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Operator: Hello, everyone, and thank you for joining us, and welcome to Cardlytics' First Quarter 2026 Financial Results Call. [Operator Instructions] I'll now hand the conference over to Nick Lynton, Chief Legal and Privacy Officer. Please go ahead. Nick Lynton: Good evening, and welcome to the Cardlytics First Quarter 2026 Financial Results Call. Before we begin, let me remind everyone that today's discussion will contain forward-looking statements based on our current assumptions, expectations and beliefs, including expectations around our future financial performance and results, including for the second quarter of 2026, our capital structure and operational and product initiatives. For a discussion of the specific risk factors that could cause our actual results to differ materially from today's discussion, please refer to the Risk Factors section of our 10-Q for the quarter ending March 31, 2026, which has been filed with the SEC. Also during our call, we will discuss non-GAAP measures of our performance. GAAP financial reconciliations and supplemental financial information are provided in the press release issued today, which you can find on the Investor Relations section of the Cardlytics website. Today's call is available via webcast, and a replay will also be available on our website. On the call today, we have CEO, Amit Gupta; and CFO, David Evans. Following their prepared remarks, we'll open it up for your questions. With that, I'll hand the call over to Amit. Amit Gupta: Good evening, and thank you for joining us. As I mentioned on our last call, 2026 is a year of execution for us. Our performance in Q1 reinforces our confidence that we can operate efficiently with a lower cost basis and still deliver on our stated business objectives. Our strategic priorities remain consistent. First, expanding our reach by deepening collaborations with bank partners and integrating new publishers into our network; second, driving incremental revenue growth for our advertisers by leveraging our advanced algorithmic and geo-centric capabilities; and third, continuing to invest in our technology platform to further differentiate our offering and improve operational efficiency. We are also benefiting from the addition of experienced go-to-market and FI-facing leaders who are helping us elevate our performance across several key areas. Let me start with our network and supply. After a prolonged period, we are pleased to report that our supply has stabilized and many of our existing FI partners are actively engaging with us to co-develop growth opportunities. For example, building on strong program performance and positive customer response, we will onboard new cardholder portfolios with one of our larger FI partners later this year. This momentum reflects the strength of our advertising content, the quality of our platform and the collaboration between our FI partners and our internal teams. Additionally, we are partnering with banks to better market and enhance reward amounts being paid out to their customers. In the case of one of our newer neobanks, the Double Days program continues to be a lever for increased consumer engagement and drove 0.25 million new activators during the event. We are expanding similar incentive programs with other FI partners. These engagement-focused programs tend to be adopted first by our newer banks, shifting more volume to these banks and leading to a more favorable revenue margin overall. Our push to meet new customers where they are continues. We continue to see interest in the Cardlytics Rewards Platform or CRP, from partners across multiple industries. We currently have three live CRP partners. And while still early, we are seeing month-over-month supply growth. We are also in discussions with larger partners about implementing CRP, and we'll share more as we make progress. Turning to our advertiser base. In Q1, we received a strong signal from our cohort of new enterprise advertisers that they valued our measurement, network reach and technology forward platform capabilities over our competitors. Our focus on new business is translating into meaningful year-on-year pipeline growth, and we expect it to be impactful in our U.S. business throughout the year. In Q1, we saw strong performance from the telecom, gas, and convenience verticals. One of the fastest-growing discount grocers following a successful Q1 campaign and strong iROAS performance is renewing in Q2 and is on track to become a top 10 advertiser for us this year. Several leading advertisers in our channel prefer the quality of our analytics and the reach of our network and have decided to consolidate CLO spend with Cardlytics despite the supply constraints. This has been a recurring narrative amongst our clients and reinforces the value that our multi-FI network can provide. To augment our measurement capabilities, we are adding new measurement partners to our network to support advertisers with their preferred measurement model of choice. At the same time, we continue to invest in offer performance and ad ranking. Optimization experiments in Q1 are driving higher activation and redemption rates, and we're seeing double-digit growth in redeemers across banks with stable supply. Feedback from advertisers continues to reinforce that we outperform other alternatives. Our U.K. business continues to deliver outstanding results with Q1 revenue surging over 21% year-over-year. This momentum highlights our omnichannel strength, particularly with the restaurant and retail sectors. We are proud to have served all of the U.K.'s largest grocers on our platform during the quarter. In the U.K., advertiser sentiment remains strong as we diversify our footprint. This allows partners to rely on Cardlytics as a single destination for high-quality relevant content for their card members. Turning back to the U.S. Due to macro events, we are seeing some budget pressure in the travel and hospitality sectors with approvals being delayed or pushed into future quarters. Overall, with supply stabilizing and execution improving, we believe we are well positioned for sequential growth. Turning to our technology platform. The work we did in 2025, particularly in data and AI is now delivering measurable impact. Our engineering efforts are improving both speed and efficiency across the platform. For example, our newly released Insights agent delivers weekly unique advertiser reports synthesizing macroeconomic data, industry trends and Cardlytics-specific insights. Our new campaign data sync infrastructure, starting with impact.com enables our sales team to share performance data with measurement partners for advertiser accounts in minutes rather than days. We standardized on a unified agentic development environment with common AI skills and MCP servers, giving our engineers AI-assisted tooling across the full development life cycle. We are now tracking development productivity metrics to measure adoption and scale these games. Now looking forward, with the Bridg transaction successfully closed, we are now fully aligned around our core platform with improved financial flexibility and the ability to move faster. Our focus remains on disciplined urgent execution against our strategic priorities. I'll now turn it over to David to discuss the financials. David Evans: Thank you, Amit. As we talked about on our last earnings call, our core focus and strategic plan we set up for 2026 is quarterly sequential growth and self-sustainability. We are pleased to announce Q1 numbers that are above the midpoint of the guide across all metrics, including for the Q1 Bridg results. Our Q2 guide further represents and supports quarterly sequential growth. We have also taken another step towards self-sustainability since acquiring and quickly selling the PAR shares we received in consideration for the divestiture of the Bridg business, further improving our state of liquidity and balance sheet. Turning to Q1 results. For awareness, I will speak first to results and year-over-year comparisons from continued operations, which exclude Bridg results, followed by Q1 numbers that are inclusive of the Bridg operations, given these totals were included in our Q1 guidance. Bridg specific results can be found in the 10-Q and the earnings release. Also, the comments will be year-over-year comparisons to the first quarter of 2025, unless stated otherwise. In Q1, our billings were $58.1 million, a 37% decrease year-over-year. Total billings, inclusive of Bridg Results was $62.3 million. Despite the departure of Bank of America in January, we were able to retain the vast majority of our clients and are seeing results of our focus on driving new business to the platform. Q1 revenue was $34.3 million, a 39% decrease year-over-year. Total revenue, inclusive of Bridg results was $38.5 million. As Amit mentioned, our U.K. business remains a standout performer with Q1 revenue increasing over 21% year-over-year. Q1 adjusted contribution was $19.7 million, a 28% decrease year-over-year. Total Q1 adjusted contribution, inclusive of Bridg results was $23.3 million. Despite year-over-year decline, we continue to expand our revenue margin or adjusted contribution as a percentage of revenue to 60.6%, our highest on record. However, we do expect this to come down in future quarters due to the divestiture of Bridg. Q1 adjusted EBITDA was positive $0.2 million compared to negative $4.1 million in the first quarter of 2025. Total Q1 adjusted EBITDA, inclusive of Bridg results was negative $2.2 million. This improvement in adjusted EBITDA underscores our ability to execute towards our goals with a lower expense base. Q1 adjusted operating expenses was $19.5 million, a decrease of 38% from prior year. Total Q1 adjusted operating expenses, inclusive of Bridg was $25.5 million. This was largely due to reduction in force actions taken in 2025 and optimization of our cloud infrastructure. Q1 operating cash flow was negative $5.6 million compared to negative $6.7 million in the prior year. Free cash flow was negative $7.9 million compared to negative $10.8 million year-over-year, an improvement of $2.9 million. On the balance sheet, we ended Q1 with $35.7 million in cash and cash equivalents. Subsequent to the quarter closing, we liquidated all the PAR shares we received in connection with the Bridg sale. We used the proceeds to reduce the amount owed under our credit facility and improve our cash position. Our MQUs for the quarter were $197 million, accounting for the loss of Bank of America in January. ACPU for the quarter was $0.10, down 21.3% year-over-year. Now turning to our outlook for Q2 2026. All comparisons to prior year and prior quarters will exclude Bridg. For Q2, we expect billings between $61 million and $67 million, revenue between $35 million and $40 million, adjusted contribution between $20 million and $23 million and adjusted EBITDA between negative $2.7 million and positive $1.3 million. Our guidance represents quarterly sequential growth of 10%, 9% and 9% for billings, revenue and adjusted contribution, respectively, and excluding Bridg numbers in Q1 for comparison purposes. We continue to be committed to delivering sequential growth for the remainder of 2026. Our adjusted EBITDA guide further represents our belief in our ability to execute at a lower expense base, and we remain committed to driving operational efficiencies. We are laser-focused on executing against our core competencies to drive sequential growth in 2026. I will now turn it back to Amit for closing remarks. Amit Gupta: We're moving forward with a stronger foundation to operate the leading purchase intelligence platform. Our team is heads down executing on our strategic priorities to deliver value for our advertisers, partners, shareholders and end consumers. I'll now turn it over to the operator to begin Q&A. Operator: [Operator Instructions] There are no questions at this time. I will now turn the call back to Amit for closing remarks. David Evans: I'm not sure if Amit is coming through, but I can jump in here for closing remarks. I would reiterate for all of our listeners that as we stated at the beginning, we are executing against the plan that we set forth at the beginning of the year, which is to operate through 2026 showing sequential growth as well as being able to show and perform with self-sustainability. Amit, if you are back on, you want to have any other closing remarks or otherwise, we can conclude the call. But Amit, I'll turn it to you if you can hear us. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and welcome to QuinStreet's Fiscal Third Quarter 2026 Financial Results Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Vice President of Investor Relations and Finance, Robert Amparo. Mr. Amparo, you may begin. Robert Amparo: Thank you, operator, and thank you, everyone, for joining us as we report QuinStreet's Fiscal Third Quarter 2026 Financial Results. Joining me on the call today are Chief Executive Officer, Doug Valenti; and Chief Financial Officer, Greg Wong. Before we begin, I would like to remind you that the following discussion will contain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those projected by such statements and are not guarantees of future performance. Factors that may cause results to differ from our forward-looking statements are discussed in our recent SEC filings, including our most recent 8-K filing made today and our most recent 10-Q filing. Forward-looking statements are based on assumptions as of today, and the company undertakes no obligation to update these statements. Today, we will be discussing both GAAP and non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release, which is available on our Investor Relations website at investor.quinstreet.com. With that, I will turn the call over to Doug Valenti. Please go ahead, sir. Douglas Valenti: Thank you, Rob. Welcome, everyone. Fiscal Q2 was another quarter of strong performance and progress. We grew revenue 28% year-over-year to a new company record, and we grew adjusted EBITDA 53% year-over-year, also to a new company record. Our core business is strong, and we continue to make good progress on initiatives that we expect to continue to deliver impressive revenue growth and margin expansion in fiscal Q4 and beyond. Those initiatives include dozens of active projects applying AI across our business system to our proprietary data, tech stack, integrations and workflows and to our media campaigns and interactions with consumers. AI is strengthening our already formidable competitive advantages and is driving even better results for clients, media partners and QuinStreet. As a technology-driven company with hundreds of engineers and technical product employees, we are a fast and effective developer and adopter of leading-edge AI technologies and tools. And of course, we have a proven history with AI. We have been developing and applying AI algorithms since 2008. Getting back to fiscal Q3, let me review some of last quarter's accomplishments in more detail. We set a company record for quarterly revenue, $346 million, up 28% year-over-year. We also set a company record for quarterly adjusted EBITDA, $29.6 million, up 53% year-over-year with expanding margins. We continue to be in a strong financial position with a strong balance sheet and strong cash flows. We ended the quarter with over $100 million in cash and with net debt of around $50 million, including all bank debt and seller notes. Our net debt is well less than 0.5x our annualized adjusted EBITDA, even after accounting for the full cost of the $190 million acquisition of HomeBuddy. And we expect to deliver well over $100 million more free cash flow over the next 12 months. So fiscal Q3 was an exceptionally strong quarter, and we are in an exceptionally strong market and financial position. Looking at the current June quarter or our fiscal Q4, we expect growth to accelerate even more and margins to expand even further, and we expect to set new records for quarterly revenue and adjusted EBITDA in Q4. Our early view of next fiscal year, which begins on July 1, is that we expect to again grow revenue and adjusted EBITDA at strong double-digit rates year-over-year. Looking at our major client verticals. We delivered record auto insurance revenue in fiscal Q3 due to strong carrier demand and high levels of consumer shopping activity. Carriers continue to report good results. We are confident that our full market opportunity in auto insurance is still in its early innings, and we are successfully expanding our media, client and product footprints in that important client vertical. We also delivered record quarterly revenue in home services in Q3, with revenue run rates now approaching $0.5 billion annually. The work to integrate HomeBuddy and to capture synergies is going well as we continue to successfully expand our media, client and product footprints for growth in the enormous home services market opportunity. As I indicated earlier, our success continues to be driven by our industry-leading technologies and business systems, including, at their core, our AI optimization algorithms. And we are expanding the application of AI to dozens of other areas of the business, to our massive store of proprietary data generated from billions of dollars of media spend, to our millions of permutations of campaign and marketplace variables, to our proprietary integrations with clients and media, to our thousands of proprietary workflows and to our interactions with millions of in-market consumers every month. Those efforts are already delivering big improvements in performance and productivity, and we see much, much more. Let me give you a few examples of where we are successfully applying AI to our broader business system. First example. We are applying AI to integrate new and updated carrier rates faster and at greater scale into QRP, our insurance rating platform, increasing productivity there by an estimated 50%. Another example. We are using AI to generate more and better ads for creative, improving productivity in that core essential function by an estimated 400% and resulting in faster campaign launches. A third example. Our frontline employees are using AI-enabled natural language analytics to access even more of our deep trove of proprietary data and to drive deeper analytic insights and improvements in client, media and margin results with less need for analyst support or long cycle times. And one final example here. We are, of course, applying AI to dramatically improve software coding productivity across the business and tech stack. We are also seeing exciting growth in revenue from AI media and as AI grows in media. Some examples of that. First, as AI overviews have expanded rapidly over the past year to now trigger on an estimated 50% plus of Google searches, revenue from our proprietary campaigns on Google has grown by over 100% over the same period. A second example. We are an early participant in OpenAI's advertising platform, where we are already live in both insurance and home services. And one last AI media example. We are improving consumer conversions for our media campaigns and for clients due to the use of conversational AI in our web flows, chatbots and inbound calls and in SMS and e-mail communications with end market consumers. Overall, we are and have been and expect to continue to be an AI winner. Turning to our outlook. We expect revenue in fiscal Q4 to be between $350 million and $370 million, up sequentially to yet another new quarterly record and implying at least 34% growth year-over-year. We expect adjusted EBITDA to be between $37 million and $43 million, also up sequentially to yet another new quarterly record, reflecting continued margin expansion and implying at least 67% growth year-over-year. With that, I'll turn the call over to Greg. Gregory Wong: Thank you, Doug. Hello, and thanks to everyone for joining us today. Fiscal Q3 was another successful quarter, as Doug noted. It was the third consecutive quarter of record revenue for QuinStreet and also a record for adjusted EBITDA. This strong performance was driven by continued momentum and execution across our verticals. For the March quarter, total revenue was $346.1 million, up 28% year-over-year. Adjusted EBITDA was $29.6 million, up 53% year-over-year, and adjusted net income was $17.8 million or $0.31 per share. Looking at our revenue by client vertical. Our financial services client vertical represented 67% of Q3 revenue and grew 16% year-over-year to $231.8 million. Auto insurance momentum continued, delivering a record quarter and growing 27% year-over-year. Our home services client vertical represented 33% of Q3 revenue and grew 63% year-over-year to $114.3 million. Turning to the balance sheet. We ended the quarter with $102 million in cash and equivalents and net debt of $54 million. Overall, QuinStreet remains in a strong financial position, and we expect to generate strong cash flows in the coming quarters and years. We continue to have a rigorously disciplined approach to capital allocation, and we'll continue to prioritize: one, investing in new products and initiatives for future growth and margin expansion; two, accretive acquisitions; and three, share repurchases at attractive levels. We will continue to be measured in our approach and remain focused on maximizing shareholder value. Moving to our outlook. We expect revenue in fiscal Q4 to be between $350 million and $370 million, representing at least 34% growth year-over-year. We expect adjusted EBITDA to be between $37 million and $43 million, reflecting continued margin expansion and representing at least 67% growth year-over-year. With that, I'll turn it over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Jason Kreyer from Craig-Hallum. Jason Kreyer: Doug, can you talk more about the AI actions that you've taken in the quarter? You'd highlighted some relationships with Google and OpenAI. And perhaps you can elaborate on your role there and what you expect over the long term with these partnerships. Operator: I think Jason got disconnected. Our next question comes from the line... Douglas Valenti: I'm sorry, operator. This is Doug. Let me get back in. I apologize, Jason, but yes, thank you for the question. We're applying AI across the business system, as I indicated, including in media. And one of the places in media that we are active is now in OpenAI's advertising platform. They are early, but we were -- we believe we were in the first few hundred folks to actually be engaged with them and to be active on the platform. And as I said, we're active in both insurance and in home services, running advertising campaigns there to both generate revenue, of course, and we have generated our first revenues there, but also to continue to help them pilot that platform and evolve it into a much bigger part of their business and a much bigger part of everybody -- of our business as well. So super excited. As we've indicated before, we believe the LLMs are going to be a new entry point for consumers just like AI overviews on Google have been a new component, a new entry point for consumers. And we believe that it's a new great opportunity for us to plug in and do what we do, which is to help those consumers get matched to the best service providers and generate maximum media yield and revenue for all parties, including the platform companies, whether they be Google or OpenAI or others. So that's what that's about. But again, a lot of AI opportunities and a lot of AI activity going on. Jason Kreyer: We look forward to hearing more about how that evolves. Just as a follow-up, I want to ask about the HomeBuddy performance in the first quarter. And I'm curious how you felt the HomeBuddy and Modernize assets interacted over the course of the quarter and kind of how that integration is modified as we go forward? Douglas Valenti: Yes. It's going extremely well, going certainly as we had predicted and, in some ways, better. We integrated very quickly and, in the quarter, actually generated revenue from the integrations in terms of, for example, taking media from the Modernize side, sending it over to HomeBuddy to be converted into their auction basics, which will be product for their clients and vice versa, getting revenue back. So we're -- it's going well. It's going as expected, and we continue to be very excited about the expansion of our footprint, both in product and media with HomeBuddy. So in terms of changes, I think we're a little bit ahead of schedule in terms of integrating the organizations. We are a little bit ahead of schedule in terms of doing what we -- in terms of having a -- kind of a one-platform approach to the media. And so I'd say that, again, every bit as well as we hoped and, in some places, better. Operator: Our next question is from Luke Horton from Northland Securities. Lucas John Horton: Congrats on the quarter. Just wanted to touch on the auto insurance side. It looks like spending remains strong. Could you provide a little color on size of carriers and any trends you're seeing with the major carriers versus smaller guys? Douglas Valenti: Sure, Luke. We are continuing to see strength across the auto insurance client base. One of the trends that we are seeing is continued broadening. The broader base of clients grew significantly faster than the largest client, which also grew very rapidly. So there's no issues there, just a continued increased activity and broadening of demand across the client base and across the major carriers, top 10 to 15, however you want to think about them. So I'd say if there was a trend, it was just continued strength generally and continued broadening, which we've indicated previously. Lucas John Horton: Okay. Awesome. That's great to hear. And then on the kind of early fiscal year '27 color you provided with the strong double-digit revenue and EBITDA growth. I guess, could you expand on what the kind of 2 or 3 biggest drivers underpinning that outlook would be? Or what would be the biggest risk to achieving that? Douglas Valenti: Sure. Right now, we've seen preliminary numbers for next year from pretty much all of the businesses. And we've got double-digit revenue growth across the board -- strong double-digit revenue growth across the board. And in most cases, margins growing faster than revenue. And the one place where I think that's not yet indicated, it's flat margin cash revenue, but really strong growth. So some investment going on there. So no issues with that. So again, as you would expect, home services, of course, will be particularly strong early because of the acquisition in the first couple of quarters, we expect it to be strong in the back half as well after we lap the comp on the HomeBuddy acquisition. Insurance, we see strong demand from clients and continued strong development of new media capacity, which has been a good driver of our growth and margin expansion in auto insurance over the past couple of quarters. And then we're seeing, in the credit-driven verticals, good legs of growth there as well, whether it be in credit cards where we're getting strong indications from the issuers or banking where we're seeing strong demand from the clients there, and we have strong media capabilities there. And in the -- in AmOne Financial, the personal loans and debt solutions company, we've been focused on quality of revenue there. So we have not been growing that business over the last year or so, but we've been pretty significantly expanding margins. We've had some decline. We've indicated before, some decline in revenue, but pretty flat margin dollars as we've improved the quality of the revenue, and we expect to be able to resume pretty aggressive growth next fiscal year at those higher margins. So right now, it's pretty much across the board strength as we go through the detailed planning for each of the client verticals. Operator: Our next question is from Elle Niebuhr from Lake Street Capital Markets. Elle Niebuhr: So on the home services front, given the heavier implied Q4 weighting, what are you seeing in contractor demand, lead pricing, media availability? Any of that, that gives you the confidence that the seasonal ramp is playing out as expected? Douglas Valenti: We're seeing pretty much all those things, Elle. I mean the client demand continues to be extraordinarily strong. The -- and that's been consistent for a while. We have significantly greater demand than we have capacity to fill it, which is always what you want in our business, given the way we serve clients. We are making great progress on the media side with our proprietary campaigns, with the shared media between HomeBuddy and Modernize, which are the 2 brands we have in home services. And that's an area of real opportunity as both clients -- both of us take media that we don't match as well or don't have as good a coverage for, and take advantage of the new coverage, either Homebuddy for Modernize or Modernize for Homebuddy. We're seeing good growth in new product areas, continued growth in new product areas. Consumers are -- and homeowning consumers, who are the customers there, are quite strong still. The consumers has been exceptionally resilient, given the uncertainties and inflation and gas prices. I can't really say that about the low-end consumer where we -- but AmOne has solutions to help those consumers. But as far as the homeowning consumer, which are the folks that are the customers for our contractors in home services, those folks are quite healthy and quite active. So there's not really a dimension of weakness we're seeing in home services. If you look at the components that we worry about most, which, of course, media, capacity, client demand, pricing or consumer activity, consumer demand for projects. So continued strength and advantages of having HomeBuddy now to multiply that strength. Operator: Our next question comes from the line of Patrick Sholl from Barrington Research. Patrick Sholl: Maybe just a follow-up on the AI side. Can you maybe talk about like carrier adoption on that? Is that sort of -- I guess, just how carriers are spending within, I guess, maybe either in agentic format or through kind of the ChatGPT or other tools like that? Douglas Valenti: Sure, Patrick. They -- if it works for them and it comes to our platform, they're buying it. In terms of buying direct there, not yet in terms of buying, say, directly off those platforms. From what we understand and have been told, OpenAI and others are focusing primarily on marketplace providers like us initially because of the consumer choice and the content. I do expect that, over time, as their platforms and their ad platforms develop further that, of course, carriers will spend direct and there will be opportunities for them to do that. But again, as I indicated, we're early and one of the early folks working with them and one of the early folks they want to work with to help them develop their ad revenue platform and to be in a position to be able to scale that and continue to evolve it to be a big part of the channel. And I think it will be a big part of the channel. We're excited about it, as I said, as another way for consumers to come into digital. and to shop and pursue products and service providers in our verticals. So early, not a lot of direct activity from what we've seen and what we've heard, but good active planning and activities and indications that OpenAI is going to be a big player here, and we're going to be a big part of that, just like we have been with Google since the early days of the company. We launched our first campaign with Google, gosh, as soon as they -- we had SEO with them in the early days and as soon as they went into an ad-based platform, again, we were one of the first ones in that as well. So we expect this to be a pretty similar kind of opportunity and curve. Patrick Sholl: Okay. And maybe just a quick clarification on your outlook for 2027 on the solid double-digit growth. Should we be, I guess, understanding that to be excluding acquisitions as well? Or is that on a current operations basis? Douglas Valenti: We are -- we don't have any new acquisitions in that assumption. So yes, we would expect that, that would be on the current base business. Patrick Sholl: Yes, sorry, I misspoke. I meant like would that be pro forma for acquisitions or just... Douglas Valenti: No acquisitions in that. No acquisitions in that plan. Patrick Sholl: Okay. All right. And then lastly, just on the other financial services verticals. I think you kind of touched on this a little bit, but those don't seem -- are those like being impacted at all from the rate environment or the macro, I guess? I think like some appliance manufacturers have cautioned on the consumer spending side. And I'm just kind of curious on how that might be flowing through on from consumer demand. Douglas Valenti: Sure. No, we're seeing a mixed bag, mostly good for us. The AmOne Financial business is really positioned to help consumers on the lower end of the spectrum access capital in the form of personal loan or deal with debt problems in the form of debt settlement or credit repair. And so, unfortunately, in some ways, there's still a lot of consumer demand and appears to be growing consumer demand there. Credit cards, we only really serve prime and super prime consumers. We're not in the lower income spectrum of cards or credit development cards or anything like that. So those consumers continue to be very robust, and we have not seen issues there. On the deposit side, similarly, folks have money to put into savings accounts, high-yield savings accounts or CDs or other platforms, annuities and other. They tend to be consumers that are in the middle to upper income spectrum. So continues to be strength there. We've seen some -- I guess if there was something to look out for, I'd say that there's probably a little bit less activity by source of funds clients than there would be if the interest rate path were clearer. I wouldn't say that's something that's fundamentally going to change our outlook or is a big risk to the business going forward. But I'd say that that's something that -- it's probably not as robust as it would be if everybody knew that rates were either going up or down. And you can imagine why, right? They don't want to commit to a CD rate until they know where rates are going and they have to decide what their interest margin is going to be when they develop those products and when they recruit consumers for those products. But generally speaking, what you've heard from everybody, pretty stable, strong consumers, generally, particularly middle and upper income. The consumers at the lower end of the income spectrum are getting squeezed because of inflation, because of gas prices, which disproportionately hurt them and because of relatively low wage growth. But relative to -- as you position that against our business, that's a pretty good profile for the products that we serve. Operator: [Operator Instructions] Our next question is from Naved Khan from B. Riley Securities. Ethan Widell: This is Ethan Widell calling in for Naved Khan. To start off with, can you maybe add a little bit of color on just what you're seeing on the macro side for auto? I imagine that elevated oil prices pressing on discretionary budgets might cause less driving, more -- it's better for carriers, maybe more shopping for rates, but just wondering kind of what you're seeing along those lines. Douglas Valenti: I think both of those things. What we're seeing at our level is continued real strong demand and carriers wanting us to do more and figure out how to get more. But I think, at a macro level, I think you hit on it there. The carrier loss ratios are very healthy. They -- the indications we've gotten from them and from the industry is that they feel like they're rate adequate. And I think that the effect of higher gas prices is likely to be less driving, which means less -- the rate of incidents will be lower, which is going to be good for them because, as you said -- because there's likely to be fewer incidents and fewer claims. And the other thing that is absolutely a factor in auto insurance is that consumers shop more when they're under financial pressure for auto insurance because they want to see if they can save money because they have to have it, but they want to make sure they're not paying more than they have to pay for it. So shopping activity tends to be at pretty high levels. And we have seen good strong shopping activity, certainly through the peak shopping season, which is always in the kind of February-March time frame. But generally speaking, we're seeing a good strong consumer activity. Ethan Widell: Got it. And then kind of longer term, how do you view or maybe anticipate, like, your mix shift over time as you take into account kind of various growth rates in your verticals, but also layering in HomeBuddy to that? And how do you consider that in terms of maybe long-term margin possibility? Douglas Valenti: Yes, it's a great question. I think the theme that we'll probably see over the next few periods, and I'd say that's probably certainly quarters and maybe years, is that a little bit more normalization of the mix. And what I mean by that was the spike in auto insurance really caused auto insurance to be super heavy in our mix there for a period of time. And one of the reasons our margins -- and we said before, auto insurance, at its scale and with its structure, tends to come in at a little bit lower media margin percentage than our average. And so that shifted our margins down some. But as the greater growth in auto insurance has normalized after that -- the rapid expansion of 1.5 years, 2 years ago, and the other businesses continue to grow strongly, you're seeing the mix shift back to -- gradually shift back to a more normalized level where the auto insurance won't be as dominant, which means that there will be a natural lifting of our media margin profile, which will be -- should be a natural upward tug on EBITDA margins. And I've said before that there are kind of 3 things that are going to -- that are causing us to expand margins, have caused it over the last few quarters and are likely to continue to do it, including as we forecast next quarter. One is that mix shift. After kind of getting a heavy mix of auto insurance, that mix is going to more normalize and that will be a natural upward move in our media margin profile, which translates fairly directly to EBITDA margin since our fixed cost base is semi-fixed. The second is going to be continued success in expanding our auto insurance margins, which have been -- are up 4 to 5 points this year over the beginning of the year, largely due to a lot of specific projects to do that as well as the development of proprietary media that we said we were going to develop, and we spent a lot of money and invested in developing and have very successfully developed. We're going to continue to do that. And that's been very, very beneficial to us and to our margins in auto insurance. And the third is just natural operating leverage. I mean, as we grow at these rates on the revenue and therefore, margin dollar lines, but of course, don't grow at these rates on the semi-fixed cost lines below the margin -- the media margin lines, then you have a natural expansion of margin, top line leverage or operating leverage, depending on how you want to talk about it. So those 3 factors, I think, are going to continue to play a role, certainly next quarter and probably for a considerable time going forward. Operator: There are no questions at this time. Thank you, everyone, for taking the time to join QuinStreet's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's call. Thank you.
Operator: Thank you, everyone, for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2026 Financial Results Conference Call. [Operator Instructions] And now I would like to turn the call over to Steve Webb, the Senior Vice President of Marketing and Communications. Please go ahead. Steve Webb: Thank you, operator, and welcome to Serve Robotics First Quarter 2026 Earnings Call. With me today are Serve's Co-Founder and CEO, Ali Kashani; and our CFO, Brian Read. During today's call, we may present both GAAP and non-GAAP financial measures. If needed, a reconciliation of GAAP to non-GAAP measures can be found in our earnings release filed earlier today. Certain statements in this call are forward-looking statements. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not want to undertake any obligation to update any forward-looking statements we make today, except as required by law. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as the risks and uncertainty described in our most recent annual report on Form 10-K and in other filings made with the SEC. We published our quarterly financial press release and our updated corporate presentation to our Investor Relations website earlier this morning, and we ask you to review those documents if you haven't already. And with that, let me hand it over to Ali. Ali Kashani: Thank you, Steve, and good afternoon, everyone. Thank you all for joining us. We are in the early days of this robotics revolution, but our first quarter results show how quickly this market and Serve are moving. Q1 revenue was nearly $3 million, above our expectations and up nearly 7x year-over-year and nearly 3.5x sequentially. Last year, our focus was deploying 2,000 robots across 20 cities while also seeding the work to open new revenue streams and new market opportunities for our technology. This year, those investments are beginning to compound. Fleet revenue grew by an order of magnitude from about $200,000 in Q1 of last year to nearly $2 million this quarter. In addition, about 1/3 of our total revenue during Q1 was from software services, and just under half of total revenue is now recurring. Last quarter, I said that 2026 would be a year of compounding return. Three months in, we are on track to deliver the $26 million of 2026 revenue we guided to on our last earnings call. Q1 is a clear proof of Serve's evolution. We are at the forefront of physical AI, not by just making big promises but by launching real robots in the real world at real commercial scale. With this early mover advantage, our focus now is growing the revenue streams that we've already built while also creating new one. At the same time, we are advancing our technology, deepening our moat, introducing our platform to new markets that expand our opportunity and strengthening Serve's data and AI flywheel with new proprietary data. So let me go a level deeper. First, our autonomous food delivery operation continues to scale. Our deployed fleet is now 7x larger than in Q1 of last year, while daily active robots are up 10x and daily supply hours are up 13x over the same period. Put differently, as we expanded the total sidewalk fleet over the last 12 months, we activated robots more quickly in each market and generated even more hours from each robot. Combined, Moxie and Serve robots now provide over 10,000 robot supply hours to our partners every day with more than 800 robots active every single day. To be clear, I don't expect every quarter to look like Q1, where we increased the active fleet and the fleet revenue by an order of magnitude year-over-year. Periods of growth often follow periods of investment, and they often need to be followed by more investment to support future growth. We expect Q2 growth to be slower as we work on expanding our geographic coverage and partnerships and capabilities in anticipation of the second half of the year when the growth picks up again. Case in point, in the first half of the year, we are not deploying additional sidewalk robots beyond the 2,000 that are already in the fleet. Our focus is on operational growth and efficiency instead. That is getting the full delivery fleet running daily and improving utilization by activating more merchants as well as integrating more delivery platforms and expanding into new cities and neighborhoods. That is the worst that's in front of us now, and we expect it to drive significant growth over the course of the year, in line with our $26 million revenue guidance for 2026. Our health care business, Diligent Robotics, we joined at the start of this year, is also performing in line with the plan that we laid out at announcement. The combined company is generating revenue and momentum across 2 distinct domains as we build toward a single autonomy platform. Since this is the first quarter Diligent is reflected in our results, I want to spend a moment on that business. Since closing, I spent a lot of time with Andrea and the Diligent team. A few observations that stand out. First, the team is excellent. They have long-standing experience operating in some of the most demanding environments in robotics, and they're also already teaching us a lot about indoor environments. Second, the financials are in line with the plan that we laid out and the hospital pipeline for new business is healthy. Finally, Diligent continues to operate and grow, and I'm excited about the possibilities that are ahead. First, to bring our technology to more hospitals and over time, to extend it to additional indoor and outdoor environments. Now looking at the overall business again. The combination of our sidewalk and health care operations now gives us a footprint across 44 cities in 14 states with nearly 2 million deliveries completed across these domains. That is a meaningful expansion from where we ended 2025. The growth came from 3 sources: new autonomous delivery markets that went live, including Buckhead, Fort Lauderdale and Alexandria, which we previewed previously; the hospital networks that came in with diligence; and continued expansion in our existing markets. I also want to say a word about safety. Our robots share space with people every day and earning the right to operate in those spaces is the foundation everything else is built on. To put the scale in perspective, during our operating hours each day, our robots collectively travel a distance greater than walking from New York to Los Angeles. That's every single day. And they do that with a stellar safety record. Our robots have orders of magnitude less kinetic energy than cars. And to date, we've never had an incident resulting in a serious injury or anything approaching one. Every delivery completed by one of our robots is a delivery not made by a car. That matters for cities, for pedestrians and for our mission of making cities we operate in safer and more pedestrian-friendly. We are holding ourselves to a very high standard of safety across all environments we operate in. So to sum up, in operating terms, Q1 was a strong proof point. We are running a scaled footprint, growing our revenue rapidly, improving margins, maintaining our reliability and safety records and expanding the markets that we are operating in. Stepping back and as we have discussed in previous calls, the foundation of everything we do is sales data and AI flywheel. Our fleet runs across more environments than anyone else in our category. The data those robots collect is richer than ever. The data trains better AI models, which makes every robot more capable. And as that suite becomes more capable, each robot can operate in more places and generate more value. Every robot will learn from every other robot even across different environments. We have discussed our long-term vision for a self-fleet reaching 1 million robots deployed globally across cities and hospitals and other complex environments where robots and people share space. Over time, robots will become embedded in the core fabric of how modern cities and economies function. On the path to 1 million robots, we are still early, but we are building the platform across more fronts and more domains and a broader footprint than ever before. That gives us a stronger foundation to create a platform for robots of many future forms and functions and to navigate safely and effectively around people as the industry advances. What we are building is genuinely hard, making one autonomy stack work across multiple physical environments at scale is one of the hardest problems in robotics today. We have always known this requires patience and persistence and rigorous execution. I'm really excited about the progress that we are making, and we'll keep sharing that progress with you every quarter. With that, I'll hand it over to Brian. Brian Read: Thank you, Ali. Good afternoon, everyone. Q1 was an important quarter for Surge. Revenue scaled meaningfully. We began integrating Diligent Robotics, and we continue to broaden ways we monetize the autonomy platform through fleet, software, branding, data and health care automation revenues. Our focus this year is straightforward: improve robot productivity, increase revenue per robot and per operating hour, grow recurring revenue and translate those operating improvements into a stronger financial model. Q1 showed continued progress as we scale. Serve is building a network of robots that can operate across multiple real-world use cases, including food and health care today with opportunities for package delivery, health care logistics and other commercial tasks. The common thread is simple, robots operating safely and reliably in complex human-centered environments. In Q1, our robot base continued to expand and our delivery network showed strong capacity growth. On an as-reported basis, daily active robots during the period was 812, up approximately 48% sequentially. Daily supply hours in the period averaged over 10,000, up approximately 54% sequentially. Those are strong capacity metrics, but the more important point is what comes next. Our objective is not simply to increase the number of robots in the field. Our objective is to convert every active robot in every supply hour into more revenue. We are managing this through specific levers within the environments we operate in, whether that is market-level density, partner integrations, merchant coverage, speed, operational productivity and most critically, the autonomy improvements that reduce human touch points. The integration of Diligent expands the same platform into health care, where robots operate in hospitals and support recurring customer workflows. It gives us another operating domain, another data source and a revenue profile that is more recurring in nature. Strategically, this strengthens the autonomy flywheel Ali discussed. Sidewalks and hospitals are different environments, but both require robots to navigate safely around people, adapt to real-world complexity and perform reliably at scale. Put simply, 2025 is about proving we could scale the fleet. 2026, the focus is converting that scale into stronger revenue per robot and better operating leverage across the platform. Total revenue for Q1 was approximately $3 million, up 238% sequentially and approximately 578% year-over-year. On a pro forma basis, including Diligent, Q1 revenue increased approximately 28% sequentially and 30% year-over-year. Fleet revenue was approximately $2 million and software revenue was approximately $1 million, continuing to demonstrate the attractive margin profile for software and platform-based revenue layered on top of the deployed robotics base. This remains an important proof point for the broader platform model. Q1 included approximately $1.4 million of recurring revenue with the remainder from usage-based, project-based and other nonrecurring revenue streams. The broader point is that Serve is no longer monetizing only food delivery. While that remains the primary growth engine, the revenue base now also includes branding, software, data and health care automation. This provides us more ways to monetize the same underlying autonomy stack and more levers to improve the long-term financial model. Gross loss for the quarter was approximately $9 million, and gross margin was negative 302%. That remains an investment-stage margin profile, but it improved materially from Q4 as revenue scaled and software revenue contributed positive gross margins. There are 2 different economic layers in the quarter. Fleet gross margin remained negative as we supported a substantially larger fleet, integrated our health care fleet and built the operating structure required for a multi-domain robotics platform. Software gross margin was positive, which highlights the benefit of layering software and platform revenue on top of the robotics base. We believe the path to an improved margin is clear and measurable, more revenue per robot and operating hour, better operational productivity and a greater mix of recurring software and platform revenue. This is why our focus this year has evolved. Total robot count is still relevant, but it is not sufficient. GAAP operating expenses were $42.8 million in Q1. Excluding stock-based compensation of $7.4 million and amortization and acquisition-related expense of $3.6 million, non-GAAP operating expenses were approximately $31.8 million. As expected, R&D remained our largest investment area. GAAP R&D expense was $19 million or approximately $15.5 million, excluding stock-based comp. This investment is directed towards autonomy development, AI model improvements, fleet softwares, data infrastructure and integration across our platforms. G&A expense was $15 million or approximately $8 million on a non-GAAP basis. Operations expense was $7 million or approximately $6.7 million on a non-GAAP basis. Sales and marketing expense was $1.9 million, approximately $1.7 million on a non-GAAP basis. Our discipline is not about underinvesting in the opportunity. It is about aligning investment with the operating milestones that matter, revenue quality, margin improvement and platform differentiation. Every dollar should strengthen the autonomy platform, improve our fleet productivity, expand our commercial reach or increase the durability of revenues. GAAP net loss for the quarter was $49 million or negative $0.65 per share. Non-GAAP net loss was $38 million or negative $0.50 per share. Net cash used in operating activities was $41.4 million, while investing cash outflows were $19.6 million, driven primarily by acquisition activity. Capital expenditures were approximately $1.4 million in the quarter. We ended the quarter with $197.4 million in cash and marketable securities. This liquidity position remains a strategic advantage. It gives us the ability to continue investing in autonomy and new market opportunities while maintaining discipline around the timing and scale of capital deployment. Turning to our outlook. We reiterate a total 2026 revenue guidance of $26 million. We continue to stay focused across the company with a priority to grow sustainable revenue quality and margin progression. We want to increase the mix of recurring revenue while continuing to bring down our unit costs through focused investments in autonomy and operational efficiencies. Accordingly, we maintain our previously communicated non-GAAP operating expense guidance of $160 million to $170 million during 2026. Let me close with this. Q1 was a quarter of integration and continued scale. On a reported basis, first quarter 2026 revenue was greater than our total 2025 annual revenues. Curve is building a robotics platform, not a single-use delivery fleet. The investments we are making today are designed to improve autonomy, expand monetization and compound the value of our proprietary data across domains. We believe this, in turn, will improve robot monetization, capitalizing on our early leadership in physical AI to create a durable operating and financial model. With that, we'll open the line for Q&A. Operator: [Operator Instructions] And your first question comes from the line of Colin Rusch of Oppenheimer. Colin Rusch: Guys, you talked about the cadence of delivery times and speed of delivery being a key lever for you guys. Can you talk a little bit about the cadence of improvement in autonomy and how much is coming from scheduling and how you see that evolving over the course of the balance of the year? Ali Kashani: Yes. Thanks for the question, Colin. This is Ali. We are improving a number of pieces, a lot of investments going into things like autonomy, which is a big factor because robots move faster than they are using their kind of capabilities and sensors to perceive the world than any other mode. The autonomy and speed basically going hand in hand. So as the robots become more capable, they can move more quickly. And that's one of the biggest areas of investment that we've continued to make from early days, but especially now. Colin Rusch: Okay. I'll follow up off-line. And then with the communications platform that you guys have built and put together, it's clear that you've got a differentiated capability there. Can you talk a little bit about your potential to monetize that capability outside of your own internal usage? Ali Kashani: Yes, that's already in progress. Hopefully, we'll have more to share about that soon, too. But there are a number of customers already using that service. For folks who are not familiar, one of the first pieces of software that we are commercializing in our robotic platform as a whole is the connectivity layer because having robots in the field in thousands that can reliably connect to the Internet so that they can share their data, but also receive support when they need it. It's a pretty important piece that pretty much every robotic and autonomy team or company needs. And we have a piece of technology that we believe is really superior to whatever is out there. So we have been commercializing that. There's investments made, and there will be more to share in the next few months. Operator: And your next question comes from the line of Alex (sic) [ Mike ] Latimore of Northland. Mike Latimore: Great quarter, guys. I just want to start from the top with some broad strokes here. Can you talk about demand as you're seeing it? Will the market still take pretty much as many robots as you can deliver? Anything there would be great. Ali Kashani: Alex, yes, again, I can take this. This, to me, feels like the closest thing to infinite TAM because it's such an expensive thing to move things in last mile right now. And we are seeing a lot of opportunities for new use cases or new customers that have never used the service. So we haven't really seen any constraint as far as demand goes. I think the parts of the problem that has to be solved as we scale has to do with policy and societal acceptance, obviously, building, deploying robots and getting it operationalized. Also integration into services that people use every day that takes effort and time. But as far as the TAM and the total kind of opportunity, I'm very bullish on that. Mike Latimore: Great. And then also now that you're moving towards optimization more trying to increase the daily revenue per robot, what are some of the key takeaways that you've learned just from going through head down on optimization flywheel here? And are there any notable changes given that experience? Ali Kashani: I guess I'm trying to understand the question. Do you want to maybe state that differently? Mike Latimore: Yes, yes. Just from focusing on optimization, I was wondering if there are any key learnings that you can take going forward towards incorporating new robots that you manufacture or just optimizing the rest of the fleet. Ali Kashani: So from an operational point of view, I mean, the learnings come every day. It's about where do you send a robot in the morning. It's about where do you send a robot after it completes the job. It's about what's the range of deliveries you accept because if you accept longer deliveries, that means the robot is spending more time on that delivery. So you need to always kind of balance what's the distance of jobs that you accept and where do you put the limit on that. So there's a lot of interesting variables that are actually very market dependent. And as we go to new markets, we basically have to customize that per market and sometimes even per neighborhood. So I wouldn't say there's anything really large as a learning because we've been out in the market for 7 years or something doing deliveries. It's mostly kind of ongoing learnings and then enabling the platform to do those customizations, so we can make neighborhood-based adjustments. Mike Latimore: Awesome. And then just one more quick one. As you're looking to add robots in the second half, is it mainly going to be current city expansions or through adding new cities? Ali Kashani: Yes, that's a really good question. So we are looking at basically both in the markets we are, but also in new cities and even international. So we are exploring all of them. For example, just last night, City of Vancouver in Canada approved the motion to enable the robots to deploy there in a pilot. That's not a done deal yet. We still have to work with them in the province, but it's very exciting. It would be the very first such deployments in Canada. So we are very actively working on unlocking these new markets and new cities, including some international auctions. And then as any of them firm up, we would obviously make announcements. Operator: [Operator Instructions] And your next question comes from the line of Taylor Manley of Guggenheim. William Taylor Manley: Kind of expanding on that. So you mentioned Vancouver, which is very exciting. More generally, there are some markets that you are in that kind of have established regulatory frameworks such as Los Angeles? Kind of on the flip side, you've highlighted ambitions to enter cities where AV delivery doesn't exist like New York. So kind of how does regulation inform your thinking on which markets to expand to or not, if at all? Ali Kashani: Yes, it absolutely does. Our thinking is if you look at, again, the broader size of the opportunity, there's a lot of places to go and a lot of options to choose from. So we don't need to force ourselves anyway. We want to go to places that are receptive. There are really 3 kind of legs of the stool. You have the permit to operate. You have the demand, say, partners and platforms that we are working with. And then, of course, you have our operational side. We are pretty good at getting our operational set up in a new city. So the other 2 variable is what we focus on to open a new market, which is, are they receptive? Is this a place we want to be? Do they have a framework? Do we need to help them develop it? So there are a lot of investments we are making to kind of create a strong pipeline of markets. And again, that includes both in the U.S. and international. And then at the same time, working with platforms, including new platforms besides Uber and DoorDash, to access the demand in those markets. So these are all investments that we are making simultaneously. William Taylor Manley: Helpful. And then second, any insight on how to think about kind of revenue contribution from fleet services versus software services for the balance of the year? Obviously, software services was pretty strong in the first quarter. So just anything -- should we expect kind of similar mix or any changes there moving forward? Brian Read: Yes. Taylor, this is Brian. So yes, we had a really strong Q1 with respect to software services. And I think we're going to continue to invest in some of those opportunities. In the back half of the year, as we continue to scale up with the revenue per robot per supply hour focus, I think we're going to see more growth on the fleet side. Obviously, we're not going to give guidance with respect to fleet versus software, reiterating and anchoring on the $26 million overall is the objective and monetizing those robots the best we can is our first focus. Operator: And your next question comes from the line of Jeff Cohen of Ladenburg Thalmann. Unknown Analyst: This is [ Destiny ] on for Jeff. I was wondering if we could talk a bit about Moxie and the hospital segment in general. Can you just talk about how you plan on maximizing revenue per hospital or robot and then how that may contribute to the top line and the cadence of how that will contribute to the top line going forward? Ali Kashani: Yes, happy to. There's a number of, again, parts to this. So if you think about it very first principle, the main question is how much are the robots helping the staff in the hospital. So we have very explicit KPIs that we track to make sure that not only are we doing enough, we are improving and increasing the number of tasks and really deliveries that these robots complete, and that's trending always in a good way. And then, of course, as we do that, we can continue to work on the pricing with the hospital networks that we are working with. Often, what we like to do is increase the number of robots because the more productive they are, the more they can support the staff in different ways. So one of the ways to maximize that revenue is to actually increase the fleet size. Brian Read: And Destiny, this is Brian. Just to add on to that. I think to Ali's last point of increasing the fleet size, I think that's an opportunity we have for the remainder of 2026 to support the diligent efforts of the team through additional robots and thus ensuring we can grow that top line throughout the rest of the year. Unknown Analyst: Okay. Perfect. And then one more for me. You've been very successful with M&A over the last several months. I'm wondering if you could hypothesize on what other verticals you think your autonomy stack would be suitable for, but recognizing that you've been clear that you're focused on optimization, not necessarily expanding into other verticals, just theoretically. Ali Kashani: Yes. No, I appreciate that you calling that out. So we, even in the past, haven't been kind of proactively trying to look for expansion. It's been that we are very conscious of where the market is right now. A lot of investment on the private capital side has been made into various sectors in robotics. And right now, it's a very good time for consolidation. So we've been opportunistic, and we found some really amazing opportunities, obviously, Diligent being one of them. So if you want to look at it more broadly, it's really anywhere where robots and humans have to coexist in an environment, but you don't really have control to limit that environment in any way for the robots. For example, in a warehouse, you have a lot of control over the environment, you can tell people how to behave next to the robots because they're all your employees, but in a shopping mall, you don't have that choice; at an airport, you don't have that choice; on a sidewalk, in a hospital. So I would say actually most environments that we are in would classify as that. So any place where robots can help, whether they're moving things or monitoring things or just accessing in general would be a good place for this. And we'll keep our ears to the ground and when good opportunities show up, we'll react. Operator: [Operator Instructions] And there are no further questions over the audio. I would like to turn the call back over to Steve for any e-mail questions. Steve Webb: Yes. Thank you. We have one e-mail question, which is, what is the status of DoorDash? What's your relationship with DoorDash? Ali Kashani: I can take that one. So a lot of great progress there. Our delivery volume with DoorDash has been growing faster than other partners. It's been about 6x in terms of merchant count just since the beginning of this year. So we are seeing really good momentum, and we are going to continue to build on that momentum. Steve Webb: And that wraps it up. Thank you, everyone. Operator: That concludes our session for today, ladies and gentlemen. Thank you, everyone, for joining. You may now disconnect.
Operator: Welcome, ladies and gentlemen, to the First Quarter 2026 Earnings Conference Call for Organogenesis Holdings, Inc. [Operator Instructions] Please note that this conference call is being recorded, and the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's most recent annual report and its subsequently filed quarterly reports. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Gary S. Gillheeney, Sr., Organogenesis Holdings President, Chief Executive Officer and Chair of the Board. Please go ahead, sir. Gary Gillheeney: Thank you, operator, and welcome, everyone, to Organogenesis Holdings First Quarter 2026 Earnings Conference Call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we'll cover during our prepared remarks. I'll begin with an overview of our first quarter revenue results and provide an update on key developments in recent months. Dave will then provide you with an in-depth review of our first quarter financial results, our balance sheet and financial condition at quarter end as well as our financial outlook for 2026, which we updated in our press release this afternoon. Then I will provide you with some closing comments before we open the call up for questions. Beginning with a review of our revenue results for Q1, our revenue results reflect the significant challenges in the operating environment outlined on our fourth quarter call in February. Net revenue declined 58% year-over-year, driven by a 63% decline in sales of our Advanced Wound Care products. Sales of our Surgical & Sports Medicine products were flat year-over-year. And as expected, the withdrawal of the LCD coverage policies for skin substitutes announced on December 24 and comments regarding discarded products on December 30, resulted in clinicians' confusion and material disruption in the market during the first quarter. Our team performed well during this period of unprecedented disruption in the skin substitute market. As a leader in the industry, we expect to gain share in this new environment as we leverage the largest, most comprehensive portfolio across multiple FDA classifications. Despite the significant decline in our product revenue in the first quarter, we believe we enhanced our market share position as our unit volume outperformed the declines that have been reported across the industry. This is encouraging in isolation, but it's even more impressive when viewed in light of the significant impact on utilization of our PMA-approved product over the first 4 months of 2026 as a result of CMS' commentary on December 30. As discussed on our fourth quarter call, we believe the comments on December 30 regarding product wastage were intended to proactively address activity from certain competitors in the market that were attempting to exploit the new payment policies by focusing on larger sized skin substitute products, specifically amniotic products. The initial market response to these comments was significant clinician confusion and uncertainty. Unfortunately, these market headwinds have not abated. Rather, in some cases, it has resulted in clinicians moving away from skin substitutes entirely. While CMS' December 30 commentary represents what we believe to be a material but transient impact on 2026 revenue trends, the harm to patients is both more severe and enduring. The impact on utilization of our clinically superior PMA-approved skin substitutes doesn't just delay healing, it exposes our most vulnerable patients to preventable complications, infections, amputations and potentially fatal outcomes. This market disruption requires urgent correction. We believe the significant clinician confusion impacting utilization of our PMA-approved products as a result of the agency's comment on December 30 will be less of a headwind as we progress through 2026. We continue to believe CMS' efforts to overhaul coverage and payment for our market represents meaningful steps towards reform. We believe that CMS should clarify the comments on discarded products to stem the unintended impact on patient access to clinically validated skin substitute products, particularly PMA products like Apligraf. While we will continue to engage with CMS on this issue, our level of uncertainty as to the timing of a resolution has unfortunately increased since the fourth quarter earnings call in February. Accordingly, we have updated our expectations for total revenue in 2026 in this afternoon's press release. Our 2026 total revenue guidance now reflects the expectation that we see more measured improvement in clinician confusion and the overall operating environment as we move through the year. While we continue to expect improvement in our revenue results on a sequential basis over the balance of the year, our overall revenue outlook reflects a more measured recovery this year. The prolonged recovery is now expected to impact our financial results over the first 9 months of 2026 with a return to more normalized profitability now expected in the fourth quarter. Given the impact on our revenue expectations as a result of the prolonged recovery, we completed a restructuring in March. The restructuring included a workforce reduction of 88 employees and the closing of operations in our St. Petersburg, Florida facility and is expected to result in cost reductions of approximately $14 million on an annualized basis. While our 2026 is off to a difficult start, I want to make it clear that I am very optimistic about our future. We continue to expect to drive significant market share gains in the second half of 2026, and we remain confident in the long-term opportunity for Organogenesis. Our overall position is very strong, and it is from this strong position that we are making capital investments that will support our company's future growth and continued leadership. Before I turn the call over to David, I wanted to provide updates on some key regulatory and clinical developments in recent months, beginning with an update of our ReNu program. On April 28, we announced the completion of our BLA submission to the FDA. This represents a significant milestone in our effort to bring a new regenerative therapy intended to treat a large and growing unmet need in symptomatic knee osteoarthritis, a serious condition affecting more than 30 million Americans. We believe ReNu has the potential to meaningfully change the treatment paradigm by offering a nonsurgical biologic option designed to address pain and improve functionality, particularly for patients with severe disease who lack an approved nonsurgical option. We initiated a rolling BLA submission in December of 2025 with nonclinical modules and have now completed the application with the submission of the clinical and chemistry manufacturing and control modules. We are confident in the progress of our regulatory engagement, and we look forward to continuing our productive discussions with the FDA during the review process. We believe gathering robust and comprehensive clinical and real-world evidence is an essential component of developing a competitive product portfolio and driving further penetration in the markets where we compete. Science and evidence have always been core to our foundation. And as coverage policies evolve, evidence will be the currency of credibility, and we intend to remain a leader in these markets. On April 6, we announced the completion of a randomized controlled trial evaluating the safety and efficacy of PuraPly AM plus standard of care versus standard of care alone in the management of non-healing diabetic foot ulcers. This was a prospective multicenter randomized controlled trial of 170 patients. The trial achieved its primary endpoint, demonstrating statistically significant wound closure at 12 weeks compared to standard of care alone with a p-value of less than 0.0477. This strong performance is an important study, which underscores the clinical efficacy of PuraPly AM in the management of non-healing DFUs. These wounds pose a significant burden to patients and are extremely costly to our health care system. We believe publication of these impactful results will strongly support PuraPly AM's inclusion in future coverage policies, underscoring its critical role in the wound healing algorithm. Further demonstrating the clinical effectiveness of our PuraPly antimicrobial technology and advancing ReNu represents further validation of our long-term strategy to invest in expanding the body of clinical evidence supporting our technology and developing regenerative medicine solutions that address significant unmet medical needs as we expand our mission to include transformative new markets for Organogenesis. With more than 40 years in regenerative medicine and a diverse evidence-based portfolio of technologies in each FDA category, we believe we are best positioned in the skin substitute market and will continue to be a leader in the space with highly innovative, highly efficacious products that deliver on our mission of advancing healing and recovery beyond our customers' expectations. With that, let me turn the call over to David. David Francisco: Thanks, Gary. I'll begin with a review of our first quarter financial results. Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net product revenue for the first quarter was $36.3 million, down 58% year-over-year. As Gary mentioned, these results came in below the expectations we provided on our Q4 call, which called for total revenue decline of approximately 50% year-over-year. Our Advanced Wound Care net product revenue for the first quarter was $29.5 million, down 63%. Net product revenue from Surgical & Sports Medicine products for the first quarter was $6.8 million, flat year-over-year. Our total revenue results for the first quarter include $1 million of income related to the grant issued from the Rhode Island Life Sciences Hub, offsetting the employee-related costs in our Smithfield facility. This compares to no impact in the prior year period. Gross profit for the first quarter was $10.5 million or 29% of net product revenue compared to 73% last year. First quarter cost of goods included $4.3 million of inventory write-down adjustments for excess and obsolete inventory resulting from a facility closure and LTD regulatory changes of $1 million and $3.3 million, respectively. Excluding inventory write-down adjustments, non-GAAP gross profit was $14.8 million or 41% of net product revenue. Operating expenses for the first quarter were $106.1 million compared to $113.4 million last year, a decrease of $7.3 million or 6%. Excluding cost of goods sold of $25.8 million for the first quarter and $23.7 million last year, our non-GAAP operating expenses were $80.3 million compared to $89.7 million last year, a decrease of $9.4 million or 10%. The year-over-year change in operating expenses, excluding cost of goods sold was driven by a $7.3 million or 10% decrease in SG&A expenses and a $6.6 million write-down of certain nonrecurring expenses, which impacted the first quarter of 2025, offset partially by a $4.5 million or 42% increase in research and development expenses. Operating loss for the first quarter was $68.9 million compared to an operating loss of $26.7 million last year, an increase of $42.1 million. Excluding noncash amortization and certain nonrecurring costs in both periods, our non-GAAP operating loss was $56 million compared to $19.3 million last year, an increase of $36.7 million year-over-year. GAAP net loss for the first quarter was $53.2 million compared to a net loss of $18.8 million last year, an increase in net loss of $34.3 million. Net loss to common stockholders for the first quarter was $56.2 million compared to a net loss of $21.6 million last year. Net loss to common stockholders includes the impact of the cumulative dividend and the noncash accretion to redemption value of our convertible preferred stock. Adjusted net loss for the first quarter was $43.7 million compared to $13.4 million last year. Adjusted net loss excludes after-tax impacts of intangible amortization, write-down of assets held for sale, employee severance and benefits as well as other exit costs associated with the company's restructuring activities and nonrecurring inventory write-down adjustments for excess and obsolete inventory. We've included a detailed reconciliation of GAAP to non-GAAP adjusted loss in our press release this afternoon. Adjusted EBITDA loss for the first quarter was $48.2 million compared to adjusted EBITDA loss of $12.5 million last year. Turning to the balance sheet. As of March 31, 2026, the company had $92.1 million in cash, cash equivalents and restricted cash and no outstanding debt obligations compared to $94.3 million in cash, cash equivalents and restricted cash and no outstanding debt obligations as of December 31, 2025. We believe we are well capitalized with our cash on hand and other components of working capital, availability under our revolving facility of up to $75 million and net cash flows from product sales. Turning to our 2026 outlook, which we updated this afternoon's press release. As Gary outlined earlier, our 2026 total revenue guidance now reflects the expectation that we see a more measured improvement in clinician confusion and overall operating environment as we move through the year. As a result, we now expect total revenue -- net revenue for the full year 2026 of $270 million to $310 million, representing a decline in the range of 45% to 52% year-over-year and compared to our prior guidance range, which assumed a decline in the range of 25% to 38% year-over-year. Note the change in our total revenue expectations is a result of revised assumptions regarding sales of our advanced wound care products. Our updated total revenue guidance continues to reflect the expectations we see sequential improvement in our revenue trends in the second quarter, however, at a more measured rate versus what our prior guidance assumed, resulting in first half revenue decline in the range of approximately 52% to 49% year-over-year. We continue to expect strong sequential revenue growth in both the third and fourth quarters of 2026. However, the low end of our guidance range now assumes a more prolonged recovery in market-related headwinds, resulting in a second half revenue decline similar to the first half of 2026. With respect to our profitability expectations, our updated guidance continues to assume improved quarterly adjusted EBITDA performance on a sequential basis and positive adjusted EBITDA generation in the second half of 2026. Given the lower revenue expectations for 2026 and the related impact on gross profit, we have adjusted our assumptions for operating expenses, excluding cost of goods sold to reduce the impact on our profitability and cash flow this year. Specifically, we now expect to reduce our operating expenses, excluding cost of goods sold, approximately 25% year-over-year in 2026, including more than 30% year-over-year in the second half of 2026. Note these updated assumptions are inclusive of estimated cost savings in the third and fourth quarters related to our recently announced restructuring of approximately $7 million. With that, I'll turn the call back over to Gary for closing remarks. Gary Gillheeney: Thanks, Dave. In closing, the first quarter was a challenging start to the year as expected. I want to thank our team for their performance and resilience during a period of unprecedented market disruption. But despite the headwinds, we believe we've enhanced our market share position, met a significant milestone by completing our renewed BLA submission and generated strong clinical evidence supporting PuraPly AM, further validating our long-term strategy. We expect the operating environment will remain difficult through the first 9 months of 2026 with sequential revenue improvement over the balance of the year and a return to more normalized profitability in the fourth quarter. We remain confident in our position as a leader in regenerative medicine with a diverse and evidence-based portfolio and more than 40 years of innovation in service of our mission to advance healing and recovery for the patients who depend on us most. With that, I'll turn the call over to the operator to open the call up for questions. Operator: [Operator Instructions] Our first question comes from Ryan Zimmerman with BTIG. Iseult McMahon: This is Iseult on for Ryan. I was hoping to start with spending some time on the first quarter performance. Could you unpack a little bit what you guys saw throughout the quarter and particularly what changed between the fourth quarter call in February and today in terms of volumes? I mean what was better or worse than expected? Gary Gillheeney: Sure. I'll start. Well, we've certainly seen a lot of disruption as we expected you normally would see with a change in reimbursement. But the level of complexity of that change was more than we've seen in the past. So you had 2 sites of care with complete changes in the reimbursement model in addition to changing the actual reimbursement for each product. We also had the issue in the first quarter around WISeR. So WISeR really did have an impact in the first quarter. We didn't expect some of the challenges that they've had technology-wise in the states in which pre-authorization is required. There was also an issue with a large MAC that was struggling to process claims the entire first quarter. In fact, we just recently started to process claims for March. And unfortunately, customers have to rebuild for claims in January and February. So all of that disruption on top of what you normally see when there's a reimbursement change. So we've typically guided to a 3-month impact of a reimbursement change. But with the additional complexity that we're seeing now and the issue of wastage, which came out in December 30, has created enormous confusion in the market, which is why this prolonged delay in market recovery. So what we've seen is a contraction of the market by about 63%. That's an enormous contraction in the market. We're certainly down less than that. We believe we've taken share. In fact, our core brands, excluding our Apligraf brand are down about 22%. So we're definitely seeing some share gain from our perspective, but just contraction in the market, the issues around wastage and the technology challenges with the MAC and WISeR are things that we didn't see when we had our call in February. Dave, anything to add? David Francisco: No, no, that's absolutely right. Let them all. Iseult McMahon: I appreciate that. And what, if anything -- or do you have any line of sight as to when we might get an update from CMS clarifying some of their comments around these wastage policies? Gary Gillheeney: We don't have any direct clarity on when they would do that. We're still engaged with them. Our objective is to either get them to exempt PMAs because of all of the confusion around the handling and the billing and usage of a biologic like our product Apligraf or to come out with an indication for use. There's been no instructions or clarity on exactly what their wastage policy is. So we don't have clarity on when they will change or when they'll bring clarity, but we're certainly bringing clarity to our customers, and we're seeing more and more comfort in utilizing the product Apligraf appropriately for patients that need it. Iseult McMahon: Got it. And then last one for me, kind of dovetails into guidance for the year. I was just curious what gives you confidence in that back half recovery? I understand this updated range accounts for more moderation through the remainder of the year. But have you seen anything through April and May that gives you more confidence? David Francisco: Yes. We did see improvement month-over-month in the first quarter, and that's continued into April. So that's one part of it. And what we've always expected here, as Gary mentioned, we're going to continue to gain share. But there's 2 things. One is the customer confusion should abate as we move through the year. And then in addition to that, we think the competition dynamics will be quite a bit different at that point as well. So that's how we've built up our forecast with sequential growth quarter-over-quarter as we move through the year. Operator: We are currently showing no remaining questions in the queue at this time. This does conclude our conference for today. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Telephone and Data Systems, Inc. First Quarter 2026 Operating Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute when prompted. I will now hand the conference over to John Toomey, Treasurer and Vice President, Corporate Relations. Please go ahead. John Toomey: Good morning, and thank you for joining us. The presentation we prepared to accompany our comments this morning can be found on the Investor Relations sections of the Telephone and Data Systems, Inc. and Array websites. With me today in offering prepared comments are, on behalf of Telephone and Data Systems, Inc., Walter C.D. Carlson, President and CEO, and Vicki L. Villacrez, Executive Vice President and Chief Financial Officer. On behalf of TDS Telecom, Kenneth Dixon, President and CEO of TDS Telecom, and Christopher “Chris” Bautfeldt, Vice President, Financial Analysis and Strategic Planning. I will now turn the call over to Walter. Walter C.D. Carlson: Thank you, John, and good morning, everyone. Turning to slide three, this morning Telephone and Data Systems, Inc. announced a proposal to acquire the remaining shares of Array not currently owned by Telephone and Data Systems, Inc. in an all‑stock transaction. As Telephone and Data Systems, Inc. continues its transformation, this proposal is the next step in executing our strategy, simplifying our corporate structure, and enhancing our ability to invest in targeted areas of growth. Array has successfully completed its transition into a tower‑focused company with strong fundamentals, and we believe this transaction will position the combined company for long‑term growth. By bringing Array fully under Telephone and Data Systems, Inc.’s ownership, Array’s stockholders would retain a significant interest in the tower business while gaining exposure to Telephone and Data Systems, Inc.’s growing fiber business. Under the terms of the proposal, Telephone and Data Systems, Inc. would acquire all of the outstanding common shares of Array that Telephone and Data Systems, Inc. does not currently own by way of a merger in which each Array common share not owned by Telephone and Data Systems, Inc. would be exchanged for 0.86 of a Telephone and Data Systems, Inc. common share. This exchange ratio assumes that the previously announced spectrum license sales identified in our offer letter will have closed prior to the closing of the transaction contemplated by Telephone and Data Systems, Inc.’s proposal, and that the Array Board, consistent with its treatment of net proceeds from prior spectrum sales, will have declared and paid dividends of $10.40 per share to Array stockholders prior to the closing. At $10.40 per share, Array would distribute approximately $900 million in net proceeds. This exchange ratio reflects an at‑market offer based on yesterday’s closing prices for Telephone and Data Systems, Inc. and Array, subject to the assumptions just described. The transaction is expected to qualify as a tax‑free reorganization for U.S. federal income tax purposes. Telephone and Data Systems, Inc. expects the transaction to eliminate duplicative corporate costs, streamline corporate governance, increase share liquidity, and strengthen the capital structure of the enterprise, providing greater flexibility to pursue strategic investments across all our businesses, including towers and fiber. As noted in this morning’s press release, the proposal is subject to review and recommendation by a special committee of Array’s disinterested directors and the approval of the majority of the disinterested shareholders of Array based on votes cast. It would also require approval of Telephone and Data Systems, Inc.’s shareholders and the satisfaction of customary closing conditions. Telephone and Data Systems, Inc. does not intend to sell or otherwise transfer its interest in Array and will not entertain any third‑party offers for Array or its assets in lieu of this proposal. Telephone and Data Systems, Inc. continues to support Array’s previously disclosed intention to opportunistically monetize its remaining unsold wireless spectrum. Telephone and Data Systems, Inc. looks forward to working constructively with the Array Board’s special committee as they evaluate this proposal. Beyond what I just disclosed, and the information included in our press release and proposal letter to Array, we are not going to comment further on or take questions regarding the offer on today’s call. With that, let us turn to slide three. The enterprise is making good progress on its 2026 priorities. Our focus remains on advancing our strategy with financial and operational discipline. As I just mentioned, the proposal announced this morning will aid in strengthening Telephone and Data Systems, Inc.’s corporate and capital structure, and we look forward to working with Array’s special committee. Both business units continue to make progress toward their operational goals. TDS Telecom continued to add fiber addresses and customers in the quarter. Array is off to a strong start in 2026 and is making good progress growing tower tenancy. In the arena of spectrum, Array closed on a small transaction with T‑Mobile earlier this week and expects the remaining announced T‑Mobile and Verizon spectrum sales to close in the second or third quarter, subject to regulatory approval and other customary conditions. I am pleased with the progress each business unit is making and with the efforts we have underway to strengthen our culture as we go through this period of transformation. I would like to personally thank every associate across the enterprise for their continued commitment and contribution. I will now turn the call over to Vicki. Vicki L. Villacrez: Thank you, Walter, and good morning, everyone. Slide four updates you on our capital allocation priorities. TDS Telecom continues to make nice progress toward achieving its long‑term objective of reaching 2.1 million marketable fiber service addresses, delivering 40 thousand in the quarter. Ken and Chris will discuss more about the opportunities and momentum we are seeing in that space in a moment. We continue to evaluate M&A opportunities in a financially disciplined, accretive, business‑case‑driven fashion. In mid‑April, we announced an agreement to acquire Granite State Communications. As I have communicated in the past, we are primarily focused on small to medium‑sized opportunities that are already fibered up or have an accretive economic path to all fiber and support our clustering strategy. Granite is just like that: fully fibered with over 11 thousand service addresses that are adjacent to several of our existing markets in New Hampshire. We are excited to welcome these associates and customers into the Telephone and Data Systems, Inc. family and expect the transaction to close in the third quarter, subject to regulatory approval. Finally, in the area of shareholder return in the form of Telephone and Data Systems, Inc. share buybacks, we were not in the market during the quarter. At the end of the first quarter, we had a $520 million authorization for Telephone and Data Systems, Inc. share buybacks available, and we remain committed to executing on that program. Across all three priorities, the company intends to be disciplined, balancing the needs of the business and evaluating future returns along with market and other conditions as we move forward. Thank you. I will now turn the call over to Kenneth Dixon to discuss Telephone and Data Systems, Inc.’s fiber business. Kenneth Dixon: Thank you, Vicki, and good morning, everyone. At TDS Telecom, 2026 is focused on executing our fiber growth plan: building fiber addresses, driving fiber sales, and continuing to transform our operations. This quarter, we made progress across all three priorities as we scale our fiber network and advance our long‑term strategy. As shown on slide six, our fiber builds are off to a good start. We delivered 40 thousand marketable fiber service addresses in the first quarter. This is the highest first‑quarter total in our company’s history and nearly 3x our delivery in 2025. This performance reflects both effective execution and construction capacity, including our highest‑ever internal and external construction crew counts. While we are pleased with the record construction number, we still have more work to do. We continue to invest in our internal construction teams by adding headcount and upgrading tools and equipment to support increased build capacity, giving us a strategic advantage. We believe these investments provide greater control over our execution and improve long‑term efficiency. In addition, we have a robust pipeline of addresses currently under construction, positioning us very well for the spring and summer build season. This pipeline includes a mix of addresses from our fiber expansion into new areas as well as fiber upgrades in our existing markets through our Fiber Deeper program and the federal A‑CAM program. As a reminder, the A‑CAM program provides federal support that enables us to bring fiber to approximately 300 thousand service addresses, including those along the route where it would otherwise not be economical, helping to drive copper out of our network. Looking at sales, we ended the quarter with approximately 11 thousand fiber net adds, up 32% year over year. As we continue to scale our fiber footprint, we remain focused on converting new service addresses into customers and improving the overall customer experience. During the quarter, we strengthened leadership in key sales and customer‑experience roles to support these priorities. Our operational transformation is centered on efficiency, improving the customer experience, and simplification. We continue to make progress modernizing our systems and remain on track with our transformation roadmap. I am happy to announce that we have now completed the billing conversion in our cable markets and have also introduced a new Field Force platform to support our technicians. These updates simplify our back‑office processes and provide an improved customer experience. We are now able to launch multi‑gig speeds in our cable footprint. These areas are some of the best markets in the country, and we continue to see great opportunity here, so expect more to come. Finally, as Vicki noted, in mid‑April we signed an agreement to acquire a fiber‑based telecommunications business in New Hampshire. The transaction adds over 11 thousand fiber addresses that are contiguous with existing TDS markets and supports our clustering strategy. Approximately 30 associates will join the TDS team. We are excited about the opportunity to continue to deliver excellent service in this area, and we look forward to closing this transaction in the third quarter, subject to regulatory approval. Turning to slide seven, our long‑term goals reflect our continued focus on executing our growth strategy that delivers scale, speed, and long‑term value. With the delivery of 40 thousand fiber addresses in the quarter, we now serve approximately 1.1 million fiber addresses representing 58% of our total footprint, with 79% of addresses capable of gig speeds. While there is more work ahead, the progress we are making reinforces our confidence in the path forward as we continue transforming into a fiber‑centric company. I will now turn it over to Chris to walk through our first‑quarter results. Christopher “Chris” Bautfeldt: Turning to slide eight, the chart on the left shows our quarterly fiber service address delivery over the past five quarters. As Ken highlighted, our first‑quarter fiber address delivery nearly tripled year over year. This significant increase reflects the additional construction capacity we introduced last year and are continuing to scale this year. Our execution in the first quarter demonstrates the effectiveness of the strategy and the momentum we are building as we advance toward our long‑term goals. The chart on the right illustrates the continued expansion of our fiber footprint. Over the past three years, we have nearly doubled the number of fiber service addresses across our markets, demonstrating steady and meaningful progress. On slide nine, residential fiber net adds were approximately 11 thousand in the first quarter, a 32% increase compared to prior year, driven by continued footprint expansion and ongoing copper‑to‑fiber conversions. Residential fiber connections have also nearly doubled over the past three years, and we expect continued growth as we expand our fiber footprint. Turning to slide 10, the chart on the left depicts our residential revenue per connection, which increased 1% year over year. This growth reflects annual price increases offset by ongoing industry‑wide declines in video attachment rates. The chart on the right is new this quarter and breaks down total residential revenue between copper, cable, and fiber. You will see our fiber revenue is up 13% versus prior year, an uplift of approximately $11 million, which helps offset the legacy revenue stream pressures we are experiencing. In cable, revenues are down roughly 10% versus 2025. As Ken highlighted, we are increasing investment in our cable markets to stem these declines. Overall, total residential revenue declined $5 million compared to prior year; approximately $3 million of this decline is attributable to divestitures of markets that were predominantly copper‑based. We remain hyper‑focused on driving fiber revenue at a pace that is expected to more than offset legacy declines. Slide 11 summarizes our financial performance. Total operating revenues declined 3% in the quarter, or 1% excluding the impact of divestitures. This reflects continued legacy revenue‑stream pressures, partially offset by growth in fiber connections and modest improvement in revenue per connection. Cash expenses decreased 3%, driven primarily by benefits from our transformation initiatives, including lower costs for billing, circuits, and facilities. Adjusted EBITDA declined 3% in the quarter, driven largely by the revenue losses from divestitures. Capital expenditures totaled $126 million in the quarter, reflecting higher construction activity, a robust funnel of addresses under construction, and accelerated investments in our internal construction crews and equipment. Slide 12 reflects our guidance for 2026, which remains unchanged. We are projecting total Telecom revenues of $1.015 billion to $1.055 billion. Current headwinds in our copper and cable markets are guiding us toward the lower half of this range. Adjusted EBITDA guidance remains between $310 million and $350 million as we continue our transformation efforts. Capital expenditures for the year are projected to be between $550 million and $600 million to support our goal of delivering between 200 thousand and 250 thousand new fiber service addresses. Before turning over the call, I want to thank the entire TDS team for their continued execution and focus. Their efforts across fiber delivery, customer growth, and operational transformation are critical to the progress we are making toward achieving our long‑term objectives. I will now turn the call over to Anthony. Anthony Carlson: Thanks, Chris, and good morning. 2026 has got off to a busy but great start. The organization is laser‑focused on fully optimizing our tower operations and monetizing our spectrum. In the first quarter, we saw cash site‑rental revenue increase 64% over Q1 of last year, we also demonstrated sequential tower‑tenancy growth when adjusted for DISH, and we continue to move our announced spectrum transactions forward. Before I get to the details of the quarter, I want to acknowledge the Array Board’s receipt of Telephone and Data Systems, Inc.’s proposal to acquire the remaining public shares of Array. Our Board has formed a special committee of independent directors who have retained independent advisers to carefully evaluate the proposal and make a recommendation as to what is in the best interest of Array’s shareholders. Array will be providing updates as appropriate, but we will not be commenting further or taking questions regarding this proposal today. Moving along to slide sixteen, I want to provide an update regarding DISH. As previously disclosed, we received a letter from DISH Wireless in September 2025 in which DISH asserted that unforeseeable FCC actions impacted its master lease agreement with Array and, as a result, DISH believes it is relieved of its obligations under the MLA. Since early December, DISH has generally failed to make the required payments and is therefore in breach of its obligations. Array continues to take actions it deems necessary to protect its rights under the MLA. Given the ongoing nonpayment, in the first quarter, Array ceased recognizing DISH revenue, and all unpaid 2025 amounts have now been fully reserved. Accordingly, our tenancy ratio no longer includes DISH colocations. When normalizing for this impact, we continue to see sequential growth in our tenancy ratio as depicted on the right, from 0.95 in Q4 2025 up to 0.96 in Q1 2026. Importantly, in Q1 we grew revenue and healthy colocation application volumes while supporting T‑Mobile in its integration. As noted on slide 17, cash site‑rental revenue in Q1 increased 55% year over year from all customers, and when normalized for DISH impact, this increase was 64%. When layering in the T‑Mobile interim site revenue, the increase was 86% year over year, or 98% when normalized for DISH. Our application volume remains robust, and coupled with our existing pipeline, will drive additional revenue growth in 2026 and beyond. Turning to slide 18, T‑Mobile has until January 2028 to finalize its 2,015 committed sites under the new MLA. We continue to anticipate 800 to 1,800 tenantless towers after the integration is completed and all interim sites are terminated. Our ground‑lease optimization work remained a priority in Q1, and we are making progress in reducing the cash burden of these negative cash‑flow assets. As noted previously, this will be a multiyear effort focused on cost avoidance, additional lease‑up, evaluating long‑term command, and decommissioning in situations where it makes sense, a process we have already begun on a subset of sites with no path to economic viability. This approach allows us to thoughtfully assess all potential outcomes for the tenantless tower portfolio. As shown on slide 19 and presented in prior quarters, we have reached agreements to monetize roughly 70% of our spectrum holdings. As a reminder, the sale of spectrum to AT&T closed on January 13, 2026, with the Array Board declaring a $10.25 per share dividend that was paid on February 2. In Q1, the FCC approved the sale of certain 100 MHz licenses to T‑Mobile, and that transaction closed earlier this week. Additionally, the FCC approved the sale of the 600 MHz and AWS licenses to T‑Mobile and, pending closing conditions, we expect that sale to close in Q2. Verizon will close in Q2 or Q3 of this year, subject to regulatory approval and normal closing conditions. The remaining transactions with T‑Mobile are expected to close by the end of 2026, once again dependent on regulatory approval and closing conditions. We continue to pursue opportunistic monetization of our remaining spectrum, primarily C‑band. We view our C‑band spectrum as a highly compelling 5G asset with a mature ecosystem ready for carrier deployment, and with no near‑term buildout requirements, we have ample time to realize its value. Slide 20 summarizes the results of our partnership, or non‑controlling investment interests. As discussed last quarter, investment income and distributions for full‑year 2025 were impacted by several one‑time factors, including the impact of the Iowa partnership selling their wireless operations to T‑Mobile and distributions received from Verizon related to their transaction with Vertical Bridge. For Q1, equity income was elevated due to prior‑period adjustments recorded by the managers of certain investee entities. Regarding cash distributions, certain entities distribute cash only twice per year, resulting in an uneven distribution pattern throughout the year. Slide 22 summarizes Array’s financial results. Year over year, we continue to see the impact of the T‑Mobile MLA driving revenue growth. As noted last quarter, there was a prospective change in classification of property taxes and insurance from SG&A to cost of operations. As such, that is driving roughly half of the year‑over‑year increase in cost of operations. SG&A expenses continue to include costs to support the wind‑down of legacy wireless operations, but sequential quarter‑over‑quarter results are declining as planned. We expect these wind‑down expenses to persist throughout 2026, but with additional reductions over future periods. On slide 23, our guidance across all metrics—total operating revenue, adjusted EBITDA and OIBDA, and capital expenditures—is unchanged. As a reminder, our guidance ranges are wider than industry norm due to uncertainty with the T‑Mobile MLA and the timing of interim site terminations. In closing, I want to again thank Array’s associates for their continued passion and dedication to driving operational efficiencies and growth. We continue to move through our first year as a stand‑alone tower company. I will now turn the call back to Walter. Walter C.D. Carlson: Thank you, Anthony. As I noted in my opening remarks, Telephone and Data Systems, Inc. continues to make solid progress advancing our strategic priorities. Our first‑quarter execution, combined with the momentum we are seeing across the business, positions us well as we move forward into the year. I would like to again thank all of the outstanding associates across the Telephone and Data Systems, Inc. enterprise for their continued dedication and hard work in serving our customers and supporting the advancement of our business. Operator, please now open the line for questions. Operator: Thank you. We will now open the call for questions. If you would like to ask a question, please raise your hand. If you have dialed in to today’s call, please press 9 to raise your hand and 6 to unmute when prompted. Your first question comes from Richard Hamilton Prentiss with Raymond James & Associates. Richard, your line is now open. Richard Hamilton Prentiss: Good morning, everybody. You continue to be very busy. A couple of questions. On the fiber side, the TDS Telecom side, have you looked at whether there is an ability to put fiber into a REIT structure, or any desire at some point to put fiber into a REIT‑like structure to be more tax efficient? Vicki L. Villacrez: Yes, Richard, this is Vicki. I will take that one. We have looked at a number of structural options, but given where we are at today, they are just not optimal. I am not going to speculate going forward on what we may or may not do in the future, but as I think about our fiber program, we are in a really good position. We have a strong balance sheet, and we are focused on funding fiber with our cash. Richard Hamilton Prentiss: Okay. Second question, can you update us as far as the number of shares or percent ownership Telephone and Data Systems, Inc. has of Array Digital, just so we can understand exactly how many of the disinterested might be out there? Walter C.D. Carlson: Let me take that. I think the press releases that have been issued speak to that, Richard. I think 81.9% is the right rough number, and we can get back to you with precise numbers offline. Richard Hamilton Prentiss: That is great. We had some people asking; there were some Bloomberg numbers out there saying 70%. We knew it was 80‑something, so appreciate that. The last question for me, a little more strategic. I know you have been looking at maybe providing more reporting metrics on the fiber business. Any update to what you think you could provide to help people understand what is happening with the fiber business—any cohort analysis or trend lines to help us look at the value of that business as it is going through a capital spending cycle and some EBITDA pressure? Is there a burn rate, and what can you give us to help understand the traction and future look? Vicki L. Villacrez: Lots of questions there, Richard. We will piece those apart. On disclosures, this quarter we added disclosures for our residential revenues and broke them out by technology, so you will see reporting by fiber, cable, and copper. We think this is something that will be helpful to investors going forward. Furthermore, we have included metrics in our trending schedules on our Investor Relations website, so I will point you there. Ken, do you want to jump in on the rest of Richard’s questions? Kenneth Dixon: The metrics that are most important as we move to a fiber‑centric business are, first, how well we are delivering marketable addresses from a build‑plan perspective, and second, our fiber net sales as we sell into that new open‑for‑sale footprint while also increasing our overall penetration in those new cohorts. So build velocity and overall fiber net performance are the two big things. Richard Hamilton Prentiss: I am going to assume as you get fiber out there, the maintenance capital and ongoing capital once you are done with the build drops to pretty low levels. Kenneth Dixon: We definitely see the cash‑cost‑per‑customer improvements on everything—from trouble tickets, copper versus fiber, to a lower call‑in rate—so we love the fiber business. The faster we migrate away from copper and bring it to fiber, we will continue to see improvements in the bottom line. Richard Hamilton Prentiss: Great. That is helpful. Everyone have a great Mother’s Day weekend. Thanks. Operator: Thank you. Your next question comes from the line of Sebastiano Carmine Petti from J.P. Morgan. Your line is now open. Sebastiano Carmine Petti: Thank you for taking the question. Sticking with TDS Telecom and Ken for a second: you hired some sales folks and customer‑experience folks to support your priorities. Where are you from a process‑improvement standpoint—instilling some of your decades of experience running fiber businesses into TDS Telecom? What inning are we in? What near‑term low‑hanging fruit remains to improve process performance and construction build? And on investing in the cable footprint—something we have not heard discussed in a bit—is that strategic and core? How do you think about the blocking‑and‑tackling improvements needed for the cable KPIs to begin stabilizing, given the competitive backdrop and repricing pressures? Kenneth Dixon: Thank you for the question. I would say we are in the very early innings, and we are starting to make very nice progress. I am starting to see wind in our sails. On address delivery, I am very happy with the team’s 40 thousand service‑address delivery—almost three times more than last year. It was important to prove we could keep our crews working all winter, and we accomplished that. We have started the spring and summer months with record crew counts for the two most important quarters of the year. Through April we are at record numbers, a combination of internal and external crews, and we continue to see sequential month‑over‑month crew‑count improvements as we head into May. Going into the second quarter, I am bullish on what we can accomplish because we have the largest funnel of addresses under some form of construction in our company’s history. On sales and customer experience, we see the opportunity to penetrate new addresses as fast as we deliver them. We are very happy with our presales velocity; we typically go in 60 days before an address becomes marketable, and we are seeing excellent results in the low‑20% range. We have put a tremendous amount of sales capabilities into our door‑to‑door channel—adding several vendors in Q4 last year and more in April and May—and we have several others in our funnel. We believe we have to be in the markets and use door‑to‑door to drive our sales agenda. We have also expanded significantly our .com business, which is open 24/7/365; sales have improved significantly, and we will continue to put more resources there. We are now developing our MDU sales capabilities, which is a tremendous opportunity—again, early innings but starting to see nice progress. The 11 thousand fiber net adds—up 32% year over year—is a very good start, and we have momentum. On the cable business, I love our cable markets. We are in some of the best markets in the country. Last year, we decided to convert those markets first onto our new billing system and get them on a single stack across the company. We also made a significant investment in a new field service tool for our technicians to improve overall service delivery, and we are now positioned to move to multi‑gig in 2026. We are just getting started in terms of what we can do in those markets. A lot is going on, but I like what I am seeing, and we have more work to do. We are definitely moving in the right direction. Sebastiano Carmine Petti: For Vicki, on Granite—should we anticipate bolt‑ons like this going forward: smaller systems that are adjacent versus big chunky deals? And does combining entities make it easier to REIT the tower business over time versus the current structure? Vicki L. Villacrez: Sebastiano, thank you. On the second question, we are not going to comment on any impact or implications of the offer on the table, and we cannot speculate on what the future will look like at this point. On Granite, this acquisition is consistent with our capital allocation priorities—building fiber and M&A acquisitions in the fiber space. It is a tuck‑in, it is accretive, and it is adjacent to our current markets in New Hampshire. It is 100% fibered up. We are excited to bring Granite State Communications on board and welcome all of the associates. It brings 11 thousand fiber service addresses to our portfolio. Operator: Thank you. As a reminder, if you would like to ask a question, please raise your hand. If you have dialed in to the call, please press 9 to raise your hand and 6 to unmute. Your next question is a follow‑up from Sebastiano Carmine Petti from J.P. Morgan. Your line is open again. Sebastiano Carmine Petti: For Chris, on the cost‑transformation efforts, is the $100 million run‑rate savings by 2028 still the right figure? Are we at a point where the cost savings are falling to the bottom line in 2026, or is there reinvestment going back into the business? Christopher “Chris” Bautfeldt: Hi, Sebastiano. Yes, we remain on track to hit $100 million of run‑rate savings by year‑end 2028. As you heard in my remarks, we are starting to see some of those benefits this year. The bigger benefits you will see in 2027 and 2028, but we absolutely are starting to see some of those benefits drop to the bottom line. As I have said before, we do not expect that entire $100 million to fall to the bottom line because some of that is helping offset inflationary cost increases. As we continue to expand our fiber footprint and customer base, we do plan to reinvest some of those savings. We are seeing nice benefits and remain optimistic about the full potential of this program. Sebastiano Carmine Petti: Thank you. And for Anthony, on the upcoming AWS‑3 reauction and upper C‑band next year—any change in conversations regarding monetization of the remaining C‑band and CBRS? Anthony Carlson: Thanks for the question. We continue to believe that the C‑band spectrum we hold is excellent and valuable spectrum, with an ecosystem to support it today. We are not going to be a forced seller in these circumstances. We believe the carrying costs are modest. While we are open to a deal at a fair value, we do not feel it is burning a hole in our pocket. We do not have further updates on a sale of our C‑band spectrum at this time, but we remain very optimistic about realizing fair value at the appropriate time. Operator: Your next question is from Richard Hamilton Prentiss with Raymond James & Associates. Richard, your line is open. Richard Hamilton Prentiss: On the service addresses, Ken, is the build plan still targeting 200 thousand to 250 thousand service addresses this year, and what would cause you to miss it versus hit it or beat it? Kenneth Dixon: Yes, that is still the target. I have a very good degree of confidence based on the crew counts we have starting the second quarter and the funnel and pipeline of addresses at a new record in terms of construction. I am very confident we are going to deliver within that target. Richard Hamilton Prentiss: And, Anthony, one of the themes at Connect(X) was high‑rent relocation efforts. Do you have an appetite to do some new builds there, and what capital commitment might you put to work? Anthony Carlson: To be very clear, as we have stated multiple times, we are laser‑focused on optimizing the value of the assets we have in hand and see significant upside from our current portfolio. That is not to say we are not open to opportunities, but the going rates we have seen for high‑rent relocations and participating in new builds have not been consistent with what we think we can achieve by optimizing our portfolio. On our own churn, a small nugget: we had only one total tenant churn in the entire first quarter, which speaks to the strength of our portfolio and its relative susceptibility to high‑rent relocation. Richard Hamilton Prentiss: One for Walter—an obligatory satellite question. How are you thinking about the somewhat existential threat of satellite coming into terrestrial, given your assets in broadband fiber and towers? Walter C.D. Carlson: That is an excellent question. Satellite is a technology that has gotten substantial additional focus over the last 18 months and substantial additional investment over the last 12 months. I think satellites will have substantial influence going forward on the communications industry. That being said, we feel very strongly about the continued benefit of a terrestrial tower portfolio, and we feel very strongly about the superior capabilities of fiber networks delivering specific communication into individuals’ homes and businesses without interruption and without fear of being impacted by weather. We are paying attention, and we feel very good about the thrust of both of our businesses. We are watching. Operator: Next question comes from the line of Sergei Dluzhevskiy with GAMCO Investors, Inc. Your line is now open. Sergei Dluzhevskiy: Good morning. First question on the TDS Telecom side. Last quarter, you expanded the fiber build target by 300 thousand edge‑out passings in, I believe, 50 adjacent markets to your current expansion footprint. How do the demographics and churn profiles of these markets compare to your older cohorts? Among this new cohort, what types of markets are you prioritizing for a build sooner rather than later? Kenneth Dixon: We are looking at markets where we have already planted a flag—where we have established our brand and deployed fiber—so we already have technicians and sales capacity. We have looked closely at demographics, competitive intensity, build costs, and expected returns, and then prioritized accordingly. That is our edge‑out opportunity. These markets check the boxes I mentioned, and because we were first to the original market with fiber, the extensions are a natural fit. We believe we prioritized the right markets first with the highest opportunities and returns. Sergei Dluzhevskiy: On cable, what do you like most about your cable footprint? Can you comment on the competitive environment and the investments you are planning—where the dollars will go and how quickly you expect those investments to pay off? Kenneth Dixon: From an investment perspective, our focus now is going to a multi‑gig environment in our cable business, which is the opportunity for 2026. We are operating in highly attractive markets—some with among the highest housing growth in the United States—so we see a definite opportunity going forward. Sergei Dluzhevskiy: On the Array side, the wireless partnerships produce nice cash flow every year. Any updated thoughts on monetizing those stakes? For example, recent transactions valued stakes at about 11.5x cash distributions. At that multiple, your stakes could be worth a significant amount. What could move you closer to taking that step? Anthony Carlson: As we have said before, we like the cash flows from these assets. There are challenges for us with transactions similar to the ones you mentioned. We have them at a very low tax basis. If you looked at the performance of those investments over the very long term and did a DCF, it would be challenging to get a multiple commensurate with the full value. We are open to offers that would deliver full value, but they would have to deliver full value net of taxes. We like those cash flows, so we are not in a hurry to sell. Sergei Dluzhevskiy: Lastly on Array, EBITDA is expected to be somewhat depressed in the medium term, pressured by transition and wind‑down costs. Can you talk about your targets, qualitatively and quantitatively, to take cost out and improve margins in 2026 and 2027? Longer term, post T‑Mobile transition, what kind of margins are realistic? Anthony Carlson: We think there is significant opportunity to improve Array’s margins. We focus on tower cash‑flow margins. First, land is our largest cost, and we have a much lower rate of land ownership than many large public players. There is significant value to be realized by, where appropriate, purchasing more of the land interests under our towers. Second, as a new tower company, we believe we have opportunities to improve as we transition from a maintenance posture aligned with operating a full‑fledged wireless company to one aligned with a tower company. Those are the two big cost‑side opportunities to improve tower cash‑flow margins, in addition to expanding margins by increasing colocations, which we work hard to do every day. Operator: There are no further questions at this time. I will now turn the call back to John Toomey for closing remarks. John Toomey: Thank you again for joining us today. As always, please reach out to us if you have any questions. I hope everyone has a wonderful weekend. Thank you. Operator: This concludes today’s call. Thank you all for attending. You may now disconnect.
Operator: Good evening, and welcome to PRA Group First Quarter 2026 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Mr. Najim Mostamand, Vice President, Investor Relations for PRA Group. Please go ahead. Najim Mostamand: Thank you. Good evening, everyone, and thank you for joining us. With me today are Martin Sjolund, President and Chief Executive Officer; and Rakesh Sehgal, Executive Vice President and Chief Financial Officer. We will make forward-looking statements during the call, which are based on management's current beliefs, projections, assumptions and expectations. We assume no obligation to revise or update these statements. We caution listeners that these forward-looking statements are subject to risks, uncertainties, assumptions and other factors that could cause our actual results to differ materially from our expectations. Please refer to our earnings press release issued today and our SEC filings for a detailed discussion of these factors. The earnings release, the slide presentation that we will use during today's call and our SEC filings can all be found in the Investor Relations section of our website at www.pragroup.com. Additionally, a replay of this call will be available shortly after its conclusion, and the replay dial-in information is included in the earnings press release. All comparisons mentioned today will be between Q1 2026 and Q1 2025, unless otherwise noted. During our call, we will discuss certain financial measures on an adjusted basis. Please refer to the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable U.S. GAAP financial measures to non-GAAP financial measures. And with that, I'd now like to turn the call over to Martin. Martin Sjolund: Thank you, Najim, and thank you, everyone, for joining us this evening. We are excited to be holding today's earnings call in our new Charlotte office, surrounded by some of our new colleagues who will help us transform our IT, AI and data analytics strategy. I wanted to start by providing a quick overview of our financial results for the quarter. As you can see on this slide, we have had a strong start to 2026, building on the success we achieved last year. Let's start with cash. Cash collections grew 11% year-over-year, driven by the continued momentum of our operational initiatives, especially in the U.S. This was supplemented by our continued strong performance in Europe. Cash efficiency improved to 62% from 61% last year, and that's with a $15 million increase in legal collection costs. As seen recently, these legal investments have been generating significant cash collections in the quarters following our investment. We expect our investments in legal collections to continue to generate cash for years to come. Turning now to portfolio purchases. Over the past 2 years, we've invested $2.6 billion in new portfolios, and this included our highest and third highest annual investment levels in company history. In Q1 of 2026, we purchased $221 million of portfolios globally as we remain disciplined with our buying and take a long-term approach focused on net returns rather than growth for growth's sake. This investment amount is in line with our expectations, both in terms of volume and expected returns. We did also take the opportunity to invest in some adjacent lower cost-to-collect segments where we saw good returns. This is part of our strategy of carefully investing into new segments that meet our net return thresholds. Net income increased to $28 million, building on the strong momentum we have been generating over the past couple of quarters. Adjusted EBITDA for the last 12 months was up 14% to $1.3 billion, growing faster than cash collections once again. This suggests that we continue to gain operating leverage even as we increased investments in the legal channel. Due to the continued strong growth in adjusted EBITDA and our disciplined purchasing, our net leverage continued to tick down, ending the quarter at 2.7x. As you can see, we've started 2026 with solid momentum. I wanted to provide some perspectives on the health of our customers, especially in light of the current macroeconomic and geopolitical backdrop that has led to elevated energy costs and gas prices. To start with, our customers remain stable in the U.S. and Europe and global cash collections in Q1 performed in line with expectations. Based on our analysis of call recordings, we haven't really been hearing customers cite gas prices or inflation as reasons for not being able to pay. While we can't predict what will happen, I can tell you that we are monitoring this very closely, and we can draw on lessons from what we've seen in the past based on our 30 years of data. I've been in the company for 15 years. And across that time, I've seen many different situations play out from the war in Ukraine to Brexit to COVID. Here's my perspective. Number one, my observation is that historically, our customers have tended to be fairly resilient across multiple economic downturns. Many of them want to resolve their debt and are on payment plans that they can afford. Others are under court judgment to pay their debts. So, the proportion of paying customers has tended to remain fairly stable through various economic situations, and this is particularly true in many of our markets where we have a strong share of legal collections. At times of stress, we do sometimes see fewer large payments and settlements, which reduces the average payment size. This phenomenon tends to be temporary, and we would normally expect to recover the cash eventually as these customers have demonstrated their desire to clear their debt. Second, customer dynamics vary greatly by market as do government responses. We operate across 18 different markets, and we have seen that macro changes can affect different markets in very different ways. In past energy cost dislocations, such as the start of the war in Ukraine in 2022, we saw that different countries were affected depending on where they source their natural gas from as well as the propensity of the government to intervene. It is impossible to predict exactly how markets will be affected. And ultimately, we benefit from the aggregation of many local market situations into a global pool, which helps protect us from single market risk. We have a long experience of dealing with economic cycles and customers who are experiencing difficult financial circumstances. And thirdly, there's the other side of the coin to consider, as seen by the chart on the right of the slide. Economic stress tends to drive up charge-off rates, and we often observe charge-off rates rising by a larger factor than the impact on our collections, and this creates buying opportunities over time. We are well positioned to capitalize on this scenario should it occur. So currently, we believe that the situation is manageable, given our global diversification, but we're monitoring it with heightened awareness. Let me now spend some time providing an update on our PRA 3.0 strategy, which we unveiled in March. This long-term strategy has 3 important vectors. The first vector is capital and investing. Here, we focus on leveraging our global scale and diversification to invest with discipline and allocate capital to the highest return opportunities. It also means delivering a strong financial profile through the cycle, one that generates more predictable net income and creates a more flexible cost profile. We intend to maintain our strong funding profile with a focus on reducing leverage to the mid-2x area over time, and we will maintain our thoughtful capital allocation strategy. The second vector is operations, technology and data. This is all about becoming more flexible, tech-driven and leaner. It starts with balancing the benefits of our internal platform with flexible external capabilities. It also means modernizing and standardizing our technology, which is already happening in Europe and making significant progress in the U.S. We will continue to leverage our massive amounts of data, customer insights and AI to drive improved processes, cost savings and enhanced customer service. We will also remain disciplined in our cost management, shifting more toward a variable cost structure as we continue to grow our legal capabilities, call center offshoring and external debt collection agencies or DCAs, globally. The third and final vector is people and culture. As I said last quarter, the strategy is only as good as the people who execute it, which is why we are focused on establishing a winning culture by nurturing our highly talented team of people. Together, these 3 vectors serve as our blueprint for transforming PRA into a high-performing technology-enabled global allocator of capital. Let's now turn to some of the ways we have executed against this strategy in recent months. Starting with capital and investing. We remain disciplined in our portfolio investments with a focus on driving returns. We also successfully refinanced our European credit facility, which Rakesh will talk about later. Turning to our second vector. We continue to drive digital innovation to enhance our engagement with customers. Just a few weeks ago, we launched the first iteration of our new mobile app in the U.K. It was encouraging to see customers already starting to use and make payments through the app. As it relates to AI, we have been piloting a number of initiatives across the U.S. and Europe to drive better processes and greater automation in our call center, digital and legal channels. These initiatives and others that are currently in the pipeline are expected to generate value for PRA over time as we continue to discover and implement new solutions for modernizing and transforming our operations. We see opportunities to leverage AI in a number of ways. This includes developing in-house capabilities, which can leverage external AI models to link our business processes and data. It also includes working with external partners to leverage off-the-shelf tools. We are on a multiyear journey to completely transform our U.S. technology platform. This will bring cutting-edge capabilities, make our processes more efficient, leverage AI and also reduce costs over time. We've been making good progress in our U.S. IT modernization road map and are on track to have one global cloud platform and cloud-based contact platform by the end of this year. As I mentioned on the last earnings call, I see cost control as a mindset, not just a one-off project. We remain very focused on our cost base and are continuously looking at cost savings opportunities. In addition, we're shifting towards a more variable cost structure, leveraging more of our offshore and DCA capabilities. Finally, as it relates to people and culture, I'm excited to be sitting here with the team in Charlotte following the opening of the talent hub in Q1. Charlotte has a vibrant financial services sector and being here gives us access to a wider talent pool to supplement our great teams in other locations. We have communicated the new 3.0 strategy to the entire organization, and our teams are focused on execution. We have also reviewed our compensation schemes and made adjustments to create stronger alignment between management incentives and shareholder interest. I'll now turn it over to Rakesh for a summary of our Q1 financial results. Rakesh Sehgal: Thanks, Martin. We purchased $221 million of portfolios during the first quarter with $119 million in the U.S., $92 million in Europe and $11 million in other markets. This was in line with our expectations as we continue to focus on driving higher returns and net income while balancing investments with leverage. Our global purchase price multiple remained steady in Q1 with a small downtick in the U.S., offset by an uptick in Europe. Our U.S. core purchase price multiple was slightly lower this quarter due to us investing in a higher portion of portfolios that have a lower cost to collect. These included some investments in adjacent product segments. As a reminder, purchase price multiples measure gross dollars collected per dollar invested and are not on their own a measure of profitability. They can vary due to multiple factors such as product, geography, age of portfolio and collection channel used with each having a different level of cost to collect. Portfolios that have a lower cost to collect generally have a lower purchase price multiple. Our focus continues to be on net returns after taking into account the cost to collect, funding costs and timing of cash flows. Our investments in adjacent segments this quarter met our net return thresholds even though they have a lower purchase price multiple. As we look ahead to the next 12 to 18 months, we expect portfolio supply to remain relatively stable in the U.S. and Europe. Credit card balances in the U.S. continue to hover around $1.1 trillion, while charge-off rates remain above 4%. ERC at quarter end was $8.5 billion, up 10% year-over-year, with the U.S. accounting for 43% of ERC and Europe accounting for 51%. This diversification helps mitigate risk from any single market and economic cycle. The replenishment rate defined as the amount we would need to invest over the next 12 months to maintain current ERC levels based on the average purchase price multiples in the first quarter of 2026 was $1 billion. Cash collections for the quarter grew 11% year-over-year to $552 million, driven by the continued growth in our U.S. legal collections channel, coupled with strong performance in Europe across multiple markets. In addition, our digital channel continues to show significant momentum with global digital cash collections up 19% year-over-year. U.S. cash collections grew 11% in the first quarter. U.S. legal cash collections grew 27% to $141 million as we continue to benefit from investments made in the previous quarters. Legal is not the channel that we lead with, but in cases where we are not able to get customers to engage with us through other channels, we will eventually consider an account for legal collections. The legal channel typically provides greater collections certainty and a higher overall amount of cash collected versus other channels. Legal accounted for 53% of U.S. core cash collections in Q1 compared to 46% in the prior year period. Europe's cash collections grew 15% in the first quarter with growth distributed across several of our core markets. Comparing cash collections versus expectations, globally, cash collections exceeded our expectations by 3% with the U.S. exceeding by 1% and Europe exceeding by 8%. Moving to a summary of our income statement. Total revenues increased 17% during the quarter, driven primarily by the growth in portfolio income. Portfolio income, which is the more predictable yield component of our revenue, grew 12% in the quarter to $270 million. We expect portfolio income to continue growing and contributing to net income as we drive improved cash performance from our operational initiatives, especially in the legal and digital channels. Changes in expected recoveries were $44 million in the quarter. Of this amount, 52% or $23 million came from cash over performance or cash received above our expectations and the remaining 48% or $21 million was from changes in expected future recoveries or the net present value of changes to our ERC. Turning now to the rest of the income statement. Operating expenses were $211 million for the quarter, up $16 million. Legal collection costs, which are variable, accounted for $15 million of the increase with the remaining OpEx items in aggregate staying flat while we delivered cash growth. Our investments in the legal channel are yielding strong cash collections and the growth in the legal collection cost is expected to moderate this year versus the last 2 years. Overall, we continue to gain operating leverage as we build a more variable cost structure. Compensation and benefits expense was down $3 million this quarter. This was driven primarily by rightsizing our agent headcount, leveraging more external collections resources, including offshore agents and eliminating more than 115 corporate roles in Q4 last year. Communication expense was also down $1 million in Q1 after being down $7 million in all of 2025. These decreases were driven by a growing shift to lower-cost digital strategies instead of sending letters to customers. The work that we have been doing in the digital channel is starting to bear fruit with digital cash collections growing double digits while helping to lower costs. Net interest expense was $64 million for the quarter, up $3 million year-over-year, primarily due to a higher debt balance. Our effective tax rate was 22% for the quarter. For the full year 2026, we expect our effective tax rate to be in the mid- to high 20s, depending on the income mix from various countries and other factors. We generated $28 million in net income for the quarter or $0.73 in diluted earnings per share, demonstrating the strength of the global franchise with improved performance in the U.S. and Europe. This was up $25 million year-over-year and follows the strong $35 million in adjusted net income we delivered in Q4. While there will be variability in our net income on a quarterly basis, our focus remains on growing the bottom line and improving returns. You can see that on a 4-quarter average basis, our profitability is trending in the right direction as we continue to improve our core operations, reduce overhead and invest further in legal, digital and offshoring to transform the business. We are focused on building on this momentum by continuing to execute against our PRA 3.0 strategy. In addition to net income, we also focused on adjusted EBITDA, which we believe provides a more cash-driven perspective on our operating success. Adjusted EBITDA for the last 12 months was $1.3 billion, up 14% year-over-year, exceeding cash collections growth of 11%. Our net leverage, defined as net debt to adjusted EBITDA continued to tick down, ending the quarter at 2.71x compared to 2.73x as of December 31 and compared to 2.82x in the prior year period. This is due to the strong adjusted EBITDA growth, coupled with disciplined purchasing. In line with our 3.0 strategy, our goal is to have our net leverage continue to decline over the next few years as we aim to land in the mid-2x area. In terms of our funding, we have ample liquidity and a strong capital structure that is well diversified between bank and bond debt. As of March 31, we had $3.1 billion in total committed capital under our credit facilities with total availability of approximately $1 billion, comprised of $714 million available based on current ERC and $282 million of additional availability that we can draw from subject to borrowing base and debt covenants, including advance rates. We continue to proactively strengthen our capital structure. Last month, we refinanced our $730 million European revolving credit facility. We are pleased that we completed the transaction well in advance of its maturity in November 2027. The new facility has a 5-year term, further staggering our debt maturity profile with no change to the commitment level and pricing. Our funding profile remains strong with ample liquidity and no maturities until 2028. We want to thank our lending partners for their continued support as we deliver on our strategy. Lastly, we saw an opportunity to undertake another share buyback during the quarter and repurchased $10 million of our shares. This is in addition to the $20 million we repurchased in 2025. We will continue to evaluate share repurchases as part of our overall capital allocation strategy and consistent with covenant restrictions. Overall, Q1 was another solid quarter as we continue to execute our operational initiatives, improve our financial profile and deliver higher returns while reducing leverage. I'll now turn it back to Martin. Martin Sjolund: Thanks, Rakesh. So, to summarize, we've started the year on the front foot, executing with rigor, discipline and speed across many parts of the business. We continue to gain momentum in the U.S., especially in legal and digital channels. Europe continues to deliver strong results and innovation, helping us diversify across many markets. And lastly, we believe that we're in a good position to execute on our new 3.0 strategy, deliver against our financial targets and generate value for our shareholders over the next few years. Thank you, everyone, for tuning in and for your time, support and continued confidence in our future. And with that, we'll open it up for questions. Operator: [Operator Instructions] And your first question comes from the line of Mark Hughes with Truist. Mark Hughes: Martin, you talked about buying paper in kind of an adjacent or new area in keeping with your strategy of doing test buys and starting small. Is that an area that could potentially expand into something more meaningful? Martin Sjolund: Yes. So, what I talked about there was really part of our strategy, which is that we're -- overall, we're focused on disciplined purchasing in the core business, but that we will test our way into adjacent product segments. So, we're looking for areas where we can leverage our operating capability, our underwriting capability and so on, also our great seller relationships that we have. So, we did this quarter get into some areas that are adjacent. They're not hugely different, but they have a slightly different cost to collect structure, and that's what we called out in terms of the impact on the multiple mix there. And we are investing in areas where we think there could be future opportunity. But as I've been saying, we like to test into it to get data, learn the products and before we go large. But we do see bigger opportunities in the future in some of these areas. Mark Hughes: And talking about your outlook for the balance sheet, you look for the debt leverage to decline over time. As you execute more on the 3.0 strategy, is it possible that you could be in a position where you'd accelerate again the purchasing activity if you're generating better returns based on your internal initiatives, could, in fact, you go in a different direction, keep your leverage as is and pick up the pace of portfolio buys? Martin Sjolund: Yes. I mean, as we laid out, our focus is really on being disciplined allocators of capital. So, we have -- in the first quarter, we ended up with a volume that met our plan and also our return thresholds. So, we are focused on that. If something were to really change in the market, we have a very strong funding profile and an ability to adjust that. And the targets we've laid out for our buying really are based on the market conditions that we see right now. So that is our plan, and that's what we've laid out in 3.0. But with things happening in the macro environment, if they were to continue to accelerate and there was a big change in the volume available, we would be in a position to consider that. But our basic plan based on our current outlook is the one that we've outlined in the 3.0 strategy. Rakesh Sehgal: Yes. And Mark, if I could add to that, we have ample liquidity, right? We've got $1 billion of liquidity, but we've also set a target out there that we want to get to the mid-2s leverage over the next few years. But as Martin said, should the opportunity arise where we are seeing portfolios that meet our thresholds, we would invest more. We put a target out there that we would be investing between 1 to 1.3 over the next few years as part of our 3.0 plan. Mark Hughes: And then one more question. How would you characterize your progress on the 3.0 strategy, just thinking about the technology and the systems. And I think, Martin, your goal was to somewhat replicate the success you had in the international realm in Europe and bring that same sort of approach to the broader platform. How far along are you? How much time before you get to the place where you want to be? Martin Sjolund: Yes. That's a good question. We -- as we talked about, we've been investing in the technology platform in Europe for some time. So, we're on one common cloud. We have one common contact platform. We've streamlined our collection systems and so on. There's still more work to do there. And I mentioned earlier, we just launched a mobile app in the U.K. as an example of how we're trying to innovate. So that's in good place. On the U.S. side, this transformation has been going on for some time. So, it didn't just start last quarter when I laid out the strategy. But it has brought, I think, a heightened focus on the strategy. So, we expect to -- some elements of this will fall into place even later this year. So, we have -- for example, we expect to be in one cloud instance in -- one global cloud instance by the end of the year. We'll also have one common cloud-based contact platform. So that will also be in place in the U.S. market later this year. So, on those fronts, we're making really good progress. And then there's a lot of like longer-term opportunities that we're also investing in ranging from AI to ways of improving our core platform. So, we're going to -- I think we're going to start to see some of the benefits even this year, but then there are other projects that will take longer time before we're fully in place. And that's kind of why we laid this out as a multiyear journey. Operator: The next question comes from the line of Robert Dodd with Raymond James. Robert Dodd: Kind of on the topic of unifying that global platform and the other IT investments you're making, et cetera. Is that what kind of is allowing expanding into the other adjacencies? Is a more uniform platform and a more uniform kind of use of data perhaps encouraging you to look at those other adjacent markets because you have the same tools, but the more the data is analyzed globally in uniformly, the more you can learn about additional adjacencies? And would you expand further into those other markets once all these IT investments are made? Or is it just coincidental that it's occurring at the same time? Martin Sjolund: Yes. No. I mean, in the European markets, we are already in, I would say, a broader set of segments than we are in the U.S. So, we've been doing it for some time there. And that's just been something we've developed over time is getting data, tuning our underwriting, building our operational confidence in a particular area and then scaling up if we see the opportunities. On the U.S. side, I do think that these investments that we're making will give us a more lean operating platform. We'll be able to provide better service to customers. We'll have more automation. We'll have better ways of leveraging the data and so on. So, it will be bringing improvements -- and I do think over time, it will make us more flexible in terms of handling other segments. But it's not just the technology platform. There's other capabilities that we've put in place. For example, building up a network of external debt collection agencies. 2 years ago, that wasn't something we really did in the U.S. It's something over on the European side, we've been doing for a while. And that's just another way of creating capabilities. They don't all have to be in-house, but they would enable us to go after segments that we may not be focused on currently. Robert Dodd: Got it. And if I can add one more. On the legal now in the U.S., I think it was 53% of collections, if I heard that right, it was 46% a year ago. I mean how -- there's been a number of steps on utilization of the legal channel you've taken over several years, optimizing the actual collections when there's a lean things like that. I mean how much of the growth is just you've spent more on that channel versus it's a consequence of the optimization steps themselves rather than just -- and I don't mean that in the wrong way, but putting more pure financial resources in terms of spending behind it. Martin Sjolund: Yes. I would say it's a combination there. I mean the first thing that we always point out is that we don't lead with legal. We do first work very hard to engage with customers through digital and through call centers and so on. But if people won't engage and if we conclude that they should be able to make repayments, we will pursue the legal channel. And over the past couple of years, we have made significant improvements in our capabilities all across the kind of legal collections chain. So, on one hand, we've been doing that. That makes it more efficient for us to use that channel, and it just makes the returns better if we do it. But on the other hand, we've also been investing significantly in it, as you pointed out. And that kind of creates that, I would say, a virtuous cycle where we have more data, we're investing more. We're seeing better results as we build these capabilities. So really both sides come together. It's both a matter of investing. It's a matter of better scoring to understand the economics on an individual account basis, but also those capabilities, which are rooted in technology and other capabilities that help make us more efficient on legal. Rakesh Sehgal: Yes, Robert, it obviously starts with us improving our processes, the life cycle, and that's what's given us confidence to continue to invest. So, the growth in Legal was 40% going into '25. And then last year, it grew another 30%. And the important thing is that before we put that account into the legal channel, we obviously will score those accounts. They have to meet certain return thresholds and that's when we decide if it's meeting those return thresholds, the account will go into the legal channel. And keep in mind, there's greater certainty on the cash that we collect as well as the cash that we will collect. The amount is higher versus some of the other channels. Operator: [Operator Instructions] I'm showing no further questions at this time. I would like to turn it back to Martin Sjolund for closing remarks. Martin Sjolund: Okay. Thank you. Well, as you can see, we're off to a good start in 2026. We've got good momentum on our 3.0 strategy. And we're going to be attending a few investor conferences over the next couple of weeks, including Barclays and Truist conferences. So, I hope to see some of you there. So, thank you very much. Operator: Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Tejon Ranch Company First Quarter 2026 Earnings Call. [Operator Instructions] Please note that this event is being recorded. I will now hand you over to Nick Ortiz. Please go ahead. Nicholas Ortiz: Good afternoon, and welcome to the Tejon Ranch Company's First Quarter 2026 Earnings Call. My name is Nick Ortiz. Joining me today are Matt Walker, President and CEO; and Robert Velasquez, Senior Vice President and Chief Financial Officer. Today's press release, 10-Q and this webcast are available on our Investor Relations website. A replay will be posted after we conclude. That site is ir.tejonranch.com. Today's remarks may include forward-looking statements. These statements are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially. These factors are detailed in our SEC filings, including our most recent Forms 10-Q and 10-K. We assume no obligation to update any forward-looking statements. We may reference non-GAAP measures. These measures should be considered in addition to, not as a substitute for GAAP results. Reconciliations to the most directly comparable GAAP measures and reasons why we use non-GAAP are included in today's filings and are posted on our website, again, ir.tejonranch.com. After prepared remarks, we'll address questions. Shareholders were invited to submit questions by e-mail in advance. Now I'll turn the call over to Matt Walker. Matthew Walker: Thank you, Nick. Good afternoon, and thank you all for joining us. Today, I'm going to share my perspective on recent performance, then turn it over to our CFO, Robert Velasquez, who will cover our financials, and then we will answer questions from shareholders. Let me start off by saying we had a good first quarter. Revenues were up 16% from the first quarter of 2025, while operating costs were down 14%, including a $2.4 million reduction in corporate costs. As a result, net income was up $1.6 million and adjusted EBITDA was up $3.1 million with a 12-month trailing adjusted EBITDA of $27.2 million. Looking at adjusted EBITDA by segment on a 12-month trailing basis, Commercial real estate contributed $7.5 million, reflecting steady performance from our income-producing portfolio. Mineral Resources delivered $4.8 million, supported by the strength in water sales and farming contributed $2.2 million. Branch operations added approximately $1 million, benefiting from the increased membership activity. The headline number there is the $2.4 million reduction in corporate expenses, driven by lower headcount and the absence of proxy defense costs. Our first quarter results demonstrate our continued progress against our strategic goals over the past year, in particular, driving stronger cash flows. At the Tejon Ranch Commerce Center, we are especially pleased to report the groundbreaking of a new 510,000 square foot Class A industrial facility developed in partnership with Dedeaux Properties. TRCC is the nucleus of our growth, so we are excited to be moving forward, leveraging our land and our balance sheet to develop an income-producing property, which we expect to complete in the first quarter of next year. With our 2.8 million square foot TRCC industrial portfolio 100% leased, this project further capitalizes on the demand we continue to see along the I-5 corridor. In addition, as of the end of the quarter, our commercial and retail portfolio was 95% leased and the outlet to Tejon was 92% occupied. Terra Vista with 228 units now delivered, ended the quarter 71% leased and is on track for Phase 1 to be stabilized this summer. TRCC's momentum is accelerating. Outlet traffic was up 22% and sales were up nearly 12% in the first quarter compared to last year, with similar gains at our TA Petro Travel Center. We're seeing that the lease-up of Terra Vista and the opening of Hard Rock Casino Tejon are driving greater commercial activity across the center. As we approach our annual meeting next week, I'm looking forward to opening our dates to you and sharing more about the progress we've made and where we're headed. The meeting will be held on site at the ranch with options for virtual attendance. Registration details are in the proxy statement. We hope to see you there. I also want to thank our shareholders for their continued engagement and our Board for their leadership over the past year. With that, I'll turn the call over to our Chief Financial Officer, Robert Velasquez, to walk through the financials. Robert? Robert Velasquez: Thank you, Matt, and good afternoon, everyone. I will begin with a review of our first quarter results, provide some additional detail on segment performance and then summarize our current liquidity. For the first quarter of 2026, revenues and other income, including equity and earnings from unconsolidated joint ventures increased 13% to $10.8 million compared to $9.6 million in the same quarter last year. Turning to segment performance. Commercial and industrial real estate generated $2.8 million in revenue for the quarter, in line with the prior year period. Operationally, the portfolio remains strong. Equity and earnings from unconsolidated joint ventures totaled $1.3 million in the first quarter compared to $1.2 million in the prior year period, reflecting continued earnings growth despite diesel fuel margin pressure within our TA Petro joint venture. Farming segment revenues were approximately $900,000 in the first quarter of 2026 compared to $1.6 million in the same quarter last year. The year-over-year decline was due to lower carryover crop available for sale as we strategically accelerate sales of carryover inventory last quarter to capitalize on stronger-than-anticipated pricing. In addition, we planted 150 new acres of wins in April on top of the 150 acres planted in 2025 as part of our ongoing crop diversification strategy. Mineral resource revenues increased 36% to $3.5 million in the first quarter of 2026, with segment operating profit more than doubling to $1 million. Year-over-year improvement was driven primarily by opportunistic water sales executed during the quarter. Underlying royalty streams across rock and aggregate, cement and oil and gas continued to contribute stable cash flows during the quarter. Turning to liquidity. I'll look at the balance sheet. As of March 31, 2026, cash and marketable securities totaled approximately $19.4 million. Available capacity on our revolving credit facility was approximately $64.6 million. Total liquidity was therefore approximately $86 million. We believe our liquidity position provides sufficient flexibility to continue advancing development initiatives while maintaining balance sheet discipline. With that overview, I'll turn it back to Matt. Matthew Walker: Thanks, Robert. In summary, the first quarter marked a solid start to the year for us. We returned to profitability, demonstrated the value of our diversified business model and continued executing on our long-term strategic initiatives. Looking ahead, we remain focused on several key priorities, including the successful lease-up of Terra Vista, maintaining momentum at TRCC as a premier logistics and distribution hub and leveraging our diversified revenue base to deliver consistent results. With that, we will now respond to the questions that have been submitted. Please just give us a moment to get those pulled up. Nicholas Ortiz: We have received questions from shareholders. I'll start by reading the person who submitted the question and the question itself before turning it over to Matt. So our first question comes from Justin Levo. Matt, thank you for this call, and we greatly appreciate your efforts to date. In prior calls and presentations, the company cited Five Point Holdings as a positive example of the long-term master planned community entitlement and development strategy. As I am sure you know, it took five years to get their Valencia MPC across the line. Valencia has been selling lots for a few years now, yet Five Point stock is significantly lower than it was prior to Valencia's development. Overall, Five Point has been a terrible long-term investment for shareholders, and they've developed some of their NPC projects using the JV structure touted by management. Five Point stock is down 60% over the past 10 years. Howard Hughes is another publicly traded NPC developer, which has also been a terrible long-term investment for shareholders. Their stock is down 35% over the past 10 years. How are these two examples not indictment on the publicly traded master planned community development model? And how can you expect shareholders to buy into the idea of continuing to pursue Mountain Village and Centennial and continue to absorb the millions of costs related to these assets? -- knowing that even if we are able to get these assets across the finish line, the market will not reward this business model or the future cash flows generated by these assets of the question. Matthew Walker: Justin, thanks for your question. This is a humbling job. I thought a lot about some of the comments that I made during last quarter's call with respect to the public master planned community companies. And I'd like to refine my thoughts to some extent. You're right in a lot of what you said in as much as the fact of the fact in terms of investment returns. I don't believe that a joint venture structure is what's driving the other companies' poor performances. For us, I do believe that JVs are a positive tool because they allow us to monetize our land by contributing it to a joint venture while leveraging our partners' capital so that we can preserve cash. And that applies to our strategy on income-producing properties such as the new industrial building that we've just taken underway or for our MPCs. There are many lessons to be learned from looking at other companies, including things that we would do differently. What I can tell you is that I'm very much aware of the issues related to master planned community development, such as the lengthy duration and the capital requirements and the capital reinvestment on top of market cyclicality. But I also see the opportunity with the MOIC and with recurring cash flow. So for me, the takeaway is if we're going to pursue master planned community development as a public company, we need to do it in certain ways that might be different than how a private developer would approach. Nicholas Ortiz: Our next question is from David Spear. Matt, thank you for this call and your continued efforts. According to the trailing 12-month EBITDA table in the release, the company's JV investments, commercial real estate operations and Mineral Resource segment generate $33 million of EBITDA and $26 million of cash flow. These are passive investments in operations that investors typically ascribe immense value to as they can be managed at low costs while generating high returns on invested capital. Companies with similar passive operations such as Landbridge and Texas Pacific Land Trust trade at EV/EBITDA multiples over 30x and have multiple billion-dollar market caps. Companies with smaller market caps such as Aztec Land Company and [indiscernible] Land Association trade at even higher multiples. These have also been highly successful investments for shareholders. Applying 25x to 30x EBITDA multiple would result in a valuation between $800 million to $1 billion for just our income-producing assets. How can we justify pursuing master planned development projects when one could argue that selling them and focusing on our more highly valued assets and operations would result in a stock price that is 3 to 4x the current price? How can we ignore this passive capital-light option, especially considering the real estate development model has historically been punished by the stock market? That's the end of the question. Robert Velasquez: Okay. Thanks. Matthew Walker: Thanks, David. Good comments. You cited some great companies with good business models, and they performed really well in the market. I was planning to cover some of your topics at next week's Annual Shareholder Meeting, but let me give it a shot right now. You're right. Tejon Ranch Company has several business lines and segments that generate significant EBITDA through passive investments. And those businesses share many similarities with the companies that you've mentioned, all of which we've looked at to try to better understand. I should also note that there are certain characteristics of our land that are different than the land owned by the companies that you mentioned. but we also have plenty of opportunity as well. And I'm focused on growing this asset-light part of the business, as you mentioned. I'd rather place an aspirational multiple on some more conservative assumptions, but I think I understand your math. I might also add that our new industrial building is entirely consistent with the strategy that you're advocating and specifically that our JV structure allows us to earn an extremely high MOIC, especially when you look on our multiple on net invested cash. Nonetheless, we continue to believe that there's an immense amount of value to be earned from placing our master planned community project in development. And as I've reported before, this requires external capital, which I committed to shareholders last November that I would seek out, and we're going through that process over the next several quarters. Nicholas Ortiz: Our next question is from David Ross. We applaud the considerable improvements in the cost structure of the company and this effort is appreciated. Yet even with these changes, the company generated just $200,000 or $0.01 per share of earnings. If you add back the interest expense that the company continues to capitalize, GRC is still losing money each quarter and generating negative free cash flow. Given the amount of recurring passive income, we cannot build shareholder value while continuing the non-income-producing costs that are tied to the Mountain Village and Centennial development. These assets generate no income and will require hundreds of millions of future capital investment to eventually generate income. Developing these assets will prevent the company from being able to return capital back to shareholders for at least another decade. If we are focused on shareholder value and long-term share price appreciation, how can you justify holding on to these assets and pursuing the same build strategy? I think we can agree that the strategy has not worked for the last 30 years. On an adjusted basis, farming EBITDA was $185,000. But every year, the company continues to invest in CapEx towards the farming operation. While we understand the nature of fixed water obligations, this is still a cash expense. The farming operation continues to cost shareholders millions per year while factoring in PP&E CapEx and water. Why would we continue to accept these losses? Is there no better alternative for shareholders? The two questions point to the issue of capital allocation. We have been subsidizing these dream projects for decades. At what point does the leadership at TRC consider shareholder return on capital? Matthew Walker: So David, there's a lot there to consider. You've seen me present an economic case for farming in which we back out the cost of water, which we think is the right way to look at the business given our water contracts, which will ultimately support our residential and commercial development. And if you look at the remaining adjusted EBITDA, excluding the water holding cost, the picture for farming is more positive. There are also a lot of ancillary benefits that the company receives from our farming, water is part of it, access to debt capital is another. With that said, we're taking an objective look at our farming business and its ongoing capital allocation. With respect to your other comments and questions, I tried to provide an explanation of that when I was addressing Justin and David's earlier questions on the same topic. Right now, we're continuing to pursue our business plan, as I've discussed, but we will consider all alternatives and look to remain flexible going forward. Nick, do you have any other questions? Nicholas Ortiz: That concludes our questions. Robert Velasquez: Great. Thanks. Nicholas Ortiz: All right. Thank you very much for joining us. Operator, you can conclude the call. Operator: Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.
Operator: Good day, ladies and gentlemen. Welcome to the Abacus Global Management First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the call over to Robert Phillips, Abacus Global Management's Senior Vice President of Investor Relations and Corporate Affairs. Please go ahead, sir. Robert Phillips: Thank you, operator, and thank you, everyone, for joining Abacus Global Management's first quarter earnings call. Here with me today are Jay Jackson, Chairman and Chief Executive Officer; Elena Plesco, Chief Investment Officer; and Bill McCauley, Chief Financial and Chief Operating Officer. This afternoon at 4:15 p.m. Eastern Time, Abacus Global Management released our first quarter 2026 results. This afternoon's call will allow participants to ask questions about our results. Before we begin, Abacus Global Management refers participants on this call to the Investor web page, ir.abacusgm.com, for the press release, investor information and filings with the SEC for a discussion of the risks that can affect the business. Abacus Global Management specifically refers participants to the presentation furnished today on Form 8-K with the Securities and Exchange Commission and to remind listeners that some of the comments today may contain forward-looking statements and as such, will be subject to risks and uncertainties, which, if they materialize, could materially affect results. For more information on the risks, uncertainties and assumptions relating to forward-looking statements, please refer to Abacus Global Management's public filings. During the call, we will reference certain non-GAAP financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings under U.S. generally accepted accounting principles or GAAP. Please see our public filings for additional information regarding our non-GAAP financial measures, including references to comparable GAAP measures. With that, I'd now like to turn the call over to Jay Jackson, Abacus Global Management's Chairman and Chief Executive Officer. Jay Jackson: Thank you, Rob, and good afternoon, everyone. Having had the pleasure of speaking with many of you in the weeks following our fourth quarter earnings call, I will keep my remarks focused and direct. I want to lead with the headline. Based on what we are seeing in the business today, we are raising our full year 2026 adjusted net income guidance from a range of $96 million to $104 million to a new range of $100 million to $106 million, lifting both the low end and the high end of our range. The new range translates into $1 to $1.05 in adjusted EPS. The conviction behind that decision comes from a few drivers we are seeing in real time. We raised $288 million into our longevity funds this quarter on top of the $275 million in Q4. By way of context, we raised $630 million across all of 2025. The step change in fundraising we saw at year-end has carried cleanly into the new year, and our pipeline continues to grow. In Q1 alone, we reviewed nearly 9,000 qualified policies compared to roughly 11,000 across all of 2025. The flywheel is working exactly as designed. Increased assets under management drives origination and our infrastructure is meeting that demand. That near-term visibility is what gives us the confidence to provide a forward quarter guide alongside our full year range. For Q2 2026, we expect adjusted net income of $24 million to $26 million or $0.24 to $0.26 in adjusted EPS. I want to spend a moment in the shape of the year because the pace of our growth over the past several years has obscured a normal dynamic in how we operate. Revenue does not flow evenly across quarters. January is typically our lightest month with activity picking up through February and March, then running robustly through spring and summer. August is generally a slower month for both deployment and fundraising before momentum picks back up in the fall and builds through a strong fourth quarter finish. Q1 ANI came in at $20 million. Q2 is guided to $24 million to $26 million. The back half is historically our strongest, and that is the path to our raised full year range. Bill will walk you through business operations and financial results, and you will see that strength reflected across the metrics that matter. Elena will cover our KPIs and capital allocation. But first, let me set up the 2 dynamics that I believe define this moment for Abacus. The first is the current macro environment and what it means for our asset class. The uncertainty that has characterized Q1 has created a defining moment across the alternatives landscape. Investors are reassessing where they allocate capital. They are moving toward assets that are genuinely uncorrelated from market sentiment and credit cycles. That is precisely what Abacus offers. Our yield is mortality-driven, not rates driven. That means our returns are structurally uncorrelated. And this quarter, that distinction drove capital to us in a meaningful way. Assets under management grew substantially in Q1, fueled by capital inflows from investors who understand that we are not private credit, we are the alternative to it. Now, I want to address something that is important for investors to understand clearly, the relationship between increased demand and purchase discount rates. As more institutional capital has flowed into the asset class, buyers are competing more aggressively for policies. That competition means buyers are paying more for each policy, which translates directly into lower purchase discount rates. I want to be emphatic about this. A lower purchase discount rate in our business is a positive outcome. It reflects rising asset values and expanded long-term spreads on the contracts we already hold, and we believe this dynamic will continue through 2026. The second thing I want to highlight is what I consider one of the most important proof points this company has ever delivered, and it happened this quarter. Our LMA Income II Fund reached the end of its initial term. This is a fund we launched 3 years ago that grew to approximately $115 million in assets under management. At conclusion of its term, we returned capital to every single investor who requested it, 100% on time as promised. Returning investor capital at the end of a fund's term should be the norm. Across the alternatives industry today, it is not. At a moment when restrictions on investor capital have been commonplace, when redemption gates have become accepted norms, Abacus did what we said we would do. And here is what makes it even more meaningful. Approximately 1/3 of those investors chose to extend their investment and another 1/3 reinvested their capital into our new products. This is not just capital retention. That is an affirmation. Investors who had full optionality evaluated this asset, evaluated these funds and chose to put more capital to work with us. That is the strongest endorsement we can receive. Bill will address the balance sheet impact in detail, but I will note that this event reduces debt on our balance sheet by more than $75 million, further strengthening our capital position as we move through the remainder of the year. Looking ahead, I want to highlight 2 transformational growth opportunities that I believe will define the next chapter for Abacus. The first is our investment in Manning & Napier. This relationship continues to progress with real momentum. The strategic alliance and distribution agreements are both taking shape, and we are already working to integrate our respective platforms. Manning's existing infrastructure is robust and well suited to support what we are building together. This is not a passive investment. It is a distribution partnership that we expect to materially expand the reach of our products to a broader base of advisers and their clients. We expect early results from that alliance in Q2, and we'll have more to say as that relationship matures. The second is our securitization program. Following the success of our first securitization, we are actively targeting a second significant securitization in late Q2 or early Q3. Securitization is a powerful tool for us. It allows us to recycle capital efficiently, diversify our funding sources and demonstrate to institutional markets the quality and consistency of the assets we originate. A second transaction in this time frame would represent a meaningful acceleration of that program and further validate the institutional credibility of this asset class. We will provide updates as that process advances. With that, I will turn it over to Bill. William McCauley: Thanks, Jay. I want to cover 2 things. First, how the business operated during the quarter; and second, what our financial results reflect about the momentum Jay described. Then I'll turn it over to Elena for KPIs and capital allocation. Jay covered the headline drivers for the quarter. I want to get into the operational detail underneath them. The deployment volume Jay referenced ran through an origination process that remained highly selective. We reviewed a substantial number of qualified policies in Q1 and closed at a rate consistent with our historical standards. We did not relax underwriting to meet demand. The higher inbound flow simply gave us more to choose from. Elena will take you through the specific metrics, but the headline is that volume went up and quality held. The most direct evidence of how the operational pieces came together this quarter is the cash flow statement. We generated $91.7 million in operating cash flow in Q1 2026 compared to negative $61.6 million in Q1 2025, a swing of more than $153 million year-over-year. That reflects 3 things converging at once: policies on our balance sheet, generating cash through trading and maturities, the LMA Income II Fund completing its initial term and releasing capital and the underlying operating leverage of the platform as we scale revenue without a commensurate increase in cash costs. Cash conversion is the ultimate test of whether the model is working and Q1 passed that test decisively. On the portfolio, the short version is that quality and margin are both tracking ahead of target. Realized gains for the quarter exceeded our 20% long-term benchmark, and our seasoned assets continue to appreciate in line with actuarial expectations. Elena will walk through the detailed KPIs of turnover, weighted average life expectancy and insured age, but the directional read is clean across the board. On LMA Income II, Jay described the fund outcome and what it means for investor confidence. I want to add the financial reporting dimension. Because of the fund's initial structure, we were required under GAAP to consolidate it as debt on our balance sheet. With the conclusion of the fund's initial term this quarter, that obligation unwinds. The result is a reduction in reported balance sheet debt of more than $75 million. I want to be precise about this. It is not a corporate deleveraging event. It is the reduction of a fund level consolidation from our balance sheet. The practical effect is that our reported leverage ratios improved significantly without any change in our underlying capital structure. I will address the specific metrics next in the financial section. Turning to our financial results. Total revenue in the first quarter grew 34.6% to $59.4 million compared to $44.1 million in the prior year period. Growth was primarily driven by strong performance in Life Solutions, which generated $50.6 million, along with continued expansion in asset management fees, which reached $8.5 million, reflecting the growth in fee-paying AUM across our longevity fund strategies. Technology Services contributed $0.4 million, consistent with our continued early-stage build-out of that segment. Turning to expenses. Total operating expenses for the first quarter were approximately $34.8 million compared to $19.6 million in the prior year when excluding the impact of gain on change in fair value of debt and gain on equity securities. The year-over-year increase was primarily driven by higher sales and marketing spend in support of our distribution build-out, along with increased G&A expenses associated with our platform investments, business acquisition and special project expenses. These are deliberate investments in the growth profile of the business. On an adjusted basis, excluding noncash stock compensation, business acquisition and special project costs, amortization and changes in the fair value of investments, adjusted net income for the first quarter grew by 16.6% to $20.1 million compared to $17.3 million in the prior year. Adjusted EBITDA for the quarter grew 33.3% to $32.7 million compared to $24.5 million in the prior year. Adjusted EBITDA margin was 55% for the quarter compared to 56% in the prior year. We are committed to growing the business responsibly, which is demonstrated by our ability to grow revenue and EBITDA by over 30% while sustaining margins in that range. GAAP net income attributable to Abacus Global Management for the quarter was $7.3 million or $0.07 per diluted share compared to $4.6 million or $0.05 per diluted share in the prior year period, representing growth of 59%. Turning to our balance sheet. For Q1, adjusted return on equity was 19% and adjusted return on invested capital was 17%, both improvements from Q1 2025. As of March 31, 2026, the company had cash of $37.2 million, balance sheet policy assets of $392.8 million, and outstanding long-term debt of approximately $330 million. The reduction in reported debt from $405.8 million at year-end reflects the conclusion of the initial term for the LMA Income II Fund I described earlier, which removed approximately $76.7 million in fund level reporting obligations from our balance sheet. In summary, we are very pleased with our strong start to 2026. We delivered meaningful top line growth, sustained profitability and strengthened our balance sheet, all while continuing to invest in the platform initiatives that will drive the next chapter of this company's growth. With that, I'll turn it over to Elena. Elena Plesco: Thanks, Bill. I want to use my time today to walk through 2 things: how our balance sheet performed during the quarter and how we think about capital allocation at Abacus. Turning to the performance of our balance sheet. For Q1, our annualized portfolio turnover was 1.9x, in line with our long-term target of 1.5x to 2x. Our average realized gain was 26% for the quarter. These margins reflect rigorous origination, precise actuarial targets and patience, exceeding our target of 20%. Portfolio quality continues to be strong. Assets seasoned beyond 365 days had a weighted average life expectancy of 46 months and a weighted average insured age of 88 years compared to 45 months and 88 years last quarter. These positions reflect conviction in our underwriting, and we expect them to generate attractive returns as they continue to season. During Q1, we deployed $163.6 million in capital off our balance sheet. Our origination platform reviewed more than 9,000 qualified policies during the quarter, and we remain highly selective. This metric underpins the depth of our pipeline as last year, we have reviewed a little under 11,000 policies total. I want to spend the balance of my time on how we think about capital allocation because I believe it's one of the most important things for our shareholders to understand about this business. We think about capital allocation in 2 categories: operating and investing. Operating capital supports the day-to-day engine of the business. That means purchasing policies, acquiring other operating assets and funding organic growth across our platform. Investing capital is effectively everything else, returning capital to shareholders through dividends and buybacks, pursuing strategic M&A and supporting the growth of our asset management business, whether that means seeding new fund strategies, supporting our securitization program or providing the infrastructure for AUM expansion. These are not competing priorities. They are sequenced deliberately, and our goal is to ensure we always have the flexibility to do both well. When we look at where our capital comes from, the starting point is our balance sheet. We view our active balance sheet, our managed assets, as approximately $450 million in cash and liquid assets that we convert into cash in short order through our normal origination to monetization cycle. That is the core funding mechanism of the business, and it is self-sustaining. We do not need incremental balance sheet capital to grow our core Life Solutions business. Beyond that, we have 2 external levers, debt and equity. On debt, we're currently meaningfully under-levered. Our recourse debt-to-EBITDA ratio stands at around 2x compared to capacity, we believe extends to 4x. That gives us significant incremental borrowing ability to deploy into high-returning opportunities without diluting shareholders. On equities, we're not looking to raise primary capital outside of any potential M&A activity. Our business generates the cash flow to fund its own growth, and we intend to keep it that way. When I step back and look at the business today, the story is straightforward. We have a core origination engine in Life Solutions that continues to perform at a high level, supported by disciplined underwriting and consistent monetization. On top of that, we're building a scalable asset management platform designed to generate growing fee-related earnings for our longevity funds, our ETFs, our asset-based finance strategy and continued expansion of our distribution capability. Since inception, the new vintage of longevity funds has attracted nearly $1 billion in investor capital. Growing fee-related earnings remains a central priority. As we scale fee-paying assets across our strategies, we generate contractual high-margin management fee income without requiring additional balance sheet capital. And our capital allocation framework is designed to ensure that every dollar we deploy, whether into operations or investments is building toward that outcome. We're executing on this deliberately step-by-step with a long-term perspective. And we believe that approach will continue to create value for our shareholders. With that, I'll turn it over to Jay for closing remarks. Jay Jackson: As I reflect on this quarter, what stands out is not any single result, but the convergence of everything we have been building toward. Capital is flowing into this asset class because investors are seeking exactly what we provide: consistent, predictable, uncorrelated returns. Our operational infrastructure is meeting that demand. Our funds are performing, and our strategic initiatives are positioning us to capture a much larger share of the opportunity in front of us. The foundation is strong and the trajectory is clear. These initiatives represent the kind of strategic scaling that moves the company from small cap to mid-cap. We are executing with both urgency and conviction. I want to thank our investors for their continued confidence, our team for their exceptional execution this quarter and our partners for their commitment to what we are building. We look forward to updating you on our progress and delivering on the opportunity this moment represents. We will now turn it over to the operator for any questions. Operator: [Operator Instructions] Our first question will come from Patrick Davitt with Autonomous Research. Patrick Davitt: First on flows. Since you say in the release that the second securitization could slip into 3Q, if that did fall in 2Q, would that be incremental to the $500 million first half inflow expectation? Jay Jackson: Patrick, yes, that would be in addition to that $500 million. Patrick Davitt: Okay. Great. And could you update us on where we are in the SEC process for the interval fund? Jay Jackson: Sure. Thanks for asking. We've been working diligently with the SEC. And while we can't specifically state where and how their specific process timing is, we feel good about potentially being able to make an announcement in Q2. Operator: Our next question will come from Andrew Kligerman with TD Cowen. Andrew Kligerman: Looking at your Slide 11, I thought that was pretty interesting. So it implies that wealth advisers would move from 0 to about 25% of revenue over the next few years. Could you walk us through kind of like a little road map as to how you get to 25% of revenue? Is it Manning & Napier? Is it existing advisers? Do you expect a fair amount of deals? Just curious as to the road map there on that. Jay Jackson: Thanks for asking that, Andrew, and great to hear from you. Yes, our road map to the financial advisory/really private wealth division is really consistent with the premise that it's the build it or buy it. And we have a number of opportunities that we think will come to fruition and help us meet those targets. The Manning & Napier initial investment here, I think, made a ton of sense for us to demonstrate and show the synergies that we've talked about between sourcing contracts, sending them and processing potentially lead gen for them, and then kind of operating those synergies with additional cash flow from both entities. And we're already seeing some success there and very close to kind of finalizing our strategic alliance agreement and the go-forward agreement. And we have a number of additional opportunities in place of registered investment advisers that I think are seeking that same type of partnership, whether that's in a minority position or a full position, full acquisition. And so we're really excited about the pipeline for that. I think we'll see more of that through year-end and certainly more heavily into '27. Andrew Kligerman: Got it. Makes a lot of sense. And then just looking at Slide 27, I thought it was a nice trend to see the days held on the sold policies increased really significantly to 290, which maybe you could share with us the kinds of gains that you have by holding that for quite a bit of time. And then on the flip side, the days held on the owned policies kind of decreased meaningfully to 209. So what are you thinking about both of those metrics as we move forward? Are they right in the band where they should be? Or do you see one of them moving up or down? What are your thoughts going forward? Jay Jackson: Thank you. And I think you nailed it on the last part of the question was that we believe we're in kind of the band where we target. If you look at kind of historically where that's been at, whether it's days held and/or days held via transactions, we're finding a little bit of a sweet spot there. And there was -- in the prior quarter, we saw a little bit of shift where we had taken advantage of some contracts that were very opportunistic and moved a larger percentage of those. But I think historically, where we're trading at right now is kind of where you should see those numbers start to kind of think about modeling going forward, right? I think in the quarter, we were somewhere around 1.9x to 2x on an annual basis related to our book turnover. And I think that's reflective of the opportunities we see in the market. One of the things I'll highlight, though, is that we are seeing significant increased demand for the underlying asset, driven by certainly uncorrelated nature. But if you consider some of the volatility that we've seen in other kind of adjacent asset classes, if you will, this opportunity, I think, in this asset class has certainly been more appealing to institutional investors who are looking for maybe a little bit less yield, but they want that uncorrelated stability nature that these policies represent. Operator: Our next question will come from Mike Grondahl with Northland Securities. Mike Grondahl: I just wanted to ask about the 9,000 policies you reviewed in 1Q '26 versus the 11,000 in 2025. Would you say that's all organic growth, all inbound? Any extra marketing or anything to drive that? Jay Jackson: Sure. Thanks, Mike. It's a very astute pickup. Yes, it is organic. It's also, I would argue, a bit opportunistic from our perspective. And then we're seeing opportunities out there as we continue to have demand and increased capital related to our own funds and certainly other funds, that's driving up supply. And I think what I'm really trying to highlight there is that as we continue to raise capital on our funds, securitizations and some of these other products, sometimes that leads to the question of do we have the policies to support that demand. And I think clear evidence shows in Q1, we do. And some of that's carrying over into Q2, and we're excited about that. So that is organic. We're not necessarily turning up the advertising budget. I think the budget year-over-year was fairly stable in Q1. But instead, I also believe that the work of '25, where we did increase our budget, right, particularly Q3, Q4, you start to see that paying off in Q1 and Q2 and Q3. Mike Grondahl: Got it. And then you talked about rising asset value and the demand for those policies resulting in that lower purchase discount rate. Can you quantify that for us a little bit, Jay? Like, is that worth a point or 2? Or how do we measure that or get a sense? Jay Jackson: Sure. I think the best way to think about it, right, is when you look at the slide related to our gross trade spread margin, right? When you see that number, I think we're plus or minus around 26% for the quarter. That's the best way to quantify it. So even though you might see demand increase, which in most markets, when you have demand increase driving prices up, you would historically see those discount rates or the forecasted purchase rates compressing. In our case, what we're stating is that can actually be a good event for us, right? Because prices go up, we sell at a higher price and that demand then drives additional revenue. And my point is I believe we're going to see more of that, right? When you just look at the cash flows into our owned funds, but then demand from investors who are seeking capital sources that, again, are less volatile and correlated, those kinds of attributes, it becomes a positive outcome for us. So to be specific, if you were to kind of quantify this to kind of a percentage point, I think that's a bit of a challenge because we'll see that happen in any given quarter. But my point is that whether it's 100 basis points or 200 basis points, it's ultimately a positive outcome for us. Operator: Our next question will come from Crispin Love with Piper Sandler. Benjamin Graham: This is Ben Graham in for Crispin Love. I'm just wondering if you could share a little bit more about your current thoughts on M&A, just specifically what types of assets you're most interested in currently? And basically, would it be more on the RIA side, technology or some other areas? Jay Jackson: Yes, sure. Great question. The pipeline is fairly robust right now. And the areas that we're most interested in, you nailed it on the RIA side. We think that there are some very interesting opportunities there. And for us, we're also super selective. We want to make sure that this is the type of platform that meets our expectations culturally, that is profitable. And most importantly, and I think this is the biggest takeaway for any of our M&A, it's got to be accretive. right? It's super important that these opportunities are accretive to us both from an EPS basis, but in addition to that, accretive in relationship to our synergies. We want to show that this is the type of acquisition that's going to help grow the business into '27, '28 because I think that's what our shareholders want us to do. So we're very disciplined in that. We want accretive businesses. When we look at our technology platforms, we're still developing, I think, some very exciting things in-house that in the next probably 60 days, we're going to start announcing certainly at our Investor Day, we're going to roll some of those out that are going to fundamentally have a significant transformative shift in private wealth management. And those types of programs where we're incorporating lifespan into financial planning is starting to happen in real time and adopting different AI platforms to assist with that to accelerate that process is all happening in real time. So if we're looking at technology-type platforms, it's the type of platforms that can provide data and information to our clients that is incredibly useful for a customized solution of whether it's insurance or financial planning, but all related to their longevity data. I just spoke to the Milken Institute on this. And this was a huge, huge talking point because there's $1 trillion of wealth transferring. Our point is, wouldn't the world like to know when that's going to transfer. And you can know that better if you better understand the longevity and lifespan data behind it. So those companies are super interesting to us. Benjamin Graham: Awesome. And then just briefly on the carrier buyback program. I'm just wondering if there's anything new to call out here, new announcements, expectations for the year? And just if anything's baked into the guide there? Jay Jackson: There still continues to be a very high level of interest and structure that we're working directly with carriers on. I think in addition to the buyback, we're also working and speaking with carriers about new product issuance related to our underwriting. So it's amazing how this is really coming full circle in our partnerships and strategic partnerships with carriers as well as reinsurance companies. And when I talk about structure in relationship to a buyback, there's some structural advantages that we're working through with some of our carrier partners that can actually make that buyback more affordable as well as easier to execute on. So we're continuing that program through 2026. And we're also, in addition to that, adding to some of our carrier relationships, even potentially new product sales. Operator: Our next question will come from Timothy D'Agostino with B. Riley Securities. Timothy D'Agostino: I joined a bit late here, so apologies if anything is repeated. Looking at capital deployed for policy originations on Slide 26, that number for 1Q continues or was ahead again of what we were forecasting. I guess trying to understand in 2025 in the beginning part, it was about $120 million. At these current levels of $230 million in the fourth quarter and $163 million in the first quarter, are you comfortable with this kind of being the run rate? Or are you taking advantage of opportunities? Jay Jackson: Great question. And yes, certainly opportunistic. But I would also add that we had capital demand to meet that capital deployment. Now, if we're modeling to what we think a closer range will be, we have a couple of analysts who have tracked us at a really high number, which isn't necessarily the right way to think about it either. I think where we're tracking is in that [ $130 million to $150 million ] range and certainly had a really nice quarter in Q1. The one kind of KPI we take into consideration is that you could see that number increase over $150 million like we did in Q1, if you see our capital -- gross capital inflows higher, right? So the way that I would think about it is that, that number can be correlated to the amount of demand and capital that we have to put to work. And so I'm hesitant to come out and say, "Oh, model this at [ $200 million" ] because in any given quarter, as I have highlighted, that could change a little bit. And so we're much more comfortable in this kind of guiding to that $130 million to $150 million number. And then if we surpass that by a little bit like we did in Q1, that's great. That's always our target is to exceed expectations. It's also why we raised our guidance. right? We kind of tried to put an indicator out there that says, look, we feel pretty good about what's going to happen in the remainder of '26, including capital deployed. We're comfortable in maybe the higher range of the $130 million to $150 million, and therefore, we'll increase our guidance to reflect that. Timothy D'Agostino: Okay. Great. And then if I can ask a second question on AUM, relatively flat quarter-over-quarter. I understand it's a short period just the first quarter. But as we look at the 2028 guide of $30 billion of AUM, I guess, could you walk us through again how much of that is coming from like organically and how much is inorganic? Jay Jackson: Yes. The purpose there is to get pretty close to like a 50-50 number as we get out to 2028 on organic versus inorganic. And the inorganic would be acquisition and whether that's through some very exciting opportunities on the asset management side in addition to the private wealth side, as I've spoken about before. So that's the way that we're mapping that. We see more of that taking place as we come into '27. But based upon some of the opportunities we have in our pipeline, I will tell you that we believe we're tracking at that number. Operator: Our next question will come from Patrick Davitt with Autonomous Research. Patrick Davitt: I don't think I saw it in the materials, but how much is left on the repurchase authorization? And through the lens of this M&A conversation, could you update us on how you're thinking about the stock here and repurchases from here? Jay Jackson: Sure. Thank you, Patrick. We've deployed plus or minus around 50% of the last $20 million Board-approved buyback. So we still have, I think, some -- a decent amount of powder left to execute on. And we look closely at that. I mean, what you touched on is really important because we look at where we sit on a multiple basis based upon where our earnings are, our kind of consistent performance here, certainly in relationship to our recent -- we just announced we're raising again our EPS targets for '26 and then forecasted into the '27, '28. So when we look at would we consider more stock repurchase, the answer is yes. I think that we still very much see the pricing of our stock is a very discounted price. And when we measure that against what -- where we may deploy other assets, right, we're looking at ROICs and ROEs in the high teens, low 20s. And we think that even based upon price targets from our analysts that, that is -- we're currently trading at a pretty significant discount to that. So buybacks are still very much what we believe is an important piece to -- of our kind of things that we might deploy. When that is related to M&A, you're right, right? The stock price is important to that. And I think that in most M&A transactions, a percentage of that is related to the stock. And I think what's interesting to me is that the deals that we're looking at now in our pipeline are accretive even at this pricing. And so imagine if we pick up another 10%, 15%, 20%, 30% in stock valuation, these deals even become more accretive. And so when we're looking at a deal now, we're assuming in that M&A that, hey, this is at a very favorable stock price. Is this deal still accretive? As the stock price continues to carry some upward momentum, these deals will look even better. So we're -- we think we're in a great spot on the M&A side. Operator: This concludes our question-and-answer session. I would now like to turn the meeting back over to Jay Jackson for any additional or closing remarks. Jay Jackson: Thank you. Again, we just want to express our gratitude to our partners, our analysts, our shareholders and certainly, each and every one of our employees where nearly all of them are shareholders. I think it speaks volumes into the production of our company and our ability to continue to meet these consistent goals that we have set out. We raised our targets in 2026. Our expectations are we're going to continue to push through those through '27 and through '28, and we're tracking to our $250 million EBITDA of '28. And so we are grateful and thankful for all of you to be on our journey together and look forward to our next call. Operator: Thank you. That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Nu Skin Enterprises 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 speaker today, B.G. Hunt, Vice President, Treasurer and Investor Relations. Please go ahead. B.G. Hunt: Thanks, Kelly, and good afternoon, everyone. I'm joined by Ryan Napierski, President and CEO; and by our Interim CFO, Chelsea Lantz. I worked closely with Chelsea for the past 15 years and can say with confidence that she brings both strong financial discipline and thoughtful proven leadership. Today, we'll be sharing Nu Skin's Q1 2026 results and providing guidance for the remainder of the year. Before I turn time over to Ryan, let me point out that on today's call, comments will be made that include forward-looking statements. These statements involve important risks and uncertainties, and actual results may differ materially from those discussed or anticipated. Please refer to today's earnings release and our SEC filings for a complete discussion of these risks. Also during the call, certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements. We believe these non-GAAP numbers assist in comparing period-to-period results in a more consistent manner. Please refer to our investor website, ir.nuskin.com for any required reconciliation of these non-GAAP numbers. And with that, I'd like to now turn the call over to Ryan. Ryan Napierski: Thanks, BG. Good afternoon, everyone. Thanks for joining us. I'm pleased to report our first quarter results, which were in line with expectations for both revenue and adjusted earnings, reflecting continued progress towards our vision of becoming the world's leading intelligent Beauty and Wellness platform. Powered by our talented global sales leaders. We made meaningful progress in Q1 with the sales leader introduction of Prysm iO and continue to build the foundation for growth in emerging markets in spite of uncertain macro environmental pressures that are impacting consumers and supply chains around the globe. From a regional perspective, we were pleased to see the hard work and dedication of our talented sales leaders across Latin America who delivered sustained growth, and we saw continued improvement in Mainland China with growing leader engagement around our Tru Face anti-aging product rollout. At the same time, a few of our reporting segments remained pressured by broader macroeconomic and industry dynamics. We were pleased with growing brand affiliate confidence and improving trends across several regions as well as year-over-year growth in new sales leaders exiting the quarter, both the which, both of which are indicators of improving energy around Nu Skin's entrepreneurial opportunity associated with our new product innovations. As I've discussed previously, our enterprise strategy is centered around 2 key growth drivers: first, advancing our intelligent wellness platform with our next disruptive innovation, Prysm iO; and second, further expansion in developing and emerging markets, including Latin America, Southeast Asia, China and India. Let me start with Prysm iO. We are seeing encouraging signs in new sales leader development across several markets as our leaders increasingly engage with Prysm iO and continue to build on our leading anti-aging Tru Face brand. These 2 initiatives are providing fuel for our sales force and our efforts to improve channel activation in the first half of the year as we work towards our return to growth in the back half. For more than 40 years, Nu Skin is focused on helping people look, feel and live better grounded in science-based innovation, our leadership-driven opportunity and our force for good culture and community. We have established a strong position in integrated anti-aging science and product innovation led by our ageLOC brand, which has generated more than $15 billion in revenue since its inception. This proprietary gene-based approach to anti-aging remains highly differentiated, and we believe this category will expand further as younger generations increasingly seek youth preservation, integrated solutions across beauty, wellness and lifestyle. As we move into the next chapter of our anti-aging journey, we believe the future will be increasingly defined by intelligent technologies that provide people with personalized insights to help them live better longer. As consumers better understand and look to close the gap between their health span and their lifespan, the need for personalization and biomarker-driven insights continues to grow, aligning directly with our Intelligent Beauty and Wellness platform vision. While nutritional health is widely recognized as critical, the ability to measure it has historically been limited to invasive, complex and slow processes such as blood or serum sampling. As we've learned with other biomarker devices, changing consumer behavior requires simple, fast and easy assessments and real data collection paired with meaningful insights and personalized product solutions. Prysm iO enables consumers to assess a critical indicator of their nutritional health through a simple 15-second fingertip scan to receive a real-time personalized wellness assessment across 4 key domains of health: nutrition, fitness, lifestyle and supplementation. Since our initial introduction of Prysm last December, we've generated nearly 2 million scans from more than 30,000 Prysm iO devices around the globe. Combined with more than 20 million historical scans from our biophotonics scanner, this rapidly expanding data set is strengthening our ability to refine our wellness algorithms, improve assessment accuracy and enhance product recommendations. As Prysm iO adoption increases and more people are scanned, we expect subscriptions to increase, which historically drives significantly higher customer lifetime value. In fact, we're already beginning to see early indicators of this dynamic. On a year-over-year basis, subscription volume is up 5% and the percent of subscribers to total customers is up 14%. We're also seeing continued strength in our broader nutritional ecosystem. Sales of products certified to raise someone's Prysm iO score are outperforming total product sales and our flagship LifePak brand grew more than 10% year-over-year, reinforcing the value of measurement-based wellness and targeted supplementation. We are in the early stages of Prysm iO and as with any new platform, adoption requires training, behavior change and broader market education. We're actively supporting our sales leaders as they shift from using Prysm primarily as a product demonstration tool to positioning it as a household wellness device, one that enables ongoing engagement through personalized insights and recommendations. We believe that every household can benefit from the access to this personal and family wellness assessment tool, and it is our ambition to do just this. This business model transition does create near-term switching costs as our leaders build new capabilities, integrate new tools and shift how they engage customers as they transition from social sellers to Beauty and Wellness consultants. Nevertheless, we believe that this is the right direction to provide wellness consumers what they are looking for as we unlock a more scalable, higher-value model over time. We are encouraged by early feedback, particularly among wellness-oriented communities such as fitness groups, physicians, clinicians and leaders who are positioning Prysm iO as a consultative wellness assessment platform. We're also continuing to integrate artificial intelligence into the Prysm iO experience. Today, AI supports scoring, data comparisons and personalized product recommendations. Future introductions of the platform are expected to provide deeper, more intuitive insights into individual wellness journeys, create a more actionable and data-driven experience over time. Prysm iO is not simply another product launch. It's a foundational platform that connects our anti-aging science product ecosystem, data capabilities, AI insights into our leadership opportunity. While adoption will take time, we believe it will become a defining part of Nu Skin's future. The incorporation of AI across our Intelligent Wellness platform will lead to improving unit economics as we leverage critical insights from data across the business to drive deeper and more meaningful engagement with our customers, affiliates and sales leaders around the globe. Now I'll turn quickly to talk about our second growth driver of expanding further into developing and emerging markets. Nu Skin has historically performed best in developed markets given our premium positioning. However, as consumers and entrepreneurs around the world become more sophisticated, we see a compelling opportunity to broaden our reach across more, a greater diverse set of markets. Latin America continues to be an important and growing region where we are providing our Nu Skin opportunity within reach, maintaining our commitment to science-backed innovation while offering localized product solutions to meet various consumer lifestyles and budgets. This includes refining our sales compensation structure to better align with local entrepreneurial segments by providing earlier compelling rewards for selling products and building their sales teams. We see additional opportunities to scale this model across Southeast Asia and throughout more areas of China, which contain hundreds of millions of emerging consumer segments seeking to look, feel and live better. And our next anticipated major market, India, holds tremendous potential in the future as we apply key learnings in this pre-market entry phase of operations to better understand the need of entrepreneurs and customers in the world's most populous market. We're working to solidify our operations, infrastructure and such ahead of plan -- our planned formal launch by the end of this year. Evolving a premium global brand to a broader market is challenging and requires thoughtful execution. However, finding the right balance that remains true to our core brand promise while helping more people around the world look, feel and live better can unlock meaningful long-term growth. What remains constant throughout all of this is the central role of our independent sales leaders. We are a leadership-driven company, and our long-term success depends on our ability to inspire, equip and align our leaders around these compelling opportunities. Next week, we'll be in South Africa with our top global sales leaders for our Team Elite trip. This will provide an important opportunity to closely engage with them as we share learnings, strengthen alignment and continue building confidence in the future we are all creating together. Now throughout all of this, operating efficiency remains a critical focus for us. We're working tirelessly to sustain growth in gross margin in spite of the headwinds associated with uncertain trade practices, which have placed significant pressures over the past many years. We're pleased with progress to date and are committed to continuing improvements in gross margin through localized manufacturing, portfolio optimization and strategic pricing actions. We will also work to optimize selling expense to reward leadership for growth and maintain disciplined controls on our G&A. This discipline allows us to invest in our strategic growth priorities while ensuring our cost structure remains aligned with revenue. So with that, let me turn some time over to Chelsea Lantz, who's been a key leader for us over the past several years, a valuable contributor to our finance organization. Chelsea has been instrumental in driving cost reductions throughout our organization, and she is now leading us as interim CFO. It's also Chelsea's birthday tomorrow, so we've intentionally synced these 2 things up. So Chelsea, take it away. Chelsea Lantz: Thank you, Ryan, and good afternoon, everyone. Before I begin, I'll briefly introduce myself. I'm currently serving as Interim Chief Financial Officer and have been with Nu Skin for 15 years, most recently as Corporate Controller. In that role, I partnered closely with the executive team on operational efficiency and gross margin initiatives while overseeing the company's global financial operations and financial reporting. I'm excited to continue supporting the business as we focus on disciplined execution and long-term value creation. Today, I'll walk through our first quarter results, provide our outlook for the second quarter and share an update on our expectations for the full year. Additional details can be found on our Investor Relations website. As a reminder, I will be discussing adjusted non-GAAP measures. Reconciliations to the most directly comparable GAAP measures are available on our website. For the first quarter, we delivered revenue of $320.6 million, within the guidance range, including a 1% favorable foreign currency impact. GAAP earnings per share were $0.04, while adjusted earnings per share were $0.14, excluding costs related to our decision to wind down our separate BeautyBio business and other charges. Adjusted EPS was in line with our guidance range. These results reflect continued investment in our key strategic priorities, including the expansion of our intelligent Beauty and Wellness platform through Prysm iO as well as ongoing investment in emerging markets. We believe these investments are important for our future growth, and we're encouraged by our ability to advance these initiatives while maintaining a disciplined focus on operational execution and margin improvement. From a margin perspective, adjusted gross margin was 67.9% compared to 67.8% in the prior year, reflecting a relatively stable revenue mix between the Nu Skin core and RISE entities. Within our core Nu Skin business, gross margin improved to 76.9%, up 20 basis points from the prior year, reflecting continued progress in our operational efficiency initiatives and product mix optimization, consistent with our focus on margin improvement. Consolidated selling expense was 34.3% of revenue compared to 32.5% in the prior year. Within the core Nu Skin business, selling expense was 40.5%, up from 38.7% in the prior year, consistent with our expectations as we continue to focus on rewarding sales leaders' productivity through compensation plan enhancements. Looking ahead, we expect selling expense in the core business to remain around 40% as we continue to prioritize investment in initiatives that support top line revenue growth and sales leader engagement. General and administrative expenses declined by $9 million year-over-year on an adjusted basis, reflecting continued cost discipline while focusing on future investments. As a percentage of revenue, G&A was 29.9%, up from 28.9% in the prior year, reflecting our ongoing investments in technology and emerging market expansion, including India. As a result, adjusted operating margin for the quarter was 3.6%, down from 6.4% in the prior year. We remain focused on improving operating efficiency and aligning our cost structure with the current operating environment while continuing to invest in future growth initiatives. Now I'll turn to the balance sheet. Over the past several years, we have focused on paying down debt to strengthen our balance sheet and improve our liquidity position. During the quarter, we completed a refinancing of our credit facilities, extending maturities through 2031 and improving our overall cost of borrowing. This transaction provides appropriate financial flexibility to support our operating and strategic priorities. Proceeds from the refinance were used to repay existing indebtedness. Consistent with our disciplined capital allocation strategy, we returned approximately $8 million to shareholders during the quarter, comprised of $3 million in dividends and $5 million in share repurchases. At quarter end, we had $137.3 million remaining under our current share repurchase authorization. Looking ahead, we remain in the early stages of our key growth initiatives and are encouraged by early signs of stabilization, including improved brand affiliate and new sales leader trends across several markets. At the same time, we are mindful of potential inflationary pressures impacting consumer sentiment related to macro factors such as tariffs, recent fuel price increases and broader geopolitical dynamics. As a result, we are taking a measured approach as we evaluate the remainder of the year. We are maintaining our annual guidance and expect to provide more clarity following the second quarter. For the second quarter, we expect revenue in the range of $330 million to $360 million, assuming relatively neutral foreign currency impact, reflecting sequential improvement from the first quarter. We expect earnings per share in the range of $0.15 to $0.25, also reflecting sequential improvement. In closing, we were pleased to deliver results in line with expectations while continuing to invest in our strategic priorities. While the near-term environment remains challenging and the financial impact of these initiatives will take time to scale, we are focused on disciplined execution through managing costs, improving efficiencies and positioning the business for long-term growth. We appreciate your continued support and look forward to updating you on our progress next quarter. And with that, operator, we'll now open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Dave Storms of Stonegate. David Storms: Just kind of wanted to start with Prysm. I know, obviously, this is still very early innings. We're still in the training process for a lot of it. Just maybe any thoughts on what the qualities of a successful leader is having in Prysm? I know you mentioned the more wellness orientation, but is there anything that you're doing or tailoring your training that is going to help them hit the ground running? Ryan Napierski: Yes. I think that's a great question, Dave. To the point, we're seeing different leaders around the world utilizing it differently so far kind of 3 to 4 months in. As I mentioned, the groups that tend to do that tend to convert best are those who are utilizing it as well as a wellness consultative or wellness assessment tool. So part of a bigger assessment, that seems to be a prevailing approach that seems to work really well. For us, it's mostly about providing them with the knowledge of what Prysm is truly measuring from a carotenoid measurement perspective and how carotenoid or antioxidants benefit the body, what sort of against oxidative stress. So there's kind of the product knowledge or the device knowledge. There's the consumer journey knowledge that's necessary to scan themselves to then learn about that scan and then ultimately lead to a subscription of products that work well. And so it's a lot of that is the product training, the behavior training. And then there's kind of the CRM side or the follow-up and kind of the persistency of being with those customers and the like. And so I'd say those are probably the 3 elements on the consumer side. On the business side, because each of these sales leaders, of course, leads the team, and it's important for that team to understand how to do the business with Prysm as well. So there's also a train the trainer approach. So we have certifications in multiple markets today, primarily in Asia, for example, in Japan, Korea, China. We don't have those certifications in place, but we are working on in other markets around the world, but we're working to bring those together based upon best practices out of these other markets. David Storms: That's super helpful. I appreciate all that color. I wanted to -- the other big growth driver here is obviously India. You mentioned that you are having a change of some things on incentives and the like, maybe get some traction there. Just curious as to how maybe aggressive you're being with really trying to grow India. Is it pretty paramount to get off on the right foot here? Or maybe how are you thinking of the growth potential there? Ryan Napierski: Yes. No, I think, in fact, we talk a lot about this because we as we said kind of from the beginning, India is, for us, a very important mid- to long-term market. The direct selling industry in India is still relatively small. It's just over USD 3.5 billion. So it places it in pale comparison to some of the other markets, but it's also the fastest growing. And so we understand that there's a lot of potential there. We also understand there's a lot of room for growth and development, I would say, in that market before it really will see kind of an explosive level of growth, at least for our business model and our product categories that we play in from an intelligent Beauty and Wellness perspective. So I would say it's very important for us to get it right. The reason we really looked at the market in this unique way of a premarket entry for about a year before we actually open doors for formal launch is precisely for us to learn about how to approach the Indian consumer and the Indian entrepreneur, highly educated, highly ambitious fairly conservative on discretionary spend and disposable income still, especially in the premium spaces. We have a lot to learn on our side as well about how to target them at the right level of spend and benefit. By the way, there's a whole host of learnings that we're gathering out of that. So we want to get it right. I think these 12 months or so have been really important for us to dial in manufacturing, quality, logistics and distribution and even product formulas to ensure that they meet the consumer properly, the business model itself aligning that. So I would say, as we look forward, we still anticipate a low, we're not forecasting a lot of revenue into our guide. It's really more learning in 2026. And of course, being so late in the year, we don't have much in the model. And then we'll begin to really ramp up year-by-year as we learn and grow. David Storms: I think that makes a lot of sense. Maybe just zooming out a little bit. You mentioned in your prepared remarks, just some of the macro headwinds. I know Chelsea, you mentioned them as well. I guess trying to think about where the most leverage is here, the consumers that you're catering to, are they most impacted by gas prices, diesel prices? Is there more leverage to the consumer sentiment number? I guess how are you thinking about where we could get the most leverage if we get some clarity over the next 3 to 6 months? Ryan Napierski: Yes. In fact, I just came from this event called Crossroads of the World and listen to some of the leading economic experts around all of this tariff pressure since 2018 and even more recently, obviously, with the conflicts in the Middle East. And it's interesting how, it's a bit of the boiling the frog where we've all been in this hot water for, geez, nearly a decade now, going all the way back to 2018 in the first tariff round. When I step back and realize the impact that has happened over time on our gross margins, on raw materials and how that transfers through to the consumer, we were looking at just general consumer goods post-COVID. And you're talking about average of 16% to 30% inflationary pressures on consumers. I mean that's enormous when we think about that up to 30%, that's 1/3 of paying 1/3 as much again on products. And so we've seen this enormous pressure on consumers. Then you add to that fuel cost, growing fuel costs that impact every good and every part of the wallet of consumers. I think consumers are highly, highly strained around the globe. I think we're still waiting to see the effects of this, and Chelsea mentioned that we're trying to forecast out. Our view is very much we need to continue to innovate our way through, providing greater value to our consumers. largely in the digital space, but also continue to deliver highly efficacious formulas in our Beauty and Wellness. And we're leaning heavily into that side of it to ensure that consumers do feel that they're getting enormous value or at least as great a value as we can provide. But there is that macro pressure that I think just really does hurt margins over time as we know. Chelsea Lantz: Yes. And I'd just add and Ryan talked about this, and I mentioned it earlier as well. As far as our guidance model, we're not currently anticipating a significant impact. But as the increase in oil prices and other macroeconomic pressures are prolonged, then we're monitoring that as well. And we're continuing to look for ways that we can optimize our gross margin to offset and navigate these uncertain times. So not currently anticipating a significant impact, but we're very aware and we're working on plans to mitigate the risk. David Storms: That's great color. I appreciate that. Maybe just one more. And Chelsea, I think you mentioned this in some of your prepared remarks as well, given some of the share buybacks, the dividends, the repayments, balance sheet looks like it's in a good spot, and we obviously push you guys to continue to perform here. How do you think about prioritizing your capital allocation? Is it more of the same where it will be maybe a smattering of everything? Or is debt paydown going to be the primary? Or are you going to look to M&A markets? Just any thoughts there would be very helpful. Chelsea Lantz: Yes. Yes. Thanks for the question, Dave. I would say it remains unchanged at this point. Our priorities are to continue to fund the business, prioritize investment in strategic opportunities to provide value for our customers and our sales leaders. We do maintain a strong liquidity profile, and we did recently refinance our debt, which extended our liquidity through 2031, which we're happy about. So we do continue to look for opportunities to return value to shareholders through dividends and repurchasing shares as appropriate. But as you mentioned, prioritizing our liquidity profile has been important to us. So we will look to pay down the debt, especially with this new facility that we have. Operator: This concludes the question-and-answer session. I would now like to turn it back to Ryan Napierski, President and CEO, for closing remarks. Ryan Napierski: Yes. Thank you. So in summary, we're making meaningful progress on our vision around our intelligent Beauty and Wellness platform, building that out with Prysm iO and expanding further into our emerging markets, both existing and new. Nu Skin's heritage has always been one that's based upon innovation and transformation, and we'll continue to do so as we navigate these uncertain times. We're very encouraged by these green shoots that we're beginning to see with our sales leaders and again, exiting the quarter with new sales leader growth on a year-on-year basis, gives us some more encouragement towards our plans of returning to growth in the second half of this year as we align and engage our leaders. And with that, we'll plan to keep you all updated in the months to come. So thank you for tuning in, and we'll speak with you in the next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good afternoon. Thank you for attending Nerdy's Inc. Q1 2026 Earnings Call. My name is Angela, and I will be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to your host, T.J. Lynn, Associate General Counsel of Nerdy. You may proceed. T. Lynn: Good afternoon, and thank you for joining us for Nerdy's First Quarter 2026 Earnings Call. With me are Chuck Cohn, Founder, Chairman and Chief Executive Officer of Nerdy; and Atul Bagga, Chief Financial Officer. Before I turn the call over to Chuck, I'll remind everyone that this discussion will contain forward-looking statements, including, but not limited to, expectations with respect to Nerdy's future financial and operating results, strategy, opportunities, plans and outlook. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results. Any forward-looking statements are made as of today's date, and Nerdy does not undertake or accept any obligation to publicly release any updates or revisions to any forward-looking statements to reflect any change in expectations or any change in events, conditions or circumstances on which any such statement is based. Please refer to the disclaimers in today's shareholder letter announcing Nerdy's first quarter results and the company's filings with the SEC for a discussion of the risks. Not all of the financial measures that we will discuss today are prepared in accordance with GAAP. Please refer to today's shareholder letter for reconciliations of these non-GAAP measures. With that, let me turn the call over to Chuck. Charles Cohn: Thanks, TJ, and thank you to everyone for joining today's call. In the first quarter of 2026, we beat the top end of our revenue guidance and delivered our second consecutive quarter of positive non-GAAP adjusted EBITDA. We also translated the AI native foundation we finished building at the end of 2025 into shipped learner-facing products at a cadence we have never matched in the company's history. Revenue was $48.7 million, above the top end of our $46 million to $48 million guidance range and 2% up year-over-year. Non-GAAP adjusted EBITDA was positive $1.0 million, ahead of our guidance of approximately breakeven and improved by $7.3 million compared to Q1 2025. Adjusted EBITDA margin expanded more than 1,500 basis points year-over-year, our third consecutive quarter of sequential margin improvement. That represents roughly $30 million of annualized operating leverage on a flat-top line. Gross margin reached 66.2%, an expansion of more than 800 basis points year-over-year. We ended the quarter with $44.7 million of cash on the balance sheet. Three things stood out in the first quarter. First, the product velocity that we said an AI-native code base would unlock is now visible in shipped products with a meaningful slate of additional learner-facing releases reaching customers in the weeks ahead. Second, our cost structure is structurally not cyclically better, and AI is the reason. And third, the rate of decline in active members on a year-over-year basis narrowed for the third consecutive quarter, and we expect to return to positive growth by the end of 2026. When we finished replatforming on an AI native code base as we wrapped up 2025, we said the point of that work was not about the architecture itself. It was about the speed and quality of the products that we could ship on top of it. Q1 was the first full quarter operating in that new mode, and the cadence has fundamentally changed. The most visible expression of that shift is our new Learner Experience internally referred to as V3, which became the universal customer experience and surface for our consumer business in March. Every newly acquired customer is now onboarded directly to this new V3 experience, and we have begun migrating existing customers as well. Roughly 6,000 new customers came in directly on V3 in the back half of the quarter and approximately 10,000 existing customers have moved over from the prior experience, and we are seeing strong early signal and optimizing rapidly in response to user behavior and customer feedback, which is broadly positive with a constant point of feedback being it looks and feels like a whole different company or product. The same platform will imminently power our institutional offering, which we expect to expand the market opportunity in institutional beyond the more limited K-12 high-dosage tutoring market that business primarily targeted. Inside V3, the centerpiece for the learner is Maya, our AI concierge. Maya is the always-on guide built into the experience. She answers inbound questions, surfaces the right next step, helps the student find a diagnostic and resolves day-to-day issues like scheduling a tutoring session and she does so all without a phone call or a customer support ticket. She's available 24 hours a day with full context of each student's actual learning plan and past interactions, including past tutoring sessions, product interactions, diagnostics and practice-related engagement and the results of those and more. She now handles a meaningful share of in-product customer interactions. For a student or parent, Maya turns our platform into a relationship that feels alive, responsive and easy. Around Maya, V3 brings together the rest of the family experience. Our native mobile app launched in the App Store in Q1 and is approaching full feature parity with web with releases that shipping to mobile within 48 hours of going live. The Tutor Gallery lets families browse tutor profiles, watch introductory videos and book with guaranteed availability through Book Now. We also launched Games, a set of six math and ELA titles initially built to drive daily engagement and learning. We also launched On-Demand Courses, converting our top Live Classes into self-paced courses with supporting materials. We are launching with more than 350 of these courses that collectively span thousands of hours of live instruction. These updates shipped together as part of V3. They give families more ways to engage with our platform between live sessions, creating additional retention opportunities. And we're seeing the early signal in the numbers. Active members ended the quarter at 36,900, down 9% year-over-year, but the rate of decline has narrowed for 3 consecutive quarters and customer churn has improved meaningfully year-over-year as customers enter or experience our new platform and ways to get value out of the relationship with us. ARPM was $374, up 12% and Learning Membership revenue grew 3% to $38.9 million, 80% of total revenue. As to headline, the cohorts onboarded directly on the V3 are showing early indications that are directionally consistent with our thesis. While early, what we will say is the cohort signal is consistent across the metrics that matter and that retention is the highest growth lever we have given how small changes in extending the customer life cycle can have a meaningful impact on long-term revenue and profitability. At today's customer acquisition cost, every additional month of average tenure flows almost entirely through to contribution profit. We expect to provide a full read on our progress on our Q2 call in August. Our upcoming product releases have received strong early feedback. What has shipped to V3 today is the foundation, not the full picture. Three product areas in particular, are moving from internal development into the hands of customers in the weeks ahead with strong early feedback on all three. The first is college and career readiness. We were approached by the leadership from a top-10 U.S. school district about a need we're uniquely qualified to solve. This led to our always-on AI counselor now targeted for back-to-school 2026 release in 2 flagship high schools in that district. Early indications show other districts have similar needs. The counselor is highly interactive and guides students through post-secondary decisions. It has real-time integration with school systems, maintains persistent memory across years and is multimodal across mobile, desktop, voice, SMS and inbound and outbound calling. For consumer learners, it extends Varsity Tutors as well as tutoring specifically into a multiyear goal-setting process previously outside our reach. The second upcoming Q2 planned product release is related to daily math and reading content and practice. We're launching more than 4,600 K-8 math skills aligned to academic taxonomies achieving parity with several of the leading supplemental practice platforms with reading parity coming soon. These additions expand the lesson library, including tens of thousands of lessons all created year-to-date mapped to K-12 and college taxonomies and standards. The content integrates into V3 as structured daily practice alongside tutoring or self-study. Progress is visible to learners and parents. And for tutors, it helps ensure all tutors have prepared professional relevant content for their tutoring sessions across the millions of tutoring sessions per year on the platform. AI orchestrates and personalizes the learning experience that spans all of these product modalities on the platform in service of the learners' goals and preferences. Early feedback on sequencing and quality is strong, and we anticipate similar learner reception when we roll it out more broadly. And the third upcoming product is related to language learning, which is already a popular area for one-to-one tutoring on the platform. We're bringing to market an AI-enabled learning experience that will launch for both consumer and institutional customers, and we look forward to sharing more in the near future. I also wanted to touch upon our continuous efforts to utilize AI internally to improve product velocity and improve productivity. AI is at the center of how we're operating and expect our teams to operate. Not only is all of our software development done almost exclusively with AI, we are using it to do everything from automate our back-office workflows to handle inbound and outbound calls and help with customer service interactions on the platform and much, much more. Fixed headcount is lower year-over-year even as we enhance our existing products and build numerous new ones. These changes drove more than 1,500 basis points of adjusted EBITDA margin expansion in the quarter on roughly flat revenue. The improvements are structural with software and automation replacing manual processes. With both fixed and variable costs now lower, higher retention means new revenue flows through at a higher contribution margin rate to adjusted EBITDA. AI is how we operate. It's not what we sell. And what we sell remains that relationship between a learner and an expert that's now supported by the best technology available, and it's informed by more than 10 million tutoring sessions. Moving on to Varsity Tutors for Schools. The new Varsity Tutors for Schools platform built on the same V3 platform foundation and integrating AI-enabled tutoring and AI counseling layer and our expanded K-12 content library on the Live+AI engine that powers our Consumer business enters the back-to-school 2026 selling season as a meaningfully stronger offering than what we took to market a year ago. And now looking ahead to the rest of the year, the product velocity we have discussed, our V3 platform, Maya our AI concierge for learners, having modern mobile apps with full feature parity to web and the upcoming product releases in college and career readiness, daily math and reading practice and language learning have shipped or will be shipping before the end of the second quarter, and our customer base is only beginning to experience these enhanced features. As more of our active customers move on to the new platform and our first full V3 new customer cohorts mature, the leading indicators we are watching today should translate into inflecting active member growth later this year. A year ago, we were rebuilding the foundation. Today, we're building on it and the benefits of this increased product velocity will build throughout the year as we enhance more customer-facing services and allow for us to drive long-term growth and profitability. With that, I'll hand the call over to Atul to discuss the financials in more detail. Atul? Atul Bagga: Thanks, Chuck. Before I walk through the numbers, I'd like to take a couple of moments to share what drew me to this role. Nerdy operates in one of the most underpenetrated markets in education technology. There are over 50 million K-12 and college students in the U.S. alone, and the tutoring market remains mostly fragmented and offline. Our active member base of about 37,000 represents a fraction of what this market can support, and that gap is the opportunity. What convinced me that Nerdy can close this gap, it's genuinely AI-first culture, product velocity and a team that moves fast. And these are not just talking points. They translate directly into margin expansion and operating leverage you'll see in the results. My mandate as the CFO is clear: get Nerdy to free cash flow positive while investing with discipline in the areas that drive member growth. That is the financial thread running through everything we are doing in 2026. Now let me walk you through our first quarter results. We beat the top end of our revenue guidance range. Revenue was $48.7 million, ahead of our guidance range of $46 million to $48 million and up 2% year-over-year, driven by higher consumer revenue and partially offset by lower institutional revenue. Within consumer revenue, Learning Membership revenue was $38.9 million, up 3% year-over-year and represented 80% of total company's revenue. Consumer revenue growth was driven by higher Average Revenue per Month or ARPM of $374, which was up 12% year-over-year, primarily driven by price increases enacted in Feb 2025. As of March 31, active members were 36,900, a decrease of 9% year-over-year. This rate of decline has narrowed sequentially for the 3 consecutive quarters, and we expect to return to positive active member growth by the end of 2026. Our institutional revenue was $9.3 million, a decrease of 1% year-over-year and represented 19% of total company's revenue during the first quarter. As a reminder, the institutional revenue in the first quarter was mostly supported by the prior period bookings. During Q1, Varsity Tutors for Schools bookings were $1.1 million versus $4 million in Q1 of 2025. Gross margin was 66.2%, an expansion of 820 basis points compared to a gross margin of 58.0% during Q1 2025. The increase in gross margin was primarily due to the benefit of price increases enacted in Feb 2025. Moving to operating expenses. Sales and marketing expenses were $14.2 million, a decrease of 10% year-over-year, driven by AI-enabled productivity gains and reduced investment in our institutional business. General and administrative expenses for the quarter were $23.9 million, down 16% year-over-year. G&A costs included product development costs of $9.2 million compared to $10.7 million in the same period last year. The cost reductions are primarily driven by our focus on applying AI systematically across the tech stack, which is resulting in durable efficiency gains and better unit economics. In the first quarter, non-GAAP adjusted EBITDA was positive $1 million and ahead of our guidance of breakeven. To put that in context, a year ago this quarter, we posted a non-GAAP adjusted EBITDA loss of $6.4 million. That's an improvement of more than $7 million just in a year. Non-GAAP adjusted EBITDA margin improved by more than 1,500 basis points year-over-year, our third consecutive quarter of year-over-year margin improvement. Non-GAAP adjusted EBITDA outperformance was driven by gross profit outperformance, efficiency improvement and strong cost control across every P&L item. Moving to liquidity and capital resources. We ended the quarter with $44.7 million in cash and cash equivalents. Free cash flow was negative $3 million compared to negative $7.6 million in the same period in 2025. Free cash flow improvement was driven by non-GAAP adjusted EBITDA improvement as previously discussed and partially offset by higher working capital and by interest payment of $0.5 million on our term loan. With our cash on hand and the funding available under our term loan, we believe we have ample liquidity to fund operations and growth initiatives as we execute towards free cash flow positive. Turning to our business outlook. Today, we are introducing second quarter guidance and reaffirming full year 2026 guidance. Before sharing guidance, I want to flag 2 dynamics that shaped the Q2 revenue and EBITDA outlook. First, the decline in Q1 Varsity Tutors for Schools bookings will negatively impact Q2 institutional revenue given the lag between bookings and revenue recognition. Second, beginning in Q2, we start lapping the price increases implemented in Feb 2025, which will moderate ARPM year-over-year growth for our consumer business. We expect to see continued benefits from improving client retention to our consumer business, although that momentum builds through the year. The full year outlook assumes a more stable institutional funding environment in the second half of the year, reception of new Varsity Tutors for Schools platform and continued improvements in Consumer retention. Revenue guidance. For the second quarter of 2026, we expect revenue in the range of $42 million to $44 million. For the full year of 2026, we expect revenue in the range of $180 million to $190 million. Turning to adjusted EBITDA guidance. For the second quarter of 2026, we expect non-GAAP adjusted EBITDA to be negative $2 million to breakeven. For the full year of 2026, we expect non-GAAP adjusted EBITDA to be approximately breakeven. We expect to end the year with $40 million to $45 million in cash, inclusive of $20 million currently drawn on our term loan. To close, this quarter's result, a revenue beat, 820 basis point improvement in gross margin and non-GAAP adjusted EBITDA that improved from a loss of $6.4 million to a positive $1 million in 1 year, reflect on the progress across every line of the P&L. The work ahead is on active member growth and institutional bookings recovery. We know what we need to do, and we are executing against it. With that, I'll turn it over to the operator for Q&A. Operator? Operator: We will now begin the Q&A session. [Operator Instructions] Your first question comes from the line of Bryan Smilek with JPMorgan. Bryan Smilek: Good to see the product velocity in V3 starting to drive improved learner trends. As we go through the back half here, Chuck, can you just talk about the underlying confidence in achieving return to active member growth, just the overall durability of these new cohorts that are seeing the improved retention and engagement. And I guess, conversely as well, you mentioned, I believe, right, 6,000 new active members on V3 and then 10,000 or so of the existing members migrating there. Can you just help us walk through the timeline of migrating your overall entire member base towards V3 and when you would start to realize returns on that shift? Charles Cohn: Thanks, Bryan. Good question. So yes, we made a ton of progress on new product development in the quarter, and we're able to take the sort of base platform that we had built that we consider to be a brand-new version of the old platform, but with full parity, feature parity and AI native code base, which then allowed us to build and ship quickly. And we were able to really, I think, enhance it just over the course of the last 90 days or so in a pretty material way. So what we have seen is as we first introduced new customer cohorts to that experience, and we're able to work through the best way to onboard them to an experience that, frankly, is much more rich, much more robust and in many ways, looks like a whole new company and really optimize that onboarding experience to get them into many different non-tutoring products than we've had before, we saw sequential improvements in retention of those cohorts as they onboarded and started gaining confidence in accelerating that path to a broader rollout. And over the course of the rest of the quarter, we would expect to have -- get to 100% of the existing customers on the current experience. And broadly, what we've seen is that the new customers who come in that are then benefiting from an enhanced product suite, much deeper content and there are several more big enhancements planned over the course of the next couple of months. We have seen a pretty tight relationship between getting them into those new products and driving engagement and then that pulling through to early signs on customer retention. So, the signals are quite promising, but it's early. Atul Bagga: Bryan, this is Atul. Just adding on to that, we are seeing some very good traction with the new customers who are onboarding on -- you asked about when do we realize the benefit of this in financials. What we see with the retention, the improvement of retention is going to drive higher lifetime value of the customer, and that is going to be seen over the lifetime. So, you see that continue to build the momentum on financial improvements from retention, it will come over time. Operator: Your next question comes from the line of Greg Gibas with Northland Securities. Gregory Gibas: I wanted to follow up there. If you could add a little bit more color on the trends you saw with churn versus maybe new or additions of new cohorts within active members. That would be helpful. It sounds like you're seeing some improvements in the churn side of things, and I wanted to get a sense of how those trended within the quarter. Charles Cohn: Thanks, Greg. Good question. So, I think the consumer business has sort of shaped up collectively consistent with expectations. We're obviously still early in the year but feel good about our ability to drive growth in that business through enhancing the product and then kind of pulling it up funnel and making a lot of the product enhancements we have more visible, which we think is pretty compelling. And sort of the initial traction there is positive. Early in the year, but thus far, tracking pretty consistent with expectations. The retention benefits that we're seeing on the new platform are still early and applied to a relatively small percentage of the total business. And the recent weeks, trends and the initial sort of launch has gone well. But as it relates to deviating from expectations early in the year, I don't think we've seen that at all. So, it's been a pretty good start to the year, and the product velocity is exceeding expectations. Gregory Gibas: Got it. Great. That's good to hear. And if I could, as it relates to just the full-year guidance, would you be willing to maybe go into a little bit more depth in terms of the trends on a quarterly basis with ARPM and then active members? Atul Bagga: Yes. So we can talk about it. On active member, this is going to be a big focus for us. As you've seen, our trend on active member has been improving consistently in the last few quarters. And we do expect that to get better as we see higher retention and higher retention also translates into higher LTV, which means that improves our ability to acquire new customers more effectively. So that's one. Second, on the cost structure side, we have made some substantial improvements. So if you look at Q1 '25 to Q1 '26, we have delivered 1,500 basis points of margin expansion, 820 basis points coming from gross margin. We've improved efficiency of all our variable expenses: sales, marketing operations. And on the fixed headcount, we are seeing higher productivity. Just to give you a little context, our headcount is down about 20% year-over-year, while the revenue is roughly flat. So, we -- that momentum we expect to continue to build. We will continue to see more opportunities to lean on AI and improve our productivity. In terms of the rest of the business, Q2 and Q3, as you know, is seasonally weaker quarter for us. So, we do expect some drop in Q2 and Q3 and Q4, again, that picks up. Operator: [Operator Instructions] There are no further questions at this time. And that concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, and welcome to Silvaco's First Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chris Zegarelli, Silvaco's CFO. Please proceed. Chris Zegarelli: Thank you. Joining me on the call today is Wally Rhines, Silvaco's CEO and Director. As a reminder, a press release highlighting the company's results, along with supplemental financial results, are available on the company's IR site at investors.silvaco.com. An archived replay of the call will be available on this website for a limited time after the call. Please note that during this call, management will be making remarks regarding future events and the future financial performance of the company. These remarks constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. It is important to also note that the company undertakes no obligation to update such statements, except as required by law. The company cautions you to consider risk factors that could cause actual results to differ materially from those in the forward-looking statements contained in today's press release and on this conference call. The Risk Factors section in Silvaco's annual report on Form 10-K for the year ended 12/31/2025, provides descriptions of these risks. With that, I'd like to turn the call over to our CEO, Wally Rhines. Wally? Walden Rhines: Good afternoon. I appreciate you joining us today. I am very pleased with our results in Q1. Momentum continues to build on multiple fronts. Financially, we delivered solid Q1 results and issued compelling guidance for Q2. In Q1, we saw bookings, revenue, and gross margin all above the midpoint of the guided range, which cut our non-GAAP operating loss in half sequentially. We delivered 26% year-over-year revenue growth. Our Q2 guidance confirms that we expect to reach an important milestone in the quarter, that is delivering non-GAAP operating profitability for the first time since Q4 of 2024. From a cash perspective, Q1 was the first sequential growth in unrestricted cash on the balance sheet since the IPO in May of 2024. Our focus on financial discipline and predictability is delivering tangible results. Our team has rallied around this cause and is delivering solid results and important milestones. I want to start with more good news on the AI front. For the second quarter in a row, we secured a new FTCO AI-driven manufacturing customer engagement in Q1. We're in discussions with several more companies and expect one of them to close in Q2. We also received an order from an existing FTCO customer for new functionality. Momentum continues to build for our AI-driven manufacturing strategy, both in terms of new as well as existing customers. While market adoption of FTCO is still in the early stages, these are signs that momentum is building, and the market is responding very positively to what AI manufacturing development can unlock for our customers. Before providing more details on results, I want to give you an update on the company's strategic pivot on which Chris and I have been focused since joining the company. Our guiding principles have centered on playing to Silvaco's strengths, leveraging AI, targeting markets where we can build a top franchise, customer obsession, and financial discipline. Leveraging Silvaco's strengths means extending our lead in target markets and deepening the moat around core technologies. That means delivering differentiated AI-driven solutions for power, memory, foundry, and display segments. In power, we have unique advantages, particularly for wide band gap semiconductor process and product development. For memory, our partnership with Micron is an example of how we can deliver real value to the biggest and best companies in the industry. In technology, we will widen our lead in core areas, including multiphysics simulation, which was critical to the introduction of FTCO. AI is a crucial element of our strategic shift. We've deployed AI internally and are already seeing phenomenal results. We've seen up to 6x acceleration in graphical user interface development, up to 10x acceleration in new feature design and accelerated verification testing of IP. We've also built AI directly into more of our solutions. The best example is clearly AI-driven manufacturing or FTCO. Virtualized process development is turning into a must-have feature across the semiconductor industry. Other examples include building better mathematical optimizers and simulators and rolling out AI assistant, which increase ease of use. Deploying AI in our EDA tools means customers get to SPICE models quicker, design optimized layouts faster and optimize power, performance, and area in everything they design. Our AI-first approach to road map acceleration means that we are all in on developing optimized solutions that meet the needs of customers. We also remain relentless about financial discipline. With our $20 million cost reduction initiative largely behind us, we're now building discipline into the culture of the company. We think in terms of efficient process, streamlined structure, and cost optimization. Taken together, we believe that these strategic priorities position us well to grow the top line faster than peers and to grow profitability faster than revenue. I look forward to reporting updates on these strategic initiatives in the quarters ahead. But now let's turn back to quarterly results. We continue to see significant strength in TCAD. In Q1, TCAD bookings grew 13% sequentially and 49% year-over-year to $10.5 million. Revenue grew 10% sequentially and 22% year-over-year to $9.6 million. Growth in the quarter was driven by significant milestones for FTCO, including securing a new customer and broadening the product line to include additional functionality. Looking forward, we see solid momentum for FTCO. We see strong potential from engagements with governments, power applications, and semiconductor equipment companies. On the government side, we inherited engagements in Photonics from our Tech-X acquisition. We have real opportunities to leverage the broader Silvaco portfolio for meaningful future engagements. With equipment companies and power applications, we see growing interest in FTCO and digital twin modeling that we expect to generate compelling growth opportunities going forward. We see these trends, AI-driven FTCO, government engagements and power and equipment companies as drivers that will drive growth for quarters and years to come. After a strong Q4, we saw our semiconductor IP product line pause in Q1. Semiconductor IP delivered bookings of $3 million in the quarter, down 41% sequentially, but up more than 200% year-over-year. IP revenue was $4 million, down 21% sequentially, but up 270% year-over-year. Sequential softness in IP was driven by timing of new customer wins. We had a few key designs push out by roughly 1 quarter. Year-over-year trends in IP reinforce the fact that this business has reached a new baseline with the integration of Mixel's industry-leading MIPI PHY IP. Our IP sales pipeline continues to grow, particularly for our automotive soft IP and for Mixel PRO, our production-ready set of products that were introduced in the first quarter. Our IP pipeline has roughly doubled over the past year. These leading indicators support our view that we expect to deliver steady growth in IP through the rest of the year. We expect IP to grow sequentially into Q2 and to be our strongest grower this year. Turning to EDA. We saw a decline in Q1 bookings and revenue. Q1 bookings came in at $3.8 million with revenue of $4.1 million. Here, we continue to focus on shifting priority to a handful of core products that we believe can deliver significant growth. We talked last time about potential for Jivaro as one of those core offerings. Another focus area is Utmost, which is a database-driven platform for device characterization and SPICE model extraction. We just released an AI-driven version of Utmost, which now delivers up to 10x performance improvements, a machine learning optimizer and other runtime enhancements. This is another example of how the team is building next-generation AI-driven solutions. Jivaro and Utmost are just two of the core EDA products that are positioned for growth as we focus development, sales, and field application resources on these drivers. We expect stability in this area of the business in the short term and then a return to growth as these new priorities deliver results. While I'm proud of the progress we've made in a short amount of time, I also recognize the task before us. We've made great strides in stabilizing the business, enhancing liquidity, and streamlining operations and focusing strategically on the core products that we expect will deliver accelerated growth and profitability. We all look forward to driving our semiconductor IP business to new heights, getting EDA back to growth, and seeding the momentum we see in FTCO. We all continue to believe that the best is yet to come. I look forward to seeing how far we go in the coming quarters. I'd now like to turn the call over to Chris, who will discuss our financial results and our outlook in more detail. Chris? Chris Zegarelli: Thanks, Wally. Good afternoon, everyone. In Q1, we delivered $17.2 million in bookings and $17.8 million in revenue, both above consensus and above the midpoint of our guided range. Bookings and revenue both grew 26% year-over-year. Strength in the quarter came from TCAD. We won another new FTCO customer in the quarter and partnered with an existing FTCO customer to add new functionality to their deployment. Looking forward, we see strong interest in FTCO and expect to close one more new FTCO customer in Q2. From a geographic perspective, we saw the most growth in Q1 from the Americas region, which grew 24% sequentially and accounted for 44% of total revenue in the quarter. Looking down the P&L, GAAP gross margin in Q1 was 86.4% and non-GAAP gross margin was 87.9%. GAAP and non-GAAP gross margin sequentially increased by 305 and 235 basis points, respectively, and came in ahead of guidance and consensus. GAAP and non-GAAP gross margin also increased 779 basis points and 788 basis points year-over-year, respectively. Both GAAP and non-GAAP gross margins have benefited from our restructuring activities. We believe gross margins will remain in this range of mid- to upper 80s going forward. GAAP operating expenses were down 4.5% sequentially to $21 million. Non-GAAP operating expenses were down 3.6% sequentially to $16.1 million, above the midpoint of the guided range. From a total cost perspective, which combines operating expenses and cost of sales, GAAP total costs declined 6.5% sequentially and non-GAAP total costs declined 5.6% sequentially. Q1 results are the first time since the IPO when total non-GAAP spending declined in 2 consecutive quarters. Our guidance into Q2 indicates that spending is expected to continue declining sequentially. GAAP operating loss improved quarter-over-quarter to a $5.7 million loss. Non-GAAP operating loss was $471,000, well ahead of Q4 and ahead of expectations. GAAP net loss in the quarter was $5.9 million, and GAAP EPS was a $0.19 loss. Non-GAAP net loss in the quarter was $574,000 and non-GAAP EPS, a $0.02 loss. Next, turning to the balance sheet and cash flow. Cash and cash equivalents at quarter end was $10.9 million. As of Q1, we no longer have restricted cash on the balance sheet. Recall, cash, cash equivalents and marketable securities at the end of 2025 was $18.3 million, which included $8.3 million of restricted cash. Therefore, unrestricted cash at year-end was $10 million. Unrestricted cash grew almost 10% sequentially in Q1, the first-time unrestricted cash grew sequentially since the IPO. Net cash used in operating activities in Q1 was $11 million, up from $9.5 million in Q4. Please note that this $11 million included the $8.3 million final litigation settlement payment as well as $1 million in severance payments. Net of litigation and severance, net cash used in operating cash flow would have been $1.7 million in Q1. Adjusting for these same two factors, litigation and severance, Q4 net cash used in operations would have been $7.4 million. The improvement from $7.4 million to $1.7 million speaks to the meaningful improvement in our underlying economics. The improvement also supports our view that we will see positive operating cash flow by Q3. During the quarter, we also signed a nonbinding term sheet with our banking partner for a $10 million revolving line of credit. We expect to close on this facility during Q2. Now turning to guidance. For Q2 2026, we expect bookings of $19 million plus or minus 10%, revenue of $18 million plus or minus 10% non-GAAP gross margin around 88%, non-GAAP operating expenses of $15.5 million plus or minus 5%. In closing, the team delivered on several milestones in the quarter. We secured a second AI FTCO customer in as many quarters. We delivered growth in unrestricted cash for the first time since the IPO. We delivered 2 sequential quarters of spending reduction for the first time since the IPO. We see gross margins at highs and see non-GAAP operating profitability coming in Q2. Wally and I want to thank the team for delivering these strong results. We look forward to continuing to deliver on our commitment to profitable growth. With that, operator, we will now take questions. Operator: [Operator Instructions] Our first question comes from Robert Mertens from TD Cowen. Our next question comes from Blair Abernethy from Rosenblatt Securities. Blair Abernethy: I apologize; I was not able to listen to the whole first part of your prepared remarks. So, if you've already repeated -- if this is a repeat, just let me know. But let's talk about the FTCO, in particular, the pipeline. It's interesting in your comments in your press release about governments looking at this, semiconductor equipment companies looking at this. Maybe, Wally, you can give us a sense of what does the market universe looks like to you today for the FTCO? Walden Rhines: Yes. I'm glad you brought this up because the diversity of users is surprising even us. We started out, our big partner, of course, was Micron, initially developing the basic capabilities. But we've found that it's applicable in a variety of other areas. It's applicable with equipment companies and a different application again this quarter. As we mentioned, we've engaged with more in the coming quarter and are quite confident that at least one of those will close. And I think it just reflects on the capability it brings. You bring together a lot of data, you generate a lot of synthetic data, you build models and then people can use it to guide the pathway for evolving their processes, whether they are developing manufacturing equipment or putting a process in place, moving to a next-generation node. It just seems to have a great deal of very broad applicability. Blair Abernethy: Is the equipment makers looking at this in terms of design and development of their own equipment or in terms of working with their customers? Walden Rhines: So, it's both. It is, in fact -- it does, in fact, give them an ability to tune their equipment, develop recipes, figure out results. But the -- one of the specific cases that was brought to my attention in the meeting with the customer this quarter was they want to accelerate the time it takes for setup of equipment. And by having a reliable model, they can, in fact, tune in what the ultimate results should be from the process step and therefore, drive how the setup should be done. Saves time. Time for capital equipment is depreciation cost. And so, their customers appreciate it and also appreciate the fact that they're able to process more in a shorter period of time. Blair Abernethy: So, is this -- if I got this right, Wally, is this a digital twinning for the install, effectively, the install and setup? Walden Rhines: It is indeed. It is a digital twin that is able to simulate the actual behavior based upon what variables are input to the equipment or in the process recipe, the inflow of materials. Blair Abernethy: So, is there an avenue here, maybe I'm stretching this, but is there an avenue here whereby the equipment makers could be your partner in selling the FTCO to an end fab? Walden Rhines: The existing engagements hadn't really addressed that, but I suppose that is a possibility going forward because, whereas they provide it for their particular piece of equipment, it's quite possible that the customers would ultimately want to license it more broadly, and we're able to address multiple different types of equipment because we have built a database associated or a set of tools associated with many different types of equipment. So, at the very least, it could be an introductory point. As far as will we set up an arrangement to OEM the product. Haven't done that yet, but that certainly is a possibility. Blair Abernethy: Okay. Okay. Interesting. And the other question I had was just around the IP business, which was up quite strong year-over-year. How much of that was really -- was Mixel? And how -- maybe how is the opportunity pipeline of the funnel looking for your IP business? Walden Rhines: Well, as we mentioned, the IP business looks very strong for the rest of the year, and much of the growth year-to-year comes from the addition of Mixel. So, we had engagements in both. They are both contributing. And I would expect that as we go through the year, we'll start to see some additional contributions from the off-the-shelf or the production ready. Right now, it's all the traditional Mixel business complemented by a near equal amount of the traditional IP business that involves memory compilers, cell libraries, and other standardized foundational IP. Chris Zegarelli: And as we had indicated earlier, Wally, to that point, the pipeline organically has roughly doubled for that business in the last year, and it's even more than that if you layer in the added opportunities that came from the Mixel acquisition. So, the pipeline trends are very encouraging in that business. While it did have a pause in Q1, we do see indicators of returning to growth sequentially in Q2. Blair Abernethy: Okay. Okay. Great. And then, Chris, just to ask you here, the -- it looks like your OpEx guide for next quarter, $15.5 million plus or minus. Are you -- is that -- are we down to the level that you wanted to be at? Is there more change or any more significant change as we kind of move from Q2 into Q3? Or is the business kind of where you want it? Chris Zegarelli: Good question. As Wally and I kind of indicated when we joined, we do want to drive the business to profitability at flattish revenue. And I think the guide into Q2 indicating positive non-GAAP operating income is an indicator of that. And so, there are still some costs to come out. Blair, some of the international reductions do take some time. So, there are some downward trends in there, but there are also some tactical things we're investing in like the AI tools that Wally alluded to earlier. And so, my sense of it is it's in a pretty good spot now. It probably trends down to flattish from here. And I think we're going to be focusing on those growth drivers that we talked about. I mean IP is a good example, lots of good indicators of strength on the FTCO side. And you can see that even in the TCAD product line number, sequential growth, good year-over-year growth, really encouraging. And as IP gets to growth, that will just be an adder to that, and we should see some good leverage from that continued growth from here. Blair Abernethy: Okay. Great. And last question for you, Chris. Did you -- I didn't see it, but is there a backlog number that you provided? Or will there be one in your queue? Chris Zegarelli: We indicated bookings. We talked about revenue. We didn't put a backlog number there, but you can look for the additional information posted online to see if you find what you need. Operator: Our next question comes from the line of Craig Ellis from B. Riley Securities. Rebecca Zamsky: This is Rebecca Zamsky on for Craig Ellis. My question is on TCAD bookings, which I believe you said was $10.5 million, which were up 50% year-over-year. Is this run rate sustainable? And how should we be thinking about TCAD going through this year? Walden Rhines: Yes. So, I think TCAD is a solid core business for the company. As you can see, it grew substantially year-to-year. I don't think the 50% growth continues, but we will see growth. I think it will be a solid business. And I'd note that our FTCO business is part of these TCAD numbers. It's reported in that segment. So, we have the benefit of the growth in a new and rapidly emerging business in FTCO. And then we have the basic strength of the TCAD business itself, which is doing well and should continue through the year. Rebecca Zamsky: Great. And on the FTCO wins, I believe you flagged there was one customer in Q1 and another one expected in Q2. Is this going to start becoming like a recurring quarterly event? Or would the new wins continue like, still be lumpy? Walden Rhines: Well, we certainly hope so. And based upon the customer visits and interaction that we've had, I think we're quite hopeful that we'll be regularly adding new FTCO customers. And as I mentioned, they don't have to be the same type of application as ones in the past. We're continuing to find new applications and that, too, should help the growth of and the discovery of new possibilities. Operator: Our last question comes from the line of Robert Mertens from TD Cowen. Robert Mertens: Thanks for letting me ask a question on behalf of Krish Sankar. I just wanted to maybe triangulate within your guidance for the June quarter, it looks like sales are kind of flat, slightly up sequentially, and you had mentioned in your commentary some strength in the IP business growing through the year. Is it fair to say that next quarter that TCAD is probably growing into the June quarter as well and then maybe the EDA business contracts? Walden Rhines: Chris? Chris Zegarelli: Yes, I can take that one, Wally. Yes, I think it's fair to say that IP does grow sequentially. EDA could be flat to downish a little bit. TCAD could be flattish to up a little bit is kind of the way that we're thinking about it. But I did just want to provide a little extra color. There was an earlier question on remaining performance obligations or backlog, that number is at about $46.6 million in the quarter. So down slightly from what we saw in Q4, but remaining in that elevated high 40s range for the business. Robert Mertens: Got it. And then maybe just a quick follow-up, just to get clarification. I think this was asked just in terms of the OpEx number. But are you sort of expecting these levels that you guided for the June quarter in the back half of the year? Is there any sort of savings on the SG&A line you expect to continue to bring down? Chris Zegarelli: From an OpEx perspective, yes, as I indicated, there are continued downward pressures on spend. There are some of the targeted reductions that will be playing out in the coming quarters, most notably on the international side, some reductions do take a little bit more time than they do in other jurisdictions. There are some targeted places where we're making some incremental investments. The AI tools are one of them, and Wally alluded to solid indicators that we see a good ROI from those investments in terms of accelerating and broadening the road map. So, we're encouraged to see those benefits roll through the business and deliver upside to revenue. So, I do see a continued trend to kind of down a bit to flattish, as I said, on the OpEx side. And the pipeline has been encouraging, and it continues to grow. Most notably, IP pipeline has been growing really nicely. And so, we do see room for growth from here, particularly on the IP front. But as that FTCO continues to roll through the business and the wins continue to build, that's an obvious tailwind on the TCAD side as well. Operator: [Operator Instructions] With that, this concludes the question-and-answer session. I would now like to turn it back to Walden Rhines for closing remarks. Walden Rhines: Well, thank you. We're pleased with the continued momentum in our business, looking forward to profitability next quarter and the AI-driven FTCO continues to provide a great opportunity for us moving forward. Like so many businesses, AI is helping us both internally and helping us with our customers and creating new business opportunities. We look forward to sharing them with you in the coming quarters. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us and welcome to the Sweetgreen, Inc. First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Rebecca Nounou, Vice President, Head of Investor Relations. Please go ahead. Rebecca Nounou: Thank you, everyone, and good afternoon. Speaking on today's call will be Jonathan Neman, Co-Founder and Chief Executive Officer; and Jamie McConnell, Chief Financial Officer. Both will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. The earnings release is available on the Investor Relations section of Sweetgreen's website at investor.sweetgreen.com. I'd like to remind everyone that the information under the heading Forward-Looking Statements included in our earnings release also applies to our comments made during the call. These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward-looking statements. We also direct you to our earnings release for additional information regarding our use of non-GAAP financial measures, including reconciliations of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Our earnings release can be found on our investor website. And now I'll turn the call over to Jonathan to kick things off. Jonathan Neman: Thank you, Rebecca, and thank you, everyone, for joining us today. We entered 2026 focused on executing our Sweet Growth Transformation Plan, with a clear priority on strengthening our fundamentals and improving execution across our restaurants. As we communicated last quarter, this work takes time to translate into results, and we expected the first quarter to be the most challenging, given a difficult comparison to the prior year Ripple Fries launch, weather-related headwinds and more work to be done on our transformation plan. While the quarter was pressured, we saw improvement as the quarter progressed with a further step-up in April, reflecting early progress from the actions we have underway through the Sweet Growth Transformation Plan. As restaurant operations continue to improve, we are bringing innovation to market with stronger discipline. Yesterday, we launched Wraps nationwide following a rigorous stage-gate process that validated both the consumer opportunity and our ability to execute in restaurants. Test results were strong, driving incremental traffic from new and returning guests while expanding our ability to serve more occasions. Now turning to results. For the first quarter of fiscal 2026, revenue was $161.5 million, with comparable sales down 12.8%. We opened 4 net new restaurants, including 3 Infinite Kitchens. Restaurant level margin was 10% and adjusted EBITDA was a loss of $8.1 million. As we moved into April, traffic trends improved, supported by stronger execution in our restaurants, the performance of our Chicken Sesame Crunch Bowl and early contribution from Wraps in test markets, which ran in about 1/4 of our restaurants, including New York, our largest market. This reflects a deliberate sequencing, strengthening operations first to build a more consistent foundation and then layering in menu innovation to drive more durable traffic. New York is an important example of the progress we are beginning to see. Given its significance to our footprint, it has been a key focus as we strengthened leadership, improved Head Coach stability and drove more consistent execution through Project One Best Way. While we still have work to do, transaction trends improved in April, supported by better operations in the Wraps test. We view the progress in New York as an early signal of how the broader system can respond as we continue to execute through the Wraps launch and beyond. We know there is more work ahead of us, and we remain focused on executing against the 5 strategic priorities under our Sweet Growth Transformation Plan: one, operational excellence; two, food quality and menu innovation; three, personalized experience; four, brand relevance; and five, disciplined profitable investment. Starting with operational excellence, which remains the foundation of our ability to deliver a consistent, high-quality and hospitable experience for our guests. We continue to strengthen consistency across the system through Project One Best Way, which defines what great looks like at Sweetgreen across craveable food, hospitality, operational flow and people culture. The program is grounded in both customer and restaurant level performance data and is focused on building scalable systems and routines that allow every restaurant to execute at a high level, not just the best ones. Work like this takes time to translate into results, but we are beginning to see improvement in several key operational metrics, including throughput during peak periods, ingredient availability and fewer quality complaints, reflecting stronger operational readiness across the fleet. At the same time, we recognize there is still meaningful opportunity ahead, and we will continue raising the bar as performance improves. That stronger foundation has been critical as we move into the national rollout of Wraps. We have taken a disciplined stage-gate approach to get here with teams spending months in development and testing, including extensive work in restaurants to build capability, train teams and ensure operational readiness. One of the core principles for our Wraps experience is that the first bite should be the best bite. To deliver on that consistently, we refined our preparation process through multiple rounds of testing and iteration, including in-restaurant ops shakedowns to validate equipment, positioning and workflows. This work ensured we can deliver on quality while maintaining throughput at peak. We then validated the concept through a multi-month market test across approximately 70 restaurants, where we saw strong guest response alongside solid execution in the field. The energy in the field is strong, and we are encouraged by how teams are performing out of the gate. Our focus remains on execution, ensuring every wrap is made right, throughput is strong and the guest experience is consistent from day 1. This quarter, we brought our New York market head coaches together for an Impact Day focused on reconnecting our restaurant leaders to the guest experience through culture and hospitality. Two weeks ago, we also brought our area leaders together for a 2-day summit to reinforce consistent execution across markets. The focus was on 3 major themes: strengthening head coach performance, building the culture of hospitality where speed and service work together and delivering consistent food quality that drives repeat visits. Together, these sessions are helping create greater alignment on the experience we want to deliver and the standards required to deliver it every day. To continue this focus, we will bring our head coaches together for impact days across our remaining regions in the coming weeks. What stood out most to me from Impact Day and the Area Leader Summit was the importance of the connection between our restaurant support center and our field teams. Delivering a better guest experience starts with strong alignment between the teams closest to our guests and those supporting them. Our head coaches and area leaders are closest to day-to-day operations and their input is critical in helping us refine how we deliver on our standards across food, hospitality and operations. The best ideas come from our restaurants. Building on that operational foundation, one of our key priorities this year is menu innovation, led by the national launch of our Wraps platform. This represents our most significant menu expansion in several years, designed to expand occasions and introduce a more accessible entry point into the brand. We launched Wraps with a core lineup of craveable flavors, including the Classic Chicken Caesar, Chicken Jalapeno Ranch, and Cali Chicken Club, along with the limited-time KBBQ Chicken. We started with our food ethos, delivering flavors through ingredients that don't just taste good, but also make you feel good. That means preparing seasonal ingredients from scratch every day, cooking our grains, vegetables and antibiotic-free proteins without seed oils and using no artificial flavors, colors or dyes. We were intentional about every component of the wrap, starting with the tortilla. Early in development, we were unable to find a tortilla in the foodservice market that met our standards. So we partnered to create one made with only 4 ingredients: extra virgin olive oil, unbleached and unenriched wheat flour, sea salt and water, with no preservatives. Guests can taste and feel the difference with social reviews consistently highlighting the quality and flavor of the tortilla. The energy around the test leading into yesterday's launch has been incredible. Wraps are already appearing in a meaningful share of social content tagging Sweetgreen with positive sentiment of around 85%. Guests are responding to the value with entry price points starting at $10.45 and ranging up to $14.95. This launch is supported by one of our largest social marketing campaigns to date, partnering with hundreds of micro and scaled creators who authentically represent culture to drive awareness and engagement across a range of diverse communities. Our confidence in Wraps is based on the results we saw in testing. Over a multi-month period across approximately 70 restaurants in New York, the Midwest and Los Angeles, Wraps drove incremental traffic from new and returning guests, helped reengage lapsed customers, and showed strong repeat behavior. We are pleased with the combination of incremental traffic and improved customer retention, reflecting strength as a new platform and expanding how guests engage with the brand. Importantly, execution remains strong with throughput maintained and lower-than-average guest complaints. Taken together, these results give us confidence in both the strength of the Wraps platform and our ability to scale it nationally. We are also continuing to innovate and strengthen our core menu. The Chicken Sesame Crunch Bowl, which launched in March, is already our second-highest mixing salad and contributed to improving trends as the quarter progressed. It is now a permanent menu item, reflecting strong guest response. At the same time, we have rebuilt our pipeline of both core and seasonal innovation for the balance of the year, including summer and fall menu updates, new core offerings, continued expansion of the Wraps platform and upcoming collaborations with leading chefs, bringing distinctive chef-driven flavors into the menu that reflect the core of our brand. This approach allows us to stay relevant with our existing guests while continuing to bring new guests into the brand. I'm encouraged by the product innovation we're bringing this year as well as the progress we're making to elevate the quality and consistency of our core menu. We've continued to see an increase in salmon entree sales following our internal Miso My Salmon campaign, which was designed to sharpen execution and elevate quality across the system. We've taken the same approach to our other core menu ingredients. For example, we've refined our measurement of protein cook cycles and hold times to ensure dishes are served at peak freshness and have elevated 7 of our core ingredients like romaine, quinoa, carrots, napa cabbage slaw and breadcrumbs. This remains an area of focus as we continue to drive greater consistency across the fleet. Looking ahead, we will begin testing a rearchitected pricing ladder in late June. Central to this work is the introduction of clear entry price points and a new Create Your Own construct that is designed to deliver greater price clarity and a more intuitive ordering experience. Together, these efforts will make pricing clearer and make it easier for guests to choose and order, supporting incremental transactions across price points. We are pacing these initiatives deliberately using disciplined reads on guest response and P&L impact to guide rollout decisions with a focus on bringing more guests into the brand and increasing frequency over time. Turning to our personalized digital experience. Our strategy focuses on deepening our connection with customers, driving engagement and increasing customer lifetime value through more targeted one-to-one interactions. At the center of this strategy is our SG Rewards loyalty program, which enables us to deliver personalized offers, incentives and experiences that make it easier for customers to engage with the brand while driving frequency and spend. At the beginning of the year, we introduced our Craving of the Month program, a key pillar within SG Rewards and a loyalty-exclusive limited time offer available through the Sweetgreen app at a compelling value. The retention and incremental spend signals are encouraging. Of guests who redeemed a Craving of the Month offer, we see higher frequency and higher net average revenue per user. We also see that this program draws in at-risk and lapsed customers, while driving incremental visits with lighter frequency cohorts. While still nascent, this exclusive platform within our loyalty program is helping us win back customers, drive incremental transactions and incremental spend. Later in the second quarter, we will introduce lower redemption thresholds to our loyalty program, designed to be achievable in fewer visits, making the program more accessible and engaging for a broader set of customers. These new redemption thresholds will include a $3 credit at 700 points, a $5 credit at 1,200 points, and a free wrap reward at 2,000 points. Based on the current customer redemption behavior, we expect these changes to drive increased loyalty engagement and higher visit frequency, especially in our lower frequency customer cohorts. Before I close, we are excited to welcome Ryan Slemons as our new Chief Development Officer. Ryan brings deep experience across real estate, design, construction and portfolio management with a strong track record of scaling high-quality growth across leading retail and restaurant concepts. His focus on thoughtful design and site selection will be critical as we expand our footprint, reimagine our spaces and create better experiences for our guests and team members. We will also reinforce discipline around build-out costs and capital allocation, supporting consistent high-return unit growth. To close, while the quarter was pressured, we are still in the early innings of our transformation, and we are beginning to see signs that the actions we are putting in place are gaining traction. We are seeing improvement in execution across our restaurants, greater consistency in the guest experience and stronger alignment across our teams. The progress through the quarter and into April, along with the energy in the field, reinforces that we are focused on the right operational priorities and building a stronger foundation for Sweetgreen. I want to thank our restaurant teams for leaning in and embracing the higher bar we are setting on hospitality and execution, especially as we build momentum coming out of our recent Area Leader Summit. At the same time, we are operating with greater focus as we rebuild the top line. The national launch of Wraps is an important step forward and a clear example of how we are approaching innovation differently. We took the time to test, learn and ensure we could execute at a high level, and the early response gives us confidence in the opportunity to drive incremental traffic and expand into new occasions. As we move through the year, we will continue to build on this foundation by improving execution, refining our menu and pricing architecture, strengthening the guest experience and driving greater discipline in our investments. As these actions take hold, we expect to see stronger restaurant level performance over time. We are confident in the path we are on and in our ability to build a more consistent, profitable and durable Sweetgreen brand. With that, I'll turn it over to Jamie. Jamie McConnell: Thank you, Jonathan, and good afternoon, everyone. First quarter results were below our expectations with comparable sales down 12.8%. As Jonathan outlined, we saw improvement as the quarter progressed with trends continuing to improve into April. Sales in the quarter were $161.5 million compared to $166.3 million a year ago. The decline in comparable sales were driven by an 11.2% decrease in traffic and a 2.3% decline in mix, partially offset by approximately 70 basis points of menu price. Traffic was impacted by weather and a difficult comparison to the prior year Ripple Fries launch, which created a headwind to both traffic and mix. Mix declined in the quarter, reflecting strategic promotional offers to reengage guests as well as the transition to SG Rewards. Traffic improved sequentially through the quarter, supported by menu innovation and targeted loyalty offers with improvement continuing into April. As we look ahead, we expect comparable sales trends to improve as we continue to execute our transformation plan with Wraps now launched nationally. The comparisons also become easier as we move through the year. Restaurant level margin was 10%, down from 17.9% last year. Food, beverage and packaging costs in the quarter were 29% of revenue, an increase of 250 basis points year-over-year. The increase was primarily driven by higher ingredient usage, portion investment and targeted pricing and promotional investments, partially offset by supply chain saving initiatives. Ingredient usage was a headwind of approximately 140 basis points year-over-year. We have taken initial steps to improve visibility into these drivers for our field teams, which is helping us better identify and prioritize the opportunities across the system. Our focus is on improving the flow of food in our restaurants from receiving orders to inventory management, prep and ensuring accuracy at the point of sale. While we are still early, we see this as a meaningful opportunity to improve consistency and reduce variability over time. We are taking a disciplined approach. While we have made progress on visibility, there is more work to do to strengthen the tools and processes that support the field. This requires alignment between the systems and how our restaurants operate. So we are being thoughtful about how we evolve and roll this out to ensure it works effectively in our restaurant and delivers consistent results. For the second quarter, we expect food, beverage and packaging costs to be in line with the first quarter with pressure from weather-related produce costs as well as fuel surcharges. We expect the produce-related pressure to be transitory and largely concentrated in the quarter. First quarter labor and related expenses were 31.4% of revenue, an increase of 250 basis points year-over-year. This was primarily driven by sales deleverage and wage inflation. In our restaurants, we are focused on getting the right labor in the right place at the right time with work underway across staffing and scheduling to better align labor to demand throughout the day, particularly during peak hours where better coverage supports throughput and the customer experience. For the second quarter, we expect labor cost to be in the low 29% range, reflecting low single-digit wage inflation. Other operating expenses for the quarter were 18.5% of revenue, an increase of 110 basis points year-over-year, driven primarily by sales deleverage. G&A expense in the quarter was $29.3 million, a decrease of $9.1 million year-over-year. The improvement was primarily driven by lower stock-based compensation and reduced salary and benefits following our 2025 headcount reduction initiatives. Underlying support center costs, excluding stock-based compensation and onetime expenses, was $23.2 million, a decrease of $4.5 million year-over-year. We are maintaining discipline in support center spending while continuing to invest in the capabilities that matter most to the transformation. Net income for the quarter was $125.8 million compared to a net loss of $25 million in the prior year. This was primarily driven by a onetime gain from the sale of Spyce, which closed during the first quarter of 2026. Adjusted EBITDA was a loss of $8.1 million compared to a gain of $285,000 last year, driven primarily by lower restaurant level profit. We ended the quarter with $156.8 million in cash. During the quarter, we opened 4 net new restaurants and ended the quarter with 285 restaurants, of which 33 restaurants are powered by the Infinite Kitchen. Now turning to fiscal year 2026 guidance. We are reiterating our same-store sales guidance with Wraps now and Sweetgreen restaurants nationwide and comparisons easing. We expect same-store sales to be a decline in the range of negative 4% to negative 2%. We expect restaurant level margin to range from 14.2% to 14.7% and adjusted EBITDA to range between $1 million and $6 million. On unit growth, we now expect to open approximately 13 net new restaurants this year, reflecting 18 openings and a handful of lease-related closures, where we mostly see an opportunity to strengthen nearby locations. Our development pipeline is equally weighted this year and nearly half of our openings will feature the Infinite Kitchen. To close, we are still early in our transformation work, but we are beginning to see progress from the actions we have taken. As execution improves and we bring more discipline to how we operate and invest, we expect to see more consistent performance over time, supported by initiatives like the national launch of Wraps as we rebuild top line momentum and improve restaurant level economics. Our focus remains on strengthening execution in our restaurants, restoring traffic and managing cost and capital discipline. With that approach, we are focused on building a more consistent and profitable Sweetgreen over time. And now we're happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Jeff Bernstein with Barclays. Unknown Analyst: Great. This is Pratik on for Jeff. Very encouraging to hear the April traffic trends improving. And in the release, you referred to the momentum you have. Could you just level set with us what degree of improvement you've been seeing? It'd just be helpful to get kind of an embedded assumption from you for how you see the rest of the quarter playing out, even if you're not explicitly guiding to a comp number in the second quarter? Jamie McConnell: Yes. So we saw January and February -- starting with Q1, we saw some pressure with the weather. But as we moved into March, we saw about 100 basis improvement in transactions. We also have price fully rolling off, and we had some mix headwinds due to some of the promotional activities and as we launched SG Rewards. And in April, we improved to about a decline of negative 8%. And we just launched Wraps. And so we're excited about our launch from all the results that we saw in the testing, and we expect that Q2 to land around negative 4%. Operator: Your next question comes from the line of Brian Bittner with Oppenheimer & Company. Michael Tamas: This is Mike Tamas on for Brian. You talked about the improving operations and also like the incrementality from Wraps. So I guess, can you maybe just help us understand what that incrementality look like from the Wraps? And then as the year unfolds, you're talking about doing more menu innovation, but also having all of these improvement in operations that you've done so far and more to come. So what guardrails are you putting in place to sort of make sure that the operations don't deteriorate as you step up that amount of menu innovation? Jonathan Neman: Sure. Thanks for the question. So as it relates to Wraps, as I mentioned in the prepared remarks, we took a very disciplined approach, starting with an ops shakedown, a rapid ops test in 8 stores and then a multi-month stage-gate process in 3 separate markets. And we were able to both understand the operational impacts as well as the customer behavior. While I'm not going to guide to an exact number on incrementality, I'll say that we were very encouraged. It mixed in really well. We saw really high return rates of the Wraps. I think most importantly, customers were really delighted with the quality as well as the price. The Chicken Caesar Wrap, in most -- it starts at $10.45 in certain markets, and no wrap in any market is above $15. So I think both from a quality, craveability and price value, we are really delivering and customers are noticing it. So it definitely is incremental, and that was all before media. But typically, we do see a pretty nice lift once we advertise things, and we have a really one of -- probably our largest social-first campaign going live right now, getting much more awareness in trial. So we're still very early. We launched yesterday, but very encouraged by how it's mixing in, the response and the comeback rate on Wraps. As it relates to operations and menu innovation, we really spent last year instituting Project One Best Way, really building the operational foundation with a focus on people, food, feel and flow. And we've gotten much, much better. We've seen our quality complaints come down significantly. We've seen our in-stock percentages, so like our [indiscernible] go down significantly. So more -- much more in stock. So we feel good about how we're operating there. And the focus has really moved more towards culture within our restaurants and the hospitality and as well as continuing to elevate the quality and consistency of what we do. Given the stage-gate process we have, everything that we're putting out from a menu innovation perspective, both has to meet our ops sandbox requirements in terms of complexity and number of ingredients and any incremental labor hours, but also has to go through a stage-gate process to make sure it doesn't disrupt our core operation. I think, if I can leave you with anything, it's we are -- the most important thing we are focused on right now is the fundamentals of delivering an excellent customer experience. And the menu innovation is all layered on top of that. And that's what gives us confidence with Wraps and future menu innovation is we believe we've laid the operational foundation to continue to innovate. We have a robust innovation calendar coming for the rest of the year, but done in a way which really limits the complexity for our store teams and should be something that really customers love. So very encouraged by the recent momentum. But as I mentioned, we're still early in the transformation and a lot of work to do. Operator: Your next question comes from the line of Sara Senatore with Bank of America. Unknown Analyst: [ Alzera ] Austin on for Sarah. Just in the line of menu additions, it kind of seemed like protein plates were an important driver back in 2024, but kind of faded moving into 2025. Are there any learnings on how you guys will manage that with Wraps on the menu now just going through the remainder of the year? Jonathan Neman: Yes, that's a good question. One of the learnings is to consistently bring new news to a category. So what you'll see us do with Wraps is not only the launch of Wraps compelling, but continuing to support it with media, but also new news and new wrap builds. So today, we have 3 core wraps, 1 LTO. We have a couple of planned incremental wraps that we will introduce throughout the year, whether that be core or LTO. Today, it's 4 signature wraps, all can be modified. We know customers eventually want a build your own wrap, which is something that we're looking at. And plates have been successful. They've helped us grow our dinner. They have -- some of those plates do exceptionally well like our Miso Salmon plate. And so we do expect to continue innovating on the plates category. So expect some more innovation on plates. It's something that we know our customers love. Operator: The next question comes from the line of Sharon Zackfia with William Blair. Sharon Zackfia: You've done so much work over the last year in different efforts to improve your value perception. And I'm curious if you have any kind of quantifiable research on how the consumer has recognized that. Do you think you're getting credit for all of the efforts you've done? And what have you done that's really landed well and where were maybe you a bit more disappointed in something that you rearchitected that the customer just didn't really appreciate? Jonathan Neman: Thank you, Sharon. So as you mentioned, we have been working on value perception through a number of different initiatives. I think first and foremost, we are proud of the food we serve. And we believe when we execute on our core fundamentals and deliver a great customer experience that given all that we do within -- from a sourcing and scratch cooking perspective, that we offer tremendous value. Having said that, we do see opportunities to offer more entry-level pricing and kind of a different pricing ladder for different consumers to drive acquisition and repeat behavior. So a few of the things that we've done that we believe are resonating. One is Wraps. If you look at the social commentary on Wraps, some of the lower pricing is really resonating, and we are seeing the comeback rate or the return rate of many of those customers as an encouraging sign. Two, we're getting more juice out of our loyalty program, both the core program as well as cravings of the month. We're seeing high adoption of that. And as I mentioned on the call, we're seeing the average revenue of those users be incremental. So it's a good activation for both new customers and lapsed customers, but those customers stick with us. We do not plan on continuing the promo and discount at this level. We do expect to really wean off of this. We are also -- the biggest price moves we're going to make, we're going to go into test come in about a month or so on a whole kind of pricing architecture change, which I described in the prepared remarks, both on our Build Your Own framework as well as testing some more entry-level pricing. As it relates to data to quantifiable research, we have now done a baseline on price value. And over coming quarters, we'll share more on how that has changed. But to leave you with anything, really the focus is delivering on the fundamentals and delivering a great customer experience. And when we do that, the food -- what we offer is really worth the money, and we're proud of that. Operator: The next question comes from the line of Jon Tower with Citi. Jon Tower: I just maybe you can help us think through, there's a lot of moving parts on the business right now and whether it's Wraps or changing the pricing architecture in the future. Like how you're thinking about incremental flow-through going forward for the business? And specifically, with focusing on lower price points, I would assume that check is going to be a little bit lower. Can you help us think through that? Jamie McConnell: Yes. So we still expect flow-through to be around the 40% range. And what we are seeing with wraps is, there is some check dilution, but we are getting the incremental transactions. And what we're also seeing is the prep for the produce that goes into the wraps is less and also the waste is less. So we're actually seeing favorable cost of goods sold on our wraps even with the lower price point. And so as we test, when we look at the menu price architecture, that's something that we're going to be very careful and sequenced about, and that's why we've paced every kind of discount and promotion that we've done because we want to measure the results and making sure that we get the return. So staying with the price architecture, we're going to be disciplined about that approach and make sure that it's working. Operator: Your next question comes from the line of Andrew Charles with TD Cowen. Zachary Ogden: This is Zach Ogden on for Andrew. So for the full year restaurant level margin guidance, it does imply about 100 basis points, maybe a little bit more in the second half of the year in terms of leverage. So can you talk about the drivers that will get you back to that margin level leverage? And then maybe talk about any pricing plans as a part of that? Jamie McConnell: Yes. So when you look at our margins for the quarter, about half of it is sales deleverage. And then we also have wage inflation of about 40 bps, but the remainder is really within our control. And so there's a lot of work being done behind the scenes, especially as it relates to cost of goods sold. And so we have just introduced visibility to the field on the waste by the different categories, but there's still a lot more work to be done to make sure that they're ordering the correct amount, they're prepping the right amount and that we're giving them the tools to be successful to properly do this. So we've just unlocked the visibility, but we plan to unlock the tools through the back half of the year, but we are seeing quarter-over-quarter improvements. And so also within labor, we have a labor study going on right now. And so we are looking at our labor as well and making sure that we have the right people staffed during the peak hour to drive the throughput and make sure that we're getting sales leverage on those transactions. So a lot of work being done behind the scenes on the margin. Operator: Your next question comes from the line of Rahul Krotthapalli with JPMorgan. Rahul Krotthapalli: Can you update us on where you are in the efforts around reestablishing like the coolness factor, if you will, on the -- as you continue to be a premium and aspirational brand while also being affordable and making progress in democratizing wellness and mindful eating? And I have a follow-up. Jonathan Neman: Thanks, Rahul. Yes, one thing I'll just point to broadly is last year, we really rebuilt our leadership team. And underneath Zip, our Chief Commercial Officer, have rebuilt much of our marketing and brand team. So we are taking a new approach to how we invest in the brand and leaning more into the lifestyle elements. The first thing that I think builds a brand, and our team hears me all the time is word of mouth on delivering a great experience in our restaurants. So first and foremost is just executing on excellent customer experience and living up to our promise around consistency, quality and hospitality. But we're also leaning into some new things. For example, with our Wraps launch, you'll see a different kind of launch with us more of a bottoms-up approach with social-first content really and other moves getting into culture. As you move into the summer, you'll see us do some really cool things leaning into some collaborations in both culture and -- both culture broadly as well as chefs, something that we've done in the past that definitely resonates with our guests. And you're also seeing us do a lot more kind of events in real life. Even tonight, we're celebrating our Wraps launch with an awesome event here in Los Angeles at our Silver Lake restaurant. So much more with creators, influencers, storytelling and leaning into the lifestyle elements of the brand. So expect to see more as the year continues. Rahul Krotthapalli: And then the follow-up is on the owned digital customers, like approaching 40% is good to see. Any insights you can share around the frequency of these customers? I know we spoke about the monthly active users in the past. How is this cohort interacting with the brand directionally? Jamie McConnell: Yes. So I would say there's a lot of work being done on our loyalty channel. So that's why we're beginning to see some momentum there, especially within our native channel. And so with the cravings of the month and then the targeted loyalty actions, we are seeing some improvements in our own channel. And we're actually also seeing increases of loyalty users signing up month-after-month. Jonathan Neman: Yes. The other thing where you're seeing the owned -- the other change in the owned digital is we've continued to see really nice momentum on people using loyalty in restaurants from a scan to pay perspective. The scan to pay has reached about 20% of in-store transactions. And that's a positive signal because once we get them into our digital ecosystem, we love them ordering in restaurant, but that gives us the benefit of ordering in restaurant and having a connection digitally where we can market to them directly. So some nice encouraging signs around the frequency, but a lot more work to do. Rahul Krotthapalli: Congrats on the Wraps launch. The KBBQ is my favorite and it's fire. Operator: Our next question comes from the line of Kelly Merrill with Morgan Stanley. Kelly Anne Merrill: I just wanted to continue on with the digital conversation and see if you had anything else to add as percent digital revenue and owned digital revenue saw a nice tick up sequentially and year-over-year. And then just one more I wanted to ask what trends have you been seeing on third-party delivery as of late? Jonathan Neman: Sure. So I mean, just to reiterate what I said before, we've continued to invest in our digital ecosystem. I think it's somewhere where we're probably best-in-class around our digital -- in the digital experience in our restaurants, not only what we do within our app, but how we support it within our restaurants. So we've been very intentional about how to build an omnichannel restaurant where we don't disrupt the in-store experience for those digital customers. And we've done a lot of work on, call it, the back end, where it be our throttle management and working on things like accuracy on time and on-time rates, so people can trust those digital channels. Continue to A/B test features. We've continued to come out with a number of new features within our app, and we have a robust road map across the rest of this year. We actually have accelerated our digital road map, especially given the advent of AI, we can move faster on a lot of those things. So customers really love and trust our digital experience. Remind me the second part of your question? Kelly Anne Merrill: Just on trends in third-party delivery recently. Jamie McConnell: Yes. So trends in our third-party delivery, that is a channel that we're very focused on right now. So we're looking -- there's a number of work streams under place to, one, make sure that we're delivering a great experience. We're not missing items or inaccurate. So we've been working on that as long -- also with our kind of our time to order and pick up. And so there's a lot of work being done behind the scenes. We've seen some good improvement on our native channel and marketing -- marketplace is starting to improve and we're seeing the trends improve into April. Jonathan Neman: Yes. Marketplace, we've seen a huge improvement into April. I think we've optimized both the paid side of the marketplace, but also the -- as Jamie mentioned, the organic side. There's a lot we can do to show up higher in the algorithm, especially around wait times, order readiness and even little things around, call it, SEO management on the marketplace. So getting smarter and sharper there, and we expect marketplace to be a strong growth channel for us as we look throughout the rest of the year. Operator: Your next question comes from the line of Brian Mullan with Piper Sandler. Brian Mullan: Just a question on development specific to next year. Not looking for precise guidance, but really just trying to understand your current appetite to build new restaurants beyond projects that are already underway during the time period that you're going through this fleet transformation plan process. So just how you're thinking about development right now? Jonathan Neman: Yes. I'd say we're taking right now a very disciplined approach, really focused on high return on invested capital restaurants that we have a high level of confidence in. We won't be -- I'd say we don't expect an acceleration in development until we start to see the flywheel working here, comps improving significantly and feel much better about the core operation. But we do -- we will continue to develop new restaurants. We're continuing to work on both the design and prototype of those new restaurants. We're really excited to welcome our new Chief Development Officer, Ryan. So expect a tempered year of development, and we'll come back with more as the year progresses. Operator: And our final question comes from the line of Dennis Geiger with UBS. Unknown Analyst: This is Paul on with Dennis. My first part is just encouraging to see the improvement in April so far. And I appreciate the color that you provided on transactions and pricing. Just wondering if you noticed any shift in consumer behavior during the past few months? And then the second part was just following up on the development pipeline question, particularly over the longer term, what is the future opening mix between entering new markets and penetrating further in existing markets? Jamie McConnell: Yes. In terms of consumer behavior, we are seeing some improvements in our younger cohorts. So the 18 to 35 has really started to pick up, which is good to see. In March, we launched our Chicken Sesame Crunch Salad. That was a huge hit. And then now we have now launched Wraps. So we're hoping to continue to see some of this momentum. And then in terms of development pipeline, I don't know, if there's anything else you want to add. Jonathan Neman: As it relates to development pipeline, we're really focused on, kind of, building out a lot of the newer markets where we have seen success. One of the bright spots in development recently has been a number of those new markets. For example, we entered Phoenix last year. We're seeing about $3.2 million AUVs in that market. We're in Sacramento with about $3 million AUVs. So some really bright spots in some of these new markets, but we still have a number of new markets where we're very lightly penetrated and have a lot of room to grow. So probably not a whole lot of net, like, totally greenfield markets and more building out those lightly penetrated markets so we can get the efficiencies around supply chain operations and brand. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may disconnect.
Operator: Ladies and gentlemen, once again, I do really appreciate your patience. Good afternoon, and welcome. My name is Aaron. I will be our conference operator for today, and I would again like to welcome you to the Q1 2026 Yelp Inc. Earnings Conference Call. [Operator Instructions] And with that, let's go ahead and begin our call. It's my pleasure to turn our call over to Kate Krieger, Director of Investor Relations. Kate, with that, you can go ahead. Thank you. Kate Krieger: Good afternoon, everyone, and thanks for joining us on Yelp's First Quarter 2026 Earnings Conference Call. Joining me today are Yelp's Chief Executive Officer, Jeremy Stoppelman; Chief Financial Officer, David Schwarzbach; and Chief Operating Officer, Jed Nachman. We published a shareholder letter on our Investor Relations website and with the SEC and hope everyone had a chance to read it. We'll provide some brief opening comments and then turn to your questions. Now I'll read our safe harbor statement. We'll make certain statements today that are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. In addition, we are subject to a number of risks that may significantly impact our business and financial results. Please refer to our SEC filings as well as our shareholder letter for a more detailed description of the risk factors that may affect our results. During our call today, we may discuss adjusted EBITDA, adjusted EBITDA margin and free cash flow, which are non-GAAP financial measures. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with generally accepted accounting principles. In our shareholder letter released this afternoon and our filings with the SEC, each of which is posted on our Investor Relations website, you will find additional disclosures regarding these non-GAAP financial measures as well as historical reconciliations of GAAP net income or loss to both adjusted EBITDA and adjusted EBITDA margin and a historical reconciliation of GAAP cash flows from operating activities to free cash flow. And with that, I will turn the call over to Jeremy. Jeremy Stoppelman: Thanks, Kate, and welcome, everyone. Yelp continued to accelerate its AI transformation in the first quarter. We are making local discovery increasingly conversational, delivering tools to help businesses succeed and expanding the reach of our trusted content through new partnerships. Our progress in the quarter resulted in the recent rollout of more than 35 new features and updates, including a new Yelp Assistant that now works across all categories. At the same time, local businesses have continued to face a challenging economic environment. First quarter net revenue increased by 1% year-over-year to $361 million with a net income margin of 5% and an adjusted EBITDA margin of 22%. Underlying our top line results, Services Ad revenue increased by 1% year-over-year and RR&O ad revenue decreased by 11% year-over-year. We've increased our focus on growing a number of AI-driven revenue streams this year and other revenue grew 75% year-over-year as a result. Moving to our product initiatives. We are reconceiving how consumers and businesses connect on Yelp through a conversational experience that provides answers and enables actions. In the first quarter, Yelp Assistant connected more consumers and service pros than ever before, with its growing adoption accounting for approximately 15% of Request-A-Quote projects. We recently rolled out a new Yelp Assistant that supports local discovery across every business category on Yelp, delivering trusted recommendations while surfacing relevant reviews, star ratings and other helpful details. While still early, we are seeing positive signals and believe Yelp Assistant can ultimately drive deeper engagement. In addition to evolving our product offerings, we are expanding our partner ecosystem to help consumers complete tasks like initiating a reservation or booking an appointment. In the first quarter, consumers took advantage of the hundreds of thousands of new restaurants available for food ordering and delivery through our DoorDash partnership with food ordering revenue up 88% year-over-year. More recently, we announced new integrations with Vagaro and Zocdoc to enable users to book beauty, wellness, fitness and health care appointments. We are delivering AI tools that help service pros and other local businesses grow, operate and succeed. For advertisers, this showed up in the form of improvements to the ad experience and business owner platform, where we've introduced a new AI-powered support chatbot that streamlines administrative activities. Our team continued to scale Yelp Host, our AI-powered call answering service for restaurants, which surpassed an annual run rate of 1.5 million calls handled in April, more than doubling from January. We plan to roll out new improvements and functionality, including the ability to place food orders over the phone. Overall, we estimate there is a market opportunity of over $1 billion in the United States for Yelp Host. With our best-in-class offering and expansive distribution, we believe we are well positioned to capture meaningful market share. We also accelerated our strategy in this area for Services businesses through the acquisition of Hatch in February and have been pleased with the team's early progress. Notably, Hatch's annual run rate revenue exceeded $34 million in March, up 92% year-over-year. Looking ahead, we see considerable opportunity for significant growth, and we have added Yelp go-to-market and engineering resources to advance Hatch's growth initiatives. Lastly, we are extending our reach to power local discovery across the AI ecosystem through data licensing. In the first quarter, we secured new licensing agreements, including with OpenAI and expanded our integrations with existing partners. Consumers can now find licensed Yelp content on Amazon Alexa, Apple Maps, Microsoft Bing, Meta.ai and Yahoo, among many other platforms. We expect the operating environment for local businesses to remain challenging this year. As such, we have allocated meaningful resources to drive growth in other revenue through AI-driven offerings such as Yelp Host, Hatch and data licensing. As these accretive revenue streams continue to gain traction, we are targeting an annual run rate of $250 million in other revenue by the end of 2028, more than double the run rate delivered in the first quarter of this year. In summary, we continue to make significant progress transforming Yelp with AI in the first quarter as we focus on deepening the connection between consumers and businesses. We're confident in our plan for the year and believe that our initiatives will position us to drive profitable growth over the long term. With that, I'll turn it over to David. David Schwarzbach: Thanks, Jeremy. Turning to our first quarter results. Net revenue increased by 1% year-over-year to $361 million, $6 million above the high end of our outlook range. Net income decreased by 27% year-over-year to $18 million, representing a 5% margin. Adjusted EBITDA decreased by 7% year-over-year to $79 million, $15 million above the high end of our outlook range, representing a 22% margin. As Jeremy mentioned, local businesses have faced a challenging operating environment, which is reflected in our advertising metrics for the quarter. Services ad revenue increased by 1% year-over-year to $234 million, while RR&O ad revenue decreased by 11% year-over-year to $99 million. A decrease in both services and RR&O locations resulted in an overall decline of 6% year-over-year in paying advertising locations to 485,000. Ad clicks declined by 10% year-over-year in the quarter, driven by lower consumer demand in RR&O categories, partially offset by a slight increase in services categories. Average CPC increased by 8% as advertiser demand outpaced consumer demand. Moving to other revenue. Other revenue increased by 75% year-over-year to a record $29 million. This strong growth was driven by the inclusion of revenue generated by Hatch as well as significant growth in revenue from data licensing and food ordering. Turning to expenses. In 2026, we're investing behind high-return areas that we believe will transform Yelp and reaccelerate growth. As Jeremy mentioned, we believe we can drive significant growth in other revenue, and we have reallocated resources behind these high-growth areas to better capture the opportunities ahead. At the same time, we see substantial opportunities to unlock operational efficiencies and increase employee productivity with AI, giving us increased confidence in the margin potential for our business. As a result of these top and bottom line efforts, we believe we can drive strong growth in adjusted EBITDA margin over the next several years. We reduced stock-based compensation expense as a percentage of revenue by 2 percentage points year-over-year to 8% in the first quarter. We expect the impact of this effort, combined with continued share repurchases to stack over time and benefit GAAP profitability in the years to come. We also continue to expect that we will reduce stock-based compensation expense to less than 6% of revenue by the end of 2027. Our approach to capital allocation remains focused on three priorities: investing in strategic transactions, driving traffic acquisition and returning excess capital to shareholders through share repurchases. In the first quarter, we repurchased $125 million worth of shares at an average price of $24.58 per share, reflecting our disciplined approach and contributing to a 12% year-over-year decline in diluted shares outstanding. As of March 31, 2026, we had $414 million remaining under our existing repurchase authorization. We plan to continue repurchasing shares in 2026, subject to market and economic conditions. Turning to our outlook. We anticipate that the challenging economic environment for local businesses will persist into the second quarter and continue impacting advertising revenue across categories. At the same time, we expect our investments in our strategic initiatives to drive strong growth in other revenue. As a result, we anticipate second quarter net revenue will be in the range of $363 million to $368 million. For the full year, we continue to expect net revenue will be in the range of $1.455 billion to $1.475 billion. Turning to margin. We expect expenses will increase sequentially as we invest in our AI transformation and increase marketing spend. As a result, we anticipate second quarter adjusted EBITDA will be in the range of $70 million to $75 million. For the full year, we continue to expect adjusted EBITDA will be in the range of $310 million to $330 million. For the second quarter and full year, our expected adjusted EBITDA ranges exclude accrued acquisition and integration-related payments for continuing Hatch employees of approximately $4 million and $13 million, respectively, which we do not believe are indicative of our ongoing operating performance. In closing, Yelp's first quarter results reflect continued product momentum as we invest in our AI transformation. We continue to believe in the opportunities ahead and our ability to create long-term shareholder value. With that, operator, please open up the line for questions. Operator: [Operator Instructions] Our first question for today comes from the line of Sergio Segura with KeyBanc. Sergio Segura: Maybe just starting out on the quarterly performance and the full year guide. Congrats on achieving revenue and EBITDA above the high end of your guidance outlook for Q1. Just curious why the guide was maintained here? Was Q1 from a macroeconomic perspective, a little bit better and Q2 a little bit worse? Could you just explain the reasoning why Q1 came in better than expected, but you're maintaining your full year outlook? David Schwarzbach: Sergio, this is David. Thanks for the question. Q1, we were pleased with the performance in Q1. That being said, we did see a dynamic in the March month around the conflict in the Middle East, which had an impact on budgets from advertisers. And -- just as a reminder, the dynamics that we saw in 2025, they did persist into the first quarter, but we saw that further playing out in March. So while we've seen improvement in April, and it's more in line with our typical seasonal ramp, we are operating under the expectation that, again, these dynamics are going to continue to play out over the course of the year. And some of that March softness does persist into the second quarter. So it does carry through. So that's how we are thinking about the performance plus the continued uncertainty, which is reflected in the overall guidance for the year. Sergio Segura: Understood. That makes sense. And then maybe a bigger picture one. I appreciate the $250 million run rate target you gave for other revenue by the end of 2028. Maybe if you could just elaborate on kind of the drivers and main components you see to achieving that target by that time frame. David Schwarzbach: Absolutely. So we see three components there, and I'll talk just a little bit about how they contribute and then turn it over to Jeremy to talk more strategically about the approach that we're taking. In the first quarter, as we mentioned or just to step back, as a quick reminder, other revenue consists of three components. One is transaction revenue. In the first quarter, we saw that grow 88%. As Jeremy already mentioned, that's around the DoorDash partnership. We continue to see momentum in the second component, licensing, which we're very pleased with and continue to see a large opportunity there. And then third, obviously, Hatch. So we see the opportunity for all three of those areas to contribute over the next several years. Jeremy Stoppelman: Thanks, David. I'll hop in with a little bit more color. We're very excited about the opportunities we have to really ride this AI wave and take an offensive position here. With Hatch and with Host, those are really greenfield opportunities. Closed the transaction with Hatch in February. That's going really well, 92% annual run rate revenue growth year-over-year, $34 million run rate in March. So we're really pleased with that. And we've taken the opportunity to surge resources there, in particular, on the product and engineering side to support the business as well as the go-to-market side. It's a huge opportunity. There's a lot of share to be had, and we want to make sure to lean in there. We also have been developing the opportunity around our Host, which is our phone answering service for restaurants, really great response from customers, great go-to-market activity. And then we just talked about the progress we're making on the product side in the letter. And one of the major unlocks we've got coming very soon is food ordering over the phone. And so that allows us to take a market opportunity that was already exciting and makes it even more exciting, talk to lots of restaurants that maybe don't have front of house, don't need that integration that Host provides, but would love to take food orders. So we see tremendous opportunity there. And we've built out a lot of that experience. We're in live testing now. And so we'll keep you posted on that. And then finally, we've got the data licensing business, which obviously, we've been in that business for a long time, particularly with search, have had some great relationships there that have driven revenue as well as traffic. And really, our focus is to apply that playbook once again to this really exciting opportunity to power local search for AI players as well as, of course, our own products, but bringing the great high-quality human written content to all of these new large audiences, I think, is really exciting, both from a revenue standpoint from a marketing standpoint, having the Yelp brand and our great content out there. And then ultimately, there will be relevant links back where it makes sense for consumers, and that can drive meaningful traffic over the long term. So we see within that other area, just a lot of AI opportunities that are already growing really fast, and we have opportunities to go even faster. Operator: Our next questions are from the line of Cory Carpenter with JPMorgan. Cory Carpenter: I had two related to EBITDA. David, I did think it was notable you mentioned your expectation for strong growth in EBITDA margins over the coming years. Could you just elaborate a bit on that comment? How much of that is due to some of these core business efficiencies you're seeing from AI? How much of that is due to maybe perhaps a higher-margin nature of some of these emerging revenue streams you have? And then more near term, the 1Q EBITDA beat was rather significant. So just any comments on what drove the upside in the quarter. David Schwarzbach: Thanks for the question, Cory. So in terms of the longer term, we're very encouraged both on the revenue potential as well as the opportunity to drive productivity. On the revenue potential side, and again, I think we'll ask Jeremy to add some comments here. We are seeing accelerated product development and time to ship. That was already emerging, as we've shared previously, really as we move through '24 and '25. And I'd just say that our product-led growth strategy has really been working and the capabilities that are now available with AI are further enhancing that. That's particularly true about for newer products where you have more freedom to drive that change compared to maybe some of the improvements that we're making on the experience that we've had where you have a larger code base. So that's certainly something that we're excited about that ability to really innovate and deliver features more quickly and drive revenue, also respond to customer feedback, consumer dynamics. That's a really positive feedback loop there. And then obviously, we made the acquisition of Hatch, which is an AI-driven product in order to enhance lead management. So lots of, lots of opportunity to continue to push forward on the revenue side. And then on the productivity side, I already touched on what's happening in product and engineering. That's a common theme, I think, across companies. But we're really also starting to see that play out in the sales and marketing side. And we're even able to take the capabilities that we're building for consumers like our voice product in Yelp Host and apply that on our customer success side and being able to answer calls. And then I think it's still emerging, but there's certainly opportunity for productivity in the G&A function. So when you combine those, we do feel optimistic on our ability to generate incremental margin over the next few years, and we think that could be quite substantial. And then before I turn it over, just to address your question on the first quarter, as you know, over the years, as we've been able to outperform our guidance, we've flowed through that incremental revenue to EBITDA that also took place once again in the first quarter. We also saw some benefits around capitalized software development, and then there's just the normal puts and takes across some of the other operating line items. Jeremy, perhaps you could expand a little bit on what we're seeing with product development and velocity. Jeremy Stoppelman: Yes, happy to outline. We are adopting all of the modern tools, and we're starting to see signs of real productivity gains. Things like migrations come to mind where something that would maybe take three months has taken more like three weeks. So that's fantastic. I think a significant portion of our code at this point is AI generated like many others have reported. So we're very optimistic that we're going to see continued acceleration in terms of product development velocity in the coming months. Operator: Our next question is from the line of Colin Sebastian with Baird. Colin Sebastian: I have a couple of questions. I guess, first, regarding some of the disclosures around Yelp Assistant and Request-A-Quote projects. I guess any more detail on how materially different those interactions are in terms of conversion into paid leads and book jobs and ultimately advertiser ROI? And then secondly, I guess, maybe as a follow-up in terms of what you've been saying and disclosing around your relationships with other surfaces like OpenAI and Apple and others. But are these partnerships generating mostly referral traffic, off-platform monetization? Any other takeaways, I think, could be useful as those relationships become more important over time. Jeremy Stoppelman: Sure. Happy to answer that. This is Jeremy. So on the Yelp Assistant side, particularly with the services focus and Request-A-Quote, we have seen incremental projects as we've rolled out Yelp Assistant, particularly the services version that's been around now for a couple of years and seeing gains there. And in fact, we noted that of Request-A-Quote projects, 15% now are driven by Yelp Assistant, and that's up from about 5% last year. And so we feel really good about what our LLM-powered flow has been able to do to move the needle in terms of projects. And in fact, we're doubling down there and we've invested a lot more in bringing the power of Yelp Assistant across to all categories. We just launched that in April. The early signs are really good. So we're excited. Obviously, it's kind of the first inning of the rollout. We have a lot more to do in terms of weaving it into the overall product experience. But we're quite excited about it. We think it helps consumers ultimately find needles in the haystack and really get more out of the incredible depth of content that we've had. If you think about a consumer experience prior to the invention of LLMs, we might have 1,000 reviews on a particular place, but there is no possible way that a human could dig through that and really make sense of all the valuable information that's been submitted by users over the years. And now with Yelp Assistant, we can actually tap into that and provide the evidence back to the consumer of, hey, this is why it meets your needs, here's some quotes from users. I think that's really powerful. I think that our expectation and hope is that we can move the needle with that over time. And so we're just getting started there. On the partnership side, the data licensing side with some of the AI players, I think it speaks, number one, to the importance of Yelp and the overall AI ecosystem. If you want to provide a local search experience powered by AI, you really need to be grounded in reality and you need to have very high-quality human written content, and that's exactly what Yelp has. And so a while ago, maybe a year or two ago, we started highlighting that we believe that there was an opportunity here, and it's really played out along with our expectations. And we've signed with a number of big names. We talked about Amazon Alexa, Apple Maps, we've been able to see our content for quite some time, Microsoft Bing, Meta.ai, Yahoo and many others, and we've announced a deal with OpenAI. As far as the maturity of that sector, I think it's extremely early. Many of these players have not really built out their local experience yet. They're just realizing that they need high-quality human written content like Yelp. And so it's very early. But I do think there are certainly opportunities, one, for just Yelp exposure, branding, et cetera. But then there is also opportunities for traffic back where it's relevant and is helpful to the consumer. And so I think we will see that over time. But again, like some of these players haven't really even launched their experience yet. So we're even before the first inning, I would say, in this whole area. Operator: Our next question is from the line of Nitin Bansal with Bank of America. Nitin Bansal: So just double pressing on the OpenAI partnership. So when I search for restaurants or local recommendation on ChatGPT today, Yelp content appears relatively limited versus sources like Reddit, OpenTable, Tripadvisor. Can you help us understand the scope of the partnership today, specifically like how OpenAI is leveraging your data and where Yelp content is surfacing? And what needs to happen for Yelp to become more visible or primary source within these AI services? And secondly, one for David. You shared guidance on the other revenue segment like the 2028 run rate. But how should we think about the trajectory of growth in this segment over the next few quarters? And what does it mean for your advertising given the overall revenue guide remains unchanged? Jeremy Stoppelman: This is Jeremy. I'll hop in with the first question on the OpenAI partnership that we announced. At this point, we've announced the partnership. And as far as the experience that OpenAI is planning, like we can't really comment on that nor do we have all the details of their plans. Obviously, they're moving really fast and innovating quite quickly and things are changing within their own experience very rapidly. So I would just say, continue to watch that space, but I can't really comment on what they're up to. David Schwarzbach: Thanks for the question. So in terms of other revenue, again, we have the three components to it: transaction revenue in the first quarter growing 88%. Then we've shared with you the run rate revenue as of March for Hatch at 92% growth. And we do continue to sign up licensing agreements and entering into new partnerships, which contributed to the overall growth of 75%. So obviously, we've reflected that performance into our guidance for the year, and we're looking forward to continuing to execute against them. I would just say the overarching perspective on our guidance this year is the degree of uncertainty that we need to reflect given the variability that we've seen, particularly for local businesses in the United States and the dynamics that we saw, which I already mentioned playing out in March from the conflict in the Middle East. So we're combining both of those in the guidance that we're providing, and we look forward to giving you an update on the Q2 call. Operator: Thank you for your questions. Ladies and gentlemen, that will conclude our questions for today, and it will also conclude today's Q1 2026 Yelp Earnings Conference Call. Thank you all for attending. We appreciate your time. Have a great rest of your day. Take care.
Operator: Thank you for standing by. My name is Carla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Karat Packaging First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Roger Pondel. Please go ahead. Roger Pondel: Thank you, operator. Good afternoon, everyone, and welcome to Karat Packaging's 2026 First Quarter Conference Call. I'm Roger Pondel with PondelWilkinson, Karat Packaging's Investor Relations firm. It will be my pleasure momentarily to introduce the company's Chief Executive Officer, Alan Yu; and its Chief Financial Officer, Jian Guo. But before I turn the call over to Alan, I want to remind our listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the Risk Factors section of the company's most recent Form 10-K as filed with the Securities and Exchange Commission and copies of which are available on the SEC's website at www.sec.gov, along with other company filings made with the SEC from time to time. Actual results could differ materially from these forward-looking statements, and Karat Packaging undertakes no obligation to update any forward-looking statements, except as required by law. Please also note that during today's call, we will be discussing adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share and free cash flow, all of which are non-GAAP financial measures, as defined by SEC Regulation G. A reconciliation of the most directly comparable GAAP measures to the non-GAAP financial measures is included in today's press release, which is now posted on the company's website. And with that, I will turn the call over to CEO, Alan Yu. Alan? Alan Yu: Thank you, Roger. Good afternoon, everyone. We began 2026 with a robust first quarter. Year-over-year sales increased almost 13% with momentum building throughout the quarter. Our performance during the quarter accelerated significantly, starting with modest weather impacted growth in January to growth exceeding 20% in March, which included some pull forward of orders. The acceleration reflected improving demand, strong execution across the organization and continued gain in the market share. Notably, our online sales, which are typically at a higher contribution margin, returned to robust growth this quarter after we pivoted to grow and fulfill our own online sales on our company storefront and third-party platforms. Compared to the prior year quarter, online sales increased almost 10% to $19.5 million in the first quarter of 2026 from $17.8 million in the prior year quarter, with momentum building steadily throughout the first quarter, achieving 19% year-over-year growth in March 2026. Gross margin remained resilient at 35.5% despite the continued impact of higher tariffs. This performance demonstrates the effectiveness of our diversified sourcing strategy and was further supported by a favorable product mix and pricing. As we look ahead, we are closely managing a dynamic cost environment given the sharp increase in oil prices and the resulting impact on product costs, we are implementing price increases on select plastic items beginning in the middle of this month. While certain sourced product costs are rising, we expect tariff saving under the current trade policy to begin reducing cost of goods sold this month. These savings should partially offset inflationary pressure and together with our pricing action, we expect to support gross margin stability. Importantly, we are well positioned to continue gaining market share amid ongoing rising supply challenges. Our strong inventory position and disciplined supply chain execution give us confidence in our ability to consistently serve customers and meet demand. Turning to innovation and sustainability. Our paper bag product category continued to expand steadily, driving a year-over-year increase in eco-friendly product sales of 16.9% in the first quarter. We also successfully closed another national chain account for paper bag during this quarter, further strengthening our leadership position and reinforcing our long-term strategy in sustainable packaging solutions. Our sourcing diversification initiative continues to deliver tangible benefits. We have proactively rebalanced import volumes across geographies in response to evolving tariff structures, strengthening our cost competitiveness and consistent product availability. In this quarter, we increased domestic purchase to 18% compared to 14% in the prior year quarter and increased sourcing from Malaysia and Vietnam to an aggregate of 17% from 12% in the prior year quarter. At the same time, we reduced purchase from Taiwan in the current quarter to 46% compared to 54% in the prior year quarter and reduced sourcing from China to 11% compared to 18% in the prior year quarter. Additionally, we expanded our sourcing footprint by adding a new supplier in South America, which further reduces geographic risk and enhanced supply chain flexibility. We remain focused on providing responsive customer service and disciplined execution, which are a hallmark of Karat Packaging while advancing Karat's operational efficiencies. These efforts are reflected in better operating cost leverage, which decreased to 28.3% in the first quarter of 2026 from 31.8% in the prior year quarter. In summary, we delivered a strong start to the year, maintained margin resilience in a challenging environment and continue to invest in growth areas that align with our customer demand and long-term industry trend. I will now turn the call over to Jian Guo, our Chief Financial Officer, to discuss the company financial results in greater detail. Jian? Jian Guo: Thank you, Alan. I'll begin with a summary of our Q1 performance, followed by an update on our guidance. Net sales for the 2026 first quarter increased to $116.9 million, up 12.9% from $103.6 million in the prior year quarter. The increase primarily reflected $12.1 million in volume and mix and a $2.0 million favorable impact from pricing. Sales to chain accounts and distributors, our biggest sales channel were up by 15.1% in the 2026 first quarter. Online sales, as Alan discussed earlier, rose almost 10% over the prior year quarter and sales to the retail channel declined 12% from the 2025 first quarter. Cost of goods sold for the 2026 first quarter increased 20% to $75.4 million from $62.9 million in the prior year quarter. The increase was driven primarily by sales growth and higher import costs of $7.3 million, primarily as a result of higher import duty and tariffs, which increased from $3.4 million for the 3 months ended March 31, 2025, to $10.5 million for the 3 months ended March 31, 2026. Gross profit for the 2026 first quarter increased to $41.5 million from $40.8 million in the prior year quarter. Gross margin for the 2026 first quarter was 35.5% compared with 39.3% a year ago. The year-over-year decline in gross margin reflects the expected impact from higher input costs, which increased to 13.8% of net sales from 8.6% in the prior year quarter as well as elevated inventory adjustments as a percentage of net sales. These impacts were partially offset by lower product costs as a percentage of net sales. Operating expenses in the 2026 first quarter increased to $33.1 million from $32.9 million last year. The increase was primarily driven by higher rent expense of $0.6 million associated with the opening of the company's new Chino distribution center in March 2025, along with a $0.6 million increase in salaries and benefits. These increases were partially offset by a $0.7 million reduction in online platform fees resulting from a shift away from third-party fulfillment of online orders as well as a $0.4 million decrease in shipping and transportation costs due to lower online shipping rates. Operating income in the 2026 first quarter increased 8.2% to $8.5 million from $7.8 million in the prior year quarter. Total other income net decreased $2.9 million for the 2026 first quarter from $1.1 million in the prior year quarter. Net income for the 2026 first quarter increased 4.8% to $7.1 million from $6.8 million for the prior year quarter. Net income margin was 6.1% in the 2026 first quarter compared with 6.6% last year. Net income attributable to KARAT for the 2026 first quarter increased 5.2% to $6.7 million or $0.34 per diluted share from $6.4 million or $0.32 per diluted share in the prior year quarter. Adjusted EBITDA for the 2026 first quarter rose to $12.5 million from $11.9 million for the prior year quarter. Adjusted EBITDA margin was 10.7% compared with 11.5% for the 2025 first quarter. Adjusted diluted earnings per common share increased to $0.34 for the 2026 first quarter from $0.33 per share in the comparable prior year period. We executed strong working capital management during the first quarter, generating operating cash flow of $7.2 million and free cash flow of $6.3 million despite continued heavy duty and tariff payments as discussed earlier. We paid out a regular quarterly dividend of $0.45 per share to shareholders on February 27, 2026. As of March 31, 2026, we had $90.7 million in working capital and $36.4 million in financial liquidity with another $5.7 million in short-term investments. On May 5, 2026, our Board of Directors approved a regular quarterly dividend of $0.45 per share payable May 28, 2026, to stockholders of record as of May 21, 2026. Looking ahead to the 2026 second quarter, we expect net sales to increase by approximately 8% to 10% from the prior year quarter. As Alan noted earlier, some timing shift of orders in March contributed to a softer start in April. Since then, we have replenished inventory, and we're confident in our ability to achieve our sales target. We expect gross margin for the 2026 second quarter to be within 35% to 37% and adjusted EBITDA margin to be within 11% to 13%, excluding potential tariff refund impact under the current trade policy. For the full year 2026, we expect net sales to grow in the low double-digit range over the prior year. We expect gross margin for the full year 2026 to be within 34% to 36% and adjusted EBITDA margin to be within 11% to 13%, excluding potential tariff refund impact under the current trade policy. As Alan mentioned earlier, we are seeing accelerated growth in our pipeline, reflecting our strong market positioning and initiative to continue gaining market share in a dynamic trade and supply chain environment. We expect to continue to drive top line growth sustain our gross margin and continue to deliver strong profitability with enhanced operational efficiency and disciplined cost management. Alan and I will now be happy to answer your questions, and I'll turn the call back to the operator. Operator: [Operator Instructions] Our first question comes from the line of George Staphos with Bank of America. Kyle Benvenuto: This is Kyle Benvenuto on for George. You noted the sharp increase in oil prices is pressuring costs across sourced products and plastics. Within both your 2Q and 2026 margin guidance ranges, what oil price assumptions are embedded? And at what point would the mid-May plastic price increases no longer be sufficient to protect the 34% margin floor for the year? Alan Yu: Well, here's what we see on the oil prices. Yes, you're correct. Oil price has gone up and raw material has gone up sharply. But the issue is we were able to negotiate with our vendor to support a less increase versus the full increase impact of the oil prices. So majority of our partner vendors overseas have absorbed majority of the increases. So that's -- and also, that's where we're seeing that -- we're giving minimum increase in the May 15 to June area. That's how I see it. Is there going to be escalating -- is this tension going to escalate more? Right now, we see that the resin price has stabilized in Asia. It has come down a little bit also. So we do not see at this point that the raw material prices will go up even higher from this point. Kyle Benvenuto: Thank you Alan. And then one more question for you, and I'll turn it over. Your guidance points to 8% to 10% sales growth for 2Q. How much of this is driven by the expansion of new national accounts versus organic volume growth from your existing customer base? Alan Yu: We're seeing a sharp increase in our online sales portion of our business. For example, last month, April, we topped our record over double digit in terms of online sales. And we do foresee that this quarter, we will have a record sales online as well. Last year, we did about $72 million to $73 million online revenue. And this year, we are on track for $100-plus million on online revenues. So majority of the growth -- actually, a big chunk of the growth is from online sales revenue. From our national chain accounts, yes, we do see some of the national chain pipeline converting to revenues. So that is also a segment that we do see a growth in the national chain account, especially its summer season, most of these chains are going to increase their order for their drink cups and carriers as well as the deli part of our food segment of our business is we will expect an increase in that segment as well. So these are all organic growth, by the way. Operator: The next question comes from the line of Ryan Meyers with Lake Street Capital Markets. Ryan Meyers: First one for me, I just want to make sure I understand this dynamic correctly. And Alan, you had called out the 20% growth that you saw in the month of March. And then obviously, the second quarter guidance is only 8% to 10% revenue growth. So it sounds like you guys saw some pull forward in order demand that drove the strength in March and then things kind of stabilize a little bit in the second quarter. That's where that delta is between that 20% and that 8% to 10% growth is. It's not necessarily the business is slowing... Alan Yu: No, it's not. And also, we want to be conservative in terms of our growth numbers. We do expect our full year guidance to be in range with what we have guided earlier this year. So second quarter, we're seeing some softening in April because of the pull forward from March. And in this month, so far, we're seeing a very positive revenue growth in terms of May. But that -- then we want to be conservative and cautious in terms of making sure that we meet the guidance or exceed the guidance. Ryan Meyers: Yes. Fair enough. No, that makes sense. And then just thinking in terms of pricing, you called out that in the prepared remarks and talked a little bit about that. But how much price do you feel like needs to be taken for you guys to preserve your gross margins? And then thinking about that, industry-wide, what does your price increases look like compared to competitors? Are you still feeling like you're priced below where the market is and that's allowing for some of those share gains? Alan Yu: Yes. We're hearing that our price announcement was 5% to 15% depending on category-wise. And our peer group are seeing to have a price increase of 8% to 12%. So we are in the lower range of the price increase among our peer group because we do want to -- we understand that this is a difficult environment that foodservice is having a challenging year and all the beef prices are up. So we do want to support our partners in this term. So basically, we're actually announcing a lower price increase. But because of some help with the tariff that in the past, past 6 or 9 months, we were paying 20% tariff. Now we're down to 10% tariff. There may be changes in July and August. But at least for now, we're seeing a 10% tariff reduction is helping our gross margin a lot. So that's where we see that. We do see a stronger gross margin for this quarter versus the prior quarters. That's why we're saying that our net sales should be -- we should be on track with our net sales. Operator: And the next question comes from the line of Ryan Merkel with William Blair. Benjamin Schmid: This is Ben Schmid on for Ryan. First question here, just to put a finer point on March and April. Is there any way to size the pull-forward impact in March? It sounds like April might have been down. So just a finer point there would be great. Alan Yu: I would say that about $2 million were pulled forward from April to March. Benjamin Schmid: Okay. Got it. And then last one for me. So I know you guys mentioned a win this quarter, but any other updates on the pipeline of potential wins you guys discussed last quarter? Alan Yu: We are working with very large chains, actually a few large chains that might be converting in this quarter or at least next quarter. But this quarter, we are converting some of the existing customers, adding additional SKUs to the existing customers, such as -- their eco-friendly product line and paper bags. So that's what we're seeing right now. Operator: And we have no further questions at this time. I would like to turn it back to Alan Yu for closing remarks. Alan Yu: Thank you, everybody, for joining our conference call on first quarter Karat Packaging earnings. We look forward to seeing you next time. Thank you very much. Have a wonderful day. Bye-bye. Operator: Thank you. Ladies and gentlemen, this now concludes today's conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Synaptics Third Quarter Fiscal 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Munjal Shah. Please go ahead. Munjal Shah: Good afternoon, and thank you for joining us today on Synaptics' third quarter fiscal 2026 conference call. My name is Munjal Shah, and I'm the Vice President of Investor Relations. With me on today's call are Rahul Patel, our President and CEO; and Ken Rizvi, our CFO. This call is being broadcast live over the web and can be accessed from the Investor Relations section of the company's website at synaptics.com. In addition to a copy of our earnings press release detailing our quarterly results, a supplemental slide presentation and a copy of these prepared remarks have been posted on our Investor Relations website. Today's discussion of financial results is presented on a GAAP financial basis, along with supplementary results on a non-GAAP basis, which excludes share-based compensation, acquisition-related costs and certain other noncash or recurring or nonrecurring items. All non-GAAP financial metrics discussed are reconciled to the most directly comparable GAAP financial measures in our earnings press release and supplemental materials available on our Investor Relations website. As a reminder, the matters we are discussing today in our prepared remarks, in our supplemental materials and in response to your questions may contain forward-looking statements. These forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. Although Synaptics believes the estimates and assumptions underlying these forward-looking statements to be reasonable, the statements are subject to a number of risks and uncertainties beyond our control. Synaptics cautions that actual results may differ materially from any future performance suggested in the company's forward-looking statements. Therefore, we refer you to the company's earnings release issued today and our current and periodic reports filed with the SEC, including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements speak only as the date hereof. Except as required by law, Synaptics expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Rahul. Rahul Patel: Thank you, Munjal. Good afternoon, everyone, and thank you for joining our fiscal third quarter 2026 earnings call. Fiscal third quarter marked our sixth consecutive quarter of double-digit year-over-year revenue growth, driven by 31% year-over-year increase in our core IoT products. We are seeing improving momentum and delivering consistent performance across the business. Our non-GAAP gross margin was above the midpoint of our guidance range and non-GAAP earnings per share of $1.09 was at the high end of the guidance and increased 21% year-over-year. Let me start by highlighting the accelerating adoption we are seeing in physical AI and Edge AI with customer engagements continuing to expand. Last quarter, we announced our first humanoid design with a leading OEM for our touch controller and interface solutions. Since then, we have sampled silicon to 3 additional OEMs and our robotics pipeline has grown to more than 35 customers globally, including a leading generative AI OEM. Customers are adopting our AI-enabled touch controllers for tactile sensing. Our capacitive sensing technology measures subtle changes in compressible layer to detect force, slip and proximity, enabling robots to handle objects, maintain grip and respond in real time. This capability extends beyond the hand to other contact surfaces, including the feet. These tactile controllers can pair with our Astra processors to aggregate sensor inputs and run AI locally, enabling real-time decision-making, improving response time and reducing the load on the robot central compute. In addition, our wireless portfolio, including Wi-Fi, Bluetooth and GPS GNSS, supports reliable connectivity as robots move and coordinate with one another and the network. Further, our interface technology enables high bandwidth transport within a robotic system. For example, one of our customers is using it to interconnect multiple displays in a humanoid. Our content opportunity in robotics is substantially higher than in our other markets. Synaptics' broad and differentiated portfolio across processing, connectivity, sensing and interface solutions uniquely positions us to address this opportunity. New use cases continue to emerge and our engagements are expanding with a growing set of customers. While still early, I am excited about this promising growth vector for Synaptics. This quarter, we also made solid progress in our partnership with Google, which continues to be a key driver of our Edge AI strategy. We launched next-generation Coralboard powered by our Astra SL2610 processor and featuring the industry's first implementation of Google's Coral NPU integrated with Synaptics' Torq NPU architecture. The Coralboard provides developers with a turnkey platform to move quickly from prototyping to production and bring generative AI directly onto the device. In the coming weeks, we and our partner will showcase Astra processor technology powering Google Gemma and other leading AI models at a high-profile industry event. At this event, we will also make the platform available to developers, system architects and OEMs looking to build real-world edge AI applications. Next, let me update you on the next generation of our Astra SR series microcontrollers, a semi-custom AI native platform targeting emerging wearable applications. We successfully taped out the SoC last month and expect to begin sampling in the fall. The platform includes Synaptics' PMIC and a microcontroller that integrates advanced power management, Google's Coral NPU, our Torq NPU and a flexible memory architecture to deliver high-performance, low-power Edge AI processing. For the initial variable application, our solution delivers up to 2 times battery life and reduces bill-of-materials by roughly 50%. Beyond this initial design, the SR-series represents a new class of AI-native microcontrollers that can extend across wearable platforms and into a broad range of Edge AI applications. Turning to design traction, we are securing Astra processor wins across multiple applications in various end markets. Notably, our processors are designed into a new class of medical devices that bring diagnostic imaging to a patient's home, extending access to healthcare in rural and underserved regions. This customer selected Astra for its price performance, design flexibility, ease of software and hardware integration, and for the ability to run AI models locally on the device. We also secured a win in industrial with a leading North American fleet management OEM, where our ultra-low power vision platform provides intelligent asset monitoring. Our pipeline continues to expand across consumer and industrial markets, with increasing traction in IoT hubs, gesture-driven streaming devices, industrial gateways, UAV navigation and positioning, and smart home systems. Our key differentiation lies in tightly integrating compute and connectivity into a solution-oriented, software developer friendly platform, designed to reduce system complexity while enabling scalable and high-performance Edge AI deployments. Finally, we had a successful launch of our Astra-enabled Connected MCU at Embedded World, where it received a Best in Show award in the Microcontrollers, Microprocessors & IP category. This device is the industry's first to integrate Wi-Fi 7 and Bluetooth 6.0 connectivity with Edge AI compute in a monolithic SoC, delivering a highly differentiated solution. Customers are particularly attracted to its ability to concurrently host Bluetooth and Wi-Fi stacks, as well as the host application, enabling greater integration and efficiency. In addition, the integrated NPU in this SoC allows customers to develop and deploy differentiated AI features. We are currently sampling the product with multiple customers across a range of applications, including industrial power, home appliances, and security cameras. Turning to Enterprise and Mobile Touch, demand from our enterprise customers continues to improve steadily. We remain focused on the premium tier of the market and will continue to closely monitor demand trends. In Mobile Touch, while some customers are navigating near-term challenges related to memory supply, we believe that we remain well positioned with some leading OEMs that are gaining share. We are currently shipping into the majority of flagship phones at a leading Korean OEM. We are also encouraged by our design wins in foldable smartphones and expect customers to launch new products in the second half of the calendar year. While still early, broader adoption of foldable smartphones by major OEMs has the potential to drive overall market growth. To summarize, we are gaining strong traction in Physical AI and expanding our presence across a broad set of Edge AI markets. We are executing on our product roadmap, delivering highly differentiated products and solutions, and deepening our engagement with customers and ecosystem partners. These efforts position Synaptics for long-term growth and value creation. I will now turn the call over to Ken to review our third quarter financial results and outlook for our fiscal 2026 fourth quarter. Ken Rizvi: Thank you, Rahul, and good afternoon, everyone. I will focus my remarks on our non-GAAP results which are reconciled to GAAP financial measures in the earnings release tables found in the investor relations section of our website. Now let me turn to our financial results for the third quarter of fiscal 2026. Revenue for fiscal Q3 was $294.2 million, above the midpoint of our guidance and up 10% on a year-over-year basis driven by strength in our Core IoT products. The revenue mix in the third quarter was 30% Core IoT, 57% Enterprise and Automotive and 13% Mobile Touch products. Core IoT product revenues increased 31% year-over-year, driven primarily by continued strength in our wireless connectivity products. Enterprise & Automotive product revenues were up 9% year-over-year as we are seeing a recovery in our enterprise portfolio. And Mobile Touch product revenues decreased 16% year-over year. Third quarter non-GAAP gross margin was 53.6%, slightly ahead of the mid-point of our guidance. Third quarter non-GAAP operating expenses were $104.6 million, better than the midpoint of our guidance. Our non-GAAP operating margin was 18.1%, up approximately 260 basis points year-over-year and non-GAAP net income in Q3 was $44.1 million. Non-GAAP EPS per diluted share came in toward the higher-end of our guidance at $1.09 per share, an increase of 21% on a year-over-year basis. Now let me turn to the balance sheet. We ended the fiscal third quarter with approximately $404 million in cash and cash equivalents, reflecting $39 million of share repurchases in Q3. Through April of 2026, we have completed $93 million of share repurchases this fiscal year. Cash flow from operations was $21.8 million in the third fiscal quarter. Capital expenditures for the third quarter were $11.9 million and depreciation for the quarter was $7.9 million. Receivables at the end of March were $162.5 million and the days of sales outstanding were 50 days, up from 39 days last quarter. Our ending inventory balance was $161.3 million and days of inventory were 106 days, compared to 101 days at the end of the last quarter. Now, turning to our fiscal 2026 fourth quarter guidance. For Q4, we expect revenues to be approximately $305 million at the mid-point, plus or minus $10 million. Our guidance for the fourth quarter reflects an expected revenue mix from Core IoT, Enterprise & Automotive, and Mobile Touch products of approximately 33%, 54%, and 13%, respectively. We expect our non-GAAP gross margin to be 53.5% at the mid-point, plus or minus 1% and non-GAAP operating expenses in the June quarter are expected to be $105 million at the midpoint of our guidance, plus or minus $2 million. We expect non-GAAP net interest and other expenses to be approximately $2 million and our non-GAAP tax rate to be in the range of 13% to 15% for the fourth quarter. Non-GAAP net income per diluted share is anticipated to be $1.20 per share at the mid-point plus or minus $0.15, on an estimated 40.4 million fully diluted shares. This wraps up our prepared remarks. I would like to turn the call over to the operator to start the Q&A session. Operator? Operator: [Operator Instructions] Our first question comes from the line of Ross Seymore with Deutsche Bank. Ross Seymore: A couple of questions. I guess the first one on the core IoT side of things. In the near term, it looked like it was a little weaker than you expected in the March quarter, but seems to be gaining that back in June. So in the near-term side, what's causing that volatility? And then perhaps more importantly, longer term, you rattled off a whole bunch of good wins and traction in the Astra platform. How should we think about the revenue contribution of that folding in into the second half of this year and into calendar year and into calendar '27 as well? Has that become a meaningful tailwind? And if so, when? Ken Rizvi: So Ross, maybe I'll take -- this is Ken. Thanks for the question. I'll take that first part, and then I'll turn it over to Rahul on the second piece. But on the first piece, if you look -- and if I just step back, Ross, right, for the year and for -- based on our guidance for Q4 for Core IoT, we're going to do north of $385 million for Core IoT at the midpoint. That grows by north of 40% on a year-over-year basis. And so there are always some movements quarter-to-quarter. But if I just step back, look at the business from a 30,000-foot view standpoint, we're seeing still very, very solid performance here throughout 2026 for Core IoT. And there will always be some movements here and there quarter-to-quarter. But in general, really very excited about the performance this year by the team. Rahul Patel: Ross, this is Rahul. Regarding the IoT ramp on Astra processors. Well, I think we have stated in the past that we anticipate meaningful ramp in calendar 2027, and that remains. A couple of things. I indicated on the prepared remarks that we have taped out our semi-custom solution targeted towards end product, that's with a very large OEM. That is anticipated to go into production in the first half of calendar '27 and in the end products sometime about now next year and ramp up very nicely in the second half of '27 as well. And regarding some of the design wins in robotics and physical AI, as you probably know, there's a lot of activity. There's a lot of market forecast. At this point, we are being very cautious in including those numbers in our plan for '27, largely because it's openly talked about as well. I think various research puts the numbers at very large quantities. However, in my opinion, it's still a greenfield. And so we're not taking a lot of that into our '27 plan. What I will reiterate something that was in the remarks as well, that the dollar content is substantially different, materially higher than what we have seen in end products like Synaptics in the past. And so I remain excited about the opportunity in physical AI. I am seeing the conviction in the larger customer base around the capabilities, IP, product and technology that Synaptics brings to some of these platforms by virtue of the acceleration that we are seeing in our engagement and design activity with our customers and how quickly some of these engagements are turning into us shipping silicon. I mean, in one situation, in that case, pilot runs in a couple of other situations, I would be specific, maybe 3, we've shipped samples. And so all of that is TBD in terms of material revenue, but Astra family of products and connectivity, definitely looking on track for '27. Ross Seymore: Perfect. And for my follow-up, just touching on kind of the PC-related and mobile-related side of things. Given the headwinds from the memory costs and all of that, and I fully realize you guys are at the premium end, so you might not be hit as hard. But how are you seeing your customers react to those pressures? Do you think that the market can still grow if we look kind of out over the next few quarters? Or is that something where they're going to eventually feel that pain as well and maybe it's a meaningful headwind? Rahul Patel: Well, I think let me respond in 2 parts, right? PC, we had a good quarter. And where we are in our fiscal Q4, the current quarter, we continue to see reasonable momentum in the demand for our products. However, like you indicated and much of the market is saying as well, right, there could be headwinds in the second half of '26. We haven't seen that just yet. But like with everybody else in the marketplace, we may not be immune to that as well if it comes about. What works, like you said, Ross, favorably for us is that our participation is in the enterprise class products and premium class products. And that potentially presents us with some form of cushion buffer because the affordability is a lot better in that class of products. But you are absolutely right. Like everybody is saying, there could be headwinds in the second half, and we may not be immune to it. Now the size and the impact may be a little different than what everybody is seeing. Regarding smartphones, as you know, there is also this challenge with memory, particularly identified in China, and we see that in our China-based smartphone shipments as a result in our touch products. However, we are gaining market share, and we're doing very well in a Korean OEM who has access to memory. And so we are a beneficiary in that situation. And so even in the Mobile Touch, I think we don't know when the memory situation recovery happens for the China OEMs. However, we are a beneficiary on the other hand, with the Korean OEM where we are gaining market share and they have access to memory. Operator: Our next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Kevin Cassidy: Congratulations on the great results. And congratulations on all the new product and design activity. I just wonder if I could ask a little more about the robotics market, very exciting. But can you describe the attach rate you're getting, just kind of a range of if you had only the capacitive touch versus whether you had all your products through the connectivity products. What would be the range of the content in robotics? Rahul Patel: Yes. Kevin, thank you for the question. I'm really personally very excited about the opportunity for Synaptics in robotics. And think of robotics as from a tactile sensing point of view, as an implementation on the backs of analog design, some localized computation that ultimately transcends the biological sensory capabilities of a human hand to a level that presents tremendous amount of robustness in adverse conditions, tremendous amount of accuracy and dexterity and also the latency of inference basically is at a different level, right? In all these vectors, you see transcending the human hand behavior basically. And so if you kind of sum it up, that is right in the alley of what Synaptics technology is capable of delivering best-in-class touch capabilities that, again, is proven and embraced extremely well in the premium class of smartphone marketplace, our AI-native processing engines and also wireless connectivity. And so being specific to your question about silicon content, currently, majority of our shipments are concentrated on tactile sensing and bus interface technologies. And you can think of the silicon content in terms of few tens of dollars per platform, largely on backs of those 2 capabilities. We are seeing early engagements on Astra and wireless connectivity, and that is additive on top of that. And to be very clear, many platforms would have one or more capabilities from Synaptics in place. And so that's how we should think about it. And so the diversity of our product capabilities and our technology and the leadership capability in each of the categories that we are in, sensing, processing and connecting and interface is what is being appreciated in these platforms. Kevin Cassidy: Great. And maybe on the pipeline you have of 35 OEMs, how does that look geographically? Rahul Patel: It's highly concentrated in advanced stages of engagement in North America, some in China and early stages in Europe. Operator: Our next question comes from the line of Neil Young with Needham & Company. Neil Young: So within Astra, I wanted to ask about the end markets. Are there any particular end markets where customer traction is moving fastest today? And then as those designs move toward production, should we think about the initial ramp as being concentrated in a few larger programs? Or is this more diversified across many smaller edge AI deployments? Rahul Patel: Neil, this is Rahul. I have indicated in the past, and I think that's exactly how it's emerging in our current design activity. Consumer will ramp up first. Industrial will follow. We are seeing industrial design wins now taking shape. I described us getting into medical equipment as well. However, I think of this as equipment that would sit at the far end of the edge in people's homes. In industrial, I highlighted, I mean, one of the many designs, but the design around fleet management. Now industrial takes a lot more in terms of validation, hardening of the platform and ramping through various regulatory "checkpoints" basically. And so it is slower to ramp than consumer and longer to hold than consumer in terms of the revenue time lines. And so that's exactly what we are seeing in our plans. Regarding your question about is it going to be singles and doubles or there's going to be one big home run customer. Clearly, I think I've indicated we have a semi-custom design done for a very large OEM, who we are very closely partnering on multiple fronts from developing the IP around processing in our platforms for neural processing and many other things to engaging in building out the platform for the end product that is targeted for mass market consumer consumption in the first space. And so there are going to be singles and doubles, and there's going to be this big home run that will come into our calendar '27 revenue profile on Astra. Neil Young: Great. That's helpful. And then I wanted to ask about gross margin as core IoT continues to become a larger mix of the business and Astra-related products begin to ramp. Should we think about the current margin level as a reasonable baseline through FY '27? Or are there other factors that can come in? Maybe just talk about where you see that going. Ken Rizvi: Neil, it's Ken. I appreciate that. So we guide 1 quarter ahead, and you can see that margin profiles in that 53.5%, plus/minus 1% for our guide. We've been at this range. I would say behind the scenes, one of the things that we've been doing well and kudos to the operations team is like other semi players, we have seen cost increases, but we've been able to absorb those and maintain very healthy gross margins. On a longer-term basis, as we think about the core IoT business and specifically, as we think about the processing and processor capabilities, those should have a margin profile greater than the corporate average. And therefore, as that scales over time, that will help the overall mix of Synaptics. Operator: Our next question comes from the line of Krish Sankar with TD Cowen. Sreekrishnan Sankarnarayanan: First one, Ken, I had a question for you on revenues and gross margins. It seems like since early '24, your revenues have been growing roughly $10 million a quarter, and I understand it's hard to forecast. I'm just wondering, is there a hockey stick recovery ahead? Or is it going to be gradual? And on the gross margin side, I'm wondering if there's any leverage in the model from a gross margin drop-through standpoint since your gross margins have been remarkably stable around the 16.5% levels over the last several quarters despite revenues inching up slowly. And I have a follow-up for Rahul. Ken Rizvi: Perfect. Okay. Thanks for the question. So if you look at the revenues, I think one of the factors over the last several quarters has been just working through, right, from the COVID boom and coming through a more challenging inventory environment post-COVID, we've worked through that inventory levels. And so inventories in the channel, even for us have been very -- have leaned out. And now over the last couple of quarters, we've been shipping towards end demand and gaining traction, as you've seen on the core IoT piece over the last several quarters. So that should continue to fuel our growth as we think about the outer years. From a margin standpoint, a lot of it is dependent because we are fabless, it is dependent on the mix and in some cases, the mix within the mix. And so as I mentioned on my last -- the last question, one of the things the team has done a really fantastic job on the operations side is there have been headwinds in cost. We've done a great job maintaining that margin profile and absorbing it. I think on a longer-term basis, the mix and the mix of some of our products such as in the processor category, those are going to help fuel the long-term margins of the company. And so that's kind of where we are today. Sreekrishnan Sankarnarayanan: That's very helpful. And then a quick follow-up for Rahul. On the Astra SR series, when will it be deployed? And is Google just partnering with you? Or are they using other silicon designers, too? Rahul Patel: Krishna, thank you for the question. The SR series is our microcontroller -- AI-native microcontroller platform. It is targeting a mass market along with what we are doing for one large semi-custom customer on this program. So I'm not sure whether I'm answering your question, but your ask was very specific to a particular OEM, and I'm not at the liberty of giving you that or divulge into the name of the OEM at this point. Operator: Our next question comes from the line of Christopher Rolland with Susquehanna. Christopher Rolland: And perhaps following up on that last one. Without divulging any customer names or details, if you could update us on the semi-custom chip opportunity. I don't know if you're able to size that or not yet? And then have you received any interest from others for semi-custom chips as well? Rahul Patel: Chris, this is Rahul. That semi-custom -- I mean, I think there was a question from Neil earlier, and I indicated, I think that semi-custom is -- the way we look at semi-custom is one that delivers a home run right off the bat, right? And I think that is how you should think about semi-custom for us. The customer has got material skin in the game, and we will build a product that differentiates their platform and ultimately uniquely takes them to the marketplace across their entire portfolio of products in that class of products, right? And so I think -- we are also in multiple discussions on semi-custom designs. However, there's not much to share at this point. But going back to the portfolio, the IP capabilities that we present, clearly, both in physical AI and edge AI, there is strong customer interest to do semi-custom opportunity. We have a very clear set of OpEx envelope to work with, and we are very judicious in how we go through and evaluate those opportunities and work through them. But there is definitely a tremendous amount of interest in doing semi-custom with Synaptics. Christopher Rolland: Excellent. And I apologize, it's a busy day if questions were asked already. I know you had some details around your Astra products, but you have a pretty extensive road map of new products coming as well, whether it's like MCU or connectivity, different flavors like Wi-Fi 7, for example. I was wondering if you could update us as to not sampling, but revenue ramps for a few of these new products. And then lastly, in the Broadcom IP purchase, I think you had -- maybe it was UWB. There was a technology, I forgot exactly what it was. I think it was UWB, it might have been something else. But you weren't sure if you were going to pursue that and put R&D resources into that. Did you ever and it seems like maybe in robotics, there could be some functionality there. Just curious what you did with that. Rahul Patel: Yes. I think -- so 2 questions, I believe, you have. First one is the Astra revenue ramp. So we've guided this is going to be calendar '27 event. We'll start seeing the ramp towards the end of the year, calendar year and obviously, material as we progress through the year 2027. Regarding various products, we have -- right now in production, 3 Astra products and in multiple customer design engagements. One is in sample stage, which is our microcontroller with NPU or being AI native with Wi-Fi 7 Bluetooth all in a single die, and that is in sample stage. And then later this year, we will, in the fall, sample the semi-custom MCU with the Google Coral NPU embedded in it as well. And so that 3 or 4 products will ramp in calendar 2027, and that will be the Astra revenue in '27. I think you had a second question, I lost track of it. Christopher Rolland: Yes. There was a -- it was a UWB. Rahul Patel: Yes, with the UWB. Yes, we do have that IP in our portfolio. And we are not doing a whole lot with it right now. However, we are consistently evaluating opportunities. UWB presents an interesting use case outside of digital car key in locationing. And so that use case absolutely is something that we constantly evaluate and especially for indoor applications. Operator: Our next question comes from the line of Martin Yang with OpCo. Martin Yang: First question on your engagement with robotics customers. Do you have direct relationship with all those 35 OEMs? Or are you able to leverage certain distributors or channel partners to engage those robotics customers? Rahul Patel: Martin, this is Rahul. All our engagements are direct at this point. And in many situations, it's direct engineering to engineering engagement largely because this is a new frontier in what the end platforms are trying to accomplish. And the depth of technology, engagement, implementation details is not something that is ready to be consumed through traditional channels like distribution. And so we are very mindful of what we do. We also have a partner that we have worked with that can get into a broader marketplace. We've announced and we have indicated that on multiple marketing forums, the partner is Grinn. And we will try to bring up other partners where they can go engage with other customers that we may not be able to scale on our own, and they help us scale. So they are a scaling partner for us. However, a majority of the designs that I described in tactile sensing are direct engagement that tactile sensing and interface are direct engagements with Synaptics. Martin Yang: One more question on robotics. So can you maybe educate us on the advantage of capacitive approach versus other potential sensing solutions, maybe optical, maybe pressure-based. Are the robotics customers taking capacitive as the winning solution? Or are they at this stage, still evaluating different approaches for tactile sensing? Rahul Patel: Yes. I think it's a very good question. And so something I indicated earlier, the performance along the lines of creating equivalency or transcending biological sensory capabilities of what a typical hand does on the dimension of robustness, latency of inference, the accuracy, the grip, all of that working in adverse conditions is going to, at some point, evolve requiring multimodal implementation and inference capabilities, and that's going to require more than one sensing capability. However, all of that probably is a roadmap item on these platforms. Today, majority of them are seeing capacitive sensing in the capability that Synaptics is bringing to the forefront, the signal-to-noise ratio capabilities, the number of channels that we support, the level of accuracy, the latency of inference, the AI-enabled touch controlling implementations. I think those are the areas where Synaptics continues to excel in the eyes of customers when they bring capacitors touch sensing versus other sensing technologies in the platform. Operator: Our next question comes from the line of Peter Peng with JPMorgan. Peter Peng: You guys pointed out just the cross-selling opportunities in the humanoid with your products. Maybe can you point us to some example of other end applications that you guys are working on that you have the opportunity to also cross-sell with your multiple products? Rahul Patel: Yes. So I think, Peter, this is Rahul. No, robotics is a very broad category by itself. Humanoid is one big platform category within robotics. And in -- if you look at the dexterous hand, right, of a robot or a humanoid, you have the opportunity to combine our AI native processing capabilities along with our touch sensing capabilities and also wireless connectivity for peer-to-peer or robot-to-robot communication or robot to the network communication, right? And so I think you can see a lot of these ultimately lends to cross-selling of and pull-through of one product on the backs of the other product because we come in with a system-level solution sale, right? We come in with some pre-integrated software capabilities to the platform. Regarding other platforms in Edge AI, absolutely. Every time there is an Astra sale, it pulls through our connectivity, right? However, I would also highlight our connectivity gets situated on many non-Synaptics processing platforms as well, and that opens the door for us to kind of ultimately bring in Astra to pair up with our connectivity. And so there's a lot of cross-selling across the company in terms of end markets going on right now. Peter Peng: Got it. And then just on the core IoT, I think the June quarter kind of implies kind of in this 20-ish percent year-on-year growth. Is that kind of the rate that we should expect before that big ramp in the first half of 2027? Maybe any color on whether that's a sustainable growth rate or maybe we have to wait for the first half to see further acceleration? Ken Rizvi: Peter, it's Ken. Thanks for the question. So I think if you look at the last year, right, we've actually had very nice growth on a year-over-year basis overall. So based on the midpoint of the guide, if you look at the core IoT segment, should be north of $385 million or so and call it, 40% plus type of growth on a year-over-year basis. There will always be some ebbs and flows quarter-to-quarter. But the goal that we outlined previously was on a longer-term basis, can we drive that core IoT business to be north of that 25% range overall. And so obviously, quarter-to-quarter ebbs and flows. But if you just step back, look on a holistic basis, and you look at this year and even last year, we've had really good performance in that portfolio. Operator: This concludes our question-and-answer session. I would now like to turn it back to Rahul Patel for closing remarks. Rahul Patel: Before we close, I want to thank our global team for their continued focus and execution. Synaptics is making solid progress on strategic priorities and expanding its position in key growth areas. Thank you all for joining us today, and we appreciate your continued support. Have a great rest of the day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Welcome to Inogen's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, May 7, 2026. I would now like to turn the call over to Lorna Williams, SVP of Investor Relations and Strategic Planning. Lorna Williams: Thank you all for participating in today's call. Joining me are President and CEO, Kevin Smith; and CFO, Jason Richardson. Earlier today, Inogen released financial results for the first quarter of 2026. The earnings release is available in the Investor Relations section of the company's website at investor.inogen.com, along with the supplemental financial package. During today's call, we will discuss non-GAAP financial measures that we believe provide useful supplemental information for investors. This information is not intended to be considered in isolation or as a substitute for GAAP financial information. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in today's earnings release and supplemental financial package, each of which is available in the Investor Relations section of our website. In addition, our discussion today will include forward-looking statements, including, but not limited to, expectations about our future financial and operating performance. We make these statements based on current expectations and reasonable assumptions. However, our actual results could differ due to risks and uncertainties. Please review our annual report and other SEC filings for a discussion of risk factors that could cause our actual results to differ materially than any forward-looking statements made today. Forward-looking statements made on today's call speak only as of today, and Inogen undertakes no obligation to update or revise these statements, except as required by law. With that, I will turn the call over to Inogen's President and CEO, Kevin Smith. Kevin Smith: Good afternoon, and thank you for joining our first quarter 2026 conference call. I want to begin by welcoming several new leaders to the Inogen team. These team additions reflect the ambition we have for the next chapter. Jason Richardson joined us as Chief Financial Officer this quarter. Jason has over 25 years of experience, mostly in large complex global medical device companies with significant leadership experience across finance and a track record of delivering results. He brings the operational depth that we need, has experience scaling med tech franchises and has respiratory industry experience, all directly relevant to what we are building. I'll let him speak to the quarter shortly. We also appointed Dominic Houlton as Chief Marketing Officer, reporting directly to me. As we operate across oxygen therapy, sleep and airway clearance, the work of building a coherent brand and a disciplined go-to-market approach across multiple disease states and channels has grown considerably in scope. Dom brings the commercial experience and strategic instincts that this moment calls for. And we announced the appointment of Vafa Jamali to our Board of Directors, which will become effective on June 5, 2026. Vafa's background spans revenue growth, commercial strategy and capital allocation. These perspectives will be valuable as we work to translate our portfolio expansion into durable financial performance. In connection with our upcoming annual meeting, the Board is asking for shareholder approval to declassify its members starting the process with the annual meeting in 2027. This is an important step to align our governance with the long-term interests of our shareholders. Turning to Q1 results. Q1 came in at $85.1 million in total revenue, representing 3.4% year-over-year growth ahead of our expectations. When we set guidance, we were transparent about what was shaping the quarter, continued strength in international, along with channel mix pressure as the U.S. market continues its structural conversion towards POCs. Those dynamics played out largely as anticipated with unit volumes growing 14% year-over-year, and our international business delivered double-digit performance. Taken together, the quarter reflects a business performing in line with our expectations and underlying fundamentals that remain healthy. U.S. sales were $34.7 million in the quarter. Today, we estimate roughly 60% of new long-term oxygen therapy patients start in a POC, up from under 40% just a few years ago. That shift benefits our B2B sales channel meaningfully, and we see it in our volume. It does, however, create a headwind in our direct-to-consumer and rental channel where patients historically came to us seeking an alternative to the oxygen tank their HME had provided. We are managing this transition with discipline. Our direct sales rep efficiency continues to improve. Demand for Inogen products is strong. We're investing deliberately to educate both patients and providers on the economic and clinical benefits of Inogen technology. Our Rove 4 and Rove 6 POCs carry an 8-year useful life versus the 5-year useful life of other POCs in the market, best-in-class serviceability and a growing body of outcomes data. That performance supports our premium positioning against pricing pressure. International sales were the clear standout in Q1. Revenue of $37.7 million represented 18% year-over-year growth. This result speaks to the quality of our commercial execution and the breadth of the opportunity ahead. Our teams have deepened relationships with key HME partners, secured important international tenders and continued expanding into new geographies, including Eastern Europe, Latin America and the Asia Pacific region. The global COPD market is large, under-penetrated and shifting steadily toward home-based care. We are well positioned and Q1 international performance is evidence of this. If the financial results reflect where we have been, the pipeline is where I want to spend most of my time because it tells you where we are going. When I joined Inogen, we were a portable oxygen concentrator company with a $400 million addressable market. Today, we operate across oxygen therapy, sleep therapy, airway clearance and digital health with an estimated combined total addressable market of over $3.4 billion. That expansion is the result of a deliberate strategy, identify adjacencies with patient overlap, enter with clinical evidence and leverage the commercial infrastructure and brand trust that we have built. Each new category we have entered follows that same logic. Now let me walk through the major milestones from this quarter. We launched the Aurora CPAP mask family in the United States this quarter, and the early read is highly encouraging. I want to be clear about why we entered this market and why we believe we can win. First, roughly 20% to 30% of our COPD patients have obstructive sleep apnea. These patients are managed by the same pulmonologists and respiratory therapists and are served by many of the same HMEs we work with every day. The channel relationships we have spent years building extend naturally into this market. What gives us particular confidence is the clinical work we completed before launch. We ran a 90-day in-home evaluation with experienced CPAP users. These individuals were already satisfied with their existing mask, yet they prefer the Aurora mask, particularly the Aurora full face mask, which was overwhelmingly favored. That is a meaningful bar to clear, and we did it. We will be presenting the full results of that study at Sleep 2026 in Baltimore this June, one of the premier sleep forums in sleep medicine. Presenting a peer-reviewed data set at this type of industry conference is how a new entrant like us builds credibility with clinicians and accelerates adoption through the HME channel. The early commercial feedback has been encouraging. HME partners and respiratory therapists have responded positively to the product and to the evidence behind it. We expect Aurora's revenue contribution to be more back half weighted as that momentum builds. We estimate the U.S. CPAP mask market at approximately $2.2 billion, growing at a high single-digit rate. So every point of market share represents roughly $20 million in potential annual revenue for Inogen We intend to earn a meaningful position in this market, and Aurora is the foundation for that. We also launched the Rove 6 portable oxygen concentrator in Brazil this quarter. This reflects the broader international expansion strategy we have been executing. We are entering new geographies with products designed for those markets, building on our established distribution relationships and extending Inogen's reach to patients who currently have limited access to high-quality portable oxygen therapy. Brazil is a meaningful market with a growing COPD patient population, and this launch continues the momentum we have built across Latin America over the past year. Simeox represents what I believe is one of the most exciting long-term opportunities in our portfolio. In this quarter, we crossed major milestones. We began patient enrollment in IMPACTS-200, our first reimbursement trial for Simeox. The trial is actively enrolling. We want to build the right evidence base to address CMS, private payers and health economic arguments for appropriate reimbursement levels. Let me remind everyone of the opportunity here. The U.S. opportunity for Simeox is an estimated $500 million TAM in non-cystic fibrosis bronchiectasis, growing at a high single-digit rate. The device carries an attractive gross margin profile and the disposable component creates a reoccurring revenue stream that makes the financial model increasingly predictable over time. And beyond the economics, Simeox addresses a patient population that is underserved. Existing OPEP devices are ineffective for a large share of bronchiectasis patients. Vest therapy works, but is bulky and not universally accessible. Simeox offers meaningful clinical differentiation and the data we are generating is designed to demonstrate that rigorously. These are the reasons why we are taking the time to do this right. Stepping back, the common thread across everything we discuss today is that the new Inogen is different from the Inogen of 3 years ago. We are a home respiratory care platform with a diversified portfolio and expanding addressable market with a commercial infrastructure and brand reputation that creates leverage as we scale each new product category. Strategically, we expect these investments in our pipeline to help drive our top line growth and advance our path to profitability. POC remains our core business and foundation. We believe we have the best durability, the longest useful life and the deepest evidence base in the category. And we are building out the clinical, commercial and connectivity capabilities to keep widening that competitive moat, but we are no longer constrained by that single market. And the new products we have launched are primarily in higher-growth markets with higher gross margin profile than our historical mix. Going forward, we have committed to at least one new product launch each year, and each launch will be held to the same standard. The trajectory we have seen gives us confidence that we are on the right path. And with that, I will turn the call over to Jason for his first earnings call as Inogen's CFO. Jason? Jason Richardson: Thank you, Kevin, and good afternoon, everyone. I'm excited to be here for my first earnings call as Inogen's CFO. I joined the company just one month ago, and I've been spending that time getting deeply into the business and getting to know the team and the opportunities ahead. What I have found reinforces why I joined. We have a strong foundation and brand, opportunities to grow and an organization that is leveraging the strength of the legacy team while building out new capabilities to support our strategy. With that, I'll turn to our first quarter performance and the outlook ahead. As Kevin mentioned, total revenue for the first quarter was $85.1 million, an increase of 3.4% from the prior year period. This exceeded our expectations. Total sales revenue for the quarter increased by 5.7% and was primarily driven by higher growth in international POCs and favorable foreign exchange rates, which more than offset lower U.S. sales. For the quarter, foreign exchange had a positive 460 basis point impact on total revenue. U.S. sales were $34.7 million, down 5% year-over-year, and international sales were $37.7 million, up 18% year-over-year and more than offsetting a strong performance in the first quarter of last year, including the impact of large stocking orders. U.S. rentals were $12.7 million, down 8% year-over-year. Both U.S. direct sales businesses were impacted by the continued channel mix shift and reduced patient counts Kevin described. Moving to adjusted gross margin in the first quarter was 44.7%, an increase of 30 basis points from 44.4% in the prior year period, primarily the result of cost improvements. Expanding gross margin over time is critical to our overall profitability goals, and we are pleased with the first quarter performance. Adjusted operating expenses for the first quarter of 2026 were $43 million, an increase of 5.1% from $40.9 million in the prior year period. Adjusted R&D expense in the quarter was $4.1 million, an increase of $0.9 million versus the prior year as we are investing in clinical evidence generation and new product development that we believe will differentiate Inogen over the long term. Adjusted SG&A in the quarter was $39 million, an increase of 3.1% versus the prior year, driven by commercial organization investment to support the new product launches and the timing of advertising spend. GAAP net loss for the first quarter of 2026 was $8.3 million compared to a GAAP net loss of $6.2 million in the prior year period. Adjusted net loss was $4 million compared to an adjusted net loss of $2.9 million in the prior year. And adjusted EBITDA was a negative $1.4 million in the first quarter compared to approximately breakeven in the prior year period. The increase in losses year-over-year is a direct result of the timing of planned incremental R&D and commercial investments mentioned earlier. Looking forward, we expect Q2 and Q3 to be our strongest quarters for profitability, in line with our historic top line seasonality, and we continue to expect adjusted EBITDA growth for the full year. Moving to cash. We ended the quarter with $111.5 million in cash, cash equivalents, marketable securities and restricted cash with 0 debt outstanding. During the quarter, we began execution of our stock repurchase program. We purchased approximately 298,000 shares of our common stock for consideration of nearly $1.9 million. We continue to believe our stock is undervalued relative to the fundamentals and the strategic opportunity in front of us. Returning capital to shareholders while also investing in growth is something we believe we are well positioned to do, and we intend to continue to do it thoughtfully over the course of the program. Now let me turn to our second quarter and full year 2026 outlook. We are reaffirming our 2026 revenue guidance of $366 million to $373 million, representing approximately 6% growth at the midpoint. That guidance reflects continued trends in our core POC business, a growing contribution from international sales, the scaling of Aurora and Voxi 5, particularly in the second half, partially offset by continued mix pressures in our D2C and rental channels. For the second quarter of 2026, we expect reported revenue in the range of $94 million to $97 million, reflecting approximately 3.5% growth at the midpoint of the range relative to the second quarter 2025 revenue. Regarding profitability, we remain committed to driving adjusted EBITDA improvement for the full year 2026, following the positive adjusted EBITDA achieved in 2025. With that, I will turn the call back to Kevin for closing remarks. Kevin Smith: Thank you, Jason. We're executing against the plan we laid out. We're launching new products into larger, higher-growth markets, building the clinical and commercial infrastructure to support them and managing the P&L with discipline while continuing to invest in the long term. We've also strengthened the organization with new leadership across finance, marketing, the Board and a commercial team that is focused on execution. I am optimistic about what the next few years hold for Inogen. To our shareholders, thank you for your continued support and confidence in us. We look forward to updating you throughout the year. Operator, please open the call for questions. Operator: [Operator Instructions] We'll take our first question from Anderson Schock with B. Riley Securities. Anderson Schock: Congrats on the quarter. So first, on the Rove 6 launch in Brazil, could you frame the size of the Brazilian COPD market and the current state of POC penetration? Is this largely an oxygen tank replacement opportunity? Or are you stepping into an established POC market? Kevin Smith: Anderson, this is Kevin. Thanks for the call. We have not quantified the size of the market in Brazil. It is a -- that's an emerging market opportunity for us. There is an existing population of tanks that in Brazil as well as POCs. There's other POCs that are in the market. So we're not the first entrant that is in there, but we are entering in, of course, as the premium brand in Brazil. We have partnerships that with local HMEs that exist also in other markets who are familiar with us and know how to position the Inogen brand. We're looking forward to the growth coming out of there, but this is one that will continue to develop over time with market access. Anderson Schock: Okay. Got it. And then net rental patients at the end of the first quarter had a steeper decline than the recent trends. Could you walk us through what drove the acceleration this quarter and how we should be thinking about this channel through the remainder of the year? Kevin Smith: Yes. When we look at the rental program, we talked about -- and I'm going to bucket this first if we step back and you think about the dynamics that are happening within the markets that we have been planning for and strategizing and optimizing the channels. But the shift that we see from -- within the U.S., which is where, of course, rental is from the oxygen tanks to the POCs has an impact on both the headwind on the DTC as well as the rental patients, which is also creating that tailwind for us within the B2B channels, allows us to have additional pull-through with other technology, the products with the Aurora masks, the Voxi 5 and eventually the Simeox. But that is one that is still under pressure as we go through the year, we do expect to see total U.S. back end of the year growth, which certainly we can talk through, but we'll see that pressure continue within the rental channel. Anderson Schock: Okay. Got it. And then how is early 2026 Voxi 5 has the ramp tracking against your expectations? And are you beginning to see pull-through benefits with HMEs that are bundling Voxi 5 alongside the POC? Kevin Smith: Yes, we are. We like the signs that we're seeing so far in the market. The feedback has been very good. We are seeing pull-through and attachment rates. So this is lining up with our expectations and supports the view that we have for this in the long term. Operator: And next, we'll move to Mike Matson with Needham & Company. Michael Matson: I guess I'll start with a couple of macro ones. So just wanted to get your take on the impact of kind of the elevated oil prices that we're seeing. Any material impact expected there? And then I wanted to see if you have any sales into the Middle East. I know you're selling in Europe, I didn't know if that included the Middle East. And if so, like how significant is that? Kevin Smith: Mike, thank you for the question. Again, I'll start and then Jason, if there's anything to add, please do. From the macro level with the impact on the oil, we're not seeing anything for ourselves that is outsized from the rest of the industry. Here, there are some implications, certainly where surcharges that happen with logistics. It's less of an impact for us than perhaps some others. We don't -- if this carries on, we may start to see more impact as the year goes through. But to date, it's not a significant piece. With -- when you also look at petroleum-based components and products, we think about resin material, we do have some of the material within our POCs. However, we do have supply agreements in place that protect us in the near term. We wouldn't expect to see an impact there unless this does carry on for beyond within a quarter, it's not a big deal. If we start seeing this carry on throughout the year, we may see additional impact from that. And then for the business in the Middle East, we do have business in the Middle East. The majority of our international business is still coming from the European markets. We are not impacted by this yet. We have been focused on making sure that we can continue to serve our patients, make sure that our team and partners are safe, which they all are. But so far, this hasn't been a negative impact. Jason, anything else there? Jason Richardson: No, I think that's right. And I think as we've even scenarioed kind of current prices from an oil standpoint, we feel like even because of the timing that Kevin mentioned, because of the limited freight that we have that we'd be able to -- we would expect to be able to offset it at current levels for 2026. Michael Matson: Okay. Got it. And then wondering if you could give us an update on the CPAP mask launch. How is that going? And what kind of feedback are you getting from customers? Kevin Smith: Yes, Mike, it's been very good for us. It's meeting and exceeding the expectations. And of course, it is -- the early stages introducing the Aurora mask to the market. Fortunately, we're able to come to the market with clinical data that supports patient preference and the quality of the mask that gives us a leg up as far as early adoption. But one of the things that we've liked so far is extremely high reorder rates from the customers that have started the process with Aurora, take the samples, start to get patients on them, place an order. We've seen those reorder rates coming in on a monthly basis at a very high level. So that tells us that it's sticky, and this is a good signal for us. Michael Matson: Okay. Got it. And then just looking at your adjusted net loss, if I'm remembering correctly when I glanced at the press release, but a lot of companies report tonight. But I think it was flat to maybe even down from last year on an adjusted basis. I know EBITDA was not the same, but can you maybe just talk about what's happening there and why you weren't getting more kind of leverage, I guess, or cost savings from an OpEx perspective or whatever? Jason Richardson: Yes, I'll take that one. I mean I think what -- first quarter, in particular, we accelerated some of our clinical evidence investments, particularly around Simeox. And we also had moved forward the timing of some advertising spend to try to generate some additional business over the back half of the year. But as we've mentioned before, we're managing OpEx to kind of make sure that we end up in a position of growing EBITDA over the course of the year. Michael Matson: Okay. Got it. And then the advertising, yes, go ahead, sorry. Jason Richardson: No, I was going to say the other thing I would highlight, though, is like we talked about in the prepared remarks, which is the gross margin expansion, which I think is really critical for us as we think about some of the mix pressures we see in the market. I think some of the other levers that we're pulling to improve margins, leverage the volume that we're seeing are really important to us moving forward. Michael Matson: Okay. Got it. The advertising spending that you mentioned, is that geared at the consumer business? Or is that geared at like the B2B side of things? Kevin Smith: Yes. The advertising spend is geared historically more towards the direct-to-consumer business, although it does benefit broadly across all of the markets, creating brand awareness. However, we have been revising that strategy, the channels, how we do that marketing and broadening that out to include both the HCPs, the HMEs. This is now a much more sophisticated marketing project going forward. And that's one of the benefits, too, that when we added Dominic here to the team, he brings a lot of that expertise and that savviness to the team here. Operator: And there are no further questions at this time. I would like to turn the floor back to Kevin Smith for closing remarks. Kevin Smith: So before we wrap up, I want to highlight one core theme that underpins our strategy, innovation, which is the engine driving our future growth. Early feedback on our new products, Aurora, Voxi, Simeox, it's all been positive. Confirming these innovations address key market needs. This progress stems from strategic investments in our pipeline, and we aim to launch one new product per year as part of our long-term plan. These efforts strengthen our position for broader reach and sustained growth. While we are still early in this journey, the momentum we are building today gives us real confidence and excitement about what lies ahead. And I would also like to formally recognize and express my gratitude to the entire Inogen team. Your dedication to patient care, consistent execution and collective contributions has been essential to our ongoing transformation. I value the energy and commitments you bring every day, and I'm proud of what we've built together. Thank you. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Operator: Greetings, and welcome to HASI's First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Aaron Chew, Senior Vice President of Investor Relations. Aaron Chew: Thank you, operator, and good afternoon to everyone joining us today for HASI's First Quarter 2026 Conference Call. Earlier this afternoon, HASI distributed a press release reporting our first quarter 2026 results, a copy of which is available on our website, along with the slide presentation we will be referring to today. This conference call is being webcast live on the Investor Relations page of our website, where a replay will be available later today. Some of the comments made in this call are forward-looking statements which are subject to risks and uncertainties described in the Risk Factors section of the company's Form 10-K and other filings with the SEC. Actual results may differ materially from those stated. Today's discussion also includes some non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is available in our earnings release and presentation. Joining us on the call today are Jeff Lipson, the company's President and CEO; as well as Chuck Melko, our Chief Financial Officer. Also available for Q&A is Susan Nickey, our Chief Client Officer. To kick things off, I will turn it over to our President and CEO, Jeff Lipson, who will begin on Slide 3. Jeff? Jeffrey Lipson: Thank you, Aaron, and welcome to our first quarter 2026 earnings call. We are pleased to report a strong start to 2026 with outstanding financial results and a positive outlook for the business. In Q1, adjusted EPS was $0.77, driven by growth in revenue across the board, along with 0 new share issuance from our ATM. Adjusted ROE was 15.7%, the highest quarterly level in our history. Adjusted recurring net investment income was up 29% year-over-year to $101 million, and our managed assets were up 13% year-over-year to $16.4 billion. We continue to execute on our 2026 business plan, and we are reaffirming our 2028 guidance of $3.50 to $3.60 adjusted earnings per share and adjusted ROE of 17%. Moving to Slide 4. It's important to highlight how our Q1 results represent particularly strong performance in light of the ongoing volatile geopolitical and macroeconomic developments impacting financial and energy markets. Most notable, of course, is the Iran war, creating volatility, particularly in oil prices and jet fuel availability. Separately, the increase in power prices in the U.S. has created affordability challenges. Additionally, credit and liquidity challenges have emerged in the private credit sector with implications across financial and credit markets. Despite these challenges impacting the economy, our business has remained consistently profitable with ongoing earnings growth as we effectively address this volatility. In fact, certain of these developments reinforce the value of renewable energy and HASI's investment thesis. For example, once installed and operational, renewable energy projects have minimal operating costs and do not depend on an ongoing supply of fuels, but instead are powered by naturally replenishing resources. Renewable energy projects are less vulnerable to geopolitical volatility and bolster energy independence and national security, and they provide a high degree of cost certainty and visibility. The intermittency of renewables can be increasingly improved by continued storage development. In addition, beyond the implications for renewable energy, the recent geopolitical and macroeconomic uncertainty has also served to accentuate the prominent attributes underpinning HASI's business model of offering differentiated capital solutions to clients supported by project cash flows. This business model results in HASI offering our investors low-risk, diversified exposure to growth in U.S. energy transition infrastructure, stability and visibility of long-term predictable revenue and a proven track record of exceptional risk-adjusted returns. In the face of this backdrop, we continue to demonstrate the resilience of our business and our ability to execute at a high level with strong operating results. Turning to Page 5. We closed more than $460 million in new transactions in the quarter that will be held at CCH1 and on our balance sheet. And we increased fee-generating assets 130% year-over-year to $1.1 billion. In terms of the returns on these investments, new asset yields on portfolio transactions closed in the quarter remain over 10.5% for the eighth quarter in a row. Supported by the increase in new asset yields over this period, our portfolio yield rose 90 basis points year-over-year to 9.2%. Finally, we continue to optimize our balance sheet in the first quarter of 2026. As Chuck will provide greater detail on shortly, we were active issuing low-cost, long-duration debt and redeeming higher coupon debt while issuing no ATM shares in the quarter. Turning to Slide 6. We highlight the investment activity for the quarter, including a robust Q1 total volume of $637 million, of which $462 million will be held by CCH1 and on our balance sheet. This volume keeps us on pace for the $2 billion to $3 billion expectation for 2026 that we discussed on the Q4 call. The investments were well diversified and underwritten with attractive risk-adjusted returns. Our investment platform is continuing to deliver on our goals and fueling the continued growth in our profitability. Turning to Page 7. On Monday, we jointly announced with Ameresco the creation of Neogenyx, a newly formed joint venture representing the spin-off of Ameresco's biofuels business. We are excited about co-investing in what we expect to be the premier developer and owner-operator of biofuels projects. Ameresco has been a partner of HASI for over 20 years and across more than 60 investments, and we have tremendous familiarity and confidence in Mike Bacus and their team. This investment fits well into the HASI business model as it includes a very strong partner, an asset class renewable natural gas in which we have extensive experience, operating projects that we were able to diligence, a business model well suited to current and expected future market demand and a structure that provides a priority position on cash flows. Neogenyx' existing portfolio of operating projects allow the company to have scale from day 1 and a strong pipeline of identified development opportunities that will facilitate future growth. Our investment in the venture is initially $400 million, and we will own 30% of the enterprise with a priority position on cash distributions until a hurdle return is achieved. And our long-term expected return on investment is higher than our typical investment given the large upside potential of the business. Turning to Page 8. Our pipeline remains greater than $6.5 billion as end market dynamics, including consolidation, continue to result in a wide variety of developers and sponsors seeking project level capital. In addition, power demand continues to result in an elevated level of development activity and policy items are well understood and workable. I also want to mention a definitional change. We first introduced the concept of what we call the Next Frontier in our Q4 2024 call, to illustrate the tremendous growth opportunities for the business. We continue to pursue certain of these asset classes, and we'll disclose closings as they occur. However, from a presentation perspective, we have recategorized these into the 3 existing core segments and an Other Sustainable Infrastructure category as appropriate in order to simplify our disclosure. And with that, I would like to turn the call over to Chuck to discuss our financial results and funding activity in greater detail. Charles Melko: Thanks, Jeff. We are continuing to build off the success achieved in 2025 and have had a great start to the year. We have increased our adjusted EPS to $0.77 per share in the first quarter compared to $0.64 per share in the same period last year. Our adjusted earnings increased 31% from Q1 last year to $102 million in Q1 this year. This increase is predominantly driven from the growth in our investments in CCH1 and our portfolio. Our focus on being more efficient with the deployment of equity capital has contributed to our higher adjusted ROE this quarter to 15.7% compared to 12.8% in the same period last year. The marginal ROE that we are generating, is making an impact, and we are benefiting from the reduction of share issuances that we need to fund the growth of our business. While we achieved growth in our adjusted EPS, our GAAP results included an HLBV loss related to the timing of tax credit sale proceeds distributed to tax equity investors. And we expect this HLBV accounting will fully reverse next quarter. On the next slide, we have seen growth in our adjusted recurring net investment income of 29% to just over $100 million, and this source of income is not only generating a good base of recurring earnings, but is also growing into a larger component of our overall earnings relative to our other sources of income, as we illustrated on last quarter's call. Our gain on sale this quarter was $23 million. And as we often highlight, our gain on sale income does not increase quarter-to-quarter on a trend line. And while we do expect full year gain on sale to be similar to last year because of the higher level of gain on sale this quarter, it is reasonable to expect lower levels of gain on sale for the remaining quarters of the year. The other component of our revenues that consists of upfront fees from CCH1 and other advisory-related fees continue to increase and contributed $9 million to our earnings this quarter. On the next slide, as we close transactions, they become managed assets, which are held either on our balance sheet directly or indirectly through CCH1. These transactions can also be held in securitization trusts where we typically hold a residual interest. We generate upfront and ongoing income from these transactions and a growing base results in more earnings. Our managed assets are now at $16.4 billion, up 13% year-over-year, and we are continuing to see the high-quality performance of these assets that are reflective of our prudent underwriting with an average annual realized loss rate of less than 10 basis points. The portfolio continues to be well diversified. And in addition to the diversity of asset classes, each of the individual investments also typically consists of multiple projects with uncorrelated cash flows. The earnings power of our portfolio demonstrated by our portfolio yield has increased to 9.2% and is a result of the continued closing of transactions into our portfolio at higher yields. The CCH1 assets in which we hold 50% of the equity in our portfolio, are now at $2.3 billion and are providing a growing stream of ongoing management fees. We also just recently completed a private debt placement at CCH1 in which the notes were priced at a spread of 195 basis points to the 10-year treasury, a tighter spread than the previous issuance. This is further validation of the quality of the assets that we are investing in and a contributor to the increasing returns on our investments in CCH1. On the next slide, we are continuing to realize a lower cost of capital and successfully manage our liability structure, as demonstrated through the transactions that we executed in February. We issued a total of $1 billion in bonds between a $400 million senior bond priced at 6% and a $600 million junior subnote priced at 7.125% The proceeds of these transactions were used to retire our remaining $450 million senior bonds due 2027 with an 8% coupon and create additional liquidity for the upcoming $600 million maturity. The outcome of these transactions resulted in a lower cost of capital as the spread on our senior bonds improved 50 basis points and the subordination premium on the junior sub notes improved by 48 basis points from the most recent issuances. The maturity profile of our debt platform was significantly extended with the senior bond offering a 10-year maturity and on our junior sub note a 30-year maturity. Adjusting for the upcoming 2026 maturity, which we have already reserved for with our existing liquidity, the weighted average maturity of our corporate term debt extended from 7.9 years to 12.8 years. On the next slide, I've already made some brief comments on the topics outlined here, but there are items that really emphasize the benefits of our capital platform. First is our liquidity position. It is a real strength to our business to have the flexibility and timing to access the market and raise capital opportunistically and reduce our costs. We currently have $2.3 billion available, a portion of which we plan to use to pay off the $600 million of remaining notes due in June. After this maturity, our next corporate bond is not due until 2028. Lastly, with our focus on funding more investment with the need for less additional equity, the use of CCH1, issuance of junior subnotes and the higher reinvested portfolio cash, resulted in no additional shares issued through our ATM in the first quarter, and we are on track to issue a minimum amount in 2026 based on our current funding expectations. When coupled with the growth in our managed assets, we are on track to meaningfully accelerate our profitability. I will now turn the call back to Jeff. Jeffrey Lipson: Thanks, Chuck. Turning to Slide 14, we display our sustainability and impact highlights, noting our cumulative carbon count and water count numbers, reflecting the significant impact of our investment strategy. Let's wrap up on Slide 15. We reiterate the themes of strong returns in the business, coupled with ongoing access to low-cost capital that will continue to drive our business towards achieving our guidance levels. I will conclude by addressing the management changes announced today. First, I would like to welcome Christy Freer to our executive team as our Chief Legal Officer and look forward to working with Christy. Next, I want to acknowledge Marc Pangburn for his tremendous contribution to HASI over the last 12 years, as Marc has been instrumental in closing countless important transactions that have led to our success. In his new role at GoodFinch, we will continue to work closely with Marc, and he will continue to provide value for HASI by optimizing our SunStrong business. Our prosperity has always been a function of numerous dedicated and talented individuals. The 4 executives identified in today's press release are all enormously talented and have already built teams and contributed significantly to HASI's success. I have full confidence in each of them, in their expanded roles, and I'm thrilled we have this depth of talent in our organization. Annmarie Reynolds, who recently closed Neogenyx; and Manny Haile-Mariam, who recently closed Sunzia, are extremely well qualified to be our Co-Chief Investment Officers. They both possess outstanding leadership qualities and significant commercial acumen as well as a track record of success. Daniela Shapiro, who has grown our BTM business significantly over the last 4 years; and Viral Amin, who has upgraded our risk management infrastructure, are both accomplished leaders who will do a tremendous job as our Co-Chief Risk Officers and investment committee members. They both possess leadership, credit and commercial skills, extremely well suited to their critical roles. I'm very excited by these executive appointments, and I congratulate all. Thank you. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Vikram Bagri with Citi. Vikram Bagri: To start off, I wanted to dig into this new JV with Ameresco. I understand the return on that project is higher than where you're tracking -- where you have been tracking recently. Could you clarify what the yields are or returns are on that investment? Also, if you can clarify relative to your 30% equity interest, what would be the initial cash flow from that, your take of cash flow will be initially? And then finally, how do you see this JV evolve? Is this going to be a vehicle for consolidation, organic growth? Is the -- do you envision this JV to take the company public at some point or Ameresco buys you out in the long term? And then I have a follow-up. Jeffrey Lipson: Sure, Vikram. Thanks for the question. I would say the venture is primarily focused initially on organic growth. There may be consolidation over time in terms of buying other platforms, but that's not the principal objective. There's a critical mass of operating projects going in day 1, and there's a very strong pipeline that the team there has developed. So it's a little bit more focused on organic growth. In the long term, whether we someday jointly take this public is much too early to say. We're kicking it off this month. So again, we're focused on building this up into something very special, but the exit strategy, it's a little premature to talk about. In terms of our cash flow, the initial investment based on the operating projects is roughly $100 million. The other $300 million will go in as additional projects are developed. And then our -- I think you asked about our cash flow coming back. That's not something we would disclose. Obviously, we have an expectation based on contracts of a certain amount of cash coming back and has a very strong cash yield, but we won't disclose that specifically. Vikram Bagri: Got it. And then as a follow-up, I see you moved 2 receivables from category 1 to category 2. Can you provide more details on that? Fully understanding that this is relatively small for you. I'm just trying to understand in which market are you seeing some stress? Are these residential solar assets, utility scale, RNG and if both the assets are in the same sector? Any color you can share on that would be helpful. Charles Melko: Vikram, this is Chuck. Yes. So on the question of the category 2 there, I mean, just to set the stage here, I mean, you definitely hit on the point that we do have very small amounts in that category. It isn't often you see too much movement in that category, but we still have 98% of our portfolio that's in the category 1 bucket. The item that moved in there, I mean, I think what we'd say with that is that there is a project that is having some technical challenges with some of the equipment, and it needs some -- a little bit more investment to correct the issue at hand with the equipment itself. But there are various plans to get that project where it needs to be on our original economics. And we certainly think there's a good outlook for that. So it's one of those things where we track projects, as you know, every quarter. And when we see something -- that there's something going a little bit in one direction here that we need to pay attention to, we will not hesitate to put in category 2 because we are paying attention to it. Operator: Our next question comes from Chris Dendrinos with RBC Capital Markets. Christopher Dendrinos: Great. And maybe to follow up on Vik's question there and ask this more directly. There is some challenges going on in the resi space right now and a few other folks have highlighted some debt challenges. Are you seeing any of that on your end? And is there any kind of risk exposure there that you could speak to? Jeffrey Lipson: Thanks, Chris. I would say, generally, no, there is a bit of an uptick in some delinquencies in the resi sector generally, and we're seeing a little bit of that in our portfolio as well. But it's tracking well within our original underwriting expectation of charge-offs and our loans there are all performing, literally 100% of the loans in resi are performing. So again, it's well within our underwriting guidelines, and we're not seeing stress in that portfolio. Christopher Dendrinos: And then maybe as a follow-up here, the tightness in the tax equity markets have been kind of broadly highlighted that some of the banks are maybe taking a step back near term waiting for treasury clarity. Is that translating into any sort of funding opportunity for you all where maybe there's a hole in the cap stack and you're able to kind of fill it here? Jeffrey Lipson: I'm going to ask Susan to answer that. I think on -- or at least respond to the part about the tightness in the market in terms of refilling gaps in the capital stack, that's usually not the dynamic. The tax equity obviously serves a specific purpose in terms of the tax attributes that it would be hard to substitute traditional HASI capital for that tranche. But the first part of the question around the tightness of tax equity, I'm going to let Susan answer. Susan Nickey: Yes. Thanks. A couple of comments on that. One is that just in terms of the tightness, it's important to note that the reports from last year is that the tax equity market actually grew significantly. Crux is one of the -- the Crux platform tracks some of that data and the total market increased 26% to $63 billion. And very importantly, the tax transfer market, which is still in its third year, grew 50% to $42 billion. So as we move -- and some of the -- at the end of the year, some of the corporates, and there's now nearly 25% of Fortune 1000 companies participating in the market who're dealing with their own understanding of where their corporate tax bill was going to settle with the change in the tax laws. But as we move into this year, I think some of that tightening that's been reported is what we're seeing and hearing from some of the stakeholders, but also from Crux is starting to have more liquidity as corporate buyers know where they're settling out in that regard and providing some uplift. I think the second issue, which is a bit different is regarding the FEOC rules related to clean energy tax credits being transferred and not to Foreign Entity of Concern ownership. And that reflates again, to 2026 tech-neutral tax credits, not the '25 or before substantial safe harbor pipeline through '23, which will -- many of the players already have their inventory set. So what we expect in that regard is certainly the IRS and treasury have been coming out with guidelines, and we need them -- people are waiting for that guideline on -- to be clarified on those -- the tax credit ownership. And again, there's precedents, but as we know, with ambiguity. Some tax equity investors and banks are waiting for that clarity, which should come. And that is important, obviously, for the whole industry because nuclear, carbon capture, geothermal, all the technologies need that guidance. And I'd say lastly, we certainly want to keep working to expand the tax credit market given there'll be continuing growth in the supply with all the different projects being built with these technologies and manufacturing and HASI is working with the industry in American Clean Power to develop standardization documents to help facilitate growing the corporate tax credit market. Does that help address what you've heard? Christopher Dendrinos: Yes. Well, I guess maybe just a quick follow-up would be, I mean, is this any way to have a bearing on the investment pace that you all are going on right now? Susan Nickey: Not -- in our pipeline, again, as we've talked about significant, our sponsors, and it's really across certainly the grid connected, and I think Sunrun and others have mentioned it, have safe harbored their pipelines through 2030, if not the next 2 years. So it wouldn't directly impact what we're seeing in terms of growth. Operator: Our next question comes from Ben Kallo with Baird. Ben Kallo: My first question is just on CCH1 and the capacity left there under that agreement. And then following that, has anything changed with your partner in the -- their appetite to invest more after that first tranche? Jeffrey Lipson: So thanks, Ben. On the second part of the question, no, our partner has continued to express significant enthusiasm around the partnership. And as evidenced by the upsize late last year, has shown a strong willingness to continue to invest. As we disclosed here on Page 11, the assets are $2.3 billion. The commitments are a bit higher than that for some things that are in CCH1, just haven't funded yet. And as I think we mentioned last quarter, as structured right now and given our pipeline, we certainly have enough capacity for this year. And we're working on a CCH2. We've started to commence some activity there. I can't say too much in terms of detail there, but we certainly are intending to have that up and going by the time CCH1 capacity has been utilized. Charles Melko: I'll also add -- sorry, Ben, just also to provide a little bit of context for the capacity that we have. And we've said that in the past that we've got roughly about $5 billion of capacity available, and that's comprised of the equity commitments between us and KKR. It's roughly about $3 billion. And then -- as we said before, we are -- and we did mention in our call here that we have issued some debt at CCH1. So keeping our leverage ratio at CCH1 under 1x -- anywhere between 0.5 to 1x debt to equity, that gets you to a total of $5 billion and comparing that to the $2.3 billion that we currently have in there. Ben Kallo: Okay. Great. Just on -- in terms of your cost of capital, can you talk about how much you think you can reduce your cost of capital? I know you guys have done a lot. But also, I just -- going from '25, I think on Slide 17, you had 5.8% interest expense over average debt balance. It ticked up in Q1. So maybe the -- could you explain that a bit? And then just how much more you think you can reduce your cost of -- your total cost of capital going forward? Charles Melko: Yes. So the uptick that you're seeing in Q1 is largely attributable to the issuance that we've done on the junior subordinated notes. So they do carry a little bit higher of a coupon. But from an overall cost of capital standpoint, because we get 50% equity credit for purposes of our leverage ratios with the rating agencies, we do have to -- we do get to issue less equity. So a little bit higher coupon that we're paying an interest expense, but we are issuing less shares. So overall, it is a benefit to our cost of capital. And I think if you took out from that 6.1%, the interest expense related to those hybrids, the debt cost is relatively flat, around 5.8% or so compared to last year. Now on the -- how much further can it go question, we've obviously seen a benefit and reduction of spreads on the debt that we're issuing. And I think a large part of that is due to just the efforts that we put into getting out there and talking to the investment-grade investor market, and we've had some success with that. We're still relatively new to the market. So there is a little bit improvement we could see on the spread. But as you probably know, spreads across the board are a little bit tight in the investment-grade market, and they can only go so far. But right now, with the guidance that we have out there, do we need this to go lower? No, we absolutely don't. And with the margins and the yields that we're seeing on our assets and the equity efficiency that we're seeing, we don't really need it to go down to further increase our returns. Operator: [Operator Instructions] Our next question comes from Maheep Mandloi with Mizuho Securities. Maheep Mandloi: Maheep Mandloi from Mizuho. Maybe just on the investment with Ameresco's Neogenyx. Can you just talk about the rationality over there or like what motivated you to invest? Is it somewhat similar to what we have seen with -- on the resi solar side, which helps with ITC or something else which helps you capture more value with the RNG assets? Jeffrey Lipson: Sure. Thanks, Mandeep. I think -- and I talked a little bit about this in the prepared remarks, some of the attributes that really attracted us here were, first and foremost, the partnership we have with Ameresco and the trust and familiarity we have with their team. It's very consistent with how we've built the business with programmatic partners. Here, we were able to, again, diligence all of the investments day 1. RNG is something we're very familiar with, and we've been very active in RNG, as you know. And so it's an asset class we well understood. And then there was great alignment with the Ameresco team of what we want to do with this business going forward, what the relative structure of the parties would be in terms of ownership and cash flows. And so it's a real opportunity for us to do something perhaps slightly different than we've done in the past, but with very, very similar attributes and certainly more upside than most of what we do at the project level investing. Maheep Mandloi: Appreciate it. And on the Ameresco's deck, they kind of talked about a $2 million to $4 million of net income to you guys from the -- for this year for Neogenyx. Is that like the framework we should think about and build upon that going forward? Or how to think about the modeling here? Jeffrey Lipson: Sorry, I missed one word there, Mandeep. Can you just repeat that question, please? Maheep Mandloi: Yes, sure. On Ameresco's presentation, they talked about your minority interest in the net income at around $2 million to $4 million for this joint venture. Just curious if that's something we should assume for modeling purposes for this year for -- on your...? Jeffrey Lipson: No. From a HASI perspective, our accounting, of course, is different than Ameresco's. Our accounting here will be simply an equity method investment, consistent with what we've done in the past. We underwrote this in terms of cash-on-cash IRR, and we're going to account for it consistent with how we've accounted for our other equity method investments. So there's no pass-through of direct income as part of our accounting. And Chuck may want to expand on that. Charles Melko: Yes. Maheep, I think at Ameresco's release, all they did for that number was simply just take 30% of the total EBITDA expectations for that project, which, as we've mentioned, this is an investment that is very similar to what we do where it's a structured equity investment. And when you have structured equity investments, we're focused on the cash-on-cash returns. There's targeted returns that we go after. And it's not as simple as just taking 30% of the total project EBITDA. Operator: Our next question comes from Noah Kaye with Oppenheimer & Company. Noah Kaye: The first one, just on the 12-month pipeline. You replenished this right, quarter-over-quarter, it's still greater than $6.5 billion. It looks like the largest percentage increase and therefore, dollar increase was in grid-connected assets. And certainly, that tracks with the increase in grid scale renewables being deployed. But maybe just comment a little bit on what drove that uptick? And can you talk a little bit about the nature of those transactions? Are these primarily mezz debt, pref equity or of a different nature? Jeffrey Lipson: Sure. Thanks, Noah, for the question. And I always caution against too much precision on pipeline disclosure. Of course, it's greater than $6.5 billion and it's a 12-month pipeline. So there's always a little bit of judgment involved. But to answer your question, grid-connected does have a very strong pipeline. The vast majority of it is programmatic partners that HASI has worked with before and the majority of it is pref equity on solar projects. So I think that's the majority of that pie slice of the pipeline. Noah Kaye: Very helpful. And then this was a quarter where there was 0 ATM issuance. The progress from the company and becoming more capital light, we're all seeing it. I think in the deck, it says minimal equity issuance expected for '26. Not asking you to put any kind of finer point on that, but from an equity perspective, I mean, how close do you feel this business is to really a self-funding model? Jeffrey Lipson: I would say very close. I think that minimal you can interpret as if the volume of fundings this year is within the expectation that we set, that could very well be 0. If we're a little more successful than that estimate and we end up doing $4 billion or $5 billion, then certainly you would see us issuing more equity, but that's accretive equity, and that's a really big year in terms of new originations. So that's a good scenario as well. But I think if we hit the expectation range that we established, I think we'll be -- we are already self-funding. Charles Melko: Noah, I'll also add to this that we certainly have seen an uptick in transaction closings that we've had. And looking forward, we do expect some growth in that number. And if you go back to the slide that we prepared last quarter where it shows how far our each dollar of equity goes, we are making much better progress on how little equity we need to issue when we're making our fundings. But what you will see -- certainly see in the future is that if we are issuing equity, the percentage of that equity relative to the total fundings is much, much lower percentage than you've seen historically. Operator: Ladies and gentlemen, that was the last question for today. The conference call of HASI has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Legacy Housing Corporation first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers’ remarks, you will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Curtis Hodgson, Executive Chairman of the Board. Please go ahead. Curtis Hodgson: Good morning. This is Curtis Hodgson, Executive Chairman. I am here with Jon Langbert, our Chief Financial Officer. Thanks for joining our first quarter 2026 conference call. Jon will now read the safe harbor disclosure before we get started. Jon Langbert: Before we begin, I am reminding our listeners that management’s prepared remarks today will contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management’s current expectations. We refer you to a more detailed discussion of the risks and uncertainties in the company’s quarterly report on Form 10-Q filed yesterday with the Securities and Exchange Commission and in our most recent annual report on Form 10-K. Any projections as to the company’s future performance represent management’s estimates as of today’s call. Legacy Housing Corporation assumes no obligation to update these projections in the future unless otherwise required by applicable law. Curtis Hodgson: Thanks, Jon. I will turn the call back to Jon now to walk you through the quarter’s results, and then I will come back with some thoughts on the business and a few corporate updates. After that, we will open the call for questions and answers. Jon? Jon Langbert: Thanks, Curtis. Let us get to the numbers. Total net revenue for the quarter was $34.4 million, down 3.7% from $35.7 million a year ago. Despite the modest top-line decline, net income grew to $10.0 million from $10.3 million, and diluted EPS came in at $0.46, up from $0.41 in 2025. So revenue was a touch softer, but the bottom line was stronger, and I will walk through how we got there. Product sales were $21.6 million, down 11.3%. We shipped 312 units in the quarter versus 350 a year ago, with average revenue per unit essentially flat at roughly $69,100. The story underneath the headline number is really a mixed story. Inventory finance sales were down about $7.6 million, or 68%, as our dealers continue to work through existing inventory on their lots. That decline was largely offset by strength across our other channels. Retail store sales nearly doubled, up 81% to $6.1 million. Direct sales were up 80% to $2.7 million, and commercial sales to mobile home parks grew 12% to $7.6 million. The shift toward retail and direct selling reflects the strategy we have been executing, getting closer to the end consumer and expanding our company-owned distribution. Loan portfolio interest income was $11.3 million, up 6.2%, with essentially all of that growth coming from our consumer book. The consumer portfolio ended the quarter at $204.8 million, up modestly from year end. Mobile home park notes finished at $199.5 million, and dealer inventory finance receivables at $26.5 million. On the expense side, cost of product sales was down 13.1%, broadly in line with lower volumes, and SG&A came in at $5.8 million, down 8.3%. The SG&A decline reflects lower payroll, health benefit, and legal costs, partially offset by a higher loan loss provision and modestly higher property taxes. The net result is that even with revenue down a touch, we delivered net income growth of about 6% and EPS growth of around 12%, a function of slightly stronger gross margins, lower SG&A, and a lower effective tax rate. On taxes, our effective rate for the quarter was 16.1% versus 19.3% a year ago and the 21% statutory rate. The benefit reflects two items. First, the federal energy efficient home improvement credit known as Section 45L, which provides a per-home tax credit for manufacturers who build homes meeting specified energy efficiency standards, which we have qualified for on a substantial portion of our production. Second, a discount on transferable tax credits we purchased during the quarter. As a reminder, the Section 45L credit terminates on June 30, 2026, under last year’s tax legislation. We expect our effective rate to move closer to the statutory rate after that. The balance sheet remains in excellent shape. We ended the quarter with $14.1 million in cash, up from $8.5 million at year end, on $7.0 million of operating cash flow. Inventories rose to $50.4 million from $39.9 million at year end, primarily in finished goods. Curtis will speak more about the inventory build and the data center project driving it in a moment. Our $50 million Prosperity Bank revolver had less than $1 million drawn at quarter end, leaving roughly $49 million of available capacity, and we are in compliance with all our financial covenants. Total stockholders’ equity finished the quarter at $539.0 million, up from $528.6 million at year end. We repurchased about 31,000 shares for roughly $0.6 million during the quarter under our new $10.0 million authorization that the board approved in February, leaving approximately $9.4 million available for future repurchases through February 2029. The credit quality across our loan portfolios remains solid. At quarter end, more than 97% of both our consumer loans and our mobile home park notes were less than 30 days past due. We did increase loan loss reserves modestly in the quarter, reflecting continued portfolio growth and a slightly more conservative posture given the broader economic backdrop. With that, I will turn it back to Curtis. Curtis Hodgson: Thanks, Jon. Let me hit a few business topics: the operating environment, some specific business updates, and a couple of items that warrant a closer look from this quarter. The Q1 environment was a continuation of what I have spoken to in the past. Inflation picked up a little bit during the quarter, and the Fed is holding its benchmark rate steady, and 30-year mortgage rates are staying above 6%. Sustained higher borrowing costs continue to weigh on affordability, which affects our end consumers and particularly affects our park customers. They are just trying to make a return on their investment, and higher interest rates are making it more difficult to do so. Tariffs became a meaningful theme during this quarter, and they continue to affect our cost structure. The Supreme Court ruled in February that the emergency tariffs imposed in 2025 were not authorized, and U.S. Customs has begun winding down those duties. We are in the process of asking for a $0.683 million refund based on that Supreme Court decision. Meanwhile, the U.S. Trade Representative picked up new Section 301 investigations in March that could provide a different legal basis for tariffs going forward. And effective April 6, right after our quarter end, additional 232 duties were imposed on things like aluminum, steel, and copper, which do affect our cost structure. The bottom line is combined effective tariff rates on most Chinese-origin goods are still meaningful, and we are still absorbing real input cost pressures. A few other specific items. On retail and dealer activity, the shift toward retail at our own company stores we have been talking about is really showing up this quarter, and I think it will continue to improve. Our retail sales are up 81% year over year. Part of that increase came from buying AmeriCasa last year, which sells our homes, but it also sells three other brands at that location. Across our 14 company-owned retail locations—we call it Heritage Housing, our Tiny House Outlet, and AmeriCasa—direct access to end consumers continues to be a meaningful part of our strategy. On our finance division, the loan portfolios continue to perform very well. Consumer loan portfolio interest grew, credit quality is over 97% across all of our portfolios, and we have not seen any deterioration that would require us to change our reserving posture beyond the modest increases that we have been making. On capital allocation, we restarted share repurchases this quarter under the new $10.0 million authorization, and with our stock continuing to trade near book value, we view buybacks as a sensible use of our capital alongside reinvestment in the business. Let me talk a minute about the workforce housing orders that for the last two calls I have mentioned. During this quarter, we received nonrefundable deposits of about $8.0 million from customers for large workforce housing orders. We started production on those orders in the first quarter, but had not made any deliveries from those orders in the first quarter. Now that we are in the second quarter, I expect 200 to 300 units to be delivered on those fairly high-margin orders for which we have deposits in place, and we should recognize substantially all of these workforce housing orders in calendar year 2026. Another topic I would like to spend a minute on is the AmeriCasa litigation. We filed a lawsuit in March. Our claim is related to misrepresentations and omissions made in that acquisition. We are early in the litigation. I am not exactly sure where it will end up, but the litigation was necessary because the acquisition we made last year was not panning out as we expected, and I think it is because things were either not disclosed or erroneously disclosed during the due diligence period. The litigation is not really material to our consolidated financial position, our liquidity, or our operations. We will continue to evaluate the facts and circumstances regarding that acquisition, and I just want everybody to know that it is not going to be the savior to the company; on the other hand, it is not going to be very deleterious either. One other item that is worth flagging. In 2024, we came to an agreement with borrowers under which we received clear title to [inaudible] home communities and a new $48.6 million short-term promissory note bearing interest at 7.9%. This note matures in July 2026. We have been in contact with the borrower, and they have now made all required payments under that bridge loan. We are talking about taking a partial payment and renewing it; we are talking about what possible lending we are willing to do on a going-forward basis. We still believe that there will not be any negative effect from this note, but we are in the process of negotiating, and you never know how it might turn out. A couple of other closing thoughts that are really short. Q1 was a solid quarter, especially in light of the management transition that happened in the fourth quarter. Net income was up over 6%, and on a diluted earnings per share basis, it was up 12%, somewhat because of our share repurchases and somewhat by the exit of executives that no longer have stock options. Our balance sheet is in great shape: $14 million of cash, essentially no debt, $539 million of stockholders’ equity, and an undrawn revolver. People look at us and say, my gosh, you have a clean balance sheet. We also are a one-entity company, no subsidiaries, and I think that is a very attractive place to be. The workforce housing orders are encouraging, especially here in Texas. The strength in our retail and direct sales reflects the strategy that we have been pursuing. Loan portfolios continue to be stable and a growing earnings engine. Georgia continues to be a big question mark. We have managed to keep it running, but we do not have any workforce housing orders yet in Georgia, so we are relying on the old-fashioned selling to dealers and selling to parks and selling through our company stores. That does not have enough volume to keep us running at profitable production. As I have said before, Legacy Housing Corporation has never had a quarterly loss in our entire history. 2026 has kept that streak going, as will Q2. We are conservatively capitalized, focused on long-term value creation, confident in our ability to weather some near-term volatility while positioning for long-term growth as housing affordability becomes more and more important to U.S. consumers and policymakers, especially while interest rates remain at 6% or above. Operator, that concludes our prepared remarks. Please open the line for questions and answers. Operator: We will now open the call for questions. Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Our first question comes from Alexander Rygiel of Texas Capital Securities. Your line is open. Alexander Rygiel: Good afternoon, Curtis and Jon. Great to hear from you both. I always appreciate your broader perspective on the economy and broader housing market trends. I am curious, in your views, how you think that has changed over the last three months? Curtis Hodgson: On the 10,000-foot view, Alex, our demographics are not all that healthy. For the first year in history last year, we had more people moving out of the country than moving into the country, and our birth rate is below two. So on a 10,000-foot view, we do not need a lot of new bedrooms. We already have all we need. Growth is basically geographically very particular. We have growth in states like Texas and Florida, and we do not have growth in states like Indiana and Ohio. Fortunately, we do business south of the Mason-Dixon line, and we still have a growing demographic in the states that we do business. As an aside, Kenny and I got in this business in 1980, and from 1980 to 1982—you young men that were not living through it have read the history books—that was the highest interest rate environment in the history of our company, where the prime rate of interest got all the way, I believe, to 18%. Those were very good years in the mobile home business because high interest rates lock consumers out of traditional site-built housing. Buying the $0.5 million house at a 10% mortgage rate is prohibitive to almost anybody in this economy, which brings them down, just as it did in 1980–1982, to things that we sell. So higher interest rates are not a bad fact to the manufactured housing industry. If anything, they are a good fact. But we still struggle on where you are going to put them. We do not have a lot of vacant spaces in big cities. We do not have very many mobile home parks coming online, although, as you know, we are trying to do things in Texas, but we do not have a good answer to where we could put them. Lots of headwinds. And the industry itself has not grown in filling that void, and it has not grown on providing a neighborhood solution as the traditional homebuilders have, of which I know you follow many of them. So even now that we have what should be tailwinds, we have not done a very good job as an industry of imitating the site-built housing people and selling community solutions as opposed to, say, a Jim Walters solution—for those of you that are my age—where we are just providing a house and somebody else has to put in the garage, somebody else has to put in the landscape, somebody else has to put in the premises and the fence. We basically are providing part of the solution but not all the solution, whereas when you follow your site builders, they are solving almost all of the neighborhood problems. We are trying to morph into that with our huge development outside Boston, which has got a lot of good news this week, if anybody was paying attention. Within four miles of our location, we have thousands of jobs that have just been announced in the future. So that particular location I am very confident of, and we have made very little progress on other land holdings. I know I went above and beyond answering your question, but at least I did answer your question. Anything else, Alex? Alexander Rygiel: Yes, that was very helpful. Historically, the company has seen some positive seasonality after tax season. Since we are past that, can you comment on demand in April and early May? Curtis Hodgson: Sure. I do not know that we can stomach much more demand in Texas with all our orders we already have in place. We are probably already out to August or September. We would have to find somebody to move in the line to take more orders. We did get a little seasonality bump in Georgia that let us turn the spigot back on, but we do not have much backlog in Georgia. Without the data centers and without the oilfield boom—which Georgia does not participate in hardly at all at either of those—the good old-fashioned mobile home business, the street dealers and the parks, is rather tepid. I do not mind going on record on this. I think followers of my peer group have already figured it out based on the punishment that they gave the stock prices this week. I did notice before the call that our stock was actually up on what I consider fair but not great reports. We are in good shape as a company, and our next two quarters should be pretty doggone impressive based on houses already built in that backyard that we are starting to ship to these major customers in Texas. To answer your question, in summary, traditional demand is not great, but nontraditional demand like data centers and oilfield is as good as I have seen it ever since Rita/Katrina in 2005. So a lot of good news, but a little bit of bad news. Alexander Rygiel: One last question: as it relates to the workforce housing order that you have—that is fantastic—but turning the page, how do future prospects look, and when might we hear about other big orders into this market? Curtis Hodgson: In Texas, we are working several big orders—huge orders—and none of them have turned into deposits yet, but we are working that angle. The big seven companies that are involved in data centers are making a multitrillion-dollar commitment to this space. Compared to, say, the stimulus that was given to the economy after COVID by the U.S. government, in size the stimulus that these seven are giving the economy is comparable to the stimulus that the U.S. government gave a few years back in COVID, which was significant stimulus. So let us take a data center manufacturer. He is putting on his balance sheet an asset, but he is putting on my balance sheet income—as well as everybody in the construction business in this region. The fact that income is going to be up for everybody in this region is a pretty remarkable amount of stimulus. There is a little bit of that going on on a nationwide basis, including Georgia, and even on a worldwide basis. But in our market—Texas and Louisiana—there is so much data center business that is actually going to happen, by these seven companies investing mega capital, I think we are good probably all the way through 2027 and maybe beyond that. So business is good in Texas. That is all I can tell you. Alexander Rygiel: Good to hear. Thank you very much. Operator: Thank you. As a reminder, if you have a question, please press 11. Our next question comes from Mark Smith of Lake Street. Your line is open. Mark Smith: Hi, guys. I wanted to ask for a little more detail, if you can, Curtis, on this workforce housing deal—any more insight you can give us on the size and maybe the timing of revenue recognition as we work through the year? Curtis Hodgson: I would guess that we already have somewhere around 600 units with deposits in this category out of Texas, which was about half of our entire production last year in Texas, maybe even more than half. The orders actually started in December, but they were not ready for the houses. We needed the order, so we built them anyway. Of the 600, at least half of them will be shipped in Q2, with the remaining being shipped in Q3 and Q4. To Alex’s question, Mark, I tipped my hand and said we are in the process of taking even more orders. Think of the double whammy we have here, Mark. We have data centers all over the state of Texas, and we have West Texas crude selling at nearly $100 a barrel, which we have historically always gotten orders from whenever there is a boom in the oilfield. I do not know if you can tell me when the Iran war is going to be over or what is going to happen to oil prices; I might have a different opinion. But if this $90 to $100 a barrel holds, we are not only going to have lots of orders for data centers, we are going to have lots of orders for the Permian Basin as well, and it will lift all boats. Every manufacturer is going to get a benefit. We are not uniquely qualified—there are 34 operating plants in the state of Texas—but we are all going to rise together. We will not need independent dealers like we have in the past. We will not even need our own company stores. We will keep growing them, but I would rather build a past sale to Google than create too much inventory in my company stores in a rather tepid retail business. The theme remains the same, and if you have been following these calls—because I know you have been on them, Mark—all I am doing is backing up what I already predicted two calls ago with real numbers. We are in good shape for a long time. It will blossom in Q3 and Q4, and it is going to show up beginning in Q2. We may have three of the best quarters coming up in front of us, but I do not like to overpromise and underdeliver. You have known me for eight or nine years, and you know that I am pretty conservative in these projections. But I know what is in the pack, and it would be nonsensical for me not to reveal it. We are going to have good three quarters. Mark Smith: That is helpful. The other one was SG&A—there was a pretty impressive cut in SG&A this quarter, and I know there have been changes there. Can you talk about the sustainability of SG&A—are there further cuts, or with the orders coming in, are there areas you need to add? Curtis Hodgson: I wish this was a video call because you would see a picture of me with a machete. I have just begun to cut SG&A, and everybody is supportive of that. We basically have $500 million worth of money invested in paper. That does not take any SG&A, or hardly any. I am tired of SG&A growing in the company when the rest of the company is not growing, so I would expect to see further declines in SG&A. I do not know how much we can get it down to because, as Jon correctly pointed out, SG&A is not just sales, general, and administrative; it includes things like warranty and reserves and provisions for loan losses. But from a pure people-and-expense perspective—the S, the G, and the A—I would expect further declines. I do not know what our auditors are going to require for loan provisions that I think are nonsensical, and I do not know what skeletons are going to come up in the warranty department from yesteryear because we built some stuff that has been a legal issue. Part of our SG&A is still going to go down while part of it may not. I would expect maybe a 10% reduction by the end of the year in SG&A. Mark Smith: You spoke earlier about inflationary pressures and tariffs. Do you think your SG&A cuts are enough to make up for inflationary pressures, and is there anywhere you can pull on COGS to get product cost down? Curtis Hodgson: I have to go back to 2010–2030. The problem in the industry is all of the major manufacturers have been trying to build a cheaper product, and any time they can take $10 out, they consider it a triumph. The natural result is the product loses desirability—it does not have basic features, like medicine cabinets. We have taken a different tack. We are going to not build the cheapest one if possible and build to the middle of the market, and just recently we began to prove that theory out at the retail level with our company stores. We are not going to fight a war over who can sell the cheapest one for the lowest margin, because that is a recipe for failure. We are going to abandon that philosophy and concentrate on the middle market. This market needs to do more like site-built housing and turn into more of a turnkey solution to housing and get off the idea that the buyer has to buy his own medicine cabinet, if you know what I mean. Mark Smith: With changes in immigration and your own workforce, are you seeing pressure on labor and your ability to hit new production goals? Curtis Hodgson: As the younger generation would say, 100%. Deportations have hurt our sales to the Spanish market, and I think that is unfortunate, but it is okay. The interesting fact is our retail portfolio—which is 70% Hispanic—is behaving incredibly well, so we have not experienced a big uptick in repossessions. A little bit—I would say we are now repossessing at roughly 4% per year, but that is the historical norm in this industry. When we were repossessing at only 2% per year, it was because there was this quantum leap in prices during COVID and everybody was right side up in what they owed on their mobile home. Those increases in prices ended four years ago. In the four years since, we have had no substantial increase in prices in this industry, so for the loans made then in 2022, 2023, 2024, and 2025, we have consumers that are not well covered by the value of their mobile home, and I think that is the reason why repossessions are increasing back to historical norms. Deportations are not affecting our loan portfolio, but they are affecting the sentiment of people and whether they want to buy a mobile home with this threat that some family member may be deported and they do not want to go back home with them. It has affected who we sell to at retail and how we sell to them, but it has not affected our portfolio. I think that does answer your question. Correct? Mark Smith: That does. Thank you. Operator: Thank you. I am showing no further questions at this time. I would like to turn it back to Curtis Hodgson for closing remarks. Curtis Hodgson: Sure. Thanks, everybody, who joined the call today. I appreciate your interest in our company. That ends the call from my perspective. Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and welcome to the Starz First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nilay Shah, Investor Relations. Nilay Shah: Good afternoon. Thank you for joining us for Starz Entertainment's First Quarter 2026 Earnings Call. We'll begin with opening remarks from our President and CEO, Jeffrey Hirsch; followed by remarks from our CFO, Scott MacDonald. Also joining us on the call today is Alison Hoffman, President of Starz Networks. After our opening remarks, we'll open the call for questions. The matters discussed on this call include forward-looking statements, including those regarding expected future performance. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our most recently filed 10-KT for Starz Entertainment Corp. Starz undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. The matters discussed today will also include non-GAAP measures. The reconciliation for these and additional required information is available in the 8-K we filed this afternoon, which is available on the Starz Investor Relations website at investors.starz.com. I'll now turn the call over to Jeff. Jeffrey Hirsch: Thank you, Nilay, and thank you all for joining us. Today marks the 1-year anniversary of our separation. The Starz of today is structurally stronger than the business was when we separated a year ago. Over the last 12 months, we've made significant strides in setting the business up for long-term value creation. We have been laser-focused on achieving our financial goals of increasing margins to 20%, converting 70% of adjusted OIBDA to unlevered free cash flow and delevering to 2.5x as quickly as possible. I'm happy to report in our first year, we have met or exceeded all our key financial targets, created a new licensing revenue stream by restructuring the Canadian business, started to rebuild our content library through ownership, announced our first co-commission partner, helping to improve unit economics of our originals, the aged our slate while expanding our most popular franchises. And overall, we have unwound many of the constraints of operating within a studio structure. As I outlined on the last call, calendar '26 will serve as a financial inflection point for the business. Cash flow timing is now closer aligned with industry norms. Adjusted OIBDA is becoming more predictable and consistent, and we are managing the business against the metrics that matter most: OTT revenue growth, adjusted OIBDA, free cash flow and delevering. We are off to a great start in calendar '26. We had a strong first quarter, meeting or exceeding all financial guides, which Scott will discuss in more detail. Our structural work is showing up directly in the numbers, and our content continues to perform. The finale of Power Book IV: Force started the quarter off strong. The premier Season 8 of Outlander achieved a 4-year series high in its Premier Week. And just after the quarter, we released -- the Housemaid and it quickly set records as our best-performing Pay 1 film in both acquisition and streaming viewership. I expect this momentum will continue through the year. We have one of the strongest content slates ahead with our proven hit series, Raising Kanan, Outlander: Blood of my Blood and P-Valley, supported by the upcoming MICHAEL biopic. Congratulations to John and the Lionsgate team for the great box office performance. It will further strengthen our already robust schedule this year. In addition to our lineup of returning series, we announced this week that our first STARZ owned original Fightland, will premiere in just a few months on July 31. If you recall from the last quarter, we also announced Sky as the co-commission partner on Fightland, driving even more upside to the already favorable unit economics. We also continue to make advances in our ownership strategy beyond Fightland with the recently announced greenlight of another STARZ owned original, the untitled Black Rodeo show. This family drama is set inside the thriving world of the Black Rodeo in Texas and production is set to begin this fall. This is another example of us continuing to build out our content library through ownership, which I remind you, allows us to control the cost from inception and globally monetize our IP. As we have continued to highlight, rightsizing the content cost structure of the business has been paramount to reaching our stated goal of 20% margin. Today, we are announcing that we have exited our Pay-Two agreement with Universal. The Universal titles, which we originally planned to air through calendar '28 are incredibly popular and bring with them tremendous box office strength. However, due to the high subscriber overlap between Amazon and Starz, these titles are heavily watched before they come to us in the Pay-Two window. This unique dynamic with Amazon has resulted in lower viewership than we originally projected. In order to replace the revenue component of the Pay-Two, we will reinvest and acquire high-performing titles at superior economics. As a result, I'm pleased to announce that our outlook for reaching 20% margin has moved 12 months forward to the back half of 2027 instead of exiting 2028. We are thankful to our partners at Universal for working with us to find a mutually beneficial solution. We continue to see 2 paths for value creation for the Starz business. First, our focus has been growing the core business to achieve the 20% margin guide. Second, we believe there's an additional path to growth through potential M&A opportunities. Our approach to M&A remains disciplined. Any strategic initiative must be complementary and additive to our core audience, must fit within an acceptable leverage parameter and create clear and identifiable value for our shareholders. But given the strength and the profitability of our core business, we do not need M&A to maximize shareholder value. Before I turn it over to Scott, I would like to reiterate how excited I am about the growth of our business going forward. The free cash flow conversion is materializing. We are advancing ownership of our content library. We've rightsized the overall content portfolio, and we are anticipating continued rapid delevering. Starz remains focused and committed to executing on our growth strategies. We said calendar '26 would be an important year in showcasing what the business will look like as a stand-alone. The first quarter serves as evidence of just that. Now let me hand it over to Scott to take you through the financial details. Scott MacDonald: Thank you, Jeff, and good afternoon, everyone. I'm pleased to report that Q1 2026 was a strong quarter financially, and we delivered on or ahead of our key guidance metrics. Before I get into the financial details, I want to remind everyone that we are focused on 4 metrics going forward: OTT revenue growth, adjusted OIBDA, free cash flow and leverage. The decision to deemphasize subscriber counts is already being validated as pricing discipline and a focus on higher lifetime value customers are proving more valuable than maximizing quarter end subscribers. Let me start with revenue. OTT revenue in Q1 was $211 million, up from $210 million in Q4 2025. Total revenue in Q1 was $307 million, down from $323 million in Q4 2025. This sequential decline primarily reflects the timing of Canadian licensing revenue. The sequential growth in OTT revenue is an important benchmark, and it was driven by exactly what we set out to do, pricing discipline on both the acquisition and retention side, fewer low-priced entry offers, more annual and multi-month plans. This is deliberate and is improving the health of the business. While we are not disclosing ARPU directly, ARPU did grow on a sequential basis in the period. We expect ARPU to continue to build through 2026 as promotional customers convert to higher retail rates. In addition, we recently announced a price increase to $11.99, which will flow through the subscriber base starting in Q2. We continue to forecast positive OTT revenue growth in 2026 versus 2025 and are already ahead of where we expected to be at this stage of the year. Moving on to adjusted OIBDA. We delivered $58 million of adjusted OIBDA in Q1 2026, up sequentially from Q4 2025 due primarily to lower advertising and G&A expenses. On a year-over-year basis, adjusted OIBDA was down due to lower revenue and higher content amortization, offset by favorable advertising and marketing expenses. Importantly, adjusted OIBDA came in ahead of our internal plan, which gives us confidence in our full year guidance of low single-digit adjusted OIBDA growth. We also expect our quarterly adjusted OIBDA cadence to be more consistent in 2026 relative to 2025. In Q1, as part of our efforts to rightsize our content cost structure, we recorded a $139 million restructuring charge, the majority of which is related to the write-off of content with limited strategic value for our platforms. As the agreement with Universal was entered into in April 2026, we will record the Pay-Two restructuring charge in the second quarter of 2026. The revised terms meaningfully improve our cash payment obligations, creating a significant reduction in cash content spend beginning in 2027. Moreover, we believe this is the final component of our post-separation content rightsizing efforts. Combined with the ongoing de-aging of our original slate and the growing owned content contribution, this gives us clear line of sight visibility to reaching our 20% adjusted OIBDA margin target in the back half of 2027, a full year ahead of our prior guidance. Cash content spend in Q1 was $113 million, down year-over-year due to the timing of spend on output movies and originals. For the full year 2026, we continue to expect content spend to come in below $650 million, a meaningful decline from 2025. We expect the convergence of content spend and programming amortization to improve significantly in 2026 as compared to 2025 and continue to improve thereafter. When they reach near parity, you will see the full benefit of our content strategy reflected in the cash flow statement. Unlevered free cash flow was $81 million in Q1 2026, up $147 million year-over-year, while equity free cash flow was up $136 million year-over-year to $69 million. I want to note that Q1 was positively impacted by lower content spend, which we expect to catch up in Q2. Accordingly, we are not raising our free cash flow outlook at this time. Turning to the balance sheet. As of March 31, our net debt was $523 million. Our leverage ratio at the end of Q1 was 3.1x, lower than our internal expectations for the period, and we remain confident in achieving our 2.7x year-end target. I do want to note that leverage increased modestly on a sequential basis due to the timing impact of trailing 12-month adjusted OIBDA, not a reflection of any change in the underlying business trajectory. Our $150 million revolver remains undrawn, and we have significant liquidity and financial flexibility to manage the business. Let me close with guidance. We are reaffirming our full year 2026 outlook across all metrics. OTT revenue growth versus 2025, low single-digit adjusted OIBDA growth versus 2025, $80 million to $120 million of unlevered free cash flow, leverage exiting the year at approximately 2.7x. We will remain disciplined in how we manage the business, and we are confident in our ability to deliver on these metrics. Finally, 2027 is now setting up to be a very significant year for margin expansion and improved free cash flow generation, given the restructuring benefit, owned originals ramping and continued content cost reductions. Now I'd like to turn the call back over to Nilay for Q&A. Operator: We will now begin the question-and-answer session. Go ahead, Nilay. Nilay Shah: I was going to say thanks, Scott. You can hand it over for Q&A. So we can start. Thank you. Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from David Joyce with Seaport Research Partners. David Joyce: Regarding the Universal deal, can you size the portion of your available titles, that represented? Is it all theatrical? Or is there episodic in there? And where would you be sourcing more content from? Would it have similar kind of aging? And what are the checks and balances that you've gone through to make sure you don't have overexposed content again? Jeffrey Hirsch: David, it's Jeff Hirsch. Thanks for the question. This is a really unique situation because of the size of the overlap of our subscriber base sitting on Amazon, which sits in the Pay-One B from Universal. And so what you're really seeing is we were paying Pay-Two prices for library performance. And so we've talked a lot about the data information we have on the business. And we've been able to use the data to kind of recreate and reinvest into other library titles that give us the same kind of performance so we can protect the revenue component of that while actually just putting money to the bottom line while we reinvest. And so it's a little bit of money ball where we actually look at various titles from library from across the industry to kind of recreate the performance that we had at a much better economic level. Operator: The next question comes from Brent Penter with Raymond James. Brent Penter: First one for me. Could you talk a little bit more about -- last quarter, you announced you're not reporting subs and you're deemphasizing subscribers. How are you seeing that reflected in your results so far? Anything specific you can talk about in terms of customer lifetime values, churn, overall revenue, how that's benefiting you? Alison Hoffman: Thank you so much for the question. I think we're really seeing the rewards of the pricing discipline that we put into the business. In this past quarter, we have seen churn reach an all-time low in our business. Basically, we're not bringing in low-value subscribers in the way that we were when we were in a quarterly sub chase. And so the health of the business is really there. Just another stat in terms of the last quarter that was really strong is engagement was really strong for the business. So we have a strong content quarter and we saw year-over-year engagement up about 8%. So I think we feel really good that this is the right way to approach and operate the business for the long-term revenue growth goals that we have as opposed to, again, orienting around a quarterly sub chase. Brent Penter: Okay. Great. That's great color. And then I also want to ask about the shareholder rights plan put into place in March after there was a big chunk of your shares that changed hands. Can you help us understand why that was put into place, why now? And then the rationale for the 1-year time line expiring next March? And then, Jeff, is that at all related to the M&A possibility that you just laid out? Jeffrey Hirsch: Yes. Look, great question. I think there's a few components. So one is a newly separated company. And as you've seen, the market cap has moved around a lot and run up. So we wanted, I think, with the Board, we wanted to make sure that we had the ability and the time to kind of get the business rightsized and get value to the right place. And I think you're seeing that reflected in the stock and the market cap today. And so I think that the Board was really coalesced around making sure that we had the ability to get the business in the right place. Also, I think the Board is really also coalesced around our long-term vision for the business and how we can scale the business and wanted to make sure that we were laser-focused on that without any distraction. So we put that in place. It's a 1 year term. And then next year, we'll come up probably for a shareholder vote, whether we extend it or not. Brent Penter: Okay. Okay. Got it. And then final question for me. With the Universal Pay-Two deal ending and you're moving up the 20% margin goal. As we think a couple of years out to 2028, does this mean maybe you could get even above that 20% goal as we look ahead? Or is this really more of a timing thing that it's just a matter of when you hit the 20%? Jeffrey Hirsch: I think it's a combination of -- we knew that we had the titles through calendar '28. And so as that was rolling off, we had great line of sight into what that margin profile would look like. As we're able to work with the Universal and move that forward, that obviously brings the profitability of the company greater into a shorter period of time. But as you know, there's multiple ways to grow margin in the business. I think as we continue to put more ownership on the network, de-age the slate, get into '28 and '29 where the majority of our originals are owned by Starz and kind of bring that entire portfolio over, there may be some opportunity to continue to grow margin as well. Operator: The next question comes from Vikram Kesavabhotla with Baird. Vikram Kesavabhotla: I think you mentioned in the prepared remarks that you guys raised price recently. It'd be great to hear more about what gave you the confidence to make that decision and perhaps any of the early feedback that you're seeing from customers who've seen that increase. Alison Hoffman: Yes, Vikram, thanks for the question. We executed our price increase on April 1, and we have done this before. We are really positioned very well as a complementary service. $11.99 is a great price point for the value that we offer and for the audiences that we serve. So far, the price increase is digesting really well throughout our business. It's going to expectations. We'll have more information as we get into the summer and it really sort of plays out through the business. But going to plan and going very well, we think that we're very, very well positioned at that price point. Jeffrey Hirsch: I would also add that April is off to a really strong start even with the rate increase coming in April 1. Vikram Kesavabhotla: Okay. Great. And then separate from that, I know you've talked about in the past getting to half year slate by 2027. It'd be great to get your updated thoughts on how you feel about that goal right now and maybe some of the puts and takes that will affect your ability to get there? And maybe just some more color on the progress you've made on some of the projects that you already have going. Jeffrey Hirsch: Look, I've never been more excited about the pipeline that we have in the business. We just announced an untitled Black Rodeo Show, which is -- I think it's going to be one of our biggest shows. We're excited about production beginning that on in the fall. Fightland, which is our first owned original will premiere July 31st. We released a lot of the first look footage pictures of that yesterday, and it looks amazing. And we've got Kingmaker in development. We've got Masquerade in development. We're out. We've landed a couple of book series that we think could be big franchises for us. We've got all 4s. We've announced Plan B being our production partner there. We're putting more writers around that. And so the pipeline has never been more full and more exciting. And I think you couple that with the Pay-One Lionsgate, we're going to have a very, very strong content slate for the next 1 to 2 to 3 years. And so we're right on track to delivering against that 50% goal, and I think we'll actually accelerate past that. Obviously, the hope is to get most of the slate owned and controlled by Starz long term, and that's something we're laser-focused on. Operator: [Operator Instructions] The next question comes from David Karnovsky with JPMorgan. Douglas Samuel Wardlaw: Doug Wardlaw on for David. I'm wondering now that you're out of this agreement with Universal, what's the criteria for the acquisition of titles you'll be looking for to properly lead to whether user acquisition or to the churn? And then separately, does this lead to more room for spend on original content? Jeffrey Hirsch: So great question. We've developed a really robust database of first title streams and viewership on movies that we've acquired over the past from all the different studios. So we have a pretty good sense on in terms of indie films, what kind of viewership and first title stream that we can pull from different titles depending on how -- what their box office was, how old they are, what characters are in it, what's the storyline. And so we're really able to kind of, like I said earlier, Moneyball the portfolio to replace what we were seeing from the Universal titles at a much more of a library price. we were paying Pay-Two rates and they were performing much more like library because of just the strength of the titles being watched to Amazon. So we've got a pretty good view on what we need to acquire and at what price. And so there's an ability to put a lot of the savings to the bottom line. You see that moving the guide to 20% in '27, but we're also reinvesting in the business to protect the revenue side of the business as well. And so we've been able to do both in a much highly economic positive aspect to the business. Douglas Samuel Wardlaw: Great. And then I guess, separately, you mentioned P-Valley is coming back at some point this year, and it's been a long gap. And I'm just wondering what your data kind of says about audience reengagement for shows that have hiatuses that long? And does that kind of lead to more marketing spend to kind of get some of those viewers back that may have been gone? Jeffrey Hirsch: It's a great question. Look, I think with P-Valley specifically, and we've seen this with other shows that have had longer breaks, Outlander is a good example where we've had a lot of breaks. The fan bases are so obsessed with these shows that they've been continually looking for it and coming back on the network. So I actually think the moment we bring P-Valley back, the obsessiveness and the craziness for the fan base will get people there. We also have the ability, obviously, within app to notify customers, which is a zero cost game for us as well. And so we've got a lot of different marketing tools that are not economically expensive for us to go ahead and bring them back. But I -- Outlander is a great example. That fan base has created a thing called Outlander, which is the off-season, and they're online every day, wondering when that show is coming back. And I think P-Valley brings that same kind of intensity from the fan base. And so I expect it to be a wonderful return to the network and a massive both subscriber gain as well as viewership gain when we get it back on the air. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks. Nilay Shah: Thank you, operator, and thank you, everyone. Please refer to the News and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thanks, everyone. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the AMN Healthcare First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Randy Reece, Vice President, Investor Relations and Strategy. Please go ahead. Randle Reece: Good afternoon, everyone. Welcome to AMN Healthcare's First Quarter 2026 Earnings Call. A replay of this webcast will be available at ir.amnhealthcare.com at the conclusion of this call. Remarks we make during this call about future expectations, projections, trends, plans, events or circumstances constitute forward-looking statements. These statements reflect the company's current beliefs based upon information currently available to it. Our actual results may differ materially from those indicated by these forward-looking statements because of various factors and cautionary statements, including those identified in our most recently filed Form 10-K and 10-Q, our earnings release and subsequent filings with the SEC. The company does not intend to update guidance or any forward-looking statements provided today prior to its next earnings release. This call contains certain non-GAAP financial information. Information regarding and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and on our financial reports page at ir.amnhealthcare.com. On the call with me today are Cary Grace, President and Chief Executive Officer; and Brian Scott, Chief Financial and Operating Officer. I will now turn the call over to Cary. Caroline Grace: Thank you, Randy, and good afternoon, everyone. We appreciate you joining us today. The AMN team made important achievements since the start of the year. The first quarter was defined by unusually large labor disruption activity. From an operational standpoint, it was a major milestone for AMN. We successfully supported several large events, 2 of which were long duration, while continuing to serve the day-to-day, showcasing our rapid scaling, disciplined execution, broad and deep clinician network and high-touch service delivery. This experience also validated the investments we've made over the past few years and our technology capabilities, including our event management system and AI recruitment. Technology that enables coordination, compliance and real-time execution at scale, and it highlighted the strength of our mission-driven team working across the company. The energy and endurance of the AMN team, balancing event-specific needs and driving business as usual, were all inspiring, demonstrating all the values and principles that make AMN special. For the first quarter, AMN delivered revenue of $1.38 billion, above our guidance range and consensus. Gross margin was 26.8%, well above our guidance range. Adjusted EBITDA was $166 million or 12.1% of revenue. The first quarter included $722 million in labor disruption revenue and $656 million in revenue from all other AMN businesses. Nurse and Allied Solutions recorded year-over-year growth in traveler volume, excluding labor disruption travelers for the first time since 2022. Our Nurse and Allied Staffing businesses performed better than we expected in the first quarter, and are on track for continued strong performance in the second quarter. Our international staffing business grew revenue by 17% quarter-over-quarter, [indiscernible] year-over-year. This was our first quarter of year-over-year growth in this business since the fourth quarter of 2023, shortly after the State Department implemented Visa retrogression. Our leadership search business also returned to year-over-year revenue growth. While the revenues from labor disruption events are hard to predict, our ability to move thousands of clinicians to meet the urgent needs of our strategic clients delivered great value on a scale we could not have done just a few years ago. Our solid performance in the quarter enabled us to pay down our revolver and increase our cash balance, improving our leverage ratio to 1.6x at quarter end. Our strong balance sheet positions us well in the industry to advance our growth strategy and drive value for our shareholders, clients and other stakeholders. While we view the labor disruption execution as a defining accomplishment, we remain focused on the underlying drivers that enable our long-term growth plan, broader and deeper client and clinician relationships, scaled service execution and technology enablement of our solutions. In our Solutions segment, first quarter revenue for Nurse and Allied Solutions was $1.13 billion, our second highest revenue for the segment in company history. Beyond the labor disruption revenue and international nurse growth, travel nurse revenue grew 13% year-over-year and allied was up 3%. Bill rates and hours also moved favorably, with average bill rate up 6% year-over-year due to a surge in rapid response placements. Nurse demand has been muted, though demand in recent weeks improved to be flat year-over-year. Allied demand has been growing year-over-year since 2025. Our teams are executing very well at filling the available demand. For the second quarter, we expect Nurse and Allied Solutions revenue to be flat to down 2% year-over-year, including a normalization of the segment bill rate. First quarter revenue for Physician and Leadership Solutions was $164 million, lower by 6% year-over-year. Locum tenens volume was down 9% year-over-year, and revenue per day filled was up 3%. Interim leadership volume was down, partially offset by an increase in pricing. Our search business was highlighted by strong growth in physician permanent placement and new executive searches. We continue to see locums clients focused on managing spend by centralizing program management and hiring permanent physicians. And we have both a healthy pipeline of local MSP prospects as well as a new locum MSP client in the quarter. We also renewed and expanded the contract with our largest locums clients. MSP volume was up year-over-year, and we are driving towards making MSP a higher percentage of our revenue mix. Overall, locums demand has been softer, with more demand in the third-party channel, which is more competitive and harder to fill. Our lower fill rates in that channel more than offset our MSP progress. Similar to what we did in our nurse business to improve performance in vendor-neutral programs, we have initiatives in place to tech enable and automate our locums recruiting process to increase speed as well as adding more recruiters to enable higher fill rates. Leadership Solutions has rolled out refreshed go-to-market approaches for executive and leadership search and interim to align with clients' current challenges, including accelerating health care C-suite turnover, rising demand for digitally fluid, data-driven leaders and developing sustainable workforce strategies. Operationally, the team is improving fill rates with AI-enabled candidate matching and enhanced tech and data capabilities to support our search consultants. In the second quarter, we expect Physician and Leadership Solutions revenue to be down approximately 6% to 8% year-over-year. [ Quarter ] revenue in Technology and Workforce Solutions was $87 million, down 15% year-over-year or 10%, excluding the business we divested last year. Language services continued the rollout of our tiered service and pricing strategy, and we are pleased with our progress, including increased new sales wins and gross margin improvement in the first quarter. Our updated model enables us to serve our clients with the broadest set of language access services while delivering superior clients and patient experience and outcomes. On our WorkWise workforce technology platform, we rolled out new AI-driven tools designed to help our customers fill roles faster and improve the quality of candidate matches. We added automated candidate scoring, improved search across open orders and available staff and made it easier to create clear job descriptions, improving speed and overall hiring efficiency. We already used our AI recruiter to deploy more than 10,000 clinicians in the first quarter. We also introduced supplier performance analytics, which gives clients more transparency into supplier quality, responsiveness and outcomes. Overall, these updates further differentiate WorkWise and reinforce our ability to help health care organizations make better workforce decisions and manage staffing more efficiently. Our technology enablement has also strengthened our engagement with health care professionals. Our market-leading clinician app, AMN Passport, plays a critical role in how we improve the connection between client needs and the labor force. Over the past year, we increased the features in utility of Passport. And as a result, Passport users are up more than 30% year-over-year, with monthly active users up more than 50%. Based on positive client reception, we are accelerating our go-to-market strategy for WorkWise beyond our current client base, and we expect this acceleration to support new sales heading into the second half of the year. For the second quarter, we expect Technology and Workforce Solutions revenue to be down approximately 14% to 16% year-over-year, which implies an improved sequential trend compared with the past 2 quarters. Overall, we are encouraged by our start to the year, with some key solutions returning to year-over-year growth and plans for additional solutions to return to year-over-year growth this year and into next year. We remain confident that we are moving toward a business model in which we can sustain long-term revenue growth and grow adjusted EBITDA at twice the rate of revenue growth. Our first quarter performance was a significant demonstration of AMN's capability to scale quickly and deliver at a high level, integrating technology, operational execution and a mission-driven team under intense conditions. Great people are at the center of our mission and our culture. As we celebrate National Nurses Week this week, we are grateful to and for the tens of thousands of nurses we have the privilege of working with, who enable continuous, high-quality patient care delivered across a wide range of care settings and locations. With that, I'll turn the call over to Brian to walk through the financial details and outlook consideration. Brian Scott: Thank you, Cary, and good afternoon, everyone. First quarter consolidated revenue was $1.38 billion, significantly above the high end of our guidance range, driven in large part by labor disruption revenue, exceeding our guidance by $122 million. We also had better-than-expected performance from our travel nurse, allied and international businesses. Consolidated gross margin for the quarter was 26.8%, above the high end of guidance. Year-over-year gross margin declined 190 basis points and sequentially, was up 70 basis points. First quarter consolidated SG&A expenses were $218 million. Adjusted SG&A, excluding certain items, was $205 million, up compared to the prior year and prior quarter, driven by over $70 million in costs related to the large labor disruption event. First quarter Nurse and Allied revenue was $1.1 billion, up 173% year-over-year, up 130% sequentially. Excluding $722 million in labor disruption revenue, Nurse and Allied revenue was $405 million, up 8% year-over-year and up 11% sequentially. Nurse revenue, excluding labor disruption, was $254 million, up 12% year-over-year and 16% sequentially. The growth was driven in part by strong rapid response volume and associated higher bill rates, along with the international business recovery. Allied revenue was $151 million, up 3% both year-over-year and sequentially. Year-over-year segment volume increased 3%, average bill rate increased 6% and average hours worked increased 1%. Sequentially, volume and average bill rate increased 6% and average hours worked increased 2%. The higher bill rate was driven mostly by the rapid response revenue that is not expected to recur in the second quarter. Nurse and Allied gross margin in the quarter was 25.1%, up 240 basis points year-over-year and 350 basis points sequentially as labor disruption and rapid response revenue had a favorable impact on the segment margin. Moving to Physician and Leadership Solutions, first quarter revenue was $164 million, down 6% year-over-year and 3% sequentially. Locum tenens revenue was $131 million, down 7% year-over-year and 4% sequentially. Interim leadership revenue was $23 million, down 4% year-over-year and 5% sequentially, while search revenue of $10 million was up 4% both year-over-year and sequentially. Segment gross margin for the first quarter was 26.1%, down 120 basis points year-over-year and 140 basis points sequentially. The decrease in gross margin is primarily due to a lower margin in locums and a drag of 110 basis points from increased sales reserves booked in the quarter. In Technology and Workforce Solutions, first quarter revenue was $87 million, down 15% year-over-year and 1% sequentially. Excluding the July 2025 sale of Smart Square, revenue was down 10% year-over-year, driven mainly by a decrease in pricing and billed minutes in language services. First quarter language services revenue was $69 million, down 8% year-over-year and 1% sequentially. VMS revenue was $16 million, down 18% year-over-year and 2% sequentially. Segment gross margin was 50%, down 550 basis points year-over-year, driven by pricing pressure in language services and an unfavorable business mix. Sequentially, gross margin increased by 190 basis points, which included a 200 basis point improvement in the language services margin, reflecting the service model changes Cary mentioned in her opening comments. First quarter net income was $62 million. This compared with a net loss of $1 million in the prior year period and a net loss of $8 million in the prior quarter. First quarter consolidated adjusted EBITDA was $166 million. Adjusted EBITDA margin for the quarter was 12.1%, above the high end of guidance and up 280 basis points from the prior year period and 480 basis points sequentially. Day sales outstanding for the quarter was 26 days. Excluding working capital effects from the large labor disruption event, DSO was 54 days, 4 days lower year-over-year and 2 days lower sequentially. Operating cash flow for the quarter was $562 million and capital expenditures were $7 million. At quarter end, we had $551 million in cash and equivalents, with a large portion of this cash increase from excess client deposits were the labor disruption events. We ended the first quarter with $367 million in client deposits, of which we have already refunded approximately $250 million this quarter. Assuming the remainder of the deposits are repaid this quarter, we would anticipate having approximately $175 million in cash at quarter end. We ended the first quarter with total debt of $750 million and our leverage ratio, as calculated for our credit agreement, was 1.6x. Moving to the second quarter outlook. We expect consolidated revenue in the range of $620 million to $635 million. Gross margin is expected to be 28% to 28.5%. Reported SG&A is projected to be approximately 23% to 23.5% of revenue, reflecting continued cost discipline, while supporting growth initiatives. Operating margin is expected to be minus 0.6% to plus 0.1%. And adjusted EBITDA margin is expected to be 6.7% to 7.2%. Additional guidance details are provided in our earnings release. To echo Cary's comments, we remain confident that we have the team and strategy to deliver leading tech-enabled solutions that will drive sustainable revenue growth with improved operating leverage. With that, operator, please open up the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Trevor Romeo of William Blair. Unknown Analyst: This is [ Melissa ] on for Trevor. I guess just to start out, what are conversations with the major hospital operators sounding like on contract labor today? Noticed that it's not being called out on the earnings calls anymore. So are you seeing any fill rate normalization going on outside of those crisis and strike type situation? I know you mentioned seeing it in some pockets last quarter. Caroline Grace: Yes. Thanks, Melissa. Overall, we are seeing clients continue to focus on cost management as well as ensuring that they have the workforce in place to be able to support increasing levels of patient utilization. So those 2 themes have continued. To your point, the conversation has shifted with clients where getting to more normalized, both utilization levels and bill rate levels of contract labor was a lever, a big lever coming out of the pandemic. That really has normalized, and we've seen stability for a couple of quarters now. The conversations with clients have really shifted back to what are the levers that we can use to more sustainably create a high-quality cost-effective workforce and gets into a more of a total talent type of solution platform, which we are well positioned against, and its conversations around how do I do more predictive analytics about what my needs are? How do I ensure that I am leveraging the talent that I have most effectively? How am I tech-enabling some of my solutions to be able to close some of the gap between increasing levels of patient utilization and staffing? So we have seen those conversations really shift back to what are the more sustainable total talent strategies that you're going to be able to utilize to support your patient growth volume. Unknown Analyst: Great. And then maybe if I could just squeeze one more follow-up. On the labor disruption revenue, is there any additional color you guys could give on the client relationships that you guys developed coming out of that large windfall? And just any additional revenue opportunities that came from that this quarter? Caroline Grace: Yes. So we supported in the quarter, 5 labor disruption events, 3 of them were large, 2 of the 3 were indefinite. That was historic for us, that was historic for the industry. And when you go through those types of crisis events with clients, your relationships get deeper and stronger. It was an incredibly important moment for the clients that we were supporting in those events. And so we were able to do that successfully, help ensure that they were able to go through and deliver continuous high-quality care for their patients. And that is a very important service, not only what we did in the first quarter that took years of planning to get there, but what we would expect to do in future years with clients going through those events. Operator: Our next question comes from the line of Jeffrey Silber of BMO Capital Markets. Jeffrey Silber: In your prepared remarks, you alluded a few times to your rapid response revenues this quarter. Can you just remind us what the difference between that and your typical labor disruption revenues are and the impact on margins, et cetera? Brian Scott: Yes. Jeff, typically, they are shorter duration assignments, where the client is also looking for us to get somebody deployed very quickly. So that -- in this case, there was some kind of carryover between the -- or crossover between the labor disruption events and these rapid response orders. And so the rates are typically higher, but it's also -- it comes to that as a much higher pay rate as well. So I wouldn't think of it as much as a significant margin answer, but it does have an impact on the volume and higher revenue. So we mentioned the bill rate being much higher in the first quarter. That was in part because of the mix of those rapid response orders that we had in the quarter. The underlying trend around bill rates hasn't changed a whole lot in the last several quarters, but it was elevated. And that's why we made a point of calling it out as we look at the second quarter, we expect the rates to normalize. But it was -- it's very valuable for clients because, again, they need -- they have that rapid need and we're able to deliver really high fill rates on those orders. Caroline Grace: Jeff, one of the things that happens when you're in a longer-duration crisis, like 2 of the labor disruption events that we supported is, you can layer in rapid response. It's still an immediate need, but it is more cost-effective for the client. So it was part of a strategy that we were utilizing with clients to be able to really minimize the cost of them being able to support a long-duration crisis. Jeffrey Silber: Okay. That's really helpful. Second, my follow-up question is just regarding the competitive landscape. You obviously saw one of your larger competitors looks like they're going private again. I'm just curious what you're seeing from those dynamics. Have you seen some of the smaller players leave, and are the larger players consolidating? I'm just wondering your thoughts on that. Caroline Grace: Let me start and then I know Brian has touched on this as well. We've talked for some period of time that we expected there to be consolidation in the industry for a whole host of reasons. Coming out of the pandemic, you had too much supply of competitors. And as you continue to see the tech enablement of these services playing a bigger role, that tends to have a bias towards more scale players. You've seen some of that consolidation pick up more recently. Obviously, there's announcement yesterday about one competitor, but you've seen some merging in some places, both of more traditional staffing companies, but also of some of the more tech-enabled types of solutions. You've seen over the past year, some workforce forms that had gotten into nursing, get out of nursing. So you're seeing it play out in a couple of different ways. But we would expect for that consolidation to continue. Brian Scott: Yes, absolutely. I think that's -- you said is taking a little longer, and we know that there's still some of our competitors that have -- are dealing with larger amounts of leverage, and they're working through that. And so I think that will tend to ultimately drive more consolidation as well. And then some of the platform players, again, as they've consolidated, I think it's a reflection of many clients really looking for partners to help them more effectively manage their labor force and be thoughtful about the right mix and fulfillment. And so if you're purely just a platform player, you may be able to just deliver on some fill, but you're not really bringing incremental value to the clients because they're trying to really manage their costs in the most effective way. So we think that's an important part of our strategy. It's really being a thought partner with our customers to help them optimize their utilization of perm, contingent, how do we help them on both of those fronts. And I think that's -- more and more of those are the conversations and where we can really be a bigger partner for our customers. Operator: Our next question comes from the line of A.J. Rice of UBS. Albert Rice: Maybe first, just to ask, you've had a lot of moving parts, the labor disruption, your comments about rapid response. When you look at the underlying market dynamics, do you have an updated view on whether you think the key areas, nursing, allied locum tenens, what is the year-to-year trend there? Is it growing? What would you say the -- when you normalize, what do you think the underlying market looks like these days? Caroline Grace: So let me give you some comments about what we're seeing in demand, and Brian can kind of layer in. We gave a lot of numbers taking out labor disruption very intensely so you could get a good sense of where we are in the businesses without those events coming through. We feel good about how we started the year overall. Nurse and Allied, you are seeing healthy demand in Allied, you're seeing particularly the past couple of weeks, an uptick in demand in nurse. So we're about flat year-over-year with where we were this time last year, Allied turned to year-over-year demand growth in 2025 and has continued. And so we see into Q2, continued strong especially fill performance across Nurse and Allied. If we look at PLS, in locums, I made some comments in my beginning statement where we've seen weaker demand as we started off the year. We've seen a bit of an uptick over the past couple of weeks. But a lot of that demand structurally is in the third-party channel, where it's typically the most competitive when we have harder fill rates. We have a number of initiatives and a lot of successful proof points with what we did in that space in Nurse and Allied, and we have that underway in locum. So as we go through the year, we feel better about our capabilities in locums to be able to compete in that space and would expect to get to year-over-year growth in the first part of 2027. Search is already there, and we expect it to stay there in year-over-year growth. And then if we go into the TWS segment, we talked about, both Brian and I, what we're seeing already from the service model rollout that we've talked about the past 2 quarters. We feel very good about how that's being operationalized in the outcomes. And we expect that, that service model improvements to continue throughout the course of this year. And for VMS, we would expect us to continue to onboard new client wins as we go through the year and get to year-over-year growth in 2027. Albert Rice: I appreciate that. Go ahead. Brian Scott: I was going to add, A.J., just as Cary said, we're -- the Allied team has done a really fantastic job both in our traditional disciplined with therapy, imaging, lab, and respiratory, all of them are up. And then our schools business continues to have really strong momentum, as we talked about in the last couple of quarters. And so both demand and fulfillment team is performing really well. And as Cary mentioned, international is back to the growth as well. But on the -- so if you look at the Nurse and Allied segment, in total, excluding labor disruption, we're back to -- the guide would presume kind of flat to slightly up, and that's where we see the potential to continue to have a positive year-over-year comp going forward here, driven more right now by international allies, including the schools business. The travel nurse business is right on the cusp of getting back to a positive year-over-year growth on a consistent basis. So feel really good about the momentum in that segment. Albert Rice: No, I appreciate all that. I guess I was also just sort of trying to get a sense, I know you're doing a lot of things to get back on a solid growth trajectory. I just was wondering, is the underlying market in some of those key segments help? Or is it still sort of trudging along? I was thinking more in terms of the overall market from what you see. I may ask, if there's anything on that, fine. But I was -- you made the comment again about the revenue. You're moving toward a model where revenues -- well, adjusted EBITDA grows twice as fast as revenues. I wondered if you could flesh that out a little bit? Is that business efficiencies you're working on? Is that just operating leverage as the market starts to rebound? What are some of the pieces that would allow you to have adjusted EBITDA growth consistently 2x revenue growth? Brian Scott: Yes. Thanks, A.J. And I think we talked about that a few months ago, and that's really meant to be kind of our longer-term growth algorithm. And as we kind of lay that out, there was a working assumption that we'd have the businesses all are predominantly back into a growth mode. And so as Cary kind of walked through some of the service lines and where we are, we have confidence as we move into 2027, we have good opportunity to get back to a growth model across our service lines. That's really where you start to see that kick in. So it's partly a function of -- with top line growth more -- we laid out more in the 4% to 6% range. That would be -- that would occur at some point later in 2027 as we get all the businesses growing. When that happens in conjunction with a lot of the operational changes we continue to make to be a more efficient model, as process changes, automation, more deployment of AI, we think can drive a more efficient model. And we've got to be able to leverage our platform already. So I think the combination of continued process improvements and technology improvements, along with getting the top line business growing consistently, that would absolutely give us the opportunity to get that double-digit EBITDA growth. Caroline Grace: And A.J., the other things that we'd want to see in terms of just things we track beyond the demand comments that I made is we continue to see stabilization in bill rates in nurse. You've seen some modest increases in allied and in locum. We want to see as we leave this year, increases in those bill rates. We're seeing that with some clients as they want to get orders billed, but you want to see that more sustainably to mirror what you would expect to be some increases in the labor market. We saw some modest uptick in average hours worked. That would also be something that as we leave this year, that would be something else that would be very constructive overall of the industry turning from stabilization to more sustained growth. Operator: Our next question comes from the line of Tobey Sommer of Truist. Tyler Barishaw: This is Tyler Barishaw on for Tobey. On your net leverage, you took that down to 1.6x. How should we think about it over the remainder of the year? Brian Scott: Yes. Thanks, Tyler. So the intra dynamic, as we talked about in the prepared remarks with the cash balance. Our credit agreement actually as a governor on the amount of cash we can apply towards our net debt. So that's where we get that the 1.6x. But as you -- as I mentioned, as we work through a refunding of a fair amount of that cash balance during the second quarter, that would basically end up with a pretty similar leverage ratio at the end of Q2 based on our guidance. And right now, if you just -- if you roll out to the rest of the year, we'd expect to have a leverage ratio that would be at 2x or less through the remainder of this year. So we feel really positive about our position on the balance sheet. We paid off our revolver. We've extended the maturities of our existing debt out to 2029 and 2031. And so this, we think, puts us in a really strong position on the balance sheet to really focus exclusively on how we grow in the business here, and that's investing in our teams and our operations, accelerating some of the capital investments that we have already laid out to grow the business as well and gives us a lot more flexibility to consider different capital allocation options as we go through this year and into '27. Tyler Barishaw: Got it. And you mentioned Nurse and Allied had volume growth for the first time ex strike since 2022. Can you maybe talk about that, how that's looking for the rest of the year? Do you think that trend can sustain? Brian Scott: Yes. For the segment overall, we absolutely see the ability for us to maintain positive year-over-year growth in our volume. Again, I kind of laid out -- and really, all the teams are executing really well. Cary mentioned, our -- the demand environment in nursing has been stable but a bit muted. I think we expect to see that pick up, and we continue to look for ways to expand our client relationships and bring in new clients, both our strategic MSP and VMS but also more direct relationships. So that will open up more demand opportunity. But the teams are doing a fantastic job of filling into the demand that we have across our nurse, allied and international businesses. So I think that's where we have confidence we can continue to grow volume as we go through this year. Operator: Our next question comes from the line of Jack Slevin of Jefferies. Unknown Analyst: This is [ Brett ] on for Jack Slevin. I was wondering if you could provide a little bit of additional color here to help us bridge the second quarter gross margin guide? Brian Scott: So the bridging from Q1 to Q2? Unknown Analyst: Correct. Brian Scott: Yes. There's -- yes, so there are a couple of moving pieces, as you can imagine, with -- particularly with the large amount of labor disruption revenue in the first quarter. So that the 26.8% that we reported, as I mentioned in the prepared remarks, we did have some drag from the -- some sales adjustments that predominantly hit our Physician and Leadership segment. So what I'd say is if you really try to kind of strip out some of the different kind of onetime items you'd look at a gross margin in the first quarter, a little over 27% or 27.3%, 27.4% range. The guidance we've given for Q2, the midpoint is 28.2%. As we talked about that, there's about 10 million of labor disruption revenue embedded in that guidance. Part of that is actual contractual activities that we've got. There's also a part, as we reconciled some prior year events and finalize those invoices, there was some benefit from that, which is a kind of flow straight through. So that gross margin is a bit elevated in our guide for the second quarter. You should think about it still being a little bit more in the 27.5% range for Q2. I think it's important as you think about that even as you're looking at our expectations through the remainder of the year. That's really the right way to think about the launching point for the third and fourth quarter as well. Unknown Analyst: Great. That's helpful. And then maybe for my follow-up, just with the update to Visa retrogressions, how should we be thinking about the progression for the international business this year and then as we move into next year? Caroline Grace: Yes. So overall, consistent with what we talked about last quarter, we would expect high teen year-over-year growth in international this year. We had improvement in the retrogression dates over the past quarter. But what you're really seeing now is those candidates going into the next phase of the approval process, which is sitting at the embassies. We haven't assumed any significant acceleration of those candidates through the embassy process. We'll know more over the coming, I'd say, kind of quarter plus, how that's going. But if that goes faster than what we're anticipating, that you would see maybe some lift at the very end of this year that would help support some low double-digit growth into next year. We are not assuming at this point that you're going to see any lift of any of the travel bans or the travel suspension that would also be a tailwind to our assumptions and would predominantly affect and be accretive to 2027 growth. Operator: Our next question comes from the line of Kevin Fischbeck of Bank of America. Kevin Fischbeck: Great. Maybe to ask a question -- it was asked earlier, maybe a little bit differently. Do you guys have insight into like what percentage of your clients are back down to temp staffing as a percentage of their total workforce today like relative to where they were in 2019? And how many are still kind of at elevated levels versus that level? Caroline Grace: Yes. We don't have total insight. Obviously, for companies that are more public about their results, we have some insights. And I think the piece that we always focus on is what is the percentage because obviously, the underlying cost of labor, whether it's contingent or permanent, has gone up. Since 2019, I would say overall, when we compare our current client base to clients that we see -- or I should say, prospects that we see in our pipeline, we see more of our nonclients who may still have a little bit of work to do to get the utilization levels down. We were very partnering with our clients post the pandemic to get them down to more sustainable utilization levels. So I would say, generally, across our client base, they're more focused and shifting towards how do I build and retain my workforce as opposed to how am I reducing that? Brian Scott: Yes. And I think there's also -- I think there's more and more recognition of this inflection. We've seen where the aggressive permanent hiring that was done post pandemic has also led to significant wage increases for permanent labor. And so they're -- and you look at the reset that's occurred in bill rates for contract labor. And you're certainly at this point where we talked before the differential is -- can be very small. Sometimes there's no differential. And so as clients think about fluctuating patient volumes, managing their total workforce cost, I think that's -- we're shifting more to that dialogue versus just purely focusing on the contract labor volume. It's more what is the total cost of their labor and what is the value of having flexibility. And so I think that's where we're seeing more dialogue and less focus on that reduction at this point. Kevin Fischbeck: Okay. And then you mentioned language services margin is up a couple hundred basis points year-over-year. I guess, can you talk a little bit more about what drove that? And I guess, where generally pricing is going? Has pricing stabilized for that business? Caroline Grace: Yes. Let me do a high level, and then I'm going to turn it over to Nishan to add some color. So we have been operationalizing a new service model that we talked about the past couple of quarters that really has 3 enhancements to it. One is an increased offshore mix of resources, right? We always have an onshore/offshore mix. It's them utilizing their devices as opposed to us providing it, and more accommodating SLA. So kind of longer speed to answer in some cases. So we have been rolling that out since the end of last year, and I would attribute that to most of what you've seen on the margin piece. But Nishan, maybe talk a little about the competitive environment and pricing. Unknown Executive: Yes. It's a great question, Kevin. Competitive environment continues to be there, although we did see it maybe coming down a little bit through this year. But we expect staying through the balance of this year, but it is starting to stabilize a bit more. So feeling much more positive about our competitive position and posture in that market. Brian Scott: And I just want to point out that the 200 basis points was sequential. So we're still down -- we're down year-over-year, but we've seen that decline we saw throughout 2025. And so with the model changes, this is the first quarter we've seen it start to inflect back up again. So even though we're seeing pricing come down the way -- the changes we made in our cost structure for how we're delivering our services, which, again, focus is still always on the highest quality in the industry, but we've been able to do it in a way we're going to be able to bring down our cost for the delivery that's helping us improve that margin. Kevin Fischbeck: I guess maybe is this the bottom then? Do you think this is -- do you think you can keep going up from here? Is this the right way to think about it? Has those 2 things cause better pricing pressure still there -- offset? Caroline Grace: I think there's going to be a cycle that you have to work through for some of these pricings as maybe some contracts come up. I think there's still going to be a tail of that, that we've already factored into this. And so -- but we do believe that, to Nishan's comment, the -- it's a much more stable environment than we had seen in the past. We're also seeing and expect minutes quarter-over-quarter to be flat. So there's more stability that we're seeing than we had seen in the past, but we think it's going to be competitive. And we think there's going to continue to be competition for the business and particularly consolidation. We've been very focused on not just getting new clients, but consolidating spend with some of our larger clients. The other piece that I'll mention, I know we talked about this on the last call as well, is one of our areas of focus in our service model is how do we support the end-to-end patient experience. So while there is a moat around the clinical experience that there has to be a human involved in that interpretation. There is an opportunity for us from an admission standpoint, a discharge standpoint to use more AI-enabled capabilities that we are working on. Operator: Our next question comes from the line of Mark Marcon of Baird. Mark Marcon: You mentioned some changing dynamics with the client that are less focused on reducing their contract labor. I was wondering if you could talk about any sort of impact that, that could potentially have with regards to their willingness to see increased bill rates and to raise them to levels where we could actually -- they're more compelling to the nurses and we can have bigger fill rates? Caroline Grace: I think we continue to see overall focus on cost management. So where we're seeing clients increase bill rates is when physicians are not getting filled. And so I think that dynamic is going to be the dynamic that is going to really be the tailwind behind bill rates increasing. When you have positions that are priced appropriately, you see them filled. So that dynamic, I think, will continue. And as clients need more of these positions, with a higher degree of urgency, you will see more of those fill rates increase. But I would expect that to happen for time, and it will really be probably market by market and client by client. Mark Marcon: Great. And then with regards to just the cost consciousness, are you seeing any sort of attitudinal change at all with regards to the pressures that they were feeling when we were going through the early stages of DOGE? Is that starting to lift at all? Is that going to have any impact with regards to leadership within PLD? And how we should think about that portion of the business? Caroline Grace: What I would say overall is while we saw this time last year much more of a pause to step back and assess, okay, what are the implications of Big Beautiful Bill? What we're seeing now is much -- is really a focus on just how do we support what is expected to be an increase in patient utilization just from an aging population demographic. And do that when we know there is going to be, at some point, a limited amount of clinicians. And so how do we start having those strategies and do that in a way that is cost effective because our costs are going up higher than what we are getting reimbursed for. So I'd say that is still the general theme that we are hearing. And what we are feeling is still a focus on those cost-spending strategies for the workforce, including how do we ensure on the physician side that we are fully staffed so that we can maximize revenue. Brian Scott: And to your other question on the leadership side, we did talk about that in the prepared remarks that as we talk about the aging clinical population, in fact, you're also seeing an aging leadership population within health care and the changing of the skill sets needed to navigate this environment. And so we are -- as we drive our go-to-market strategy and the way we're interacting with clients and bringing value, I think it's -- there's a lot of opportunity for us to help them find the right talent for where they are in that journey. And so I think we're feeling good about our position in that market to grow our leadership, both the interim and our search businesses, to address some of the talent -- kind of depending talent gaps we think are going to occur as well as some of the new skills that are needed to help our clients navigate this world as well. Operator: I am showing no further questions at this time. So I would like to turn it back to Cary Grace for closing remarks. Caroline Grace: Thank you all for your interest in AMN, and a very special thank you to our extraordinary team and the strong partnerships that we have with our clients, clinicians and suppliers, who collectively helped us get off to a very strong start to the year. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.