the value of the company. So these metrics are as much for internal use as they are for external observation. John P. Kim: And when you talk about allocating more capital to Vantage rather than reinvesting back into MPCs, besides selling stabilized assets that you mentioned before, what are some of those investments that you would have made that are now either being deferred or removed going forward in the MPC business? William Albert Ackman: I do not know that we—we had already arrived at a place where we had excess cash flow expected to be generated from condo sales and other parts of our business. But if we were a pure-play real estate company, we would have tried to figure out other places to put that money in real-estate-related assets. What we are doing now is we are saying, well, now we have a really good place to put that money. We think the driver of value in the slide that Ryan showed you is, one, the nature of the insurance business—a profitable insurance operation with assets managed by us for no cost—we think is approaching a 20%+ ROE business. Those are returns very hard to achieve in a relatively low-leverage kind of real estate company. So, one, the returns are higher. Two, the business we are buying here for effectively 1.4 times book value becomes worth something comfortably north of two times book value if we can achieve our objectives. Every dollar we can put in Vantage appreciates both because the ROE is higher and the value that the market will assign to that capital invested in Vantage is much higher. Therefore, our incentive is to invest every marginal dollar in Vantage as opposed to buying another MPC. If we had had this business plan three years ago, instead of buying West Phoenix, we would have put an extra $600 million into Vantage. John P. Kim: Thanks. Operator: Thank you. I would now like to turn the call back over to William Albert Ackman for closing remarks. Sir? Operator: Okay. Ending early. William Albert Ackman: I guess my closing remarks are the company is going through an important transition that we think is going to create a lot more value for shareholders over time. We are incredibly excited about it. We think we have all of the things needed to achieve that objective. We have a great core, very profitable business, and I think the team is thinking about it the right way, and the numbers are great. We have mayors around the country that are great for— including in New York City—sending people to business-friendly communities that are pro-business and pro-capitalism, and we happen to own assets in states that are aligned with that objective. So I think Howard Hughes Holdings Inc. owns real estate assets in the right places, and we are going to generate a lot of cash from that business. Now we have a very good place to put that capital. The Vantage transaction, I expect, will close earlier than the end of the quarter. We are excited about that. We are excited about the Vantage team. I think they are excited to be part of a permanent, long-term business. In insurance, you want to have a long-term owner, and we have achieved that. With Mark’s addition to the board, I think the board is now very well positioned to help oversee this important transformation. I think the only thing that is missing in the share price is some new shareholders, because I think we have scared away some of the real estate shareholders, and hopefully we will start to attract people who are excited about the business plan going forward. With that, absent any further questions, we will end the call. Hearing no further questions, thank you so much, and have a great day. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, welcome to the CareTrust REIT, Inc. First Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. Please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Lauren Beale, CareTrust REIT, Inc.'s chief accounting officer. Lauren, please go ahead. Lauren Beale: Thank you, and welcome to CareTrust REIT, Inc.'s first quarter 2026 earnings call. We will make forward-looking statements today based on management's current expectations, including statements regarding future financial performance, dividends, acquisitions, investments, financing plans, business strategies, and growth prospects. These forward-looking statements are subject to risks and uncertainties that could cause actual results to materially differ from our expectations. These risks are discussed in CareTrust REIT, Inc.'s most recent Form 10-Q filing with the SEC. We do not undertake a duty to update or revise these statements except as required by law. During the call, the company will reference non-GAAP metrics such as EBITDA, FFO, and FAD. A reconciliation of these measures to the most comparable GAAP financial measures is available in our earnings press release and Q1 2026 financial supplement that are available on the Investor Relations section of the CareTrust REIT, Inc. website at caretrustreit.com. A replay of this call will also be available on the website for a limited period. On the call this morning are David M. Sedgwick, President and Chief Executive Officer; James B. Callister, Chief Investment Officer; and Derek J. Bunker, Chief Financial Officer. I will now turn the call over to David. David M. Sedgwick: Thank you, Lauren, and good morning, everybody. Thanks for joining us. The first quarter was a strong start to the year and a continuation of the momentum we have been generating over the past several years. We closed approximately $245 million of investments in the first quarter, and the pace only accelerated from there. Since April, we have closed a dozen separate transactions for approximately $865 million. Just last Friday, on May 1, we closed three of those 12 deals that we have not yet had a chance to announce, including our second SHOP investment. James will provide color on some of the deals we have closed year-to-date and on the reloaded pipeline of $360 million. Our investments team continues to perform at a phenomenal level. What else can you say? I will just reinforce that SHOP is an important part of our growth story, and you should expect to see us continue to build that part of the portfolio with the same discipline and operator-centered approach we are known for. Deal flow continues to be active and interesting across SHOP, skilled nursing, and UK care homes. A quick acknowledgment to some of our unsung heroes here. Our accounting team proves every day to be the best pound-for-pound accounting team around. They have shouldered an enormous load onboarding a massive number of new assets and operators across the US and The UK while continuing to support the next wave of growth. Our asset management group continues to do great work curating a strong portfolio and de-risking it as we go. And every other function across the company—legal, tax, finance, operations, data analytics—shows up in a way that allows us to keep executing at a very high level and transforms a growing portfolio into a compounding portfolio. The results of the hard work and sacrifice of an extraordinary team produced year-over-year FFO per share growth of 14%, a 16.4% increase to the dividend, an upgrade to investment grade by Moody's, and a raise to our FFO per share guidance for the year that, at the midpoint, would be 14.8% higher than 2025. I think you can tell how I feel about my team. Let me talk for a second about our operators. Many of you know I am a recovery nursing home administrator. Several of us here have many years of experience inside the buildings. We have always hoped that our operating history and DNA would differentiate us in how, where, and with whom we build this portfolio. Our tenants continue to deliver for their employees, residents, patients, and communities. We have recently begun a meaningful study of publicly reported CMS outcomes in our skilled nursing portfolio compared to the rest of the sector. The preliminary findings show that skilled nursing operators who lease from CareTrust REIT, Inc. deliver care that is measurably better than the sector averages. With respect to the CareTrust REIT, Inc. facilities included in our analysis, we limited it to those facilities that have been under lease for at least four years to give adequate time for star ratings to adjust to the new licensed operators. We are specifically pleased to observe in our initial findings that, compared to all for-profit operators, our tenants achieve higher overall CMS star ratings and higher health inspection star ratings; and compared to all operators, for-profit and nonprofit, our tenants achieve higher quality measure star ratings, lower rehospitalization rates, and higher successful discharge rates. Now let us take a look at how that commitment to quality care translates to the financial health of our operators. Our overall EBITDAR rent coverage in our stabilized triple-net portfolio remains very strong at 2.25x, and EBITDARM coverage at 2.79x. Broad-based improvements throughout the portfolio continue. We collected 100% of contractual rent and interest in the first quarter, which speaks to the caliber of our tenants and borrowers. Putting it all together, we are in another extraordinary and busy period full of external growth and internal development, as we continue to refine our processes that enable a bigger and better CareTrust REIT, Inc. portfolio. As we continue to position ourselves with urgency to keep the flywheel going, we see steady deal flow across our three growth engines, and the team is firing on all cylinders. We could not be more excited about where we sit today or about what is still in front of us. With that, I will hand it off to James for a report on investment activity and the acquisition landscape. James? James B. Callister: Thanks, David. Good morning, everyone. During the first quarter, we completed approximately $245 million of investments at a blended stabilized yield of 8.8%. Q1 activity was anchored by a sale-leaseback of a six-property skilled nursing portfolio in the Mid-Atlantic leased to one of our quality operators at a yield of approximately 9%. Q1 also included a meaningful tranche of UK care home investments, and a small relationship-driven loan secured by a skilled nursing facility operated by one of our existing operators. Since April, we have closed an additional 12 transactions for approximately $865 million at a blended stabilized yield of approximately 8.9%. Activity was weighted toward U.S. skilled nursing, with a meaningful portion of that volume from an opportunistic transaction with a new operating relationship. The deal came together on a very compressed timeline, and the fact we got it closed is a real testament to the team's solutions-oriented approach and the deep relationships we have cultivated over many years. Beyond that anchor transaction, the period included: one, additional skilled nursing and senior housing triple-net investments with quality tenants across multiple geographies; two, a number of new and incremental loans either to existing operators or borrowers we have admired and desired to work with; three, our second SHOP investment to bring our total portfolio to four communities; and four, additional UK care home activity. We are particularly encouraged by the pace and size of our UK care home pipeline. Since the beginning of the year, we have continued to build momentum and have closed on investments in 10 care homes across the pond to add to our consistently growing portfolio. Putting Q1 and post-quarter activity together, year to date, we have closed approximately $1.1 billion of investments at a blended stabilized yield of approximately 8.9%. Of that total, approximately $705 million has been U.S. skilled nursing or senior housing triple-net; roughly $225 million has been U.S. loans, primarily secured by skilled nursing facilities and either closed concurrently with asset acquisitions or in anticipation of such; approximately $160 million has been UK care homes; and the remainder is SHOP. Our investment pipeline today sits at approximately $360 million. The composition is heavily UK care homes, which represents over half of the quoted pipeline, with another approximately 20% comprised of SHOP opportunities, and the remainder consisting of triple-net—both skilled nursing and seniors housing—and a small amount of loan activity. As always, please remember that when we quote our pipeline, we only include deals that we have a reasonable level of confidence we can lock up and close within the next twelve months, and it does not always include larger portfolios that we are reviewing. A quick note on the current transaction environment. The skilled nursing market remains active, supported by both brokered and proprietary opportunities. Current skilled nursing deal flow is more heavily weighted to off-market opportunities; thanks to our deep operator relationships and the strength of our existing portfolio, we are well positioned to continue pursuing skilled nursing transactions aggressively but with discipline. In The UK, our pipeline is ahead of schedule and growing. We are very pleased with how our London-based team continues to establish the CareTrust REIT, Inc. culture of “by operators, for operators.” That has expanded our ability to do more deals, meet new operators, and source opportunities through broker-marketed processes and direct relationships. We see meaningful upside there over time. In SHOP, while the market remains highly competitive and cap rates keep compressing, we are an active player and continue to see significant opportunity to grow that portfolio over the next several years with the right operators and the right assets. Our disciplined underwriting framework, combined with a strong focus on long-term operator relationships and a commitment to creative, collaborative transaction structuring, will continue to drive sustainable growth across the skilled nursing, senior housing, and UK care home sectors. With that, I will turn it over to Derek to review our quarterly financial results. Derek J. Bunker: Thanks, James. For the quarter, normalized FFO increased 38% over the prior-year quarter to $107.4 million, and normalized FAD increased 33% to $107.6 million. On a per-share basis, normalized FFO was $0.48, an increase of 14% over the prior-year quarter, and normalized FAD was also $0.48, an increase of 12% over the same period. Turning to the balance sheet and capital markets activity, during the first quarter, we settled $129.5 million of gross proceeds under our ATM forward program. Subsequent to quarter end, we settled the remaining outstanding forwards totaling [inaudible] million of forward equity contracts outstanding at March 31, bringing our year-to-date total settled forwards to roughly [inaudible] million of gross proceeds in support of our recent investment activity. As of May 7, we had $350 million drawn on our $1.2 billion unsecured revolving credit facility and approximately $70 million in cash on hand. We continue to have no scheduled debt maturities prior to 2028. As David mentioned, subsequent to quarter end, we also received an investment grade rating upgrade from Moody's. This recognition of our balance sheet strength and disciplined approach to capital structure further expands our access to debt capital and supports our ability to fund continued growth on attractive terms. In yesterday's press release, we raised our 2026 full-year guidance, projecting full-year normalized FFO per share of $[inaudible] to $[inaudible] and normalized FAD per share of $1.98 to $2.02. The midpoints of our updated normalized FFO and normalized FAD guidance represent increases of 14.8% and 13.6%, respectively, over 2025 results, and increases of 4.9% and 3.9%, respectively, compared to the initial 2026 guidance ranges we issued in February. The updated guidance is based on a weighted average diluted share count of 234 million shares and includes the following key assumptions: first, no new investments, loans, or dispositions beyond those made year to date; second, no new debt or equity issuances beyond those made year to date; third, 2.5% inflation-based rent escalators under our long-term triple-net leases; fourth, $145 million of loans to be fully repaid throughout the remainder of the year; and fifth, no material change in the sterling-to-dollar spot exchange rate. Additional guidance measures are detailed in the press release yesterday. Lastly, our liquidity continues to remain strong. As I mentioned, we have approximately $70 million of cash on hand, $850 million of availability under our revolving credit facility, and roughly $879 million of capacity on our ATM program. Net debt to annualized normalized run-rate EBITDA was 0.6x at quarter end, well below our long-term target leverage range of 4x to 5x, and net debt to enterprise value was approximately 3.6%. Aided by an investment grade credit profile, we have ample dry powder and multiple levers across our capital toolkit to continue funding our recent pace of investment activity. And with that, I will turn it back to David. David M. Sedgwick: Thanks, Derek. We hope that the report has been helpful. We appreciate all the interest and support. We would be happy to take your questions at this time. Operator: We will now open the call for questions. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from Farrell Granath with Bank of America. Please go ahead. Farrell Granath: I want to dig in a little bit deeper on your comments about larger portfolio considerations that are not currently contemplated in guidance. Can you give a little detail on maybe some larger portfolios you were evaluating year to date that potentially you passed on and maybe why that would have happened? David M. Sedgwick: Well, when we quote our pipeline, as you know, we have the custom of not including larger portfolios that we are pursuing, because even though we may have a strong interest in them, sometimes they are fishing expeditions by the sellers and they may not be real. It is a lower probability of landing those, and a prime example is what just happened with this large deal in California. That was something that actually materialized very quickly that could not have been included in our previously quoted pipeline. So that is just our practice to not get too ahead of things. Sometimes the deals, either we decide to pass on them or they decide to go a different direction. Farrell Granath: Okay. Thank you. And also, in some of the previous earnings calls of peers, we have heard added commentary of increasing competition also in the SNF market—that it has been difficult to transact, less product is coming to the market, and also this larger increase in private capital. I am curious if you can add a little bit more color on the skilled nursing side—how you are able to source so many deals and maybe where you are sourcing them. James B. Callister: Sure, Farrell. This is James. I would say that the SNF market is, at this point, a predominantly off-market environment, if you will, and I think that it has, for a little while, been predominantly relationship-driven. It is a little bit more unpredictable because you are not getting a constant flow of broker deals like you are maybe in SHOP. But I think it has been like that for a while, and I think that the track record we have shows that relationships are just super important. You are typically not going to find a bread-and-butter sale-leaseback at a 9.5% yield with no creativity needed like you may have five years ago, but that has been the case for a while now. So I think it just takes increased creativity. It takes relationship-based deals, and you really have to rely on the off-market relationships in the SNF market today. And I think our track record shows that we have been doing that successfully. Farrell Granath: Great. Thank you so much. David M. Sedgwick: Thanks, Farrell. Operator: Your next question comes from Austin Todd Wurschmidt with KeyBanc Capital Markets. Please go ahead. Austin Todd Wurschmidt: Hi. Good morning, everybody. David or Derek, with the dual investment grade rating and continued improvement in your long-term cost of capital, how do you think of the benefit of achieving this goal, and then utilizing that for maybe some strategic opportunities or even the flexibility it gives for your ability to source even some of the larger portfolios from time to time? Derek J. Bunker: Hey, Austin. I think you hit it in your question there. We have been fortunate to have strong access and support from capital markets to really underwrite and pursue a lot of our activity. With the added benefit of the upgrade from Moody's recently, it only gives us more optionality and expands our access, I think deeper, if we do decide to do an inaugural issuance in the high-grade market. That is certainly on our radar, especially as we grow and start to pad out the balance sheet a little bit. We are excited about it. We really like what we see in the pipeline and beyond just for the next several years, so having that option—we are really excited about it. Austin Todd Wurschmidt: And maybe David or James, within SHOP, you have talked a lot about the competition of the investment landscape. What has been your hit rate on deals that you have bid on? And are off-market opportunities, as you continue to develop even more relationships similar to what you referenced in skilled, the best way to grow that portfolio? What is the current process and strategy to continue to build that out within that segment? James B. Callister: Yeah, Austin, you make a really good point. In SHOP right now, given the amount of competition, if we do get an off-market deal or some other in or unique relationship on a deal that comes through, we are going to prioritize that, see if it works, and make a more heavy run at it. As far as hit rate, it is a small percentage of deals that we see come across the desk that we decide to bid on, and a smaller percentage that we decide to really push and start to stretch a little bit. For the deals that we really push and stretch, I do not know the exact hit rate—it is a competitive market right now. Given the cost of capital we have and the access to capital, if we really decide we want the deal and it fits for us and we are going to stretch, there is a pretty good chance we are going to be in the last one or two and hopefully get it. But overall, it is a pretty low hit rate just given the number of deals that are coming across right now, and much of that low hit rate is based on the fact that we do not elect to pursue most of what comes across the desk. Austin Todd Wurschmidt: And then just lastly, how much would you say cap rates have compressed since you really started to evaluate transactions? James B. Callister: In SHOP, if we are talking about rate compression, it is hard to put an exact number on it. There is a range in SHOP between class A in a primary market versus the best few buildings in a secondary or tertiary market. Right now, it feels like class A in a primary market is going to have a five handle on it, and you go up the range from there. I would say in the last six months, cap rates have probably compressed 50 bps or more. David M. Sedgwick: Thanks, Austin. Operator: Your next question comes from Juan Sanabria with BMO Capital Markets. Please go ahead. Juan Sanabria: Hi. Good morning. I was hoping you could talk a little bit about the loan book. It has grown as a preponderance of the transactions that you did in the first quarter when including the financing receivables. How big are you comfortable with that getting, and can you give color on some of the loans you did? Any options for the operators to buy back the real estate we should be thinking about, or just generally more color on those investments? David M. Sedgwick: Juan, this is David. Our strategy with respect to lending was really established a few years ago and has been a key determinant for the explosive growth that we have had. The key feature of that strategy is that we will only do loans if they include real estate acquisitions or we are confident that they will lead to real estate acquisitions, and the activity that you have seen recently fits and checks those boxes. The real estate that we have acquired came with some loans that were necessary to get the deals done. Even on the financing receivable side, it is a little bit misleading because it is more of an accounting rule that causes what we consider a sale-leaseback to be accounted for as a financing receivable because of the purchase options. But because those purchase options are so far out—nine or ten years—we view that much more as a sale-leaseback. Technically, it will look like the loan book has grown more than it really will feel like it for the next ten years. Juan Sanabria: Great. And then just curious on seniors housing on the SHOP side—how you are thinking about what markets you are looking to target and the type of assets, whether they are core, core-plus, value-add. Where do you think there is the best opportunity for the company? James B. Callister: We are still pretty agnostic on market. We want primary, secondary, and some tertiary, but we are going to look at it on a deal-by-deal basis and pursue it opportunistically. We want to underwrite to a low double-digit IRR, and we see a lot of paths to get there. Not every deal has the same path, so we do not have one box it has to fit. We look at each deal and ask: what is this deal’s path to a low double-digit IRR, and do we have confidence in that path? If we do, we will make a run at it; if we do not, we will pass. That path is different if you are in a primary market than if you are in secondary or tertiary. Typically, we want to be in one of the one, two, maybe three best facilities in a market. We want an operator that is a regional sharpshooter with experience in that area, that has reporting capabilities to help us on the SHOP side, and that has a proven track record in that market of success. Those are the parameters around where we are pursuing deals in SHOP right now. Operator: Your next question comes from Michael Carroll with RBC Capital Markets. Please go ahead. Michael Albert Carroll: Thanks. James, I wanted to talk a little bit more about valuation across property types. SHOP cap rates have come in. What about skilled nursing facilities and the UK care homes? Have those markets been any more competitive over the past few quarters, and how are you thinking about the competitive landscape there? James B. Callister: In skilled nursing, I do not feel like it has changed that much in the past year. You have a lot of family office and fierce competition. It is fewer buyers in the U.S. SNF side, but it is the same groups. We see the same players on really every deal. So there is still a lot of competition, but it is the same players. I have not seen cap rates change much—maybe a little bit. We have had to, for bigger deals, go below a 9% yield on the lease to get the deal if it is big enough and the right operator. In The UK, there is a little bit of increased competition, but for product we are looking at, yields are still going to be in the mid-8s for us. That is pretty typical. It is more like a seniors housing asset over there, so that is pretty typical for seniors housing triple-net deals here. We like that kind of yield and basis. So, yes, there is maybe a little uptick in competition in The UK, but nothing comparable to the uptick in SHOP competition you see here. Michael Albert Carroll: And then can you provide us some details on the recent SHOP deal? Is that with a relationship operator that you could grow with, and was it in a primary or secondary market? How should we think about that specific transaction? James B. Callister: Prescott, Arizona was done with a relationship operator we have known for a long time. This is the first deal with them, but we have known them for a very long time. We have sought to do deals with them for a long time. They are the current operator in the building. We had a great relationship with the seller—we have been buying buildings from them for the last few years and hope to continue to buy buildings from them in the future. It is about 110 units of assisted living. The going-in estimated year-one yield is going to be in the 8s. We like the market, we like this operator, and we would like to grow with them and think that we will. We like the path to get us to that low double-digit IRR. It is a pretty stable asset, so it is not in lease-up or another turnaround situation. It is really just making some tweaks to optimize the performance a bit to get us to that low double-digit IRR. Michael Albert Carroll: Lastly, Derek, can you talk about CareTrust REIT, Inc.'s desire to enter the debt markets? Should we think about another bond being pound-denominated to naturally hedge some of your UK exposure, or more U.S. dollar–denominated debt? Derek J. Bunker: Thanks, Mike. If we do something this year—and we are exploring that option pretty deeply—you will see it denominated in USD. We are conscious and aware of our exposure to the pound sterling, and we really like our current program. It is going very well, and paired with the pipeline, which has been growing consistently and exceeding our expectations a bit due to the team there, we feel like we are sort of naturally hedged a little bit in terms of buying pounds and being short dollars. Given the pricing differential, we will continue to put things on our balance sheet here and keep it denominated in USD as we explore it. Operator: Your next question comes from Michael Goldsmith with UBS. Please go ahead. Analyst: Yeah, thanks. This is Justin Hospik on for Michael Goldsmith. I noticed that occupancy in your skilled nursing portfolio was up in Q4 2025. Is that primarily due to recently acquired properties, and how do you feel occupancy will trend this year? If pre-COVID SNF occupancy was roughly 80%, does the demographic tailwind push that number up significantly over the coming years? David M. Sedgwick: Skilled nursing has been on a steady, modest incline since it bottomed out in 2021. It is difficult to say one quarter versus the other exactly what happened across the portfolio of our size, but the direction of travel, we believe, will continue to be what it has been. The difference in the coming years is that it is going to start ramping up significantly. The demographics are inevitable, and that is part of the basis for the SHOP and skilled nursing excitement and investment by institutional investors. While we are in the 80% range in our portfolio today, five to seven years from now, I think it is going to be dramatically different. Analyst: Great. And then last one for me. Can you walk through the increase in the guidance for G&A, and the changes in interest income and interest expense as well? Derek J. Bunker: The increase in G&A is almost entirely due to hitting key KPIs for STI given our performance and guide for FFO and investment spend to date. We started with a modest accrual and are catching up. We are also continuing to build out the team a little bit to support overall growth across the organization, rounding out the team coming off a couple years of growth. Interest income and expense is moving around in part because of us drawing down the revolver this quarter to date to fund the acquisitions, and our guidance does not incorporate the pipeline or future acquisitions—it is a snapshot running out the interest income and interest expense. David M. Sedgwick: Thanks, Justin. Operator: Your next question comes from Richard Anderson with Cantor Fitzgerald. Please go ahead. Richard Anderson: Hey, thanks. Good morning. Are you finding that building out your SHOP platform is proving to be more challenging than perhaps you thought going in? Back at NAREIT when you made your first SHOP deal, it seemed like momentum would build quickly. It has been a little slow, perhaps to your credit that you are not growing for the sake of growth. Are you surprised by how tough it is to move the needle in building the SHOP platform while some peers are pacing themselves faster? David M. Sedgwick: On some level, it has been a little bit surprising—not so much that it has been competitive, because we knew as we were entering it that it is a very competitive scene. One of the surprises has been to see how aggressive some of our competitors’ underwriting has been. Even for deals that, like James talked about, we really like and stretch for, we sometimes get beat by folks that do not have the cost of capital that we do. I think it may speak a little bit, Richard, to us being agnostic across three growth engines. We have not painted ourselves into a corner with respect to having to do SHOP or feeling compelled to put money to work there. That really is our advantage because we have the freedom to maintain the discipline that we have built the CareTrust REIT, Inc. portfolio on. We are pleased with what we have done so far. I think we will continue to grow it, and over time it will become meaningful, and our confidence in the deals that we do get is very high. Richard Anderson: When you talk about larger portfolio deals not included in the $360 million pipeline, are there any larger SHOP deals in that universe? David M. Sedgwick: No, I do not think so. The chunkier deals we are evaluating right now are in The UK and U.S. SNF. Richard Anderson: OHI has talked about applying RIDEA to their UK business. Is that on the table for you, or are you too new there at this juncture? David M. Sedgwick: I think there will be a time when that opportunity presents itself for us, and we should be ready to do that. Richard Anderson: Thanks very much. Operator: Your next question comes from Michael Stroyeck with Green Street. Please go ahead. Michael Stroyeck: Thanks, and good morning. Now that there has been some time since the original Care REIT acquisition, how is that portfolio performing relative to expectations, and where does EBITDAR coverage on that initial deal sit today? David M. Sedgwick: It is an appropriate question for today because today marks the one-year anniversary of us closing that deal. In most cases, it is ahead of schedule. Importantly, the team that we inherited there—we are very pleased with the quality of that team and their openness, acceptance, and adoption of us, becoming truly a CareTrust REIT, Inc. arm in The UK. That is important because all the success that we have throughout the organization is really based on the culture and the people that we have in the company, and that is what has produced the results. I thought if we could do in 2026 a couple hundred million dollars of new investments in The UK, that would be great. Remember when we acquired Care, their pipeline was basically starting from a standing start because they had a real restriction to access to capital before we acquired them. To see the amount of acquisitions that we have done and the pipeline continue to build as it has is really good. With respect to lease coverage, it continues to be phenomenally high, particularly when you think about what these assets are. These are really senior housing assets. In the United States, back when triple-net seniors housing deals were still getting done, lease coverages would be about 1.1x or somewhere around there. We are much higher than that—closer to 1.75x to 1.8x, north of 2.0x on an EBITDA basis. To have that type of security on senior housing properties is a really strong foundation from which to grow. Michael Stroyeck: Understood. And then going back to the debt discussion, with that investment grade rating from Moody's, what sort of rate do you think you could issue at today? Derek J. Bunker: I would love to signal exactly what it would be, but broadly, if we are doing a ten-year, you are probably looking at a 130 to 140 basis points spread. Michael Stroyeck: Great. Thanks. Operator: Your next question comes from Wesley Golladay with Baird. Please go ahead. Wesley Golladay: Good morning, everyone. I want to go back to the comment about better CMS outcomes. I imagine your background helps you work with the operators, and there is also probably a component of identifying a good operator out of the gate. How transferable is that skill set to The UK and to U.S. SHOP? David M. Sedgwick: The skill of identifying, vetting, and selecting quality operators is definitely transferable, although I am not sure that skill set needs to be transferred to the team there because they evidently already had it, as evidenced by the very strong lease coverage and the quality operators that we were able to inherit. We are really pleased, by and large, with the operators that they selected there before we got there, and we feel like we are definitely in sync as we evaluate new operators for The UK. Wesley Golladay: Alright. Thank you. David M. Sedgwick: Thanks, Wes. Operator: Your next question comes from Vikram Malhotra with Mizuho. Please go ahead. Analyst: Hi, thank you. This is Jody on behalf of Vikram. For the new operator you have in the sale-leaseback transaction, is there an opportunity to grow that relationship by the Genesis assets? And second, what is your view on sustained double-digit FAD growth from here? James B. Callister: I will take the first part. The Genesis bankruptcy does not have much, if any, real estate in it, really. So it is probably yet to be determined if we grow with that operator based on those assets. There is certainly nothing in discussion at the current time. We will definitely look to grow with them in other asset bases and other deals that we bring them or they bring us. We really like them, so we look forward to growing with them moving forward. Analyst: And on sustained double-digit FAD growth? Derek J. Bunker: I will take that one. We are really pleased and excited about both the progress we have made on our investments and our integration as well as the outlook. As David mentioned in his prepared remarks, we do not plan on slowing down. We are still extremely bullish about all three of our growth segments, and it is really up to us to execute on that. Operator: There are no further questions at this time. I will now turn the call back to David M. Sedgwick for closing remarks. David M. Sedgwick: I really appreciate everybody's time, questions, and interest. I appreciate our board, our shareholders, especially our team here and operators who make it all happen. If you have further questions, you know where to find us. Have a great weekend. Operator: This concludes today's call. Thank you for attending. You may now disconnect.