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Operator: Good day, and thank you for standing by. Welcome to Innospec Inc.'s first quarter 2026 earnings release and conference call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, please press star-1-1 on your telephone keypad. You will not hear an automated message advising your hand is raised. To withdraw a question, please press star-1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, David Jones. Please go ahead, sir. David Jones: Thank you. Welcome to Innospec Inc.'s first quarter earnings call. I am David Jones, Innospec Inc.'s General Counsel and Chief Compliance Officer. The earnings release for the quarter and this presentation are posted on the company's website. During this call, we will make forward-looking statements, which are predictions about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ from the anticipated results implied by such forward-looking statements. These risks and uncertainties are detailed in Innospec Inc.'s 10-Ks, 10-Qs, and other filings with the SEC. Please see the SEC site and Innospec Inc.'s site for these and related documents. In today's presentation, we have also included non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure is contained in the earnings release. Non-GAAP financial measures should not be considered as a substitute for, or superior to, those prepared in accordance with GAAP. They are included to aid investor understanding of the company's performance in addition to the impact that these items and events had on financial results. With me today are Patrick Williams, President and Chief Executive Officer, and Ian Cleminson, Executive Vice President and Chief Financial Officer. With that, I will turn it over to you, Patrick. Patrick Williams: Thank you, David, and welcome, everyone, to Innospec Inc.'s first quarter 2026 conference call. Before discussing the results, I want to recognize the focus and determination being demonstrated by our employees around the world, and especially those in the Middle East. Volatile environments like this bring a unique set of challenges and opportunities. We are seeing increased chances to deliver innovative solutions and security of supply to all our customers, and we continue to execute on these initiatives. This was a mixed quarter for Innospec Inc., with continued strong results in Fuel Specialties partially offsetting the impacts of the January 2026 U.S. winter storm, which affected Performance Chemicals and Oilfield Services. Performance Chemicals sales were broadly flat with last year, but margins and operating income were significantly impacted by the shutdown of our North Carolina plants due to the U.S. winter storm. We are continuing to prioritize plant repairs in order to meet customer requirements. Additionally, and without slowing the pace of these critical plant repairs, we have elected to pull forward multiple plant optimization projects which will drive long-term benefits. In parallel, we continue to execute on a range of top-line and margin opportunities identified in the business which we expect to drive sequential growth in the second quarter. Fuel Specialties had another strong quarter with sales growth and margins that remained at the upper end of our target range. The business has continued to deliver consistent strong results through a range of economic cycles. With a diverse pipeline and a number of non-fuel opportunities across all regions, we expect a continued strong performance in this business. Oilfield Services operating income and margins improved on the prior year, but sequential results were impacted by the U.S. winter storm. While the Middle East conflict may delay some activity in the region, it is also creating new opportunities that we are aggressively pursuing. In parallel, we remain focused on driving incremental growth from our recent DRA expansion and other opportunities in our Completions and Production segments. We are cautiously optimistic that this combination will deliver sequential operating improvement in the second quarter and leave us well-positioned for further improvement in 2026. Now I will turn the call over to Ian Cleminson, who will review our financial results in more detail. Then I will return with some concluding comments. After that, Ian and I will take your questions. Ian? Ian Cleminson: Thanks, Patrick. Turning to slide seven in the presentation, the company's total revenues for the first quarter were 453.2 million dollars, a 3% increase from 440.8 million dollars a year ago. Overall gross margin decreased by 1.1 percentage points from last year to 27.3%. Adjusted EBITDA for the quarter was 43.7 million dollars compared to 54 million dollars last year. Net income attributable to Innospec Inc. for the quarter was 30.4 million dollars compared to 32.8 million dollars a year ago. Our GAAP earnings per share were 1.22 dollars, including special items, the net effect of which increased our first quarter earnings by 0.17 dollars per share. A year ago, we reported GAAP earnings per share of 1.31 dollars, which included a negative impact from special items of 0.11 dollars per share. Excluding special items in both years, our adjusted EPS for the quarter was 1.05 dollars compared to 1.42 dollars a year ago. Turning to slide eight. Revenues in Performance Chemicals for the first quarter were 169.4 million dollars, up 1% from last year's 168.4 million dollars. Volume reductions of 9% were offset by a positive price/mix of 1% and a favorable currency impact of 9%. Gross margins of 16.8% decreased 4.2 percentage points compared to 21% in the same quarter in 2025 due to the impact of the U.S. winter storm at the start of the quarter. Operating income of 10.7 million dollars decreased 46% from 19.8 million dollars last year. Moving on to slide nine. Revenues in Fuel Specialties for the first quarter were 181.6 million dollars, up 7% from the 170.3 million dollars reported a year ago. A 10% increase in volumes and a favorable currency impact of 6% were offset by a negative price/mix of 9%. Fuel Specialties gross margins of 35.4% were broadly flat with the same quarter last year. Operating income of 37.8 million dollars was up 2% from 36.9 million dollars a year ago. Moving on to slide 10. Revenues in Oilfield Services for the quarter were 102.2 million dollars, flat with the first quarter last year. Gross margins of 30.1% increased 1.7 percentage points from last year's 28.4% on an improved sales mix. Operating income of 5.6 million dollars increased 37% from 4.1 million dollars a year ago. Turning to slide 11. Corporate costs for the quarter were 22.3 million dollars compared with 17.7 million dollars a year ago, driven by higher legacy costs of closed operations, higher legal and compliance expenses, and additional amortization for our ERP system. The effective tax rate for the quarter was 22.8% compared to 25.7% a year ago. Moving on to slide 12. Cash generated from operating activities was 17.6 million dollars before capital expenditures of 8.6 million dollars. In the first quarter, we bought back 90 thousand shares at a cost of 6.2 million dollars. As of March 31, Innospec Inc. had 289.1 million dollars in cash and cash equivalents and no debt. I will now turn it back over to Patrick for some final comments. Patrick Williams: Thanks, Ian. With our diversified global supply chain and manufacturing footprint, we believe that we are well-positioned to manage the direct impacts of near-term geopolitical disruptions. We are monitoring closely the potential for further raw material inflation and supply disruption as the Middle East conflict extends. During this period, we remain focused on our continued commitment to security of supply and innovative solutions for our customers. We will continue to implement improvements across all our businesses that will position us for growth and margin expansion as market conditions recover. Our short-term expectation is for sequential operating income growth in Performance Chemicals and Oilfield Services and steady performance in Fuel Specialties. Our strong debt-free balance sheet continues to allow for significant flexibility in the current environment to preserve further dividend growth, buybacks, organic investment, and M&A. Cash generation was again positive this quarter, and our net cash position held at over 289 million dollars after repurchasing 90 thousand shares at a cost of 6.2 million dollars. In addition, this quarter, our Board approved a further 10% increase in our semiannual dividend to 0.92 dollars per share, which together with the newly announced 75 million dollars buyback further enhances shareholder returns. We will now open the call for questions. Operator: Thank you. To withdraw a question, please press star-1-1 again. We will now take our first question, which comes from the line of Mike Harrison from Seaport Research Partners. Your line is open. Please ask your question. Michael Harrison: Good morning, and thanks for taking my questions. I wanted to start with the Performance Chemicals business. How much of the 9% volume decline was related to the weather or outage impact, and what are you seeing in terms of underlying market dynamics given consumer sentiment remains a little weak? Should we see volumes start to recover in the second quarter, or is that more of a second-half dynamic? And as a follow-up, can you walk us through the repairs and upgrades or optimizations that you are making at the High Point and Salisbury plants in North Carolina, what is happening at each plant, the timeline to get fully back up and running, and the potential benefits of the optimizations? Patrick Williams: Yes, Michael, I will go in reverse. You should start seeing improvement in the second half of the year. It is not orders that are the issue—our order pattern is very strong right now. The issue is the plants and the effect from the winter storm that we had late in the season. It is about getting product manufactured and out the door. You will probably see a similar, maybe a little better, quarter in Q2 with a significantly better increase in Q3. On the repairs and upgrades, priority number one was to get the plants up and running so we could meet most of the orders we have in place today, and we have achieved the majority of that. Along the way, we decided to start optimizing to improve yields, efficiencies, and automation. But the critical part was getting product to customers. As we move through that stage, we are moving into the automation and other optimization projects. It is a process and takes time—you have frozen pipes, replacements of pipes and boilers, and timelines on everything. When plants go down, as you fix one thing, another thing can pop up. It is a little frustrating, but we are seeing light at the end of the tunnel. The order pattern remains extremely strong. Priority number two is making sure we do not have these problems again, and then improving efficiency, yield, and quality, which should come in the latter part of the year. Michael Harrison: Thank you. And then on the Middle East conflict and raw materials, I am a bit concerned about Fuel Specialties given the pass-through mechanism and lag. What are you anticipating in terms of margin pressure, and with pricing negative in the quarter, should we assume price/mix turns positive in the second quarter or not until the second half? Ian Cleminson: Fuel Specialties has operated through many different economic cycles. We have seen serious spikes in raw material costs and crude derivatives. You are correct that we have a pass-through mechanism for most of our business, and it does have a time lag. Our expectation is that we will see some gross margin compression in the second quarter; that is not unexpected. Depending on how long this continues, we may be chasing some of those price increases for a quarter or two. If prices stabilize or drop, we will see the benefits in due course. Demand is really good, and the business is operating at the top end of where we expect it to be. With the seasonal impact in Q2 and some timing on gross margins, we expect operating income to be a little lighter than Q1, potentially a little tighter as well. Patrick Williams: We have managed through these cycles extremely well. The key watch item is demand destruction from high crude, jet, diesel, and gasoline prices. We are not seeing it yet. Typically, you might see slight demand destruction, but the margin profile stays steady. This business tends to march along, and we remain confident Fuel Specialties will continue on this path. Michael Harrison: Understood. Lastly, tying it together: you mentioned a sequential decline in Fuel Specialties and sequential growth in Performance Chemicals and Oilfield Services. Net-net, is Q2 earnings similar to Q1 or a little lower? Ian Cleminson: You called it right. We are expecting a small drop-off in fuels compared to Q1, seasonally driven, a small sequential increase in Performance Chemicals, and the same in Oilfield. Net-net, EPS should be very similar to Q1, maybe a penny or two higher. We do need to see the impacts of the war coming through, but that is how we see it today. Patrick Williams: On Oilfield, where there is chaos there are opportunities. The DRA expansion is creating a lot of opportunities, which should help Oilfield in Q2 and Q3. With higher crude prices, and even if prices come down, we feel better positioned than in the past. Expect a little improvement in Q2 and bigger improvements in Q3 and Q4. Operator: Thank you. We will take our next question from John Tanwanteng from C Securities. Your line is open. Jonathan Tanwanteng: Good morning, and thank you for taking my questions. You mentioned more opportunities in Oilfield even with delays and expansions in the Middle East. Are those net positive opportunities for the full year versus what you thought two or three months ago? Patrick Williams: It is definitely net positive. We are seeing positions for our product lines with specific customers in the Middle East and potentially in Argentina, Venezuela, and Mexico where there is heavy crude. We think these are potentially long-term opportunities. There is opportunity in chaos, and our technology has provided us a lot of it. For example, we are looking at helping the East-West pipeline with DRA. Once the straits open up, you should see fracking pick up again, which will help our business. We are also seeing bids tied to heavy crude. We believe we are positioned properly with great technology, and now it is about execution. That is why we expect sequential improvement over Q1 in Oilfield throughout the rest of the year. Jonathan Tanwanteng: Are you seeing any DRA opportunities pushed out of this year due to delays and the conflict? And any update on your prior large Latin American client—do higher prices spur action sooner? Patrick Williams: On DRA, we are seeing more opportunities. The plant expansion we put together is pretty much going to be maxed out in Q2 and Q4. On Latin America, specifically Mexico, there is activity, and with their heavy crude and Gulf Coast refinery needs, activity is increasing. Until Pemex decides how to fix paying vendors, there will be a lag, but we are seeing increased activity. It will never be the magnitude we had before, but we hope to see something coming out of there. We also see opportunities in Venezuela that we will pursue. Jonathan Tanwanteng: Lastly on capital allocation: you bought back a lot of shares and authorized a new 75 million dollars buyback. Previously you talked about increased M&A opportunities this year. Has that changed, and can you do both with your cash flow and cash balance? Patrick Williams: We can do both. We tapped the brakes a little until we get Performance Chemicals righted, and we are starting to see light at the end of that tunnel. We expect a similar quarter in Q2 as in Q1, then the bigger improvements we anticipated in Q3 and Q4. Once we see that turnaround in actual numbers, you will see us aggressively going after M&A. We have not stopped looking; we just have not found the right thing yet. Ideally, the right deal shows up in Q3 when we see those numbers improve. Jonathan Tanwanteng: Is a deal dependent on the facility being fixed, or is that just a target? Patrick Williams: It is a target. Ian Cleminson: You are welcome. Operator: Thank you. We will take our next question from David Silva from Freedom Capital Markets. Your line is open. David Silva: Good morning, and thank you. I would like to drill down on Fuel Specialties. According to my records, both revenues and especially operating income were at or near all-time highs, and three of the last four quarters have been exceptionally strong historically. With 10% volume growth this quarter and the overall trend, it looks like share gains or new products may be making an impact. Can you comment on what is moving more positively than historical trends would indicate? Patrick Williams: Good question. Some of it has been market improvements, volume gains, and price/mix. We have also started to grow business in adjacent markets outside of fuels—polyethylene, polypropylene, and others—so we have moved into other segments that are offshoots of Fuel Specialties, with nice margins. The team has a solid strategy and is executing well. As you know, that business is extremely steady; I know it well, having run it before becoming CEO. We have a good product pipeline, and that is why we feel confident we can continue to grow or sustain performance this year and beyond. It is a little bit of everything, which is what you want to see—not one factor driving all of the positive results. Remember there is usually a seasonal drop-off in the second quarter, but the sequential improvement has been very impressive. David Silva: As a follow-up, diesel markets have been rattled on cost and availability, and some airlines are having trouble operating in the current environment. Diesel and jet are important to Fuel Specialties—what has been your strategy to continue performing well despite these disruptions? Patrick Williams: Diversification of the portfolio. Within specialties, we treat marine bunker, jet, gasoline, and diesel, and we have expanded into adjacent markets outside of core fuels and heavy fuels. Creativity in the organization and diversification of the portfolio help us sustain performance. We are watching demand destruction closely—it has not hit us yet. The consumer remains strong and usage is strong, but we are monitoring. Diversification has always helped us overcome chaotic markets. David Silva: One bigger picture question: disruptions in the Persian Gulf and elsewhere seem to create greater opportunities, especially in Oilfield. From a resourcing standpoint, what do you need to do to take advantage of greater interest in U.S. petroleum and product exports? Do you have spare capacity now, or do you need to increase investments in capacity or talent? Patrick Williams: We are properly positioned. Security of supply is top of mind for everyone, and we are well-positioned there. In chaotic times like this, innovation is on the forefront—developing technologies that are sustainable long term even if raw materials or sources shift. Those are things we are consistently bringing to market. When market dynamics change, innovation and security of supply are critical, and that will be our focus now and for sustainability when things return to normal, if and when they do. Operator: Thank you. There are no further questions for today. I would now like to hand the conference back to Patrick Williams for any closing remarks. Patrick Williams: Thank you all for joining us today, and thanks to all our shareholders, customers, and Innospec Inc. employees for your interest and support. If you have any further questions about Innospec Inc. or matters discussed today, please give us a call. We look forward to meeting with you again to discuss the second quarter 2026 results in August. Have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Have a nice day.
John Silas: Good morning, and thank you for joining us. My name is John Silas, a member of the Investor Relations team for Goldman Sachs BDC, Inc., and I would like to welcome everyone to the Goldman Sachs BDC, Inc. First Quarter 2026 Earnings Conference Call. Please note that all participants will be in listen-only mode until the end of the call when we will open the line for questions. Before we begin today’s call, I would like to remind our listeners that today’s remarks may include forward-looking statements. These statements represent the company’s belief regarding future events that, by their nature, are uncertain and outside of the company’s control. The company’s actual results and financial condition may differ, possibly materially, from what is indicated in those forward-looking statements as a result of a number of factors, including those described from time to time in the company’s SEC filings. This audiocast is copyrighted material of Goldman Sachs BDC, Inc. and may not be duplicated, reproduced, or rebroadcast without our consent. Yesterday, after the market closed, the company issued an earnings press release and posted a supplemental earnings presentation, both of which can be found on the homepage of our website at goldmansachsbdc.com under the investor resources section and which include reconciliations of non-GAAP measures to the most directly comparable GAAP measures. These documents should be reviewed in conjunction with the company’s quarterly report on Form 10-Q filed yesterday with the SEC. This conference call is being recorded today, Friday, May 8, 2026, for replay purposes. I will now turn the call over to Vivek Bantwal, Co-Chief Executive Officer of Goldman Sachs BDC, Inc. Vivek Bantwal: Thank you, John. Good morning, everyone, and thank you for joining us for our first quarter earnings conference call. I am here today with David Miller, our Co-Chief Executive Officer, Tucker Greene, our President and Chief Operating Officer, and Stanley Matuszewski, our Chief Financial Officer. I would like to begin by providing important context on the composition of our portfolio, followed by sharing perspective on the current macro backdrop and our rigorous approach to valuation, particularly around our commitment to transparent mark-to-market accounting. I will then highlight our perspective on why we continue to see private credit as a highly attractive asset class and why our GS platform is uniquely positioned to thrive in the current investment landscape, particularly over time as we transition away from the legacy portfolio. I will then turn the call over to David and Tucker, who will dive into our first quarter results, portfolio activity, and performance before handing it off to Stan to take us through our financial results. And finally, we will open the line for Q&A. As we have discussed on prior calls, since Goldman Sachs BDC, Inc.’s integration into the broader direct lending platform in 2022, we have been on a deliberate path to leverage the differentiated sourcing, underwriting, and portfolio management oversight provided by access to the full Goldman Sachs private credit ecosystem where we have a 30-year track record. What you are seeing in our results today is the natural transition of our balance sheet. We are moving out of older positions from the legacy setup and into new opportunities that benefit from our enhanced sourcing and deeper origination funnel. Currently, about 58% of our portfolio consists of these more recent originations, while the remaining 42% represents older positions. The results of this strategic shift are clear. The 58% of the portfolio originated under our current underwriting capabilities is performing in line with expectations. In fact, we have seen low losses and only one name representing less than 0.5% of our total nonaccrual at cost. While we have seen some modest unrealized moves here, we believe those are primarily a reflection of broader market spread widening, not a sign of credit deterioration. This gives us immense confidence in our current credit selection process. As we have discussed, the 42% of the book consisting of legacy positions is where we see the bulk of our current credit volatility, accounting for roughly 72% of losses this quarter and over 99.5% of our total nonaccruals at cost. We added two of these names to nonaccrual status this quarter, 1GI LLC and 3SI Security Systems, Inc., which we view as idiosyncratic situations that we have been monitoring closely. Our internal workout teams are deeply engaged with these borrowers to maximize recovery. This brings me to a critical distinction that we believe is essential for our investors to understand: the difference between mark-to-market fluctuations and actual credit impairment. When the market price of risk increases, as evidenced by today’s widening credit spreads, the mark-to-market value of existing loans naturally declines. This decline is not a reflection of the borrower’s ability to pay, but rather a result of current market demand for higher returns on the same level of credit risk. If the credit remains sound and ultimately repays at par, the investor recovers the full principal amount regardless of any interim price volatility through the life of the loan. On the other hand, true credit impairment occurs when a borrower’s financial condition deteriorates to where they can no longer meet their obligations, resulting in a permanent loss of capital. This distinction is especially important in periods of heightened volatility when mark-to-market valuations will fluctuate to reflect market sentiment, but underlying credit risk and borrower solvency remain stable. We view the losses we are seeing in the post-integration portfolio as the former type, mark-to-market in nature, while the credit impairment we are addressing is concentrated in the legacy portfolio. Looking back on the first quarter, the extent to which the market was affected by global geopolitical uncertainty, AI disruption across the software sector, and a softer-than-anticipated M&A landscape is clear. The return of M&A activity in 2025 resulted in an increased number of deal closings in 2026. However, volumes were heavily skewed toward a small number of large-cap deals, with sponsor activity continuing to lag and remaining below 10-year averages. Despite the growing backlog, the risk-off sentiment across the market in Q1 drove the total U.S. private equity deal value down to the lowest since Q2 2025 levels. Although a more stable rate environment could help over time, any immediate recovery, particularly in the middle market, remains uncertain. In times like these, when market uncertainty leads to increased volatility, our financial position, including valuation, remains our top priority. Goldman Sachs BDC, Inc.’s quarterly valuation process, which aligns with our broader BDC complex, is conducted by three independent sources: the private credit investing team; our valuation oversight group, which is independent of the investment decision-making process; and independent third-party valuation advisers, all of whom are subject to oversight by our independent board of directors. This multistep approach is intended to provide robust checks and balances and to support fair value determinations that are consistent, well documented, and aligned with applicable regulatory standards. As we look across the landscape of early 2026, we believe the fundamental health of the private credit industry remains strong. Despite recent headlines, the data tells a story of continued resilience, amidst some manager performance dispersion that is expected to continue. Default rates across both public and private credit markets remain at relatively low levels. To put this in perspective, the payment default rate for broadly syndicated loans in the public market stood at just 1.44% as of March 2026. This is well below the 10.8% peak default rate witnessed during the global financial crisis. Performing senior secured credit portfolios benefit from fixed maturities and change-of-control provisions that generate par repayments and natural liquidity, further underscoring the structural advantage from a risk perspective of holding senior debt. We now expect to have the ability to reinvest proceeds from recent exits at wider spreads and more attractive risk-adjusted levels in the current environment. We would also note that recent media coverage of private credit has, at times, lacked necessary nuances. There is a tendency to conflate distinct segments of the credit markets, creating the impression of a broad “private credit problem,” where in reality, stress is focused on certain pockets of the market. Looking ahead, if economic conditions were to soften, we would naturally expect to see an increase in nonaccrual rates and a greater performance divergence among managers. We believe the best way to prepare for such a shift is through the same disciplined underwriting culture and rigorous investment process that have guided our platform for 30 years. In periods of heightened market uncertainty, these principles are not just our foundation; they are our greatest competitive advantage. Another key focus for us has been the deliberate reduction of annualized recurring revenue, or ARR, loans within our portfolio relative to the legacy setup. Within Goldman Sachs BDC, Inc., we have successfully lowered our ARR exposure from nearly 39% of the portfolio at Q3 2022 fair value to under 10% today. This shift is highly intentional and aligns with broader market trends we have highlighted earlier. While ARR lending served a purpose during the rapid growth cycles of previous years, the current environment demands a more rigorous approach. We are seeing a clear market-wide rotation away from revenue-based metrics in favor of traditional cash flow–supported structures. We are proactively managing our legacy ARR positions through strategic exits or by facilitating conversions to EBITDA-based loans as these companies mature, and we are very selective in underwriting new ARR deals that are brought to market. By prioritizing these cash flow–centric assets, we are helping to ensure that our portfolio remains resilient and well positioned to deliver durable value to our investors. With heightened focus surrounding the software industry in recent months, our framework has continued to evolve as the landscape develops. While we are not immune to the fears of AI disrupting the software landscape, we remain confident in our ability to thoughtfully assess and help mitigate AI-related risks across both our current portfolio and new investment opportunities. With that, let me turn it over to my Co-Chief Executive Officer, David. David Miller: Thanks, Vivek. I would now like to turn to our first quarter results. Our net investment income per share for the quarter was $0.22, and net asset value per share was $12.17 as of quarter end, down approximately 3.7% from the fourth quarter, driven primarily by an increase in unrealized losses. NII this quarter was also impacted by higher incentive fee accrual under our shareholder-friendly fee structure. As a reminder, Goldman Sachs BDC, Inc.’s incentive fee is subject to a three-year total return lookback, which ties our adviser’s compensation directly to the cumulative economic value delivered to shareholders, including both income and the impact of gains and losses, rather than income alone. While this weighed on reported NII in the quarter, it underscores a strong alignment between Goldman Sachs and our shareholders. The Board declared a second quarter 2026 base dividend of $0.32 per share, payable to shareholders of record as of 06/30/2026. We ended the quarter with a net debt-to-equity ratio of 1.37x as of 03/31/2026, as compared to 1.27x as of 12/31/2025. We have maintained a conservative liability profile with no near-term unsecured maturities and a deliberately laddered bond maturity schedule. Our liquidity is underpinned by a diversified, committed revolving credit facility across 15 bank lenders, structured with no mark-to-market exposure. Market confidence in our platform remains durable, as evidenced by the continued strong oversubscription on a recent bond issuance. We consistently look to enforce proactive capital management to ensure we remain well positioned to execute our strategy regardless of broader market volatility. During the quarter, we made new commitments of approximately $46.5 million across 17 portfolio companies, comprised of six new and 11 existing portfolio companies. Approximately 91.6% of our originations during the quarter were in first-lien loans, which reflects our bias to investments that are at the top of the capital structure. Turning to portfolio composition, as of 03/31/2026, total investments in our portfolio were $3.23 billion at fair value, comprised of 98.7% in senior secured loans, 1% in a combination of preferred and common stock, 0.3% of unsecured debt, and a negligible amount in warrants. With that, let me turn it over to Tucker to discuss repayments, fundamentals, and credit quality. Tucker Greene: Thanks, David. I will first discuss the portfolio in more detail. At the end of the first quarter, the company held investments in 173 portfolio companies operating across 40 different industries. The weighted average yield of our total debt and income-producing investments at amortized cost at the end of the first quarter remained flat at 9.9% compared to the fourth quarter. Importantly, our portfolio companies have continued to have both top-line growth and EBITDA growth quarter over quarter and year over year on a weighted average basis. The weighted average net debt to EBITDA of the companies in our investment portfolio increased slightly to 6.0x during the first quarter compared to 5.9x during the fourth quarter. At the same time, the current weighted average interest coverage of the companies in our investment portfolio at the end of the first quarter slightly decreased to 1.9x compared to 2.0x during the fourth quarter due to rounding. Our repayments during the first quarter totaled $82.8 million. Over 53% of this repayment activity was from pre-2022 vintage loans, demonstrating effective management of our assets. On the prepayment side, we continue to selectively pursue opportunities that support prudent leverage management with the goal of reducing leverage over time. On May 6, 2026, the Board approved and authorized a new 10b5-1 stock repurchase program to allow the company to repurchase up to $75 million of shares of the company’s common stock, subject to certain limitations. The company expects to enter into this 10b5-1 stock repurchase program once the 2025 10b5-1 plan has been fully utilized or expires. And finally, turning to asset quality, we ended the first quarter with nonaccruals at approximately 4.7% of the portfolio at amortized cost, up from 2.8% in the prior quarter. While we never like to see this metric move upward, it is important to look at what is driving this change. The increase was primarily driven by two specific legacy investments that we have been monitoring closely, 1GI LLC and 3SI Security Systems, Inc., which were placed on nonaccrual status due to financial underperformance. We view these as idiosyncratic situations rather than a reflection of broader portfolio stress. If you look at our new vintage originations, those made since 2022, which now represent 58% of our fair value, credit performance remains sound with minimal nonaccruals. I did want to be clear about one thing: we do not view the legacy portfolio as a category that is migrating wholesale toward nonaccrual. In fact, subsequent to quarter end, we favorably restructured one of our legacy positions, leading to higher cash pay and improved seniority in the capital structure, and received a full repayment at par on a separate legacy holding. The firm continues to maintain a proactive approach to monitoring, managing, and resolving any associated credit issues. I will now turn the call over to Stan to walk through our financial results. Stanley Matuszewski: Thank you, Tucker. We ended Q1 2026 with total portfolio investments at fair value of $3.2 billion, outstanding debt of $1.9 billion, and net assets of $1.4 billion. As David mentioned, our ending net debt-to-equity ratio as of the end of the first quarter was 1.37x. At quarter end, approximately 62.5% of our total principal amount of debt outstanding was in unsecured debt. As of 03/31/2026, the company had approximately $974 million of borrowing capacity remaining under the revolving credit facility. As discussed last quarter in our Q4 earnings call, we wanted to remind investors of recent activity that occurred during Q1. On 01/15/2026, we borrowed $[inaudible] under the revolving facility and used the proceeds together with cash on hand to repay the 2026 notes plus accrued and unpaid interest in full satisfaction of our obligations under the 2026 notes. Additionally, on 01/28/2026, we issued $400 million of three-year investment grade unsecured notes with a coupon of 5.1%. We also hedged the issuance by swapping the coupon from fixed to floating to match Goldman Sachs BDC, Inc.’s floating rate investments. Over 100 investors participated in the company’s day of live deal marketing, resulting in the peak order book being 7.3x oversubscribed on our $300 million starting size. Subsequent to quarter end, in early May, we closed our amend-and-extend on the Truist revolving credit facility, reducing the size of the facility to $1.5 billion from approximately $1.7 billion, extending the maturity date to May 2031 from June 2030, removing the 10 bps credit spread adjustment from the drawn margin and reducing undrawn fees by 5 bps, as well as adding flexibility to unsecured debt baskets, among other borrower-friendly changes. Before continuing to the income statement, as a reminder, in addition to GAAP financial measures, we also reference certain non-GAAP or adjusted measures. This is intended to make our financial results easier to compare to the results prior to our October 2020 merger with Goldman Sachs Middle Market Lending Corp, or MMLC. These non-GAAP measures remove the purchase discount amortization impact from our financial results. For the first quarter, GAAP and adjusted after-tax net investment income were $24.8 million and $24.7 million, respectively, as compared to $42.2 million and $41.8 million in the prior quarter. On a per share basis, GAAP net investment income was $0.22, equating to an annualized net investment income yield on book value of 7.2%. While net investment income for the quarter was below our quarterly dividend, we utilized a portion of our undistributed taxable net income to provide a consistent dividend to our existing shareholder base. Total investment income for the three months ended 03/31/2026 and 12/31/2025 was $78.8 million and $86.1 million, respectively. Our remaining undistributed taxable net income as of 03/31/2026 was approximately $94 million, or $[inaudible] on a per share basis, providing meaningful cushion to support our dividend going forward. With that, I will turn it back to Vivek for closing remarks. Vivek Bantwal: Thanks, Stan, and thanks to everyone for joining our earnings call. We are excited to continue turning over the portfolio into new attractive opportunities using the full breadth of the Goldman Sachs platform while continuing to navigate through this market environment with humility and continued heightened discipline. We will now open the call for questions. Operator: If you are using a speakerphone, please make sure the mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will pause for just a moment to allow everyone the opportunity to signal for questions. We will take our first question from Arren Cyganovich with Truist Securities. Arren Cyganovich: Good morning. Thanks. In terms of the pipeline of investment activity, maybe touch a little bit on what you are seeing there, what sponsors are saying, how they are adjusting to wider spreads and tighter documentation, and how long it might take to rotate out of the legacy and have more of the newly originated loans in the portfolio? Unknown Speaker: Hi, Arren. Thanks for the question. I would say a few things. Obviously, you mentioned some of the private equity–specific dynamics out there. Beyond that, there is geopolitical uncertainty and other factors, too. On the one hand, relative to where we were at the end of last year, deal activity is a little bit quieter overall. On the other hand, with some of the retail pullback you have seen from the non-traded BDCs, for the deals that are getting done, the pendulum seems to be swinging back in the direction of lenders in terms of spreads and leverage coming down a little bit, documentation, etc. On the deals that we are competing on right now, we really like those deals, we like the spreads we are getting, and we find far less competition than there was, particularly as you got into the end of 2025. That is the dynamic we are excited about, notwithstanding some of the broader noise. In terms of the second part of your question, that legacy percentage keeps ticking down. We expect it will continue to tick down, and as it does, we will be able to redeploy not just with the benefit of the post-integration platform, but also with the benefit of the better spread environment we are seeing today. Thanks. Arren Cyganovich: And with the two new credit nonaccruals that popped up, maybe you can provide a little bit of detail about whether these are older vintage, something specific or COVID-related, etc., and how much of the NAV decline in the quarter was related to those two nonaccruals? David Miller: Yes. This is David. From a credit mark perspective, about 60% of the marks that we saw were credit-specific events, those two being big ones, plus some other legacy assets that we marked down during the quarter, including some names that we have talked about in the past. With those two events, one is in the PPM space. As you know, that space has been challenged over the last number of years. We are continuing to work with the sponsor to optimize recoveries for the lenders there, and those conversations are ongoing. The other one, 3SI, if you look back over the past, had made some acquisitions; not all of the acquisitions have worked out like they thought. So leverage is elevated at this point in time, and that is why we put it on nonaccrual, and once again we are in active dialogue with the sponsors and our other lenders to optimize recovery. Operator: We will take our next question from Ethan Kaye with Lucid Capital Markets. Ethan Kaye: Hey, good morning. Thanks for taking the question. Appreciate the commentary on the pre-integration legacy assets versus the newly originated. Could you talk about the outlook for rotating out of some of these legacy assets, particularly the underperformers? Do you have any visibility there? David Miller: Yes. If you see in the results, we had relatively light repayments in the first quarter. As we look into the second quarter, we have had an acceleration. We have already got over $100 million in repayments from a number of legacy names, so we are encouraged by that. We will continue to address that proactively as they come up. We have some maturities in the next 12 to 18 months of those legacy names, so we are going to be working hard to cycle out of them and redeploy into the OneGS ecosystem we are operating in today with our new origination system and, frankly, better spreads we are seeing out here today. We are optimistic. It is really hard to pinpoint when these will be rotated out, but we have made decent progress, albeit slower than we would like, and we will continue to work on that in the coming quarters. Vivek Bantwal: I would just add, I think the power of the OneGS ecosystem is even more powerful in this environment, particularly with what you are seeing going on with retail flows in the non-traded BDC space. For us, the vast majority of our platform is institutional drawdown capital, about 83%. Our entire BDC complex is something like 17%. For Goldman Sachs BDC, Inc., which is an important part of our broader complex, it is going to be able to compete in a more scaled way than it could if it was just a stand-alone entity. There are very few, if any, out there right now, as we are competing on deals, that are showing up with the type of scale we have in terms of solving capital needs for clients on new deals. There are fewer new deals overall, but for the deals that are happening, our ability to source them on a differentiated basis and provide entire capital structure solutions, because we are not as levered to some of the phenomena out there, is really going to help us. But to your point, it is going to be a little bit of a process as we continue to roll out of some of these older names. Ethan Kaye: Great. That is good color. And then one other on the dividend. You maintained the dividend in Q2. You talked about using spillover this quarter to cover the shortfall. How long are you comfortable doing that, and what are some of the levers you feel you have to get dividend coverage back to a more sustainable level? David Miller: Yes, very fair point. If you look at our results this quarter, they were negatively impacted by an outsized incentive fee. As a reminder, we have a three-year lookback that is very shareholder friendly on that incentive fee, which was elevated this quarter. If you roll that forward over the next couple of quarters, we view a more muted incentive fee as a result of the same policy, which will certainly support the dividend in the near term. It is our intent—subject to consultation with our Board—to maintain our dividend in the near term. Operator: There are no further questions at this time. I will turn the conference back to Vivek for any additional or closing remarks. Vivek Bantwal: Thanks, everyone, for joining. We appreciate your support and look forward to continuing the dialogue. Have a great weekend.
Operator: Welcome to the Olin Corporation First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. To ask a question, please press star, then 1 on your touch-tone phone. 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 Steve Keenan, Olin Corporation's Director of Investor Relations. Please go ahead, Steve. Steve Keenan: Thank you, Nick. Good morning, everyone. We appreciate you joining us today to review Olin Corporation's first quarter 2026 results. Please keep in mind that today's discussion, together with the associated slides, as well as the question-and-answer session that follows, will include statements regarding estimates or expectations of future performance. Please note these are forward-looking statements, and that Olin Corporation's actual results could differ materially from those projected. Some of the factors that could cause actual results to differ from our projections are described, without limitation, in the Risk Factors section of our most recent Form 10-Ks and in yesterday's first quarter earnings press release. A copy of today's transcript and slides will be available on our site in the Investors section under Past Events. Our earnings press release and related financial data and information are available under Press Releases. With me this morning are Ken Lane, Olin Corporation's President and CEO, and Todd Slater, Olin Corporation's CFO. We will start with some prepared remarks, then we will look forward to taking your questions. I will now turn the call over to Olin Corporation's President and CEO, Ken Lane. Ken Lane: Thanks, Steve, and thank you to everyone for joining us today. We appreciate your time and your continued interest in Olin Corporation. Let's start on Slide 3 for a review of our first quarter highlights. Amid a very dynamic operating environment in the first quarter, the Olin Corporation team executed with discipline, maintaining focus on running our assets safely and reliably, removing structural costs through our Beyond two fifty program, and preserving liquidity, all while staying firmly committed to our value-first commercial approach. That discipline translated into positive results in the first quarter and sets the stage for stronger earnings in the coming months. During the first quarter, our epoxy business returned to profitability, and we saw early signs of demand growth for Winchester commercial ammunition. The Iran conflict introduced significant disruption across global petrochemical supply chains. Sharply higher crude oil prices and freight rates disproportionately impacted non-U.S. producers, further reinforcing the structural cost advantage of U.S. Gulf Coast assets such as Olin Corporation's. While these dynamics did not materially benefit our first quarter results due to normal pricing lags, they meaningfully improved the outlook for the second quarter. Looking ahead, the near-term backdrop has shifted more in favor of U.S. producers than where we were at the beginning of the year. While the duration of Middle East disruptions remains uncertain, we believe the full impact is still unfolding as global supply chains continue to tighten. We are seeing significant inventory drawdowns and deferred maintenance temporarily helping bridge supply gaps. This creates a more constructive environment as the year progresses. Olin Corporation is well positioned to navigate this dynamic environment, supported by our advantaged asset base, improving cost structure, and strong cash generation. As regional customers increasingly prioritize security of supply, we have the flexibility to increase operating rates and capture value while maintaining our value-first commercial approach. Now let's turn to Slide 4 for a deeper review of Chlor Alkali Products and Vinyls (CAPV). First quarter results reflected lower operating costs driven by Beyond two fifty and lower-than-expected maintenance turnaround costs. Merchant chlorine demand was seasonally soft but improved from the fourth quarter with year-end customer destocking behind us. We saw chlorine demand into water treatment and crop protection rebound nicely in mid-March as U.S. temperatures warmed. Caustic soda continues to be the stronger side of the ECU. Global demand is stable against the backdrop of tightening supply and a rising cost curve for non-U.S. producers, which sets up for improved earnings as we move through the year. Several Asian vinyls producers have declared force majeure due to limited access to feedstocks and rapidly increasing costs. This disruption constrained chlor-alkali production, reducing the availability of co-produced caustic soda. While China has been less affected given significant coal-based vinyls production, the net impact has been a meaningful reduction in global supply. Trade publications estimate that 6% to 9% of annual vinyls capacity is impacted globally. All of this drove a sharp spike in global pricing in late March, with levels now moderating as inventories are depleted. U.S. export EDC prices have significantly increased since January. We expect EDC and caustic soda pricing to stabilize at higher levels compared to earlier in the year as shortages persist and production costs remain high. Olin Corporation has announced a total of $185 per ton in domestic caustic soda price increases for implementation in 2026. We continue to aggressively implement the balance of our price announcement. Slide 5 provides a look at our epoxy results. First quarter 2026 marks an important milestone, as our epoxy business returned to profitability. We expect full-year epoxy performance to be meaningfully improved, with our return to profitability driven by several well-executed actions. Our epoxy team has grown our European business in the wake of regional rationalizations. Our new European cost structure is on course to deliver $40 million to $50 million of annual cost improvement. Our formulated solutions portfolio continues to provide a high-margin platform for growth with a strategic focus on electronics, semiconductors, and power generation. And our recent plant closure in Guarulhos, Brazil will further improve our cost structure and strengthen supply integration. In addition to these actions, we are focused on raising prices, which have been significantly depressed due to subsidized Asian supply. Olin Corporation announced March and April epoxy resin price increases totaling more than $1,200 per ton in North America, and €1,300 per metric ton in Europe. We expect these increases to offset the higher feedstock and transportation costs. Let's now turn to Slide 6 for an update on our Winchester business. Winchester's first quarter performance was a significant improvement. The team took decisive actions in the second half of last year to rebalance channel inventories and position the business for improved commercial volume and price. As a result, we have regained commercial pricing traction and retail shipments are moving back into alignment with out-the-door sales. As retailer purchases align, we would expect to realize a commercial volume uplift of mid- to high-single digits year-over-year. Raw material costs remain a headwind, particularly copper, as well as brass and propellants. We expect that our pricing actions, once implemented, will offset the majority of 2026 cost inflation; however, we expect to continue to see cost pressure as we go through the year. We are continuing to operate a disciplined make-to-demand model that aligns to our value-first commercial approach. As a result, we are building a strong commercial backlog while tightly managing our working capital. Winchester is a core part of Olin Corporation's portfolio. With its iconic global brand, long-standing relationships with leading retailers, the U.S. military, and a broad base of international customers, the business is well positioned to deliver durable, long-term growth and value creation. I will now turn the call over to Todd for a look at our financial highlights. Todd Slater: Thanks, Ken. Let's review our cash flow, liquidity, and financial foundation. Our top priority continues to be generating strong cash flow to preserve and further enhance liquidity. In February, we took proactive steps to amend our bank credit facilities, providing greater covenant flexibility through late 2027. As a result, we maintain full access to our revolving credit facility and 1.3 billion of available liquidity. Our debt structure is well organized, with manageable tranches and staggered bond maturities over the coming years, and no maturities before 2029. As is typical with seasonal working capital needs, net debt and leverage increased in the first quarter. We expect net debt to rise during 2026 as we make payments to resolve legacy litigation matters. Now let me take a moment to discuss our outlook for expected uses of cash in 2026. First, regarding cash taxes, we anticipate receiving refunds from prior years related to clean hydrogen production tax credits under Section 45V as part of the Inflation Reduction Act of 2022. Factoring in these refunds, we expect 2026 to essentially be a cash-free tax year, plus or minus $20 million. We are proactively managing our capital spending, targeting approximately $200 million, with a focus on funding sustaining capital expenditures to ensure safe and reliable operations of our assets. We expect to continue our nearly century-long history of uninterrupted quarterly dividend payments. As we further strengthen our financial resilience, any remaining excess cash flow after the preceding capital allocation priorities will be used to reduce our outstanding debt. We remain firmly committed to managing our balance sheet in a way that maximizes our financial flexibility for the future. We anticipate ending the year with a debt leverage ratio of just above four times. Looking forward, our goal remains to average below two times leverage across the cycle. Our team's focus is on generating cash, strict cost control, and advancing our Beyond two fifty structural cost reduction program and a value-first commercial approach. Before I turn the call back to Ken, I want to comment on Beyond two fifty. The program is designed to permanently remove structural costs, not simply trim around the edges. We have a clear line of sight to more than 250 million of cumulative savings by 2028. We delivered $44 million of structural savings last year and expect to deliver an incremental $100 million to $120 million in 2026. Every day, we continue to expand our Beyond two fifty scope with a focus on people and processes. We are making great progress on safety, with record performance in the first quarter. Our efficiency gains are well socialized and measurable. For example, we have nearly doubled our Freeport, Texas time on tools. We have transformed our maintenance planning by leveraging historical data and AI tools to evolve from a reactive, time-based scheduling to a proactive, risk-based approach. We streamlined the organization, reducing site headcount by 15% while reducing our reliance on contractors and improving reliability. To sum up, we are preserving a durable balance sheet, generating healthy cash flows, and maintaining a prudent capital structure to drive long-term shareholder value. Ken, let me hand the call back to you. Ken Lane: Thanks, Todd. Let's finish up with Slide 8 and our outlook for the second quarter. With improved pricing and seasonally higher demand, we expect to realize significantly improved earnings in our CAPV business. Our second quarter outlook includes an estimated impact from an unplanned vinyls outage at our Freeport, Texas plant. We are expecting to restart these assets late next week. Olin Corporation's value-first commercial approach has preserved our ECU values through an extended trough and provides an attractive starting point as we begin the next cycle. Looking out a little further, the chlor-alkali supply-demand dynamics are favorable, with limited additional capacity, a likelihood of further asset rationalization, and a still-to-come housing and construction demand recovery. Chlor-alkali is well positioned to rebound from this historic trough. In our epoxy business, we expect to see earnings improvement with higher seasonal demand, improved pricing, and continued cost improvements. We are realizing the benefits of being a strong, integrated, local producer as customers seek reliable supply in the face of tremendous uncertainty. Winchester's second quarter results are also expected to improve sequentially with higher commercial ammunition volume and pricing, and higher military sales. With that, we expect to deliver second quarter adjusted EBITDA in the range of $160 million to $200 million, a significant sequential improvement. Operator, we are now ready to begin Q&A. Operator: Thank you. We will now open the call for questions. To ask a question, please press star, then 1 on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. In the interest of time, please limit yourself to one question. The first question will come from Hassan Ahmed with Olympic Global. Please go ahead. Hassan Ahmed: Morning, Ken and Todd. Just a question on the guidance. Obviously, you did about $86 million in EBITDA in Q1 and are guiding to, if I were to take the midpoint, call it $180 million in Q2. So I am just trying to get a better sense of bridging that $100 million or so in incremental EBITDA. How much are you getting from Beyond two fifty? How much of that is some of these opportunities you see via the conflict in the Middle East? How much from incremental caustic and EDC export opportunities? Ken Lane: Good morning, Hassan. Thank you for the question. The bridge between Q1 and Q2 has a lot of variables contributing to it. The largest one is going to be improvement in CAPV from the first quarter, driven by improved pricing and higher volumes as assets are running again. We will continue to have some headwinds related to turnaround costs, but both higher pricing and higher volume in the second quarter for CAPV will drive a big part of the uplift. We will also continue to see benefits from improved costs in the second quarter, again netting out the impact from the turnaround. We have also built into that outlook the impact we currently estimate related to the unplanned outage in the vinyls assets at Freeport. We are expecting to have those assets restarted late next week, and that is reflected. Unfortunately, that takes a little bit out, and we want to make sure we get that done timely and safely because it is important to get those assets back up when we are seeing the pricing environment that we are for those products. If you look at epoxy and Winchester, we will continue to see improvements in the epoxy business, including the normal seasonal uplift, so improving demand. As I said in the prepared remarks, the team did an outstanding job positioning Olin Corporation as the last integrated epoxy producer in Europe and leveraging that into a stronger market position with respect to volume growth in 2026 versus 2025, and that will continue into the second quarter. The momentum we saw building from Winchester, and the actions Winchester took late last year to rebalance things—last year was sort of the perfect storm with higher costs, lower demand, and high inventories—have largely corrected with the exception of the cost side. Inventories are back to a much more comfortable level, and demand has started to come back, so we are seeing year-over-year growth for the first time in over a year. All of those things combined create the uplift, but again, the biggest uplift is coming out of CAPV. Operator: The next question will come from Frank Mitsch with Fermium Research. Please go ahead. Frank Mitsch: I wanted to get your thoughts on pricing as we exit Q2. I think you have a fairly good line of sight on where you stand today and your plans in terms of getting price increases in June. As you think about the average Q2 price across your company versus where you are going to exit the quarter, I would imagine that sets you at a higher level for Q3. Any way you can give us some orders of magnitude around expectations on the momentum on the pricing side? Ken Lane: Good morning, Frank, and thanks for joining. Starting with CAPV, in the first quarter we were already seeing momentum with caustic pricing coming out of the fourth quarter into the first quarter before everything started happening around the world late in the first quarter. We are going to see that improvement really start to hit in Q2. Even with the lag that we see in some product lines and businesses, there will be good momentum continuing into the third quarter, and I expect that to carry through the year. For CAPV, caustic and EDC are the two big needle movers; those price levels are going to continue to be elevated versus where we thought they would be at the beginning of the first quarter, and we see that continuing into the third quarter. We had a very fast run-up in prices and then saw them moderate a little bit. People who had inventory, as you would expect, pushed a lot of that volume into the market when prices were spiking. We see that coming down, and once that plays through—remember even today, with talk about a ceasefire in the Middle East, Brent crude is still over $100 a barrel, and U.S. natural gas is around $2.70 to $2.80—that is still a sizable advantage for U.S. producers. In addition, you have effectively taken out of the market sanctioned oil that was going into assets in Asia at a significant discount and creating a distortion. That is now gone, which is constructive for pricing as we go into the third quarter. Generally speaking, you will start to see it in Q2 but really see it even more later in the year. Operator: The next question will come from Mike Sison with Wells Fargo. Please go ahead. Mike Sison: When you think about Q2, the $160 million to $200 million, how would you describe the earnings levels? Are we approaching a mid-cycle number? It does not feel like peak, particularly on volume. As you think about where pricing is going to set up longer term, do you think some of this is sustainable where maybe 2027 will have structurally higher pricing and margins for the industry? Ken Lane: Good morning, Mike, and thanks for joining. Thinking back to what we said at Investor Day, we are not anywhere near what we would consider our normalized level of earnings. We have seen an improvement from where we were at the beginning of the first quarter, no doubt. But even with the step-up in earnings we will see in Q2 and later in the year, it reflects what we emphasized at the 2024 Investor Day: there is a lot of leverage in Olin Corporation's portfolio. When you start to see demand come back and the supply-demand balance get more normalized, there is a lot of leverage to the upside. We are not close to a normalized or mid-cycle level of earnings; that is still out in the future. Once we start to see things like housing recovery and infrastructure and general construction coming back in both Europe and the U.S.—which is going to happen—the outlook is constructive. The setup for chlor-alkali supply and demand, the limited additional capacity being added, and the rationalization that has happened and will likely continue is really constructive for us. There is still much more leverage in Olin Corporation to come; you are just seeing the beginning of it now. On long-term sustainability, yes, we are in the trough, and we are going to come out of it. The markets we are in and serve are set up well to see that sooner than maybe others. Operator: The next question will come from Patrick Cunningham with Citi. Please go ahead. Patrick Cunningham: You alluded to some price normalization, obviously EDC being top of mind. First, what sort of sensitivity should we expect on EDC prices, or perhaps you could help with the price levels embedded within the outlook? And in terms of volume uplift or value, how much is embedded within the Braskem arrangement versus how much opportunistic volume do you have to sell here? Ken Lane: Good morning, Patrick, and thank you for the question. We manage the portfolio to have optionality, especially around our chlorine outlets, and we want a diverse set of options because these markets recover at different rates. EDC is clearly important for us. The strategic relationship with Braskem is accretive through the cycle, but that represents only part of our EDC volume. We continue to have part of the EDC portfolio with spot exposure, but we are balancing it. We do not want everything spot or everything in long-term contracts. We are doing that to optimize and create the highest value we can for Olin Corporation through the cycle. That is our strategy. Operator: The next question will come from Kevin McCarthy with Vertical Research Partners. Please go ahead. Kevin McCarthy: Thank you, and good morning. Ken, can you provide an update on your EDC and VCM operations at Freeport? Last quarter, I think you flagged the major triennial planned turnaround. In your prepared remarks this morning, I heard reference to an unplanned outage. Are those related or unrelated? Can you talk through the operational outlook there in the quarter? Ken Lane: Sure, thanks for the question, Kevin. In the second quarter, we completed the turnaround we discussed on the last earnings call, which bridged across the end of the first quarter and the beginning of the second quarter. We successfully completed that and restarted the VCM assets in Freeport. The team did an outstanding job executing that turnaround safely, a little ahead of schedule, and on budget. Unfortunately, we recently had an unplanned event that brought down the vinyls assets at Freeport. We are in the middle of our root cause analysis, making sure we have everything established to restart those assets safely. The current plan is to restart late next week. I am confident the team will do that as well as they did with the turnaround. All of that looks to be coming back into good condition and shape in the next week or so. Operator: The next question will come from Josh Spector with UBS. Please go ahead. Josh Spector: Good morning. On caustic dynamics, you are going for additional pricing and have alluded to that. Looking at Asia pricing relative to U.S. pricing, the U.S. seems to have moved to a bit of a premium. Typically, caustic production increases as PVC production increases over the next few months. How do you expect North America prices to move higher if North America is going to have more caustic to deal with in a few months, and the manufacturing backdrop is not that strong? What am I missing on the pricing dynamic that pushes it higher from here? Ken Lane: Good morning, Josh, and thank you for joining us. There are a lot of dynamics in the caustic market that I think people underestimate. Thinking linearly—what happened in the past will happen now—does not capture today’s environment. Freight rates are higher, and there are supply chain disruptions. For example, there used to be caustic coming into the East Coast from Europe and into the West Coast from Asia; that is pretty much gone now. Pricing is driven as much by availability as by arbitrage. You have a big step-up in freight costs as well. Those dynamics will drive the market for the foreseeable future. Backing up to the first quarter, even between Q4 and Q1, with stable demand, we were already seeing price momentum with caustic. There was an overcorrection last year; the market was tighter than people believed, and you saw recovery even before the current Middle East situation. All of that is constructive for caustic pricing. Capacity has come off, demand is relatively stable, costs are higher—prices should go up in that environment. Operator: The next question will come from Matthew Blair with TPH. Please go ahead. Matthew Blair: Thanks, and good morning, Ken and Todd. Ken, you mentioned that 6% to 9% of global vinyl capacity is currently offline due to the Iran war. Is that also a good estimate for global ECU capacity that is offline? And in terms of duration, how quickly could these assets return and supply chains normalize if there were a true ceasefire announced tomorrow? Ken Lane: Good morning, Matthew. Starting with duration, a ceasefire has already been announced and it is still disruptive. This will linger for quite a while. Supply chain disruptions are not a light switch; ships are out of position, and feedstocks are not available for a period of time. That lingers for weeks and months, typically. That is why I am optimistic about structural support for higher prices and benefits for companies like Olin Corporation with assets in regions with good access to low-cost energy and raw materials. I do not see that reversing in the short term. On your first question, the 6% to 9% reported for vinyls capacity offline is a good proxy for ECU production constraints—if you do not have a place to put the chlorine, ECUs are not going to be produced. Operator: The next question will come from David Begleiter with Deutsche Bank. Please go ahead. David Begleiter: Thank you, and good morning. Ken, on your vinyl strategy, has the conflict in the last two months influenced your thinking on how you pursue a vinyl strategy down the road? And as a housekeeping item, on Slide 15, the turnaround expenses—does the Q2 forecast of $42 million include the unplanned outage? If not, how much is that unplanned outage in vinyls? Ken Lane: Good morning, David, appreciate you joining us. The vinyl strategy is not impacted by what is going on in the world today. It is still an important market for us and one on which we remain focused longer term to ensure we have access. When we think about all of the options we have discussed, extending the current agreement we have with our fence-line customer at Freeport is still a priority for us, but there are other good options we are evaluating. This environment makes some partnership options more attractive, especially to potential partners we are working with, which is a positive. But it does not change our focus on wanting to grow in vinyls longer term. On the turnaround expenses, the Q2 forecast does not include the unplanned event at Freeport. That would be an incremental impact in the second quarter, and we have reflected that in the outlook we gave. Operator: The next question will come from Arun Viswanathan with RBC Capital Markets. Please go ahead. Arun Viswanathan: Good morning. Thanks for taking my question. My main question is on the duration of the earnings power here. You are guiding to about $180 million for Q2. Various peers have given different timelines for normalization between three to six months. Is that how you are looking at things? You also have some capacity entering the industry in the next six to twelve months from debottlenecking, as well as a new plant coming on maybe in a few years. Are you still feeling that caustic is going to be tight through that period, or will we settle into a bit of an oversupplied situation? Putting that together, are we looking at a year that is roughly twice your first half, or do you see upside to that? Ken Lane: Good morning, Arun. I am not going to speculate on exactly how long this goes. I did say earlier I believe the impacts will carry through this year. Costs are going to be higher, and I think people will expect a higher security-of-supply premium, particularly where product from other regions had been dumped into Europe and the U.S. We are seeing a premium for local supply, and I think that will continue. Even if energy prices settle down, there will be longer-term hangover effects that are beneficial to Olin Corporation. Stepping back to the broader trough recovery and supply-demand outlook for chlor-alkali, it is more positive than you may be thinking. You have to factor in the pluses and minuses over the last year or two: assets have closed in Europe, the U.S., Latin America, and even Asia. There is very little new capacity coming online between now and the end of the decade. I feel very bullish about the outlook for the markets we are in and see no reason to change that view. Operator: The next question will come from John Roberts with Mizuho. Please go ahead. John Roberts: Thank you. For your export EDC business, how are you thinking about the competition from China? Most of their coal-based capacity is inland, and their coastal capacity is probably ethylene-constrained. How do you think the dynamics there will play out in the next few months? Ken Lane: Good morning, John, very good question and important for us. We are going to see a step-up in EDC volume in the second quarter, and prices have moved up significantly from last year’s levels. Prices had dropped far more quickly than warranted by fundamentals; things have since improved to a healthier level. Because much of China's coal-based capacity is inland, the cost to get that EDC to market is higher. Our costs have gone down, not up, so we are able to serve the market more competitively at a better price, which is constructive for us into the second and third quarters. I think that continues through the end of the year. Pricing is getting back to what I would consider a more normal level for where we are in the supply-demand environment because things were overdone. As I mentioned earlier, sanctioned oil that had been sloshing around the market and distorting costs has been curtailed; while the volume is still there, it will be priced much higher than previously. That is beneficial to us. Operator: The next question will come from Vincent Andrews with Morgan Stanley. Please go ahead. Vincent Andrews: Thank you. Chemours indicated they signed an agreement with you for the 2028-plus period instead of building the plant they announced back in December 2024. Could you help us understand the impact to you? Are those tons going to be more profitable, less profitable, or about the same as how you are monetizing them today? Ken Lane: Good morning, Vincent, and thank you for joining us. Anytime we can do a strategic partnership like we have done with Chemours—similar to Braskem, where we are working with an industry leader—it is accretive for Olin Corporation. This is a long-term supply deal that will start in 2028. These are the sorts of optionality we want in our portfolio to give us the ability to generate stronger earnings through the cycle. We are very happy with the relationship with Chemours and look forward to expanding that in 2028. As you can imagine, we will not disclose further details around the agreement, but it is a win-win for both Olin Corporation and Chemours. Operator: As there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Ken Lane for closing comments. Ken Lane: Thank you very much. We appreciate everybody's time this morning and your interest in Olin Corporation, and we look forward to giving you an update at our second quarter earnings call later this year. Thank you very much, and have a safe weekend. Operator: Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to StoneX Group Q2 Fiscal Year '26 Earnings 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, Bill Dunaway, Chief Financial Officer. Please go ahead. William Dunaway: Good morning, and welcome to our earnings conference call for our quarter ended March 31, 2026, our second quarter of fiscal 2026. After the market closed yesterday, we issued a press release reporting our results for the quarter, and this press release is available on our website at www.stonex.com as well as the slide presentation, which we will refer to during this call. The presentation and an archive of the webcast will also be available on our website after the call's conclusion. Before getting underway, we are required to advise you and all participants should note that the following discussion should be considered in conjunction with the most recent financial statements and notes thereto as well as the Form 10-Q filed with the SEC. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC. Although the company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the company's actual results will not differ materially from any results expressed or implied by the company's forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I'll now turn the call over to Philip Smith, the company's Chief Executive Officer, for a brief introduction. Philip Smith: Thank you, Bill. Good morning, everyone, and thank you for joining our second quarter earnings call for fiscal year 2026. I'm very pleased to report a consecutive record quarter, including record net operating revenues, net income and EPS. This was driven by strong performance across all 4 operating segments, highlighting our depth and breadth of product offering and capabilities within the unique StoneX ecosystem. It also reflects the continued progress of integrating R.J. O'Brien, which remains on track to be substantially completed later this fiscal year with no change to expected synergies and efficiencies, making StoneX the largest nonbank FCM in the United States. Despite the geopolitical uncertainty, nearly all of our products reported a double-digit growth, driven by higher volatility and increased demand for our services. This has included delivering another record quarter for listed derivatives with volumes approaching 100 million contracts and average client equity approaching $14 billion, reflecting the expanded scale of the platform following the RJO acquisition. Record OTC derivatives volume, transacting over 1.5 million contracts, a 68% increase year-on-year. As a reminder, we offer customizable OTC contracts to customers, giving them the benefit of a lookalike option or swap or structured product to more closely address their risk management needs, whilst we benefit from typically higher rate capture when compared to traditional listed derivatives. We reported record securities average day volume of over $12 billion, driven by strong performance across both our equities and fixed income franchises. We will touch on our equities business later today, but we believe we have one of the most diverse equity market ecosystems covering execution, market making, custody and clearing, prime brokerage as well as equity capital markets and research offerings, which we acquired through the Benchmark acquisition last year. Alongside our securities and derivatives records, we also reported record operating revenues derived from physical contracts, which underscores our continuing global relevance in the physical space within the commodities market over consecutive quarters. Turning to payments. We recorded our second highest ADV of $92 million, following the record set last quarter with year-on-year growth of 19%. This performance reflects continued engagement from institutional counterparties using our cross-border payment solution. Lastly, we saw FX CFD volumes grow by 3% year-on-year and the revenue capture of $103 per million, up by 6%, reflecting the higher market volatility seen in this quarter. We continue to set records across our key metrics, but are mindful that the geopolitical landscape remains complex and disciplined risk management will remain at the heart of our business as we continue to service our clients' business needs and activities. As our company scales, processing ever higher volumes, growing our client base and improving our offering to clients, I wanted to spend a couple of moments touching on one of our strategic initiatives regarding the use of AI. We are seeing the deployment of AI evolving from isolated experimental use to now serving as an enterprise force multiplier that enhances operational efficiency across our organization. What started out as a useful development tool for our programmers has now grown into utilizing AI agents across client support, internal operations and platform development. Within payments, we mentioned our X-Pay system in previous calls, which was a proprietary built platform. And within this, we have developed AI-assisted automation to help with the settlement instruction repair, validation and reconciliation designed to reduce manual intervention and improve our straight-through processing rates. Alongside this, we are developing AI chatbots to aid client services with client queries, document translation and compliance-related tasks. We are also applying AI to further improve the productivity of our software developers through the design of support agents for agentic development. This should culminate in one, accelerated development, shortening the time from a proof of concept to a functioning prototype; two, enhanced agility and innovation, automating testing, delivery of iterative improvements, which should lead to innovation; and three, business solutions, ultimately leading to the delivery of working solutions for our commercial teams that are responsible to our clients' needs. One such example of this was the development of the feature, which we estimated would have taken the team without AI, approximately 2 to 4x longer to design, test and launch. This is a sizable step change we hope to replicate across the organization, whilst ensuring we operate within a standardized framework and remain cognizant of local regulations, controls and governance. It is a promising start, and we see significant opportunities to leverage technology further to develop products and services faster, meet our clients' needs and optimize our resources to continue to deliver strong financial performance. With that, I will now turn over to Bill, who will go through this quarter's financial results. William Dunaway: Thank you, Philip. I will begin with the financial overview for the quarter, and we'll be starting with Slide #5 in the slide deck. Just as a reminder that our Board of Directors approved a 3-for-2 split of our common stock, and our shares began to trade on a split-adjusted basis at the market opened on March 23, 2026. So all per share metrics on this call will be on a split-adjusted basis. Second quarter net income came in at a record $174.3 million with diluted earnings per share of $2.07. This represented 143% growth in net income. However, earnings per share grew at 120% rate due to an additional shares outstanding as compared to the prior year, primarily related to the issuance of approximately 3.1 million shares related to the acquisition of R.J. O'Brien during the fourth quarter of fiscal '25. Net income and diluted earnings per share were up 25% and 24%, respectively, versus our immediately preceding first quarter of fiscal '26. This represented a 26.5% return on equity despite a 75% increase in book value over the last 2 years. On a tangible book basis, this equates to a 37% return on tangible equity for the quarter. We had operating revenues of approximately $1.6 billion, up 64% versus the prior year and up 9% versus the immediately preceding quarter. As a reminder, our operating revenues include not only interest and fees earned on our client balances, but also carried interest that is related to our fixed income trading activities. Net operating revenues, which nets off interest expense, including that which is associated with our fixed income trading activities as well as introducing broker commissions and clearing fees were up 70% versus a year ago and 14% versus the immediately preceding quarter. Total fixed compensation and other expenses were up 44% versus the prior year quarter with $56.9 million of this attributable to acquisitions made over the last 12 months, most notably RJO and Benchmark. Also contributing to this increase as compared to the prior year, bad debt expense increased $12.3 million, primarily within our Commercial segment, which despite this, had a second consecutive record quarter. Total fixed compensation and other expenses, excluding bad debt expense, were up 5% or $16.4 million versus the immediately preceding quarter. Fixed compensation and benefits were up 32% versus a year ago and up 13% or $18.7 million versus the immediately preceding quarter. The increase versus the immediately preceding quarter included a $10 million increase in employee benefits, most notably payroll taxes, paid time-off benefit costs and retirement costs, which is typical as we start a new calendar year as well as $8.5 million in higher severance and retention costs, including costs associated to a formal collective redundancy consolidation process for U.K.-based employees following the integration of certain RJO entities as well as severance and retention costs for certain U.S.-based positions relating to ongoing integration activities. These increases were partially offset by higher participation on our employee elected deferred compensation plan, which is part of our restricted stock plan. Professional fees increased $1.9 million versus the prior year, primarily as a result of higher legal fees related to our defense and various legal matters, net of recoveries. They were down $14.4 million versus the immediately preceding quarter, which included significant legal costs incurred related to the BTIG arbitration matter. During the second quarter, we received the final arbitration award from the FINRA arbitration panel adjudicating the claims between us and BTIG. The panel awarded us $1 million in compensatory damages and awarded BTIG $2.9 million in damages. These amounts were offset, and we made a net payment of $1.9 million during the March of 2026. On May 4, 2026, we made an immaterial payment to fully and finally resolve all differences with BTIG and no additional claims between the parties remain. The conclusion of the BTIG litigation, along with the resolution of the option sellers' arbitrations and settlement of the patent case inherited through the acquisition of GAIN Capital marked the end of the large-scale litigation matters that have resulted in heightened legal expenditures over the last 5 years, most notably the last 24 months. Moving on, I had mentioned the acquisitions over the last 12 months and wanted to touch on the contribution of the most notable one, R.J. O'Brien. Excluding amortization of acquired intangibles and a $7.7 million negative mark-to-market adjustment on their investment portfolio, R.J. O'Brien contributed $35 million in pretax net income for the quarter, a nice improvement over the immediately preceding first quarter. Looking at our results from a longer standpoint, our trailing 12 months results show operating revenues up 40%. Net income was a record $462.4 million, up 57% with diluted earnings per share of $5.60 and a return on equity of 19.8% for the trailing 12-month period, above our target of 15%. For the second quarter, our average client equity and FDIC sweep balances were $15.2 billion, up 91% versus the prior year and up 4% versus the immediately preceding quarter. Finally, we ended the second quarter of fiscal '26 with a book value per share of $34.16. Turning to Slide #6 in the earnings deck, which compares quarterly operating revenues by product as well as key operating metrics versus a year ago, we experienced operating revenue growth across all products versus the prior year. Transactional volumes were up across all of our product offerings and spread and rate capture increased in all products with the exception of securities down 3% and payments down 7%. Just touching on a few highlights for the fourth quarter. We saw operating revenues derived from listed derivatives increased $189.4 million or 148% versus the prior year, primarily due to the acquisition of RJO, which contributed $151.7 million as well as strong growth in base metals activities in LME markets, which increased $20.2 million versus the prior year. Listed derivative operating revenues increased 18% versus the immediately preceding quarter. Operating revenues derived from OTC derivatives increased 98% versus the prior year, driven by increased client activity and a widening of spreads, most prevalent in agricultural and energy markets, including renewable fuels, driven by heightened volatility as a result of the onset and continuation of the U.S.-Iran conflict. This also represented an 89% increase versus the immediately preceding quarter. We had strong performance in our physical business with operating revenues derived from physical contracts increasing 162% versus the prior year, primarily driven by $116.1 million increase in precious metals operating revenues. Operating revenues derived from physical contracts were up 21% versus a record immediately preceding quarter. Securities operating revenues were up 38% as volumes were up 35%, partially offset by a 3% decline in the rate per million captured versus the prior year, with the improvement driven by growth in U.S. equity volumes as well as an increase in overall client activity driven by the onset and continuation of the U.S.-Iran conflict. Payment revenues increased 14% versus the prior year quarter due to a strong 19% increase in average daily volume, partially offset by a lower rate per million. Payment revenues were down 2% versus the immediately preceding quarter. FX CFD revenues were up 9% versus the prior year quarter, resulting from a 3% increase in average daily volume and a 6% increase in rate per million, each of which were primarily driven by improved performance in our self-directed business. FX and CFD revenues were up 13% versus the immediately preceding quarter. Our interest and fee income earned on our aggregate client float, including both listed derivative client equity and money market FDIC sweep balances increased $54.8 million or 54% versus the prior year, with the acquisition of R.J. O'Brien contributing $53.9 million. Average client equity increased 110% as RJO contributed $6.4 billion in average client equity for the current quarter, while the average money market FDIC sweep client balances declined 7%. Turning to Slide #7. This depicts a waterfall by product of net operating revenues from both the prior year quarter to the current one as well as the same for the trailing 12-month periods. Just a reminder, net operating revenues represents operating revenues less introducing broker commissions, transaction-based clearing expenses and interest expense. For the quarter, net operating revenues increased 70%, principally coming from listed derivatives and physical contracts, up $84.6 million and $116 million, respectively. In addition, we had a very strong quarter in OTC derivatives, which nearly doubled, adding $58.8 million versus the prior year. Net operating revenues from securities also added $36.9 million. On a net basis, interest and fee income on client balances increased $33.2 million with RJO contributing $30.3 million. Looking at the bottom graph for the trailing 12-month period, listed derivatives has the largest increase, up $187.7 million, primarily as a result of the acquisition of R.J. O'Brien as well as strong growth in LME base metal markets. Securities was up $180.6 million versus the prior year, driven by a 27% increase in average daily volume and 17% increase in rate per million. Physical contracts net operating revenues added $162.1 million versus the prior fiscal year, primarily driven by strong performance in precious metals. OTC derivatives added $90.4 million off of strong performance in agricultural and energy markets, including renewable fuels. Interest and fee income increased $87.6 million, primarily as a result of the acquisition of R.J. O'Brien. Moving on to Slide #8. I will do a quick review of our segment performance. Our Commercial segment saw record net operating revenues with an increase of 111%, primarily resulting from 52% and 98% increases in listed and OTC derivatives, respectively. In addition, physical contracts increased 239%, while net interest income and fee income increased 55%. The growth in listed derivative and interest income were primarily driven by the acquisition of RJO as well as in base metal markets on the LME. Segment income was another record, increasing 151% versus the prior year, while on a sequential basis, net operating revenues were up 30% and segment income was up 36%. Our Institutional segment also saw strong growth in net operating revenues and segment income, up 65% and 40%, respectively. The growth in net operating revenues was principally driven by a $33.3 million increase in securities revenues. In addition, listed derivatives and interest and fee income increased $60.4 million and $14 million, respectively, primarily driven by the acquisition of RJO. On a sequential basis, net operating revenues and segment income declined 3% and 13%, respectively. In our self-directed retail segment, net operating revenues increased 15% and segment income was up 40%, which demonstrates the strong operating leverage in this segment. This growth was driven by a 9% increase in rate per million captured in FX CFD contracts, along with a 3% increase in average daily volumes. On a sequential basis, net operating revenues were up 18% and segment income increased 65%. Our Payments segment net operating revenues were up 10% and segment income increased 30%. Average daily volume was 19% up versus the prior year, while rate per million was down 7%. Versus the immediately preceding quarter, Payments net operating revenues decreased 3%, while segment income decreased 6%. Moving on to Slide #9. Looking at segment performance for the trailing 12 months, we saw strong growth in Institutional segment with net operating revenues up 62% and segment income increasing 58%. Our Commercial and Payments segments added 48% and 11% in segment income, respectively. Our self-directed retail segment income decreased 23%. Finally, moving on to Slide #10, which depicts our interest and fees earned on client balances by quarter as well as a table which shows the annualized interest rate sensitivity for a change in short-term interest rates. The interest and fee income net of interest paid to clients and the effective interest rate swaps increased $29.1 million to $103.6 million in the current period. And as noted, the acquisition of R.J. O'Brien contributed $30.3 million in net interest in the current quarter. On a sequential basis, interest and fee income, net of interest paid to clients and the effect of interest rate swaps, declined $7.8 million, primarily related to an $11.7 million mark-to-market adjustment on our investment portfolio. During the second quarter of fiscal 2026, we entered into an additional $600 million in fixed rate SOFR swaps to hedge our aggregate interest rate exposure. which brings our aggregate swap position to $1.8 billion with an average duration of approximately 2 years and an average rate of 3.38%. These swaps are reflected in the interest rate sensitivity table on this slide. As shown, we now estimate a 100 basis point change in short-term interest rates, either up or down, would result in a change to net income by $47.6 million or $0.58 per share on an annualized basis. With that, I will hand you back to Philip for a product spotlight on our global equities business. Philip Smith: Thank you. Now turning to Slide 12. I wanted to highlight another facet of our ecosystem and speak about our principal market-making business within our global equities business line. Our equities business operates as a global market intermediary built around agency execution, custody and clearing, market making, prime as well as capital market services. We serve institutional clients offering access to exchanges, liquidity and clearing and custody infrastructure. We monetize client activity through commissions, spreads and financing. Through the Benchmark acquisition, we further enhanced our relevance to customers with deep equity research and ability to connect users through corporate access and capital market services. We have built an ecosystem that is designed to service clients across the full equities life cycle. On our next slide, Slide 13, turning to equity market making specifically. It is important to recognize the scale and relevance of this business. We are a principal equities market maker, providing liquidity and execution across a wide range of global securities. In 2025, StoneX ranked #1 in over-the-counter American depository receipts and foreign securities, a position we have held consistently since 2015, according to FINRA ORF data. We make markets in approximately 18,000 equities globally, and we rank #1 in over 1,500 individual securities. This is supported by more than 20 years of experience, 24-hour market coverage and access to 120 global markets. For institutional clients, this matters because it translates into reliable liquidity, pricing and execution, particularly in less liquid international or complex stocks. While this part of the business may be less visible than the traditional listed securities, it plays a meaningful role in how institutional investors, asset managers and retail broker-dealers access global equity markets with StoneX. Moving on to the next slide, Slide 14. What makes our market-making franchise different and succeed. Our entry into the highly competitive Reg NMS stock was built upon our leading OTC ADR franchise, market experience and deep institutional relationships developed over decades. This foundation has allowed us to scale into the listed space in a disciplined way. Second, market making at StoneX operates within a vertically integrated equities ecosystem. As already shown, it exists alongside clearing, custody, prime brokerage, research and capital markets. It is all connected. This integration improves capital efficiency and allows us to serve clients more comprehensively. Third, we benefit from the aggregation of trading flow across a globally diversified client base that is institutional as well as self-directed retail. This aggregated diverse flow allows us to provide deeper liquidity and more consistent pricing, supporting high-quality execution for our clients while managing risk and hedging more efficiently. Finally, technology is the real enabler. Our proprietary electronic platforms are designed to support best execution and allow us to deliver tools focused on execution quality. The results of these factors are reflected in the growth you see here with our Reg NMS market making volumes growing at a compound annual rate of over 130% since 2022. We believe we are a fraction of the total addressable market, which is likely measured in trillions of dollars of notional volume. Lastly, turning to the priorities on Slide 15 required to scale the Market Making platform. First, we're continuing to streamline our operations by consolidating platforms, automating middle office processes and simplifying reporting and post-trade workflows. This improves operating efficiency and supports our operating margins as volume grows. Second, we are deliberately deepening our market share, expanding our NMS wholesale market-making capabilities, growing outsourced trading relationships and increasing our presence in ETFs and global options where client demand is rising. Third, we are strengthening our global reach and technology platform. This includes building a footprint in Asia Pacific, expanding sales coverage in the EMEA region and continuing to invest in the core architecture that underpins our market-making platform. Overall, we expect to process higher volumes, expand our global reach and continue to invest in a platform that is efficient and scalable and supportive of high operating leverage. Importantly, all of this is being done in a way that strengthens our broader equities ecosystem, making StoneX increasingly relevant to our clients across execution, liquidity, clearing and custody, prime services, research and capital markets. Now to close out this presentation, this was a hugely pleasing quarter all around, highlighting record net income of $174.3 million, which is up 143% versus prior year, diluted EPS of $2.07, up 120% versus prior year and achieving an ROE for the quarter of 26.5% and 19.8% for the trailing 12 months ending March 31, 2026, and an ROE on tangible book value for the quarter of 37% and 25.9% for the trailing 12 months. Book value per share of $34.16, up $8.43 or 33% versus prior year. And results over the last 2 years have grown trailing 12-month net operating revenues by 56% or a 25% CAGR and trailing 12 months earnings by 91% or nearly 38% CAGR. A more volatile economic backdrop has emerged, potentially surpassing levels of the past 2 years, but this environment plays into our strengths as volatility continues to be a key driver of our business. We have seen significant growth in our client assets, average client funds, securities clearing, prime brokerage and metals, which provide stable recurring income. We believe our unique ecosystem, which offers extensive depth and breadth of product at a widespread geographical reach, combined with a significant total addressable market, will continue to power growth in the years to come. We naturally remain very excited about our future growth and continued expansion of our ecosystem. With that, operator, would you kindly open the line for questions? Operator: [Operator Instructions] Our first question comes from the line of Dan Fannon from Jefferies. Daniel Fannon: The environment continues to be quite constructive as you highlighted. And I was hoping to just get a bit more context around the health of that. One of your peers highlighted a customer loss in, I think, January on the natural gas side. I was hoping you could talk about just kind of the good and bad volatility that you saw in the quarter. And then also give us an update here, given we're now in May of kind of what's happened as the quarters ended, and we've seen some of the exchange volumes also start to moderate, how that's translating across your business as well. Philip Smith: Sure. So as we said in the Q1 Q&A, there was surprisingly very little in terms of credit losses. And we did remind the market that continued heightened level of volatility, while positive from a revenue perspective, it obviously does increase the chance of some credit losses. Now we work very closely with our clients each and every day to help mitigate that because communication with our clients through these extreme volatile periods is -- whilst unusual, it is important that we maintain that level of communication and ensure that we help our clients to minimize their own exposure, their own liquidity risks. And I think in light of the fact that if you look at the levels of volatility in the last 2 quarters, I think the level of credit losses we've provided for have been somewhat minimal. So I wouldn't say it was particularly unusual. I think it highlighted the quality of our clients. And I think probably more relevant, it highlights the interaction and engagement that we have with our clients. But as we said very openly many times, this level of increased volatility, there should be an expected increased risk in credit losses that come with that heightened revenue generation. Daniel Fannon: And then I guess just a follow-up on just the kind of current environment what we're seeing in April, particularly in certain of the markets where we know we can see volumes have moderated, whether that's metals or precious metals or other areas. Can you give us an update in terms of how that business looks here thus far to start fiscal third quarter? Philip Smith: Yes, certainly. I mean, Dan, we've had a tremendous activity in the first couple of quarters and last year, I guess, in the precious metal space. And then obviously, listed derivative, OTC, everything was really doing well with the volatility we saw here in the second quarter of fiscal year. But we do see -- we see that what you see is from the standpoint of some moderation coming into April as we start the third quarter just with a little bit -- I wouldn't -- it's certainly not normal, but off where you saw in Q2 from the standpoint of activity. But overall, a very good environment from the standpoint of interest rates and still an elevated volatility market. Daniel Fannon: Got it. Okay. That makes sense. And I guess I'm not used to being restricted by my number of questions on this call, but... Philip Smith: Go ahead, Dan. Daniel Fannon: I guess just, Bill, you mentioned some of the costs associated with R.J. O'Brien and severance and what we saw in the quarter. Can you update us on the synergies and just broadly at the highest level, how the integration is going? Clearly, the environment is good, but I'd like to get a little bit more detail around what you're doing under the hood and how that's going. Philip Smith: Well, if I maybe start, Dan, by just giving you an update in terms of what we set out from a time line from an integration program perspective, we are on track. And I think the last call, we highlighted the targeting of our non-U.S. businesses and the integration that go with those businesses was the priority and also a testing ground to ensure that the larger program of integration in the U.S. is able to run more smoothly based upon any observance or any issues that we -- that arose during the non-U.S. integration process. So those have begun. This quarter we're currently and it is obviously an important quarter for us, and we've begun the process of the integration of our U.S. FCMs. And it's on a much more gradual basis, whereby we begin testing with some small group of clients. We then have a second group, which has already occurred, and then we have a gradual buildup to the entirety of the FCM consolidation at the end of this month. So it's an ongoing process. The time line hasn't changed from where we set out and how we set it out almost 2 quarters ago. And in terms of the costs and the efficiencies, those are also on track, but I'll let Bill highlight those in detail. Daniel Fannon: Sure. Thanks, Philip. William Dunaway: We touched on this a little bit last quarter, Dan. So within the quarter, we talked a little bit coming out of last quarter what the run rate is. For the quarter of -- second quarter, we had about 7 -- just shy of $7 million, $6.9 million worth of synergies that we saw in the numbers in Q2 and the exit run rate kind of coming out of Q2 of those same synergies is about a little over $8 million. So we're at about a $32 million run rate to reaffirm kind of where our target is. Our expectation is that we'll be $50 million by the end of the process. And we think that coming out of Q2, we're probably around $32 million on an annualized basis, and we expect by the end of fiscal year to be probably closer to $45 million, and then we'll have that kind of remaining piece dribble in, in '27. Does that answer your question? Daniel Fannon: Yes. No, that's super helpful. And then just lastly, Bill, on the context of the hedge that you talked and quantified, are -- do you think you're kind of -- do you expect to do more as the year goes on? Or is this kind of what -- you've talked about this previously, but is this the kind of right amount in terms of interest rate exposure you're looking to manage to? William Dunaway: Yes. We talked about this when we first did the RJO kind of integration in that first quarter, and Sean had touched on at the time that at that time, we had about $13 billion of the 2 kind of combined portfolios, and there's about roughly half of that, that is our balances that we keep virtually most of the income on those assets. So that's really the key one that we're trying to protect. So this puts us at around $1.8 billion of swap coverage, and we've got about $1.5 billion of kind of duration, right, that's going out to 20, 24 months of physical purchases of investments. So we feel like we've got a good start, but I think we'll probably continue to look where applicable to still put in some floors there just to protect the downside on that where it's just kind of -- there's not sharing on those balances. So we want to make sure that we're comfortable with the levels we're setting. So still an active management program that we've got in place. Hopefully, that kind of gives you some guidelines of what we're looking to protect. Operator: Your next question comes from the line of Jeff Schmitt from William Blair. Jeffrey Schmitt: In the commercial hedging business, could you just give us a sense of the mix of that business? I mean, obviously, strength was widespread, but how much is agricultural versus energy or, I guess, renewables and RJO's interest rate business as well? William Dunaway: So within the majority -- just to level set it, the majority of the RJO institutional interest rate business is actually in the institutional segment because it's more institutional customers looking to -- the FIG group and others looking to manage their interest rate exposure. But if we're looking on the commercial side, of the listed derivative, it's probably going to be more heavily weighted towards the energy and the renewable fuel side. I mean a lot of it was soybean oil and other inputs into renewable fuels. So it's -- you can call that agriculture, you can call that renewable, it's a little bit of both. It's the inputs on the agricultural side, the output on the energy side. But it's more so bad. I mean I think we're still seeing -- we had a bit of a slow start to Q2 and kind of, I would say, like the U.S. row crops, corn and soybean wheats, but then we saw nice activity in the back half of the quarter. But really, the OTC market was really where we saw was the real stand out with the best volume, best revenues we've seen historically on the OTC space. And with that volatility, I think those customized solutions that we can provide to customers to really kind of help capture margin and mitigate their risk showed their -- showed the benefit in that quarter to clients, and we saw a lot of uptake in activity. Philip Smith: And I would only add that in Q1, maybe we were slightly overshadowed by the success of the metals business in relation to everything else. But in Q2, there was a consistent level of increased activity, increased revenue across the board, which we don't always expect and we shouldn't expect, but it was pleasing to see that that was evident. And as Bill said, obviously, energy was very much the story of the quarter, but there was consistent growth in other areas as a result of increased volatility, but also just increased activity from our clients and across the board, which good to see, very pleased. Jeffrey Schmitt: Okay. That's helpful. And then maybe if you could do the same in the physical trading business. I mean, is that mainly precious metals and gold in particular? What portion of the mix is that? And then where are you in terms of cross-selling with RJO clients? I don't think they have that physical trading capabilities. Philip Smith: No, they don't. And I think that was raised last quarter. I think there was a level of confusion whether a lot of that came from RJO integration and cross-selling. The physical aspect is very much driven by our very successful precious metals business. but also our very successful non-metals business, which in areas of cocoa, in areas of coffee, we had continued expansion, continued growth across the board. But unfortunately, within the physical space, there is still an overshadowing by the physical metals business. And we saw Q1 showing record levels of transaction volume and net income attached to that physical metals business. Unfortunately, Q2 overshadowed Q1. So that continued level of growth and client activity. But it was, as I said before, across multiple subproducts within our commercial business, there was a broad level of increased activity and increased revenue. And I would say with regards to our OTC business, where we are -- we highlighted a record level of OTC contracts, that is something that we look forward to greater participation from the RJO integration post full integration in the U.S., where we are able to more easily offer OTC contracts, OTC products and capabilities to the legacy RJO client base. Until that integration happens, it's just slightly more cumbersome in terms of papering in different legal entities and so that make that life easier. William Dunaway: And Jeff, to your numerical question there for total $190 million worth of physical contact operating revenues in Q2, about $150 million of that was precious. The rest was -- the rest of the -- what we called physical agriculture and energy before, we're now calling StoneX Supply and Trading, but that's kind of more the agriculture and energy side of the business. Jeffrey Schmitt: Okay. Okay. Very helpful. And then could you provide an update on the M&A environment and sort of what inning you think we're in for industry consolidation? Are opportunities up versus a year ago? How are valuation expectations trending? Philip Smith: I think I think generally, we will always continue to see a certain level of small to midsized interest and M&A activity. And I think I mentioned this previously is that the -- we are known in the market as a consolidator. We are known as an expander of our ecosystem. And I think that drives the interest in people wanting to bring their business who maybe either want an exit strategy or they want to take their business to the next level and be part of a broad, more capable, expansive ecosystem that they can operate within StoneX. And I think we've mentioned previously that on the whole, most of the acquisitions we've done ended up within a relatively short period of time, growing in multiples of where they were prior to becoming part of StoneX. And a lot of that is the heavy cost of business, heavy cost of regulation, heavy cost of having monoline businesses in certain areas where you don't have that diversity of revenue, you don't have the ability to utilize and access the clients across multiple products. And I think that's our benefit. So as a result, that is why we do get a constant level of interest in that sort of mid -- small to midsize sort of $10 million to $30 million range of businesses that we are very easily able to acquire, incorporate, tack on to the ecosystem and then start leveraging either the client capability, the geography expansion or the products that those acquisitions provide us. And I think it's important that we talk about our ecosystem all the time, and that is a huge driver of much of the M&A activity. And I think it's something we probably don't talk enough about. because the way we operate our verticals and our products, we don't allow -- we don't want any silos within our businesses. And over the last sort of 10, 15 years, I think we've done a very good job of integrating multiple new products, new entities, new capabilities that were previously on a stand-alone basis. Everything is becoming much more integrated and that allows us to truly leverage those capabilities and truly have multiple product initiatives like we've seen with our FIG initiative, where we're bringing together all aspects of the company and heading in the same direction. That drives interest in us from an M&A perspective, and it drives interest that we have in other areas where we would like to continue that level of ecosystem expansion. So I don't think the market has changed drastically. We continue to have a lot of interest. And we do almost make small acquisitions on a very regular basis, which we probably don't promote as much because we're so used to that level of expansion. But always looking at transactions, always looking at potential expansion opportunities. Operator: [Operator Instructions] This now concludes the question-and-answer session. I would now like to turn it back to Philip Smith for closing remarks. Philip Smith: Thank you. In closing, I would just like to say a huge thank you to all the employees of StoneX for their vital contribution in achieving this record quarter. Working tirelessly every day with our clients through such heightened volatility market conditions is what we do and StoneX employees do this incredibly well, a service for which I'm hugely proud of. And this quarter, I feel, is a testament to that dedication and that service to our clients. So a huge thank you to all of our employees and look forward to seeing what Q3 brings. Thank you very much. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good day, and welcome to the Plains All American Pipeline, L.P. and PAGP First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question, you will need to press star 11 on your touch-tone telephone. Please note this call is being recorded. I would now like to turn the call over to Blake Fernandez, Vice President of Investor Relations. Please go ahead. Blake Michael Fernandez: Thank you, Michelle. Good morning, and welcome to the Plains All American Pipeline, L.P. First Quarter 2026 Earnings Call. Today’s slide presentation is posted on the Investor Relations website under the News and Events section at ir.claims.com. An audio replay will also be available following today’s call. A condensed consolidating balance sheet for PAGP and other references are in the appendix. Today’s call will be hosted by Willie Chiang, Chairman, CEO and President, and Al P. Swanson, Executive Vice President and CFO, along with other members of our management team. With that, I will turn the call over to Willie. Wilfred C.W. Chiang: Thank you, Blake. Good morning, everyone, and thank you for joining us. This morning, we reported first quarter adjusted EBITDA attributable to Plains All American Pipeline, L.P. of $730 million. Al will cover the details on our results in his portion of the call. Let me start with the macro environment, which has changed significantly since our last call. Recent geopolitical events have reiterated the importance of reliable, secure, and responsibly produced energy. The closure of the Strait of Hormuz has significantly disrupted global shipping channels and Middle East supply, contributing to stronger commodity prices over the past couple of months. In response, excess floating storage has been drawn down, and strategic petroleum reserves are being released globally. While this helps balance the market deficit on a short-term basis, we are seeing a more constructive oil market developing on a longer-term basis. We expect this destocking environment to continue over the next number of months and ultimately drive a restocking phenomenon longer term, as countries replenish depleted strategic petroleum reserves globally. Post-war, we would not be surprised to see several countries restock their SPRs above pre-war levels, essentially creating an additional layer of demand into the future, which should support prices and incent producer activity. On the supply side, OPEC production capacity post-war remains uncertain, but we suspect spare capacity will be tighter based on a slower recovery of shut-in production and infrastructure damage during the war. We believe the conflict shifts the focus towards more geopolitically stable regions to ensure security of supply. Against this backdrop, North America, including the Permian, remains well positioned to play a critical role in meeting global demand. As this occurs, the value of existing infrastructure in the ground should continue to increase over time. For these reasons, we believe Plains All American Pipeline, L.P. is well positioned for both the near-term volatility and longer-term macro environment. Based on these market dynamics and the growth trajectory that we see for our business, we have increased our initial 2026 EBITDA guidance. As highlighted on slide four, we are increasing the midpoint of our full-year 2026 adjusted EBITDA guidance by $130 million to $2.88 billion. The NGL segment EBITDA is now expected to be $170 million, following first quarter outperformance of $45 million and the updated divestiture timing now in May 2026. Our trajectory of growth this year is underpinned by three key drivers: the sale of our NGL assets, Cactus III synergy capture and streamlining. The growth of our EBITDA is paced with the execution of these initiatives and is enhanced by capturing optimization opportunities that have been substantially secured over the next three quarters. We are also seeing increased producer interest in both Canada and the United States for additional connections to our system. The combination of all these factors will ramp up through the year and position us well into the future. Our premier crude oil footprint continues to support stable fee-based cash flows in a variety of macro backdrops. As global markets turn to North America for long-term energy supply, we are well positioned across key producing basins and downstream markets to drive multiyear growth. We remain committed to our efficient growth strategy, generating significant free cash flow, optimizing our assets, maintaining a flexible balance sheet, and continuing to return cash to unitholders via our disciplined capital allocation framework. With that, I will turn the call over to Al to cover our quarterly performance and other financial matters. Al P. Swanson: Thanks, Willie. Slides five and six contain adjusted EBITDA walks that provide additional detail on our performance. For the first quarter, we reported crude oil segment adjusted EBITDA of $582 million, which was broadly in line with our internal estimate and includes a full-quarter contribution from the Cactus III acquisition, offset by a number of one-off items including winter weather impacts in the Permian, system maintenance, and timing of minimum volume commitments. Moving to the NGL segment, we reported adjusted EBITDA of $145 million, reflecting a stronger-than-expected contribution from higher straddle production and improving frac spreads in March. A summary of 2026 guidance and key assumptions is on slide seven. Growth capital remains $350 million, while maintenance capital was increased to $185 million reflecting ownership of the NGL assets into May. Regarding the $130 million increase in EBITDA guidance, key drivers are outlined in the waterfall on slide eight. The NGL segment increased by $70 million, driven by outperformance in the first quarter along with ownership of NGL assets into May. The oil segment was increased by $60 million, driven by captured optimization opportunities, FERC tariff escalators, increased spot tariff volumes, and increased West Coast volumes. To the extent that the elevated commodity environment persists into the second half of the year, we would expect to capture incremental opportunities. For 2026 guidance, we continue to assume Permian crude oil production to be relatively flat year over year. While we have yet to see a meaningful shift in U.S. producer behavior, any increase in activity would likely benefit 2027 and beyond. We expect an improving back end of the crude oil curve and removal of natural gas takeaway constraints as new egress projects start up later this year to drive incremental activity throughout the year. As illustrated on slide nine, we remain committed to generating significant free cash flow and returning capital to unitholders while maintaining financial flexibility. For 2026, we expect to generate $1.85 billion of adjusted free cash flow excluding changes in assets and liabilities, and excluding sales proceeds from the NGL divestiture. Our pro forma leverage at the end of the first quarter was 4.1x, reflecting the Cactus III acquisition. First quarter leverage pro forma for the NGL sale would decrease to approximately 3.5x, and we would expect leverage to migrate towards the low end of our target range of 3.25x to 3.75x by the end of the year. We expect net proceeds from the NGL sale to be approximately $3.3 billion, which is approximately $100 million higher than our prior estimate. Our acquisition of Cactus III last year has mitigated the tax liability of the unitholders resulting from the NGL divestiture. As a result, we no longer expect to pay a special distribution following the closing of the NGL sale. Before handing it back to Willie, I would note that both current and deferred taxes are elevated on the statement of operations this quarter because of the restructuring activities associated with the NGL sale. There was no cash tax impact in the quarter, as payment of the related taxes will be made in conjunction with closing or in future periods. With that, I will turn the call back to Willie. Wilfred C.W. Chiang: Thanks, Al. In the midst of volatile energy markets, we remain steadfast and focused on executing our three initiatives for 2026: closing the NGL sale, driving synergies on Cactus III, and advancing our streamlining initiatives. Our efficient growth strategy has positioned us well to execute through a range of market environments, generating durable cash flow and creating long-term value. Importantly, the improving oil macro environment is starting to present additional organic investment opportunities with strong returns. We continue to evaluate both organic and inorganic opportunities in a disciplined manner. Capital investments help underpin long-term EBITDA growth, but they must meet our return thresholds and provide visibility into future return of capital to unitholders. Our transition to a pure-play crude midstream company, coupled with the acquisition of Cactus III, is proving timely as tensions in the Middle East position North America as a key source of global energy supply into the future. Before I turn the call over to Blake, I would like to make a brief comment about our pending transaction with Keyera. In terms of timing, as reported by both Keyera and Plains All American Pipeline, L.P. in separate releases earlier this week, we are targeting to close the transaction this month. While it is unfortunate that the Competition Bureau has chosen to challenge the transaction, their lawsuit does not prevent the parties from closing the transaction, which both Plains All American Pipeline, L.P. and Keyera are committed to do. I realize you may have some additional questions, but I hope you understand it would be inappropriate for us to comment any further on this matter, so we would appreciate it if you would refrain from asking questions regarding the transaction. Blake, I am now going to turn it over to you to lead us through Q&A. Blake Michael Fernandez: Thanks, Willie. As we enter the Q&A session, please limit yourself to two questions. This will allow us to address as many questions as possible from participants in our available time this morning. With that, Michelle, we are ready for questions. Operator: Thank you. If your question has been answered and you would like to remove yourself from the queue, please press 11 again. Our first question comes from Brandon B. Bingham with Scotiabank. Your line is open. Brandon B. Bingham: Thanks. Good morning, everybody. I just wanted to ask on the new guide. If I look at your sensitivity and the new crude price expectations, it would imply that, at least on price movements alone, the crude contribution should probably be higher than what is currently shown. Could you just walk us through what is baked into the new guide and maybe the embedded outlook in there? Al P. Swanson: Sure, Brandon. Our original guidance for the year assumed a $60 to $65 environment for 2026, so roughly a $62 midpoint. We came into the year highly hedged at roughly those levels. The $85 environment that we are talking about for the future is roughly the strip from June through December when we looked at it. So there would be some benefit based on crude prices on our PLA, but because we had hedged quite a bit before entering the year, that sensitivity we give is just a raw sensitivity. In order to make it more meaningful, we would have had to have disclosed to you the hedge position at the beginning of the year, which we have not historically done. So what I would say is that the first quarter performance and the nine months of our guide are very minimally impacted by actual PLA pricing. Brandon B. Bingham: Very helpful, thank you. And then maybe just wanted to ask about, in light of some of the commentary in your prepared remarks about a more constructive longer-term market and just the whole macro environment as it stands today, how are you thinking about the potential for the EPIC expansion at this point? Jeremy L. Goebel: Brandon, good morning. We are excited about the opportunities around our entire long-haul portfolio and are having constructive dialogue with existing customers and new customers looking for secure supply from the United States. That results in some spot activity, but longer term the expectation is to contract at higher rates than maybe before, with potentially new counterparties. That would pertain to recontracting existing pipeline capacity and expansions as well. We are looking at all of the above and hope to have updates in the coming quarters on how that looks. Brandon B. Bingham: Okay. Great. Thank you. Operator: Our next question comes from Gabriel Philip Moreen with Mizuho. Your line is open. Gabriel Philip Moreen: Hey, good morning, everyone. Maybe I will just ask the Permian macro question, Willie, in terms of your best outlook. I think previous years you talked about 200 thousand-ish barrels a day year-over-year growth. Best venture at this point, I realize there are a lot of things in play and things are changing quickly, but do you think that goes significantly higher from here, 400 thousand, 500 thousand in 2027? I am just curious what your latest thoughts are there. Wilfred C.W. Chiang: Yeah, Gabe. Jeremy may have some additional comments, but I will give you my thoughts. U.S. producers have remained very disciplined as far as capital allocation, and they are looking at the back end of the curve to see where it goes. WTI is roughly $70, and our view is when you start getting into $75 and above, increased activity happens. There are also some other short-term operating constraints that are limiting production a bit. The Permian has some natural gas takeaway constraints. There are new lines that are being built and being commissioned as early as later this year, so the thought is that alleviates itself. Our assumption for the Permian this year was flat, and if there is some upside, obviously we benefit from it. We are not giving a formal guide, but we would expect growth going forward and probably some momentum of volumes that will increase production, maybe with a little bit of a flush later this year or early next year. I think it really depends on the back end of the curve, but the systems are ready to go. Gabriel Philip Moreen: Thanks, Willie. And then maybe if I can ask on the sustainability of some of the marketing opportunities you are currently seeing. Can you talk about some of the spreads that you are seeing and also the value of dock space, the extent you are debating internally maybe terming some of those out at higher prices? And then, the steepness of the curve and backwardation—how that is playing with your storage. Is that helpful? Is that a hindrance? Jeremy L. Goebel: Gabe, without getting into specific strategies, time, location, and quality spreads—all that volatility—we benefit from all of those because we have the assets, the supply position, and the trading function to capture those opportunities. It is hard to forecast those when they arrive. That could be time spreads—do you sell a barrel now and buy it back later by emptying a tank? Differences in grades between Canada and the United States, differences in Gulf Coast grades—all of those are strategies and things we can take advantage of with our integrated system. We are excited about those opportunities. What we have put in the forecast has been substantially captured over the next three quarters. This is a very volatile period; we have only been in this sixty to seventy days, so it is hard to forecast that to continue. But if it continues, we would expect to capture more opportunities going forward. And just to add on, we estimate there is close to 200 thousand to 300 thousand barrels a day of oil that is behind pipe in the Permian Basin. So that flush production Willie referenced is substantial, and a lot of that is in the more constrained areas of the Delaware Basin, where we have a broader footprint, including New Mexico and other places. If you look at the Waha spread, flat price in Waha has been largely negative since last September. That is what is accumulating all of this to go, and as gas prices recover, productive capacity is already there to add. As you add more, that puts more pressure on potentially long-haul spreads and the ability to term up contracts at greater rates. We are seeing more demand from new customers, and we are seeing potentially flush production. Those should all help convert short-term opportunities into longer-term opportunities. Wilfred C.W. Chiang: And if you look at our numbers, long-haul has increased and margins on that have also improved. I think we are moving to a more structurally full-pipe situation as we go forward, which should be constructive for us. Gabriel Philip Moreen: Appreciate it. Thanks, guys. Operator: Our next question comes from Manav Gupta with UBS. Your line is open. Manav Gupta: Good morning. I just wanted to focus a little bit on the weather impact. I think it is about $49 million quarter over quarter. I am trying to understand, since you mention timing of minimum volume commitments, is there a possibility some of this can be reversed in 2Q—some of what you lost in the current quarter comes back into the second quarter? If you could talk a little bit about that. Jeremy L. Goebel: Yes, Manav. Those are two different things. With regard to weather, weather is just production shut in for a period—you cannot make that back, but the flush production does come back. With regard to the timing of MVCs, that is continuous in our process. If you look at some of the earnings calls from others about their dock performance or other things in the first quarter, freight was really expensive and margins did not have people moving, so long-haul volumes were down across the industry. But that has completely reversed in timing. So you would absolutely expect that to be recovered—it is just a question of those MVCs accrued versus when they are paid. All the pipelines are full again, and the MVCs are being reversed. Wilfred C.W. Chiang: Manav, if you are referring to slide five, I think the point of your question is on that negative $49 million. There are a bunch of one-time events in there that you are absolutely correct will not occur again as we go forward. Manav Gupta: Perfect. And if you could also talk about the very strong results from the NGL segment in the first quarter versus the last quarter—some of the drivers of what helped you deliver much stronger earnings in that segment quarter over quarter? Thank you. Jeremy L. Goebel: Sure, Manav. Higher border flows than expected—you had very full storage in Canada and continued production, which required volumes to be exported, and those were exported through our Empress asset. So higher border flows lead to more straddle production, and that would all be unhedged and impact results. In addition, higher frac spreads towards the end of the first quarter contributed. I would say those two, and that has continued into the second quarter, which is reflected in the increase in guide for the NGL business through closing. Manav Gupta: Thank you. Operator: Thank you. Our next question comes from Michael Jacob Blum with Wells Fargo. Your line is open. Michael Jacob Blum: Thanks. Good morning, everyone. My question is on the guidance, the crude segment. It sounds like most of the increase is optimization that you have already locked in, and then maybe the rest is PLA. I just want to make sure I understood that. And then, if prices stay elevated for the balance of the year, would there be upside to the guide in the crude segment, or is that already baked into the numbers? Wilfred C.W. Chiang: Thanks, Michael. Great question. Our assumptions are that the numbers in there are really what we have captured that will roll off through the year as we actualize optimization efforts. And you are correct—if we have a stronger macro environment and higher prices, there definitely is upside. Michael Jacob Blum: Great. Thank you. Operator: Our next question comes from Jeremy Tonet with JPMorgan Securities. Your line is open. Jeremy Tonet: Hi. Good morning. Just wanted to see what you are seeing locally, ear to the ground there, as far as producer activity—whether rigs are being picked up by the independents or larger drillers as well—and what would be needed across the strip to gain the comfort to do that? How do you think production could uptick here, and what do you see? Jeremy L. Goebel: Jeremy, good morning. You have already seen about 15 rigs added back, and we would expect some to continue. But as Willie mentioned, there is a bit of a throttle right now—you cannot add more natural gas to the system if flaring is not allowed. Productive capacity is there; rigs being added now would impact 2027. I think there was a bit of confusion in the market in that the products market and the physical crude market are substantially tighter than the financial markets would indicate, which means the back end of the curve has to come up. It is very difficult, even if you opened the Strait of Hormuz tomorrow, to get everything back in order the way it was. It is going to take a while for shipping to start. You have to empty tanks before you can start back up production. Products markets are just empty in some places. There is a real dislocation that will take time. Some integrators have stated for every day it is down, it is three days to get back up. So it is potential for months to get out of this even if it were resolved today. I think that is the part producers are waiting on—more assurance in the back end of the curve to bring rigs on. At this point, the service companies have stacked equipment. It takes capital and commitments to bring those back. Producers need commitment from prices that they will be there, and the longer this goes, the more likely that will occur. But the dislocation in the back end of the curve right now is maybe causing some hesitancy, which is going to prolong the problem. Jeremy Tonet: Got it. That is helpful. How do you think that impacts basis over time and what it could mean for future egress expansion? Jeremy L. Goebel: It is constructive for basis—more production and more demand on the water. Specifically in the Corpus market and some of the more efficient docks, you are seeing higher pricing relative to even the screen. On a prolonged basis, that says there are new buyers coming to America. Vessels that used to be pointed at other locations intend to come back and forth to the United States for a while. You are seeing that on the NGL side, you will see it on the LNG side, and on the crude side. More buyers and more demand is generally constructive for spreads, and we would expect to match either our suppliers or our customers with that and, hopefully, offer service at a higher rate. Wilfred C.W. Chiang: Jeremy, you are aware that on Cactus III we have expansion capacity. As we have always said, we are going to pace that with market demand and commercial contracts. As we have gotten to know the project and assessed it, we have the ability to do that in a phased approach. It is fairly flexible for us to get additional volumes. It is not a binary big expansion—there are ways to do it in phases which should match customer demand. Generally speaking, in a higher price environment, there are more opportunities because there is a pull on the whole system, and optimization opportunities become more prevalent versus a lower price environment where less is moving. Jeremy Tonet: That is helpful. Thank you. Operator: Thank you. Our next question comes from Jackie Kalidas with Goldman Sachs. Your line is open. Jackie Kalidas: Hi, good morning. Thank you so much for the time. First, I was wondering if you could comment on the progress of your cost reduction initiatives. Are these on track with expectations at this point, and is there any potential for upside capture here? When should we expect Plains All American Pipeline, L.P. to realize more significant efficiencies through the year? Christopher R. Chandler: Good morning, Jackie. We are on track to capture the efficiencies—$50 million by the end of 2026 and an additional $50 million in 2027. We have already made a number of changes, some unrelated to the NGL transaction and some in anticipation of the NGL transaction. We feel confident in the number. There is always upside—we are always looking for additional opportunities, and we will certainly pursue any that we find. We are not prepared at this time to change the $100 million target we have through 2027, but we are on track and things are going well. Jackie Kalidas: Thank you. And then one on capital allocation. With debt reduction as a near-term focus, particularly following the pending NGL sale, when can we expect a shift—or what would allow a shift—from debt paydown to a larger focus on potential buybacks or preferred paydowns? Al P. Swanson: Clearly, with the proceeds from NGL, we intend to take that and pay down a little over $3 billion of debt, which would be the term loan, the outstanding CP we have, and a $750 million note that matures later this year. Post that, we expect to be right at the midpoint of our leverage range—around 3.5x—and expect that to migrate down, which will then bring us back to where we have been for the last number of years prior to the EPIC acquisition, with leverage towards the low end of our range. Our capital allocation, first and foremost, is focused on maintaining distribution growth, funding investments—whether organic or M&A-related—as well as looking at taking out preferreds should leverage remain at or below the bottom end of the range, and opportunistic share repurchases. So, once we get through the NGL sale and deployment of the proceeds, we return to the framework we have been operating under for the last several years. Jackie Kalidas: Great. Thank you. Operator: I am showing no further questions at this time. I would like to turn the call back over to Willie Chiang, President, CEO and Chairman, for closing remarks. Wilfred C.W. Chiang: Michelle, thanks. We appreciate everyone’s support and attention, and we look forward to seeing you on the road. Stay safe. Thank you very much. Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. First Quarter 2026 Financial and Operating Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. You may also submit questions in writing at any time using the form in the lower right of the webcast frame. Should you need assistance during the conference call, I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets and Investor Relations. Please go ahead. Brian Ector: Thanks, Dave. Good morning, and welcome to Baytex Energy Corp.'s First Quarter 2026 Results Conference Call. Joining me today are Chad E. Lundberg, our President and Chief Executive Officer; Kendall Arthur, our Chief Operating Officer; and Chad L. Kalmakoff, our Chief Financial Officer. This is Chad’s first call as CEO and Kendall’s first as COO. Before we begin, please note that our discussion today contains forward-looking statements within the meaning of applicable securities laws. I refer you to the advisories regarding forward-looking statements, oil and gas information, and non-GAAP financial and capital management measures in yesterday’s press release. All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. After our prepared remarks, we will open the call for questions. Webcast participants can also submit questions online. With that, let me turn the call over to Chad. Chad E. Lundberg: Well, good morning, everyone. Q1 was a strong start to the year. Production averaged above the high end of our guidance at 69,500 BOE per day, driven by outperformance across our heavy oil portfolio. We exited the quarter with net cash of $591 million and repurchased 35 million shares, or 4.6% of our shares outstanding, for $174 million. With this outperformance, and a constructive commodity backdrop, we are raising our 2026 production guidance to 69,000 to 71,000 BOE per day. This represents 7% annual growth at midpoint, up from 3% to 5% previously. We are maintaining discipline, with capital expenditures moving to the high end of our guidance at $625 million, and this includes incremental projects in our Duvernay and heavy oil. Along with updating our current-year guidance, we are also updating our three-year outlook. With the depth and quality of our inventory, we are targeting 6% to 8% annual production growth through 2028, up from the prior midpoint of 4%, while maintaining a net cash position throughout the period. Before I turn the call over to Kendall, I want to acknowledge two appointments that were announced yesterday. Kendall Arthur moves into the Chief Operating Officer role and Adrian Blazovic has been appointed Vice President, Heavy Oil. I have worked closely with both for the past eight years. They have been instrumental in building our Canadian operations and are central to our long-term leadership plan. I am confident in their ability to execute and deliver against the strategy you will hear about this morning. Kendall, over to you. Kendall Arthur: Thanks, Chad, and good morning. We had a strong operational quarter. As Chad mentioned, production of 69,500 BOE per day exceeded the high end of our guidance, with oil and NGLs representing 88% of the mix. We invested $145 million in exploration and development, and brought 53 wells on stream, consistent with our full-year plan. In heavy oil, we delivered strong results across the portfolio. At Peavine, the first six wells of our 2026 program averaged 30-day IP rates of 680 barrels per day, well above the expected type curve. At Lloydminster, we stepped up to three rigs during the quarter, successfully targeting seven discrete horizons across the “Van Ville” stack, bringing 16.7 net wells on stream. At Peace River, we brought three wells on stream and acquired an additional 40 sections at Utikima, bringing our total land position to 109 sections. We completed a 21 square mile seismic shoot covering approximately 20% of the land base, and following interpretation could drill our first exploration test well in early 2027. In the Duvernay, we drilled our first four wells of the year, with completions now underway. First wells are expected on stream in June, with nine following in Q3 and Q4, totaling 13 wells on stream in 2026, with one four-well pad drilled and to be completed in early 2027. It was a safe and efficient quarter, and I want to recognize our field teams for their dedication and hard work. With that, I will turn it over to Chad L. Kalmakoff. Chad L. Kalmakoff: Thanks, Kendall. This marked our first full quarter of results for our Canadian business. We generated $152 million of adjusted funds flow, or $0.20 per basic share. Our operating netback improved to $35.36 per BOE, up from $29.30 per BOE in Q4 2025, driven by higher realized pricing and continued cost discipline. We realized hedging losses of $29 million in the quarter. Our exposure to the current strip will increase as our WTI hedges roll off at the end of Q2. As a reminder, on an unhedged basis, every $5 move in WTI impacts our adjusted funds flow on an annual basis by approximately $125 million. We ended Q1 with a net cash position of $591 million and, as Chad highlighted, we repurchased 35 million shares, or 4.6% of the shares outstanding, for $174 million. The balance sheet is in excellent shape with full flexibility to fund our capital program and return capital to shareholders. Our quarterly dividend of $0.0225 per share remains unchanged. With that, I will turn the call back to Chad. Chad E. Lundberg: Thanks, Kendall and Chad. I want to close by stepping back from the quarter and speak about the business and the opportunity in front of us. Our strategy is straightforward: grow 6% to 8% annually, advance the Duvernay and our heavy oil portfolio, invest in future optionality, and return value to shareholders. We are targeting 15% annual total shareholder return at a mid-cycle price of $70. This is through a combination of production growth, dividends, and share buybacks. We can deliver this with the strength and depth of our current portfolio. The Duvernay is on track to deliver 35% production growth in 2026 with an exit rate of 14,000 to 15,000 BOE per day. Our heavy oil assets carry 12 years of drilling inventory at our current pace, with active exploration across the fairway and two Peavine waterflood pilots underway. We are also driving our cost structure lower. The long-term sustaining breakeven target is under $50, further enhancing our resilience through the cycle. Gemini Thermal represents significant long-term optionality that sits beyond our three-year outlook. Gemini is a regulatory-approved project with 44 million barrels of booked reserves and a first-phase design of 5,000 barrels per day. We are advancing our technical and commercial outlook toward a final investment decision in 2027. This is a business with deep, profitable heavy oil inventory, a growing Duvernay, and net cash on the balance sheet. We are excited to show what Baytex Energy Corp. is capable of. Before we open for questions, I want to recognize two people. First, Eric Thomas Greager. Through his leadership, Eric helped to establish the disciplined Canadian platform we are today. He has worked to ensure a seamless leadership transition and has positioned the company for success going forward. Second, Brian Ector. I did not want to let this call pass without saying Brian has been the trusted and steady voice of Baytex Energy Corp. to the investment community for many years. He will be retiring in July, and we look forward to working with him through the transition. On behalf of everyone at Baytex Energy Corp., thank you both. It has been a pleasure working with you. With that, we are ready for questions. Operator: We will now begin the question and answer session. You will hear a tone acknowledging your request. To submit your question in writing, please use the form in the lower right section of the webcast frame. If you are using a speakerphone, please pick up your handset before pressing any keys. Our first question comes from Phillips Johnston with Capital One. Please go ahead. Phillips Johnston: Hi, thanks for the time. I wanted to ask about the new 15% total shareholder return target, which is rather impressive. Just want to make sure I am thinking about it correctly. So if we assume the new three-year growth rate is around 7% and you add the 1.5% base dividend yield to that, you need another 6% or so from share buybacks to bridge that gap, which in round numbers I think is around $300 million of share buybacks per year. So my question is, is that math correct? And I guess as a follow-up, I realize that this year's buyback is going to be significantly north of that figure. So conceptually, should we think about the buyback in 2027 and 2028 as being significantly lower so that you average around $300 million per year over the three years, or is that a decent placeholder for 2027 and 2028? Chad E. Lundberg: Okay. Thanks, Phil. Appreciate the question. I think this one is very important to be clear on. So, yes, at a top line, our first priority is to deliver a 15% total return to shareholders. As you said, that is inclusive of production growth, plus a dividend, plus our buyback program. If we just step back, I want to reiterate the commitment from the proceeds from the Eagle Ford sale. Seventy-five percent, or $650 million, will be deployed in 2026 through the buyback program. Beyond that, though, we think this business is capable of, and we are targeting, the 15% that you described as we think about moving from this point into the future. Phillips Johnston: Okay. Great. That clears it up. Thank you so much. And then I wanted to ask you about the incremental CapEx spend for the year. Does that increase factor in any service cost inflation, or is it just a reflection of the increased activity? Chad E. Lundberg: Maybe just a little bit of minor cost inflation. We are seeing no doubt on the diesel side now. I do not think you could say we have it all baked in at this point in time. Short of that, no, that is something that we are thinking about. We have most of our service supply costs locked in for calendar 2026, certainly. And so we will just have to see. We are seventy days into the war, seventy days into a complete flip on a macro basis with respect to supply, demand, and the oil market. We will just continue to monitor and see where supply costs go. Phillips Johnston: Sounds good. Thank you, Chad. Operator: And the next question comes from Greg Pardy with RBC. Please go ahead. Greg Pardy: Thanks. Good morning. Thanks for the rundown and congratulations to everyone. And Brian, it has been just amazing working with you for such a long time. So all the very, very best. Chad, I want to ask you just a little bit about Gemini. I know in your opening remarks you framed it and indicated that it would be beyond the three-year plan as you look at it. What are the next steps in terms of how you are approaching this? For example, I know it has been framed at 5,000 barrels a day or so at this point. Is that a number that conceivably could go up? And then what about the team you are assembling within the organization, with depth of expertise in thermal? Chad E. Lundberg: Okay. Thanks for joining, Greg. Let me start high level. Gemini has been in the portfolio since 2014. We have identified 300 million barrels of resource on the project. At a modest 50% recovery, that puts us at 150 million barrels that we are targeting to capture. As I said in my comments, we have regulatory approval for Phase 1 of the project to develop it out. What does that mean? It means we have 3D seismic shot. We have stratigraphic test wells to identify and confirm the chamber, and ultimately that gave confidence for the approval. So that would be Phase 1. If you do the math on the total resource available to recover against 5,000 barrels a day, it would put us out at a 75-year ROI, and so that would make us think about incremental projects to enhance the production beyond the 5,000. Can we get to 10,000 or maybe a little bit above? I think there is a chance. What do we have to do? A bit of the team has been scheduled since the initial projects back in 2014. We had a recent hire, as some picked up on the web, into the thermal team that we are very excited about. We are relooking at the commercial, technical, and capital cost outlook on the project. From there, we are thinking about trying to get to an FID decision in early 2027. That means we ultimately have a chance to put first barrels online in 2029. Does that help, Greg? Greg Pardy: Chad, it helps a lot. You know how I feel about thermal, so that is music to my ears. Maybe just back on the conventional side. As you look at your three-year plan now with a higher growth rate, with that comes higher decline rates, higher natural declines, and then also higher sustaining. Could you maybe put some context around how your decline curve is going to shift and then maybe what sustaining looks like over the next two or three years, just in broad strokes? Chad E. Lundberg: As you pointed out, 6% to 8% production top line growth over the three-year plan. The bulk of that comes out of the Duvernay asset, but there also is some coming from heavy oil. Heavy oil is 75% of our production flows today, and I would remind everybody that of the 75%, approximately 10% of our heavy oil is waterflood-derived at this point in time. So if you look across that piece and portion of our portfolio, we have very competitive declines in the space. As we think about that three-year plan, our decline stays actually relatively flat with the growth. On top of that, we have incremental projects and catalysts that do not sit inside the three-year plan today—so Peavine waterfloods that are being piloted right now. We have incremental project opportunity across the conventional cold flow heavy oil fairway, as well as just working on the cash cost structure and making the business better, which we do as meat and potatoes every day inside the company. Operator: And the next question comes from Menno Hulshof with TD Cowen. Please go ahead. Menno Hulshof: Thanks, and good morning, everyone, and congratulations Eric and Brian. Just maybe I will start with a question on the balance sheet. You talked about running net cash under the three-year plan, which is great to hear. But can you describe your philosophy in a little more detail? And is there a scenario you would take on a bit of balance sheet leverage? I am assuming the answer is no, but maybe you could just walk us through that. And then on the outlook for 2027—I understand we will have to wait for the release of 2027 guidance for the full details, which is still a long way out—but what ultimately drives the decision to grow 6% next year versus 8%? Oil price, of course, is going to factor in, but what are the other considerations in getting from six to eight or the other way around? And what are the broad strokes in terms of growth, spending, and activity levels based on what you are seeing today? Chad E. Lundberg: Good morning, Menno. First and foremost, we think that a strong balance sheet is paramount for an oil and gas company given the cyclical nature of the commodity. That would be step one. We view debt as a potential tool in the event we need it. We would not look to ever use it as a tool to go into debt like we were in the past before the Eagle Ford transaction and the repositioning that we have undertaken. As you think about this company going forward, if we did elect to use debt, half a turn at $70, or mid-cycle pricing, would be a threshold boundary that we would not exceed, and there would have to be very good reason to take it on. On your second question, it comes back to what we are really trying to do at the company, and that is drive value out to the shareholders within Canada with these great assets that we have. When you think about how we do our capital planning, it is really a bottoms-up build from the teams. The question we ask is, what is the best way to run this asset? What does “best” mean? Where can you deliver the strongest returns and strongest capital efficiencies to ultimately drive this growth? The fallout is the corporate top-line production. When we talk about 6% to 8% in 2027, 2028, and beyond, this moves us, for example, to an 18 to 20 well program in the Duvernay. Again, that is where we hit a one-rig levelized base, and we have a shot at improving our capital cost structure even further than what we have demonstrated to this point in the asset. Equally so in heavy oil, where we would look to run the four rigs—essentially keep them going around the clock—to build on the crews, the teams, and efficiencies. That is what underpins the growth, Menno: coming at it from a point of view of where we can drive the maximum value and returns to shareholders. If you look at 2027 with what I just said and think about capital costs, this year, in the press release yesterday, we are going to 13 wells drilled, completed, tied in, and online in the Duvernay, with an incremental pad in the Duvernay that is docked into 2027. Next year, 18 to 20 wells. That is going to come with some incremental capital, and you can expect that to be additive to the $625 million where we sit today. Does that help, Menno? Menno Hulshof: Yeah, that does. That is great. Thanks again. I will turn it back. Operator: And the next question comes from Dennis Fong with CIBC. Please go ahead. Dennis Fong: Hi. Good morning. First, congrats also to Brian as well as Eric, and thanks for taking my question. My first one maybe falls a little bit further along the line from what Menno was asking. You have obviously showcased very strong well cost improvement in the Pembina Duvernay. As you switch towards a one-rig development program and start to roll in a lot of those efficiencies, where do you think the cost structure can get to within the Pembina Duvernay? And then my next question turns towards the waterflood over at Peavine. I know you are initiating the two pilots with two different styles of waterflooding technique. Can you talk to some of the data points or key metrics that you are looking for or hoping to find in terms of each of those pilots, how that may provide you insight to its possible deployment across your existing field, and the future development of the play? And if you will permit me one last question, I am looking at slide 12 within your presentation. You have highlighted an opportunity set targeting eight discrete development horizons within your heavy oil exposure. I see that most of it is coming from the Waseca and the Sparky. Can you characterize the opportunity set that exists from targeting the full stack of formations as you go forward, both from an inventory perspective and a growth perspective? Chad E. Lundberg: I am going to answer that very directly. If you look in our slide pack on page 10, we outline what we have been doing with Duvernay costs. In 2024, we moved from $1,165 per foot to $1,025 per foot of lateral length completed. We are budgeted this year at $1,000 per foot, and we think—this is the power of getting to scale in the asset—that at full rig activity pace we have a shot at getting to $900 a foot or better. I think that directly answers your question. The broader question is the ecosystem of unconventional development. People have to understand what we have done at this company. We talked about costs; we have not talked about characterization. Again, slide 10 points to what we have done year-over-year, 2024 to 2025, on the characterization front, moving from 80 BOE per foot to 90 BOE per foot. We have not really talked about facilities and water infrastructure, but that is part of the ecosystem that needs to be developed to really optimize and maximize your efficiencies. This year we have a little bit of incremental facilities spending. For example, as we built up budget, it is about $50 million, with the majority of that going to the Duvernay. We have three years of elevated facility spend in the Duvernay—2026, 2027, and 2028—at that $35 million range. After that, it drops to $10 million going forward. That gets us five of seven major anchor batteries completed and two and a half of five of the water reservoirs completed. The last point I would make is stakeholder relations. We have a tremendous surface stakeholder team at the company. The amount of work they have done to complete the formula for how you are successful in unconventionals has been very strong. On Peavine waterfloods, we are currently drilling and converting our two pilots. One of the pilots is a conversion of a two-leg lateral—it was actually the initial discovery well in the play—to an injector. We will be actively trying to observe how fast we can fill up the voidage for oil that we have pulled out of the ground already and what happens when we get that voidage refilled, with the offsetting declines and subsequent production on the active producers. The second pilot is where we are drilling new producers in conjunction with new injectors. Again, as we turn the production online, we will immediately turn injection online, and we will be attempting to observe what happens with decline and ultimately what that does to the recovery factors on the wells up in Peavine. Stepping back, we hold 48 of the top 50 wells on primary production in Peavine, and you can see continued strong results with the delivery of primary development in Q1. In broad brush strokes for conventional cold flow heavy oil, typically you get to a 7% recovery on primary development, double that with waterflood to roughly 15%, and then push greater than 20% as you go to more of a polymer flood style development technique. In some of our primary wells we have surpassed and gone as high as a 15% recovery, so we are seeing tremendous recovery from primary production. Boiling it down, Dennis, we are looking for base decline moderation on offsetting wells, how that translates into ultimate recovery factor, and how that ultimately flows straight through to top-line production out of the asset. We are pretty excited about what it does for the company if it works. On the broader heavy oil opportunity set, we are very excited about this area. In Northeast Alberta, we have doubled the land position in the last five years and opened up eight different stacked layers. We think about it as a cube of oil in place. You are right, the initial production is from the Sparky formation, and that is what we identified on a map five years ago in our long-range planning. With the work that has been done by our technical teams and industry broadly, mapping out the signatures of the Clearwater has opened up the incremental opportunity set here to the Waseca, as you pointed out, the Colony, McLaren, and the various zones within that stack. Of the 1,100 wells that we hold and call a risked inventory set in heavy oil, approximately half sit on this Northeast Alberta property. There is further incremental inventory that we are actively derisking by way of exploration dollars, drilling stratigraphic test wells, and, at times, committing to an outright development well. They are $2 million wells, and at times we will push right through to drilling. The opportunity is large. It is a cube of oil in place over eight different layers and a sheet that is greater than 100 sections. There are two predominant zones that we are producing from right now, but you can see that we are starting to uptick the different layers as we move further out in time. Look for us to continue to advance and unlock that in the future and in future updates. Operator: This concludes our question and answer session from the phone lines. I would like to turn the conference back over to Brian Ector for any questions received online. Brian Ector: Great. Thanks, Dave. We do have several questions coming in from the webcast, and I will try to summarize a few of them here. First, to Chad L. Kalmakoff, can you elaborate on our hedge roll-off—maybe the hedge book and our hedge philosophy going forward? Chad L. Kalmakoff: Sure. I will hit the hedge book first. We still have about 50% of our WTI hedged until the end of Q2. Those have been legacy hedges that we had in place prior to the sale of the Eagle Ford. As I mentioned in the introductory remarks, once those roll off, we have pretty robust exposure to WTI prices. In terms of philosophy going forward, I think we have always said a strong balance sheet is the best hedge. We would not be looking to hedge any more WTI exposure and, obviously, with our cash position we are in an enviable spot. So I am not looking to do any more WTI hedges. We continue to hedge differentials—WCS, MSW. We are about 40% to 50% hedged on WCS for the remainder of the year around $13. That is something that we will probably continue in the future, to hedge those differentials. Brian Ector: And a number of questions are coming in around dividend philosophy and shareholder returns again. Chad, can you elaborate on the thoughts around the dividend versus the buyback program? Chad E. Lundberg: At the top line, we talked about the target to deliver 15% returns to our shareholders at $70 oil, comprised of growth plus dividend plus buybacks. We talked about $650 million coming to shareholders this year by way of buybacks. The other 25% of the proceeds, I would remind everybody, is being deployed to small, incremental greenfield tuck-in and bolt-on style activity that we think we are very good at, to enhance and extend our current inventory position. With respect to the dividend, Brian, specifically, we pay 9¢ a share today—depending on where our price is, in the 1.5% range as part of the formula. We do not intend to increase the dividend at this point in time. That would be something we might look at in the future, but as we sit today, everything is evaluated on a best returning, risk-adjusted basis, and this is the formula that we are moving forward with. Brian Ector: One last question around the free cash flow generation of our business. We were a couple million dollars in Q1, Chad. Thoughts on expectations as the year unfolds for free cash flow? Chad L. Kalmakoff: Sure. I think we expect the balance of the year to be more robust. We kind of touched on the hedges—that impacts Q2 a little bit. But beyond that, if you think about an $80 average price for the remainder of the year, that would put you at around $250 million of free cash flow for 2026 in total. And then, again, you think about the WTI price beyond that—the $125 million per $5 on a full-year basis—that would be your notional change. Brian Ector: Perfect. Thank you. So free cash flow will grow as the year unfolds. That covers the questions coming in from the webcast. That does wrap up today’s call and the questions that were coming in. We would like to thank everyone for joining us. Thanks again for your time, and have a great day. Operator: This brings to a close today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good day, everyone. My name is Dannie, and I will be your conference operator today. At this time, I would like to welcome you to the Grindr First Quarter 2026 Earnings Call. [Operator Instructions] At this time, I would like to turn the call over to Tolu Adeofe, Director of Investor Relations. Thank you. Tolu Adeofe: Hello, and welcome to the Grindr Earnings Call for the First Quarter 2026. Today's call will be led by Grindr's CEO, George Arison; and CFO, John North. They will make a few brief remarks, and then we'll open it up for questions. Please note, Grindr released its shareholder letter this afternoon, and this is available on the SEC's website and Grindr's Investor page at investors.grindr.com. Before we begin, I will remind everyone that during this call, we may discuss our outlook, future performance and future prospects. You should not rely on forward-looking statements as predictions of future events. These forward-looking statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of the risks that could cause our actual results to differ from views expressed in our forward-looking statements have been set forth in our earnings release and our periodic reports filed with the SEC, including our annual report on Form 10-K for the year ended December 31, 2025, or any subsequently filed quarterly reports. During today's call, we will also present both GAAP and non-GAAP financial measures. Additional disclosures regarding non-GAAP measures, including a reconciliation of these non-GAAP financial measures to their most closely comparable GAAP financial measure are included in the earnings release we issued today, which has been posted on the Investor Relations page of Grindr's website and in Grindr's filings with the SEC. With that, I'll turn it over to George. George Arison: Thanks, Tolu, and hello, everyone. We delivered exceptional results in Q1 2026. Revenue grew 38% year-over-year with a net income margin of 21% and adjusted EBITDA margin of 45%. We have now shown repeatedly that when we improve the product, expand the value users get from Grindr and monetize thoughtfully, the business responds. Given our Q1 performance and what we can see today, we are raising our full year outlook and now expect at least $535 million in revenue and at least $227 million in adjusted EBITDA for 2026. I will focus on a few highlights. And as always, I encourage you to read our shareholder letter, which goes into significantly more details on these topics as well as a number of others. Our focus in 2026 is clear, making Grindr a more useful day-to-day, more personalized and more valuable across a broader range of user needs and intentions. That means continued work in the core app, including Right Now, Maps, Health Center, significant rearchitecture and broader deployment of gAI. We're also driving towards the global rollout of Edge, our new premium tier. Built around our gAI capabilities, Edge is designed for power users who wants the most advanced experience current technology can offer. Based on user testing, we expect that Edge will command a significant premium to our current subscription offerings and anticipate that it should be our largest driver of revenue growth in 2027. As our offerings expand, Grindr's position in the market is broadening as well. We are staying true to and strengthening our core use case with Right Now while also becoming a broader and more durable category leader, serving one of the most culturally influential communities in the world across many use cases. That is what the Global Gayborhood in Your Pocket means, now moving away from what is core to Grindr and to gay life, but building outward from it into a product, brand and platform that play a larger role in the lives of our users. Over time, we aspire to be not just a known brand, but a loved one, with greater cultural relevance, broader utility and the ability to expand into adjacent categories where our relationship with users gives us the unique right to win. Our recent Madonna partnership is a strong example of that strategy in action. It is a major in-app activation ahead of the global release of our new album, Confessions on a Dance Floor II, and exemplifies the content partnerships component of our product and business. It also is reflective of Grindr's position and culture. Our users do not just consume culture, they help shape what breaks and what matters. As we introduce more elevated experiences, Grindr is also becoming a more premium platform, one that's able to attract iconic partners and create new forms of value that strengthens the brand and expands our positioning well beyond that of a narrow-use-case app. We also continue to build our advertising platform as a meaningful driver of long-term growth. A strong free product remains essential to the health of our network. And this year, we are taking steps to improve the free experience meaningfully, including reducing certain ad triggers, expanding rewards-based advertising and rearchitecting the front end of our iOS and Android apps. Activations, reactivations and overall engagement remains strong, and retention is improving, notwithstanding pricing changes. These strong engagement results are clear indicators that the product quality is getting better. While our MAU growth remains strong, in a small number of international markets, we are also seeing MAU headwinds from 2 types of government actions. First, certain new age-assurance rules lead some adults, including those particularly focused on privacy to drop out of the account sign-up or login flow prior to even entering the age assurance process. Separately, and far more troubling for our users, we face real pressure in certain countries with the repressive policies against members of our community like Malaysia and Indonesia. We estimate that in total, MAU would have grown by an average of 400,000 more in 2026 than the current full year trajectory if we were not facing these 2 distinct factors. This is not financially material to us for reasons discussed in my letter. We are continuing to strengthen Grindr for the long term on behalf of shareholders, including nominating 3 new independent directors for election at our annual meeting, and as John will discuss, beginning execution under our expanded share repurchase program. Overall, I could not be happier with our fantastic start to 2026. The team is executing exceptionally well across technology, product, brand and the business more broadly. And I'm very proud of and grateful for their hardcore approach to everything we do. Because of their dedication, we believe Grindr is set up to deliver strong growth this year and next, and we are excited for what lies ahead. With that, I'll turn it over to John to walk through the results in more detail. John North: Thanks, George, and hello, everyone. Q1 was strong across the board, as George highlighted. Revenue grew 38% to $130 million. Adjusted EBITDA was $58 million or a margin of 45%. The performance was driven by strength in core app revenue, including our pricing changes, but also better conversion and retention as well as ads. App-based revenue grew 33% year-over-year and ad revenue was up 68%. In ads, we have our first big year-long direct ad campaign, which will take our ads revenue up into the mid-to-high teens as a percentage of total revenue for 2026. That's netted against moderation in third-party ad loads that we began implementing in the first quarter in connection with our priorities around user experience and ecosystem health. In 2027, we expect ads as a percentage of total revenue to normalize back to the 15% range that we've historically delivered. Adjusted EBITDA grew 44% to $58 million or a margin of 45%. The strong result is an outcome of both the revenue outperformance and the timing of planned expenses. In our March call, we communicated that we planned higher investments this year in support of our priorities for the business. While these investments began to flow through the P&L in the first quarter, we expect to see that pick up in the second quarter as we execute on planned product and tech development initiatives as well as marketing in support of the brand initiatives George highlighted. Turning now to share repurchase activity. This is detailed in our shareholder letter, but I'll call out that we retired 8.3 million shares of our common stock in the first quarter. Across December and the first quarter, we've deployed approximately $140 million in authorized repurchases. We've used a variety of mechanisms, including prepaid written put options, an accelerated share repurchase, and forward repurchase transactions so that the capital deployed will -- so far will settle over time through the third quarter of this year. We have $350 million remaining in our current buyback authorization. Now for our guidance. We are raising our 2026 outlook to include revenue of at least $535 million and adjusted EBITDA of $227 million, a $10 million increase from our February outlook. The increase in estimated revenue reflects stronger payer conversion, which is continuing into the second quarter and the lift from the brand campaign. Keep in mind that we expect our growth rates will moderate in the second half of this year, in particular, in the fourth quarter as we anniversary the rollout of our pricing increases. A higher adjusted EBITDA outlook reflects the stronger revenue picture and continued strong AI leverage in engineering, offset somewhat by the planned investments we discussed, which are starting to increase in the second quarter. Overall, we are excited about the strength of the business, and we'll manage with discipline as we execute on our plans for the year as we always do. And with that, operator, let's open up the call for questions. Operator: Our first question today comes from Nathan Feather at Morgan Stanley. Nathaniel Feather: Congrats on the strong quarter here. Can you provide a little bit more color on what you're seeing in the testing so far for Edge, both in terms of consumer receptivity to the individual features along with the price receptivity? And then even though it's going to be the major driver for 2027, I guess, how should we think about the rollout timing here? George Arison: Nathan, good to talk to you. Great question. We have a lot of data on Edge from the testing that we've done. So I'll split that into 2 things. On the product side, a bunch of the features that are all in Edge have actually been tested for quite some time in 2025. And so we feel really confident about the product experience that we've created and about the features that we've built and that users really will like them, and it will be a really great thing for the product overall. Where we are really focused on now is pricing. So we've done one pretty big price test in an English-speaking country, not in the United States and got really good results, which tell us that Edge will be priced at a significant premium to what we offer today, incrementally more. And that gives us a lot of confidence that Edge is a very good home run. And what we're now spending time on is determining whether Edge can be a grand slam with a higher price point. But the key to that is having better clarity around how we want to position it in the product and kind of the marketing that we want to do around it. Edge is not designed as a product for mass consumption. It is built for a small number of power users on Grindr. I think someone's asked me in the past, and I said anywhere between 0.5% to 1 percentage point of our MAU being in Edge after several years, I would view as a really powerful outcome. And so we're now looking at that kind of marketing piece of it and how to position it into the market and how to then price it based on the value that users are getting. The value equation is really the critical thing for us. So we feel really good about where Edge is headed. We are going to put another test into the market later this Spring or perhaps in June. And then based on those results, we'll have a better sense on when we want to launch it. For us, the really critical thing is to have it be ready for 2027. That would imply late 2026 or early 2027 launch. But we're doing so well this year and everything is firing on such kind of -- in such a strong way that there's no rush to put Edge into the market. We think that getting it right and making sure that it can be as big as it can be and unleashing its full potential is where we would win the best. Nathaniel Feather: Great. That's helpful. And then just one more for me. 1Q revenue growth, really strong, but also kind of tracking well ahead of the full year guidance. John, can you give me a sense of the shape of revenue growth over the course of the year? And then what are the major puts or takes that could lead revenue growth in the back half to be a little bit higher than we're expecting here? John North: Yes, Nathan, thanks for the question. So I'd break it into a few, I guess, topical comments to help frame it for you, and we alluded to this in the prepared remarks. We've certainly got a benefit from the pricing increases that we introduced at the end of last year. That was planned, that was baked in our forecast. That was in the numbers we gave you when we introduced this year. I think we have a little bit of upside there in the quarter because we didn't see the typical churn to the degree that we would with pricing increases happening. So there was a little bit of a benefit there. The direct ads business we talked about has that large benefit this year with the campaign with one of our key partners. And that came in a little -- I would say, a little faster than we expected in the first part of the year. And so there's going to be an impact in the back half of the year as a result. And those are the 2 kind of big drivers that push things ahead for us in the first quarter and led us to be confident enough to raise what our outlook was for the year. But on the back end of that, it's exactly what you flagged, which is that we're going to see a deceleration in the third and the fourth quarter. Some of that's a function of having a really good fourth quarter last year where we outperformed. So it's a tougher comp. And some of it's really just the product cadence and how things are going to launch this year, which is exactly what we're expecting. We did also mention that we're investing in the future. So our margin is an important thing to talk about as well. We're expecting that to be impacted through the year because we're bringing on people, and we're investing in products and things that are not revenue generating that are going to set up 2027 and beyond. And so that's all kind of what's in the thinking and happy to dive into that in more detail with you offline if we can be more helpful from a modeling perspective, but we are anticipating a bit of a deceleration in the third and particularly the fourth quarter to get to that implied full year number, which is exactly what we're anticipating. And George, maybe can talk a little bit more about some of the specifics around the product side. George Arison: Yes. So if you look at Grind's history over the last 5 years, usually a step change in revenue, kind of new revenue has come from something significant that we've launched on the product side because we are a product-driven kind of revenue company. So if you look at, say 2021, we launched more profiles that led to a big step change in revenue growth. In 2022, we launched Boost middle of the year that led to a big growth in revenue in 2022 and then in 2023. In 2024, we launched weekly pricing for Unlimited that drove growth in revenue. So for our business to continue to grow revenue in a significant way, we need to launch the next big thing kind of in a reasonable time frame. The last big thing we launched was the price change, which was a way for us to monetize the value that we have created for users over the last 2 to 4 years. And the results of that have been really strong. Churn is down, reactivations and activations are up, which is not what you'd expect to happen when you raise prices, but I think it speaks to the fact that we have created a ton of value in the product, in our paid tiers and users are recognizing that. So, given that we started the price increases in Q4, then for us to have another step change in revenue growth in Q4 of this year, we would need to launch some big product. That next big product is Edge. And as I spoke earlier, we feel very confident about how well Edge will do, but we might not launch it in Q4. And that would lead to deceleration in Q4 and then acceleration looking into 2027. And that year, obviously, is looking really good from that point of view as well. Operator: Our next question comes from Andrew Boone at Citizens. Andrew Boone: I would love to ask about 2 things, one near term and then maybe one more that's strategic. George, how do we think about Match and Sniffies in the competitive environment now that Sniffies may have a larger balance sheet and funding behind it? And then as we think about your platform evolution here, it's really clear that there's a bigger picture strategic view. Can you bring us more into financial terms for us and talk about the benefit that we should expect in terms of shareholders from the broadening of the platform and what that could mean from a financial lens? George Arison: Great. Thanks for the question. So on Sniffies, I'll start with a congratulations. We've gotten to know the Sniffies guys over the last couple of years. I've spent time with Blake and his brother and I'm very happy for them. They were looking for liquidity, and I'm very glad that it happened in this powerful way. I'm also a little bit happy for Grindr because this investment really speaks to the work that we've done in getting the public market used to a company like Grindr. If you look at where we are today versus where we were 3.5 years ago, the world has fundamentally changed. And so I think our team has done a really fantastic job in letting people understand what Grindr is and how big the opportunity space here is. I don't know if people know, but about a decade ago, Match really wanted to buy Grindr. And the team was really behind it and they got blocked by the Board. So it's awesome that we're now past that and there was acceptance of investing in Sniffies. As far as the competition for us, we always pay attention to competition and Grindr had plenty of competition from the day, frankly, it started, right? Grindr was not the first digital gay product. Manhunt and Adam4Adam were by far the dominant platforms when Grindr launched. And ever since then, Grindr had competition. And so, we always pay attention to competition and it obviously matters. But from our perspective, what really matters is us being the product that people go to first in wallet and spend the most amount of time in and are most engaged with. And by every metric that we have internally, that has continued to be the case. And frankly, in some respects, it is accelerating. Like in the time period that I've been at Grindr, the amount of time that people spend on the app has only increased. And so, we feel really good about our position in the market and what we need to do on a go-forward basis. Sniffies is a different product, and it serves a very specific use case. So Sniffies entered the market when Craigslist eliminated personals out of concern for sex trafficking and that opened up this space for cruising for people who were using Craigslist before and was a very heavily used product. And that's the kind of space that Sniffies has captured. We obviously have a much broader set of use cases that really kind of offer users many different things. And so we feel we're in a really good place in that regard. And again, there's place for more than one product. We know people use more than one product and that's probably okay. So we are focused on executing our strategy, and we're speeding up, not slowing down. That's how I think about it. On your second question on the platform, when I joined Grindr and frankly, for the year before I joined Grindr when I was learning more about Grindr, the assumption I would hear from everybody was the best way for Grindr to make more revenue is to get more people to become payers. And there is logic to that, right? The Grindr was at sub-6% payer penetration and our peers in the straight category are at 15%, maybe even 20%. And so it would make sense that you could convert a lot more people to become payers. But our -- and we've done a bunch of that, right? We've gone from sub-6% to 8.5%-plus and that's with MAU growing pretty significantly. So if we had stayed static, we'd be over 10% payer penetration today. But ultimately, the free experience on Grindr is really, really critical. And that's the reason why everyone comes into the product on a regular basis as they become adults. And so, from our view, the better way to monetize on a go-forward basis is to create value-added experiences for people on a premium level. And hence, why we're building Edge and a bunch of other premium experiences inside the product. So from that perspective, creating a more upscale experience for our brand is something that will help a more elevated and a more premium experience in the product. And that will be the primary way in which we drive revenue growth in '27, '28 and beyond. By the way, none of this is new, like this is what we had set out to do when we talked about it in Investor Day. We're just executing on it at roughly the time line that we had expected we'd be doing. John North: And George, I'll just hop in. I mean on the longer-term margin question, that's really not the primary focus for us. There's certainly a world in which we could continue to turn levers within the business to improve the EBITDA margin, whether it's more payer conversion, whether it's getting more productivity out of people, whether it's figuring out direct payments, so we don't pay so much in fees to the App Store. There's things that can be done, but that's not been the primary focus. Growing the revenue base overall and diversifying the revenue base in different ways is where the focus is, and we're consciously investing and taking a view to the future, both this year and beyond, to continue to create the growth avenues for Grindr, which is more important to us. So I would much rather see an improving growth rate as opposed to an improving margin percentage. Operator: Our next question comes from Andrew Marok at Raymond James. Andrew Marok: Maybe first on the age-assurance issue. We've seen some other companies in the digital media ecosystem kind of have variable results with how they are impacted by age restrictions or age checks. So I guess what are some of the key learnings that you've seen in the geographies where they've been required so far? And how can they inform future potential implementations to kind of minimize the friction of engagement or sign up based on the particular concerns of the Grindr community? And then maybe second on advertising. Great to hear about the full year campaign. I guess, was there anything in particular that got this company to come on and make a big campaign? Or was it just kind of fortuitous timing and how the pipeline of those bigger deals might be? George Arison: Thanks for the questions. On age-assurance, I always want to start by saying Grindr is an 18-plus product. We don't want anybody under 18 using Grindr, and we are really strong proponents of App Store or phone-based age verification, and we've endorsed federal legislation that would mandate that at the national level, and we've supported legislation in California and Texas and Utah that's achieved that as well. And I think that's really, really important. I'm a dad and I don't want my 6.5-year-olds being on Grindr, and I don't want them touching Grindr until they're 18, and that's something we believe in really, really strongly. The approach that some of the countries have taken internationally at mandating age verification at the app level comes with a lot of challenges to the user. It means that a user has to validate their age in multiple apps, which obviously increases the risk that their information will come out. And we have a set of users -- because something is leaked, et cetera. And we have a set of users who are extremely privacy conscious. Oftentimes, there are people who are still in the closet, who are very, very discrete. And these adult users, and I want to be very clear, we're talking about adults, just simply choose to drop out of the process before they go through the age verification flow. We actually have a pretty good age verification flow. We use facial recognition to determine if you are of age first and only if that technology is unable to determine that you are over 18, do we then put you to a secondary flow where you have to show ID. But even that process alone gets some people to drop off, and these are adults, not people who are under-age. And so we think that the alternatives to that, which is the App Store or mobile device-based verification is a much better approach, and that's what we're going to keep advocating for. But obviously, we'll comply with laws as they happen. It has impacted MAU growth. To be very clear, MAU is still growing very nicely actually, but MAU would have grown by an amount larger than what it's going to grow this year if these rules were not in place in some of the countries. And I would expect more countries will adopt rules that are similar to this. Though again, we're going to continue advocating for App Store or device level verification. On advertising, so maybe to step back a little bit on the ads business overall before I answer the specific question. We've had incredible success with that business. We went from a roughly $30 million business in 2022 that was decelerating and frankly, didn't really have a path to grow to a business that, based on guidance that we've shown you, is going to be over $90 million this year. So that's tripling the business in a 4-year period, which I think the team deserves nothing but huge congratulations for that. And we've said at Investor Day, we want -- advertising is going to be kind of roughly the same percentage of revenue as it was in 2022, which is roughly 15%. That meant that the ad business had to grow faster than the core business. And again, it's achieved that. So I'm very, very proud of what the team has done. At the same time, where I've probably been most disappointed in my time at Grindr is that getting the direct ad business where brands come and work directly with us has not been as successful as, frankly, I would have liked it to be. We hear from brands a ton that they want to reach our type of audience that is tastemaking, that has high disposable income, et cetera, but they're not willing to put dollars to work on Grindr. And that's still work that we have to do from the brand perspective, on our brand. That's the work that we have do from a technology perspective and creating the technology that advertisers want us to have in the application to help them advertise as well as from a data perspective, like what are they actually getting in return. Grindr is a great place to advertise from the point of view of building your brand. It is not a direct response type of a channel because people are in a different mindset when they're on Grindr. They're not actually looking to kind of transact on something else when they're in the app. And so that obviously creates a special way of pitching the brand perspective of it. People are very used to buying direct response ads, but less so for what we offer. I'm still very bullish that over the long term, we will win in that direct advertising business, but I think it's going to take us a really long time. That doesn't mean that the ad business cannot grow. We expect the ad business to keep growing in the years to come and to stay at that 15% of total revenue baseline that we had in 2022 and that we've aimed to maintain. So there's still a ton of growth for the ad business. I think we'll continue to see a ton of positive results from Rewarded Video, which actually makes the user experience in the app better as well. So that's one of the things that we are seeing a lot of traction with. With this particular advertiser, we had been working on them for almost 2 years, and they had been advertising with us during that period of time as well. It's the same advertiser that had a big push in Q4 of 2024, you might remember, when we had a big uptick in revenue as a result of that. So we have a relationship with them. We're really happy that they're advertising, but I wouldn't expect something similar to repeat in 2026. Hopefully, we can create more opportunities for bigger direct advertising partners in 2027 -- sorry, in 2028 and beyond. Operator: Our final question today comes from Logan Whalley at TD Cowen. Logan Whalley: First, to ask about discrete mode and kind of how you think users will engage with that feature looking forward? Do you expect this kind of opens up a new use case with the app or maybe just changes how people engage with the app? And then, secondly, on your plans for incremental hiring in the middle of the year, where do you expect that headcount efforts will be directed towards within the business? George Arison: Great. Well, I'll take the first one, and then maybe John and I can split the second one. So on discrete mode, discrete is for Right Now specifically. So it's not a -- you can -- not to be discrete on the app overall. We already have a way for people to browse the grid without actually showing up on the grid if that's what they want and some people do want that. But this is for Right Now. What we heard from a lot of users who we surveyed or got feedback from was that they want to post in Right Now, but they don't want their posting in Right Now to be connected to their profile on Grindr because a lot of people have friendships on Grindr and for discretion reasons, they don't want to be telling everyone they know, "Hey, I'm posting in Right Now," which is perfectly reasonable. And so the discrete mode has enabled that capability where a person can post on Right Now, will receive messages from other people who are in Right Now or who are interested in Right Now. But you will not be able to see the connection to your regular profile and that way you kind of keep that discretion. So, that's something that people really wanted. I think it's going to be a good feature in making Right Now a better product for people who want that. But there's a ton that we're doing with Right Now that I'm not yet in a position to publicly talk about that I think will keep making that experience better and better for people. We have a very large percentage of branded users that use Right Now on a multi times a week basis. And so we're really happy with that, but we still think there's more that we can do to make it even better. When it comes to hiring, we definitely went into -- we've been behind on the number of people that we need for quite some time, right? I am known to run a very lean operation. Grindr has over $2.7 million in revenue per head at the end of last year. And so we felt that we need more people. And we had a fairly aggressive hiring plan for the year. We are probably -- we're doing very well on hiring, but I don't think we're going to end up hiring everyone that we had envisioned, and that's reflected in the EBITDA margin or in the EBITDA raise that we gave for the year in this release. One of the reasons why we won't probably hire everyone is because how we work is fundamentally changing. We've said in the past that our engineers are self-reporting that they are 1.5x more productive than they were 9 months ago. We now have teams of -- on the product team that are being -- small teams of 4 people are able to produce as much work in a week as teams of 10 or 20 people would have previously produced in the course of a month. And that's all because of AI. The roles of engineer, product manager, designer, data scientists are all kind of collapsing in that now they are all doing all parts of that work, meaning a designer can code and function as a product manager or a product manager can code and also do design. And so we're terraforming this business to be an AI-native business. It's is really changing how we work and the amount of productivity you're getting from the teams. And as a result, we -- given how lean we are, we don't have the same problems that a lot of other companies have. But we do -- and we still need more people in terms of hiring, but we do want to be judicious in how we hire and who we bring on board because we want them to be much more AI native to fit in this new mode of working that we are now evolving inside the company. I don't know, John, if you want to add anything to that. John North: I would just say the 39% to 42% EBITDA margin is healthy. As we talked about on an earlier question, even as the CFO, if you told me I could grow revenue or I could grow margin, I would choose revenue right now. I think that margin optimization isn't the most important thing. To George's point, the guidance and the plan that we had in place contemplated hiring and investing in the future and that it was going to impact margin as a result, which it did. But also to his point, we've been able to increase that because the plan has changed as we've evolved. And I do also echo the sentiment that we're investing in the business in other places, which would include like investing in marketing efforts and spending more money there. And you see us doing more, I think, culturally-relevant events like the White House Correspondents' Dinne or partnering with Madonna on our album launch. And those are things we're doing that are marketing investments outside of attracting users to the app. They're really about improving our cultural relevance and what we bring to the community and to the user base overall. And we've been working our way through that, testing those things. And then I think as we've achieved success, in some of these events and these touch points that become these cultural flashes, we have more confidence to invest some more money in marketing because it's working. And so those are the kind of things we're thinking about and balancing. And certainly, there's a case to be made to just optimize for margin all the time, but that really doesn't give us the trajectory to execute on the vision that George has laid out to really continue to round out the app in many different ways and to expand the number of modalities in which we can reach revenue and reach users. Operator: That concludes today's call. Thank you for joining. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LightPath Technologies Third Quarter 2026 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, May 7, 2026, and the earnings press release accompanying this conference call was issued after the market closed today. I'd like to remind you that during the course of this conference call, the company will be making a number of forward-looking statements that are based on current expectations and involve various risks and uncertainties as discussed in its periodic SEC filings. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven to be inaccurate, and there could be no assurances of the projected results would be realized. In addition, references may be made to certain financial measures that are not in accordance with generally accepted accounting principles, or GAAP. We register to these non-GAAP financial measures. Please refer to our SEC reports in certain areas of our press releases, which include reconciliations of non-GAAP financial measures and associated disclaimers. CEO, Sam Rubin, will begin today's call with a strategic overview of the businesses and recent developments for the company, while CFO, Al Miranda, will then review financial results for the quarter. Following the prepared remarks, there will be a formal question-and-answer session. I would now like to turn the conference over to CEO, Sam Rubin. Sam, the floor is yours. Sam Rubin: Thank you, operator. Good afternoon to everyone, and welcome to LightPath Technologies Fiscal Third Quarter 2026 Financial Results Conference Call. We report today our latest quarterly results with continued momentum of strong top line growth, continued buildup of our backlog with a strong book-to-bill ratio and improvements in our EBITDA and overall financial performance. All of this is a result of a strategic shift we put in place and have been working to execute on over the last few years. A strategy that leverages our core technologies, coupled with carefully curated acquisitions that allowed us to shift to a vertically integrated provider of high-value infrared optics and camera systems, a shift built around higher revenue and higher gross margins. The third quarter carried that momentum with record revenue, broader customer adoption, a deeper system backlog and just as importantly, stronger margins and cash flow. The LightPath of today looks very little like the component supplier we were a few years ago. We now cover the full stack, proprietary materials, optical assemblies and complete imaging systems. In a moment, I'll touch on that shift, then walk through the programs driving the backlog, the Amorphous acquisition and where growth goes from here. First, BlackDiamond, our proprietary chalcogenide glasses, including those licensed from U.S. Naval Research Laboratories. Those anchor the platform as a domestic supply chain secured infrared glass that is both an alternative to germanium and offer significant advantages in overall system performance. This aligns with the fiscal 2026 NDAA, National Defense Authorization Act, which requires U.S. defense programs to move off of glass and optical components sourced from China, Russia and other covered nations no later than January 1, 2030. Since acquisition cycles starting now, many of our assemblies, cameras and imaging systems are already engineered to those requirements, positioning us as a natural supplier of choice and well ahead of the rest of the market that is just starting to plan their alternatives to Chinese-made materials and optics. It has been roughly a year since we acquired G5 Infrared, the maker of the industry's leading long-range infrared cameras for surveillance and Counter-UAS. G5 is a clear example of what our model can offer. Pair a strong stand-alone business with one of our unique differentiators, in this case, the in-house produced germanium alternative glass and a secured vertically integrated supply chain and the acquired company can execute at a level competitors simply cannot match. In the last year, G5 has booked more than $100 million of new orders, helped by border patrol and Counter-UAS tailwinds. We've publicly announced we are redesigning the cameras to use our BlackDiamond glass. And even before we have completed those redesigns, we already saw an influx of orders for those redesigned cameras. In fact, we are at a point that before we started any real production of the new redesigned cameras, we already know we will need to add more capacity to serve an even stronger demand in the near future. The capacity theme is something we're seeing across the entire business, and I will expand on that some more. It is actually a good segue into other parts of the business. So before I get back into the camera products and then other programs, I will talk about the acquisition we did that we announced last quarter of Amorphous Materials in Texas. Amorphous is a 50-plus year-old manufacturer with complementary technology for glass smelting of chalcogenide, particularly for large diameter optics. Amorphous was founded by one of the pioneers of commercializing this kind of material. I've mentioned it during the last call, but just to reiterate the importance of the technology, I will remind everyone that in optics, the further you want to see the larger the optics needs to be. Until now, with our existing or prior glass melting technology, we've been able to provide BlackDiamond optics up to 5 inches in diameter. Amorphous now unlocks the ability to do larger sizes up to as much as 10 inches and more later on. This has opened the market to large diameter systems, which we need for G5, but also critical in other long-range imaging systems and in particular, satellites for missile detection and tracking. But back to capacity. Acquiring Amorphous gave us an immediate boost to glass production capacity. So between what we have been doing internally and the Amorphous acquisition, we pretty much doubled our glass capacity, and it is nowhere near enough. As we will discuss again and again here, we are investing in capacity in critical areas, and glass is definitely one of those. Having now 2 separate locations to make glass in, one in Orlando and one in Dallas, Texas, definitely affords more flexibility and expansion as well as good contingency planning. To that extent, we plan to move Amorphous into a larger building nearby our Visimid uncooled camera operation in the coming months. This is important because not only is demand for glass outstripping supply right now, even after doubling the capacity, but indicators are that this growth trend will continue, and we will need to continue to add capacity in the next few years. To that extent, in Orlando, too, we have been adding more glass melting capacity as well as capacity and capabilities in other parts of the process downstream, that is after the glass melting. This capacity and those capabilities updates is happening across the entire organization in manufacturing locations in the U.S. and Latvia. And then, of course, the cameras and assemblies business. This quarter that we're reporting in, they represent 44% of the revenue. But more importantly, they represent more than $75 million of our backlog. The assemblies and cameras are actually internal customers for our vertical integration, hence, driving much, if not most, of this explosive growth in demand for glass and optics. But this is just the case for the products that use BlackDiamond. As of today, while all of our assemblies use BlackDiamond, only 2 of the G5 cameras are based on BlackDiamond glass. The remaining G5 cameras were still using germanium. The acquisition of Amorphous was a missing piece in order to complete the redesign of those G5 cameras. Amorphous technology of melting our glass in larger size was needed in order to use BlackDiamond in G5's bigger cameras, which is really the majority of their revenue by dollars. The same applies for larger assemblies. Our optical assemblies business, which has been growing like crazy for the last few quarters, just like the G5 was limited by the size of the glass we could make. Amorphous' large diameter melting now is unlocking a significant business growth in both those areas of the business, assemblies and complete camera systems. How does this tie into the capacity discussion? When we look at our current cameras and assemblies business, and we say it is around $75 million of new orders booked, that is all before we completed the redesign and the new products that are now utilizing the large diameter BlackDiamond. So with the risk of stating the obvious, we expect that over the next few months, we will see another step function in growth in demand for our cameras and assemblies as we redesign them or design new ones utilizing this new capability of large diameter. This will, therefore, require us to prepare more capacity, which is what we're doing now. This includes not only additional capacity in glass and downstream process, but also growing our assemblies capacity, adding shifts and in some places, adding space to be ready for that additional growth. All of that is happening now across all of our facilities in the U.S. and Europe. Additionally, to support this growth and better position LightPath, we recently announced 2 senior additions to the leadership team. Doug Schoen joined us as Senior Vice President of Global Sales; and Ryan Workman joined us as Vice President of Business Development and Product Management, both effective in early April. Doug is a retired U.S. Navy captain with over 25 years in aerospace and defense, having led global sales organization at Elbit Systems of America, Honeywell and Collins Aerospace, managing portfolios north of $1 billion. His background in international defense sales and foreign military sales programs is exactly what we need as we scale globally. Ryan brings with him over 15 years in the defense and federal law enforcement sectors and has a particularly relevant track record at Silent Sentinel, which was later acquired by Motorola Solutions, our largest customer. Ryan is the one that grew the U.S. business of this customer of G5 Infrared to what it is today, including securing significant Counter-UAS and DHS border surveillance contracts. That direct experience in our end markets, combined with Doug's enterprise-level relationships gives us commercial horsepower to convert our growing backlog and strong technology position into sustained scalable revenue growth. Okay. Before I move on to financials, I will give a quick overview on the major programs, but also point out that on many of those, there are specific line items in the U.S. defense budget, which was released a couple of weeks ago and is available to the public to research online. Starting with the NGSRI that as you will see in the budget, is fully financed and even accelerated some of the program. We are very pleased with our progress so far and continue to deliver everything according to plan and even better. However, as I described earlier in previous few times, the only updates we can share in detail about the programs or any updates that are shared by our customer, Lockheed Martin or their customer, the U.S. Army, which as of now has not had any major updates, so we can't really update too much. Navy SPEIR is on schedule, and we expect some new orders with the new federal budget now being released. Border tower, we were expecting already some significant orders to be released, but it seems DHS has not released the funding yet. So that is not an indication in any way of anything changing to the worse or to the better in any way, simply has not moved forward. Some of the smaller programs, such as them that I haven't really indicated by name, so Counter-UAS, this is primarily the Air Force C-UAS programs for which we received multiple new orders. Currently, around $30 million of our backlog is Counter-UAS, again, primarily Air Force SUADS programs. A new airborne system that we previously mentioned and that uses our BlackDiamond material to replace an existing system with far better performance now. This program continues to move quickly. We completed the qualification, an extremely important step and are now preparing for an award towards the end of the summer or early autumn. Space programs, we have a few of those in the work. Most of them are early stages in design and unfortunately, very confidential, so very limited in what we can share. And lastly is the Apache program, which we do not have any new developments there, and there is some uncertainty around it as we're waiting for to see the funding allocated to it. Okay. So specific programs. Of course, as we continue to grow, just like with our press releases, it will become fairly noisy and overly detailed if we go into details about every multimillion dollar program. So we're likely going to focus on the large ones going forward with some updates on others as we can. To close Phase 1 of the transformation, we've moved from components to systems and from commoditized supply to strategic technology leadership. We continue to swap constrained China-linked materials for domestic scalable proprietary alternatives, and we are converting that edge into program wins, large contracts and long-term relationships with top-tier defense and industrial customers. The next phase, rapid scaling over the next 3 years, backed by our strong war chest of cash is now beginning and is aimed at capturing meaningful market share. Now I'd like to turn the call over to our CFO, Al Miranda, to talk about the actual numbers. Al Miranda? Albert Miranda: Thank you, Sam. I will keep my review to a succinct highlight of the financials this quarter. As a reminder, much of the information we're discussing during this call was also included in our press release issued earlier today and will be included in the 10-Q for the period. I encourage you to visit our Investor Relations webpage to access these documents. Revenue for the third quarter of fiscal 2026 increased 109% to $19.1 million as compared to $9.2 million in the same year ago quarter. Sales of infrared components were $6.1 million, or 32% of the company consolidated revenue. Revenue from visible components was $4 million, or 21% of the consolidated revenue. Revenue from assemblies and modules were $8.4 million or 44% of the consolidated revenue. Revenue from engineering services was $0.6 million, or 3% of consolidated revenue. Gross profit increased 161% to $7 million, or 36% of total revenues in the third quarter of 2026, as compared to $2.7 million, or 29% of total revenues in the same year ago quarter. The increase in gross margin as a percentage of revenue is primarily driven by the increase in revenue from assemblies and modules, which generally have a higher margin. In addition, gross margins for infrared components have improved due to a more favorable mix and the resolution of certain manufacturing yield issues that negatively impacted the prior fiscal year. Operating expenses for the third quarter of fiscal 2026 included a fair value adjustment of $3.4 million related to the G5 earn-out liability, which will continue to be adjusted through the operating expenses until it is fully paid out. Excluding this amount, operating expenses increased $1.8 million, or 30% to $7.8 million for the third quarter of fiscal 2026 as compared to $6 million in the same year ago quarter. The increase was primarily driven by the integration of G5 Infrared and AML, increased sales and marketing spend, higher information technology spend to meet customer security requirements and increased SG&A personnel costs associated with filling executive roles, as Sam mentioned, our salespeople and incentive compensation accruals. Net loss in the third quarter of fiscal 2026 totaled $4.1 million, or $0.07 per basic and diluted share, as compared to a net loss of $3.6 million, or $0.09 per basic and diluted share in the year ago quarter. The year-over-year change in net loss was primarily attributed to the change in fair value of acquisition liabilities for the earn-out related to the acquisition of G5 Infrared. Adjusted EBITDA for the third quarter of fiscal 2026 was $1.1 million positive, compared to an adjusted EBITDA loss of $1.6 million for the same year ago quarter. This represents our third consecutive quarter of positive adjusted EBITDA and was primarily attributable to the increase in gross profit driven by higher sales, partially offset by increased SG&A and new product development costs. Although not perfect, we believe that adjusted EBITDA is a better indicator of core operating performance by excluding noncore and noncash items. Cash and cash equivalents as of March 31, 2026, totaled $55.2 million as compared to $4.9 million as of June 30, 2025. Since the raise in December, we used $7 million for AML acquisition and $7.3 million went toward the year 1 earnout for the G5 acquisition. I want to point out that a portion of this earnout payment was required to be recorded in operating cash flows in accordance with GAAP. The operating cash flow looks noisier than reality because of G5 outperforming the earnouts, which GAAP requires to be classified as operating cash activity. If you set aside the GAAP reporting quirk related to the earnout, then operating cash outflow year-to-date would have been $1.3 million. That modest outflow is attributed to working capital, specifically prepaying suppliers for long lead materials to support that growing backlog that Sam spoke of and that's partially offset by customer prepayments. The $55 million cash balance on hand gives us plenty of runway to keep executing on our growth strategy and fund the CapEx and working capital needed to deliver to the growing backlog. Total backlog as of March 31, 2026, was approximately $110.6 million, an increase of 196%, compared to $37.4 million as of June 30, 2025. I'd like to take a step back and give some perspective. Since Q3 last year, on a year-to-date basis, we doubled our revenue from $25 million year-to-date last year to $50 million year-to-date this year. Our backlog is $110 million and continues to grow. This is a substantial amount of growth for a company our size, and I'd like to thank everyone in the organization for a great effort on delivering more and more to our customers every day. To our investors, we are well positioned to continue to grow substantially. We have the resources and cash in place to deliver. Our internal efforts are all about execution to the plan of delivering on the backlog and the growth in the backlog. Our focus for fiscal year 2026 and beyond supports the business opportunities that Sam described. We have a detailed go-to-market strategy that we are funding to target key high-growth areas. Our prior year, current year and future investments in manufacturing are and will continue to bear fruit in terms of quality and on-time delivery. And as a result, in the coming quarters, I expect we'll see margin expansion. With that, I will turn the call back to Sam. Sam Rubin: Thank you. Thank you, everyone, for joining us today. From here, the work shifts to execution. We've built a vertically integrated platform around our own materials technology, one that sits squarely where the defense procurement is heading. The numbers make the point. Over the last 12 months, our revenue has more than doubled and backlog indicates a continued trend. The doubling the size of our manufacturing business in 12 months is a big task and undertaking. Doing it again, continuing to grow at such rate is a monumental task. So with that in mind, I would like to echo what Al just said and take a moment to acknowledge the hard work, dedication and commitment of the entire LightPath team. You, my team, have been doing an incredible job getting us here and are continuing to do a great job preparing us for this continued growth. Thank you for everyone involved in this. With that, I'll turn the call over to the operator to begin Q&A. Operator? Operator: [Operator Instructions] We'll take our first question from Jaeson Schmidt with Lake Street. Jaeson Schmidt: Sam, I just want to start with your comments on the expectation for the step function in demand over the next few months here. Do you envision that being pretty broad-based? Or is that really coming from -- or concentrated in a couple of programs? Sam Rubin: What I see is that right now, areas where -- I'll talk first about cameras and about assemblies. The cameras where we've been having this enormous backlog is mostly existing customers. So these are customers that have integrated our cameras already a while ago into their pan tilt systems or gimbals such and are growing with the orders from them have been growing as those customers grow, in particular, Motorola, which we very much value the relationship and the business there. But it's really existing business that is growing linearly. As we now start switching over to the BlackDiamond and unlocking both more types of camera, but more specifically, really unlocking our availability and our capacity to -- I'm not even sure what the next limit will be, but it's not going to be limited by material as everyone else is. I expect many other customers to switch over to our cameras. And the step function there will be from taking a larger market share of the same type of product we've been doing until now, but simply that we are positioned in a way that we're the only ones that really can produce as many cameras as anyone wants. In the assemblies, it's a bit different. In the assemblies, we've been focused on a subset of the whole assemblies industry, if you would, or assembly available market because we were limited by the size of glass we could do. So we could not make long-range assemblies or zoom lenses, if you would, that get bought by some of our competitors and many of our customers. With this now capability and with some of the new materials we've been already commercializing over the last few months and haven't talked really about too much, we can now design and are designing a lot more new assemblies that are going to take market share of areas we haven't played. So 2 step functions, both enabled by the same thing, but for different reasons. Jaeson Schmidt: Okay. That makes sense. And then I know it's still early, like you noted, but thinking about sort of in space communication or the space programs in general. How many engagements or conversations are you having these days with customers? Sam Rubin: We have 2 that we are fully engaged in, meaning they're already fully designing our product delivering -- sorry, 3 of those, 3 customers that are designing. I'm not sure what programs we have that are much earlier than that. I usually know of them when it comes to the point that they're actually engaged on technical dialogue or want to talk numbers. And those are not free space communication, just to be clear, those are all camera systems on satellites pointed down to look for missile launches and detection. Jaeson Schmidt: Got it. And final one for me, and I'll jump back in the queue. With these capacity expansion plans, how should we think about CapEx over the next 12 months? Albert Miranda: So good question, Jaeson. We we're still -- the CapEx we're spending right now is capacity driven. It's -- so as the backlog grows, we're constantly reevaluating. That said, there are long lead times in the CapEx process. So we have to get some things moving quicker than others. I don't want to say exactly what we're going to spend in the near term. But to put it in perspective, in Q3, Sam and I approved $6 million in CapEx to be spent in order to not only meet the current backlog, but what we think is going to be beyond that. Operator: [Operator Instructions] We'll take our next question from Austin Moeller with Canaccord. Austin Moeller: So do you expect like you would receive more funding through the $54.6 billion for the Drone Autonomous Working Group or from the DHS budget dollars that were appropriate in the reconciliation bill? And would the DAWG funding shift revenue mix further into assemblies and modules and raise gross margin further for drones? Sam Rubin: Okay. I'll start by answering the other way around. First of all, it will be mostly assemblies and cameras, definitely. By far, we're actually -- the more assemblies and cameras business we are, the less we're taking business in optical components because we would rather use that same capacity to make assemblies and cameras, which are much, much higher margins, which answers really your second part of the question. In terms of the funding, I'd say it's all over. So drone -- from the drone dominance, we are receiving already orders. We have a few million dollars of orders of optical assemblies that go into drones. I'll try next time to break that out and give a bit more color to it, but we're starting to receive volume orders of optical assemblies that get coupled to cameras that go into drones, and we're probably the lead supplier in the U.S. for that by far, I'd say. From other areas from the NDAA and such or which part of funding, I think it depends. existing programs, they all come the programs of record, they come from the NDAA funding and such. DHS comes from the Big Beautiful Bill mostly and so on. But in addition to all of that, what we're also working on and is a different type of funding that is funding to support expansion of capacity. And we are working -- it is very early stage, but we're working with different parts of the government, Office of Strategic Capital and so on to secure some of that. It will not be in the near future, but it's definitely something we're looking at for next fiscal year to support some of the expansion. Austin Moeller: Okay. And in some of our conversations with primes, it sounds like there's already an active effort where they're replacing smaller diameter lenses with BlackDiamond glass. So what factors might keep them from swapping out larger diameter germanium lenses with BlackDiamond? Is it just a matter of time? Or is there technical considerations? Sam Rubin: So first of all, not everyone knows that it's possible. This is completely new. And even last week, I met a customer at the trade show that still didn't know about that, even though we've been shouting it from the top of our lungs. So there's quite a bit of education to be done. However, chalcogenide glass, BlackDiamond altogether is a softer material. So design aspects of it are different. It's not that it cannot be used for larger diameter lenses or larger diameter optics. You need to take different mechanics assumptions into account when you're doing that design, which is why we work very, very closely with the customers on those designs. We leverage our experience with the material to help educate them to make sure that their design is sustainable mechanically afterwards. Simply, it's a different strength of material compared to germanium. That said, there's nothing inherently that prevents it from completely replacing or using it in all these same dimensions and uses. And in many of them, it's actually much better because the coefficient of thermal expansion of our glass is very, very similar to that of aluminum or aluminum depends which country you're in and makes it much, much easier to mount it in terms of gluing it and hard mounting it into systems. So it's mostly education of the customers is the short answer. Operator: We'll take our next question from Richard Shannon with Craig-Hallum. Richard Shannon: Congrats on another good quarter here. I guess one way I wanted to talk about the capacity limitations you were having and you're trying to relieve with more investment here. But how do we think about at a high level here, what your revenue ceiling is now? And where can this go in the next, I don't know, 2 to 4 to 6 quarters as you're adding more capacity? Sam Rubin: Okay. I get this one. I would say that everything we have booked and we have in our backlog, we can deliver. There's no risk there that we can't deliver it. What we're planning towards is more the second half of the next fiscal year and increased expansion then. So our backlog is mostly for the next 12 months, the next fiscal year, but not completely. However, it's probably heavier towards the second half where we do need to add some capacity. Richard Shannon: Okay. Fair enough. I want to ask about the space programs. I know, Sam, you mentioned that most of these are confidential, but just kind of at a high level here, especially some of the bigger ones that I think you're hunting here. When do you expect to have decisions on these? Will this happen this calendar year? Is it more of a next year? And any way to help us scale kind of the whole space opportunity relative to some of the other ones like Counter-UAS, border patrol, Navy programs, et cetera? Sam Rubin: Yes. So time line, I have to admit, I am not completely confident on it because this is fairly new to us. We have not done anything of that type, meaning space programs and with the tight requirements on the assemblies and the cameras for that. So there's some learnings there. I would say that the time lines I'm seeing now on prototypes and on development are such that it would be at least a year before anything meaningful in terms of knowing where the wind is blowing even is available to us. In terms of -- sorry, what was the second half of the question? Richard Shannon: Just scaling the size of the opportunity in space versus all the other bigger buckets you talked about in your potential. Sam Rubin: Yes. So I think actually, I don't have the numbers in front of me, but during the Investor Day that we had in February, I gave some numbers there. And I explained that typically a satellite like that is about $40 million, $50 million in total cost. 1/3 of that is the entire optical system payload. And of that, we are just doing the telescope. We're not trying to do the complete camera system or anything like that, just the optical assembly, which is in the millions per satellite, but let's say, below $5 million per satellite kind of thing. And the numbers are fairly well published. Richard Shannon: Okay. Great. Last question is for Al on the gross margins here. So obviously, adding capacity has a little depreciation and some other fixed costs here. Just wanted to know if as you're adding capacity, is there any different view kind of longer term what you think of the gross margin? I mean, you talked about getting to 40% to maybe even higher. Wanted to know how that has changed here with kind of the new scale that you're targeting. Albert Miranda: Yes. Great question. We still expect margins to grow. However, we are scaling fast. And there are some costs in the short-term associated with that. So it will slow down our ramp from where we are today, 36% to 40%, but not much. We're talking a quarter or 2 slip in terms of that overall plan. So from the investors' perspective, they'll just see improvement, but not enough for what we would want internally. But externally, it will walk up to -- we'll continue to walk up the margin chain. Operator: This concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Sam Rubin for his closing remarks. Sam Rubin: Thank you. So before I leave, I'll just frame it one more time to give the complete picture. LightPath is really no longer a component supplier it used to be. We're a vertically integrated systems company, a record backlog, well-capitalized balance sheet and a technology position that's aligned with the most pressing supply chain mandates of the defense industrial base. The NDAA deadline is real. Demand for germanium alternative in infrared systems is real. At this point, so is our ability to deliver. From here, our job over the next several quarters is simple to describe execution to execute, ship on time, move backlog into profit and loss into the P&L and let margins expand as volumes built. With that, I'll conclude, and I'll thank everybody for their time today and look forward to speaking to you again next time. Operator: This concludes today's program. Thank you for your participation, and you may disconnect at any time.
Operator: Good afternoon, and welcome to the PennantPark Investment Corporation Second Fiscal Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be open for a question and answer session following the speakers' remarks. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you would like to withdraw your question, press 2 on your telephone keypad. It is now my pleasure to turn the call over to Mr. Arthur Penn, Chairman and Chief Executive Officer of PennantPark Investment Corporation. Mr. Penn, you may begin your conference. Arthur Penn: Good afternoon, everyone, and thank you for joining PennantPark Investment Corporation's second fiscal quarter 2026 earnings call. I am joined today by Jose Briones, Senior Partner at PennantPark. Rick Alordo, our CFO, is unable to be with us today due to a prior commitment. Jose, please start off by disclosing some general conference call information and include a discussion about forward-looking statements. Jose Briones: Thank you, Art. I would like to remind everyone that today's call is being recorded and is the property of PennantPark Investment Corporation. Any unauthorized broadcast of this call in any form is strictly prohibited. An audio replay of the call will be available on our website. I would also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Our remarks today may include forward-looking statements and projections. Please refer to our most recent SEC filings for important factors that could cause actual results to differ materially from these projections. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at pennantpark.com or call us at (212) 905-1000. At this time, I would like to turn the call back to our Chairman and Chief Executive Officer, Arthur Penn. Arthur Penn: Thanks, Jose. I will begin with an overview of our second quarter results including a review of the portfolio. I will then share our perspective on the current market environment and how we believe PNNT is positioned going forward. Jose will follow up with a detailed review of our financial results after which we will open up the call for questions. For the quarter ended March 31, core NII was $0.14 per share. As of March 31, our portfolio totaled $1.2 billion. During the quarter, we continued to originate attractive investment opportunities and invested a total of $108 million, including six new platform investments, at a median debt-to-EBITDA of 3.0x, interest coverage of 3.4x, and loan-to-value of only 28%. Our portfolio remains conservatively positioned, with median leverage of 4.7x, median interest coverage of 2.0x, and median loan-to-value of 45%. We ended the quarter with four nonaccrual investments representing 2.7% of the portfolio at cost and 1.3% at market value. Our PSLF joint venture portfolio continues to be a significant contributor to our core NII. At March 31, the JV portfolio totaled $1.3 billion, and over the last 12 months, PNNT's average NII yield on invested capital in the JV was 15.8%. The JV has the capacity to increase its portfolio to $1.5 billion. We expect that with this additional growth, the JV investment will enhance PNNT's earnings momentum into the future. Turning to software exposure, which has been an area of recent market focus, our exposure remains limited at approximately 4.6% of the portfolio and is structured consistently with our core middle market strategy. These investments are primarily cash-pay, covenant-protected loans with moderate leverage and shorter durations. Importantly, they are concentrated in mission-critical enterprise software serving regulated industries such as defense, health care, and financial institutions. We believe this represents a meaningful point of differentiation relative to our peers. Turning to the market environment, we believe that the current environment favors lenders with strong private equity sponsor relationships and disciplined underwriting, areas where we have a clear competitive advantage. In the core middle market, the pricing on high-quality first lien term loans remains attractive, typically ranging from SOFR plus 500 to 550 basis points with leverage of approximately 4.5x EBITDA. Importantly, we continue to get meaningful covenant protections in contrast to the covenant-light structures prevalent in the upper middle market. M&A activity has increased over the past six to nine months, although overall conditions remain uneven. Private equity sponsors remain active, and we are seeing a growing pipeline of attractive opportunities across both new originations and add-on investments. However, activity levels remain below the unusually strong levels observed in 2024 as the market transitions toward a more normalized backdrop. We expect increased transaction activity to drive repayments across the portfolio, including opportunities to monetize equity co-investments, and we will redeploy that capital into income-generating investments. Notably, we expect a meaningful realization from our equity co-investment in Echelon this quarter. Echelon is a leading defense technology company sponsored by Sagewind Capital, our long-term sponsor relationship. Echelon announced that it has agreed to be acquired by Shield AI, another cutting-edge defense technology company. Upon closing, we expect our $1.1 million equity co-investment to generate approximately $16 million in total proceeds. Proceeds will consist of $14 million of cash and $2 million of value in Shield AI stock. This represents nearly a 15x multiple on invested capital and demonstrates the value of our equity co-investment program. Given the current geopolitical environment and the Echelon news, it is important to highlight that approximately 12% of our portfolio is exposed to government services and defense. I would now like to speak about why we believe that our focus on the core middle market provides us with attractive investment opportunities where we provide important strategic capital to our borrowers. The core middle market, companies with $10 million to $50 million of EBITDA, is below the threshold and does not compete with the broadly syndicated loan or high yield markets, unlike our peers in the upper middle market. In the core middle market, because we are an important strategic lending partner, the process and package of terms we receive is attractive. We have many weeks to do our diligence with care. We thoughtfully structure transactions with sensible credit statistics, meaningful covenants, substantial equity cushions to protect our capital, attractive spreads, and equity co-investments. Additionally, from a monitoring perspective, we receive monthly financial statements to help us stay on top of the companies. Our rigorous underwriting standards remain central to our investment philosophy. Nearly all of our originated first lien loans include meaningful covenant protections, a key differentiator versus the upper middle market where covenant-light structures are more common. Since our inception nearly 19 years ago, PNNT has invested $9.3 billion at an average yield of 11.2%, maintaining a loss ratio on invested capital of roughly 20 basis points annually, a testament to our consistent and disciplined approach through multiple market cycles. As a provider of strategic capital, we fuel the growth of our portfolio companies. In many cases, we participate in the upside of the company by making an equity co-investment. Our returns on these equity co-investments have been excellent over time. Overall, for our platform from inception through March 31, we have invested over $618 million in equity co-investments and have generated an IRR of 25% at a multiple on invested capital of 2.0x. Looking ahead, our experienced team and broad origination platform position us well to generate attractive deal flow. We remain steadfast in our commitment to capital preservation and maintaining a disciplined, patient investment approach. We continue to focus on investing in high-quality middle market companies with strong free cash flow generation. We capture that value through first lien senior secured loans, and we pay out those contractual cash flows in the form of dividends to our shareholders. With that overview, I will turn the call over to Jose for a more detailed review of our financial results. Jose Briones: Thank you, Art. For the quarter ended March 31, both GAAP net investment income and core net investment income were $0.14 per share. Operating expenses for the quarter were as follows: interest and credit facility expenses were $8.1 million, base management and incentive fees were $5.6 million, general and administrative expenses were $1.5 million, and provision for excise taxes was $0.5 million. For the quarter ended March 31, net realized and unrealized change on investments and debt, including provision for taxes, was a loss of $11.7 million. As of March 31, our NAV was $6.73 per share, which is down 3.9% from $7.00 per share in the prior quarter. At March 31, our debt-to-equity ratio was 1.35x, and our capital structure was diversified across multiple funding sources, including both secured and unsecured debt. In January, we raised $75 million of new unsecured debt, which was used to repay our unsecured debt that matured on May 1. As of March 31, our key portfolio statistics were as follows. Our portfolio remains highly diversified with 162 companies across 38 different industries. The weighted average yield on our debt investments was 10.9%. The portfolio is comprised of 48% first lien senior secured debt, 2% second lien secured debt, 14% subordinated notes to PSLF, 7% other subordinated debt, 5% equity in PSLF, and 24% in other preferred and common equity co-investments. Eighty-eight percent of our debt portfolio is floating rate. Debt-to-EBITDA on the portfolio is 4.7x, and interest coverage is 2.0x. With that, I will turn the call back to Art for closing remarks. Arthur Penn: Jose, in conclusion, we remain committed to delivering consistent performance, preserving capital, and creating long-term value for all stakeholders. Thank you to our team for their dedication and our shareholders for their continued partnership and confidence in PennantPark Investment Corporation. That concludes our remarks. We will now open the call for questions. Operator: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will take our first question from Robert James Dodd with Raymond James. Robert James Dodd: Hi, guys. A question about the market outlook, if I could, in three segments overall. You gave some color; conditions are still below what they were last year, etc. Is there any meaningful scenario where activity really accelerates as we go through the year given the level of uncertainty? And then within two subsectors: what are your thoughts on software right now? Spreads are widening, but it is not an area you have typically done a lot of. On the other hand, an area where you have done a lot is government and contracting, where you have a really nice gain lining up. Do you expect the competitive dynamics to change in that segment of the market given how stable and budget talk for defense is looking going forward? That is a lot of the question there. Arthur Penn: Thanks, Robert. I will try to cover the market outlook and software, and I will kick it over to Jose to talk about government services. On M&A flows, we are certainly hopeful. We are seeing some green shoots or more than green shoots; it is just not as robust as it was. It takes a more stable market, we think, to see more volume. We hope there is. Last year, we had a “Liberation Day” kind of spike the punch bowl. This year, whether it is the war or some of the other issues, we are certainly hopeful that we will see a more normalized environment. We are hearing that it will be, but we have heard that before, so proof will be in the pudding. Echelon and some other deals we are seeing are good indications that there is still deal flow. With regard to software, we never really did much primarily because leverage multiples were higher than we were comfortable with. The software that we do have, which is relatively small, is around 4x to 5x leverage. It is certainly not levered 6x, 7x, 8x, or levered against ARR. We are just still not seeing a market that fits our approach, and with AI coming on, there is probably too much secular risk in the system. We are open-minded; we always want to learn. Maybe there will be opportunities in this reassessment of the technology stack. We are open to it, but as always, we want to make sure leverage is reasonable, we can get comfortable that the companies have a strong moat, and that the companies have a real reason to exist long term. Jose, would you comment on government services? Jose Briones: Sure, Robert. Great to hear from you. Government services is a space that we have been involved in for quite some time. It is very nuanced and one we like, where we have long relationships with private equity sponsors that know that space really well. We think it is an area of growth and an area of opportunity for us. The acquisition of Echelon by Shield AI is a great example of that. To the market in general, the first quarter is seasonally slow for our business, and then it usually picks up. With regards to government services and government contracting, clearly given the conflict in the Middle East, there is a lot of emphasis there, and we are still seeing interest and opportunities in that part of the market. Another area that we spend a lot of time with is health care and health care services, as you know, and that is an area that we like and where we see interesting opportunities. Pricing for the market generally has been in that SOFR plus 500 to 550 range. We have not seen much change in that in the past couple of quarters. Our expectation, to Art’s point earlier, is to continue to focus on the areas we like and where we have expertise. Robert James Dodd: Got it. Thank you. One more if I can. It seems like every quarter we are asking, “What is your exposure to or the risk from this?” It was software a year ago; before that, tariffs; now I have to ask about oil and commodity prices. With the uncertainty in the oil markets and supply, I do not think you have a ton of exposure anymore, but what is the portfolio exposure if oil were to go meaningfully higher for a sustained period, or supply issues for that matter? Arthur Penn: It is a good question. As you know, in our history we did oil and gas and that was not a good outcome; that is why we do not do it today—enough said there. You could think of other areas it could impact. Could it impact the American consumer if gas prices are higher? For sure, and consumer is a sector of ours. In most cases, we are doing consumer services that we think are a little less discretionary, like HVAC when your air conditioning breaks and other services around the home. Consumer is a piece of the portfolio; it is not an overweight piece, but it is there. We do not do much in manufacturing—so none of that plastics kind of manufacturing. Paper packaging—we do not really have any exposure there. I would say it is really the American consumer, which is a big chunk of the overall economy. If the American consumer is weaker, that has a lot of other impacts that may happen. That is the closest thing we have to oil exposure. Operator: We will go next to Arren Saul Cyganovich with Truist Securities. Arren Saul Cyganovich: Thanks. On the Echelon transaction, is that going to close in the second quarter? And is the sale price consistent with where it was marked at 3/31? Also, are there any other equity positions that are in talks that might potentially move over the next quarter or two? Arthur Penn: Yes. We think it will close in the next 60 days, and it is marked at fair value at the deal price. On other equity positions, there are a few, although they are less impactful. There is a company called Garage, which was marked at fair value as of 3/31 and has since exited, and there is an equity co-invest there of a few million dollars. We have others that are in the wings. Nothing as meaningful as Echelon, but getting some singles and doubles here and there should be helpful. Operator: We will take our next question from Richard Shane with JPMorgan. Richard Shane: Hey, guys. Thanks for taking my question. I am glad we are not revisiting the whole oil and gas thing; it seems like the last time we were talking, that was a big issue years ago. The question we have been asking everybody this quarter, and I am curious given your focus, is where in the continuum we are in terms of pricing and, more importantly, deal structure. Do your comments mean that you just do not ever see the sort of variance that we might see in the BSL market, and how should we think about this? Arthur Penn: You have the market where many of the large peers play—above $50 million of EBITDA—and that has been covenant-light for a while because those borrowers have options in the broadly syndicated loan market. In that market, those companies only report to lenders every three months. They do not get co-invest, even if they wanted it; and the deal decision-making is much tighter. Our prototypical deal is a company where a founder, family, or entrepreneur is selling to a middle market private equity sponsor, and the company does $10 million or $20 million of EBITDA. The game plan is to take that company, grow it, and do add-on acquisitions to get it to $30, $40, $50, $60 million so that it can then be sold or financed in the upper market. As a result, in our world, our capital is strategic capital. It is usually there with a delayed draw term loan to help fuel growth. We become a strategic partner of the company, management team, and sponsor. Because we are a strategic partner, we have plenty of time to do our diligence. We really understand what we are lending to. We get maintenance covenants—quarterly tests that need to be met contractually. We get monthly financial statements. We have the option, and in many cases we take the option, to co-invest in the equity because if we are helping to create the equity value with our loan, why would we not participate in the upside? Echelon is an excellent example. You can see the benefit of having something in the portfolio with some lift that can offset the inevitable nonaccruals you have. We all have nonaccruals—there is no private credit manager that is perfect. You try to develop a diversified book and minimize nonaccruals, but you are going to have them. Having some equity co-invests in these portfolios is helpful to fill in those gaps. We are operating in an entirely different world than the upper market. It does not make sense for the business model of those folks to come down and spend their time on companies of this size given their check sizes. If you are managing $100 billion or $200 billion in private credit, it just does not make sense to be focused on this end of the market. Therefore, there are only a handful of real competitors we have below $50 million of EBITDA. Richard Shane: That helps on the asset side. Curious on the funding side if there is anything we should be thinking about. Banks have been very reliable partners in the space, but you always do wonder about selectivity of credit. Are you seeing any opportunity or any risk on the financing side? Arthur Penn: Having started our business right before the global financial crisis, we learned very early that lender transparency and relationships are key, and they become our partners. We are always reaching out to our lenders and offering to bring them in and transparently go name by name. When headlines about private credit started to come out a month or two or three ago, we proactively reached out to every one of our lenders and said, “Come on in. We will walk through, loan by loan, what is going on in our portfolio.” We feel really good about it and believe we have underwritten a very solid book. The vast majority of the lenders said to us, “You do not have much software exposure; you are way down on our list of who we are going to visit. We have plenty of other people to see.” We are always doing that—out with our lenders, developing relationships. As you know, at PNNT we have different types of debt capital. We have traditional credit facilities, we have bonds, and we have securitizations that we use. They are all useful tools, and we have a diversified strategy of using all three. Operator: We will go next to Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Jose, do you know the reason for the drop in total interest income quarter over quarter? Jose Briones: Let me come back to you on that. We can follow up. No problem at all. Arthur Penn: I heard the question. Eric Leeds is here from our finance department. Eric, do you have anything you would like to add on that? Unknown Speaker: Basically, the smaller average portfolio over the quarter, I believe. Arthur Penn: Great. We ended up generating $0.14, and I think consensus was $0.15, but we are certainly happy to go into the detail with you, Chris, if you would like. Christopher Nolan: In general, are you seeing a migration of portfolio companies from high tax states to lower tax states at all, and any thoughts? Arthur Penn: No. We have a very diversified portfolio geographically around the United States. We tend to lend to companies that are growing, wherever they may be, but we have not seen movement of headquarters given what is going on. Christopher Nolan: Got it. Thanks. Operator: At this time, there are no further questions. I will now turn the call back to Art for any additional or closing remarks. Arthur Penn: Thank you, everybody. We really appreciate everyone's participation today. Wishing everyone a happy Mother's Day, and we look forward to speaking to you next in early August at our next earnings report. Thank you very much. Operator: This does conclude today's conference. We thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Legacy Housing Corporation first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers’ remarks, 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 speaker today, Curtis Hodgson, Executive Chairman of the Board. Please go ahead. Curtis Hodgson: Good morning. This is Curtis Hodgson, Executive Chairman. I am here with Jon Langbert, our Chief Financial Officer. Thanks for joining our first quarter 2026 conference call. Jon will now read the safe harbor disclosure before we get started. Jon Langbert: Before we begin, I am reminding our listeners that management’s prepared remarks today will contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management’s current expectations. We refer you to a more detailed discussion of the risks and uncertainties in the company’s quarterly report on Form 10-Q filed yesterday with the Securities and Exchange Commission and in our most recent annual report on Form 10-K. Any projections as to the company’s future performance represent management’s estimates as of today’s call. Legacy Housing Corporation assumes no obligation to update these projections in the future unless otherwise required by applicable law. Curtis Hodgson: Thanks, Jon. I will turn the call back to Jon now to walk you through the quarter’s results, and then I will come back with some thoughts on the business and a few corporate updates. After that, we will open the call for questions and answers. Jon? Jon Langbert: Thanks, Curtis. Let us get to the numbers. Total net revenue for the quarter was $34.4 million, down 3.7% from $35.7 million a year ago. Despite the modest top-line decline, net income grew to $10.0 million from $10.3 million, and diluted EPS came in at $0.46, up from $0.41 in 2025. So revenue was a touch softer, but the bottom line was stronger, and I will walk through how we got there. Product sales were $21.6 million, down 11.3%. We shipped 312 units in the quarter versus 350 a year ago, with average revenue per unit essentially flat at roughly $69,100. The story underneath the headline number is really a mixed story. Inventory finance sales were down about $7.6 million, or 68%, as our dealers continue to work through existing inventory on their lots. That decline was largely offset by strength across our other channels. Retail store sales nearly doubled, up 81% to $6.1 million. Direct sales were up 80% to $2.7 million, and commercial sales to mobile home parks grew 12% to $7.6 million. The shift toward retail and direct selling reflects the strategy we have been executing, getting closer to the end consumer and expanding our company-owned distribution. Loan portfolio interest income was $11.3 million, up 6.2%, with essentially all of that growth coming from our consumer book. The consumer portfolio ended the quarter at $204.8 million, up modestly from year end. Mobile home park notes finished at $199.5 million, and dealer inventory finance receivables at $26.5 million. On the expense side, cost of product sales was down 13.1%, broadly in line with lower volumes, and SG&A came in at $5.8 million, down 8.3%. The SG&A decline reflects lower payroll, health benefit, and legal costs, partially offset by a higher loan loss provision and modestly higher property taxes. The net result is that even with revenue down a touch, we delivered net income growth of about 6% and EPS growth of around 12%, a function of slightly stronger gross margins, lower SG&A, and a lower effective tax rate. On taxes, our effective rate for the quarter was 16.1% versus 19.3% a year ago and the 21% statutory rate. The benefit reflects two items. First, the federal energy efficient home improvement credit known as Section 45L, which provides a per-home tax credit for manufacturers who build homes meeting specified energy efficiency standards, which we have qualified for on a substantial portion of our production. Second, a discount on transferable tax credits we purchased during the quarter. As a reminder, the Section 45L credit terminates on June 30, 2026, under last year’s tax legislation. We expect our effective rate to move closer to the statutory rate after that. The balance sheet remains in excellent shape. We ended the quarter with $14.1 million in cash, up from $8.5 million at year end, on $7.0 million of operating cash flow. Inventories rose to $50.4 million from $39.9 million at year end, primarily in finished goods. Curtis will speak more about the inventory build and the data center project driving it in a moment. Our $50 million Prosperity Bank revolver had less than $1 million drawn at quarter end, leaving roughly $49 million of available capacity, and we are in compliance with all our financial covenants. Total stockholders’ equity finished the quarter at $539.0 million, up from $528.6 million at year end. We repurchased about 31,000 shares for roughly $0.6 million during the quarter under our new $10.0 million authorization that the board approved in February, leaving approximately $9.4 million available for future repurchases through February 2029. The credit quality across our loan portfolios remains solid. At quarter end, more than 97% of both our consumer loans and our mobile home park notes were less than 30 days past due. We did increase loan loss reserves modestly in the quarter, reflecting continued portfolio growth and a slightly more conservative posture given the broader economic backdrop. With that, I will turn it back to Curtis. Curtis Hodgson: Thanks, Jon. Let me hit a few business topics: the operating environment, some specific business updates, and a couple of items that warrant a closer look from this quarter. The Q1 environment was a continuation of what I have spoken to in the past. Inflation picked up a little bit during the quarter, and the Fed is holding its benchmark rate steady, and 30-year mortgage rates are staying above 6%. Sustained higher borrowing costs continue to weigh on affordability, which affects our end consumers and particularly affects our park customers. They are just trying to make a return on their investment, and higher interest rates are making it more difficult to do so. Tariffs became a meaningful theme during this quarter, and they continue to affect our cost structure. The Supreme Court ruled in February that the emergency tariffs imposed in 2025 were not authorized, and U.S. Customs has begun winding down those duties. We are in the process of asking for a $0.683 million refund based on that Supreme Court decision. Meanwhile, the U.S. Trade Representative picked up new Section 301 investigations in March that could provide a different legal basis for tariffs going forward. And effective April 6, right after our quarter end, additional 232 duties were imposed on things like aluminum, steel, and copper, which do affect our cost structure. The bottom line is combined effective tariff rates on most Chinese-origin goods are still meaningful, and we are still absorbing real input cost pressures. A few other specific items. On retail and dealer activity, the shift toward retail at our own company stores we have been talking about is really showing up this quarter, and I think it will continue to improve. Our retail sales are up 81% year over year. Part of that increase came from buying AmeriCasa last year, which sells our homes, but it also sells three other brands at that location. Across our 14 company-owned retail locations—we call it Heritage Housing, our Tiny House Outlet, and AmeriCasa—direct access to end consumers continues to be a meaningful part of our strategy. On our finance division, the loan portfolios continue to perform very well. Consumer loan portfolio interest grew, credit quality is over 97% across all of our portfolios, and we have not seen any deterioration that would require us to change our reserving posture beyond the modest increases that we have been making. On capital allocation, we restarted share repurchases this quarter under the new $10.0 million authorization, and with our stock continuing to trade near book value, we view buybacks as a sensible use of our capital alongside reinvestment in the business. Let me talk a minute about the workforce housing orders that for the last two calls I have mentioned. During this quarter, we received nonrefundable deposits of about $8.0 million from customers for large workforce housing orders. We started production on those orders in the first quarter, but had not made any deliveries from those orders in the first quarter. Now that we are in the second quarter, I expect 200 to 300 units to be delivered on those fairly high-margin orders for which we have deposits in place, and we should recognize substantially all of these workforce housing orders in calendar year 2026. Another topic I would like to spend a minute on is the AmeriCasa litigation. We filed a lawsuit in March. Our claim is related to misrepresentations and omissions made in that acquisition. We are early in the litigation. I am not exactly sure where it will end up, but the litigation was necessary because the acquisition we made last year was not panning out as we expected, and I think it is because things were either not disclosed or erroneously disclosed during the due diligence period. The litigation is not really material to our consolidated financial position, our liquidity, or our operations. We will continue to evaluate the facts and circumstances regarding that acquisition, and I just want everybody to know that it is not going to be the savior to the company; on the other hand, it is not going to be very deleterious either. One other item that is worth flagging. In 2024, we came to an agreement with borrowers under which we received clear title to [inaudible] home communities and a new $48.6 million short-term promissory note bearing interest at 7.9%. This note matures in July 2026. We have been in contact with the borrower, and they have now made all required payments under that bridge loan. We are talking about taking a partial payment and renewing it; we are talking about what possible lending we are willing to do on a going-forward basis. We still believe that there will not be any negative effect from this note, but we are in the process of negotiating, and you never know how it might turn out. A couple of other closing thoughts that are really short. Q1 was a solid quarter, especially in light of the management transition that happened in the fourth quarter. Net income was up over 6%, and on a diluted earnings per share basis, it was up 12%, somewhat because of our share repurchases and somewhat by the exit of executives that no longer have stock options. Our balance sheet is in great shape: $14 million of cash, essentially no debt, $539 million of stockholders’ equity, and an undrawn revolver. People look at us and say, my gosh, you have a clean balance sheet. We also are a one-entity company, no subsidiaries, and I think that is a very attractive place to be. The workforce housing orders are encouraging, especially here in Texas. The strength in our retail and direct sales reflects the strategy that we have been pursuing. Loan portfolios continue to be stable and a growing earnings engine. Georgia continues to be a big question mark. We have managed to keep it running, but we do not have any workforce housing orders yet in Georgia, so we are relying on the old-fashioned selling to dealers and selling to parks and selling through our company stores. That does not have enough volume to keep us running at profitable production. As I have said before, Legacy Housing Corporation has never had a quarterly loss in our entire history. 2026 has kept that streak going, as will Q2. We are conservatively capitalized, focused on long-term value creation, confident in our ability to weather some near-term volatility while positioning for long-term growth as housing affordability becomes more and more important to U.S. consumers and policymakers, especially while interest rates remain at 6% or above. Operator, that concludes our prepared remarks. Please open the line for questions and answers. Operator: We will now open the call for questions. Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Our first question comes from Alexander Rygiel of Texas Capital Securities. Your line is open. Alexander Rygiel: Good afternoon, Curtis and Jon. Great to hear from you both. I always appreciate your broader perspective on the economy and broader housing market trends. I am curious, in your views, how you think that has changed over the last three months? Curtis Hodgson: On the 10,000-foot view, Alex, our demographics are not all that healthy. For the first year in history last year, we had more people moving out of the country than moving into the country, and our birth rate is below two. So on a 10,000-foot view, we do not need a lot of new bedrooms. We already have all we need. Growth is basically geographically very particular. We have growth in states like Texas and Florida, and we do not have growth in states like Indiana and Ohio. Fortunately, we do business south of the Mason-Dixon line, and we still have a growing demographic in the states that we do business. As an aside, Kenny and I got in this business in 1980, and from 1980 to 1982—you young men that were not living through it have read the history books—that was the highest interest rate environment in the history of our company, where the prime rate of interest got all the way, I believe, to 18%. Those were very good years in the mobile home business because high interest rates lock consumers out of traditional site-built housing. Buying the $0.5 million house at a 10% mortgage rate is prohibitive to almost anybody in this economy, which brings them down, just as it did in 1980–1982, to things that we sell. So higher interest rates are not a bad fact to the manufactured housing industry. If anything, they are a good fact. But we still struggle on where you are going to put them. We do not have a lot of vacant spaces in big cities. We do not have very many mobile home parks coming online, although, as you know, we are trying to do things in Texas, but we do not have a good answer to where we could put them. Lots of headwinds. And the industry itself has not grown in filling that void, and it has not grown on providing a neighborhood solution as the traditional homebuilders have, of which I know you follow many of them. So even now that we have what should be tailwinds, we have not done a very good job as an industry of imitating the site-built housing people and selling community solutions as opposed to, say, a Jim Walters solution—for those of you that are my age—where we are just providing a house and somebody else has to put in the garage, somebody else has to put in the landscape, somebody else has to put in the premises and the fence. We basically are providing part of the solution but not all the solution, whereas when you follow your site builders, they are solving almost all of the neighborhood problems. We are trying to morph into that with our huge development outside Boston, which has got a lot of good news this week, if anybody was paying attention. Within four miles of our location, we have thousands of jobs that have just been announced in the future. So that particular location I am very confident of, and we have made very little progress on other land holdings. I know I went above and beyond answering your question, but at least I did answer your question. Anything else, Alex? Alexander Rygiel: Yes, that was very helpful. Historically, the company has seen some positive seasonality after tax season. Since we are past that, can you comment on demand in April and early May? Curtis Hodgson: Sure. I do not know that we can stomach much more demand in Texas with all our orders we already have in place. We are probably already out to August or September. We would have to find somebody to move in the line to take more orders. We did get a little seasonality bump in Georgia that let us turn the spigot back on, but we do not have much backlog in Georgia. Without the data centers and without the oilfield boom—which Georgia does not participate in hardly at all at either of those—the good old-fashioned mobile home business, the street dealers and the parks, is rather tepid. I do not mind going on record on this. I think followers of my peer group have already figured it out based on the punishment that they gave the stock prices this week. I did notice before the call that our stock was actually up on what I consider fair but not great reports. We are in good shape as a company, and our next two quarters should be pretty doggone impressive based on houses already built in that backyard that we are starting to ship to these major customers in Texas. To answer your question, in summary, traditional demand is not great, but nontraditional demand like data centers and oilfield is as good as I have seen it ever since Rita/Katrina in 2005. So a lot of good news, but a little bit of bad news. Alexander Rygiel: One last question: as it relates to the workforce housing order that you have—that is fantastic—but turning the page, how do future prospects look, and when might we hear about other big orders into this market? Curtis Hodgson: In Texas, we are working several big orders—huge orders—and none of them have turned into deposits yet, but we are working that angle. The big seven companies that are involved in data centers are making a multitrillion-dollar commitment to this space. Compared to, say, the stimulus that was given to the economy after COVID by the U.S. government, in size the stimulus that these seven are giving the economy is comparable to the stimulus that the U.S. government gave a few years back in COVID, which was significant stimulus. So let us take a data center manufacturer. He is putting on his balance sheet an asset, but he is putting on my balance sheet income—as well as everybody in the construction business in this region. The fact that income is going to be up for everybody in this region is a pretty remarkable amount of stimulus. There is a little bit of that going on on a nationwide basis, including Georgia, and even on a worldwide basis. But in our market—Texas and Louisiana—there is so much data center business that is actually going to happen, by these seven companies investing mega capital, I think we are good probably all the way through 2027 and maybe beyond that. So business is good in Texas. That is all I can tell you. Alexander Rygiel: Good to hear. Thank you very much. Operator: Thank you. As a reminder, if you have a question, please press 11. Our next question comes from Mark Smith of Lake Street. Your line is open. Mark Smith: Hi, guys. I wanted to ask for a little more detail, if you can, Curtis, on this workforce housing deal—any more insight you can give us on the size and maybe the timing of revenue recognition as we work through the year? Curtis Hodgson: I would guess that we already have somewhere around 600 units with deposits in this category out of Texas, which was about half of our entire production last year in Texas, maybe even more than half. The orders actually started in December, but they were not ready for the houses. We needed the order, so we built them anyway. Of the 600, at least half of them will be shipped in Q2, with the remaining being shipped in Q3 and Q4. To Alex’s question, Mark, I tipped my hand and said we are in the process of taking even more orders. Think of the double whammy we have here, Mark. We have data centers all over the state of Texas, and we have West Texas crude selling at nearly $100 a barrel, which we have historically always gotten orders from whenever there is a boom in the oilfield. I do not know if you can tell me when the Iran war is going to be over or what is going to happen to oil prices; I might have a different opinion. But if this $90 to $100 a barrel holds, we are not only going to have lots of orders for data centers, we are going to have lots of orders for the Permian Basin as well, and it will lift all boats. Every manufacturer is going to get a benefit. We are not uniquely qualified—there are 34 operating plants in the state of Texas—but we are all going to rise together. We will not need independent dealers like we have in the past. We will not even need our own company stores. We will keep growing them, but I would rather build a past sale to Google than create too much inventory in my company stores in a rather tepid retail business. The theme remains the same, and if you have been following these calls—because I know you have been on them, Mark—all I am doing is backing up what I already predicted two calls ago with real numbers. We are in good shape for a long time. It will blossom in Q3 and Q4, and it is going to show up beginning in Q2. We may have three of the best quarters coming up in front of us, but I do not like to overpromise and underdeliver. You have known me for eight or nine years, and you know that I am pretty conservative in these projections. But I know what is in the pack, and it would be nonsensical for me not to reveal it. We are going to have good three quarters. Mark Smith: That is helpful. The other one was SG&A—there was a pretty impressive cut in SG&A this quarter, and I know there have been changes there. Can you talk about the sustainability of SG&A—are there further cuts, or with the orders coming in, are there areas you need to add? Curtis Hodgson: I wish this was a video call because you would see a picture of me with a machete. I have just begun to cut SG&A, and everybody is supportive of that. We basically have $500 million worth of money invested in paper. That does not take any SG&A, or hardly any. I am tired of SG&A growing in the company when the rest of the company is not growing, so I would expect to see further declines in SG&A. I do not know how much we can get it down to because, as Jon correctly pointed out, SG&A is not just sales, general, and administrative; it includes things like warranty and reserves and provisions for loan losses. But from a pure people-and-expense perspective—the S, the G, and the A—I would expect further declines. I do not know what our auditors are going to require for loan provisions that I think are nonsensical, and I do not know what skeletons are going to come up in the warranty department from yesteryear because we built some stuff that has been a legal issue. Part of our SG&A is still going to go down while part of it may not. I would expect maybe a 10% reduction by the end of the year in SG&A. Mark Smith: You spoke earlier about inflationary pressures and tariffs. Do you think your SG&A cuts are enough to make up for inflationary pressures, and is there anywhere you can pull on COGS to get product cost down? Curtis Hodgson: I have to go back to 2010–2030. The problem in the industry is all of the major manufacturers have been trying to build a cheaper product, and any time they can take $10 out, they consider it a triumph. The natural result is the product loses desirability—it does not have basic features, like medicine cabinets. We have taken a different tack. We are going to not build the cheapest one if possible and build to the middle of the market, and just recently we began to prove that theory out at the retail level with our company stores. We are not going to fight a war over who can sell the cheapest one for the lowest margin, because that is a recipe for failure. We are going to abandon that philosophy and concentrate on the middle market. This market needs to do more like site-built housing and turn into more of a turnkey solution to housing and get off the idea that the buyer has to buy his own medicine cabinet, if you know what I mean. Mark Smith: With changes in immigration and your own workforce, are you seeing pressure on labor and your ability to hit new production goals? Curtis Hodgson: As the younger generation would say, 100%. Deportations have hurt our sales to the Spanish market, and I think that is unfortunate, but it is okay. The interesting fact is our retail portfolio—which is 70% Hispanic—is behaving incredibly well, so we have not experienced a big uptick in repossessions. A little bit—I would say we are now repossessing at roughly 4% per year, but that is the historical norm in this industry. When we were repossessing at only 2% per year, it was because there was this quantum leap in prices during COVID and everybody was right side up in what they owed on their mobile home. Those increases in prices ended four years ago. In the four years since, we have had no substantial increase in prices in this industry, so for the loans made then in 2022, 2023, 2024, and 2025, we have consumers that are not well covered by the value of their mobile home, and I think that is the reason why repossessions are increasing back to historical norms. Deportations are not affecting our loan portfolio, but they are affecting the sentiment of people and whether they want to buy a mobile home with this threat that some family member may be deported and they do not want to go back home with them. It has affected who we sell to at retail and how we sell to them, but it has not affected our portfolio. I think that does answer your question. Correct? Mark Smith: That does. Thank you. Operator: Thank you. I am showing no further questions at this time. I would like to turn it back to Curtis Hodgson for closing remarks. Curtis Hodgson: Sure. Thanks, everybody, who joined the call today. I appreciate your interest in our company. That ends the call from my perspective. Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by, everyone, and welcome to the Amtech Systems Fiscal 2026 Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jordan Darrow of Darrow Associates, Investor Relations. Please go ahead. Jordan Darrow: Thank you, and good afternoon, everyone. We appreciate you joining us for the Amtech Systems Fiscal 2026 Second Quarter Conference Call and Webcast. With me today on the call are Bob Daigle, Chairman and Chief Executive Officer; and Mark Weaver, Interim Chief Financial Officer. After close of market today, Amtech released its financial results for the second quarter of 2026. The earnings release is posted on the company's website at www.amtechsystems.com in the Investors section. Before we begin, I'd like to remind everyone that the safe harbor disclaimer in our public filings cover this call and the webcast. Some of the comments we made during today's call will contain forward-looking statements and assumptions that are subject to risks and uncertainties, including, but not limited to, those contained in our SEC filings, all of which are posted on the Investors section of our corporate website. The company assumes no obligation to update any such forward-looking statements. You are cautioned to not place undue reliance on forward-looking statements, which speak only as of today. These statements are not a guarantee of future performance, and actual results could differ materially from current expectations. Among the important factors, which could cause actual results to differ materially from those in forward-looking statements are changes in technology used by customers and competitors, change in volatility and the demand for products; the effect of changing worldwide political and economic conditions, including trade sanctions; and the effect of overall market conditions, including equity and credit markets and market acceptance risks; ongoing logistics, supply chain and labor matters and capital allocation plans. Other risk factors are detailed in our SEC filings, including our Form 10-K and Form 10-Q. Additionally, in today's conference call, we will be referencing non-GAAP financial measures as we discuss the financial results for the first quarter. You will find a reconciliation of those non-GAAP measures in our actual GAAP results included in the press release issued today. I will now turn the call over to Amtech's Chief Executive Officer, Bob Daigle. Robert Daigle: Thank you, Jordan. Revenue for the quarter was $20.5 million, which was up over 30% from the same quarter last year and up 8% sequentially. Our adjusted EBITDA was $2.5 million or about 12% of sales, an increase of $1.1 million from the prior quarter and $3.9 million from a year ago. While reported revenues were at the high end of our guidance range, our adjusted EBITDA margin was a significant beat, as we had guided to high single-digit EBITDA margins. Higher gross margins contributed to our improved profitability and cash generation. Gross margin approached 48% in the second quarter, up from 45% in the first quarter. Cash on hand at the end of the quarter was $24.4 million, an increase of $2.3 million from the prior quarter and $11 million from a year ago. AI-related sales accounted for over 30% of our Thermal Processing Solutions segment revenue in the second quarter and bookings were very strong. Momentum for AI-related demand continued to build in the second quarter. Advanced packaging has emerged as a critical bridge between silicon innovation and the escalating demands of artificial intelligence infrastructure. As traditional Moore's Law scaling slows, the ability to pack more computing power into a single footprint now relies less on shrinking individual transistors and more on how those chips are interconnected. By enabling high-bandwidth memory integration, reducing data latency through 2.5D and 3D stacking and allowing for massive system-on-package architectures, advanced packaging provides the physical foundation necessary for generative AI and large language models to thrive. In short, packaging is no longer just a protective housing for chips, it is a primary driver of the performance, power efficiency and scale required to fuel the next generation of AI processors. Capital equipment, which can deliver high yields and throughput is vital to support this AI revolution. As broadly reported, semiconductor OEMs and OSATs continue to increase investments to expand capacity to support the massive AI infrastructure build-outs. Demand has been very strong for our advanced packaging equipment and AI server board assembly equipment due to our differentiated capabilities that include TrueFlat technology and market-leading temperature uniformity, which enables high yields when producing these very complex and expensive products. Although we have limited visibility due to our short lead times, our channel checks support our belief that demand will remain very strong for the foreseeable future. Based on bookings and quoting activity, we expect the percentage of revenue from AI applications in our Thermal Processing Solutions segment to exceed 40% in the third quarter. We are also seeing increased quoting activity and bookings for panel-level packaging. These more demanding packaging technologies are serving more mainstream semiconductor applications, but their process requirements align very well with our differentiated capabilities. To accelerate growth, we're continuing to invest in next-generation equipment to support higher density packaging to address emerging customer requirements. We plan to launch the first product for higher-density packaging at the SEMICON trade show in Taiwan in early September. We believe the capabilities provided by our next-generation equipment will significantly increase our addressable market and help drive growth beyond 2026. Growth of our Thermal Processing Solutions parts and service business was also a highlight in the quarter. Customer outreach initiatives have helped drive growth with revenue up 10% sequentially and 56% year-over-year. I should note that while we are benefiting from demand for our products to support the AI build-out, we are also beginning to use AI software integrated with our ERP and CRM sales tools to help support customers and streamline our sales process. For our Semiconductor Fabrication Solutions segment, we continue to leverage our foundry service and technical capabilities to pursue applications from customers not well supported in the industry. We have built a strong opportunity pipeline and are expanding efforts to replicate successes and grow sales of legacy products. Overall, our IDI chemicals business revenue was up 15% year-over-year. We have also made significant improvements in the service levels we provide and have driven outreach initiatives to grow our parts and services business at Entrepix. Revenue for parts and service at Entrepix was up about 40% year-over-year. I'm very encouraged by the early results from our customer-centric growth initiatives. Unfortunately, much of the success from these initiatives in our Semi Fab Solutions segment has been masked by weak sales of our PR Hoffman products due to weakness in demand from our major silicon carbide customers. As I've stated before, 2026 will be an investment year for our SFS business as we execute on our strategy to overserve the underserved, but we believe that our customer-centric growth initiatives will deliver reoccurring revenue streams with meaningful profits beyond 2026. The operating leverage and working capital efficiency across the company resulting from our product line rationalization efforts and a migration to a semi-fabless manufacturing model over the past 2 years helped deliver improved results for the quarter and should result in continued strong cash flow and further increases in gross margins and EBITDA margins as revenues increase. Our semi-fabless model, which includes -- concluded the consolidation of our manufacturing footprint from 7 facilities to 4 should also allow us to significantly increase revenue with minimal capital expenditures. We ended the quarter producing 9 reflow systems per week and have the capacity and supply chains to accommodate the growth we expect with little or no CapEx. In summary, growth opportunities driven by AI infrastructure investments and our customer-centric set strategy, combined with strong operating leverage that results from our asset-light semi-fabless business model position us very well to deliver meaningful shareholder value. Before I hand the call over to Mark, I have 2 organization announcements to share. First, as we announced last week, Tom Sabol has been appointed as CFO and will be joining Amtech on May 14. Tom brings more than 20 years of CFO experience across publicly traded and private equity-backed organizations with deep expertise in developing and leading finance teams, driving financial performance, Investor Relations and SEC reporting. His background spans several industries, including financial services, software and advanced manufacturing. I look forward to working closely with Tom, as we continue to drive growth and profitability. I would like to take a moment to recognize and thank Mark Weaver for stepping in as interim CFO. Mark came out of retirement to help us with this transition, and I greatly appreciate his support and his leadership. I am also pleased to announce that Guy Shechter will be joining Amtech on May 19 in a newly created President and Chief Operating Officer role. Guy has held various commercial and general management positions with semiconductor equipment and advanced packaging equipment companies. The extensive experience, customer relationships and leadership skills that he brings to Amtech will be critical as we expand our portfolio of solutions for AI applications to accelerate growth. I'm looking forward to having Guy join the Amtech team. Now I'll turn the call over to Mark for more details concerning our Q2 results. Mark Weaver: Thank you, Bob. Once again, it's been a pleasure working with you and the folks at Amtech. I've truly enjoyed my time here. Now I'll review the financials for the fiscal '26 second quarter. Following the 2-year-plus transformation led by Bob, the company is finally at a place where year-over-year revenue comparisons are meaningful. The one consistent characteristic of our revenue comparisons over the past few years has been the positive impact of AI product demand within the TPS segment. In the second quarter of 2026, AI revenues accounted for more than 30% of TPS segment revenue. Bookings for AI applications remain strong, and we are experiencing both book and ship in the same quarter as well as book now and ship later on. This has led to the second consecutive quarter of company-wide bookings exceeding sales for the period. Other areas of TPS and SFS sales are also contributing growth on a consolidated basis, which is being partially offset by weakness in select product lines, as Bob discussed in his remarks. Total SFS revenues were $5.7 million in the second quarter, up 15% from approximately $5 million in both the first quarter of 2026 and the second quarter of 2025. Moving on to gross margins. The company's product line rationalization and our focus on growing higher-margin product lines, including AI advanced packaging solutions as well as our recurring parts services business are delivering their intended results, particularly as we are benefiting from greater scale. Gross margin as a percentage of sales increased to 47.7% in the second quarter of 2026, up nearly 300 basis points from 44.8% in the first quarter of '26. Comparison to the prior year period is not meaningful since that quarter included a $6 million noncash inventory write-down as part of our broader turnaround and transition, which took margins into negative territory in the second quarter of 2025. Selling, general and administrative expenses increased $0.3 million sequentially from the prior quarter and were relatively flat as compared to the second quarter of 2025. The increase is primarily due to expanding business activities, tax and IT consulting fees. Research, development and engineering expenses were relatively flat compared to prior periods. The company continues to invest with a measured yet opportunistic approach to R&D, including next-generation products targeting the AI supply chain and our specialty chemicals business. GAAP net income for the second quarter of fiscal 2026 was $1.2 million or $0.08 per share. This compares to GAAP net income of $0.1 million or $0.01 per share for the preceding quarter and a GAAP net loss of $31.8 million or $2.23 per share for the second quarter of fiscal '25. During the second quarter of 2025, the company recorded significant noncash inventory write-downs and impairment charges, which make the year-over-year comparisons for profitability not really meaningful. The company's second quarter of '26 GAAP net income includes $0.3 million of foreign currency exchange losses versus $0.2 million in the prior quarter, primarily driven by a weakening United States dollar against the Chinese renminbi. Unrestricted cash and cash equivalents at March 31, 2026, were $24.4 million compared to $22.1 million at December 31 and $17.9 million at September 30 and $13.4 million a year ago. The increased cash balances are due primarily to the company's focus on operational cash generation, working capital optimization, strong accounts receivable collections and accounts payable management. The increase in cash from the first quarter of this year is even more meaningful since we are carrying an additional $0.9 million in inventory to accommodate higher order flow. The company continues to have no debt. As for the $5 million stock repurchase program, the company did not use any cash for this, as no shares were repurchased since the plan was put in place on December 9. Now turning to our outlook. For the third fiscal quarter ending June 30, 2026, the company expects revenue in the range of $20.5 million to $22.5 million. At the midpoint of this range, our guidance is meaningful year-over-year and sequential quarter increase. AI-related equipment sales for the Thermal Processing Solutions segment is anticipated to drive the majority of our revenue growth and account for as much as 40% of the segment's sales in the third quarter of 2026. With the benefit of continued top line growth and the sustainable improvements in structural and operational cost reductions, Amtech expects to benefit from its operating leverage to deliver adjusted EBITDA margins in the low double digits range. The outlook provided during our call today and in our earnings press release is based on an assumed exchange rate between the United States dollar and foreign currencies. Changes in the value of foreign currencies in relation to the United States dollar could cause the actual results to differ from expectations. And now I will turn the call over to the operator for questions. Operator: [Operator Instructions] And today's first question comes from Scott Buck with Titan Partners. Scott Buck: Bob, I was hoping to get a little more granularity on gross margins in SFS. It looks like it was up about 800 basis points sequentially. So any kind of added color on what's going on there would be great. Robert Daigle: Yes. Again, I think a lot of -- revenue contributed -- the additional revenue contributed a bit to that. And I think the balance would really be mix related. There wasn't anything really structurally different quarter-to-quarter in that segment, more reflective of the mix of products through that business and then the incremental revenue. We have a lot of operating leverage. As you might imagine, with the -- basically the structural changes we've made over the past couple of years, we've positioned ourselves where we do get very solid flow-through of any incremental revenue to our overall results. Scott Buck: Great. That's very helpful. And then I want to ask about kind of geographic mix and how you're seeing demand trends across regions. Robert Daigle: Yes. So as you might imagine, Asia is really the hotbed for AI infrastructure build-outs. Traditionally, in the packaging area, it's been almost exclusively Taiwan, but what we're seeing is a significant build-out of packaging infrastructure in other parts of Southeast Asia, Thailand, Malaysia, Indonesia, India, for example. So we're seeing a broadening of geographic footprint in terms of major investments in the packaging area for almost all driven by AI infrastructure. And I'd say more recently, we're seeing quite a bit more activity, I'd say, in North America as well. It was pretty quiet, but we're starting to see some investments being made. I'd say more so on the enterprise level board assembly at this stage than chip packaging, but it's nice to see some increased AI activity in North America as well. Scott Buck: That's helpful. In terms of Asia, should we be keeping an eye out on any kind of trade policy, tariff or supply chain dynamics? Robert Daigle: Yes. Specific to the tariffs, we positioned ourselves pretty well there where if you go back a year ago, any equipment coming into the U.S. was basically being manufactured in China. And obviously, there were very meaningful tariff impacts as a result of that. But we did establish a partner where we now manufacture equipment for the U.S. in Singapore, Malaysia area. So we've kind of insulated ourselves quite a bit from the U.S.-China stress levels. And beyond that, there really haven't been a lot of, I'd say, across Asia issues. I'd say back to your supply chain question, everyone is talking about memory being more expensive. And obviously, that's same for us, and we have to adjust our cost and pricing accordingly if memory becomes more expensive. We really haven't seen any shortages, however, I would say it's more -- there's a little bit of price pressure that we need to deal with and pass along on the memory side. Scott Buck: Okay. Great. And then last one for me. Cash continues to improve. How should we be thinking about capital allocation? Or I should say, how are you thinking about capital allocation? You have the $5 million repurchase authorization out there. Is that a priority? Or is it more R&D investment in new products or even potentially M&A? Robert Daigle: Yes, let's -- Yes, I'd say growth is number one, right? Because back to the operating leverage discussion, as we grow with the strong margin leverage we have in our portfolio, and I should mention with all the product lines that we cut from the portfolio rationalization efforts, I would say really across the board, we have very healthy margins across the entire portfolio right now. So any of the product lines that grow are very meaningful in terms of improving cash generation, gross margins and EBITDA. I'd say from an investment standpoint, we are making those investments. We've been increasing -- we have our R&D efforts around next-generation equipment. There could be a little bit of incremental investment needed to drive that home. We're investing in resources to develop the pipeline for SFS in terms of trying to build out our IDI portfolio and the recurring revenue streams. We'll continue to incrementally invest in that. I don't see that having a meaningful impact on cash needs. And then the other factor I think we want to point out is with our semi-fabless model, we have the ability to scale without meaningful CapEx. As I mentioned in my comments, with -- even looking out a year in terms of high growth and demand for the equipment used for AI packaging, we don't really see the need for deploying meaningful cash for CapEx. Our semi-fabless model and our supply chain can handle that growth. So having said all that, long story short is if we find -- we're active, if we could find inorganic opportunities, we would deploy cash accordingly. But as I've said to many people, I spent over a decade doing corporate development in a prior life. And I would say we need to be prudent, cautious and make sure that what we do is generating real meaningful value. So we're going to be -- when people ask me, are you going to acquire? I always answer the question with maybe because if we find acquisitions that can create real value, we're going to do those to accelerate growth. But we do have a great pipeline of organic growth that I think can push us forward. And then back to your question about capital allocation, obviously, first priority is growth. If we don't have -- if we didn't have better uses for that, then, of course, we would look at providing the cash back to shareholders in some form. Operator: [Operator Instructions] And the next question comes from George Marema with Pareto Partners. George Marema: I just want to give you kudos for the tremendous transformation over the last 2 years and with the business and now you're starting to see the fruits of that operating leverage, it's fantastic to see this. So thanks for that. First question I have is on the change we've seen recently with being very GPU dominated to now a lot more of the CPU and CPUs being more advanced packaging requirements demand. I wonder if you can kind of size up and differentiate what this means to Amtech in terms of opportunities and velocity of capacity adds going forward? Robert Daigle: Yes. My sense, George, is I would -- it's a very favorable tailwind for us in that if you think about our business and in terms of how we package semiconductor packaging or enterprise board assembly for that matter, a lot of it has to do with units and size of those units, right? And I think as many on the call may be aware, you start -- even going back to the -- you look at the Blackwell versus Rubin GPUs where the size of the packages are getting much, much larger is very beneficial. Because what we do is we -- you can kind of think about what we're providing is very much based on area of production. So it's the size of the packages, and it's a number of packages. So when you hear people talk about the number of CPUs, maybe I've heard numbers as much as, what, 10:1 against GPUs, TPUs to do a lot of the localized processing for AI. I think that bodes very well for volume production in the industry, which typically bodes very well for us. So we think it's a tailwind. It's too early to -- we're going to try to get our arms around what this could mean in terms of additional acceleration. But I think it's very positive. It's hard to put my arms around the numbers at this stage. George Marema: Okay. I was curious on the silicon carbide side of the business, with the increasing demand drivers of lots more automotive AI content, power, higher voltages, thermal performance requirements, et cetera, do you see any demand outlook increasing on these areas in the next year or so? Robert Daigle: Yes. Possibly, but I do have -- I temper -- when I look at the big driver for silicon carbide was really the EVs, the electric vehicles. And a lot of that growth is really being driven primarily in Mainland China today, which is less of an opportunity for us than in the West. I do think the AI infrastructure will drive some demand increase. It's hard to -- I think we're quite a ways away from that impacting capital equipment needs because a lot of the Entrepix volume, if you go back 2, 3 years ago, was capital equipment as they were ramping up infrastructure for EV. I don't think there's enough demand there yet to drive any of that. And I do think the cost pressures on the silicon carbide side in the West and the tremendous capacity that's put into China that's competitive, it could come back. I just wouldn't put -- I'm not emphasizing that, frankly, George, as a major growth driver for us. It could be helpful, but I do think eye on the ball over here is really maximizing our opportunities around packaging and assembly and AI, and it's building out that specialty chemicals annuity business that if you want to -- in terms of where our best investments can be made to drive value. George Marema: Speaking of chemicals, on your chemical side of the business, are you doing much R&D in the -- for addressing all the polymers, adhesives, et cetera, for advanced packaging, semiconductor for like -- that addresses melting and warping and cooling and signal loss, all that sort of stuff? Robert Daigle: We're mostly cleaners, lubricants. We do have some coolants, however, in the processing of primary wafers, more so at the wafer level, though, than -- or optics. I would say optics is an area we're paying more attention to, as you might imagine, than the chemicals and the packaging area. But I do see opportunities -- significant opportunities, frankly, in optics or optical-related semiconductor production, and we're pursuing those. George Marema: Do your cooling chemicals and equipment, do they kind of help address these warpage yield problems that are emerging at the leading edge now? Robert Daigle: Not so much. I think no, but I wouldn't say they do. I think the warpage where we benefit is on the packaging, which is our TrueFlat technology. That's really where we shine, George. If you've got a $30,000 processor that you're trying to assemble, you need to keep it flat. And I would say that's where we really do well with our TrueFlat equipment. Operator: And the next question comes from Craig Irwin with ROTH Capital Partners. Craig Irwin: Last quarter, the small delay in one of your AI customers in taking some packaging equipment had a big impact on your stock. Did we maybe see the delivery of that equipment in this current period, or is it expected over the next couple of months? And do you expect the linearity or the overall business to have sort of a smoother trajectory given the size and the scale that you're gathering over the next couple of quarters? Robert Daigle: Yes. We did ship that particular equipment during the quarter. And I'd say that the visibility, I wouldn't say it's great, but it is getting better because there's a lot more activity in terms of new facilities being put in. And so we are seeing more bookings with deliveries out a quarter and in a couple of cases, actually a couple of quarters now, which is very unusual for our business because, as I mentioned before, we have very short lead times. We've got a very efficient supply chain, turn equipment around very quickly. So we've typically been a book and ship even in this large-scale capital equipment space. But having said that, because people are actually building new facilities now and don't necessarily need all the equipment immediately, we're seeing better visibility, which I think will translate back to -- I think a good point is that it should start to smooth things out a bit, frankly, as we get better visibility and bookings that aren't just current quarter, but out of ways. Craig Irwin: That definitely makes sense. The next question is one that I get asked fairly often, right? It's more of a big picture question, Bob. So can you talk a little bit about Amtech's moat in advanced packaging and AI? What's allowed you to dominate this space? There are others that would like to do business in here, but you've maintained a really strong reputation on technology. It's allowed you to have those long-term customer relationships and supplier relationships, too. What's different about what you're doing that gives you this moat? Robert Daigle: Yes, because, generally, we win when it's a demanding application, and there's actually 3 components that usually come into play. I'd say in advanced packaging, that TrueFlat technology, and it's -- unfortunately, we don't have graphics in front of you, but these are large conveyorized piece of equipment, let's say, almost half the length of a tractor trailer bed that are doing the reflow operations for these packages and you're raising things at very high temperatures. Most materials, most substrates, and I think George earlier was alluding to this tend to bow and twist and deform as you're heating them up. And we have technology which allows us to -- it actually pulls a vacuum, it holds the substrates down flat against the belt. So things don't basically shift during the assembly process. And what does that mean? That means high yield. So in applications where you're trying to process something that's very expensive, you need -- you're not going to sacrifice yield, you've got to have equipment that's going to be robust. The other thing I'd say is temperature uniformity. I think we have a significant advantage in terms of being able to provide uniformity across our refloat, across the belt within zones. Our latest equipment actually has reconfigurable zones that can be customized by customers, so we've provided capabilities that really are enabling for high yield, high throughput processing of these things. And I'd say the last thing, which I think I've mentioned before, like our Aqua Scrub technology, for example, where we can remove the contaminants from the processing fluxes out of the gas stream so that it reduces downtime in the ovens and reduces the risk of contaminating the product. So we've got a bunch -- I mean, it's not just one -- I guess that's the tough part, Craig. It's not one thing. We've got a portfolio of capabilities and IP around some of these capabilities that put us in a position where if you're trying to do -- you're trying to process an AI package, an AI enterprise board, it's expensive, we're worth it. I guess I'd say, which is why we've captured the strong position, market position that we have today and enjoy today. Operator: And this concludes today's question-and-answer session. I would now like to turn the conference back over to management for any closing remarks. Robert Daigle: All right. Thank you, operator. In closing, I want to thank everybody for joining our earnings call today. We look forward to seeing some of you later this month at the B. Riley Annual Investor Conference and then in June at the Planet Microcap Conference. We hope you can join us at either of these events. And thanks again for your continued support of Amtech Systems, and have a good evening. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Good day, and welcome to the Starz First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nilay Shah, Investor Relations. Nilay Shah: Good afternoon. Thank you for joining us for Starz Entertainment's First Quarter 2026 Earnings Call. We'll begin with opening remarks from our President and CEO, Jeffrey Hirsch; followed by remarks from our CFO, Scott MacDonald. Also joining us on the call today is Alison Hoffman, President of Starz Networks. After our opening remarks, we'll open the call for questions. The matters discussed on this call include forward-looking statements, including those regarding expected future performance. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our most recently filed 10-KT for Starz Entertainment Corp. Starz undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. The matters discussed today will also include non-GAAP measures. The reconciliation for these and additional required information is available in the 8-K we filed this afternoon, which is available on the Starz Investor Relations website at investors.starz.com. I'll now turn the call over to Jeff. Jeffrey Hirsch: Thank you, Nilay, and thank you all for joining us. Today marks the 1-year anniversary of our separation. The Starz of today is structurally stronger than the business was when we separated a year ago. Over the last 12 months, we've made significant strides in setting the business up for long-term value creation. We have been laser-focused on achieving our financial goals of increasing margins to 20%, converting 70% of adjusted OIBDA to unlevered free cash flow and delevering to 2.5x as quickly as possible. I'm happy to report in our first year, we have met or exceeded all our key financial targets, created a new licensing revenue stream by restructuring the Canadian business, started to rebuild our content library through ownership, announced our first co-commission partner, helping to improve unit economics of our originals, the aged our slate while expanding our most popular franchises. And overall, we have unwound many of the constraints of operating within a studio structure. As I outlined on the last call, calendar '26 will serve as a financial inflection point for the business. Cash flow timing is now closer aligned with industry norms. Adjusted OIBDA is becoming more predictable and consistent, and we are managing the business against the metrics that matter most: OTT revenue growth, adjusted OIBDA, free cash flow and delevering. We are off to a great start in calendar '26. We had a strong first quarter, meeting or exceeding all financial guides, which Scott will discuss in more detail. Our structural work is showing up directly in the numbers, and our content continues to perform. The finale of Power Book IV: Force started the quarter off strong. The premier Season 8 of Outlander achieved a 4-year series high in its Premier Week. And just after the quarter, we released -- the Housemaid and it quickly set records as our best-performing Pay 1 film in both acquisition and streaming viewership. I expect this momentum will continue through the year. We have one of the strongest content slates ahead with our proven hit series, Raising Kanan, Outlander: Blood of my Blood and P-Valley, supported by the upcoming MICHAEL biopic. Congratulations to John and the Lionsgate team for the great box office performance. It will further strengthen our already robust schedule this year. In addition to our lineup of returning series, we announced this week that our first STARZ owned original Fightland, will premiere in just a few months on July 31. If you recall from the last quarter, we also announced Sky as the co-commission partner on Fightland, driving even more upside to the already favorable unit economics. We also continue to make advances in our ownership strategy beyond Fightland with the recently announced greenlight of another STARZ owned original, the untitled Black Rodeo show. This family drama is set inside the thriving world of the Black Rodeo in Texas and production is set to begin this fall. This is another example of us continuing to build out our content library through ownership, which I remind you, allows us to control the cost from inception and globally monetize our IP. As we have continued to highlight, rightsizing the content cost structure of the business has been paramount to reaching our stated goal of 20% margin. Today, we are announcing that we have exited our Pay-Two agreement with Universal. The Universal titles, which we originally planned to air through calendar '28 are incredibly popular and bring with them tremendous box office strength. However, due to the high subscriber overlap between Amazon and Starz, these titles are heavily watched before they come to us in the Pay-Two window. This unique dynamic with Amazon has resulted in lower viewership than we originally projected. In order to replace the revenue component of the Pay-Two, we will reinvest and acquire high-performing titles at superior economics. As a result, I'm pleased to announce that our outlook for reaching 20% margin has moved 12 months forward to the back half of 2027 instead of exiting 2028. We are thankful to our partners at Universal for working with us to find a mutually beneficial solution. We continue to see 2 paths for value creation for the Starz business. First, our focus has been growing the core business to achieve the 20% margin guide. Second, we believe there's an additional path to growth through potential M&A opportunities. Our approach to M&A remains disciplined. Any strategic initiative must be complementary and additive to our core audience, must fit within an acceptable leverage parameter and create clear and identifiable value for our shareholders. But given the strength and the profitability of our core business, we do not need M&A to maximize shareholder value. Before I turn it over to Scott, I would like to reiterate how excited I am about the growth of our business going forward. The free cash flow conversion is materializing. We are advancing ownership of our content library. We've rightsized the overall content portfolio, and we are anticipating continued rapid delevering. Starz remains focused and committed to executing on our growth strategies. We said calendar '26 would be an important year in showcasing what the business will look like as a stand-alone. The first quarter serves as evidence of just that. Now let me hand it over to Scott to take you through the financial details. Scott MacDonald: Thank you, Jeff, and good afternoon, everyone. I'm pleased to report that Q1 2026 was a strong quarter financially, and we delivered on or ahead of our key guidance metrics. Before I get into the financial details, I want to remind everyone that we are focused on 4 metrics going forward: OTT revenue growth, adjusted OIBDA, free cash flow and leverage. The decision to deemphasize subscriber counts is already being validated as pricing discipline and a focus on higher lifetime value customers are proving more valuable than maximizing quarter end subscribers. Let me start with revenue. OTT revenue in Q1 was $211 million, up from $210 million in Q4 2025. Total revenue in Q1 was $307 million, down from $323 million in Q4 2025. This sequential decline primarily reflects the timing of Canadian licensing revenue. The sequential growth in OTT revenue is an important benchmark, and it was driven by exactly what we set out to do, pricing discipline on both the acquisition and retention side, fewer low-priced entry offers, more annual and multi-month plans. This is deliberate and is improving the health of the business. While we are not disclosing ARPU directly, ARPU did grow on a sequential basis in the period. We expect ARPU to continue to build through 2026 as promotional customers convert to higher retail rates. In addition, we recently announced a price increase to $11.99, which will flow through the subscriber base starting in Q2. We continue to forecast positive OTT revenue growth in 2026 versus 2025 and are already ahead of where we expected to be at this stage of the year. Moving on to adjusted OIBDA. We delivered $58 million of adjusted OIBDA in Q1 2026, up sequentially from Q4 2025 due primarily to lower advertising and G&A expenses. On a year-over-year basis, adjusted OIBDA was down due to lower revenue and higher content amortization, offset by favorable advertising and marketing expenses. Importantly, adjusted OIBDA came in ahead of our internal plan, which gives us confidence in our full year guidance of low single-digit adjusted OIBDA growth. We also expect our quarterly adjusted OIBDA cadence to be more consistent in 2026 relative to 2025. In Q1, as part of our efforts to rightsize our content cost structure, we recorded a $139 million restructuring charge, the majority of which is related to the write-off of content with limited strategic value for our platforms. As the agreement with Universal was entered into in April 2026, we will record the Pay-Two restructuring charge in the second quarter of 2026. The revised terms meaningfully improve our cash payment obligations, creating a significant reduction in cash content spend beginning in 2027. Moreover, we believe this is the final component of our post-separation content rightsizing efforts. Combined with the ongoing de-aging of our original slate and the growing owned content contribution, this gives us clear line of sight visibility to reaching our 20% adjusted OIBDA margin target in the back half of 2027, a full year ahead of our prior guidance. Cash content spend in Q1 was $113 million, down year-over-year due to the timing of spend on output movies and originals. For the full year 2026, we continue to expect content spend to come in below $650 million, a meaningful decline from 2025. We expect the convergence of content spend and programming amortization to improve significantly in 2026 as compared to 2025 and continue to improve thereafter. When they reach near parity, you will see the full benefit of our content strategy reflected in the cash flow statement. Unlevered free cash flow was $81 million in Q1 2026, up $147 million year-over-year, while equity free cash flow was up $136 million year-over-year to $69 million. I want to note that Q1 was positively impacted by lower content spend, which we expect to catch up in Q2. Accordingly, we are not raising our free cash flow outlook at this time. Turning to the balance sheet. As of March 31, our net debt was $523 million. Our leverage ratio at the end of Q1 was 3.1x, lower than our internal expectations for the period, and we remain confident in achieving our 2.7x year-end target. I do want to note that leverage increased modestly on a sequential basis due to the timing impact of trailing 12-month adjusted OIBDA, not a reflection of any change in the underlying business trajectory. Our $150 million revolver remains undrawn, and we have significant liquidity and financial flexibility to manage the business. Let me close with guidance. We are reaffirming our full year 2026 outlook across all metrics. OTT revenue growth versus 2025, low single-digit adjusted OIBDA growth versus 2025, $80 million to $120 million of unlevered free cash flow, leverage exiting the year at approximately 2.7x. We will remain disciplined in how we manage the business, and we are confident in our ability to deliver on these metrics. Finally, 2027 is now setting up to be a very significant year for margin expansion and improved free cash flow generation, given the restructuring benefit, owned originals ramping and continued content cost reductions. Now I'd like to turn the call back over to Nilay for Q&A. Operator: We will now begin the question-and-answer session. Go ahead, Nilay. Nilay Shah: I was going to say thanks, Scott. You can hand it over for Q&A. So we can start. Thank you. Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from David Joyce with Seaport Research Partners. David Joyce: Regarding the Universal deal, can you size the portion of your available titles, that represented? Is it all theatrical? Or is there episodic in there? And where would you be sourcing more content from? Would it have similar kind of aging? And what are the checks and balances that you've gone through to make sure you don't have overexposed content again? Jeffrey Hirsch: David, it's Jeff Hirsch. Thanks for the question. This is a really unique situation because of the size of the overlap of our subscriber base sitting on Amazon, which sits in the Pay-One B from Universal. And so what you're really seeing is we were paying Pay-Two prices for library performance. And so we've talked a lot about the data information we have on the business. And we've been able to use the data to kind of recreate and reinvest into other library titles that give us the same kind of performance so we can protect the revenue component of that while actually just putting money to the bottom line while we reinvest. And so it's a little bit of money ball where we actually look at various titles from library from across the industry to kind of recreate the performance that we had at a much better economic level. Operator: The next question comes from Brent Penter with Raymond James. Brent Penter: First one for me. Could you talk a little bit more about -- last quarter, you announced you're not reporting subs and you're deemphasizing subscribers. How are you seeing that reflected in your results so far? Anything specific you can talk about in terms of customer lifetime values, churn, overall revenue, how that's benefiting you? Alison Hoffman: Thank you so much for the question. I think we're really seeing the rewards of the pricing discipline that we put into the business. In this past quarter, we have seen churn reach an all-time low in our business. Basically, we're not bringing in low-value subscribers in the way that we were when we were in a quarterly sub chase. And so the health of the business is really there. Just another stat in terms of the last quarter that was really strong is engagement was really strong for the business. So we have a strong content quarter and we saw year-over-year engagement up about 8%. So I think we feel really good that this is the right way to approach and operate the business for the long-term revenue growth goals that we have as opposed to, again, orienting around a quarterly sub chase. Brent Penter: Okay. Great. That's great color. And then I also want to ask about the shareholder rights plan put into place in March after there was a big chunk of your shares that changed hands. Can you help us understand why that was put into place, why now? And then the rationale for the 1-year time line expiring next March? And then, Jeff, is that at all related to the M&A possibility that you just laid out? Jeffrey Hirsch: Yes. Look, great question. I think there's a few components. So one is a newly separated company. And as you've seen, the market cap has moved around a lot and run up. So we wanted, I think, with the Board, we wanted to make sure that we had the ability and the time to kind of get the business rightsized and get value to the right place. And I think you're seeing that reflected in the stock and the market cap today. And so I think that the Board was really coalesced around making sure that we had the ability to get the business in the right place. Also, I think the Board is really also coalesced around our long-term vision for the business and how we can scale the business and wanted to make sure that we were laser-focused on that without any distraction. So we put that in place. It's a 1 year term. And then next year, we'll come up probably for a shareholder vote, whether we extend it or not. Brent Penter: Okay. Okay. Got it. And then final question for me. With the Universal Pay-Two deal ending and you're moving up the 20% margin goal. As we think a couple of years out to 2028, does this mean maybe you could get even above that 20% goal as we look ahead? Or is this really more of a timing thing that it's just a matter of when you hit the 20%? Jeffrey Hirsch: I think it's a combination of -- we knew that we had the titles through calendar '28. And so as that was rolling off, we had great line of sight into what that margin profile would look like. As we're able to work with the Universal and move that forward, that obviously brings the profitability of the company greater into a shorter period of time. But as you know, there's multiple ways to grow margin in the business. I think as we continue to put more ownership on the network, de-age the slate, get into '28 and '29 where the majority of our originals are owned by Starz and kind of bring that entire portfolio over, there may be some opportunity to continue to grow margin as well. Operator: The next question comes from Vikram Kesavabhotla with Baird. Vikram Kesavabhotla: I think you mentioned in the prepared remarks that you guys raised price recently. It'd be great to hear more about what gave you the confidence to make that decision and perhaps any of the early feedback that you're seeing from customers who've seen that increase. Alison Hoffman: Yes, Vikram, thanks for the question. We executed our price increase on April 1, and we have done this before. We are really positioned very well as a complementary service. $11.99 is a great price point for the value that we offer and for the audiences that we serve. So far, the price increase is digesting really well throughout our business. It's going to expectations. We'll have more information as we get into the summer and it really sort of plays out through the business. But going to plan and going very well, we think that we're very, very well positioned at that price point. Jeffrey Hirsch: I would also add that April is off to a really strong start even with the rate increase coming in April 1. Vikram Kesavabhotla: Okay. Great. And then separate from that, I know you've talked about in the past getting to half year slate by 2027. It'd be great to get your updated thoughts on how you feel about that goal right now and maybe some of the puts and takes that will affect your ability to get there? And maybe just some more color on the progress you've made on some of the projects that you already have going. Jeffrey Hirsch: Look, I've never been more excited about the pipeline that we have in the business. We just announced an untitled Black Rodeo Show, which is -- I think it's going to be one of our biggest shows. We're excited about production beginning that on in the fall. Fightland, which is our first owned original will premiere July 31st. We released a lot of the first look footage pictures of that yesterday, and it looks amazing. And we've got Kingmaker in development. We've got Masquerade in development. We're out. We've landed a couple of book series that we think could be big franchises for us. We've got all 4s. We've announced Plan B being our production partner there. We're putting more writers around that. And so the pipeline has never been more full and more exciting. And I think you couple that with the Pay-One Lionsgate, we're going to have a very, very strong content slate for the next 1 to 2 to 3 years. And so we're right on track to delivering against that 50% goal, and I think we'll actually accelerate past that. Obviously, the hope is to get most of the slate owned and controlled by Starz long term, and that's something we're laser-focused on. Operator: [Operator Instructions] The next question comes from David Karnovsky with JPMorgan. Douglas Samuel Wardlaw: Doug Wardlaw on for David. I'm wondering now that you're out of this agreement with Universal, what's the criteria for the acquisition of titles you'll be looking for to properly lead to whether user acquisition or to the churn? And then separately, does this lead to more room for spend on original content? Jeffrey Hirsch: So great question. We've developed a really robust database of first title streams and viewership on movies that we've acquired over the past from all the different studios. So we have a pretty good sense on in terms of indie films, what kind of viewership and first title stream that we can pull from different titles depending on how -- what their box office was, how old they are, what characters are in it, what's the storyline. And so we're really able to kind of, like I said earlier, Moneyball the portfolio to replace what we were seeing from the Universal titles at a much more of a library price. we were paying Pay-Two rates and they were performing much more like library because of just the strength of the titles being watched to Amazon. So we've got a pretty good view on what we need to acquire and at what price. And so there's an ability to put a lot of the savings to the bottom line. You see that moving the guide to 20% in '27, but we're also reinvesting in the business to protect the revenue side of the business as well. And so we've been able to do both in a much highly economic positive aspect to the business. Douglas Samuel Wardlaw: Great. And then I guess, separately, you mentioned P-Valley is coming back at some point this year, and it's been a long gap. And I'm just wondering what your data kind of says about audience reengagement for shows that have hiatuses that long? And does that kind of lead to more marketing spend to kind of get some of those viewers back that may have been gone? Jeffrey Hirsch: It's a great question. Look, I think with P-Valley specifically, and we've seen this with other shows that have had longer breaks, Outlander is a good example where we've had a lot of breaks. The fan bases are so obsessed with these shows that they've been continually looking for it and coming back on the network. So I actually think the moment we bring P-Valley back, the obsessiveness and the craziness for the fan base will get people there. We also have the ability, obviously, within app to notify customers, which is a zero cost game for us as well. And so we've got a lot of different marketing tools that are not economically expensive for us to go ahead and bring them back. But I -- Outlander is a great example. That fan base has created a thing called Outlander, which is the off-season, and they're online every day, wondering when that show is coming back. And I think P-Valley brings that same kind of intensity from the fan base. And so I expect it to be a wonderful return to the network and a massive both subscriber gain as well as viewership gain when we get it back on the air. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks. Nilay Shah: Thank you, operator, and thank you, everyone. Please refer to the News and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thanks, everyone. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Covista Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Jeremy Cohen, Vice President, Investor Relations. Thank you. You may go ahead. Jeremy Cohen: Good afternoon, and welcome to Covista's Earnings Call for the Fiscal Year 2026 Third Quarter Results. On the call with me today are Steve Beard, Chairman and Chief Executive Officer of Covista; and Bob Phelan, Chief Financial Officer. Before I hand you over to Steve, I will take you through the legal safe harbor and cautionary declarations. Certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on our current market, competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially. We undertake no obligation to update publicly any forward-looking statement after this presentation, whether as a result of new information, future events, changes in assumptions or otherwise. Please see our latest Form 10-K and Form 10-Q for a discussion of risk factors as they relate to forward-looking statements. In today's presentation, we will use certain non-GAAP financial measures. And we refer you to the appendix in the presentation materials available on our Investor Relations website for reconciliations to the most directly comparable GAAP financial measures and related information. You will find a link to the webcast on our Investor Relations website at investors.covista.com. After this call, the presentation and webcast will be archived on the website for 30 days. I will now hand you over to Steve. Stephen Beard: Thanks, Jeremy. Good afternoon, everyone, and thank you for joining us. This is our first earnings call as Covista. The name reflects what we've been building, a single platform for health care workforce development on a national scale, backed by the performance you're seeing in this quarter's results. The structural backdrop for our business hasn't changed and remains highly durable. There are roughly 700,000 health care jobs posted every month in the U.S. and only 306,000 unemployed health care workers to fill them. That's a patient care problem, not a staffing problem, and it's exactly what we were built to solve. 5 institutions, more than 24,000 health care graduates a year, deep clinical relationships and a footprint that reaches communities most under strain. And we're increasingly connecting our market-leading capacity to produce health care workers directly to employers through programs that fund education, deliver clinical experience and create hiring pathways. No one else does this at our scale. Three things defined this quarter. First, we surpassed 100,000 students, achieved our 11th consecutive quarter of total enrollment growth and delivered record enrollment at both Chamberlain and Walden. Second, Chamberlain returned to positive total enrollment growth ahead of our expectations. The operating changes that we committed to are, in fact, working. Third, the strength of our results gives us the confidence to raise both revenue and adjusted EPS guidance for the year. Total enrollment grew 6.8% in the quarter against near double-digit comparables a year ago. Walden has been compounding off an extraordinary base, and Chamberlain spent this fiscal year retooling its marketing and enrollment model. As Chamberlain's recovery builds and Walden's persistence efforts continue to compound, the underlying earnings power of the platform is strengthening in really exciting ways. With respect to Chamberlain, last fall, we were direct with you. The market opportunity was solid, but our execution was not. We called out 2 issues: marketing effectiveness and funnel conversion. In response, we localized our marketing in key metropolitan areas, simplified the application experience, rebuilt the scholarship process and upgraded talent in the critical roles across this activity set. We said we'd do these things, and we did. The operating signals are now telling the story. Application volumes have improved sharply. Funnel conversion is up. Total enrollment turned positive ahead of plan, and we expect Q4 to look like Q3 with momentum building into the fall enrollment cycle. We're not declaring victory on a single quarter of 0.5% enrollment growth, but we are telling you that the operating model is working and the trajectory ahead is stronger than the trailing numbers suggest. Looking forward, 4 things matter at Chamberlain. The first is the admission pathway expansion that we've embarked on, including fast-track options that give students more flexibility in how they earn their degree. Second is campus expansion. Six new campuses are in active development. The first begins teaching in September and 2 have received full regulatory approval since Investor Day. Third is a new brand campaign for Chamberlain, which I expect will compound through fiscal 2027, both in enrollment growth and in the brand equity for Chamberlain. And last but not least, is the addition of a dynamically capable new leader for the university, whom I'll speak to in a moment. Chamberlain confers more nursing degrees than any other university in the country. That's no accident, and it's not easily replicated. At Walden, the story is one of sustained momentum on top of very strong comparables. Total enrollment grew 12.3% to over 54,000 students, a record for that institution. The work I'm proudest of is what Walden has done on student persistence. We started by focusing on first to second semester retention, and we've since pushed the same discipline deeper into the student experience. It shows up in the retention numbers and it compounds quietly over time, which is exactly the kind of operating asset we want to build. We launched several programs heading into the 2026 academic year, including clinical psychology and behavioral analysis, and they've already enrolled over 1,400 students. 7 additional programs were approved, 3 of which are starting intake shortly in fields like palliative care and special education. The speed at which Walden brings new programs to market in high-demand fields is a competitive advantage we intend to build upon. Medical and veterinary continues its strong performance. The top line is healthy, and the operating discipline keeps converting enrollment growth into strong financial outcomes. One operational point worth flagging. We've cut application review time by weeks through process improvements and workflow automation. Faster decisions mean a better applicant experience and a higher probability that strong candidates choose us. Our academic outcomes remain exceptional. We're tracking at a 97% first-time residency attainment rate with AUC at over 98% in the most recent cycle. On the veterinary side, our graduates continue to earn spots in the most competitive internships and residencies in the country, and we remain among the top universities in total veterinary placements. On our enterprise investments, our work with Google Cloud is moving forward on 2 fronts. First, we're codeveloping the AI-powered classroom of the future, built natively inside the platform our students already use. The goal is a personalized learning companion that supports each student from first course to graduation. Initial pilots launch later this year. Second, more than 4,000 learners have already enrolled in our newly launched AI credentials across nursing, medicine and foundational AI. Additional certificates in veterinary medicine, mental health and other disciplines launch later this year. The demand validates how urgently the health care workforce wants AI fluency. To keep this work grounded in clinical reality, we established the Covista Healthcare Readiness AI Council, with leaders, including Dr. Toby Cosgrove, former CEO of Cleveland Clinic; Dr. Selwyn Rogers of University of Chicago Medicine; and Dr. Betty Jo Rocchio, Chief Nurse Executive at Advocate Health. Building the most clinically grounded AI curriculum in health care education is our objective, and it's increasingly a differentiator that's resonating with health systems. Before I hand off to Bob, I do want to spend a moment on capital because how we allocate it is central to how we create value for you. Trailing 12-month free cash flow grew 17% to $336 million. We refinanced our long-term debt during the quarter, cutting 50 basis points off our rate and extending maturity to 2033. We repurchased $66 million of our stock in the quarter at prices we believe materially understate the long-term earnings power of this platform and are accretive to our intrinsic value. We ended the quarter at 0.7x net leverage. That balance sheet, combined with the cash this business generates, gives us multiple paths to create value at the same time, investment in campus expansion, employer partnerships and the AI platform, opportunistic return of capital to shareholders and the optionality to act decisively if the right strategic opportunity presents itself. We'll be disciplined about which dollar goes where, and we'll be transparent about the choices we make. On leadership, 2 important notes. Amelia Manning will join Chamberlain as its next President, bringing the student success operating discipline she developed as COO of Southern New Hampshire University, and Michael Betz will take on an expanded role as Chief Growth and Innovation Officer, adding marketing oversight to his leadership of Walden and our digital work. Both moves strengthen our ability to execute, and I have high conviction in both leaders. So to summarize, we delivered strong performance across every segment. Chamberlain has turned. Walden continues to compound. Med/vet is converting growth to financial outcomes. The capital structure is in great shape. The cash generation supports the investments we're making and structural demand for what we produce is durable and deepening. As we close the fiscal year, we will complete our 3-year growth of purpose strategy in a position of strength and move into purpose at scale. That next chapter is built on 4 pillars: operational excellence, platform extension, employer integration and technology focus. You heard the framework at Investor Day, but the point I want to leave you with today is a bit simpler. Purpose of scale is not a plan we're about to roll out for the first time. It's an extension of the operating model that's already producing this quarter's results, and you'll see that same discipline at a larger scale over the coming quarters. As always, thank you for your continued support. And now I'll turn the call over to Bob. Robert Phelan: Thank you, Steve. Our third quarter results reflect continued execution against our growth with purpose strategy and set the stage for our next chapter. We delivered strong financial performance, raised our revenue outlook and for the second straight quarter, raised our adjusted earnings per share guidance. We continue to benefit from a robust financial foundation while increasing our level of profitability through scale and operational excellence, all while deploying capital in a balanced and disciplined fashion. I'll now review our financial results and key drivers for the third quarter. Later in my remarks, I'll discuss the updated expectations and assumptions for the remainder of fiscal year 2026. Starting with the top line. Revenue in the third quarter increased 4.5% to $487 million, driven by enrollment growth across all 3 segments. As we flagged last quarter, Walden's results were impacted by the shift of 1 academic week from the third quarter into the second quarter of this fiscal year. This resulted in $18 million of revenue being recognized in Q2 rather than Q3. Excluding this 1-week timing impact, consolidated revenue would have increased 8.4% year-over-year. So on a comp basis, the organic trajectory of the business is tracking extraordinarily well. Consolidated adjusted EBITDA came in at $127.9 million. As with revenue, the 1-week Walden calendar shift had a meaningful impact on our third quarter margin profile as well. Excluding the timing impact, consolidated adjusted EBITDA would have increased 14.2% to $145.9 million and consolidated adjusted EBITDA margin would have been 28.9%, up 150 basis points from the prior year. Adjusted EBITDA growth was led by Walden, adjusting for the 1-week shift with both Chamberlain and med/vet contributing as well. Adjusted operating income was $102.2 million, and excluding the 1-week Walden revenue shift, adjusted operating income would have increased 14.1% compared to the prior year to $120.3 million as revenue growth and efficiencies generated operational leverage, which is partially offset by investments in our strategic growth initiatives. Adjusted net income for the quarter was $69 million and adjusted earnings per share was $1.98 and was also impacted by the Walden calendar shift. Now let me turn to our third quarter financial highlights by segment. Chamberlain reported third quarter revenue of $197 million, an increase of 2.3% compared with the prior year. Total student enrollment grew 0.5% to 40,767 students, reflecting Chamberlain's return to positive total enrollment growth, an important milestone as operational improvements we put in place earlier this fiscal year continue to gain traction. Chamberlain's return to positive total enrollment growth also coincides with the highest enrollment in university history. This was driven largely by pre-licensure, where we achieved our 15th straight quarter of total enrollment growth, reinforcing the durability of Chamberlain's positioning in that market. While post-licensure was lower, we experienced sequential improvement in RN to BSN and continued growth in the Master's program. Adjusted EBITDA for Chamberlain increased 2.9% to $58.5 million. Adjusted EBITDA margin of 29.7% expanded 20 basis points versus the prior year. We will continue to invest in Chamberlain's marketing and enrollment operations as well as into our new campus development as discussed at Investor Day. Turning to Walden. As we noted last quarter, second quarter results had benefited from the 1-week academic calendar shift, and this third quarter reflects the opposite impact. Third quarter revenue was $186.6 million, an increase of 4.6% versus the prior year. Excluding the $18 million revenue timing impact, Walden revenue would have increased 14.7% year-over-year to $204.6 million, reflecting the strong underlying enrollment growth. Total student enrollment grew 12.3% to 54,474 students joining Chamberlain and also setting a record this quarter and marking Walden's 11th consecutive quarter of total enrollment growth. This was attributable to broad-based gains across health care and non-health care programs and continued strong persistence rates. Adjusted EBITDA was $49.7 million, excluding the 1-week revenue shift, Walden adjusted EBITDA would have increased 25.5% to $67.8 million and adjusted EBITDA margin would have been 33.1%, up 280 basis points, reflecting the powerful operational leverage inherent in Walden's model. For the Medical and Veterinary segment, third quarter revenue was $103.5 million, an increase of 8.9% versus the prior year. Total student enrollment increased 4.1% to 5,344 students with growth in both our medical and veterinary programs. Adjusted EBITDA increased 20.1% versus the prior year to $27.5 million. Adjusted EBITDA margin of 26.5% expanded 250 basis points versus the prior year as we remain focused on operating our institutions efficiently while making long-term growth investments and delivering strong academic outcomes. Shifting to cash flow and the balance sheet. Our trailing 12-month free cash flow was $336 million, up 17% from the comparable year-over-year 12-month period, reflecting the strength of our operating model and high cash conversion. Net leverage declined to 0.7x as of March 31, 2026, with cash and equivalents of $147 million. During the quarter, we refinanced our long-term debt, consolidating into a $510 million Term Loan B with a 50 basis point improvement in rates while also extending the maturity to 2033. Our strong cash generation and healthy balance sheet continue to give us the flexibility to deploy capital toward high-return growth opportunities while returning excess cash to shareholders, including share repurchases of $66 million during the quarter. Based on our year-to-date performance and our expectations for the fourth quarter, we are raising both revenue and adjusted EPS guidance for the full year. Revenue is now expected in the range of $1.93 billion to $1.945 billion, up from our prior range of $1.9 billion to $1.94 billion. This reflects revenue growth of 8% to 9% for the full year. Adjusted earnings per share guidance is being raised to a range of $7.95 to $8.15, up from the prior range of $7.80 to $8. Our new guidance reflects growth of 19% to 22% over the prior year for earnings per share. The raised guidance reflects strong momentum across each of our segments, including our expectation for positive fourth quarter enrollment growth at Chamberlain, which we expect to look like our third quarter enrollment performance. Our guidance also reflects an elevated level of targeted strategic growth investments in the fourth quarter across our institutions that we believe positions us well heading into fiscal year 2027. The increase in adjusted earnings per share guidance also contemplates our continued commitment to expanding our fiscal year 2026 adjusted EBITDA margin by 100 basis points, and we continue to anticipate an effective tax rate higher than fiscal year 2025. We remain focused on executing against our strategic and financial goals, expanding access, delivering positive student outcomes, deploying capital to meet the growing demand in health care education and generating strong long-term returns for all stakeholders. And with that, I'll now turn the call over to the operator for Q&A. Operator: [Operator Instructions] And our first question comes from the line of Jeff Silber from BMO Capital Markets. Ryan Griffin: This is Ryan on for Jeff Silber. You've spoken about the strength of the SSM partnership at the recent Investor Day. I was just wondering if you have an update on that or any of the other employer partnerships and then how the conversations with the care providers have been going since we last spoke. Stephen Beard: So what I can say about SSM is that the relationship continues to thrive the sort of interest, the increase in applications and inquiries around the St. Louis campus have been really encouraging. So no specifics to share at this point, but it continues to be a great proof point of a new and differentiated way of thinking about talent acquisition for health care providers. Beyond SSM, we've got several conversations active around the country, and we hope to be able to announce new partnerships in the near term. But we're very encouraged by the outcomes that we're seeing in the early days of SSM and the interest that we're receiving from other providers. Ryan Griffin: And then just looking at the magnitude of the quarterly beat and then with your comments on the targeted investment in 4Q, I was wondering if there was any timing of expenses that you pushed out into 4Q from 3Q? Robert Phelan: No. The way I would characterize it is we do have a dynamic resource allocation model. We look at investments on a regular basis, and we're just making incremental investments in the fourth quarter is really the way to look at it as opposed to just shifting things from the third to the fourth. Operator: And our next question comes from the line of Jasper Bibb from Truist Securities. Jasper Bibb: Really nice to see Chamberlain returning to growth here. Can you just talk about the drivers of that and then the RN to BSN piece, what you're seeing for demand in that segment as well as your own performance in the quarter? Stephen Beard: Yes. So again, 2 quarters ago, we let you know that we had what we thought was an underperforming enrollment cycle in Chamberlain. We thought we had identified the root causes of that, all of which that we determined were in our own control. A quarter later, we gave you a sense of how that remediation was working, talking you through some of the leading indicators of enrollment there. And we let you know that we thought you'd see that in the results of operations as we began to exit the fiscal year. We're really pleased that, that remediation work has taken root in a way that allows us to go total enrollment positive a quarter sooner than we thought. And we're really pleased about what that means for the go-forward momentum for Chamberlain. As you know, all year, pre-licensure nursing at Chamberlain has been a bright spot for us. We had plenty of strength there. So what we were really focused on was the trends in post-licensure nursing, the largest piece of which, as you know, is our RN to BSN program as well as our other post-graduate programs. I'm really pleased to say that we've got great momentum in both of those categories. RN to BSN is not the growth category that it may have been 7 or 8 years ago, but we are the leader in that space. And as I indicated in prior calls, we have every intention of defending our leading position in that category. So pleased to see the early momentum show up in our reported results and look forward to seeing that momentum continue into Q4 and into the all-important fall enrollment cycle. Jasper Bibb: I noticed applications were up double digits again at Chamberlain. It seems like a nice signal ahead of the fall enrollment cycle. Have you seen the conversion from those applications normalize back toward, I guess, historical levels? Or is it maybe too early to say that? Stephen Beard: The short answer is yes. So as you'll recall, we identified a few categories of challenges. One was at the top of the funnel related to the marketing campaign that we launched a couple of quarters ago that underperformed. And as you also know, I mentioned at the time that we had record low conversion, all of which, in our view, is an execution failure. We have fixed that. And the fact of the matter is we are seeing conversion rates that are much more consistent with historical conversion rates, and that's really a reflection of what we've done on a personnel training and process basis at the bottom of the funnel. Just -- I want to clarify one point I made earlier about post-licensure nursing in response to an earlier question. Just to be clear, our MSN programs in post-licensure are actually larger than RN to BSN, but RN to BSN is a really, really important category for us, and we will defend our position there. Jasper Bibb: Last one for me. I think you said Chamberlain's fiscal fourth quarter should look like the third quarter from an enrollment perspective. Just to clarify, was that saying the absolute enrollment number in the fourth quarter should be similar to the third quarter or the year-over-year growth rate in enrollment should be similar to the third quarter? Stephen Beard: We expect the rate of growth to be directionally similar. Operator: And our next question comes from the line of Jack Slevin with Jefferies. Jack Slevin: Congrats on a strong quarter Maybe just to drop in on Chamberlain again, but ask it slightly differently. Obviously, performance a little better than we have expected. Leading KPIs seem to be positive. Now the incremental commentary there, Steve, on the conversion side. I guess as you look at the next, call it, 4 months here as you roll into the September enrollment cycle for 2026, like what are the key focus points that you need to sort of stay present on in order to drive that inflection that you've been talking about and sort of have a better year than you did last year? Stephen Beard: Yes. I think it really comes down to execution. Chamberlain occupies an enviable position in nursing education. It's got incredible brand equity that resonates with both students and employers alike. It's got a fantastic mix of programs across pre-licensure and post-licensure nursing. So it's a fantastic brand and a fantastic product to take to market. So it's really about executing in the way that we've historically been accustomed to. The fall enrollment cycle 2 quarters ago was an anomaly for Chamberlain. Chamberlain is a high-performing organization, and we feel that from a personnel and a process perspective, we are exactly where we should be. We're also welcoming a new President to Chamberlain, who will start work in earnest next week. We're really excited about what she will bring to the momentum at Chamberlain. And so as I said back at Investor Day, Chamberlain's best days are ahead of it, and we look forward to proving that out quarter in and quarter out. Jack Slevin: Awesome. Very helpful. And then this might be a little early and if anything goes the way that it did after the last Investor Day, then this question might come up fairly frequently. But upside in the quarter, you put out targets that are year-over-year that sort of stack on top of each other. Is it fair to say, as we look towards the '27 numbers that you still feel good about what you put out at Investor Day, even with the higher base coming through now on the raised guidance? Stephen Beard: Yes. I mean, philosophically, our view is that we want to put out targets that represent aggressive stretch goals for the organization that represent the art of the possible for our assets and for our people. We feel good about the 3-year targets we put out directionally at Investor Day. Obviously, as we get to fiscal '27, we'll have a full year guide for that year as we open the year, and that will reflect our best estimate of both the momentum in the business and the market opportunity in front of us. So we'll be able to provide a bit more precision on fiscal '27 at that time. Jack Slevin: Got it. And then last one, Steve, really helpful color on sort of where things sit in the pipeline of all the campus expansion you've talked about. Is there any way to think about -- I noticed the step-up in CapEx in the quarter. Is there any way to think about as you start to roll out those 10 to 15 eventual campuses in the plan -- in a multiyear plan where CapEx levels roughly should be shaking out on a run rate basis or any way to think about maybe just the next, call it, 2 to 4 quarters as we model things out? Robert Phelan: Sure. I'll take that one. What I would tell you is if you look at by quarter, the CapEx spend this year, you see the ramp-up. I mean, we spent $31 million in the first half of the year. We spent $20 million in the third quarter. What I would tell you is that I would expect the fourth quarter to ramp up further from where we were in the third quarter. And then if you take that into next year, that would be a good proxy for what to expect going forward. Operator: And with that, this does now conclude our question-and-answer session. I would like to turn the floor back to Steve Beard for any closing remarks. Stephen Beard: Thank you. We have the good fortune of coming out with earnings today in the middle of National Nurses Week. As the largest nursing educator in the United States, we just want to take a moment to salute nurses everywhere. They are a critical component of care delivery in the United States. It's a calling and a profession that we all rely upon. So a sheer thanks to all of the nurses and also a shout out to all of the aspiring nurses at Chamberlain and Walden across the country. Thank you so much. Operator: Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Telephone and Data Systems, Inc. First Quarter 2026 Operating Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute when prompted. I will now hand the conference over to John Toomey, Treasurer and Vice President, Corporate Relations. Please go ahead. John Toomey: Good morning, and thank you for joining us. The presentation we prepared to accompany our comments this morning can be found on the Investor Relations sections of the Telephone and Data Systems, Inc. and Array websites. With me today in offering prepared comments are, on behalf of Telephone and Data Systems, Inc., Walter C.D. Carlson, President and CEO, and Vicki L. Villacrez, Executive Vice President and Chief Financial Officer. On behalf of TDS Telecom, Kenneth Dixon, President and CEO of TDS Telecom, and Christopher “Chris” Bautfeldt, Vice President, Financial Analysis and Strategic Planning. I will now turn the call over to Walter. Walter C.D. Carlson: Thank you, John, and good morning, everyone. Turning to slide three, this morning Telephone and Data Systems, Inc. announced a proposal to acquire the remaining shares of Array not currently owned by Telephone and Data Systems, Inc. in an all‑stock transaction. As Telephone and Data Systems, Inc. continues its transformation, this proposal is the next step in executing our strategy, simplifying our corporate structure, and enhancing our ability to invest in targeted areas of growth. Array has successfully completed its transition into a tower‑focused company with strong fundamentals, and we believe this transaction will position the combined company for long‑term growth. By bringing Array fully under Telephone and Data Systems, Inc.’s ownership, Array’s stockholders would retain a significant interest in the tower business while gaining exposure to Telephone and Data Systems, Inc.’s growing fiber business. Under the terms of the proposal, Telephone and Data Systems, Inc. would acquire all of the outstanding common shares of Array that Telephone and Data Systems, Inc. does not currently own by way of a merger in which each Array common share not owned by Telephone and Data Systems, Inc. would be exchanged for 0.86 of a Telephone and Data Systems, Inc. common share. This exchange ratio assumes that the previously announced spectrum license sales identified in our offer letter will have closed prior to the closing of the transaction contemplated by Telephone and Data Systems, Inc.’s proposal, and that the Array Board, consistent with its treatment of net proceeds from prior spectrum sales, will have declared and paid dividends of $10.40 per share to Array stockholders prior to the closing. At $10.40 per share, Array would distribute approximately $900 million in net proceeds. This exchange ratio reflects an at‑market offer based on yesterday’s closing prices for Telephone and Data Systems, Inc. and Array, subject to the assumptions just described. The transaction is expected to qualify as a tax‑free reorganization for U.S. federal income tax purposes. Telephone and Data Systems, Inc. expects the transaction to eliminate duplicative corporate costs, streamline corporate governance, increase share liquidity, and strengthen the capital structure of the enterprise, providing greater flexibility to pursue strategic investments across all our businesses, including towers and fiber. As noted in this morning’s press release, the proposal is subject to review and recommendation by a special committee of Array’s disinterested directors and the approval of the majority of the disinterested shareholders of Array based on votes cast. It would also require approval of Telephone and Data Systems, Inc.’s shareholders and the satisfaction of customary closing conditions. Telephone and Data Systems, Inc. does not intend to sell or otherwise transfer its interest in Array and will not entertain any third‑party offers for Array or its assets in lieu of this proposal. Telephone and Data Systems, Inc. continues to support Array’s previously disclosed intention to opportunistically monetize its remaining unsold wireless spectrum. Telephone and Data Systems, Inc. looks forward to working constructively with the Array Board’s special committee as they evaluate this proposal. Beyond what I just disclosed, and the information included in our press release and proposal letter to Array, we are not going to comment further on or take questions regarding the offer on today’s call. With that, let us turn to slide three. The enterprise is making good progress on its 2026 priorities. Our focus remains on advancing our strategy with financial and operational discipline. As I just mentioned, the proposal announced this morning will aid in strengthening Telephone and Data Systems, Inc.’s corporate and capital structure, and we look forward to working with Array’s special committee. Both business units continue to make progress toward their operational goals. TDS Telecom continued to add fiber addresses and customers in the quarter. Array is off to a strong start in 2026 and is making good progress growing tower tenancy. In the arena of spectrum, Array closed on a small transaction with T‑Mobile earlier this week and expects the remaining announced T‑Mobile and Verizon spectrum sales to close in the second or third quarter, subject to regulatory approval and other customary conditions. I am pleased with the progress each business unit is making and with the efforts we have underway to strengthen our culture as we go through this period of transformation. I would like to personally thank every associate across the enterprise for their continued commitment and contribution. I will now turn the call over to Vicki. Vicki L. Villacrez: Thank you, Walter, and good morning, everyone. Slide four updates you on our capital allocation priorities. TDS Telecom continues to make nice progress toward achieving its long‑term objective of reaching 2.1 million marketable fiber service addresses, delivering 40 thousand in the quarter. Ken and Chris will discuss more about the opportunities and momentum we are seeing in that space in a moment. We continue to evaluate M&A opportunities in a financially disciplined, accretive, business‑case‑driven fashion. In mid‑April, we announced an agreement to acquire Granite State Communications. As I have communicated in the past, we are primarily focused on small to medium‑sized opportunities that are already fibered up or have an accretive economic path to all fiber and support our clustering strategy. Granite is just like that: fully fibered with over 11 thousand service addresses that are adjacent to several of our existing markets in New Hampshire. We are excited to welcome these associates and customers into the Telephone and Data Systems, Inc. family and expect the transaction to close in the third quarter, subject to regulatory approval. Finally, in the area of shareholder return in the form of Telephone and Data Systems, Inc. share buybacks, we were not in the market during the quarter. At the end of the first quarter, we had a $520 million authorization for Telephone and Data Systems, Inc. share buybacks available, and we remain committed to executing on that program. Across all three priorities, the company intends to be disciplined, balancing the needs of the business and evaluating future returns along with market and other conditions as we move forward. Thank you. I will now turn the call over to Kenneth Dixon to discuss Telephone and Data Systems, Inc.’s fiber business. Kenneth Dixon: Thank you, Vicki, and good morning, everyone. At TDS Telecom, 2026 is focused on executing our fiber growth plan: building fiber addresses, driving fiber sales, and continuing to transform our operations. This quarter, we made progress across all three priorities as we scale our fiber network and advance our long‑term strategy. As shown on slide six, our fiber builds are off to a good start. We delivered 40 thousand marketable fiber service addresses in the first quarter. This is the highest first‑quarter total in our company’s history and nearly 3x our delivery in 2025. This performance reflects both effective execution and construction capacity, including our highest‑ever internal and external construction crew counts. While we are pleased with the record construction number, we still have more work to do. We continue to invest in our internal construction teams by adding headcount and upgrading tools and equipment to support increased build capacity, giving us a strategic advantage. We believe these investments provide greater control over our execution and improve long‑term efficiency. In addition, we have a robust pipeline of addresses currently under construction, positioning us very well for the spring and summer build season. This pipeline includes a mix of addresses from our fiber expansion into new areas as well as fiber upgrades in our existing markets through our Fiber Deeper program and the federal A‑CAM program. As a reminder, the A‑CAM program provides federal support that enables us to bring fiber to approximately 300 thousand service addresses, including those along the route where it would otherwise not be economical, helping to drive copper out of our network. Looking at sales, we ended the quarter with approximately 11 thousand fiber net adds, up 32% year over year. As we continue to scale our fiber footprint, we remain focused on converting new service addresses into customers and improving the overall customer experience. During the quarter, we strengthened leadership in key sales and customer‑experience roles to support these priorities. Our operational transformation is centered on efficiency, improving the customer experience, and simplification. We continue to make progress modernizing our systems and remain on track with our transformation roadmap. I am happy to announce that we have now completed the billing conversion in our cable markets and have also introduced a new Field Force platform to support our technicians. These updates simplify our back‑office processes and provide an improved customer experience. We are now able to launch multi‑gig speeds in our cable footprint. These areas are some of the best markets in the country, and we continue to see great opportunity here, so expect more to come. Finally, as Vicki noted, in mid‑April we signed an agreement to acquire a fiber‑based telecommunications business in New Hampshire. The transaction adds over 11 thousand fiber addresses that are contiguous with existing TDS markets and supports our clustering strategy. Approximately 30 associates will join the TDS team. We are excited about the opportunity to continue to deliver excellent service in this area, and we look forward to closing this transaction in the third quarter, subject to regulatory approval. Turning to slide seven, our long‑term goals reflect our continued focus on executing our growth strategy that delivers scale, speed, and long‑term value. With the delivery of 40 thousand fiber addresses in the quarter, we now serve approximately 1.1 million fiber addresses representing 58% of our total footprint, with 79% of addresses capable of gig speeds. While there is more work ahead, the progress we are making reinforces our confidence in the path forward as we continue transforming into a fiber‑centric company. I will now turn it over to Chris to walk through our first‑quarter results. Christopher “Chris” Bautfeldt: Turning to slide eight, the chart on the left shows our quarterly fiber service address delivery over the past five quarters. As Ken highlighted, our first‑quarter fiber address delivery nearly tripled year over year. This significant increase reflects the additional construction capacity we introduced last year and are continuing to scale this year. Our execution in the first quarter demonstrates the effectiveness of the strategy and the momentum we are building as we advance toward our long‑term goals. The chart on the right illustrates the continued expansion of our fiber footprint. Over the past three years, we have nearly doubled the number of fiber service addresses across our markets, demonstrating steady and meaningful progress. On slide nine, residential fiber net adds were approximately 11 thousand in the first quarter, a 32% increase compared to prior year, driven by continued footprint expansion and ongoing copper‑to‑fiber conversions. Residential fiber connections have also nearly doubled over the past three years, and we expect continued growth as we expand our fiber footprint. Turning to slide 10, the chart on the left depicts our residential revenue per connection, which increased 1% year over year. This growth reflects annual price increases offset by ongoing industry‑wide declines in video attachment rates. The chart on the right is new this quarter and breaks down total residential revenue between copper, cable, and fiber. You will see our fiber revenue is up 13% versus prior year, an uplift of approximately $11 million, which helps offset the legacy revenue stream pressures we are experiencing. In cable, revenues are down roughly 10% versus 2025. As Ken highlighted, we are increasing investment in our cable markets to stem these declines. Overall, total residential revenue declined $5 million compared to prior year; approximately $3 million of this decline is attributable to divestitures of markets that were predominantly copper‑based. We remain hyper‑focused on driving fiber revenue at a pace that is expected to more than offset legacy declines. Slide 11 summarizes our financial performance. Total operating revenues declined 3% in the quarter, or 1% excluding the impact of divestitures. This reflects continued legacy revenue‑stream pressures, partially offset by growth in fiber connections and modest improvement in revenue per connection. Cash expenses decreased 3%, driven primarily by benefits from our transformation initiatives, including lower costs for billing, circuits, and facilities. Adjusted EBITDA declined 3% in the quarter, driven largely by the revenue losses from divestitures. Capital expenditures totaled $126 million in the quarter, reflecting higher construction activity, a robust funnel of addresses under construction, and accelerated investments in our internal construction crews and equipment. Slide 12 reflects our guidance for 2026, which remains unchanged. We are projecting total Telecom revenues of $1.015 billion to $1.055 billion. Current headwinds in our copper and cable markets are guiding us toward the lower half of this range. Adjusted EBITDA guidance remains between $310 million and $350 million as we continue our transformation efforts. Capital expenditures for the year are projected to be between $550 million and $600 million to support our goal of delivering between 200 thousand and 250 thousand new fiber service addresses. Before turning over the call, I want to thank the entire TDS team for their continued execution and focus. Their efforts across fiber delivery, customer growth, and operational transformation are critical to the progress we are making toward achieving our long‑term objectives. I will now turn the call over to Anthony. Anthony Carlson: Thanks, Chris, and good morning. 2026 has got off to a busy but great start. The organization is laser‑focused on fully optimizing our tower operations and monetizing our spectrum. In the first quarter, we saw cash site‑rental revenue increase 64% over Q1 of last year, we also demonstrated sequential tower‑tenancy growth when adjusted for DISH, and we continue to move our announced spectrum transactions forward. Before I get to the details of the quarter, I want to acknowledge the Array Board’s receipt of Telephone and Data Systems, Inc.’s proposal to acquire the remaining public shares of Array. Our Board has formed a special committee of independent directors who have retained independent advisers to carefully evaluate the proposal and make a recommendation as to what is in the best interest of Array’s shareholders. Array will be providing updates as appropriate, but we will not be commenting further or taking questions regarding this proposal today. Moving along to slide sixteen, I want to provide an update regarding DISH. As previously disclosed, we received a letter from DISH Wireless in September 2025 in which DISH asserted that unforeseeable FCC actions impacted its master lease agreement with Array and, as a result, DISH believes it is relieved of its obligations under the MLA. Since early December, DISH has generally failed to make the required payments and is therefore in breach of its obligations. Array continues to take actions it deems necessary to protect its rights under the MLA. Given the ongoing nonpayment, in the first quarter, Array ceased recognizing DISH revenue, and all unpaid 2025 amounts have now been fully reserved. Accordingly, our tenancy ratio no longer includes DISH colocations. When normalizing for this impact, we continue to see sequential growth in our tenancy ratio as depicted on the right, from 0.95 in Q4 2025 up to 0.96 in Q1 2026. Importantly, in Q1 we grew revenue and healthy colocation application volumes while supporting T‑Mobile in its integration. As noted on slide 17, cash site‑rental revenue in Q1 increased 55% year over year from all customers, and when normalized for DISH impact, this increase was 64%. When layering in the T‑Mobile interim site revenue, the increase was 86% year over year, or 98% when normalized for DISH. Our application volume remains robust, and coupled with our existing pipeline, will drive additional revenue growth in 2026 and beyond. Turning to slide 18, T‑Mobile has until January 2028 to finalize its 2,015 committed sites under the new MLA. We continue to anticipate 800 to 1,800 tenantless towers after the integration is completed and all interim sites are terminated. Our ground‑lease optimization work remained a priority in Q1, and we are making progress in reducing the cash burden of these negative cash‑flow assets. As noted previously, this will be a multiyear effort focused on cost avoidance, additional lease‑up, evaluating long‑term command, and decommissioning in situations where it makes sense, a process we have already begun on a subset of sites with no path to economic viability. This approach allows us to thoughtfully assess all potential outcomes for the tenantless tower portfolio. As shown on slide 19 and presented in prior quarters, we have reached agreements to monetize roughly 70% of our spectrum holdings. As a reminder, the sale of spectrum to AT&T closed on January 13, 2026, with the Array Board declaring a $10.25 per share dividend that was paid on February 2. In Q1, the FCC approved the sale of certain 100 MHz licenses to T‑Mobile, and that transaction closed earlier this week. Additionally, the FCC approved the sale of the 600 MHz and AWS licenses to T‑Mobile and, pending closing conditions, we expect that sale to close in Q2. Verizon will close in Q2 or Q3 of this year, subject to regulatory approval and normal closing conditions. The remaining transactions with T‑Mobile are expected to close by the end of 2026, once again dependent on regulatory approval and closing conditions. We continue to pursue opportunistic monetization of our remaining spectrum, primarily C‑band. We view our C‑band spectrum as a highly compelling 5G asset with a mature ecosystem ready for carrier deployment, and with no near‑term buildout requirements, we have ample time to realize its value. Slide 20 summarizes the results of our partnership, or non‑controlling investment interests. As discussed last quarter, investment income and distributions for full‑year 2025 were impacted by several one‑time factors, including the impact of the Iowa partnership selling their wireless operations to T‑Mobile and distributions received from Verizon related to their transaction with Vertical Bridge. For Q1, equity income was elevated due to prior‑period adjustments recorded by the managers of certain investee entities. Regarding cash distributions, certain entities distribute cash only twice per year, resulting in an uneven distribution pattern throughout the year. Slide 22 summarizes Array’s financial results. Year over year, we continue to see the impact of the T‑Mobile MLA driving revenue growth. As noted last quarter, there was a prospective change in classification of property taxes and insurance from SG&A to cost of operations. As such, that is driving roughly half of the year‑over‑year increase in cost of operations. SG&A expenses continue to include costs to support the wind‑down of legacy wireless operations, but sequential quarter‑over‑quarter results are declining as planned. We expect these wind‑down expenses to persist throughout 2026, but with additional reductions over future periods. On slide 23, our guidance across all metrics—total operating revenue, adjusted EBITDA and OIBDA, and capital expenditures—is unchanged. As a reminder, our guidance ranges are wider than industry norm due to uncertainty with the T‑Mobile MLA and the timing of interim site terminations. In closing, I want to again thank Array’s associates for their continued passion and dedication to driving operational efficiencies and growth. We continue to move through our first year as a stand‑alone tower company. I will now turn the call back to Walter. Walter C.D. Carlson: Thank you, Anthony. As I noted in my opening remarks, Telephone and Data Systems, Inc. continues to make solid progress advancing our strategic priorities. Our first‑quarter execution, combined with the momentum we are seeing across the business, positions us well as we move forward into the year. I would like to again thank all of the outstanding associates across the Telephone and Data Systems, Inc. enterprise for their continued dedication and hard work in serving our customers and supporting the advancement of our business. Operator, please now open the line for questions. Operator: Thank you. We will now open the call for questions. If you would like to ask a question, please raise your hand. If you have dialed in to today’s call, please press 9 to raise your hand and 6 to unmute when prompted. Your first question comes from Richard Hamilton Prentiss with Raymond James & Associates. Richard, your line is now open. Richard Hamilton Prentiss: Good morning, everybody. You continue to be very busy. A couple of questions. On the fiber side, the TDS Telecom side, have you looked at whether there is an ability to put fiber into a REIT structure, or any desire at some point to put fiber into a REIT‑like structure to be more tax efficient? Vicki L. Villacrez: Yes, Richard, this is Vicki. I will take that one. We have looked at a number of structural options, but given where we are at today, they are just not optimal. I am not going to speculate going forward on what we may or may not do in the future, but as I think about our fiber program, we are in a really good position. We have a strong balance sheet, and we are focused on funding fiber with our cash. Richard Hamilton Prentiss: Okay. Second question, can you update us as far as the number of shares or percent ownership Telephone and Data Systems, Inc. has of Array Digital, just so we can understand exactly how many of the disinterested might be out there? Walter C.D. Carlson: Let me take that. I think the press releases that have been issued speak to that, Richard. I think 81.9% is the right rough number, and we can get back to you with precise numbers offline. Richard Hamilton Prentiss: That is great. We had some people asking; there were some Bloomberg numbers out there saying 70%. We knew it was 80‑something, so appreciate that. The last question for me, a little more strategic. I know you have been looking at maybe providing more reporting metrics on the fiber business. Any update to what you think you could provide to help people understand what is happening with the fiber business—any cohort analysis or trend lines to help us look at the value of that business as it is going through a capital spending cycle and some EBITDA pressure? Is there a burn rate, and what can you give us to help understand the traction and future look? Vicki L. Villacrez: Lots of questions there, Richard. We will piece those apart. On disclosures, this quarter we added disclosures for our residential revenues and broke them out by technology, so you will see reporting by fiber, cable, and copper. We think this is something that will be helpful to investors going forward. Furthermore, we have included metrics in our trending schedules on our Investor Relations website, so I will point you there. Ken, do you want to jump in on the rest of Richard’s questions? Kenneth Dixon: The metrics that are most important as we move to a fiber‑centric business are, first, how well we are delivering marketable addresses from a build‑plan perspective, and second, our fiber net sales as we sell into that new open‑for‑sale footprint while also increasing our overall penetration in those new cohorts. So build velocity and overall fiber net performance are the two big things. Richard Hamilton Prentiss: I am going to assume as you get fiber out there, the maintenance capital and ongoing capital once you are done with the build drops to pretty low levels. Kenneth Dixon: We definitely see the cash‑cost‑per‑customer improvements on everything—from trouble tickets, copper versus fiber, to a lower call‑in rate—so we love the fiber business. The faster we migrate away from copper and bring it to fiber, we will continue to see improvements in the bottom line. Richard Hamilton Prentiss: Great. That is helpful. Everyone have a great Mother’s Day weekend. Thanks. Operator: Thank you. Your next question comes from the line of Sebastiano Carmine Petti from J.P. Morgan. Your line is now open. Sebastiano Carmine Petti: Thank you for taking the question. Sticking with TDS Telecom and Ken for a second: you hired some sales folks and customer‑experience folks to support your priorities. Where are you from a process‑improvement standpoint—instilling some of your decades of experience running fiber businesses into TDS Telecom? What inning are we in? What near‑term low‑hanging fruit remains to improve process performance and construction build? And on investing in the cable footprint—something we have not heard discussed in a bit—is that strategic and core? How do you think about the blocking‑and‑tackling improvements needed for the cable KPIs to begin stabilizing, given the competitive backdrop and repricing pressures? Kenneth Dixon: Thank you for the question. I would say we are in the very early innings, and we are starting to make very nice progress. I am starting to see wind in our sails. On address delivery, I am very happy with the team’s 40 thousand service‑address delivery—almost three times more than last year. It was important to prove we could keep our crews working all winter, and we accomplished that. We have started the spring and summer months with record crew counts for the two most important quarters of the year. Through April we are at record numbers, a combination of internal and external crews, and we continue to see sequential month‑over‑month crew‑count improvements as we head into May. Going into the second quarter, I am bullish on what we can accomplish because we have the largest funnel of addresses under some form of construction in our company’s history. On sales and customer experience, we see the opportunity to penetrate new addresses as fast as we deliver them. We are very happy with our presales velocity; we typically go in 60 days before an address becomes marketable, and we are seeing excellent results in the low‑20% range. We have put a tremendous amount of sales capabilities into our door‑to‑door channel—adding several vendors in Q4 last year and more in April and May—and we have several others in our funnel. We believe we have to be in the markets and use door‑to‑door to drive our sales agenda. We have also expanded significantly our .com business, which is open 24/7/365; sales have improved significantly, and we will continue to put more resources there. We are now developing our MDU sales capabilities, which is a tremendous opportunity—again, early innings but starting to see nice progress. The 11 thousand fiber net adds—up 32% year over year—is a very good start, and we have momentum. On the cable business, I love our cable markets. We are in some of the best markets in the country. Last year, we decided to convert those markets first onto our new billing system and get them on a single stack across the company. We also made a significant investment in a new field service tool for our technicians to improve overall service delivery, and we are now positioned to move to multi‑gig in 2026. We are just getting started in terms of what we can do in those markets. A lot is going on, but I like what I am seeing, and we have more work to do. We are definitely moving in the right direction. Sebastiano Carmine Petti: For Vicki, on Granite—should we anticipate bolt‑ons like this going forward: smaller systems that are adjacent versus big chunky deals? And does combining entities make it easier to REIT the tower business over time versus the current structure? Vicki L. Villacrez: Sebastiano, thank you. On the second question, we are not going to comment on any impact or implications of the offer on the table, and we cannot speculate on what the future will look like at this point. On Granite, this acquisition is consistent with our capital allocation priorities—building fiber and M&A acquisitions in the fiber space. It is a tuck‑in, it is accretive, and it is adjacent to our current markets in New Hampshire. It is 100% fibered up. We are excited to bring Granite State Communications on board and welcome all of the associates. It brings 11 thousand fiber service addresses to our portfolio. Operator: Thank you. As a reminder, if you would like to ask a question, please raise your hand. If you have dialed in to the call, please press 9 to raise your hand and 6 to unmute. Your next question is a follow‑up from Sebastiano Carmine Petti from J.P. Morgan. Your line is open again. Sebastiano Carmine Petti: For Chris, on the cost‑transformation efforts, is the $100 million run‑rate savings by 2028 still the right figure? Are we at a point where the cost savings are falling to the bottom line in 2026, or is there reinvestment going back into the business? Christopher “Chris” Bautfeldt: Hi, Sebastiano. Yes, we remain on track to hit $100 million of run‑rate savings by year‑end 2028. As you heard in my remarks, we are starting to see some of those benefits this year. The bigger benefits you will see in 2027 and 2028, but we absolutely are starting to see some of those benefits drop to the bottom line. As I have said before, we do not expect that entire $100 million to fall to the bottom line because some of that is helping offset inflationary cost increases. As we continue to expand our fiber footprint and customer base, we do plan to reinvest some of those savings. We are seeing nice benefits and remain optimistic about the full potential of this program. Sebastiano Carmine Petti: Thank you. And for Anthony, on the upcoming AWS‑3 reauction and upper C‑band next year—any change in conversations regarding monetization of the remaining C‑band and CBRS? Anthony Carlson: Thanks for the question. We continue to believe that the C‑band spectrum we hold is excellent and valuable spectrum, with an ecosystem to support it today. We are not going to be a forced seller in these circumstances. We believe the carrying costs are modest. While we are open to a deal at a fair value, we do not feel it is burning a hole in our pocket. We do not have further updates on a sale of our C‑band spectrum at this time, but we remain very optimistic about realizing fair value at the appropriate time. Operator: Your next question is from Richard Hamilton Prentiss with Raymond James & Associates. Richard, your line is open. Richard Hamilton Prentiss: On the service addresses, Ken, is the build plan still targeting 200 thousand to 250 thousand service addresses this year, and what would cause you to miss it versus hit it or beat it? Kenneth Dixon: Yes, that is still the target. I have a very good degree of confidence based on the crew counts we have starting the second quarter and the funnel and pipeline of addresses at a new record in terms of construction. I am very confident we are going to deliver within that target. Richard Hamilton Prentiss: And, Anthony, one of the themes at Connect(X) was high‑rent relocation efforts. Do you have an appetite to do some new builds there, and what capital commitment might you put to work? Anthony Carlson: To be very clear, as we have stated multiple times, we are laser‑focused on optimizing the value of the assets we have in hand and see significant upside from our current portfolio. That is not to say we are not open to opportunities, but the going rates we have seen for high‑rent relocations and participating in new builds have not been consistent with what we think we can achieve by optimizing our portfolio. On our own churn, a small nugget: we had only one total tenant churn in the entire first quarter, which speaks to the strength of our portfolio and its relative susceptibility to high‑rent relocation. Richard Hamilton Prentiss: One for Walter—an obligatory satellite question. How are you thinking about the somewhat existential threat of satellite coming into terrestrial, given your assets in broadband fiber and towers? Walter C.D. Carlson: That is an excellent question. Satellite is a technology that has gotten substantial additional focus over the last 18 months and substantial additional investment over the last 12 months. I think satellites will have substantial influence going forward on the communications industry. That being said, we feel very strongly about the continued benefit of a terrestrial tower portfolio, and we feel very strongly about the superior capabilities of fiber networks delivering specific communication into individuals’ homes and businesses without interruption and without fear of being impacted by weather. We are paying attention, and we feel very good about the thrust of both of our businesses. We are watching. Operator: Next question comes from the line of Sergei Dluzhevskiy with GAMCO Investors, Inc. Your line is now open. Sergei Dluzhevskiy: Good morning. First question on the TDS Telecom side. Last quarter, you expanded the fiber build target by 300 thousand edge‑out passings in, I believe, 50 adjacent markets to your current expansion footprint. How do the demographics and churn profiles of these markets compare to your older cohorts? Among this new cohort, what types of markets are you prioritizing for a build sooner rather than later? Kenneth Dixon: We are looking at markets where we have already planted a flag—where we have established our brand and deployed fiber—so we already have technicians and sales capacity. We have looked closely at demographics, competitive intensity, build costs, and expected returns, and then prioritized accordingly. That is our edge‑out opportunity. These markets check the boxes I mentioned, and because we were first to the original market with fiber, the extensions are a natural fit. We believe we prioritized the right markets first with the highest opportunities and returns. Sergei Dluzhevskiy: On cable, what do you like most about your cable footprint? Can you comment on the competitive environment and the investments you are planning—where the dollars will go and how quickly you expect those investments to pay off? Kenneth Dixon: From an investment perspective, our focus now is going to a multi‑gig environment in our cable business, which is the opportunity for 2026. We are operating in highly attractive markets—some with among the highest housing growth in the United States—so we see a definite opportunity going forward. Sergei Dluzhevskiy: On the Array side, the wireless partnerships produce nice cash flow every year. Any updated thoughts on monetizing those stakes? For example, recent transactions valued stakes at about 11.5x cash distributions. At that multiple, your stakes could be worth a significant amount. What could move you closer to taking that step? Anthony Carlson: As we have said before, we like the cash flows from these assets. There are challenges for us with transactions similar to the ones you mentioned. We have them at a very low tax basis. If you looked at the performance of those investments over the very long term and did a DCF, it would be challenging to get a multiple commensurate with the full value. We are open to offers that would deliver full value, but they would have to deliver full value net of taxes. We like those cash flows, so we are not in a hurry to sell. Sergei Dluzhevskiy: Lastly on Array, EBITDA is expected to be somewhat depressed in the medium term, pressured by transition and wind‑down costs. Can you talk about your targets, qualitatively and quantitatively, to take cost out and improve margins in 2026 and 2027? Longer term, post T‑Mobile transition, what kind of margins are realistic? Anthony Carlson: We think there is significant opportunity to improve Array’s margins. We focus on tower cash‑flow margins. First, land is our largest cost, and we have a much lower rate of land ownership than many large public players. There is significant value to be realized by, where appropriate, purchasing more of the land interests under our towers. Second, as a new tower company, we believe we have opportunities to improve as we transition from a maintenance posture aligned with operating a full‑fledged wireless company to one aligned with a tower company. Those are the two big cost‑side opportunities to improve tower cash‑flow margins, in addition to expanding margins by increasing colocations, which we work hard to do every day. Operator: There are no further questions at this time. I will now turn the call back to John Toomey for closing remarks. John Toomey: Thank you again for joining us today. As always, please reach out to us if you have any questions. I hope everyone has a wonderful weekend. Thank you. Operator: This concludes today’s call. Thank you all for attending. You may now disconnect.
Operator: Good afternoon, and welcome to Silvaco's First Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chris Zegarelli, Silvaco's CFO. Please proceed. Chris Zegarelli: Thank you. Joining me on the call today is Wally Rhines, Silvaco's CEO and Director. As a reminder, a press release highlighting the company's results, along with supplemental financial results, are available on the company's IR site at investors.silvaco.com. An archived replay of the call will be available on this website for a limited time after the call. Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company. These remarks constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. It is important to also note that the company undertakes no obligation to update such statements, except as required by law. The company cautions you to consider risk factors that could cause actual results to differ materially from those in the forward-looking statements contained in today's press release and on this conference call. The Risk Factors section in Silvaco's annual report on Form 10-K for the year ended 12/31/2025, provides descriptions of these risks. With that, I'd like to turn the call over to our CEO, Wally Rhines. Wally? Walden Rhines: Good afternoon. I appreciate you joining us today. I am very pleased with our results in Q1. Momentum continues to build on multiple fronts. Financially, we delivered solid Q1 results and issued compelling guidance for Q2. In Q1, we saw bookings, revenue, and gross margin all above the midpoint of the guided range, which cut our non-GAAP operating loss in half sequentially. We delivered 26% year-over-year revenue growth. Our Q2 guidance confirms that we expect to reach an important milestone in the quarter, that is delivering non-GAAP operating profitability for the first time since Q4 of 2024. From a cash perspective, Q1 was the first sequential growth in unrestricted cash on the balance sheet since the IPO in May of 2024. Our focus on financial discipline and predictability is delivering tangible results. Our team has rallied around this cause and is delivering solid results and important milestones. I want to start with more good news on the AI front. For the second quarter in a row, we secured a new FTCO AI-driven manufacturing customer engagement in Q1. We're in discussions with several more companies and expect one of them to close in Q2. We also received an order from an existing FTCO customer for new functionality. Momentum continues to build for our AI-driven manufacturing strategy, both in terms of new as well as existing customers. While market adoption of FTCO is still in the early stages, these are signs that momentum is building, and the market is responding very positively to what AI manufacturing development can unlock for our customers. Before providing more details on results, I want to give you an update on the company's strategic pivot on which Chris and I have been focused since joining the company. Our guiding principles have centered on playing to Silvaco's strengths, leveraging AI, targeting markets where we can build a top franchise, customer obsession, and financial discipline. Leveraging Silvaco's strengths means extending our lead in target markets and deepening the moat around core technologies. That means delivering differentiated AI-driven solutions for power, memory, foundry, and display segments. In power, we have unique advantages, particularly for wide band gap semiconductor process and product development. For memory, our partnership with Micron is an example of how we can deliver real value to the biggest and best companies in the industry. In technology, we will widen our lead in core areas, including multiphysics simulation, which was critical to the introduction of FTCO. AI is a crucial element of our strategic shift. We've deployed AI internally and are already seeing phenomenal results. We've seen up to 6x acceleration in graphical user interface development, up to 10x acceleration in new feature design and accelerated verification testing of IP. We've also built AI directly into more of our solutions. The best example is clearly AI-driven manufacturing or FTCO. Virtualized process development is turning into a must-have feature across the semiconductor industry. Other examples include building better mathematical optimizers and simulators and rolling out AI assistant, which increase ease of use. Deploying AI in our EDA tools means customers get to SPICE models quicker, design optimized layouts faster and optimize power, performance, and area in everything they design. Our AI-first approach to road map acceleration means that we are all in on developing optimized solutions that meet the needs of customers. We also remain relentless about financial discipline. With our $20 million cost reduction initiative largely behind us, we're now building discipline into the culture of the company. We think in terms of efficient process, streamlined structure, and cost optimization. Taken together, we believe that these strategic priorities position us well to grow the top line faster than peers and to grow profitability faster than revenue. I look forward to reporting updates on these strategic initiatives in the quarters ahead. But now let's turn back to quarterly results. We continue to see significant strength in TCAD. In Q1, TCAD bookings grew 13% sequentially and 49% year-over-year to $10.5 million. Revenue grew 10% sequentially and 22% year-over-year to $9.6 million. Growth in the quarter was driven by significant milestones for FTCO, including securing a new customer and broadening the product line to include additional functionality. Looking forward, we see solid momentum for FTCO. We see strong potential from engagements with governments, power applications, and semiconductor equipment companies. On the government side, we inherited engagements in Photonics from our Tech-X acquisition. We have real opportunities to leverage the broader Silvaco portfolio for meaningful future engagements. With equipment companies and power applications, we see growing interest in FTCO and digital twin modeling that we expect to generate compelling growth opportunities going forward. We see these trends, AI-driven FTCO, government engagements and power and equipment companies as drivers that will drive growth for quarters and years to come. After a strong Q4, we saw our semiconductor IP product line pause in Q1. Semiconductor IP delivered bookings of $3 million in the quarter, down 41% sequentially, but up more than 200% year-over-year. IP revenue was $4 million, down 21% sequentially, but up 270% year-over-year. Sequential softness in IP was driven by timing of new customer wins. We had a few key designs push out by roughly 1 quarter. Year-over-year trends in IP reinforce the fact that this business has reached a new baseline with the integration of Mixel's industry-leading MIPI PHY IP. Our IP sales pipeline continues to grow, particularly for our automotive soft IP and for Mixel PRO, our production-ready set of products that were introduced in the first quarter. Our IP pipeline has roughly doubled over the past year. These leading indicators support our view that we expect to deliver steady growth in IP through the rest of the year. We expect IP to grow sequentially into Q2 and to be our strongest grower this year. Turning to EDA. We saw a decline in Q1 bookings and revenue. Q1 bookings came in at $3.8 million with revenue of $4.1 million. Here, we continue to focus on shifting priority to a handful of core products that we believe can deliver significant growth. We talked last time about potential for Jivaro as one of those core offerings. Another focus area is Utmost, which is a database-driven platform for device characterization and SPICE model extraction. We just released an AI-driven version of Utmost, which now delivers up to 10x performance improvements, a machine learning optimizer and other runtime enhancements. This is another example of how the team is building next-generation AI-driven solutions. Jivaro and Utmost are just two of the core EDA products that are positioned for growth as we focus development, sales, and field application resources on these drivers. We expect stability in this area of the business in the short term and then a return to growth as these new priorities deliver results. While I'm proud of the progress we've made in a short amount of time, I also recognize the task before us. We've made great strides in stabilizing the business, enhancing liquidity, and streamlining operations and focusing strategically on the core products that we expect will deliver accelerated growth and profitability. We all look forward to driving our semiconductor IP business to new heights, getting EDA back to growth, and seeding the momentum we see in FTCO. We all continue to believe that the best is yet to come. I look forward to seeing how far we go in the coming quarters. I'd now like to turn the call over to Chris, who will discuss our financial results and our outlook in more detail. Chris? Chris Zegarelli: Thanks, Wally. Good afternoon, everyone. In Q1, we delivered $17.2 million in bookings and $17.8 million in revenue, both above consensus and above the midpoint of our guided range. Bookings and revenue both grew 26% year-over-year. Strength in the quarter came from TCAD. We won another new FTCO customer in the quarter and partnered with an existing FTCO customer to add new functionality to their deployment. Looking forward, we see strong interest in FTCO and expect to close one more new FTCO customer in Q2. From a geographic perspective, we saw the most growth in Q1 from the Americas region, which grew 24% sequentially and accounted for 44% of total revenue in the quarter. Looking down the P&L, GAAP gross margin in Q1 was 86.4% and non-GAAP gross margin was 87.9%. GAAP and non-GAAP gross margin sequentially increased by 305 and 235 basis points, respectively, and came in ahead of guidance and consensus. GAAP and non-GAAP gross margin also increased 779 basis points and 788 basis points year-over-year, respectively. Both GAAP and non-GAAP gross margins have benefited from our restructuring activities. We believe gross margins will remain in this range of mid- to upper 80s going forward. GAAP operating expenses were down 4.5% sequentially to $21 million. Non-GAAP operating expenses were down 3.6% sequentially to $16.1 million, above the midpoint of the guided range. From a total cost perspective, which combines operating expenses and cost of sales, GAAP total costs declined 6.5% sequentially and non-GAAP total costs declined 5.6% sequentially. Q1 results are the first time since the IPO when total non-GAAP spending declined in 2 consecutive quarters. Our guidance into Q2 indicates that spending is expected to continue declining sequentially. GAAP operating loss improved quarter-over-quarter to a $5.7 million loss. Non-GAAP operating loss was $471,000, well ahead of Q4 and ahead of expectations. GAAP net loss in the quarter was $5.9 million, and GAAP EPS was a $0.19 loss. Non-GAAP net loss in the quarter was $574,000 and non-GAAP EPS, a $0.02 loss. Next, turning to the balance sheet and cash flow. Cash and cash equivalents at quarter end was $10.9 million. As of Q1, we no longer have restricted cash on the balance sheet. Recall, cash, cash equivalents and marketable securities at the end of 2025 was $18.3 million, which included $8.3 million of restricted cash. Therefore, unrestricted cash at year-end was $10 million. Unrestricted cash grew almost 10% sequentially in Q1, the first-time unrestricted cash grew sequentially since the IPO. Net cash used in operating activities in Q1 was $11 million, up from $9.5 million in Q4. Please note that this $11 million included the $8.3 million final litigation settlement payment as well as $1 million in severance payments. Net of litigation and severance, net cash used in operating cash flow would have been $1.7 million in Q1. Adjusting for these same two factors, litigation and severance, Q4 net cash used in operations would have been $7.4 million. The improvement from $7.4 million to $1.7 million speaks to the meaningful improvement in our underlying economics. The improvement also supports our view that we will see positive operating cash flow by Q3. During the quarter, we also signed a nonbinding term sheet with our banking partner for a $10 million revolving line of credit. We expect to close on this facility during Q2. Now turning to guidance. For Q2 2026, we expect bookings of $19 million plus or minus 10%, revenue of $18 million plus or minus 10% non-GAAP gross margin around 88%, non-GAAP operating expenses of $15.5 million plus or minus 5%. In closing, the team delivered on several milestones in the quarter. We secured a second AI FTCO customer in as many quarters. We delivered growth in unrestricted cash for the first time since the IPO. We delivered 2 sequential quarters of spending reduction for the first time since the IPO. We see gross margins at highs and see non-GAAP operating profitability coming in Q2. Wally and I want to thank the team for delivering these strong results. We look forward to continuing to deliver on our commitment to profitable growth. With that, operator, we will now take questions. Operator: [Operator Instructions] Our first question comes from Robert Mertens from TD Cowen. Our next question comes from Blair Abernethy from Rosenblatt Securities. Blair Abernethy: I apologize; I was not able to listen to the whole first part of your prepared remarks. So, if you've already repeated -- if this is a repeat, just let me know. But let's talk about the FTCO, in particular, the pipeline. It's interesting in your comments in your press release about governments looking at this, semiconductor equipment companies looking at this. Maybe, Wally, you can give us a sense of what does the market universe looks like to you today for the FTCO? Walden Rhines: Yes. I'm glad you brought this up because the diversity of users is surprising even us. We started out, our big partner, of course, was Micron, initially developing the basic capabilities. But we've found that it's applicable in a variety of other areas. It's applicable with equipment companies and a different application again this quarter. As we mentioned, we've engaged with more in the coming quarter and are quite confident that at least one of those will close. And I think it just reflects on the capability it brings. You bring together a lot of data, you generate a lot of synthetic data, you build models and then people can use it to guide the pathway for evolving their processes, whether they are developing manufacturing equipment or putting a process in place, moving to a next-generation node. It just seems to have a great deal of very broad applicability. Blair Abernethy: Is the equipment makers looking at this in terms of design and development of their own equipment or in terms of working with their customers? Walden Rhines: So, it's both. It is, in fact -- it does, in fact, give them an ability to tune their equipment, develop recipes, figure out results. But the -- one of the specific cases that was brought to my attention in the meeting with the customer this quarter was they want to accelerate the time it takes for setup of equipment. And by having a reliable model, they can, in fact, tune in what the ultimate results should be from the process step and therefore, drive how the setup should be done. Saves time. Time for capital equipment is depreciation cost. And so, their customers appreciate it and also appreciate the fact that they're able to process more in a shorter period of time. Blair Abernethy: So, is this -- if I got this right, Wally, is this a digital twinning for the install, effectively, the install and setup? Walden Rhines: It is indeed. It is a digital twin that is able to simulate the actual behavior based upon what variables are input to the equipment or in the process recipe, the inflow of materials. Blair Abernethy: So, is there an avenue here, maybe I'm stretching this, but is there an avenue here whereby the equipment makers could be your partner in selling the FTCO to an end fab? Walden Rhines: The existing engagements hadn't really addressed that, but I suppose that is a possibility going forward because, whereas they provide it for their particular piece of equipment, it's quite possible that the customers would ultimately want to license it more broadly, and we're able to address multiple different types of equipment because we have built a database associated or a set of tools associated with many different types of equipment. So, at the very least, it could be an introductory point. As far as will we set up an arrangement to OEM the product. Haven't done that yet, but that certainly is a possibility. Blair Abernethy: Okay. Okay. Interesting. And the other question I had was just around the IP business, which was up quite strong year-over-year. How much of that was really -- was Mixel? And how -- maybe how is the opportunity pipeline of the funnel looking for your IP business? Walden Rhines: Well, as we mentioned, the IP business looks very strong for the rest of the year, and much of the growth year-to-year comes from the addition of Mixel. So, we had engagements in both. They are both contributing. And I would expect that as we go through the year, we'll start to see some additional contributions from the off-the-shelf or the production ready. Right now, it's all the traditional Mixel business complemented by a near equal amount of the traditional IP business that involves memory compilers, cell libraries, and other standardized foundational IP. Chris Zegarelli: And as we had indicated earlier, Wally, to that point, the pipeline organically has roughly doubled for that business in the last year, and it's even more than that if you layer in the added opportunities that came from the Mixel acquisition. So, the pipeline trends are very encouraging in that business. While it did have a pause in Q1, we do see indicators of returning to growth sequentially in Q2. Blair Abernethy: Okay. Okay. Great. And then, Chris, just to ask you here, the -- it looks like your OpEx guide for next quarter, $15.5 million plus or minus. Are you -- is that -- are we down to the level that you wanted to be at? Is there more change or any more significant change as we kind of move from Q2 into Q3? Or is the business kind of where you want it? Chris Zegarelli: Good question. As Wally and I kind of indicated when we joined, we do want to drive the business to profitability at flattish revenue. And I think the guide into Q2 indicating positive non-GAAP operating income is an indicator of that. And so, there are still some costs to come out. Blair, some of the international reductions do take some time. So, there are some downward trends in there, but there are also some tactical things we're investing in like the AI tools that Wally alluded to earlier. And so, my sense of it is it's in a pretty good spot now. It probably trends down to flattish from here. And I think we're going to be focusing on those growth drivers that we talked about. I mean IP is a good example, lots of good indicators of strength on the FTCO side. And you can see that even in the TCAD product line number, sequential growth, good year-over-year growth, really encouraging. And as IP gets to growth, that will just be an adder to that, and we should see some good leverage from that continued growth from here. Blair Abernethy: Okay. Great. And last question for you, Chris. Did you -- I didn't see it, but is there a backlog number that you provided? Or will there be one in your queue? Chris Zegarelli: We indicated bookings. We talked about revenue. We didn't put a backlog number there, but you can look for the additional information posted online to see if you find what you need. Operator: Our next question comes from the line of Craig Ellis from B. Riley Securities. Rebecca Zamsky: This is Rebecca Zamsky on for Craig Ellis. My question is on TCAD bookings, which I believe you said was $10.5 million, which were up 50% year-over-year. Is this run rate sustainable? And how should we be thinking about TCAD going through this year? Walden Rhines: Yes. So, I think TCAD is a solid core business for the company. As you can see, it grew substantially year-to-year. I don't think the 50% growth continues, but we will see growth. I think it will be a solid business. And I'd note that our FTCO business is part of these TCAD numbers. It's reported in that segment. So, we have the benefit of the growth in a new and rapidly emerging business in FTCO. And then we have the basic strength of the TCAD business itself, which is doing well and should continue through the year. Rebecca Zamsky: Great. And on the FTCO wins, I believe you flagged there was one customer in Q1 and another one expected in Q2. Is this going to start becoming like a recurring quarterly event? Or would the new wins continue like, still be lumpy? Walden Rhines: Well, we certainly hope so. And based upon the customer visits and interaction that we've had, I think we're quite hopeful that we'll be regularly adding new FTCO customers. And as I mentioned, they don't have to be the same type of application as ones in the past. We're continuing to find new applications and that, too, should help the growth of and the discovery of new possibilities. Operator: Our last question comes from the line of Robert Mertens from TD Cowen. Robert Mertens: Thanks for letting me ask a question on behalf of Krish Sankar. I just wanted to maybe triangulate within your guidance for the June quarter, it looks like sales are kind of flat, slightly up sequentially, and you had mentioned in your commentary some strength in the IP business growing through the year. Is it fair to say that next quarter that TCAD is probably growing into the June quarter as well and then maybe the EDA business contracts? Walden Rhines: Chris? Chris Zegarelli: Yes, I can take that one, Wally. Yes, I think it's fair to say that IP does grow sequentially. EDA could be flat to downish a little bit. TCAD could be flattish to up a little bit is kind of the way that we're thinking about it. But I did just want to provide a little extra color. There was an earlier question on remaining performance obligations or backlog, that number is at about $46.6 million in the quarter. So down slightly from what we saw in Q4, but remaining in that elevated high 40s range for the business. Robert Mertens: Got it. And then maybe just a quick follow-up, just to get clarification. I think this was asked just in terms of the OpEx number. But are you sort of expecting these levels that you guided for the June quarter in the back half of the year? Is there any sort of savings on the SG&A line you expect to continue to bring down? Chris Zegarelli: From an OpEx perspective, yes, as I indicated, there are continued downward pressures on spend. There are some of the targeted reductions that will be playing out in the coming quarters, most notably on the international side, some reductions do take a little bit more time than they do in other jurisdictions. There are some targeted places where we're making some incremental investments. The AI tools are one of them, and Wally alluded to solid indicators that we see a good ROI from those investments in terms of accelerating and broadening the road map. So, we're encouraged to see those benefits roll through the business and deliver upside to revenue. So, I do see a continued trend to kind of down a bit to flattish, as I said, on the OpEx side. And the pipeline has been encouraging, and it continues to grow. Most notably, IP pipeline has been growing really nicely. And so, we do see room for growth from here, particularly on the IP front. But as that FTCO continues to roll through the business and the wins continue to build, that's an obvious tailwind on the TCAD side as well. Operator: [Operator Instructions] With that, this concludes the question-and-answer session. I would now like to turn it back to Walden Rhines for closing remarks. Walden Rhines: Well, thank you. We're pleased with the continued momentum in our business, looking forward to profitability next quarter and the AI-driven FTCO continues to provide a great opportunity for us moving forward. Like so many businesses, AI is helping us both internally and helping us with our customers and creating new business opportunities. We look forward to sharing them with you in the coming quarters. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the AMN Healthcare First Quarter 2026 Earnings 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, Randy Reece, Vice President, Investor Relations and Strategy. Please go ahead. Randle Reece: Good afternoon, everyone. Welcome to AMN Healthcare's First Quarter 2026 Earnings Call. A replay of this webcast will be available at ir.amnhealthcare.com at the conclusion of this call. Remarks we make during this call about future expectations, projections, trends, plans, events or circumstances constitute forward-looking statements. These statements reflect the company's current beliefs based upon information currently available to it. Our actual results may differ materially from those indicated by these forward-looking statements because of various factors and cautionary statements, including those identified in our most recently filed Form 10-K and 10-Q, our earnings release and subsequent filings with the SEC. The company does not intend to update guidance or any forward-looking statements provided today prior to its next earnings release. This call contains certain non-GAAP financial information. Information regarding and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and on our financial reports page at ir.amnhealthcare.com. On the call with me today are Cary Grace, President and Chief Executive Officer; and Brian Scott, Chief Financial and Operating Officer. I will now turn the call over to Cary. Caroline Grace: Thank you, Randy, and good afternoon, everyone. We appreciate you joining us today. The AMN team made important achievements since the start of the year. The first quarter was defined by unusually large labor disruption activity. From an operational standpoint, it was a major milestone for AMN. We successfully supported several large events, 2 of which were long duration, while continuing to serve the day-to-day, showcasing our rapid scaling, disciplined execution, broad and deep clinician network and high-touch service delivery. This experience also validated the investments we've made over the past few years and our technology capabilities, including our event management system and AI recruitment. Technology that enables coordination, compliance and real-time execution at scale, and it highlighted the strength of our mission-driven team working across the company. The energy and endurance of the AMN team, balancing event-specific needs and driving business as usual, were all inspiring, demonstrating all the values and principles that make AMN special. For the first quarter, AMN delivered revenue of $1.38 billion, above our guidance range and consensus. Gross margin was 26.8%, well above our guidance range. Adjusted EBITDA was $166 million or 12.1% of revenue. The first quarter included $722 million in labor disruption revenue and $656 million in revenue from all other AMN businesses. Nurse and Allied Solutions recorded year-over-year growth in traveler volume, excluding labor disruption travelers for the first time since 2022. Our Nurse and Allied Staffing businesses performed better than we expected in the first quarter, and are on track for continued strong performance in the second quarter. Our international staffing business grew revenue by 17% quarter-over-quarter, [indiscernible] year-over-year. This was our first quarter of year-over-year growth in this business since the fourth quarter of 2023, shortly after the State Department implemented Visa retrogression. Our leadership search business also returned to year-over-year revenue growth. While the revenues from labor disruption events are hard to predict, our ability to move thousands of clinicians to meet the urgent needs of our strategic clients delivered great value on a scale we could not have done just a few years ago. Our solid performance in the quarter enabled us to pay down our revolver and increase our cash balance, improving our leverage ratio to 1.6x at quarter end. Our strong balance sheet positions us well in the industry to advance our growth strategy and drive value for our shareholders, clients and other stakeholders. While we view the labor disruption execution as a defining accomplishment, we remain focused on the underlying drivers that enable our long-term growth plan, broader and deeper client and clinician relationships, scaled service execution and technology enablement of our solutions. In our Solutions segment, first quarter revenue for Nurse and Allied Solutions was $1.13 billion, our second highest revenue for the segment in company history. Beyond the labor disruption revenue and international nurse growth, travel nurse revenue grew 13% year-over-year and allied was up 3%. Bill rates and hours also moved favorably, with average bill rate up 6% year-over-year due to a surge in rapid response placements. Nurse demand has been muted, though demand in recent weeks improved to be flat year-over-year. Allied demand has been growing year-over-year since 2025. Our teams are executing very well at filling the available demand. For the second quarter, we expect Nurse and Allied Solutions revenue to be flat to down 2% year-over-year, including a normalization of the segment bill rate. First quarter revenue for Physician and Leadership Solutions was $164 million, lower by 6% year-over-year. Locum tenens volume was down 9% year-over-year, and revenue per day filled was up 3%. Interim leadership volume was down, partially offset by an increase in pricing. Our search business was highlighted by strong growth in physician permanent placement and new executive searches. We continue to see locums clients focused on managing spend by centralizing program management and hiring permanent physicians. And we have both a healthy pipeline of local MSP prospects as well as a new locum MSP client in the quarter. We also renewed and expanded the contract with our largest locums clients. MSP volume was up year-over-year, and we are driving towards making MSP a higher percentage of our revenue mix. Overall, locums demand has been softer, with more demand in the third-party channel, which is more competitive and harder to fill. Our lower fill rates in that channel more than offset our MSP progress. Similar to what we did in our nurse business to improve performance in vendor-neutral programs, we have initiatives in place to tech enable and automate our locums recruiting process to increase speed as well as adding more recruiters to enable higher fill rates. Leadership Solutions has rolled out refreshed go-to-market approaches for executive and leadership search and interim to align with clients' current challenges, including accelerating health care C-suite turnover, rising demand for digitally fluid, data-driven leaders and developing sustainable workforce strategies. Operationally, the team is improving fill rates with AI-enabled candidate matching and enhanced tech and data capabilities to support our search consultants. In the second quarter, we expect Physician and Leadership Solutions revenue to be down approximately 6% to 8% year-over-year. [ Quarter ] revenue in Technology and Workforce Solutions was $87 million, down 15% year-over-year or 10%, excluding the business we divested last year. Language services continued the rollout of our tiered service and pricing strategy, and we are pleased with our progress, including increased new sales wins and gross margin improvement in the first quarter. Our updated model enables us to serve our clients with the broadest set of language access services while delivering superior clients and patient experience and outcomes. On our WorkWise workforce technology platform, we rolled out new AI-driven tools designed to help our customers fill roles faster and improve the quality of candidate matches. We added automated candidate scoring, improved search across open orders and available staff and made it easier to create clear job descriptions, improving speed and overall hiring efficiency. We already used our AI recruiter to deploy more than 10,000 clinicians in the first quarter. We also introduced supplier performance analytics, which gives clients more transparency into supplier quality, responsiveness and outcomes. Overall, these updates further differentiate WorkWise and reinforce our ability to help health care organizations make better workforce decisions and manage staffing more efficiently. Our technology enablement has also strengthened our engagement with health care professionals. Our market-leading clinician app, AMN Passport, plays a critical role in how we improve the connection between client needs and the labor force. Over the past year, we increased the features in utility of Passport. And as a result, Passport users are up more than 30% year-over-year, with monthly active users up more than 50%. Based on positive client reception, we are accelerating our go-to-market strategy for WorkWise beyond our current client base, and we expect this acceleration to support new sales heading into the second half of the year. For the second quarter, we expect Technology and Workforce Solutions revenue to be down approximately 14% to 16% year-over-year, which implies an improved sequential trend compared with the past 2 quarters. Overall, we are encouraged by our start to the year, with some key solutions returning to year-over-year growth and plans for additional solutions to return to year-over-year growth this year and into next year. We remain confident that we are moving toward a business model in which we can sustain long-term revenue growth and grow adjusted EBITDA at twice the rate of revenue growth. Our first quarter performance was a significant demonstration of AMN's capability to scale quickly and deliver at a high level, integrating technology, operational execution and a mission-driven team under intense conditions. Great people are at the center of our mission and our culture. As we celebrate National Nurses Week this week, we are grateful to and for the tens of thousands of nurses we have the privilege of working with, who enable continuous, high-quality patient care delivered across a wide range of care settings and locations. With that, I'll turn the call over to Brian to walk through the financial details and outlook consideration. Brian Scott: Thank you, Cary, and good afternoon, everyone. First quarter consolidated revenue was $1.38 billion, significantly above the high end of our guidance range, driven in large part by labor disruption revenue, exceeding our guidance by $122 million. We also had better-than-expected performance from our travel nurse, allied and international businesses. Consolidated gross margin for the quarter was 26.8%, above the high end of guidance. Year-over-year gross margin declined 190 basis points and sequentially, was up 70 basis points. First quarter consolidated SG&A expenses were $218 million. Adjusted SG&A, excluding certain items, was $205 million, up compared to the prior year and prior quarter, driven by over $70 million in costs related to the large labor disruption event. First quarter Nurse and Allied revenue was $1.1 billion, up 173% year-over-year, up 130% sequentially. Excluding $722 million in labor disruption revenue, Nurse and Allied revenue was $405 million, up 8% year-over-year and up 11% sequentially. Nurse revenue, excluding labor disruption, was $254 million, up 12% year-over-year and 16% sequentially. The growth was driven in part by strong rapid response volume and associated higher bill rates, along with the international business recovery. Allied revenue was $151 million, up 3% both year-over-year and sequentially. Year-over-year segment volume increased 3%, average bill rate increased 6% and average hours worked increased 1%. Sequentially, volume and average bill rate increased 6% and average hours worked increased 2%. The higher bill rate was driven mostly by the rapid response revenue that is not expected to recur in the second quarter. Nurse and Allied gross margin in the quarter was 25.1%, up 240 basis points year-over-year and 350 basis points sequentially as labor disruption and rapid response revenue had a favorable impact on the segment margin. Moving to Physician and Leadership Solutions, first quarter revenue was $164 million, down 6% year-over-year and 3% sequentially. Locum tenens revenue was $131 million, down 7% year-over-year and 4% sequentially. Interim leadership revenue was $23 million, down 4% year-over-year and 5% sequentially, while search revenue of $10 million was up 4% both year-over-year and sequentially. Segment gross margin for the first quarter was 26.1%, down 120 basis points year-over-year and 140 basis points sequentially. The decrease in gross margin is primarily due to a lower margin in locums and a drag of 110 basis points from increased sales reserves booked in the quarter. In Technology and Workforce Solutions, first quarter revenue was $87 million, down 15% year-over-year and 1% sequentially. Excluding the July 2025 sale of Smart Square, revenue was down 10% year-over-year, driven mainly by a decrease in pricing and billed minutes in language services. First quarter language services revenue was $69 million, down 8% year-over-year and 1% sequentially. VMS revenue was $16 million, down 18% year-over-year and 2% sequentially. Segment gross margin was 50%, down 550 basis points year-over-year, driven by pricing pressure in language services and an unfavorable business mix. Sequentially, gross margin increased by 190 basis points, which included a 200 basis point improvement in the language services margin, reflecting the service model changes Cary mentioned in her opening comments. First quarter net income was $62 million. This compared with a net loss of $1 million in the prior year period and a net loss of $8 million in the prior quarter. First quarter consolidated adjusted EBITDA was $166 million. Adjusted EBITDA margin for the quarter was 12.1%, above the high end of guidance and up 280 basis points from the prior year period and 480 basis points sequentially. Day sales outstanding for the quarter was 26 days. Excluding working capital effects from the large labor disruption event, DSO was 54 days, 4 days lower year-over-year and 2 days lower sequentially. Operating cash flow for the quarter was $562 million and capital expenditures were $7 million. At quarter end, we had $551 million in cash and equivalents, with a large portion of this cash increase from excess client deposits were the labor disruption events. We ended the first quarter with $367 million in client deposits, of which we have already refunded approximately $250 million this quarter. Assuming the remainder of the deposits are repaid this quarter, we would anticipate having approximately $175 million in cash at quarter end. We ended the first quarter with total debt of $750 million and our leverage ratio, as calculated for our credit agreement, was 1.6x. Moving to the second quarter outlook. We expect consolidated revenue in the range of $620 million to $635 million. Gross margin is expected to be 28% to 28.5%. Reported SG&A is projected to be approximately 23% to 23.5% of revenue, reflecting continued cost discipline, while supporting growth initiatives. Operating margin is expected to be minus 0.6% to plus 0.1%. And adjusted EBITDA margin is expected to be 6.7% to 7.2%. Additional guidance details are provided in our earnings release. To echo Cary's comments, we remain confident that we have the team and strategy to deliver leading tech-enabled solutions that will drive sustainable revenue growth with improved operating leverage. With that, operator, please open up the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Trevor Romeo of William Blair. Unknown Analyst: This is [ Melissa ] on for Trevor. I guess just to start out, what are conversations with the major hospital operators sounding like on contract labor today? Noticed that it's not being called out on the earnings calls anymore. So are you seeing any fill rate normalization going on outside of those crisis and strike type situation? I know you mentioned seeing it in some pockets last quarter. Caroline Grace: Yes. Thanks, Melissa. Overall, we are seeing clients continue to focus on cost management as well as ensuring that they have the workforce in place to be able to support increasing levels of patient utilization. So those 2 themes have continued. To your point, the conversation has shifted with clients where getting to more normalized, both utilization levels and bill rate levels of contract labor was a lever, a big lever coming out of the pandemic. That really has normalized, and we've seen stability for a couple of quarters now. The conversations with clients have really shifted back to what are the levers that we can use to more sustainably create a high-quality cost-effective workforce and gets into a more of a total talent type of solution platform, which we are well positioned against, and its conversations around how do I do more predictive analytics about what my needs are? How do I ensure that I am leveraging the talent that I have most effectively? How am I tech-enabling some of my solutions to be able to close some of the gap between increasing levels of patient utilization and staffing? So we have seen those conversations really shift back to what are the more sustainable total talent strategies that you're going to be able to utilize to support your patient growth volume. Unknown Analyst: Great. And then maybe if I could just squeeze one more follow-up. On the labor disruption revenue, is there any additional color you guys could give on the client relationships that you guys developed coming out of that large windfall? And just any additional revenue opportunities that came from that this quarter? Caroline Grace: Yes. So we supported in the quarter, 5 labor disruption events, 3 of them were large, 2 of the 3 were indefinite. That was historic for us, that was historic for the industry. And when you go through those types of crisis events with clients, your relationships get deeper and stronger. It was an incredibly important moment for the clients that we were supporting in those events. And so we were able to do that successfully, help ensure that they were able to go through and deliver continuous high-quality care for their patients. And that is a very important service, not only what we did in the first quarter that took years of planning to get there, but what we would expect to do in future years with clients going through those events. Operator: Our next question comes from the line of Jeffrey Silber of BMO Capital Markets. Jeffrey Silber: In your prepared remarks, you alluded a few times to your rapid response revenues this quarter. Can you just remind us what the difference between that and your typical labor disruption revenues are and the impact on margins, et cetera? Brian Scott: Yes. Jeff, typically, they are shorter duration assignments, where the client is also looking for us to get somebody deployed very quickly. So that -- in this case, there was some kind of carryover between the -- or crossover between the labor disruption events and these rapid response orders. And so the rates are typically higher, but it's also -- it comes to that as a much higher pay rate as well. So I wouldn't think of it as much as a significant margin answer, but it does have an impact on the volume and higher revenue. So we mentioned the bill rate being much higher in the first quarter. That was in part because of the mix of those rapid response orders that we had in the quarter. The underlying trend around bill rates hasn't changed a whole lot in the last several quarters, but it was elevated. And that's why we made a point of calling it out as we look at the second quarter, we expect the rates to normalize. But it was -- it's very valuable for clients because, again, they need -- they have that rapid need and we're able to deliver really high fill rates on those orders. Caroline Grace: Jeff, one of the things that happens when you're in a longer-duration crisis, like 2 of the labor disruption events that we supported is, you can layer in rapid response. It's still an immediate need, but it is more cost-effective for the client. So it was part of a strategy that we were utilizing with clients to be able to really minimize the cost of them being able to support a long-duration crisis. Jeffrey Silber: Okay. That's really helpful. Second, my follow-up question is just regarding the competitive landscape. You obviously saw one of your larger competitors looks like they're going private again. I'm just curious what you're seeing from those dynamics. Have you seen some of the smaller players leave, and are the larger players consolidating? I'm just wondering your thoughts on that. Caroline Grace: Let me start and then I know Brian has touched on this as well. We've talked for some period of time that we expected there to be consolidation in the industry for a whole host of reasons. Coming out of the pandemic, you had too much supply of competitors. And as you continue to see the tech enablement of these services playing a bigger role, that tends to have a bias towards more scale players. You've seen some of that consolidation pick up more recently. Obviously, there's announcement yesterday about one competitor, but you've seen some merging in some places, both of more traditional staffing companies, but also of some of the more tech-enabled types of solutions. You've seen over the past year, some workforce forms that had gotten into nursing, get out of nursing. So you're seeing it play out in a couple of different ways. But we would expect for that consolidation to continue. Brian Scott: Yes, absolutely. I think that's -- you said is taking a little longer, and we know that there's still some of our competitors that have -- are dealing with larger amounts of leverage, and they're working through that. And so I think that will tend to ultimately drive more consolidation as well. And then some of the platform players, again, as they've consolidated, I think it's a reflection of many clients really looking for partners to help them more effectively manage their labor force and be thoughtful about the right mix and fulfillment. And so if you're purely just a platform player, you may be able to just deliver on some fill, but you're not really bringing incremental value to the clients because they're trying to really manage their costs in the most effective way. So we think that's an important part of our strategy. It's really being a thought partner with our customers to help them optimize their utilization of perm, contingent, how do we help them on both of those fronts. And I think that's -- more and more of those are the conversations and where we can really be a bigger partner for our customers. Operator: Our next question comes from the line of A.J. Rice of UBS. Albert Rice: Maybe first, just to ask, you've had a lot of moving parts, the labor disruption, your comments about rapid response. When you look at the underlying market dynamics, do you have an updated view on whether you think the key areas, nursing, allied locum tenens, what is the year-to-year trend there? Is it growing? What would you say the -- when you normalize, what do you think the underlying market looks like these days? Caroline Grace: So let me give you some comments about what we're seeing in demand, and Brian can kind of layer in. We gave a lot of numbers taking out labor disruption very intensely so you could get a good sense of where we are in the businesses without those events coming through. We feel good about how we started the year overall. Nurse and Allied, you are seeing healthy demand in Allied, you're seeing particularly the past couple of weeks, an uptick in demand in nurse. So we're about flat year-over-year with where we were this time last year, Allied turned to year-over-year demand growth in 2025 and has continued. And so we see into Q2, continued strong especially fill performance across Nurse and Allied. If we look at PLS, in locums, I made some comments in my beginning statement where we've seen weaker demand as we started off the year. We've seen a bit of an uptick over the past couple of weeks. But a lot of that demand structurally is in the third-party channel, where it's typically the most competitive when we have harder fill rates. We have a number of initiatives and a lot of successful proof points with what we did in that space in Nurse and Allied, and we have that underway in locum. So as we go through the year, we feel better about our capabilities in locums to be able to compete in that space and would expect to get to year-over-year growth in the first part of 2027. Search is already there, and we expect it to stay there in year-over-year growth. And then if we go into the TWS segment, we talked about, both Brian and I, what we're seeing already from the service model rollout that we've talked about the past 2 quarters. We feel very good about how that's being operationalized in the outcomes. And we expect that, that service model improvements to continue throughout the course of this year. And for VMS, we would expect us to continue to onboard new client wins as we go through the year and get to year-over-year growth in 2027. Albert Rice: I appreciate that. Go ahead. Brian Scott: I was going to add, A.J., just as Cary said, we're -- the Allied team has done a really fantastic job both in our traditional disciplined with therapy, imaging, lab, and respiratory, all of them are up. And then our schools business continues to have really strong momentum, as we talked about in the last couple of quarters. And so both demand and fulfillment team is performing really well. And as Cary mentioned, international is back to the growth as well. But on the -- so if you look at the Nurse and Allied segment, in total, excluding labor disruption, we're back to -- the guide would presume kind of flat to slightly up, and that's where we see the potential to continue to have a positive year-over-year comp going forward here, driven more right now by international allies, including the schools business. The travel nurse business is right on the cusp of getting back to a positive year-over-year growth on a consistent basis. So feel really good about the momentum in that segment. Albert Rice: No, I appreciate all that. I guess I was also just sort of trying to get a sense, I know you're doing a lot of things to get back on a solid growth trajectory. I just was wondering, is the underlying market in some of those key segments help? Or is it still sort of trudging along? I was thinking more in terms of the overall market from what you see. I may ask, if there's anything on that, fine. But I was -- you made the comment again about the revenue. You're moving toward a model where revenues -- well, adjusted EBITDA grows twice as fast as revenues. I wondered if you could flesh that out a little bit? Is that business efficiencies you're working on? Is that just operating leverage as the market starts to rebound? What are some of the pieces that would allow you to have adjusted EBITDA growth consistently 2x revenue growth? Brian Scott: Yes. Thanks, A.J. And I think we talked about that a few months ago, and that's really meant to be kind of our longer-term growth algorithm. And as we kind of lay that out, there was a working assumption that we'd have the businesses all are predominantly back into a growth mode. And so as Cary kind of walked through some of the service lines and where we are, we have confidence as we move into 2027, we have good opportunity to get back to a growth model across our service lines. That's really where you start to see that kick in. So it's partly a function of -- with top line growth more -- we laid out more in the 4% to 6% range. That would be -- that would occur at some point later in 2027 as we get all the businesses growing. When that happens in conjunction with a lot of the operational changes we continue to make to be a more efficient model, as process changes, automation, more deployment of AI, we think can drive a more efficient model. And we've got to be able to leverage our platform already. So I think the combination of continued process improvements and technology improvements, along with getting the top line business growing consistently, that would absolutely give us the opportunity to get that double-digit EBITDA growth. Caroline Grace: And A.J., the other things that we'd want to see in terms of just things we track beyond the demand comments that I made is we continue to see stabilization in bill rates in nurse. You've seen some modest increases in allied and in locum. We want to see as we leave this year, increases in those bill rates. We're seeing that with some clients as they want to get orders billed, but you want to see that more sustainably to mirror what you would expect to be some increases in the labor market. We saw some modest uptick in average hours worked. That would also be something that as we leave this year, that would be something else that would be very constructive overall of the industry turning from stabilization to more sustained growth. Operator: Our next question comes from the line of Tobey Sommer of Truist. Tyler Barishaw: This is Tyler Barishaw on for Tobey. On your net leverage, you took that down to 1.6x. How should we think about it over the remainder of the year? Brian Scott: Yes. Thanks, Tyler. So the intra dynamic, as we talked about in the prepared remarks with the cash balance. Our credit agreement actually as a governor on the amount of cash we can apply towards our net debt. So that's where we get that the 1.6x. But as you -- as I mentioned, as we work through a refunding of a fair amount of that cash balance during the second quarter, that would basically end up with a pretty similar leverage ratio at the end of Q2 based on our guidance. And right now, if you just -- if you roll out to the rest of the year, we'd expect to have a leverage ratio that would be at 2x or less through the remainder of this year. So we feel really positive about our position on the balance sheet. We paid off our revolver. We've extended the maturities of our existing debt out to 2029 and 2031. And so this, we think, puts us in a really strong position on the balance sheet to really focus exclusively on how we grow in the business here, and that's investing in our teams and our operations, accelerating some of the capital investments that we have already laid out to grow the business as well and gives us a lot more flexibility to consider different capital allocation options as we go through this year and into '27. Tyler Barishaw: Got it. And you mentioned Nurse and Allied had volume growth for the first time ex strike since 2022. Can you maybe talk about that, how that's looking for the rest of the year? Do you think that trend can sustain? Brian Scott: Yes. For the segment overall, we absolutely see the ability for us to maintain positive year-over-year growth in our volume. Again, I kind of laid out -- and really, all the teams are executing really well. Cary mentioned, our -- the demand environment in nursing has been stable but a bit muted. I think we expect to see that pick up, and we continue to look for ways to expand our client relationships and bring in new clients, both our strategic MSP and VMS but also more direct relationships. So that will open up more demand opportunity. But the teams are doing a fantastic job of filling into the demand that we have across our nurse, allied and international businesses. So I think that's where we have confidence we can continue to grow volume as we go through this year. Operator: Our next question comes from the line of Jack Slevin of Jefferies. Unknown Analyst: This is [ Brett ] on for Jack Slevin. I was wondering if you could provide a little bit of additional color here to help us bridge the second quarter gross margin guide? Brian Scott: So the bridging from Q1 to Q2? Unknown Analyst: Correct. Brian Scott: Yes. There's -- yes, so there are a couple of moving pieces, as you can imagine, with -- particularly with the large amount of labor disruption revenue in the first quarter. So that the 26.8% that we reported, as I mentioned in the prepared remarks, we did have some drag from the -- some sales adjustments that predominantly hit our Physician and Leadership segment. So what I'd say is if you really try to kind of strip out some of the different kind of onetime items you'd look at a gross margin in the first quarter, a little over 27% or 27.3%, 27.4% range. The guidance we've given for Q2, the midpoint is 28.2%. As we talked about that, there's about 10 million of labor disruption revenue embedded in that guidance. Part of that is actual contractual activities that we've got. There's also a part, as we reconciled some prior year events and finalize those invoices, there was some benefit from that, which is a kind of flow straight through. So that gross margin is a bit elevated in our guide for the second quarter. You should think about it still being a little bit more in the 27.5% range for Q2. I think it's important as you think about that even as you're looking at our expectations through the remainder of the year. That's really the right way to think about the launching point for the third and fourth quarter as well. Unknown Analyst: Great. That's helpful. And then maybe for my follow-up, just with the update to Visa retrogressions, how should we be thinking about the progression for the international business this year and then as we move into next year? Caroline Grace: Yes. So overall, consistent with what we talked about last quarter, we would expect high teen year-over-year growth in international this year. We had improvement in the retrogression dates over the past quarter. But what you're really seeing now is those candidates going into the next phase of the approval process, which is sitting at the embassies. We haven't assumed any significant acceleration of those candidates through the embassy process. We'll know more over the coming, I'd say, kind of quarter plus, how that's going. But if that goes faster than what we're anticipating, that you would see maybe some lift at the very end of this year that would help support some low double-digit growth into next year. We are not assuming at this point that you're going to see any lift of any of the travel bans or the travel suspension that would also be a tailwind to our assumptions and would predominantly affect and be accretive to 2027 growth. Operator: Our next question comes from the line of Kevin Fischbeck of Bank of America. Kevin Fischbeck: Great. Maybe to ask a question -- it was asked earlier, maybe a little bit differently. Do you guys have insight into like what percentage of your clients are back down to temp staffing as a percentage of their total workforce today like relative to where they were in 2019? And how many are still kind of at elevated levels versus that level? Caroline Grace: Yes. We don't have total insight. Obviously, for companies that are more public about their results, we have some insights. And I think the piece that we always focus on is what is the percentage because obviously, the underlying cost of labor, whether it's contingent or permanent, has gone up. Since 2019, I would say overall, when we compare our current client base to clients that we see -- or I should say, prospects that we see in our pipeline, we see more of our nonclients who may still have a little bit of work to do to get the utilization levels down. We were very partnering with our clients post the pandemic to get them down to more sustainable utilization levels. So I would say, generally, across our client base, they're more focused and shifting towards how do I build and retain my workforce as opposed to how am I reducing that? Brian Scott: Yes. And I think there's also -- I think there's more and more recognition of this inflection. We've seen where the aggressive permanent hiring that was done post pandemic has also led to significant wage increases for permanent labor. And so they're -- and you look at the reset that's occurred in bill rates for contract labor. And you're certainly at this point where we talked before the differential is -- can be very small. Sometimes there's no differential. And so as clients think about fluctuating patient volumes, managing their total workforce cost, I think that's -- we're shifting more to that dialogue versus just purely focusing on the contract labor volume. It's more what is the total cost of their labor and what is the value of having flexibility. And so I think that's where we're seeing more dialogue and less focus on that reduction at this point. Kevin Fischbeck: Okay. And then you mentioned language services margin is up a couple hundred basis points year-over-year. I guess, can you talk a little bit more about what drove that? And I guess, where generally pricing is going? Has pricing stabilized for that business? Caroline Grace: Yes. Let me do a high level, and then I'm going to turn it over to Nishan to add some color. So we have been operationalizing a new service model that we talked about the past couple of quarters that really has 3 enhancements to it. One is an increased offshore mix of resources, right? We always have an onshore/offshore mix. It's them utilizing their devices as opposed to us providing it, and more accommodating SLA. So kind of longer speed to answer in some cases. So we have been rolling that out since the end of last year, and I would attribute that to most of what you've seen on the margin piece. But Nishan, maybe talk a little about the competitive environment and pricing. Unknown Executive: Yes. It's a great question, Kevin. Competitive environment continues to be there, although we did see it maybe coming down a little bit through this year. But we expect staying through the balance of this year, but it is starting to stabilize a bit more. So feeling much more positive about our competitive position and posture in that market. Brian Scott: And I just want to point out that the 200 basis points was sequential. So we're still down -- we're down year-over-year, but we've seen that decline we saw throughout 2025. And so with the model changes, this is the first quarter we've seen it start to inflect back up again. So even though we're seeing pricing come down the way -- the changes we made in our cost structure for how we're delivering our services, which, again, focus is still always on the highest quality in the industry, but we've been able to do it in a way we're going to be able to bring down our cost for the delivery that's helping us improve that margin. Kevin Fischbeck: I guess maybe is this the bottom then? Do you think this is -- do you think you can keep going up from here? Is this the right way to think about it? Has those 2 things cause better pricing pressure still there -- offset? Caroline Grace: I think there's going to be a cycle that you have to work through for some of these pricings as maybe some contracts come up. I think there's still going to be a tail of that, that we've already factored into this. And so -- but we do believe that, to Nishan's comment, the -- it's a much more stable environment than we had seen in the past. We're also seeing and expect minutes quarter-over-quarter to be flat. So there's more stability that we're seeing than we had seen in the past, but we think it's going to be competitive. And we think there's going to continue to be competition for the business and particularly consolidation. We've been very focused on not just getting new clients, but consolidating spend with some of our larger clients. The other piece that I'll mention, I know we talked about this on the last call as well, is one of our areas of focus in our service model is how do we support the end-to-end patient experience. So while there is a moat around the clinical experience that there has to be a human involved in that interpretation. There is an opportunity for us from an admission standpoint, a discharge standpoint to use more AI-enabled capabilities that we are working on. Operator: Our next question comes from the line of Mark Marcon of Baird. Mark Marcon: You mentioned some changing dynamics with the client that are less focused on reducing their contract labor. I was wondering if you could talk about any sort of impact that, that could potentially have with regards to their willingness to see increased bill rates and to raise them to levels where we could actually -- they're more compelling to the nurses and we can have bigger fill rates? Caroline Grace: I think we continue to see overall focus on cost management. So where we're seeing clients increase bill rates is when physicians are not getting filled. And so I think that dynamic is going to be the dynamic that is going to really be the tailwind behind bill rates increasing. When you have positions that are priced appropriately, you see them filled. So that dynamic, I think, will continue. And as clients need more of these positions, with a higher degree of urgency, you will see more of those fill rates increase. But I would expect that to happen for time, and it will really be probably market by market and client by client. Mark Marcon: Great. And then with regards to just the cost consciousness, are you seeing any sort of attitudinal change at all with regards to the pressures that they were feeling when we were going through the early stages of DOGE? Is that starting to lift at all? Is that going to have any impact with regards to leadership within PLD? And how we should think about that portion of the business? Caroline Grace: What I would say overall is while we saw this time last year much more of a pause to step back and assess, okay, what are the implications of Big Beautiful Bill? What we're seeing now is much -- is really a focus on just how do we support what is expected to be an increase in patient utilization just from an aging population demographic. And do that when we know there is going to be, at some point, a limited amount of clinicians. And so how do we start having those strategies and do that in a way that is cost effective because our costs are going up higher than what we are getting reimbursed for. So I'd say that is still the general theme that we are hearing. And what we are feeling is still a focus on those cost-spending strategies for the workforce, including how do we ensure on the physician side that we are fully staffed so that we can maximize revenue. Brian Scott: And to your other question on the leadership side, we did talk about that in the prepared remarks that as we talk about the aging clinical population, in fact, you're also seeing an aging leadership population within health care and the changing of the skill sets needed to navigate this environment. And so we are -- as we drive our go-to-market strategy and the way we're interacting with clients and bringing value, I think it's -- there's a lot of opportunity for us to help them find the right talent for where they are in that journey. And so I think we're feeling good about our position in that market to grow our leadership, both the interim and our search businesses, to address some of the talent -- kind of depending talent gaps we think are going to occur as well as some of the new skills that are needed to help our clients navigate this world as well. Operator: I am showing no further questions at this time. So I would like to turn it back to Cary Grace for closing remarks. Caroline Grace: Thank you all for your interest in AMN, and a very special thank you to our extraordinary team and the strong partnerships that we have with our clients, clinicians and suppliers, who collectively helped us get off to a very strong start to the year. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and welcome to QuinStreet's Fiscal Third Quarter 2026 Financial Results Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Vice President of Investor Relations and Finance, Robert Amparo. Mr. Amparo, you may begin. Robert Amparo: Thank you, operator, and thank you, everyone, for joining us as we report QuinStreet's Fiscal Third Quarter 2026 Financial Results. Joining me on the call today are Chief Executive Officer, Doug Valenti; and Chief Financial Officer, Greg Wong. Before we begin, I would like to remind you that the following discussion will contain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those projected by such statements and are not guarantees of future performance. Factors that may cause results to differ from our forward-looking statements are discussed in our recent SEC filings, including our most recent 8-K filing made today and our most recent 10-Q filing. Forward-looking statements are based on assumptions as of today, and the company undertakes no obligation to update these statements. Today, we will be discussing both GAAP and non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release, which is available on our Investor Relations website at investor.quinstreet.com. With that, I will turn the call over to Doug Valenti. Please go ahead, sir. Douglas Valenti: Thank you, Rob. Welcome, everyone. Fiscal Q2 was another quarter of strong performance and progress. We grew revenue 28% year-over-year to a new company record, and we grew adjusted EBITDA 53% year-over-year, also to a new company record. Our core business is strong, and we continue to make good progress on initiatives that we expect to continue to deliver impressive revenue growth and margin expansion in fiscal Q4 and beyond. Those initiatives include dozens of active projects applying AI across our business system to our proprietary data, tech stack, integrations and workflows and to our media campaigns and interactions with consumers. AI is strengthening our already formidable competitive advantages and is driving even better results for clients, media partners and QuinStreet. As a technology-driven company with hundreds of engineers and technical product employees, we are a fast and effective developer and adopter of leading-edge AI technologies and tools. And of course, we have a proven history with AI. We have been developing and applying AI algorithms since 2008. Getting back to fiscal Q3, let me review some of last quarter's accomplishments in more detail. We set a company record for quarterly revenue, $346 million, up 28% year-over-year. We also set a company record for quarterly adjusted EBITDA, $29.6 million, up 53% year-over-year with expanding margins. We continue to be in a strong financial position with a strong balance sheet and strong cash flows. We ended the quarter with over $100 million in cash and with net debt of around $50 million, including all bank debt and seller notes. Our net debt is well less than 0.5x our annualized adjusted EBITDA, even after accounting for the full cost of the $190 million acquisition of HomeBuddy. And we expect to deliver well over $100 million more free cash flow over the next 12 months. So fiscal Q3 was an exceptionally strong quarter, and we are in an exceptionally strong market and financial position. Looking at the current June quarter or our fiscal Q4, we expect growth to accelerate even more and margins to expand even further, and we expect to set new records for quarterly revenue and adjusted EBITDA in Q4. Our early view of next fiscal year, which begins on July 1, is that we expect to again grow revenue and adjusted EBITDA at strong double-digit rates year-over-year. Looking at our major client verticals. We delivered record auto insurance revenue in fiscal Q3 due to strong carrier demand and high levels of consumer shopping activity. Carriers continue to report good results. We are confident that our full market opportunity in auto insurance is still in its early innings, and we are successfully expanding our media, client and product footprints in that important client vertical. We also delivered record quarterly revenue in home services in Q3, with revenue run rates now approaching $0.5 billion annually. The work to integrate HomeBuddy and to capture synergies is going well as we continue to successfully expand our media, client and product footprints for growth in the enormous home services market opportunity. As I indicated earlier, our success continues to be driven by our industry-leading technologies and business systems, including, at their core, our AI optimization algorithms. And we are expanding the application of AI to dozens of other areas of the business, to our massive store of proprietary data generated from billions of dollars of media spend, to our millions of permutations of campaign and marketplace variables, to our proprietary integrations with clients and media, to our thousands of proprietary workflows and to our interactions with millions of in-market consumers every month. Those efforts are already delivering big improvements in performance and productivity, and we see much, much more. Let me give you a few examples of where we are successfully applying AI to our broader business system. First example. We are applying AI to integrate new and updated carrier rates faster and at greater scale into QRP, our insurance rating platform, increasing productivity there by an estimated 50%. Another example. We are using AI to generate more and better ads for creative, improving productivity in that core essential function by an estimated 400% and resulting in faster campaign launches. A third example. Our frontline employees are using AI-enabled natural language analytics to access even more of our deep trove of proprietary data and to drive deeper analytic insights and improvements in client, media and margin results with less need for analyst support or long cycle times. And one final example here. We are, of course, applying AI to dramatically improve software coding productivity across the business and tech stack. We are also seeing exciting growth in revenue from AI media and as AI grows in media. Some examples of that. First, as AI overviews have expanded rapidly over the past year to now trigger on an estimated 50% plus of Google searches, revenue from our proprietary campaigns on Google has grown by over 100% over the same period. A second example. We are an early participant in OpenAI's advertising platform, where we are already live in both insurance and home services. And one last AI media example. We are improving consumer conversions for our media campaigns and for clients due to the use of conversational AI in our web flows, chatbots and inbound calls and in SMS and e-mail communications with end market consumers. Overall, we are and have been and expect to continue to be an AI winner. Turning to our outlook. We expect revenue in fiscal Q4 to be between $350 million and $370 million, up sequentially to yet another new quarterly record and implying at least 34% growth year-over-year. We expect adjusted EBITDA to be between $37 million and $43 million, also up sequentially to yet another new quarterly record, reflecting continued margin expansion and implying at least 67% growth year-over-year. With that, I'll turn the call over to Greg. Gregory Wong: Thank you, Doug. Hello, and thanks to everyone for joining us today. Fiscal Q3 was another successful quarter, as Doug noted. It was the third consecutive quarter of record revenue for QuinStreet and also a record for adjusted EBITDA. This strong performance was driven by continued momentum and execution across our verticals. For the March quarter, total revenue was $346.1 million, up 28% year-over-year. Adjusted EBITDA was $29.6 million, up 53% year-over-year, and adjusted net income was $17.8 million or $0.31 per share. Looking at our revenue by client vertical. Our financial services client vertical represented 67% of Q3 revenue and grew 16% year-over-year to $231.8 million. Auto insurance momentum continued, delivering a record quarter and growing 27% year-over-year. Our home services client vertical represented 33% of Q3 revenue and grew 63% year-over-year to $114.3 million. Turning to the balance sheet. We ended the quarter with $102 million in cash and equivalents and net debt of $54 million. Overall, QuinStreet remains in a strong financial position, and we expect to generate strong cash flows in the coming quarters and years. We continue to have a rigorously disciplined approach to capital allocation, and we'll continue to prioritize: one, investing in new products and initiatives for future growth and margin expansion; two, accretive acquisitions; and three, share repurchases at attractive levels. We will continue to be measured in our approach and remain focused on maximizing shareholder value. Moving to our outlook. We expect revenue in fiscal Q4 to be between $350 million and $370 million, representing at least 34% growth year-over-year. We expect adjusted EBITDA to be between $37 million and $43 million, reflecting continued margin expansion and representing at least 67% growth year-over-year. With that, I'll turn it over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Jason Kreyer from Craig-Hallum. Jason Kreyer: Doug, can you talk more about the AI actions that you've taken in the quarter? You'd highlighted some relationships with Google and OpenAI. And perhaps you can elaborate on your role there and what you expect over the long term with these partnerships. Operator: I think Jason got disconnected. Our next question comes from the line... Douglas Valenti: I'm sorry, operator. This is Doug. Let me get back in. I apologize, Jason, but yes, thank you for the question. We're applying AI across the business system, as I indicated, including in media. And one of the places in media that we are active is now in OpenAI's advertising platform. They are early, but we were -- we believe we were in the first few hundred folks to actually be engaged with them and to be active on the platform. And as I said, we're active in both insurance and in home services, running advertising campaigns there to both generate revenue, of course, and we have generated our first revenues there, but also to continue to help them pilot that platform and evolve it into a much bigger part of their business and a much bigger part of everybody -- of our business as well. So super excited. As we've indicated before, we believe the LLMs are going to be a new entry point for consumers just like AI overviews on Google have been a new component, a new entry point for consumers. And we believe that it's a new great opportunity for us to plug in and do what we do, which is to help those consumers get matched to the best service providers and generate maximum media yield and revenue for all parties, including the platform companies, whether they be Google or OpenAI or others. So that's what that's about. But again, a lot of AI opportunities and a lot of AI activity going on. Jason Kreyer: We look forward to hearing more about how that evolves. Just as a follow-up, I want to ask about the HomeBuddy performance in the first quarter. And I'm curious how you felt the HomeBuddy and Modernize assets interacted over the course of the quarter and kind of how that integration is modified as we go forward? Douglas Valenti: Yes. It's going extremely well, going certainly as we had predicted and, in some ways, better. We integrated very quickly and, in the quarter, actually generated revenue from the integrations in terms of, for example, taking media from the Modernize side, sending it over to HomeBuddy to be converted into their auction basics, which will be product for their clients and vice versa, getting revenue back. So we're -- it's going well. It's going as expected, and we continue to be very excited about the expansion of our footprint, both in product and media with HomeBuddy. So in terms of changes, I think we're a little bit ahead of schedule in terms of integrating the organizations. We are a little bit ahead of schedule in terms of doing what we -- in terms of having a -- kind of a one-platform approach to the media. And so I'd say that, again, every bit as well as we hoped and, in some places, better. Operator: Our next question is from Luke Horton from Northland Securities. Lucas John Horton: Congrats on the quarter. Just wanted to touch on the auto insurance side. It looks like spending remains strong. Could you provide a little color on size of carriers and any trends you're seeing with the major carriers versus smaller guys? Douglas Valenti: Sure, Luke. We are continuing to see strength across the auto insurance client base. One of the trends that we are seeing is continued broadening. The broader base of clients grew significantly faster than the largest client, which also grew very rapidly. So there's no issues there, just a continued increased activity and broadening of demand across the client base and across the major carriers, top 10 to 15, however you want to think about them. So I'd say if there was a trend, it was just continued strength generally and continued broadening, which we've indicated previously. Lucas John Horton: Okay. Awesome. That's great to hear. And then on the kind of early fiscal year '27 color you provided with the strong double-digit revenue and EBITDA growth. I guess, could you expand on what the kind of 2 or 3 biggest drivers underpinning that outlook would be? Or what would be the biggest risk to achieving that? Douglas Valenti: Sure. Right now, we've seen preliminary numbers for next year from pretty much all of the businesses. And we've got double-digit revenue growth across the board -- strong double-digit revenue growth across the board. And in most cases, margins growing faster than revenue. And the one place where I think that's not yet indicated, it's flat margin cash revenue, but really strong growth. So some investment going on there. So no issues with that. So again, as you would expect, home services, of course, will be particularly strong early because of the acquisition in the first couple of quarters, we expect it to be strong in the back half as well after we lap the comp on the HomeBuddy acquisition. Insurance, we see strong demand from clients and continued strong development of new media capacity, which has been a good driver of our growth and margin expansion in auto insurance over the past couple of quarters. And then we're seeing, in the credit-driven verticals, good legs of growth there as well, whether it be in credit cards where we're getting strong indications from the issuers or banking where we're seeing strong demand from the clients there, and we have strong media capabilities there. And in the -- in AmOne Financial, the personal loans and debt solutions company, we've been focused on quality of revenue there. So we have not been growing that business over the last year or so, but we've been pretty significantly expanding margins. We've had some decline. We've indicated before, some decline in revenue, but pretty flat margin dollars as we've improved the quality of the revenue, and we expect to be able to resume pretty aggressive growth next fiscal year at those higher margins. So right now, it's pretty much across the board strength as we go through the detailed planning for each of the client verticals. Operator: Our next question is from Elle Niebuhr from Lake Street Capital Markets. Elle Niebuhr: So on the home services front, given the heavier implied Q4 weighting, what are you seeing in contractor demand, lead pricing, media availability? Any of that, that gives you the confidence that the seasonal ramp is playing out as expected? Douglas Valenti: We're seeing pretty much all those things, Elle. I mean the client demand continues to be extraordinarily strong. The -- and that's been consistent for a while. We have significantly greater demand than we have capacity to fill it, which is always what you want in our business, given the way we serve clients. We are making great progress on the media side with our proprietary campaigns, with the shared media between HomeBuddy and Modernize, which are the 2 brands we have in home services. And that's an area of real opportunity as both clients -- both of us take media that we don't match as well or don't have as good a coverage for, and take advantage of the new coverage, either Homebuddy for Modernize or Modernize for Homebuddy. We're seeing good growth in new product areas, continued growth in new product areas. Consumers are -- and homeowning consumers, who are the customers there, are quite strong still. The consumers has been exceptionally resilient, given the uncertainties and inflation and gas prices. I can't really say that about the low-end consumer where we -- but AmOne has solutions to help those consumers. But as far as the homeowning consumer, which are the folks that are the customers for our contractors in home services, those folks are quite healthy and quite active. So there's not really a dimension of weakness we're seeing in home services. If you look at the components that we worry about most, which, of course, media, capacity, client demand, pricing or consumer activity, consumer demand for projects. So continued strength and advantages of having HomeBuddy now to multiply that strength. Operator: Our next question comes from the line of Patrick Sholl from Barrington Research. Patrick Sholl: Maybe just a follow-up on the AI side. Can you maybe talk about like carrier adoption on that? Is that sort of -- I guess, just how carriers are spending within, I guess, maybe either in agentic format or through kind of the ChatGPT or other tools like that? Douglas Valenti: Sure, Patrick. They -- if it works for them and it comes to our platform, they're buying it. In terms of buying direct there, not yet in terms of buying, say, directly off those platforms. From what we understand and have been told, OpenAI and others are focusing primarily on marketplace providers like us initially because of the consumer choice and the content. I do expect that, over time, as their platforms and their ad platforms develop further that, of course, carriers will spend direct and there will be opportunities for them to do that. But again, as I indicated, we're early and one of the early folks working with them and one of the early folks they want to work with to help them develop their ad revenue platform and to be in a position to be able to scale that and continue to evolve it to be a big part of the channel. And I think it will be a big part of the channel. We're excited about it, as I said, as another way for consumers to come into digital. and to shop and pursue products and service providers in our verticals. So early, not a lot of direct activity from what we've seen and what we've heard, but good active planning and activities and indications that OpenAI is going to be a big player here, and we're going to be a big part of that, just like we have been with Google since the early days of the company. We launched our first campaign with Google, gosh, as soon as they -- we had SEO with them in the early days and as soon as they went into an ad-based platform, again, we were one of the first ones in that as well. So we expect this to be a pretty similar kind of opportunity and curve. Patrick Sholl: Okay. And maybe just a quick clarification on your outlook for 2027 on the solid double-digit growth. Should we be, I guess, understanding that to be excluding acquisitions as well? Or is that on a current operations basis? Douglas Valenti: We are -- we don't have any new acquisitions in that assumption. So yes, we would expect that, that would be on the current base business. Patrick Sholl: Yes, sorry, I misspoke. I meant like would that be pro forma for acquisitions or just... Douglas Valenti: No acquisitions in that. No acquisitions in that plan. Patrick Sholl: Okay. All right. And then lastly, just on the other financial services verticals. I think you kind of touched on this a little bit, but those don't seem -- are those like being impacted at all from the rate environment or the macro, I guess? I think like some appliance manufacturers have cautioned on the consumer spending side. And I'm just kind of curious on how that might be flowing through on from consumer demand. Douglas Valenti: Sure. No, we're seeing a mixed bag, mostly good for us. The AmOne Financial business is really positioned to help consumers on the lower end of the spectrum access capital in the form of personal loan or deal with debt problems in the form of debt settlement or credit repair. And so, unfortunately, in some ways, there's still a lot of consumer demand and appears to be growing consumer demand there. Credit cards, we only really serve prime and super prime consumers. We're not in the lower income spectrum of cards or credit development cards or anything like that. So those consumers continue to be very robust, and we have not seen issues there. On the deposit side, similarly, folks have money to put into savings accounts, high-yield savings accounts or CDs or other platforms, annuities and other. They tend to be consumers that are in the middle to upper income spectrum. So continues to be strength there. We've seen some -- I guess if there was something to look out for, I'd say that there's probably a little bit less activity by source of funds clients than there would be if the interest rate path were clearer. I wouldn't say that's something that's fundamentally going to change our outlook or is a big risk to the business going forward. But I'd say that that's something that -- it's probably not as robust as it would be if everybody knew that rates were either going up or down. And you can imagine why, right? They don't want to commit to a CD rate until they know where rates are going and they have to decide what their interest margin is going to be when they develop those products and when they recruit consumers for those products. But generally speaking, what you've heard from everybody, pretty stable, strong consumers, generally, particularly middle and upper income. The consumers at the lower end of the income spectrum are getting squeezed because of inflation, because of gas prices, which disproportionately hurt them and because of relatively low wage growth. But relative to -- as you position that against our business, that's a pretty good profile for the products that we serve. Operator: [Operator Instructions] Our next question is from Naved Khan from B. Riley Securities. Ethan Widell: This is Ethan Widell calling in for Naved Khan. To start off with, can you maybe add a little bit of color on just what you're seeing on the macro side for auto? I imagine that elevated oil prices pressing on discretionary budgets might cause less driving, more -- it's better for carriers, maybe more shopping for rates, but just wondering kind of what you're seeing along those lines. Douglas Valenti: I think both of those things. What we're seeing at our level is continued real strong demand and carriers wanting us to do more and figure out how to get more. But I think, at a macro level, I think you hit on it there. The carrier loss ratios are very healthy. They -- the indications we've gotten from them and from the industry is that they feel like they're rate adequate. And I think that the effect of higher gas prices is likely to be less driving, which means less -- the rate of incidents will be lower, which is going to be good for them because, as you said -- because there's likely to be fewer incidents and fewer claims. And the other thing that is absolutely a factor in auto insurance is that consumers shop more when they're under financial pressure for auto insurance because they want to see if they can save money because they have to have it, but they want to make sure they're not paying more than they have to pay for it. So shopping activity tends to be at pretty high levels. And we have seen good strong shopping activity, certainly through the peak shopping season, which is always in the kind of February-March time frame. But generally speaking, we're seeing a good strong consumer activity. Ethan Widell: Got it. And then kind of longer term, how do you view or maybe anticipate, like, your mix shift over time as you take into account kind of various growth rates in your verticals, but also layering in HomeBuddy to that? And how do you consider that in terms of maybe long-term margin possibility? Douglas Valenti: Yes, it's a great question. I think the theme that we'll probably see over the next few periods, and I'd say that's probably certainly quarters and maybe years, is that a little bit more normalization of the mix. And what I mean by that was the spike in auto insurance really caused auto insurance to be super heavy in our mix there for a period of time. And one of the reasons our margins -- and we said before, auto insurance, at its scale and with its structure, tends to come in at a little bit lower media margin percentage than our average. And so that shifted our margins down some. But as the greater growth in auto insurance has normalized after that -- the rapid expansion of 1.5 years, 2 years ago, and the other businesses continue to grow strongly, you're seeing the mix shift back to -- gradually shift back to a more normalized level where the auto insurance won't be as dominant, which means that there will be a natural lifting of our media margin profile, which will be -- should be a natural upward tug on EBITDA margins. And I've said before that there are kind of 3 things that are going to -- that are causing us to expand margins, have caused it over the last few quarters and are likely to continue to do it, including as we forecast next quarter. One is that mix shift. After kind of getting a heavy mix of auto insurance, that mix is going to more normalize and that will be a natural upward move in our media margin profile, which translates fairly directly to EBITDA margin since our fixed cost base is semi-fixed. The second is going to be continued success in expanding our auto insurance margins, which have been -- are up 4 to 5 points this year over the beginning of the year, largely due to a lot of specific projects to do that as well as the development of proprietary media that we said we were going to develop, and we spent a lot of money and invested in developing and have very successfully developed. We're going to continue to do that. And that's been very, very beneficial to us and to our margins in auto insurance. And the third is just natural operating leverage. I mean, as we grow at these rates on the revenue and therefore, margin dollar lines, but of course, don't grow at these rates on the semi-fixed cost lines below the margin -- the media margin lines, then you have a natural expansion of margin, top line leverage or operating leverage, depending on how you want to talk about it. So those 3 factors, I think, are going to continue to play a role, certainly next quarter and probably for a considerable time going forward. Operator: There are no questions at this time. Thank you, everyone, for taking the time to join QuinStreet's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's call. Thank you.
Operator: Greetings, and welcome to the Marcus & Millichap First Quarter 2026 Financial Results Conference Call. [Operator Instructions] And as a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Jacques Cornet. Thank you. You may begin. Jacques Cornet: Thank you, operator. Good morning, and welcome to Marcus & Millichap's First Quarter 2026 Earnings Conference Call. With us today are President and Chief Executive Officer, Hessam Nadji; and Chief Financial Officer, Steve DeGennaro. Before I turn the call over to management, please remember that our prepared remarks and the responses to questions may contain forward-looking statements. Words such as may, will, expect, believe, estimate, anticipate, goal and variations of these words and similar expressions are intended to identify forward-looking statements. Actual results can differ materially from those implied by such forward-looking statements due to a variety of factors, including, but not limited to, general economic conditions and commercial real estate market conditions, the company's ability to retain and attract transactional professionals, the company's ability to retain its business philosophy and partnership culture amid competitive pressures, company's ability to integrate new agents and sustain its growth and other factors discussed in the company's filings, including its Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2026. Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can make no assurance that its expectations will be attained. The company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release, which was issued this morning and is available on the company's website, represents a reconciliation to the appropriate GAAP measures and explains why the company believes such non-GAAP measures are useful to investors. This conference call is being webcast. The webcast link is available on the Investor Relations section of the company's website at www.marcusmillichap.com, along with the slide presentation you may reference during the prepared remarks. With that, it's my pleasure to turn the call over to CEO, Hessam Nadji. Hessam Nadji: Thank you, Jacques. On behalf of the entire Marcus & Millichap team, good morning, everybody, and welcome to our first quarter 2026 earnings call. We're pleased to report a strong start to the year with revenue growth of 18% over the first quarter of 2025. This reflects improving market conditions, a more robust recovery in our private client business and further momentum in our financing division. Building on last year's fourth quarter, our strong start is also driven by 2-plus years of persistent client outreach, frequent valuation updates and seller consultations that are now translating into transactions. Brokerage revenue grew nearly 12% year-over-year, while our financing business delivered a stellar 48% increase, demonstrating both the scaling of our capital markets platform and an improving lending environment. Adjusted EBITDA improved to nearly $3 million from a loss of nearly $9 million a year ago as we start to benefit from expense leveraging with revenue recovery from the prolonged market disruption. MMI completed nearly 1,400 brokerage transactions in the first quarter, a 15% increase. Transactions per agent increased 11%, which we see as a key measure of productivity gains, particularly given the growth in our headcount over the past year. Improvements were broad with 7 of the 11 property types we service posting brokerage revenue growth for the quarter. Office transactions delivered the largest gains in several years, thanks to significant price resets and an improving space demand driven by a growing return to office mandates. Activity was also strong in multifamily, manufactured housing and single-tenant retail. Our private client brokerage revenue improved 13% year-over-year and contributed the largest share of incremental brokerage revenue gains in the quarter. The strength was driven by a narrowing bid-ask spread, thanks to more realistic price expectations by sellers and more banks and credit unions returning to the market. We're seeing broader acceptance by sellers that current interest rate levels represent the new normal, which is forcing more realism on valuations. Small and mid-cap multifamily and single-tenant properties, which were most affected by the interest rate shock and lender constraints are now seeing more transactions following the unusually sharp and prolonged correction we experienced since 2023. Our larger transaction segment delivered a 25% revenue increase in the quarter, reversing last year's decline. As I shared on our last quarter's call, revenue from our $20 million-plus sales increased by 28% in 2024, clearly leading the recovery. In 2025, this segment faced a very tough comp, while institutions also became more selective and focused primarily on top-tier assets. During the first quarter, our IPA division, which drives the majority of our larger deals, leveraged a widening buyer pool and increasing appetite across the asset quality spectrum. As a general observation, price adjustments over the last 2 years point to a compelling entry point for investors, especially relative to replacement cost. MMI's financing revenue reached $27 million in the quarter, a 48% increase, while total financing volume grew 60% across nearly 400 finance transactions. Average deal size increased 36% as we executed larger and more complex transactions. This is a direct result of our successful recruiting and acquisition strategy over the past few years to attract highly experienced originators and finance boutique firms. Given the success in this strategy, we continue to focus on adding origination teams in key regions around the country. It is also critical to note that MMCC benefits from a deep bench of veteran originators who've been with the firm for many years and continue to thrive as we expand technology, lender relationships and collaboration with our sales brokers. A notable shift this quarter was toward acquisition financing, which accounted for 61% of originations, up from 50% a year ago. This trend is consistent with the rising transaction market, which enables more trades than refinancings and recapitalization. As lenders feel the pressure to become more competitive, we're seeing various metrics improve, particularly in higher loan-to-value ratios. At the same time, underwriting and sponsor qualification remained tight, still requiring more time and diligence from our originators and investment brokers to execute transactions. Lastly, our finance team used 188 unique lenders in the first quarter to provide our clients with a competitive advantage by leveraging our vast and growing network of qualified capital sources. Our auction services and loan sales business continue to gain traction and cross-generate referrals with our brokerage and financing teams. Auction revenue nearly doubled year-over-year in the first quarter, while revenue from loan sales and IPA Capital Markets increased 39%. These value-added services are effectively providing alternative marketing and sales channels to investors and lenders with ample growth opportunity ahead. On headcount, we ended the quarter with 1,621 investment brokers, up 87 from the first quarter of 2025. This includes a larger-than-usual seasonal reduction in sales force during the first quarter due to the proactive termination of 2- to 3-year agents in development who are falling short of key metrics. We are being more selective in recruiting and exercising tighter monitoring of sales performance for newer agents in their first 18 to 24 months with us. Going forward, more of the company's organic growth strategy will shift towards reliance on our expanded internship program and our fellowship channel, both of which are generating higher-performing agents with more reliable production. This shift would likely cause some noise in the net hiring data from quarter-to-quarter, but should be a better approach in the long term. Results from the recent expansion of our corporate recruiting team working hand-in-hand with our local market leaders have been encouraging as measured by the screening improvement and improved placements we've seen so far. We're scaling this further with the recent hiring of an industry veteran recruiter focused entirely on adding experienced talent. The company's technology investments continue to advance across multiple areas of the business, including our Central Support Services. This critical group is referred to as Brokerage Transaction Services or BTS, and provides financial analysis, document generation and marketing tools to support our sales force. The central theme in our technology strategy is the scalable application of AI to drive efficiency gains throughout all aspects of the brokerage service continuum and various internal functions. While the power of AI applied to a particular brokerage team, a particular geographic market or property type is clearly measurable, our focus is on building scalable AI agents and tools that markedly improve sales force productivity across the firm. This is a bigger challenge than simply applying AI to a particular practice. Looking forward, we expect commercial real estate fundamentals to remain healthy with more catalysts emerging to drive the rising tide of transactions. Pricing has generally adjusted and continues to recalibrate by asset quality, while new construction is slowing dramatically. This is especially critical for industrial and multifamily assets, which have seen record new inventory in the last few years. These factors are making the commercial real estate investment case increasingly compelling on a replacement cost basis. More of our clients are accepting that the pricing paradigm has shifted and lenders are facilitating the transition to a new cycle with more competitive terms. Notwithstanding some cooling of activity around the time of the conflict in the Middle East, our focused sales force, granular client-centric business model and local market expertise should drive growth amid ongoing macro political and economic developments. Our balance sheet remains a competitive advantage with approximately $335 million in cash and no debt. MMI has achieved the flexibility to invest in our platform, continue to pursue its strategic acquisitions and return capital to shareholders all at the same time. The ability to maintain a strong balance sheet clearly stands out as a catalyst to accelerate growth as the next real estate cycle takes shape. We see substantial growth opportunity ahead with operating leverage from recent investments and the addition of talented individuals we brought on board over the past several years. With that, I will turn the call over to Steve for more details on our financial results. Steve? Steve Degennaro: Thank you, Hassan. Total revenue for the first quarter was $171.5 million, an increase of 18% compared to $145 million in the prior year quarter. This represents the strongest first quarter revenue growth in 4 years. Breaking down revenue by segment, real estate brokerage commissions for the first quarter were $138 million, an increase of 12% year-over-year and accounted for 81% of total revenue. We completed 1,348 brokerage transactions for total volume of $7.9 billion, representing increases of 15% and 19%, respectively, compared to the first quarter of 2025. Average transaction size was $5.9 million, up 3% from a year ago. Average commission rate was 1.75%, a slight decrease of 11 basis points year-over-year, resulting from a modest mix shift towards larger transactions that carry lower commission rates. Within brokerage, our core private client market accounted for 64% of brokerage revenue or $88 million in the quarter, an increase of 13% year-over-year. Private client transaction count was up 19% and dollar volume grew 22%, reflecting the broad-based improvement in this core segment and more realistic price expectations by sellers. This compares to $78 million or 63% of brokerage revenue in the first quarter of 2025. Revenue from middle market transactions was $20 million, 6% lower than prior year, while the larger transaction segment covering deals above $20 million accounted for 18% of brokerage revenue and $25 million, representing a 25% increase year-over-year. Revenue from our financing business was $27 million in the first quarter, an increase of 48% compared to $18 million in the prior year quarter. This was driven by 60% growth in dollar volume to $3.1 billion across 398 financing transactions, representing an 18% improvement in transaction count. Average transaction size grew 36% to $7.8 million, reflecting our expanding footprint in larger institutional and agency loan originations. The average origination fee rate was modestly lower, consistent with the larger deal mix. Other revenue, which includes leasing, consulting, advisory and ancillary fees, was $6.5 million in the first quarter compared to $3.3 million in the prior year, an increase of 98%. This change primarily reflects growth in our loan sales and advisory services, consistent with the trend of rising distressed and transitional loan sales. Turning to expense. Total operating expense for the first quarter was approximately $177 million, an increase of just 9% on 18% revenue growth, reflecting improved operating expense leverage. Cost of services was $104 million or 60.4% of revenue, a favorable improvement of 50 basis points compared to prior year. Selling, general and administrative expense was $71 million, essentially flat compared to the prior year. In addition to ongoing cost containment, the first quarter's typical expenses were somewhat lower due to the last-minute cancellation of the company's annual sales award trip due to security concerns. As a percentage of revenue, SG&A improved substantially to 42% compared to 49% in the first quarter of 2025, reflecting the operating leverage in our model as revenue scales. For the first quarter, net loss was $3 million or $0.08 loss per share compared to a net loss of $4 million or $0.11 loss per share in the prior year, an improvement of 30%. On a pretax basis, the loss of $2 million this quarter represents a notable operating improvement from the prior year loss of $14 million. Tax expense for the quarter was $900,000. As Hessam mentioned, we are pleased to see adjusted EBITDA for the first quarter improving significantly to $3 million compared to negative $9 million in the prior year quarter. This represents more than $11 million of year-over-year improvement and reflects the combination of strong revenue growth, a controlled cost structure and the operating leverage I mentioned. Moving to the balance sheet. We remain in an exceptionally strong financial position with no debt and $335 million in cash, cash equivalents and marketable securities as of the end of the first quarter. The sequential reduction of approximately $64 million from year-end is typical for a first quarter and primarily reflects current and deferred agent commission payouts, performance-based management compensation and investments in production talent. A key distinction in the first quarter of 2026, however, is our share repurchase activity, where we repurchased approximately $23 million of our common stock in the quarter at a weighted average price of $26.22 per share. This compares to less than $1 million in share repurchases in the first quarter of last year. Excluding the impact of repurchases, the underlying business consumed significantly less cash this quarter than in either of the prior 2 first quarters, reflecting improved operating cash generation as revenue recovers. Since inception of our dividend and share repurchase programs, we have returned approximately $251 million in capital to shareholders. As a continuation of our commitment to the return of capital to shareholders, our Board recently approved an additional authorization of $70 million for the share repurchase program, bringing our total available authorization to $90 million. No time limit has been established for the completion of the program and repurchases will continue to be executed opportunistically through open market purchases and Rule 10b5-1 plans, subject to market conditions and other capital priorities. During the quarter, we declared a semiannual dividend of $0.25 per share or approximately $10 million, which was paid in the first week of April. Looking ahead, we see several constructive catalysts for continued growth balanced against the near-term macro uncertainty that Hessam described. Second quarter revenue is expected to reflect continued year-over-year improvement, building on Q1 momentum. As always, the sequential increase from Q1 to Q2 reflects normal seasonality with transaction volume typically building as the year progresses. While we are encouraged by April results, we remain mindful of the geopolitical and macroeconomic variables, which could moderate the pace of activity. Cost of services in the second quarter is expected to remain in the range of 62% to 63.5% of revenue, consistent with revenue building throughout the year. SG&A in the second quarter should reflect modest year-over-year growth in absolute dollars, driven by continued investment in agent support programs and technology infrastructure, partially offset by our ongoing efficiency initiatives. As for taxes, the effective tax rate remains difficult to predict given the proximity to breakeven profitability. The rate is driven primarily by the mix of deductible and nondeductible expenses relative to projected annual pretax income and to a certain extent, by the distribution of income between our U.S. and Canadian operations. In the near-term, pretax income and adjusted EBITDA are more meaningful measures of operating performance. That said, for the second quarter, tax expense is anticipated to be in the range of $500,000 to $1.5 million. In summary, the first quarter demonstrated that the investments we have made over the past several years in talent, technology and the breadth of our platform are translating into measurable financial results. Strong revenue growth, meaningful improvement in adjusted EBITDA and favorable operating leverage all point to a business model that is scaling effectively as the transaction environment recovers. Our balance sheet provides us the flexibility to simultaneously invest in growth, return capital to shareholders and pursue strategic opportunities. The combination of financial strength and operational momentum is a defining characteristic of this company. With that, operator, we can now open the call for questions and answers. Operator: [Operator Instructions] And the first question comes from the line of Mitch Germain with Citizens Bank. Mitch Germain: So Hessam, are your customers more immune to rate movements given that it seems to be kind of part of everyday life at this point? Hessam Nadji: Mitch, no, they're not immune and they're actually very sensitive to it. They have become used to the volatility that you just spoke of over the past 3 years. And the pent-up demand for transactions that have been delayed for the last couple of years is trumping the interest rate volatility effect in my opinion and observations as I travel around the country in that many of them are now convinced that their hopes for a Fed miracle or interest rates drop, at least somewhat close to where we were is not in the making. And therefore, you can't really count on that to return valuations anywhere close to where we were at peak. Plus there are some operational challenges in some of the markets and product types around the country. There's maturing loans that are still having a hard time being refinanced. And all of that is causing more demand to bring product to market despite the interest rate volatility that we've seen in the last 90 days. Mitch Germain: Got you. That's helpful. I think you mentioned 188 unique lenders, if I'm not mistaken, this quarter. I know you probably don't have the number in front of you, but I'm just curious kind of where did that stand, I don't know, maybe 2, 3 years ago? I mean, how has that environment changed? Hessam Nadji: It certainly has been one of our advantages throughout the cycle and even prior to the Fed rate shock, we were one of the largest providers of access to multiple types of lenders. It did tighten down quite a bit, especially in 2023 and 2024, particularly on the bank and credit union side of the equation, which, of course, is the primary source of private capital financing. If you remember in 2023, regional banks, in particular, were hit very hard. So options were fewer. But once again, that created an opportunity for us to illustrate our advantage to our clients because we would shop for them so aggressively and enabled that process through a lot of new technology that actually interconnects our 100-plus originators so that within the team, the knowledge of which lender is in the market for type of -- what type of deal and what price point was being shared real-time, and that helped us become a lot more efficient. I would say that in the last 2 quarters, we've seen a significant improvement in the return of banks and credit unions back into this, if you will, active network of lenders. And there's no question that in '23 and 2024, that number would have been measurably less. Mitch Germain: And last one for me. Larger transaction activity, clearly, pretty decent amount of growth this quarter. Was that a function of your hiring or do you think that just the price expectations amongst the sellers have become a bit more reasonable or did both basically contribute to that? Hessam Nadji: It was contributions from both factors. Predominantly, though, it was transactions that didn't consummate last year because of a pricing gap that finally cleared the market in Q1 and a number of our clients that had been hesitant to bring product to market because the pricing expectation just wasn't going to be met, capitulating to more realistic price expectations. I would say that the vast majority of what we closed had been in some form of discussion, analysis, valuation between the seller and our IPA teams and the veteran Marcus & Millichap agents who do larger transactions for probably a better part of a year. So that's an indication of the fact that the overall business execution is still taking extra time and our ability to help clients just requires a lot more handholding and nurturing of their internal process for coming up with their strategy and then execution. Operator: That does conclude the question-and-answer session. I would like to turn the floor back over to Hessam Nadji for any closing comments. Hessam Nadji: Thank you, operator, and our thanks to everyone who attended this call. We look forward to seeing some of you on the road and to having you back for our Q2 earnings call. The session is adjourned. Operator: Thank you, ladies and gentlemen. That does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Operator: Good afternoon, everyone. My name is Megan, and I will be your conference operator today. At this time, I would like to welcome you to The RealReal First Quarter 2026 Earnings Call. [Operator Instructions] At this time, I would like to turn the call over to Caitlin Howe, Senior Vice President of Finance. Caitlin Howe: Thank you, operator. Joining me today to discuss our results for the period ended March 31, 2026, are Chief Executive Officer and President, Rati Levesque; and Chief Financial Officer, Ajay Gopal. Before we begin, I would like to remind you that during today's call, we will make forward-looking statements, which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q. Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking. We have provided reconciliations for historical non-GAAP financial measures to the most comparable GAAP measures in our earnings press release, which is available on our Investor Relations website. I would now like to turn the call over to Rati Levesque, Chief Executive Officer of The RealReal. Rati Levesque: Good afternoon, and thank you for joining us on today's call. Q1 demonstrated the strength of our platform as our financial and operating results exceeded expectations. I'm very proud of the team's execution during the quarter. Q1 was our fourth consecutive quarter of double-digit top line growth and our third consecutive quarter of growth exceeding 20%. We also expanded adjusted EBITDA margin by over 400 basis points year-over-year. Trailing 12-month active buyers grew double digits year-over-year, which reflects higher levels of trust and an acceleration in engagement with our platform. I want to take a step back to provide perspective on where we've been, where we are and where we're headed. 2024 was about stabilization. We defined our strategic direction and got to work executing against it. We stabilized operations, improved unit economics and validated our transformation. 2025 was about optimization. Last year, we articulated our growth playbook and go-to-market engine to unlock supply and drive profitable growth. The results validated our approach. We surpassed $2 billion in GMV, accelerated top line and delivered positive adjusted EBITDA in every quarter. 2026 and beyond is about compounding. We've laid a solid foundation and the mechanics are working. Now our customer relationships, our data, our brand and our scale are reinforcing each other, each one making the next stronger, compounding our advantages. We've become the barometer of the luxury industry. We capture luxury demand in real time. The categories, brands and looks trending on our platform are often the earliest signal of where the market is moving. Our customers come to us first to see what's trending, what their items are worth and where fashion is heading. A customer's relationship with TRR begins before the transaction and continues long after it. When you consider that about 50% of our customer base is Gen Z and millennial, it's clear that resale is not a passing trend. It's a core component of the future of luxury. And with 47% of luxury consumers considering resale value when purchasing in the primary market, we're changing how people shop. Our business helped to drive this shift. We've created a full-service managed marketplace with the authentication, logistics and trust luxury requires. By modernizing how consumers think about fashion and the value of their closet, we're cementing the operating system for luxury ownership. We are leaning into this vision through three strategic pillars. First, our growth playbook, which is how we unlock supply and drive flywheel behavior as we become the default luxury resale destination; second, obsessing over service, which informs our mindset in every customer interaction and turns transactions into relationships; and third, operational excellence, which is how we use AI, automation and data to improve unit economics and enable scale. Our first pillar is our growth playbook and the mechanics are working. Our sales team remains a key competitive asset. We are actively deepening our moat, empowering our sales team to act as trusted advisers, helping to manage our consignor's closet. Our algorithmic pricing tools equip our sales team with data-driven earnings estimates, giving consignors clarity and confidence. In a brand-forward marketplace, this trust deepens engagement and loyalty, which keeps consignors coming back. We're also extending the reach of our sales team through our referral programs. With the Real Partners program, we're building a network of stylists, closet organizers and real estate agents, the professionals' closest luxury closets who refer their clients to TRR and earn commission. It's an efficient way to reach high-value consignors, and we see significant long-term potential to expand our partner base. Turning to stores. Our stores continue to deepen the consignor relationship, and we're excited about the new markets we're adding for 2026 in San Francisco and Boston. Stores play an important role in generating supply. Sellers who engage with the store deliver 40% more value. In terms of newer supply channels, our drop-ship and vendor channels are expanding. We're building an asset-light international supply network and starting to develop a partner base in places like Italy, France and Japan. Building on our success with drop-ship in the U.S., we see significant runway to grow this channel over the medium term. These supply strategies are successfully driving the compounding mechanics of our platform and accelerating our network effects. As buyers become consignors, our flywheel spins. These flywheelers, whom we affectionately refer to as RealRealers, spend 50% more time with us than the average customer and the flywheel accelerates. The next strategic pillar, obsessing over service, propels the growth playbook forward. Service and data insights for both sellers and buyers helps turn a one-time transaction into a relationship. The full MyCloset suite is the product manifestation of our vision to become the personal adviser to the closet, creating the system of record for our customers' luxury assets. MyCloset will provide real-time estimated value, price tracking and trend intelligence. This further removes friction for the seller and engages customers beyond the transaction. On the buyer experience, our product road map includes AI recommendations in the near term, followed by enhancements in search and discovery. Every item on our platform is unique, which makes agentic and conversational search powerful, and we're excited to continue rolling out features in 2026. Through our growth playbook and obsessing over service, we are building the infrastructure layer for luxury and efficiently connecting buyers to consignors. Our third pillar, operational excellence drives profitability and scalability. Our AI-enabled intake system, Athena, is automating the repetitive data-driven parts of intake, freeing up our experts to focus on the valuable work that requires specialized expertise and judgment. We're targeting to end 2026 with nearly 50% of items fully flowing through Athena, improving processing times, speed to site and our unit economics. Beyond intake, our pricing strategy is also getting smarter, building on our foundation of structured market signals to inform pricing, we've recently introduced AI-powered image embedding. By incorporating image data, our models better account for visual characteristics when determining market value. These visual details give us better comparables to price against and help maximize earnings for our consignors. Later this year, we're rolling out an automated storage and retrieval system at our Perth Amboy authentication center, adding automation and increasing our capacity by 35%. This lets us efficiently handle growing volume at higher speeds without opening additional warehouses, more throughput in the same footprint. Together, these 3 strategic pillars are compounding our advantages and extending our leadership position in the growing luxury resale market. None of this is possible without our consignors. Over the past 15 years, we've paid out more than $6 billion to our consignors, who trust us with pieces that carry real meaning and real value. I also want to sincerely thank our team. None of this happens without you. Together, we built a strong foundation, and I'm excited about where we're headed next. I will now turn the call over to Ajay. Ajay Gopal: Thank you, Rati. Good afternoon, everyone. I am pleased to review our financial results for the first quarter of 2026, which demonstrate a powerful start to the year and the continued disciplined execution of our strategic pillars. We are helping customers view their closets as an asset class, and The RealReal is the trusted destination to manage and monetize those assets. In Q1, we delivered robust top line growth with GMV increasing 24% and revenue up 19% year-over-year. Beyond the headline numbers, we saw deeper engagement with our platform. In Q1, 43% of our new consignors came from our active buyer base. These flywheelers or RealRealers, as Rati mentioned, enhance our network effects and are an important driver of our long-term growth. Our approach to unlocking high-quality supply, combined with our focus on operational efficiency is yielding results. In Q1, we achieved adjusted EBITDA of $13.1 million or 6.9% of total revenue and expanded our margins by 430 basis points, which showcases our ability to drive operating leverage. Now turning to our detailed first quarter results, beginning with top line. Q1 GMV of $606 million increased 24% compared to last year. On a 2-year stacked basis, GMV was up 32%. Q1 total revenue of $190 million increased 19% year-over-year. Consignment revenue grew 18% and direct revenue increased 26% compared to Q1 of 2025. Buyer engagement accelerated with trailing 12-month active buyers up 10% year-over-year. Average order value of $646 increased 15% versus last year. Q1 take rate of 36.4% declined 220 basis points year-over-year. This was due to a favorable mix into higher-value items. As we've explained before, these items carry a lower percentage take rate while generating more profit dollars and improved unit economics. On margins and profitability, first quarter gross profit of $141 million increased 18% year-over-year. Gross margin of 74.5% decreased 50 basis points compared to the prior year, driven primarily by the mix of products sold. First quarter operating expenses leveraged 730 basis points year-over-year as a percent of revenue. The improvement was driven by operating efficiencies and volume leverage on fixed costs. As we continue to scale Athena, outbound automation and other productivity initiatives, we are driving operating leverage. First quarter adjusted EBITDA was $13.1 million, an increase of $9 million versus the prior year and 6.9% of total revenue, an increase of 430 basis points year-over-year. Moving to the balance sheet and cash flow. We ended the quarter with $139 million in cash, cash equivalents and restricted cash. Our operating cash flow in the first quarter was negative $16.6 million, $11.7 million improvement year-over-year. As a reminder, our cash flow is influenced by seasonal factors and similar to prior years, we expect our cash flow to be back half weighted. Moving to our financial outlook. Based on our strong performance, we are increasing our full year outlook and providing guidance for the second quarter of 2026. We are raising full year GMV to the range of $2.42 billion to $2.47 billion, representing 14% to 16% growth year-over-year. Revenue is expected to be between $770 million to $784 million, translating to 11% to 13% growth versus last year. Adjusted EBITDA is expected in the range of $59 million to $67 million, which represents 8.1% margin at the midpoint. This is an improvement of approximately 200 basis points versus 2025, and we remain on track to reach our target of 15% to 20% adjusted EBITDA margins over the medium term. Moving to our outlook for the second quarter. We expect GMV in the range of $590 million to $600 million, representing 17% to 19% growth year-over-year and 32% on a 2-year basis at the midpoint. Revenue is expected to be between $186 million to $189 million, representing 13% to 14% growth versus last year. Second quarter adjusted EBITDA is expected to be between $11 million and $12 million, representing 6.1% margin at the midpoint and approximately 200 basis points of margin expansion year-over-year. In closing, our performance is evidence that our strategy is working. We are driving top line growth while strategic investments in AI and automation are enabling us to expand margins over time. Each year, over 35 million buyers purchase luxury goods in the U.S. primary market and resale adoption is growing. We are helping to drive that adoption through our unique approach to unlocking supply, removing friction for our sellers and accelerating the flywheel. I want to extend my gratitude to our entire team for their hard work and execution to start the year. With that, we will move to Q&A. Operator? Operator: [Operator Instructions] Our first question will come from Marvin Fong with BTIG. Marvin Fong: Congratulations on the strong results. I guess I'd like to just kind of start -- I mean, obviously, we can see your guidance is calling for fairly consistent growth on a 2-year basis for GMV. But just in light of the Middle East conflict and surging fuel prices, just both on the demand and the supply side, is there anything to call out shifting product mix on buyer demand and on the supply side, might you be seeing any incremental supply coming your way as consumers try to cope with the cost of living? Rati Levesque: Thanks, Marvin. Thanks for the question. A couple of things. So I'm hearing what is kind of our confidence in the full year. This is now our fourth consecutive quarter of double-digit growth. We're seeing the customer, both buyer and consignor being quite resilient actually, and that continues. That trend continues. Our value props are resonating with our customer. And I think at the end of the day, it's that intersection between value and luxury that we can offer. So when value of dollar becomes top of mind for our customer, that's kind of where we are. And we, of course, have that higher income customer profile as well. Our supply looks quite healthy, all driven from our growth playbook that we talk about, retail becoming mainstream, but also this flywheel. So you saw an acceleration in our buyers and those buyers becoming sellers. So the top of funnel metrics were focused more of our marketing dollar and top of funnel, but also around our social channels working, and really driven by mostly Gen Z and millennials. So continuing to build trust with our sellers and continuing to see kind of the top of funnel metrics be quite healthy. Marvin Fong: Got it. And if I could do a follow-up, just obviously, we saw the surge in AOV and consumers clearly are shopping your higher-end items. Just why do you believe that's happening? And how sustainable is that trend, I mean, considering, theoretically, the consumer is a bit stressed here, but you guys continue to outperform in handbags, jewelry and those types of items, it sounds like. So just any thoughts on how sustainable that trend is? Ajay Gopal: Thanks for the question, Marvin. We've seen a healthy balance between price and volume in our -- over the last few quarters that's been driving our growth. I think the shift to AOV is it's a testament to the trust that we've built in our platform and the willingness that customers demonstrate on being interested in coming to The RealReal for high-value product. For us, what's exciting, it really showcases the flexibility of our marketplace, right? As customer preferences shift from one category of fashion to another, we are able to quickly pivot and meet them and get them exactly what they're looking for. Operator: Your next question will come from Dylan Carden with William Blair. Dylan Carden: I hope that worked. Curious, you're seeing this really nice balance between customers and AOV. And I'm just kind of curious how you're thinking about that through the balance of the year. And then on marketing and sort of customer acquisition, it seems you speak to flywheel and this idea of compounding. And I'm just curious if there's sort of also a healthy repeat trend in this business where you're out there acquiring either sellers or buyers and part of what you're seeing, particularly on sort of the order side or the order value side is sort of return of some of the efforts that you made in the last sort of 2 or 3 years. Ajay Gopal: Yes. Dylan, thanks for that question. Yes, we are seeing a nice mix of customer growth and sort of their willingness to buy higher-priced items. In Q1, we reported an acceleration in active buyers, which came in at 10% on a trailing 12-month basis. And we've seen a lot of success in mixing -- in shifting the mix of our products into higher value and capitalizing on that opportunity. I'm going to turn it over to Rati for the other part of the question around flywheelers because it's a really exciting story there. Rati Levesque: Yes. So with the flywheelers, you've heard us talk a lot about that, and our strategy there is working. So we've seen acceleration in buyers, but it's not just about bringing in any buyers. It's bringing in the buyers that are sticky but also turn into consignors. So as retail is becoming more mainstream, we can kind of target the right flywheelers and bring them into our ecosystem. And again, that's more driven out of Gen Z and millennials. So our marketing investment has very much been focused around that. They have a high confidence in our ROI, and then obviously, leveraging AI through our smart engine and more targeted offers as well. And you hear me talk about social, but also things like our affiliate program and referrals are our fastest-growing segments. And so we're optimistic in our investment here in focus. Dylan Carden: Would further retail expansion be a piece of that going forward? Could you accelerate stores? Do you need to accelerate stores? Rati Levesque: Stores is always a part of our strategy, our retail locations, and that's the buzzwords, you always hear me talk about the growth playbook, but that's a part of the strategy. It's marketing. It's our sales engine, the IP of our sales team and the retail location. So that trifecta really working together compounds our growth rate and compound supply. Operator: Your next question will come from Ike Boruchow with Wells Fargo. Irwin Boruchow: I guess maybe Ajay, I'm trying to think about how the flow of the model should move from here. I understand what's going on with AOV and take rate. I think you had said 3 months ago, take rate should be pressured in the first half and normalize in the back half. Can you kind of give us some specifics on how you're expecting that to flow? And then kind of a similar question on the direct side of the business, I think up 26%. Like does that growth rate moderate further as you move through the year? Just kind of curious on those two line items, how we should be thinking about the model? Ajay Gopal: Absolutely. Thanks for the question, Ike. So maybe starting with take rate, our blended take rate in Q1 was 36%. And just as you pointed out, and we'd mentioned earlier, right, we do expect pressure on our take rate just from the shift in the mix, right? We -- our take rate is designed in such a way that it gives us strong unit economics across a pretty wide price band. And as we mix into higher-value items, the percentage is a little lower, but those items generate better unit economics and stronger profit dollars. So a good trade-off for us at the business. We expect that to continue, as you can read into our Q2 guidance. And we do expect that to sort of start to -- those two lines to get a little closer as we get into the second half. That's our expectation. But at the end of the day, like I said earlier, it really depends on where the market preference shifts and our ability to be able to capitalize on that shift in real time. The direct revenues, we've made some changes to direct revenue last year. We really looked -- took a hard look at the mix of what was in there and improved the margins as well. So in Q1, it grew 26%, slightly higher than the aggregate business, but not by much, right? Because GMV was up 24% for the total business and direct revenues grew 26%. So we think it's in a good place right now. It will scale with the business, and we expect it to be in that range of 10% to 15% of total revenues going forward. Operator: Your next question will come from Bobby Brooks with Northland Capital Markets. Robert Brooks: So obviously, you're seeing excellent buyer growth in the Gen Z and millennial cohorts. But I was curious, is that the same from the consignor growth point of view? I think that a bigger piece of that supply that you guys talk about or kind of we all know that is just sitting in people's closets, collecting dust are probably more towards the Gen Xers and even maybe baby boomers. And maybe the consignor growth matches the generation mix of the buyer growth. And if that is the case today, could you just discuss your approach to winning the consignors and buyers from that older demographic? Rati Levesque: Yes. Thanks for the question, Bobby. So actually, many -- like I said, many of our new consignors come from our buyer population. And those trends and patterns, we have not seen change. They may be a little more diverse on the supply side, but still driven by millennials and Gen Z as well. As far as tactics specifically to bring on the flywheelers, like I mentioned, reconsign is a big one. So MyCloset, you heard me talk about that a little bit, but this one-click reconsign button to get people to consign as first-time consignors before we know when they bought a handbag, for example. And 6 months later, they're ready to consign it. How do we give them the right signals and how do we personalize our offerings to bring them on as consignment. That's really working. Pricing estimators are really working, leveraging our sales team is all really working, giving them the base of consignors to go after our leads and opportunities is also really working. So all of that kind of together, along with our retail locations is bringing on the supply, but also in this kind of those same cohorts as the buyer, very similar to the same cohorts as buyers. Robert Brooks: Got it. And then just mention building this international pipeline of supply, and I think you specifically called out France and Italy. I just want to unpack that a little. Is that with the kind of individual consignors that you guys -- are currently your bread and butter in the U.S.? Or is that working with brands directly or manufacturers directly? Just really curious to hear more there. Rati Levesque: Yes. So drop-ship, it still continues to be early days here. We continue to learn. I will say it's meaningful growth rate, but not what's driving the growth. So yes, directly able to unlock supply from international vendors or partners like we talked about in the opening remarks. This enables us to kind of test and learn as we think about a more localized approach to international. So we're kind of taking this crawl, walk, run approach. We're launching cross-border this year, again, focus on demand there with the idea that we're focused on drop-ship and bringing on some of these international partners that way, looking to see what kind of product we can get from some of these international partners look like, what does the sell-through look like? Before we kind of move into a broader, more localized strategy. The opportunity here is huge. As we know, the TAM is really big, and we're excited about the next steps here. Robert Brooks: Got it. And then just one last one for me. So the implied revenue guide, a little bit of a decel comparatively to 1Q, but 1Q had the easier comp with the California fires from last year, right? And it seems -- it just seems like listening to the commentary and the tone that things are really accelerating for the business and maybe that year-over-year 2Q revenue guide at face value doesn't really express that fully. So I was just curious to hear your thoughts on kind of my line of thinking there. And maybe if I am right, could you just expand a little bit more like below the numbers on the acceleration or momentum that you're seeing in the business? Ajay Gopal: Thanks for that question. I can take that one. So Q1 was really strong. GMV was up 24%, and it was also our fourth consecutive quarter of accelerating GMV. When we look at what's driving that strength and what's driving that performance, it's a lot of the fundamentals, right? We are -- it's the growing interest in resale as a category. It's our ability through our strategic initiatives to unlock supply and bring that supply on to a high-trust marketplace. And we're seeing that translate into strong growth of the business, attracting more buyers, which also came in at a nice 10% growth on an active basis. So when we look at Q2, all of those fundamentals continue to be true, right? We have high confidence in the guide that we've provided. We're starting the quarter strong. And when I -- it gives that confidence also translates into the full year guide where we've increased the midpoint of our guidance from 13.5% GMV growth to 15% GMV growth. So we'll keep executing and delivering against that plan. Operator: Your next question will come from Matt Koranda with ROTH Capital. Matt Koranda: A lot of the demand stuff has been covered, but I wanted to dig a little bit more into the O&T expense. You leveraged that nicely in the quarter. But I guess on a per order basis, it was kind of flattish. As Athena penetrates further into the business later this year, I guess, how should we be thinking about per order sort of O&T expense and whether we get leverage later in the year? Ajay Gopal: Yes. Thank you for that question. Operations and tech was a significant source of operating leverage for us. It has been -- it was true in last year when it leveraged 330 basis points. And in Q1, it drove 320 basis points of leverage. We think it continues to be a source of where our margin expansion is going to come from. When you look at our full year expectation to expand EBITDA by 200 basis points as we balance our expanding margins with delivering growth, ops and tech will continue to be a key component of that margin expansion. Matt Koranda: Okay. And then just philosophically, if you get upside from efficiency around Athena implementation, is that -- are those dollars that you would consider reinvesting in marketing to speed up customer acquisition? Or is that something you'd let flow to the bottom line? Maybe just a little bit on your thought process around how you think about upside as you implement Athena? Ajay Gopal: Yes. Great question. I mean we love that question. Definitely see it being reinvested back into growth, right? We are -- you've seen us put more money into marketing as we are able to gain more confidence on the return against that spend. The ROI is definitely there. We're also excited to invest a little in product and technology. There's been some very impressive gains in the world of artificial intelligence. And we see an opportunity to translate those gains in AI into our business model. So we will continue to lean into things that drive growth and balance that with expanding margins. I think we are set up to do both. Operator: Your next question will come from Mark Altschwager with Baird. Mark Altschwager: I just wanted to ask about the supply pipeline, watches, jewelry, handbags, that's really been the AOV story for a few quarters now. Can you talk us through the supply visibility as you look 6, 12 months out? I mean, are you seeing any signs of tightening in those particular categories? Or is it still feeling pretty robust there? And then relatedly, Ajay, just bringing it back to the model, we do begin to cycle the step-up in AOV from last year. I think the revenue guide seems to imply some moderating AOV growth in the back half. I mean is that the right expectation? Or is there a view that you could still be in the early innings of this AOV momentum? Rati Levesque: Thanks, Mark, for the question. I'll take the first one before I hand it over to Ajay. So on the supply side, what are we seeing? Watches, jewelry, handbags, high-value items in general, seeing strong supply coming in through there, strong inventory. Again, this is because of our retail locations, because of our incentives for the sales teams and how we've really prioritized this area. Our NPS is great for the mid- and high-value product as well. So we're seeing like all of that top-of-funnel metrics, our investment in marketing really pay off and bring in the right type of supply. The interesting thing about us is all this data that we have, right? The 15 years of proprietary data to help us leverage AI. So what that means is we have this agility to our business so we can scale up supply in the areas where customers want very quickly. And we see those trends very quickly, and we can take that out to the sales team and make sure that they're incentivized the right way. So we're not seeing any slowdown in high value. If anything, that's picked up pretty nicely, and obviously has a lot to do with how big the TAM is. But the top of the metrics are solid. And just tactically, I brought up the flywheel, but also Real Partners and affiliates. So these closet organizers, these stylists, we're really starting to see momentum there with the type of product they're bringing in that again gets -- is a mix of a really nice high and mid-value product, the agentic kind of search on the discovery side, of things selling through in a nice way, gets more money for our consignor and kind of accelerates that flywheel. Ajay Gopal: I can take the second question, Mark, around sort of AOV for the second half. I think it really goes back to this concept of balance between price and volume growth for us, right? We've seen a healthy balance between the two, and there are quarters where one tends to be a little higher than the other. When you read into our implied second half guidance, yes, we do expect the balance to shift a little bit versus Q1 to a more -- less on AOV, more on units. But really, it comes down to what the customer is looking for and where fashion preferences shift. We have the ability to quickly move in that direction. And just as you saw us capitalize on that trend with jewelry and watches, to your point last year, we'll do the same regardless of where that shifts. Operator: Your next question will come from Ashley Owens with KeyBanc. Victoria Apostolico: It's Victoria on for Ashley. Given the recent increase in oil and gas prices and the pressure we're seeing on the lower-income consumers, are you seeing any divergence in activity between higher-value customers and the more aspirational buyers on the platform? Rati Levesque: Thanks, Victoria. Yes, we're not seeing any kind of change in trend when I'm looking at the health of the consumer. Right now, like I said, the buyer and consignor continues to be resilient headed into the quarter. And I really think, again, testimony to our trust, but also, again, that intersection between value and luxury, so that dollar going a lot farther with us. The resale continues to become mainstream. And we're seeing -- as far as trends go, we talk about high-value, but also emerging brands and vintage. So we're much more now the place where people are discovering new brands as well. And if anything, we're also seeing -- because of the trust that we built and the testimony to our trust, we're seeing first-time buyers spending more in their first purchase. So that's the great thing about our marketplace. And I'd say one other thing that I'm seeing is, I'd say resale in the past was maybe one transaction. It's becoming -- it's less of a trend and a fad now and more we're developing this deeper connection with our customer. And we talk about it a lot in the metrics, right? Almost 50% of customers consider the resale value before purchasing in the primary market now and almost 60% prefer the secondary market outright. So we're seeing definitely a change in the behavior as people are changing the way they shop. Victoria Apostolico: Okay. Great. And then just concerning the consumer pressure, I was curious about how prior cycles went. Has this helped grow adoption for resale in the past? Rati Levesque: Yes. So we haven't been through like a recession, for example, a macro. I would say that we were built out of a recession. We say that quite often. The question is do people want to monetize their closet if they're feeling a little bit of pressure. Again, I don't know. But what I do know is and what I can tell you is what we're seeing right now. And supply pipeline looks really good, new consignors, new buyers. We are seeing people wanting to monetize their closet right now. We're seeing people really buy into the value play. And like I said, that intersection between value and luxury really works in our favor right now. Operator: Your next question will come from Jay Sole with UBS. Jay Sole: Hope you can hear me. My question is on just AI and operational throughput. I guess how much of the margin expansion in Q1 was driven by Athena and some of the smart sales impacted by smarter AI pricing? That's the first question. And then sort of any color on AI rollouts versus any kind of seasonal tailwinds, specifically, are you seeing a measurable decrease in time to site for unique SKUs? Ajay Gopal: Yes. Thanks for that question, Jay. I'll take the first part of it and then hand it to Rati to talk about the broader sort of AI strategy that we see on our business. As it relates to Athena, it is a pretty material component of the source of efficiency that we are seeing in operations and technology, at the end of the year with 35% of items being processed through that workflow, and we see that getting close to 50% towards the year, so -- towards the end of this year. So it will continue to be a source of efficiency for us. We also have other things we're working on within the operations line. One of our investments this year is in implementing an automated storage and retrieval system in one of our fulfillment centers, and we're excited about that because it's going to allow us to move things faster through our fulfillment centers, and it also allows us to get more out of our existing capacity footprint. So 35% more from the fulfillment center where we would be putting in this technology. So that's as it relates to what we're doing around operations in Athena. I'll turn it to Rati to talk about sort of the broader AI strategy in our business. Rati Levesque: Yes. Thanks, Jay. So I mentioned this earlier, but I think what puts us in a really great position is we have 15 years of proprietary data to position us and leverage AI. So at the end of the day, it's about removing friction, unlocking supply, lowering fixed and variable costs. Our objective is to find these efficiencies, also shorten our SLA, service level agreement with our customer, but while also taking dollars out of the unit cost. So Athena is one way that we do that, but also how do we get to 15%, 20% adjusted EBITDA margins. It's leveraging our moat, our expertise, authentication, pricing and data, our sales team. We're well positioned to kind of take advantage of these efficiencies. So examples might be smart sales, which you've heard us talk about in the past, authentication as well. An automated storage and retrieval system we're launching right now that will really help a lot of the OpEx costs. And then leveraging across our corporate functions as well. And then on the site experience side, we think about improving discovery or conversational search via agentic AI. So we're pretty excited to test and start using the agentic AI, this human agent collaboration. And it's early innings of capitalizing on the significant and growing TAM. Operator: Your next question will come from Marni Shapiro with The Retail Tracker. Marni Shapiro: Congratulations on a fantastic quarter. I'm curious, I know we love talking about technology and everything, but I'm kind of curious about the customer side of things just a little bit more. I have a couple of friends -- several friends who actually consign with you and buy with you. And a few of them have said that the experience has been a lot better. So I'm curious about what you're doing to enhance that experience on the buyer side, on the consignor side? And how is it, I guess, rolling out? And what should we expect the rest of the year? Rati Levesque: Yes. Thank you for the question. As a team and as a company, we've really been focused around obsessing over service. You hear me talk a lot about that in our script. So whether that is a pricing estimator that we've launched, reconsign, our operational excellence, really looking at kind of the exceptions and making sure that they're going down the right path. MyCloset is another one, right? Or just that deeper connection that we're -- that we have now with the consumer to build trust with our sellers, empowering them with that rich data that we have. And then search and discovery is something else that we're working on this year. So really thinking about both the consignor and seller -- sorry, the consignor and the buyer experience and really kind of listening in on what the pain points are and addressing them as a team. So still we get really excited about talking about that and how do we kind of continue to increase our NPS. The price estimator is actually launching today. There's a select group of sellers, so check that out, and we'll continue to do our hard work here. Marni Shapiro: And can I ask a follow-up on that? Because I feel like there are a lot of places to consign or try and sell your pre-loved merchandise. Are you hearing from your customers, whether it's consignors and/or buyers that the trust factor is the thing that's most important. It feels -- we all know that there's a lot of dupes out there. We all know it's hard to verify some of them. Is that the kind of the moat, I guess, that you guys have? I know it's not digital, but I feel like trust is almost more important than making it easy in a weird way. Rati Levesque: Yes. So it's definitely around our trust is really important. And the way that we kind of cement our trust is through our sales organization, our pricing and data, our expertise that we have. It's great to see growing interest in the category, but it validates that resale is not just a trend, but really here to stay and kind of cemented into the infrastructure layer of the fashion industry or marketplace. So our value props really resonate with our customer. And like I said, the IP of the sales team, the authentication and expertise and just building that trust and community, again, driven by Gen Z and mostly millennials. But we are definitely unique and really doubling down on our competitive moat here. Marni Shapiro: That's great. And also, I know this wasn't new, but amazing that Andy was wearing thrifted and pre-loved items throughout Devils Wears Prada 2. I was like, oh my God, this is just genius for you guys. So congratulations. Rati Levesque: Thank you. Ajay Gopal: Thank you. Operator: Thank you. That concludes the Q&A session and today's call. You may now disconnect.
Operator: Greetings, and welcome to Oshkosh Corporation 2026 First Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Patrick Davidson, Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you. You may begin. Patrick Davidson: Good morning, and thanks for joining us. Earlier today, we published our first quarter 2026 results. A copy of that release is available on our website at oshkoshcorp.com. Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of GAAP to non-GAAP financial measures that we will use during this call and is also available on our website. The audio replay and slide presentation will be available on our website for approximately 12 months. Please refer now to Slide 2 of that presentation. Our remarks that follow, including answers to your questions, statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and other factors that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks and factors include, among others, factors that we listed in our release this morning and matters that we have described in our most recent Form 10-K and other filings we make with the SEC as well as matters noted at our Investor Day in June 2025. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. Our presenters today are John Pfeifer, President and Chief Executive Officer; and Matt Field, Executive Vice President and Chief Financial Officer. Please turn to Slide 3, and I'll turn it over to you, John. John Pfeifer: Thank you, Pat. Good morning, everyone, and thank you for joining us today. We continue to make progress on our long-term goals in each of our businesses. Customer engagement around our new products and technologies has been strong as demonstrated at CES and the many trade shows where we have participated in 2026. The actions we are taking across the company this year are foundational to delivering our targets for 2028, and we remain confident in the future we are shaping for those who do the toughest work in our communities. First quarter earnings per share were modestly below the expectations we outlined on our last call, where we indicated EPS would be approximately half of the prior year's amount. For the quarter, we delivered consolidated sales of approximately $2.3 billion and adjusted earnings per share of $0.85. Performance in the quarter compared with our expectations was impacted by fewer fire truck shipments in our vocational segment, where a number of planned customer pickups were not completed even though we are still making progress on increasing production. Our outlook for the company has not changed, and we are maintaining our full year consolidated guidance Demand across our segments remains solid, and we have good visibility for the remainder of the year. We are focused on execution and continue to expect improved performance as the year progresses. And we remain confident that we are taking the right steps to drive positive business performance, not just this year, but for the long term. Please turn to Slide 5, and we will review some highlights since our last call. Demand in our access segment is improving, supported by mega projects, including data center-related construction. Orders in the quarter exceeded $1.5 billion, resulting in a book-to-bill ratio of 1.6. Customer engagement remains high, and we are entering the summer construction season with a backlog of $1.8 billion at the end of the quarter. At the same time, demand continues to be uneven across end markets. While mega projects remain a source of strength, broader nonresidential construction activity continues to be impacted by macroeconomic factors. Against this backdrop, our focus on innovation and productivity continues to resonate with customers. At the ConExpo show in March, our JLG team showcased all new boom lifts and our new 26-foot micro-size scissor lift, all designed to improve productivity, serviceability and versatility. Our new boom lifts directly address key customer needs by reducing machine weight and increasing basket capacity. Our micro-sized scissor lifts, which are seeing strong adoption in data center applications provide a safe and more efficient way to access confined spaces. We also highlighted advancements incorporating autonomy, including canvas robotics for drywall finishing and our robotic welding end effector both of which generated strong customer interest as companies look for solutions to address labor constraints and improve job site efficiency. While we are encouraged by strong order activity and backlog, we continue to operate in a dynamic cost environment. We are actively managing the impact of tariffs through supply chain and manufacturing actions and we expect to maintain a competitive cost position as the industry leader. Overall, we remain confident in the long-term outlook for the Access segment and our ability to execute through the cycle as we manage our costs deliver attractive margins over time. Turning to Slide 6. Demand across our vocational segment remains healthy with a strong backlog of $6.6 billion. In the quarter, we increased fire truck production year-over-year, although shipments were below our expectations. This was driven by a number of factors, including weather and travel-related disruptions. We are focused on modernizing and improving production flow and removing bottlenecks to improve lead times, and we are making progress. We expect further improvements in the quarters ahead, supported by increased process efficiency and targeted capital investments. On the innovation front, we continue to see strong customer engagement. At the FDIC show in Indianapolis, Pierce showcase the capabilities and quality of our fire apparatus along with clear sky connected vehicle technology, which enhances fleet visibility, uptime, and coordination for fire departments in the field. At McNeilus, we launched our AI-enabled material contamination detection technology as part of our McNeilus IQ platform. This solution leverages artificial intelligence and advanced analytics to identify contaminants in real-time during collection, helping customers improve efficiency and sustainability. We expect to continue expanding our McNeilus IQ offering with additional technologies over time. Oshkosh AeroTech continues to perform well. supported by strong demand from airports investing in expansion and modernization. Order intake in the quarter was solid, particularly for air cargo loaders and Jetway passenger boarding bridges with key wins in Reno, Orlando and Nashville. Our Jetway backlog now extends beyond 12 months, and we are investing in capacity to improve delivery times. Summing it up, we have strong visibility across the segment, and we expect to convert backlog into revenue as production throughput improves, and we reduce lead times. Please turn to Slide 7. In our Transport segment, we continue to make notable progress executing on our key programs and advancing toward our long-term objectives. For NGDV, production is on track. The fleet has now surpassed 20 million miles and is operating in 48 states. Importantly, feedback from the USPS and their drivers continues to be very positive, reinforcing the productivity and reliability benefits of the platform as we ramp deliveries. As we look ahead, NGDV production will continue to build through the year with a greater contribution expected in the second half. On the defense side, we are also progressing on our FMTV program. We are launching the production of low velocity air drop units with production expected to grow in the second half of the year. These units represent initial deliveries under the FMTV contract extension signed in June of 2025. Closing out my segment comments, we are executing our plans for transport and expect performance to improve in the second half of the year. With that, I'll hand it over to Matt to walk through our detailed financial results. Matthew Field: Thanks, John. Please turn to Slide 8. Consolidated sales for the first quarter of $2.3 billion were flat compared to the same quarter last year as pricing, favorable currency and the impact of changes in cumulative catch-up adjustments in the transport segment offset lower sales volume. Adjusted operating income was $96 million, down from $192 million from the prior year, primarily due to unfavorable mix which includes across segments, products and for access, channel mix with higher NRC sales compared with last year, higher manufacturing overhead costs, which in part reflects our investments for future production and lower sales volume. In the quarter, we recorded a benefit for IEEPA refunds of about $13 million. Our estimate for the full year impact of Cape 1 is about $23 million. This reflects our direct payments and excludes payments made by suppliers, which would be subject to future discussions. Adjusted earnings per share was $0.85 in the first quarter. Free cash flow for the quarter was negative $189 million an improvement compared to negative $435 million last year. The improved result is despite lower earnings and reflected more disciplined working capital management as we built for the summer season as well as higher customer advances. Our expectation for cash conversion remains strong for the year. During the quarter, we repurchased approximately 300,000 shares of our stock for $47 million. In March, we also refinanced our revolving credit facility. The 5-year agreement has similar terms to the previous facility with a capacity of $1.6 billion at a slightly lower interest rate. Turning to our segment results on Slide 9. Access first quarter sales of $943 million were roughly flat with the prior year. Access sales were better than we expected, particularly given the strong sales volume access delivered in the fourth quarter of 2025 in response to announced 2026 pricing. Compared to the first quarter of 2025, lower sales volume was partially offset by favorable currency. As John mentioned, demand has remained robust. We delivered a book-to-bill ratio of 1.6 during the quarter, compared to 1.0 during the first quarter last year. Adjusted operating income margin of 4.1% was about where we expected for the quarter. The decrease in adjusted operating income relative to last year reflected mix price cost dynamics and the impact of lower sales volume. You will recall that Access is our segment most significantly impacted by tariffs. Locational sales of $825 million were down from last year on lower shipment volume, partially offset by improved pricing. Sales volume reflected lower sales of refuse vehicles, as expected, and fewer deliveries of municipal fire trucks despite modest growth in our production compared with the same period of last year. As John mentioned earlier, weather and travel challenges impacted customer pickups, as they were not able to take deliveries of fire trucks late in the quarter. Lower sales volume, higher manufacturing overhead costs partly reflecting our investments in peers facilities and adverse sales mix were partially offset by favorable price cost dynamics, resulting in an adjusted operating income of $94 million and a margin of 11.4% for the quarter. As John mentioned, we are focused on continued improvement in throughput for fire trucks and jet bridges in order to increase the pace of deliveries. Transport segment sales increased $50 million to $513 million in the quarter due to higher sales volume and the impact of cumulative catch-up adjustments. Delivery Vehicle revenue grew by $166 million to $217 million and represented 42% of transport segment sales during the quarter. Delivery revenue grew more than 30% sequentially compared to the fourth quarter of 2025. As expected, defense revenue was lower compared with last year due to lower tactical wheeled vehicle and aftermarket sales volumes. As a reminder, in the first quarter of 2025, we were still building JLTV units with the last units built in May 2025. Transport segment operating income was $4 million, up $3.6 million compared with last year, reflecting lower adverse cumulative catch-up adjustments and higher sales volume, partially offset by higher manufacturing overhead costs and adverse mix. We expect transport operating margin to grow in the back half of the year as we transition out of past fixed price contracts continue to ramp up NGDV production and expect to receive additional NGDV orders. Turning to our expectations for 2026 on Slide 10, we continue to expect our full year adjusted EPS to be in the range of $11.50. We are facing conditions that are more challenging and dynamic than we anticipated 3 months ago, and we expect roughly 30% of our earnings in the first half of the year. The back half will be stronger, reflecting improved price cost and access, higher fire truck production reflecting our investments, building on the FMTV contract and for the NGDV both higher production and our expectation for an additional order. We still expect free cash flow of $550 million to $650 million, unchanged from our prior guidance. At this time, we are not updating or reaffirming our expectations by segment as we continue to manage our business in this evolving economic landscape. In access, we are seeing promising order activity, as you can see in the strong book-to-bill ratio of 1.6, which may result in a modestly greater contribution from this segment. In vocational, while our growth and margins are still expected to be robust, particularly for municipal fire apparatus, our first quarter delivery shortfalls and facility construction timing are likely to modestly reduce the contribution from that segment this year. Transport remains on plan. Our outlook for tariff impact has remained largely unchanged as EPA tariff recoveries are broadly expected to offset the additional cost of the 232 expansion. As John mentioned at the outset, all the ingredients to deliver on our 2028 targets are in place or underway with new and refreshed products advanced technologies and increased production to improve lead times on extended backlogs, the plan to achieve 2028 targets is clear. With that, I'll turn it back over to John for some closing comments. John Pfeifer: Thanks, Matt. Summing it up, we expect continued improvement throughout the year as we execute on our plan. We are operating in a dynamic environment, including changes in tariffs and geopolitical uncertainty but we are actively managing those factors through pricing, cost actions and supply chain actions. We are maintaining our full year adjusted earnings expectations in the range of $11.50 per share, and we remain confident in our progress towards delivering on our 2028 targets. Our confidence is grounded in 3 areas: strong backlog and demand continued production improvements at vocational and continued progress with our NGDV ramp in transport. I'll turn it back to you, Pat, for the Q&A. Patrick Davidson: Thanks, John. I'd like to remind everybody, please limit your questions to one plus a follow-up. Please stay disciplined on your follow-up question. After the follow-up, we ask that you rejoin the queue if you have additional questions. Operator, please begin the Q&A session. Operator: [Operator Instructions] Today's first question is coming from David Raso of Evercore ISI. David Raso: Hopefully, you don't hear the static when I'm speaking that I'm hearing back, please let me know. John Pfeifer: No, you sound good, David. David Raso: That's good to hear. Just curious, the second quarter implied at about $2.60. I know you mentioned you don't want to give business segment guide updates. But can you at least give us a sense of where were you thinking EPS could be for 2Q? I'm just curious how much of the first half got pushed into the second half. And given some of the commentary around why vocational was a bit light, just curious why the catch-up wouldn't be a little bit quicker. So maybe the first part, what came out of 2Q? And if it was sort of weather related, why can't we catch up for that a little bit faster? Matthew Field: David, it's Matt. So the elements in Q2 largely haven't changed. Year-over-year, we were always expecting access to be a little weaker. In terms of vocational we said 2 things. One, obviously, we did have the shipments that would slip into Q2. But we're also seeing some delays in our facilities and so as we implement our production changes, the timing of some of that capacity coming on stream is pushing later into the year. And so that affects a little bit of the seasonality in Q2 as well. John Pfeifer: David, I can give you -- this is John. I can give you a little bit more color. You mentioned that we didn't provide segment level guide. Just some color on what we're seeing. We see right now we're seeing a little bit better expectation on access equipment as we go through the year. You saw the big $1.5 billion of orders. So we're seeing favorability there. We're taking a more measured approach at the same time in our Vocational business. Primarily, we're going to see really big gains in terms of of fire trucks for the year. But we're taking a little bit more measured approach there versus what we originally guided to. It all still leads us to the 1,150 number. David? David Raso: I'm sorry, I'm still here. Just -- the follow up on that about transport defense talking about the rest of the year for the other segments, your postal revenue was generally where I was expecting, and it sounds like are we at that sort of full run rate, the quarterly run rate as the year goes on? And do we need that second tranche of orders to the cumulative accounting catch-up, do we need that set of orders to still hit your guide for transport defense margin? Just curious about that catch-up in the second order that's required. Matthew Field: Sure. So the calendarization of revenue and delivery does -- is expected to grow across the quarters. So we would expect higher revenue as we progress through the year as we continue to ramp up production. But in line with our expectations and the USPS delivery schedules. We are assuming there is an order in the back half of the year as well, and so that's implicit in our guidance. Operator: The next question is coming from Tami Zakaria of JPMorgan. Tami Zakaria: Wanted to ask about the vocational segment. I appreciate the winter weather and the timing-related comments. But just stepping back, do you expect any pre-buy driven demand? Or is that embedded in your guide for the back half? Matthew Field: So we're not expecting significant levels of prebuy. That might happen in the back half, but we're certainly not counting on it. Just for those on the phone listening in, this is really about '27 model year emission standards and chassis. And so we're not counting on that in our guidance. Certainly, if it happens, we stand ready with capacity. John Pfeifer: Yes, our view is, Tami, as if that happens, it will be upside to what we're currently expecting. Tami Zakaria: Got it. If I could ask a follow-up on that, how much volume uptick are you planning in the vocational segment year-over-year without any normalized volume uptick for the year? Matthew Field: It's really going to vary by segment, Tammy. So as we talked about before, we would see refuse vehicles down year-on-year without a prebuy, which is what we talked about on the last call. fire truck production. We are adding production throughput and efficiencies to modernize that line. So second half of last year, we were up roughly 10% year-on-year on our production We would expect this year to be up 10% as well, roughly on production. So continuing to add fire truck capacity there. As John mentioned on the call, we're adding capacity in AeroTech that comes on stream more early '27 than late '26, but have plenty of capacity to support our sales projections there. So we're still -- we'll see growth in some segments. But on a year-over-year basis, we would expect refuse to be down setting aside any prebuy. Operator: The next question is coming from Mig Dobre of Baird. Mircea Dobre: I'm wondering if you can give us a little more color on just this evolving tariff picture. If I understand correctly, you did record a $13 million benefit in Q1. But then now you're dealing with updated Section 232. So how does this flow through the P&L through the year? Do you have more of a headwind now you obviously recognize the benefits. So presumably, that gets unwound to some extent. Matthew Field: Mig, so there are multiple moving pieces in that question, obviously. So the IEEPA refund, we filed that. We put the accrual in Q1, it was about $13.5 million. It's $23 million for the full year. That's a portion of the IEPA. So obviously, our suppliers paid IEFA as well. So they should be getting refunds. As I mentioned on the call, we'll be having discussions with them on recovering those refund payments. And then you've got, as you say, 232 expansion. Responding to that comes in 2 pieces. One, we do see EPO fully largely offsetting the negative impact from that and to the team and access, which is primarily affected is working diligently to mitigate that as well. Some of the best teams in terms of moving around production. We talked about that pretty much half of last year. And so they're working through mitigation plans there as well. So we think it's a negligible to 0 impact on the year between EPA and 232. John Pfeifer: There's more IEEPA to come, Mig, just to make that point. There's more favorability to come in the future. Mircea Dobre: Okay. I guess my follow-up is on price cost. I'm sort of curious as to how you think this dynamic evolves through the year because obviously, your year is guided is very back-end loaded. And it does appear that cost inflation is actually ramping. So presumably, you're going to have more cost inflation to deal with in the back half than you do currently experience in your P&L. So what are some of the things that you're doing to address that to get us anywhere close to kind of the way you structured the guidance. John Pfeifer: Yes. So I'll take that, Mig. It's John. Our price cost gets better and better as we go through the year. You are correct. We're dealing with a lot of -- with a very dynamic environment, both with tariffs and geopolitical conflict, which creates inflation. And we've got incredible work going on, on the cost side, but we also have some things that go on, on the price side. And as the year goes by, we get more and more benefit on both of those. So, so far in the year, we've seen very little benefit on the price side. We get more priced Q2 onward and we'll get more cost reduction to minimize how much price we have to get from our customers as we go through the year. But it gets better and better as we go through the year, which is part of our confidence that the second half is going to be better than the first half. Operator: The next question is coming from Angel Castillo of Morgan Stanley. Angel Castillo Malpica: Just wanted to go back to the vocational segment a little bit. I was hoping we could unpack the margins in a little bit more detail. I guess you noticed some of the shipment slowdown and a more measured outlook in light of that. But could you talk a little bit about, I guess, any impact of manufacturing costs or mix on the business and just kind of your expectations? And related to that, I guess, as we think about kind of anything you can provide in terms of bookends or qualitative thoughts. Just kind of help us gauge what margins now are embedded in the guide versus the 17% you had previously guided to for the year. Matthew Field: Yes. Thanks, Angel. So obviously, volume was a driver in vocational. I mentioned mix. That's really around the mix of segments. So as you think about a bridge as you have a mix out of fire trucks because of the shipments, then you're going to have some adverse mix effect. And then we have invested in additional capacity and throughput in pure specifically. And so as we don't deliver those fire trucks, then we have stranded cost, if you will, on the manufacturing side. So that's really how to think about vocational. In terms of the full year guide, while we're not providing specific guidance by segment, we still see this as a very strong business for the year and the margins we would expect to be in the range of our long-term guidance in 2028, which is 16% to 18%. We originally guided 17%. It most likely will fall below that with some of the changes to our capacity timing, but below the 17% to be clear, but within the 16%. Angel Castillo Malpica: That's very helpful. And then maybe a little bit of a bigger picture or maybe just more macro last going on in terms of geologics with Iran. Just how should we think about the Iran complex impact on your business? Obviously, always start to see any fighting. But just was hoping you could talk about the bigger picture dynamic of impact of any energy prices might have on your business, how that kind of flows through or not? And then also on the flip side, have you seen any step change in terms of orders for defense vehicles or any kind of incremental opportunities for sales there? John Pfeifer: Yes. First of all, the conflict, what it does is that it drives inflation. That's how it impacts us. So when you see inflation, you see steel up 25%. You see aluminum up more than that. We all know what's going on with oil, of course, is primarily an inflationary impact. By the way, these impacts are embedded in our guidance today. So they're all considered in our guidance. We know what we're going to do about it. We've got world-class teams that are working on positioning our footprint to make sure we keep costs as low as we possibly can. On the defense side, our defense business is going well. We're going to -- we're shipping more as we get to the back half of the year on new contracts, which is a big change price, which is part of the reason we're more confident in the second half because of that. We work really closely with the Department of Defense were noted as a high quality, very reliable delivery type of a business with our defense operations. There's not anything that's happened that's going to impact 2026 at this point. we're highly engaged with the Department of Defense to support their efforts. Operator: The next question is coming from Jerry Revich of Wells Fargo. Jerry Revich: John, I'm wondering if I could ask about what you're seeing in access on your telematics data in North America and in Europe, it sounds like utilization is tightening based on what we're hearing from the rental channel. Is that consistent with what you see in the data in North America and separately would love to hear what you're seeing on the data front in Europe? John Pfeifer: Yes. Thanks for the question. As part of our -- when I said, I'll give you a little color on the segment level details, part of the reason that we feel better and better about the access business as we go through the year, we do triangulate the data that we get off of our machines together with what our customers tell us is happening with utilization, which ultimately leads to where they need equipment and when they need equipment, but it triangulates really well. You've heard some of our publicly traded customers talk about it. Utilization is getting better. And it wasn't like it was coming from a bad place, but it's certainly getting a little bit better. And that's a positive sign for the access industry. And in the used market in Access Equipment is also a positive sign. The used market is healthy. And so there's orders for new equipment that's coming in. So by and large, that gives us a little bit more favorable outlook for access Jerry. Jerry Revich: Super. And can I ask you on the USPS side, obviously, they're waiting on funding from Congress. Can you just talk about if production plan would be impacted at all if the order comes 3 months later, 6 months later, can you just update on the current production lead time? John Pfeifer: We currently -- currently, I don't think it's going to affect 2026 because we've got orders on the books to produce 2026. But we expect the United States Postal Service, and they expect we'll continue to place orders on an annual basis as time goes by because we have to keep our supply chain with enough visibility to keep the supply chain primed. United States Postal Service understands that. We understand that. They want to -- the vehicles are doing extremely well. They want a consistent supply of vehicles for their for their required time lines. We're meeting their time lines today. So everything is going smoothly. But in normal course, we expect another order this year. And I don't know that's dependent upon any congressional funding. It's really dependent upon the budget for the United States Postal Service. But this program is moving smoothly. And with A606 accounting, when you get an order, it actually impacts your margins, as you know. That's why the order is important. Operator: The next question is coming from Kyle Menges of Citigroup. Kyle Menges: Great. or the access segment, certainly, orders were a bright spot in the quarter. I'm just curious maybe where you're really seeing that incremental demand by region and perhaps bifurcating between the NRCs and the independents? John Pfeifer: Yes. Thanks for the question. It's largely still driven by the bigger projects, we call them frequently mega projects. These are projects that are hundreds of millions of dollars in size as discrete projects are quantified. So I think data centers power gen and stuff like that. So that's still kind of the bulk of it. NRCs tend to get more of that. So we're weighted a bit more to the NRCs. But that's okay with us. We've got great customers and we serve there to make this happen. But we're also starting to see a little bit of brightness in some private nonres end markets, not all, but some, and we expect that, that will continue to gradually improve going forward. Kyle Menges: Helpful. And then just a follow-up on NGDV production. I think if my math is about correct, you might have been at around plus or minus 12,000 units of annualized production in the quarter. And I want to say the guide assumes that you get to the higher end of that 16,000 to 20,000 production run rate in the fourth quarter. Maybe just talk about how the ramp is going so far and your confidence level in getting to that higher end of the production target by 4Q? John Pfeifer: Yes. Just to clarify, our guide assumes the low end of the range. So annual production going forward is 16,000 to 20,000 units. Part of that's dependent upon the postal services scheduled to receive vehicles will be at the low end of the 16,000 to 20,000 units this year. Production is going well. We're in line with postal service requirements. It's even with a couple of hiccups with snow and things in South Carolina that doesn't happen very often. But we're in line with our expected deliveries on contract and so we feel good about it. Kyle Menges: And sorry, just to clarify, you said you'll be at the low end of that target for the full year or also in the fourth quarter? Matthew Field: For the full year. John Pfeifer: Full year will be a low end of 16,000 to 20,000 units for the full year. Back half is better than the first half. Operator: The next question is coming from Stephen Volkmann of Jefferies. Stephen Volkmann: Can I ask about AeroTech, that was kind of flat year-over-year. It sounds like you have some orders to ramp that, I guess. Just give me a sense of what you're seeing in that business. How do the margins kind of relate to the rest of the segment? And what are you doing in terms of increases for capacity? John Pfeifer: Yes. Thanks for the question. AeroTech is a great business for us. I wouldn't read too much into the shipments were kind of flattish in Q1. Q1 1 quarter. You saw our backlog continue to build in AeroTech. So this business is going to continue to grow. We've got great customers who want to continue to invest they are continuing to invest. The backlog is strong. The margins, all I can tell you is they're double-digit margins in this business. And of course, we'll continue to grow our margins go forward. We're putting -- it depends on the specific product because we do jet bridges and we do ground service equipment, like cargo loading equipment and so forth, depends on the specific products. We're putting a little bit more bricks and mortar into the jet bridges because it's a really strong business for us. The ground service equipment is also a strong business. We're doing more -- a little bit more 80-20 in that business to drive capacity improvement and throughput on the existing production lines. Stephen Volkmann: Super. And then just quickly, Matt, the tax rate was a little lower in the first quarter. What's the full year tax rate now? Matthew Field: Unchanged from our prior guidance on the full rate -- full year rate tax rate. Operator: The next question is coming from Tim Thein of Raymond James. Timothy Thein: The question is on access and Matt, to the extent that perhaps there could be some upside to the 10% margin that you outlined initially. And I know it's not what you're going to in print. But to the extent there is more upside pressure on that part of the business. I'm just curious how the balance of the year is shaping up in terms of the mix within the backlog, specifically thinking about kind of the expectations as we go through the year with respect to price cost and kind of how that's interplay within the customer and product mix. Matthew Field: Yes. Thanks, Tim. So obviously, we're pleased with the quality of the backlog and this -- the book-to-bill of 1.6 is a very strong book-to-bill, which gives us greater confidence for the year shaping up to be a stronger access than what we had originally seen early on. Obviously, price cost, we've talked about that being neutral for the year. That's still the plan, which means the back half will be stronger as you get cost reductions and pricing, as John described. In terms of the margin, we want to see that the year unfold a little bit more before we give specific margins, but certainly holding double-digit margins in this environment and is important. Timothy Thein: Yes. Okay. And then the -- within -- one piece of locational, we didn't yet hit on, just on the garbage truck side, is that -- are the volumes for the year? I know you -- in the first quarter, and we've been anticipating this year to be a softer year. But just any revisions to how you see that playing out and how we think about the kind of the cadence of year-over-year revenue change as we go through the year for that piece of vocational? Matthew Field: Not really. I mean third -- starting in the third quarter, we started to see orders shop off. We've talked about that on prior calls. We see this year kind of being -- well, we see the full year being down, as we talked about earlier. First quarter, we were down about 25%. And I think 25%, 30% for the year is reasonable. John Pfeifer: Yes, I'll just -- Tim, I'll add some color to that. It's similar to what we've been saying, what we said a quarter ago on the call, we expect it to be down in 2025. That hasn't changed. It's about the same. It's just cautious CapEx outlays by customers is primarily the reason. But I'll make a comment that we are investing in technology that customers really care about. We launched the contamination detection technology in Q1, very positive initial feedback on that technology. The fleets remain aged. So long term, we feel really good about this market, a healthy market for us going into 2028. 26 is just not a year that it's growing much. Operator: The next question is coming from Mike Shlisky of D.A. Davidson. Michael Shlisky: If I can circle back to the fire commentary. I guess maybe can you -- just looking at the overall inventories for Oshkosh, they actually were down a little bit, at least days of inventory over the prior year. You said that perhaps fire had some additional finished goods inventory. Could you maybe help at least quantify in dollars how much fire inventory you had at the end of the year and what other areas of Oshkosh had inventory go down? And then also, it's already been May now, have people come in to pick up their fire trucks now that the weather, I assume has cleared up a bit here. Matthew Field: Sure, Mike. Sorry, I'm not going to break out inventory by segment. That would be a bridge too far. But I'll give you some qualitative color. So there are a few things. One, last year, we had substantial inventory as we were ramping NGDV as that production stabilized. We've been burning down inventory there in access, we've done a really good job focused on inventory burning down both finished vehicle inventory but also some of our in process. And so that team has been doing a good job on inventory. They've also been doing a good job on receivables. And so the overall really strong working capital performance for all the segments. In terms of May, yes, people have been taking advantage of the beautiful weather here in Wisconsin to pickup fire trucks. John Pfeifer: Yes, we've had a lot more fire truck deliveries in the first part of Q2. As a result of that pent-up full on shipments due to the factors we mentioned. But there's been a lot of fire truck deliveries so far this quarter. Michael Shlisky: Great. And then my follow-up here is also on fire. Did the weather issues during the quarter caused any issues with people being able to order or configure a truck or test drive a truck with a range of late orders and again, people come in here in April, May, now that let us better to actually ordered some fire trucks. John Pfeifer: Yes. No, that was not -- that's not a factor. Our order rates are still pretty consistent for us in the fire truck market. even with a big backlog. So that has not been an issue. The issue was widespread weather across the country. You saw it in the Northeast, you saw in New York City, there's a lot of places people couldn't get in and out of. And those types of disruptions matter when you have a very formalized delivery process for a fire truck where people have to come in, do their normal inspections before the product can be "shipped". Operator: The next question is coming from Chad Dillard of Bernstein. Charles Albert Dillard: So a question for you on your vocational business and the sequential ramp. So it sounds like you're getting more deliveries. So fire trucks in May. So I'm assuming maybe seasonality is a little bit better than expected. And then just trying to think through the exit rate in the fourth quarter, given where your production ramp is. And then Secondly, can you comment on your 1Q fire truck backlog trends? Was the book-to-bill greater than 1. John Pfeifer: Going by memory, I think about it this way. So Q2 will be sequentially much bigger than Q1. Q3 will be sequentially bigger than Q2 and Q4 will sequentially be bigger than Q3. And in total, we will have a very significant growth rate in fire trucks from 25 to 26, and we expect to continue the same in 2027. And when you look at the backlog and the health of the business, we are making real changes to our ability to produce fire trucks and throughput in our manufacturing plants, which are going to yield very positive results over the next couple of years. Charles Albert Dillard: Got it. That's helpful. And then just going back to that $23 million EPA benefit, any thoughts on what the claim process will be for suppliers? I guess, does that $23 million go out of the future date? And then the remaining $10 million for the rest of the year, like how does that layer in? Matthew Field: Yes. Let me help you understand. So $23 million is the full refund claim. Obviously, some of that was for material that was imported within this year. So it will have limited impact on the year because it just changes what's in inventory. Of the $23 million, $17 million really is associated with prior year. So that would be the good news of that $13.5 million we accrued in Q1. So the remainder of the $4 million, in essence, will be in the second quarter. The suppliers follow the same process we do. So the Cape system opened. It worked effectively. It was very efficient. We started to get cash from it as already this week. I would expect our suppliers to do the same. It obviously is a discussion with our suppliers. And so that will happen as that happens naturally. Operator: The next question is coming from Steven Fisher of UBS. Steven Fisher: Just a couple of follow-ups on the tariffs there. What have you assumed, Matt, for the IEEPA replacement after the 122 tariffs expire in July I think that might be an element of your perhaps price cost in the second half of the year? And also, were there any USMCA dynamics that we should be aware of as part of these changes. Matthew Field: We're assuming the present tariff landscape continues throughout the full year. So we would assume the 122 tariffs basically continue and no change to USMCA. So fundamentally, we're assuming the present tariff landscape extends through the full year. Steven Fisher: Okay. Great. And then a follow-up on the vocational side and the fire trucks. I think you may have said last quarter, correct me if I'm wrong here, that you had about $150 million of planned spending to improve the overall throughput and production, and maybe you'd spent about half of that. Just kind of curious where you stand on that. It sounds like you are making progress. And getting those sequential deliveries to improve over the course of the year and into next year. But just curious, bigger picture on sort of the investments you're making and when we think we can be through that and more comfortable with the overall throughput of the business line? Matthew Field: Yes. Thanks. Good memory. So yes, it was $150 million. We were about halfway through that end of last year. we continue to make the investments throughout this year. We expect the bulk of that investment to be completed by the end of the year. As I mentioned, we had some availability of space and getting permits and so forth. That shifted a little bit more back end than what we had originally anticipated at the beginning of this year, but we would expect the bulk of those investments to be completed by the end of this year with most of that capacity on stream. John Pfeifer: And I'll just let you know, Steve, we have our best people on this, and we have done this before in other segments, and we're already seeing results from the work that we've been doing. Operator: The next question is coming from Jamie Cook of Truist Securities. Jamie Cook: I guess 2 questions. One, John, just on the M&A front, you've been a little quiet for you. You know what I mean in terms of not doing deals in a while. And then I'm just wondering, too, if there's parts of your portfolio that are underperforming relative to your targets, which could be an opportunity for you? And then my second question, just as it relates to the guide, and I guess it being more of a back-end loaded year, how would you characterize sort of what's in your control versus more macro? Because I guess from the call, it sounds like a lot more of it, it's just the capacity, I mean from vocational that's pushing things out. So to the degree, it's under control. My guess is people would get more comfortable with the back-end loaded guide, but just any color there. John Pfeifer: Thanks, Jamie. Let me start with your first question, which is on the M&A front. We always talk about our always on process and always on means we are always looking at targets. And we're very patient and we're very picky about what we think makes sense. If you look at the deals that we've done, we like every single one of them. There's not one that we have any regrets about. They're all contributing to the health of our company. But M&A activity can be a bit lumpy, and we are very focused -- so we've done some smaller technology deals recently. I think we bought Canvas and Canvas is a really important part of JLG's autonomy strategy. And we'll -- so you'll see us continue to do some things certainly on the technology front. And when we see the right opportunity, again, we're patient, we're a bit picky. It can be lumpy. We'll make another acquisition outside of technology as well. Let me go back to the -- or let me go to the second half of your question, which is the second half of this year. What supports our view on the second half of the year. Number one is the access equipment business is continuing to gain a little bit of momentum. We feel good about it. We feel good about our price cost building as we go through the year. And so that's a big part of it. In addition to that, we continue to talk about fire trucks. Fire Truck is a great business for us. fire departments need more trucks. We've got a big backlog. We'll continue to increase production every quarter as we go through the year, and that will materially impact the second half of the year. We've also got our NGDV ramp. It gets bigger in the second half than it has been in the first half, and we expect an order with A606 accounting and order boost margins on the program. And finally, our FMTV contract starts to kick in. The new contract kicks in, in the second half of the year. That's materially higher pricing on that contract and that makes a nice boost to our business as well as FMTVs will have a big jump in pricing and margins. So those are the primary factors. If you look at that, a lot of that is within our control. Operator: The next question is coming from Steve Barger of KeyBanc Capital Markets. Steve Barger: Going back to the AeroTech capacity expansions. After you do the bricks and mortar and the 80/20 actions, how much will capacity expand in percentage terms? How will throughput grow? And what revenue will the business be capacitized to? Matthew Field: I think that will be subject to a future conversation, Steve. It's a good question. We'll have more to say on that in the future. That capacity -- just a little bit of clarification, bricks and mortar is a strong term. We're not building new buildings, but we're expanding some work inside. We're upgrading some facilities, improving throughput, some production efficiencies, specifically around jet bridges that takes a little time. So we'll be talking more about that more around 2027 than 2026. Steve Barger: Okay. And then, John, just following up on the last question about second half weighting and what's in your control. And just extending that thought process to 2028, can you just reiterate why you see that path as achievable? And are you leaning at this point toward the low scenario for '28? Or do you think mid is still achievable? John Pfeifer: No, we still would say mid is right where we expect to be. I mean, when you look at the demand in our end markets, and you look at our backlogs that we've already got, that's the underpinning of it. And then you look at the work that we're doing to rightsize our capacity to be able to deliver that. That's the confidence that we have in 2028. The technology that we build into our products, which is right in line with what our customers really want us to do, whether it's autonomous operation or it's embedding AI or in some cases, still when it makes sense, electrification, that's all part of why we're so bullish on 28. We're defining what the future of these end markets should look like, whether it's an airport, a construction site, a neighborhood operation. We're really defining what the future should be, which is better than what it has been in the past, and that drives our confidence in delivering 2028. Operator: At this time, I would like to turn the floor back over to Mr. Davidson for closing comments. Patrick Davidson: Thank you, Donna. Thanks for joining us on the call today. We will be meeting with investors at several conferences during May and June and have a good rest of the day. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.