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Aapo Kilpinen: Ladies and gentlemen, dear Remedy investors, welcome to the webcast for Remedy's Q1 Business Review of 2026. My name is Aapo Kilpinen from Remedy's Investor Relations. Joining with me today are Remedy's new CEO, Jean-Charles Gaudechon, also known as JC; and then our CFO, Santtu Kallionpaa. JC will briefly introduce himself and then guide us to the quarter. Santtu will then do a deeper dive on the financials of the quarter. We'll then look at the outlook for the year, and then we'll end with a Q&A session at the end of the webcast. [Operator Instructions] But without further ado, JC, please, the stage is yours. Jean-Charles Gaudechon: All right. Thank you, Aapo, and hello, everyone. Welcome to Remedy Q1 2026 Business Review. I guess I need to start by saying a few words about myself. So let me start with, I think, something that really defines me is my past as a software engineer. I think that's really what shapes how I think about games, how I think about running studios, companies like Remedy, and how we approach game development in general. Over the past 25 years, I've had a chance to work on games across many roles on all platforms really and across North America, Asia and Europe, so quite global. That has given me a good overview of our craft and now I have the immense privilege of bringing that experience to Remedy. One of the boldest, most original studios in gaming with some of the best talents in the industry, which is excellent. You know what Remedy has achieved is rare. Over more than 3 decades, this studio has built a voice unlike any other, supported by a strong and engaged community, which is extremely rare, as I said, and a great asset now and for the future. More broadly, in our industry today, I think the creative craft is under real pressure. Games with a genuine soul, games that take risks, that have a point of view are getting harder to find. And those are exactly the games that Remedy makes. My mission is not to change what Remedy is. My mission is to protect and grow that soul and to help this studio grow without losing what makes it Remedy. All right. Enough of me, let's go through our business performance together. Q1 2026 was a good start to what I believe is going to be a very exciting and pivotal year for Remedy. Revenue increased, driven by game sales and royalties that nearly doubled for the comparison period. EBITDA came in ahead of the same comp period at EUR 2.9 million and EBIT was positive at EUR 1 million. Operating cash flow was on a healthy level. So good signals as we start that year. And a good share of that performance is being driven by our back catalog, which continues to find its audience. That is very encouraging, especially as we are building the self-publishing muscle at Remedy. We have a number of exciting projects in development, but the most immediate focus for Remedy, the one closest to our players' hands with the 2026 launch is CONTROL Resonant, obviously. So let's cover that. Our goal with CONTROL Resonant is to deliver a great melee action in RPG. Again, that honors the Control universe but also expands it, and that players will truly appreciate because in the end, that is what really only matters. So we're doing that for players in our fan base. A lot of interest was captured with our December 2025 announcement, and the leading indicators are on track. Looking ahead, we will ramp up the marketing campaign leading up to release, and we expect the momentum to significantly intensify. We have an ambitious global campaign and a sizable marketing budget for execution. The reception has been incredible so far. We're extremely happy about traction. During Q1, we released 2 new trailers. The first was our gameplay reveal trailer featured in the PlayStation State of Play. As you know, one of the highest profile venues in the industry for a reveal like this one. And putting our gameplay in front of that audience -- in front of you all for the first time was a very important moment for us and for the game at Remedy. The second was produced with our long-term partner, NVIDIA. This partnership shines a spotlight on the technical ambition behind CONTROL Resonant. And of course, on our very own Northlight, our proprietary engine, which is what allows us to push the game's performance and cutting-edge graphics, extremely important for Remedy games, as you know. Beyond the trailers, sorry, we released a developer diary for our community called Beyond the Oldest House. This is the kind of content that really matters, we believe, to our most dedicated fans, direct access to the people making the game, our dev team speaking in their own voices, speaking honestly about what they are building. Remedy's community has always liked authenticity. And I think that's really what we've been doing here and what we want to keep doing. We also hosted an exclusive showcase for media and creators. We had over 70 outlets that attended, generating more than 140 articles and around 2 billion impressions across global media, which we believe are good numbers at this stage of the campaign and more importantly, the coverage was not just broad and just volume, it was also quality and it was positive, which obviously, for us, is very encouraging and kind of how we want to land the product. Outlets like Edge, Polygon, GAMINGbible, IGN, just to name a few, I don't want to hurt anyone in the process, but have all come away from their previews with a clear message, to be clear, this was a hands-off preview, but still very encouraging. And people really said, this is a Remedy game that takes risks and has its own identity. And that's always what we want to make at Remedy. And you'll see that more and more as I talk strategy moving forward, it's very, very important that these games feel Remedy and are more Remedy than ever. There are, of course, fair questions being raised. Action RPG is a new genre for Remedy, and the press, the fans are right to scrutinize how the gameplay holds up. We welcome that scrutiny, but we are also confident that as players and press get their hands on the game, they will see kind of how serious we are about earning our place in the action RPG space. I have the chance to play the game daily, and I can tell you that it's coming very well together. I'm very happy. All right. So beyond the press, the broader signals heading into launch are healthy, sentiment among fans and content creators has held up globally, which is great to see. That audience is sizable. The Control universe has been played by close to 20 million people over its lifetime. We are also making a deliberate push beyond our traditional strongholds, the U.S. and Europe. This time around, Asia and Latin America are real priorities for this launch. And we have invested in localization at a level we have never done before. Our thinking here is simple, Remedy's voice deserves to reach further, and we are giving it the means to do so. All right. So turning over to our games currently in market. Alan Wake 2 became available on Amazon's Luna service during Q1, alongside Alan Wake Remastered, generating a platform deal royalty. The game also continued to perform across other platforms throughout the quarter, and Santtu will explain a bit more how that impacted Q1 positively. Happy to -- I'm very happy to announce that the game has passed a 6 million benchmark in lifetime copies sold. Control retained its solid sales momentum in Q1. In fact, Control actually sold better than the comparison period driven by promotions and added visibility from CONTROL Resonant, obviously. This is a dynamic we plan for at attractive price points. Control is a great vehicle for new players to enter the world of Control ahead of the sequel. All right. FBC: Firebreak. The last major update, Open House was released in March, and the game has moved to maintenance mode after that. The game will remain online and a Friend's Pass feature was introduced to support the player base. It is very important for us at Remedy to let players enjoy the game for as long as they can and as long as they want. The game remains available on PlayStation Plus and Xbox Game Pass, sorry, and can be purchased on PC and console platforms. All right. Our development pipeline has 3 active projects. CONTROL Resonant, obviously, in full production. We already discussed about this one at length. Max Payne 1 and 2 remake is also in full production in partnership with our partner, Rockstar Games. And you know how close to our heart is Max Payne. So something that we're putting a lot of effort on also. And we have a new project currently in proof of concept, which unfortunately, I cannot tell much more about today. So building on what I shared earlier, 3 areas where we are sharpening our focus. One, focus on core strength. Remedy is exceptional at building single player narrative experiences on core platforms. This is what we do best, and we need to double down on that expertise. We cannot take it for granted, not our craft and certainly not our players. This does not mean we stand still. We will innovate and we will explore new ways of reaching players when the case is right. But every step beyond our core has to build on what we already do best. Franchise expansion as the second pillar. Today, we tend to think about our games one after another. I want us to evolve that mindset, managing more franchises. I think our IPs today can really give a lot more than what they already do. We need to think as long-term strategies that let us be bolder to connect the dots further within and between our world. That is something very important to me for the future of Remedy. And three, self-publishing. I think this is a unique opportunity to hone the whole chain. No one can really speak about Remedy games better than Remedy. I want our publishing voice to be as unique and distinctive as our games themselves. It's a chance to be heard like never before. And we are not going to play safe, you will see that with the CONTROL Resonant campaign. With that, I will hand over to Santtu to walk you through the Q1 financial results. Santtu Kallionpaa: All right. Thank you, JC, and good afternoon also on my behalf. Let's start reviewing the financials from the revenue. So in Q1 2026, our revenue was EUR 13.1 million, which is 2 percentage lower than in the comparison period. Game sales and royalties almost doubled from the comparison period being EUR 5 million for the first quarter. This was driven by the royalties from Alan Wake 2, which include also the onetime royalty accrual from the game becoming available in Amazon Luna. Also, Control games has performed well in Q1 and partly drove the game sales and royalties above previous year. Q1 2026 also includes revenue accruals from FBC: Firebreak's subscription service deals, which we didn't have last year Q1. Development fees, they decreased from the comparison period and still made over half of the total revenue for Q1 2026. Development fees were for the projects, Max Payne 1 and 2 remake and CONTROL Resonant. Revenue was impacted negatively by weak USD rate. With the FX-neutral revenue, we would have had a growth of 0.2 percentage. Then looking at the longer perspective, the share of game sales and royalties of the total revenue has started to increase during 2025. Alan Wake 2 started accruing royalties in the end of 2024. And as said, during the first quarter 2026, Control games and sales related to our older game titles were on a higher level than in Q1 2025, and FBC: Firebreak started accruing revenue from Q2 2025 onwards. Development fees have remained roughly on a similar range for the last 4 quarters, but there has been also a variation between the quarters due to the development milestones of CONTROL Resonant and Max Payne 1 and 2 remake. Then moving on to profitability. So the operating profit in Q1 2026 was EUR 1.0 million positive, being EUR 0.3 million less than in the comparison period. This decrease is mainly due to higher depreciation and investments to self-publishing in Q1 2026. EBITDA improved from the comparison period and was EUR 2.9 million positive. Growth from the comparison period is largely due to the decrease of external development expenses. Then let's look at the costs in more detail for transparency. So unnetted external development and personnel expenses in total decreased by 11 percentage from EUR 11.5 million in Q1 2025 to EUR 10.3 million in Q1 2026. External work expenses were EUR 1.9 million in Q1 2026, being 44 percentage lower than in the comparison period. This was driven by lower external development needs in the game projects. The unnetted personnel expenses were EUR 8.4 million in Q1 of 2026, increasing by 3 percentage from the comparison period. This growth matches the growth of average number of personnel during the reporting period, which also increased by 3 percentage. The amount of capitalized development expenses at EUR 3 million was on a similar level than in the previous year. The amount of capitalization is higher than in the previous quarters, mainly due to increased efforts on CONTROL Resonant. In Q1 2026, depreciation expenses in total were EUR 1.9 million, of which EUR 1.2 million were related to game projects. These included Alan Wake 2 and FBC: Firebreak depreciations. Q1 depreciations are on a lower level than in the previous quarter, and this is due to the depreciations following the level of game sales of the games, which we are depreciating. Currently, a major part of Remedy's intangible assets is from capitalized development costs of CONTROL Resonant. Also, the remaining capitalization of Control's publishing and distribution rights has been mainly allocated to CONTROL Resonant. Once the game is launched later this year, the depreciations related to CONTROL Resonant will start, which will impact the quarterly depreciation levels. So at the end of Q1 2026, our total cash level was EUR 34 million, including EUR 14.4 million in cash and EUR 19.6 million in short-term cash management investments. During Q1 2026, the cash flow from operations was EUR 8.3 million positive. Besides the cash flow from operations, our cash position was affected by a EUR 3.2 million negative cash flow related to investments and EUR 0.3 million negative cash flow from financing. Cash flow from investments, that includes payments related to capitalized development costs and machine acquisitions. Cash flow from financing includes IFRS lease liability payments. The cash position improved in relation to both the comparison period, Q1 2025 as well as to what the situation was at the end of year 2025. Then if you look at the cash flow from operations closure, there has been variation in timing of payments from quarter-to-quarter. Q1 2026 cash flow from operations was EUR 14.9 million higher than in the comparison period. Our outflowing operative payments were 23 percentage higher than in the comparison period. Due to timing of sales payments, we, at the same time, received significantly more inflowing sales payments than a year ago. Timing of development fees -- fee payments are agreement based, and there is difference compared to revenue accruals. Royalty and game sales-related payments follow the revenue accruals with delay. So in overall, year 2026 started with a profitable quarter for us with both EBIT and EBITDA being positive. This is, of course, ahead of marketing ramp-up and related spend to support the launch of CONTROL Resonant during 2026. And now, JC will continue with outlook. Jean-Charles Gaudechon: Thank you, Santtu. All right. Our outlook for 2026 is unchanged. We expect our full year revenue and EBITDA to increase from the previous year. And then handing it to Aapo for Q&A. Aapo Kilpinen: Thank you, JC. Thank you, Santtu. Let's move on now to the Q&A. [Operator Instructions] We already have a couple of good questions in the pipeline, so let's begin with those. JC, the first question is related to you. What are the short-term goals from the new CEO? And will those goals affect how Remedy operates? Jean-Charles Gaudechon: Yes. Good question. I mean, so I've been here for a few months, and I spent a lot of that time listening and getting to understand people, the studio where we're at. And honestly, the priorities are very clear. Today, it's to execute on CONTROL Resonant. We can have all the strategies in the world, if we don't make an incredible game, what's the point? So I think to me today, it's really to give the studio the support, the direction, the inspiration to really kind of get CONTROL Resonant across the finish line in the best possible way now. It now is, of course, the biggest one, but we have other great games in the pipeline, which also needs and deserves attention and support. So this is very much the focus right now. The strategy pillars I talked about, we'll surely get into it, get into that vision, but today, let's focus on product execution. Aapo Kilpinen: Excellent. Thank you, JC. The next question is on CONTROL Resonant. Can you give more color on the leading indicators that you're tracking on the game? Jean-Charles Gaudechon: So unfortunately, right now, we cannot yet. Of course, we're still being -- a lot of that is happening behind closed doors, and we apologize. I know both present players are antsy to hear and learn more about the game and trust us, it's going to come. But today, I can't say a lot more. What I can say, as I said in the presentation, we're happy about how it's tracking. We're getting the momentum we want to gain. We're getting the traction. The game is landing the right way. The message, what we're hearing back is very much in line with what was planned. So happy about that. Apologies that I can't go much deeper into details, into numbers, but that's what I can say today. Aapo Kilpinen: Very good. Next question is on China and broader Asia. Is there a local partner model with a distribution arrangement? And how does the economic split compare to core markets? Jean-Charles Gaudechon: So good question. And you know I spend quite a bit of time in Asia myself. So that allows me also to hopefully get a bit better understanding of that region, even though you can't make any generalities and it's a daunting market, but also a very attractive one. We're going to have a local strategy. We're going to have a local partner. I can't announce any of that just yet or have any more details, but there is a strategy around how to approach China specifically. I think for me, what's most important today is how do we position the product to be a success with Chinese gamers. I think action RPG is something that resonates well in China. And I believe Chinese gamers will, I hope, Chinese gamers will appreciate CONTROL Resonant, and we're going to do everything on the way to get there. It's tough to say how much this is going to play in economics of the game. But what I can tell you is we're going to push really harder. Also on the localization front, I touched on it earlier. It's pretty much the biggest localization investment Remedy has ever made. And we're very happy to tell our Chinese gamers that the game and in China, but across the world, Chinese speakers that the game will be both kind of text and audio localized, which I think will be great. Aapo Kilpinen: Super. Next question is to Santtu. With CONTROL Resonant nearing completion, how should we think about the development fee trajectory through the rest of 2026? Santtu Kallionpaa: Yes. So the general rule regarding the development fees is that they follow the agreed milestones of the game development and the contracts. And good assumption regarding, for example, CONTROL Resonant is that the development fees will continue to accrue as long as the development of the game takes. Aapo Kilpinen: Excellent. Continuing with the finance question, Santtu. Are there still some B2B payments accrued for the coming quarters in relation to FBC: Firebreak? Santtu Kallionpaa: Yes. I think we have said earlier that the B2B deal accruals continue as long as the B2B deals regarding the game being in the subscription services continue. So it's based on that. We have also said that the major part of the cash flow impact from these agreed deals for FBC: Firebreak, that's already in our balance sheet. Aapo Kilpinen: Excellent. Then back to JC. I would like to hear more about the social media marketing efforts in China and how big of a share of the CONTROL Resonant sales do you see coming from Asia? Jean-Charles Gaudechon: I think I've kind of already answered this one and the last one. Not much more to say that we're going to be present. We are present and we're going to intensify our presence on the Chinese social media, and in general, kind of try to create our voice, getting a share of voice in China. Aapo Kilpinen: Very good. Next question on CONTROL Resonant's budget, ahead of CONTROL Resonant's launch, does the estimated development budget of approximately EUR 50 million still hold? Jean-Charles Gaudechon: So I'm not going to -- this is Santtu already looking at me and saying, don't say it. It's -- what I can tell on the budget is the team has done and the studio has done excellent work to stay on track, has done excellent work to build a AAA game on a relatively short or small budget. And that's something we've seen from Remedy before. That's something we'll see again from Remedy because honestly, there's something pretty incredible about the way being -- the games are being built at Remedy the way they've been thought through and managed. So it's been -- it's not has always been the case. I know that. We've had some hiccups in the past, but I can tell you that the team has done incredible work on control resonance. Aapo Kilpinen: Very good. Next question then is in relation to Remedy's headcount. Remedy's head count is increasing. This seems to be counter to what is happening in many other game studios. What is the thinking behind the increase? Jean-Charles Gaudechon: I mean good segue from what we just -- the previous question. And let me answer it by telling you again that the studio has made incredible games on relatively small actually team size, a relatively small budget size. And I think that happened because, well, it's a studio that has its own engine that has its own kind of tools and ways of building it, which I've seen for the past 2 months, and I understand why they were able to pull it off that way. I think also one thing you can see about Remedy is Remedy has always been smart of not going too fast, too quickly, which you've seen in other parts of the industry, unfortunately. And when you get to that, then that's when you take the risk of potentially having to downsize. What I can say today from the size of the team, the size of Remedy and the games we're making, I think we're pretty much rightsized for it. Aapo Kilpinen: Excellent. Next question, again, on organizational topics. As you've gotten to know the company, do you see areas in Remedy's operating model or organizational structure where changes may be needed? Jean-Charles Gaudechon: I think you can always make improvements, and we will make improvements. Yes, I've seen parts of Remedy, which I think can be improved at many different levels. Today, what's really important is to keep a balance on what you can improve and when you do some of these improvements. And as I said right now, the studio is in full execution mode. You need to be cautious with that. We need to give the right support. And a lot of this is gradual anyway. So today, it's more about protecting, supporting, making sure that we stay on the right tracks, but not necessarily disrupt any of that. But yes, there will be changes here or there, kind of internal cuisine type of thing, which will help, I think, the studio even perform better in the future. Aapo Kilpinen: Perfect. Next question is about the new projects. Is there any information you can share about it? Will it be under the Remedy connected universe? Or will it be a completely new title, spin-off? Anything that you can communicate at this point? Jean-Charles Gaudechon: It's tough. I keep having to say that I can't say much. But unfortunately, no, I can't reveal anything about this new project, except that it's going to be yet again an incredible Remedy game. Aapo Kilpinen: Very good. The next, Remedy has always been a contender for the Game of the Year in TGA. So is winning Game of the Year with CONTROL Resonant in your playbook? Jean-Charles Gaudechon: It always is. This team, and I've seen it now, we know it from before, right? This team is always going for the highest possible quality. And I think CONTROL Resonant is not different on that front. So we're going to push hard. I heard that this is going to be a pretty hard year, but I'm not sure exactly what's coming out this year, but there's going to be competition. But I think we'll be up there fighting for it. Aapo Kilpinen: Excellent. Then would you consider adding a preorder option for the games you publish? Jean-Charles Gaudechon: So I can't say much once again on CONTROL Resonant specifically. Me personally, I think preorder is a good way to judge traction, to judge success of the game ahead of launch. So I think it's a good thing. Aapo Kilpinen: Yes. Super. Then I think the final question, might there be any collaboration with Epic Games to bring Jesse or Dylan Faden or maybe even Ahti the janitor to Fortnite to promote CONTROL Resonant like what was done with Alan Wake 2? Jean-Charles Gaudechon: I mean we're big fans of crossover. I think we've showed it in the past. I think it helps us expand our universe, our worlds, and that's something that I mentioned in some of the pillars in the presentation just now. And this is something we're going to keep doing because I believe strongly in RPs in our worlds, and they should even get deeper and connect the dots more, as I said before. So I can't, of course, say anything about whether we do something with Epic or Epic is a strong and close partner. So we're always talking to our partners about potential opportunities. And these are, again, a great opportunity to look into. Again, as I said, one filter we will, I think, use more and more is, is it building on our core strength? As I said, as the first filter -- first pillar, sorry, this is going to be something we do a lot. And I think you define the vision of a studio not by just saying yes, but also saying no, which is what we don't go after, what may not really help compound that culture and build on the core strength of Remedy. So this is the filter we'll be using moving forward on the crossover, et cetera. But so far, we've been really happy with it. Aapo Kilpinen: Very good. One final question came through. In what way do you think the rapid development of AI will impact Remedy's operations, perhaps regarding product price or game development costs? Jean-Charles Gaudechon: So you're casually dropping an AI question at the end, excellent. Of course, it's a big topic these days. We've had a clear stance as Remedy with AI. Today, we're not using generative AI to create any user-facing content or in general. I would also say, good luck trying to make Alan Wake with AI. I would love to see that happen, but I think that it's going to be very, very hard. So today, I would say it's a bit of a non-topic. Of course, we need to make sure this is framed. There is adoption here or there happening like in gaming in general, you can never really stop someone to tinker with it. But it's really important that we have a clear frame, and it's very important that this does not replace any parts of the creativity coming up in our games. And that's something that, to me, I'm going to be fearless about. Aapo Kilpinen: Thank you, JC, very clear. Excellent. Thank you so much for the questions. Excellent questions once again. If there are any additional questions you didn't have the chance to present, feel free to send those over to the e-mail address now visible on the screen. We'll be back next time with our half year financial report that will be on August 11. But until then, bye-bye from us.
Operator: Good day, and welcome to Angel Oak Mortgage REIT First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. KC Kelleher Please go ahead. KC Kelleher: Good morning. Thank you for joining us today for Angel Oak Mortgage REIT's First Quarter 2026 Earnings Conference Call. This morning, we filed our press release detailing these results, which is available in the Investors section on our website at www.angeloakreit.com. As a reminder, remarks made on today's conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our most recent SEC filings. During this call, we will be discussing certain non-GAAP financial measures. More information about these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are contained in our earnings release and SEC filings. This morning's conference call is hosted by Angel Oak Mortgage REIT's Chief Executive Officer, Sreeni Prabhu; and Chief Financial Officer, Brandon Filson. Management will make some prepared comments, after which we will open up the call to your questions. Additionally, we recommend reviewing our earnings supplement posted on our website. Now I will turn the call over to Sreeni. Sreeniwas Prabhu: Thank you, KC, and thank you all for joining us today. First quarter unfolded in a global environment that was largely supportive to uneven economic growth and geopolitical tensions, including renewed conflict in the Middle East weighed on investors towards the end of the quarter. Inflation showed gradual improvement, while labor markets cooled modestly, and the Federal Reserve maintained a measured data-driven approach to policy decisions. Uncertainty weighed on risk sentiment at times, but also reinforced the values of discipline, liquidity and steady execution. Within this setting, our platform performed well, supported by our focus on credit quality, funding discipline and repeatable processes. Despite broader macro pressures, securitization markets remained open through the quarter. Investor demand continued to favor high-quality collateral and experienced issues even as spreads reflected global headlines, rate volatility and a period of reduced risk appetite. We were pleased to complete the AOMT 2026-2 securitization shortly before the onset of the conflict in the Middle East, taking advantage of favorable market conditions and underscoring the benefits of our methodical, repeatable securitization approach. We remain selective in our use of these markets, staying focused on sound structures, conservative leverage and economics that meet our return thresholds. Our first quarter results reflected our established operating growth trend with another consecutive quarter of net interest income expansion and prudent expense management. The positive earnings trend helped offset unfavorable valuation impacts during the quarter, which were driven by rates and spreads increasing and becoming more volatile. Looking forward, the need for non-QM lending solutions remains durable, and we see value in maintaining a cautious but active posture. Our priorities remain consistent, growing earnings, executing reliably in capital markets and positioning the portfolio to perform across a wide range of economic outcomes. With that, I'll turn it over to Brandon, who will walk us through our first quarter financial performance in greater detail. Brandon Filson: Thank you, Sreeni. First quarter results from an interest income and expense perspective were in line with expectations and reflected contributions from assets added in the quarter and in prior periods, along with a continued focus on cost control. To that end, as Sreeni mentioned, we continued our earnings growth trajectory established in 2025 with another consecutive quarter of net interest income growth. Interest rates were generally stable throughout the quarter, supporting consistent mortgage market activity and enabling continued purchases of accretive non-QM loans. Execution of the AOMT 2026-2 securitization in early March, which I will detail shortly, was strong and well timed, and we expect to continue our trend of 4 securitizations per year or roughly 1 per quarter. While spread widening and rate increases associated with global pension drove a decrease in book value of our portfolio, underlying fundamentals remain supportive and strong operating earnings mitigated the impact of valuation decreases, which we believe are temporary due to the ongoing conflict in Iran. In the first quarter, we had a GAAP net loss of $7.4 million or a loss of $0.30 per common diluted share. Loss was driven by unrealized valuation changes on our securitized and unsecuritized loan portfolios, largely tied to macroeconomic market volatility towards the end of the quarter, which offset positive operating growth. Comparatively, in the first quarter of 2025, we had GAAP net income of $20.5 million or $0.87 per diluted common share. That income was attributable to unrealized valuation gains of our securitized and unsecuritized loan portfolios as well as operating income. Distributable earnings for the quarter were $4.6 million. Differences versus GAAP results were primarily driven by the removal of the unrealized fair value movements just described. Our securitized loan portfolio and residential loan portfolio combined for $13.1 million of unrealized losses, which were offset by $1.6 million of net unrealized gains in our trading securities and hedge portfolios. In the first quarter of 2025, distributable earnings were $4.1 million. Interest income for the quarter was $40.7 million and net interest income was $12.1 million. This compares to interest income of $32.9 million and net interest income of $10.1 million in Q1 2025, showcasing 24% and 20% growth, respectively. Compared to the fourth quarter of 2025, interest income and net interest income grew by 4% and 11%, respectively. Performance has been supported by targeted asset purchases, growing net interest margin and consistent securitization market access during all of 2025 and specifically Q4 '25 and Q1 '26. Operating expenses for the quarter were $5.2 million. Excluding noncash stock compensation expenses and securitization costs, first quarter operating expenses were $3.4 million. The increase compared to a year ago and prior quarter is due to increases in professional service fees and loan diligence fees associated with a larger overall balance and consistent purchases of target assets. Going forward, we expect to maintain similar operating expense levels, and we'll continue to be as efficient as possible with our expense structure. Loan purchases during the quarter totaled $246.2 million and continue to reflect conservative credit profiles, moderate loan-to-value ratios and current market coupons that we believe remain attractive on a risk-adjusted basis. The weighted average coupon of loans purchased during the quarter was 7.3%, the weighted average CLTV was 67% and the weighted average credit score was 759. Our credit underwriting metrics have continued to improve over time as we target our desired credit and return profile. As of the end of the quarter, our loans and securitization trust portfolio carried a weighted average coupon of 6.1% with a weighted average funding cost of approximately 4.5%. We intend to continue to access securitization markets through our disciplined, methodical securitization strategy. As mentioned, we are able to take advantage of favorable market conditions with our AOMT 2026-2 securitization in March just before the onset of the renewed conflict in the Middle East. We were the sole contributor to AOMT 2026-2, which had a $272 million unpaid principal balance and a weighted average coupon of 7.1%, a weighted average non-zero credit score of 757 and a weighted average CLTV of 70.7%. The AAA rated senior bonds priced favorably at 113 basis point spread over the treasury yield curve. As of quarter end, GAAP book value per share was $10.31. Economic book value, which fair values all nonrecourse securitization obligations was $12.28. Compared to the end of 2025, GAAP book value per share decreased 4% and economic book value decreased 3.3%. Changes in book value during the quarter were reflective of operating income, offset by our quarterly dividend payment and the previously discussed market-driven valuation decrease within the portfolio. While the market continues to display volatility tied to geopolitical tension, we estimate that as of today, book value has increased slightly since the end of the first quarter due to continued accretive asset purchases and incremental earnings generation. Balance sheet remained well positioned with cash of $42 million and recourse debt to equity of 1.3x. We aim to maintain liquidity and available financing capacity to provide flexibility to respond to changing market conditions. We ended the quarter with unsecuritized residential whole loans at a fair value of $245.5 million financed with $192.2 million of warehouse debt, $2.2 billion of residential mortgage loans and securitization trust and $238.3 million of RMBS, including $25.7 million of investments in co-mingled securitization entities, which are included in other assets on our balance sheet. We finished the quarter with undrawn loan financing capacity of approximately $1.1 billion with 4 high-quality lending partners. Credit performance continued to be solid with portfolio-wide 90+ day delinquency at approximately 2.7%, which is inclusive of our residential loan, securitized loan and RMBS portfolios. This is materially flat compared to Q1 of 2025 and represents an increase of approximately 50 basis points from Q4 '25. Despite the increase compared to the prior quarter, performance across the Angel Oak shelf remains strong, and we believe that the performance of our collateral relative to the non-QM securitization market is a key differentiator of our platform. We expect our differentiated credit performance to translate into lower losses than comparable non-QM platforms across the full credit cycle. This view is supported by our proactive migration of credit spectrum, conservative LTVs and disciplined underwriting approach, which we believe position the portfolio to perform consistently even in more challenging environments. 3-month prepay speeds on our non-QM RMBS and securitized loan portfolios were 12% as of the end of the quarter compared to 11.2% in the fourth quarter of 2025. As we have mentioned in previous quarters, we expect prepay speeds to increase as rates decrease and homeowners are incentivized to refinance. With that said, we model our returns based on historical prepayment speeds of approximately 20% to 30%. While prepay speeds are likely to tick upward if newly originated coupon rates continue to decrease, the majority of our portfolio still has coupon rates that are below newly originated coupon rates, and we expect that mortgage rates would need to fall meaningfully in order to produce a significant impact to the returns on our portfolio. Lastly, the company declared a $0.32 per share common dividend payable on May 29, 2026, to common shareholders of record as of May 22, 2026. For additional details on our financial results and portfolio composition, please refer to the earnings supplement available on our website. Sreeni? Sreeniwas Prabhu: Thank you, Brandon. The proven well-established Angel origination, purchase and securitization platform provides us with confidence to perform well in a variety of macro environments. The fundamental backdrop of our business is positive. And while risk remains, we will continue to focus on what we can control, expansion of earnings, consistent securitization market activity and disciplined credit selection and management. With that, we will open the call for your questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Marissa Lobo from UBS. Ameeta Lobo Nelson: On HELOCs, you participated in one securitization in 2025 and you guided to about two a year. So how is the HELOC pipeline building relative to non-QM? Brandon Filson: We are building our current HELOC pipeline right now. After the securitization '26-2, we went bought some HELOCs as well. We kind of have enough to co-mingle with some other Angel Oak entities. So we're looking forward to another HELOC securitization in the coming months. But I think that the pacing is still about correct. Ameeta Lobo Nelson: Okay. Great. And then just looking at the loans and securitization trust, noticed the 2024 vintages picking up in speeds about '23, up a bit from last quarter. Delinquency a little bit up. So how should we think about that? And how is that impacting the valuation of the retained tranches on those deals? Brandon Filson: I think the -- yes, I think the speed increase is a little bit expected as rates started to come down. So the '24 deals had a lot of loans that were generated with much higher coupons. So the increase isn't necessarily a surprise to us. We expect to model the 25 to 30 CPR kind of over the life of the securitizations and like a normal kind of rate environment. The return profile seems about the same during that period from certainly what we model. The delinquencies are something we're monitoring, but nothing that's sticking out to us. And if you remember, some of the retained tranches we have, we have a little bit of a hedging effect on our retained positions because we have the interest-only bond and then we have the junior unrated equity piece. And as speeds increase, obviously, the valuations or anticipated returns of the IO would start to decrease, but the B3 or unrated bond and the bonds directly above it start to -- the valuation increases as it's expected, they'll get paid off soon. Operator: Your next question comes from the line of Matthew Erdner from JonesTrading. Matthew Erdner: In prior quarters, you've talked a little bit about calling legacy securitizations, kind of the '21s, '22s. As of last quarter, you guys kind of intended to call two of those throughout the year. Is that still the plan? And then what are you guys seeing there in terms of resecuritization that you could achieve? Brandon Filson: Yes. That's something we're literally monitoring every day. As you probably have good visibility to that decision based a lot on what the funding cost of the deal you're calling, what -- how they are levered, what's left in the stack and current funding cost, which over -- if we're talking in the middle or late February, that answer is a little different than it is today, but it's something we're monitoring. So what we probably have to see is a little cessation or dramatic reduction in some of the volatility in the rate markets for that go/no-go decision to effectively be accretive to call the deals. Matthew Erdner: Got it. Yes, that's helpful. And then as a follow-up to that, what kind of ROEs are you guys seeing in the market? I think it was mid-teens last quarter, trending a little bit lower. Is that still kind of the expectation and then low 20s on HELOCs? Brandon Filson: Yes. I mean I think that's our long-term expectation. If we were to do a deal today with the increase in treasuries and increase in the spreads, we'll be looking maybe lower teens to high 12s. So it has taken a little bit off, but we're not necessarily in the market right now with the securitization. We hope that when things come back into play for us to securitize, we're back up to that 15% to 20% number. Operator: Your next question comes from the line of Timothy D'Agostino from B. Riley Securities. Timothy D'Agostino: Regarding operating expenses, it seems like this quarter, it was elevated a little bit at about $1.7 million. I was wondering if there's anything in particular in that line item that increased it. Brandon Filson: Yes. Mainly, that's going to be professional service fees and loan diligence fees as we continue to buy loans. Our professional service fees in this instance are really related to our ATM program that we have out there that we didn't issue any shares on this quarter. So we had -- we expensed those costs versus putting it through like a contra equity account. Timothy D'Agostino: Okay. Great. And then I just want to touch on the securitization costs as well. If you do one securitization a quarter for the non-QM space, is the pricing on that generally going to be around $1.5 million? Or would it be less? And then the price for a non-QM or the cost for non-QM securitization, how does that differ to HELOC securitization? Just trying to understand that expense line item better as well. Brandon Filson: Yes. I mean securitization expense, there's a decent amount of fixed costs that go into that, and then there's obviously some variable costs. So it's kind of sensitive on how big the deal is, especially on the HELOC securitization, how much of the HELOC securitization we are participating in because we'll take our pro rata share of the deal cost. But really, you can kind of back into like a basis point percentage on securitization based on the amount that we securitized in the quarter, which typically is somewhere around 50 basis points. It could be a little less, could be a little more. But certainly, if we got a larger deal out, it would be a little less than that and about as small as we've been doing lately, $300 million or so it's about 50 basis points. Operator: [Operator Instructions] Your next question comes from the line of Doug Harter from BTIG. Brendan Matthew Greaney: This is Brendan Greaney on for Doug. How did whole loan pricing of non-QM loans hold up in March versus securitization spreads? Brandon Filson: Yes. I mean the whole loan pricing decreased quite a bit. That's really where most of that valuation decrease we have and the losses we had on the unrealized during the quarter. We lost about 1 point off of our whole loan pricing in Q1, and that's really just a reflection of where the current spreads are and the current treasury base rates. Brendan Matthew Greaney: Okay. And where are spreads today on AAAs and securitization? Brandon Filson: It'd probably be about $135 million to $145 million depending on the exact timing and exact collateral that was out there. Operator: Thank you. There are no further questions at this time. I would like to turn the call back to Mr. Brandon Filson for closing comments. Sir, please go ahead. Brandon Filson: I would like to thank everybody for your time and interest in Angel Oak Mortgage REIT. As always, if you have any further questions or comments, please feel free to give us a call and reach out. Otherwise, we look forward to connecting again with you next quarter. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Operator: Good day, and welcome to the Peabody Energy Corporation Q1 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I'd now like to turn the conference over to Kala Finklang. Please go ahead. Kala Finklang: Thanks, operator, and good morning, everyone. We appreciate you joining us for Peabody's First Quarter 2026 Earnings Call. Joining me today are Peabody's President and CEO, Jim Grech; Chief Financial Officer, Mark Spurbeck; and Chief Commercial Officer, Malcolm Roberts. After our prepared remarks, we will open up the call for questions. Before we begin, I want to remind you that our remarks today will include forward-looking statements. Please review the full statement contained in our earnings release and consider the risk factors referenced there, along with our filings with the SEC. I'll now turn the call over to Jim. Jim Grech: Thanks, Kala, and good morning, everyone. Peabody's first quarter was marked by a number of accomplishments amid a positive time for both thermal and metallurgical coal markets. We delivered better-than-expected volumes, pricing and costs in our Seaborne Thermal segment, supported by sharply higher global LNG prices in March. Our U.S. thermal coal volumes continued at a strong pace, driven by continued strong electricity demand. And across our seaborne met portfolio, operations performed in line with expectations, with the notable exception of Centurion. Focusing on our top priority, Centurion, I'll provide a thorough update of where we are today. As you know, as part of our commissioning of equipment in February, we encountered temporary mechanical and electrical issues. While those challenges were resolved, the disruptions led to a slower cutting speed, which in turn contributed to roof control conditions. Maintaining roof integrity is critical to sustaining optimal cutting speeds. As a result, early in the ramp-up, progress was slower than we were anticipating even after resolution of the mechanical and electrical issues. Importantly, once the mechanical and electrical issues were resolved, the team implemented a comprehensive response plan centered on proactive strata management and disciplined execution with safety as a top priority. We have brought together a highly experienced group of engineering and operational personnel from across the platform to address these challenges. Since that time, we have been systematically working through what was at its core an iterative cycle of slower equipment performance affecting roof conditions. Over the past several weeks, we have taken deliberate steps to stabilize the operation by reinforcing the roof and face, realigning shields and improving overall cutting conditions. Naturally, every mine is unique with different geology, equipment and operating conditions, and it has taken some time to apply the right solutions at Centurion. While this has required a longer-than-anticipated commissioning period, it ensures that safety remains paramount as we work toward durable solutions. Our safety performance has remained strong, and I want to be clear that we have had no carbon monoxide events, no methane issues, no ignition events and no regulatory challenges. While we are not yet at full cutting speed, the key remediation steps are largely in place, and we are encouraged by what we're seeing. We believe the remaining temporary headwinds are largely confined to the second quarter, with performance in the back half of 2026 expected to reflect a return to full longwall production rates. We expect to sell roughly 300,000 tons in the second quarter, reflecting strong June production, but a traditional lag in converting production at the mine into sales at the port. Additionally, the 7-week longwall move that had been planned for the fourth quarter is now expected to shift into early 2027, which will support stronger production in the second half of this year. As a result, our full year sales outlook for Centurion is now 2.5 million tons compared to our original expectation of 3.5 million tons. With that said, we've updated full year met segment volumes to reflect the 1 million ton decrease and increased cost to a range of $123 to $133 per ton. Stepping back, Centurion remains one of the most attractive assets in our portfolio with a strong position on realized pricing, cost, structure and mine life. In addition to our coal mining and marketing business, we continue to make progress in our Peabody development initiatives in recent months, focused on unlocking additional value from our vast array of land, reserves, operations and commercial relationships. When we spoke last quarter, we had been recommended for a $6.25 million grant from the Wyoming Energy Authority, and that grant was awarded later in the first quarter. Peabody is now advancing initial plans for the pilot plant to process rare earth elements using PRB coal as feedstock. We also continue to advance additional opportunities related to rare earths and critical minerals. We have a particular focus on germanium, where we see good concentrations, strong end market engagement and favorable supply-demand dynamics. For proprietary reasons, we'll need to keep details at this level for now. I'm also pleased to note that initial test shipment is occurring this quarter for West Coast thermal coal exports. We have sent PRB coal from our North Antelope Rochelle Mine, transported by Union Pacific Rail to Mexico's Port of Guaymas, which is being loaded for export to an Asian customer. This test run reflects close coordination with U.S. and Mexican governments, port authorities and logistics partners. It demonstrates the potential of a West Coast export route for PRB coal. While this is a proof-of-concept shipment, Guaymas has infrastructure that could support additional volumes over time. More broadly, this effort underscores Peabody's ability to connect the largest coal basin in the Western Hemisphere with the largest global demand center for thermal coal imports. We would also note that recent U.S. policy actions continue to affirm the value of reliable coal supply chains and baseload generation capacity to national security and grid resilience priorities. That follows an executive order during the quarter that directed U.S. defense facilities to purchase power from coal fuel generation. We view these moves as highly constructive, both symbolically and practically for longer term coal use in the U.S. For more on the U.S. and global supply-demand fundamentals, I'll turn things over to our Chief Commercial Officer, Malcolm Roberts. Malcolm Roberts: Thanks, Jim, and good morning, all. Last quarter, I noted that we had seen strong upward moves in the past year, first in U.S. coal demand and later in the year in met coal pricing, but that seaborne thermal coal had been stuck in a middling trading range. Recent events in the Middle East, though, have changed the seaborne thermal coal fundamentals. Leading into Q1, seaborne thermal coal had been somewhat range bound with a mild winter in much of Asia suppressing burn and strong domestic production running in China and India had kept seaborne demand modest. However, 2 major forces emerged that both increased demand and constrained supply. First, the Iran conflict in late February caused a sharp re-rating of thermal coal demand and prices moved upward with March Newcastle averaging more than $20 a ton higher than pricing pre-conflict levels. At the same time, high LNG prices and limited availability pushed multiple countries to rely more heavily on coal fuel generation. We've seen both policy support and practical actions for seaborne thermal coal across Japan, Korea, Taiwan, Vietnam, Thailand and the Philippines, among others. As history has reminded us, whether it be Fukushima, Ukraine or the Middle East, coal remains by far the largest source of electricity in the world and continues to play a critical role in global energy security. Coal is abundant, transportable, storable and reliable and today still fuels more than one out of every 3 electrons worldwide, far more than any other form of generation. The second major factor impacting thermal coal fundamentals was Indonesia's directive to keep more coal domestically, which has begun to take a real bite out of supply. Indonesia exports over half of the world's seaborne thermal coal and its government has announced cuts in production that would represent about 1/4 of its exports if fully implemented. We've grown accustomed to such acclamations coming in short of original estimates over the years, but even a portion of that dramatic cut would mean a tightening of thermal coal fundamentals. I will note that not all developments in the seaborne coal markets are favorable. Freight rates have roughly increased 50% from pre-conflict levels, affecting the delivered cost of our products. While the market excitement has centered on thermal coal, seaborne met markets remain very constructive. First quarter benchmark pricing for premium hard coking coal averaged more than 25% above year ago levels and could be characterized as more mid-cycle after the temporary dip we saw in 2025. I'll note the stratification of prices across lesser grades of met coal has become more pronounced. Low-vol PCI is up a more modest 14% over a year ago, while high-vol A pricing was actually 12% lower in the first quarter than in quarter 1 of 2025.. Turning to the U.S. markets. Power demand has remained strong early in the quarter due to a very cold January. Henry Hub gas prices lagged as the quarter wore on and ultimately ran below the fourth quarter and year ago levels. Coal is still dispatched at a decent rate and U.S. coal demand was solid. We're working through the shoulder season and soft gas prices at the moment, but expect overall U.S. load growth to help balance that out as we begin to enter the strong summer burn. With that brief overview of the markets, I'll turn the call over to Mark. Mark Spurbeck: Thanks, Malcolm, and good morning, all. In the first quarter, we recorded a net loss attributable to common stockholders of $32.4 million or $0.27 per diluted share, while delivering adjusted EBITDA of $82.5 million. Results were underpinned by outstanding performance from our seaborne thermal platform, which benefited from higher realized prices and strong demand from Asian markets. The seaborne thermal platform delivered 3 million tons, exceeding expectations and increasing export shipments by 200,000 tons. Realized export prices averaged $86.25 per ton, up more than 5% from the prior quarter, driven by higher Asian demand amid elevated LNG prices in the latter part of the quarter. Higher production from both Australian thermal mines helped reduce cost to $50.26 per ton, below the low end of guidance, resulting in a 25% adjusted EBITDA margin and $48.5 million of adjusted EBITDA. Seaborne metallurgical shipments totaled 2 million tons, 400,000 tons below plan due to the longwall ramp-up challenges at Centurion and unfavorably wet weather at the CMJV, partially offset by higher-than-anticipated production at Metropolitan, where we completed a longwall move ahead of schedule. Costs were higher than our guidance at $142 per ton, largely due to lower volumes at Centurion, partially offset by realized prices that increased 13% quarter-over-quarter. The segment recorded an adjusted EBITDA loss of $7 million as an otherwise strong quarter was reduced by $80 million from the Centurion ramp-up, including $10 million of additional commissioning costs. Our U.S. thermal business delivered $61.5 million of adjusted EBITDA in the first quarter. The PRB shipped 21.2 million tons, exceeding expectations. Costs were above guidance due to sales mix, which included additional shipments of higher heat coal from NARM and timing of certain repairs and maintenance costs. Net-net, costs outpaced higher average realized prices, resulting in lower margins in the quarter and $23.7 million of adjusted EBITDA. Other U.S. thermal shipped 3.3 million tons at better-than-expected costs, demonstrating continued disciplined cost control. I'm also pleased to report that Twentymile continued to perform well in its new longwall panel. Together, the other U.S. thermal mines contributed $37.8 million of adjusted EBITDA. Moving forward, like the rest of the industry, we are keeping a close eye on oil prices. I'll share a few points here for context. Peabody uses approximately 100 million gallons of diesel fuel a year, with the majority used in the U.S. at our large surface mines. Each $10 per barrel change in oil price impacts EBITDA by $6 million per quarter, ignoring potential benefits from higher coal prices. With the continuation of the Middle East conflict, we increased expected full year PRB costs $0.50 per ton to reflect the current forward curve. We also increased seaborne thermal cost guidance by $2 per ton to reflect the current price strip. We have not experienced any disruption to imported fuel deliveries in Australia, and we are working closely with our primary supplier to monitor continued availability. While higher fuel costs are anticipated across the business, the seaborne met and other U.S. thermal segments are expected to remain at beginning of year costs. A firm resolution of the Middle East conflict may result in an improved forecast with lower costs. Looking ahead to the second quarter, we expect seaborne thermal volume of 3 million tons, including 1.9 million tons of export coal, 300,000 of which are priced on average at $64.60 per ton. 1 million tons of Newcastle product and 600,000 tons of higher ash coal remain unpriced. Costs are expected to be between $57 and $62 per ton with approximately $3.50 related to higher fuel costs as well as a stronger Australian dollar and planned repairs and maintenance at Wilpinjong. We expect seaborne metallurgical volume of 2.3 million tons with realizations of 75% of the premium hard coking coal index. Costs are expected to continue at higher than full year run rates due to lower production at Centurion before achieving full longwall volume in the second half of the year. In the PRB, we anticipate shipments of 19 million tons at cost of $13.25, reflecting the traditional second quarter shoulder season and the $0.50 adjustment to higher fuel costs. Other U.S. thermal coal shipments are expected to increase to 3.4 million tons with costs at $45 to $49 per ton, in line with full year guidance. In closing, our first quarter results highlight the value of our diversified global assets. Strong performance from our thermal segments, both abroad and here in the United States, continues to generate substantial free cash flow. Peabody ended the quarter with just under $500 million in cash and total liquidity above $850 million. This financial position reflects the resilience of our balance sheet and provides financial flexibility to navigate near-term challenges, support our shareholder return program and continue to invest in long-term value creation. With that, I'll turn the call back over to Jim. Jim Grech: Thanks, Mark. As we look toward the rest of the second quarter, priority 1 is continuing the positive momentum at Centurion and progressing toward our targeted production rates in a safe and productive manner. Beyond Centurion, we remain focused on delivering strong performance across the broader mining portfolio while maintaining a rigorous cost discipline. Finally, we'll continue unlocking additional value from our extensive asset base over time. With that, operator, we are pleased to open up the call to questions. Operator: [Operator Instructions] The first question comes from Chris LaFemina with Jefferies. Christopher LaFemina: I just wanted to ask first on the PRB cost guidance. So second quarter cost is going to be a bit higher than the first quarter. But then the full year guidance is materially lower than what your first half average would be. And I wanted to understand how you're going to get there. I understand that part of it is, I would assume, a function of higher volumes in the second half of the year, and part of it is that on the strip, diesel prices, I guess, are a bit lower, but it is a substantial drop-off in costs and I just wanted to better understand that. That's my first question. Jim Grech: Chris, you're exactly right. You kind of answered your own question there for the PRB. Costs were higher in the first quarter a little bit, going higher in the second quarter, mainly due to diesel fuel. That's probably about a 75% impact in the second quarter, $0.50 impact over the full year. So you're right, that forward strip declines. That's the biggest change there on the PRB cost. We have lower volume. I think you mentioned lower volume as well, right? I mean second quarter shoulder season, we're looking at about 2 million tons less. So a big denominator difference there as well. Christopher LaFemina: Okay. That makes sense. And then secondly, just on the balance sheet, I noticed that the restricted cash balance fell by like $33 million in the quarter. And I'm not sure I saw the offsetting decline in any associated liabilities. So I might just be missing something there, but what was going on with the cash balance? Mark Spurbeck: Yes. The restricted cash, there was just a movement in how we collateralize some of those obligations. No change in the liabilities. Operator: And the next question comes from Katja Jancic with BMO Capital Markets. Katja Jancic: Maybe staying on PRB. I know that the prices are currently locked in or mostly locked in. Do your contracts in any way allow you to potentially share some of the cost burdens from diesel right now? Or is there an opportunity for that? Malcolm Roberts: Katja, Malcolm here. Look, the majority of our contracts are fixed price contracts that don't have a fuel rise or fall. Katja Jancic: And then if this environment continues, are you potentially looking at hedging any of the diesel costs? Or do you have any hedges in place? Mark Spurbeck: Yes, Katja, we do not hedge diesel. We've looked at this over the years multiple times, whether fixed pricing with our suppliers or hedging it with derivatives is just not cost effective to hedge. Katja Jancic: And maybe one more, if I may. You mentioned the potential for West Coast exports of PRB. Can you talk a bit more about right now currently, what the opportunity could potentially be in more near term? Malcolm Roberts: Yes. Thanks for the question, Katja. Malcolm here again. Look, the potential there in terms of the coal quality is pretty much unlimited. This PRB coal quality is fantastic in terms of its sulfur level, in terms of its ash level. And what we've seen in Asia is a lot of power generating plants have been set up to burn on this type of coal. And that was originally based on Indonesian coal. Now Indonesian coal is being kept more domestically and also we're seeing grades decrease. So there's a real opportunity, particularly in terms of the environment and this high-grade PRB coal to be consumed in Asia. So it was really quite positive and exciting that we're able to work with the port operator down there and also the Union Pacific to do a trial shipment. And the potential there will be limited by the logistics in terms of the Guaymas port. But then also, you'd note that there are West Coast port opportunities currently being discussed and that is something that really encourages us as we move forward. Operator: And the next question comes from Nathan Martin with the Benchmark Company. Nathan Martin: Malcolm, maybe just sticking with you for a second. You mentioned about some of the additional seaborne thermal opportunities you're seeing in the market driven by conflict in the Middle East as well as Indonesia. So is there still demand and price out there? Or have you seen that retreat maybe some of the recent peaks? Malcolm Roberts: Look, I think we're going to potentially go to the next level over the coming months. We've -- I mean the tide that lifts all boats is the Chinese import price. And we've seen that rally reasonably strongly, and I'm hearing appeals for API 5 around $100 a ton at the moment, which is over 1 year ago levels, that's probably $25 in excess of that. Now once that tide comes up, that will also support Newcastle pricing. And LNG pricing is still at quite a multiple as a fuel cost than seaborne thermal coal. And we're just starting to move into the summer in the Northern Hemisphere. So I think there's more to come. Nathan Martin: Okay. Great. That's helpful. And then maybe going to Centurion. I know you guys obviously mentioned aiming to complete the commissioning and production ramp here in the second quarter. Can you talk a little bit more about the timing there? I think maybe Jim has mentioned, but is this kind of an end of quarter completion? How confident are you that the longwall should be up and running or fulfilled in the second half and when that might occur? Jim Grech: Nate, Jim Grech here. And we have a lot of confidence that's going to occur here in the second quarter. I'll give you a little detail around where we're at right now, how we see us getting through the month of May and then the month of June, why we have so much confidence. So right now, our plan gets us to optimize longwall automation by the end of May. And what do we mean by optimized longwall automation? That means we're all done with the commissioning of the equipment, and we are in regular production mode for our forecast. And so to get us to that position by the end of May [technical difficulty] in the coal seam. We have shared optimal position, both the floor and the horizon and the coal seam longwall face straighten level. So our goal is to get us to those conditions by the end of the month and we have made significant progress to getting to those conditions. But it is an iterative process, Nate, that we're in. We advance the shields, we align the shields. If there's any fortifying of the coal roof or face, we do that if needed. And we do another pass with the shield, we cut some coal and then we advance the shields again. So we're going through that process right now, advance the shield, align, fortify, cut, and we're having some very good success with that. And so we're going to keep repeating that process for the next few weeks until we get to this optimized longwall automation position. And then from there, we'll be running per forecast. So a lot of good progress made in the last 2 weeks. We're -- every day, we move further along with our plan. And we, again, feel very good about getting this completed by the end of May, getting out of this commissioning phase and getting into regular production mode starting in June. Nathan Martin: Okay. That's very helpful, Jim. I appreciate that. And then maybe just one more, if I can. You guys had a small update on your rare earth and critical minerals project there. Maybe can we just get some thoughts around the potential time line for that development? You mentioned previously as well as today, the possibility of building a pilot plant. Again, just any updates on time line would be great. Jim Grech: Yes. So you're referring to the grant we got from the Wyoming Energy Authority to build a pilot plant, and we're looking at building at the moment at our Rawhide mine is the site at the moment, but there are some other sites being looked at it. So we expect the development operations and so on to take about 18 months. and then you're going to have some time after that of a year or 2 to get it up to full development of the plant. So we're going to work on the siting first and then initial construction and then get it operating, hopefully, at some extent, 18 months out and then over that 18- to 48-month time frame, just keep ramping it up and with the project. So that's what we're doing on that one project. I just want to remind you, though, that we've got several opportunities that we're pursuing. We've got this option-based approach because we've got multiple feedstocks, whether it's coal or overburden and looking at other of our mines. So we have other projects underway. We're not ready to talk about them yet, but this is the one here that we're talking about at the moment. Operator: And the next question comes from George Eadie with UBS. George Eadie: Jim, your audio was muffling, I think, before, so sorry if this is a bit of a repeat. But what specifically at Centurion were the electrical and mechanical issues experienced? And were there any issues with the shields not bearing the roof weight properly due to roof conditions or undulations at all in the roof? Jim Grech: Yes, George, I'm not sure why. I'm right next to the microphone, and I think I'm talking loud enough. I'll start screaming into this. Are you hearing me okay right now? George Eadie: Yes, yes. I got you good. Jim Grech: Okay. If you hear me catching my breath because I'm talking at the top of my voice. So what we've had is a longer-than-anticipated commissioning period at the mine. So to get to the situations you talked about, during the initial commissioning, we encountered some unanticipated electrical and mechanical issues that we hadn't picked up during -- we did testing, we did a mini build on the surface to test the equipment. But once we got the equipment underground, put it together and put it under full load conditions, we started having some issues with it. So fundamentally, what happened with that is we had 8-year-old unused mining equipment. We put an updated technology in it and then we put it underground. And when I got under full load, we started having issues that we weren't anticipating electrically. And we had to troubleshoot that, order parts and repair. And once we got past the electrical issues, we had some mechanical issues with conveyors and shoots and so on. What I would call standard commissioning issues that you have with this type of situation in a new mine and equipment that's been sitting on the shelves for a while, all taking much longer than we had anticipated. So with that situation going in the longwall sitting, and what happened was the longwall was advancing very slowly during this commissioning period. So the slow progress of the longwall gave rise to some localized ground conditions where the longwall was sitting, we had moisture accumulating in some roof cavities above that, combined with the softening of the floor beneath the shield. So the roof conditions have been addressed with void fill and under control where we have the longwall right now in its current position. The floor conditions we've adjusted to, but what's happened is the -- with the floor conditions, we've got misalignment in a limited number of shields. And that really is where we are in the final stages of remediation that I had outlined to Nate is getting those shields in alignment. And the only way to do that is to advance the longwall, adjust the shields, advance the longwall, adjust the shields. And that's going to take us another week or 2 to do that. So we anticipate getting through that by the end of the month. And as we -- each time we advance, we progressively improve with our remediation. And once we get a little further along here, we get on to some fresh ground underneath those shields, we'll be going at forecasted rates. So George, did I answer the question you had asked there? George Eadie: Yes. Jim Grech: I'm assuming you... George Eadie: Exactly. Yes. No, that was great. Appreciate all that. And so are you guys like testing the shields to make sure they're carrying the roof load? Is that something you can do and are doing, I guess? Jim Grech: Yes. The shield themselves are performing well. It's just they're out of alignment, and we just have to get them straightened out between the floor and the roof. That's really what's going on here at the moment, George. George Eadie: Okay. That's super clear. And then maybe one quickly for Malcolm. Just margins in the PRB just over $1 a ton, a few questions on it before, and we've guided down there. Are there risks to margins getting back sort of $2 and higher going forward with U.S. gas prices at $2.80 and cost pressures impacting on the other end, too? Malcolm Roberts: Yes. Look, with where oil prices are at the moment, margins are being challenged and also this quarter with lower volumes being in shoulder season. But one thing that -- what's pretty evident is that electricity demand is continuing to increase. And as that -- and I think we've just seen the statistics for April. So with this increased demand, we get out of shoulder season, get into the summer. I still expect the spot market to be quite robust and for pricing as we move forward to reflect this higher cost base because I don't think anybody is on their own in terms of the dirt that needs to be moved and the cost of that diesel. So it's a function of the higher cost base being reflected in new deals and the like as we work through that. Mark Spurbeck: Yes, George, I might just add to that. If you look at the implied guidance, the costs and the additional volumes coming in the second half of the year, we're going to be back to margins rate within spinning this into a few dollars a ton. Operator: And the next question comes from Nick Giles with B. Riley Securities. Nick Giles: A lot of my questions have been answered. But just maybe on the seaborne met cost revisions, I think most of which were driven by Centurion timing being pushed out. But can you just touch on the other operations and where costs stand today at those mines? I think diesel isn't as impactful as the PRB, but I was wondering if anything has changed as far as input costs at your kind of non-Centurion operations? Mark Spurbeck: Yes, Nick, I think I'll start with the 2 changes we made to the guidance for the full year in the Thermal segment. So PRB is up $0.50 on a full year basis. That's entirely due to higher diesel pricing. Seaborne thermal as well, up $2 a ton for the full year, entirely due to higher diesel pricing. The seaborne met, that is up $15 a ton, and that's entirely due to the lower volume at Centurion. Now there is some higher diesel costs, obviously, in met and other U.S. thermal, but that's a much smaller use, about 2/3 of our oil in both regions. 2/3 of the U.S. oil or diesel is used at the PRB and about 2/3 of Australian fuel is used in the Seaborne Thermal segment. So the seaborne met and the other U.S. thermal, much smaller impact from diesel, and we were able to maintain those original cost guidance ranges. Nick Giles: Got it. Very helpful. I appreciate that, Mark. And then maybe just one on the Centurion product itself. Can you just talk about how the commercial process has gone to date with customers? How much is contracted? How much could -- is left to still be contracted? And then do you feel that with the higher freight rates globally that Centurion has become more competitive? Or how are you thinking about kind of percentage realization in terms of PRB? Malcolm Roberts: Yes. Thanks for the question, Nick. Look, generally, discussions have gone very well because this product is the highest quality premium hard coking coal at around an 8% to 8.5% ash. And in terms of where it's being sold, traditionally, North Asia has been a big customer when this mine was producing last decade. There's strong demand there. But really, the main focus is on India, and we've concluded a number, probably 8 or 9 contracts there. In terms of how contracted I am for the year, I'd like to treat that as commercially sensitive. So -- but there's plenty of demand there for that product. Hopefully, that answers your question. Operator: And the next question is a follow-up from Christoph LaFemina with Jefferies. Christopher LaFemina: Just one quick follow-up. If you look at the -- like the outlook for the business, if you hit your operational targets, you're going to be generating lots of free cash flow in second half of this year and into 2027. Your balance sheet is very strong. Your share price has been under some pressure, but it really seems like it's a timing issue on the cash flow rather than anything more structurally problematic. And yet you have an opportunity in the market to buy back your stock at a relatively inexpensive level. So I was wondering how you think about the share price weakness and how you can defend the stock? Maybe that's the way to think about it, but can you take advantage of an opportunity here where the market is not pricing in the cash flow that you guys are going to generate and maybe the opportunities for you to buy back your stock at this relatively inexpensive level? Mark Spurbeck: Yes, Chris, we share your outlook for the business, certainly when [indiscernible] comes back online or gets online at full production rates in the second half of the year. There will be a substantial amount of free cash flow in that second half of the year. I think there are a couple of opportunities, buying back shares is one, but also looking at our 2028 convert that's outstanding and addressing maybe some of the dilution there as well. Operator: And next question is a follow-up with George Eadie with UBS. George Eadie: Jim or Malcolm, when will we get some details on this PRB West Coast opportunity, I guess, chasing potential tons you could ship washing, cleaning costs, CapEx and sort of time lines and all the various factors for us to potentially model it up? Malcolm Roberts: Look, I'll start and maybe Jim could give some further details. Look, this cargo is going to go out in May, and we'll get customer feedback. We have another customer visiting our PRB mines next -- I think it's next week or the week after. We're in a detailed qualification process there. And we'll discharge trains and the first one is discharged down in Mexico this week, and we'll see how that goes. We'll load it on the ship and see how that goes and then get the ultimate feedback from the customer. One thing is for sure is that there are opportunities and people are really focusing on this and the railway, particularly Union Pacific, is working with us really constructively. That's encouraging. And then you're also hearing about other West Coast port opportunities. But exactly where we go with the Port of Guaymas, that's going to be a little bit of a suck and see. Let's see how the port performs and the like. But this is more of a proof of concept and the like. In terms of CapEx and the like, we'll be leaving other promoters to develop ports and do those things. We'll be a user of those ports and the like. So I hope I haven't set out a light here. I'll just check with Jim if there's anything he'd like to add. Jim Grech: No, Malcolm. I think the thing to take from this, George, is Malcolm said proof of concept, and most importantly, is there a market for this coal? And as Malcolm pointed out, there's a significant almost unlimited market in terms of what the PRB can produce and move as far as demand because of the comparably -- very favorable comparison to Indonesian quality coal, which is big on the export market. So the opportunity is significant. And the proof of concept is us working with the Union Pacific Railroad. We have been very good to work with the U.S. government, the Mexican government. Can we then do the logistics to move the coal to this very large market? And we've done that. So the next steps are how do we scale this up? How do we get significant tonnages? And whether that's through Guaymas or other ports that are being looked at on the West Coast that are being looked at actively. And I think there's some great opportunity there for those ports to move those Western coal. So there's a lot more opportunity to come. Is it on the horizon like in the next 3 to 6 months? No, there's nothing significant because you need to get to port capacity there. But the demand is there. The demand is not going away. The ability to work with the rail carriers and the U.S. government to develop these opportunities is there. So there's a lot of good potential for us out into the longer term, but not just in the near term. George Eadie: Yes. Okay. Great. And just on that, what is the port capacity you guys could tap here? Is it sort of 5 million to 10 million tons? Is that the right range for me to think? Jim Grech: Well, I think it's what's the port capacity potential. Guaymas could get to those ranges or slightly higher and other ports that are being looked at on the West Coast would be at the upper end of that range. Operator: And this concludes the question-and-answer session. I would like to turn the conference back over to Jim Grech for any closing comments. Jim Grech: Thanks to everyone for your time today as well as your long-standing support. We're going to get back to work and look forward to keeping you apprised of our progress. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to Veracyte, Inc. first quarter 2026 financial results webcast call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Unknown Speaker, director of investor relations. Unknown Speaker: Good afternoon, everyone, and thank you for joining us today to review Veracyte, Inc.’s first quarter 2026 financial results. Joining me on the call are Marc Stapley, our Chief Executive Officer, and Rebecca Chambers, our Chief Financial Officer. John Leite, our Chief Commercial Officer, will also be available for Q&A. Earlier this afternoon, we issued a press release detailing our first quarter financial results, and we posted an accompanying presentation in the Investors section of our website. Before we begin, I would like to remind you that statements we make during this call will include forward-looking statements as defined under applicable securities laws. Forward-looking statements are subject to risks and uncertainties and the company can give no assurance they will prove to be correct. Additionally, we are not under any obligation to provide further updates on our business trends or our performance during the quarter. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Veracyte, Inc. files with the Securities and Exchange Commission, including the most recent Forms 10-Q and 10-K. In addition, this call will include certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP financial measures are included in today’s earnings release accessible from the Investors section of Veracyte, Inc.’s website. I am also pleased to highlight Veracyte, Inc.’s newly updated website, which makes it easier to access information on our test portfolio, including a publication search tool to help navigate our extensive and growing clinical evidence base. I will now turn the call over to Marc Stapley, Veracyte, Inc.’s CEO. Marc Stapley: Thank you, and thank you all for joining us today. We had an excellent start to 2026. In the first quarter, we delivered strong double-digit revenue and volume growth, exceeded our profitability expectations, and continued advancing key catalysts that position us well for long-term growth. This quarter highlights years of disciplined execution that have transformed Veracyte, Inc. into a stronger, more focused, scalable company. Five years ago, we set out to make Decipher a commercial success, grow our core franchises, expand operations, enhance clinical evidence, and build a strong pipeline. We revitalized the franchise, made Decipher the top prostate cancer gene expression test, increased lab capacity threefold, improved turnaround time and the no-result rate, and surpassed the 25% adjusted EBITDA margin. Today, Veracyte, Inc. is a diversified, profitable company with a unique platform, multiple growth drivers, expanding clinical evidence, and strong clinician relationships, all achieved through consistent strategic execution. Now we believe we are approaching an inflection point that will shape the next five years for Veracyte, Inc. We are on the cusp of our two most significant product launches since Afirma: first, Prosigna LDT, supported by the OPTIMA trial with a key presentation at ASCO in June; and second, TruMRD launching initially in muscle-invasive bladder cancer. Together, these launches will expand our addressable market, extend our platform into new clinical settings, and position us for what we expect will be an even more transformative next five years for Veracyte, Inc. and the industry. I will spend time discussing both of these growth catalysts shortly. But first, turning to our core business. Starting with Decipher. Since our acquisition in early 2021, the business has delivered consistent growth of more than 20% quarter after quarter. That momentum continued in the first quarter as we delivered approximately 28,000 tests, representing 24% year-over-year volume growth. This strong performance was driven by continued expansion in ordering providers and orders per physician, and it reflects Decipher’s differentiated position as the only gene expression test supported by high-quality clinical evidence and inclusion in NCCN guidelines. Advantages continue to drive adoption across the full spectrum of prostate cancer risk. Over the last few quarters, we have seen particularly strong traction in advanced disease, where we believe there remains significant opportunity for Decipher. In the first quarter, we delivered nearly 30% growth across high-risk categories, including radical prostatectomy, biochemical recurrence, and metastatic disease. As we see more evidence supporting the use of Decipher in advanced disease, we expect to see continued growth over time. For example, we are excited about upcoming results from the ENZIMET Phase 3 trial, which will assess Decipher’s ability to identify metastatic patients who benefit from triplet therapy. Those data will be featured in an oral presentation at ASCO later this month. ENZIMET is one part of a broader evidence pipeline that continues to advance. Four Phase 3 trials evaluating Decipher Prostate in treatment intensification and de-intensification have now completed enrollment, including the GUIDANCE trial, which reached that milestone in the first quarter meaningfully ahead of schedule. GUIDANCE includes more than 2,000 patients and is designed to evaluate how the Decipher score can function as an integral biomarker to guide treatment decisions for men with unfavorable intermediate-risk prostate cancer. PREDICT-RT has a similar goal in high-risk disease. These studies move beyond prognostic validation to prospectively demonstrate real-world clinical utility informing treatment choices. We believe they can support high-level evidence standards for guideline inclusion and coverage. While advanced disease is a compelling growth factor, we also continue to see physicians leveraging Decipher in the low-risk setting. Since launch, we have delivered results for more than 80,000 patients in this population, creating a substantial real-world evidence database that continues to inform clinical utility. We believe there is a long runway to expand Decipher’s role in active surveillance, supported by a growing body of evidence. Recent data published in European Urology Oncology demonstrated Decipher’s ability to stratify risk among patients undergoing active surveillance, and we were encouraged to see enrollment completed in G-MAJOR, a large prospective Phase 3 randomized study evaluating how gene expression classifiers can inform active surveillance decisions. Taken together, these achievements and our robust pipeline of ongoing studies reflect more than a decade of sustained investment in evidence generation and position us for a steady cadence of high-quality data readouts over the coming years. As our evidence base expands, we are also enhancing our clinical offerings. Through evidence generated using our Decipher GRID research-use-only database, we are incorporating additional predictive biomarkers, including PAM50, PTEN, and others. Over time, we plan to add select biomarkers to the Decipher clinical report to further support informed decision-making in high-risk and advanced prostate disease. We are also advancing complementary initiatives in digital pathology and AI-powered analysis, which we view as complementary to molecular profiling. As previously shared, we have been scanning our Decipher database and are close to digitizing all historical slides for U.S. patients—more than 350,000 images. We plan to leverage this extensive dataset together with whole-transcriptome data in collaborations with leading academic centers to better define where these technologies can add value in clinical practice. Across recent urology conferences, we have seen the field shifting toward biology-driven treatment strategies for bladder cancer, with Decipher Bladder emerging as a natural extension of our platform. This momentum will be on display at the upcoming AUA annual meeting, where six studies will be presented highlighting our Decipher Bladder portfolio’s ability to advance personalized care in bladder cancer, including insights generated from our GRID research-use-only database. These presentations build on the strong Decipher Bladder data shared at ASCO GU and support the early but growing adoption we are seeing in the field. Overall, we are very pleased with Decipher’s start to the year. We believe the franchise is well positioned with unmatched scale, depth of evidence, and commercial reach in urology. With only one in three men with prostate cancer in the U.S. currently benefiting from the insights that Decipher offers across the spectrum of disease, we believe it can continue to be a durable long-term growth engine, and we see meaningful extensibility into bladder disease as an incremental growth driver in the coming years. Turning to Afirma. We delivered approximately 17,200 tests in the first quarter, representing 12% year-over-year volume growth. This reflects both solid demand across our customer base and strong execution on operational initiatives that improve patient access to actionable results. As we have discussed previously, we completed the full transition to our V2 transcriptome workflow in the fourth quarter, establishing a more scalable and cost-effective platform. Importantly, this transition has also enhanced our ability to deliver definitive results for a broader set of patients, including historically challenging low-input RNA samples. That momentum continued in Q1, with our no-result rate improving both sequentially and year over year. As a result, more patients and physicians received actionable Afirma results to guide clinical decision-making, contributing approximately 400 basis points to our volume growth in the quarter. Encouragingly, we saw healthy new account wins, increased utilization, and a high number of ordering providers in the quarter, reflecting strong engagement and the effectiveness of our strategy. We remain focused on expanding the already robust clinical evidence foundation supporting Afirma. Through our Afirma GRID research-use-only database, we continue to generate a steady cadence of new data and incorporate additional molecular signatures into the latest version of GRID. We believe this growing dataset increasingly reinforces the Afirma GRID as a critical research-use-only tool to advance the understanding of thyroid nodules and thyroid cancer. Importantly, our commitment to evidence-backed research translates into real-world clinical and economic impact. A recent independent study analyzing Medicare payment data from 2016 to 2023 found that increased adoption of Afirma was associated with a meaningful reduction in thyroid surgery rates among Medicare beneficiaries. These findings highlight how Afirma test results help physicians confidently rule out surgery when unwarranted, supporting better-informed treatment decisions, reducing overall health care costs, and helping patients avoid unnecessary surgery and its long-term consequences. The study also reinforced Afirma’s position as the leading molecular test for indeterminate thyroid nodules. Taken together, Afirma’s improving operational performance, expanding clinical evidence, and demonstrated real-world impact give us confidence in the franchise’s ability to sustain healthy growth in 2026 and beyond. We believe our Afirma test remains well positioned to deliver value for patients, physicians, and payers while serving as a stable and durable growth engine within our portfolio. Building on the momentum across our core franchises, Prosigna LDT represents one of two major upcoming product launches that we believe mark an important next phase of growth. Prosigna is built on the well-established and scientifically validated PAM50 signature and provides deeper insights into the biological classification of breast cancer. By reporting the risk of recurrence using intrinsic subtype and a score to estimate the 10-year probability of distant recurrence, Prosigna is designed to inform treatment decisions at a critical point in a patient’s care journey. We see a significant opportunity in the U.S. market, where approximately 225,000 breast cancer patients are diagnosed annually with early-stage hormone receptor–positive disease and are eligible for Prosigna testing. This is a large, clinically meaningful population where improved biological insight has the potential to enhance outcomes and help avoid unnecessary treatment. Clinical evidence will be a key driver of adoption, as it always is. We look forward to the upcoming presentation of results from OPTIMA, a large Phase 3 randomized prospective trial enrolling approximately 4,500 patients. I am pleased to share that this presentation has now been confirmed on the agenda for ASCO later this month. If positive, we believe these results could be practice changing and further strengthen Prosigna’s already robust clinical foundation, and beyond OPTIMA there are additional studies underway that we expect will continue to expand the evidence base and support share gains over time. We remain on track to commercially launch Prosigna LDT by midyear. In preparation, we are scaling our commercial and medical science liaison teams and deepening engagement with key opinion leaders. Our second major upcoming launch is TruMRD, a whole-genome sequencing–based MRD platform and a key step in expanding into minimal residual disease. We remain on track to launch TruMRD in MIBC by the end of the second quarter and plan to leverage the strength of the Decipher brand and our established commercial channels in urology and radiation oncology, where we believe 70% of patients with MIBC are seen. Our initial focus will be on recurrence monitoring in patients who have completed curative-intent therapy, representing the majority of patients treated in this setting. We believe the initial TruMRD test launch addresses a significant unmet clinical need and represents an important proof point for our broader platform as we enter the large and growing MRD market. Early data and strong engagement from leading academic institutions reinforce our confidence that our TruMRD platform’s differentiated whole-genome approach positions us well to drive adoption and capture meaningful share over time. The TruMRD platform is highly scalable, with applications well beyond bladder cancer. We are building an expanding body of clinical evidence with several studies completed across bladder, colorectal, and lung cancer, as well as additional indications. Our pipeline continues to grow with more than 10 studies currently in testing or analysis, 12 in contracting, and 29 in active planning spanning muscle-invasive and non–muscle-invasive bladder cancer, breast, lung, colorectal, prostate, and kidney cancer, as well as immunotherapy treatment response. We are also seeing growing external validation of this approach. At the recent American Association for Cancer Research Annual Meeting in San Diego, we hosted a Spotlight Theater focused on the clinical utility of the TruMRD platform for tumor-informed ctDNA analysis. The session was well attended, underscoring the strong and growing interest in our differentiated approach to MRD. Investigators presented previously shared data from multiple large clinical trials, including TOMBOLA, Umbrella, and NEOBLAST. As a reminder, NEOBLAST is the first prospective interventional study utilizing TruMRD results and is designed to assess the feasibility of active surveillance in bladder cancer patients with negative ctDNA. As we expand our portfolio and advance our pipeline, we are also investing in the leadership and organizational capabilities required to support our next phase of growth. I am pleased to welcome Dr. Kevin Haas, who recently joined Veracyte, Inc. as our Chief Development and Technology Officer. Kevin brings deep expertise in product innovation, development, and software, with a strong track record of translating complex science into clinically impactful solutions. His leadership will be instrumental as we continue to advance our product roadmap and extend our reach to more clinicians and patients globally. I would also like to welcome Tracy Ward, our new Chief Human Resources Officer, who will play an important role as we scale the organization and help us to grow our culture and people—key ingredients to our success. In closing, we believe Veracyte, Inc. is well positioned with a long runway to deliver durable double-digit growth through execution of our long-term strategy. None of this would be possible without the execution of our team, and I am proud of what they have accomplished as we reach more patients than ever before. With that, I will now turn the call over to Rebecca to review our first quarter financial results and walk you through our outlook for 2026. Rebecca Chambers: Thanks, Marc. The first quarter was a very strong start to the year and reflects the disciplined execution and scale we have built over the past several years. We delivered total revenue of $139.1 million, representing 21% year-over-year growth. Total volume increased to approximately 47,600 tests, up 17% compared to the same period in 2025, and we generated $35.2 million of cash from operations, ending the quarter with $439.1 million in cash, cash equivalents, and short-term investments. Testing revenue for the quarter was $135.1 million, an increase of 26% year over year, driven by Decipher and Afirma growth of 30% and 21%, respectively. Total testing volume was approximately 45,200 tests, representing 19% growth year over year. Testing ASP was $2,980, up 6% compared to the prior year and inclusive of approximately $4 million of prior-period collections, or PPCs. Excluding PPCs, normalized ASP increased 3% to $2,900, driven by continued strong collections. Turning to gross margin and operating expenses, I will focus on our non-GAAP results. Non-GAAP gross margin was 75.7%, up 350 basis points year over year, driven by strength in our testing business and an improved business mix. Testing gross margin increased 230 basis points to 70.4%, reflecting operational efficiencies from our V2 transcriptome workflow and higher prior-period collections in the quarter as well. Non-GAAP operating expenses increased 7% year over year to $64.6 million. With the addition of our new Chief Development and Technology Officer, certain IT expenses associated with software development and project management, previously reported in G&A, have been moved directly into R&D as they are fully dedicated to our product development objectives. As a result, R&D expense increased $8.5 million year over year to $24.1 million, driven by our organizational changes and clinical investment, partially offset by a reduction of allocated expenses. Sales and marketing expense increased $2.2 million to $24.7 million, reflecting hiring and investments in our existing portfolio and preparation for the upcoming launches of Prosigna LDT and TruMRD in MIBC. G&A expense decreased $6.6 million to $15.8 million, primarily due to the organizational changes previously mentioned. From a profitability standpoint, we delivered GAAP net income of $28.7 million in the quarter. Adjusted EBITDA was $42.8 million, or 30.8% of revenue, up 73% year over year and well above our long-term target of 25%. This level of profitability underscores the operating leverage we have built over the last five years and provides the flexibility to continue investing in our growth drivers while generating meaningful cash. Turning to our 2026 outlook, we are raising full-year total revenue guidance to a range of $582 million to $592 million, representing 13% to 14% year-over-year growth, compared to our prior range of $570 million to $582 million. This reflects expected testing revenue growth of 16% to 18%, excluding the contribution of new tests, with Decipher revenue growth of approximately 20% and Afirma revenue growth in the high single-digit to low double-digit range, benefiting from improvements in our no-result rate. As a reminder, our guidance excludes any potential prior-period collections in future quarters. Given the strong start to the year, we are also increasing our full-year adjusted EBITDA guidance to greater than 26%. This outlook reflects our updated revenue expectations and continued investment to support our growth initiatives throughout the year. As always, while we plan expenses on an annual basis, adjusted EBITDA may fluctuate quarter to quarter due to the timing of investments and PPC variability. In closing, the financial performance we delivered this quarter reflects the significant transformation Marc described—five years of disciplined execution that have created a much more scalable, profitable, and resilient business. As we approach the next inflection point with multiple important product launches ahead, we are well positioned to build on this momentum, further strengthen our financial foundation, and continue expanding our impact. Most importantly, we remain focused on supporting more patients across their cancer care journey while creating long-term shareholder value. We will now open the call for questions. Operator, please open the line. Operator: Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Puneet Souda of Leerink Partners. Your line is now open. Marc Stapley: Thanks, Puneet. Happy to take that, and then Rebecca will address the financial impact. To remind everyone, the benefit on the no-result rate is coming from our transition of the entire Afirma workflow to the new V2 transcriptome. That was a staged launch in Q4 with a full launch by the end of the quarter, and now we are seeing our first quarter of full benefit from that. It has frankly exceeded our expectations in terms of how much better that assay is at recovering samples that previously would have been lost. Most importantly, beyond the financial impact, there is a real patient and physician impact from being able to provide a result and an answer more often than we were previously. I could not be happier or more proud of our team for executing this long and complex project. The great benefit is that the same platform is now available for our other tests, and the next test to use it after Afirma will be our Prosigna test. Rebecca will cover the financial impact. Rebecca Chambers: Thanks for the question, Puneet. During the quarter, the improvement contributed approximately 400 basis points to volume growth. I think that is about as good as it is going to get. It is above our expectations from our original guide for Afirma. If you recall, that original guide included a no-result rate improvement expectation of 0% to 2% for that mid- to high-single-digit Afirma revenue growth guide. We have now updated it to high single digits to low double digits, and that includes a 2% to 3% assumption. Two reasons why that assumption is below what we saw in the fourth quarter: one, no-result rates tend to worsen over the summer months with heat-related RNA degradation; and two, we have a comp from the fourth quarter of 2025 as we started to transition and see the benefit. For those two reasons, for the full year we are now expecting a 2% to 3% benefit from the no-result rate improvement. That flows through at essentially 100%. And, again, a huge benefit to patients and a huge thank you to the team. We are excited to launch Prosigna on the backbone of the new transcriptome as well. Operator: Thank you. Our next question comes from the line of Unknown Analyst of Jefferies. Your line is now open. Unknown Analyst: A couple from me. First, for the momentum in testing revenue, how should we think about the exit velocity of this business heading into the launch of new products? I know you are not baking that into the revenue guidance raise, but in terms of growth in the back half of the year. And second, the competitive moat for Decipher—how is the sales team positioning Decipher against newer, potentially lower-cost pathology or AI-based competitors? Marc Stapley: I am happy to address both. On new product introductions and momentum, as we have said, we are not including Prosigna and TruMRD in our guide for this year. We are going to manage those launches for customer and patient impact, and then scale as we see interest and our ability to operationalize in the lab. In terms of the ramp, it is hard to call a specific analog. For Prosigna, we are launching into a market that is very well penetrated. We do not have to educate physicians on why molecular diagnostics make sense for this population; we need to demonstrate, on the back of strong evidence, why Prosigna is a better test for patients. That implies a different ramp and strategy than a greenfield launch. For TruMRD, while people call it a competitive market, it is still fairly underpenetrated at this point, and there is still a lot of education to do, particularly in the muscle-invasive bladder cancer setting. On the competitive moat around Decipher, it is the same as we have always said. Whether you are talking about digital pathology/AI or other molecular diagnostics, we have generated so much evidence for Decipher over more than a decade—and remember, most of these studies had to start years ago to read out in this disease state—that it creates a substantial competitive moat. Specifically for digital pathology/AI, it is a recent approach. It is in the marketplace, but customers are quite skeptical, especially when they see discordant results, which have been demonstrated repeatedly. Our answer is to scan every slide we have—about 350,000—and make those images, along with GRID transcriptomes, available to the community to do the appropriate research, and to demonstrate the utility of that technology alongside molecular diagnostics. Physicians typically do not trade one thing for another; more information is better, as long as it is clinically proven. John, anything to add? John Leite: The only thing I would add is that on the pricing side, I have not seen pricing alone motivate a physician. All the other things would have to be true first, and then pricing would be a very late consideration in terms of driving the adoption or selection of a test. Operator: Our next question comes from the line of Douglas Schenkel of Wolfe Research. Your line is now open. Douglas Schenkel: Afternoon, and thank you for taking my questions. First, on Decipher: this is the 15th consecutive quarter of 20% plus volume growth. The market is about 33% penetrated. Incidence growth is around 6% per year. As we sit here today, how do you think about the multiyear sustainability of 20% growth, and can you disaggregate what will drive it—deeper penetration of existing accounts, opening up new practices, and/or share capture? Second, on OPTIMA and the upcoming ASCO readout in June: what is “good enough” to lean in aggressively on the launch in the back half, and if things go well, OPTIMA enrolled patients with up to nine nodes while Oncotype is approved for up to three nodes. How do you think about TAM expansion and potentially a differentiated label and reimbursement? Marc Stapley: Thanks, Doug. On Decipher growth, thanks for calling out the sustained trend. Decipher has been on a very steady volume growth trajectory. Over time, we have penetrated more risk categories and the denominator has grown, yet volume growth has remained consistently strong. Given that we are only about a third penetrated, two-thirds of men dealing with prostate cancer are not getting the benefit of the insights that Decipher provides. With the level of evidence and NCCN guidelines supporting the test across low, intermediate, high/very high, metastatic, biochemical recurrence, and post–radical prostatectomy with evidence now, every one of those categories should, over time, be getting a genomic test. That is why I think we continue to see growth. I am not guiding to whether it will be 20% in the future, but in terms of volume I do not see a reason for it to slow across categories. Intermediate is the largest and continues to penetrate, and, as I noted, we saw about 30% year-over-year growth in Q1 in high-risk categories. We also have multiple studies reading out over the next few years that cover low-risk and surveillance as well. There is a steady drumbeat of evidence around Decipher that keeps it going, and we are quite excited about the ENZIMET trial for the metastatic population at ASCO as well. On OPTIMA, John, do you want to take that? John Leite: Certainly. Thanks, Doug. Unfortunately, the bar is quite high. OPTIMA will require a positive outcome on the primary endpoint—a demonstration of noninferiority against the control—for the predictive claim. We have said all along we believe we need that data to merit Level 1A evidence that would drive, we hope, inclusion in the guidelines so that we can, at a minimum, be on par with the product on the market today, and then differentiate with the latest clinical utility data and performance of the test. Marc Stapley: Thanks, John. Doug, I also think nodal status is important, and more than that, the breadth of what OPTIMA addressed, including premenopausal and postmenopausal populations. It is a very well-designed study, and our launch approach depends on it reading out appropriately and favorably. We hope that will be the case on May 30, which is Saturday at the end of the month. Rebecca Chambers: Importantly, our hiring is going quite well. We are building the team, and with a positive OPTIMA readout, guideline inclusion, publication—all of that—we would turn to be more aggressive. I would think that would be an “exiting the year” sort of decision, and we are excited about the opportunity for Prosigna to be a multiyear growth driver for the company. Operator: Our next question comes from the line of Subbu Nambi of Guggenheim. Your line is now open. Subbu Nambi: You are raising guidance by a few million more than the beat, and the guidance still does not include the impact of new tests. It sounds like most of the raise is for Afirma as you reiterated your Decipher revenue growth outlook of approximately 20%. Any additional details you can share as to what you are expecting now for Decipher volume and ASP? Rebecca Chambers: Thanks, Subbu. You are absolutely right. We raised guidance by the beat and then a little bit more at the midpoint for the raise in Afirma. Decipher is trending as expected—plus or minus a day of volume at any point in time is kind of what we expect, and this quarter was no different. It was a good quarter, but the outlook for the rest of the year is around that 20% guide we had coming into the year. In prior years, we had a really big step-up sequentially in the second quarter for Decipher given the timing of guidelines. This year, guideline timing was in the back half of the prior year, and that is one factor we have taken into account on a sequential basis. Competitively, we remain incredibly strong. ASP, as I cited, was up meaningfully ex-PPC, and the trends of the business are very strong. The guidance raise reflects those trends as well as the fact that we only have one quarter under our belt. Subbu Nambi: Thank you. And as you think about your commercial indications for TruMRD beyond MIBC, you mentioned studies have been completed in MIBC, CRC, and lung, and ongoing studies in other indications. Can you help us understand where you are in selecting the next indication and your strategic priorities? Marc Stapley: As I mentioned, we have a lot of studies in progress, and that keeps growing. We have a regular strategic planning process, and our next huddle on that is in July. We will continue to advance our thinking there. In the meantime, our priority remains launching our MIBC product, securing reimbursement coverage, and starting to penetrate the muscle-invasive bladder cancer opportunity. No new updates on the next launch and timing. Typically, we do not pre-announce the exact order because R&D can change, and we do not want changes in sequencing to be misinterpreted. It is all driven by the evidence and timing of the evidence coming through. Operator: Thank you. Our next question comes from the line of Mason Owen Carrico of Stephens Inc. Your line is now open. Mason Owen Carrico: In terms of Prosigna LDT, if the OPTIMA study reads out in June, do you think it can be published before the NCCN breast cancer panel meeting, which I think is in August, so that it could be included in that review? Marc Stapley: I do not think so. John may have more to add, but that might be a bit too optimistic. The publication might come out before then, but whether it influences the guidelines, we just do not know. If you look at our past history in other indications, we have not needed guidelines to get good traction; guidelines have been an additional catalyst further down the road. John? John Leite: You answered appropriately. We just do not know. If the publication comes out early enough, it is possible—with a high enough impact—that NCCN would consider late-breaking data and have a sufficiently robust discussion to perhaps include it in the guidelines, but that is speculative. It is not outside the realm of possibilities, but we do not know what they may or may not do. Mason Owen Carrico: Were Decipher volumes impacted at all in the quarter by weather? If so, could you quantify that impact? Rebecca Chambers: The weather was slightly worse than the prior year, but most of the impact was caught up during the quarter as we exceeded our expectations. We have always said plus or minus a day of volume—which tends to be 400 to 500 samples—can fall on either side of a quarter. We were pleased with the performance of the Decipher franchise during the first quarter despite challenging weather. Operator: Thank you. Our next question comes from the line of Kyle Mikson of Canaccord Genuity. Your line is now open. Kyle Mikson: On Afirma, can you talk about prior-period collections for that test specifically and how you think about visibility and ASP upside for that test? It seems like volume growth could be relatively steady, so pricing might be the one variable. Rebecca Chambers: The guide of high single digits to low double digits includes the Q1 prior-period collections. Q1 prior-period collections for Afirma were about half of the total $4 million of PPCs, which is more than usual. We do not assume prior-period collections in our guide going forward. Ex–prior period, Afirma ASP was up around 100 basis points, and Decipher was up above that to get to the blended average of 3%. I do not think there is as much room on Afirma, given how long it has been on the market and the 280 million covered lives. There is more ASP upside in Decipher over a multiyear period, and that, ex-PPCs, is what manifested during the quarter. Kyle Mikson: You have been profitable for a while, you have a strong cash position, and outstanding EBITDA margins. How do you think about capital allocation going forward, and with respect to M&A, what would be attractive attributes in a potential target? Is a large TAM important? Nearing reimbursement critical? Marc Stapley: No real change in philosophy. We are always active in the market and look at everything, but we are discerning. We have an oncology-based, data-driven strategy. Opportunities that fit that strategy make the most sense. That does not mean we would not consider tuck-ins or technology plays that help advance the strategy. With our financial profile—strong, consistent revenue growth and strong profitability—we think carefully about anything that would be dilutive and take that into account accordingly. Operator: Our next question comes from the line of Keith Hinton of Freedom Capital Markets. Your line is now open. Are you there, Keith? I am showing no further questions at this time. Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today At this time, I would like to welcome everyone to the JELD-WEN First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to James Armstrong, Vice President of Investor Relations. Please go ahead. James Armstrong: Thank you, and good morning. We issued our first quarter 2026 earnings release last night and posted a slide presentation to the Investor Relations portion of our website, which can be found at investors.jeld-wen.com. We will be referencing this presentation during our call. Today, I'm joined by Bill Christensen, Chief Executive Officer; and Samantha Stoddard, Chief Financial Officer. Before I turn it over to Bill, I would like to remind everyone that during this call, we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q filed with the SEC. JELD-WEN does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results. Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their most directly comparable financial measures calculated under GAAP can be found in our earnings release and in the appendix to our earnings presentation. With that, I would like to now turn the call over to Bill. William Christensen: Thank you, James, and good morning, everyone. Before turning to our results, I want to thank the teams across JELD-WEN. Even with continued market pressure, our organization is showing up every day with focus and urgency driving operational improvements, supporting customers and advancing the work needed to strengthen the company. A key element of that work is investing for our customers through improved service and customer experience. As a company, we continue to place incremental focus into service and responsiveness, and we believe that this will create value as the year progresses. The macro environment remained soft in the first quarter consistent with our expectations. As a reminder, the first quarter is the seasonal low period, and we anticipate improvement as we move through the remainder of the year. During the quarter, we also implemented a number of pricing increases, and we expect those increases to begin flowing through more meaningfully in the second quarter and beyond. Overall, we delivered the quarter within our expectations and managed through a difficult volume environment. As seen on Slide 4, sales for the quarter were $722 million. As we have previously discussed, we took deliberate actions to align our labor with current market conditions, and we continue to adapt the cost structure of the business. At the same time, we are balancing investments in our customers by maintaining the resources needed to deliver quality and dependable service. We are already seeing significant service improvements across the company including our On-Time, In-Full Rates. Adjusted EBITDA was a modestly positive $6 million for the quarter, and cash performance was generally in line with our expectations. As a reminder, the first quarter is typically the highest working capital quarter, and we would expect working capital to unwind as we move into the back half of the year consistent with the seasonality of the building products industry. As we look ahead, we continue to focus on what we can control. As we mentioned last quarter, customers are very clear that consistent delivery and follow-through are what they value most. And we continue to direct investments towards these priorities. With the improvements we are seeing, we continue to discuss opportunities to regain volume, and we now expect improved execution and service levels to contribute to incremental sales versus the 2026 expectations we shared in the fourth quarter results call. We are strengthening the customer experience through better execution and consistency, and we expect that to support improved performance as the year progresses. At the same time, we are also seeing higher cost pressure, particularly in freight and pricing remains competitive in certain areas versus what we expected previously. We are managing those dynamics, staying disciplined on what is within our control while continuing to prioritize customer service and operational execution. Finally, we continue to progress the strategic review of our European business. While the process is ongoing and we have nothing to announce at this time, we believe this review could provide meaningful liquidity and help further strengthen our balance sheet. We are also evaluating various alternatives thoughtfully with a focus on improving financial flexibility while preserving long-term value. With that, I'll hand it over to Samantha to review our financial results in greater detail. Samantha Stoddard: Thank you, Bill. Turning to the financial results on Slide 6. First quarter net revenue was $722 million, down 7% year-over-year. The revenue decline was driven by lower volume/mix. While mix was down slightly year-over-year, most of the volume/mix decline was driven by lower volume. Adjusted EBITDA for the quarter was $6 million, down 72% year-over-year and adjusted EBITDA margin was 0.9%, down 190 basis points year-over-year. The lower earnings performance was primarily driven by volume/mix, along with negative price/cost dynamics during the quarter as inflation was not fully offset by pricing. These headwinds were partially offset by significantly improved productivity year-over-year. Turning to cash flow. Operating cash flow was a $91 million use of cash in the first quarter driven by lower EBITDA, combined with a $43 million use of working capital. As a reminder, the first quarter is typically the highest working capital quarter of the year, and we expect significant working capital improvement as we move through the remainder of 2026. As a result of lower EBITDA and the use of cash, net debt leverage increased to 11.3x at the end of the first quarter. Given the seasonal use of working capital, we drew $40 million on our revolver. We continue to manage the business with a disciplined focus on cash, cost and balance sheet flexibility. Turning to Slide 7. The year-over-year change in net revenue was driven primarily by lower volume/mix. First quarter sales were $722 million, compared to $776 million in the prior year, and core revenue declined 10% year-over-year. Pricing was a slight positive, but it was more than offset by the volume/mix decline, which drove the majority of the year-over-year reduction. The comparison also reflects a $30 million tailwind from foreign exchange driven by a stronger euro relative to the dollar. Taken together, these factors explain the year-over-year change in revenue and are consistent with the market conditions we discussed earlier. Turning to Slide 8. Adjusted EBITDA for the first quarter was $6 million, compared to $22 million in the first quarter of last year. The year-over-year decline reflects a combination of cost pressure and lower volume/mix. Price/cost was a $21 million headwind as pricing was slightly positive, but it continued to be outweighed by cost inflation in areas like glass, metals and transportation. Volume/mix was also a $22 million headwind, and that impact was driven primarily by lower volumes year-over-year. These headwinds were partially offset by improved execution across the business. Productivity was a $22 million benefit year-over-year, and we also delivered a $6 million improvement in SG&A and other expense despite a $10 million other income headwind from prior year. Turning to Slide 9 and our segment results. In North America, first quarter revenue was $453 million, compared to $531 million in the prior year. The year-over-year decline was driven primarily by lower volumes and the court-ordered Towanda Divestiture which had partial impact in the first quarter of 2025. Adjusted EBITDA for North America was $4 million, compared to $16 million last year. And adjusted EBITDA margin declined to 0.8% from 2.9%. Profitability was pressured by continued inflation and lower volumes, partially offset by significant year-over-year productivity and SG&A improvements. In Europe, revenue was $269 million, up from $245 million in the prior year, an increase of 10% year-over-year. The improvement was driven primarily by foreign exchange and slightly better pricing, partially offset by continued volume decline. Foreign exchange contributed approximately 11.5 percentage points to the year-over-year revenue change. Adjusted EBITDA for Europe was $7 million compared to $11 million last year and adjusted EBITDA margin was 2.6% versus 4.3% in the prior year. Productivity was a slight positive, but those benefits were more than offset by lower volume/mix, along with higher SG&A expense. With that, I will turn it back over to Bill to discuss our updated market outlook and how we are positioning JELD-WEN for the path ahead. William Christensen: Thanks, Samantha. Turning to Slide 11. I want to walk through our market outlook for 2026 and the assumptions underlying our guidance. Importantly, our view of the market has not meaningfully changed from what we outlined previously in our fourth quarter 2025 results call. We continue to operate in a challenging and uncertain environment and our outlook reflects a cautious view rather than any expectation of a near-term recovery. In North America, we expect the overall windows and doors market to be down low to mid-single digits. Within that, we see new single-family construction down low single digits and repair and remodel down mid-single digits. We now expect U.S. multifamily to be up significantly year-over-year, while Canada continues to face more significant pressure with high single-digit declines, reflecting ongoing economic softness and continued weak housing activity. In Europe, conditions appear to be stabilizing. We expect volumes to be roughly flat year-over-year. Demand remains subdued, but we are not seeing further deterioration from current levels. At the company level, our volume assumptions are now more aligned with the underlying market. We continue to expect some impact from prior pricing actions but we are also beginning to see the benefits of improved service levels. Our guidance reflects a modest contribution from these service improvements while maintaining a clear focus on pricing discipline. Overall, our framework remains consistent. Our guidance is based on current demand levels with pricing actions largely in place and a continued focus on margin protection and execution rather than relying on an improvement in end market conditions. Turning to Slide 12. I I'll walk through our updated full year 2026 guidance. Overall, we are increasing our revenue outlook, holding our adjusted EBITDA range and maintaining cash flow expectations. We now expect net revenue in the range of $3.05 billion to $3.2 billion, up from our prior range of $2.95 billion to $3.1 billion. This reflects a modest benefit from improving service levels, which brings our company volume assumptions more in line with the underlying market. April sales have been in line with our expectations, which supports the updated view we are sharing today. As a result, we now expect core revenue to decline between 3% and 6% year-over-year compared to 5% to 10% previously. The adjusted EBITDA range remains unchanged at $100 million to $150 million. While the higher revenues progress, we are seeing incremental price/cost headwinds relative to our prior assumptions, which offset the benefit from improved volumes. Our outlook continues to reflect higher pricing and a focus on execution in a still changing demand environment. On cash flow, we continue to expect operating cash flow of approximately $40 million and a free cash flow use of approximately $60 million. We still anticipate capital expenditures of approximately $100 million that are largely maintenance in nature. Our guidance assumes no portfolio changes. However, as noted, we continue to evaluate strategic options, including our review of the European business, and additional actions to improve liquidity. Turning to Slide 13. This chart bridges our 2025 adjusted EBITDA of $118 million to the midpoint of our 2026 adjusted EBITDA guidance of $125 million. Starting on the left, market volume/mix remains a headwind of approximately $25 million, reflecting the continued pressure we see across our end markets. The next item is net share loss which we now expect to be a $30 million headwind, improved from our prior expectation of $60 million. This reflects early progress on service and a more stable customer response as those improvements begin to take hold. We now expect a greater headwind from price/cost, which we anticipate to be approximately $40 million, compared to $10 million previously. The environment remains highly competitive and as our service improves, we've been more active commercially, including targeted promotional activity to regain traction with certain customers. In addition, we are seeing higher-than-expected cost pressure, most notably in freight. These external and commercial pressures are offset by actions within our control. We continue to expect approximately $75 million of benefit from rightsizing and base productivity, reflecting actions that are largely executed and will be realized over the course of the year. We also expect about $35 million of carryover benefit from our transformation initiatives, including automation, footprint optimization and systems improvements as those efforts continue to move in a more steady state operating model. The remaining items include approximately $10 million of headwind from compensation and other timing-related factors, partially offset by foreign exchange and other items. Taken together, these elements bridge to the midpoint of our 2026 adjusted EBITDA guidance. While the mix of headwinds has shifted, the overall earnings outcome remains unchanged, reflecting both the ongoing pressure in the market and the impact of the actions we are taking to manage through it. Before we wrap up, I want to step back and highlight the progress we are making on service across our North America business. On Time, in Full delivery or OTIF, is a key customer metric and it is where we have been intensely focused. As you can see on Slide 14, our OTIF performance has improved significantly over the past year, moving to over 90%. This is a meaningful step change in how we are serving our customers, and we are seeing that reflected in the feedback we are getting across the business. Customers are noticing the improvement. We are seeing better engagement, more consistent order patterns and importantly, increased opportunities to quote and compete for new business as our service levels improve. This progress is being driven by both stronger execution and deliberate investment. Operationally, we have now deployed our A3 management system across the network, which has improved how we identify issues, solve problems at the root cause and maintain consistency as well as ownership at the plant level. At the same time, we have made conscious decisions to prioritize service, including higher transportation spend, such as shipping partial loads when needed and maintaining staffing levels despite lower volumes. These are targeted investments to support service and rebuild trust with our customers. We believe that as service continues to improve, that trust will translate into volume recovery and share gains over time. That said, we are not finished. Our goal is to consistently operate above 95% OTIF and reaching that level will require further progress, particularly with our vendor base and how we manage special order products. Overall, we are encouraged by the progress we are making. Service is improving, customers are responding, and we are beginning to see that translate into commercial opportunities. Turning to Slide 15. I'll close by stepping back and putting our progress into perspective. Over the past year, we've made significant improvements in how we serve our customers. We have invested in service, strengthened our operating discipline and focused the organization on the metrics that matter most. Cash and liquidity remain a priority. We are taking actions to preserve cash, and we continue to evaluate opportunities to strengthen liquidity and maintain flexibility in an uncertain environment. Our strategic review of Europe is ongoing, and we continue to evaluate other opportunities to improve liquidity and strengthen financial flexibility. Across the business, we are also aligning labor with current market conditions while continuing to invest in the organization for the long term. That includes work to improve culture and engagement. We recently completed a company-wide baseline employee engagement survey, and our managers are actively using that feedback to create individual action plans focused on local level engagement. Importantly, our customers are seeing the difference. Service levels have improved, performance is more consistent, and we are beginning to rebuild trust. That is showing up in better engagement and increasing opportunities to compete for new business. However, we are not yet where we need to be. There's more work to do and we know that this will not happen overnight, but we are moving in the right direction and starting to see the early benefits. At the same time, we are managing the business with a clear view of current market conditions. We are aligning the cost structure to demand, maintaining pricing discipline and staying focused on execution. As I close, I want to recognize the work of our associates across JELD-WEN. The progress we are seeing is the result of their effort and focus every day. Our customers are noticing the improvement and it is important that we continue to build on that momentum. Overall, we are becoming a more consistent and disciplined company. We are improving service, rebuilding customer confidence and managing the business with a clear focus on cash and execution. With that, I'll turn the call back over to James for questions. James Armstrong: Thanks, Bill. Operator, we're now ready to begin Q&A. Operator: [Operator Instructions] Your first question comes from the line of John Lovallo of UBS. John Lovallo: The first one is, at the midpoint, your outlook seems to imply 2Q adjusted EBITDA of about $31 million. That's versus about $6 million in the first quarter. Can you just help us kind of bridge the ramp from first quarter to second quarter? Samantha Stoddard: John, yes, this is Samantha. I can help bridge that gap. So it's primarily driven by normal seasonality with the second quarter typically benefiting from higher sales volume and then better labor absorption as well. This year, we also expect to see the benefit of pricing actions that we implemented already in Q1, but begin flowing through more meaningfully at the start of Q2. And as you heard Bill say in the earlier remarks, we are already seeing the uptick in April. So we do feel good about going into Q2. John Lovallo: Got it. That's helpful. And then on the North American decremental margin, it is around 15%, which was pretty favorable, and I think it speaks to the cost controls and the cost takeout you guys have achieved. I mean how sustainable do you think this level of decremental is? And maybe more importantly, how are you thinking about incrementals in an improving volume environment? Samantha Stoddard: Yes. So I can start, and then I'll let Bill jump in. I think that in the short term, you are going to see us holding the line with the costs in particular. So you're right in that a lot of the transformational actions and cost takeouts that we saw in '25 going into '26 are going to continue. With the improved volumes from what I just spoke about, the seasonality as well as some of the higher price, that should then flow, I would say, our normal incrementals, 25% to 30% on the upside. William Christensen: John, it's Bill. So the only thing I'd add there is what I'm really pleased with is if you look at our bridge coming out of our full year '25 guide to where we are now, we've removed about $100 million of headwind. And that speaks to the hard work that our teams are doing every day to really make things work for our customers. So we're starting to gain traction and reducing the rate of decline, which is great. So we do have some share loss that's lapping from '25, but we feel pretty good here headed into the last 3 quarters of this year. Operator: Your next question comes from the line of Susan Maklari of Goldman Sachs. Susan Maklari: My first question is on the improved service levels. It's encouraging to hear that you're seeing such a nice lift there. I guess, can you talk more about how you're thinking of the path from here, the specific programs that you are working on and putting in place to support that? And I know last quarter, we talked about standardizing some of your operating systems and processes to help with that service. Is this part of what's driving that? And where you are in that process as well? William Christensen: Yes, Susan. Thanks for the question. So absolutely, standard work across our network of sites, both in Europe and in North America is progressing very well. And you can see, based on what we showed on Chart 14 with the improvement on the OTIF metrics, clearly, there's still work to be done. But we are in a pretty choppy demand environment. And so our network needs to be very flexible and as we noted in the prepared remarks, we have incurred some additional costs based on not in full shipments, but making sure we're doing everything we can to meet our customers' expectations. So that's progressing well. I think the second thing I'd want to call out is that the teams are working extremely hard to connect with our customers and define areas of opportunity where we can lean in together with them to regain some of the share that we've lost in the last couple of years, and that's starting to show up as well. So we think this bodes well for the back half of the year, even though we still are expecting a pretty soft market environment as we outlined in prepared remarks. Susan Maklari: Okay. That's very helpful. And then can you give a bit more color on the magnitude of the inflation? How we should be thinking about that path for price/cost this year? I know you mentioned that you're starting to see some of the realization on the first quarter increase. And with that, how you're thinking about that balance between volume versus price in this environment? Samantha Stoddard: Yes. Let me go ahead and start that, Susan. So on the inflation side, I think the biggest area that we're seeing inflation is going to be around the freight and energy prices. So we're seeing that both in North America as well as Europe. On the better note, we are seeing slightly less tariff exposure that we did expect when we were starting the year. In terms of the magnitude, they're somewhat offsetting each other, not exactly, but materially, they're about offsetting. So when we think about the price/cost negativity, I think that there is some of that in inflationary pressures. And there is the affordability challenge from a price standpoint. We are seeing competitive pricing in different areas of the market. So while we have already gone out with price, that is why we're calling down some of the price/cost that we initially expected to be around negative 10% from an EBITDA bridge, we are now seeing that to be a little bit higher. Operator: Your next question comes from the line of Matthew Bouley, Barclays. Anika Dholakia: Anika Dholakia on for Matt today. So first off, for Europe, you guys mentioned that you're not seeing any further demand pressure from current levels. So I'm curious if this suggests that pricing strength can continue in this region similar to 1Q? And then just kind of going off of that, how have some of the recent geopolitical dynamics maybe impacted the review of the European business, if at all? So yes, any color on that? William Christensen: Thanks for your question. Yes. So we clearly are seeing more signals that we're at the bottom of the valley from a volume decline. So Europe has stabilized. We called it last quarter. We're seeing similar trends just to remind you, it takes 9 to 12 months post start to put our product in. So it's going to be a while until you see things tick up in the Doors world. On pricing, we've done a great job across many European markets of introducing price to offset inflation and headwinds. The macro reality is going to have a pretty significant impact in Europe on energy, feedstock input prices, transportation costs, et cetera. We're already in market with pricing to offset a number of those headwinds. So I'd say we're feeling fairly balanced currently in Europe. And then the third comment is we wouldn't really comment specifically on where we are on the strategic review and what the influences would or wouldn't be as we said in the prepared remarks, nothing further process is ongoing, but no further details today. Anika Dholakia: Okay. Great. That's really helpful. And then on the second question, so on the productivity initiatives on the $110 million, I'm curious, I think last quarter, you guys said 50% completed, 25% actioned, but hadn't hit and then 25% still needed to be actioned. Is this on track with what you guys expected? Or any updates to these numbers? Samantha Stoddard: Sure. So breaking it down, the $35 million of the transformation carryover, that is 100% completed at this point. So these are structural costs. We talked about it on an earlier question that we are seeing the benefits of and they're 100% complete. On kind of the base productivity, rightsizing of the business, I would say we're greater than 80% of those initiatives that are done. So there's still a little bit of work to be done on some of the smaller initiatives, but the majority have been banked at this point, and we'll see that carry through in Q2 through Q4. Operator: Your next question comes from the line of Jeffrey Stevenson with Loop Capital. Jeffrey Stevenson: Can you talk more about the improvement in on-time deliveries you've seen over the last year and whether it's corresponded with the stabilization in your share position over that time period of service levels continue to improve? William Christensen: Yes. So yes, that's the short answer. The longer answer is, obviously, we have a fairly broad portfolio in the North American market. So there's a number of different areas where we're performing very well and continue to do so. And there's other areas where clearly we weren't meeting expectations of our customers. And as we had described last year, there was some share loss, some pruning on our side, but also some share loss. And we're definitely regaining share in certain pockets that our North America team is very focused on partnering with our customers to give them the product at the right time at the right place. So we're pleased with the improvements. And as I said, we've probably reduced by about half the headwind that we thought we would have this year from a top line standpoint. So we're making good progress, not finished. There's more work to be done, but I think that's a good signal that we're moving in the right direction, Jeff. I think that's the important message today on the call. Samantha Stoddard: And Jeff, just highlighting back to the full year guidance bridge. As I talked about earlier with Susan, that the price/ cost, unfortunately, has become a little bit more negative but that share loss volume/mix, EBITDA impact, as Bill was talking about, has improved by about $30 million from last quarter. Jeffrey Stevenson: That's very helpful. And then thanks for the update on the Europe strategic review. But previously, you talked about divestitures of smaller noncore assets as well, such as your distribution business in North America. And I just wondered if there are still opportunities across your footprint for other potential divestitures as well. William Christensen: Yes. So Jeff, what we've said is we continue to evaluate other options in addition to the strategic review to improve liquidity, which clearly is a key focus point of ourselves given the current macro environment. And that includes assessing sale of other assets, potential sale-leaseback transactions. No further detail from our side. I think more importantly, we've said this a number of times, I want to reiterate, we expect to address our near-term maturities before they go current in December. And for the time being, as Samantha laid out in her prepared remarks, we have ample liquidity, and we're actively managing cash in this soft macro environment. So I think that important combination. We continue to evaluate options. We have a number of options, and we're staying very close to the cash situation, combine that with improvements on service and better volume outlook from our side. We're feeling good about where we are currently. Operator: There are no further questions at this time. And with that, I will now turn the call back over to James Armstrong for final closing remarks. Please go ahead. James Armstrong: Thanks, everyone, for joining us today. If you have any follow-up questions, please feel free to reach out. We appreciate your time and interest in JELD-WEN. Have a great day. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.
Lluc Sas: Welcome to Sabadell's results presentation for the first quarter of 2026. Joining us today are our CEO, Cesar Gonzalez-Bueno; and our CFO, Sergio Palavecino. The presentation will follow the same structure as in previous quarters. Our CEO will begin by highlighting the key developments of the quarter and discussing the most relevant topics. Then our CFO will review financial results and the evolution of the balance sheet. The presentation will conclude with closing remarks from our CEO, after which we will open the floor for a live Q&A session. So Cesar, over to you. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Lluc. Good morning, everyone. I will begin by outlining the 4 highlights of the quarter, which we will discuss in more detail during today's presentation. First, the sale of TSB is now complete. Therefore, we will pay the extraordinary cash dividend of EUR 0.50 per share at the end of May. Second, as we already anticipated, Q1 will mark the bottom of our core revenues. We expect these items to increase in each quarter over the course of the year. Third, we have launched an early retirement plan, which would improve efficiency in '26, but mainly in 2027. Fourth, we commit our full year guidance. Indeed, beyond the ups and downs of any given quarter, we have a sound, secure and proven growth strategy to deliver a 16% return on tangible equity in 2027. Slide 5 shows the key financial messages for the quarter. Just to remind everyone, all figures and results presented now exclude TSB. Supported by strong commercial momentum, performing loans and customer funds recorded year-on-year growth in the mid-single digits. In this context, core revenues are expected to have reached in this quarter their lowest point of the year. We see core revenues improving going forward as repricing pressures on NII ease and fee performance normalizes. Recurrent costs performed well in the quarter and reached EUR 569 million. We recorded one-off costs in the quarter of EUR 55 million related to the early retirement program underway. Our fundamentals remain solid. Our recurring return on tangible equity stood at 14.1%, and our capital position remains strong with a core Tier 1 at 13.2%. This performance is underpinned by strong asset quality that keeps on improving. Cost of risk and total NPAs both showed a reduction year-on-year. We continue to build up our Stage 3 coverage, which now stands above 70%. Finally, as I said before, we will distribute EUR 0.50 per share as an extraordinary dividend by the end of May. In parallel to this cash dividend, we keep executing our share buyback programs. We have already completed EUR 267 million out of the approved EUR 800 million. On Slide 6, financial implications of the now completed TSB transaction. Let me start with the sale proceeds. The initial agreed price was GBP 2.65 billion. This figure was agreed to be increased by the tangible net asset value generated since April 25. Taken together, this results in a final sale price of GBP 2.9 billion. Now let me emphasize the strategic and financial merits of the transaction. Firstly, the sale has generated significant value for shareholders. Transaction multiples are above both peer transactions and Sabadell's own trading multiples. In addition, the transaction is expected to generate more than 400 basis points of capital. This is driven by capital gains of more than EUR 300 million and the deconsolidation of risk-weighted assets. As approved at the Extraordinary General Meeting held last August, we will return this capital to shareholders. Accordingly, we will pay an extraordinary dividend of EUR 0.50 per share on the 29th of May. To conclude, following the sale of TSB, Sabadell now represents a more focused and simplified equity story with a clear strategic profile centered in Spain. In Slide 7, we see the details of the early retirement plan. We executed our last efficiency program as you remember, back in 2022, which included an early retirement plan. Since then, circumstances such as the demographics of our workforce prevented us from executing additional early retirement plans. Circumstances have changed and a structured early retirement plan is already being implemented in 2026. Importantly, this approach supports workforce optimization in line with the evolving business models and digital transformation. In terms of financial impact, we will incur in one-off costs in 2026 of approximately EUR 90 million. Meanwhile, we will generate gross annual savings of approximately EUR 40 million. Approximately 1/3 of these savings are expected to materialize in 2026 as the program is rolled out with a full run rate savings achieved in 2027. On Slide 8, we talk about new lending. Starting with mortgages, new lending decreased by 24% year-on-year. We remain focused on managing new lending through risk-adjusted return on capital, ensuring that growth is delivered in a profitable manner. As a result, we have continued to reduce our market share in new mortgage lending over the past months as front book yields have compressed. Origination of consumer loans decreased both year-on-year and quarter-on-quarter. We introduced changes to the application process this quarter, which temporarily impacted on conversion rates. We have already improved the process again and conversion rates and origination volumes are picking up again. Quarterly new loans and credit facilities granted to SMEs and corporates increased by 1% year-on-year and by 5% quarter-on-quarter, while working capital performance was more subdued. Overall, as we share on the next slide, these volumes of new lending allow us to continue growing our loan book. On slide 9, we see the loan book and starting with Spain on the left-hand side of the slide. Performing loans increased by 0.8% on the quarter with positive growth across all segments. Performing loans in Spain increased by 4.3% year-on-year. Our international operations are experiencing good momentum as well with performing loans rising by more than 7% quarter-on-quarter and by double-digit figures year-on-year. Overall, our total loan book showed a positive trend during the quarter, growing by 1.6%. Annual growth rate reached 5.6%. Moving on to customer funds on Slide 10. First, on balance sheet, customer funds ex-TSB remained broadly stable quarter-on-quarter and increased by 4.3% year-on-year. The Spanish perimeter showed an increase of 4.7%. Second, our balance sheet funds also remained broadly stable in the quarter, as market volatility has had a dampening effect on net subscriptions. We posted an increase over 10% on a year-on-year basis. All in all, total customer funds grew by 5.9% year-on-year. Looking at on-balance sheet funds breakdown on the right-hand side of the slide, non-remunerated deposits reached EUR 83.9 billion. Those non-remunerated deposits are almost completely located in Spain. This highlights the high proportion of low-cost funding within our deposit base. The cost of customer funds stood at 78 basis points in the quarter in the ex-TSB perimeter. Let me note that this includes higher yields in U.S. dollars and Mexican pesos. Therefore, the cost of customer funds in Spain was significantly lower and stood at 59 basis points. On Slide 11, we make a summary of our quarterly results. We recorded a net profit of EUR 284 million or EUR 347 million, including the contribution from TSB. Let me emphasize two points. Firstly, as I had previously explained, revenues have bottomed out with improvements expected in the coming quarters. Secondly, Quarterly results include EUR 70 million pretax in one-off charges, nonrecurring costs related to efficiency initiatives and FX hedge on the proceeds from the sale of TSB. Underlying profitability remains solid and recurring return on tangible equity stood at 14.1%. This keeps us on track to reach our full year guidance of 14.5%. And with that, let me turn it over to Sergio. Sergio Palavecino: Thank you, Cesar. And good morning, everyone. Let's move on to the financial results on Slide 13. Before going through the different lines of the P&L, I would like to explain the extraordinary items that Cesar has just mentioned. First, within the trading income line, we recorded an expense of EUR 14 million related to the foreign exchange rate hedging of the full proceeds from the sale of TSB. Once the sale has been completed, next quarter, we will record only EUR 5 million corresponding to the month of April. Second, we recognized EUR 55 million of nonrecurring costs related to the early retirement program in Spain. Overall, recurring ROTE stands at 14.1%, which is in line with our expectations and our year-end target of 14.5%. We will now review the main P&L items in more detail, focusing on Sabadell's performance, excluding TSB. Starting with NII on Slide 14. NII bottom out this quarter as expected, decreasing by 2.5% quarter-on-quarter and by 3.5% year-on-year, which is mainly explained by the final headwind of lower interest rates repricing as well as the seasonality of Q1. On the top right-hand side of the page, you can see the drivers that explain the quarterly evolution. Moving from left to right, customer NII had a negative contribution of EUR 8 million due to lower customer margin. This was driven by loan book repricing at lower rates and a slightly higher cost of deposits following the success of the last digital current account campaign. Then the day count effect on customer NII resulted in a EUR 6 million negative impact. Regarding ALCO liquidity and wholesale funding, we have seen a net impact of also minus EUR 6 million, mainly attributed to liquidity, reflected increase in borrowing in dollars and Mexican pesos, which carry higher interest rates. Going forward, this will no longer be a headwind and we are expecting tailwinds from customer NII as explained in the next slide. Indeed, looking ahead on the left-hand side of the Page 15, the expected quality evolution throughout 2026 is shown. As anticipated, after reaching a low point this quarter, we now expect NII to grow at a low single-digit rate quarter-on-quarter. From there, NII should increase steadily over the year, ending the fourth quarter of 2026 with a mid-single-digit increase compared with the fourth quarter of last year. This outlook is based on the current macroeconomic environment where we are assuming interest rates will stay at higher levels than we had previously expected. The slightly higher rate environment, together with ongoing uncertainty and volatility may affect loan volumes. We now expect growth to be slightly below our initial plans, but still at mid-single digits. At the same time, on balance sheet customer funds are expected to grow between 3% to 4%. Higher interest rates should support loan yields with a steady quarter-on-quarter improvement starting from the beginning of the second quarter already. Regarding deposit costs, we now expect a lower pass-through compared with our existing book, which should support customer spread. Overall, customer spread is expected to improve quarter-by-quarter and reached levels above 290 basis points by year-end, slightly better than initially forecasted. Finally, noncustomer NII, which includes ALCO, wholesale funding costs and the liquidity contribution is expected to remain broadly stable around current levels. Taking all of this together, we are maintaining our NII guidance and continue to expect more than 1% year-on-year growth in 2026. Moving on to fees. posted a quarter-on-quarter decrease, mainly driven by the absence of success fees recorded in the previous quarter by seasonality and by a one-off cost in the payment service business. Looking ahead, we expect this line to improve, supported by increasing activity, particularly in the Payment Service business and in Corporate and Investment Banking, which has already been seen in March. In Asset Management, we also expect a continued positive trend in net inflows. To sum up, while we acknowledge a lower quarter than expected, we believe this marks a trough that will serve as an inflection point. Looking ahead, we expect fees to increase and land at the lower end of the mid-single-digit growth range. Moving on to cost. The key developments this quarter is the launch of the new efficiency initiatives in Spain. However, let me first focus on the underlying evolution of recurring costs. Total recurring costs decreased by 3% quarter-on-quarter when excluding EUR 55 million of nonrecurring costs and for comparability purposes, also excluding the reclassification related to the end of the agreement to sell the merchant acquiring business at the end of last year. On a year-on-year basis, total recurring cost increased by 3.4% mainly driven by inflationary pressures on personnel expenses as well as higher amortization and depreciation costs, which already reflect the current quarterly run rate. Looking ahead, as Cesar mentioned earlier, we expect that circa 1/3 of the total savings from the efficiency initiatives will fit through in 2026. Overall, this evolution is fully aligned with achieving our year-end targets. On the next slide, we covered the cost of risk, which remains at contained levels supported by solid underlying asset quality despite the increased uncertainty. Total cost of risk for the quarter was 38 basis points which includes all provisions and impairments across all categories. Looking specifically on loan provisions, the credit cost of risk was 27 basis points. Turning now to the bridge of the different components of total provisions for the quarter shown on the top right-hand side. We booked EUR 94 million of loan loss provisions after reviewing carefully the macroeconomic scenarios. Then we had EUR 4 million of provision reversals driven by the real estate asset disposals at a premium. In addition, we recorded EUR 23 million in NPA management costs and EUR 19 million in other provisions mainly related to litigation. Overall, the quarterly evolution of total cost of risk is fully aligned with our year-end target of around 40 basis points despite the increased uncertainty. Moving on in the next section, I will walk you through asset quality, liquidity and solvency. On Slide 20, we see a continued improvement in both the NPL ratio and coverage levels. The NPL ratio reached 2.55% representing a reduction of 10 basis points compared to the previous quarter. We can also see that Stage 2 exposure declined by more than EUR 1.2 billion year-on-year. Finally, the coverage ratio calculated as total provisions of Stage 3 exposures continued to improve and reached 71%, rising by more than 1 percentage point during the quarter. In terms of total NPAs in Slide 21, you can see the continued reduction of foreclosed assets. We have sold 24% of the stock of foreclosed assets in the last 12 months at an average premium of 8%. At the right-hand side of the slide, we can see that the ratio of NPAs as a percentage of total assets declined to just 0.7% which is a record low. Turning now to Slide 22. All liquidity ratios remain comfortably above requirements with a net stable funding ratio at 135% and the liquidity coverage ratio at a strong 186%. Credit ratings remained stable during the quarter. All rating agencies have assigned a stable outlook, except for S&P, which maintains a positive outlook, reflecting the possibility to achieve further uplift based on ALAC. I will also highlight that Moody's upgraded our deposit rating in April, and it has reconfirmed our Baa1 long-term rating following the application of the new EU depositor preference regulation. Finally, year-to-date, we have issued EUR 500 million in covered bonds. Given the sale of TSB, this 2026 will be a year with lower MREL funding needs. And therefore, less affected by potential market volatility. To conclude this part of the presentation, let me walk you through the evolution of our capital ratios during the quarter. This time around, this slide includes both the quarter-on-quarter variation and the expected impact of the TSB sale and the extraordinary dividend on the CET1 ratio. We will start by reviewing the quarterly evolution. This quarter, the CET1 ratio increased by 7 basis points, while generating 32 basis points before accounting for the dividend accrued. This includes 42 basis points from organic generation after deducting 81 coupons, minus 4 bps from fair value reserves adjustment in the fixed income portfolio due to higher interest rates at the end of the quarter and minus 6 basis points from higher risk-weighted assets, mainly driven by volume growth in our international businesses, where loans carry higher density. The accrual of a 60% dividend payout ratio had a negative impact of 26 basis points, bringing the CET1 ratio to 13.18%. Now looking at the capital effect of the sale of TSB. The transaction will unlock more than 400 basis points of capital for shareholders, as already anticipated when we announced the transaction. The sale generates a positive capital impact of 369 basis points this year driven by the release of risk-weighted assets, a net capital gain of more than EUR 300 million and the reduction of intangibles. This will be offset by the extraordinary cash dividend distributed to shareholders which represent a reduction of 378 basis points, bringing the pro forma CET1 ratio to 13.09%. Finally, the release of operational risk-weighted assets over the next 2 years will add a further 36 basis points, lifting the pro forma fully loaded CET1 ratio to 13.45%. With that, I will hand over to Cesar, who will conclude today's presentation and probably say goodbye after 5 very successful years leading Banco Sabadell. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Sergio. Continuing after that phenomenal waterfall is very interesting. So to conclude this presentation, I would like to briefly review the bank's transformation journey over the last few years. Our growth strategy has proven to be successful and has structurally transformed the bank. First, we are delivering lending growth while reducing the cost of risk. Performing loans have increased by more than EUR 11 billion since 2021, while the cost of risk has declined by more than half. This improvement reflects stronger underwriting standards and a higher quality loan portfolio. Second, the bank is showing a consistent increase in capital generation. Indeed, we are delivering high and sustainable profitability, along with strong capacity to remunerate shareholders. In this context, we have committed to distribute EUR 2.5 billion of ordinary remuneration over the next 2 years, representing an average yield of more than 9% when adjusted for the upcoming extraordinary dividend. In short, a solid performance supported by 2 key levers. We have gradually shifted the organization towards profitability-focused metrics, and we have significantly transformed our risk processes and models. The benefits of these 2 elements will continue to gradually improve the quality of our loan book over time. Finally, let me emphasize our full commitment to delivering the full value of this plan through 2027 as we enter a new phase under a new leadership. We are well positioned to create long-term shareholder value. To conclude my last quarterly results presentation at Sabadell, I would like to share some words on a more personal note. Looking back at the last 5 years, I am honestly proud of the results we have achieved. Sabadell was going through difficult times in late 2020. During this 5.5 years, we, as a team, have managed to deliver on our strategy. We have deployed the profound transformation of the bank, which has enabled our financial turnaround. And now I would like to thank you for the interactions we have had during this period. The team and I feel we have been treated with utmost fairness and respect and I honestly thank you for that. I will now hand it over to Lluc start the Q&A section. Lluc Sas: Thank you, Cesar, for your commitment and for everything you have accomplished this year. We will now open the Q&A session. I would kindly ask you to limit your participation to a maximum of two questions. So operator, could you open the line for the first question, please? Operator: First question is coming from Cecilia Romero from Barclays. Cecilia Romero Reyes: I have two, one on volume growth and the second one on cost. On the first one, on the asset side, loan growth in Spain has been modest quarter-on-quarter. While some peers point to raising competition in both corporate SME deposits. And how are you seeing competition evolve across SMEs and corporates? And how are you balancing pricing, funding costs and returns? And how do you think about your appetite to compete in mortgages where cross-selling helps the economics? And finally, how do you see growth evolving across segments to deliver mid-single-digit growth this year? And then on costs, following the restructuring announcement and the EUR 40 million expected annual savings, could you help us understand how this fits within your current cost targets? Are these savings incremental or already factored in your 2027 guide? Cesar Gonzalez-Bueno Wittgenstein: Thank you very much. So on -- let's go one by one. On Corporates and SMEs, I think if you look at it, we've increased by 5% quarter-on-quarter and 1% year-on-year. And looking ahead, loan demand from Corporates and SMEs remains solid. We keep a strong pipeline of medium- and long-term loans. Therefore, we are confident that growth will accelerate back to mid-single-digit levels and the front books and yields and spreads remain stable. You have to understand that the change in model is a long-term element. So the cost of risk going forward will be much lower. There has been a phenomenal transformation in the strategy of the bank. In terms of mortgages, to your question, the average front book yield on new Spanish mortgage lending is currently below swap rates, as you all know. And pricing conditions remain very competitive, even after taking potential cross-selling benefits into account. Therefore, we have intentionally reduced our market share of new mortgages lending from approximately 9% at the end of '24 when the yields were positive to below 6% this quarter when our natural market share is around 7%. And we will continue to adjust our appetite according to market pricing as we have done over the past year. On the consumer lending, I mentioned before that during the quarter, we introduced changes in the application process. And although the demand -- the upfront demand remained stable and strong, we had lower conversion rates. We have adjusted for these new changes and now conversion is back to where it was, and we expect healthy growth from now on. And in the cost of deposits and in the deposits, I think we've grown healthily in deposits, and that has been somewhat on the back of the growth of the digital account. We have been very successful in the growth of the digital account during the quarter. And as we have mentioned many times, this is not to increase the volume of deposits. This is to attract new customers that then become transactional and that allow for further growth. More than 60% of our acquisition is now through digital accounts when it was 0 a few years ago. And these clients behave well. They have strong transactionality, more than 50% have payrolls, 45% use payments every month and 40% use Bizum through Sabadell, which is a big sign of being engaged with us. And despite the fact that we have done this campaign at a high rate, it has been at the rate that we could obtain in the wholesale market. So it makes lots of sense. I will let Sergio to develop a little bit more on the cost side. But I think we are not -- just to make it very brief, I don't think we are adjusting our forecast now despite this one-off. Of course, that would imply that there is some room as the year progresses to review. But for the time being, we leave it untouched. Sergio Palavecino: Thank you, Cesar. A couple of comments to the first one, Cecilia. The first quarter is typically because of seasonality, probably one of the sort of slower in terms of volumes. In any case, we've been able to grow a little bit the loans and a little bit the deposits. And when you look at the year-on-year growth rate, it's at 5.6%. So it is actually absolutely in line with our expectations. And as Cesar mentioned, the pipeline is good. So regarding volumes. As of today, there isn't anything that makes us think that we're not going to grow in line with expectations. And then as per the cost to your question, this efficiency initiative, so the early retirement, the EUR 40 million in 2027 was not included in our guidance when we detailed the guidance of 2027 by the different lines. We think it's early to update guidance per lines in 2027 given the different changes that we're seeing in the market. Of course, this is a positive because then it allows us to have a buffer and then we see how inflation plays out in the different lines of the cost. But again, I think it's a buffer, and we feel optimistic about it. Lluc Sas: Okay. So operator, could you switch off the microphones when the analysts are asking the questions because we've been told that there's some feedback that analysts cannot hear the questions when they do the Q&A. So we can jump to the next question. Thank you. Operator: Next question is coming from Francisco Riquel from Alantra. Francisco Riquel: Yes. So I just wanted to say goodbye to Cesar and congratulations for the last 5 years' performance. So my first question is on NII. You maintain your guidance of plus 1% in '26 but Euribor rates are now higher than expected, and you used to have a positive sensitivity. So I wonder if you can elaborate on NII dynamics in coming quarters? And what is the offset to the higher Euribor rates? And in the case, the margin uplift is delayed, if you can update on the risk to your '27 NII guidance as well? And my second question is capital distributions, the EUR 90 million of restructuring charges that you will book in '26, I wonder if that is compatible with your distribution targets? You did not specify how much of the EUR 2.5 billion will be paid out in '26 and '27. So I wonder if top-up share buybacks will be postponed to '27 after the winding of operational risk-weighted assets or not? Sergio Palavecino: Thank you, Paco, for your questions. Regarding NII, NII sensitivity, you're absolutely right, it's a positive one. So when interest rates go up, we expect NII to be higher. Actually, for 100 basis points immediate uplift in all rates, then we expect a 6% increase in the second year. And the first year is less. So the first year is somewhat more stable. So the first year is more stable as said. Looking at the evolution of NII, we initially expected NII to grow by more than 1% and keep on growing into next year. And that was basically based on volume growth, while rates were expected to be stable. This time around, what we are seeing and when we look at the yield curve to update our expectation, the yield curve was reflecting two hikes from the ECB. So now we have updated our model with two hikes. So the ECB at 2.5%, which is definitely a higher rate. For the first quarter and the second quarter, volumes are not changing in our view. They are absolutely in line to our expectations. And then I think the question mark is whether at some point at the end of the year may be somewhat less volume. And as particularly, we are growing a little bit less than expected in mortgages because we want to be really prudent with prices, particularly in this environment. So the movements that we are seeing are not going to affect 2026, cost of deposits, the market looks good. In the past, this rate have had a very gradual pass-through into the deposit cost and from everything that we're looking at, this seems to be the case this time around. So the pass-through at the beginning is less than the pass-through that we have in the book, which is close to 30%. And then for 2027, we feel positive, but it's a bit early to say. Definitely, the higher yields is going to be a tailwind and then remains the question mark on volumes that we had expectation for a continuous mid-single digit at so far, we maintain, but I think we need a bit more time to have visibility in 2027 and also cost of deposits, although we feel very comfortable for cost of deposits. So I think those are the moving pieces that taking all that into account, we feel that the outlook is solid for this year. And then for next year, as said, we feel somewhat optimistic, but it's early to be precise. And regarding capital distributions, EUR 90 million is the one-off cost. But already in the period, we are expecting the benefits -- part of the benefits, EUR 40 million in 2027, EUR 15 million, almost EUR 15 million in 2026 million. So that combined is EUR 55 million. The net is only EUR 35 million, which net of taxes, is less than EUR 25 million. So yes, it's going to have a bit of an effect, but we are talking about less than 1% of the distribution. So we think that at this point moment in time, there might be some organic capital generation that can offset that small deviation. So we maintain the target of the EUR 2.5 billion distributions, which we have always seen them being higher in 2027 than 2026. In 2026, we have the extraordinary of the TSB distribution, EUR 0.5. We're actually distributing a little bit more than what is generated in 2026. So it's -- I think the balance between timing of the distributions are also quite sensible. Lluc Sas: Perfect. So let's take the next question, please. Operator: Next question is coming from Maks Mishyn from JB Capital. Maksym Mishyn: All the best to Cesar in the new chapter. Two questions from my side. The first one is, maybe I've missed it, but on the digital campaign for the deposits, could you give us a bit more color on pricing and volumes you were able to achieve with the campaign in the first quarter? And the second question is on cost of risk. Have you updated your macro models in the quarter? And can you provide us with some comfort that macroeconomic turbines may not push your cost of risk higher? Cesar Gonzalez-Bueno Wittgenstein: Thank you very much. So I think we have never been too transparent on the numbers of the digital account. It's quite successful. And we have now more than 600,000 digital customers. And what I could say is that it has increased overall by around 2 basis points to cost of deposits in the quarter. And let me leave it at that. It has been quite successful. We are very happy, and it is fulfilling all its purposes. Lluc Sas: And then we also had the questions on cost of risk and macro models. Cesar Gonzalez-Bueno Wittgenstein: Yes. Thank you, Maks, for your question. Regarding cost of risk and the macroeconomic models, we have, of course, reviewed carefully the scenarios and taking into account what is going on, the conflict and the uncertainty. For the basic scenario, we have kept it unchanged. We are -- we built this scenario during the second half of last year, and we built it on a quite a prudent basis. In our base scenario, we're assuming GDP to grow, in Spain, 1.7%, unemployment to be a little bit above 10% and what consensus is delivering today is an expectation of growth above 2% in Spain and unemployment below 10% while the price of real estate will not be declining. That is the consensus. And we feel that we have seen that the assumptions in our macroeconomic base scenario are actually more prudent than what we're seeing in the market. Of course, this only affects Spain, which is our home market. So we have not changed the base scenario. What we have done is we have changed the probabilities of the upside and the downside scenarios. You know that under IFRS 9, you have the base at the downside and the upside, and we have a shift 5% probability from the upside to the downside. And with this, this has triggered a EUR 20 million provision that has been already incorporated in the EUR 94 million of credit loan provisions. So this actually 10% in the change of probabilities. And for the time being, we will monitor the situation and the development. But for the time being and as long as the GDP expectation in Spain is maintained at a growth of around 2%, we feel that the scenario is going to be good. Lluc Sas: Okay. So let's jump to the next question, please. Operator: Next question is coming from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: All the best of luck for you, Cesar, in your new adventures. I just have one question on fees and one questions on the deposit and one on interaction with lending. So on fee income, I mean how should we expect the improvement in coming quarters? Is it mainly driven by an acceleration of the asset management net inflows because you are launching a new product campaign or how should we think about fee progression basically coming in the coming quarters? And the second one on the loan to deposit. I mean do you have any target for loan-to-deposit ratio in the long run or in the medium term? Cesar Gonzalez-Bueno Wittgenstein: Yes. On the fee side, I think we are expecting an improvement in the recovery of CIB activity. There were quite a few things in the pipeline that are probably delayed. I think the payment business is also going to do better and certainly, the net inflows in asset under management. And we have already seen a recovery in the first two months -- I mean, in the first two weeks of March. Sergio Palavecino: Yes. So if I follow up on those, natural actually, we expect the credit services and assets under management, we expect the 3 of them to grow from this level. Services, the different business lines are working well. We had this one-off in the first quarter and seasonality. Seasonality affects very much our payment service business. And then we mentioned also the Corporate & Investment Banking, which simply was slow in January and February, and then is not picking up in March and therefore, the second quarter is expected to be good in terms of activity. So we also expect growth coming from that business line that is going to affect or is going to affect positively the credit, the services and then finally, the asset under management because of the growth in balances. And per the loan-to-deposit is 92%, very stable. It's been very stable already for many quarters where we've been able to grow mid-single digit in loans and sort of 4% in deposits with a higher base of deposits. So at the end of the day, quite stable. If we were in a situation where we had the opportunity to grow the loan portfolio, I think growing up to a loan-to-deposit in the range of 90% to 100%, it could be no problem. So we would also feel that, that's not an issue. However, our -- in our plan, we will try to grow as balanced as possible. Lluc Sas: Thank you much for your questions. Let's jump to the next caller, please. Operator: Next question is coming from Borja Ramirez from Citi. Borja Ramirez Segura: Thank you very much for taking my questions. I have two, please. Firstly, on the net interest income, I saw that your ALCO portfolio grew by roughly EUR 2 billion quarter-over-quarter. If you could kindly provide details on the yields at which you bought new bonds? And then also on NII, I would like to ask, I think it was mentioned in the previous results call that you had you're going to decrease the cost of digital accounts from 2% to 1%, and there was a EUR 30 million positive NII benefit on a -- basis from this. If you could kindly confirm this number? And then my second question would be, it is noted regarding the change in the scenarios of the IFRS 9 models. I would like to ask if you could kindly remind me the macro relay provision. Sergio Palavecino: Sure. May I start with the ALCO question? Thank you, Borja. Yes, we have increased a little bit our ALCO portfolio, in line with our plan. The ALCO, the size of the ALCO book is related to mainly the ALM, the hedging that we do, the size of our current accounts and deposits, which have been growing. And then on top of this year with the sale of TSB at the TSB level, we are selling the TSB MREL bonds at the ex-TSB and replacing them with cash from the transaction. So we wanted to put that money to work partially. So that's why we wanted to increase the portfolio this year. And we have invested in the typical investments that we do that mean Spain and other core European sovereigns with durations up to 10 years, some of them hedged. So at the end of the day, the duration of the portfolio that we buy is between 5 to 6 years and with yields above 3% and in the current environment, actually very close to 3.5%. And then as per the online current account, you are absolutely right. We have the intention to cut the remuneration on the previous campaigns from 2% to 1%. We did, and that took place in the month of March. So it was only one month in the first quarter and the benefits will keep on coming. The very good news is that -- the very good news is that after this cut, we're seeing a lot of stability in the balances. So I think it's working the strategy of buying customers and then keeping the balances. And finally, regarding your question on the macro provision, I think I mentioned that it was EUR 20 million, the provision that we took after changing the probabilities. And Cesar, I don't know if you'd like to add something? Cesar Gonzalez-Bueno Wittgenstein: I think you were spot on. I think on the digital account, what we said is exactly that there will be a EUR 30 million saving from the portion of that portfolio that we brought from 2% to 1%. And of that, we have seen 1 month and that EUR 30 million is over the course of the year. And as you mentioned also the very good news, as expected, is that the loss of volumes is low. And this proves again that this is a transactional account. It's not deposits. It's not to maximize returns. It's to have a full current account that, at the same time, has low costs and full services and at the same time, yields something that is above 0. And that is exactly what has happened. And now there are different tiers, and that is the strategy around this account, there are different tiers. Some for acquisition because to create the excitement to move the account, you need a slightly higher rate, but then everybody understands that the current account with a decent remuneration of 1% is attractive enough and they are becoming transactional. So as I mentioned before, we are very satisfied with the progress of this strategy. Lluc Sas: Operator, could we have the next question, please? Operator: Next question is coming from Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: Two follow-ups on lending growth. The first one is on the SME and corporate book, the Spanish one. I mean you've got peers basically growing, I mean, significantly above that 2% so I just wanted to follow up a little bit actually on what do you think explains that gap right now? Is it risk profile, risk appetite by Sabadell? Is the fact that the incumbents in Spain have stepped up the pace. Is it related to the fact that your customers are requiring less credit than other type of corporates. So just a little bit of color basically on that. And then the second one is whether you're seeing actually the international book ex-TSB as a bit of an offsetting factor against and that we're seeing some degree of acceleration, especially in Miami and the foreign branches actually. So do you think there is a little bit of an offsetting actually coming from international book and the Spanish book or you treat those books completely separately? Cesar Gonzalez-Bueno Wittgenstein: I think reducing the probability of default by 50%, as we have done in new lending, of course, strengthens our asset quality. But for a period of time, makes the volumes slightly more subdued. And it makes a lot of sense to do that, but it's a transition in which we are still somewhat immersed. You have to take into account that, that probability of default improvement has a long tail it will take more than 4 years to see the full benefit in the SME portfolio, 7 years in mortgages and more than 2 years for consumer loans. And for sure, it's very difficult to separate off all the different factors that make that demand a little bit more subdued, but it is our impression that this is the main factor that reducing the probability of default of being more demanding on the quality, on the risk quality of the new loans is having certainly somewhat of a slowdown, which will fade over time. And regarding the growth abroad, not really. We have good business units abroad, Miami, Mexico in particular and we do what's right. And whenever we find the right project, so the right returns on capital with the right risk, then we're able to do it, and we are seeing an environment with a lot of activity and project finance, in structured finance and the corporate, our corporate customers that are doing business abroad. So we are taking advantage of that activity, but it's not really like that we see sort of offsetting. We don't look things that way, no. Lluc Sas: Let's go to the next question then. Operator: Next question is coming from Pablo de la Torre from RBC Capital Markets. Pablo de la Torre Cuevas: I have a couple of follow-ups on cost and distribution. So the first one was on cost. I just wanted to understand the phasing of any remaining one-off costs in 2026 and whether the plan as it stands now considers any further actions in 2027? And the second one was on distributions. I know you reiterated the EUR 2.5 billion in distributions for this year and next. But I just wanted to check that you also reconfirmed the previous dividend guidance of 2026 being above EUR 0.204. And then the last one on fees also, if you just can comment on the previous guidance of double-digit growth in asset management and insurance fee income growth from this year. I think that's growing only at 4% in Q1. Cesar Gonzalez-Bueno Wittgenstein: So you will complement to that. But on cost, we don't see further actions at this point in time in '27 and there will be a progressive deployment during '26, and we will accelerate it as much as possible. So we have incurred already in EUR 55 million of the EUR 90 million, and you should expect the greater start to happen relatively soon. And for '27 at this point in time, there's no expectation. That doesn't mean that there couldn't be later on. But at this point in time, there are no further expectations. And for the distribution, I think we have -- we are confirming everything, everything that we said in terms of distribution almost 6.5% of the total of the 3 years, the EUR 2.5 billion ordinary, the EUR 0.50, everything, I think, is being confirmed. Sergio Palavecino: Indeed. Yes. And finally, Pablo, I think you were asking for fees, which I think we've been discussing and the fee development -- I mean the expected performance of fee remains unchanged to what we said in the first -- at the beginning of the year, and for the year. So we expect fees connected with assets under management to grow linked to volume, but then we also expect a higher contribution from the different businesses that we run and in the presentation, we are acknowledging a slower start than expected. We were sort of expecting maybe a figure similar to the one that we have in the first quarter of last year. And the difference, which is some EUR 7 million is half that one-off and half a slow January and February in the import and export business and corporate and investment banking which has already get back on track from March. And with all this, what we are seeing is that we keep on targeting growth that might be close to the mid-single-digit range, probably the lower range -- the lower part of that range. So we are targeting close to 4% overall growth in the fee line for 2026. Lluc Sas: Let's go to the next question please. Operator: Next question is coming from Carlos Peixoto from Caixa Bank. Carlos Peixoto: Just a couple of questions from my side as well, basically focus on NII. I'd like to have a follow-up there. The first one is that your NII guidance is based -- or the above 1% growth is based on NII that was provided last year, excluding TSB or on the statutory NII that we now have? Just to understand the basis for the growth. And then delving into NII, just if you could remind us what type of savings you might be getting going forward from MREL instruments that you had to issue at the group level to finance the size of the group or when it includes the TSB and now with the sale you could have some savings on those instruments from maturing the instruments, basically, what -- how much could it be? And what will be the time line for those to kick in? Cesar Gonzalez-Bueno Wittgenstein: Thank you, Carlos, for your questions. Regarding the second one, MREL. We were done streaming an equivalent to EUR 1.4 billion of MREL to TSB, which is the MREL related to its risk-weighted assets. And that is the MREL that, therefore, we will be saving at the group level in the wholesale capital market, so EUR 1.4 billion. And that's why we're saying that we will not be active in the debt capital markets in 2026 as we don't need to get that. So if you apply the spread on the senior nonpreferred and senior preferred to that figure, it's something close to EUR 20 million per year that may take place already -- I mean, gradually from the second quarter of 2026, as we will not be issuing and we will have maturities. And then I think the first question, not sure if I got it fully right. I think you are asking about the perimeter for the NII, and we are trying to be comparable. So it's going to be the ex-TSB perimeter is the one that is going to remain. So that's the one we're being guiding on to try to make it -- [ PLs with PLs ]. Hopefully, that was your question, and I hope I answered otherwise, we can follow up on it. Lluc Sas: Thank you, Carlos. And then we have got one final question. So operator, please. Operator: Last question is coming from Britta Schmidt from Autonomous Research. Lluc Sas: Britta we cannot hear you. No? Well, so probably he's jumped to another call because we know that it's a busy day for you, so thank you for your understanding. And that concludes our presentation for today. Thank you, Cesar and Sergio, and thank you all for participating. If you have any further questions, the Investor Relations team remains available for any follow-up or additional information. Have a great day. Thank you. Cesar Gonzalez-Bueno Wittgenstein: Thank you.
Operator: Hello, everyone. Thank you for joining us, and welcome to Bumble Inc. First Quarter 2026 Financial 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 press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Will Taveras, Head of Investor Relations. Please go ahead. Will Taveras: Thank you for joining us to discuss Bumble Inc.'s first quarter 2026 financial results. With me today are Bumble Inc.'s Founder and CEO, Whitney Wolfe Herd, and CFO, Kevin Cook. Before we begin, I would like to remind everyone that certain statements made on this call today are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of factors and risks that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in today's earnings press release and our periodic filings with the SEC. During the call, we will also refer to certain non-GAAP financial measures. These non-GAAP measures should be considered in addition to, and not as a substitute for or in isolation from, our GAAP results. Reconciliations to the most comparable GAAP measures are available in our earnings press release, which is available on the Investor Relations section of our website at ir.bumble.com. With that, I will turn the call over to Whitney. Whitney Wolfe Herd: Hello, everyone, and thank you for joining us today. This is a period of real transformation at Bumble Inc. Over the past few quarters, we have executed a deliberate reset of our member base. We made a clear choice to prioritize quality over quantity, focusing on well-intentioned, engaged members. That decision reduced overall scale but meaningfully improved the health of our ecosystem. Importantly, this quality reset was not isolated. It was the first step in a broader strategy to reestablish Bumble Inc. as the brand that sets the pace for innovation in our category. We focused first on strengthening the underlying supply of our platform, because scale without quality degrades the experience and stifles the outcome people are seeking: high-quality, relevant connections. At the same time, we continued rebuilding our technology and product platform to better serve our member demand for real dates and in-real-life connection. These moves required short-term trade-offs, but they were deliberate and necessary. Now, with healthier supply and stabilization in our member base, we are entering the next phase: activation. This phase is anchored by two innovation initiatives. First, the introduction of our new technology platform. Second, the launch of a fully reimagined experience for Bumble members, including a new interaction model and profile system. The new Bumble platform and experience will roll out over the balance of the year, beginning with the first stage of the new tech platform in the coming weeks. Our direct member engagement and our research, including our work with author and professor Dr. Arthur Brooks, reinforce a key insight: the biggest friction in dating today is not discovery; it is the gap between online interaction and real-world connection. People get stuck in that in-between. This is a central challenge faced by every scaled dating app. Everything we are building is designed to close that gap and drive real in-person dates between high-quality connections. Accelerating each member's progression toward finding that connection and getting out on a date is our priority. We have been doing foundational work on this problem ahead of introducing our new platform and reimagined experience. We have improved profiles, strengthened intent signaling, enhanced safety, and built more dynamic onboarding. These changes have helped members show up better, even within the limits of our legacy systems. We are also continuing to improve the current Bumble experience by addressing core member pain points, improving recommendations, and enhancing usability. Early tests are showing promising results, including improvements in matching behavior and monetization trends, but results are expected to be relatively limited on the legacy tech stack. We have more to do here in the months ahead. What comes next will go much further. The innovation starts with our technology platform. As we shared last quarter, we have been actively rebuilding our new cloud-native, AI-enabled tech stack. This modern platform will allow us to move faster, iterate more efficiently, and begin to unlock entirely new product experiences. Today, making meaningful changes to our recommendation engine or introducing new features can take months. This has been a real constraint on the rate of innovation. Our new tech platform is expected to eliminate this constraint. As the platform rebuild nears completion, we are ramping development of the next-generation Bumble Date application, a merging of the new back end and the reimagined member experience, launching in select markets in Q4 of this year. Between now and then, elements of our new technology platform will begin powering a parallel roadmap of incremental improvements in the existing product. With our new app experience, the opportunity is not just to improve the current interaction model but to evolve beyond it. We are designing a system that shortens the distance between intent and outcome, eliminating the friction caused by multiple steps between interest and connection. Clearer signals drive more mutual engagement and faster progression toward in-real-life connection. Early reactions to this new model have been very positive. Our AI layer, Bee, is expected to play a key role in the reimagined experience. Testing Bee in onboarding new members has been especially encouraging—not just in Bee's effectiveness, but in members' willingness to engage deeply and share richer context about who they are and what they are looking for. Bee’s ability to capture more signal and process information quickly improves our understanding of each member and will strengthen our recommendation engine. Onboarding is just the first step in how Bee will be used in the new experience. We also expect Bee to help facilitate connection and to suggest and plan real dates, among other roles. Bee is a great example of what we can accomplish on the new modern tech stack and how AI will be an important catalyst for our business. It is important to note that we built Bee separately from the legacy system. I have said a lot here. Let me summarize. First, demand for love and human connection is as vital as ever before. We have done the heavy lifting to reset our business with healthy supply that is ready to engage. We are giving members the tools to show up authentically as their best selves. Next is our new platform, which will accelerate product innovation. Right behind that will be an entirely transformed Bumble experience, which dramatically reduces friction and gets members to in-real-life connection faster. We believe this is our path to deliver what daters are seeking today. This is the path to restoring revenue growth, and we are already at work building the monetization model behind it. That is the core of the Bumble app transformation, but it is only part of the picture. Beyond dating, we are also investing in broader connection, which we see as both a critical need in the world and a competitive advantage for us. We have expanded groups on Bumble BFF and are seeing strong early traction with total group joins nearly doubling between December and March. This success is driven by Gen Z women, who comprise the largest cohort on the platform, highlighting our opportunity with this core demographic. Overall, more than 80% of BFF members are women, reinforcing the durability of our overall brand. We will continue to expand on group connection and in-real-life meetings for platonic purposes through BFF. But we are also bullish on the opportunity of romance beyond one-to-one in terms of how people come together and meet for love. We are testing new ways to bring people together for both platonic and romantic purposes, including a new product beta launching next month, which we are super excited about. Across all of these efforts, our approach remains consistent: test, learn, iterate, and do it quickly. We are data-driven, member-obsessed, and more passionate about the opportunity and problem we are solving than ever before. In terms of timing, members will first experience the rollout of our new platform, delivering a faster and more reliable experience starting in the coming weeks from a back-end standpoint. From there, we expect to introduce the initial features of our new interaction model and profile. This is our big bang. It will start to roll out to select markets in Q4, backed by a 360 marketing campaign. Then we will continue to refine the experience into 2027, including adding features like group dating and expanded access to Bee. Ahead of our upcoming unveil, we are continuing to deliver innovations in the current Bumble experience that help members show up better, more confident, and ready to engage. Not all of these improvements will be immediately visible to members. The critical signal enhancements they enable will drive more relevant connections on the back end, and the UI/UX will be on our modernized back end, which will enable the rollout of our transformed experience later this year. As we execute this transformation, we remain disciplined. We delivered a strong Q1 compared to our expectations, and we are managing our cost structure carefully while continuing to invest in product, technology, and selective marketing. Of note, we have reduced our performance marketing spend to less than 50% of pre–quality reset levels. We are starting to see the benefit of organic marketing again, including positive word of mouth, now that we have improved the member base quality. Despite tech limitations, we have been able to drive meaningful improvement, which we believe signals the opportunity ahead with a modern tech stack in place. To close, we have been hard at work rebuilding our foundation. Now we are focused on translating that into a meaningfully better product experience, which members will start seeing in the coming months. We cannot wait to reignite our brand, product, and mission as we transform Bumble Inc. and our category. We look forward to sharing more in the months ahead. Thank you so much for your time, and now I will turn it over to Kevin. Kevin Cook: Thank you, Whitney, and hello, everyone. In the first quarter, we delivered results in line with our expectations as we move past our quality reset to focus on product and technology innovation. As Whitney noted, we are seeing signs of stabilization in our member base as we enter the next phase of activation. I will review our quarterly results before turning to our outlook. Unless otherwise noted, my comments are on a non-GAAP basis, and comparisons are year over year. Total revenue for the first quarter was $212 million compared to $247 million in the year-ago period. Foreign currency exchange rates contributed $9 million to revenue in the quarter. The loss of revenue from Fruitz and Official equated to approximately one percentage point of headwind in the quarter. Bumble app revenue was $173 million compared to $202 million a year ago. Foreign currency exchange rates contributed $6 million to Bumble app revenue. Adjusted EBITDA was $83 million, representing a margin of 39%, compared to $64 million and 26% in the prior-year period. Higher adjusted EBITDA despite the year-over-year revenue decline is a function of how we have executed through our reset period, most notably with more intensive operating discipline and thoughtful marketing spend. Selling and marketing expense was approximately $20 million, or 12% of revenue, compared to approximately $60 million, or 24% of revenue, in the prior-year period. In addition to the reduced overall spend, we have increased our focus on lower-cost and higher-return organic and targeted marketing channels. This strategy brings us back to our historical marketing strengths and, we believe, also supports long-term brand health. Product development expense was approximately $25 million, or 12% of revenue, compared to approximately $24 million and 10% in the prior-year period. Our product development spending is focused on core product innovation and platform modernization. General and administrative expense was approximately $24 million, or 11% of revenue, compared to approximately $26 million, or 10% of revenue, in the prior-year period. I will now turn to the balance sheet and cash flows. For the quarter, we generated $77 million in operating cash flow, $74 million of which converted into free cash flow. We ended the quarter with $246 million of cash and cash equivalents and continue to generate substantial cash flow while maintaining a strong liquidity position. In April, we completed the refinancing of our term loan as had been previously announced. Consistent with our plans to continue deleveraging, we paid down $114 million of debt in connection with the transaction. Pro forma for the refinancing, we had $150 million of cash and cash equivalents at the end of April. Turning to the outlook, as we move beyond the quality reset, our focus is now on activating our higher-quality member base through product innovation and improved member experience. This transition will unfold over the balance of the year as we introduce our new tech platform and accelerate the introduction of new member experiences. While this work will take time to be reflected in our financials, we believe it best positions us to drive more durable engagement and monetization. For the second quarter, we expect total revenue in the range of $205 million to $213 million, including Bumble app revenue of $168 million to $174 million, and adjusted EBITDA of $65 million to $70 million, representing a margin of approximately 32% at the midpoint. As we move through 2026, we expect revenue headwinds to moderate as the most acute effects of the quality reset dissipate and we transition from stabilizing to rebuilding the member base. Adjusted EBITDA margins are expected to normalize over the remainder of 2026 as we increase investment in technology and talent to modernize our platform and drive product innovation. We also plan to increase marketing spend to support our innovation initiatives, organic member growth, and brand strength. In closing, we have made meaningful progress on our transformation and are now focused on executing the next phase of the business. Preparing a healthier, more engaged member base with a modernized platform will enable faster product innovation and more effective revenue generation over time. Operator, let us take some questions, please. Operator: Thank you. We will now open the call for questions. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question, and if you are muted locally, please remember to unmute your device. Your first question comes from the line of Eric James Sheridan from Goldman Sachs. Your line is open. Please go ahead. Eric James Sheridan: Thanks so much for taking the questions. Whitney, I want to come back to some of the comments you made in the prepared remarks and go a little bit deeper. When you think about the tech stack and how it will iterate going forward, I wanted to ask a two-parter. One, should we be thinking about the velocity of innovation and your speed in terms of going to market that will result from that as we continue to monitor the business from the outside in? And two, what do you think about your opportunity around personalization, and how much of it will be either AI-driven or non–AI-driven when you think about what the tech stack might enable you to do in the years ahead? Thanks so much. Whitney Wolfe Herd: Hey. Thank you, Eric. Great to hear from you. I will take this piece by piece. I think before we talk about the actual incredible opportunity we have ahead with this new tech stack, I want to double down on a couple of the prepared remarks I had around what we have been dealing with. We have had extraordinary tech debt. What do I mean by this? We have, frankly, not been able to make the changes that both our members are wanting, needing, and demanding, and that we have wanted to roll out. All of the results you have seen to date are done on the back end of a very legacy system, which really does inhibit the second part of your question—the personalization of the experience. So let us talk about velocity, my favorite word. Velocity is going to go up in such a way with this new tech stack. As an example, if we wanted to make a change to the recommendation engine right now—which is the algorithm, essentially—it could take us months. It is extremely clunky, cumbersome, and difficult to navigate. On this new tech stack, we are talking about being able to put tests in immediately. We can be monitoring in real time. We can have A/B tests going at levels we have never been able to access before, and, frankly, we can make changes in a matter of days or weeks versus months, or even, frankly, years. When you really start to wrap your head around the opportunity there, I think you can understand why I am personally so excited about this new system finally hitting members’ back ends in the coming weeks. Let us talk about personalization. This is the name of the game. What is the one reason why people come to a product like ours, particularly Bumble? They are not coming for entertainment or to use it like a social media platform. They are coming to meet people. If you want to meet someone, you have to be shown people you want to see and that you want to meet. With this new system and this next-gen recommendation engine—which goes side by side with the new tech infrastructure—we will be able to personalize the system in ways that we have just, frankly, never had access to. It is not lack of innovation, roadmap, or talent; it has been lack of technical capability. So you will see extreme personalization. Turning to the last part of your question—AI or not AI—no, it is a hybrid. I think it is important to end with a quick moment on how I look at AI for this business. AI should never replace human authenticity or human connection. I have been saying this for a long time, but I certainly hope the rest of the world is starting to see it the way I am, in the sense that human connection is starting to matter more now than ever before, and real, authentic human connection. For those of you that have been following and watching people fall in love with AI bots, this is not the future we want for ourselves or the next generation. This is why I am at work. I am giving it my all to make sure that we can bring people closer to in-real-life, face-to-face, human, meaningful relationships and connections. We will leverage AI to enable that, but we will not use AI to replace that. I hope that answers the question. I could talk about this for six hours, but I want to give other folks an opportunity to jump in. Thank you again, Eric, for your question. Operator: Your next question comes from the line of Shweta Khajuria from Wolfe Research. Please go ahead. Shweta Khajuria: Okay. Thank you for taking my question, and thanks for the commentary in your prepared remarks, Whitney. As we think about the timeline, could you please talk to what gives you confidence post the activation phase of the renewed tech platform in 2026 into 2027? You will start seeing potentially marked improvements in the refreshed tech platform. Could you point to what you saw in your tests that gives you that confidence, and what should we be looking for starting in Q4 into next year? Thank you. Whitney Wolfe Herd: Thanks, Shweta. It is great to hear from you. Let us talk about these different workstreams. I want to be very clear that the back-end tech rebuild is different from the forward-facing, member-facing interaction model and profile redesign. These are two separate things that will converge into each other; however, one comes before the other—that is the back-end technology migration, enablement, and rebuild. That is coming in the coming weeks for select members and will start to roll out globally and more broadly over the weeks and months following. That is the enabler of everything. That is where we can go in and make algorithmic improvements. We can start to make matching and recommendation economics better for folks and really make sure that you are seeing who you want to see. Now, very importantly, that is the back end that will start to enable everything. But very importantly, I fundamentally believe—and I feel that I am a trusted source here because I have been on the front line of this industry from its mobile explosion inception—that the interaction model is outdated, not just for us, but for the industry at large. I believe it is time to leapfrog anything that currently exists and help people break through these areas of friction where these cliffs exist. Right now, to get somebody from first sight to first date is extremely difficult. There are so many areas of drop-off where that mutuality of needing to like each other, needing to chat, needing to keep the conversations going on this double-sided format—it is quite difficult to get you to a date. Frankly, Shweta, we are a dating app. We are not a matching app or a swiping app, but have we really been behaving like that? That is the impetus of the new interaction model. We have listened to our members. We have been in the trenches with them. I personally have been on the front lines of research and deep in the data. That forward-facing, member-touching interface transition and profile redesign is what you will start to see in a major market in Q4, and then, of course, rolling out more broadly through the end of Q4 and early into 2027. To answer your precise question—when do we start to see a rebound in the numbers you are all looking for? The answer is very simple: when our technology and our next-gen recommendation engine can help better connect people more compatibly, show people who they want to see, and then get them out on great dates. That is where the magic happens. Every single thing we are doing—I am spending every waking hour of my life right now—in service of that one goal: get people out on great dates. I hope that this starts to answer your question, and thank you again for taking the time. Operator: Your next question comes from the line of Nathaniel Jay Feather from Morgan Stanley. Please go ahead. Nathaniel Jay Feather: Hey, everyone. Thanks so much for the question. I am thinking a little bit more about that pipeline from discovery to getting out on dates. What do you feel are the current real pinch points that cause people to maybe have a match but not convert that into an in-person connection, and what can actually solve that problem? You know, is there any issue from the perspective of a lot of people having different state or preference dynamics, local markets, etc.? Are there ways that you can solve those? That is the first part of the question. And second, we see really strong performance on gross margin. Can you give an update on what you are seeing in terms of direct payment adoption, and how should we think about the uplift that is driving these? Thank you. Whitney Wolfe Herd: Thanks, Nathan, for the question. I will take the first half and kick the second part to Kevin. The reality is you are right—everyone has different dating preferences. But the one thing everybody can agree on at this point is that everyone is exhausted from this passive model of just low-effort likes, low-effort interest with very little follow-through. Frankly, the industry at large—and us included—has made it too easy to express low-intent interest. We are turning that on its head. I cannot say much more. I really believe that this is going to be category-defining, and we want to keep it close to the chest. What we will tell you is the early testing has come back remarkably positive. There is very little concern that this is not the right direction. To your point, every market is culturally different, and preferences are different. We have no issue with being really agile and making sure that we test our way into the appropriate sequencing and rollout strategy to make sure that those nuances are accounted for. Listen, I am now 36. I have been doing this since I was 22. I cannot tell you how much this is needed right now for people to really feel reinvigorated with finding love. There are a few frank realities: we are on our phones more than we have ever been before—much more so than when I started this company. The need for human connection and love is greater right now than ever. We are more disconnected. Everything is working in our favor. The only thing that has been going wrong is our ability to execute on product innovation, and that is simply due to legacy tech debt. We are working extraordinarily hard. The teams are incredible, and they are so close to getting us to a place where we can finally innovate and deliver a modern product to our members so that they can continue to make meaningful connections in the real world. Kevin Cook: The improvement in gross margin is primarily a function of increased adoption of alternative billing methods and therefore reduction in aggregator fees. You are right to point out that we had very strong gross margin in the quarter—about 300 basis points higher than the prior-year period—and we continue to see strong adoption of our Apple Pay program, for example, in the U.S. That program is slightly ahead of expectation, and we expect alternative billing to be a tailwind to margin throughout 2026. Operator: Your next question comes from the line of Andrew Jordan Marok from Raymond James. Your line is currently opening. One moment. Please go ahead. Raj (for Andrew Marok): Hi. This is Raj dialing in for Andrew Marok. Thank you for taking our question. As it relates to the post-reset disclosures made today, could you update us through March and April and explain how the curves for registrations, retention, MAUs, and payer penetration trended from October until now, given that October was the first month dubbed as the post–quality reset? Which metric should best predict payer recovery going forward? Kevin Cook: Yeah. Hey, Ron. Thanks for the question. The disclosures were provided specifically as a way for us to meet a contractual obligation to prospective lenders to cleanse data that we shared with them in connection with the refinancing. That information is all for the periods provided. You can see them outlined in the specific disclosure on the website. They are all reflected in our current financials. They are out of date, stale, and have no import in terms of the business today. The only thing I can share is that the business has stabilized with respect to KPI performance. In particular, on registrations, I think you see highlighted there the steps that we took—quite intentionally—to bring the member base down to what we viewed as a healthier, higher-quality ecosystem from which, now, we can build. That is all I have for you on that. Operator: Next question comes from the line of Ken G. from Wells Fargo. Please go ahead. Ken G.: Thank you so much. As you look out a couple of years and success as you transition the business, can you talk about how you could see the financial profile of the business relative to the 2022–2024 time frame? The tech debt that built up in the past—you obviously want that to not recur. Could you talk about any changes we might see to the financial profile of the business as you get back to growth in 2027–2028? Kevin Cook: Hey, Ken. So apologies—you broke up a bit, but I believe I got the question. You are right to point out two key things. First, in the time frame you referenced, it was a marketing-led business, not a product- and technology-led business as it has been since Whitney returned as CEO. What you will continue to see is a much more efficient marketing spend. Marketing should never return to the levels that you observed in 2024 and 2025. Marketing is used in support of and as a tool to enhance product—contributing to new product introduction, launch, and, of course, to some degree, brand. You will see a higher overall rate of technology and product development spend. We are in a period of investment now. You see us beginning to gently increase product development expense to deliver all of the innovation that Whitney described and that is expected for the second half of the year. Overall, with steady revenue or revenue growth, there is substantial operating margin in the business. You should expect to see continued adjusted EBITDA margin expansion—again, so long as revenue is stable or increasing. Let me know if that answers the question. Ken G.: Yes. Thank you. Operator: At this time, there are no further questions. This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Shoals Technologies Group's First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Matt Tractenberg, VP of Finance and Investor Relations. Matt, please go ahead. Matthew Tractenberg: Thank you, Christine, and thank you, everyone, for joining us today. Hosting the call with me is our CEO, Brandon Moss; and our CFO, Dominic Bardos. On this call, management will be making projections or other forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties and should not be considered guarantees of performance. Actual results could differ materially. Those risks and uncertainties are listed for investors in our most recent SEC filings. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's first quarter press release for definitional information and reconciliations of historical non-GAAP measures to the nearest comparable GAAP financial measures. Please note that the slides you see here are available for download from the Investor Relations section of our website at investors.shoals.com. With that, let me turn the call over to Brandon. Brandon Moss: Thank you, Matt, and thanks to everyone joining us on the call. First quarter revenue was above our guidance at $141 million, up 75% over the prior year period. Our commercial team continued their strong performance by adding approximately $151 million of new orders in the period. This resulted in another company record backlog and awarded orders, or BLAO, of $758 million, an increase of almost 18% year-over-year. As of quarter end, approximately $628 million of our BLAO has shipment dates in the upcoming 4 quarters for Q1 of 2027. For adjusted gross profit percentage came in slightly below our expected range at 29.6%. This was driven by product mix, tariffs, increased freight costs and some temporary labor inefficiencies as we train additional employees to meet the strong demand on new business lines in our factory. We believe that this is the low point of gross margin and that it will improve as we make our way through the year. SG&A, including all legal expense, was $31 million, representing 22% of revenue, a 500 basis point decline as compared to 27% last year and highlighting the operating leverage inherent in our business model. First quarter adjusted EBITDA of approximately $21 million came in at the high end of our guided range and grew 56% year-over-year. We've also seen some positive movement on our IP infringement case against Voltage. Last week, the International Trade Commission declined to review any contested issues in the ALJ's initial ruling. The commission is still expected to issue its final determination in early June, but it's encouraging news for our shareholders and U.S. manufacturers in general. We are pleased with how the market is evolving and our competitive position of strength and as a result, are increasing both our revenue and adjusted EBITDA guidance for the year. Dominic will step through the updated guidance later in the call. Briefly turning to our various business lines. The first quarter was another strong period of growth within our core utility-scale solar market. Our quote volume in the quarter exceeded $1 billion of unique projects, adding to our strong pipeline. I'm also encouraged by the progress we are making in key international markets like Australia, as evidenced by our increased quote activity and customer engagement. International BLAO now totals almost $100 million, driving continued growth and diversification in 2027 and beyond. Our community, commercial and industrial, or CC&I, business, which remains a small piece of our overall mix, continues to perform well. Our OEM business continues to provide a stable and visible revenue stream, growing at 33% on a year-over-year basis. And finally, we added approximately $9 million to BESS BLAO in the quarter, which ended the period at $75 million. You may recall that we announced a recent partnership with ON.energy in the last quarter. ON.energy is rapidly assuming market leadership in AI data center power infrastructure with its first-of-a-kind medium-voltage AI UPS. That architecture is being deployed in what will be the largest battery project of an AI data center in the U.S. Shoals is very proud to be a partner in this project. In Q1, we celebrated the first of these units produced in our new facility, recognizing more than $1 million in revenue and paving the way for a healthy ramp through Q2. We're excited about increasing production and gaining visibility as we continue to build this business. Overall, the quarter played out as expected, but the year appears to be stronger than we anticipated on our February call. New orders in Q1 for 2026 delivery were very strong, and we have not seen significant project delays thus far. We are executing well, finishing the move into our new facility and expanding capacity and capabilities. The underlying demand drivers remain intact, and our competitive position has strengthened. Our business is in a great place today. Dom, I'll hand it to you for a deeper dive into our financial performance and guidance. Dominic Bardos: Thanks, Brandon, and greetings to everyone on the call. Revenue increased by approximately 75% year-over-year to $140.6 million. The increase was largely driven by strong demand from both new and existing customers within our core U.S. utility-scale solar market. Gross profit was $41.0 million compared to $28.1 million in the prior year period, an increase of 46%. Our GAAP gross profit percentage was 29.2% and adjusted gross profit percentage was 29.6%, slightly below our expectations and impacted by product mix, higher freight costs, tariffs and temporary labor inefficiencies as we start new lines and train new employees to meet the very strong demand we see ahead. Product mix, freight and tariffs accounted for approximately 200 basis points of margin compression versus our anticipated outcome. As Brandon stated, we believe this quarter is the low point for gross profit percentage and that it will improve as we make our way through the year. As a reminder, our product mix plays an integral role in the gross profit percentage, and that may vary from quarter-to-quarter. The same mix that is driving higher revenue growth and contribution dollars negatively impacts the margin percentage but delivers higher profit dollars. Ultimately, we are focused on driving incremental profit dollars through the P&L as that strategy will create shareholder value. Selling, general and administrative expenses, or SG&A, was $31.0 million or $9.3 million higher than the prior year period, driven by an additional $6.2 million of ongoing legal expenses. This breaks down to $4.1 million related to our ITC litigation, $1.2 million related to our case against Prysmian and a little under $1 million related to the shareholder class action suit. As you may have seen last week, we have announced a proposed settlement to the shareholder class action suit. The vast majority of the settlement is covered by insurance. Income from operations or operating profit was $7.7 million or 5.5% of revenue, growing at 79% year-over-year. This compared to $4.3 million during the prior year period. Net loss was $297,000 compared to a net loss of $282,000 during the prior year period. The net loss was driven by the class action settlement net impact of approximately $5 million. Adjusted net income was $12.1 million, an increase of 112% as compared to $5.7 million in the prior year period. Adjusted EBITDA was $21.1 million compared to $13.5 million in the prior year period, representing 56% growth year-over-year. Adjusted EBITDA margin was 15% compared to 16.8% a year ago, driven primarily by the impact of product mix. Adjusted diluted earnings per share of $0.07 was $0.04 higher than the prior year period. Operationally, we consumed $41.4 million of cash in the first quarter, driven by the higher inventory balances needed to satisfy the strong demand signals we are seeing in our markets. We have taken inventory positions to protect our customer delivery time lines for the next 2 quarters, and we intend to reduce inventory levels throughout the back half of the year. As such, we do not currently anticipate interruptions to project delivery schedules due to the conflict in the Middle East or projected trade policies. We ended the quarter with cash and equivalents of $1.9 million and net debt to adjusted EBITDA of 1.6x. Our net debt was $179.9 million, an increase over the prior quarter, driven by an increase in inventory in both our new BESS business and our core utility scale solar market. As we enter this period of exceptional demand, our intention is to moderately expand the capacity on our revolving credit facility. Over time, as collections normalize with production, we will resume deployment of excess cash towards reducing the outstanding balance and maintain leverage below 2x adjusted EBITDA. Backlog and awarded orders ended the first quarter at a record $758.0 million, a sequential increase of $10.4 million. Backlog constitutes $390.3 million of the total BLAO, providing us with confidence that the growth projections we have for the upcoming periods can be achieved. The strength of our book of business supports our decision to increase both our full year revenue and adjusted EBITDA expectations. As of March 31, $627.6 million of our backlog and awarded orders have planned delivery dates in the coming 4 quarters through Q1 of 2027, with the remaining $130.4 million beyond that. Turning to guidance. For the quarter ending June 30, 2026, the company expects revenue to be in the range of $150 million to $170 million, representing 44% year-over-year growth at the midpoint. And adjusted EBITDA to be in the range of $28 million to $33 million, representing 25% year-over-year growth at the midpoint. For the full year 2026, we now expect revenue to be between $600 million and $640 million, representing year-over-year growth of 30% at the midpoint. And adjusted EBITDA to be in the range of $118 million to $132 million, representing year-over-year growth of 26% at the midpoint. In addition, for the full year, we still expect cash flow from operations in the range of $65 million to $85 million, capital expenditures in the range of $20 million to $30 million and interest expense in the range of $8 million to $12 million. With that, I'll turn it back over to Brandon for closing remarks. Brandon Moss: Thank you, Dominic. The U.S. market appears to be extremely resilient, and our capacity expansion could not have come at a better time in our history. We are preparing Shoals to be ready and agile in our production capabilities in a growing demand environment. We are in an exceptional position today from both a commercial and operational perspective. The strategic plan that we constructed and the process improvements we've implemented have begun to yield tangible results. We want to thank our shareholders and our customers for their continued trust in our employees for their hard work and dedication. Operator, we are now ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Philip Shen with ROTH Capital Partners. Philip Shen: Congrats on the strong result. I wanted to talk through the tax equity pause that we've read a fair amount about. I was wondering if you guys are seeing that flow through any of your business or any of your conversations and then maybe talk through with the healthy bookings from this quarter, do you expect that booking strength and greater than 1 book-to-bill to sustain in the quarters ahead? Brandon Moss: Phil, thanks for the question. Related to the tax equity piece, well aware of what's going on in the market with some of the larger banks financing projects. I would say that we have not seen that trickle down into our order book. I think there is available financing for projects that still exist in the marketplace, and we are not seeing an impact to that as evidenced by a really strong quote log again in Q1 of over $1 billion, and that's been really consistent with the quoting strength we've seen for the last few quarters, honestly. As it relates to future book-to-bill and booking strength, it is always our goal to have a positive book-to-bill. We see a lot of strength in the marketplace. The market is accelerating and not slowing. We have fortunately strung together a number of quarters now with positive book-to-bill, and that's always our intention to do so. Philip Shen: Great. And coming back to margins for a bit here. Q1 was a little bit lower. I know you guys talked about that being the low point in the year. I was wondering if you could share what like Q2 and Q3 might be heading towards with your guidance raise, the EBITDA margin for Q1 was 15%, but full year is 20%, suggesting you really have to drive that much higher later in the quarters or later this year. And while maintaining the EBITDA guide, you also kept cash flow from operations unchanged. So I was wondering if you might be able to address kind of some of the situation there. Brandon Moss: Yes. Thanks. So multipart question there. I'll tackle the front end and maybe turn it to Dominic. As it relates to gross margin, again, we commented we had about a 200 basis point impact in the quarter versus our expectations. The biggest driver of that for us is always product mix. And then obviously, we had -- as we're moving our facility from our former 3 sites into our new factory, we've got some disruption related to that move, a little bit more so that is anticipated. We moved about 250 pieces of equipment or slightly more over a 60-day period in the quarter. And obviously, that led to some level of disruption. Dom, maybe pass it to you to expand upon that. Dominic Bardos: Yes. So I think, Phil, one of the things you asked was also a little bit of the pacing of what we might see from margins. And we do expect that the first half as we're still moving into the facility. So Q2 will still have lower margins. We just don't believe it's the low point that we saw in Q1 as we've been communicating. And then there will be a ramp in the back half as we move into the -- we're going to be completely move into the facility, and we will also have the ability to start realizing some of the efficiencies of being in one vehicle new facility. So the pacing will still be a little bit lower on the margins in Q2 and then improving, but everything should be sequential improvement quarter-over-quarter. And with regards to the cash flows from operations, our working capital, we took very specific inventory positions to make sure that we can meet the demand that we see in the coming quarters. But we will have the ability to reduce that. So I would characterize that as a timing issue. We do see very strong business. We see very positive cash flows this year and our ability to drive that cash is heightened this year because we're not doing some of those large things like the warranty remediation, which is largely in our rearview mirror at this point. So I would characterize that as a timing issue. We're very confident in the year and very excited at the book of business that we have in front of us. Operator: Our next question comes from the line of Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Look, maybe just to kick things off, I would love to hear a little bit more about the battery BESS adoption trends as well as any other end market adoption here. Again, I know the Street is very fixated to hear on your quarterly BESS trend. Obviously, stronger start to the year here overall. But I'm curious on how you would suggest cadence and adoption is going given what we're seeing in that end market. Brandon Moss: Julien, I appreciate the question. We are very excited about our BESS business. As we indicated in the prepared remarks, we started our BESS line in Q1 and recognized about $1 million of revenue. Those specific units, again, are going to the data center market, which we're very bullish about, and we will be on the largest battery paired AI data center site in the country, which is very exciting for us here at Shoals. What is also exciting for us in the first quarter is we added $9 million to our book of business related to BESS. Maybe to peel that back a little bit, as you may recall, we've got 3 specific end market use cases for our recombiner products, one being data centers, 2 being grid firming and 3 being your common solar and storage paired applications on our traditional solar sites. About 2/3 or more of our bookings in the quarter came from grid firming and solar plus storage applications, which is exciting for us as we are seeing penetration across all 3 markets. As we've talked about in the past, we see the data center AI space as being probably the strongest and largest driver of the product line, but it's also great for us to show strength in the other markets as well. Julien Dumoulin-Smith: Got it. And then not to needle too much on this margin backdrop, but you lowered the margin guide here slightly here. What's driving that here? Can you comment on the logistics side of things, the tariff angle? I know you commented a little bit here, but I just want to make sure I'm hearing that right, especially given the ramp that my peer who was talking about a second ago. Can you just comment about what you're seeing on that margin guide? I think people are very fixated here on the cadence of the year and ensuring that you see that overall recovery materialize. Dominic Bardos: Yes. There's a few things that I want to point out, Julien. And first is that we're still moving into the facility, and we did have some disruptions and inefficiencies in Q1. They were a little bit worse than we anticipated with the disruption of all the movement. But we're completing that move in Q2. And also with the unrest in the Middle East or the conflict, we are seeing pressure on oil prices and the derivative products from oil. Freight charges are certainly higher, and some of our cost of goods are certainly going to have the potential to be impacted. And some of the pricing has already been set. Some of those things -- it's kind of like when things change in a rapid fashion, once we've already agreed to a price, we might have some times when we can't quite recover the full cost of goods increases. So we want to just be cautious and give a prudent guide with margins. We do see improvement every quarter, as we mentioned, sequentially, and we're very optimistic that the product mix will be favorable for us for the balance of the year. Operator: Our next question comes from the line of Praneeth Satish with Wells Fargo. Praneeth Satish: Maybe not to belabor the margin question too much, but I guess, so you mentioned 200 basis points in Q1 from product mix, tariff and freight. And then you also had this impact from moving equipment to the new facility. Maybe if you could just kind of isolate how much of the margin was weighed down because of that transition to the new facility? And then also on product mix, is that -- of the 200 basis points, how much is product mix? And kind of what's the outlook there? Because I assume the tariff and freight, those will kind of persist potentially for a few more quarters, but just kind of trying to isolate the variable pieces. Dominic Bardos: Yes. So Praneeth, that's a pretty packed question there. So let me break it down a little bit. So of the 200 basis points that we saw, we kind of bucketed into about 1/3, 1/3, 1/3 of some of the major drivers. We definitely had some tariff impact that was still a carryover, but the IEEPA reduction is certainly going to help us. The 232 tariff environment, we've now actually encompassed that into our pricing. So that shouldn't be as big of a drag going forward. We do still have some inventory that has capitalized tariffs in it. We do still have to burn through that in the second quarter. Once again, that informed our second quarter margin guide. With regards to the freight, we did have some air freight and the cost of fuel for freight has gone up. So we had some surcharges there. But fundamentally, these things are largely transitory or at the point where we can now factor all that into the pricing. As I mentioned with Julien's question, sometimes when things change rapidly, we may already have guaranteed pricing or contract pricing, and we can't quite go back and recover all of that. So the margin issue aside, we're very pleased to be raising our EBITDA guide for the year. We're going to continue to get the leverage on our OpEx, and we're very excited about our book of business. Praneeth Satish: Got you. That's very helpful. And then maybe just switching gears, your other kind of product in development here, the data center BLA product. Has anything changed there in terms of timing for UL certification? And I know we're not going to see sales this year, probably next year. But I guess, when should we anticipate potentially seeing some bookings? Do you think it's possible we could see something towards the end of this year? Just trying to get an update on that. Brandon Moss: Yes, Praneeth, great question. We did a market launch of that product at Data Center World a few weeks ago, which we are very excited about. We have filed our patent portfolio for that particular product, which is also very exciting for us. There's a lot of interest in the product right now. As you mentioned, we do not expect to recognize revenue in calendar year '26. Our goal this year is to have proof of concept operating live in a facility, and we are working towards that. So bookings in '26, potentially, we're talking to a variety of developers about including that product in their portfolio of projects, but nothing on the books as of yet. I would probably say in '26, bookings would be minimal for that product line as we begin to ramp it in 2027. But exciting product and really strong market feedback thus far. Operator: Our next question comes from the line of Colin Rusch with Oppenheimer & Co. Colin Rusch: Could you give us an update on sales traction outside of the U.S. on both US solar and BESS? And then if there's anything in particular that you guys see you can optimize from an OpEx perspective, I'd love to get a little bit more detail on that side. Brandon Moss: Yes. Thanks, Colin. We are excited about our prospects internationally. Our backlog and awarded orders continues to rise. We reached $100 million now to date after actually deploying 3 projects last year. So we are continuing to generate bookings to offset not only shipments, but grow that order book, which is exciting for us. Our prospects in Australia seem like a fantastic opportunity for us. The pipeline is very strong, and that's where some of the additions to the order book have come from. So that has been a key priority for us to diversify end markets, not only product, and we're pleased with the progress thus far. Your other question was around operating expenses, I believe. Dom specifically, what are you looking for... Colin Rusch: Yes. So we're seeing a number of folks able to optimize using some AI for just cleaner, more efficient OpEx. And just wondering if there's some of that, that you're going to be able to start flowing to the organization over the next year or 2. Dominic Bardos: Yes. It's a great question. So we absolutely are engaged with some trials of artificial intelligence and what we're trying to do to improve some of our systems and operations. Our focus initially is actually with manufacturing and commercial as our process flow. We have some opportunities there that we're working with. We are in discussions with our Board all the time about how the next -- where we can improve our processes, which are largely manual as a small company is growing. So we are looking to that. I would suggest that our SG&A is relatively lean. We don't have a tremendous number of salaried headcount. As you see in our filings, it's less than 200 people that are salaried in this business. So I'm not looking to AI to truly rip out SG&A expense as much as I am to enable growth going forward. We see significant growth going forward for this company. We want to make sure that we're positioned to scale, and that's truly where we're going to focus our AI efforts, at least initially. Operator: Our next question comes from the line of Mark Strouse with JPMorgan. Mark W. Strouse: I think on the last call, you talked about there were some -- I believe they were BESS projects that you weren't sure if they were going to hit in late 4Q or maybe early 2027. Has that timing now firmed up? And is that part of the guidance raise here? Or should we think about that as a potential catalyst for further upside if that does firm up as we go along here? Brandon Moss: Mark, I appreciate the call. Yes, we do have project visibility in '26 and '27 that is incorporated in our current backlog and awarded orders. As mentioned earlier, the significant driver for our growth in that business is going to be around the data center AI landscape. And obviously, we've got visibility to a quote funnel and are confident in our ability to add to our order book in that particular use case. So we are very excited about the future of battery energy storage products here at Shoals. We have built a manufacturing line to handle and provide a significant amount of capacity for us. So more growth to come in that space for us in the future. Dominic Bardos: And Mark, I may just add that as we gave the guide last quarter, we did talk about there are some projects in Q4 that still have to be firmed up. But what I would characterize our raise on the revenue side is really due to book and turn business in the core solar markets. We've seen some incredible strength in demand, and that's truly what's driving that. And that's -- I just want to position that one because it's a fantastic market for us. We do still have some potential for projects to hit in Q4 from the BESS side, but that wasn't a preliminary driver of the raise. Mark W. Strouse: Okay. Very helpful. And then you've had several questions already about kind of the margin trajectory this year. Dom, I just want to give you the opportunity to kind of talk about beyond this year. Are you still viewing 2026 as the trough here? Dominic Bardos: Yes. Well, certainly, it is because of all the move disruptions and starting the BESS line from scratch and training all the new employees. I mean those are some transitory headwinds that will get done in this year. We think we're a very attractive business, driving gross margins in the 30s like we are. It's a fantastic business. We're going to continue to get OpEx leverage. We'll see EBITDA margin expansion and much higher cash flow contributions next year. So I'm very excited about next year. While we're not fully guiding to that, we do believe this is a trough year on the gross margin side, but really looking forward to expanding operating profit margins and EBITDA margins in 2027 and beyond. Operator: Our next question comes from the line of Sean Milligan with Needham & Company. Sean Milligan: So to start off, I was curious, Brandon, if you could provide some more context around like your BESS quoting pipeline in terms of sizing of projects, specifically on the AI data center side. I guess you've been in the market now for a few quarters there. And I was curious if there's any change to what you're seeing in terms of the size of projects you're quoting. Brandon Moss: Yes. Thanks, Sean. I think we've communicated in the past that, I guess, first, bookings for this particular product line will be a bit lumpy because of the size of the projects, right? I don't think our assumptions have changed at all, where we look to use our 4000 amp recombiner product line and data center AI applications. That market is probably about $50 million to $60 million per gigawatt. We've got great visibility to pipeline and also future projects. And again, very bullish about our prospects to penetrate that market and very excited about our partnership with ON.energy, who we believe has taken market leadership in pairing battery storage with these large-scale AI centers. So couldn't be more excited about the prospects of that business. Sean Milligan: Okay. And just a follow-up on revenue contribution in the quarter. With C&I, international BESS, you kind of gave the BESS number, but I'm curious like how much revenue is now coming from kind of outside the core BLA business? Dominic Bardos: Yes. So we have -- the OEM business was second to our domestic utility-scale solar projects in the quarter. BESS, we were very pleased to have started the line early. As you recall from last year, we were guiding that we didn't expect to have revenue in Q1 at all because of our time line. So we're very pleased to have gotten that line stood up and operational as quickly as we did. But largely, the Q1 revenue stream was utility scale solar that's domestic, followed by our OEM business, which had 33% growth, I believe, year-over-year. So other than that, we did not have a lot of international revenue and the CC&I still remains a relatively small portion, but we do have CC&I sales every quarter. Brandon Moss: Dom, maybe to add to that, just the focus on our domestic solar markets. Just to reiterate, we believe we are operating in an unbelievably strong market environment. And I think our market leadership position as a preferred solution continues to be proven by our record backlog and awarded order growth. A lot of our growth, I know there's a tremendous amount of focus on battery energy storage. But as we've communicated in the past, our goal is to diversify both products and markets, and we're doing that. What is very exciting for us in 2026 is about 1/5 of our revenue will come from new products. BESS is obviously included in that number, but many of the new products are in our traditional solar space. So we've put a big focus on accelerating innovation here at Shoals. And that is playing out with increased bookings and obviously, revenue recognition for 2026. So again, a lot of focus on BESS, always a lot of questions about BESS. I want to reiterate the strength of our domestic utility scale solar business. Operator: [Operator Instructions] Our next question comes from the line of Vikram Bagri with Citi. Vikram Bagri: I have sort of like a 2-part question. I think last quarter, you mentioned spooling had a meaningful impact on margins. I was wondering if you can share what the run rate impact of spooling was on this quarter's margin? And what percentage of customers have requested spooling? And related to that, obviously, tariff, logistics and commodity prices have changed a lot since last quarter. Our understanding was that tariffs baked into the previous guidance were conservative. I was wondering if you can also identify where you see some puts and takes in this ever-changing environment in terms of tariff, logistics and commodity prices, if the current environment is fully baked in? Or do you see some level of sort of like downside or upside from these 3 factors? Brandon Moss: Vik, great question. We have talked about spooling in the past, probably more generally just packaging in general. There are different packaging requirements for some of our newer customers and also product mix related to those specific to our long-tail BLA product. That is adding significant revenue potential for us in the future and is being recognized still in 2026. It adds $0.005 to $0.008 a watt to our projects, which is exciting for us to be able to expand our wallet share. So we do have some packaging costs that are baked into the guidance for the year. I'll let maybe Dominic expand on that. But before I do, just I'll comment on your question about tariffs. Obviously, the tariff landscape has changed dramatically in the last, I don't know, 18 months now. And for us to try to predict what that's going to look like in the future, we would be fools to try to do so. Having said that, the change with IEEPA and Section 232, we view as a net neutral to positive change for us. And that is being baked into our thoughts about margin and guidance for the rest of the year. Dom, maybe I'll turn it to you for specifics around packaging and margin. Dominic Bardos: Yes. As Brandon mentioned, Vik, it's largely -- when I talk about product mix, that's where it's coming from. Not all of our products require spooling, but the longer-run products do. And things like the long-tail BLA is incorporated in the margin. And so when I talk about product mix and a large percentage of customers now preferring the long-tail solution to centralize their low-grad disconnects by the inverters, that is something that increases our share of wallet, but it carries a lower margin percentage. The spooling cost, the packaging, the handling of all that is incorporated into that, but that's why the product mix is so important to the margin percentage. It is driving increased flow-through dollars, which is fantastic. We're going to keep doing that business. We're responding to the changing environment of our customers, what they're looking for, and we now have a full suite of products to really meet those needs. Things like our SuperJumper, which may have been originally developed for international markets are really showing some popularity here in the United States as well. But once again, you have much longer run. So we've factored all that in. It's part of our product mix, and that's why I always caution folks when we talk about a percentage of margin, we need to kind of consider where the mix is going as well. Operator: Brian Lee with Goldman Sachs. This will be our last question. Brian Lee: Sorry, I dialed in a little bit late, so not sure if you covered some of these things. Maybe just on the guidance, kudos on the strong execution here to start the year and for the revenue and margin uplift. But adjusted EBITDA guide is up a bit less than revenue guide at the midpoint for 2026 in the new outlook. Is that conservatism? Or are you seeing more mix shift issues or incremental tariffs than originally expected? Just curious, maybe this is nitpicking, but the EBITDA uptick in the guidance is a little bit more tempered than the revenue outlook. So any color there would be appreciated. Dominic Bardos: Sure, Brian. Yes, we've covered a little bit of this. So -- but I'll repeat a few of the things that are driving that. First and foremost, product mix is certainly driving that. We are seeing popularity of some of the new products which do have a lower margin percentage and flow-through. So while revenue is going to be increased, the margin percentage is not going to be quite as high. We are seeing a little bit of disruption in our move into the new facility here. It was a little bit more than we anticipated and allowed for as folks are moving -- as we moved over -- I don't remember, Brandon, 200 machines. Brandon Moss: 250-plus machines in 60 days. Dominic Bardos: Yes. And we're still moving into the facility this quarter. So a little bit of disruption there, and we are expecting to see with our mix anticipation for the rest of the year, some uptick in gross margin as well. But there were some reasons why we did that. We also have 2 trials set for later this summer in August. With legal expenses, I've learned to be a little bit cautious on the estimations. We want to make sure we represent the shareholders properly in our cases. And if that means experts and additional legal expense, we're going to cover that. And one of those cases is not adjusted out. It's our IP case as part of our earnings. So we just want to make sure that we give a good cautious number that allows us to meet our expectations for. Brian Lee: Yes. Fair enough. Makes sense. And then I'm sure you covered a little bit in this and maybe you covered all of it. Just with respect to tariffs, can you level set us as to what tariffs you are specifically subject to starting the year off 232 copper, steel, aluminum, et cetera? And then does the April 3 ruling on kind of the changing thresholds impact you? And again, maybe level set us as to are you importing copper from foreign sources and what percent of the [ indiscernible ]? And is that impacting your margin outlook for this year? Or are you contemplating any mitigation efforts this year or into next year? Just trying to get a level set on the copper exposure here, if you could speak to that a bit. Dominic Bardos: Sure. Sure, Brian. I'll jump in on that one. There's a few questions in there, so let me unpack it. Yes, for the first couple of months of the year, we still had IEEPA. And those, of course, were stopped collected at the end of February, around the 24th or so of February. And so that right now is going to be a favorable tariff environment. With regards to 232, yes, there was a couple of things. We do have a very wide book of suppliers, approved vendors and some of which are international in nature and are subject to 232 import tariffs, both on the aluminum and copper side. We do work with customers on some things. If they have a preference, we can certainly go for certain domestic suppliers. If they have a preference for international, we can do that as well. So we are subject to 232. Now as the rules change and the tariff rate went down, it's also now on the full purchase price. But net-net, it should be slightly favorable for us in terms of how these tariffs are calculated. So it is a very dynamic situation. We certainly appreciate your question. It makes it very difficult to truly know how to operate that. And Brandon, is there anything else you want to add? Brandon Moss: Yes. Just maybe something to point out. As it relates to the tariff landscape, those tariffs impact even our domestic supply base, right? Like us, most suppliers have a very diversified and international supply base themselves. And so those tariffs may be getting -- may be impacting our raw material inputs even on domestic supply sources. So obviously, as you guys know, it's been a challenging, again, 18 months or so with the tariff landscape. I think we're navigating it quite well. And I think what is probably most important is with the repeal of the IEEPA tariffs and now the change to Section 232, we do see that as a net neutral to positive impact for Shoals in the back half of the year. Obviously, caveating that with unless something else changes. So I think we're navigating it well, Brian, and I appreciate the question. Matthew Tractenberg: Thanks, Brian. Christine, I think that that's going to be the last question that we take today. Operator: Absolutely. We have reached the end of the Q&A session. I will now turn the call back to Matt for closing remarks. Matthew Tractenberg: Yes. Thank you, Christine. So I want to note to our audience that we have a very active IR calendar through June. Those events are listed on our Investors section of our website. So if you're attending conferences, you want to meet with us, please let us know. We're happy to. If we can help further, let just reach out to investors@shoals.com with any questions. Thanks for joining us today, everybody. Have a great day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the Black Rifle Coffee Company First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Matthew McGinley, Vice President of Investor Relations. Thank you. You may begin. Matthew McGinley: Good morning, everyone, and thank you for joining Black Rifle Coffee Company's First Quarter 2026 Financial Results Conference Call. We released our results yesterday, and the press release and related materials are available on our Investor Relations website at ir.blackriflecoffee.com. Before we begin, I would like to remind you of the company's safe harbor statement regarding forward-looking statements. During today's call, management may make forward-looking statements, including guidance and the underlying assumptions. These statements are based on expectations that involve risks and uncertainties, which could cause actual results to differ materially. For a further discussion of these risks, please refer to our previous filings with the SEC. Additionally, this call will include non-GAAP financial measures such as adjusted EBITDA. Whenever we refer to EBITDA, we mean adjusted EBITDA, unless otherwise noted. Reconciliation of non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release, which was furnished to the SEC and is available on our Investor Relations website. Now please refer to the presentation on our Investor Relations website and turn to Slide 4. I would now like to turn the call over to Chris Mondzelewski, CEO of Black Rifle Coffee Company. Monz? Chris Mondzelewski: Thanks, Matt. Good morning, everyone. Joining me today are Evan Hafer, our Executive Chairman; Matt Amigh, our Chief Financial Officer; and Matt McGinley, our Head of Investor Relations. 2026 is off to a strong start with first quarter performance reflecting meaningful progress against our core growth priorities. In coffee, we are seeing the benefits of disciplined execution come through clearly in our results. Distribution gains across key retail partners are translating into higher volume, better shelf productivity and improved SKU level performance. Importantly, this is not just about expanding doors. It is about expanding our shelf presence and making the space we earn more productive, which improves retailer velocity and supports stronger growth and profitability for both our partners and Black Rifle. We remain focused on disciplined resource allocation, prioritizing the channels, customers and products where we see the highest return. Operationally, the business is becoming more efficient. Productivity initiatives and process discipline are contributing to improved margins and more effective conversion of revenue into earnings. While the external environment remains dynamic, we are operating with greater control and visibility, maintaining a clear focus on translating commercial progress into improved business results. Overall, first quarter performance reinforces our confidence in the business and our ability to deliver profitable growth through 2026. Moving to Slide 6. In packaged coffee, first quarter growth reflected broad-based strength across customers and formats, including strong dollar and unit performance at mass merchants, sales that nearly doubled in grocery and pack size innovation that supported new bagged coffee distribution in the dollar channel. According to Nielsen, Black Rifle Coffee grew 34.6% in the quarter or more than 2.5x the category growth rate, driving meaningful share gains. Bagged coffee dollar share increased 55 basis points to 3.3% and pods increased 45 basis points to 2.2% at the end of the quarter. Importantly, these gains were supported by continued improvements in shelf productivity. In grocery, bagged coffee unit velocity increased despite higher pricing and expanded shelf presence, underscoring strong consumer demand and our competitive position at retail. Turn to Slide 7, please. Execution against our land and expand strategy continues to translate into gains in retail breadth and shelf presence. In the first quarter, we expanded distribution by approximately 7 points of ACV year-over-year, reflecting continued success in adding new retail doors and broadening our in-store visibility. At the same time, we are increasing our presence within these doors. The average grocer is now carrying nearly two more Black Rifle items than a year ago as we continue to build on initial placements and expand shelf sets. Taken together, these results demonstrate that both elements of the strategy are working. We are adding new points of distribution while also deepening our assortment across existing accounts. These gains are strengthening relationships with new and existing retailers while reinforcing our ability to earn additional shelf space over time. Slide 8. Across the broader category, much of the dollar growth remains price driven, particularly among legacy brands. Our performance continues to be driven by both unit gains and pricing. We remain among the strongest performers in unit growth, reflecting continued consumer demand at the shelf. In a category where much of the reported growth is price led, that performance is translating into share gains and stronger shelf productivity. That matters to retailers because they understand that healthy category growth comes from increasing consumer demand on a unit basis, not from pricing alone. Packaged coffee remains a core driver of the business, and these trends reinforce the quality and sustainability of our growth in the category. Turning to Slide 9. Our direct-to-consumer business continues to show improvement, delivering its second consecutive quarter of year-over-year growth as our channel strategy evolves. Marketplaces are playing a larger role in scaling the model. These platforms expand our reach by meeting customers where they already shop and provide a low friction entry point for customer acquisition. Importantly, they add incremental consumer reach and demand while complementing rather than replacing our retail presence and owned channels. At the same time, blackriflecoffee.com serves a distinct strategic role. It remains the core platform for subscriptions and our most loyal customers, supporting deeper engagement, exclusive offerings and stronger pricing discipline. We are seeing early traction from this refined approach. Marketplaces are driving customer acquisition and top-of-funnel growth, while our owned channel is focused on retention, repeat purchases and long-term customer value. As a result, direct-to-consumer is contributing more consistently, reflecting clearer roles for the marketplaces and blackriflecoffee.com within the broader business. Slide 10. In ready-to-drink coffee, category trends remained challenging in the first quarter with convenience channel softness weighing in on both our performance and the broader category. Despite that, we expanded distribution with ACV up nearly 8 points year-over-year, reflecting continued success in adding new doors and broadening our presence across retail. We are concentrating on the areas we can control. We are prioritizing channels and partners where we are seeing stronger demand while continuing to deepen our presence in grocery, mass merchants and other retail environments that support more consistent takeaway. At the same time, we are using product and innovation as a disciplined growth lever, ensuring new items and platforms are aligned with the channels and occasions where they can perform most effectively. This approach supports a more focused RTD strategy, prioritizing retail environments where takeaway is most consistent and the economics are most compelling. Slide 11. In energy, we continue to move from our initial launch to a more deliberate phase of expansion, reaching 21% ACV across more than 22,000 doors in the first quarter. Our focus this year in energy remains on selectively expanding in markets and channels where we are seeing early traction. This approach allows us to concentrate investment behind the strongest opportunities while scaling energy at a measured pace. Before I turn it over to Matt, I want to briefly highlight how we're continuing to support the communities at the core of our mission. During the first quarter, we remained active across a range of initiatives that brought together partners, veterans, military families and local communities through events, direct support and collaborations. We partnered with Operation Homefront and the Dallas Cowboys to host a baby shower for new and expecting military families. We also partnered with Team Red, White & Blue in support of a nationwide effort to honor those who served in the global war on terror, while raising funds to support veteran health and wellness. We worked with Beyond the Call to launch a limited time roast honoring the legacy of World War II veterans and helping fund efforts to preserve their stories. Across these efforts, we continue to support members of our community, serving in the Middle East and around the world, helping ensure they and their families have the resources, connection and recognition they deserve. That same commitment will carry forward as we move through the year, including through initiatives tied to America's 250th anniversary that celebrate service and expand our support for veterans and their families. Supporting this community is not a stand-alone initiative for us. It is core to who we are and how we operate. Matthew Amigh: Thank you, Monz. I'll begin my remarks on Slide 13. In the first quarter, net revenue increased 21% year-over-year, driven primarily by both wholesale and direct-to-consumer. Wholesale revenue increased 31.5% year-over-year, reflecting distribution gains, pricing and continued contribution from Black Rifle Energy. Performance was broad-based across key customers with sales to mass merchants increasing more than 20% and grocery sales more than doubling. We also benefited from pack size innovation, which supported new placements in the dollar channel. Direct-to-consumer revenue increased 7% in the first quarter, driven primarily by increased sales through third-party marketplaces. Actions taken over the past year to stabilize the business are now translating into more consistent performance and a return to growth. As a result, direct-to-consumer is contributing more consistently to consolidated growth and is positioned to support sustained growth. Turning to Slide 14. First quarter gross margin was 33%, down 305 basis points year-over-year, reflecting the impact of nonrecurring items and elevated coffee costs. Importantly, we continue to make progress on controllable levers, including improvements in trade efficiency and supply chain, which helped mitigate these pressures. Elevated green coffee costs and carryover impact of 2025 tariffs embedded in inventory continue to weigh on gross margin. However, pricing actions implemented in 2025 largely offset these impacts with the net effect of inflation and tariffs limited to approximately 20 basis points in the quarter. Gross margin was also impacted by nonrecurring items, including roughly 100 basis points of costs associated with onboarding a new direct-to-consumer fulfillment provider and approximately 210 basis points from a onetime noncash write-down tied to coffee extract resulting from a formulation change. This extract impact was not added back to adjusted EBITDA. These items were mitigated in part by underlying operational improvements, including approximately 50 basis points of benefit from supply chain initiatives and mix. Looking ahead, we have substantially locked our green coffee requirements for 2026, providing improved cost visibility. While commodity costs remain elevated in the near term, we expect gross margins to stabilize relative to 2025 levels, supported by pricing, productivity initiatives and favorable mix. This stabilization sets a stage for margin recovery over time. We remain confident in our ability to achieve our long-term gross margin target of 40%, driven primarily by structural improvements within our control, including mix and efficiency in both trade spend and supply chain. While recent movement in the coffee forward curve is constructive, our path to the target does not rely on incremental pricing actions. Moving down the P&L to Slide 15. Operating expense improvements were driven by efficiency gains from last year's operational improvement plan, improved marketing efficiency and lower spend across consulting, software and legal. These actions reflect a more targeted allocation of resources towards key growth drivers, enabling greater operating leverage while supporting the business as it scales. Total operating expenses declined over 8% year-over-year, driven by a 10% reduction in marketing expense and a 14% decline in general and administrative expense. Despite the year-over-year decline in gross margin rate, revenue growth drove higher gross profit dollars. Combined with operating expense reductions, this resulted in more than an eightfold increase in adjusted EBITDA and a 570 basis point expansion in adjusted EBITDA margin with adjusted EBITDA increasing from under $1 million to over $7 million year-over-year. This performance highlights the operating leverage embedded in the model as revenue growth translates more efficiently into earnings against a more disciplined and structurally improved cost base. Turning to the balance sheet. We ended the quarter in a strong financial position with $39 million of debt outstanding or approximately 1x net debt to trailing 12-month adjusted EBITDA and about 1x based on our 2026 guidance. At quarter end, we had more than $52 million of total liquidity, including cash on hand and available capacity under our credit facility, providing ample flexibility to support the business. Free cash flow improved by approximately $11 million year-over-year, with $6 million generated in the first quarter of 2026 compared to a use of over $5 million in the prior year period, driven by improved operating profitability and more efficient working capital management. As previously disclosed, we received notice from the New York Stock Exchange in February regarding the minimum price requirement. Our shares are currently trading above $1, and we would regain compliance if at the end of the applicable measurement period, both our closing share price and the average closing share price over the prior 30 trading days are at least $1. As we work through the standard cure period, we remain focused on executing our 2026 plan, improving the fundamentals of the business and driving long-term shareholder value. Moving to the outlook on Slide 17. For 2026, we are increasing our revenue outlook to at least 8% growth or approximately $430 million. We're also increasing our adjusted EBITDA guidance to at least 35% growth or approximately $29 million, up from our prior outlook of at least 30% growth. This updated outlook is supported by current visibility into demand, pricing actions already in market and secure distribution gains. Consistent with our approach from last quarter, our guidance reflects a level of performance we believe is supported by visibility we have today. We have strong momentum in the business and no reason based on current trends to believe that changes in the second half. At the same time, we're taking a disciplined approach and not assuming incremental distribution wins, pricing actions or other benefits that have not yet been realized. As we gain additional visibility through the year, we will update the outlook as appropriate. From a cadence standpoint, revenue is expected to build over the course of the year, broadly consistent with the progression we saw in 2025. First quarter performance exceeded our internal expectations, supported in part by normal shipment timing that likely benefited Q1 revenue by a few million dollars. We expect that timing benefit to normalize in the second quarter. As a result, second quarter revenue is expected to be at least 10% year-over-year compared to 21% in the first quarter, reflecting both underlying business momentum and this timing impact. We continue to expect gross margins in the range of 34% to 36% in 2026 compared to 34.6% in 2025. The outlook reflects pricing actions taken in 2025, supply chain productivity and favorable channel and product mix alongside external factors that remain dynamic. Second quarter gross margin is expected to be consistent with the first quarter, reflecting continued pressure from coffee inflation and the more recent impact of higher fuel costs. Gross margin should improve in the back half of the year as higher cost inventory is worked through and productivity and mix benefits continue to build. For the second quarter, we expect adjusted EBITDA of at least $5 million, more than double the prior year period, while absorbing the impact of the first quarter shipment timing benefit and the timing of certain expenses. Adjusted EBITDA is expected to step up further in the second half of the year as revenue builds, gross margin improves and operating leverage increases. While we are not providing formal cash flow guidance, we remain focused on margin expansion and improved working capital efficiency to enhance cash generation. With capital expenditures expected to remain in line with prior year levels, we expect to generate positive cash flow. Looking ahead, the business is benefiting from a more streamlined operating structure, stronger cost discipline and improved earnings conversion. The actions taken in 2025 are flowing through the P&L, supporting more consistent profitability and greater financial flexibility in 2026. We see this most clearly in coffee, where pricing, distribution gains and productivity initiatives are expanding gross profit and improving returns. Our priorities remain focused on operating discipline, cash generation and thoughtful capital allocation. With visibility into demand, pricing and distribution, we are well positioned to improve earnings quality and sustain profitable growth in 2026 and beyond. Operator, we are now ready for the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Mike Baker with D.A. Davidson. Michael Baker: Congratulations on a good quarter. Beating and raising is nice. I did want to ask -- you gave a little bit of color on the second quarter guide, but I guess I'm trying to square the at least 8% with what you talked about as the progression through the year similar to last year. Last year, the year progressed, I think the second quarter was $5 million above the first quarter, then $5 million more in the third quarter, then $10 million in the fourth quarter. If you do that, you get something like 18% growth, which is way above 8%. Now I guess you just told us that the second quarter will be, I think if I do the math, down about $5 million. But then does the third quarter and fourth quarter progress from there in that $5 million to $10 million growth rate per quarter? Just some more color on how -- just squaring all those different factors that -- yes, how do we sort of reconcile all those? Matthew Amigh: Yes, Mike, that's a great question. Let me hit that one straight on. So as I mentioned in the prepared remarks and also in the last quarter call, we're taking a disciplined approach to guidance. Now our outlook reflects only what we have confirmed at this point. So that's in market pricing and also distribution gains that have been secured. We're not baking anything else in that has not yet been realized. Now we do have real momentum in the business, and we don't want to get too exuberant with that. And based on what we see today, we do expect some of that to carry on through to the second half. However, we're 1 quarter in, and we'll update the outlook as things materialize throughout the year. Now here's a couple of dynamics worth flagging for the shape of the year. On top line, our comps are going to get progressively tougher as we enter the back part of the year as we lap 4 significant tailwinds that all kicked off around mid-2025. Now the first one being pricing. Now remember, we took 2 pricing actions in 2025, one midyear and one came in, in early Q4. The second one would be the 7-point plus ACV gains. Now most of the customer resets are in that midyear timing. So that's going to be -- that's a headwind that's going to cause a tougher comp when we get into the back half. And then finally, our third-party marketplace acceleration initiative kicked in mid last year. So those comps will be tough as well. And then there is one more. Now remember, we did about $5 million in liquidation in the back half of last year, which we do not plan to replicate in 2026. But when you flip to adjusted EBITDA, the Q1 beat of $5 million does flow through to guidance. Now we took adjusted EBITDA from, as you know, at least 30% growth to at least 35% growth. But that was partially offset by a couple of things. Number one, we have about a $1.4 million fuel risk related to the fuel surcharges we see coming through parcel as well as line haul rates and also the $2.3 million onetime write-down of the final installment of extract that hit in Q1. Now if you net all that together, that goes to the roughly $1 million increase in EBITDA that we're raising guidance by. Now hopefully, that clarifies the bridge somewhat, but happy to elaborate. Michael Baker: Yes. Okay. No, I appreciate that. If I could ask one more question unrelated. The SKU count, I think the slide shows about average 5 SKUs per door, if I'm understanding that slide right. But can you tell us about the spread? Like what's the high, what's the low? What's the -- of the possible as you continue to add SKUs per door? Chris Mondzelewski: Hi Mike, this is Chris. Yes. Thanks for that question. So yes, just to reiterate, we've been talking about this pretty consistently. Our land and expand strategy, which we've really been pushing here in the last couple of years as we've been driving this grocery expansion is really playing out well for us, right? And the first aspect of that, of course, is the ACV gains, which we've talked quite a bit about. You see that we continue to pick up on that. We expect to be able to continue to add to our ACV or our overall breadth of reach throughout the country. The third item, I'll come back to what you said here last. The third item is velocity. We feel very good about the fact that our velocity has actually increased as we've been doing this. We don't expect that to happen long term, by the way. We think that velocity will start to level out as you put more and more items on shelf, your per unit velocities will start to level out. But as a premium brand, having our velocity right at the index of the category is a fantastic place to be. And then what you asked about the average items is actually the most important part. So as you saw in the numbers that we shared, we were sitting at only a couple of items on shelf a couple of years ago. And in the last year, we've added 2 additional items on average across all retailers. You're right. The number that we show as our average is just that. There are obviously some retailers that sit right at that 5.5% mark, but most of them are either under or above that. New retailers, when they come on, will tend to come on with 2 to 4 SKUs depending on what their shelf set looks like and what channel they compete in. And from there, we often see an expansion up to 6 to 8. And then to directly answer your question, we have grocery customers who are as high as 13 or 14. I'd like to believe that, that is what ultimately a healthy shelf set for us looks like right now, although as we continue to innovate over time, that number will continue to grow. So as we think about our growth profile and how our model will continue to work, -- it's going to be off of the back of that ACV increase. We still have plenty of room to push that north. And then most importantly, on those average items, while we sit at 5.5 now, there's no reason that we can't be at 12, 13, 14 items on a grocery shelf. Operator: Our next question comes from the line of Sarang Vora with Telsey Advisory Group. Sarang Vora: Great. Congratulations on the quarter as well and positive momentum in second. My question is more on a product level. I know in the prepared remarks, you talked about expansion of a new pack size across dollar stores. It seems like your Walmart business or the mass business is up running double digits. Can you talk from a product standpoint, what's driving this strength? Is it the packed coffee or like some of the newer ones that cold brew or just from a product level standpoint, can you help us unpack the strong results? What's helping the trend? Chris Mondzelewski: Yes, Sarang, it's Chris. Yes, thanks for the question. From an overall standpoint, very much in coffee, right? So bagged and pod coffee continue to have incredible momentum. In fact, if we go to what is still the core of our business, our #1 customer, Walmart, we are looking at share growth in both segments despite having a well-established brand at Walmart. We have 9.4% share now in the bag category, and we are up 30 basis points to a 5.3% share in the pods category. So that illustrates that even with our most established pieces of business, we continue to drive very strong share gains in what is the core of our business. which is the pods and the bags. RTD coffee continues to be a very important part of our business. We have not had as strong a growth. We've been right with the category. The category has been down low single digits. We expect that to recover. We're playing a very important role. We see ourselves as the #3 player in RTD coffee. We see ourselves as playing a key role in turning that category. We had a couple of innovation items this year, our cold brew. We have a few more innovation items that we're working on in the background. You asked about cold brew. Is that playing a key role? Not yet. Very, very early. We're just in the initial shipments of that item as we go into the summer season for cold consumption overall in the category. So we're excited about it. We're excited about the potential. And we continue to feel great about the fact that we have the #3 cold coffee business in America. But again, the pods in the bags based off of the model that I just talked about in Mike's question, the land and expand strategy, driving ACV, driving average items, we believe there's just continued great potential to run that model and generate growth over the next 2 to 3 years. Sarang Vora: That's great. And I had a follow-up on marketing spend. I mean the dollar -- marketing spend dollar continues to be down year-over-year past few quarters. Can you help us understand how we should think about marketing going forward? Matthew Amigh: Yes, Sarang, that's a great question. Yes, so the marketing spend has been down over the last couple of quarters, and it's primarily due to us reallocating more spending upper funnel and taking away some of the lower ROAS bottom funnel activity. Now you're going to see that ramp up considerably as we go into late Q2 and into Q3 and Q4 as we hit America's 250th and a lot of our promotional windows that happened through the summer. So you will see an uptick. And again, year-over-year, we're looking at relatively the same level of spending when it comes to a percentage of sales basis. So we will spend more year-over-year on marketing in total. Chris Mondzelewski: I think it's important to reinforce, Sarang, which we've talked about before, that our marketing is, we believe, a substantial competitive advantage for us as a business. And the reality is it's a very efficient model for us. So we don't have to spend the same kind of percentages as some of our competitors in order to be able to get equal or even better results. Behind the scenes, we obviously track our brand awareness, attributes of our brand, and we feel great about how all of those things are progressing. And the result of that, of course, is ultimately what we see as far as takeaway on the shelf. So dollars only tell a piece of the story for us. It's really impressions and quality impressions that become most important to us being able to build the brand over the long term. Operator: Our next question comes from the line of Daniel Biolsi with Hedgeye. Daniel Biolsi: How did your wholesale growth break down between price and volume in the quarter? Is it similar to the 22% unit to 9% price for the year? Matthew McGinley: Yes. So the -- Dan, the overall, like we had 21% growth in the quarter. We had about 6% of that came from pricing. The vast majority of that growth that we had was unit growth for the quarter. And for the year, the pricing will begin to fade a little bit as we get into the back half. But overall, the unit growth is going to be the dominant driver of our overall top line this year, and that's driven by the things that Monz was talking about. One is the velocity increases we've seen year-over-year. Second is the more doors that we're in. And the third thing is the increase in average items carried. So it's really a volume-driven gain here. It's not -- it's one where pricing has helped, but it's not the primary driver of our upside. Daniel Biolsi: And then did you see any change in the consumer behavior from higher fuel costs? And could you note any difference between like the C-stores or RTDs compared to your packaged coffee sales? Chris Mondzelewski: We're not -- so it's obviously something we're going to be watching. We don't specifically track that traffic. I think we can expect that when fuel costs go up, there always is less store traffic. It's not just C-store. It's also grocery and mass. I think those are potential category dynamics to watch out for. But as of right now, no, we're not seeing that. We're seeing actually pretty consistent unit and price growth across the grocery categories. Units as a category have been declining due to the higher pricing. But just to reinforce, our unit growth has been exceptionally strong despite that. And in the case of C-store, categories that have been growing such as energy continue to grow. The declines in RTD coffee actually are starting to stabilize. They were a bit higher a year ago. We're now seeing them come down into the low single digits. So while that's a watch out, Dan, we're not really seeing anything that would tell us that it's an issue. We're not -- so it's obviously something we're going to be watching. We don't specifically track that traffic. I think we can expect that when fuel costs go up, there always is less store traffic. It's not just C-store. It's also grocery and mass. I think those are potential category dynamics to watch out for. But as of right now, no, we're not seeing that. We're seeing actually pretty consistent unit and price growth across the grocery categories. Units as a category have been declining due to the higher pricing. But just to reinforce, our unit growth has been exceptionally strong despite that. And in the case of C-store, categories that have been growing such as energy continue to grow. The declines in RTD coffee actually are starting to stabilize. They were a bit higher a year ago. We're now seeing them come down into the low single digits. So while that's a watch out, Dan, we're not really seeing anything that would tell us that it's an issue. We're not -- so it's obviously something we're going to be watching. We don't specifically track that traffic. I think we can expect that when fuel costs go up, there always is less store traffic. It's not just C-store. It's also grocery and mass. I think those are potential category dynamics to watch out for. But as of right now, no, we're not seeing that. We're seeing actually pretty consistent unit and price growth across the grocery categories. Units as a category have been declining due to the higher pricing. But just to reinforce, our unit growth has been exceptionally strong despite that. And in the case of C-store, categories that have been growing such as energy continue to grow. The declines in RTD coffee actually are starting to stabilize. They were a bit higher a year ago. We're now seeing them come down into the low single digits. So while that's a watch out, Dan, we're not really seeing anything that would tell us that it's an issue. Matthew McGinley: Yes. We specifically looked at that quite a bit with regard to the convenience channel really beginning in March and through April. And we looked at it extensively, and we just couldn't see any impact yet with higher fuel cost impacting the category or the channel at all. So not that, that couldn't happen, but we just -- we haven't seen those impacts yet. Operator: Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to management for any final comments. Chris Mondzelewski: Yes. So thank you. As we close, I want to highlight a couple of key points for us. First, fundamentals of our business continue to strengthen. We're delivering growth that is increasingly driven by distribution gains, improved shelf productivity, as I talked about earlier, and then unit velocity. It's not just the pricing. It is a gains that we believe are healthy. They're more durable that are going to carry us over the next 2 to 3 years. That is driven by our operating model then. Those actions that we've been taking over the last couple of years to simplify the business, improve cost discipline, focus our resources are now really starting to translate into results. We are converting revenue into earnings more effectively than we have before, and we are generating positive cash flow. And with all of that, we're maintaining flexibility on the balance sheet, and we're going to continue to do that strategically in the business. Third, we're operating with greater control and visibility. Our 2026 outlook is grounded in confirmed drivers, as Matt talked about. These are not things we're still working against. We actually have built them. We have secured them distribution-wise, pricing-wise, productivity initiatives that we know are within our control. And as we execute, we expect to build on the foundation throughout the year, and we'll continue to obviously update as that happens. So overall, we remain focused on disciplined execution, improving our earnings quality, driving long-term shareholder value. I appreciate everybody's continued support. Look forward to updating you next quarter. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Astera Labs first quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After management remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I will now turn the call over to Leslie Green, Investor Relations for Astera Labs, Inc. Common Stock. Please go ahead. Leslie Green: Good afternoon, everyone, and welcome to Astera Labs, Inc. Common Stock first quarter 2026 earnings conference call. Joining us on the call today are Jitendra Mohan, Chief Executive Officer and Co‑Founder; Sanjay Gajendra, President and Chief Operating Officer and Co‑Founder; and Desmond Lynch, Chief Financial Officer. Before we get started, I would like to remind everyone that certain comments made in this call today may include forward‑looking statements regarding, among other things, expected future financial results, strategies and plans, future operations, and the markets in which we operate. These forward‑looking statements reflect management's current beliefs, expectations, and assumptions about future events which are inherently subject to risks and uncertainties that are discussed in detail in today's earnings release and in the periodic reports and filings we file from time to time with the SEC, including the risks set forth in our most recent Annual Report on Form 10‑K. It is not possible for the company's management to predict all risks and uncertainties that could have an impact on these forward‑looking statements or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward‑looking statement. In light of these risks, uncertainties, and assumptions, all results, events, or circumstances reflected in the forward‑looking statements discussed during this call may not occur and actual results could differ materially from those anticipated or implied. All of our statements are made based on information available to management as of today and the company undertakes no obligation to update such statements after the date of this call except as required by law. Also during the call, we will refer to certain non‑GAAP financial measures which we consider to be an important measure of the company's performance. For example, the overview of our Q1 financial results and Q2 financial guidance are on a non‑GAAP basis. These non‑GAAP financial measures are provided in addition to, and not as a substitute for, financial results prepared in accordance with U.S. GAAP. A discussion of why we use non‑GAAP financial measures—whose difference is primarily stock compensation, acquisition‑related costs, and related income tax effect—and reconciliations between our GAAP and non‑GAAP financial measures and financial outlook are available in the earnings release we issued today, which can be accessed through the Investor Relations portion of our website. With that, I would like to turn the call over to Jitendra Mohan, CEO of Astera Labs, Inc. Common Stock. Jitendra Mohan: Thank you, Leslie. Good afternoon, everyone, and thanks for joining our first quarter conference call for fiscal year 2026. Today, I will update you on AI infrastructure market trends, our Q1 results, and recent announcements. I will then turn the call over to Sanjay to discuss Astera Labs, Inc. Common Stock’s growth profile. I would also like to welcome Des, our CFO, joining this call for the first time. Des will cover our Q1 financials and Q2 guidance. Since our last earnings call, AI infrastructure spending has clearly accelerated. Hyperscalers, AI labs, and sovereign entities are signaling the industry buildout is still in its early stages, underpinned by strong monetization and ROI. We expect these strong secular trends to be a tailwind for Astera Labs, Inc. Common Stock’s growth over the long term. Astera Labs, Inc. Common Stock delivered strong results in Q1 with revenue and non‑GAAP EPS above our outlook. Revenue for the quarter was $308 million, up 14% from the prior quarter and up 93% versus Q1 of last year. Revenue growth was broad‑based, spanning across our signal conditioning and fabric switch product portfolios as we continue to diversify our business profile with new design wins across multiple customers and product categories. Our PCIe 6 business across both AI fabric and signal conditioning was strong in Q1, with revenue expanding to more than one‑third of our total revenue. We have now shipped millions of PCIe Gen 6 ports to date, demonstrating the robustness and maturity of our PCIe portfolio. Torus smart cable modules for Ethernet AECs continue to perform well as new program designs shift into volume while others ramp to mature levels across GPU, XPU, and general‑purpose systems. On the scale‑out fabric front, our initial design wins with Scorpio X Series in smaller radix configurations shifted from pre‑production shipments to initial volume ramp during the first quarter. Building on this momentum, today we announced the expansion of our Scorpio product line of AI fabric switches for both scale‑up and scale‑out use cases. Scorpio X Series now supports up to 320 lanes for high‑radix scale‑up networking and Scorpio P Series PCIe 6 portfolio now spans 32 to 320 lanes for diverse system topologies, making it the broadest in the industry. Our new flagship Scorpio X Series 320‑lane has been purpose built to maximize AI economics by leveraging hardware‑accelerated hypercast and in‑network compute engines to boost collective operations by up to 2x. In‑network compute offloads critical accelerator‑to‑accelerator communication and computation directly onto the switch, dramatically reducing the networking overhead during large‑scale training and inference. These hardware capabilities are delivered through enhancements to our Cosmos software which can now integrate deeper into our customer software stacks, providing not only diagnostics and telemetry, but also directly improving AI platform performance. Core features’ advanced hardware and software capabilities are a result of Astera Labs, Inc. Common Stock’s deep system‑level understanding of AI architectures and close customer collaborations, creating a durable competitive moat. We are excited to report that we are now shipping initial volumes of our new 320‑lane Scorpio X, with production volumes ramping in 2026. Scorpio X Series also has a widening interest in design activity with hyperscalers, edge AI inference providers, and enterprise infrastructure builders to address high‑bandwidth AI clustering use cases. Scorpio P Series continues to grow through 2026, and we expect initial shipments to at least two additional major hyperscalers towards the end of 2026, with broader deployment in 2027. On the optical front, we made good progress during the quarter as we continue to work through the qualification process at a large AI platform provider with our ultra‑high‑precision optical fiber coupler product, which we expect to ship in volume starting in 2027. We are actively expanding our volume manufacturing capabilities to support the ramp of both scale‑out and scale‑up TPO applications. Beyond the early commercial traction of our merchant connectors, our high‑density fiber coupler technology will be a critical piece of our long‑term optical roadmap for NPO and CPO applications. Finally, our Leo memory controller is on track for an early ramp of CXL‑attached memory with Microsoft Azure M‑series virtual machines, and during the quarter, we captured a new custom design win for a KV cache–oriented application, with shipments expected in 2027. As we look to 2026, robust demand reflects secular AI infrastructure spending, deep customer partnerships, and expansion towards higher‑value solutions within our portfolio. This trend is quickly increasing our silicon dollar content opportunity beyond $1,000 per XPU and positions Astera Labs, Inc. Common Stock to outperform our end‑market growth rates. As a result, we expect strong revenue growth to continue through 2026 and into 2027, driven by the proliferation of AI fabrics and the industry's transition to PCIe 6, 800‑gig, and 1.6T Ethernet connectivity. Based on the momentum we are seeing in 2026, we are strategically investing to drive strong continued growth. Our acquisition of XScale Photonics has created immediate design opportunities and our design center is fully integrated and working with customers on new programs. We have expanded our product portfolio, increased dollar content per accelerator, and diversified our customer base with additional design‑ins. We are making progress within large market opportunities including optical engines and interconnects, UALink fabrics, and custom solutions for NVLink and AI inferencing. Most of all, I am proud of the stellar team we have built through worldwide hiring and thoughtful acquisitions, the progress we have made, and the results we are delivering together. With that, let me turn the call over to our President and COO, Sanjay Gajendra, to outline our vision for growth over the next several years. Sanjay Gajendra: Thanks, Jitendra, and good afternoon, everyone. Today, I will provide an update on our recent execution followed by an overview of the meaningful market opportunities that will fuel Astera Labs, Inc. Common Stock’s growth over the next several years. Astera Labs, Inc. Common Stock’s mission is to deliver a purpose‑built intelligent connectivity platform with a portfolio of standard, custom, and platform‑level solutions across copper and optical interconnects for rack‑scale AI infrastructure deployments. As AI deployments advance to production at scale and operational efficiency, infrastructure teams face a new set of constraints—multitrillion‑parameter models, agentic workflows, multistep reasoning distributed across heterogeneous compute infrastructure, to name a few. The industry needs connectivity and solutions purpose built to address these workloads: higher radix to simplify topologies, intelligent fabric capabilities to reduce communication overhead, open and platform‑specific optimization, and data‑center‑grade diagnostics to maintain uptime when a single fault can cost millions of dollars in idle compute. Let me now walk through our approach to address these evolving needs and our future strategy. Starting with our standard products, we continue to see strong momentum across both AI fabric and signal conditioning portfolios. We strengthened our mission‑critical position with the introduction of our flagship Scorpio X Series 320‑lane scale‑up fabric switch and the overall expansion of our Scorpio switch portfolio. The Scorpio X Series 320‑lane high‑radix AI fabric switch replaces multiple legacy switches to enable large scale‑up cluster sizes in a single hop and reduces overall latency. Several new features such as in‑network compute reduce time‑to‑first‑token and tokens‑per‑watt performance. The newly expanded Scorpio P Series PCIe switch portfolio now spans from 32 lanes to 320 lanes to enable diverse accelerator optionality and system topologies. Our AI fabric portfolio is poised to expand further into 2027 with the introduction of UALink‑based products for AI scale‑up platforms. In early April, the UALink Consortium published a new specification which defines in‑network compute, chiplets, manageability, and 200G performance. UALink 2.0 delivers these advancements with an open, vendor‑neutral approach and confirms that scale‑up switching is not simply hardware, but an AI‑aware fabric actively helping the system compute and drive performance. This evolution plays into Astera Labs, Inc. Common Stock’s strengths, as demonstrated by the industry‑leading feature set that is being deployed through our Scorpio portfolio expansion today. The maturity of the ecosystem is also accelerating, with OEMs and suppliers working tightly to deploy initial programs in 2027. On the signal conditioning portfolio, our Aries products will expand to support PCIe 7 and our Torus portfolio into 1.6T Ethernet, positioning us at the forefront of the next connectivity upgrade cycle. Turning to our optical business, Astera Labs, Inc. Common Stock’s signal connectivity business is driven by the rapid shift of AI systems towards rack‑scale architectures and higher compute capabilities where scaling performance increasingly depends on high‑bandwidth, high‑radix, low‑latency interconnects. These requirements will expand our AI connectivity opportunities across both copper and optical interconnects. Astera Labs, Inc. Common Stock is well positioned to lead this transition by extending its proven value‑chain approach from copper into optics. Over the past couple of years, we have been systematically investing to broaden our internal capabilities across advanced analog and mixed‑signal design, DSP, electronic ICs, photonic ICs, and optical packaging capability, while also deepening our supply‑chain relationships. Together, these capabilities will enable high‑volume deployment of a complete scale‑up optical engine. We are focused on three areas pertaining to scale‑up optics: 1) high‑density detachable, reflowable fiber‑attach solutions using the core technology from our XScale acquisition—we expect to ship these connectors in volume starting in 2027; 2) chipsets in support of NPO that will enable multi‑rack AI clusters starting in 2027; and 3) eventually fully optically enabled Scorpio X fabric switches with CPO supporting larger domains, higher egress densities, and bandwidth. Next, let me talk about our custom solutions business that also continues to make meaningful progress as we work to develop new products and close on new designs. Once again, tight collaboration with hyperscaler customers coupled with a diverse set of foundational technology and operational capabilities have been essential to our initial success. These opportunities represent a new multibillion‑dollar market opportunity for Astera Labs, Inc. Common Stock. First, we are engaging with multiple customers to enable NVIDIA NVLink Fusion’s scale‑up architecture for hybrid racks. Our strong historical execution delivering intelligent connectivity solutions for NVIDIA‑based systems positions us well to develop and design within these new custom programs. Second, we are seeing new custom solution opportunities within the memory space for KV cache applications. We are happy to report that we have won a new design leveraging a customized version of our Leo CXL controller to maximize performance within these AI use cases. Overall, we are pleased with the initial traction we have seen on the custom solutions front and have conviction that this opportunity set will continue to broaden and become a meaningful business for Astera Labs, Inc. Common Stock over the next few years. Finally, we continue to demonstrate solid momentum with our platform business as we ultimately look to expand beyond add‑in cards and smart cable modules to enable broader rack‑scale solutions for customers. As we have grown from an I/O component supplier to an AI fabric solution provider over the past couple of years, customers are looking for Astera Labs, Inc. Common Stock to bring additional value to the AI rack at the system level. In conclusion, Astera Labs, Inc. Common Stock is at a key inflection point in the company's journey as we begin to ship production volumes of our scale‑up AI fabrics. We are also making great strides towards broadening our business across new product categories including optical and custom solutions as our partners look for us to deliver more value in next‑generation systems. Therefore, we will continue to strategically and thoughtfully invest as we position Astera Labs, Inc. Common Stock to deliver growth rates above our end‑market benchmarks over the long term. With that, I will turn the call over to our CFO, Desmond Lynch, who will discuss our Q1 financial results and our Q2 outlook. Desmond Lynch: Thank you, Sanjay, and good afternoon, everyone. I am pleased to be joining you today for my first earnings call as CFO of Astera Labs, Inc. Common Stock. I look forward to partnering with Jitendra, Sanjay, and the rest of the leadership team as we continue to drive long‑term value for our shareholders. Today, I will begin by reviewing our Q1 financial results and will then discuss our Q2 guidance, both presented on a non‑GAAP basis. Revenue in Q1 2026 was $308.4 million, up 14% versus the previous quarter and up 93% year over year. We saw revenue growth across our signal conditioning and switch fabric portfolios, supporting both scale‑up and scale‑out connectivity for AI fabric and reach‑extension applications. Our Scorpio product family performed well in Q1, driven by strong demand for PCIe Gen 6 switching applications and continued expansion of designs across various platforms. During the quarter, Scorpio X Series products began shipping in initial production volumes. Looking ahead, we expect Scorpio X Series shipments to increase in Q2 along with initial shipments of our new Scorpio X 320‑lane and then ramp to full volume production in 2026. Aries revenue grew on strong early adoption of our PCIe 6 solutions for both scale‑out and scale‑up signal conditioning. In total, PCIe Gen 6 revenue across AI fabric and signal conditioning contributed more than one‑third of total company revenue in the quarter. Torus also delivered solid results driven by broad adoption of AEC to extend reach in both AI and general‑purpose compute platforms. Non‑GAAP gross margin for the first quarter was 76.4%, up 70 basis points sequentially, primarily driven by a lower mix of hardware sales across our signal conditioning portfolio. Non‑GAAP operating expenses for the first quarter were $123.9 million, reflecting continued R&D investment to support our expanding product roadmap, including a full quarter of our XScale acquisition and a partial quarter of our newly formed Israel Design Center. Within Q1 non‑GAAP operating expenses, R&D expenses were $96.2 million, sales and marketing expenses were $12 million, and general and administrative expenses were $15.7 million. Non‑GAAP operating margin for the first quarter was 36.2%. We will continue to invest strategically to drive above‑industry revenue growth over the long term while maintaining strong and durable profitability. For the first quarter, interest income was $11.6 million, our non‑GAAP tax rate was 11%, and non‑GAAP fully diluted shares outstanding were 181.2 million shares. Non‑GAAP diluted earnings per share for the quarter were $0.61. We ended the quarter with cash, cash equivalents, and marketable securities totaling $1.18 billion, flat versus Q4, as cash from operations of $74.6 million was offset by cash paid for acquisitions. Now turning to our outlook for the second quarter, we expect revenue to be between $355 million and $365 million, up 15% to 18% sequentially, driven by continued strength across our AI fabric and signal conditioning portfolios. Aries revenue growth is expected to be driven by continued strong adoption of PCIe 6 across AI platforms, supporting both scale‑up and scale‑out connectivity. Torus growth is expected to be driven by increased volumes for AI scale‑out connectivity. And in AI fabric, we expect robust growth driven by the continued early‑stage ramp of our Scorpio X Series products for large‑scale XPU clustering applications as well as continued growth in our PCIe solutions in customized GPU platforms. We expect second‑quarter non‑GAAP gross margin to be approximately 73%. This outlook includes an estimated 200 basis point non‑cash impact related to a recently executed one‑time agreement with one of our customers. We expect second‑quarter non‑GAAP operating expenses to be between $128 million and $131 million. Interest income is expected to be approximately $11 million and we expect a non‑GAAP tax rate to be approximately 12%. We expect our Q2 share count to be 184 million diluted shares outstanding. Overall, we are expecting non‑GAAP fully diluted earnings per share to be between $0.68 and $0.70. This concludes our prepared remarks, and once again, we appreciate everyone joining the call. I will now turn the call back to our operator to begin Q&A. Operator? Operator: Thank you. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We ask that you please limit yourself to one question to allow everyone an opportunity to ask a question. If time permits, we may queue again for follow‑up questions. We will now open the call for questions. We will take our first question from Harlan Sur at JPMorgan. Harlan Sur: Good afternoon. Thanks for taking my questions, and great job on the execution by the team. Now as your customers build compute workload inflection from training to inference in the second half of last year, essentially very focused now on monetization, we saw that as inferencing workflows evolved—one‑shot to reasoning to knowledge and tech—this created new silicon opportunities. It created new storage tiers. It created more demand for high‑performance CPUs. Obviously, storage and CPUs communicate via PCIe, so right in the sweet spot of your technology and product leadership—that is one example. Your CXL solutions targeted at KV cache applications may be another example, but can you help us understand how the transition to more inferencing‑based workloads, especially agentic‑based workloads, has potentially helped to create new opportunities for the team and potentially expand your SAM opportunity? Jitendra Mohan: Harlan, thank you. You point out very correctly that inferencing has created a lot of focus in the industry and a lot of additional opportunities. The good news is that at Astera Labs, Inc. Common Stock, we have been focused on these AI applications from the start. We helped the training workloads when the training workloads were still the mainstream. We are helping the inferencing workloads equally well. The KV cache offload is a great opportunity where we mentioned earlier that we picked up a new design for a custom application for KV cache offload. That is really a key part of AI inferencing. I also want to draw your attention to the newly introduced Scorpio X 320‑lane family that supports in‑network compute and hypercast. Both of these are extremely important technologies to reduce the networking overhead and deliver additional performance for training as well as inferencing. And not only that, we enable these hardware‑accelerated modes through our Cosmos software which now not only gives our customers the ability to do diagnostics and telemetry, but allows them to uniquely improve the performance of their system for their inferencing workload using these unique capabilities that we have worked in tight collaboration with our customers. Operator: We will move to our next question from Blayne Curtis at Jefferies. Blayne Curtis: Hey, guys. Good afternoon, and I will echo the congrats on the nice results. Maybe you can, in terms of the Scorpio ramp—I know last quarter you talked about it being 20% of revenue. It is a big ramp. I am assuming that is the biggest driver into June. I was wondering if you can kind of frame just how big that is. And then I am curious, particularly this 320‑lane product that is ramping—what are the milestones, and what is left to do? You have sampled it, but to get that to production in an AI server, I am just kind of curious what is left there. Desmond Lynch: Hi, Blayne. It is Des. Thanks for your question. We have been very pleased with the performance of our Scorpio product family. It has certainly been a large driver for growth in the first half of the year. We continue to expect to see Scorpio P continuing to ramp driven by scale‑out opportunities. And then Scorpio X—this is really a greenfield opportunity for us associated with scale‑up connectivity. The small solutions are ramping today, and we do expect to see the layering in of the high‑radix configurations in the second half of the year. Given the size of the opportunity and the associated dollar content, we would expect to see that Scorpio will become our largest product line by the end of the year, which is strong performance for the product line that was only a small percent of total company revenue last year. And as we go throughout the year, I would expect to see X Series revenue exceeding P Series. But overall, we are very pleased with the performance of the Scorpio product family and the outlook of the business. Then into your second point about other milestones— Jitendra Mohan: We are already shipping, as Des mentioned, the newly introduced Scorpio X family, and you will be able to see and touch and feel this at Computex where we will be demonstrating this live in our booth. Operator: We will move next to Joe Moore at Morgan Stanley. Joe Moore: Great. Thank you. You talked quite a bit about your optical strategy. Can you talk about the timeframe where you see optical scale‑up becoming more relevant? And do you have the building blocks that you need to progress from copper to optical in that space, or do you need tuck‑in type technologies, and do you need to invest a lot more? Just a general sense of what it is going to take to transition from copper to optical over the next several years. Sanjay Gajendra: Thanks for the question. We have been working for the last couple of years building all the foundational things that are required for optical enablement—all of the mixed signal that is required, all of the electronic ICs, as well as we did the acquisition with XScale that brought in the pluggable connector as well as the PIC technology. In general, I want to say we have made tremendous progress in preparation for the optical opportunities that are coming up on us. For us, in terms of timeline, what we believe is that the NPO‑based opportunities—or the near‑package optics—would be the first one to ramp, and that will start happening in 2027. We will also be ramping our pluggable connector technologies for AEC, mostly for scale‑out, next year, 2027, with more of the main deployments for CPO happening in the 2028 timeframe. So in general, for us, between the components that we are building that go inside the NPO, the detachable connector technology for folks that have their own CPO solutions, as well as our own Scorpio X devices that will come in to support both NPO variants and CPO variants, we believe it is all coming together nicely for us. One key consideration, of course, that we have been working is the supply chain and getting all of the commitments in place so that we can not only provide the technology that is required for NPO and CPO, but also make sure that we are able to ship to revenue. Overall, there is quite a bit of work and progress that we have done enabling us to start ramping in 2027. Operator: We will take our next question from Ross Seymore at Deutsche Bank. Ross Seymore: Congrats on the strong results and guide. I just want to talk about a small part of your business today, but something that sounds like it could grow a little faster than we thought before, and that is specifically your Leo product line. Given the dominance or resurgence of the CPU demand and memory being such a large cost and bottleneck these days, how has the demand trajectory and growth potential changed in your view—your ability to do the pooling and the sharing and the memory side in CXL in general? Jitendra Mohan: We are definitely seeing increased traction for CXL, not only for the general‑purpose compute applications where we started, but also for inferencing as we touched upon earlier. Staying with general‑purpose compute first, we are seeing additional demand from our customers. We are on track for deploying this with Microsoft Azure for their M‑series instances at the data center. That is in private beta now, expected to go into general availability end of the year. We see additional customers also following suit for this particular high‑memory‑type application. In addition, we are also excited by the new KV cache offload or AI inferencing opportunities. Some of our customers have already designed us in. In fact, we picked up our second design win—a custom application for CXL—earlier this quarter. We are working with our customer, which is an additional new hyperscaler, on at‑scale performance tests and expect that one to ship revenue in 2027. Operator: We will go next to Tore Svanberg at Stifel. Tore Svanberg: Yes, thank you. Congrats on the record quarter, and Des, welcome on board. I wanted to follow up on what you said about Scorpio mix as we approach the end of the year, especially in relation to Aries. Because obviously Aries is now ramping in PCIe Gen 6. Next year, obviously, there is going to be a lot of mixed networking topologies. So I understand Scorpio will be the biggest product by the end of the year. How should we think about 2027 between Aries and Scorpio? Because there are significant drivers for both. Desmond Lynch: Hey, Tore. Thanks for the question. Yes, we have been very pleased with the growth rate of our Scorpio product family, as I mentioned earlier—really excited about the continued growth opportunity ahead of us. That said, we still expect to see strong growth within the Aries product line. We expect to continue to grow our leadership position there. We expect to see strong growth given the PCIe 6 portfolio. It is just the fact that Scorpio will continue to be our largest and fastest‑growing business within the company. Operator: Next, we will move to Ananda Baruah at Loop Capital. Ananda Baruah: Yeah, good afternoon, guys. Thanks for taking the questions, and congrats on the great execution here. I guess the question would be, what is a good way—particularly with all the additional context you have given around Scorpio X and Scorpio P lanes progressing through the back half of ’26—as we move forward post ’26, and clusters get bigger, and presumably high‑radix switches have more ports, should we expect Scorpio X and Scorpio P switches to continue to increase the lane count? And if so, is there any useful anecdotal way to think about how that may occur? Should we just think that that can continue in some perpetuity? Jitendra Mohan: Thanks for the question. We can talk for an hour just on that topic, but let me say this. The AI fabric switches have become a very important part of our overall strategy, and we are investing heavily not only in the current generation that we have announced, but also upcoming devices. We are going to continue to focus on PCI Express because that is a large part of the business today, but we are also working on UALink products that will form the basis of the next generation of these devices. In terms of the lane count, we work very closely with our customers to understand what their deployment profile is going to look like because it is really important to target the right lane counts and rate for these devices. If you do not, then the cluster sizes get limited, and if you over‑index, then you come up with a solution that is not competitive. Fortunately, we have very good partnerships with our customers and they are telling us what the deployment looks like. I also want to add that as the cluster sizes increase, it is not only important to have a switch; it is also important to have the right media types for the deployment. So for our family of switches, we will continue to support copper connectivity as we have so far. As Sanjay mentioned earlier, increasingly we will enable optical connectivity as well, starting with NPO with the next generation of switches and then going to CPO. As a switch company, it gives us a perfect opportunity to deploy optical solutions, and that is something that we will completely leverage to make sure that we have end‑to‑end connectivity with our switches, including copper, NPO, and CPO. Operator: Take our next question from Natalia Winkler at UBS. Natalia Winkler: Thank you for taking my question, and congratulations on the results. I was wondering if you can add a little bit more color on the NVLink Fusion opportunity for you guys. Specifically, how do you see it from the standpoint of portfolio—where it would be most interesting for you—and also from the standpoint of the competitive landscape given some of the partnerships that NVIDIA has for NVLink Fusion as well. Sanjay Gajendra: Thanks for the question. In general, if you look at our business, you can broadly divide that into three categories: standard products, custom solutions, and the module/solution business. Clearly, an area that we see tremendous opportunity for us going forward is the custom solutions under which we are developing the NVLink Fusion–type devices. This is proving to be pretty interesting. We have several very deep engagements for an initial design win in collaboration with NVIDIA and a hyperscaler. That project is going well, and we do expect that to start contributing revenue in 2027, as some of the GPUs that are designed for this kind of use case—which is called a hybrid rack situation—come to market. In a hybrid rack, the GPU or the XPU still talks native protocols, which could be protocols like PCIe or UALink and others, but when they need to leverage and cross over and talk to an NVLink‑type ecosystem, then they would need a product that is based on NVLink Fusion that we are developing. In short, we are very deep in engagement from a silicon development standpoint, so we do expect that this will start providing some meaningful revenue in 2027 and then grow from there. On the competitive situation, this is an ecosystem that NVIDIA is creating with NVLink Fusion. There are others, but for us, the main thing is that we have been engaged with real customers and real applications, and to that end, we will continue to focus on that and do what we need to do, and not get distracted by any competitive press releases. Operator: We will go to our next question from Sebastien Cyrus Naji at William Blair. Sebastien Cyrus Naji: Congrats on strong results. My question is on the Scorpio business and maybe a little bit of a follow‑up to one of the prior questions. With your announcement of the new 320‑lane Scorpio switches for both the X and P Series, how should we be thinking about ASPs for the higher‑radix solutions? Is it right to think that your dollar content is correlated directly to the lane count, or is there another way to think about your dollar content? Any details there? Sanjay Gajendra: In general, the bigger the switch, the higher the ASP—that is the way the industry works. But also please keep in mind that these switches are more like AI fabric‑class devices, which are a lot more than just the number of lanes. We talked about in‑network compute, we talked about hypercast, and we talked about several features that we have that are unique and critical for deploying AI clusters—whether for training or, more and more, for inference applications where things like latency become super important. So when it comes to ASPs, it is a combination of what features are enabled and not just based on lane count. We do see our content continue to increase, and to that end we are expecting—and going forward with the design wins we have—over $1,000 worth of content per accelerator, and that is significant and growing rapidly for us. Considering the path that we have taken so far—from offering retimers to now offering complete AI fabric, and with the future products with optically enabled switches and so on—you can imagine that this content would grow from a dollars‑per‑accelerator standpoint. Operator: We will go next to Quinn Bolton at Needham. Quinn Bolton: Hey, guys. Let me offer my congratulations as well. You mentioned the KV cache offload custom design. I am wondering if you might be able to put any sort of numbers around it in terms of dollar content per CPU or dollar content per gigabyte or terabyte of memory that is attached. Is there a way we can think about how to size that opportunity? Sanjay Gajendra: These are going into new inference applications. There are multiple use cases and platforms that we see for this. In that context, this would be a significant opportunity for us to execute and deliver on. In terms of exact dollar association, it is probably a little bit early because some of the platforms and architectures are being finalized. But in general, for us, inference and KV cache is a significant opportunity. We have the IP not just for memory, but for things like KV cache acceleration as part of our portfolio right now. We will increasingly develop products that provide more function and capability to ensure that memory is available for KV cache use cases. I will also say that the ASPs will continue to be pretty meaningful when you think about the cost of the memory. In other words, these controllers will always fade compared to the amount of money that people are paying for the memory itself. So these are not ASP‑challenged, and we will continue to make sure that we extract the most value out of these products. Operator: We will move to our next question from Karl Ackerman at BNP Paribas. Analyst: Hi, this is Sam Feldman on for Karl Ackerman. Thanks for taking my question. You mentioned near‑package optics as a solution to CPO. From Astera Labs, Inc. Common Stock’s point of view, do you believe customers view XPO as a viable option to extending pluggable optics? And does Astera Labs, Inc. Common Stock plan to participate in the XPO MSA? Jitendra Mohan: That is a great question. We work very closely with our customers to understand what solutions they are looking for. XPO is a pluggable technology that has come about recently, and we will certainly participate in that. But not all of our customers at the moment are looking to intercept XPO. The customers that are looking to intercept with NPO, we will certainly support them because it gives you a way to have very high egress density without the limitations of front‑plate density. The customers that want us to work directly on CPO—we absolutely will work with them. As Sanjay mentioned earlier, we are engaged in that opportunity. That should ship in 2027. And for customers that are looking to do XPO, we will engage with them as well. Right now, our focus has been on NPO and CPO so far. Operator: We will take our next question from Suji Desilva at ROTH Capital. Suji Desilva: Hi, Jitendra, Sanjay, and welcome, Des. Just a bigger‑picture question. You mentioned the word “custom” quite a bit on this call—more than in the past. When you first got going, Hopper was there and Aries was fairly standard. Are we past the point, or evolving to the point, where standard products are not as applicable because each platform is different? Should we think all products having some customization, or where is the line there? Sanjay Gajendra: I am glad you asked the question. If you think about infrastructure and AI use cases, they all are unique between platforms and between customers. Having said that, if you look at the software‑defined architecture we have with our products—even our standard products like Aries, Torus, Scorpio, and so on—they provide a ton of customization that customers leverage through the Cosmos interface. Cosmos allows them to not only monitor, but also customize, and now with the new devices we announced today, they can do a lot more from a performance and key offload feature‑enablement standpoint. So customization has been our story through software‑defined architecture and offered through our standard products. But when we talk about our business, the business model is different. We are developing a product for a given customer under a business model that includes NREs and other ways of paying for the development and, of course, the product revenue that comes when the product starts shipping. As we are getting into bigger devices—whether it is for fabric‑class or other connectivity technology that goes beyond what we have done so far—having the custom solution portfolio is important. We are approaching that with our customers by also offering a variety of foundational technology that we have been building for the last couple of years. We see custom being an important growth driver for us. At the same time, please think about our business in a way where the standard products continue to be a very important part of our overall portfolio. We will do custom, but we will be very systematic about it. We will not take any opportunity that comes our way because sometimes the custom business can be so unique to one customer, with a lot of risk and margin implications. We will be systematic and thoughtful about the opportunities that we pursue on the custom side. Operator: We will go next to Mehdi Hosseini at Susquehanna. Analyst: Hi, this is Bashan filling in for Mehdi. Congrats on the quarter, and welcome, Des. I wanted to follow up on UALink. Can you share an update on the adoption process and the timeline for UALink‑based switches? And what do you expect the dollar content to be? How should we think about the difference between PCIe switching pricing and the UALink pricing? Jitendra Mohan: Within the last three months or so, we have had a couple of announcements from our hyperscaler customers on what the intercept is. Both Amazon as well as AMD have said that their ASIC and GPU will launch sometime in 2027, and we will certainly be prepared to intercept that launch with our UALink switch. In terms of the comparison of a UALink switch to PCI Express, a couple of things to state: as we go into this new generation of devices, both the complexity as well as the speed of these devices is going up—sometimes in lane count, other times in radix. The value that we are able to charge for these devices will be substantially higher than what we are able to do for PCI Express switches. The media attach also tends to change. We may go from a majority copper PCIe to a blend of copper and NPO with the next‑generation switches. That also gives us a meaningfully large opportunity in terms of revenue and the TAM that we are able to address, finally leading up to CPO, which is a really rich opportunity with a very large TAM that we are able to address, all because we have the platform in the form of Scorpio X switches. Operator: We will move next to Tore Svanberg at Stifel for a quick follow‑up on capacity. Tore Svanberg: Yes, just a quick follow‑up on capacity. Your inventory days, I think, came in at 75 days— Desmond Lynch: Hi, Tore. It is Des here. Based upon our current view of demand, we do have supply in place through the end of the year, and we are very comfortable with what our inventory holdings are here. Like others within the industry, we continue to see pockets of supply challenges, but what we have done is really a nice job of diversifying our backend supply chain, and we have been able to make sure that we have sufficient supply in place to meet the revenue commitments. So no concerns just now, and we continue to work with our supply chain partners for supply going into 2027. Operator: And that concludes the question and answer session. I will turn the call back over to Leslie Green for closing remarks. Leslie Green: Thank you, Audra, and thank you, everyone, for your participation and questions. Please do refer to our Investor Relations website for information regarding upcoming financial conferences and events. Thanks so much. Operator: And this concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, everyone. Operator: Thank you for joining us and welcome to the Equitable Holdings, Inc. Q1 2026 Earnings and Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Erik James Bass, Chief Strategy Officer and Head of Investor Relations. Erik, please go ahead. Erik James Bass: Thank you. Good morning, and welcome to Equitable Holdings’ first quarter 2026 earnings call. Materials for today's call can be found on our website at ir.equitableholdings.com. Before we begin, I would like to note that some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. Our results may differ materially from those expressed in or indicated by such forward-looking statements. Please refer to the Safe Harbor language on Slide 2 of our presentation for additional information. Joining me on today's call are Mark Pearson, President and Chief Executive Officer of Equitable Holdings, Inc.; Robin Matthew Raju, our Chief Financial Officer; Nicholas Burritt Lane, President of Equitable Financial; Onur Erzan, President of AllianceBernstein; and Tom Simioni, Chief Financial Officer of AllianceBernstein. During this call, we will be discussing certain financial measures that are not based on generally accepted accounting principles, also known as non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and related definitions may be found on the Investor Relations portion of our website and in our earnings release, slide presentation, and financial supplement. We will also refer to the pending transaction with CoreBridge. Any statements about the transaction made during this call are not an offer of securities. A registration statement containing a prospectus will be filed with the SEC in connection with the transaction. I will now turn the call over to Mark. Mark Pearson: Good morning, and thank you for joining today's call. The first quarter marked an extraordinary moment in Equitable Holdings, Inc.'s 166-year history with the announcement of our planned merger with CoreBridge, which will create a world-class platform to help our customers plan, save for, and achieve secure financial futures. This morning, I will spend some time discussing why we believe that by leveraging the complementary strengths of Equitable Holdings, Inc. and CoreBridge, the combined company will deliver tremendous value for both our customers and shareholders. On Slide 4, I will start by providing a few highlights from our first quarter results. We reported non-GAAP operating earnings of $1.62 per share, or $1.68 per share after adjusting for notable items. This increased 25% versus 2025, driven by healthy organic growth momentum, improved mortality experience, and a lower share count. We continue to expect earnings per share growth to exceed the high end of our 12% to 15% target range in 2026. Assets under management ended the quarter at $1.1 trillion, up 9% year over year. While equity markets declined modestly in the first quarter, they have since recovered, and higher average AUM versus 2025 levels should continue to provide a near-term tailwind for earnings. Our balance sheet remains a core strength with a combined NAIC RBC ratio of approximately 475% and $1.2 billion of holding company liquidity. Our credit portfolio continues to perform well, and as Robin will walk through, we are positioned to handle even a severe stress scenario. We remain committed to being a consistent returner of capital and executing the share buybacks assumed in our 2026 financial plan. Turning to organic growth, we see good momentum in retirement sales and flows even as the level of competition has increased. Total sales increased 10% year over year, driven by strength in RILAs, and we had $1.3 billion of net inflows. Wealth Management delivered another strong growth quarter with $2 billion of advisory net inflows. Over the last 12 months, the business produced a 13% organic growth rate. During the quarter, we also closed on the acquisition of Stifel Independent Advisors, which is a good example of how we can use bolt-on M&A to help scale our wealth management business. Asset Management earnings grew 11% year over year, driven by higher AUM and increased ownership. AB had net outflows of $7.1 billion in the first quarter, driven primarily by active equities and taxable fixed income. Private Wealth and private markets remain bright spots, as both had positive flows in the period. Total private markets AUM increased 13% year over year to $85 billion, and AB remains on track to meet or exceed its target of $90 billion to $100 billion in AUM by 2027. While near-term flows may remain volatile, AB has a record institutional pipeline of nearly $28 billion, which includes several large insurance mandates that will fund over the next few quarters. AB will also be a meaningful beneficiary of the CoreBridge merger as we expect it to receive at least $100 billion of incremental assets over the next few years. As I will walk through over the next few slides, the motivating factor behind the CoreBridge merger is our belief that it will accelerate our growth strategy and position us to be a long-term winner across all the markets we compete in. The companies have complementary strengths with limited overlap across products. We have already begun the integration planning process and have high confidence in achieving at least $500 million of expense synergies. As a result, the merger will be immediately accretive to earnings per share, and we expect to deliver 10% plus accretion on a run-rate basis by 2028 with potential upside from revenue synergies. Moving to Slide 5, before talking about the merger, I want to highlight five attributes we believe are critical for long-term success and which we use when evaluating any strategic option, including this merger. Underlying everything, of course, is providing an exceptional customer experience. Companies that are easy to do business with and offer the products and advice needed to transform complex financial risks into simple, reliable outcomes will attract clients and distributors. Developing deep brand loyalty will help create predictable and growing value for shareholders. Second, in intermediated markets like financial services, having strong distribution is critical as clients want local access to expert, personalized advice. Privileged shelf space, particularly in channels with high barriers to entry, provides a meaningful competitive advantage in acquiring new customers while also managing the cost of funds. Third is the imperative of competitive scale. Size matters. Being able to invest in technology and automation will improve efficiency and result in lower unit costs and a lower expense ratio. This provides capacity to reinvest in growth while simultaneously delivering higher profit margins. Fourth, we know that shareholders value consistent growth in earnings and cash flow across different market cycles, and having diversified sources of earnings and capital enhances the ability to deliver this. Disciplined risk management is also critical to give clients and investors confidence in the resilience of the balance sheet, especially during periods of macro uncertainty and market stress. Finally, we see significant value in owning insurance, asset management, and wealth management businesses to participate in the full value chain and benefit from the significant demographic tailwinds driving growth across each of these markets. It also means that shareholders capture the high multiple fee earnings generated by distributing and managing the assets associated with insurance and retirement solutions that are manufactured. By attracting the very best talent, and aligning to these five convictions, we ensure that when our clients win, our shareholders win. Turning to Slide 6, I will highlight why the merger with CoreBridge aligns to these convictions and will drive growth and shareholder value. The merger brings together three outstanding franchises to create a diversified financial services company with over 12 million customers, $1.5 trillion in AUMA, and leading positions across retirement, life insurance, asset management, and wealth management. Equitable Holdings, Inc. and CoreBridge complement each other well with different strengths and limited overlap. We intend to capitalize on our scale advantages to reduce unit costs and achieve a lower cost of capital. We expect to have a top-quartile expense ratio and will be able to combine our resources when making growth investments. This will make us more profitable, drive more cash generation, and increase our return on capital. We will have formidable distribution capabilities and leading positions across the retail, institutional, and worksite channels. The depth and breadth of our distribution should enable us to expand our offerings while achieving a lower average cost of funds, resulting in more profitable new business. We will also have flexibility to allocate capital where we see the best risk-adjusted returns and customer demand. In addition, our integrated business model allows us to capture the full value chain by acting as a product manufacturer, distributor, and asset manager. This differentiates us from our competitors, most of whom only participate in one or two of these verticals. While the merger will shift our mix more towards retirement, it also helps scale AB and Wealth Management, enhancing the value of these high-multiple businesses. We remain focused on maximizing the flywheel benefits inherent in our model. Finally, the new Equitable Holdings, Inc. will have a robust balance sheet and is expected to generate over $4 billion of cash flow annually. We are aligned in having strong financial principles that govern how we operate, starting with economic management of the balance sheet and a focus on cash generation. Ultimately, we want to produce consistent results and cash flow across market cycles so that we can provide attractive returns to shareholders while also investing for growth. I will conclude on Slide 7 by providing some clear examples of how the merger will help accelerate growth across all our businesses. Starting with Retirement and Institutional, the combined firm will have approximately $540 billion of AUM and unmatched breadth across products and distribution. We knew that Equitable Holdings, Inc. would need to become more diversified over time in order to fully participate in the growing U.S. retirement market, and combining with CoreBridge makes us a top-three provider of fixed and indexed annuities and expands our institutional capabilities, notably in pension risk transfer. It also adds a strong life business that provides earnings and capital diversification and should benefit from selling through Equitable Advisors. In addition, the merger doubles our third-party distribution network to approximately 900 firms, expanding our ability to reach new customers. The combined firm will originate $70 billion to $80 billion of liabilities annually, highlighting the size and scale of our platform. We will have a more balanced business mix that provides liquidity benefits and positions us well to generate consistent growth across market cycles while deploying capital where we can earn the most attractive returns. Moving to Asset Management, AB will also benefit from the merger in multiple ways. We expect AB to add at least $100 billion of CoreBridge general and separate account assets over the next couple of years, resulting in total AUM of nearly $1 trillion. AB will also benefit from the combined firm's increased liability generation, which should drive higher ongoing net inflows. We also see an opportunity to commercialize some of CoreBridge's internal asset origination capabilities, particularly for real estate and commercial mortgage loans, by leveraging AB's global distribution. Over time, we expect to find additional sources of incremental revenues and net flows, including the potential to develop new commercial partnerships. Lastly, the addition of CoreBridge Advisors accelerates the path to scaling our Wealth Management business and adds approximately $20 billion of AUA. The merger will expand our proprietary product offering to include fixed and indexed annuities and indexed universal life, which will be a win for advisors, particularly our emerging sales force. We will have a more attractive platform and more financial resources, which should enhance our ability to recruit and develop new and experienced financial advisors. Overall, the key message I want to leave you with is that having increased scale will provide competitive advantages that translate into stronger and more consistent growth and enhance our profitability. I will now turn the call over to Robin to highlight the financial benefits from the merger and discuss our first quarter results in more detail. Robin Matthew Raju: Thanks, Mark. I want to echo my excitement about the merger and the ways in which we will accelerate our growth strategy and deliver attractive financial outcomes for our shareholders. On Slide 8, we highlight some of the key financial benefits. First, the combined company will have a robust balance sheet with significant capital. As of year-end 2025, pro forma GAAP book value exceeded $30 billion, and the companies had over $25 billion of statutory capital. The pro forma leverage ratio is approximately 26%, which provides financial flexibility. Second, we will have a more diversified business mix with equal contribution from fee and spread-based earnings. This should help us generate more consistent earnings in different market environments. Third, we project at least 10% accretion to EPS and cash generation on a run-rate basis by year-end 2028, driven by expense, capital, and tax synergies. We also expect to have a 15% plus return on equity. These projections do not include any benefit from the anticipated revenue synergies. Finally, we forecast over $5 billion of annual earnings power and over $4 billion of cash flows to the holding company, which will make us the most profitable company in the sector based on U.S. earnings. Turning to Slide 9, I will provide some more detail on first quarter results. On a consolidated basis, non-GAAP operating earnings were $472 million, or $1.62 per share, and we reported net income of $621 million, or $2.14 per share. Notable items in the quarter included $32 million of below-plan alternatives and a $13 million benefit from the purchase of tax credits. Adjusting for these items, non-GAAP operating earnings per share was $1.68, up 25% year over year. This is consistent with our earnings per share growth guidance of above 12% to 15% for 2026. The 25% increase in earnings per share was driven by a 9% year-over-year increase in total AUM/AUA, lower mortality claims, the benefit of our increased ownership stake in AllianceBernstein, and a lower share count, which reflects the incremental buyback executed following the RGA transaction. In 2026, our alternatives portfolio, which is 2% of our general account, produced an annualized return of 3.5%, with results pressured by lower CLO equity returns. Given weaker market conditions in the first quarter, we currently project our portfolio to have a return of 2% to 3% in the second quarter. While it is premature to predict what will happen in 2026, based on the lower returns for the first half of the year, we now expect a full-year return to be below our prior 8% to 9% guidance. Adjusted book value per share ex-AOCI with AB at market value was $34.70. We view this as a more meaningful number than reported book value per share, which significantly understates the fair value of our AB stake. On this basis, our adjusted debt-to-capital ratio was 24.5%, down 40 basis points sequentially. On Slide 10, I will provide some more details on segment-level earnings drivers. In Retirement, first quarter earnings, excluding notable items, were $394 million. Net interest margin, or NIM, increased 3% sequentially, as lower alternative investment income was offset by growth in general account assets. Excluding alternatives, our NIM spread improved by 5 basis points sequentially, helped by a 4 basis point benefit from a modest recovery in MVAs. This reverses the downward trend in spreads we experienced over the past year and supports our view that spreads are beginning to stabilize. On a sequential basis, the growth in NIM was partially offset by lower fee-based revenues as market declines pressured average separate account AUM. Turning to Asset Management, AB reported earnings of $140 million, up 11% year over year, as a result of higher base fees and our increased ownership percentage. While base fees benefited from a 7% year-over-year increase in AUM, this was partially offset by a lower fee rate due to a shift in asset mix. As expected, performance fees were relatively modest in this quarter, but we raised our full-year forecast from $95 million to $115 million. Moving to Wealth Management, we experienced strong year-over-year growth in advisory fees and transaction revenues, driving a 22% increase in earnings. As a reminder, fourth quarter 2025 results benefited from favorable one-time items, and this quarter we had seasonally higher expenses and a couple of million of costs related to the Stifel acquisition. We still expect double-digit earnings growth in 2026. Finally, Corporate and Other reported a loss of $98 million in the quarter, after adjusting for notable items, which is consistent with our 2026 guidance. Mortality was slightly favorable in the quarter and improved versus previous periods. On Slide 11, I will highlight Equitable Holdings, Inc.'s strong balance sheet and cash flows, which enable us to be a consistent returner of capital to shareholders. We know there has been a lot of focus on credit risk, so we have updated our investment portfolio stress test to reflect our holdings as of year-end 2025. This assumes a hypothetical severe credit stress scenario at least as bad as the global financial crisis and a decline of 40% in equity markets. We estimate slightly less than a 50% decline in RBC ratio, which from a starting point of 475% still leaves us comfortably above our 400% target. As a result, we are well positioned to handle a potential downturn in credit markets. That being said, today, we do not see any signs of weakness in our portfolio. In the appendix, we provided updated disclosures on our private credit portfolio, which represents 18% of our general account and is 95% investment grade assets that match well against our liabilities. Let me now turn to cash. We ended the first quarter with $1.2 billion of cash at the holding company, above our $500 million target, and we remain on track to achieve our target of 2026 cash generation of $1.8 billion. During the first quarter, we returned $223 million to shareholders, including $147 million of share repurchases. We were blacked out from buying back shares for the second half of the quarter due to the merger with CoreBridge, which depressed our payout ratio for the period. We remain committed to delivering our 60% to 70% payout ratio target for 2026 and recognize that share buybacks look extremely compelling at the current valuation. We plan to be in the market purchasing shares during the open windows between now and the closing of the transaction. On Slide 12, we show a timeline with key dates related to the merger and a specific time period of when we will be able to repurchase stock. Both Equitable Holdings, Inc. and CoreBridge trade at a significant discount relative to where we believe they should be valued, making buybacks meaningfully accretive to shareholders. As a result, you can expect that we will be active in the market during the windows that are available to us. We expect to file the initial merger proxy statement today after market close, and we can repurchase shares from that point until we mail the final proxy. There is not a set date for that mailing, but we do not expect it to occur until at least early June. We would then be able to repurchase shares again after the shareholder vote. If any repurchases from our 2026 capital plan are not completed prior to the merger close, we plan to execute them as part of an ASR shortly after the closing. As a reminder, the exchange ratio for the merger is fixed and will not be affected by any share repurchases executed by either company. I will now turn the call back over to Mark for some closing comments. Mark? Mark Pearson: Thanks, Robin. Equitable Holdings, Inc. delivered solid first quarter results, and we remain confident in achieving our EPS growth and cash generation guidance for 2026, even with the volatile market backdrop. Looking forward, I am incredibly excited about the powerhouse franchise we are creating through the merger with CoreBridge. As we have talked about this morning, the combined company will have the scale, distribution strength, and product breadth to deliver differentiated growth and returns. I am confident that this merger positions us to win with customers and deliver superior value to shareholders over time. We will now open the call for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Wesley Carmichael with Wells Fargo. Your line is open. Please go ahead. Wesley Carmichael: Hey, good morning. Thank you. My first question was on the Retirement segment, and you had a pretty good earnings result in the quarter. Previously, I think you talked about spread compression abating in 2026, at least on a percentage basis. Do you still think that is the case given the mix of the book here, and could you talk a little bit about what you are seeing on the cost-of-funds side from a competitive dynamic? Robin Matthew Raju: Sure, Wes. Thank you for your question. We were happy to see spreads stabilize here in the first quarter. If you look quarter over quarter, spread income/NIM was up $11 million quarter over quarter. If you exclude alts, it was up even more, and excluding some of the MVA benefit, it was up about 1 basis point net. So if you look at it, it was about 1.69%, and I think that is the level you can probably expect at this point, and you can expect spread income to grow as the general account, excluding embedded derivatives, grows. The two primary factors that you see are, yes, with the abatement of some of the higher-margin in-force that has run off, that is a smaller part of the business mix, but also the discipline in the new business underwriting that we are seeing. Despite what you hear on the competition, RILA sales were up 14% year over year, and the pricing discipline has been maintained and the margins have been good. So the combination of that with the runoff of the in-force should lead to stabilization of spreads going forward. Wesley Carmichael: Got it. Thanks, Robin. And then maybe just a more broad one on the Equitable Holdings, Inc.–CoreBridge merger. I know you reiterated EPS guidance with materials. Just wondering if you have done a bit more work, in earnest, on progress toward the merger. Have any of your expectations changed in terms of the financial impact, and maybe where you are seeing more or less opportunity relative to a little bit more than a month ago when the deal was announced? Mark Pearson: Thanks, Wes. It is Mark Pearson. The things we would say are the integration planning process is well underway now with the top 50 or so leaders from each of the organizations. We really are confirming through that the complementarity of the two businesses. We are stronger together in terms of our product breadth, in terms of our distribution, and in terms of scale. So that is confirming everything we have told you in terms of the synergy opportunities and the look forward. We are also pretty excited on the revenue synergy side, but we are going to save telling you that until 2027 when we have done the work, and we can start to quantify it for you. We are confirming the expense synergies now and also starting to work on the revenue side as well. Wesley Carmichael: Got it. Thank you. Operator: Your next question comes from the line of Suneet Kamath with Jefferies. Your line is open. Please go ahead. Suneet Kamath: Great. Thanks. I just wanted to start on the buyback. With the window opening later tonight, how should we think about the pace of buybacks over the next month? And is there any sort of restriction or coordination required with CoreBridge, or are you operating on your own, so to speak? Robin Matthew Raju: Sure. Thanks, Suneet. As we laid out in the presentation, we are excited to say we are going to be back in the market with share buybacks. We expect to file the proxy this evening, and that enables us to open up the window again until the final mailing that will happen in June. Within that time period, expect us to be active in the market. The returns on a share buyback are very attractive at this point in time, so that is one of the reasons why we wanted to be back in. Both we and CoreBridge will coordinate together to make sure that share buybacks maintain accretion for shareholders throughout the period. Then, as I laid out in the presentation, after the shareholder vote that will open up the next window for share buybacks. Anything that is not completed by the closing will be completed as an ASR if needed. Shareholders should expect the same level of capital return from both companies that they would have otherwise received. We are happy to say we are going to be back in the market because buybacks are accretive given that both stocks look cheap right now. Suneet Kamath: Okay. That is helpful. And then on the $70 billion to $80 billion of originated liabilities that you are talking about, is there a practical limit in terms of how much assets AB can originate in order to back those liabilities? Mark Pearson: No. We are fortunate. Robin Matthew Raju: With $70 billion to $80 billion of liabilities, we are going to have four asset managers that we will leverage. Obviously, AllianceBernstein, our in-house; also we get to benefit from some of the capabilities that CoreBridge brings to the merger—so Blackstone, BlackRock, and their internal capabilities as well. $70 billion to $80 billion provides lots of assets to put to work, and allows us to be disciplined on the general account and get the best risk-adjusted returns on those assets across the board. We would expect everybody to benefit. Obviously, AB will from the broader revenue synergies as well. That does not take into account the future growth. That is the $100 billion in separate account and general account assets that will move over to AB as a starting point, and then there will be upside from there with the future growth of the $70 billion to $80 billion benefiting AB and our other asset managers as well. Suneet Kamath: Okay. Thanks. Operator: Your next question comes from the line of Ryan Krueger with KBW. Your line is open. Please go ahead. Ryan Krueger: Hey. Thanks. Good morning. In the merger call, you talked about 2% to 4% synergies from capital and taxes that were part of the 10% plus overall synergies. I wanted to ask if that is a true best estimate, or did you embed some conservatism there, and could you possibly, as you do more work, see some upside to capital benefits of the merger? Robin Matthew Raju: Thanks, Ryan. It is important to repeat a few benefits we spoke about. It is going to be day-one accretive and 10% plus on a run-rate basis going forward. In addition, the diversification of both businesses together means we will have more stability in earnings and cash flows, which I think will lead to a lower cost of capital and a better profile for us going forward. To your question on the 10% plus synergies, we referenced 6% to 8% coming from expense synergies. There, we said we expect to at least get $500 million; there should be upside to that. The remainder will be from tax and capital, which I would say is our best estimate at this point in time. We will always do more work going forward. You can see both companies, Equitable Holdings, Inc. and CoreBridge, very active in terms of capital management since the IPO, so you can expect that to continue going forward. Most importantly, as Mark mentioned earlier, these numbers do not include the benefit of revenue synergies. I think that is what will differentiate this transaction on a go-forward basis: more assets and revenues going to AllianceBernstein, leveraging CoreBridge’s indexed IUL and fixed annuity products with Equitable Advisors, and leveraging our B/D with their third-party distribution. If we can be successful in capturing more revenue with the two companies together, we will be a stronger franchise that deserves a higher multiple going forward. Ryan Krueger: Thank you. And then just one question on the PGAAP impacts. I understand that it is contingent on where interest rates are, and there is probably a lot of work to be done on this. But maybe directionally, can you give any sense of whether, if the merger closed now, this would be more likely to be a positive or negative potential impact to your GAAP earnings? Robin Matthew Raju: I think it is too early to say at this point in time. As we put together the PGAAP, we will finalize that prior to close, and we will certainly give you that guidance. I think there will be moving parts in the PGAAP on the balance sheet. Obviously, the book value of the combined companies will be bigger, and that will be reflective of wherever the market cap of Equitable Holdings, Inc. is at that standpoint. On the income side, there will be moving parts between VOBA, DAC, and fair value of some of the assets. We will do that work, and as we do that work, we will disclose it as we get closer to the close of the transaction. Operator: Your next question comes from the line of Thomas George Gallagher with Evercore ISI. Your line is open. Please go ahead. Thomas George Gallagher: Good morning. One question about the quarter and then one about the merger. On the quarter, the MVA gains that you had in Retirement—Robin, can you comment on absolute dollars of earnings that that represented this quarter? And would you expect there to be any sustainability there? Was there something unusual about why they were higher? Robin Matthew Raju: Sure. Thanks. The key point for me is that spreads stabilized ex-alts and ex-the MVA, so about a 1 basis point improvement. The MVA was approximately $10 million in the quarter. We do not expect benefits on a go-forward basis; that is not something we include in our forecast or budgeting. As you have seen, that has been positive or negative through different periods over time. But excluding the MVA and excluding the impact of alts, spreads improved by 1 basis point quarter over quarter. Thomas George Gallagher: Gotcha. So $10 million was the earnings contribution? Robin Matthew Raju: Yes, approximately. Thomas George Gallagher: Gotcha. And my question on the merger—I listened closely to what you have been saying about the revenue synergies. I have not heard much of an emphasis on your institutional spread business, which I know is small for you; it is bigger for CoreBridge. But is that an opportunity? Because when I look at you and CoreBridge on a standalone basis, you are probably half the size, or maybe 30% or 40% of the size of that business compared to the Met’s and the Pru’s of the world. So I am just wondering, is that a business that we should expect you to really scale up? Robin Matthew Raju: Sure. For CoreBridge and Equitable Holdings, Inc., the FABN market has been attractive. It has generated good returns for us. It is obviously spread dependent, so depending on where our spreads trade at different time periods, that allows us to go in and out. With the balance sheet being much bigger, it gives us more capacity to lean in to that market, given the spreads are there and pricing is there. So it is certainly an opportunity for us with the larger balance sheet going forward. Thomas George Gallagher: Okay. Thanks. Operator: Your next question comes from the line of Joel Hurwitz with Dowling & Partners. Your line is open. Please go ahead. Joel Hurwitz: Hey. Good morning. Robin, first, can you just talk about mortality perspective in the quarter? It looked pretty good with reported benefit ratio at 83.1%. Robin Matthew Raju: Yes. It was nice to have a good quarter on mortality. Our benefit ratio is 83%; that is the lowest it has been in any quarter over the last year, which is good. Overall, we saw lower claims and fewer high face-amount claims specifically, which benefited us this quarter. Going forward, we think the guidance that we have given to the market appropriately captures what we would expect to see in mortality, and we look forward to speaking more about good mortality and focusing on the growth in the other businesses as well going forward. Joel Hurwitz: Got it. And then in Retirement, it looks like you are starting to utilize flow reinsurance for some of your spread business. Can you talk about what products that is on, how much you plan to do, and the economics for Equitable Holdings, Inc.? Robin Matthew Raju: Sure. Yes. In the fourth quarter, we started to do some flow reinsurance on our RILA product. Flow reinsurance is a tool that we think is helpful for us when making a product accretive going forward, so it is an important tool in the toolkit. We could look at flow reinsurance in other products as well, and even post-merger, CoreBridge does some flow reinsurance as well. As long as it is accretive for us versus not doing it, it is something that we will look at selectively in different products. It is important to have a good counterparty, which we have, and we try to make sure AB continues to manage a portion of the assets for us going forward. We also have Bermuda as a tool in our toolkit as well. We will look at that for flow reinsurance for selective products for our internal products, and potentially for third-party opportunities going forward as well. Flow reinsurance is something that we will always look at across our businesses. Joel Hurwitz: Got it. Thank you. Operator: Your next question comes from the line of Alex Scott with Barclays. Your line is open. Please go ahead. Alex Scott: Hi. Good morning. Thanks. One I have is on cash flow. I wanted to see if you could talk a bit about the cash generation of the business and how that will trend through the integration process, with some higher expenses related to the integration itself and probably some sort of hockey stick dynamic. Could you help us think through the way that will progress over the next few years? Robin Matthew Raju: It is probably a little bit too early to give you too many specifics. Both companies obviously have strong cash flow generation. On the Equitable Holdings, Inc. side, we continue to feel comfortable with our $1.8 billion guidance that we provided this year and the $2 billion for 2027. Expect that to be in addition to the investments that we have in growth to help grow our new business franchises across the board. As part of the integration, we will target $500 million plus in expense synergies and expect that will be a 1.5 times investment with a very good payback associated with it. That investment is split between cash and non-cash, and on the timing we will provide further updates as we get closer to the close of the transaction and the integration planning is more complete. Alex Scott: Got it. That is helpful. And then a related topic is just the excess capital level that you have right now, particularly at the opco level—pretty significant. CoreBridge has a pretty significant MedEx of capital as well. How will this transaction change the way you approach the amount of excess capital you hold over time? It has been a while now that you have sat on a pretty high level, and you mentioned the stress test does not even take you down that close to your buffer at this point, and that was a pretty extreme stress test. Are you thinking about that differently with the transaction coming on? Robin Matthew Raju: We will have an Investor Day in 2027 where we will give further guidance on all those metrics. Stepping back, as we mentioned, the two companies are stronger together. The balance sheets are more resilient; they are more diversified across each other. There will be a lower cost of equity across the company, and we will be well positioned to maintain through different cycles in the market, whether that be credit or equity, because of the diversification of the businesses. What does that do? It allows us to leverage excess capital for best use for shareholders. Obviously, buybacks are a very attractive use given the valuations of both companies, but it also allows us to invest in growth. We see very good returns across the RILA market and the other markets across both companies. The more we can invest in growth and grow earnings going forward, which will translate into growth in cash, that will benefit shareholders over the long term. We will evaluate investments in growth and share buybacks for uses of excess capital as the two companies come together. Alex Scott: Got it. Thank you. Operator: Your next question comes from the line of Yaron Kinar with Mizuho. Your line is open. Please go ahead. Yaron Kinar: Just a couple on capital deployment. If the windows end up being a bit narrower than expected or liked, and ultimately you have to complete the buyback through an ASR at the end of the year, is that 15% plus EPS growth target still achievable? Robin Matthew Raju: Yes. I think we are pretty comfortable. If you look at where we stand this quarter, we are at plus 25% on an EPS basis overall. That was with a lower share buyback in the first quarter. If you look at the windows that we have available to us, we believe we can deploy a lot of capital in the markets to buy back stock at these levels, keeping within our 60% to 70% payout ratio by year-end. The windows that we have are pretty broad and give us the availability and timing needed to deploy our capital plan. Anything that is left, we will complete in an ASR, so we feel comfortable with the guidance. Remember, the guidance for this year is that we would be above our 12% to 15%, and we still expect to be above our 12% to 15% as we progress during the year. Yaron Kinar: Great. And then the second one also on capital deployment. With the Stifel deal done, I think you had expressed interest in continuing to grow the Wealth business both organically and inorganically. Assuming, though, that given where the share price is today, buybacks would be a far more attractive capital deployment avenue than doing a deal in Wealth? Robin Matthew Raju: It is deal specific. Ultimately, we are in a fortunate position where the company can execute on its capital return program for shareholders and invest for growth. That is a position of strength that we are in right now. We want the Stifel transaction to complete its closure to advisors who will transition to our platform later this year. We can also look for opportunities at AllianceBernstein to grow on the asset management side as well. Obviously, where the share price is now, any deal needs to be accretive to shareholders, as you see this merger is as well. Ultimately, we are well positioned because we can buy back stock at this price and deploy excess capital to fuel future growth and make us a stronger company going forward. Yaron Kinar: Thank you. Operator: Your next question comes from the line of Wilma Burdis with Raymond James. Your line is open. Please go ahead. Wilma Burdis: Hey. Good morning. Given that one of your buyback windows will be May 6 through sometime in June, maybe we could drill down a little bit. Is there any limit to the amount Equitable Holdings, Inc. could buy given limitations on the percentage of daily trading volume? Could you help us a little bit with the math there? Robin Matthew Raju: We obviously have some limitations on average daily trading volume that we have to keep, but we feel—and I think CoreBridge would say the same—that the windows available to us provide the flexibility we need to be in the market to buy back stock. We will have this time period between when we file the proxy tonight and the final proxy in June to complete a decent amount of share buyback, and we will also have the ability again post the shareholder vote. We feel pretty comfortable to execute within a reasonable average daily trading volume our capital plans this year. We would expect to end with an ASR at our 60% to 70% payout ratio and no change in the amount of capital returned to shareholders for this year. Wilma Burdis: Okay. If there is any way you can give a little bit more detail just on that there, just as a quick follow-up. And then second question: I think the commentary that you have implied on the capital and tax benefits, I back-calculated it to around $500 million to $1.5 billion of capital that would be freed up by the deal. Any way to tell us if that estimate is somewhere in the ballpark? Robin Matthew Raju: I do not have more color on the share buyback at this time. On the capital and tax benefits of the deal, as we mentioned, the EPS accretion will be 6% to 8% from the expenses—hopefully more than that. We would expect it to be more, given the size of synergy potential we have between both organizations. Then we will have capital and tax benefits as well. We are not going to give nominal amounts at this time. Going forward, as we get into the Investor Day next year, you can expect more information on those numbers and also the revenue synergy. Do not forget that is the big part that we get excited about internally—what this brings to AllianceBernstein, what this brings to our Wealth Management business, and what this does for broader product distribution across both companies that will lead to a higher multiple over time. Wilma Burdis: Absolutely. Love the distribution. Thank you. Operator: Your next question comes from the line of Pablo Sing Son with JPMorgan. Your line is open. Please go ahead. Pablo Sing Son: Hi. Good morning. Just a follow-up on the mortality. So 1Q and 4Q tend to be the highest mortality quarters for you. Given this, should we expect Corporate & Other loss to be there sequentially, or was 1Q just too favorable? Robin Matthew Raju: In the quarter, we did have some favorability in mortality. As we mentioned, the benefit ratio was 83%; that is lower than it was last quarter, as you can see in the supplement, and also lower than it was over the last year. The Corporate & Other guidance that we gave for the full year was a $350 million to $400 million loss. We expect to be within that guidance if you look on a normalized basis this quarter. Also keep in mind, going forward, the benefit of the RGA transaction really limits the volatility related to mortality for us. I think you are starting to see those benefits come through, and we do expect that to continue. Pablo Sing Son: Thanks, Robin. And then second question is the implementation of VM-22. Do you see that having any material impact, whether from a price or capital standpoint, on the fixed annuity block you are getting from CoreBridge? Robin Matthew Raju: I would like CoreBridge to answer that on the VM-22 side. We have done diligence on each other—on the asset side, on the liability side, and potential regulation—and we feel comfortable with where both companies combined are positioned ahead of any regulation or asset changes. Pablo Sing Son: Thank you. Operator: Your next question comes from the line of Tracy Benguigui with Wolfe Research. Your line is open. Please go ahead. Tracy Benguigui: Thank you. Good morning. Going back to the PGAAP changes, you mentioned some of the moving parts, but I want to touch on AB. It seems like a big thing that folks misunderstand about Equitable Holdings, Inc. is your asset leverage—they are not looking at the right denominator. My personal view is statutory capital matters more. Now with this merger coming up, I understand that your PGAAP could mark up AB. Should we expect a large goodwill asset? And I am also curious, is doing the deal the only way to mechanically recognize AB's equity value? Robin Matthew Raju: Thanks, Tracy. I think you are right. The way to look at it is not GAAP leverage—stat is a bigger piece and something that a lot of people do not look at. On the GAAP side, it does not capture the full market value of AllianceBernstein outside of a transaction like this. Since we own AllianceBernstein, we cannot write up the asset as it exists today. That is one of the benefits of the transaction. It will lead to some additional goodwill, but there are a lot of moving parts related to the PGAAP, so it is too early to give you precise numbers on how the PGAAP works. Ultimately, both companies—if you look—on a statutory basis are going to be at $25 billion of pro forma capital. The GAAP equity is going to be above $30 billion. We feel very well positioned in terms of the size of both balance sheets and especially well positioned having AB, a Wealth Management franchise, and a broader Retirement platform to grow sales. Tracy Benguigui: Staying with a 68% stake? Robin Matthew Raju: Currently, we are quite happy with our ownership of AllianceBernstein at approximately 68% to 69%. AB is a key part of the flywheel and expected to grow. The synergy potential of AB is pretty significant. Maybe I will ask Onur to talk about the revenue synergies potential with the AllianceBernstein team, but I think that is a big part of this deal—the benefits to AllianceBernstein and getting the $100 billion of general and separate account assets. Onur Erzan: Thanks, Robin. We are very excited about the $100 billion plus that Mark and Robin mentioned. It is going to come from both the general account and the separate account businesses, as well as funds and retirement plans. We have multiple opportunities to do work over the next seven to eight months before the merger closes. We have a very bankable bottom-up plan, and that comes on top of a record pipeline we had before the CoreBridge–Equitable Holdings, Inc. merger, so it builds on a very sizable pipeline that already exists. We are very excited about that, and also like the fact that it is a diverse set of asset classes, ranging from public to private, fixed income, multi-asset, and equities, that will allow us to scale multiple platforms all at the same time. Tracy Benguigui: So would you want to take that stake up if you like the business? Robin Matthew Raju: No change right now in our stake of AllianceBernstein. After we purchased the increase last year, we went from 62% to approximately 68% to 69%. We have no other plans at this time. We are really focused on the combined firms and execution of this merger. As Mark mentioned on the call, we established the integration office, we got our teams together, and everybody is focused on planning to execute the expense and revenue synergies and making sure we have the right people in the right seats. That is our focus at this time. Tracy Benguigui: Thank you. Operator: Your next question comes from the line of Mark Douglas Hughes with Truist. Your line is open. Please go ahead. Mark Douglas Hughes: Thank you very much. Good morning. In the RILA business, sales are pretty strong. I wonder if you could discuss the competitive environment and then maybe touch on the biggest impact, biggest benefit from the merger on distribution? Nicholas Burritt Lane: Great. As you mentioned, overall we had a strong quarter in sales and volume, with RILAs up 14% and $1.3 billion of net flows, translating to a 6% trailing 12-month organic growth rate. We are very mindful of competitive trends. As we mentioned last quarter, we saw new entrants in 2025 revert back to more rational pricing in the fourth quarter, and we do not see any material change in competitive activity this quarter. Looking forward, we continue to see strong demand for RILAs driven by favorable demographics and macro uncertainty. I would highlight consumer sentiment is at an all-time low, so people are looking for protected equity stories, and we believe we have a durable edge to capture it—generating attractive yields through AB, our differentiated distribution with Equitable Advisors and our third-party networks. As Robin and Mark alluded to, the merger will expand our reach in that area. Finally, we have deep relationships and scale. As the pie has grown, we have nearly doubled our sales over the last four years, and this was another first quarter in record sales and volume. On the benefits on distribution: better reach, deeper relationships, and as Mark mentioned, we see scale becoming increasingly important to generate profitable growth and protect margins. CoreBridge will give us both of these immediately, so we think we are in a privileged position to capture a disproportionate share of value in the growing retirement market. Mark Douglas Hughes: Understood. Then of the $70 billion to $80 billion in liability origination capacity, how much of that is third party versus owned distribution? Nicholas Burritt Lane: Yes. The way to look at it is the $70 billion to $80 billion is for the combined companies post-merger. Today, for Equitable Holdings, Inc., about 35% of our sales in the Retirement business come through Equitable Advisors. That is the way to look at it. Operator: We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Schaeffler AG Q1 2026 Earnings Call. I am Sargen, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's a pleasure to hand over to Heiko Eber, Head of Investor Relations. Please go ahead, sir. Heiko Eber: Thank you very much. Ladies and gentlemen, I'm very happy to welcome you to today's call on Schaeffler financial results Q1 2026. The press release, the following presentation and our interim statement has been published today at 8:00 a.m. CET on our Investor Relations home page. And as always, we will provide the recording and the transcript of the webcast after the call. I'm sure that you have all taken notice of our, by now, well-known disclaimer. As always, Klaus Rosenfeld, our CEO; and Christophe Hannequin, our CFO, has joined the conference call to guide you through the key information in our presentation. And afterwards, both gentlemen will be available for our Q&A session. And now let me hand over to our CEO, Rosenfeld. Klaus Rosenfeld: Thank you very much, ladies and gentlemen. Welcome to our Q1 earnings call. You all received the presentation that Christophe and myself will share in the next minutes. Please follow me on Page #3 with a quick overview. I think you saw the numbers. From our point of view, a good summary to say we started well into the year in an environment that is certainly challenging and in some areas, unpredictable. Sales growth FX adjusted 1% up. We'll share the details in a moment. The gross profit margin is at 21.6%, so more or less the same margin like Q1 2025, clearly driven by operational gains in E-Mobility, VLS and BIS with a slightly negative development in PTC, that should not come as a surprise. EBIT margin at 5%. Clearly, an improvement in E-Mobility, while PTC, VLS and BIS contributed strongly to the EBIT, also supported by lower R&D costs. Free cash flow seasonally negative with minus EUR 209 million. You know that in Q1, it was EUR 155 million, Christophe is going to give you more detail. This also includes higher restructuring cash out and some advanced customer payments in the prior year. And yes, EPS is slightly positive, also impacted by the financial result. Page 4 gives you the breakdown of where we grew, where we not grew. 6% growth in E-Mobility in the first quarter is certainly pointing in the right direction. Powertrain & Chassis, as I said before, slightly down and then moderate growth in VLS and BIS, certainly also driven by the environment. The strongest growth came out of region, Asia Pacific, However, that still has the impact that we explained several quarters now, are embedded with a switch from a bigger project from China to Korea. More important, Page 5, if you look at the auto powertrain OEM business, and that spans across E-Mobility and PTC, breakdown by powertrain type, quite interesting picture here. Schaeffler outperformed in all these 3 different powertrain types. 4% outperformance in BEV segment, 16% versus market growth of 12%; HEV, an outperformance of 1.5%; and even in ICE, where our sales drop was not as big as the market. That is exactly what I hope were that I can show you these pictures continuously for the next quarters, but that all points in the right direction. Order intake, again, by powertrain type, we'll come back to the numbers per division, also shows that in the important best sector, we are showing a book-to-bill of bigger than 1, while in the other sectors in this quarter, order intake was lower than relevant sales levels. Page 6, E-Mobility. As I said, order intake for the whole division is certainly bigger than just for BEV powertrain solutions, is EUR 1.2 billion, what leads to a book-to-bill of 1.0x. You may question, why that? We showed you in the last quarter that we have an order book by end of the year 2025 of more than EUR 40 billion. We are adjusting also volume assumptions constantly. And we are sure that with that order book we have at the moment, enough to do to deliver. So we are a little bit more selective on order intake. EUR 1.2 billion is a good result, and it's also driven by the right projects. Now let me go from BEV to Powertrain & Chassis. Also there, an order intake of EUR 1.4 billion was slightly below last year, was driven by phaseout and also by market development. And as I said before, the gross margin has suffered a bit. It is also impacted by one-off impacts that we can discuss in the Q&A. Vehicle Lifetime Solutions with a 1% growth that is less than before, but a further improved gross margin, that also leads to a superior EBIT margin. Here, we can say that, as you see in the highlights that our platform business, in particular, in China, is growing, serving an increasing number of retail partners, and we are also proud to say that we won the Sustainability Award for the E-Axle Repair Tool, what again demonstrates that, that is not just a PTC business but also very active in the new powertrain solutions. And then last but not least, Bearings & Industrial Solutions, a good development, 1.6%, good outperformance and also a growing book-to-bill ratio with certainly a different time horizon of the order book. There, just to mention one thing that also points to the new businesses, we are proud that we were part of the Artemis II launch, one of the most spectacular space activities in the last weeks, and were represented here with some high-performance turbo pump spinning bearings that have sort of highest-quality offers. So Bearings & Industrial Solutions, as you see from the rocket, is definitely moving in the right direction in its repositioning and performance drive. Then one page on new growth. We have selected here, again, the humanoid because that is what we -- from all the questions we get, obviously, the one that is most interesting to you, three points, just to put it in perspective and give you a little bit more data, how we look at this. This is a business that is in a situation where we are building the business. We are engaging today with [ 45 ] different customers and engaging means active conversations, of which 30 prototype orders have resulted. And from these 35 -- 30 prototype orders, 5 contracts have been secured. You will understand that I cannot mention here the names, but I can tell you that from the 5, these are prominent names, both from China and the U.S. and from Europe. And we are in ongoing negotiations to further build the order book. If I look at what we have today and put our more conservative assumptions of a million robots in 2030 behind it, our best estimate at the moment is that this order book in total order intake from the 5 customer contracts included has a value of somewhere in midsized 3-digit million range. For sure, that is further building and we'll give you -- as soon as these numbers are more solid, we will give you more information on how that develops. That's what I can say at the moment for Q1 customer side. Last point here, we will see first SOP from these customer contracts in Q2 '26 and then also have scheduled further SOPs for Q3 and Q4 2026. So you see the business is building, it is growing. We are part of the companies that is here at the forefront of the development. And the number of inquiries also from German OEMs is interestingly increasing. What helped us was also the recognition for our products. As some of you heard, we won the prestigious Hermes Award at the Hannover Fair. You see a small picture here that recognizes our rotary actuator platform in multiple sizes and multiple sort of nanometers and other functions. That's a positive thing. And as you all know, we will continue to expand our Automotive know-how into this area. Last point is on manufacturing. We are investing into that business, not only for building the business, but also for making sure that we can scale what we need to scale. I finish on Page 11 with my last page before I hand over to Christoph. Capital allocation continues to be driven by a very disciplined approach. Capital employed has been further reduced also through the project that we explained to you in the Q4 results. We had CapEx in Q1 of EUR 237 million, more or less in line with previous year. The investment grade stands at 0.5x and the capital employed at the end of the first quarter was EUR 12 billion. From an average point of view, Q1 over the last 12 months, this is a reduction of EUR 974 million. You see where we spent the money. And I can assure you again, we are disciplined, but also able to invest into the new growth businesses based on our strong cash conversion. With that, I hand over to Christophe. Christophe Hannequin: Thank you, Klaus. Good morning, everyone. As explained by Klaus, very solid first quarter for 2026. So taking a step back and walking you through a couple of slides on sales and gross profit and then EBIT. We see on Slide #12 the slight growth year-over-year, 1% of growth FX adjusted, demonstrates the confirmed scale-up of our E-Mobility activities. The slight erosion is planned from PTC, especially as we disposed of some activities at the end of last year. Slight slow start from VLS, but nothing to worry about on the year to go. This is mainly driven by some negotiations with some of our key customers that impacted a little bit the sales at the beginning of the year, we will catch up and no issues whatsoever on the year to go for VLS. Last but not least, BI&S also having an encouraging start beginning of the year for Q1. If you look at the makeup of our gross profit bridge going from 21.7 to 21.6, so more or less stable, you see a strong contribution from price. So a little bit of that is linked to compensating for the U.S.-related tariffs, but the rest is also the pricing policy that you see mainly for us within VLS and B&IS. The volume, slight decrease there, as I mentioned before, mostly related to PTC and as a result of decisions we took at the end of last year. The one that I would like to draw your attention to is the EUR 67 million of improved production cost year-over-year, a combination of structural improvements year-over-year as the restructuring programs pay off as we continue to drive efficiencies in our plants. And also happy to report, a significant part of it is related to our purchasing performance and the evolution of our raw material prices or our purchasing performance in general. On the other cost of sales, some impact from the U.S. tariff, there's about [ EUR 20 million ] in there. And then a not very helpful comparison to last year from an inventory revaluation standpoint, where we had a very strong quarter last year. We changed the method this year in order to smoothen this out a little bit and make it easier to understand and steer. But we took the hit there on the comparison. On a full year basis, this disappears. And hopefully also it will give us a more streamlined earnings and EBIT profile for 2026. I will finish on this slide by pointing out the FX impact on our gross profit line, still negative, mainly driven by the U.S. dollar, the RMB and the Indian rupee. And we could have listed as well the Ukraine war, which is impacting us quite a bit. On the next page, you see the EBIT walk, increasing by 0.3 points year-over-year. I already mentioned the gross profit evolution, which is very favorable for us. The other interesting news on there is the progress on R&D expenses, which is both increased efficiency in the way we conduct our development programs as well as some of the benefits of some of the restructuring that we've been doing in this field. Again, the SG&A suffering a little bit from the comparison with last year. There's some timing impacts in there. And there's also the impact of higher cost this year related to our S/4 HANA rollout and the fact that we are heavily investing in digitalization and AI deployment within the organization. That [ inflation ], mostly offset by our performance programs, which is what I'd like to see in the P&L. You see that at the EBIT level, FX switches back to a positive level. This is due to two main aspects. The first one is there is a natural hedge within the group between the different lines of our P&L, depending on where we sell and where we spend. And we also have in there the impact of some of the hedging instruments that are paying out favorably and protecting us against the [ evolution ]. So again, a solid 5% of EBIT, which puts us in a good shape for the full year guidance that we'll discuss a little bit later. I will go very quickly through the different slides. But E-Mobility, clearly, the scale-up paying off, both in terms of production efficiency as well as the R&D piece, driven the -- growth on the top line driven mostly this time for this quarter by the controls part of the business, but overall, unfolding as we had forecasted for 2026. On the PTC side, again, sales decline, which is known, planned and accounted for. The EBIT level remains very, very strong in the double-digit range. The 12.7% from Q1 2025 was a very, very, very high comp, but the 11.5% for Q1, again, clearly in line with what we were expecting when you think about, again, our guidance on the right -- on the good side of the guidance approaching the top end of it. On Vehicle Lifetime Solutions, 0.9% of growth year-over-year, not completely what we used to. VLS, nobody grows stronger, stronger than this and will grow stronger than this on a full year basis. This is just a slow start for Q1, but no warning, no alerts, no reason to worry on the year to go, the volume piece will catch up. Despite this, an extremely strong, almost 16% worth of EBIT driven, as I mentioned before, but also a strong pricing policy. The other encouraging point, I think already mentioned by Klaus is the expansion of our platform business on a global basis, which means that we are successfully diversifying out of Europe and out of the traditional repair and maintenance solution activities. On the Bearings & Industrial side, I'm not getting bored of saying this every time, but it's a very, very interesting combination of both growth and restructuring and operational performance, driving a very, very solid first quarter at 9% EBIT. The 10% last year, again, very hard to beat the comparison, which was mainly driven by the inventory valuation topic that I mentioned before and which was followed by a complicated or weaker Q2 in 2025. The change in method takes us away from that. And the 9%, again, very, very much on the progress path for B&IS, for Bearings & Industrial Solutions that we highlighted during the Capital Market Day, it is paying off, and they are executing properly. Free cash flow, seasonally impacted as usual within the group. Klaus already mentioned the slightly higher restructuring payments that you find in the Others category. Net working capital impacted by a conscious decision to raise our inventory levels and buffers in order to ensure that our customers are protected and safeguarded in a very volatile supply environment. This is something we will work down throughout the year as the situation stabilizes and hopefully resolves itself. But the decision was made there to invest a little bit in working capital to protect our customers. CapEx, as planned, in line with the investment plan for this year with quarter 1 that is where we expected it to be. From -- if I move on to the next page, you'll see, again, a not very surprising evolution or lack of evolution of our leverage ratio in the 2.1, 2.2, 2.2 range. Our maturity profile remains extremely well balanced with the upcoming maturities already prefunded, and we will continue to work on this as opportunities arise. Then that takes us back to the full year guidance, which I will hand back to Klaus. Klaus Rosenfeld: Yes. Thank you, Christophe. Very briefly, we confirm our guidance. We are, from our point of view, also with what we see in April on track here. Certainly, the impacts from the geopolitical and macroeconomic environment were not known when we approved this guidance. We have still said we will not change it and do what is necessary to stay within the range. The 5 percentage points, 5% EBIT margin is clearly at the -- pointing to the upper end here. We need to see what the second quarters bring. You know that our business is seasonable. But what I can say here is we confirm these main KPIs. Let me finish by a quick look at the financial calendar. The colleagues will go on roadshow, virtual, but also to the conferences. We see a lot of interest at the moment from U.S. investors, but also from Asia. So you see it on the schedule. We try to be as responsive as possible. And we thank you for your attention and interest in Schaeffler. With that, I hand back to Heiko. Heiko Eber: Thank you very much, Klaus. Thank you very much, Christophe. As already mentioned, if there are further needs -- if you see further need for discussion tomorrow, the virtual roadshow organized by JPMorgan. So if you have interest, please let us know. And with this, I would say that we directly jump into our Q&A session, and I would hand back to our operator. Operator: [Operator Instructions] And we have the first question coming from Christoph Laskawi from Deutsche Bank. Christoph Laskawi: The first one would be on the humanoid SOPs that you've highlighted. Now that you are moving into series production, I was wondering if you could comment in a bit more detail on the expected revenue contribution in '26 and '27. Is it fair to assume that in '26, it's probably closer to low double-digit euro million amounts and in '27, more towards the mid- to high double-digit range? That's the first question. And then you called out earlier that the environment is tricky currently and in some cases, unpredictable. Do you see any changes of customer behavior currently from the OEMs, any changes in call-offs also on the Industrial side? And with that in mind, should we expect Q2 to roughly trend in line with Q1? Any color that you could share there would be appreciated. Klaus Rosenfeld: Well, let me start with the second one. Again, we are -- we have 4 different businesses. And I start with BIS. I just came back from China, and we see that there, although the macroeconomic situation sounds a little bit subdued, there is a growing interest to work with us. We don't look at the Industrial business by call-offs. That's more an Automotive concept. And there, everything we saw, Christoph, in April doesn't look like a dramatic change. It's maybe a little softer than what we expected at the beginning of the year, but it seems to be quite resilient. When you see the news, when you see what's going on in the world, this is to some extent a surprise, but the numbers speak rather for a little bit of a softer development in the next months, but it's not a dramatic change in direction. So let's see how this is going to unfold and how the second quarter will look like. With what I've just said, we don't expect a dramatic change to our Q1. But certainly, Q2 is typically not as strong in terms of growth as the first quarter. The more important question is how will this unfold? Let me give you a little bit of a logic how we do this when we now estimate what's coming. You basically -- in these contracts that we have, and I said, 5 customer contracts where you will understand I cannot mention the names, I can also not mention what kind of products the customers order, but for sure, these are the ones that we have also communicated and shown at fairs. We typically look at the number of bots. We look at the pieces per bot, and we look at the price per piece. This is the simple logic that is behind this. Now SOPs will start in Q2. There's another customer that will then come in Q3 and another one in Q4. But this is the simple mix. So don't expect miracles in 2026. This is not a full year, that's the start of the year. Again, this is all estimated at the moment. We have no reason to believe that these SOPs are not happening because for sure, in particular, the bigger players want to get ready for their first generation. The real interesting question, how does it scale then? And how many more pieces are we going to expect then in 2027? Also there, what I see, and you just mentioned indicative numbers, going to 2030 revenues, I think you have a chance to go up above the 3-digit million mark. But the ramp-up curve as such, again, is premature. Again, 2026 will be also impacted by this timing aspect that I said. If everything works well, 2027 is more a 2-digit million number. And then it will -- however, the development in terms of the numbers is -- will go up to something in the 3-digit million at the latest in [ 2030 ]. From a revenue point of view, order book is certainly already bigger than a 1-year number. That's, again, my best estimate at the moment. We have told all of you also in the individual conversations that we will give indication today that you have a little bit of a sense what's going, but the regular reporting about order books, order intakes, revenues will need a little bit more time. Christophe and myself, we are 100% certain that we should only come out with numbers that are solid. And we are building this business. There's a lot going on here. I could spend most of my time on this, but I can't. So give us a little bit -- be a little bit more patient, give us a little bit more time. We'll come up certainly during this year with more figures here that you can also follow what we are doing. Operator: The next question comes from Jose Asumendi from JPMorgan. Jose Asumendi: A couple of questions, please. On the order backlog on humanoids, can you maybe just give some color maybe how broadly is split by region, maybe a little bit the geographical split, if possible? Second, do you foresee, as we think about a 1- or 2-year view, some expansion of plants, of maybe footprint either in the U.S. or in Asia to support the humanoid ramp-up? And can you talk a bit about also your -- I believe you call it -- it's like an R&D lab that you have next to Shanghai. When do you expect to open up that center for investors to visit it? And then second, on E-Mobility, can you talk a bit about how you reuse some of the capacity -- existing capacity you have to adapt the different powertrain trends we have globally, so we can make the best use of -- you can make the best use of fixed cost investments? Klaus Rosenfeld: So let me start with the first question. In what I told you again with the 5 customer contracts, I can say -- again, it's a development that still needs to be more solidified. It's more or less equally balanced between China, the U.S. and Europe. It depends a little bit how you define it, whether you define it by the humanoid builder or where the end demand is coming from. But if I just look at the big partner in the U.S. and the big partner in China, and that is together with the other ones, it is more evenly spread at the moment. So it's not China or the U.S., it's at the moment, both China and the U.S. plus a positive outlook on the humanoid players that have more a European base. You heard about Hexagon, that's the latest one where we entered into a cooperation. That's certainly a positive that this is not just one country or one region bet. The footprint -- sorry, the humanoid factory in China is open. So if someone is interested to visit it, you just need to organize it. We have seen significant interest there. Maybe we need to organize a little bit of a tour, but it's certainly something that we would open up and show you what's going on there. It's quite fascinating, also the speed how the Chinese colleagues build that up. Footprint to support the ramp-up. At the moment, we have not decided on any plans to change the footprint. What we have, in particular in Germany is, for the time being, sufficient, but we need to follow the development very carefully. It's a function of the ramp-up speed. If this goes very fast, we will react. If it goes more slowly, it's a different story. But we do this, as I normally say, with our eyes on the road and the hands upon the wheels. And we'll be very pragmatic to organize the necessary capacity. At the moment, it looks like that we can more or less handle what we have without bigger footprint investments. For sure, the cumulative total investment for the next year will be another interesting figure for you. And don't forget, we'll also spend money not only for plants or machines, but also for R&D and for people. If I may say this, my biggest challenge at the moment is to add the relevant people here to the team. This is a start-up. It's a very different environment. We have super engineers, super product developers, all of that. But if we want to build this as a global business, we also need to support David and his team, that is a global team with more talent, and that's where we're focusing on. So the next years will not only be looked at from a CapEx point of view, but also from the buildup of the right talent to drive this new market. Don't forget, there is a very important angle to physical AI and industrial AI. This whole ecosystem is not just mechanics, it's the interface between software and hardware. And if you really want to play there, you need to understand the AI angle very carefully. Also, Christophe said this, see it in a broader context. Then the last question was on E-Mob. Again, here, it's not so much capacity in the plant. It's more how do we optimize the fixed cost portion. We certainly have a way to go in terms of R&D. That's something that we certainly address under our existing performance program. Whether that's enough, we need to see. In general, I can say, with the improvement in Q1 2026, for, say, over Q1 2025, if you remember this little formula that we developed, is it possible to bring E-Mobility across the line in 2026, that delta of nearly 5.5 basis points -- but the delta from Q1 '26 to Q1 2025 is 5.5 to 6 basis points. If you consider that E-Mobility is a seasonal business with a stronger fourth quarter, that shift is -- if that we can maintain that shift over the next quarters, that really points in the right direction, even if revenues come in lower than what we expected when we had our Capital Markets Day. So let's see how Q2 goes and let's see that we are able to put the right measures in place. It's not a CapEx question so much. It's more a question of reallocating resources within the group and reducing also the R&D impact from headcount here in Germany. Operator: The next question comes from Ross MacDonald from Citi. Ross MacDonald: It's Ross MacDonald at Citi. I have three questions. I'll again ask on the humanoids, given there's so much client interest here. Klaus, just to help us back out, let's say, a potential content per vehicle to Schaeffler from these activities, I understand you're guiding around mid-3-digit million revenue potential on the current 5 contracts, assuming a global market of 1 million humanoids in 2030, would be good to just confirm that specific point. But then within that, what is the market share that you're assuming on that sort of revenue ambition, let's call it? I'm aware for 2035, you'd be comfortable or happy even with a 10% market share. So on that math, is that the 10% market share assumes that is driving a mid-3-digit million top line? That would be my first question. Klaus Rosenfeld: Well, Ross, again, we are working in a market that is emerging. And that certainly needs, to some extent, a scenario approach. Our sort of conservative scenario is 1 million humanoids to be produced globally by 2030. And I can also tell you, this is start-up territory. We here at Schaeffler, we don't like hypes, we don't want to see something where we are putting too much out. We want to be conservative. I think the 1 million humanoids, as it looks today, is a conservative number. It could increase, but we need to see. It's also a question where are they applied, and there are still very different views on this. So let's build on the 1 million and make sure that we make that and seize the upside if possible. The second cornerstone of our calculation is also nothing new to all of you. Andreas has said this also a year ago. When we look at the bill of material of an average humanoid build for different purposes, we're talking about a 50% addressable market for Schaeffler. And if I now say if we aspire to get 10% market share of that addressable market for us, then that's basically the logic that we have in mind. You all know that this is then a function of how costs are decreasing and how this is progressing and certainly, whether you can sell your products and your development competency to the right partners, that is, from my point of view, from a CEO perspective, the most important thing. It's the same like in the auto market. There are so many humanoid players around, so many people that claim that they can do this and this and this. For us, as one of the sort of leading suppliers in this space, we want to do business with the right partners. And I can say, you will hopefully understand that I cannot disclose names, but the names are prominent names. We want to be selective in the ones that we bet on. And that what I see at the moment gives me a good sort of positive feeling that we have the right contracts to start with. This is a start. It's not the situation where we can say we've already achieved everything we want to achieve. It will continue in 2026. And this concept of offering partnerships in terms of we can supply our parts and we offer people the ability to utilize their robots and learn together in a context where this is very much AI-driven, where the industrial metaverse plays a role, that is, from my point of view, the driver for success. Let's leave it here, but I leave you the rest of the calculation. At the end of the day, what counts is really what comes out in the bottom line. Ross MacDonald: That's helpful. And maybe I will fire two more quick questions for Christophe actually. Christophe, maybe on the second quarter trading, if I look at 2025, there was quite a large step down in margin from Q1 to Q2. So you went from 4.7% to 3.5%. How should we think about the seasonality within Schaeffler this year? Would you be hoping for a less extreme margin pullback in the second quarter? How would you think about Q2 within the current guidance range? And then a second question, just specifically on the other division, noting that was around about EUR 30 million loss per quarter on average last year, it has stepped up significantly to minus EUR 15 million loss in Q1. How should we think about modeling that specific division going forward? And maybe you can give us some color on what drove that EUR 20 million delta in Q1 versus Q4? Christophe Hannequin: So first question, and I touched on it during some of my comments, Q1 was overly impacted by inventory revaluations in 2025, some of it which resolved itself in Q2 and led to the performance that you saw. It's not really driven by the business itself, it was more of the way we essentially take our standard cost variances through inventory and the balance sheet. As I mentioned, we have switched some of our methodology on this one. So I expect a smoother quarter-over-quarter evolution in this one. The division that's primarily impacted by this one, especially last year, was BI&S, so Bearings & Industrial Solutions, first and foremost. And then PTC was probably the second strongest impact. So we'll see how Q2 unfolds. But if we did it right, we should have a much smoother quarter-over-quarter evolution. Now we do have a seasonal business where plant loading is important to us and efficiencies are driven by the loading of our plants. So you should not expect Q1 and Q4 to be directly comparable, if I put aside some of the R&D and the customer negotiations impact. But from a purely operational standpoint, Q1 and Q4, despite everything I've said before, will not be directly comparable. But again, smoother quarter-over-quarter is what we would like to see and what we're driving for in 2026. I'm also a big believer that a better load, better operational steering of our plants drives throughout the year drives higher efficiencies and higher performance overall. So let's see what Q2 gives us. But again, I'm on the optimistic side on this one. Division others, as you know, it's a mix for us of activities we're ramping up, ramping down. So the humanoid piece is in there, our defense efforts are in there, hydrogen is in there, so are some of the businesses that we are disposing off. So the comparison year-over-year is a little bit tricky. But if you use what you're seeing right now, you probably will not be off from what we should see in 2026. But that one is especially tricky, I guess, for you to model from the outside, unfortunately. Klaus Rosenfeld: And it's a task for us to think about maybe for next year, whether we guide something on this or how we best do this. But as you said, it's a mixed bag of things that are ramping up and ramping down. And we understand the point. But for the time being, I think you have the guidance that you saw, and it needs to add up to the group guidance. Operator: There are no more questions at this time. I would now like to turn the conference back over to Heiko Eber for any closing remarks. We have a last-minute registration from Klaus Ringel from ODDO BHF. Klaus Ringel: I wanted to ask on the Auto business. I mean it was quite nice to see the outperformance this quarter across different powertrains. And I would be interested in your view looking ahead, if we can expect to see such a nice outperformance or if you would expect also some seasonality in here? Klaus Rosenfeld: Klaus, it's a good question, but I don't have a crystal ball, to be honest. With this environment, it's really difficult to mention that. To answer that question, what is quite interesting from my point of view, if you follow what's at the moment happening on E-Mobility, not only in Europe, but also in the U.S., you see what comes a little bit as a surprise to us that in particular in the U.S., people are buying e-cars, although the production side is more going in the other direction. That may have to do with the fact that people look for fuel economy in a situation where [ ethylene ] becomes more important. We don't know yet. The trend is not stable. You also saw what happened here in Germany, what happened in France with more E-Mobility support. There are the obstacles with the loading infrastructure. For me, what is really most important is that we have this hedge across the three different types. and that we can play these corresponding cubes well. So I can't tell you what Q2 is going to look like. What I can tell you is that our focus on playing in this space from E-Mobility to PTC in a clever and smart way to utilize the opportunities that are there quarter-by-quarter. That's the game plan. And for sure, our biggest challenge is to deliver on our E-Mobility promise. And there, if outperformance helps there, I would expect that we probably see a continuation during the year. How this unfolds quarter-by-quarter remains to be seen. A critical element will be the China angle of this. And maybe I can leave you with the following information. My colleague or our colleague, Thomas Stierle, is spending more time in China than any other colleague that we have. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Heiko Eber for any closing remarks. Heiko Eber: Thank you very much. So first of all, thanks to our speakers. Thanks to my CEO, my CFO. Thanks to all of you for your continued interest. And as always, a big thank you to the team for the preparation. If there are more questions, please feel free to give us a call, happy to help. And with this, thank you very much. Have a good rest of the day and talk to you soon. Operator: Ladies and gentlemen, the conference is now over, and you may now disconnect your lines. Goodbye.
Operator: Hello, everyone. Thank you for joining us, and welcome to Telesat First Quarter 2026 Financial Results. [Operator Instructions] I will now hand the conference over to James Ratcliffe, Vice President of Investor Relations. Please go ahead. James Ratcliffe: Thank you, Jericho. Good morning, everyone, and thank you for joining us today. Earlier this morning, we filed our quarterly report for the period ending March 31, 2026, on Form 6-K with the SEC and on SEDAR+. Our remarks today may contain forward-looking statements. There are risks that Telesat's actual results may differ materially from the results contemplated by the forward-looking statements as a result of known and unknown risks and uncertainties. For a discussion of known risks, please see Telesat's annual report and updates filed with the SEC. Telesat assumes no responsibility to update or revise these forward-looking statements. I would now like to turn the call over to Dan Goldberg, Telesat's President and Chief Executive Officer. Daniel Goldberg: Okay. Thanks, James, and thank you all for joining us this morning. I'll start with a few words about the business, and then I'll hand the call over to Donald, who will speak to the numbers in more detail. We'll then open the call up to questions. My opening remarks this morning are relatively short since it's been only 7 weeks since we reported our full year 2025 numbers. I am pleased with our performance in the quarter, during which we made significant strides in developing and commercializing the Telesat Lightspeed constellation. The development of the satellites themselves continues to move ahead, and we're also making good progress on a number of related fronts, including user terminal and software development and the development -- I'm sorry, and the deployment of our ground station network. We continue to expect to start full global commercial service around the end of the first quarter of 2028. I'm also pleased with the progress we're making on the commercial front for Telesat Lightspeed. Last month, we signed a contract with Northwestel for Lightspeed service to provide broadband connectivity to communities across the territory of Nunavut in the north of Canada, and we see attractive commercial opportunities across our target verticals. I'd note we're seeing a very positive response to our incorporation of the military Ka-band capacity to Telesat Lightspeed from allied government customers who are keen to leverage the benefits of an advanced secure and resilient LEO satellite constellation operating on frequencies these users have long used for mission-critical operations. A number of allied governments are currently evaluating plans to secure Mil?Ka satellite services in LEO, and so adding this capability to Telesat Lightspeed is both important and timely. As you know, late last year, the government of Canada announced that it selected Telesat and MDA to deliver a multi-frequency satellite network called The Enhanced Satellite Communications Project – Polar or ESCP-P to meet the communications requirements of the Canadian Armed Forces in the Arctic. Since that announcement, we've been engaged with the government to finalize the contractual arrangements for a significant portion of the ESCP-P program. which we anticipate will be concluded in the coming months, recognizing, of course, that there can be no assurance an agreement will ultimately be reached. Assuming we do finalize these arrangements and recognizing that ESCP-P is a material opportunity for the company, our intention is to update our financial projections at that time so that investors can take into account the expected impact on our business. In our GEO segment, first quarter results came in largely as we had expected, with most of the year-over-year decline coming from nonrenewals and lower revenue renewals in our broadcast activities and to a lesser extent, reduction in services for fixed broadband customers. That was partially offset by new contracts for broadband services to commercial airlines. Even though GEO is a largely fixed cost business, we remain focused on reducing costs where possible, and that effort was visible in the quarter with adjusted operating expenses, excluding costs related to our debt refinancing, down 11% year-over-year. As noted in our release, we're reiterating our full year 2026 guidance for GEO revenue and adjusted EBITDA and for total LEO investment. One other note regarding our GEO segment. Last month, we changed the name of our GEO operating subsidiary from Telesat Canada to Telesat GEO Inc. In an effort to reduce confusion between our public entity, Telesat Corporation and the GEO operating subsidiary. Now things should be clearer the Telesat Lightspeed business is in our Telesat LEO subsidiary and our legacy GEO business is in the Telesat GEO subsidiary with both subsidiaries ultimately being wholly owned by Telesat Corporation, our publicly listed entity. Finally, I'd note that we continue to work closely with our advisers last quarter on refinancing the Telesat GEO debt that begins to mature in December of this year, something that remains a high priority for the company. So with that, I'll hand over to Donald, who will speak to the numbers in more detail, and then we'll open the call up to questions. Donald Tremblay: Thank you, Dan, and good morning, everyone. My prepared remarks today will focus on highlights from this morning's press release and filings. In the first quarter of 2026, Telesat reported consolidated revenue of $87 million and adjusted EBITDA of $35 million. Consolidated net loss for the quarter was $151 million compared to $51 million loss for the first quarter in 2025. The negative variation of $100 million was principally due to noncash impairment of goodwill and lower adjusted EBITDA of our GEO business. I'll cover the performance of our GEO segment in more detail in a few minutes. Interest expense for the quarter totaled $50 million, down from $57 million in the first quarter of 2025 as we benefited from lower interest rate on our floating rate debt. Interest expense on our USD-denominated debt was also positively impacted by a stronger Canadian dollar during Q1 of 2026 versus the same period in 2025. Interest relating to Telesat Lightspeed totaling $14 million during the first quarter of 2026 was capitalized to the project compared to $3.5 million for the same period last year as the amount outstanding on the Telesat Lightspeed financing is increasing. The result of our GEO segment was in line with our expectation in Q1. We generated $86 million in revenue during the period, down 26% or $29 million compared to the same period last year. Most of the revenue decline was in our Broadcast segment, driven by expiration of contract for service on Nimiq 4 and Anik F3 satellites in 2025 and lower capacity and rate as part of renewal of contract on Nimiq 5. In our Enterprise segment, the decline was primarily driven by lower revenue from our Xplore contract renewed in October 2025, which did not impact materially our operating cash flow as the contract was mostly prepaid at inception. These declines were partially offset by contract added in 2025 in our Aviation segment. The utilization of our satellite was 55% at the end of Q1, and the backlog of our GEO segment was just below $800 million at the end of March. Our adjusted EBITDA of GEO segment was $55 million for the first quarter, down 37% year-over-year. The decline was primarily driven by lower revenue. Our first quarter 2026 expense excludes approximately -- include approximately $7 million in costs related to our debt refinancing process, up approximately $3 million compared to the same period last year. Adjusting for these expense, our GEO adjusted EBITDA would have been $62 million during the period. Turning to the cash and liquidity position of our GEO business segment. Cash on hand at the end of Q1 was just over $200 million, largely unchanged from the end of 2025. We believe the combination of this cash on hand and the cash flow generated by our GEO assets in 2026 to be sufficient to meet all the company's obligation prior to the Telesat GEO debt maturity in December. As a result of this performance, we are reiterating our GEO business segment guidance for the year of revenue of $300 million to $320 million and adjusted EBITDA of $210 million to $230 million, excluding debt refinancing expenditure. We invested $170 million in the Telesat Lightspeed program during the first quarter of 2026, including $152 million in capital expenditure and $19 million in labor and other operating costs. We continue to expect full year investment in the program to be between $1 billion to $1.2 billion as we announced earlier this year. In the LEO segment, we ended the quarter with almost $300 million in cash on hand. This cash, combined with $1.72 billion in availability under our Telesat Lightspeed financing and USD 325 million from our vendor financing is expected to be sufficient to fully fund the Telesat Lightspeed project until it achieved global commercial service around the end of Q1 2028. Our backlog for Lightspeed totaled approximately $1.1 billion as of the end of Q1. Note that this does not include the recently signed agreement with Northwestel. Before I conclude my prepared remarks, I would like to confirm that we are in compliance with all the covenants in our credit agreement and indenture. I'll now turn the call back to the operator for the Q&A. Operator: [Operator Instructions] Your first question from the line of David McFadgen with ATB Cormark. David McFadgen: Let me just start off by asking you a little bit more about the ESCP-P program. Given the government's committed to lend you over $2 billion in capital and the government wants military Ka-band capacity, isn't it logical? Or isn't the deal going to be that the government -- the Canadian Armed Forces is going to license a lot of the military Ka capacity from you off Lightspeed? Daniel Goldberg: David, it's Dan. So I guess the first thing I'd say is I don't, in my own mind, connect the $2 billion loan to future business with the government of Canada. The government of Canada whether that's Department of Defense or other government satellite users, they're always going to choose the solution that represents the best value prop for them and the taxpayer. So I mean that's just what I've seen in my years doing business with them. It is the case that one of the ESCP-P requirements is for military Ka-band capacity in the Arctic. The other requirements are for UHF and [ X-band ] capacity in the Arctic. And it is the case that, as we said on our last call, we've incorporated Mil?Ka in Telesat Lightspeed, and it serves the globe, including the Arctic. So it could be a good fit for the government, but -- we can't get out ahead of this process. As I mentioned in my remarks, we're engaged with the government now on getting the contractual arrangements in place for the overall program. And so stay tuned. What I also did say, though, is, look, it is a material contract for Telesat. And if and when we conclude the arrangements with the government for ESCP-P, and again, our expectation is that will happen later this year, we will organize an investor call and update our financial projections so that everyone can, yes, appreciate the impact it's going to have on the business. So anyway, that's something that we're committed to do. David McFadgen: Okay. And just a follow-up on that. I mean I was kind of surprised to hear that because if you're licensing or you're allocating 25% of the network to Mil-ka, then you're losing that commercial opportunity, right, on the 25% you give the Mil-ka. So I would have thought that the TAM or the forecast will kind of be the same, but you're kind of implying that the forecast will actually be higher. Is that what you're implying? Daniel Goldberg: Well, I'd say stay tuned. We do believe that the market that the Mil?Ka addresses is a very large market. There as I again noted in my remarks, there are a number of governments around the world right now that are evaluating how to get a military Ka-band capability in LEO, and we're out there engaging with a lot of those folks now. Look, we think that ESCP-P, again, assuming we close the contract, will be meaningfully accretive to the company and our business plan and our outlook. And so once that -- once those arrangements are done, yes, we want to get that out there and share it with the market. Operator: Our next question comes from Edison Yu with Deutsche Bank. Xin Yu: I wanted to just clarify when you say an update on financial projections, is that basically you're going to give an update to those numbers you gave back in 2023, where you had like this Lightspeed annual revenue EBITDA. Is that what you mean that you're going to provide an update when you say that? Daniel Goldberg: So I'd say two things, Edison. One, we'll update our guidance for the year to the extent that ESCP-P is impactful on the numbers for this year. So that's number one. Number two, to the extent that Lightspeed is used in connection with ESCP-P, then yes, the financial projections that we have already made available to the market for Lightspeed, we would update those to the extent that the ESCP-P project incorporates Lightspeed capability. Xin Yu: Understood. And then a follow-up, just higher level, if I think back to actually that same presentation on the TAM, so more high level, you obviously -- you had this huge, huge piece. I think it was $320 billion of enterprise. And I think the government part was actually a very, very small piece of that. And I guess if we look at the situation now, would you say that, that government piece, just from a TAM perspective, regardless if you add or subtract anything on your own, we think that TAM is actually substantially bigger than you thought 2.5 years ago? Daniel Goldberg: Yes. I'd say a couple of things about that. I can't remember just because I don't have that material in front of me, I can't remember what we had estimated the government sort of defense TAM to be. But for sure, I bet almost anything because that was done probably 24 months ago or something like that. For sure, I got to believe that TAM will be meaningfully higher. And when we update our numbers, we'll also be able to talk to investors about our expectation in terms of how the future revenue is going to be distributed across the various applications, government, aero, maritime, fixed broadband. And my recollection is that the current plan has our kind of government defense revenues around 15% in the out years of that forecast. And my expectation is when we update it, given what we're seeing in the market, given the change to military Ka-band for Lightspeed that those government defense revenues will be a much more meaningful portion of our projected Lightspeed revenues in light of the changes that we're seeing and the addition of Mil-Ka to the network. Operator: [Operator Instructions] Our next question comes from Chris Quilty with Quilty Space. Christopher Quilty: Dan, what are your thoughts on the Globalstar Amazon tie-up? Are you impacted in any way directly or indirectly? Daniel Goldberg: I don't think it -- I mean, we certainly watched it with interest, and there were certainly a lot of rumors in the market before the deal was announced. It's more tangential, obviously, to what we do. We certainly weren't surprised by it. And it certainly puts Amazon kind of more on that same trajectory in terms of focus as the moves that Starlink has made with their recent spectrum purchases. So -- but I don't think it's something that really has a direct impact on our business, Chris. Christopher Quilty: Fair enough, and I'd agree. The other thing I wanted to dial into was your terminal strategy. We've seen some activity in the market. AllSpace was just acquired by York and Stellar Blu by Dot before that. When you look at your strategy in terms of using either Telesat supplied modules and then having ODMs to manufacture them, do you feel like you're in the right place now given the timing of the constellation? We've seen challenges certainly with OneWeb and their launch of having terminals available timeliness? Daniel Goldberg: Yes. No, it's a great question. And the short answer is -- I mean, frankly, there's a very long answer, but I'll try to give you the short answer. The short answer is I think we're in an excellent spot right now. And frankly, I think having gone after OneWeb, for instance, we've probably captured some of the hard work that they had to do having come out a little bit earlier. So maybe just a couple of things. The terminal strategy is overwhelmingly flat panel antennas for the user, number one. The different verticals that we're serving will, for the most part, have different flavors of those flat panel antennas, maritime, aero and then there'll be different antennas for commercial aero and for commercial jets. The government users will have a range of antennas and some of those might be hardened to look after their requirements. And then, of course, there'll be terminals for kind of terrestrial fixed broadband connectivity. So what we've announced to date, we've announced cooperation with Intellian and Intellian has done -- back to OneWeb, they've done good work already establishing a very capable factory line for producing flat panel antennas for the OneWeb constellation. And we've obviously been working with them to adapt the products for Ka-band. We've announced something with [indiscernible], and they're a very innovative provider as well. And then Farcast, we've made an investment in Farcast and so have others like Gogo and Lockheed Martin. They've got a very innovative technology where they interleave the transmit and receive capabilities, which allows for a smaller form factor. And so -- and they're making great progress. So all to say -- and then you mentioned AllSpace. What's interesting about them is the government users are quite familiar with them, and they've got capabilities. everything that I talked about just up until now has all been about Ka-band, including Mil?Ka in many instances. The AllSpace antennas can do a range of frequencies, which some of the government users will prioritize for certain of their applications. So anyway, all to say, yes, we feel good about it. And again, our strategy is we'll work with a couple of the antenna manufacturers, and our focus is to try to get the volumes up as high as possible because the higher the volumes are, the lower the unit cost for the flat panel antennas. But it's also the case that the network is open. And so government users, for instance, if they have their own desired user terminals, we can certify those to operate on the network as well. So they're not in kind of a closed ecosystem where we limit their choices in terms of who they can work with. Christopher Quilty: Got you. And final question. I know you said the gateway build-out is sort of on track. But I think in the past, you had talked about potentially looking at ways to bring in third-party financing for the ground segment. Can you give an update on that? Daniel Goldberg: I'll just say that our -- the base case plan that we're executing on is that we fund our gateway rollout and the financing that we have in place is sufficient to fund the landing stations around the world to support the network. So that's the base case. And that's what we've been doing up until now, and we've announced some of the gateways in Canada, in Europe, and Australia, and we've got more in the pipeline. But it is the case that we would consider working with a third-party company to change the model a little bit where they would fund some of that, and we would just simply become a customer. I mean it's already the case that all of us whether that's OneWeb or SpaceX or Amazon, all of us are using, to some extent, third-party sites, right? So whether we own the -- whether these companies own the antennas at that site, that's one thing. But it's almost always the case that all of us building out these global gateways are working with third parties at some level to host antennas, to host racks of equipment and whatnot. So then the next question is, would we go a step further and actually work with a third party who would fund some of those components, the antennas and whatnot. So I'd say that's something that's still under consideration. We would only do it. Obviously, if we had confidence that a third party could deliver the capabilities at the level in terms of reliability, security resiliency that we require for the network, number one. Two, if it's obviously somebody that has to have a strong financial wherewithal and then somebody that can meet other considerations around sovereignty, security, that sort of perspective. So that's where we are right now. But to date, it's been just as originally conceived, we're doing it on our own right now. Operator: Our next question comes from James Bratler with New Street Research. James Ratzer: Dan, I question is interested about the kind of growth buildup for Lightspeed kind of outside of Canada and outside of the military opportunity. I'd just be really interested to hear you talk about kind of when you go out and start speaking to customers, how are you seeing the kind of competitive dynamic with other offerings out in the market from people like Starlink, kind of Amazon Leo, TerraWave. What feedback are you picking up in the market about the competitive dynamics? Daniel Goldberg: So maybe a couple of things. For sure, Starlink is, at this point, far ahead of everyone else in terms of having a highly capable LEO network that's serving these various verticals in many the same ones that we're focused on, plus they do obviously B2C as well. So when we're out there in the market, I'd say they've become, in many instances, a benchmark for the users in these different verticals, which is -- and I think it's a great network and that they have a great service. So the market is competitive. Amazon Leo is coming. They're out there in the market promoting their services and their capabilities. They're not as far along as Starlink in terms of service readiness. But there -- we're seeing and hearing them out in the market. And they won an important Arrow deal within the last quarter. They won an opportunity with Delta. So -- and I'd say TerraWave, that's not really a network that we're hearing a lot about at this moment in time out there in the market. So I'd say the good news about Starlink being out there is they've demonstrated how impactful an advanced LEO network is. And as a result, there is significant receptivity to having other players in the market, more competition and whatnot. And then I'd say beyond that, what we're hearing is, look, and we know this, in order to be successful, we're going to need to compete on some mix of quality of service, price and customer support going forward. And then there are some other features in our network. So we're out there offering a Layer 2 service that is absolutely compatible with the mobile network operators and the telcos standards in terms of metro MEF standards and the like. And we've developed our APIs in a way that makes it very seamless for the telcos and the mobile network operators to integrate our capability kind of with their network backbone and whatnot. So what we're hearing is a significant amount of receptivity to Telesat Lightspeed, provided that it's cost competitive and we can meet all these service capabilities that they're looking for. I will say maybe one other thing is because we're not a B2C provider as well. We're not seen as a competitor in these markets. I think when some of the operators show up, they're oftentimes competing with the incumbent operators in these different countries. They're taking rural broadband subs. Their direct-to-device networks might end up competing for mobile network subscribers as well. That's not our posture when we come into these markets. We're really looking to be a supplier to the incumbent operators and just trying to help them be more competitive in what's a very dynamic, fast-moving market. Donald Tremblay: Yes. And I'd say that deal that we announced with Northwestel last month is an indication of how Lightspeed can offer a service that's transformative for rural broadband users, but working with a long-standing telco that's been operating in that case, in the market of Nunavut for decades. So we think it's a model that works. Operator: There are no further questions at this time. I will now turn the call back to Dan Golberg for closing remarks. Daniel Goldberg: Okay. Well, thank you, operator, and thank you all for joining us this morning, and we look forward to speaking with you again when we issue our second quarter numbers. So thanks again. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning and thank you for standing by. Welcome to Dorman Products First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I would now like to turn the conference over to Alex Whitelam, Vice President of Investor Relations. Thank you, sir. Please go ahead. Alexander Whitelam: Thank you. Good morning, everyone. Welcome to Dorman's First Quarter 2026 Earnings Conference Call. I'm joined by Kevin Olsen, Dorman's Chairman, President and Chief Executive Officer; and Charles Rayfield, Dorman's Chief Financial Officer. Kevin will begin with a high-level overview of the quarter and share our segment level performance and market trends. Charles will then walk through our first quarter financial results in more detail, discuss capital allocation and then turn it back to Kevin for closing remarks. After that, we'll open the call for questions. By now, everyone should have access to our earnings release and earnings call presentation, which are available on the Investor Relations portion of our website at dormanproducts.com. Before we begin, I would like to remind everyone that our prepared remarks, earnings release and investor presentation include forward-looking statements within the meaning of federal securities laws. We advise listeners to review the risk factors and cautionary statements in our most recent 10-Q, 10-K and earnings release for important material assumptions, expectations and factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements. We'll also reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our earnings release and in the appendix to this earnings call presentation, both of which can be found in the Investor Relations section of Dorman's website. Finally, during the Q&A portion of today's call, we ask that participants limit themselves with one question, one follow-up, and rejoin the queue if they have additional questions. With that, I'll turn the call over to Kevin. Kevin Olsen: Thanks, Alex, and good morning, everyone. Thank you for joining us today. I'll begin with a brief overview of our first quarter results and then provide commentary on the performance and key trends we're seeing across our business segments. Turning to Slide 3. We delivered solid performance in the first quarter with results that were largely in line with our expectations. Consolidated net sales were $529 million, representing an increase of 4% compared to the first quarter of last year. The year-over-year growth was primarily driven by pricing actions implemented across the business, partially offset by lower volumes compared to the exceptionally strong first quarter we experienced in 2025. Adjusted operating margin for the quarter was 12.1%, down 490 basis points compared to the prior year period. This margin performance reflects the highest levels of tariff-related costs that we expect to see in 2026. Again, due to our use of FIFO, the costs recognized in this year's first quarter are associated with the inventory we purchased last year when tariff rates peaked in the earlier stages of the tariff implementation. Similarly, the sourcing, productivity and automation initiatives that we executed over the last several months and continue to drive today are expected to support improved margin performance as we move through the balance of the year. Adjusted EBITDA margin, a new metric we've included this quarter was 15.2%, down 440 basis points compared to the same period last year. This decrease is driven by lower operating margins, as I just covered. Please see the reconciliation in our appendix for details on this metric. Adjusted diluting earnings per share for the quarter was also in line with expectations at $1.57, down approximately 22% year-over-year. As we've discussed over the last several quarters, this decline was primarily driven by higher levels of tariff-related costs that were recognized in our cost of goods sold during the quarter. Cash generation continued to improve sequentially as expected with operating cash flow in the quarter of $44 million. We also invested in opportunistic share repurchases, deploying $51 million in the quarter, a record for our company. Charles will cover this in more detail shortly. Overall, we began the year with solid performance and met our expectations. Combined with our positive outlook for the remainder of the year, we have reaffirmed our 2026 guidance. Turning to Slide 4 in our Light Duty segment. Net sales increased approximately 4% year-over-year, driven primarily by the pricing actions we undertook in 2025. Volume was lower compared to last year's first quarter, but let me highlight a few driving factors. First, this year's performance was up against a difficult comparison to last year's first quarter, where we drove exceptionally strong 14% year-over-year growth in net sales. Looking back over the last 2 years combined, we delivered 18% growth in net sales. Second, ordering patterns with the customer we discussed on our last call began to normalize during the quarter. Lastly, I'd call out that we estimate POS with our large customers was up mid-single digits in the quarter. While there was inflation embedded in that growth, we remain confident in the non-discretionary nature of our portfolio, and we'll continue to monitor the overall economic conditions of our end users and the impact that the ongoing geopolitical tensions are having on the broader economy. Operating margin performance in the quarter was consistent with our outlook as Q1 2026 reflected the highest level of tariff expense. As the ongoing benefits of our supplier diversification, productivity and automation initiatives are recognized, we expect Light Duty's margin performance to improve as the year progresses. From a market perspective, underlying Light Duty fundamentals remain positive, with vehicle miles traveled increasing year-over-year in the first quarter. Also, higher used vehicle values are impacting consumers' buying decisions, which we believe will result in extended vehicle life and support sustained aftermarket demand for repair and replacement parts. In addition, Light Duty trucks and SUVs continue to represent a growing portion of the VIO, providing further opportunity for product portfolio expansion with higher average selling prices. A good example of how our innovation strategy supports this opportunity is our OE fix air suspension compressor for a broad set of GM SUV models. This product addresses a common OEM failure mode caused by overheating, which can lead to cascading failures throughout the air suspension system. Our patent-pending design improves heat dissipation by approximately 25%, incorporates thermal protection and utilizes proprietary software to optimize performance and reliability. By delivering an upgraded repair solution designed to last longer and at an attractive aftermarket price point, products like this not only create value for installers and end users, but also reinforce Dorman's leadership in product innovation. Just an excellent job by our Light Duty team to deliver another OE fixed solution. Turning to Slide 5 in our Heavy Duty segment. Net sales increased approximately 12% compared to last year's first quarter, driven by pricing initiatives and the year-over-year impact of certain commercialization initiatives we have installed in the business. While the dollar change is relatively small, operating margin improved 110 basis points versus the prior year. I'll also point out that the lower overall margin reflects tariff-related costs that were elevated in the first quarter of 2026. With the impact that tariffs will have on our margins this year, along with the infrastructure investments we've made in the business, we're not expecting significant year-over-year incremental operating margin improvement in 2026. That said, we'll continue to appropriately manage the business in the short term while executing on our strategy to drive a significantly improved operating margin profile for Heavy Duty over the long term. On the broader sector, market conditions remain challenged. The great freight recession continued through the first quarter and geopolitical tensions created further economic uncertainty for consumer demand. As a result, near-term visibility remains limited, and we are not expecting meaningful growth in freight tonnage throughout the year. However, we continue to capture market share in certain channels such as the OE dealer network, where there has been an increased appetite for aftermarket solutions. Overall, we continue to see opportunities for growth. We remain focused on balancing our approach with cost discipline and strategic investment that will allow us to continue capitalizing on these opportunities when the market improves. As a great example, we are encouraged by the opportunity we see within our diesel aftertreatment portfolio, which we believe represents a meaningful long-term growth driver for the Heavy Duty segment. Modern diesel engines rely on diesel exhaust fluid or DEF systems to meet increasingly stringent emissions regulations. These systems are subject to high failure rates due to harsh operating conditions, temperature extremes and sensor degradation, making reliable aftermarket solutions critical for fleet uptime. Through our Dayton Parts brand, where we offer one of the most comprehensive portfolios of replacement parts for diesel after treatment, including DEF, headers and pumps. Our solutions provide plug-and-play installation and meet or exceed OE performance at an aftermarket price. These products are built with durable materials, subjected to extensive testing and incorporate best-in-class sensor technology designed for long service life. As the installed base of DEF-equipped vehicles continues to age and fleet acceptance of aftermarket solutions increase, we believe our leadership in after-treatment systems positions us exceptionally well to serve fleet customers and capture incremental share over time. Congratulations to our Dayton Parts team for bringing this opportunity to market. Turning to Slide 6 and our Specialty Vehicles segment. Net sales were flat year-over-year as pricing actions in certain categories offset slightly lower volume year-over-year. Keep in mind that from a seasonality standpoint, Q1 is typically the slowest quarter of the year. Operating margin performance was in line with our expectations, reflecting higher tariff-related costs. We're also investing in our expanded dealer network to drive more wallet share and optimize our footprint. From a market perspective, we are seeing early signs of stabilization as we enter the 2026 riding season with new vehicle sales increasing year-over-year in the first quarter. We also continue to see strong engagement with our ridership as attendance at the national UTV-ATV events remain high. Additionally, we're seeing new lower-cost entry-level vehicles entering the market that offer improved opportunities for aftermarket enhancements. One new product that illustrates this opportunity well is the power steering kit developed for the new Polaris RANGER 500 platform. As many of you know, Polaris recently introduced the RANGER 500 as a more stripped-down cost-effective utility vehicle designed to appeal to a broad customer base, including fleet users, recreational riders and first-time buyers. By design, this platform ships with more basic features, which creates an attractive opportunity for the aftermarket to enhance functionality and performance to accessories and add-on components. Power steering is a good example. While the RANGER 500 does not include power steering as standard equipment, demand for steering assist remains high, particularly among users operating in rough terrain or using the vehicle for work applications. Super ATV power steering kit provides a bolt-on solution that significantly reduces steering effort and feedback, improving control and reducing operator fatigue. This system is engineered for easier installation and features sealed input and output shafts along with water tight connectors designed to withstand harsh riding environments. Congratulations to the team at Super ATV for being the first to bring this solution to market. With that, I'll turn it over to Charles to cover our results in more detail. Charles? Charles Rayfield: Thanks, Kevin. First, let me say it's been great getting to know a number of our analysts and investors since joining the company in January, and I'm looking forward to spending more time with all of you in the future. Turning now to Slide 7. I'll walk through our consolidated financial performance for the first quarter. Total net sales for the quarter were $529 million, up 4% compared to the prior year period. The increase was primarily driven by pricing actions across our segments, partially offset by volume declines versus last year, where we had an exceptionally strong quarter from a volume standpoint. As Kevin mentioned, compared to Q1 of 2024, our 2-year net sales growth rate was a strong 18%. Adjusted gross margin was in line with our expectations of 36%, down 490 basis points compared to last year's first quarter. As the company has previously covered, our pricing initiatives have been implemented to address a range of incremental costs, including tariffs, while considering the competitive dynamic of our parts in the marketplace. This has resulted in a negative impact to our overall margin profile in the short term. That said, we expect our margin profile will meaningfully improve as the year progresses for 2 main reasons. First, as we discussed previously, this first quarter had the highest level of tariff expense we'll see in 2026, given the inventory we sold was associated with the highest level of duties that were levied in 2025. Second, we anticipate that our supplier diversification, productivity and automation initiatives will make significant contributions to our margin profile as the year moves forward. While our teams did an excellent job managing discretionary costs during the quarter, our adjusted operating income margin was 12.1%, down in conjunction with our gross margin. Adjusted diluted EPS was $1.57, driven by lower operating income, partially offset by lower interest expense and lower shares due to repurchases. Turning to Slide 8. Operating cash flow for the quarter was $44 million and free cash flow was $35 million. As you can see on this slide, our cash flow improved sequentially from Q4 2025 and has rebounded nicely from this time last year when our cash payments for tariffs peaked in the middle of 2025. I'll add that we've reduced inventory significantly year-over-year, and we remain on track to generate a more normalized level of free cash flow for the year. On the capital allocation front, we deployed more than $51 million in the quarter to retire approximately 435,000 shares at an average price of approximately $118 a share. This represented a quarterly record level of repurchases for our company and also our view that there was a dislocation in the market valuation for our stock, which prompted us to utilize our strong balance sheet to return capital to our shareholders. We currently have $408 million remaining in share repurchase authorization, which extends through 2027. Turning to Slide 9. Our long-term capital allocation strategy remains unchanged. We first review our debt levels and leverage ratios, then we deploy capital on internal initiatives as this is where we see our greatest returns. Next, we invest in M&A, which continues to be a key component of our growth strategy. Finally, we will continue to return capital to our shareholders through opportunistic share repurchases. With this consistent approach, we've deployed $1.8 billion of capital since 2020 and expect that our overall strategy will continue to drive long-term growth. Turning to Slide 10. Our balance sheet remains a significant strength for Dorman. We ended the quarter with net debt of approximately $413 million and total liquidity of $627 million. Our total net leverage ratio at the end of the quarter was 0.99x our adjusted EBITDA, demonstrating our ample flexibility to support the business, manage through tariff-related working capital demands and continue investing in strategic growth opportunities. As we highlighted on the previous slide, our target net leverage ratio is less than 2x adjusted EBITDA and approximately 3x for the 12 months following an acquisition. Turning to Slide 11. We are reaffirming our full-year 2026 guidance. We continue to expect net sales growth in the range of 7% to 9%, driven by the full-year impact of our pricing initiatives, along with a modest level of volume growth that we expect to be primarily in the back half of the year. Looking across the segments, we expect all 3 segments to directionally perform within this range. We also continue to expect adjusted operating margin to be in the range of 15% to 16% for the full-year with a more normalized high teens rate as we exit the year. Adjusted diluted EPS for 2026 is expected to be in the range of $8.10 to $8.50. This guidance includes the expected impact of tariffs enacted as of May 4, 2026. Due to uncertainty around the recovery of IEEPA tariffs previously paid, our guidance excludes any impact from the potential IEEPA tariff refunds. Additionally, our guidance does not include any potential tariff changes after May 4, 2026, future acquisitions or divestitures or additional share repurchases. Lastly, we continue to expect a full-year tax rate of approximately 23.5%. With that, I'll now turn the call back over to Kevin to conclude. Kevin? Kevin Olsen: Thanks, Charles. I'll just reiterate what we've said throughout the call. Our first quarter performance was solid and in line with our expectations. While uncertainty persists in the broader economic landscape, we remain confident in our strategic positioning, our ability to navigate near-term challenges and our long-term growth opportunities driven by innovation, operational discipline and our leadership position in the aftermarket. We appreciate your continued interest and support. With that, we'll open the call up for questions. Operator? Operator: [Operator Instructions]. Our first question comes from the line of Jeff Lake with Stephens. Jeffrey Lick: Kevin, I was wondering if you could maybe just elaborate a little more, provide a little more color as the year plays out. Obviously, this is probably one of the trickier quarters you're going to face selling the most tariff-affected inventory from last year with the FIFO and then obviously, you had the added wrinkle of the major customer disruption. I was wondering as you just think through as you step Q2, Q3, Q4, how that's going to progress? Then maybe if you could weave in anything with regards to complex electronic parts and product innovation, that would be great. Kevin Olsen: A lot there, Jeff, but let me give that a shot. Good questions. Jeff, let me start with the sales progression. You mentioned the dislocation we had with a large customer that we mentioned in the fourth quarter. I'll just comment that as we entered the quarter, we saw some dislocation continued, but as we exited the quarter, it was more normal rates and ordering patterns kind of fell more in line with the out-the-door POS sales. When you look at the overall growth rate, you got to keep in mind that last year, particularly in the first half was an extremely strong volume growth period for us. Light Duty grew 14% in the first quarter last year, so a very difficult comp. The first half of the year was up about 12% in light duty. We know that growth from a year-over-year perspective will be challenged in the first half. As we exit the back half, we're still very comfortable with our 7% to 9% full-year guide as we have a full-year of the pricing initiatives in play. We also have a lot of new business coming online as well as continued new product launches. We still feel very comfortable with that guide. In terms of the margin progression, as we've said multiple times that Q1 was going to be our most difficult quarter as the tariff rates coming through our P&L because of FIFO will be the highest. As we move through the year, those tariff rates reduce because they were the highest when they first implemented starting back in April of last year. Also, all the initiatives that we undertook since April of last year in terms of further diversification, productivity initiatives, dealing with our supplier community, those also have to go through FIFO. We have very good visibility to what that looks like going forward because of FIFO. We feel confident that we'll continue to see margin progression as we move through the quarters. As we said in the guidance, operating margin should be in that 15% to 16% for the full-year, and we expect to exit Q4 at a higher rate in the high teens area, which is kind of back to normal levels. Jeffrey Lick: Then anything further on just the complex parts and innovation? Is the environment just moving along at a linear pace? Or are you seeing it maybe step up a little more exponential? Kevin Olsen: Yes. Great question, Jeff, and I didn't address that first time through. Complex electronics in the first quarter met our expectations. It's a category that continues to -- the growth continues to outpace our overall portfolio, and we expect that to continue. We did highlight a few new products that we launched in the quarter that have complex electronics embedded in them. Yes, it's a category we're going to continue to invest in, and it will continue to grow at an outsized pace in the overall portfolio. That is our expectation. Operator: Our next question comes from the line of Scott Stember with ROTH Capital. Scott Stember: Maybe talk about the Heavy Duty. We've seen granted coming off of a low base, but we've seen a nice recovery here in sales, but the margins -- you talked about the margin recovery just really not being there for the most part for this year. Maybe just give us an idea of when you're putting through price increases for tariffs, are you able to get all of it in this segment like you are in light duty? Then maybe just talk about the level of investments that we should expect in new product development there. Kevin Olsen: Yes. Good question, Scott. I'd tell you that the tariff -- we continue to pass tariffs through in all 3 of our segments. Heavy Duty is no different. We will see early on in the process of passing through some margin dilution as we continue to -- we have to continue to be competitive where we have competitors. You just get some margin percent compression if you pass through dollar for dollar. In general, that's been our approach. We're able to recover the tariffs, but you do see some margin compression, and we did kind of call that out in the prepared remarks. Growth in the quarter was very strong, up 12%. Some of that was due to tariff pricing, but we also did see some nice share gains in the quarter. We expect that to continue. However, as we also said in our prepared remarks, we're not expecting the market to recover at this point just based on some of the freight indexes that we're looking at. We don't have any major expectation. We're going to continue to focus on taking share where we can take share and working on driving productivity initiatives throughout the business and driving new product launches and commercialization through that channel, which we've had some good success, but we still have a long road ahead of us there. Scott Stember: Then related to tariffs, a lot has changed in the first quarter with the IES going away, the 232s changing and the 122s coming in. It sounds, at least from the tenor of your comments regarding guidance that the changes there were essentially net neutral. Is that correct? Kevin Olsen: Yes, Scott, that's correct. When the IES went away, the Section 122, which is essentially 10% across the board came into play. There just wasn't a major change either way just based on how the HTS codes are applied. Most of our codes now are Section 232, whether that's the steel and aluminum tariff or the auto parts tariff on top of the 122 tariffs. Now, as everyone knows that there will be a new tariff regime coming into place when the Section 122s expire later in the summer. We don't know what that's going to look like. Our assumption is basically it's going to be roughly in the same neighborhood as it is today. Operator: Our next question comes from the line of David Lantz with Wells Fargo. David Lantz: POS for large customers grew mid-single digit in Q1, but curious if you could talk about how that trended through the quarter, what you're seeing quarter-to-date and expectation through 2026? Kevin Olsen: David, I'd say the progression was very similar of POS, up mid-single digit in the quarter. Frankly, it's been very similar to what we saw in Q3 of last year and Q4 of last year, so not a lot changed. This continues to be very solid out-the-door growth at our customers. No real change in progression. I'll say that April is very much in line with what we saw in the first quarter. To answer the second part of your question, our expectation is similar as we move through the rest of the year. David Lantz: Then considering the really healthy balance sheet, curious how you're thinking about M&A through the balance of 2026 with potential tuck-ins or geographic expansion? Kevin Olsen: Yes. I mean M&A, as we talk quite a bit about, it continues to be a large part of our strategy, our growth strategy. I would tell you that as we look at our pipeline today across all 3 segments, it continues to be very healthy. I would say that deal activity was muted or has been muted since liberation day, at least in our industry. I think we're now starting to see that loosen up a little bit as there's more understanding of the impact of tariffs on different companies, different parts of the industry. We expect deal activity to pick up as we move through 2026 and into 2027. Our strategy in terms of the segments has not changed. I mean when we look at Light Duty, we're very interested to continue to geographically expand our business there and continue to enhance our technological capabilities. In Specialty Vehicle, we continue to look to expand geographically. We also look to grow our portfolio of brands through a series of tuck-ins, still very highly fragmented space. In Heavy Duty kind of similarly where there are opportunities in the Heavy Duty market. We're a very small player in a very large market for us to enter different segments of that space via tuck-in acquisitions. Operator: Our next question comes from the line of Bret Jordan with Jefferies. Bret Jordan: On the single-digit POS, could you sort of carve out what is actual price versus units? I guess, specifically within units, could you comment on the chassis category? Did it benefit from any seasonal demand creation this winter? Kevin Olsen: Bret, I'll first answer. I mean, we don't -- historically, we've never broken out price versus units for competitive reasons. I will say, look, the POS, there is certainly inflation embedded in those numbers just based on the tariff impact across the industry. There's no question about that. I would say that it's remained relatively steady the last 3 quarters and into April. We don't specifically comment on any specific category, but I will say in regards to chassis question, look, it was a good solid year in terms of the weather. Weather, as you know, does impact certain categories more than others and undercar. -- chassis is certainly one of those. That season really starts late in the first quarter into the second quarter, and so far, we feel really good about that category. I think we had certainly a good winter with a lot of precipitation that helps that category from a growth perspective. Bret Jordan: Could you give us a sort of idea of what you paid in IEEPA last year just in case we could get a windfall out of that this year? Kevin Olsen: Yes. Look, I'll tell you that we've just started the process of recovery on IEEPA, and it's still too early to tell how everything is going to settle out and whether or not there'll be any appeals. It doesn't appear that there's going to be at this point. At this point, we're not going to disclose it because we need to work through the process, and we don't want to get ahead of ourselves because it's just such an unprecedented situation. More to come, Brett, as that plays out. Operator: Our next question comes from the line of Justin Ages with CJS Securities. Unidentified Analyst: This is Will on for Justin. A lot of my questions have been asked, but you noted light trucks and SUVs is a growing portion of prime vehicles in operation. Can you give us some more color on how that breaks down further with electric vehicles? Kevin Olsen: Well, let me just clarify for electric vehicles, are you talking about in heavy and specialty or light duty? Unidentified Analyst: Light duty. Kevin Olsen: Light Duty, yes, certainly. Light Duty right now, from a VIO perspective in North America, Light Duty is still less than 2% of the VIO, slightly larger portion of that we would consider alternative drivetrains like hybrid. The vast, vast majority is still ICE, and it's going to take a very long time for that mix to change substantially. Irregardless, we continue to be drivetrain agnostic, right? Our technologies and our capabilities can address any drivetrain. We see a lot of opportunities across the new drivetrains. Obviously, in a hybrid, there's 2 drivetrains. There's a lot more addressable content. We're comfortable with whatever drivetrain becomes prevalent in the future from a BIO perspective. Operator: Ladies and gentlemen, this concludes our Q&A session and today's conference call. We would like to thank you for your participation. You may now disconnect.
Operator: Welcome to CPI Card Group Inc.'s First Quarter 2026 Earnings Call. My name is Carrie, and I will be your conference operator today. If you are viewing on the webcast, you may advance your slides by pressing the arrow button. The call will be open for questions after the company's remarks. If you would like to enter the queue for questions, please press star then 1. If you would like to withdraw your question, press star 1 again. Now I would like to turn the call over to Mike Phillips. Please go ahead. Michael A. Salop: Thanks, operator. Welcome to CPI Card Group Inc.'s first quarter 2026 earnings webcast and conference call. Today's date is 05/05/2026, and on the call today from CPI Card Group Inc. are John D. Lowe, president and chief executive officer, and Tara Grantham, interim chief financial officer. Before we begin, I would like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see CPI Card Group Inc.'s most recent filings with the SEC. All forward-looking statements made today reflect our current expectations only. We undertake no obligation to update any statements to reflect events that occur after this call. Also, during the course of today's call, the company will be discussing one or more non-GAAP financial measures, including, but not limited to, EBITDA, adjusted EBITDA, adjusted EBITDA margin, net leverage ratio, and free cash flow. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release and slide presentation we issued this morning. Copies of today's press release as well as the presentation that accompanies this conference call and the Form 10-Q are accessible on CPI Card Group Inc.'s Investor Relations website, investor.cpicardgroup.com. On today's call, all growth rates refer to comparisons with the prior-year period unless otherwise noted. The agenda for today's call can be found on slide three. We will open the call for questions after our remarks. I will now turn the call over to John. John D. Lowe: Good morning, everyone. Overall, we are off to a solid start in 2026 and are on track to achieve our full-year outlook. We are executing on our initiatives to deliver on our strategy of growing and diversifying the business by helping our customers win as we expand our proprietary technology platform, grow our marketable base of relationships, and evolve our payment solutions to meet market needs. We exceeded our expectations in the first quarter, delivering 20% revenue growth, which reflected another strong contribution from AOI, as well as good growth across our other Secure Card Solutions businesses. This included strong performance from our contactless solutions, led by continued strength of contactless metal as we emphasize our offerings of value-driven metal solutions, and increased sales of personalization services. As expected, our Prepaid Solutions segment had a slow start to the year, but we continue to anticipate growth for the full year. Integrated Paytech grew only slightly due to comparisons with a strong prior-year quarter, and we continue to expect the segment to grow more than 15% for the full year. Adjusted EBITDA increased 9% in the quarter, and we generated strong cash flow with more than $10 million of free cash flow in the quarter. We also improved our financial position, ending the quarter with a net leverage ratio just below three times. Based on first quarter results and our current forecast, we are affirming the full-year financial outlook we provided in March. Tara will give you more details on first quarter results in a few minutes, but first, I would like to provide a brief strategic update on slide five. As I said before, we are executing on our strategy as we start 2026 and are fortunate to operate in multiple growing markets. In addition to ongoing increases in cards in circulation in the U.S. payments market, our business is supported by increased demand for digital solutions by financial institutions and an increased focus on security for prepaid cards and packages. As we discussed last quarter, our strategy is to continue providing payment technology solutions that help our customers win, driven by three primary growth pillars that underpin our value proposition. First, our proprietary technology platform with a vast reach into the U.S. payments ecosystem. Second, our marketable base of thousands of deep and broad relationships across the U.S. payments market. And third, our proven track record of delivering evolving payment solutions that reflect changing market needs. We continue to make progress on driving our strategy forward, laying more pipes to further expand our platform, expanding our marketable base of relationships, and introducing new solutions for the market. We mentioned at year-end that we had locked in a new referral agreement giving us the opportunity to significantly advance our marketable base for our Integrated Paytech segment. We are excited to share that we are actively marketing our solutions with the help of Fiserv and are seeing positive customer interest. And we continue to expand our pipes on our technology platform, creating further integrations and customer connections for our digital solutions. We have also expanded our solution set by delivering for the closed loop prepaid market, seeing strong closed loop revenue growth from Q4 2025 in the first quarter. And we continue to explore the viability of chip-embedded cards in the U.S. prepaid market, advancing our extensive pilot with a large national retailer testing Card Safe-to-Buy technology. We believe our strategic efforts and investments will continue to drive long-term growth, expanding our addressable markets and providing the solutions needed by the market as it continues to evolve, creating value for our company and our shareholders. We will continue to update you on progress throughout the year, but now I would like to turn the call over to Tara to take you through the first quarter results in more detail. Tara? Tara Grantham: Thanks, John. I will begin with the segment results on slide seven. Overall, as John said, we are pleased with our first quarter performance. First quarter revenue increased 20% to $147 million, led by our Secure Card Solutions segment. Secure Card Solutions revenue increased 35%, which included a $16 million contribution from ArrowEye. As John mentioned, we experienced strength across this segment in the first quarter with good growth from our contactless solutions and personalization services. Our Prepaid Solutions segment declined 17% in the first quarter, reflecting timing of orders from key customers, with the first quarter decline partially offset by better-than-expected incremental sales of closed loop cards. Integrated Paytech increased 1% in the quarter due to comparisons with a strong prior year while we maintained strong gross margins at over 55%. As John said, we still expect to grow revenue in this segment by more than 15% in 2026. Turning to profitability on slide eight, first quarter net income declined by 57% to $2.1 million, primarily affected by $3 million of pretax integration costs, while adjusted EBITDA increased 9%, driven by sales growth including the addition of AOI. Integration costs were high in Q1, and we expect them to remain at similar levels in Q2 but drop significantly in the second half of the year. Our 2026 integration costs are meant to drive revenue synergies and lower operating costs and primarily result from go-to-market spending, technology investments, and certain vendor termination fees as we drive operating synergies. As a reminder, integration costs are not included in adjusted EBITDA but do impact net income. Gross profit margin declined from 33.2% to 30%, affected by lower sales and margins in our Prepaid segment and increased production costs including tariffs and depreciation, partially offset by benefits from increased sales from Secure Card Solutions. Production costs in the quarter compared to prior year included $2 million of increased depreciation primarily related to ArrowEye and the new Secure Card production facility and $1.2 million of tariff expenses. We expect Prepaid margins to improve in the second quarter with higher revenue levels, and we also expect overall company gross margins to be much stronger in the second half of the year. Margin comparisons with prior year should also improve going forward as ArrowEye depreciation and tariff primarily began impacting results in 2025. Overall, we anticipate full-year gross margins to be relatively consistent with prior-year levels. We have multiple initiatives in place to drive margin improvement over time, including targeted supplier negotiations, automation investments, production optimization across our sites, driving more favorable product mix, and achievement of ArrowEye synergies. We are also managing discretionary spending and driving operational efficiencies as volume increases, including in our new Indiana production facility, where we expect volumes this year to be 30% higher than 2024 levels in our old production facility. First quarter SG&A expenses increased $6.5 million from the prior year, primarily due to ArrowEye integration costs, the inclusion of ArrowEye operating expenses, increased employee performance-based incentive compensation, increased severance, and higher technology spending. Investment spending was less than anticipated in the first quarter, and we expect that to ramp over the remainder of the year beginning in the second quarter. Turning to slide nine, we had strong cash flow generation in the first quarter. Our cash flow generated from operating activities for the quarter increased from $5.6 million last year to $13.6 million, driven by strong working capital management. Free cash flow increased from $300,000 in the prior year to $10.1 million in 2026. We spent $3.5 million on CapEx in the quarter compared to $5.3 million in the prior year, although we still anticipate full-year capital spending to be similar to 2025 levels, with increased focus on technology spending. On the balance sheet, at quarter-end, we had $19 million of cash, $15 million of borrowings on our ABL revolver, and $265 million of senior notes outstanding. Turning to our 2026 financial outlook on slide 10, we are affirming the full-year outlook provided in March. This includes high single-digit revenue growth, low- to mid-single-digit adjusted EBITDA growth, free cash flow conversion at similar levels to 2025, and a year-end net leverage ratio between 2.5x and 3.0x. We expect Q2 revenue to be similar to Q1 levels, with adjusted EBITDA expected to be slightly lower than the prior year due to timing of investment spending, including some spending that was delayed from the first quarter. I will now turn the call back to John for some closing remarks. John D. Lowe: Thanks, Sarah. Turning to slide 11 to summarize before we open the call for Q&A. We are executing on our strategy with a better-than-expected start of the year. The segment trends are largely as we anticipated, and we are on track to achieve our full-year outlook. We also generated strong cash flow and brought net leverage back down to just below three times after the temporary increases following last year's ROI acquisition. We intend to continue growing and diversifying our business, leveraging our expanding proprietary technology platform, our extensive marketable base, and our evolving portfolio of payment solutions to meet market needs, drive growth, and enable our customers to win. Operator? We will now open the call for questions. Operator: Thank you. We will now open the call for any questions. If you would like to ask a question, please press star then 1. If you would like to withdraw your question, press star 1 again. Your first question will come from Peter James Heckmann with D.A. Davidson. Peter James Heckmann: Hey, good morning. Thanks for taking my question. In terms of thinking about Instant Issuance, Card@Once solutions, you did not mention it in the prepared remarks, but what are you thinking for this year in terms of base business as well as some of the tangential areas that you have expanded into over the last fifteen months? John D. Lowe: Yeah. Pete, good morning. We are excited about Instant Issuance. It is a great platform for us. Just as a reminder, it is a software-as-a-service platform. We built it from the ground up. It took us, you know, ten-plus years to build it, especially all the integrations into what we refer to as the payments ecosystem that we service. So we have thousands of customers across the U.S., and we expect that to be a large chunk of the growth out of our Integrated Paytech segment for 2026, growing that segment from an outlook perspective greater than 15%. I think the Fiserv deal we announced helps us grow. And just on the breakout between Instant Issuance and everything digital — I will say digital — we are essentially building the business there. It is small in relation to the rest of the business, but we are seeing strong customer demand, a good pipeline, and we continue to build out the pipes and integrations, if you will, to continue to service multiple areas of the market. So we are excited about what we are doing in Instant Issuance, but broadly in digital too. Peter James Heckmann: Okay. Great. And then just in terms of contactless, where do you think we are in terms of contactless cards? I have not seen recently any information that would suggest what percentage of cards out today have a contactless chip embedded. John D. Lowe: Good question. What we produce today is 90% plus contactless. So, you know, we used to use the baseball analogy. I would say we are in the very late innings of the transition. That is on the debit and credit side. I would say on the prepaid side of our business, there is a lot of opportunity. The volumes within prepaid broadly, when including open loop and closed loop, are somewhat greater on an annual basis than even the debit and credit side in terms of what is produced. So to the extent that that market starts to move more towards chip, it starts to move specifically towards contactless — which is what we are doing with Carta and what we are doing with a large national retailer, where we have a pilot underway, which we are having positive kind of movement on, if you will. If that market continues to move towards chip and grows, we will see a long transition there. It is what we would expect, and we would be in a unique position to capitalize on that transition. So on the debit and credit side of your question, I think we are late innings; we are pretty much fully penetrated, but I think there is a lot of opportunity on the prepaid side. Peter James Heckmann: Got it. I appreciate it. I will get back in the queue. John D. Lowe: Yep. Thanks, Pete. Operator: Your next question comes from Jacob Michael Stephan with Lake Street Capital Markets. Jacob Michael Stephan: Hey, guys. Good morning. Nice quarter. I just wanted to ask on the Fiserv relationship. It seems like that was expanded a little bit. Maybe you could touch on some of the things and ways that it was different from the past contract with them, or agreement. And then maybe touching on the supply chain a little bit — last year about this time we were talking a lot about tariffs. From a supply chain perspective and chip tightness, what are you seeing out there in the market today? And lastly, you are kind of expecting a bigger ramp in the second half from the Integrated Paytech segment. What are going to be the main drivers of that growth in Paytech? John D. Lowe: Yeah. No. Jacob, I think the main difference is we call out their name. We had entered into this agreement around year-end, so we mentioned an agreement at year-end, but we just did not call out Fiserv's name. I would say getting marketing teams together to finalize documents takes a long time, but the agreement is in place. We are excited about it. We are seeing positive customer interest in Q1, kind of ramping up, if you will, and Fiserv is a great partner. We love working with them. They have thousands of customers across the United States that we have worked with them to build good relationships with and make sure we are helping our customers win and helping their customers win at the same time. On supply chain, broadly I would say it has normalized, and I think that is credit to not only the teams that we put in place to manage it that continue to focus on how to manage things well, especially today in light of the Iran war. That is another kind of thing to tackle from a cost perspective, although that is not significant, I would say. But tariffs are something we had to work through from a supply chain perspective. I would say tariffs have somewhat normalized as well. But we are — just to get ahead of your probably next question — we are expecting refunds on tariffs. But we do not necessarily have a timing aspect to that. We hope to see them at one point, but as I tell my team, I will believe it when I see it. Put it that way. On the second-half ramp in Integrated Paytech, a lot of it is in relation to the deal that we signed with Fiserv. That is a chunk of it. Another chunk is just the growth in the business as it stands. Last year, it grew roughly at a 20% rate. If we look back over time, it has been growing at a faster pace generally than the rest of the business, and that is because we have a unique value proposition in the market. I am talking about our Instant Issuance solution specifically. On the digital side of the house, that is an area that is growing even faster. Now you are talking about smaller dollars — so it is smaller dollars growing — but at the same time, that is an area we continue to see just a large amount of interest in, and we are trying to build out that business as quickly as we can to support that large customer interest. So it is our Instant Issuance solution growth, which we have seen historically be pretty strong — we are confident in that, especially in light of the new deal — and digital growing just given what we are seeing in the market and the customer demand. Jacob Michael Stephan: Got it. Very helpful. Appreciate it. Thank you. John D. Lowe: Yep. Thank you. Operator: Your final question will come from Craig Irwin with ROTH Capital Partners. John D. Lowe: Hey, Craig. We cannot hear you. Craig Irwin: Thank you. Sorry about that. Can you hear me now? John D. Lowe: Yes, we can. Okay. Perfect. Good morning. Craig Irwin: Good morning. So can you help us unpack the comments around Indiana, the 30% increase in volume? Is this something novel in the last quarter? Did something materially change there? And then with 30% higher volumes, this clearly is not translating to the top line. Is there a mix issue or price erosion or something like that impacting the contribution to revenue growth and, obviously, profit growth if the revenue is not following? Any color there would be helpful. John D. Lowe: Yeah. Craig, good question. The reason that we shared that number specifically is it is an indicator as we have kind of come to the end of building out Indiana. You know, just a step back, it took about a year plus to build. The team in Indiana has done a great job. We essentially had nearly zero customer complaints as we were transitioning. And the reason for the growth in volume disclosure is really the fact that we could not have done what we were doing in our old facility. We were at capacity. If you go back two, three years — in 2022, as an example, when the market was insatiable in a sense — we were busting the team. So there were multiple reasons to move, but I think moving has been a large success for us. And I think your question about margins — there is depreciation on ROI. There are tariffs that have come up. Those types of things have affected our margins. There is always a competitive pricing market, but I would not say the pricing is irrational. I would say that overall, from a margin perspective, we have definitely had some impacts, but nothing that has created an irrational pricing market. I do not know. Derek, you would provide any other comments. Tara Grantham: Yes. So I would just say that we did grow pretty strongly in our overall Secure Card Solutions space, up 35% overall, and then from an organic basis, we did grow 15%, so we did get strong top line growth in that solution, and that was in part driven by contactless growth across our Secure Card Solutions. So, related to that, as John said, we did get operating leverage based on that growth. It was offset by things like tariffs as well as the higher depreciation across the business related to our new Indiana facility as well as related to the acquisition of ARY. John D. Lowe: Craig, one thing I would add, though, we do expect our overall gross margins — they are somewhat stabilized. Right? So we would expect them to be somewhat stable over the course of the year, if not increasing. Tara and team are doing a good job driving a lot of margin improvement goals. So between that and the growth of the business and the leverage we expect to get, I know we have had a lot of impacts over the last year and a half, two years, but we do expect margins — not only on a gross margin basis, but on an EBITDA basis — to improve over the course of the year. We expect this year, similar to last year, fourth quarter to be our biggest quarter. And so think of Q1 as kind of a starting point for the year, if you will. Craig Irwin: Understood. That makes sense. So then, ROI — I will admit, I was a little surprised to see the increased integration expenses this quarter. I thought that you were a long way down the path of already integrating that. Can you maybe give us some detail around the actions that are being completed right now? What did you complete over the last couple of months? Strategically, I thought that you might be actually adding a little bit more CapEx for ROI and focusing on the growth of that platform, given that personalization really is such an exciting opportunity. John D. Lowe: Yeah. I mean, I would say the integration costs we are spending now are really in two big areas. One is technology, and one is go to market. And when we look at ROI and its position in the market specifically, when we look at our broader solutions that we provide outside of Airline, we see a lot of revenue synergies. Airline signed, even in their first deal — I mean, 10 plus deals — and we have not owned them, I mean, since essentially one year ago from now. So we have seen really strong progress in terms of AirWise performance on a revenue basis. And the other side that we are spending on is operating synergies, trying to make sure that the way that we operate on the floor is — I would not call fully integrated, but essentially aligned with everything we are doing on a broader basis, which ultimately means we get purchasing power, things of that nature. So there were some termination fees from a vendor perspective as we transition vendors. Things of that nature pop up, and unfortunately they are not small. But we do expect integration to drop off in the second half of the year. We expect a little bit in Q2 — that will continue — but in the second half of the year, you should see that drop off dramatically. Craig Irwin: Thank you for that. I will take the rest of my questions offline. John D. Lowe: Thanks, Greg. Operator: Your next question will come from Harold Lee Goetsch with B. Riley Securities. Harold Lee Goetsch: Hey. Thanks for taking my question. On the Prepaid statement, it was said it was down 17% in the quarter. Can you give us some of the friction points? And again, were there some maybe significant nonrecurring customer revenues that came in 2025 and before that that are at least driving these declines? Or is the channel rather full right now and we are working through channel inventories? And is organic growth through the channel slower than expected? Thanks. John D. Lowe: Yeah. Hal, on the Prepaid side, just as a reminder, the whole business and the market in general — think of on the open loop side — we have leading market share. We are positioned really well, especially if that market starts moving towards chip. And so if you think about the broader market and our customers, they are trying to determine, based upon not only regulatory demands, but just customer demands, how do you increase security around the package itself? You can do that in two ways. You can increase the actual security around the package itself, or you can put a chip in the prepaid card itself. And that is why we are working with Carta. That is the pilot we are working with the large national retailer on. And because of that kind of testing and transition that we ultimately do expect to occur over a long period of time, we are seeing the normal-course open loop market be weaker. And we knew coming into the year this would be a slow start to the year. We are hearing that from our customers on the Prepaid side. That is because we believe from a longer-term transition perspective the value of the market is going to grow, and we are well positioned to capitalize on that. The other side on Prepaid is the closed loop side of the business, and that actually has performed very well for us. It is fairly small today, but we had pretty strong growth over Q4 of last year in Q1. And so we are excited about where the Prepaid business is going, but it is definitely a weaker quarter for us. And you can see this in the Prepaid financials. That business gains a significant amount of operating leverage as it grows, and you saw the opposite in Q1, and that brought down broader margins. Tara Grantham: Yeah. Just a reminder that we do expect good growth across our segments this year, including in Prepaid. So even though it was down in Q1, we do expect better growth throughout the year. And just looking back, still very confident in that business. Look back to 2024, we did grow that business 26%. And even though we were down last year, we were only down 3% once you adjusted for the accounting change that we made in Q2. So I do expect that return to growth as well as the increase in gross margins throughout the year. John D. Lowe: Okay. Thank you very much. Thanks, Hal. Operator: And there are no questions in the queue. I would like to turn the call back over to John D. Lowe for any closing remarks. John D. Lowe: Thank you to all of our CPI Card Group Inc. employees for their dedication and for continuing to deliver for CPI Card Group Inc. and our customers. Tara Grantham: Thank you all for joining our call this morning, and we hope you have a great day. Operator: Thank you for your participation. This does conclude today's conference. You may now disconnect.
Christian Gjerde: Good morning, and welcome, everybody, to this first quarter results presentation for Elopak. My name is Christian Gjerde, and I'm the Head of Treasury and Investor Relations. Today's presentation will be held by our CEO, Thomas Kormendi; and our CFO, Bent Axelsen, and will last for around 30 minutes, followed by a Q&A session, where we will take questions from the people here in the audience as well as the people joining us online. So with that short introduction, over to you, Thomas. Thomas Kormendi: Thank you, Christian, and a warm welcome to all of you here on the beautiful, beautiful spring day in Oslo. It's really great to see so many of you here in person. So Q1 let's get started. As you know, some of you will know, just 2 words on who we are. We are actually in the business of sustainable packaging. All we do, the only thing we do is fiber-based packaging. We do that with protecting essential commodities, not the least dairy products, but also other products such as juices, soups. And in all of this work, we are committed to reducing the use of plastics. So Q1, what -- let's look at the performance here. Well, first of all, we report a revenue pretty much stable in terms of -- stable when you look at the constant currency. We're reporting a 3.9% decline. But on constant currency, given the exchange rate primarily in U.S., we're looking at a stable development. Secondly, as you know, and some of you who have followed us, we've had a strong -- very, very strong development in Americas. And actually, our development in the U.S., in the Americas continues with 6% growth on a constant currency basis and also another strong quarter for Little Rock. Little Rock as you recall, that we started up last year in April, and that has now onboarded more and more customers in Line 1. So although we have seen and we have reported earlier, somewhat slower onboarding of our customers. And when I say onboarding, it's not about acquiring customers, but it's about onboarding their designs, onboarding their materials. That has been somewhat slower. We still remain absolutely confident in the midterm targets related to Americas. Second -- thirdly, the EBITDA. We came in at EUR 41 million, which corresponds to around just short of 14%. And we also came in at an earnings per share slightly above the previous -- the year-on-year quarter last time. What we also see, even though we have also during this last quarter, invested quite heavily in the expansion in Americas, we still come in at a very solid 2.2 leverage ratio, which is actually slightly impacted as well by the currency impact of Americas. Very importantly, of course, and I'm coming back to that in a little bit broader sense. But as everyone around us know, we have a turbulent world around us, particularly in the Middle East. It does impact a lot of the raw materials, including our raw materials. And it does have a cost impact on our side as well. I will come back to some of the mitigating effects that we are addressing this with in the coming slides. Now on the revenue. As I said, revenue overall stable, although we report a EUR 12 million lower revenue. This is primarily related to the commissioning of filling machines. And as you may remember from Q4, where we reported a very strong filling machine commissioning, the commissioning of filling machines is not a linear curve. It will vary a little bit between the quarters. If you look at the EBITDA, you could -- there is a decline of EUR 3.6 million versus same period last year. However, EUR 2.5 million of this relates entirely to currency impact from the U.S. dollar. And the remainder as well as the impact that we've had in this period relates to some one-off effects that we've had. We've also seen a tough margin pressure in India, including pressure on margin, pressure on volume. And we have also front-loaded some of the strategic initiatives that we have taken already in Q1. So all of that impacts the EBITDA for this period. Now we have also initiated a program and some of those initiatives have already taken place. During this quarter, we have had restructuring effects in the likes of EUR 1.3 million, which is part of the program of reducing our -- addressing our costs, and these will have been adjusted in the EBITDA from Q1. Back to the Middle East and the extraordinary cost impact. Now everybody in the world now knows where Hormuz Strait is, very exactly where it is. Everybody knows what the impact is beyond just the surrounding countries. What you see in our world is a very significant increase in LDPE. On the slide, you will see that the LDPE increase is around 160%, which is, by the way, a picture we -- some of us will recognize from '22, where we saw raw materials explode as well, not the least on the plastic side, but also aluminum foil and other raw materials in general. We are now seeing the increase, right? And what we have done is that we have, of course, addressed these increases by implementing and introducing extraordinary surcharges on the pricing side towards our customers, given the price -- the cost pressure that we are seeing. These have been introduced. They are being implemented as we speak. And they are, of course, related to an existing price level on LDPE, on polyethylene, on naphtha, but also an expected development. So this carries a certain uncertainty because none of us know exactly how this develops. So what we have introduced is a mechanism that will allow for this kind of uncertainty. And it also brings me to the strategy of Elopak. And we remain absolutely committed and confident in our strategy that consists of these 3 pillars. The global growth, as we know, is not the least related to America, which is the big growth driver we have. We have Little Rock up and running. Little Rock is accretive. Little Rock is producing in high volumes. Little Rock is producing in multiple shifts in Line 1. We are establishing Line 2 as we speak, and we have already agreed and announced that we will do Line 3 as well. Little Rock is the foundation or rather Americas is the foundation of the realizing global growth. But beyond that, it's also India, and it's also MENA, where we are now working as well as we have announced earlier on expanding our portfolio, getting more aseptic products in, getting more ESL long extended shelf-life products in. The second one is the leadership in the core. And as we have talked about earlier, we have a strong position in chilled fresh business in Europe, and we continue to build that with a number of initiatives related around sustainability, related around the PPWR, et cetera. But the third one is the one that I'd like just to spend a little bit of time on because the third one relates to the plastic to carton conversion. And of course, in times that we see now, right, LDPE increasing off the roof, we see that competitive solutions such as PET will have increased by 60% for a PET bottle with the impact of LDPE. So while -- actually, while clearly, it impacts everyone in packaging with rising raw materials, the situation we see now is that primarily the impact will relate to the plastics products, which will, at some point, potentially improve the understanding among customers, among retailers that the carton packaging in a much, much wider sense than what we have now creates stability in cost, creates a much better transparency in cost and is a an alternative not only for sustainability reasons, but also for cost reasons when it comes to packaging other products than just milk and juice. And that is what we do in the third box, leveraging the plastic replacement because this is the area where we work with the nonfood products. This is the area where we work with alternatives to plastics, which can be very closely related to our business or a little bit further related, where we can utilize our strong know-how in liquid products, in filling of liquid and semi-liquid products. So in short, the current development poses a certain amount of challenges for anyone in any industry, primarily because it's uncertain what comes out of the ongoing conflict, but particularly for the carton industry and for packaging in our case, it does also provide the understanding, the certainty among customers that carton actually provides a whole range of advantages in their cost portfolio and their product portfolio beyond the fact that it is the most sustainable solution. And with that, I think I will hand over to you, Bent. Bent K. Axelsen: Thank you, Thomas. Before we dive into the numbers, I would like to address 2 changes that we have done to how we report our figures. The first thing that we are doing is that we are moving the R&D activities and associated corporate activities from the EMEA segment to what we call other and elimination, simply because this unit is serving both segments, not only EMEA. So this will improve the comparability and clarity when we are reviewing the relative performance between EMEA and America. The second change that we are doing is reflecting an adjustment to our operating model where the aftermarket services and spares part are now run by the local regions together with the blanks, together with the closures. Today, or in the previous reporting regime, all these financials were reported in EMEA. Now the America part of these financials will now be reported in the Americas segment because these are services and spare parts sold to the American market. So we think this is a logical change. The 2025 figures are reclassified in this report, and there is more information in this presentation file and in the report. So let's start with the EMEA segment. In EMEA, we are reporting stable volumes with results impacted by one-off effects and timing effects related to filling machines. The revenues are EUR 208 million, down 7% from last year. If we look into this reduction of EUR 16.5 million, EUR 6 million is related to timing of filling machines sold by EMEA to external customers, while EUR 9 million is related to reduced sales from EMEA to Americas internal sales. So altogether, EUR 15 million is basically timing related to filling machines. If we go then to the carton and closure revenues, they are moderately down compared to last year, and that is a result of a negative mix impact, which I will dive into. The Pure-Pak volumes, they are stable in the EMEA segment. What you see here is that there is a decline in the aseptic juice segment. This is what we have reported before. It's a result of the consumer preferences combined with the very high citrus prices that we have observed for the last year. These products are -- we have attractive margins. We have growth in other segments in UHT milk, but they are sold at a lower price point compared to aseptic juice. We see year-over-year growth in MENA, driven by growth in North African markets and we also see growth of closures as we are growing with customers that both buy our blanks and our closures together. If we look at Roll Fed, we are happy to report that we are growing the Roll Fed volumes again after several quarters with decline. This comes from onboarding of customers in Poland. But as you know, the pricing points on the margin for Roll Fed is lower compared to Pure-Pak. So it's not enough to compensate fully. In contrast, in India, we are reporting a volume decline in Roll Fed year-over-year. And we are also having, as we reported before, a pressure on margin. The revenue decline is around 13% on a constant currency basis, 26% reported. So that is related to the weakening of the rupee. So as we have reported before, the supply-demand balance is pressured in India. And in this quarter, we saw, particularly in January, February, this also impacting our volume development. If we move to EBITDA, we are reporting EUR 36 million, down from EUR 40.7 million. The margin is 17.4%. This contains EUR 1.8 million one-off related to an operational matter. It also is a result of the mix effect that I talked about for Pure-Pak versus Roll Fed, but also the fact that India remains margin dilutive, and we also see the absolute impact as the results are down in India year-over-year. If we move to America, we are reporting around EUR 95 million. As Thomas explained, it's a 6% growth on a constant currency basis, but a decline of 4% because of the weakening of the U.S. dollar. The revenue growth is below our earlier expectations due to the weaker demand for plant-based which is important for our growth in America. We are seeing consumption patterns changing into lactose-free milk, other dairy products, and there's also concern related to cost inflation. We are working very actively to fill that shortfall with other types of business in the quarters to come. In addition, the quarter was impacted by destocking among our customers. In Q4, some of our customers were building inventory in Q4, and they're now taking the stock down to normal level, and that also impacted the top line in the first quarter. Finally, on the revenue side, we also have a timing effect of filling machines in America with a decline of EUR 5 million for the quarter. If we look at profitability, the EBITDA was EUR 21 million, up from EUR 19.7 million, and the margin is improving to 22%, as you can see. And this comes from the improved production output of Little Rock and with the operational leverage that we get from that ramp-up. And we also would like to remind that 1 year ago, we had negative results of Little Rock because we have pre-start-up costs in that quarter. The share on net income is EUR 2 million compared to EUR 2.5 million last year, and that is solely driven by the weakening of the Dominican peso against the dollar, while the underlying performance remained stable. And as Thomas explained, we have -- the U.S. dollar has significantly weakened year-over-year and in America results that is measured in euro, that is EUR 2.4 million down. That wraps up America. So let's look at the bridge from EUR 44.6 million to EUR 41 million. Here, the American development and the margin accretive development in America continues to be the most important growth driver for the company. We see -- in Europe, we see the negative effect because of the negative mix effect with less juice cartons and more Roll Fed, but also the impact from the result decline in India. Raw materials are largely stable. Behind that number, we have higher board cost as per our contracts. We see higher other prices, but lower PE prices giving this number. In this quarter, our raw materials are not significantly affected by the conflict in Iran. But as Thomas explained, we expect these costs to affect the Q2 cost base and also onwards. On the operational costs, we have the EUR 1.8 million one-off effects and the rest is related to the wanted increase in R&D is related to inflation is related to the onboarding -- sorry, the frontloading of strategic initiatives in the quarter. The JV results, we have addressed and it comes to the FX combined for the group, that's EUR 2.5 million. And I just want to reiterate the fact that in Americas, we are running this as a U.S. dollar business with dollar revenues and dollar raw material base. If we look at the underlying result, if it adjusts for the one-off, the margin is -- would then have been around 14.4% for the quarter, so in line with the same quarter last year. Let's move to the cash flow. So the -- if we look just starting at the net debt, that is increasing by EUR 21.6 million. The main contributor to that is actually the strengthening of the NOK against the euro that gives a loss on our green bonds. What is important to remember is that this is mitigated by our cross-currency swaps, but we don't report the positive gains, the gains from the currency swaps in our net debt. So that is EUR 16 million. If you start to continue with the cash flow from operations, we are reporting around EUR 20 million based on an EBITDA of EUR 41 million. We have taxes paid of EUR 4 million, and we are also reversing the accounting results from the joint ventures to get to the EUR 20 million. When it comes to cash flow from investing activities, that is around EUR 12 million. This is based on the continued expansion in Little Rock and also the normal maintenance programs, also the replacement of equipment in Europe. Maybe one more thing before I move on to the next element is to come back to working capital because I jumped that, that is EUR 14 million negative effect, and that can be split into 2 factors. It's the timing. EUR 17 million worsening is related to settlement of account payables for our filling machines. So that is really a one-off because we are settling machines that we have commissioned some time ago. Structurally, we see a reduction of inventory around EUR 5 million. This is a result of the structural work that we are doing to improve the inventory turnover. Now what we would like to say is that this reduction is a little bit more than what we think is sustainable. So we expect some moderate increase of the inventory to get back to normal levels. Filling machine inventories also went down following the sales in the quarter. Now we are ready to go to the cash flow from financing and loan payments, which is minus EUR 14 million. That is included in the lease payments, the interest payments and also purchase of treasury shares. This brings us then, including the FX effect to EUR 286 million net debt. The leverage ratio is 2.2 compared to 2 at the end of the previous quarter. This is following this, I would say, the technical increase of the net debt bringing by the FX effects, but also the continued investment in the U.S. plant. The ROCE declined by 0.6, and that is a result of a lower last 12 months adjusted EBIT. And the capital employed actually is now stabilized since year-end. The accumulated investment in the U.S. plant is $106 million, and we have around $22 million to go to get -- that will take us to the full 3 lines in Little Rock. Let's -- before I give the word back to Thomas, let's just address how we think about the -- where the quarter is ending to compared to what you would have expected. So as you know, we are not guiding individual quarters in Elopak. But if you go to our Q4 earnings release, we said that we would deliver on our midterm targets. So if you convert that into implied Q1 guiding, that could be an expectation of EUR 50 million and versus a reported adjusted EBITDA of EUR 41 million. This gap is 50-50 between structural market implications, market effects and one-offs. Within the 50% market effects, 30% is Americas, 10% is Europe and MENA and 10% is India approximately. And the remaining 50% is related to the phasing of filling machines and phasing of fixed costs and also one-offs. In addition to the price increases that Thomas was talking about, we are obviously working with our cost base to delay and reduce spend where it makes sense without jeopardizing our long-term value creation. With that, this concludes the financial section. So back to you, Thomas. Thomas Kormendi: Thank you, Bent. And so overall, I think it's fair to say that we have seen somewhat softer market conditions generally in Q1 than what we've seen earlier. And one of the impacts that Bent just mentioned was, of course, the plant-based, which is a significant business in U.S. and part of the growth that we are looking for in U.S. What we also see, and that is very important for us is to say the ongoing crisis, ongoing situation in the Middle East causes extraordinary cost increases in all industries, including ours, and we are now mitigating this with price increases, in fact. We call it surcharges, but it is higher prices to compensate for this. We are seeing that, but we are also doing, as Bent explained, the other side of the -- whatever it's called, but we're also looking at our own cost base and at the same time, taking some steps to ensure that we are adapting and keeping our costs at bay in times like these. I think also, though, it's very, very important to remember, and for those of you who were with us from the IPO, where we had a year of '22 with increasing costs, with increasing a lot of turmoil, this is a resilient business. This is a business of basic food, basic food stuff that people need. So even if we have ups and downs as we do have, like any other industry, we are in a very resilient world. And the demand for our kind of products will continue even when economies around the world and including the -- our part of the world will be more or less constrained through consumer spending. So what we are saying is despite this volatile political -- geopolitical situation that we're in and with all the potential impact, we expect to continuously also improve from Q2 and onwards, our results in a moderate and gradual way. That is how we look at the year and that is how we are going to address the year and the cost situation that we experienced thing. So with this, I'd like to thank from my side and hand over to you, Christian, please. Christian Gjerde: Thank you, Thomas. Thank you, Bent. So with that, we will move to Q&A, starting with the people here in the audience first. So if you raise your hand, I will come out with a mic. Please state your full name, the company that you represent and make sure to speak into the microphone. Elliott Geoffrey Jones: Elliott Jones from Danske Bank. Just firstly, you mentioned some plastics prices up 60%. Obviously, it's a near-term headwind to you guys. But I'm just wondering your -- some of your plastic competition. Is this something that customers have started talking about that you're hearing? And is that something you can capitalize on kind of longer term? Thomas Kormendi: So what I did say is that PET in specifics, you would look at the cost of a PET bottle will have increased about 60%. If you look at the LDPE that is being used in our carton as well, we're looking at, as you saw on the slide, somewhere around 160% cost increase, really, really, really significant. So what you typically see in the industry and many of our customers will have a mix of plastics and cartons, right? So what -- and they will, depending on where they are, provide private label and/or their own brands. The decision they make then is what kind of format am I using? If it's a brand, you don't easily change from one format to the next for all the obvious reasons. But what does happen in times like this is that the consideration is what is the right format moving forward is much more relevant when it comes to costs as well as sustainability. We have been very clear that from a sustainability point of view, the carton solution is the absolute superior solution versus plastics, both from a renewability point of view, from a CO2 point of view and also eventually, as we move on, you'll see it from a recycling point of view. Now what we are seeing then here is that with the insecurity that is created in PE pricing, when you are a customer, when you are a retailer, you're going to look -- you are looking now at carton saying, this creates a stability, it creates transparency. It creates a predictability in cost that plastics cannot guarantee because it's all about the oil price. It doesn't mean, though, short term that everyone changes into carton sadly. But that's not going to happen because of equipment, because of industrial production, et cetera. So these take time, but it's very, very important in the longer perspective and very important for the new areas that we're discussing where the consideration should we -- should we not suddenly tilt hopefully more towards, yes, we should go carton. Elliott Geoffrey Jones: And then just 2 more quick ones. Just on the Americas segment, you talked about this being affected by developments in plant-based. Can you kind of provide more color as to how that could affect maybe your medium-term growth targets in the Americas? Would that kind of delay the pathway to 100% utilization rates in the lines that you've announced? Or do you see it easy to kind of replace those volumes near term? Thomas Kormendi: I would never use the word easy, right? But I think what is very important is we commit to our midterm targets for Americas. That is the simple story. And we are absolutely convinced with the plans we have in place that we are going to deliver on this midterm target. Remember, that's EUR 480 million calculated on the exchange rate --. Bent K. Axelsen: At that time... Thomas Kormendi: At that time, right? So we don't know what happens to exchange rate, obviously. But that plan stands, will be delivered accordingly. Elliott Geoffrey Jones: Got it. And then just on the EMEA mix effect. Am I right in thinking that it's not obviously an easy fix in terms of reversing that in Q2? Should we expect that kind of mix effect to continue maybe in the next few quarters? Bent K. Axelsen: So when it comes to the juice development, that is a trend that we have reported for quite a few quarters. So we expect that trend to continue. It depends a little bit on the citrus prices. So I think we need to distinguish between the consumer preferences and focusing on sugar versus the cost of juice because of the citrus prices and the diseases that have been worse in recent years, Yellow Dragon disease, I think it's the name, and that has reduced the supply of citrus. So that is not a quick fix at all. When it comes to the Roll Fed business in the Europe, we have then finally been able to grow that business after several quarters with decline. Some of that decline was related to the cap regime back in the days, I think it was 1st of July 2024, which is more of a one-off, and there also have been increased pricing competition. What's going to happen to the Roll Fed business where we are able to continue to grow that business? It depends on the whole raw material situation and the whole Iran conflict because it's -- Roll Fed is the most competitive product group that we have in Elopak. So yes, to juice on Roll Fed, we will wait and see before we can call it a positive trend. We need some more quarters in the bank. Ole-Petter Sjøvold: Ole-Petter Sjøvold, SpareBank 1 Markets. So first, a question on the contracts for Little Rock. I mean, as we understand it, it's no take-or-pay, but it's when the customers take materially lower volumes, the price could be up to negotiation. So could you give some insight into this? And could we potentially then see some sort of compensation later this year that should relate to Q1? Thomas Kormendi: It's a little bit difficult to answer, but if you take the mechanics in this, right, the way we normally do this, and we have, of course, some very, very big customers around the world, including U.S. These customers will say to us, look, we would like to -- we would like you, please, to produce X amount of volume, and we will then agree a price on that volume. When they make that commitment, which is a commitment, it doesn't necessarily mean that if you do something less, then there is a compensation. There are -- we also have those models, I have to say. But in the bigger context, it is much more of, I say, can you fill our needs. So what would typically happen is after a while, if that volume is not -- we're not seeing the volume coming for different reasons. Typically, one reason is they have more stock than what they thought, honestly. You would think they know, but it's actually, in some cases, many plants and there are -- so the volume will arrive later. That's one area. The other area is, of course, there can be -- they say, well, we're going to use more suppliers simply for contingency reasons and procurement reasons, et cetera, et cetera. Now in the latter case, right, so we say on a more continuous basis, we're going to see lower volume than what we have agreed. We will renegotiate price. Price and volume always correlates. So if you're not delivering the volume, we need to have a different discussion on price. If you're saying we are not delivering volume because of some stock reasons, typically would not happen. Ole-Petter Sjøvold: Got it. And a final question for me. On the price surcharges you're implementing right now, I mean, you guys typically hedge LDPE prices and aluminum prices in Q3, Q4 on the majority of your exposure. Are you able to increase prices for the full extent of what your price or cost should increase if you didn't hedge? Or is it only your open exposure able to push out to increase prices? Thomas Kormendi: That's a very good question. And the reality is, of course, that we, as well as our competitors, right, everybody hedges as you would do normally. So when we increase our price, we have to think about our competitors as well, and we keep that in mind. So typically, what you would see in extraordinary situations like this is that everyone tries to limit the cost increases that are needed to cover the cost, right? And we live in a competitive world, so we do the same. But it's also very clear that hedges are for this year, right? So what happens next year when you need new hedges, and we don't know where the raw materials will be at that time, that's another set of increases that would come on top of that. But we are not in a position that we can increase only based on our own costing. We have to look at market conditions as well, of course. Christian Gjerde: If there are no further questions from the audience, then we will move to the questions that we have received online. So starting with a question from Geir Olsen. More than 90% of your revenues comes from cartons and closures. Could you provide some color on the revenue mix across key end markets such as milk, juice, liquid detergents and other categories and highlight where you are currently seeing the most -- the strongest growth? Bent K. Axelsen: Yes. So with our disclosure principles, we do not report on end user segments. I would say when it comes to the biggest contributor of growth, that continues to be America for us. And America for us is milk. It's a combination of plant-based, in particular for the growth in Little Rock, but also dairy. Juice in America is limited. So milk, America is the biggest contributor. As far as what we call nonfood is concerned, it's still a very, very limited part of the business as of today, but we believe that to be an interesting and significant business opportunity in the long term. That really depends on the hunger for green alternatives and to which extent green is back on the agenda again because of the new energy crisis. And there's a lot of discussions in media, whether this is now a forced green agenda coming from the conflict. And I think this is probably where I should leave that comment, IR. Thomas Kormendi: I think you're right, Bent. Christian Gjerde: So thank you for that, Bent. And then moving to the next question or questions, I would say, coming from Hakon Fuglu. I'll do them one by one to make it easier for you. First question, have you been impacted in the quarter by raw material cost and/or logistical costs? Bent K. Axelsen: The implications of the Iran conflict is very limited. So we haven't commented on those in Q1. There could have been some freight increases in the region in the beginning or in the end of the quarter. But when it comes to the raw material impact, which is a big part that has not impacted Q1. And let me remind that we have an inventory turn of around 2 to 3 months, so which means a spot price increase end of March will take at least 2 months for that to impact the reported costs in our accounts. Christian Gjerde: Thank you, Bent. And moving to Hakon's second question. What's your hedge position on raw materials for EMEA? And should we expect similar price increases this time as we witnessed during 2022? Bent K. Axelsen: So when it comes to PE, we are hedged south of 80%. When it comes to ALU, which is a smaller part of the cost, we are hedged mid-50s. PE is around 11%, 12% of the material cost as reported in our P&L. Aluminum is around 5%, if I remember correctly. To your second question, I think the difference between '22 and 2026 is that in '22, it was PE, it was ALU, it was electricity, which was maybe the biggest relative increase we had, it was pallets, it was inflation on almost everything. The situation that we're looking at right now is a situation mainly related to PE. We saw the price increases on the chart and also the ALU. So the breadth of the inflation is not the same so far. So it's not the same as '22. I think the situation reminds me more of 2021 when we saw the raw material start to increase following the aftermath of the pandemic. And in 2021, this was not yet a broad inflation. So '26 reminds me more about '21, and I hope that '27 will not become '22. Christian Gjerde: Thank you, Bent. Then a couple of more questions from Hakon. How much of the phasing/one-off costs for the quarter is related to Americas? Bent K. Axelsen: So I have to think about that. When it comes to America, there are some one-offs related to the destocking effect, but we have not quantified that in the report, but it's part of the picture. And it's -- when you start to generate the results, you see the impact of that destocking effect. It's there, but it's not a major effect in our numbers. The main proportion of the one-off is related to EMEA. Christian Gjerde: Thank you, Bent. And then the last question from Hakon. Is production Line 2 at Little Rock ramping up according to plan? Thomas Kormendi: Well, it's actually too early to ramp up production in Little Rock on Line 2. So -- and the plan was not that it would ramp up yet. So you could say it's according to plan, if you like. We are not ramping up yet. We're installing. We're preparing, but we have not ramped up the production yet on Line 2. Christian Gjerde: Thank you, Thomas. Then we have a question from [ Cole Hopen ]. Focusing on surcharges and price increases. Firstly, can you give some color on how you approach these commercially with customers? Are the surcharges just for logistics or polymers as well? I'll take that part of it first and then --. Thomas Kormendi: Yes. So what we do is we sit down with our customers. We explain them the situation in all of the agreements we have. We have what is called sit-down clauses. Clearly, this is an extraordinary situation, extraordinary event hitting pretty much all industries, definitely also ours. So there is a wide understanding that's needed. The cost increases are -- the cost surcharge that we are introducing relates to both PE as well as logistics. Christian Gjerde: Thank you, Thomas. And then the second part of Cole's question, have our liquid packaging board suppliers also approached you for logistical surcharge costs? Thomas Kormendi: If our suppliers -- so -- and this is actually -- maybe I should have qualified my previous statement. When we deliver our material from our plants to our customers, there's a mix of Incoterms. Some will pick it up themselves, somewhere -- in some cases, we will arrange the transport, et cetera. And with our suppliers, it's the same thing. It depends on who it is and what the Incoterms are. So if -- and in some cases, it's very transparent, we simply pay whatever the transport is and in some cases, included in the price. So it's difficult to give one answer on that. Christian Gjerde: Thank you, Thomas. Then we have a question from Niclas Gehin in DNB. You write in the report that you are confident in reaching your midterm target for Americas in 2028. Can we also expect for you to reach your midterm targets for 2026? Thomas Kormendi: Well, you have to look at the -- you have to take the outlook statement for what it is. And I think the way we have phrased it is we think the underlying business is doing well. We also recognize the fact that there is a lot of uncertainty around us out of our control, one of which relates to, of course, as we keep saying, the Middle East, but also other impacts. So for that reason, we are not guiding on '26 beyond what we said in the outlook statement. Christian Gjerde: Thank you, Thomas. Then we have a question from Marcus Gavelli at Pareto. Assuming price hikes, price increases will not be fully passed on to customers before later this year, so some lags in the implementation of that. Should we expect near-term margin squeeze? And are the ongoing price increases sufficient to fully offset the cost increase that you are seeing today? Bent K. Axelsen: So should I take the first part of the answer. So --. Thomas Kormendi: I can think about the second. Bent K. Axelsen: Yes. So I will speak slowly. Thomas Kormendi: Exactly. Bent K. Axelsen: So when we are looking at this, we need to consider a couple of things. So one thing is the inventory speed. So when we have a price hike in the spot prices, how long time will it take before it will hit the cost base in our P&L. The second element is the timing that these surcharges becomes effective and we are in the process of working and implementing those price increases as we speak. So based on the information we have today, it's difficult to assess which force is stronger, but we stick to what we say in the outlook that we believe that second quarter overall will start a gradual improvement compared to Q1. Thomas Kormendi: And then the -- just repeat the second question, please, exactly. Christian Gjerde: Second question he is basically asking, are we passing all the full net of the open price increase to our customers. Thomas Kormendi: So I think when you think of the price surcharge, right, this is based on partly what we know, i.e., the existing price levels of PE. It's also based on what we think and we don't know how long these price impacts will last. So what we have passed on now is actually what we need to cover the cost of the significantly increased cost that we are experiencing. If these costs tend for whatever reason become even higher, then it's a different situation, right? And we need to reassess and we need -- and as I said before, we've put in a mechanism that will allow for some movement in this. But it's very important to understand for everyone, including our customers, by the way, that this is a volatile time. We have little to very, very limited visibility on how cost will develop. And we have various indexes when it comes to PE, et cetera, but they tend to be, let's just say, not very accurate historically. So we have to look at it, but we are implementing a plan. We're implementing a surcharge to cover for the costs. And it's important that we cover for cost. And it's just like in '22, when you cover -- if you look at it from a margin point of view, it does have an impact. There is no way around it. If you increase by the cost levels you have in price, there is a margin impact on that. Christian Gjerde: Thank you, Thomas. Then we have a final question from Martin Melbye at ABG. Could you please comment on the change in the competitive situation in Europe? Thomas Kormendi: I'm not entirely sure what the question means when it changed compared to what and compared to when. Christian Gjerde: Yes. I think he's referring to the update that we gave to the market in February where we talked about increased price competition in Europe. Thomas Kormendi: Right. So what we have seen during the end of last year is more intense competition in the core markets of Europe, in the chilled business, in our core business. And that, in a way, to be honest, is not surprising given that we have had good development and success in building our market share from a strong point to an even stronger point. And of course, at some point, you will expect that there will be reactions and competitors trying to win back lost territory. That has been the case that attempts have been made. But so far, knock on wood, we have been in a good position to defend our positions and defend our strongholds where we are now. Since then, nothing significant has changed in that respect. And -- but I think it's also absolutely normal and expected, whether it's in Europe or in America, that competition as we are growing, as we are building our business, competition will try to fight back. And we will try to do our very best to defend our positions and keep growing the business as we have done for the last many years. Christian Gjerde: Thank you, Thomas. I see that concludes our online questions for today. So thank you, everyone, for joining this fantastic morning in Oslo. I wish everyone a good day. Thomas Kormendi: Thank you, everyone, for listening to me so many times. Thank you and all the best.
Operator: Greetings. Welcome to Leidos First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Stuart Davis from Investor Relations. Stuart, you may begin. Stuart Davis: Thank you, and good morning, everyone. Joining me on today's earnings conference call are CEO, Tom Bell; and CFO, Chris Cage. Today's call is being webcast on the Investor Relations portion of our website where you can find the earnings press release and the presentation slides for today's call. As shown on Slide 2, our discussion today will contain forward-looking statements based on the environment as we currently see it, and thus includes risks and uncertainties. Our press release contains more information on the specific risk factors that could cause actual results to differ materially from anticipated results. Turning to Slide 3. We'll also discuss both GAAP and non-GAAP financial measures. In today's press release and presentation slides contain a reconciliation between the 2. And now let me turn the call over to Tom, who'll begin on Slide 4. Thomas Bell: Thank you, Stuart, and good morning, everyone. Today, I am pleased to report a very strong start for Leidos in 2026. First quarter revenue was up 4% year-on-year to $4.4 billion, and profitability remained excellent to start 2026, with adjusted EBITDA of 14%. As a result of this strong core performance and the immediately accretive nature of our Entrust acquisition, we are raising our 2026 guidance for revenue by $500 million, non-GAAP diluted EPS by $0.05 and operating cash flow by $50 million. Execution of our NorthStar 2030 growth strategy is now in full swing. And these strong Q1 results set the stage for our multiyear growth trajectory beginning this year. Chris will go through our Q1 financials in detail later on this call. What I'd like to spend my time with you on this morning is the story behind these Q1 numbers and the fact that they represent another proof point that Leidos is built to thrive. Our scale, our unparalleled customer understanding, our ongoing corporate investments in our [ Golden Bolts ], our market-leading exploitation of AI, they are all allowing us to quickly adapt to this changing market dynamics and rapidly deploy learnings to all of our customers and all of our businesses. We are driving our business and executing our NorthStar 2030 growth strategy through a few simple principles. The first is increasing our investments in our 5 growth pillars. Our growth pillars, markets where we see robust revenue growth to deliver superior top and bottom line results, remain Defense Tech, managed health, digital infrastructure and cyber, energy resilience and mission software. The second principle is continuing to make Leidos faster, leaner and more focused, ensuring that speed is king at Leidos. And the third principle is leveraging our scale through technology insertion and learning across our whole business. Here are some examples of how we're delivering against this strategy in 2026. In Defense, we're capitalizing on years of technological investment to work with the Department of War as one of their key disruptors able to reliably produce at scale. We are currently pursuing accelerated procurement agreements such as framework agreements, to field a number of Leidos advanced products and capabilities. Let me illustrate a few for you this morning. Munitions is a clear area of focus by the Department of War and one of historical strength for Leidos. Following a string of successful flight tests of our small cruise missile, now designated the AGM-190A by our customer, we are working with the Department of War to accelerate production of the SCM itself, progress work on derivatives of this product and field iterations of this technology for even more challenging warfighter needs. All in all, we can clearly see a path to production runs of thousands of these products in this decade alone. We're also working to respond to the U.S. Navy for a marketplace acquisition approach to produce MUSVs and mission payloads at scale quickly. Our offering combines Leidos' Gibbs & Cox expertise, commercial boat yard capability, Leidos' proven LAVA software, integrated command and control, our exquisite C5ISR and counter C5ISRT to deliver real-world scale effects for the U.S. Navy. Related to this, you probably saw recent press reports about one of Leidos' existing MUSVs, the Seahawk MUSV, being operationally not experimentally deployed as part of the Theodore Roosevelt Carrier Strike Group. This is the U.S. Navy's first and only medium unmanned surface vehicle to reach this level of customer confidence, relevance and actual deployment. And we're also conducting advanced discussions regarding scaling production of Leidos' Air Shield high-power microwave counter UAS technology. That technology consistently outperforms all competitors in range and lethality. In addition to these framework agreements and other agreements, we've begun serial production of our ALPS product under our $2.2 billion ABADS-MD contract. ALPS is a Leidos developed passive sensing system that delivers persistent, wide area awareness at a fraction of legacy costs. In fact, you may have noticed last month at the Department of War Golden Dome update that our ALPS program was highlighted as a key sensor informing the Golden Dome architecture. Quoting General [ Guetlein ] himself, "the testing of the Army's advanced long-range persistent surveillance radar is tangible proof of our progress. " This is a powerful customer validation of ALPS' ReadyNow role in enabling a layered integrated defense network. All this momentum is translating directly into strong demand across our entire Defense Tech portfolio. In total, we've earned over $9 billion of awards for our Defense Tech business in the last 15 months alone, and we can see clearly a path to another $8 billion in our next 12-month pipeline. In Health, we are injecting real-world digital sophistication into mission-critical care with excellent customer impact, a standout example here is our recent $456 million Military OneSource award. This program provides confidential counseling, financial planning, tax assistance, career coaching and more to military personnel and their families. This directed award is a testament to Leidos' superior and repeatable digital innovations. By applying the predictive analytics from our Military and Family Life Counseling program, to this customer's Military OneSource needs, we are shifting the focus from reactive care to proactive force readiness. This award is in the wheelhouse of our managed health growth pillar, and grows our strategic moat in this market. By harmonizing these programs, MFLC and Military OneSource, we give the customer optionality to sync these ecosystems into a single high-efficiency care delivery model. We are embedding Leidos into the mission's digital DNA, ensuring long-term customer stickiness, improving our disruptive value across the managed health market. Elsewhere in Health, we've secured a first of its kind award for a pilot program called My Service Treatment Record. Here, we've been selected to exclusively develop an AI-driven tool to automate the medical record transfer for service members from the Department of War to the Veterans Administration. As the architects of MHS Genesis, Leidos was uniquely qualified to aggregate Department of War data at speed and scale necessary to expedite this transfer. A transfer that today is manual, paper-intensive, frustratingly slow and laborious. This new platform acts as another strategic entry point into the broader disability examinations mission. It allows us to further stitch together fragmented legacy systems with a seamless end-to-end digital thread. With the ability to automate everything from record retrieval to claim submission we are directly advancing both the Department of War and the VA's digital-first initiatives. In turn, this ensures Leidos and our technology are deeply embedded in both our customers' long-term operational road map. Also of note, in our ongoing Veterans Benefits exam business, I'm pleased to report that our disability exam volume remained high through the first quarter and customer satisfaction, veteran satisfaction with their treatment at Leidos QTC clinics remains best in class. We are very much looking forward to working with the customer on our continued leading role providing these mission-critical services to our nation's veterans, beginning with an industry day later this month. Together, these wins and our robust ongoing business give us confidence in our Health growth pillar and its sustainable growth through the decade. Now I'd like to take a minute to also update you on the 3 substantial portfolio moves we've undertaken in the last 12 months. Most recently, I was very pleased to have announced our intent to strengthen our nation's Homeland Defense by agreeing to combine our SES business into a joint venture with Analogic. Our joint venture will create a focused American leader in this critical global market. And through our significant minority interest in this JV, our shareholders will continue to participate in the market upside this JV will help unlock. Regarding our Kudu acquisition of last year, the nonkinetic effects you probably read about an Operation Absolute Resolve and Operation Epic Fury reinforce just how critical these capabilities are to our customers' missions. That demand is exactly what we foresaw in acquiring Kudu to combine with our existing business. The combination of Kudu's elite offensive cyber tools with our robust signal processing capabilities and our established defensive cyber leadership has created the integrated tool kit that our customers increasingly rely on. It also aligns directly with the recently published national cyber strategy. Leidos' full-spectrum cyber capacity is delivering against surging demand. We currently see a total cyber pipeline valued at $24 billion, a 21% increase since the acquisition of Kudu. The acquisition has also accelerated our use of AI technology to deliver cyber mission software and operations with unprecedented velocity. And speaking of velocity, we executed a quick, clean close of Entrust this past March, just 2 months after we announced the acquisition itself. That speed sets us up to accelerate delivery for our customers at a time when demand for energy infrastructure services is expanding every day. And closing this deal rapidly allows us to quickly gain the top and bottom line efficiencies we envisioned for this transaction this year. Integration is ahead of schedule, the cultural alignment is seamless, and the financial upside is already surfacing in our consolidated numbers. Strategically, this combination expands our business' breadth and depth and is already producing new opportunities. For instance, as a result of our combined prowess, we've received our first energy generation plant RFP. And we've been selected to perform detailed design for Canada's largest battery electrical storage facility. Building on this momentum, our team is focused on targeting a refreshed order pipeline of $10 billion. This represents growth of 230% post close, made possible by rapidly bringing our teams together to prosecute the market as one. And on the operational side, we've deployed Leidos' AI tools, Skywire across the new organization. Teams are already seeing significant opportunity to deliver high-quality services and solutions to more customers faster and cheaper. This is exactly what our NorthStar 2030 strategy is all about. Our Kudu and Entrust acquisitions provide us tremendous accelerants in high-growth markets, for scale and technology unite to deliver superior top and bottom line returns. And we aren't just looking at acquisitions to drive growth. I'm also pleased to announce that we are balancing these strategic moves with a surgical venture stage investment to ensure Leidos stays at the forefront of the market's innovation curve. We have committed a multiyear $100 million investment in a marquee PE firm with a proven track record in the federal technology space. This partnership gives us early access to a vetted pipeline of high-growth disruptors with mission-ready capabilities in AI, advanced cyber and autonomy to name a few. By continuing to be at the forefront of technological breakthroughs of all types, we ensure our customers have the technology they need tomorrow, integrated into the Leidos growth pillars today. To close out my prepared remarks this morning, I'd also like to spend a moment on AI and what it means for Leidos. As I have said on past calls, we are not reacting to AI. AI is nothing new to Leidos. We are scaling with AI. AI is not a threat to our business model, it's an accelerant of our business model because at our core, Leidos exists to make customers' outcomes smarter and more efficient. And AI allows us to do just that, work faster at greater scale with higher impact. What AI is doing in very practical terms is simply compressing the bottom of the solution value chain. It's making it easier to do things that were historically hard to do but it does not obsolete things that are hard to get. So things like routine development, basic analytics, data integration, AI is compressing the time to deliver these results. And that compression is of great value to us. We welcome it and are exploiting it because it frees up our highly specialized talent to focus where we create the most value, leveraging the multitude of things we have that are the very things that are hard to get, solving our customers' most complex mission-critical problems with deep customer understanding, the right people with the right specialty security clearances, real-world regulatory permission, Leidos' privileged access to our customers' digital infrastructure at scale, et cetera. AI makes us faster and AI makes us more efficient. And all these shifts reinforce they don't erode the digital advantages that Leidos enjoys. Our market position in highly cleared environments, our deep regulatory experience, our access to proprietary data and most importantly, the trust we built with customers over decades. These are not disrupted by AI, they are amplified by it. In our markets, real costs are not measured in dollars, they are measured in risk, mission accomplishment risk. And as AI increases the clock speed of our customers' mission execution, that risk only grows. So in turn, this only further strengthens our position as the trusted mission AI experts, the sober, cerebral, experienced, relatable experts deploying AI for our customers' success in ways they know they can trust. As part of this, as I've just alluded to, is an often underappreciated advantage for Leidos in this booming world of AI, the sheer scale of our federal digital infrastructure business. Our digital infrastructure business, the very large privileged position we enjoy today in our customers' digital ecosystem is not a vulnerability in an AI world, it's a strength because that ecosystem is foundational to how our customers are and will adopt AI securely and effectively. Every day, more than any other company we deliver open, secure, repeatable and mission-critical solutions for our customers. Capabilities we're currently grouping into 4 offerings, Uphold our cyber and resilient networks product suite; Insight, our Secure Cloud and data product suite; Forward, our customer digital experience product suite; and Headway, our information advantage product suite. Taken together, these product suites strengthen Leidos' position as the scaled, trusted integrator of AI-enabled mission systems in our customers' environments for their mission success. That's why we believe we are uniquely positioned to continue to lead in this market, and that's why we continue to see scalable growth in this business. So Leidos is out of the blocks in 2026 playing offense. We are very excited about where we are today and where we are taking this business tomorrow, all guided by our clear NorthStar 2030 growth strategy. I'll now turn the call over to Chris to review our Q1 financial performance and provide an update outlook on the rest of 2026. And then I'll look forward to your questions. Chris? Chris Cage: Thank you, Tom, and thank you, everyone, for joining us today. We are off to an impressive start in 2026 and now more than ever, we see our matchless portfolio as a key to driving superior performance and value creation over the coming years. Let's jump right into the results, starting with the income statement on Slide 5. Revenues were $4.4 billion, up 4% in total and 3% organically year-over-year with especially robust growth in the Intelligence and Digital and Homeland segments. Revenues grew year-over-year as customers accelerated mission execution, especially for innovative products and solutions supporting the intelligence community, commercial energy infrastructure, and domestic and international air traffic management. Bottom line performance remained strong. Adjusted EBITDA was $614 million for the first quarter, up 2% year-over-year for an adjusted EBITDA margin of 14%. Non-GAAP diluted EPS grew 5% to $3.13, driven by higher adjusted EBITDA, lower share count and a lower tax rate. Changes in estimates at completion were a modest headwind in the quarter, yet profitability remained high through prudent cost management, excellent award and incentive fee performance and a $15 million insurance reimbursement for previously recorded legal expenses. Digging a little deeper, let's turn now to the segment drivers on Slide 6. Intel and Digital revenues increased 7% year-over-year, with 6% coming organically. Revenue growth was driven by recent contract awards and increased volumes for intelligence community mission support as well as $22 million from the acquisition of Kudu Dynamics. Non-GAAP operating income margin increased from 9.7% in the prior year quarter to 10.2%, which is excellent performance for this portfolio. For Health, we sustained our excellent performance on the top and bottom line. Revenues were unchanged from a year ago, and profitability was relatively stable across periods. Homeland revenues increased 6% year-over-year, given surging demand for energy infrastructure engineering services and domestic and international air traffic control systems. Non-GAAP operating margin of 8.5% compared to 9.4% in the prior year quarter, reflected changing customer requirements on a fixed price program. Lastly, Defense revenues of $883 million were up slightly compared to the prior year quarter, as strong growth in integrated air defense systems offset the wind down of [ some airborne ] surveillance programs due to a scheduled delay on a fixed price development program, Defense non-GAAP operating margin was 8.3% compared to 9.8% in the prior year quarter. Turning to cash flow and the balance sheet on Slide 7. In the quarter, we generated $301 million of cash flows from operating activities and $270 million of free cash flow. Operating cash performance was exceptionally strong for the first quarter, building off of a record Q4. DSO was 59 days after normalizing for the impact of the Entrust acquisition. With strong EBITDA generation, proactive collections and disciplined working capital management, Leidos is a cash machine, and we are turning that into long-term shareholder value. Our Entrust acquisition is a confident move in 1 of our 5 strategic growth pillars. We had planned to fund the purchase price of $2.4 billion with $500 million of cash on hand, $500 million in commercial paper and $1.4 billion of new bonds. With our robust cash generation over the last 2 quarters, we borrowed less and have begun to pay it off sooner than anticipated and our commercial paper balance to the $300 million at the end of the first quarter, which will pay off throughout 2026. We were also able to repurchase $200 million of stock in the open market as part of our balanced capital deployment strategy. We ended the quarter with $6.3 billion of debt, $457 million in cash and cash equivalents and a gross leverage ratio of 2.6x. This provides us with ample capacity to continue to invest in line with our NorthStar 2030 strategy. Finally, on to the forward outlook on Slide 8. As Tom mentioned, we're raising our 2026 guidance for revenues, earnings and cash. Specifically, we're increasing revenue guidance by $500 million to a new range of $18 billion to $18.4 billion, maintaining our adjusted EBITDA margin guidance at mid-13s, raising our non-GAAP diluted EPS guidance of by $0.05, yielding $12.10 to $12.50 and increasing our operating cash flow guidance by $50 million to approximately $1.8 billion. For context, I'll address 3 major aspects of our forward outlook, the organic view, the quarterly cadence and the longer-term view. First, the raises to revenue, earnings and cash guidance primarily reflect our Entrust acquisition. So after only a little more than a month post close, we've enhanced our outlook and now expect the deal to be accretive to non-GAAP EPS and cash in 2026 with substantially more accretion as deal synergies are realized in 2027 and beyond. Our view of the rest of Leidos for 2026 is largely unchanged from where we initially guided in February. Our forward guidance does not incorporate any impact from the pending joint venture we announced in our security products business, which we anticipate closing sometime in the back half of the year. Until then, SES and general automation assets and liabilities will appear as held for sale on the balance sheet, and there will be no change to the income statement as the materiality threshold for discontinued operations will not be met. Once the deal closes, we will no longer show revenue from our minority position and our share, roughly 40% of the joint venture net income will be reflected as equity method income within our operating income. Second, we see Q2 as the likely low point this year in revenue growth and margin. At this point, we view Q1 revenue overperformance as a pull-forward from the second quarter as opposed to a notable market reacceleration, which we still expect in the second half of the year. Though there are many encouraging signs like the framework discussions that Tom described, procurement is still recovering from the protracted government shutdown. Still, we're pleased with the solid book-to-bill ratio of 0.8 in the quarter and 1.1x for the trailing 12 months. and we expect awards to pick up significantly over the course of the year. On the bottom line, we won't have the benefit of the insurance reimbursement benefit in Q2. More important, near-term growth investments will rise given our ability to lock in franchise positions on a number of compelling opportunities, including the Military OneSource Award and My Service Treatment Record Pilot in the Health segment and the multiple potential product lines within the Defense business. We're excited about the long-term upside these opportunities can create. And third, we remain extremely bullish on the long-term outlook for the business. As we shape our portfolio towards the growth pillars, we're enhancing the financials of the business, reducing unnecessary complexity while maintaining virtuous diversity. In the case of the Security Products joint venture, we are preserving significant upside for our shareholders. We've talked about optionality in the past. Now you can see how that looks in action. With that, operator, we're ready to take questions. Operator: [Operator Instructions] Our first question is going to come from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe -- a lot to digest there. Maybe if you could just talk about profitability and the impact within Defense contracting 150 bps, how much of it was from the fixed price program? How do you expect that to trend? And maybe if you could give us an update on key programs and Dynetics within Defense? Chris Cage: Sheila, thanks, it's Chris. Yes. So the Defense profitability, that was kind of reflecting the development stage program on our Space Wide Field of View Tranche 1, which we're all in on getting that program delivered this year and on track to do so. But we're really encouraged about the new programs that we've been awarded and are ramping up. When you think of things like our IFPC program, which were continuing to win the next slot for our [ PoNS ] program, our [ AVAD ] program. Those all have superior economic profiles with them. And as those programs ramp up in larger quantities this year, you'll see that Defense level profitability continue to trend positively over the course of the year. So the business is on track. We're really excited about the growth prospects there and the team is laser focused on the pricing and bidding strategies to make sure we can deliver solid profitability with that. Operator: Our next question will come from the line of David Strauss with Wells Fargo. Joshua Korn: This is Josh Korn on for David. I wanted to ask if -- I think last quarter, you discussed the tripling of CapEx this year to $350 million. You talked about some growth investments in the remarks with only $31 million of CapEx in Q1, is that still the plan? And kind of what does that look like as the year goes on? Thomas Bell: Thanks, Josh. Yes. And we did earmark a sizable increase in our CapEx for this year, anticipating the need to invest. But that need hasn't risen in the first quarter to a level that we might have anticipated. Part of our anticipation of a second quarter that is higher spend rate is lower profitability because of that. And so we do anticipate spending more in CapEx this year, whether or not we spend the whole $350 million or not is to be determined based on how these programs layer in. I think what you should take away from this is we continue to be good stewards of our cash. We don't spend money just because we budgeted it. We earmark it and wait for the trigger to release it. Operator: Our next question will come from the line of Tobey Sommer with Truist Securities. Tobey Sommer: I was hoping you could elaborate on the outlook for the Health business, both the existing portfolio in exams as well as areas of expansion that you're targeting and how those could change the composition of margin within that business? Thomas Bell: Yes. Thanks, Tobey. Yes, so as I said in my prepared remarks, we're very encouraged by the fact that our volume remained high in that business in the first quarter of this year. So while we provisioned for the year outlook that Chris and I gave you last quarter for the effects of the fourth vendor, the fact is our volumes are staying high and remaining robust as we enter this year. The second thing that's happening is the VA, the Veterans Benefits Exam, is challenging the system to continue to burn off backlog. So we're hopeful that those volumes will remain elevated through the rest of this year. We're also encouraged by the fact that the customer is having an industry day later this month to talk about how we perpetuate how we serve veterans in this country. And so we're very optimistic that through the investment of technology, through the leaning in of innovative business models, we're going to be able to continue to serve more veterans, faster, cheaper than our competitors and make sure that we remain robustly profitable in this business. At the same time, that's a good base. What we're focused on is this managed Health business being a growth pillar for Leidos. So what you saw in the 2 awards that we talked about this quarter, the Military OneSource directed award and My Service Treatment Record Pilot program are indications of how we're leaning into the digital ecosystems of both the Department of War and the Veterans Administration to continue to serve them boldly. We see behavioral health as a major engine within that growth pillar, where we think we can differentially serve veterans and their families in this in this time. And rural health has always been an area that has been underserved and again, an area where we think we can lean in to help serve our nation's veterans where they live as opposed to asking them to come to where we are. And so we're very -- we remain bullish on our Health growth pillar, and we remain bullish that it can remain a mainstay of Leidos' top line and bottom line growth story. Operator: Our next question will come from the line of Scott Mikus with Melius Research. Scott Mikus: Tom, you touched on the portfolio moves you made in the portfolio recently. When I look at the latest portfolio in aggregate, it does everything from integrated air and missile defense, airport infrastructure modernization, hypersonic missiles, maritime autonomy. So a lot of broad offerings. Our investors are going to be challenged to actually analyze. You're moving the SES business to a JV. But internally, do you think the business would benefit from a more streamlined portfolio? And could we see that over the next, say, 12 to 24 months? Thomas Bell: What we did -- thanks for the question, Scott. What we did at the beginning of this year was streamline how we are organized for delivery of these effects. You'll recall that the new Defense business is a larger Defense business focused on the complete suite of how we serve the Department of War as opposed to having it fragmented within Leidos. That management focus and that attention, while the portfolio and the offerings are broad, is bringing the desired effect for execution. We've recently announced a COO in our Defense business to help drive execution and drive scaling of the products in the portfolio. And so we're very excited and encouraged by the activity we have going on in that Defense portfolio. You're right that this area of our portfolio is one of intense activity right now, but those are activities that are going to pay great dividends for our shareholders in the years to come. And as we ramp up these framework agreements, these accelerated purchase agreements and these traditional purchase agreements to field products at scale. So will help you continue to understand the portfolio and we'll help with what the capabilities are that we're focused on as you will remain cognizant of. While we had Defense Tech has a broad area of interest, we were focused on maritime and space. We remain focused there, but the fact is the customer continues to come to us with more opportunities as they look for reliable companies to help them scale production of the effects they need for the battles they see in the future. So we're very bullish on our Defense Tech business and excited as a part of the Leidos portfolio. Operator: Our next question will come from the line of John Godyn with Citi. John Godyn: I wanted to revisit the shape of the year and the comments about kind of revenue and margins around the shape of the year. It sounds like there may be a bit of a dip at least in revenue in 2Q. And I wanted to just make sure we frame that correctly and give you a chance to be a little more precise. Sometimes those things can just be a bit of an overhang on the stock if they're not kind of clarified in a moment. So maybe you could just kind of discuss the shape on revenue and margins. And hopefully, we can get there. Chris Cage: John, thanks. This is Chris. And I agree. I mean we're very pleased with the start to the year we had. And as I trailed in my remarks, maybe a little bit of that is pull forward from Q2. As we see the robustness of our pipeline and award activity and the proposal pits that are very active, we're still expecting a significant amount of that to translate into momentum in Q3 and Q4. So as we've gone through all of our planning activity really see the step function on growth building in the third quarter and fourth quarter. And with that, you'll see the high margin rates that we've come to demonstrate time and time again. Q2 itself, just as we look at which programs are in early phases of transition, which programs are winding off a little bit, that is probably more similar to Q1, maybe a small step down on run rate and profitability building to the back half of the year and then carrying that momentum into 2027. So that's how I'd frame it out. We've got a lot of cash capacity and capital to put to work, and we'll continue to be active on the deployment side over the course of the year. So we're really excited about how things are setting up for us. Thomas Bell: And while it's a little lumpy this year, it's not dimming our outlook on the year as a whole. Operator: Our next question comes from the line of Noah Poponak with Goldman Sachs. Noah Poponak: I was wondering if it's possible to attempt to speak to the multiyear or maybe just even next year directionally beyond this year in the Health segment. I guess just as we all look at the VBA exam data and you have a few moving pieces here. You've talked about this year revenue kind of being flattish, margins being down a little bit. I guess what I'd like to wondering a little bit, are we looking at a 1-year minor reset or is this a multiyear period where revenue could be down more than just a little bit? How much did the margins reset, if you could give us your latest thinking there? Thomas Bell: Sure, Noah. Thanks. As we're in May already, and the customer is having his industry day later this month, we'll know more when we go to these industry days, and we hear what their plans are for this contract in the future. That said, it's becoming difficult to imagine a seismic shift in how we serve veterans in this nation. And so I'm remaining very bullish that we'll maintain our ability to serve the most veterans, the most effectively with the best results. And so we're leaning in. As we've said in past calls to talk about how we use technology to shorten the cycle time of veterans getting the benefits they deserve. We expect that with leaning into that technology, we'll be able to continue to be a leader in this marketplace. And we anticipate that marketplace will remain largely unchanged in how the Veterans Benefits Administration serves veterans. At the same time, what we're doing, as I alluded to, is leaning into the digital ecosystem of the Department of War and the Veterans Benefits agency to make sure that we're a part of the ecosystem beyond just providing Veterans Benefits exams. And we're also very focused on expanding how we serve veterans in the rural areas of our country. And so we are bullish on the long-term growth trajectory. I wish I had more definitive things to tell you about exactly how that's going to pan out. But that being said, with time being what it is, I anticipate it's going to continue to be more of what it is today than some radical departure from the status quo. Chris Cage: Noah, I'd just add, I mean, beyond VBA, which is a very well run part of the business. I mean the team has evidenced by the Military OneSource takeaway and looking ahead to $6 billion and expected submits over Q2 and Q3 have a lot of other avenues to scale this business up. My service treatment record were very small in a pilot phase. I mean that could turn into a very nice technology-oriented high revenue and profit stream for us over time as we prove out this capability. So yes, our expectations are health is platform, modest reset this year with the growth trajectory in the future, as Tom has talked about, and the team's got a lot of momentum behind building that up on many dimensions. Noah Poponak: And Chris, I guess, just on the margin, you sort of described their interesting and thoughtful ways that you could keep growing, but if the mix of the business that's driving the growth changes, does the margin change a lot over a 2-, 3-year window? Or can you kind of hang around where you're at right now? Chris Cage: Yes. No, I see that staying above that 20% margin threshold and we're well above that today, and that's absolutely in the zone beyond what we're going to win next, we're relentlessly focused on operational improvements, technology improvements to enable our processes. This unified health platform is a capability the team is deploying internally later this year, as an example, that will take more cost out of our delivery equation. So yes, no, the great thing about this part of the portfolio with how customers contract predominantly fixed price, fixed unit rate really incentivizes operational efficiencies and that's where we excel. So very confident we can keep the high margin profile of this business into the future. Operator: Our next question will come from the line of Jonathan Siegmann with Stifel. Unknown Analyst: This is actually Sebastian Rivera on the line for Jon today. Maybe one on maritime. You guys have an impressive USV and EUV portfolio, and I appreciate the commentary on Seahawk in the prepared remarks. I was wondering if you have seen an increase in demand related to the conflict in Iran, specifically around your Sea Dart that I believe can be used for demining and then if you could just kind of maybe frame how you see that opportunity ramping up, that would be super helpful. Thomas Bell: Sure. Yes. Our surface and subsurface autonomous programs are seeing increased pull by the Department of Navy. I can't comment on specific theaters or specific programs when it comes to that, except to say the Navy is very moving very quickly now with their MUSV industry program, and we are one of a few companies that we believe incredibly deliver against that need. As I've said in the Pentagon building boats fast is really not that difficult. Building boats that are autonomous fast is only slightly more difficult, but building autonomous boats fast that have real mission effects and real mission payloads, that's the secret sauce. And that's where Leidos excels because with our Gibbs & Cox, with our philosophy about deploying commercial boat yards, not trying to build boats ourselves, but really leaning into the autonomy package, the design of the vessels, the command and control of the fleet and the mission effects, especially with our exquisite C5ISR packages and counter C5ISRP packages. That's where we are really getting the attention of the U.S. Navy when it comes to scale effects quickly for what they see in front of them. And so I'm very bullish about the maritime portfolio we have under Cindy's leadership, and I'm going to be very excited to talk about big wins in future conference calls. Operator: Our next question comes from the line of Peter Arment with Baird. Peter Arment: Tom, thanks for your comments on the CapEx earlier. Just thought I'd drill in a little more. How are you thinking about this elevated level of CapEx? Is this something that you expect to continue at this higher rate just given the investment opportunities that you kind of laid out in terms of your long-term strategy? Or is this kind of do we reset down to kind of the lower level once we get through this period of investment spending? Thomas Bell: Yes. Thanks, Peter. No, I don't anticipate continuing at this level in perpetuity. I think this is a fixed finite period of time where investment in these production programs is critical whether that's just this year or with a little overhang into early next year remains to be seen. But it's not something that we are gearing up to do in perpetuity. In that regard, I'll mention the SEC -- excuse me, the SES joint venture. One of the reasons we purposefully formed that joint venture was because that business wasn't one of our growth pillars, we didn't want to start leaning into the capital intensity that, that business would require from Leidos if we were going to invest in it to fully grow. So forming this JV allows us to leverage the money necessary to grow the business and participate in the upside as a minority share of that joint venture, but not lean into it with Leidos cash from the beginning. And so again, what you -- what I'm trying to point to you, Peter, is a picture of being diligent and focused about where we spend capital, when we spend capital and how we spend capital, but not get ourselves into perpetual streams of capital spend. I hope that helps. Operator: Our next question comes from the line of Seth Seifman with JPMorgan. Seth Seifman: So it seems like the market relative to what's going on in products, it seems like the market taking a more skeptical view of growth potential in services. And we see where some of the budget is concentrated and in some ways, that's not super surprising. But if we were to see the type of overall budget growth, even if not at the level that the administration has requested, but say, even half of that or something like that would be a robust -- a fairly robust level of overall budget growth. How do you think about the consequences of that for your intelligence and digital business and the potential to grow in that type of environment? Thomas Bell: Seth, I'm really glad you asked the question. While the $1.5 trillion budget request for the Department of War gets a lot of heat and light in the press, the bigger story is the more interesting story for us. Our IC budgets in the intelligence community for America have grown 4% to 5% annually since 2022. And we see that continuing in the future. And if you dive deeper into the classified budgets, you see a lot of money going into the digital infrastructure part of the whole ecosystem of our defense and intelligence communities. And so that's why in my prepared remarks, I spent so much time talking about the fact that AI isn't a disruptor to us it's a propellant to our progress in this business. And that's why our digital infrastructure business isn't a wait -- waiting to be obsoleted by AI, but rather, it is our entry point and our foundation from which our customers are going to embrace AI and upgrade their capability. We're very focused on leveraging those 2 things, our digital infrastructure business and our cybersecurity chops with our AI philosophy of exploiting these tools to move up the value chain in our customer spend and continue to help them have scaled effects at speed in an AI-enabled world. And so we don't see the negativity of being obsoleted in this market, we see it as an opportunity to tremendously grow our scale in the intelligence community and the Department of War. I mentioned the operations that we all watched over the recent months and the effect -- the nonkinetic effects that were brought to bear there -- and that's exactly why we are leaning into this part of our value to our nation. Operator: Our next question comes from the line of Gautam Khanna with Cowen. Gautam Khanna: Yes. I was wondering besides the VBA contract, if you could update us on what are the big upcoming recompetes. I know DHMSM is out there and some others over the next, call it, 12 to 24 months? Thomas Bell: Yes. The -- you mentioned, Gautam, the DHMSM recompete, we expect some near-term continuity through an extension mechanism with a longer-term contracts still evolving in our customers' mind. We are not exactly sure how they proceed with that program, and we're in deep dialogue with them on that. In the meantime, we expect near-term continuity through an extension mechanism. Also in that portfolio, we have our Antarctic program and expect continuity of operations while they -- the customer there continues to decide how they're going to prosecute the Antarctic in the future. And so there are other recompetes happening, but again, very buoyed by the 2 recent wins, the Military OneSource directed award of being almost $0.5 billion directed award is tremendous for us. And the opportunity for us to grow that with other aspects of what we're already doing, I mentioned -- and this My STR Pilot, where I think the opportunity to turn this pilot program into something that veterans are going to love moving from a highly laborious paper-driven process to a digital my service treatment record transfer is going to be a tremendous benefit for veterans and the veterans administration to remove a major pain point. So lots of goodness happening in the Health business. Chris Cage: Gautam, I mean I think Tom nailed it, looking at the list of key recompetes, there's nothing that rises to our top programs worth noting that you didn't already talk to, in fact, almost 70% of our next 12-month pipeline is focused on new business and takeaway activity. So it's very much skewed towards great opportunities to propel growth. But nonetheless, anything that's in the recompete category where we've had great success, above 90% win rates we're laser-focused on. But I wouldn't say there's anything I would highlight that's warranting note that the major program level at this point in time. Thomas Bell: Michelle, looks like we have time for just one more question. Operator: And our last question will come from the line of Ken Herbert with RBC Capital Markets. Kenneth Herbert: Maybe Tom or Chris, I wanted to just follow up on Entrust, if you can give an update on integration there. And I think, Tom, in particular, you called out a $10 billion opportunity pipeline or order pipeline, how do we think about timing on that? And what's been the customer reception since you've now owned the business? Thomas Bell: Yes. Thank you for that. And yes, we're very excited about Entrust, as I mentioned in my prepared remarks, we closed almost 2 months to the day from when we announced it. So a very clean, quick close, reflecting well on our team and the due diligence and the Leidos team. The integration, as I said, is seamless. The cultural alignment is fantastic. The deployment of AI tools into Entrust are a big bonus that those engineers are enjoying, and we are enjoying having learned some technology tools that Entrust had that we're going to benefit from our electric services business on our side. So it is truly a synergistic relationship. As you know, it expands our footprint and it also expands the value services we can provide Customers have been very receptive to it. There's -- even in customers where there is overlap, they see benefit in the scale we're now bringing to their projects and increased capacity that we're bringing to their problems. And in terms of the $10 billion pipeline, One of the benefits of this business is it is not as long a cycle business as the rest of Leidos. It tends to work a little bit more quickly. So as we book orders there, they are liquidated within a year or 2, and we book more orders. So I think you can see -- you can look for rapid growth of our new scaled energy business in the coming quarters and the coming years. Operator: Thank you. And I would now like to hand the conference back over to Stuart Davis for closing remarks. Stuart Davis: I want to thank you, Michelle, for your assistance on this morning's call, and thank you all who joined the call for your interest in Leidos. I look forward to getting together over the next quarter and enjoy this Cinco de Mayo. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
Operator: Thank you for standing by, and welcome to the First Watch Restaurant Group, Inc. First Quarter Earnings Conference Call occurring today, May 5, 2026, at 8:00 a.m. Eastern Time. [Operator Instructions] This call will be archived and available for replay at investors.firstwatch.com under the News and Events section. I would now like to turn the conference over to Steven Marotta, Vice President of Investor Relations at First Watch to begin. Steven Marotta: Hello, everyone. I am joined by First Watch's Chief Executive Officer and President, Chris Tomasso; and Chief Financial Officer, Mel Hope. This morning, First Watch issued its earnings release for the first quarter of fiscal 2026 on Globe Newswire and filed its quarterly report on Form 10-Q with the SEC. These documents can be found at investors.firstwatch.com. This conference call will include forward-looking statements that are subject to various risks and uncertainties that could cause the company's actual results to differ materially from these statements. Such statements include, without limitation, statements concerning the condition of the company's industry and its operations, performance and financial condition, outlook, growth plans and strategies and future expenses. Any such statements should be considered in conjunction with cautionary statements in the company's earnings release and the risk factor disclosure in the company's filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. First Watch assumes no obligation to update these forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law. Lastly, management's remarks today will include references to various non-GAAP measures, including restaurant-level operating profit, restaurant level operating profit margin, adjusted EBITDA and adjusted EBITDA margin. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in the company's earnings release filed this morning. Any reference to percentage growth when discussing the first quarter performance is a comparison to the first quarter of 2025, unless otherwise indicated. And with that, I will turn the call over to Chris. Christopher Tomasso: Good morning, everyone. Thank you for joining us to discuss our first quarter results as well as our plans for the balance of 2026. First, I want to express my appreciation to our entire team across the country, more than 17,000 dedicated employees whose commitment to making days brighter drives our success. We're pleased with our first quarter performance as several of our key growth initiatives supported solid financial results. We delivered same-restaurant sales growth of 2.8%, generated restaurant-level operating profit margin of 18.5% and expanded the system to 648 restaurants with the opening of 16 new locations. We believe our first quarter results and the benefits we are realizing from our growth initiatives line up well with our full year expectations. As a result, we are reiterating our fiscal 2026 same-restaurant sales growth and total revenue growth guidance. We're also raising the low end of our adjusted EBITDA guidance. Early last year, we began investing in digital marketing programs and accelerated that effort in the first quarter of 2026. We expanded the rollout of our digital marketing campaign to approximately 75% of our restaurant base, up from roughly 1/3 in 2025. Based on early analytics, we are already realizing a positive ROI on the increased expense in the markets receiving support for the first time in addition to the positive ROI in markets benefiting from a second year of investment, reinforcing our conviction in the strategy and plan. The campaign is built around a targeted multichannel approach that spans paid social, online video, paid search and connected TV, allowing us to reach consumers in a relevant and engaging way. We're encouraged by the engagement across several key measures. The campaign is attracting first-time customers who may not have previously considered the brand, reengaging customers who had lapsed in frequency and driving greater frequency among our existing customer base. At the same time, we are seeing improvement across key metrics, including gains in both unaided brand awareness and future purchase intent, which we believe are critical indicators of First Watch's long-term growth potential. These early results demonstrate that our increased investment is not only driving near-term traffic and engagement, but also strengthening the brand and building a higher lifetime customer value, so much so that we are pulling forward several million dollars of marketing spend into the second quarter from the back half of 2026. We're also pleased with the performance of our new core menu. As we discussed on our last conference call, we conducted extensive testing of the menu in 2025, our first comprehensive menu update in more than a decade. The primary objective was to elevate the overall guest experience while also simplifying execution and improving efficiency for our restaurant teams. Following the positive test results, we rolled out the new core menu system-wide by late February. Early reads have been positive across a host of KPIs. For instance, the 2 prior seasonal menu fan favorite items we highlighted, the Barbacoa Breakfast Tacos and the Barbacoa Chilaquiles Breakfast Bowl are both mixing above our expectations and both are higher-margin entrees. In addition, the menu enhancements are driving positive mix of our fresh juices, shareables and add-ons. The new core menu is constructively impacting our consolidated sales mix and overall check composition. We're seeing higher attachment rates and more frequent trade-ups, which have translated into per person check average growth in the first quarter that was incremental to our carried pricing. That dynamic indicates that customers are not only responding well to the updated menu, but also that the new design is encouraging them to explore deeper into our offerings, validating both the strategic intent and the financial discipline behind this important initiative. We also made a tactical decision to extend the duration of our Jumpstart seasonal menu from the traditional 10-week to 20 weeks, a first for our company. This move was motivated by 3 key objectives. First, the increased repetition realized in the longer LTO menu window enables our operators to focus on the exceptional execution of the new core menu. Second, we are using the extended time frame of our Jumpstart seasonal menu to evaluate how a longer-tailed marketing campaign could influence future seasonal menu mix as a percentage of consolidated sales. Encouragingly, attachment of our seasonal menu items has improved alongside the launch of the new menu. Even alongside the positive mix we are seeing from the core menu, it's exciting to see attachment to our seasonal offerings strengthen as customers respond enthusiastically to both. Third, we brought back several of our most successful limited time offerings to the menu in order to generate excitement and strengthen customer engagement. Among these returning favorites were the BEC, a Bacon Egg and Cheddar sandwich served on thick artisan Sordough and the Strawberry Tres Leches French Toast. The newest introduction, the Chimichurri Steak & Eggs Hash is now our highest performing seasonal entree of all time. Successful innovations in our restaurants, like those I've been sharing on this call, illustrate the power of the entrepreneurial First Watch culture. Promising ideas quickly rise to in-restaurant testing, which provides for optimization through the working partnership of our culinary and operations teams. The result is our rich portfolio of new initiatives and upcoming offerings. We recently wrapped up testing of the highest mixing new shareable item is Million Dollar Bacon, which will launch in just a few weeks. Moreover, a suite of offerings that are driving higher attachment and boosting the guest experience is going into test now with an expectation that they will earn their way under the core menu early next year. Shifting the spotlight to development and growth. We remain the fastest-growing full-service restaurant brand in the United States and the success of our recent classes reflects the benefits of following our disciplined real estate site selection criteria and our broad appeal. Our preopening period marketing builds anticipation and trial, which has been supported by our operations teams, who work together to ensure we are executing at a high level upon opening in the critical early months following and for years to come. The class of 2025 annualized sales remains solidly ahead of both our underwriting targets and our comp base. And while still early, our recent class of 2026 NROs is performing even better. Looking ahead, our priorities for 2026 and beyond are focused on driving durable, profitable growth. We're going to expand our presence in the new markets we've recently entered, moving briskly from market entry to market densification. By increasing restaurant density within a local market, we enhance regional efficiencies, broaden our customer base and build additional brand awareness. At the same time, we will continue to be disciplined about where we expand. We are strategically filling in core markets where we already have strong operating leverage while also expanding in emerging markets where we have identified compelling long-term demand and significant white space. The bottom line is First Watch works everywhere. Considering our proven portability, we have the competitive advantage of opening new restaurants in a balanced fashion across core, emerging and new markets on our march to 2,200 locations. We have established ourselves as the leader in daytime dining and continue to grow market share, strengthening our leadership position. When one looks across the landscape, there is simply no other daytime dining brand that brings together our scale, our discipline, our proven ability to grow consistently and the size of the white space still in front of us. Taken together, these attributes truly differentiate First Watch. We're energized by what lies ahead with ongoing innovation leading to growth, and we remain focused on doing what we do best, creating a wonderful place to work for our teams and delivering an experience that keeps customers coming back. And with that, I'll turn it over to Mel. Mel Hope: Thank you, Chris. Total first quarter revenues were $331 million, an increase of 17.3% with positive same-restaurant sales growth of 2.8%. Our top line growth results from the positive same-restaurant sales growth, coupled with contributions from 194 noncomp restaurants, including 68 company-owned new restaurant openings and 19 franchise locations acquired since the fourth quarter of 2024. Same-restaurant traffic growth was negative 2%, with weather negatively affecting the quarter by around 100 basis points in addition to our customary planned sales transfer. Excluding those impacts, underlying traffic trends remain consistent with our expectations. Food and beverage expense was 22.6% of sales compared to 23.8%. As a percentage of sales, costs benefited from carried pricing of around 4% and commodity deflation around 1.6%. The commodity deflation was driven primarily by eggs, avocados and a brief favorable market trend in bacon prices. Labor and other related expenses were 33.7% of sales in the first quarter, a 90 basis point improvement from 34.6% reported in the first quarter of 2025. Carried pricing offset 3.7% of labor inflation, while our labor efficiency was essentially flat as compared to last year. We realized restaurant-level operating profit margin of 18.5% in the first quarter of 2026, a 200 basis point improvement over last year. We realized a percentage margin of 0.3% this quarter at the income from operations line. At $39.9 million, general and administrative expenses were 12.1% of total revenue. The increase compared to last year was largely due to the scheduling of our leadership conference in the first quarter and the expansion of our 2026 equity compensation program. First quarter G&A expenses were lower than our plan due largely to the timing of certain activities. Although, our full year G&A expense plan remains unchanged, we are applying to the second quarter a portion of the marketing expense planned for the back half of the year, leading to our expectation that total second quarter G&A expenses will approximate the first quarters. Adjusted EBITDA increased 22.2% to $27.8 million, a $5 million increase versus the $22.8 million reported last year. Adjusted EBITDA margin was 8.4% as compared to the 8.1% margin we realized in the first quarter of 2025. Net loss was $2.7 million. We opened 16 new system-wide restaurants during the first quarter, of which 13 are company-owned and 3 are franchise owned and ended with 648 restaurants across 32 states. The net effect of acquisitions in the quarter, which includes only the impact of purchases made within the last 12 months, increased revenue by about $8 million and adjusted EBITDA by just over $1 million. For further details on the first quarter, please review our supplemental materials deck on our Investor Relations website beneath the webcast link. Now, I'll provide our updated outlook for 2026. We are reiterating the 1% to 3% range of same-restaurant sales growth, and we continue to expect positive same-restaurant sales growth in each quarter of 2026. Our guidance includes carry pricing of around 4% in the first half of the year, which blends to 2% for the full year. As a reminder, we did not take any price at the beginning of 2026. And as we have done in the past, we'll revisit menu pricing in the coming months. We continue to expect total revenue growth of 12% to 14% with around 100 net basis points of impact from acquisitions. We are reaffirming a total of 59 to 63 net new system-wide restaurants, which will result from 53 to 55 company-owned restaurants and 9 to 11 franchise-owned restaurants. We also plan to close 3 company-owned restaurants this year. Our company-owned new restaurant development pipeline is weighted to the second half of 2026 Q4 in particular. We continue to expect full year commodity inflation of 1% to 3%. Restaurant level labor cost inflation is expected to be in the range of 3% to 5%. We're raising the lower end of our 2026 adjusted EBITDA guidance range. Our new range is $133 million to $140 million, up from $132 million to $140 million previously. We're reiterating the net impact from the 19 restaurants we acquired in April last year, which are expected to contribute about $2 million to our adjusted EBITDA this year. We continue to expect capital expenditures of $150 million to $160 million. I want to acknowledge the execution across our entire organization this quarter. I'm proud of our operators, our field leaders and our home office staff who navigated a dynamic environment, including weather impacts, welcoming and training a host of new employees, opening high-volume new restaurants and adjusting to our new core menu. Our updated outlook for the year underscores our confidence in our operators and in our new restaurant development pipeline. We appreciate your continued interest in First Watch. And operator, we'd now like you to open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Jim Salera with Stephens Inc. James Salera: Chris, I wanted to start by just asking if you could give us some detail around the outperformance that you guys have seen relative to maybe the overall perception of breakfast. I think a lot of investors are concerned that breakfast is one of the more pressured dayparting restaurants given the kind of economic backdrop and yet you guys continue to deliver pretty durable same-store sales. So can you just help us kind of bridge that delta you guys are doing versus kind of the broader breakfast category? Christopher Tomasso: Sure. Thanks. I think for us, it comes down to really 3 things: experience, execution and value. So I think a lot of the news and noise around breakfast and the softness around breakfast really has been targeted more and coming more from QSR. And I think you've seen a lot in the environment here about consumers really looking for value, consistency and the experience. And I think we bring that every day. And so I just think that the consumer is putting a high value on that and finding time in their mornings and middays to come see us. James Salera: If we think about some of the potential impacts on the commodity front, given the energy cost increase following the Iran conflict. Is there anything you are keeping an eye on or we should be keeping an eye on as you start to contemplate pricing in the back half of the year? I know eggs have still come down significantly, but there's been some fluctuation on some other commodities. Christopher Tomasso: Yes, we'll be collecting all that information, and it's part of the consideration. We need to know where the customer is, and we consider that as part of the pricing philosophy and thinking that we'll go through. So it's -- the short answer to your question is absolutely, we think about the pressures that are on the customer from either gas or any other inflation that we see out there. Operator: Our next question comes from the line of Jeffrey Bernstein with Barclays. Jeffrey Bernstein: Great. Just following up from the comp trend perspective. Obviously, there was a spike in gas prices later in the quarter with the geopolitical concerns and the Iran conflict. I'm just wondering if you could maybe share your thoughts on your ability to work through that, whether there was any change in trend late in the quarter and perhaps into 2Q, if you're willing to share April, just related to the gas price spike. If you can share those sequential trends, that would be great. And then I had one follow-up. Christopher Tomasso: Yes. I think a couple of things from kind of what we just said that I could expand upon. One is the traffic pressure that we felt really was impacted more by weather than gas prices and fuel prices and other pressures. So -- and then when you heard me talk about the performance of our menu and our seasonal menu and how the guests are electing to spend more and go deeper on our menu and add shareables and things like that. That came a little bit later, obviously, because we didn't launch that menu until February. So we've actually been very pleased with how our consumer has interacted with us despite what's going on in the macro. So we're fortunate that we -- our core demographic is higher income. And I think we have a little more insulation to that. And I think the behavior that we're seeing from our customer, certainly as we innovate and give them new reasons to come in and work around our menu has been something that we've been very encouraged by. Mel Hope: And Jeff, our development team does a really good job of locating our new restaurants and the business is close to our customers. So in terms of just convenience, I think that's a helpful attribute that our system enjoys in terms of being near the customer and convenient to them. Jeffrey Bernstein: Understood. And then just a follow-up. Well, first of all, whether you're willing to share April trends or whether there's been any change in trajectory. But otherwise, you did reiterate that you expect positive comps each quarter of this year. The compares are clearly much more difficult. In fact, the third quarter, they're like 600 basis points more difficult than the quarter you just completed. So just wondering your confidence in that. Maybe there are particular initiatives to support such confidence. I'm assuming marketing is near the top, but your willingness to guide to positive through the rest of the year and what gives you that confidence? Mel Hope: Yes. We haven't seen a big shift in the trend in terms of the overall growth or what we have planned for the year. Operator: Our next question comes from the line of Brian Vaccaro with Raymond James. Brian Vaccaro: Just to ask on the First Watch value proposition and kind of your thinking on menu pricing. And maybe you could just talk about how you view the relative value proposition and price points kind of specifically versus some direct peers of the broader category. And when you think about menu pricing, assuming something material doesn't change in terms of the consumer backdrop, do you plan to take something in the second half, given there's still some underlying inflation, whether it be food, labor, et cetera? Christopher Tomasso: Brian, you know us well. You know you're not going to get that answer, but I appreciate you asking. Our philosophy does not change despite the macro environment. You saw what we did when we had record inflation. We will always lean towards the consumer whenever we can. And sometimes that means taking it on the margin. And sometimes it means we catch up a little bit later on. So I'd just tell you that we go into the beginning of the year and the middle of the year, really looking at things that we control. I think you heard me say that the seasonal menu is driving mix above our carried pricing. We love that, obviously. It's -- that's very different than taking price on a like-for-like item and a consumer paying one price one day and another price another day. So -- that's how we like to build check is through innovation and things like that. That said, we see the realities of inflation and other things, labor and all of that, and we try to keep that nice balance. We do know from our research that we have tremendous pricing power, but we also know that the consumer is under pressure. So we really try to walk that fine line. But we go into, and we're about to do it here in the next couple of weeks, a full evaluation of that. And I will say that we feel good that our consumer, our customer is behaving a little bit differently than what we're seeing and hearing out there. And I think it's because of the cocktail of things that we've put out there and put in place 18 months ago. The menu that we launched now has been something we've tested for 18 to 24 months. Same with the marketing and media. You know how we've kind of done the crawl walk run on that. Well, that's all leading to kind of bring together of all those things for our benefit and for the consumer's benefit. So the direct answer to your question is we're going to evaluate it here for a midyear price increase, and we'll do what we think is best. Brian Vaccaro: All right. You know, I had to take a shot at it, but I appreciate that. On commodity inflation, just a quick follow-up. Obviously, nice to see a little bit of year-on-year relief here in the first quarter, Mel, you noted some brief bacon relief maybe, but you obviously reiterated the guide for the year. So can you help us square those 2 a bit? And any color you can provide sort of on your Q2 expectations versus what's embedded in the second half? Mel Hope: So we did have some first quarter relief. The pork prices were a little bit unexpected relief in terms of price for us because our contracts are priced off published agency rates. And during the period that the government shut down, the agency prices were held flat rather than continue to ascend during the period. So that was a little bit of a surprise to us on an important commodity, but also our crop-related commodities of avocados and coffee continue to be expected to rise some through the year. So even though we enjoyed some relief in the first quarter, we are seeing sort of the seasonal increases in some of those. So we're -- our 1% to 3% guide on inflation in COGS, we're standing on that pretty firmly. Brian Vaccaro: All right. And then maybe just one more quick one. Thanks for the color on the G&A pull forward into Q2. Pretty clear on that. But can you just remind us what your expectations are for G&A for the year? Mel Hope: We don't guide to G&A for the year. It's just embedded in our adjusted EBITDA guidance. Operator: Our next question comes from the line of Andrew Charles with TD Cowen. Zachary Ogden: This is Zach Ogden on for Andrew. So you talked about the 1Q mix being driven by the new menu, but that was only fully rolled out for about a month. So is your expectation that mix can actually accelerate further in the balance of the year relative to 1Q? Christopher Tomasso: Yes. Just for clarity, it was about 2 periods in the quarter. So -- and again, it's also -- that mix is also driven by the seasonal menu that is out right now that has our highest mixing item ever. So that's driving it, too. But yes, we don't plan for mix, but based on what we've seen as long as the rest of our seasonal menus deliver the way the first one has or similar to it or on a year-over-year basis, I wouldn't be surprised to see positive mix. Zachary Ogden: Got it. And then you talked about the class of 2026 actually being even stronger than the class of 2025. So can you talk about what's driving that? Is that more of a function of the second-gen sites you're shifting into this year? Or is that a separate factor? Christopher Tomasso: I think the mix of second-gen sites is similar from a percentage standpoint, about half. So I wouldn't say it's necessarily that. I just -- to Mel's point, we're just -- that's an area where we are constantly learning and adapting as we either in site selection or prototype execution, design, those type of things. And that's one of the beauties of our model where we can kind of do those things. We have a kit of parts that we apply to each restaurant. So no 2 of them look alike, but they have very recognizable elements. And we're just constantly getting better. I think if you go back and look at our -- the performance of our new restaurants over the last 7, 8 years, you'll see that every year has gotten better than the last, and we have some standouts in each class. And so that's something that we just continue to innovate around and get better. Actually, I want to add one more thing to that. We've also -- with that comes the evolution of our preopening marketing and building the anticipation for the openings and that type of thing. So we're seeing stronger openings than we've ever seen before, and then they just carry on from there as well. Operator: Our next question comes from the line of Sara Senatore with Bank of America. Sara Senatore: I wanted to ask about marketing. You mentioned that you're pulling forward marketing, but your annual G&A target is unchanged. I guess is the implication that even if the ROI remains quite high, you wouldn't increase the annual spend on marketing? I'm just looking at -- I think last year, I know what you report in your 10-K is maybe not comprehensive, but it looks like you kind of doubled marketing last year. So just trying to understand, given how high the ROI appears to be, whether you would think about just stepping up the marketing budget for the full year? And then a quick follow-up. Christopher Tomasso: I guess -- probably an easy way to think about it is that G&A is the cocktail of a lot of different items, too. So when we maybe throttle up or down the marketing spend. There may be some other areas where we can dial back or push it out. So we manage G&A throughout the year. So the timing shifts from time to time based on what we think is important and what people will respond to at certain times of the year. So those adjustments, I mean, they're ordinary and normal. So we are continuing to manage our G&A inside what our full year plan is. Mel Hope: But specific to marketing, what I would say is by pulling that forward and getting more time to read the results of those dollars being spent gives us the flexibility and optionality to consider doing what you mentioned, Sarah, later in the year should the environment be conducive to that. Sara Senatore: Okay. Got it. And then, Mel, just on the -- you also mentioned that the G&A in the first quarter was slightly below to the same point, below your expectations. And is that the reason your EBITDA beat was a little bigger this first quarter than the full year guidance raised at the low end. Is that how I should think about it, which is some of that beat was maybe timing of G&A? Mel Hope: Yes, that's right, some favorability. Operator: Our next question comes from the line of Brian Mullan with Piper Sandler. Brian Mullan: Just a question on marketing also. If you look at the restaurants that have had the enhanced marketing tactics in place for longer, so maybe the first third of stores, are those performing differently than the stores they got it only more recently? I think what I'm really trying to ask is do the benefits build over time, do you get an initial lift and maybe followed by more benefits? Any color you could shed on that? Mel Hope: Yes. The lift in the restaurants that enjoyed some additional marketing spend last year has been sustained. So we're continuing to spend in those as well. So it's been effective for them not only last year when it was introduced there, but now in this year as well. Christopher Tomasso: And obviously, that was part of what we wanted to evaluate was the cumulative effect of a class, if you will, or a group receiving support and then receiving it again the following year what we should or could expect when that happens. And so that's part of our overall marketing planning as well, certainly as we go through the rest of the year and then into next year. Brian Mullan: Okay. And then as a follow-up, could you just comment maybe on the delivery channel broadly or generally speaking, really strong growth last year, you have to lap it. Is that kind of in the base now and you can grow more slowly? Or would you expect a little mean reversion this year? Just any comments on the balance of the year? Mel Hope: We've continued to see growth there, not to the level that we saw last year. But what we said earlier was that it's kind of in the base now, and we expect it to grow similarly to the rest of the system. And we're pleased that we kind of set a new level that we're growing from organically at this point. Operator: Our next question comes from the line of Jon Tower with Citi. Jon Tower: Chris, this one is for you. I'm just curious, obviously, you mentioned earlier that your new stores are performing exceptionally well, and they continue to build new class year after year after year, getting better in terms of productivity. The backdrop, though, within the competitive set has certainly weakened, at least based on what we can look at in terms of where you guys were thinking around the time of the IPO versus today. So I'm just curious if you can comment on the company's thinking around development over time and the commitment to that long-term low double-digit percent growth for units that you've spoke to over time. Christopher Tomasso: Sure. I think if you look back at how we've grown and how we got to this leadership position over the years, it was through our organic company-owned growth, acquisitions, sizable ones for that matter, external M&A and franchising at some point. This was really at a time when we had a lot of players in our space, in our direct space, at least espousing that they were going to have aggressive growth. And so we absolutely took the opportunity to take footholds in markets -- key markets for us and did so aggressively, and we continue to do that now. But that said, we're always looking at our capital allocation, what's the best strategy for the next 5 years, that type of thing. And so we're comfortable with our current unit growth outlook right now, but we are always evaluating. And if that changes, we'll obviously communicate that appropriately. Jon Tower: Okay. And then maybe just switching up a little bit. In terms of -- you talked about the new menu and the marketing helping with building brand awareness and it sounds like traffic too, to some extent. Can you speak to maybe any complexion of the customer base that you're drawing in with the new marketing campaigns? Are you seeing maybe younger guests come in relative to your existing base? Are you seeing less affluent consumers move into the stores for the first time versus kind of the core base that you have out there? Christopher Tomasso: Yes, that's a great question. We have seen our average age go down for the entire system. And a lot of that's driven by the new market entries, the new restaurants. And if you look -- I mean, if you look at the way our marketing is the channels that we're using, it's a little bit of a self-fulfilling prophecy with our focus on digital and social and that type of thing. So it's something that we're targeting. But we've actually seen quite a bit of growth in millennials. And so just the overall mix of our customer base now is dynamic and is changing, but it's going in the right way. And that's why we talk about attracting the next generation of First Watch customers so that we've been around 43 years and to kind of set us up for the next couple of decades by having a strategy like this. And as we've seen with other concepts, that's not an easy thing to do to keep your current customer base happy and engaged and coming while you engage and onboard, if you will, that next generation. So I think our teams have done an incredible job doing that. And I'm really pleased with the mix of our consumer. We haven't seen anything from -- you mentioned about higher income and that type of thing. Obviously, millennials from an income standpoint, act more like a high-income cohort in the way they choose to prioritize certain things that are important to them. And I think experience is one of those things. So that's a group that's willing to lean in on that. So I just think our offering is so ideal for this kind of transition to broadening our demographic appeal, the social occasion, the social gathering, group dining, brunch, those type of things. So yes, just long answer to it, we are seeing our customer cohort skew a little younger. Operator: Our next question comes from the line of Todd Brooks with Benchmark StoneX. Todd Brooks: Chris, you had said on the last call that you were equally as excited about the potential for the new menu versus the expansion of the enhanced marketing activities to be drivers of the business. here in fiscal '26. I guess, a, any surprises in how things performed across Q1 that either increased or maybe have you favoring one of the initiatives as a driver versus the other? And b, how is kind of the Q1 performance and what these key tactics are delivering kind of bolstering your confidence to still maintain the commentary about positive same-store sales in each quarter for the balance of the year? Christopher Tomasso: Yes. My comment comes from my philosophy of the menu being really the #1 marketing tool. It's something every one of our customer touches. We can -- there can be a cause and effect relationship immediately that you can see and how customers respond to what you've done, how you've innovated. And so I'm not surprised by what we're seeing from the new menu. I think even before we got it in test, there was a level of excitement around here about how it's being presented. We derisked it by bringing on some customer favorites from the past. And so I'm just really pleased that the consumer responded the way we expected them to. We've been very pleased by some of the add-ons like potatoes becoming million potatoes and add an egg and adding salmon to your avocado toast. And these aren't things that we just sat around and talked about. These are things that through our Y tour in speaking with our hourly employees, we hear that customers were adding salmon to the avocado toast. And so why not put it out there and see, okay, if people are willing to ask for it when it's not on the menu, if we put it on there and raise the profile of that, would we see the penetration and we absolutely have. So building the check that way in a way that the consumer wants to do it, again, versus just increasing prices on like-for-like items to me is the most healthy way to drive check, and we've seen that. I will say that, I think all of these things together, whether it's all the work that we did a couple of years ago with the KDS system and the dining room optimizations and the digital waitlist management improvements now coupled with the evolved menu and the increased marketing, I think, is all a really nice mix that's helping us to outperform the industry and deliver results like this. Todd Brooks: That's great. My follow-up and then I'll jump back in queue. Obviously, a really strong opening quarter here in Q1. And I think, Mel, you talked about still looking for a second half and fourth quarter focused balance to the openings for the year. Any cadence you give us first half versus second half on openings? And you talked about densifying markets here in '26. You had the strong same-store sales performance, almost up 3%. But what -- can you share with us kind of the anticipated sales transfer that you plan to absorb this year with more of a focus on backfilling in existing markets? Mel Hope: Yes. So in terms of the cadence of openings, we historically kind of have a big fourth quarter just because human nature tends to push projects a little bit heavier into the fourth quarter. And so I think at least for the average throughout each of the remaining quarters of the year, it's probably pretty similar this year to last year as we continue to try and improve that over time so that we can eliminate bulges in the development that put strain on our operators. So I would -- I'd kind of look to the cadence that we had last year as pretty similar for us this year. And then in terms of densification and sales transfer, when we underwrite new projects, we always consider the sales transfer and we -- and the new restaurants need to cover for that. They need to perform a little bit better in order to sort of pay back the other restaurants that experienced some temporary sales transfer. But that's all pretty planful for us and built into our overall underwriting. So when we say that, restaurants are outperforming or they're doing according to plan, we've already determined what we believe is the sales transfer. And it's generally within our range of expectations overall. We don't typically quantify it, because there's lots of factors that go into the success of building out a market or fortifying a market or cutting off competition or some of those other advantages as well. So we know what it is internally. We don't speak to it publicly very much. But generally, it's part of all the strategic consideration of how we build out a market and how we fortify the brand against a competitive intrusion as opposed to our own sales transfer. Christopher Tomasso: And Todd, I think that's one of the things that -- the point that sometimes gets lost on us because there aren't many, if any, high-growth full-service concepts out there that we do have -- we're a high-growth concept. We have sales transfer as we fortify these markets and do that. It's not immaterial, and it's just a natural headwind to restaurant traffic. But we view it as a positive one rather than any weakness in the core business because for us, same-restaurant traffic is certainly one of the metrics we look at, but there are so many other ones that we do as well. But for us, the profitable market share growth, the attractive new unit returns, all of those things together for us is what we look at and evaluate. So as Mel said, we model for it. We plan for it in the new restaurants, and it's something we've had for a while. Operator: Our next question comes from the line of Gregory Francfort with Guggenheim Partners. Gregory Francfort: I have 2 questions. My first is just labor per operating week growth and it was obviously a lot slower this quarter. And anything to call out maybe besides wage rate, just any other kind of onetime drivers? Mel Hope: Of the labor inflation, you kind of got garbled at the first part of your question on our phone. Can you just say it again? Gregory Francfort: Yes. Sorry, just labor operating week growth. You got more leverage on that line than maybe I expected. Any call-outs or anything else that might continue through this year? Mel Hope: No. I think our operators -- just compared to the first quarter of last year when there was -- when our traffic was under so much pressure and the inflation was affecting everybody. I think our operators had to adjust, but it wasn't sort of a linear adjustment. This year, we have a better operating environment, and that makes it a little bit more predictable in the restaurants in order to manage the crews and to drive operational initiatives through the organization that are efficiencies or staffing, that kind of thing. So nothing remarkable. It's the hard work in Elbow Grease of a good operating crew. Gregory Francfort: Got it. That's helpful. And then maybe this question is for Chris. Obviously, the stock has been maybe more pressured than you or I would have expected. And the returns are still better to develop than they are maybe to buy back stock. But I guess, have you considered potentially doing that? And are there other ways to maybe signal to the market your enthusiasm? And I'm just curious kind of how you think through that piece of the capital allocation, maybe the returns on buying stock versus developing stores, even if it's a lower return, maybe it's more certain. Just any thoughts there? Christopher Tomasso: I'd say the answer to your question is that I agree with you on the stock performance. And I'll just go back to my point that we are evaluating capital allocation. And we have very good returns on our new restaurants. We're creating a vast network of cash-producing machines at high returns and something that the consumer is interested in, right? So we wanted to take advantage of that. But overall, I'd say that from a capital allocation standpoint, we, as a management team and our Board, always look at opportunities to optimize that. And so we'll continue to do that. Mel Hope: And I think Chris is exactly right. Right now, the right thing for the company to do and our strategy is to continue to grow that cash engine, cash production engine. And the day that there is a shift in strategy, we owe the market a lot of explanation about how we -- how that would take place. But you want that cash engine to be as big as it can be. Therefore, you have more options of what to do with the excess cash at the time you make that shift. So I think continuing to build with the kind of returns we get out of our restaurants, the -- our capacity, the way we're building out markets, I think taking advantage of that now is important in the life cycle of the company right now. So building that cash engine is building a lot of value for the future. Operator: Our last question comes from the line of Chris O'Cull with Stifel. Christopher O'Cull: Chris, can you just elaborate on the decision to eliminate the COO position? And maybe what you see as the biggest areas of opportunity with operations to drive efficiency and maybe even improved guest experience? Christopher Tomasso: Yes, absolutely. I think as we looked at our overall G&A setup, and there were a couple of things. It was just a natural evolution for us. And -- but more specifically, it got me closer to operations, which I think is important. It's something that I've done for a long time here in this company and the opportunity to work more closely with the operations leaders. The way we restructured it, it only added one direct report to me. We created 2 SVPs of operations and basically split the country, and I'm able to now be more involved in a day-to-day basis on ops execution and ops strategy, frankly, and kind of be that one foot here, one foot in the field. And I'm excited about it. I think the team is excited about it, but I know we'll be a lot more efficient and effective because I can be more involved. Operator: Thank you. This now concludes our question-and-answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Welcome to the Match Group, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. By pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Tanny Shelburne, Senior Vice President of Investor Relations. Please go ahead. Tanny Shelburne: Thank you, operator, and good afternoon, everyone. Today's call will be led by CEO, Spencer Rascoff, and CFO, Steven Bailey. They will make a few brief remarks, and then we will open it up for questions. Before we start, I need to remind everyone that during this call, we may discuss our outlook and future performance. These forward-looking statements may be preceded by words such as “we expect,” “we believe,” “we anticipate,” or similar statements. These statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our earnings release and our periodic reports with the SEC. Also during this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the published materials on our IR website. These non-GAAP measures are not intended to be substitutes for our GAAP results. With that, I would like to turn the call over to Spencer. Spencer Rascoff: Good afternoon, and thanks for joining us. Match Group, Inc. entered 2026 with tangible progress on the three-phase transformation we outlined last year: reset, revitalize, and resurgence. We completed the reset phase in 2025, and we are now well into revitalize, focused on improving product experiences, strengthening the ecosystem, and rebuilding growth. We are operating with greater focus and discipline. The portfolio is sharper, execution is faster, and we are leveraging our scale more effectively through our OneMG approach. We are reinvesting where we see clear opportunities to improve user outcomes, while continuing to return meaningful capital to shareholders. Our progress is showing up in three areas: First, leading indicators at Tinder are showing momentum, reflecting better product experiences for Gen Z, and that progress is increasingly translating into top-line metrics like monthly active users, or MAU, payers, and direct revenue. Second, Hinge continues to scale, combining strong revenue growth, rapid product innovation—particularly in AI-driven features—and continued international expansion. And third, we continue to streamline our portfolio and organizational structure, simplifying how we operate and focusing resources on our highest-conviction opportunities. Looking ahead, our objective is to drive a resurgence with our audience by reestablishing Tinder as a growth business during 2027 through restoring durable user engagement and relevance at scale. And all of this is happening alongside disciplined financial execution. In Q1 2026, we exceeded our revenue and adjusted EBITDA expectations on the back of strength at Tinder. Steve will walk through the details shortly. Turning now to Tinder’s product-led turnaround. From the beginning, I have said this will be a product-led turnaround, starting with user outcomes and moving up the funnel towards user growth. Our most important leading indicators—Sparks and Spark coverage—continue to improve. In March, Sparks, the number of users engaging in six-way conversations, were down only 1% year over year, a meaningful improvement from down 11% year over year in March 2025. Spark coverage, which measures the percentage of our users who experience a Spark in a given period, was up 6% year over year in March, compared to down 1% year over year in March 2025. These are our clearest signals of product efficacy and real connection, and they are improving. As we have said before, our belief is improving Sparks leads to better retention and stronger word of mouth, driving MAU over time. We are now starting to see that play out. MAU declines continued to moderate in March, down 7% year over year, the slowest rate of decline in 31 months, compared to down 10% year over year in March 2025. This improvement was driven by a few factors. First, user retention increased, up 1% year over year in March after multiple years of decline. U.S. Gen Z women retention, a critical cohort for ecosystem health, was up 3% year over year in March. Second, registrations returned to growth for the first time since June 2024, up 1% year over year in March compared to down 12% year over year in March 2025. This is proof that the brand is resonating through marketing and word of mouth, driving new users into the experience. We are seeing this progress across different geographies and demographics, including in markets where we have had the most ground to recover. Progress may not always be linear, but the year-over-year trajectory of these leading indicators and user engagement underscores our confidence in the strategy, and we expect it to translate into revenue growth over time. Let me highlight a few of the efforts driving these improvements, many of which we showcased at our Tinder Sparks event in March, which is available on our IR website. First, recommendations. We have sharpened how Tinder understands what users are looking for and how we deliver matches across the ecosystem. By learning preferences earlier, showing more relevant profiles, and better serving both active and returning users, we are helping people find matches faster and driving more conversations, with particularly strong gains for women. Next, product innovation. Features like Astrology Mode and Music Mode are gaining traction with Gen Z following their mid-March launch, reaching 19% and 8% adoption, respectively. We are also seeing encouraging early signals on user outcomes. For example, in our early read, women who swipe on astrology cards are more likely to reach a Spark than those with non-astro cards. Like Double Date, these signals show new modes are resonating by making discovery more expressive and lower pressure, which is exactly what Gen Z users have been asking for. And finally, trust and safety. We continue to scale FaceCheck into more regions, including the recent launch in the U.K. and Singapore. FaceCheck is improving authenticity and user trust, with particularly strong trends in the U.S., where net promoter scores have been trending higher. Importantly, the revenue impact from our ongoing user experience tests remains within the range that we planned. Simply put, Tinder works better now. We are not at the finish line, but the turnaround is clearly underway. Turning to Hinge, where product-led growth continues to scale. Hinge continues to build thoughtful, best-in-class experiences for highly intentioned daters. The team remains focused on a key objective: helping users get out on great dates. That clarity is driving its product roadmap, which is both rapidly advancing the core experience and introducing new and compelling features. Starting with the core experience, Hinge is strengthening profile quality through a redesigned onboarding experience that encourages users to slow down and reflect on what they are looking for before viewing profiles. Structured prompts help users more clearly communicate their relationship goals, their personality, and preferences from the start. The experience is also more interactive, giving users more visibility into how they are represented and improving confidence during profile creation. We plan to expand this globally by Q2. In parallel, Hinge continues to strengthen trust within the experience with FaceCheck, which is now fully rolled out in the U.S., U.K., Australia, Canada, Brazil, and Mexico, with additional markets planned for Q2. In these markets, the feature has reduced interaction with bad actors by 20% to 30% with minimal impact on revenue. Originally developed by Tinder, FaceCheck showcases portfolio-wide innovation, enabling Hinge to quickly iterate and bring the feature to market faster. Building on its stronger core experience, Hinge is introducing a set of category-first features designed to better express intent and help users move from connection to date. First, Hinge is reducing friction in getting to great dates with Date Ideas, a feature formerly known as Direct to Date, which allows users to propose a date idea and time upfront to clarify intent and move matches to real-life meetings faster. Early feedback has been encouraging, with nearly 9% adoption in testing—one of the highest rates we have seen for a new profile feature—and users expressing genuine excitement on social media. So far, users are defaulting to familiar, low-effort date ideas like dinner, drinks, and walks, while custom date ideas skew toward light, conversational activities like bowling, arcades, museums, and mini golf. Second, Hinge is expanding the role friends play on daters’ profiles with Friends Take, which addresses two core tensions: representing yourself authentically and navigating dating alone without community. Building on Hinge’s prompt-native format, the feature allows users to invite trusted friends, on and off Hinge, to contribute short reflections to their profiles, adding credibility and helping users get to know one another more deeply. Friends Take will begin testing by Q2 with broader rollout expected in Q3. We see potential for it to be a top-of-funnel driver similar to Voice Prompts a couple of years ago. Third, Hinge began testing Signals, a new feature designed to make effort and intentionality more visible. When users consistently demonstrate thoughtful participation—by doing things like completing their profile, responding to messages, and engaging in meaningful conversations—they earn a Signals badge on their profile. This badge signals to others on the app their level of effort and intentionality, addressing a long-standing friction point in the category, particularly for women and younger daters. Early results show improvements in dating outcomes and user behaviors that benefit the overall ecosystem. As we invest in these types of intentional features, we are creating new surface areas to potentially monetize later. Hinge demonstrates the simple principle that when product-market fit is strong and user outcomes are clear, growth follows and the model scales. Hinge continues to lead the category in product innovation through its consistent focus on user outcomes, and it has led to strong financial results. We are excited to see the impact of Hinge’s product roadmap on the business this year, as it continues on its path to be a $1 billion business by 2027. Now turning to our OneMG approach in action. We are continuing the work that we began last year to simplify the organization and operate more effectively as one Match Group, Inc. As part of this effort, we folded our MG Asia business unit into our E&E business unit. This brings our two Asia-based businesses, Azar and Pairs, closer to the rest of the company, removes a management layer, and improves efficiency, while maintaining in-region cross-brand go-to-market capabilities. We expect this change to result in roughly $15 million in annualized cost savings, including stock-based compensation. It also enables more cohesive portfolio management, faster execution, and application of shared capabilities and resources. On Azar, as we previously disclosed, Apple temporarily removed the app from the App Store on 02/22/2026. The team moved quickly to make adjustments, which led to the reinstatement of a new version on 04/06/2026. While still early, registrations and MAU are beginning to recover, but the new app experience is monetizing at lower levels than the previous version. We are testing changes to the product to improve monetization, but expect continued pressure on Azar direct revenue over the balance of the year. With the consolidation of MG Asia into E&E, we have transitioned our Seoul-based MG AI team of more than 20 talented data scientists and machine learning engineers to report into Tinder’s CTO. This team will continue building shared OneMG technologies, including AI-driven photo uploading and AI-enabled recommendation algorithms, but will now operate with closer alignment to our largest business unit. In addition, we are shifting nearly 30 product, engineering, and analytics employees from Azar to Tinder in Seoul. These moves concentrate resources into Tinder at a critical moment, supported by excellent executive leadership, an accelerating product roadmap, and improving business momentum. Following this move, we will have a nearly 60-person team focused on Tinder in Seoul, making it our third-largest tech hub after Palo Alto and Los Angeles. We have also made progress in unifying performance marketing by further centralizing teams and resources into a OneMG organization that buys digital media across brands. We spend nearly $600 million globally across 20 or more brands, with significant efficiencies available to us as coordination increases. We are also bringing certain areas of E&E closer with Tinder, starting with the executive layer where I now directly oversee both business units. This has unlocked significant opportunities for better coordination and synergies, including the marketing changes I just mentioned. As I have dug into E&E the last few weeks, we have identified many areas Tinder and E&E results can be improved through tighter coordination, collaboration, and integration. Finally, it would not be a 2026 earnings call without discussing AI. We see AI as a core enabler of improving user outcomes, enhancing product experiences, increasing relevance, and accelerating development and iteration across the portfolio. To support this, we have launched a global AI enablement program that gives every employee access to leading AI tools with the goal of becoming an AI-native company. We are also reassessing our hiring plans with AI enablement in mind and plan to reduce headcount growth over the remainder of the year. And we are standing up a cross-company AI leadership team to help ensure consistent deployment of capabilities and avoid fragmentation across brands. These changes are about operating more simply and more effectively. We are simplifying the portfolio, focusing resources on our highest-conviction opportunities, and adapting quickly where we believe the category is going, not where it has been. That is OneMG in practice. Now for some final thoughts. Stepping back, we have aligned our business around distinct user intents, with each brand serving a different and important role. Together, they expand our reach across a broad and growing market for human connection. Within that framework, in April, we made a $100 million investment for a significant minority stake in Sniffies, a differentiated platform with strong product-market fit and a highly engaged user base. We have the option to acquire the remaining equity in the future, similar to the approach we took with our initial investment in Hinge back in 2017. Sniffies reinforces our commitment with non-heterosexual men, which represent a large and growing portion of the category. We see a clear opportunity to lend our expertise in areas like trust and safety and geographic expansion, while preserving what makes the platform unique to its community. As part of this investment, we plan to wind down our gay male app, Archer, which we expect to result in roughly $10 million in annualized cost savings including stock-based compensation. We built a stronger foundation and are now seeing that translate into real momentum. By improving how people connect and delivering better outcomes for users, we are setting the business up for durable growth. That is what gives us confidence in the path to resurgence. Over to Steve now. Thanks, Spencer. Steven Bailey: We delivered a strong start to the year, exceeding both our revenue and adjusted EBITDA expectations. The outperformance was primarily driven by better-than-expected direct revenue and payers trends at Tinder and a benefit associated with Canada’s rescission of its digital services tax. I will walk through the key drivers of the quarter and then turn to our guidance. Unless otherwise noted, all amounts are on an as-reported basis and comparisons will be discussed on a year-over-year basis. More details can be found in the financial tables below and in the financial supplement on our IR website. In Q1, Match Group, Inc.’s total revenue was $864 million, up 4%, flat on a foreign-exchange neutral basis. FX was $3 million better than we expected at the time of our last earnings call. Payers declined 5% to 13.5 million, while RPP increased 10% to $20.90. Indirect revenue of $16 million was down 14%, largely driven by a decrease in spend from top advertisers as compared to a record quarter the prior year. In Q1, Match Group, Inc.’s adjusted EBITDA was $343 million, up 25%, representing an adjusted EBITDA margin of 40%. Canada’s rescission of its digital services tax positively impacted adjusted EBITDA by $11 million in the quarter. Tinder direct revenue in Q1 was $455 million, up 2% and down 3% FXN. Q1 direct revenue includes an approximately $5 million negative impact from user experience testing in the quarter. Payers declined 5% year over year to 8.6 million, a marked improvement from the 8% year-over-year decline in Q4 2025. RPP increased 7% to $17.56. Adjusted EBITDA in the quarter was $237 million, up 4%, representing an adjusted EBITDA margin of 51%. Hinge maintained momentum in Q1 with direct revenue of $194 million, up 28% and up 24% FXN. Payers increased 15% year over year to 2 million, and RPP increased 11% to $33.13. Adjusted EBITDA was $71 million, up 66% year over year, representing an adjusted EBITDA margin of 36%. E&E direct revenue in Q1 was $139 million, down 7% and down 10% FXN. Payers decreased 16% to 2 million, while RPP increased 11% to $22.97. Adjusted EBITDA was $39 million, up 37%, representing an adjusted EBITDA margin of 28%. Match Group Asia delivered direct revenue in Q1 of $60 million, down 6% and down 7% FXN. Azar direct revenue was down 6% and down 9% FXN, and was negatively impacted by an estimated $3 million from its temporary removal from the App Store. Pairs direct revenue was down 6% and down 4% FXN. Across Match Group Asia, payers declined 9% to approximately 900,000, while RPP increased 2% to $21.74. Adjusted EBITDA was $21 million, up 11%, representing an adjusted EBITDA margin of 35%. As a result of the organizational changes associated with Match Group Asia that Spencer discussed, beginning with our Q2 2026 results, we will combine the Match Group Asia and E&E business units into a single operating segment called E&E and report Match Group, Inc. results across three operating segments: Tinder, Hinge, and E&E. Now on to consolidated operating costs and expenses. Including stock-based compensation expense, total expenses in Q1 were down 5%. Cost of revenue decreased 11% and represented 24% of total revenue, down four points as a percent of total revenue, primarily driven by alternative payment savings. Selling and marketing costs increased $6 million, or 4%, but remained flat at 19% of total revenue, as a result of increased marketing spend at Tinder and Hinge, partially offset by reduced marketing spend at E&E and Match Group Asia. General and administrative costs decreased 20%, down three points as a percentage of total revenue to 10%, driven by the Canadian digital services tax reversal of $11 million and lower employee compensation, including stock-based compensation. Product development costs decreased 3%, down one point as a percentage of total revenue, at 14%. Depreciation and amortization increased by $16 million to $48 million due to impairments of intangible assets of Azar totaling $25 million, resulting from changes required to reinstate the app in the Apple App Store. Our trailing-twelve-month gross leverage was 3.1x, and net leverage was 2.3x at Q1. We ended the quarter with $1 billion of cash, cash equivalents, and short-term investments on hand, and plan to use $424 million of cash to pay off the 2026 convertible notes on or before the maturity in June. Year to date through Q1, we delivered operating cash flow of $194 million and free cash flow of $174 million. We repurchased 2 million shares at an average price of $31 per share on a trade-date basis for a total of $60 million, paid $44 million in dividends, and deployed $75 million of cash towards net settlement of employee equity awards, equating to 103% of free cash flow. Between 04/01/2026 and 04/30/2026, we repurchased an additional 700,000 shares at an average price of $32 per share on a trade-date basis for a total of $22 million. As of 04/30/2026, we reduced diluted shares outstanding by 5% year over year. We also used $100 million in cash on hand to acquire a minority stake in Sniffies, which we announced on 04/27/2026. Our capital allocation strategy centered on returning capital to shareholders through buybacks and a dividend remains unchanged. Now for guidance. We expect Q2 total revenue for Match Group, Inc. of $850 million to $860 million, down 2% to flat year over year. This range assumes a one-point tailwind from FX. FXN, we expect total revenue to be down 1% to 3% year over year. Q2 total revenue guidance assumes a $10 million negative impact from Tinder’s user experience tests and a $20 million negative impact from lower Azar direct revenue. We expect Match Group, Inc. adjusted EBITDA of $325 million to $330 million, representing a 13% year-over-year increase and an adjusted EBITDA margin of 38% at the midpoints of the ranges, as we remain financially disciplined and continue to optimize our cost structure while making the necessary investments that we believe will drive long-term growth in the business. We will now open the call for questions. Operator: We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Shweta R. Khajuria with Wolfe Research. Please go ahead. Shweta R. Khajuria: Thank you for taking my questions. One on the Tinder sort of turnaround and the leading indicators you are seeing—the metrics you called out are very promising. Could you please talk to whether you saw continuation of these trends into April and I guess now early May? That is the first question. And then the second question I have is around your AI cost savings. How should we be thinking about all these cost savings that you may have either from integrating business units and also driving productivity with AI tools? And it seems that you have greater and greater potential for margin if you wanted to, either this year or next year. So how should we be thinking about that? Thanks a lot. Steven Bailey: Yes. Thank you for the questions. Spencer Rascoff: So, firstly, yes, Tinder’s momentum has continued into April. Just to take a step back, and then I will share some April data. The product-led turnaround at Tinder is clearly well underway, and I am feeling really good about it. As I said in the prepared remarks, MAU declined 7% year over year in March, which was the slowest rate in 31 months, and then it went on to decline 6.6% in April, so it continued to improve. DAU—which I do not think we talked about in the prepared remarks—but daily active users was down 9% back in March 2025, then down 6% in March 2026, and was only down 4% in April 2026. So every month, every week, almost every day, we continue to chip away at the audience declines at Tinder. The big needle movers on improving user outcomes have been, first of all, recommendations. We are just doing a much better job today of showing women the men that we think they will want to see. Obviously, that is the most important thing for a dating app—figuring out whom to show to whom—and we are much better at it than we ever were before. We have made lots and lots of changes, but for example, one set of changes improved women’s Sparks by 6%, and that improved women’s DAU by 2%, which in turn improved men’s Sparks by 5% and then men’s DAU by 1%. That is just one example of one set of recommendations changes, and that plus other recommendations changes we thought might hurt revenue actually, on balance, resulted in a $15 million annualized revenue gain because improved women’s retention then improved men’s revenue. So it is not always a trade-off between recommendations improvements and revenue—sometimes they actually work together. The second big needle mover on Tinder product improvements was Double Date. Around one in five global users aged 18 to 22 are using Double Date. Around one in four U.S. women aged 18 to 22 are using Double Date. It is an important way that people are now using Tinder. Music Mode and Astrology Mode also drove great adoption in the quarter—about 8% for global Gen Z for music and 19% for global Gen Z for astrology. Then there is a variety of things that we do not talk about very much because they are kind of mundane improvements, but this is really important blocking and tackling—things like improved CRM for better emails and notifications, better app performance so the app does not crash the way it used to, better website performance, and just a generally better operating cadence of the company. All those things really do work together. The last one I will add is the IRL pilot in Los Angeles has been successful, and we are working to expand that—just another example of how we are creating these low-pressure ways to connect. The last piece is the marketing support of these products, which I can come back to, but let me give it to Steve now to talk about the AI and cost savings. Steven Bailey: Sure. Here is the way I would think about it, Shweta. We are making a big push around AI enablement. We are giving every employee in the company access to cutting-edge tools, we are giving them the training they need to succeed, and we are setting expectations. We really want to become an AI-native company. We think it is a huge opportunity. These tools cost money, and the way we are helping to pay for that is by slowing our hiring plan for the rest of the year. I think of that as a bit of a cost neutral—lower headcount cost, higher software expense. Down the road, over the long term, it could result in cost savings, but it is a bit of a neutral for us in 2026. Hopefully, it leads to not just cost savings over time, but increased productivity and ultimately revenue growth through higher throughput and output from employees. On the structural changes, we talked about Match Group Asia and Archer. What we quoted in the prepared remarks are annualized savings including SBC. I would think of that more as a 2027 savings—it is less so in 2026 due to timing and some of the one-time costs that come along with it. But it certainly does give us optionality in 2027 around margins. Spencer Rascoff: Next question, please. Operator: The next question comes from Cory Alan Carpenter with J.P. Morgan. Please go ahead. Cory Alan Carpenter: Hey, guys. Thanks for the question. I have two—Steve, these might both be for you. Just on the Q2 guide, it implies flat revenue that you are expecting, and that is despite a $20 million headwind from Azar. My question is where are you seeing offsets and which brands make up for that? And any comments you can give on your expectations for Tinder in Q2 specifically? And then, looking beyond Q2, any update you can provide on how you are thinking about the full-year outlook? Thank you. Steven Bailey: Sure. I can take that. Thanks, Cory. On Q2, the way to think about it is, yes, Azar is a $20 million headwind because of the changes we needed to make there to get back in the App Store. That is being nearly fully offset by Tinder strength—that is really where it is coming from. Tinder performed quite well in Q1, and we expect that to continue in Q2, so that is where the offset is coming from. For the full year, we made no changes to the full-year guide, but let me give you some puts and takes. We expect that Azar revenue pressure to continue for at least another few quarters, so I would think about it for the rest of the year. The team is hard at work with a roadmap to address the added friction to improve monetization, but I think it will take some time. At Tinder, we will have to see how things play out. One of the things I am looking at pretty closely is we have a $45 million user investment budget still slated for the second half of the year, spread out pretty evenly between Q3 and Q4. I would expect us to end up at the lower end, lower half of the full-year guidance range given Azar weakness if we end up using that $45 million user investment budget. What we have seen in the last couple of quarters is that we have not had to, but for now we are assuming we will, and that is all baked into the guide. If we do not end up using it, that could offer some further offsets to Azar in Q3 and Q4. That is the revenue story. On the adjusted EBITDA story, I feel really good about the guide there, same with free cash flow, even if revenue comes in a little softer because of Azar. That is because we mitigated a lot of the adjusted EBITDA impact from the Azar changes through reducing marketing there and reallocating headcount at Azar towards other parts of the business—namely Tinder—and closed some open roles at Tinder in the U.S. We have reduced costs across other parts of the portfolio too. Our payments initiative in particular is doing better than expected, so that is helping. And then the changes we just talked about at Match Group Asia, as well as the shutting down of Archer, are helping too. Again, they are more 2027 savings impacts, but they also benefit 2026 as well. So that is the way I am thinking about it—Tinder helping to offset Azar in Q2; we will have to see how the user giveback budget goes for the rest of the year; and then feeling really good about EBITDA and free cash flow because of some of the cost savings efforts we have made. Spencer Rascoff: Operator, next question please. Operator: Sure. The next question comes from Nathaniel Jay Feather with Morgan Stanley. Please go ahead. Nathaniel Jay Feather: Thanks for the question, and really encouraging to see the progress you have been making here on Tinder. Just help me chart the path over the remainder of the year—understanding there will be some puts and takes here—but what is the hope for that glide path for MAUs as we continue in Q2 into the back half? And then given a lot of these improvements that you talked about that are driving this MAU improvement were just launched in Q1, but kind of in the cumulative impact over 2025 up until Q1, how should we think about the product release cadence and how that interplays with MAU? And have you uncovered any maybe delayed impact as the tools get released and then users start to use them that can eventually drive MAU? Spencer Rascoff: Thanks, Nathan. A couple of things. First, with respect to the product release cadence going forward, we are not taking our foot off the gas. The March 12 event was a great catalyst. It generated a ton of urgency, and a lot of the innovations that we announced or shipped came from that urgency, but the team has not slowed down since then. Upcoming initiatives include things like Video Speed Date, which we announced at the Tinder Sparks event on March 12 and we will be shipping in the next month or so; real-life events expanding to other cities; rolling out Tinder Connect with partners like Duolingo and Bally; and a number of other features that we are not ready to share publicly. The work is definitely not done, and I am excited about the roadmap for the balance of the year. In terms of how it will play out on Sparks and MAU, that is hard to predict. We have been setting ourselves up to get to flat MAU by the end of 2027, and clearly I am very proud and pleased that we are already in the negative 6% to 7% year-over-year range. You could argue that maybe it could accelerate the pace with which we improve now because product efficacy improves as you start to bring more people into the ecosystem—there are just more good people to match with. You could also argue that the rate of improvement could slow down because we started with the low-hanging fruit first when this new leadership team took over about six to nine months ago and started knocking things down. It is very hard for me to predict what the exact path will be from negative 7% MAU to flat and then MAU growth. Operator: The next question comes from Ross Sandler with Barclays. Please go ahead. Ross Sandler: Hey, guys. Hey, Spencer. The 1% growth in 30-day retention—that is pretty bullish. I know it is an early signal, but how long has it been since you had growing 30-day user retention, and it sounds like some of the safety and product changes you mentioned on a previous question are driving this trend, but any other details—any color you can provide on what is turning that key metric up—would be helpful. Thank you. Spencer Rascoff: Thanks, Ross. It had been years since we had retention improvements up year over year—at least several. Equally encouraging is that retention among U.S. Gen Z women is actually up 3% year over year, even better than the overall number that I put in the script and, I think, in the press release. What is driving this is better recommendations, Double Date, Music Mode, Astrology Mode, blocking and tackling, and changing perception of Tinder—moving more towards the fun and safe way to meet new people, improving social sentiment on TikTok and Instagram. Better marketing is now working more effectively because when we market these types of features, our marketing budgets go further. Prior campaigns were focused on more amorphous brand reconsideration—“Hey, Tinder’s great, check out Tinder.” Now we are able to market very specific features that have great resonance with our key user segments, and the marketing is much more effective. Taken altogether, this is what is improving retention. As I like to remind people, this is a network effects business. We are already seeing in certain countries in Asia and Latin America, where MAU is flat or in some countries actually up year over year, better user efficacy—better Sparks, better Spark coverage, better retention—because more people just improves user results for everybody in the ecosystem. It is really encouraging and starting to show up in some of the retention data that we are sharing. Operator: The next question comes from Eric Sheridan with Goldman Sachs. Please go ahead. Eric Sheridan: Thanks so much for taking the questions. I wanted to ask about capital allocation priorities because you have now made an outside investment in Sniffies. I believe you backed Justin’s venture in parallel with Match when he left Hinge to go down that road. How are you thinking about the competition for capital between outside investments that can be made versus application of capital internally to build and scale some of the platform product initiatives you are trying to accomplish? Just want to understand if there has been any evolution in the thought there. Thanks so much. Steven Bailey: I will take that first, and Spencer, feel free to jump in. Our approach has not changed. Our priority has always been, first, organic growth in the portfolio. We are prioritizing investments in Tinder and Hinge to drive growth in those businesses, and we feel like we have the capital needed to do that. Number two is returning capital to shareholders through buybacks and the dividend. We will continue to be acquisitive when we find opportunities to do M&A; we will do that—we have shown a good track record of it. These are pretty small investments relative to our scale. The Sniffies investment is a $100 million investment in what we think could be a big opportunity. Overtone is a much smaller investment than that. This is something we can easily handle while still remaining committed to returning the vast majority of capital to shareholders through buybacks and dividends. I do not think that is new, and over $1 billion a year in free cash flow allows the flexibility to do all those things. Spencer Rascoff: Just in case I do not have the opportunity to address Sniffies later in the call, I want to address it now. Steve is right—in the grand scheme of things, it is a relatively easy investment for us to fund because we are so profitable and have such a solid cash flow generation machine. It is also a big swing in a huge TAM. Arguably, the non-heterosexual male segment is the most attractive, largest, and most highly engaged segment in the dating category. This is a big investment in the number two player that we think has the potential to become the number one player. This is a company that is not even in the App Store right now—Sniffies, despite all their success to date, has only been on the mobile web. We expect to be able to help them create a safer experience that gets into the App Store, which will be a huge unlock. I am really excited about this investment. Since I started, we have done two deals: acquiring HER and investing $100 million in Sniffies with the right to buy the rest of it. We are very focused on these two segments—the sapphic segment and the non-heterosexual male segment. We think these are huge TAMs, and I am very excited to own the number one player in the sapphic segment and own a significant portion of the number two player in the non-heterosexual male segment with an option to buy the rest. Operator: The next question comes from Benjamin Black with Deutsche Bank. Please go ahead. Benjamin Black: Thank you for taking my questions. Spencer, you clearly have a lot of product initiatives underway right now at Tinder. If you step back and look ahead to the next 12 to 18 months, I would be curious to hear which one is the most needle-moving in your perspective, or is this maybe a situation where smaller product initiatives build on top of each other and create compounding benefits? And then quickly, Steve, I would be curious to hear what you are embedding in your guidance for the year-on-year trends for Tinder payers and maybe for RPP as well? Thank you. Spencer Rascoff: That is a hard one to choose among all these different product initiatives. As I said, the one that has driven the most improvement to date has been improvements in our recommendations algorithms. Looking ahead—and I will keep it a little vague for competitive reasons—it is kind of an expansion of Double Date and IRL, tapping into these lightweight, lower-pressure ways to connect, which is what Gen Z wants. I will give a little plug here: on June 11, we are going to have an investor- and media-focused webinar. We are creating a new investor relations product called the CEO Connection, where outside of earnings we will do a double-click on something that we think is of interest to all of you. The first one on June 11 is on this topic: decoding Gen Z dating. We will have a number of our social scientists who study Gen Z and Gen Alpha share insights and learnings of how these generations want to connect and how our roadmap reflects it. Look for more information from our IR team for that event on June 11. It will be an hour webinar, and I think it will be really insightful and interesting. Steven Bailey: I will take the question on Tinder payers and RPP. First of all, Tinder payers in Q1 were down 5%, which you probably saw, and that is a huge improvement from down 8% in Q4 and about 7% the couple quarters before—so a lot of progress there that we are really excited to see. I would think of payers as being in a similar range—maybe some small improvement—but similarly down for the rest of the year as Q1, only because of the $45 million in user investment. For now, we are assuming we make those investments because we want to give the product teams the optionality to do it, but that is what is leading to similar payer trends over the rest of the year. We gave you Tinder full-year revenue guidance last quarter, which has not changed, so you can back into the payers assumption. What I would tell you is payer growth would slow a little bit over the rest of the year too, but again, a lot of that slowdown is related to the user investments, which we will only do if we think it is the right long-term thing to do for the business. Operator: The next question comes from John Blackledge with TD Cowen. Please go ahead. John Blackledge: Great. Thanks. Two questions. I thought another good signal was the new user registrations returning to growth. Could you add a little bit more color there and how things are trending with that metric thus far in the second quarter? Second question is around FaceCheck rollout. How is it going, and should we still expect it to be about a one-point headwind to revenue growth this year? Thank you. Steven Bailey: Let me start with FaceCheck. FaceCheck is rolled out in most markets now for Tinder. It is also now rolled out in all major markets at Hinge. It is showing great results at Hinge too—just like it has at Tinder—in terms of reducing bad actors on the app. In terms of revenue impact, it is pretty negligible at this point—about 1%—and that has not changed for the total company. That is included in the guidance, and that is about where it is trending now. Spencer Rascoff: John, I do not have new registrations from April at my fingertips, but it is a really encouraging statistic. I think the registration improvement speaks to overall improving social sentiment and our ability to drive reconsideration. A lot of that speaks to the product, but a lot of it speaks to marketing, frankly, because a new registration is basically somebody that has not used Tinder before or maybe had a Tinder account many years ago but deleted the app. It speaks to general social sentiment, improving word of mouth—some of that is due to product, but a lot of it is due to marketing that is really resonating. We are encouraged by it. Operator: The next question comes from Jason Stuart Helfstein with Oppenheimer. Please go ahead. Jason Stuart Helfstein: Thanks. One on Hinge, and then a quick one on Tinder. For Hinge, RPP is accelerating. Is that reflecting mix within plans and user choice? Are there some headline price increases? And then, obviously Hinge payers did decelerate. Is there any connection between price and volume there? And then just a second quick one. Spencer, how do you know that the new product innovations have staying power—like Astrology Mode, Music Mode, Double Date? They are definitely cool. How do we know this is not like when a new AI image generator or casual game launches, gets virality, and then kind of fades after a few months? Thanks. Steven Bailey: Yes. What we have done at Hinge is optimized pricing geographically over the last few quarters. Some of that means a price up, some of that means a price down. That is what is moving the payers and RPP numbers around a little bit. It is not really package mix shifts per se. With that said, payer growth is still very strong—15% in Q1—and I expect that to be the case for the rest of the year. I still feel that the bulk of the revenue growth in 2026 will come from payer growth, not RPP growth. Spencer Rascoff: On Hinge overall, Hinge continues to crank. Revenue was up 28% year over year in the quarter, which is pretty amazing. Brazil and Mexico launches both went very well. Hinge became a top two or three dating app basically right out of the gate. Based on the success of Brazil and Mexico, we accelerated the launch of more international markets. We quietly launched 10 more markets earlier this week—Chile, Argentina, Uruguay, Peru in LatAm, and several European markets like Poland, Hungary, Croatia, Iceland, Luxembourg, and the Czech Republic. We continue to march across the world with Hinge, which has terrific product-market fit. There is huge potential for MAU growth in these new markets and monetization potential on the path to $1 billion of revenue in 2027. Hinge’s MAU in English-speaking markets has flattened as we would expect because those are more mature markets, but revenue growth even in those core English-speaking markets was up 17% year over year in the quarter. It is consistently the number one downloaded app in English-speaking markets or number one or number two. The rate of product innovation at Hinge continues to impress. This quarter we have three great innovations—Date Ideas, which lets people indicate what types of dates they want to go on; Friends Take, which brings friends into the dating experience; and Signals, which lets people show if they are high intent. Those are features that directly speak to Gen Z and Millennial needs in the category. Again, we will be talking more about that at the June 11 event. On your question about staying power of new features: a lot of the improvements in our data have come from recommendations algorithm improvements, which are not “shiny new features.” Regarding the shinier features and whether their appeal might fade over time, Double Date is a good indicator—its usage continues to grow every month and quarter as more people become aware of the feature. The same thing is happening with Music and Astrology. Right out of the gate with Music Mode, when few people had it, there were not many profiles to see in Music Mode. Now that you see more users with their music connected to their Tinder profile, it becomes more immersive; you are more motivated to connect your Spotify to Tinder to bring in your music, and awareness grows as the network effect fills out. In that sense, it is quite different from feature launches in mobile games. Operator: The next question comes from Youssef Squali with Truist. Please go ahead. Youssef Squali: Spencer, a couple of questions for you. Can you talk a little about the health of the overall online dating market, both from a competitive standpoint with some of the new modalities that we are seeing offline—like run clubs and book clubs and all kinds of other clubs? How is that impacting the online dating environment, if at all? And then on Sniffies, what makes that model so successful and so superior to Archer’s that you decided to invest $100 million and fold Archer into it? Spencer Rascoff: On the overall market, Gen Z desperately wants to connect. They know they want to meet new people; they just want to do it in a low-pressure, low-stakes way that does not feel like a job interview. Traditional dating apps are very highly structured and can be intimidating to a user under 30. The growth of these alternative ways to meet new people speaks to how Gen Z is trying to find lower-pressure ways to connect. We have adapted our roadmap to this reality. Double Date was our first foray into this; the in-real-life events product in Los Angeles was our next big foray. At Tinder and Match Group, Inc. more broadly, we are embracing this trend of meeting people IRL in different modalities rather than hiding from it. Again, the June 11 event will give us an opportunity to bring a lot more data and learnings from our team of experts into this conversation. In terms of the Sniffies investment, Sniffies is very different from Archer. Sniffies is basically a map-based experience for more instant connection—people looking to meet right away, this evening, or nearby—whereas Archer was much more of a serious, high-intent “helping a man find a husband” type experience. Sniffies has incredible product-market fit with 3 million monthly active users—again, only on web, not even on app—and it really resonates with this community in a way that Archer did not. Because Sniffies has such a huge audience, the network effects are self-reinforcing—people use Sniffies because people use Sniffies. People were not using Archer because people were not using Archer. It is a very different product and has a wildly different level of product-market fit. That is why we decided to place this bet on the non-heterosexual male market on the Sniffies team and experience. We have moved our Archer team—mostly New York-based—either into Hinge, Tinder, or E&E. It was a very talented team that built a beautiful product that had not yet found product-market fit, and with the Sniffies investment, that team has found other roles at Match Group, Inc. Operator: The next question comes from Analyst with Jefferies. Please go ahead. Analyst: Yes, great. Thanks for the question. I just had one. You talked in the letter about your objective to get Tinder back to growth in 2027. When you say a growth business, do you mean revenue, payers, MAUs, or just some other engagement metrics? Just trying to understand how you are thinking about growth in 2027. Spencer Rascoff: I think the line in the sand that we have committed to is: by 2027, year-over-year MAU growth, and for full-year 2027, revenue growth. So those are the stated goals, and you know where we are at on our path to achieve them. Operator: The last question comes from Bradley D. Erickson with RBC. You may go ahead. Bradley D. Erickson: Thanks, guys. When you think about collaborating across brands—Spencer, earlier in the call you talked about this—Hinge has had so much success with lots of new product innovation in the last few years. Is there anything you could add or bring over to Tinder that could be impactful there—anything you have done to date where you are seeing similar results—or how do you think about the collaborative opportunity there? Thanks. Spencer Rascoff: Great one to end on. This is a huge focus of mine, and I have changed the culture internally away from being siloed to being much more deeply collaborative and communicative, and in some cases integrated organizationally. Probably the most notable example is something we call Project Mercury, which cross-sells one app to another. A BLK user, for example, might get a pop-up that says, “You have been invited to join Tinder,” and they can create their Tinder profile with one tap, or an OkCupid user might get a notification that they have been invited to join Hinge and can create a Hinge profile with one tap. That has driven a lot of incremental revenue and goodness across the different apps. There are many other initiatives brewing that extract greater synergy between the brands. Pairs, for example, in Japan has been a leader in the in-real-life events space; so has Meetic in France. Tinder is learning a ton from Pairs and Meetic and what they have built out in the events space. There are many dozens of examples around the company, and we are just getting started in terms of extracting the full benefit of the combined scale and synergies as we move away from being siloed and more towards being deeply integrated. We will wrap with that. Thanks, everyone, for joining. I am incredibly proud of the team and the last couple months of accomplishment. We are not out of the woods yet, but things are much improved and improving more every day. We will talk to you again at the June 11 event, Decoding Gen Z Dating, and thanks everyone for your time today. Bye-bye. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Hannah Jeffrey: [ Audio Gap ] projections, expectations, predictions are forward-looking statements, whether because of new information, future events or developments or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 5, 2026. And with that, I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer. Waleed Hassanein: Thank you so much, Hannah. Good afternoon, everyone, and welcome to TransMedics First Quarter 2026 Earnings Call. As always, joining me today is Gerardo Hernandez, our Chief Financial Officer. Our vision has been bold -- our vision has always been bold and growth-oriented. Since inception, TransMedics has been relentless in our pursuit to transform organ transplant therapy by increasing utilization of donor organs and improving the clinical outcomes of transplant patients throughout -- through technology and service innovation and by disrupting the status quo. To accomplish this, we've been deliberate yet aggressive in our strategic investment in growth initiatives. We believe that 2026 is a critical and transformational year that stands to cement TransMedics' near, mid- and long-term growth trajectories and global market position. In the U.S., we're actively engaged in growing our heart and lung franchises by advancing our enhanced heart and DENOVO lung programs to expand our clinical evidence to support broader adoption. In parallel, we are also completing the development of the OCS Kidney platform using our Gen 3.0 platform. Our OCS Kidney platform will enable us to access the largest segment of the global transplant market, which is kidney transplantation. This will happen for the first time in the history of TransMedics. We strongly believe that once regulatory approvals are in hand, OCS Kidney will drive significant growth for our abdominal franchise. And we're not stopping here. We're also actively engaged in upgrading our heart, lung and liver devices to Gen 3.0 platform, which will enable us to gain significant future operating leverage and increase clinical adoption of the OCS platform in these critical organ transplant segments. Our growth initiatives also now go beyond warm perfusion. We recently unveiled the TransMedics Controlled Hypothermic Organ Preservation System, or CHOPS. CHOPS is designed to expand our product offering to cover new segments of the transplant market best served with cold static storage. And finally, our growth initiatives now extend beyond the U.S. to important international markets. In Europe, we are undertaking a bold initiative to replicate the NOP clinical service and transplant logistics model to catalyze European OCS adoption and potentially expand our total addressable market. I will provide details on each of these exciting initiatives on today's call. As you can see from our ongoing growth initiatives, our focus remains on long-term value creation with continued investment across each pillar of our growth strategy. Specifically, I want to highlight that this is a strategic and proactive decision, and we fully expect that our financial performance over the next several quarters will reflect these necessary investments in people, infrastructure and technology development as we capitalize on the opportunities in front of us. Based on everything we know today, we are highly encouraged and inspired by what's ahead for TransMedics. We are committed to executing our plan to drive significant growth for TransMedics and for the global transplant markets broadly. As I've stated repeatedly, I truly believe that TransMedics remain in the early innings of our long-term growth opportunity. I'm excited to report that our first quarter performance that reflects a strong start for 2026. Despite the broader volatility and the transient negative impact of the U.S. Transplant Modernization Act on OPO performance and the overall donor numbers in the U.S., we managed to deliver a solid quarter to start the year. Here are the key operational highlights for 1Q 2026. Total revenue for 1Q '26 was $174 million, representing approximately 21% growth year-over-year and approximately 8% sequential growth from 4Q 2025. U.S. transplant product revenue grew by 22% year-over-year and approximately 7% sequentially to $102 million, while OUS transplant revenue grew approximately 39% year-over-year and approximately 17% sequentially to $6 million. We delivered an adjusted operating profit of approximately $18.1 million in Q1, representing approximately 10.4% of total revenue in 1Q while continuing to make significant investment to fuel our growth. Importantly, we ended 1Q with $462 million of cash and cash equivalents, while making substantial investments in the growth initiatives above. TransMedics transplant logistics services revenue for 1Q 2026 was approximately $32 million, up from $26.1 million in 1Q 2025, representing approximately 22% year-over-year growth and up from $28.6 million in 4Q 2025, representing approximately 12% sequential growth. In Q1, we maintained coverage of approximately 82% of our NOP mission requiring air transport. We expect to maintain 22 operational aircraft in the U.S. fleet throughout 2026. As we discussed, we are now focused on maximizing the utilization of our U.S. fleet and improving efficiency and capacity by double shifting a portion of the fleet to meet the growing clinical demand. We will detail key findings from this initiative at year-end. Overall, we are pleased by our strong performance that was fueled by growing OCS case volume, increased clinical adoption. Importantly, we're also encouraged that we achieved these results without any contribution of ENHANCE and DENOVO clinical programs due to the enrollment timing of these important programs. Speaking of ENHANCE and DENOVO, let me shift to provide a detailed update on our strategic initiative to unlock these 2 important clinical programs to help us grow our cardiothoracic franchise in the U.S. At the recent ISHLT conference in April, we unveiled our TransMedics Controlled Hypothermic Organ Preservation System, or CHOPS. CHOPS is a true active cooling device designed to provide a variety of temperature conditions ranging from 4 to 12 degrees Celsius to meet the users' need. This represents a unique -- unique and optimized approach that we believe is superior to the Styrofoam boxes that are used for cold static storage of organs today. These boxes use face-changing material or cold packs that are extremely variable and are nearly impossible to control or adjust preservation temperatures with. CHOPS will be an FDA-registered and regulated organ preservation device made by TransMedics and will serve as the control arm of the ENHANCE and DENOVO programs once the IDE supplement is approved. This would be a huge strategic win for TransMedics as it stands to help avoid any reliance on competitive products as we conduct our important clinical programs for heart and lungs. We plan to file the IDE supplement within the next few weeks, and we expect this to be approved and implemented in early Q3 2026. Importantly, in parallel to these clinical programs, we fully intend to file a 510(k) application to clear this device for commercial use in the U.S. Once cleared by FDA, CHOPS would expand TransMedics' platform of organ preservation technologies and enable us to address shorter preservation times for organs that may be best suited for cold storage. As we highlighted on our last call, the panic and confusion caused by the competitive reaction to our clinical programs somewhat delayed our ENHANCE Part B and DENOVO enrollment. We not only addressed this challenge by introducing CHOPS, but we are now going after the niche market with superior, more validated cooling technology and our best-in-class NOP infrastructure. Said differently, beyond facilitating our trial enrollment, we are expanding our product portfolio to ensure that TransMedics is well positioned to provide transplant programs around the world with the widest range of products to meet their clinical needs across the full spectrum of organ transplantation. We plan to accomplish this goal based on best-in-class technologies, best-in-class clinical services and with the most cost-efficient and reliable logistical network in the market. Now let me move to share the -- share update on our strategic initiatives that we see as an important catalyst for our business. First is the National Transplant Modernization Act. In March 2026, TransMedics submitted our detailed comments on CMS proposed rule-making language for the new U.S. transplant system to advance U.S. transplant modernization initiatives. Our public comments focused on several key topics. First, on the system-wide benefits of allowing new entities with proper national infrastructure that are not current OPOs to participate in the new transplant ecosystem by becoming either a multiregional or even national OPOs. This is to help maximize U.S. donor organ utilization for transplants. Importantly, it will provide a mechanism for fair competition and maximize transparency while driving cost efficiency to the U.S. transplant ecosystem. Second, on the benefit of using FDA-approved portable perfusion technologies to maximize donor organ utilization in the U.S. while limiting the use of unproven, fairly expensive and potentially detrimental techniques that were organically introduced into the market over the last several years. Third, on the benefits of enabling for-profit entities to participate so long as they are strictly adhering to all performance metrics proposed by CMS and complying with all the financial disclosure requirements. Fourth, on the benefits of allowing new entities to bid to replace as many of the decommissioned OPO regions as they can support. And finally, we highlighted the potential benefits of requiring these new participating entities to provide technology and clinical support services to existing OPOs. Again, our proposal was to -- it was intended to maximize the benefits to the U.S. transplant ecosystem in general and not just to one entity. If CMS agrees with this direction, TransMedics fully intend to submit bids for donor service areas or DSAs associated with decommissioned OPOs later this year or early next. Again, our goal is to drive efficiency, transparency, maximize patient access and organ utilization for transplant in the U.S. The second growth initiative is NOP Europe. As we've discussed, we are actively building infrastructure and staffing in Italy across 4 hubs to cover Northern and Southern Italy. Meanwhile, we're actively engaged and applying for Italian organ transplant air and ground logistics tenders for a few Italian regions as we speak. We are also actively engaged with Benelux region stakeholders to establish NOP in the Netherlands and Belgium to create NOP hubs that are staffed by a dedicated clinical TransMedic staff to manage OCS cases in these countries. Another important element to our European NOP strategy is to create the first ever dedicated and integrated transplant logistics network to cover the broad European transplant logistics demand. On that front, we announced last week that we've entered into a definitive agreement with a major European charter flight operator, PAD Aviation, or PAD to partner on creating this European air logistics network. PAD is located in Paderborn, Germany, which is within 1- to 2-hour distance from all the major transplant hubs across Europe. Importantly, they are operating a fleet of same model aircraft that we use in our U.S. fleet, Embraer Phenom 300Es. Simply stated, we're planning to replicate the success of the U.S. NOP in Europe to potentially expand or nearly double our total addressable market, increase OCS clinical adoption and provide efficient and dedicated transplant logistics service across Europe using our dedicated logistics network. The third growth initiative is OCS kidney program. As we discussed on the last call, this represents our next frontier with kidney expected to be the first organ to launch on our OCS Gen 3.0 technology platform. Gen 3.0 technology platform will comprise a completely redesigned form factor, hardware, software and perfusion system that is smaller, lighter with lower part count, purposely designed for automated assembly and high reliability. Currently, the development program is running at full speed, and we hope to introduce the final design device and potentially working device at the American Transplant Congress in Boston in late June. Looking ahead, we are still targeting early 2027 for our U.S. IDE submission for our kidney program. We are extremely excited about this program as it stands to unlock a substantial incremental market opportunity measured in tens of thousands of kidney transplant procedures globally. The fourth growth initiative is OCS Technology Gen 3.0 upgrade for both liver, heart and lung systems. This program is running in parallel to the kidney program to bring significant technology upgrade to our current liver, heart and lung systems and help catalyze our clinical adoption in these transplant segments. Again, we are intentionally developing our Gen 3 platform to gain supply chain and operating leverage with lower part counts and less reliance on critical third-party suppliers. As you can see, our growth strategy is multifaceted with catalysts lined up across the short, mid and long terms. We're excited and laser-focused on investing to ensure the successful execution of these initiatives throughout 2026 and beyond. Now let me conclude by stating that based on all the dynamics we see today, both in the U.S. transplant ecosystem and at the macro level, we are reiterating our revenue guidance for the full year 2026 between $727 million to $757 million, representing a 20% to 25% growth over full year 2025. We may revisit the guidance later in the year as we gain more visibility on the pace of ENHANCE and DENOVO enrollment and other dynamics in the U.S. transplant ecosystem. With that, let me turn the call to Gerardo to cover the detailed financial results for the quarter. Gerardo Hernandez: Thank you, Waleed. Good afternoon, everybody. I am pleased to share TransMedics first quarter 2026 results. Please note that a supplemental slide presentation with additional details is available in the Investors section of our website. As Waleed highlighted, we started 2026 with solid execution and continued momentum across our platform. Importantly, consistent with the priorities we highlighted on our previous earnings call and throughout 2025, Q1 also marked the beginning of an accelerated phase of investment and execution for TransMedics. We are advancing multiple initiatives designed to support future growth, strengthen our operating capabilities and position us to capture the opportunities ahead. These include continuous progress across our different programs, international expansion efforts, shops and as announced last week, our agreement to invest in PAD Aviation to support the development of a dedicated organ transplant logistics network in Europe that Waleed mentioned before. Together, these initiatives and these actions demonstrate our ability to move quickly and boldly in allocating capital to execute on strategic opportunities that we believe can further fuel long-term profitable growth. And as Waleed says, let me repeat, these actions are designed to further fuel long-term profitable growth. Beginning Q1, we are introducing certain non-GAAP financial measures, including adjusted R&D expense, adjusted SG&A expense, adjusted operating expenses, adjusted income from operations, adjusted net income, adjusted diluted earnings per share and adjusted operating margin. We use these non-GAAP financial measures to support financial and operational decision-making and to evaluate period-to-period performance. We believe these measures are useful to both management and investors because they provide meaningful supplemental information regarding our core operating performance, particularly as we begin to incur certain discrete expenses and because they offer greater transparency into the key metrics management uses in running the business. Examples of these discrete expenses include costs related to strategic initiatives, corporate development activities, headquarter relocation and the implementation of our new ERP. A reconciliation between GAAP and non-GAAP results is included in the supplemental materials available in our website. Now turning to our Q1 financial performance. Total revenue for the quarter was approximately $174 million, representing 21% growth year-over-year and 8% growth sequentially. Growth was led by strong liver performance, continued progress in heart and increasing contribution from our integrated logistics platform. U.S. transplant revenue was approximately $167 million, up 20% year-over-year and 8% sequentially. By organ, liver contributed with approximately $139 million, heart with approximately $26 million and lung with approximately $2 million. International revenue was approximately $5.6 million, up 39% year-over-year and 17% sequentially. International revenue growth was primarily driven by heart with smaller contribution from lung. We are encouraged by the progress we are seeing internationally as we continue to build our presence and advance our expansion plans. At the same time, the business remains at an early stage and quarterly variability is expected due to reimbursement and market dynamics. Total product revenue for the quarter was approximately $108 million, up 22% year-over-year and 8% sequentially, reflecting continued strong liver performance and modest growth in heart. Service revenue for the first quarter was approximately $66 million, up 19% year-over-year and 9% sequentially. Growth was driven primarily by logistics revenue, supported by increased utilization of the TransMedics aviation fleet. Together, these results reflect continued demand for the OCS platform and the value of our integrated NOP model. Total gross margin for the first quarter was approximately 58%, broadly consistent with recent quarters and down approximately 331 basis points year-over-year. The year-over-year decline was driven primarily by increased internal supply chain activity to replenish inventory across our hubs and position inventory in support of the DENOVO and ENHANCE programs as well as continued investment in NOP network, which together with certain onetime items impacted the margin, and we will expect this to normalize in the coming quarters. Sequentially, as mentioned before, gross margin remained broadly stable at approximately 58%. Underlying performance in the quarter was encouraging with operational improvement largely offset by ongoing internal supply chain costs to support the DENOVO and ENHANCE programs continued investments in NOP capabilities and certain onetime items that we will expect to normalize in the coming quarters, as mentioned before. Adjusted operating expenses for the first quarter were approximately $83 million, up approximately 42% year-over-year and 17% sequentially. Adjusted R&D increased approximately 45% versus the first quarter of 2025, primarily driven by the continued development of our OCS kidney program and our next-generation OCS platform. The increase also reflects ongoing product development activities in Mirandola, Italy and headcount growth as we continue to strengthen our development capability across U.S. and the Mirandola site. Sequentially, the increase in adjusted R&D was primarily driven by continued investment in OCS Kidney and our next-generation OCS platform with a smaller contribution from increased product development activity in Mirandola. Adjusted SG&A increased approximately 41%, primarily reflecting the continued investment to strengthen NOP network and IT capabilities, the initial impact of our new headquarter in Sommerville and consulting and market research in support of international expansion plans. Some of these factors also drove the sequential increase, particularly continued investment in NOP network and international expansion initiatives. Adjusted income from operations for the quarter was approximately $18 million, representing an adjusted operating margin of approximately 10%. The year-over-year decrease in operating margin primarily reflects the timing and scale of our planned investment in 2026 as well as the gross margin dynamics discussed earlier. Adjusted net income was approximately $11 million or $0.30 per diluted share. As Waleed mentioned before, we ended the quarter with approximately $462 million in cash. Cash generation from operations remained solid during the quarter, and our balance sheet remains strong and continues to provide us with the flexibility to invest in the business, support our clinical and international expansion plans and evaluate strategic opportunities that we can -- that can strengthen our platform. Now turning to our 2026 financial outlook. We are reiterating our full year 2026 revenue guidance of $727 million to $757 million, representing a 20% to 25% growth over full year of 2025. We continue to expect growth to be driven primarily by increased transplant volume supported by OCS and NOP platforms, expansion of service revenue and progress across our clinical and international initiatives. In terms of gross margin, we continue to expect our long-term gross margin profile to remain around the 60%. As I shared before, as we continue to invest ahead of growth and expand geographically, we do expect some near-term pressure. We feel confident in our long-term profitability goals. As we continue to scale the business, we expect to capture additional operating leverage while also benefiting from initiatives that are planned to be margin accretive over time, including our kidney program, our next-generation OCS -- and our next-generation OCS. Taken together, these factors reinforce our confidence in the long-term profitability of the business. And again, as Waleed said, let me repeat, taken together, these factors reinforce our confidence in the long-term profitability potential of the business. In terms of capital allocation, our focus remains on driving long-term value. We are concentrating our investment in 3 key areas: first, fueling growth through continued R&D investment, strengthening our NOP network and targeting expansion into selected international markets. Second, building a stronger foundation through enhanced systems, processes, talent and organizational capabilities to improve efficiency, scalability and execution. And third, enhance our infrastructure and strategic optionality, including our new global headquarters, manufacturing and product development upgrades and selected strategic opportunities that can further strengthen our platform. Overall, our first quarter performance reflects continued execution, disciplined investment and progress across several strategic initiatives. Several strategic initiatives that aim to expand our TAM and materially strengthen TransMedics' long-term position. We are moving with conviction and investing strategically in capabilities required to support future growth, improve scalability and drive long-term value creation. And with that, I'll turn the call over to Waleed for closing remarks. Waleed Hassanein: Thank you, Gerardo. Overall, we're proud of our success to date, but we're not stopping here. 2026 represents another critical period for TransMedics as we invest to deliver on several transformational growth catalysts. The strong financial position we've built over recent years have enabled us to pursue this multipronged approach, and we are more excited than ever for what lies ahead. In conclusion, we're humbled and proud of the significant life-saving impact of our OCS technology, NOP services and dedicated team and remain committed to our mission of expanding cases and improving clinical outcomes to patients in need for organ transplant worldwide. With that, I will now turn the call to the operator for Q&A. Operator? Operator: [Operator Instructions] Your first question comes from the line of Bill Plovanic of Canaccord Genuity. William Plovanic: I'm going to focus on CHOPS, if I could. And just could you please help us understand the strategy behind CHOPS, the thought on cannibalizing your existing uses? And then are you still planning on hitting that 10,000 organ target? Does that include CHOPS? Or is that incremental? And then also just any thoughts on CHOPS for liver and kidney? Waleed Hassanein: Thank you, Bill. I want to clarify one thing right off the gate. CHOPS is not cannibalizing anything. CHOPS is tackling a segment of the market, specifically DBD hearts that are like 2 hours of preservation that we're not being used at today. So that CHOPS is not cannibalizing. It's additive to our market share, and it's specifically focused on these short transport runs that are currently going on static cold storage. So that's number one. Number two, the strategy behind it was to find a better way to develop the control arm with better technique than the standard Styrofoam boxes that are currently being sold for static cold storage, but also presented an opportunity for us to provide a broader product portfolio to meet those centers that are -- their volume is primarily shorter distance and they don't invest in DCD or longer distance organ procurement. Finally, our goal right now is on heart and lungs in that order. We do not see -- obviously, it will be approved for organ preservation, cold static storage for organ preservation, but we have not made a decision yet, is it going to be rolled out for liver and kidney as well. We think the kidney cold static preservation is really a disaster, and we are trying to transform all this to machine perfusion. CHOPS is specifically designed for the cardiothoracic platform. Operator: Your next question comes from the line of Joshua Jennings of TD Cowen. Joshua Jennings: Hoping to just build on discussion on ISHLT will lead and just with the ENHANCE Part A and Part B programs, optimal scenario being kind of a win-win-win potentially driving day-only surgeries for high-risk DCD Hearts showing superiority in DBD short transports and then also opening up this advanced cold storage CHOPS opportunity. And maybe just help me better understand the dynamics there, if you would, and how ENHANCE Part A, Part B can help drive stronger liver heart penetration, OCS heart penetration. Waleed Hassanein: Thank you, Josh. As we've stated before, ENHANCE was designed exactly to accomplish the goals you outlined. We wanted to give the market a safe, reproducible and effective way to do morning hour heart transplants. We wanted to give the market a better way to preserve DCD Hearts and better way to preserve long distance and long preservation time, extended criteria hearts, minimizing edema and resulting in better function and enhancing function on OCS. That was primarily the design of ENHANCE. In addition, we wanted to penetrate that segment of the market that I called earlier, DBD Hearts that are, call it, sub-4 hours of preservation, which currently the vast majority of those are being transported using Styrofoam boxes with cold packs. That's Part B of ENHANCE. So yes, the vision, the strategy of ENHANCE is still intact. Unfortunately, the competitive dynamic caused a little bit of a confusion and resulted in a little bit of a delay to launching these 2 parts, specifically Part B. And we found a solution for it and that completely make ENHANCE fully independent from any competitive dynamic. So we are as excited as always and as we've ever been on ENHANCE, and we just can't wait to get the IDE supplement approved and getting the program rolling. So again, from where we sit here, we see this as a huge opportunity for us to catalyze adoption in heart across all market segments in heart and still have an optionality for centers that are not for whatever reason, are not focused on any of the sort of expanding portion of the heart market of DCD or long-distance procurement and just are happy with the cold storage to offer a product that is, we believe, will be -- will provide them -- meet their expectation and provide them potentially better solution, but on our platform, which is CHOPS. So as you said, Josh, we look at this as a win-win-win from TransMedics perspective. We just have to be patient. We have to execute on the strategy. We have to finish the program. From where we sit, Part A is going slightly ahead of schedule. We're excited about what we're seeing. The market is giving us early feedback on how the hearts are behaving -- coming off OCS, which is exactly as we predicted it would be. But again, we need to finish the program, and then we expect good things. Operator: Your next question comes from Allen Gong of JPMorgan. K. Gong: I had a quick one on what you're seeing in the market. I know intra-quarter, you had talked to some disruption that you were seeing at OPOs, especially as they're grappling with some of the potential changes proposed in the OPTN modernization. But I'm curious to hear what you're seeing so far in the second quarter. Are you seeing the same level of challenges? Are you seeing it get better? Are you seeing it worsen? And how should we think about your growth in the second quarter in light of that? Waleed Hassanein: Thank you, Allen. The specific things that we're seeing is what everybody is seeing, which is that the overall disease donor numbers have been below expectation and below last year. And we saw that throughout the first quarter and April continued. We hope that will reverse. We usually don't pay too much attention to inter-quarter variability, but we are paying attention this year because of the dynamic with the Modernization Act. And if you remember, we predicted that we will see some volatility in diseased donor numbers, which is the mechanism that OPOs kind of register their this pleasure with the transformation. And we've seen it reverse, and we have all the confidence that it will reverse. When it will reverse, we don't know, but we're not -- we don't expect this to be a chronic thing. And we expect actually when it reverses, it will bounce -- not just bounce back to baseline, but we expect some acceleration. That's what we've seen over the history over the last 20 years. When this happens, that dynamic kind of plays out as I outlined. K. Gong: Got it. And sorry if I missed this in the prepared remarks when bouncing around. I understand that the new strategy that you are approaching for your clinical trials. Do you have an expectation for when you think you can get those IDE approvals and then how quickly you can get those trials started afterwards? Waleed Hassanein: Yes. Thank you, Allen. As I stated in the prepared remarks that we plan to file the IDE supplement within the next couple of weeks, and we hope to be in approval stage and implementation stage by early Q3. Operator: Your next question comes from the line of Ryan Daniels of William Blair. Matthew Mardula: This is Matthew Mardula on for Ryan. And I might have missed this, so I apologize, but what is the guidance for operating margins this year? And is just the operating margin growth more weighted in the second half and investments more front loaded given what we've seen in Q1? Any more color into margins and its trajectory for the second half would be greatly appreciated. Gerardo Hernandez: Yes. What I mentioned in the last call is that we're expecting up to around 250 basis points below -- operating margin below last year, which now will be really adjusted operating margin below the number that we had in 2025. I would not like to go into more details in terms of phasing because we have an investment plan that it needs to materialize for it to result in what we are seeing. So I'd rather not go into those level of details now. Operator: Your next question comes from the line of Chris Pasquale of Nephron Research. Christopher Pasquale: Waleed, I also wanted to ask about the ENHANCE, DENOVO trials. And the CHOPS program seems like a great addition to the portfolio. But previously, you were comparing OCS to established hypothermic organ storage approaches in those studies. Now by including CHOPS in the trials, you effectively have 2 investigational arms being compared against each other. So I guess kind of a 2-part question is, one, does that complicate the interpretation of the results? Do you worry at all about not having a clean outcome here in terms of physicians being able to interpret what the data says. And then two, you're theoretically introducing a harder control arm here if you really believe that you're going to do a better job controlling the temperature of those organs. And so does that make you at all concerned about the margin of improvement you're going to be able to show in the studies? Waleed Hassanein: Chris, excellent question, and thank you for asking it. So let me address it in several sections. The first segment is there's no such thing as well-established cold storage other than ice. What we've seen over the years is there's these hypotheses and claims that are being thrown out there in the marketplace by a handful of newcomers to the space that haven't been really substantiated. In fact, even the variation in temperature we've seen at the last ISHLT that did not show any significant difference than 4 degrees to 8 degrees versus 10 degrees. -- none of these hypotheses have really materialized. So for us, we don't -- we're not concerned at all that we are lowering the standard. The opposite is true. We're actually elevating the game and saying, listen, if you, as a center, wants your organ to be stored between 4 and 8, we have a device that we can validate that it's between 4 and 8. If you want it at 10, we have a device that validates it at 10. So that's number one. Number two, we've discussed the second part, which is comparing to investigational arm. The CHOPS will not be investigational by the time we interpret the trial results. That's the plan that we discussed with FDA, and I would leave it at that. Three, do -- am I worried about raising the bar in the control arm? No. I think the OCS will prove its value because, again, these programs are designed to show several value points. And again, we know that even if we deliver superiority results, there will be a segment of the market that's still focused on cold static storage just because of cost, just because of limited volume or what have you. And in this case, TransMedics would gain market share in that segment that today, we don't have a product to sell to these needs. So net-net, we are extremely focused on getting these programs executed. We are -- we believe we found the best solution out. In fact, I would -- at risk of quoting the FDA, the FDA called it a creative and elegant solution. So we will go and execute the trials, and we are confident that our strategy is going to pan out on many fronts. We just can't wait to get these programs fully activated and we get out of this confusion that was created by the panic that was thrown into the mix by our competitors. Operator: Your next question comes from the line of Suraj Kalia of Oppenheimer. Suraj Kalia: Waleed, can you hear me all right? Waleed Hassanein: Can hear you perfect, Suraj. Suraj Kalia: So Waleed, I wanted to follow up on Chris' question just with a slightly different flavor. So one of the pushbacks we got after the CHOPS announcement was, hey, how do you know this -- the CHOPS is optimally designed, i.e., it isn't really designed as an inferior product. I'd love for you to push back on that notion. This is a new product. How do you know this is optimally designed as is? Hence, you can -- I think, so Chris was looking at one side of the spectrum in terms of good outcomes of the control arm. What I'm saying is at least what the pushback we got was, what -- if it is suboptimally designed and you get bad outcomes in the control arm, hence, you automatically look good. I'd love for you to push back on that notion of thought. Waleed Hassanein: Great. Suraj, thank you for asking this important question. The opposite is true, Suraj. The thing is, again, this question implies that the market is actually working with highly scientific, highly validated technologies. The opposite is true. There are transplant -- major transplant programs are going to Home Depot and buying either YETI coolers or RYOBI coolers and they're operating with them day in and day out. And guess what, none of these coolers have been validated or designed or even FDA approved for that intended purposes. We are elevating the game. We are a company that pride itself of developing and delivering Level 1 evidence to the highest clinical standards and to the FDA standards. That's number one. Number two, as I said in my prepared remarks, and I will reiterate it again here, CHOPS is designed to be a fully registered and regulated FDA medical technology, which means, by definition, Suraj, as you know, that we have to go through an exorbitant amount and exhaustive testing to validate that the design meets the intended purpose. None of the technologies I'm talking about have been -- have gone through that. So that's a hyperbole assumption. We -- the opposite is true. We are actually -- I am with -- Chris' spectrum is the one that's more realistic that we are elevating the game on the control arm. But even then, we are not concerned because we see significant value and also we provide solutions across the spectrum of values achieved -- that would be achieved in ENHANCE DENOVO. Operator: Your next question comes from the line of Matthew O'Brien of Piper Sandler. Samantha Munoz: This is Samantha on for Matt. Also wanted to talk about the clinical trials in CHOPS. I guess, first, kind of a 2-parter. Can you first just quantify and put into numbers for us how much of the market CHOPS is expected to address? And then I'm also trying to square the design of these trials. You mentioned the superiority. So these trials are essentially trying to say that OCS is a better technology versus now cold storage and CHOPS, but then also the decision to launch CHOPS, presumably this inferior technology. Waleed Hassanein: Sure. Sam, that's an excellent question. So let me address the latter piece first. Again, as I stated earlier, we all know you, everybody on this call and the listeners know and they've spoken to clinicians and surgeons in the field of organ transplantation. You ask 10 transplant surgeons, one question, you will get 12 different answers. So we know for a fact that, even when we prove superiority, there will be a handful of centers or a segment of the market that will still prefer cold storage technique in certain cases. Why not provide them that solution and go through the effort of providing a fully FDA-approved regulated device that gives them that flexibility. So that's number one. Number two, I'm sorry, Sam, can you repeat the first part of the question again? I lost my train of thought. Samantha Munoz: No, that's okay. Waleed Hassanein: Quantification. I'll give you one example. I'll give you one example. 2025 U.S. heart transplant total volume was 4,646 hearts, okay? You need to know that 46% of that total market which is 2,131 were DBD hearts preserved less than 4 hours. Our portion of that market is measured in single digits. So that is a market that is today all going to cold storage techniques. The Styrofoam cooler, the RYOBI cooler, the YETI coolers, why not provide an answer to that? Yes, we should gain a greater portion of that by demonstrating superiority or demonstrating better outcomes. But there will be a segment of that market still out there that the surgeon or the clinicians would need access to cold storage technique. Let's provide them the solution and provide them the clinical service of NOP and the logistics associated with it. Operator: Your next question comes from the line of Daniel Markowitz of Evercore. Daniel Markowitz: Thanks for taking my question. I wanted to talk about energy prices. It sounds like you're able to pass this along to customers via surcharges. Can you just talk through the dynamic a little bit? What's the exposure here? Are you able to pass it all along? And how does this flow through the P&L? And what's, I guess, contemplated in the guidance on that front, both on the revenue and on the COGS side? Waleed Hassanein: Daniel, thank you for asking this important question, which, as we understand, has been creating this black cloud overhang over TransMedics. People forgot who TransMedics is and which market segment we deal with. We're not United Airlines or Delta. We are an organ transplant company. So you need -- everybody needs to remember that we are operating in a highly competitive environment where there are other charter operators and companies that service the same market that we are servicing from a logistics standpoint. Historically, for the last 4 or 5 decades, transplantation have survived and grown when oil prices was high, when oil prices was low. How? Because the market has a mechanism to recover the cost of these -- when the prices go up. In fact, so because of that competitive dynamic, I cannot share with you on an open mic the detail of how TransMedics is doing it. All I can share with you is I can assure you and I assure all the listeners on this call that TransMedics is doing the absolutely right thing by our customers, and we are having the ability to control our logistics and our fleet and the network effect that was created here gives us maximum operating leverage on dealing with fuel prices. I'll give you one example. We are monitoring fuel prices by hub, and we have the maximum flexibility of moving hubs and floating our fleet to make sure that we are not incurring unnecessarily higher fuel charges, so we don't pass these unnecessarily high fuel charges to the transplant program. But again, the results speaks for themselves. If fuel charges are truly that unsurmountable challenge, we would not be able to print the results we printed here. And to put everybody's mind at ease, fuel charges is a small component of our operating flight hour cost. So it is covered and our network is the most cost-efficient way to deal with this problem until it's resolved. Operator: Your next question comes from the line of David Rescott of Baird. David Rescott: I want to follow up on some of the margin commentary, gross and operating. First on the gross margin side. I think historically, Q1 is typically or has been over the past 2 or 3 years, the high watermark for gross margin. So curious, one, if that is the way that we should be thinking about the cadence for the year, if there's any maybe transient impacts there? And then I appreciate some of the comments already on the operating margin side. But just trying to get a sense maybe for some of the puts and takes that you saw in Q1 versus what you're expecting to maybe normalize or work its way out as you get into the back half of the year. Maybe CHOPS is a piece of that. Just be curious on any more color on the gross and operating margin numbers in the quarter and then for the year. Right. Gerardo Hernandez: Right. Thank you, David, for the question. In terms of gross margin, we -- as I shared in the call, we're looking and we're expecting convinced that we can -- that the right margin for the business is the 60% -- around 60%. We are investing ahead of that. And because of that, we are seeing some pressure in the margin in the short term. I saw, let's say, significant positive impact -- operational impact in the quarter in Q1 that was mostly offset by some -- a good portion of that was transient expenses. So my view is that for the rest of the year, we should see a recovery towards our long-term goal. I'm not sure we're going to get all the way to the long-term goal this year or even next year. That's why it's long term. But I see -- and I believe that this is the quarter where it should be more the floor rather than the ceiling. Operator: Your next question comes from Young Li of Jefferies. Young Li: I think you mentioned the ENHANCE Part A trial is enrolling slightly ahead of schedule. I guess I'm wondering how does that sort of inform or change your expectations for Part B enrollment timing once that restarts in 3Q, is 12 to 18 months still the right time frame for ENHANCE Part B and DENOVO enrollment? Or can you enroll faster than that? Waleed Hassanein: Xuyang, thank you for the question. I'll answer the second part first. We still are holding the 12 to 18 months time frame. That hasn't changed. I think I caution to compare Part A to Part B. There are 2 different components. But it's -- remember, it's the same centers that will be enrolling in Part A or Part B. So again, it's all about value. If the center sees the value and sees the clinical outcomes in their hand, we expect the trial enrollment to pick up. For me, right now, I'm focusing on getting the IDE supplement approved, getting the TOPs into the control arm and removing all the confusion by competitors so we can get Part B enrolled. DENOVO is actively enrolling, and we enrolled a handful of patients already despite some of the confusion, thanks to the transplant program stepping up and moving forward. But I think it will accelerate even further once CHOPS is introduced as the control arm or an option for the control arm. Operator: Your next question comes from Mike Matson of Needham & Company. Michael Matson: So just on the CHOPS devices that are going to be used in the trials, will you be getting paid for those? And then just generally, can you talk about the kind of -- what kind of pricing we should expect on that, both in the trials and then when you're selling it just kind of the customers in the open market? Waleed Hassanein: Mike, I appreciate very much the question. Unfortunately, I cannot discuss the commercial structure of CHOPS yet, the priority is to get it through the IDE process. And all I can say is this is going to be a part of our NOP service offering, and I'll leave it at that. Operator: Your next question comes from Tom Stephan of Stifel. Thomas Stephan: Apologies if this has been asked, jumping between calls. But Gerardo, maybe for you, for the 20% to 25% guidance on revenue in the core business for '26, when I look at growth over the last, call it, year or so, 40% plus growth in 1H, 30% plus in 2H and then 1Q was a bit over 20%. So like with that trend in mind, what gives you confidence that the growth rate rest of year will remain stable in the core business or even accelerate a bit moving forward in order to kind of hit that full year 20% to 25%. Gerardo Hernandez: Thank you for the question. Well, basically, when we look at the phasing and the history of the transplant volume in the U.S., we can see how the remaining of the year, it continues to strengthen. So we're not expecting any change to the global volume, except for the one that Waleed mentioned before in terms of any potential disruption due to the Modernization Act. Now we believe that we can -- that we will deliver within the 20% to 25% growth with that. And I think that's really what makes us confident. We're seeing the results. We're seeing the adoption and that together with the last year's performance, it really shows how the market trend is going. So there is nothing really that would prevent us to get to that range, at least as I see it today. Waleed Hassanein: And Tom, let me add also, again, we don't comment on penetration and market share midyear or throughout the year. As you know, we comment on it at year-end because of the choppiness of it. But we're watching our market share in Q1 despite the overall transplant numbers and donor numbers being a little bit on the low end and below last year, we're maintaining and growing our market share, which tells me that we're taking some market share in Q1. That's what gives us the confidence that just organically, without even talking about ENHANCE and DENOVO that we should be able to meet that target range that we set for ourselves. Operator: There are no further questions at this time. I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer, for closing remarks. Waleed Hassanein: Thank you all very much for spending your afternoon with us. We're looking forward to one-on-one calls. I appreciate it. Have a great evening, everyone. Operator: This concludes today's conference call. You may now disconnect.