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Operator: Good afternoon, and welcome to PennyMac Mortgage Investment Trust's First Quarter 2026 Earnings Call. Additional earnings materials, including the presentation slides that will be referred to in the call as well as an Excel file with supplemental information are available on PennyMac Mortgage Investment Trust's website at pmt.pennymac.com. Before we begin, let me remind you that this call may contain forward-looking statements that are subject to certain risks identified on Slide 2 of the earnings presentation that could cause the company's actual results to differ materially as well as non-GAAP measures that have been reconciled to their GAAP equivalent in the earnings materials. Now I'd like to introduce David Spector, PennyMac Mortgage Investment Trust Chairman and Chief Executive Officer; and Dan Perotti, PennyMac Mortgage Investment Trust's Chief Financial Officer. David Spector: Thank you, operator. Good afternoon, and thank you to everyone for participating in our first quarter 2026 earnings call. Starting on Slide 3. PMT's first quarter net income was $14 million or $0.16 per diluted common share, representing a 4% annualized return on common equity. These results were impacted by a lower contribution from our interest rate sensitive strategies primarily due to a decrease in servicing fees as a result of seasonality and a larger-than-expected MSR runoff related to higher note rate loans. These impacts were partially offset by improved results in our aggregation and securitization segment. PMT paid a quarterly dividend of $0.40 per share and book value per share on March 31 was $14.98, down 2% from the end of the prior quarter. Turning to Slide 5. I would like to note we have renamed what was previously the Correspondent Production segment to the aggregation and securitization segment. We believe this name more accurately captures the breadth of PMT's participation in the mortgage ecosystem, specifically our focus on aggregating high-quality loans for execution in the secondary market to drive organic asset creation. In total, during the first quarter, PMT purchased $4.3 billion in UPB of loans from PFSI. $2.8 billion in UPB was through its correspondent purchase agreement with PFSI, for which PMT pays fulfillment fees. The remaining $1.5 billion represented loan sales from PFSI to PMT outside of their loan purchase agreement where PMT's private label securitization platform provided optimal secondary market execution for PFSI. Slide 6 highlights the continued success of our organic investment creation engine. Similar to last quarter, we completed 8 private label securitizations totaling $2.8 billion in UPB. This activity resulted in the retention of $190 million of new subordinate bond investments in the credit-sensitive strategies and $12 million of new senior bond investments in the interest rate-sensitive strategies. We also generated $40 million of new MSR investments. Our momentum has continued after quarter end, with 2 additional securitizations completed and another 1 priced totaling $1.1 billion in UPB, and we remain on pace to complete approximately 30 securitizations in 2026, which we expect will build a substantial foundation of investments with returns on equity in the low to mid-teens to support future earnings. On Slide 7, we provided a snapshot of the high-quality investments we are creating through our private label securitization program. At quarter end, the fair value of subordinate bonds within our credit-sensitive strategies totaled $744 million. 66% of this portfolio is comprised of bonds from nonowner-occupied loan securitizations. 20% is comprised of bonds from general loan securitization with the remainder primarily from agency eligible owner-occupied loan securitizations. As you can see, these investments feature exceptional credit characteristics. including a weighted average FICO origination of 774, a weighted average LTV and origination of 72 and negligible delinquencies. Within our interest rate-sensitive strategies, as of quarter end, we held $94 million in fair value of senior and mezzanine bonds. These investments are diversified across our jumbo non-owner occupied and agency eligible owner-occupied loan securitizations. And similar to our credit-sensitive bonds, these investments are backed by high-quality collateral with weighted average original FICO scores in the 770 range and original loan-to-value ratios in the low 70s. This consistent credit quality across these organically created assets underscores our ability to produce attractive, high-yielding investments on Slide 8, approximately 60% of PMT's shareholders' equity remains deployed to long-standing investments in MSRs and our unique GSE credit risk transfer investments. Mortgage servicing rights account for nearly half of shareholders' equity, providing stable cash flows from the portfolio with a low weighted average coupon of 3.9%. Our organically created GSE CRT investments represent 12% of shareholders' equity and consists of seasoned loans with a weighted average current LTV of 46%. Turning to Slide 9, while our diversified portfolio is constructed of investments with strong underlying fundamentals, we acknowledge our earnings, excluding market-driven value changes have been below our dividend level for the past several quarters. As you can see, we are showing an average run rate return of $0.31 per quarter for the next year. And focusing on the interest rate-sensitive strategies, increased amortization on higher coupon loans as well as reduced expectations for declines in short-term interest rates, which drive financing costs have lowered expected returns on MSRs in the near term. As is our long-standing practice, we continue to actively evaluate our overall equity allocation and investment opportunities to refine and optimize our returns on a go-forward basis. We are working diligently to reposition PMT to capture the opportunities more aligned to our long-term return hurdles. Our momentum in organic investment creation remains strong, and we have successfully positioned PMT as a leader in the private label securitization market. By leveraging our unique ability to create credit-sensitive, high-quality assets, and drive our overall returns higher through disciplined capital allocation, I remain confident in our strategy to support our dividend and create long-term value for our shareholders. Now I'll turn it over to Dan to review the first quarter financial performance. Daniel Perotti: Thank you, David. Net income to common shareholders was $14 million or $0.16 per diluted common share in the first quarter or a 4% annualized return on equity to common shareholders. Our credit-sensitive strategies contributed $16 million to pretax income, generating an annualized return on equity of 17%. Gains from organically created CRT investments were $10 million, which included $7 million of realized gains and carry and $3 million of market-driven value gains from credit spread tightening. Investments in subordinate MBS from our private label securitizations generated gains of $6 million, $2 million of which were market-driven value gains. Interest rate-sensitive strategies contributed pretax income of $8 million for an annualized ROE of 3%. Income excluding market-driven value changes for the segment was $11 million, down from $21 million in the prior quarter, impacted by increased prepayment speeds during the quarter, particularly on higher note rate MSRs, which drove higher runoff of our MSR assets, as well as lower servicing fees from seasonality and lower placement fees on custodial balances as a result of lower short-term interest rates. Regarding market-driven value changes, our hedging activities during the quarter yielded a small net decline as the $40 million MSR fair value increase was more than offset by $46 million of net declines in fair value of MBS and interest rate hedges, including the related tax expense. Additionally, during the quarter, we sold $477 million of agency fixed rate MBS to capitalize on intra-quarter spread tightening, resulting from the GSE MBS purchase announcement, and we redeployed the capital into retained investments from our private label securitizations. The aggregation and securitization segment reported pretax income of $16 million compared to a pretax loss of $1 million in the prior quarter. The prior quarter amount was primarily driven by spread widening on jumbo loans during the aggregation period and lower overall margins. In total, PMT reported $28 million of net income across strategies, excluding market-driven value changes, up from $21 million in the prior quarter, primarily due to an increased contribution from the aggregation and securitization segment. I want to address our dividend in the context of our current results and the updated run rate return potential. While projections for income, excluding market-driven value changes remain below the dividend level, it is important to note that we expect to maintain the common share dividend of $0.40 per share, which is supported by our taxable income and which we expect to be sufficient to fully cover the dividend at its current level. Turning to Slide 13. We highlight the flexible and sophisticated financing structures PMT has in place to support its diversified portfolio of investments. During the quarter, we redeemed $345 million of exchangeable senior notes originally due in March 2026 using capacity from existing financing lines. And finally, on Slide 14, we continue to believe that debt to equity, excluding nonrecourse debt is the best metric for measuring our core leverage and that ratio declined to 5.6x at quarter end from 6x at the prior quarter end within our expected range. PMT's total debt to equity increased to approximately 11:1 from 10:1 at December 31 as we continue to retain investments from securitizations. The increase in our total debt-to-equity ratio reflects growth in nonrecourse debt associated with these transactions, where all securitized loans are required to be consolidated on our balance sheet for accounting purposes. As a reminder, the source of repayment for this debt is limited to the cash flows from the associated loans in each private label securitization mitigating any additional exposure to PMT. We expect the divergence between these 2 metrics to continue increasing as our securitization program grows. We'll now open it up for questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Trevor Cranston with Citizens JMP. Trevor Cranston: Question related to your comments on Slide 9 about actively evaluating the asset allocation of the company and some new investment opportunities. Can you elaborate on what you guys are looking at in terms of kind of new investments if that includes things like non-QM or home equity. And also was curious if sales of maybe some lower returning assets are part of the valuation that's ongoing? David Spector: Well, I think it's all of the above would be my response. I think first of all, if you look at Slide 9, when you look at the annualized return on equity, you can see that the -- in terms of achieving that minimum required return of, call it, 13%, 14%. Means that the sector that's really under delivering and has been the net interest rate sensitive strategies and, in particular, MSRs. And so as we look across our MSR portfolio, I mean, clearly, there's parts of that, that have real value and there's demand in the marketplace for it. And there's others that have real value that perhaps there isn't as much demand in the marketplace. So we're strategically evaluating the MSR portfolio to help accelerate perhaps the weighted average equity allocation down in that operating strategy and moving more to the credit-sensitive strategies. The point you raised in the credit-sensitive strategies, of course, there's more opportunity to do additional securitizations in nonowner-occupied loans and agency-eligible loans even jumbo loans. But given what we're seeing in the non-QM originations, both in correspondent and over a PFSI in their broker division, the ability to aggregate for securitization is very apparent to me. So I wouldn't be surprised to see us do a non-QM securitization over the next year. And to your point, there's other assets that we see in the marketplace that you can create investments that achieve our return target. And so as we've done in the past, we're going in and we're evaluating how to -- where can we recycle out of lower returning assets in the higher returning assets. Operator: And your next question comes from Bose George with KBW. Bose George: So first, just the change in the ROE expectation that you gave for the $0.31 down from $0.40, it looks like it's mainly on the Agency MBS, but can you just walk through the drivers of that change. Daniel Perotti: So the -- so really, the bigger driver of those is on the MSRs, which -- where the return came down a few percentage points in the allocation, weighted average equity allocated there is a larger proportion. The Agency MBS also did decline. That was really related to -- if you look at the expectations for short-term rates going back from last quarter versus this quarter, there was obviously a sharper decline and thus a greater expected carry from the agency MBS in that -- in the prior run rate scenario. But the bigger impact is related to really the prepayment speeds and expectations that we see in the short to medium term on the MSRs. Bose George: Okay. That makes sense. And -- the -- and in terms of the bridge now from the $0.16 you guys did this quarter up to the normalized. Can you sort of walk through just the bridge there? Daniel Perotti: Well, certainly, obviously, rates have increased a bit, and so we are expecting slower prepayments on the MSRs. But still below -- still elevated from what we saw earlier in prior quarters or in earlier quarters in 2025. And then as David has mentioned, there we mentioned some allocation out of MSRs and into -- if you look at the allocation here, for example, some ability to ramp up other investments as we move through the next few quarters. Operator: And your next question comes from Jason Weaver with Jones Trading. Jason Weaver: In your prepared remarks, you mentioned the sale of roughly $0.5 billion of MBS on tightening to redeploy towards retained securitization, which looks like a material rotation in the interest rate-sensitive book. All else equal, is this a sort of glide path we should think about for the remainder of 2026? Or was this more of a tactical rotation? Daniel Perotti: I think that was really more opportunistic or tactical. We wouldn't necessarily expect to continue to wind down that portfolio, especially, although we will adjust as we're looking at rotating out of certain portions of the portfolio. But given the returns that we expect from the Agency MBS portfolio and what we have here overall, we wouldn't expect to drawdown necessarily further on the MBS portfolio, but it's something that we'll continuously evaluate based on where spreads are in the market. Jason Weaver: Got it. And I think you redeemed about $350 million of exchangeable senior notes from the existing financing book. What is the unsecured corporate debt stack look for the next 24 months, if you can just guess. And are you targeting any sort of opportunistic refinancing or extension given current spreads? Daniel Perotti: So we issued about $150 million of additional convertible debt towards the end of Q4 last year. We additionally in 2025 issued a few unsecured baby bonds. That was effectively a pre-refinancing of the convertible debt that was retired in Q1 of this year. So we don't have a need to necessarily raise additional unsecured debt. It is something that we will continue to look at and see if there are opportunities. but no immediate plans necessarily, but it's something that we will be opportunistic with to the extent that we see opportunities. Operator: [Operator Instructions] Your next question comes from the line of Doug Harter with BTIG. Douglas Harter: As you think about the opportunity in the non-agency securitization, do you view it as more opportunity limited today or more capital constrained and as you think about the ability to scale -- continue to scale that business? David Spector: I think it's really capital more than opportunity. I think the great story about PMT is obviously, the synergistic relationship it has with PFSI and the ability to source the underlying assets, the ability to underwrite and process the loans on the front end and where we have the ability to actively select the loans that we want in our investments is a really important feature that we have in PMT. And so the -- whether it's investor or non-owner securitizations where we create subordinate bonds or general loan securitizations and even the agency eligible loans where we're not securitizing just for best execution purposes, we're securitizing to create investments for PMT. And so I think that it's really more of a capital issue for us. And I think that's why we're focused on opportunistically getting out of lower returning assets and most likely reinvesting the capital into our credit-sensitive strategies sector, which, by the way, from the very beginning of PMT is what the -- is what the investment thesis was for PMT looks to be a credit-sensitive strategy vehicle. And so that's really the guiding -- the kind of the guiding force here. We're -- I think we've done a great job in being the preeminent securitizer of these non-agency loans and creating the investments behind them. And you look at the performance of these, and they're really remarkable. And I think that we've done a nice job when CRT was discontinued to be able to move to figure out, okay, how do we create a like investment without the CRT opportunity, and that's how we ended up where we are today. But I think you're going to continue to see us grow the equity allocation in the credit sensitive strategies over time. Douglas Harter: And David, as you mentioned, you're seeing increased non-QM volume, how much crossover is there in your traditional agency originator that's a correspondent partner versus non-QM or some of these other products that you haven't necessarily gotten as large in yet? David Spector: I'm really -- I've been really pleasantly surprised and I think it's a function of the size of the market that we're seeing a good amount of our correspondent getting into non-QM lending. And so I think that they are -- they're recognizing that they need to expand their product base. And so this is where being the leading correspondent aggregator with over 700 plus [ clients ] is really an advantage to us and being really good, meaningful deliveries of non-QM correspondent. And I expect that to meaningfully grow. I think the important part of non-QM, like all non-Agency products, you have to keep an eye on the fact that you don't want to get caught in a market disruption or with spreads widening. And so we're being really diligent at least initially in selling and forward selling the non-QM product to really lock in the margin until such time as we want and we decide to do a securitization. And that's where again, the synergistic relationship with PFSI to be really valuable because similar to the correspondent side on the PFSI side, we're seeing really good receptivity to non-QM with our broker partners. And so I think when we decide that we want to do a securitization and really deploy capital there, we'll be able to do so. But by and large, I think there's part of the non-QM market that we're participating in is getting more readily accepted in the broker and correspondent communities has more akin to their credit profile and their risk management framework than when it was originally -- when a vision was born some 10 years ago and people thought of it as maybe a little less than prime. But I've been pleasantly surprised by this. Operator: We have no further questions at this time. I'll now turn it back to David Spector for closing remarks. David Spector: Well, I'd like to thank everyone for joining us on our call today. If you have any questions, please don't hesitate to reach out to me or our IR team, Dan and I look forward to speaking to all of you in the near future. Thank you. Operator: The concluded today's call. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Shoals Technologies Group's First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Matt Tractenberg, VP of Finance and Investor Relations. Matt, please go ahead. Matthew Tractenberg: Thank you, Christine, and thank you, everyone, for joining us today. Hosting the call with me is our CEO, Brandon Moss; and our CFO, Dominic Bardos. On this call, management will be making projections or other forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties and should not be considered guarantees of performance. Actual results could differ materially. Those risks and uncertainties are listed for investors in our most recent SEC filings. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's first quarter press release for definitional information and reconciliations of historical non-GAAP measures to the nearest comparable GAAP financial measures. Please note that the slides you see here are available for download from the Investor Relations section of our website at investors.shoals.com. With that, let me turn the call over to Brandon. Brandon Moss: Thank you, Matt, and thanks to everyone joining us on the call. First quarter revenue was above our guidance at $141 million, up 75% over the prior year period. Our commercial team continued their strong performance by adding approximately $151 million of new orders in the period. This resulted in another company record backlog and awarded orders, or BLAO, of $758 million, an increase of almost 18% year-over-year. As of quarter end, approximately $628 million of our BLAO has shipment dates in the upcoming 4 quarters for Q1 of 2027. For adjusted gross profit percentage came in slightly below our expected range at 29.6%. This was driven by product mix, tariffs, increased freight costs and some temporary labor inefficiencies as we train additional employees to meet the strong demand on new business lines in our factory. We believe that this is the low point of gross margin and that it will improve as we make our way through the year. SG&A, including all legal expense, was $31 million, representing 22% of revenue, a 500 basis point decline as compared to 27% last year and highlighting the operating leverage inherent in our business model. First quarter adjusted EBITDA of approximately $21 million came in at the high end of our guided range and grew 56% year-over-year. We've also seen some positive movement on our IP infringement case against Voltage. Last week, the International Trade Commission declined to review any contested issues in the ALJ's initial ruling. The commission is still expected to issue its final determination in early June, but it's encouraging news for our shareholders and U.S. manufacturers in general. We are pleased with how the market is evolving and our competitive position of strength and as a result, are increasing both our revenue and adjusted EBITDA guidance for the year. Dominic will step through the updated guidance later in the call. Briefly turning to our various business lines. The first quarter was another strong period of growth within our core utility-scale solar market. Our quote volume in the quarter exceeded $1 billion of unique projects, adding to our strong pipeline. I'm also encouraged by the progress we are making in key international markets like Australia, as evidenced by our increased quote activity and customer engagement. International BLAO now totals almost $100 million, driving continued growth and diversification in 2027 and beyond. Our community, commercial and industrial, or CC&I, business, which remains a small piece of our overall mix, continues to perform well. Our OEM business continues to provide a stable and visible revenue stream, growing at 33% on a year-over-year basis. And finally, we added approximately $9 million to BESS BLAO in the quarter, which ended the period at $75 million. You may recall that we announced a recent partnership with ON.energy in the last quarter. ON.energy is rapidly assuming market leadership in AI data center power infrastructure with its first-of-a-kind medium-voltage AI UPS. That architecture is being deployed in what will be the largest battery project of an AI data center in the U.S. Shoals is very proud to be a partner in this project. In Q1, we celebrated the first of these units produced in our new facility, recognizing more than $1 million in revenue and paving the way for a healthy ramp through Q2. We're excited about increasing production and gaining visibility as we continue to build this business. Overall, the quarter played out as expected, but the year appears to be stronger than we anticipated on our February call. New orders in Q1 for 2026 delivery were very strong, and we have not seen significant project delays thus far. We are executing well, finishing the move into our new facility and expanding capacity and capabilities. The underlying demand drivers remain intact, and our competitive position has strengthened. Our business is in a great place today. Dom, I'll hand it to you for a deeper dive into our financial performance and guidance. Dominic Bardos: Thanks, Brandon, and greetings to everyone on the call. Revenue increased by approximately 75% year-over-year to $140.6 million. The increase was largely driven by strong demand from both new and existing customers within our core U.S. utility-scale solar market. Gross profit was $41.0 million compared to $28.1 million in the prior year period, an increase of 46%. Our GAAP gross profit percentage was 29.2% and adjusted gross profit percentage was 29.6%, slightly below our expectations and impacted by product mix, higher freight costs, tariffs and temporary labor inefficiencies as we start new lines and train new employees to meet the very strong demand we see ahead. Product mix, freight and tariffs accounted for approximately 200 basis points of margin compression versus our anticipated outcome. As Brandon stated, we believe this quarter is the low point for gross profit percentage and that it will improve as we make our way through the year. As a reminder, our product mix plays an integral role in the gross profit percentage, and that may vary from quarter-to-quarter. The same mix that is driving higher revenue growth and contribution dollars negatively impacts the margin percentage but delivers higher profit dollars. Ultimately, we are focused on driving incremental profit dollars through the P&L as that strategy will create shareholder value. Selling, general and administrative expenses, or SG&A, was $31.0 million or $9.3 million higher than the prior year period, driven by an additional $6.2 million of ongoing legal expenses. This breaks down to $4.1 million related to our ITC litigation, $1.2 million related to our case against Prysmian and a little under $1 million related to the shareholder class action suit. As you may have seen last week, we have announced a proposed settlement to the shareholder class action suit. The vast majority of the settlement is covered by insurance. Income from operations or operating profit was $7.7 million or 5.5% of revenue, growing at 79% year-over-year. This compared to $4.3 million during the prior year period. Net loss was $297,000 compared to a net loss of $282,000 during the prior year period. The net loss was driven by the class action settlement net impact of approximately $5 million. Adjusted net income was $12.1 million, an increase of 112% as compared to $5.7 million in the prior year period. Adjusted EBITDA was $21.1 million compared to $13.5 million in the prior year period, representing 56% growth year-over-year. Adjusted EBITDA margin was 15% compared to 16.8% a year ago, driven primarily by the impact of product mix. Adjusted diluted earnings per share of $0.07 was $0.04 higher than the prior year period. Operationally, we consumed $41.4 million of cash in the first quarter, driven by the higher inventory balances needed to satisfy the strong demand signals we are seeing in our markets. We have taken inventory positions to protect our customer delivery time lines for the next 2 quarters, and we intend to reduce inventory levels throughout the back half of the year. As such, we do not currently anticipate interruptions to project delivery schedules due to the conflict in the Middle East or projected trade policies. We ended the quarter with cash and equivalents of $1.9 million and net debt to adjusted EBITDA of 1.6x. Our net debt was $179.9 million, an increase over the prior quarter, driven by an increase in inventory in both our new BESS business and our core utility scale solar market. As we enter this period of exceptional demand, our intention is to moderately expand the capacity on our revolving credit facility. Over time, as collections normalize with production, we will resume deployment of excess cash towards reducing the outstanding balance and maintain leverage below 2x adjusted EBITDA. Backlog and awarded orders ended the first quarter at a record $758.0 million, a sequential increase of $10.4 million. Backlog constitutes $390.3 million of the total BLAO, providing us with confidence that the growth projections we have for the upcoming periods can be achieved. The strength of our book of business supports our decision to increase both our full year revenue and adjusted EBITDA expectations. As of March 31, $627.6 million of our backlog and awarded orders have planned delivery dates in the coming 4 quarters through Q1 of 2027, with the remaining $130.4 million beyond that. Turning to guidance. For the quarter ending June 30, 2026, the company expects revenue to be in the range of $150 million to $170 million, representing 44% year-over-year growth at the midpoint. And adjusted EBITDA to be in the range of $28 million to $33 million, representing 25% year-over-year growth at the midpoint. For the full year 2026, we now expect revenue to be between $600 million and $640 million, representing year-over-year growth of 30% at the midpoint. And adjusted EBITDA to be in the range of $118 million to $132 million, representing year-over-year growth of 26% at the midpoint. In addition, for the full year, we still expect cash flow from operations in the range of $65 million to $85 million, capital expenditures in the range of $20 million to $30 million and interest expense in the range of $8 million to $12 million. With that, I'll turn it back over to Brandon for closing remarks. Brandon Moss: Thank you, Dominic. The U.S. market appears to be extremely resilient, and our capacity expansion could not have come at a better time in our history. We are preparing Shoals to be ready and agile in our production capabilities in a growing demand environment. We are in an exceptional position today from both a commercial and operational perspective. The strategic plan that we constructed and the process improvements we've implemented have begun to yield tangible results. We want to thank our shareholders and our customers for their continued trust in our employees for their hard work and dedication. Operator, we are now ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Philip Shen with ROTH Capital Partners. Philip Shen: Congrats on the strong result. I wanted to talk through the tax equity pause that we've read a fair amount about. I was wondering if you guys are seeing that flow through any of your business or any of your conversations and then maybe talk through with the healthy bookings from this quarter, do you expect that booking strength and greater than 1 book-to-bill to sustain in the quarters ahead? Brandon Moss: Phil, thanks for the question. Related to the tax equity piece, well aware of what's going on in the market with some of the larger banks financing projects. I would say that we have not seen that trickle down into our order book. I think there is available financing for projects that still exist in the marketplace, and we are not seeing an impact to that as evidenced by a really strong quote log again in Q1 of over $1 billion, and that's been really consistent with the quoting strength we've seen for the last few quarters, honestly. As it relates to future book-to-bill and booking strength, it is always our goal to have a positive book-to-bill. We see a lot of strength in the marketplace. The market is accelerating and not slowing. We have fortunately strung together a number of quarters now with positive book-to-bill, and that's always our intention to do so. Philip Shen: Great. And coming back to margins for a bit here. Q1 was a little bit lower. I know you guys talked about that being the low point in the year. I was wondering if you could share what like Q2 and Q3 might be heading towards with your guidance raise, the EBITDA margin for Q1 was 15%, but full year is 20%, suggesting you really have to drive that much higher later in the quarters or later this year. And while maintaining the EBITDA guide, you also kept cash flow from operations unchanged. So I was wondering if you might be able to address kind of some of the situation there. Brandon Moss: Yes. Thanks. So multipart question there. I'll tackle the front end and maybe turn it to Dominic. As it relates to gross margin, again, we commented we had about a 200 basis point impact in the quarter versus our expectations. The biggest driver of that for us is always product mix. And then obviously, we had -- as we're moving our facility from our former 3 sites into our new factory, we've got some disruption related to that move, a little bit more so that is anticipated. We moved about 250 pieces of equipment or slightly more over a 60-day period in the quarter. And obviously, that led to some level of disruption. Dom, maybe pass it to you to expand upon that. Dominic Bardos: Yes. So I think, Phil, one of the things you asked was also a little bit of the pacing of what we might see from margins. And we do expect that the first half as we're still moving into the facility. So Q2 will still have lower margins. We just don't believe it's the low point that we saw in Q1 as we've been communicating. And then there will be a ramp in the back half as we move into the -- we're going to be completely move into the facility, and we will also have the ability to start realizing some of the efficiencies of being in one vehicle new facility. So the pacing will still be a little bit lower on the margins in Q2 and then improving, but everything should be sequential improvement quarter-over-quarter. And with regards to the cash flows from operations, our working capital, we took very specific inventory positions to make sure that we can meet the demand that we see in the coming quarters. But we will have the ability to reduce that. So I would characterize that as a timing issue. We do see very strong business. We see very positive cash flows this year and our ability to drive that cash is heightened this year because we're not doing some of those large things like the warranty remediation, which is largely in our rearview mirror at this point. So I would characterize that as a timing issue. We're very confident in the year and very excited at the book of business that we have in front of us. Operator: Our next question comes from the line of Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Look, maybe just to kick things off, I would love to hear a little bit more about the battery BESS adoption trends as well as any other end market adoption here. Again, I know the Street is very fixated to hear on your quarterly BESS trend. Obviously, stronger start to the year here overall. But I'm curious on how you would suggest cadence and adoption is going given what we're seeing in that end market. Brandon Moss: Julien, I appreciate the question. We are very excited about our BESS business. As we indicated in the prepared remarks, we started our BESS line in Q1 and recognized about $1 million of revenue. Those specific units, again, are going to the data center market, which we're very bullish about, and we will be on the largest battery paired AI data center site in the country, which is very exciting for us here at Shoals. What is also exciting for us in the first quarter is we added $9 million to our book of business related to BESS. Maybe to peel that back a little bit, as you may recall, we've got 3 specific end market use cases for our recombiner products, one being data centers, 2 being grid firming and 3 being your common solar and storage paired applications on our traditional solar sites. About 2/3 or more of our bookings in the quarter came from grid firming and solar plus storage applications, which is exciting for us as we are seeing penetration across all 3 markets. As we've talked about in the past, we see the data center AI space as being probably the strongest and largest driver of the product line, but it's also great for us to show strength in the other markets as well. Julien Dumoulin-Smith: Got it. And then not to needle too much on this margin backdrop, but you lowered the margin guide here slightly here. What's driving that here? Can you comment on the logistics side of things, the tariff angle? I know you commented a little bit here, but I just want to make sure I'm hearing that right, especially given the ramp that my peer who was talking about a second ago. Can you just comment about what you're seeing on that margin guide? I think people are very fixated here on the cadence of the year and ensuring that you see that overall recovery materialize. Dominic Bardos: Yes. There's a few things that I want to point out, Julien. And first is that we're still moving into the facility, and we did have some disruptions and inefficiencies in Q1. They were a little bit worse than we anticipated with the disruption of all the movement. But we're completing that move in Q2. And also with the unrest in the Middle East or the conflict, we are seeing pressure on oil prices and the derivative products from oil. Freight charges are certainly higher, and some of our cost of goods are certainly going to have the potential to be impacted. And some of the pricing has already been set. Some of those things -- it's kind of like when things change in a rapid fashion, once we've already agreed to a price, we might have some times when we can't quite recover the full cost of goods increases. So we want to just be cautious and give a prudent guide with margins. We do see improvement every quarter, as we mentioned, sequentially, and we're very optimistic that the product mix will be favorable for us for the balance of the year. Operator: Our next question comes from the line of Praneeth Satish with Wells Fargo. Praneeth Satish: Maybe not to belabor the margin question too much, but I guess, so you mentioned 200 basis points in Q1 from product mix, tariff and freight. And then you also had this impact from moving equipment to the new facility. Maybe if you could just kind of isolate how much of the margin was weighed down because of that transition to the new facility? And then also on product mix, is that -- of the 200 basis points, how much is product mix? And kind of what's the outlook there? Because I assume the tariff and freight, those will kind of persist potentially for a few more quarters, but just kind of trying to isolate the variable pieces. Dominic Bardos: Yes. So Praneeth, that's a pretty packed question there. So let me break it down a little bit. So of the 200 basis points that we saw, we kind of bucketed into about 1/3, 1/3, 1/3 of some of the major drivers. We definitely had some tariff impact that was still a carryover, but the IEEPA reduction is certainly going to help us. The 232 tariff environment, we've now actually encompassed that into our pricing. So that shouldn't be as big of a drag going forward. We do still have some inventory that has capitalized tariffs in it. We do still have to burn through that in the second quarter. Once again, that informed our second quarter margin guide. With regards to the freight, we did have some air freight and the cost of fuel for freight has gone up. So we had some surcharges there. But fundamentally, these things are largely transitory or at the point where we can now factor all that into the pricing. As I mentioned with Julien's question, sometimes when things change rapidly, we may already have guaranteed pricing or contract pricing, and we can't quite go back and recover all of that. So the margin issue aside, we're very pleased to be raising our EBITDA guide for the year. We're going to continue to get the leverage on our OpEx, and we're very excited about our book of business. Praneeth Satish: Got you. That's very helpful. And then maybe just switching gears, your other kind of product in development here, the data center BLA product. Has anything changed there in terms of timing for UL certification? And I know we're not going to see sales this year, probably next year. But I guess, when should we anticipate potentially seeing some bookings? Do you think it's possible we could see something towards the end of this year? Just trying to get an update on that. Brandon Moss: Yes, Praneeth, great question. We did a market launch of that product at Data Center World a few weeks ago, which we are very excited about. We have filed our patent portfolio for that particular product, which is also very exciting for us. There's a lot of interest in the product right now. As you mentioned, we do not expect to recognize revenue in calendar year '26. Our goal this year is to have proof of concept operating live in a facility, and we are working towards that. So bookings in '26, potentially, we're talking to a variety of developers about including that product in their portfolio of projects, but nothing on the books as of yet. I would probably say in '26, bookings would be minimal for that product line as we begin to ramp it in 2027. But exciting product and really strong market feedback thus far. Operator: Our next question comes from the line of Colin Rusch with Oppenheimer & Co. Colin Rusch: Could you give us an update on sales traction outside of the U.S. on both US solar and BESS? And then if there's anything in particular that you guys see you can optimize from an OpEx perspective, I'd love to get a little bit more detail on that side. Brandon Moss: Yes. Thanks, Colin. We are excited about our prospects internationally. Our backlog and awarded orders continues to rise. We reached $100 million now to date after actually deploying 3 projects last year. So we are continuing to generate bookings to offset not only shipments, but grow that order book, which is exciting for us. Our prospects in Australia seem like a fantastic opportunity for us. The pipeline is very strong, and that's where some of the additions to the order book have come from. So that has been a key priority for us to diversify end markets, not only product, and we're pleased with the progress thus far. Your other question was around operating expenses, I believe. Dom specifically, what are you looking for... Colin Rusch: Yes. So we're seeing a number of folks able to optimize using some AI for just cleaner, more efficient OpEx. And just wondering if there's some of that, that you're going to be able to start flowing to the organization over the next year or 2. Dominic Bardos: Yes. It's a great question. So we absolutely are engaged with some trials of artificial intelligence and what we're trying to do to improve some of our systems and operations. Our focus initially is actually with manufacturing and commercial as our process flow. We have some opportunities there that we're working with. We are in discussions with our Board all the time about how the next -- where we can improve our processes, which are largely manual as a small company is growing. So we are looking to that. I would suggest that our SG&A is relatively lean. We don't have a tremendous number of salaried headcount. As you see in our filings, it's less than 200 people that are salaried in this business. So I'm not looking to AI to truly rip out SG&A expense as much as I am to enable growth going forward. We see significant growth going forward for this company. We want to make sure that we're positioned to scale, and that's truly where we're going to focus our AI efforts, at least initially. Operator: Our next question comes from the line of Mark Strouse with JPMorgan. Mark W. Strouse: I think on the last call, you talked about there were some -- I believe they were BESS projects that you weren't sure if they were going to hit in late 4Q or maybe early 2027. Has that timing now firmed up? And is that part of the guidance raise here? Or should we think about that as a potential catalyst for further upside if that does firm up as we go along here? Brandon Moss: Mark, I appreciate the call. Yes, we do have project visibility in '26 and '27 that is incorporated in our current backlog and awarded orders. As mentioned earlier, the significant driver for our growth in that business is going to be around the data center AI landscape. And obviously, we've got visibility to a quote funnel and are confident in our ability to add to our order book in that particular use case. So we are very excited about the future of battery energy storage products here at Shoals. We have built a manufacturing line to handle and provide a significant amount of capacity for us. So more growth to come in that space for us in the future. Dominic Bardos: And Mark, I may just add that as we gave the guide last quarter, we did talk about there are some projects in Q4 that still have to be firmed up. But what I would characterize our raise on the revenue side is really due to book and turn business in the core solar markets. We've seen some incredible strength in demand, and that's truly what's driving that. And that's -- I just want to position that one because it's a fantastic market for us. We do still have some potential for projects to hit in Q4 from the BESS side, but that wasn't a preliminary driver of the raise. Mark W. Strouse: Okay. Very helpful. And then you've had several questions already about kind of the margin trajectory this year. Dom, I just want to give you the opportunity to kind of talk about beyond this year. Are you still viewing 2026 as the trough here? Dominic Bardos: Yes. Well, certainly, it is because of all the move disruptions and starting the BESS line from scratch and training all the new employees. I mean those are some transitory headwinds that will get done in this year. We think we're a very attractive business, driving gross margins in the 30s like we are. It's a fantastic business. We're going to continue to get OpEx leverage. We'll see EBITDA margin expansion and much higher cash flow contributions next year. So I'm very excited about next year. While we're not fully guiding to that, we do believe this is a trough year on the gross margin side, but really looking forward to expanding operating profit margins and EBITDA margins in 2027 and beyond. Operator: Our next question comes from the line of Sean Milligan with Needham & Company. Sean Milligan: So to start off, I was curious, Brandon, if you could provide some more context around like your BESS quoting pipeline in terms of sizing of projects, specifically on the AI data center side. I guess you've been in the market now for a few quarters there. And I was curious if there's any change to what you're seeing in terms of the size of projects you're quoting. Brandon Moss: Yes. Thanks, Sean. I think we've communicated in the past that, I guess, first, bookings for this particular product line will be a bit lumpy because of the size of the projects, right? I don't think our assumptions have changed at all, where we look to use our 4000 amp recombiner product line and data center AI applications. That market is probably about $50 million to $60 million per gigawatt. We've got great visibility to pipeline and also future projects. And again, very bullish about our prospects to penetrate that market and very excited about our partnership with ON.energy, who we believe has taken market leadership in pairing battery storage with these large-scale AI centers. So couldn't be more excited about the prospects of that business. Sean Milligan: Okay. And just a follow-up on revenue contribution in the quarter. With C&I, international BESS, you kind of gave the BESS number, but I'm curious like how much revenue is now coming from kind of outside the core BLA business? Dominic Bardos: Yes. So we have -- the OEM business was second to our domestic utility-scale solar projects in the quarter. BESS, we were very pleased to have started the line early. As you recall from last year, we were guiding that we didn't expect to have revenue in Q1 at all because of our time line. So we're very pleased to have gotten that line stood up and operational as quickly as we did. But largely, the Q1 revenue stream was utility scale solar that's domestic, followed by our OEM business, which had 33% growth, I believe, year-over-year. So other than that, we did not have a lot of international revenue and the CC&I still remains a relatively small portion, but we do have CC&I sales every quarter. Brandon Moss: Dom, maybe to add to that, just the focus on our domestic solar markets. Just to reiterate, we believe we are operating in an unbelievably strong market environment. And I think our market leadership position as a preferred solution continues to be proven by our record backlog and awarded order growth. A lot of our growth, I know there's a tremendous amount of focus on battery energy storage. But as we've communicated in the past, our goal is to diversify both products and markets, and we're doing that. What is very exciting for us in 2026 is about 1/5 of our revenue will come from new products. BESS is obviously included in that number, but many of the new products are in our traditional solar space. So we've put a big focus on accelerating innovation here at Shoals. And that is playing out with increased bookings and obviously, revenue recognition for 2026. So again, a lot of focus on BESS, always a lot of questions about BESS. I want to reiterate the strength of our domestic utility scale solar business. Operator: [Operator Instructions] Our next question comes from the line of Vikram Bagri with Citi. Vikram Bagri: I have sort of like a 2-part question. I think last quarter, you mentioned spooling had a meaningful impact on margins. I was wondering if you can share what the run rate impact of spooling was on this quarter's margin? And what percentage of customers have requested spooling? And related to that, obviously, tariff, logistics and commodity prices have changed a lot since last quarter. Our understanding was that tariffs baked into the previous guidance were conservative. I was wondering if you can also identify where you see some puts and takes in this ever-changing environment in terms of tariff, logistics and commodity prices, if the current environment is fully baked in? Or do you see some level of sort of like downside or upside from these 3 factors? Brandon Moss: Vik, great question. We have talked about spooling in the past, probably more generally just packaging in general. There are different packaging requirements for some of our newer customers and also product mix related to those specific to our long-tail BLA product. That is adding significant revenue potential for us in the future and is being recognized still in 2026. It adds $0.005 to $0.008 a watt to our projects, which is exciting for us to be able to expand our wallet share. So we do have some packaging costs that are baked into the guidance for the year. I'll let maybe Dominic expand on that. But before I do, just I'll comment on your question about tariffs. Obviously, the tariff landscape has changed dramatically in the last, I don't know, 18 months now. And for us to try to predict what that's going to look like in the future, we would be fools to try to do so. Having said that, the change with IEEPA and Section 232, we view as a net neutral to positive change for us. And that is being baked into our thoughts about margin and guidance for the rest of the year. Dom, maybe I'll turn it to you for specifics around packaging and margin. Dominic Bardos: Yes. As Brandon mentioned, Vik, it's largely -- when I talk about product mix, that's where it's coming from. Not all of our products require spooling, but the longer-run products do. And things like the long-tail BLA is incorporated in the margin. And so when I talk about product mix and a large percentage of customers now preferring the long-tail solution to centralize their low-grad disconnects by the inverters, that is something that increases our share of wallet, but it carries a lower margin percentage. The spooling cost, the packaging, the handling of all that is incorporated into that, but that's why the product mix is so important to the margin percentage. It is driving increased flow-through dollars, which is fantastic. We're going to keep doing that business. We're responding to the changing environment of our customers, what they're looking for, and we now have a full suite of products to really meet those needs. Things like our SuperJumper, which may have been originally developed for international markets are really showing some popularity here in the United States as well. But once again, you have much longer run. So we've factored all that in. It's part of our product mix, and that's why I always caution folks when we talk about a percentage of margin, we need to kind of consider where the mix is going as well. Operator: Brian Lee with Goldman Sachs. This will be our last question. Brian Lee: Sorry, I dialed in a little bit late, so not sure if you covered some of these things. Maybe just on the guidance, kudos on the strong execution here to start the year and for the revenue and margin uplift. But adjusted EBITDA guide is up a bit less than revenue guide at the midpoint for 2026 in the new outlook. Is that conservatism? Or are you seeing more mix shift issues or incremental tariffs than originally expected? Just curious, maybe this is nitpicking, but the EBITDA uptick in the guidance is a little bit more tempered than the revenue outlook. So any color there would be appreciated. Dominic Bardos: Sure, Brian. Yes, we've covered a little bit of this. So -- but I'll repeat a few of the things that are driving that. First and foremost, product mix is certainly driving that. We are seeing popularity of some of the new products which do have a lower margin percentage and flow-through. So while revenue is going to be increased, the margin percentage is not going to be quite as high. We are seeing a little bit of disruption in our move into the new facility here. It was a little bit more than we anticipated and allowed for as folks are moving -- as we moved over -- I don't remember, Brandon, 200 machines. Brandon Moss: 250-plus machines in 60 days. Dominic Bardos: Yes. And we're still moving into the facility this quarter. So a little bit of disruption there, and we are expecting to see with our mix anticipation for the rest of the year, some uptick in gross margin as well. But there were some reasons why we did that. We also have 2 trials set for later this summer in August. With legal expenses, I've learned to be a little bit cautious on the estimations. We want to make sure we represent the shareholders properly in our cases. And if that means experts and additional legal expense, we're going to cover that. And one of those cases is not adjusted out. It's our IP case as part of our earnings. So we just want to make sure that we give a good cautious number that allows us to meet our expectations for. Brian Lee: Yes. Fair enough. Makes sense. And then I'm sure you covered a little bit in this and maybe you covered all of it. Just with respect to tariffs, can you level set us as to what tariffs you are specifically subject to starting the year off 232 copper, steel, aluminum, et cetera? And then does the April 3 ruling on kind of the changing thresholds impact you? And again, maybe level set us as to are you importing copper from foreign sources and what percent of the [ indiscernible ]? And is that impacting your margin outlook for this year? Or are you contemplating any mitigation efforts this year or into next year? Just trying to get a level set on the copper exposure here, if you could speak to that a bit. Dominic Bardos: Sure. Sure, Brian. I'll jump in on that one. There's a few questions in there, so let me unpack it. Yes, for the first couple of months of the year, we still had IEEPA. And those, of course, were stopped collected at the end of February, around the 24th or so of February. And so that right now is going to be a favorable tariff environment. With regards to 232, yes, there was a couple of things. We do have a very wide book of suppliers, approved vendors and some of which are international in nature and are subject to 232 import tariffs, both on the aluminum and copper side. We do work with customers on some things. If they have a preference, we can certainly go for certain domestic suppliers. If they have a preference for international, we can do that as well. So we are subject to 232. Now as the rules change and the tariff rate went down, it's also now on the full purchase price. But net-net, it should be slightly favorable for us in terms of how these tariffs are calculated. So it is a very dynamic situation. We certainly appreciate your question. It makes it very difficult to truly know how to operate that. And Brandon, is there anything else you want to add? Brandon Moss: Yes. Just maybe something to point out. As it relates to the tariff landscape, those tariffs impact even our domestic supply base, right? Like us, most suppliers have a very diversified and international supply base themselves. And so those tariffs may be getting -- may be impacting our raw material inputs even on domestic supply sources. So obviously, as you guys know, it's been a challenging, again, 18 months or so with the tariff landscape. I think we're navigating it quite well. And I think what is probably most important is with the repeal of the IEEPA tariffs and now the change to Section 232, we do see that as a net neutral to positive impact for Shoals in the back half of the year. Obviously, caveating that with unless something else changes. So I think we're navigating it well, Brian, and I appreciate the question. Matthew Tractenberg: Thanks, Brian. Christine, I think that that's going to be the last question that we take today. Operator: Absolutely. We have reached the end of the Q&A session. I will now turn the call back to Matt for closing remarks. Matthew Tractenberg: Yes. Thank you, Christine. So I want to note to our audience that we have a very active IR calendar through June. Those events are listed on our Investors section of our website. So if you're attending conferences, you want to meet with us, please let us know. We're happy to. If we can help further, let just reach out to investors@shoals.com with any questions. Thanks for joining us today, everybody. Have a great day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and welcome to the Douglas Dynamics 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 Nathan Elwell, Vice President, Investor Relations. Please go ahead. Nathan Elwell: Thank you, Chad. Welcome, everyone, and thank you for joining us on today's call. Before we begin, I would like to remind you that some of the comments that will be made during this conference call, including answers to your questions, will constitute forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters that we have described in yesterday's press release and in our filings with the SEC. Please note the quarterly factsheet can be found on our IR website. Joining me on the call today is Mark Genderen, President and CEO; and Sarah Lauber, Executive Vice President and CFO. Mark will provide an overview of our performance, followed by Sarah reviewing our financial results and guidance. After that, we'll open the call for questions. With that, I'll hand the call over to Mark. Please go ahead. Mark Van Genderen: Thanks, Nathan, and welcome, everyone, to our call. So this was another excellent quarter for our company across the board with both segments executing successfully and delivering just really solid results. We're running efficiently. In the Attachments segment, our team has responded admirably to the above-average snowfall-driven demand of this past winter and the employees in our Solutions segment have delivered another great performance, continuing a strong trend. If you look back at our typical first quarter results, you'll see that it is often the case when we don't generate a profit due to the seasonality of our Attachments business. But this year, we produced record sales, adjusted earnings and EPS, just a tremendous achievement on behalf of the teams. This significant year-over-year growth was really driven -- primarily driven by 3 factors: First, significantly above-average snowfall boosting demand at Attachments. Second, the ongoing strength of demand in our municipal operations; and third, strong execution across the board from our teams to both address this demand and make meaningful progress against our strategic priorities. Okay. Let's talk Work Truck Attachments. Before I discuss the quarter specifically, I want to make a general point on snowfall and our business. Yes, snow is absolutely the main driver of demand in the Attachments business. We need snow to drive excellent results. But it's more than that. Snowfall creates the demand, but it's the relationship we have with our dealers and contractors. It's the projects we undertake every day. It's our fantastic product, our culture, our strategic pillars, the sheer hard work and determination of our team that fulfills that demand. So in short, it's execution that gets product shipped, sold and serviced, and that doesn't happen without our people and their commitment to operational excellence every day. So my continued and heartfelt thanks to the 1,700 people who are at Douglas Dynamics. Okay. Looking back at the winter, snowfall was significantly above average in many of our core markets. In total, the season came in roughly 20% above the 10-year average and 40% higher than last winter. This winter, snowfall came early with major November and December storms in the Midwest and significant persistent lake effect snow in the Great Lakes region. In the first quarter, several large snow and ice storms made their way across much of the country, including Fern and Hernando, record breakers, which brought significant and widespread snowfall totals across the Heartland and up the East Coast, all the way from New Mexico to Maine. Elsewhere in the country, both out West and the South experienced lower snowfall than normal. As a skier myself, I don't like to see dry conditions in the mountains, but it was sure great to see the snowfall where it did. Of course, all this weather meant that many of our dealers and contractors in our core markets in the Midwest and on the East Coast were working tirelessly to keep people safe and get communities back on their feet after the storms. It shouldn't be overlooked how important plowers are to the safety and well-being of the general public and in turn, our dealers who keep the contractors on the road. It is at the very core of our mission statement to keep people safe and communities thriving. As equipment was used during the winter, dealers were drawing down on their inventories, which we believe are now solidly below their 10-year averages. We will see how our dealers replenish their inventories with their preseason orders. All of these elements came together to contribute to a record first quarter top line for Attachments with sales up just over 65%. This included our first full quarter of sales from Venco Venturo, the crane and hoist manufacturer we acquired in November of last year. These excellent results were driven first and foremost by demand for our parts and accessories as the persistent snowfall took its toll on equipment. In fact, we achieved record shipments of P&A during the quarter. Sales of plows and hoppers also increased, but the first quarter at Attachments is always about parts and accessories, and this quarter was no different. So we pretty much exited winter and rolled straight into preseason, which kicked off at the beginning of April. Now as a refresher, we typically receive around 2/3 of our annual orders from dealers in the second and third quarters of the year. We ship these orders in time for our dealers to be stocked and ready to install equipment before the first snowflake of the season fly. While it was still early in preseason, while it's still early, as expected, we are off to a good start following the robust winter I detailed earlier. More specifically, sales of parts and accessories continue to come in strong. Plow sales, while not as directly correlated to last season snowfall as P&A are also tracking ahead of last year. And the great news is that we are in a strong position operationally. Plans are lining up as expected, inventories are in good shape, and our teams are hard at work. We continue to invest in the business and are even pulling ahead select equipment and technology projects given current demand. As it stands right now, we are optimistic about how the year is unfolding. That excitement will build at SIMA, the Snow and Ice Management Association Annual Symposium, which will be held in June this year in Cincinnati. As a market leader, this is a great opportunity here for us to showcase our expanding line of products and spend quality time with our dealers and contractors. All right. Turning to Work Truck Solutions, where the teams consistently continue to perform, now measuring their ability to drive improvements in years, not quarters or months. The team produced near-record sales and once again, record adjusted earnings and record margins, and that's on top of a record first quarter last year. So just really outstanding work. The strongest part of the business remains our municipal-focused operations. Both demand and backlog from municipal customers remains robust, and our sales teams continue to pursue and win important profitable multiyear contracts. From what we've heard across the industry, our excellent lead times are proving tough to match. And combined with our attentive and knowledgeable customer support, we are well positioned to continue our track record of steady, profitable growth. The strength in our municipal operation helped offset slightly softer demand in certain commercial business segments. The outlook is mixed overall, but there are pockets of that business that aren't performing as well as last year. While end users are approaching the current economic environment cautiously and demand for dealer orders remains dynamic in real time, the business is holding its own overall. We are focused on the factors we can influence to continually optimize the business and rapidly adapt to any changes and shifts in customer behavior. And finally, backlog in Solutions remains positive and above traditional levels. We are booking production dates well beyond the current year. Now as we've noted before, our backlog includes vehicles that customers have ordered now for future delivery. Our goal is to make sure that vehicles are delivered exactly when and where they were promised. And our Solutions team does that exceptionally well. All right. So before handing it over to Sarah, I'd like to just take a step back from our operational results and provide a brief strategic update regarding the optimize, expand and activate pillars of our strategic framework that we first shared late last year and how we are now migrating from introduction to action. The first priority is to continue to optimize our current operations across the board. As we said in the past, optimize is not a new concept for Douglas Dynamics. In fact, it's been a core tenet of our company for decades. Striving to get better every day is in the company's DNA. And at any one point in time, there are dozens of project examples, some of which are beginning this year, some are already in progress and many will span multiple years. So let me mention just a few. As much as we and you, I imagine, would like to predict the weather for next winter, we can't. But we continue to improve our demand and production planning processes to more quickly, accurately and precisely respond to whatever mother nature throws our way. We are using a more data-driven approach that incorporates algorithm statistics, historical trends and more recently, AI, leading to a more sophisticated way of smoothing out volatility that is benefiting us this year and will continue to pay dividends in the years ahead. At Attachments, we continue to expand our suite of communication tools with our dealer network, through a greater exchange of data, information and ordering capabilities, resulting in greater efficiency and an improved ease of doing business, which is certainly appreciated by our dealers. On the Solutions side of the business, we are working hard on enhancing our CPQ process, which stands for configure price quote at our municipal operations. This increasingly automated process is helping to produce greater efficiency and accuracy in order taking, which is then helping to streamline many additional processes from sourcing to production planning and at the same time, providing the appropriate level of customization required and desired by our customers. And finally, we recently broke ground on an exciting project at our municipal operations main facility in Manchester, Iowa. We are building a dedicated logistics building adjacent to our existing manufacturing facility. This new facility will serve as a centralized hub for all municipal logistics operations, including receiving raw materials, staging components and shipping finished products. Additionally, this will also help improve efficiency by freeing up critical floor space and reducing congestion at and around our manufacturing facility. So I picked just a few to mention today, but there are many more exciting projects, both being planned and underway. The second pillar is expand, which is our focus on internally driven growth, more specifically, continuing to develop new products across our divisions to meet the emerging needs of customers and geographic expansion where it makes sense. On previous calls, I mentioned our plans to build a new upfit center in Missouri to replace an outdated operation with a brand-new purpose-built facility in an ideal location for both new builds and to make it convenient for customers in the region to have existing trucks serviced. I am pleased to report that the process is virtually complete. The ribbon-cutting ceremony is a few weeks away with production beginning around midyear. The new facility will add much needed capacity to Henderson and is an important factor to help us maintain our best-in-class delivery times. This expansion will allow us to better serve existing customers in surrounding markets to continue to deliver trucks on time and to increase our attractiveness to new customers, all of which will strengthen our competitive advantage. My sincere thanks to everyone involved in making this important project a success. And finally, Activate, which refers to last year's restart of our M&A efforts, which led to the acquisition of Venco Venturo last November. Our integration team is making good progress and the Venco team, as we believe would be the case, are proving to be a great cultural fit. Moving forward, we continue to look for the right businesses and product lines to acquire that align with our attachment-centric strategy. So in summary, 2026 is off to a great start. It is an exciting time at Douglas Dynamics with market conditions and company performance aligning well across most of the business. We are in a strong position and as a more resilient company today, we are prepared for a wide variety of potential scenarios with strategies in place to capitalize on these opportunities. With our strategic framework now really taking hold in the business, we are hitting our stride, always striving to maximize our business and operational agility. While we are proud of our recent results, we know we have a lot more work to do to reach our potential. Our leadership team is working in lockstep, intently focused on executing our strategic plans to produce profitable, sustainable long-term growth. And with that, I'd like to pass the call to Sarah. Sarah Lauber: Thanks, Mark. I'll start with a summary of our financials and then talk to our updated guidance. But before I begin, please note that unless stated otherwise, all the comparisons I'll make today are between the first quarter of 2026 versus the first quarter of 2025. I would sum up our performance in 2 sentences. Our results improved across the board with record shipments of parts and accessories at Work Truck Attachments following significantly above-average snowfall. At Work Truck Solutions, higher volumes for our municipal operations helped offset lower commercial volumes to deliver strong results. Consolidated net sales increased 20% to a record $137.8 million. Gross margins improved by 290 basis points to 27.4% based on strong execution in both segments and significantly higher volumes at Work Truck Attachments. SG&A expenses increased by 13% to $26.3 million as our improved performance led to higher incentive and stock-based compensation plus the increased headcount, which included the addition of Venco Venturo employees. Adjusted EBITDA increased 78% to a record $16.8 million. Adjusted EBITDA margin increased by 400 basis points to 12.2%. This created a record adjusted earnings per share of $0.36. I'm sure you'll agree a fantastic set of results all around. So let's walk through the results for the segments. Working -- starting with Work Truck Attachments. Our excellent results this quarter were driven by strong demand, particularly for parts and accessories and a tremendous effort from our teams to address that demand. Net sales increased 67% to a record $60.9 million and adjusted EBITDA increased significantly to $7.7 million. The fact that equipment was being used in many core markets during the quarter will help the market incrementally move back towards a more normal replacement cycle in the years ahead. The outlook at Attachments remains positive today as we move through the preseason. Turning to Work Truck Solutions. Our teams produced record bottom line results and profitability and near record net sales, and that's despite the tough comparisons to record results in the first quarter of last year. The performance was driven by ongoing strength of municipal operations with commercial operations still exhibiting softer demand. Net sales decreased slightly to $76.9 million, but we're still very close to the record set at this point last year. Adjusted EBITDA increased slightly to a record $9.1 million and margin increased to a record 11.9%. Okay. Let's quickly touch on the balance sheet and capital allocation. Net cash used in operating activities of $1 million was in line with the prior year, primarily due to improved earnings, which offset higher working capital driven by the increased demand. Capital expenditures increased from $2.2 million in the first quarter of 2025 to $3.7 million this quarter as we expected. Free cash flow was negative $4.2 million, a decrease of $700,000 over last year, driven by higher capital expenditures. Let me reiterate our capital allocation priorities for 2026. Our first priority is returning excess cash to shareholders through both our strong dividend and to a lesser extent, share repurchases. This quarter, we returned approximately $10.1 million via the dividend and the repurchase of approximately 70,000 shares of company stock. In addition, we are investing in a variety of projects as part of the optimize and expand strategic pillars. As far as investing in the business, we expect CapEx to increase year-over-year as we saw in the first quarter as we pursue growth opportunities, but we still expect to stay within our typical range of 2% to 3% of net sales. And as Mark mentioned earlier, we expect to continue to pursue strategic M&A opportunities as they arise as part of our Activate strategic pillar. Finally, let's review our outlook. We started the year with strong guidance in place. We decided to raise those ranges today based primarily on our excellent first quarter results, particularly in Attachments. Plus our preseason sales period is off to a good start. However, it's early in the process. There's still a good deal of uncertainty as to how the orders and shipments will settle out. Raising the guidance at this stage of the year is not typical for us, and it's not something we'll do regularly, but this has been an unusually positive start to the year. One important point to consider is the timing of shipments this year. We expect preseason to be close to a 50-50 split between the second and third quarters. That's a large shift from last year. As you may remember, the 2025 preseason was skewed towards the second quarter. The 60-40 split between the second and third quarters last year was a result of higher available inventory going into preseason, which led to more shipments in the second quarter. So far, 2026 is shaping up to produce a return towards more typical shipment timing closer to the 50-50. This is something we are expecting. It's simply timing. It will not be a reflection of our overall preseason results. At Solutions, the situation remains generally in line with our initial expectations for the year, another year of top line growth while maintaining low double-digit margins. Our backlog remains solid, and we have good visibility and continued positive momentum in our municipal operations. In our commercial operations, the outlook is more complex with limited visibility, and there are areas showing softer demand based on macroeconomic uncertainty. Over the long term, we aim to reach margins in the low teens, but our plans don't call for us to get there this year. Regardless, both businesses will continue to focus on the optimized and expand pillars of our strategy to grow even further over the longer term. So continued strong performance and aiming to deliver another very solid year. It's worth mentioning that we plan for and continue to see raw material and energy-related inflation. As in the past, our teams have taken appropriate action thus far, and we are continuing to monitor the situation in case further mitigation is required. Now let me walk through the updated 2026 numbers for you. We now expect 2026 net sales to be between $750 million and $795 million. Adjusted EBITDA is now predicted to range from $110 million to $125 million. Adjusted earnings per share are now expected to be in the range of $2.55 to $3.05. The effective tax rate is still expected to be approximately 24% to 25%. As always, this assumes relatively stable economic and supply chain conditions and average snowfall in the fourth quarter. Based on these assumptions and with our current level of visibility, we believe the business is well positioned to drive significant year-over-year improvement. In fact, at the low end of our new guidance ranges, it would be record annual results for our company. In summary, it was an excellent first quarter. We're in a strong position to deliver another positive performance this year. That concludes our commentary. We'd like to open the call for questions. Operator? Operator: [Operator Instructions] And our first question comes from Mike Shlisky from D.A. Davidson. Linda Umwali: This is Linda Umwali on for Mike. My first question -- first of all, congratulations on the quarter. My first question, we're seeing a return of the final mile vehicle market in early 2026. I know that's not Dejana's main business, but are you seeing any tailwinds there? [Technical Difficulty] Operator: Ladies and gentlemen, it appears that our location for our speakers has inadvertently disconnected from the call. I please urge you to stay on the line while we get them reconnected. Thank you very much for your patience. Linda Umwali: Can you guys hear me? Sarah Lauber: Linda, sorry about that. Mark Van Genderen: Not sure what happened. Linda Umwali: No worries good to have you guys on. Yes. So one for Mike. And my first question was we're seeing a return in the final mile vehicle market this early 2026. I know that it's not Dejana's main business, but are you seeing any tailwinds there? Sarah Lauber: Yes, Linda. absolutely. So the final mile business would be part of our Dejana business. It is a small portion for them, less than 5%. I would say, yes, we're still seeing softness there. So when we're talking about commercial softness, economic uncertainty, all of that, that is clearly what we're seeing in that market. So we've not seen a bounce back as of this point. Linda Umwali: Got it. And then my other question, how much of the 1Q revenue upside in Attachments would you consider to be onetime in nature and directly attributable to specific snowstorms -- trying to figure out what to model for early 2027? Mark Van Genderen: Yes, I can -- when we think about the correlation between snowfall and our product lines, the highest correlation or immediate correlation is between parts and accessories. So when we talk about snowfall being up 40% year-over-year compared to last year, that's where we saw a strong Q4 last year and strong Q1 this year. Plows and hoppers, that's a multiyear replacement cycle. So we look back at the last several years of snowfall. And as you know, we had a few lower-than-average snowfall years and then this one, which we would consider a strong one. So it's hard to predict or to say exactly what that's going to look like. But we can say that I'd say a good portion of our increased expectations for the -- what we achieved for the quarter. And then to Sarah's point, raising guidance for the year is really attributable to the strength of P&A in the first quarter in Attachments and a lot of that's driven by what we saw as above-average snowfall. Sarah Lauber: Yes. Linda, I would add on. I mean our volume increased over 60% in the first quarter, driven by the strong storms and record P&A is when the snow is flying. So 1/3 of the increase was related to parts and accessories. So when you're thinking about next year, I would go back to thinking about average snowfall in the first quarter, not the significantly above average snowfall that we experienced. So our prediction on average snowfall would not be at the same higher level of volume. Linda Umwali: Average snowfall. And my last question, does the new Section 232 tariff structure affect Douglas Dynamics at all? Could you actually reduce your tariff impact? And do you know if any of your competitors are in tougher shape due to the new tariff numbers? Sarah Lauber: Yes. So on the tariffs, the impact that we've experienced thus far and the new impacts for us are not overly material. We are very North America-centric. When thinking about the competitors, I can't say that I could point to any that would change their competitive aspects based on the tariffs that we're seeing today. Operator: [Operator Instructions] The next question comes from Tim Wojs from Baird. Timothy Wojs: Maybe just first question. I guess the 35 -- I think it's $35 million or so of the guidance range raise for sales in the new guide. Could you just break down what's kind of the upside from Q1 versus some of the higher preseason visibility that you talked about? Sarah Lauber: Yes. So I'll frame the increase in the guidance. I don't know that I have an exact breakout of that. But when you think about the increase, it's predominantly the Q1 strength that we saw and then the very early indications of preseason. Off the cuff, I would say maybe it's 50-50 between the 2. And then when you look to the midpoint of the new guidance, you can kind of separate that into the 2 segments being also close to 50-50 because we have had a strong start in Solutions also. Timothy Wojs: Okay. Okay. And then I guess what is -- I guess if you looked at the 2 -- what are you expecting for the segments to grow this year kind of in aggregate? Because I'm kind of, I guess, penciling out that Solutions maybe grows kind of mid-single digits. And if that's the case, Attachments might grow over 30%. I guess are those kind of directionally accurate? Sarah Lauber: Yes. In total, also with Venco, I would say our volume growth is between 15% to 20% in total for Douglas and low -- I'm sorry, mid- to high single digits for solutions and then the remainder at Attachments. Timothy Wojs: Okay. And then I guess just the last question on the equipment shipments and kind of the split, is it -- it sounds like things are coming in better than you would have expected, but the preseason shipments are kind of weighted more to Q3 than we've seen in the last couple of years. Is that just purely a timing dynamic that you're seeing? Or is there anything in the customer base that's pushing those orders from one quarter to another? Mark Van Genderen: No, great question. There's nothing we're seeing from a customer standpoint. It really -- if you look at last year, when we came out of the first quarter with higher company-owned inventory, we had inventory available to ship as soon as preseason orders started coming or I should say a higher percentage of inventory available to ship. So we got the preseason orders, so we would send that out to dealers. This year, there's a bit of a reverse in that because it was a strong winter, we shipped a lot of products. Our inventories -- company-owned inventories were lower than they were last year going into the second quarter. So basically, the orders that they're coming in, we're making product and shipping it compared to last year, where we just had more inventory available. So the goal, the ordering pattern isn't coming in any differently this year from our dealers or when they're expecting it. The commitment to them is we'll try to get it to them. Our focus is by the time, as I mentioned, the first snow flies. So whether they receive that in second quarter or third quarter as long as they're getting it in time to install it on trucks and have it stocked, they're fine with that. It's really on our end to be producing the equipment that we're going to then ship out to fulfill the preseason orders, which this year makes it a little more traditional. Timothy Wojs: Okay. Okay. And does that -- I know that's on the preseason shipment cadence. Is it -- does that also kind of fall down to the EBITDA cadence? Or because I think Q2 has always been the strongest EBITDA quarter. Is that, I guess, still going to be the case in Attachments? Sarah Lauber: Yes. I would say the cadence between the 50-50, that falls through to EBITDA. In the same manner. Operator: And ladies and gentlemen, this concludes today's question-and-answer session. I would like to turn the conference back to Mark Van Genderen, President and CEO, for any closing remarks. Mark Van Genderen: I'd just like to say thank you for your time and continued interest in Douglas Dynamics, and we look forward to talking with you soon. Operator: Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to Accel Entertainment, Inc.'s Q1 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. Star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Scott D. Levin. Scott D. Levin: Welcome to Accel Entertainment, Inc.'s First Quarter 2026 Earnings Call. Participating on the call today are Andrew Harry Rubenstein, Accel’s chief executive officer; Brett Summerer, Accel’s chief financial officer; and Mark T. Phelan, Accel’s president and chief operating officer. Please refer to our website for the press release and supplemental information that will be discussed on this call. Today’s call is being recorded and will be available on our website under Events and Presentations within the Investor Relations section of our website. Some of the comments in today’s call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from those discussed today, and the company undertakes no obligation to update these statements unless required by law. For a more detailed discussion of these and other risk factors, investors should review the forward-looking statements section of the earnings press release available on our website as well as other risk factor disclosures in our filings with the SEC. Any projected financial information presented in this call is for illustrative purposes only and should not be relied upon as being predictive of future results. The inclusion of any financial forecast information in this call should not be regarded as a representation by any person that the results reflected in such forecasts will be achieved. During the call, we may discuss certain non-GAAP financial measures. For reconciliations of the non-GAAP measures, as well as other information regarding these measures, please refer to our earnings release and other materials in the Investor Relations section of our website. Following management’s prepared remarks, we will open the call for a question and answer session. With that, I would now like to introduce Andy. Please go ahead. Andrew Harry Rubenstein: Thank you, Scott, and good afternoon, everyone. Accel Entertainment, Inc. delivered a strong start to 2026, the company’s highest-ever Q1 adjusted EBITDA result. First quarter revenue increased 9% year over year to $352 million, marking an all-time quarterly record for the company. Adjusted EBITDA also grew 9% to $54 million, reflecting solid underlying performance across the business. These results reflected the continued strength of our distributed gaming model, ongoing momentum in our developing markets, and our team’s disciplined execution across each of our businesses. We ended the quarter operating 4,540 locations and 28,353 gaming terminals nationwide, representing year-over-year increases of 3% and 4% respectively. Turning to our core markets, Illinois remains the foundation of our business and continued to deliver strong results in the first quarter. Total Illinois revenue, excluding Fairmont Park, increased 6% year over year to $242 million. Our distributed gaming operations in the state continue to benefit from strategic location optimization and new machine placements, with total average location hold per day increasing 9% year over year to $962. This performance underscores the effectiveness of our ongoing strategy to improve route quality and concentrate investment in higher-yielding placements, even as we maintain broadly flat VGT counts in this mature market. Our rollout of ticket-in, ticket-out technology in Illinois, or more commonly referred to as TITO, continues to progress well. With all of our terminals now TITO-enabled, we are beginning to realize the benefit of TITO. We expect that benefit to build through the remainder of 2026 as players become accustomed to the convenience of TITO. Chicago represents one of the most exciting near-term growth opportunities we have seen in some time. The Illinois Gaming Board is actively processing applications from Chicago establishments as we continue signing up locations while waiting for final regulatory approvals. As the market leader in Illinois, with 2,678 locations and 15,413 gaming terminals, and an established platform of infrastructure, people, and relationships, we believe we are uniquely positioned to move quickly and efficiently when the market opens. We currently anticipate the first Chicago locations could go live in late 2026 or in 2027. We will continue to provide updates as the process unfolds. Montana delivered steady performance in the first quarter, with total average location hold per day increasing 5% year over year. In addition, our Grand Vision Gaming subsidiary continues to develop exciting and engaging new content that enhances margins through exclusivity while supporting our broader business. Across our developing markets, we continue to build momentum. Nebraska delivered outstanding results with revenue increasing 57% year over year and total average location hold per day up 57%, supported by new machine placements. We continue to see the benefit of our operating leverage with the business growth and market density. Georgia also delivered strong growth, with revenue up 43% year over year and total average location hold per day up 14%. In Nevada, we grew locations 27% and terminals 28% year over year, reflecting the significant footprint expansion from the Dynasty Games acquisition and our new route partnership with Rebel Convenience Stores. Mark will discuss Nevada in more detail shortly. Louisiana continued to grow with revenue up 12% year over year, and our bolt-on acquisition pipeline remains active and attractive. At Fairmont Park Casino and Racing, we are excited to have launched live dealer table games last month, including blackjack, roulette, and novelty games, marking a significant step in Fairmont’s evolution into a full-scale gaming and entertainment destination. Reflecting our continued confidence in the long-term value of Accel Entertainment, Inc. shares and our commitment to returning capital to shareholders, we repurchased approximately 1.1 million shares of our common stock for $12 million in 2026 to date. Our balance sheet remains strong, with $274 million in cash and net debt of approximately $306 million, representing net leverage of approximately 1.4x. Our $300 million revolving credit facility remains fully undrawn, providing significant financial flexibility as we continue to evaluate organic growth, tuck-in acquisitions, and capital return opportunities. I want to take a moment to address the broader macroeconomic environment and the resilience of our business model. We are operating in a period of heightened uncertainty brought on by tariffs, inflation, and geopolitical instability. I want to be clear about why we believe Accel Entertainment, Inc. is well positioned in this environment. Our business is fundamentally hyperlocal. We operate gaming terminals in neighborhood bars, restaurants, convenience stores, and truck stops—the kinds of places people visit in their daily lives. Our customers are local players engaging in local entertainment, and that behavior has proven remarkably resilient across economic cycles. We also believe the current environment may be driving incremental trade-down activity toward local, convenient, and affordable entertainment options. This is exactly the kind of experience our location partners provide, and which we view as a stabilizing tailwind for our business. Our cost to serve allows us to flex, which means we have the ability to manage our business efficiently even in periods of softer consumer demand. Tax refund season provided its typical seasonal tailwind as we moved through the quarter, and we continue to monitor the broader consumer environment for any signs of impact on player activity. Continuing through the beginning of the second quarter to date, we have not observed any material impact to our business. On the contrary, volumes remain strong. We believe our distributed, local, and community-rooted business model represents one of the most resilient profiles in the gaming space. Lastly, before I turn the call over to Mark, I want to briefly touch on our leadership transition. As we announced in February, I have stepped into the chairman role, and Mark will assume the chief executive officer role effective August 7. I am incredibly proud of what this team has built over the past seven years, and I have full confidence in Mark and the entire Accel Entertainment, Inc. leadership team to continue to grow this business and capitalize on the significant opportunities ahead. With that, I will turn the call over to Mark to review our operations in more detail. Mark T. Phelan: Thank you, Andy. From an operational standpoint, Q1 2026 reflected continued disciplined execution across each of our markets with a focus on route quality, hold-per-day improvement, and targeted growth investment. In Illinois, our team remained focused on improving location mix, redeploying underperforming assets, and deploying capital into higher-yielding machine placements. Illinois location count declined modestly year over year as we continued our deliberate strategy of optimizing the route rather than growing for the sake of location count. The result of that strategy is clear in our hold-per-day performance. Illinois location hold per day increased 9% year over year to $902 per location, which is a strong result and reflective of the quality improvements we have made across the route over the past several years. In Chicago, our team has been actively preparing for the market opening. We have been working closely with city leadership to support the development of best practices and an efficient regulatory framework. We have begun signing up Chicago locations and are well positioned to mobilize when the Illinois Gaming Board begins issuing approvals. In Nevada, our focus in Q1 2026 was integration and building out our newly expanded footprint. As a reminder, we completed the acquisition of Dynasty Games in December 2025, adding 20 locations and approximately 120 gaming terminals across Northern Nevada. We also launched our route partnership with Rebel Convenience Stores in January 2026, adding 55 locations and over 400 gaming machines across Southern Nevada. That rollout was executed efficiently. Our team has been working to elevate the gaming experience at these Rebel locations with new machines and proprietary content, and we are encouraged by the early increases in play we are seeing. We expect those trends to continue building through the back half of the year. We now operate in Nevada across 450 locations and 3,348 gaming terminals, representing a market we continue to be excited about for the long term. The Nebraska team delivered exceptional results. Revenue was up 57% year over year, driven by new machine placements featuring our proprietary content and ongoing investment in the market. As our terminal density increases in Nebraska, we continue to see strong operating leverage. In Georgia, we continue to expand our footprint, with locations up 28%, terminals up 35% year over year, and hold per day up 14%, reflecting Accel Entertainment, Inc.’s continued development of this market. In Louisiana, we continue to execute our bolt-on acquisition strategy. The pipeline of opportunities remains active. We believe we remain the buyer of choice in this market given our size and track record of accretive integration. At Fairmont Park, the property continues to evolve. Casino operations remain the primary driver of performance, with hold per day continuing steady upward growth. We launched live dealer table games in April 2026, including blackjack, roulette, Ultimate Texas Hold ’Em, and baccarat, marking a significant step in Fairmont’s evolution to a full-scale gaming and entertainment destination. Importantly, revenue from these new gaming positions is being reinvested in the racing product. For the 2026 season, we increased total purses by $500,000, which is already attracting larger field sizes and more competitive racing. Our second racing season is now underway, and we are watching customer behavior closely as the season builds. We continue to evaluate the timing and scope of the overall Fairmont investment as we gain more operating experience in the property. For the meantime, we are pleased with its contributions and prospects for further growth of the live table games. Across all of our markets, our operational approach remains consistent: disciplined capital deployment, service excellence at the location level, data-driven decision making, and strong local relationships. That operating discipline underpins our financial performance and supports our ability to generate growing free cash flow over time. Before I turn it over to Brett, I want to share a broader thought on where we see this business heading. When we think about what Accel Entertainment, Inc. is building, we increasingly view it less as a logistics business and more as a gaming and hospitality business. A logistics business competes on efficiency, scale, and cost. A gaming and hospitality business competes on experience, content, relationships, and differentiation—and it commands meaningfully better economics as a result. Everything we are doing, including new exclusive content in Nebraska and Georgia, table games launch and increased purses at Fairmont, the TITO rollout that improves the player experience in Illinois, the quality upgrades at our Rebel locations in Nevada—all of it is oriented around delivering a better, more engaging entertainment experience for our players and a more valuable relationship for our location partners. That is a key driver of our next phase of margin expansion and profitability growth at Accel Entertainment, Inc., and it is what gets me most excited as I prepare to step into the CEO role later this year. With that, I will turn the call over to Brett to review the financial results in greater detail. Brett Summerer: Thank you, Mark, and good afternoon, everyone. I will begin with our first quarter results and then provide additional detail on cash flow, the balance sheet, and capital allocation. As Andy mentioned, for the first quarter, total revenue increased 9% year over year to $352 million, an all-time quarterly record for Accel Entertainment, Inc. Growth was broad-based with strength in Illinois, Nebraska, Georgia, Nevada, and Louisiana. Net gaming revenue increased 10% year over year to $331 million, which was the primary driver of our top-line performance. Operating income for the quarter was $27 million compared to $26 million in the prior-year period. Net income was $15 million, essentially flat year over year, as higher operating income was offset by higher depreciation and amortization associated with our growing asset base, and also the timing of our purse expense, as I will discuss later. On a per-share basis, diluted EPS was $0.17 for both Q1 2026 and 2025. Adjusted EBITDA for the first quarter was $54 million, an increase of 9% compared to the prior-year period. Our underlying operating performance was solid, and growth was essentially in line with our strong revenue performance. It is important to note that adjusted EBITDA and net income were impacted by the timing of our purse expense accrual in Fairmont Park. This was a $2 million shift in the timing of how our Fairmont Park purse expense accrual is recorded. In 2025, our first year of racing operations, purse expense was recognized as races were conducted, which concentrated expense in Q2 and Q3. In 2026, we determined it was more appropriate to accrue this expense in line with revenue recognition, as revenues are generated throughout the year and contribute to the annual purse obligation. As a result, expense is now being recognized earlier in the year and more evenly across periods. This change impacts the timing of expense recognition by quarter, but does not impact full-year results other than the $500,000 strategic increase to the purse that Mark referenced earlier. Excluding this item, adjusted EBITDA and net income would have been approximately $2 million and $1.5 million higher, respectively, to enable easier comparison to prior periods. Turning to capital expenditures, total CapEx in the first quarter was $23 million, down from $27 million in the prior-year period. We continue to expect full-year 2026 CapEx to be in the range of $60 million to $70 million, which compares to approximately $89 million in 2025, which included elevated investment in Fairmont Park. The majority of our 2026 CapEx is maintenance-oriented, with growth capital concentrated in our developing markets. It is worth noting that our maintenance capital spending is not like other companies. There is an incremental return on this investment with a reasonable payback. From a cash flow perspective, operating cash flow for the quarter was $43 million. We used approximately $23 million in investing activities, primarily for CapEx, and $42 million in financing activities, reflecting debt repayment, share repurchases, and other items. I also want to highlight free cash flow as a metric we intend to discuss more regularly going forward, as we believe it best reflects the underlying cash generation strength of our business. We define free cash flow as net cash provided by operating activities less CapEx net of PP&E disposals. With CapEx normalizing in 2026 and our developing markets scaling profitably, we expect free cash flow to continue to grow and view this as a key priority. Given our adjusted EBITDA of $54 million and our free cash flow of $20 million, we have a cash conversion of 38%. Moving to the balance sheet and liquidity, we ended the quarter with $274 million in cash and cash equivalents. Total debt, net of debt issuance cost, was $581 million, resulting in net debt of approximately $306 million and net leverage of approximately 1.4x on a trailing twelve-month adjusted EBITDA basis. Our $300 million revolving credit facility remains fully available. We entered into a new interest rate collar on 01/30/2026, which replaced our prior interest rate cap arrangement. The collar establishes a cap rate of 4% and a floor of 2.92% on our term loan and matures in September 2029. This instrument is designed to provide continued protection against interest rate volatility while optimizing our cost of capital. As of 03/31/2026, we repurchased a total of 18.7 million shares under our share repurchase program that began in November 2021, at a total purchase price of approximately $195.6 million, leaving approximately $151.2 million remaining under the current program authorization. Our board has historically been thoughtful about the share repurchase program authorization, and we will evaluate next steps in the context of our broader capital allocation priorities. Our capital allocation framework remains disciplined and return-focused. We continue to evaluate each dollar of capital across our organic investment, bolt-on strategic acquisitions, debt reduction, and share repurchases, always with an eye toward generating the highest risk-adjusted return for our shareholders. Looking ahead, our recurring revenue model, disciplined capital deployment, and continued operating leverage position us well to convert earnings into free cash flow and fund our growth initiatives while maintaining a strong balance sheet. We remain confident in our ability to continue delivering on our commitments in 2026 and beyond. With that, operator, please open the line for questions. Operator: We will now open the call for questions. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Patrick Keough with Truist Securities. Your line is now open. Please go ahead. Patrick Keough: Great. Hey, guys. Thank you so much for taking the question. Sorry, am I echoing? Okay, great. Apologies. So early days with TITO, obviously, in Illinois, but could you give any color on early player adoption metrics and any impact you are seeing on cash-handling costs thus far? Thank you. Brett Summerer: Yes, sure. So a couple different things to set the table. When we initially thought about TITO and what it could mean for us, we had some internal estimates, and we have talked a little bit about it in the past—potentially up to around that 20% mark. What we are seeing so far in adoption is around 13%, and it has not fully tapered off yet, so there is still potentially upside there. If we think about what it can mean for us, I wish it were a simple answer. As you can probably appreciate, our overall play is increasing, and because our overall play increases, the amount of cash that is out there on the street is higher for us to go pick up. So that actually drives additional cost, but it has nothing to do with TITO. On the flip side of that, TITO is helping us reduce that. It is happening organically. As you can probably appreciate, we do our cash routes and pickups on a weekly basis. We have some automation behind it, but ultimately, it comes down to humans and the practices that we have throughout the organization. As cash gets to certain collection levels, we are picking it up and taking it off the street. So it is not a one-time cash benefit or a one-time cost reduction that we are going to see. It will be something that plays out over time. I would just caution that we only got to 100% fully TITO-enabled a handful of weeks ago as well, so again, more to come on that. It is just a piece of the overall picture, and teasing it out specifically is going to be difficult, but you should overall see a little bit of a benefit in terms of additional cash in our banks as well as in our cost structure. Patrick Keough: Okay. Understood. That is very helpful. Thank you. And for my follow-up, the JCAR recently approved the Illinois Gaming Control Board’s vertical integration rules. From your perspective, could you talk a bit about what this entails and if you see yourself as the best beneficiary as these are enforced? Thanks so much. Andrew Harry Rubenstein: Hi, Patrick. Although that rule was passed by JCAR, it has recently been contested by some of the operators in circuit court, so we are going to wait to see how that plays out before we draw any conclusions. Operator: Your next question comes from the line of Steven Donald Pizzella with Deutsche Bank. Your line is now open. Please go ahead. Steven Donald Pizzella: Hey, good afternoon, thank you for taking our questions. Maybe we can start with some of the recent trends. It looks like from the data we can see out of the IGB, January and February were very strong, then slowed down a little bit. March was still solid. What did you see in terms of April? I know, Andy, you mentioned potential benefits from a trade-down effect, the tax refunds potentially maybe offset by some gas prices. Then I guess just on that latter point, as you look at your history, to what extent has your customer base been sensitive to gas prices? Thank you. Andrew Harry Rubenstein: From our perspective, we really have not seen any noticeable impact from gas prices yet. Historically, it has not been a major factor, and I am speaking mostly from the Illinois market. Our players actually need to travel less to reach our establishments, as opposed to going to a regional casino. So we tend to benefit when the player wants to stay closer to home. Whether it is going to impact their overall budget for entertainment spending, we are unsure, but we do know that they will be spending less on gas to come play at our establishments. So we may get a benefit where they will elect to play with us even though they have less dollars in their total budget. Operator: Your next question comes from the line of Jordan Bender with Citizens. Your line is now open. Please go ahead. Jordan Bender: Hey, everyone. Good afternoon. Thanks for the question. Maybe to start with the pruning in Illinois—another quarter in which you took out a good amount of locations and units. Can you maybe just update us on where we stand there? And then, related to that, are the units or locations that you are going to take out today or going forward going to have less of an impact versus maybe some of the low-hanging fruit that we saw over the last two years? Thank you. Mark T. Phelan: Hey, Jordan. The strategy on pruning is really just opportunistic. When we see opportunities to reduce locations that actually burn our cash, we tend to do it. I do not think there is particularly low-hanging fruit that is still out there. We are always mindful of that, and we are also mindful of our organic revenue that is coming online. So it is a balance between new revenue and revenue that is actually costing us. Jordan Bender: Understood. Thanks. And just a follow-up: the plans for the permanent at Fairmont—you kind of said there is nothing to maybe report today. I think the original expectations were maybe there would be some sort of plan in ’26. Is there some sort of timeframe or plan when we might be able to hear more about something definite there? Mark T. Phelan: We are still in the maturation stage of the temporary. As Andy mentioned, we rolled out table games about a month ago, and we just had over 700 people at the Derby Day on Saturday. We are still contemplating and trying to figure out what the optimal size looks like. When we do figure it out, we will obviously let everyone know. Operator: Your next question comes from the line of Chad C. Beynon with Macquarie Capital. Your line is now open. Please go ahead. Chad C. Beynon: Andy, Mark, Brett, thanks for taking my question. Wanted to ask about legislative momentum or just any traction that we saw in the first quarter. I know there was a bill in Virginia that was vetoed by the governor. Wondering if you could talk about all states so far this year where we have seen some progress where there could be changes in ’27 or beyond? Thank you. Mark T. Phelan: Hey, Chad. Unfortunately, again, this is all us handicapping, but it appears that there is not going to be a lot of legislation that progresses legalization of video gaming terminals or skill games in the United States. You mentioned Virginia—the governor did veto that. There is some life still left in that bill, but its life is slowly eking out as time moves on. So we are not particularly optimistic about any sort of legislative movement in 2026. Chad C. Beynon: Okay. Thank you. Turning to Nevada opportunities, great to see the unit growth sequentially and year over year as a result of the two items that you talked about. When you think about more acquisitions, just from a quantitative standpoint, is Nevada still the biggest growth market, or are some of these emerging markets becoming bigger in terms of the absolute impact to the Accel model? Thank you. Mark T. Phelan: Nevada actually includes some opportunistic model changes where we are doing space leases instead of revenue shares with participation bars. In terms of our individual markets, we are optimistic about all of them in terms of acquisitions. We have talked a bit about Louisiana. It is a mature market, but we have a great partner down in the state, and we think we can grow that market accretively as well as with significant volume over time. Illinois is always an opportunity to acquire routes at accretive prices, and in most of our other markets, we are always on the lookout. So I would say all markets are aligned toward growing potentially through acquisitions. Operator: Your next question comes from the line of David Bain with Texas Capital Securities. Your line is now open. Please go ahead. David Bain: Great. Thank you. First, based on your observations of the licensing process in Chicago—maybe discussions with city council and your overall distributed experience—how is that process going? Is it at the pace you would expect? Is it a little slower? Can you maybe help us with locations blessed before the end of the year and next—just trying to get an idea as to how we are looking? Mark T. Phelan: Hey, David. We feel good about the Illinois Gaming Board processing applications, but the city has yet to promulgate any rules around VGT gaming, and that is a wild card. We would imagine it would be done in the next, call it, quarter, but that is me just handicapping it. David Bain: Okay. And then assuming that begins to ramp, my secondary question would be: you mentioned Louisiana valuation rationalizing, and with Chad, you spoke to Illinois still being a good M&A market. Are there valuations moving around perhaps in Illinois, maybe going higher as we get closer to Chicago licensing locations? Does it make it more of an exciting market heading into that? Or how are you thinking about M&A there? Mark T. Phelan: We are really excited about the market. I would point to our multiple. We are the only public company in this industry, and we are certainly not going to buy anything that is not accretive to us. So you can use that as a benchmark as to what we see in terms of acquisitions and multiples. Operator: A reminder. Our next question comes from the line of Maxwell James Marsh with CBRE. Your line is now open. Please go ahead. Maxwell James Marsh: Hi, thanks for taking my question. Maybe to approach gas prices from a different angle—I think it is fairly intuitive that your hyperlocal customer is resilient to gas prices broadly—but is there or could there be a localized impact on the truck stop part of your business, specifically looking at Louisiana with its higher proportion of truck stops through Toucan? Andrew Harry Rubenstein: The reality of the truck stop business is it is not truckers; it is local people that play at the truck stop because it is a more gaming-focused venue than going into a tavern. People who want to play and have a true gaming experience enjoy playing at the truck stops. In Louisiana, that is even more in focus because the Louisiana truck stops have up to 60 games; it is really like a small casino. Because those establishments are in proximity to where these people live, they tend to thrive in environments where people are watching their entertainment dollars. Instead of driving a greater distance to a regional casino—which they have throughout Louisiana—they tend to stay closer to home, either in the tavern market or, in this case, the truck stop market. So although they may have reduced disposable income, we may get a bigger share of their entertainment wallet. Mark T. Phelan: Max, I would just add that truck stops are a bit of a misnomer in terms of who plays there. That is usually local people, not truck drivers. In Louisiana, they are probably benefiting from the increase in energy prices and natural gas particularly, so we do not necessarily view that as a vulnerable part of our portfolio. And the offshore drilling industry is a major source of employment in Louisiana, so those individuals probably have more dollars in their pocket than they do in a normal situation. Maxwell James Marsh: Okay. Understood. Thanks for that clarity. And if we could just touch on EBITDA margins quickly—approaching 16% this quarter when we adjust for Fairmont’s purse expense—following a really strong 4Q. Could you take us under the hood on EBITDA margins and how to think about that going forward? Brett Summerer: Since it is forward-looking, I cannot really talk too much about it, but I would point you to two things. One, look at the EBITDA margins that we have delivered in the past. What you saw last year is Q4 was a little higher, and Q1, Q2, and Q3 were all in the mid-15% range. So there is some seasonality associated with that, which you can see play out. The other thing to be thoughtful about—in our earnings release, we have a gross margin table that shares the gross margin within each of our business pieces. In the “all other” space, which we do not disclose the individual components for, you can see the overall movement of the non-regulated markets increasing. I think that is the right way to think about where this is going and our performance year on year. Operator: Your next question comes from the line of Gregory Thomas Gibas with Northland Securities. Your line is now open. Please go ahead. Gregory Thomas Gibas: Great. Good afternoon, Andy, Mark. Thanks for taking the questions. In terms of capital expenditures, how much was allocated for Fairmont this year out of your $60 million to $70 million outlook, and how much is more maintenance? Brett Summerer: Thanks for the question. We do not usually talk about the forecast and how we break down the different pieces of it. What I will say is, year over year, the primary piece of lower capital is because Fairmont construction is not in there—in at least not in a big way like it was last year. So the vast majority of about a 20% decline in capital is because we are investing less into Fairmont, because we have most of the hard structure out of the way. On maintenance versus growth, we also have what I would consider to be non-return maintenance capital, which is like most businesses—but in our business, we really do not have much of that. The way that I look at it is: growth capital is generally stuff that pays back within a year—adding a machine to a place that does not have a machine. The maintenance capital has a return on investment—depends on the market and the machine and other factors—but call it a two- to three-year payback, which is still a good project to invest in. That is separate and distinct from, you know, fixing the walls when somebody backs a truck into them. Most of our capital this year is in the maintenance bucket, so you are going to get that kind of payback, which is in that two- to three-year timeframe, but it is still a very high IRR and well in excess of our WACC. Gregory Thomas Gibas: Okay, great. That is helpful. And as it relates to the tuck-in acquisition strategy, is Louisiana still maybe the top priority relative to other markets, and how does your pipeline of potential opportunities look in that market? Mark T. Phelan: Louisiana is definitely a focus of ours in terms of M&A. That has always been our thesis there, and the pipeline is good. We are excited about that state growing. But as I said earlier, there are other states that also have very accretive acquisition candidates that we are always viewing and reviewing. Operator: We have reached the end of the Q&A session. I will now turn the call back to Andrew Harry Rubenstein for closing remarks. Andrew Harry Rubenstein: Thank you, operator, and thank you to everyone who joined us today. We enter the remainder of the year with a clear set of priorities. We have a strong balance sheet and what we believe is one of the most compelling near-term growth opportunities in our company’s history with the pending launch of the Chicago VGT market. As always, I want to thank our employees, whose dedication and execution make these results possible; our location partners, who trust us to help grow their businesses; and our shareholders for their continued support and confidence in our team. We look forward to updating you on our progress when we report our second quarter results in August. Thank you. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Hello, everyone, and thank you for joining us today for the LCI Industries First Quarter 2026 Earnings Call. My name is Sami, and I'll be coordinating your call today. Before we begin, I would like to remind you that certain statements made on today's conference call regarding LCI Industries and its operations may be considered forward-looking statements under the securities laws and involve a number of risks and uncertainties. As a result, the company cautions you that there are a number of factors, which may -- which -- many of which are beyond the company's control, which could cause actual results and events to differ materially from those described in the forward-looking statements. These factors are discussed in the company's earnings release, Form 10-K and in other filings with the SEC. The company disclaims any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements are made, except by -- required by law. In addition, during today's conference call, management will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are available in the company's earnings release and Investor Relations presentation, which have been posted on the Investor Relations section of the company's website and are also available on Form 8-K filed this morning with the SEC. On the call from management today are Jason Lippert, President and Chief Executive Officer; Lillian Etzkorn, Chief Financial Officer; and Kip Emenhiser, VP of Finance and Treasurer. [Operator Instructions] With that, it's my pleasure to turn the call over to Jason Lippert. Please go ahead. Jason, please go ahead. Jason Lippert: Hello, and thank you to everyone for joining us on our Q1 2026 earnings call. We are energized by the momentum we have built in recent quarters as well as by the current strength of our performance in 2026 as we begin the new year with solid results despite continued sluggishness across both retail and wholesale leisure markets. Before diving into the details, I want to recognize the exceptional work our teams have done over the past decade to diversify our business. Against a very challenging industry backdrop, the diversification has clearly proven its value. Our well-balanced portfolio continues to deliver strong results even in cyclical markets like RV experience volume pressure. Achieving this balance has taken time, discipline and continuous refinement of both our teams and our strategy. Our European operations delivered the strongest quarterly results we have seen since building that platform. And our transportation business continues to perform very well as we integrate Freedman Seating and Trans/Air climate control systems. Altogether, our diversified performance meaningfully contributed to LCI achieving an 11.5% EBITDA margin in our Q1 in what we call a pretty turbulent quarter. For the first quarter of 2026, revenue grew 4% year-over-year to $1.1 billion. We expanded profit margins by nearly 100 basis points and grew adjusted diluted EPS by a robust 18%. This outperformance reflects our ongoing investments and the strong execution of our teams as we continue to focus on operational excellence, manufacturing optimization and self-help initiatives. These efforts include significant plant optimizations, disciplined G&A cost reductions and continued volume gains across the increasingly diverse end markets we serve, all while maintaining a strong focus on innovation and customer service, which remain core pillars of our success. Looking at performance by segment, OEM net sales increased 4% to $853 million. RV OEM revenue declined 4% due to lower North American travel trailer and fifth-wheel shipments, which is a strong outcome considering RV wholesale shipments are down more than 12% through the first quarter. At the same time, we grew our Adjacent Industry OEM sales by 17%, driven primarily by higher demand from North American marine OEMs as well as from bus and utility trailer OEM share growth. In addition, Freedman Seating and Trans/Air continue to outperform plan on both integration and synergy realization. As I previously mentioned, our European business also contributed meaningfully following extensive restructuring efforts over the last 18 months that have positioned the region for improved bottom line performance. In housing, sales were flat year-over-year, outperforming a down market due to continued strength in our residential windows, which helped offset lower manufactured housing demand. As we move through 2026, we expect to further accelerate content gains and expand across our 4 OEM markets while continuing to outperform the broader RV industry. We now expect RV wholesale shipments to be in the range of 315,000 to 330,000 units, which reflects a reduction of 20,000 units at both the high and the low end of prior expectations. For the marine industry, we continue to anticipate flat to low single-digit OEM growth this year. Innovation remains a cornerstone of LCI's long-term success and has driven a significant increase in towable content of 73% since 2020. Recent product introductions, including anti-lock braking systems, Touring Coil Suspensions, SunDecks, Chill Cubes, and our 4000 series windows continue to gain traction as customers look to enhance the end user experience. Towable RV content increased 13% over the past year to $5,826 per unit, representing the largest year-over-year increase in our history as we close on the $6,000 content per unit mark. Our 5 most recently launched products are now generating an annualized revenue run rate exceeding $270 million. Looking ahead, we expect approximately $140 million in incremental annualized run rate gains from new product placements during this 2027 model change as well as from market share expansion in the RV space. Our newest product launch is the next-generation leveling and stabilization system for travel trailers that will be more affordable than past generations. It will also be featured as standard equipment across all Brinkley travel trailers at this year's model change. Brinkley's Model I trailers rank among the industry's top 5 trailer brands, which will provide strong visibility for this product. We believe this launch represents a $100 million total addressable market opportunity for LCI and a natural for customers as we are the standout leader in leveling systems for towables and motorhomes. This ongoing innovation, combined with our scale advantages, advanced manufacturing technologies and deep expertise in complex mission-critical components has created customer loyalty that continues to differentiate LCI. Our customers consistently look to us to help them stand out in their respective brands. Turning to Aftermarket. The same customer loyalty continues to drive consistent outperformance. Auring the quarter, Aftermarket net sales grew 7% in a down retail environment for both automotive and RV. Over the past decade, we have embedded more than $15 billion of replaceable content into RVs that will ultimately enter the service and repair cycles. Over the next 3 years, approximately 1.5 million of these RVs are expected to do so, each requiring LCI parts and service solutions across key categories, including chassis, leveling systems, slide-out systems, awnings, suspensions, windows, furniture, doors and appliances, all of which are critical components. Our RV and Marine Aftermarket Care Center and technical teams, now more than 400 team members strong, has been built from the ground up over the past decade. Today, our team support thousands of dealer service and repair locations nationwide and manage more than 2 million customer interactions annually. As a result, LCI remains one of the most visible and trusted brands in the RV aftermarket. A recent milestone in our growth is the launch of our first in-store Lippert product setup within Blue Compass RV, the second largest RV dealer in the country. As we expand these in-store concepts, we create incremental sales opportunities for both LCI and our great dealer partners. The Lippert upgrade experience delivered through our brand-new Lippert factory service centers continues to gain traction by providing consumers and dealers direct access to advanced upgrades such as Touring Coil Suspension, anti-lock braking systems and other advanced Lippert products. As for mobile service and in-factory upgrades, we are now performing more than 200 service appointments each week, and we expect this initiative to become increasingly impactful as it continues to scale. Our automotive aftermarket business is benefiting from a market disruption as First Brands, previously our largest competitor in the hitch and towing space, moved through bankruptcy. We are actively working to capture displaced OEM and Aftermarket demand, representing an estimated $70 million incremental annual revenue opportunity. Our automotive aftermarket business is currently trending up high teens year-over-year in the second quarter of 2026, reflecting early success in capturing this share as well as great incremental growth in this category given where retail demand is. We are also expanding our Aftermarket infrastructure with the addition of 2 major facilities that we've mentioned on previous calls. Our new 600,000 square foot distribution center in South Bend came online last quarter, significantly increasing our national distribution capacity. And the second facility, approximately 400,000 square feet is expected to be completed by year-end and will consolidate several less efficient manufacturing operations that support Ranch Hand-branded products in Texas while also positioning us in a more favorable labor market in Seguin, Texas. Profitability remains a key highlight. Operating margin improved to 8.7% from 7.8% a year ago, driven by efficiency, improved product mix, plant optimization and continued G&A discipline. We continue to evaluate divestiture opportunities for select lower-margin businesses. As a result, we continue to target 70 basis points to 120 basis points of operating margin improvement in 2026 as we progress toward our long-term goal of achieving double-digit margins. Our balance sheet remains very strong, supported by more than $250 million of operating cash flow over the last 12 months and total liquidity exceeding $700 million at quarter end. We remain disciplined in our capital allocation, prioritizing investment in operational excellence, innovation-driven diversification and complementary M&A. Over the past 25 years, we have completed 77 acquisitions and our pipeline of smaller tuck-in opportunities remains active. Most importantly, returning capital to shareholders remains an important priority, which has been supported by a dividend yield above 3.5% and opportunistic share repurchases. With regards to the discussions with Patrick, our Board has determined that the best path forward is to continue executing our strategy as a stand-alone company, a strategy we feel has and will continue to position us and our stakeholders well into the future. In summary, we are confident in our ability to perform through a wide range of macro environments. Our innovation-driven content growth, higher-margin Aftermarket platform, expanding presence across adjacent OEM markets and disciplined execution continue to strengthen our competitive position. Most importantly, none of this will be possible without the dedication and talent of the incredible people of LCI who continue to drive our long-term success. With that, I will turn it over to Lillian to walk through our financial results in more detail. Lillian Etzkorn: Thank you, Jason, and thank you all for joining us. We're off to a strong start in 2026. In the first quarter, LCI delivered revenue growth, margin expansion and significantly higher earnings per share. This performance comes despite weaker industry fundamentals and a full year RV unit outlook that has deteriorated in recent months. Our results reflect the strength of our operating model and the tremendous efforts of the LCI team as we continue to execute on our strategic initiatives to drive growth and profitability. Taking a closer look at quarterly results, consolidated net sales grew 4% year-over-year to $1.1 billion. OEM net sales also grew 4%, driven by a 17% increase in Adjacent Industries OEM. This growth was fueled by strategic investments and stronger sales to North American Adjacent Industries OEMs. These gains more than offset a 4% decline in RV OEM net sales. The RV OEM performance reflects lower North American travel trailer and fifth-wheel shipments, partially offset by price increases to cover increased material costs, a change in our RV sales mix towards higher content fifth-wheel units, growth in our North American motorhome RV unit shipments and progress in our ongoing efforts to take market share. Content per towable RV unit remains a tailwind for us, increasing to $5,826, which was up 13% year-over-year and 3% sequentially. This year-over-year increase was driven by approximately 3% organic growth from innovation and recent product launches, an improved mix of higher content fifth-wheel units and increases in selling prices to cover increased material costs. Content per motorized unit increased 6% to $3,970. In our Aftermarket business, net sales increased 7% year-over-year to $238 million. Growth was driven by price increases to cover higher material costs as well as contributions from strategic investments. Consolidated operating profit totaled $95 million, up a robust 17% over the prior year period with operating margin expanding 90 basis points to 8.7%. OEM operating profit margin expanded 150 basis points to 9%. This improvement was driven by higher prices on targeted products to cover increased material costs as well as our ongoing efforts to enhance operating efficiencies through footprint optimization, material sourcing strategies and other operating initiatives. Aftermarket operating profit margin was 7.8% compared to 8.7% in the prior year period, primarily reflecting higher material costs related to tariffs and steel as well as investments in capacity and distribution to support continued growth in the Aftermarket segment. We were able to partially offset these factors by raising prices for targeted products in response to a higher material cost, along with sourcing initiatives and favorable sales mix. Adjusted EBITDA for the quarter was $125 million, up 13% year-over-year with the margin expanding 90 basis points to 11.5%. GAAP net income increased 27% to $63 million, resulting in GAAP EPS of $2.53. Adjusted diluted EPS was $2.59, reflecting a $0.06 accounting adjustment for dilution related to our 2030 convertible notes. We remain very well positioned from a balance sheet perspective. Cash and cash equivalents of $142 million at quarter end. Revolver availability was nearly $600 million and total liquidity exceeded $700 million. Net debt to adjusted EBITDA was 1.9x, within our targeted range of 1.5 to 2x and reflecting a quarter end outstanding net debt of just over $800 million. Our approach to capital allocation remains balanced and disciplined. First quarter capital expenditures totaled just under $10 million, in line with the prior year. We also look to opportunistically buy back shares under our $300 million repurchase program, and we maintained our quarterly dividend of $1.15 per share with $28 million paid during the quarter. Finally, we continue to seek thoughtful and complementary investments as part of our balanced capital allocation strategy. Turning to our updated full year outlook. RV wholesale shipments are now expected to be 315,000 to 330,000, as Jason mentioned. Marine industry deliveries are still expected to be flat to up low single digits. Despite the subdued industry backdrop, driven by our self-help initiatives and growth platforms, we continue to expect full year revenue of $4.2 billion to $4.3 billion and an operating profit margin in the range of 7.5% to 8%. Reflecting our strong first quarter performance, we are tightening our full year guidance and now expect 2026 adjusted EPS of $8.75 to $9.25. Looking ahead, some of the key growth drivers include continued innovation and increasing content per unit, Aftermarket growth that's benefiting from the growing number of RVs entering the repair and replacement cycle, housing growth benefiting from our growing number of residential window products and increased automotive aftermarket demand. Our adjusted EPS range, representing up to 24% annual growth at the high end is supported by continued margin expansion. We expect to continue our footprint optimization and address another 8 to 10 facilities this year, alongside ongoing efficiency and cost containment initiatives. Rounding out our updated full year outlook, we expect capital expenditures to be $55 million to $75 million for the year, focused primarily on business investment and innovation. In closing, we are off to a strong start in 2026 with our team focused on executing strategies that drive growth, profitability and enhance shareholder value. With that, operator, we'd be happy to take questions if you could please open up the line. Operator: [Operator Instructions] Our first question comes from Nathan Jones from Stifel. Nathan Jones: I guess I'll start with my first question on the Adjacent Industries OEM growth at 17%. Maybe you can give us a little bit more color on where you saw the strength and weaknesses in that segment given that the growth there was so strong? Jason Lippert: I think a big piece of that came from the -- we haven't lapsed the Freedman and Trans/Air acquisitions completely yet. That's part of it. All the adjacent markets are growing a little bit, but that lapse created some additional increase. Lillian Etzkorn: Yes. Nathan, specifically, the revenue from the acquisitions was $47 million in the quarter. So that contains a good chunk of it. Nathan Jones: Fair enough. I guess second question then on the margin performance. It was obviously also very strong. Can you talk about some of the contributors to that? I know you had -- you obviously had some inflation going through the business this quarter and pricing going through it was price cost positive to that or neutral to that? Just any color you can give us on the contributors to the margin expansion. Jason Lippert: Well, I think the biggest piece of the 100 bps or near 100 bps there is the -- all the self-help we're doing with the G&A improvements, all the facility consolidations and things we're doing there. And that's obviously going to continue on through this year. When we talked about the 8 to 10 facility consolidations we have this year, there's some big ones wrapped up in there. We'll be able to give more color at second quarter because really, we're waiting for July shutdown. There's usually a decent time shutdown during the 4th of July, where we can take the time and shut some of these facilities down and consolidate them with others that are still standing. Nathan Jones: And on the price cost equation, are you able to fully offset the inflationary costs, tariff costs with price? Or is there a lag to that? And then I guess just the last one, the changes in tariffs, any incremental impact from those? And I'll leave it there. Jason Lippert: Yes, there's a lot of puts and takes happening at the moment, obviously. I mean, with the new tariff stack after the Supreme Court struck down the old tariffs, there's a little bit of a stack on top of where we were before. We'll be dealing with that over the next months. But our assumption is we're not going to have any different approach or results to dealing with the tariffs that we did in the last few years that we've been dealing with it. So same strategy, going to continue to work on our strategic sourcing, make sure that we're buying from places and buying from countries strategically so that we're not overpaying on tariffs. And if we've got to pass some things along, we're going to do that and do that carefully with our customers. And there will be -- there always is just a little bit of lag as we sort these things out, but it's not meaningful. Operator: Our next question comes from Daniel Moore from CJS Securities. Dan Moore: Looking at the revenue guide unchanged despite obviously a softer RV outlook. Just in terms of where you see the opportunity to make it up. It sounds like you raised the Aftermarket opportunity for First Brands. Are there other things that are trending stronger, be it pricing, content, adjacent markets? Where is the kind of the makeup there? Jason Lippert: Yes. So First Brands and the Aftermarket piece is a piece of it, obviously. We mentioned in the prepared remarks that revenues for our automotive aftermarket division are mid-teens for the second quarter. We've obviously got good visibility in April and May. So we feel comfortable about that. I think the other big piece is the product placement that we've done on the RV side and the marine side for model year change that's coming up here in June. For just the RV piece alone, it was $140 million of new product placement. So that's new products that we've launched and put in the model year change cycles and also some market share improvements in different areas in the business. And we're winning in some of the other diversified adjacent businesses, but the $140 million piece from June forward annualized is probably the other big piece to offset any kind of softness in RV. So... Dan Moore: Yes, really helpful. You mentioned the obvious momentum in Aftermarket. April revenue as a whole down 4%. Just talk about the cadence of revenue entering May and expectations for Q2 more generally that's kind of embedded in your '26 revenue guide. Lillian Etzkorn: Sure. So, as you know, Q2 historically is probably the strongest quarter for us in any given year, and that is what we're expecting for this year as well. So despite April being a little bit softer, we are expecting sequentially to be up and also to be up year-over-year for the second quarter. And then I would say really just normal seasonality as we move through the balance of the year. Third quarter, we tend to have more of the shutdowns, Europe has shutdowns and then fourth quarter, we taper off. But yes, second quarter, we're expecting it to be nice and strong. Dan Moore: Really helpful, Lillian. Last one for me, a little long-winded, I apologize, but you're clearly incurring incremental costs from tariffs, from steel, aluminum, still maintaining 7.5% to 8% margin for the year. Given that a lot of these will likely be passed on with a little bit of a lag and the ongoing facility consolidations throughout the year and lower fixed cost absorption, let's say, we entered the year -- ended the year at kind of that midpoint, 7.75%, what would that imply on a run rate basis entering fiscal '27, assuming inflationary pressures start to level off? Lillian Etzkorn: Yes. So with that, again, kind of from the seasonality perspective, the fourth quarter in terms of a jump point in absolute terms is always going to be the lightest quarter. So I wouldn't necessarily use the fourth quarter as the run rate into next year just because that is the low point. What I would say, and I think it's reasonable to assume is, as you're seeing the year-over-year improvement in margin by quarter to continue to see that improvement kind of as that delta year-to-year as your start point for the following year, I think, is reasonable. And I think the other thing to point out, just in terms of the self-help, yes, it's a lot of the cost activities that Jason is highlighting. But I would also say just from efficiencies and how we're operating within our facilities, the team has done a really nice job of executing on that in some really difficult environments right now from an industry perspective. Jason Lippert: We feel there's a lot of pent-up demand out there. We're obviously not seeing it in the beginning part of the year here on the retail side, although used seems to be up pretty heavy, much bigger than what new is. New seems -- obviously, it's flat to down in most places, but used is up anywhere from high singles to mid-teens on most counts where we're taking those points and talking to dealers. So, yes, I think it really depends a lot on where retail falls and if we can get new going again, we're certainly going to be working with our customers to make sure that we're giving them every opportunity to get at affordability because that's the biggest headache out there when it comes to some of the sluggishness on the new purchases. Dan Moore: Yes. I guess my thought was given the lag in some of the pricing and some of the initiatives, you'd probably be entering '27 at an even higher level on an annualized basis, but I'll take the rest offline. Operator: Our next question comes from Joe Altobello from Raymond James. Joseph Altobello: I want to just follow-up on that line of question along operating margin and the improvement you're seeing this year. Obviously, it sounds like most of that is not volume dependent and it's largely in your control. You're talking about 8 to 10 facilities closures this year. How much runway do you see into '27 on that self-help side? Jason Lippert: Yes. So, obviously, we've got flow-through from all the changes we made last year that are kind of happening throughout this year, and we've got some carryover from that. And then like I said, these 8 to 10, we're literally just getting ready to start making these moves and changes and consolidations in July. So you can anticipate the benefits from all those moves to impact our P&Ls from July of this year through July of next year. And then we've got more self-help initiatives and some other facility consolidations on tap for next year already lined up. So the way I'd categorize what we've done here is, we started thinking really hot and heavy about this in the middle of '24 and started making changes just in the event that things didn't get better and the environment didn't improve. I'm glad we did that. I think a lot of people were thinking that they come into '26 and that volume would have to get better because it's been such a long depressed period of low retail and wholesale activity. But as we've dug into these self-help initiatives and around G&A specifically and around our plant consolidations and optimization specifically, we just continue to find more and more things. I mean the low-hanging fruit, we're kind of taking care of this year, but there's still some things we can do next year, and that will continue to benefit us through '27 and maybe even into '28. Joseph Altobello: Well, that's sort of what I was getting at, which is, if the industry looks next year like it does this year, you still see some pretty good margin expansion. Jason Lippert: Yes. Lillian Etzkorn: Yes, I think that's reasonable. I mean, Joe, as we've talked before, we've put out there the target of double-digit EBIT margins and really a lot of the self-help that we're doing puts us on a nice glide path towards that. Obviously, as we've spoken before, we do need to see some industry recoveries for the markets that we participate in. But we feel real good with the actions that we can take independent of the industry movements to put us on continued progression from the margin aspect. Jason Lippert: And I think the self-help and the consolidations and optimizations are helping a lot more than what we thought. We've had to rip the Band-Aid off in some spots and get uncomfortable. But at the end of the day, we're starting to scratch double digits without the improvement in the market right now. So I think that that's a good sign. Joseph Altobello: Got it. And maybe last one for me. Jason, I'm not sure how much you want to comment on the discussions with Patrick, but maybe talk about what initially attracted you to the deal. And I don't know if you want to talk about why it ultimately fell apart. Jason Lippert: I mean, as you know, I mean, we've done, as we said in the prepared remarks, 77 acquisitions over the course of at least my last 20 years or so in the seat. And we're looking at stuff all the time. And our Board is always challenging us to look at everything from small tuck-ins to large transformational deals. And this just happened to be one that you heard about that got into discussions. But at the end of the day, I mean, of the 77 we've done, we probably talked to 400 people, and there's been 300 that haven't gotten done. So we're always looking at these things, and we're always looking to -- whether it's transformational or small tuck-ins, these things pop up, you just don't necessarily hear about all of them. So that's about all we're willing to comment on, Joe. Operator: Our next question comes from Patrick Buckley from Jefferies. Patrick Buckley: I think you called out strong European results in your prepared remarks. What's driving that improvement over there? Is the broader consumer environment showing signs of improvement from what you're seeing? Jason Lippert: So I would tell you that we've been over there since 2016, starting to accumulate a platform over there. We bought several businesses and put them together to create a little consolidated supply business over there. Since we've been over there, the market doesn't ever grow big or drop fast. It's pretty consistent. So I wouldn't say it's market conditions. About 18 months ago, we decided to completely restructure the business over there, really decentralize it and took away a bunch of a corporate structure we had put together. And then, again, done some of the same self-help initiatives and plant consolidations and optimizations over there that we've done here in the last 18 months and are starting to show through on results really nice. Patrick Buckley: Got it. And then on the Lippert factory service, could you talk a bit more about the size of that today and what you view as the ultimate size and growth potential of that opportunity and maybe the time line there? Jason Lippert: Yes. So it was more of a thought we had last year. We kind of implemented this concept last year to say, "Hey, look, there's just -- as long as we've been in the business, service continues to be a pain point for the consumer." So we decided to put a few of our own up. We have had one here in Goshen for a long time, but we moved out to Howe right off the toll road, bought a bigger facility with some camping spots and things like that. So it's just more of a destination for people to come to. And we've added 2 more facilities at the beginning of this year, tail end of last year. So it's small today. It's not bigger than $10 million, but we've got, like I said, 200 appointments per week right now, and that's continuing to grow as we get the word out and advertised about this, and we're really taking really good care of consumers that come. So our hope is that over the next several years, we can grow this into a bigger platform that's more meaningful, and we'll continue to give you updates as we move along quarter-to-quarter. Operator: Our next question comes from Scott Stember from ROTH Capital. Scott Stember: A lot of facility consolidation going on over the last 6 to 9 months. I know that there was a bunch that took place in 4Q and another 8 to 10 for this year. Can you maybe size up the actual benefit that we'll see down to the bottom line this year just from that because that's a huge part of the story for your results this year? Lillian Etzkorn: Yes. No, that is a key part of the story for the results. And you're seeing it in the first quarter, and we had 80 basis points improvement from cost enhancements. So a good portion of that is going to be from the consolidations that we've done. And like Jason was saying, we expect that to continue as we progress through this year in the second half, similar to last year. Second half is really where you'll see more of the consolidation activity and the benefits starting to realize, call it, towards the end of this year and more so materially as we get into 2027 is where you'll see the greater impact from our actions in 2026. Scott Stember: Got it. And then, Jason, you made some comments about -- I jumped on the call late, so I'm not sure if I heard everything, but some comments about how the Aftermarket is trending currently for you, I think, in April and May. Can you maybe just talk about that again? And then also with used RVs outperforming new, could you maybe just remind us of how much of a benefit that could be for LCI in the Aftermarket with refurbishing, reconditioning units? Jason Lippert: Yes. So first, what I mentioned earlier was that the auto Aftermarket is trending revenue, Q2 up mid-teens from last year. And as you know, we've got 2 key components to our Aftermarket business. We've got the automotive Aftermarket, which is roughly half of our Aftermarket business, and then we have the RV and marine piece, which RV is a big piece of that. I would say the RV side is still -- it kind of follows new units. So if there's less used units, there's a little bit of sluggishness on the Aftermarket side for RV. But with respect to the used units, and Wagner says it best, I mean, every time they sell a lot of used units, they're always refurbishing and creating more value in those used RVs by whether it's repairing and fixing things or just upgrading some things. So there is a little bit of that. It's just hard to quantify because it's just really hard to track. But used units, new units going up, it's good for our Aftermarket business, and we'll continue to see benefit from that as this goes along. But I think the big piece as we keep talking about is, these COVID units that are going to continue to need repair and replacement over the next several years. I mean there is a slug of those, obviously, to the tune of 1.5 million units. And as those start coming in for repair and replacement parts, a lot of that business is going to come our way. Scott Stember: And on the auto side of the Aftermarket, what is driving that demand? And do you think that's sustainable for the balance of the year? Jason Lippert: Yes. Yes, for sure. I mean the big piece, as we keep mentioning is the First Brands kind of that whole bankruptcy that's creating issues. I mean they have not solved the problem. They've not moved any of those businesses to other businesses that have bought those. So the people that were buying First Brands hitches and towing products basically had to go find new suppliers over the last few months. So this is kind of broke loose. And as the second -- is really the largest player in that space, we're the beneficiary of a lot of that new business. So we're trying to take on as much as we can, given our -- given what capacity we have, and we expect that to continue through the long term because there's -- it doesn't appear that there's anything going to happen with First Brands. Operator: Our next question comes from Tristan Thomas from BMO Capital. Tristan Thomas-Martin: Jason, could you update your retail assumption for the year? Jason Lippert: Yes. I'd say we're kind of -- yes, down mid-single digits probably is probably where we're at, somewhere in there. It's hard to say. I think we'll have a really good feel in a few months after we get through the summer selling season here, obviously, but that's our best guess right now. Tristan Thomas-Martin: Okay. And then just looking at Slide 21, your mix of single axle versus multi-axle fifth-wheels, flat year-over-year in the quarter. Do you expect -- is that surprising? I'm curious if you expected that to maybe be a little bit richer. Jason Lippert: Yes. Yes, it is a little surprising. I mean we obviously talk to a lot of dealers. We talked to a lot of the OEMs. Their commentary to us on the single-axle units is they fully expect that to start trending downward at some point in the near future. They said that there's just too much inventory out there. The good news is it slowed down. I mean, for the last several years, it's been going up. So we've seen it flatten out and peak at this point in time, and we expect it to go down on the flip side. We've seen fifth-wheels -- as you know, we build a lot of chassis, and we get to see a lot of these ratios, 1 for 1 and fifth-wheels are up a little bit right now, which is a good sign. We obviously put a lot more content into fifth-wheel units than we do tandem or single-axle travel trailers. So that's kind of what we're seeing right now. Tristan Thomas-Martin: Okay. And then I'm going to sneak in one more. Just how do we -- from kind of a modeling standpoint, I think you called out $140 million from new model year '27 kind of share gains. Does that include the $100 million opportunity from the travel trailer leveling and stabilization system, the one you called out for Brinkley? And then also kind of the $140 million, how much of that falls in calendar '26 versus calendar year '27? Jason Lippert: Yes. It's not a big piece of that. Tristan, the $100 million is a TAM, is the total addressable market for leveling systems of that type. So we're just launching that, and we expect that once Brinkley gets it out there and people start seeing it that they'll want to get a piece of that, at least we're trying to find leveling systems that fit into the lower price point trailers, some of the lower price point trailers. We've already got leveling systems for trailers, for travel trailers that are a little bit more expensive. So our plan is over like any product launch and innovation, we -- 3 to 5 years, we want to penetrate at least 50% of the market. That's kind of our gold standard for product launches. So we've got -- we're off to the races with a really good customer and brand, and we'll get some good visibility, and then we'll see what happens as it makes its way into the market. But a lot of that $140 million is all sorts of products. Obviously, we've been talking a lot about our Chill Cube and our AC movement. I mean, 3 years ago, we were 15% of the AC market. Today, we're close to 60%. We're making a lot of headway with appliances and our TCS, our Touring Coil Suspensions and our ABS suspension products. So suspension appliances, air conditioners are getting a big piece of that $140 million. But we're also making progress with windows and furniture and chassis and some of our other core products. Operator: Our next question comes from Brandon Rolle from Loop Capital. Brandon Roll?: Just first, just digging in on the second quarter, are you expecting operating margin -- sequential operating margin expansion versus that 8.7% you had in the first quarter? Lillian Etzkorn: Yes. Again, the way I probably think about is think of the year-over-year improvement. Second quarter, again, tends to be a pretty strong quarter for us, just given the seasonality. So typically, you would expect to see that sequential improvement and that year-over-year improvement continuing as well. Brandon Roll?: Okay. Great. And then just on the overall industry recovery for the RVs. Clearly, retail is underwhelmed year-to-date. Is there a scenario where you potentially have to start absorbing some of the raw material price increases because the prices are too much to the end consumer or OEMs just begin to push back a little bit there? Or do you feel comfortable you'll be able to push through price regardless of industry fundamentals? Jason Lippert: Yes, absolutely. I mean there's a couple of strategies. One is, obviously, good, better, best. So we're working with our customers all the time on good, better, best products. So trying to find the most affordable options for people to still offer the consumers the best possible RV they can offer them, even if they've got to go from a good product or a better product to a good product or from a best product to a better product. So that's obviously part of the strategy, and we're always having those conversations and making -- running changes with our customers on those types of things. And then the second thing is, we are working with our customers right now on special floor plans and doing some special deals so that we can get some more affordable product into the marketplace on really popular floor plans. So there's not a single large OEM that we're not having those conversations with right now. And we'll continue to work with them as we get through this retail season and see how things are going. But we've got some -- as you know, we've got a little bit of tariff refunds hopefully coming. We don't have visibility on that yet. But if that does flow through and the refunds come through as the government has promised, then we'll be giving back to the large OEMs what they -- what we had to increase them back when those things first came out. So that will give some additional relief, hopefully. But affordability is the key issue right now, and we need to do everything we can as a supplier in the OEM community to give the dealers products that are priced right for the consumers. Operator: Our next question comes from Alice Wycklendt from Baird. Alice Wycklendt: Just want to circle back on the content per unit. Obviously, really strong organic growth of that up 3%, but the other bucket is a big contributor. I think the bulk of that is the index price adjustments. Can you provide a little bit more detail there? And I'm curious on what was the timing of some of those increases and the expected duration of that tailwind for content per unit? Lillian Etzkorn: So yes, so again, just in terms of the breakout for the content improvement, 3% was organic growth, really driven by the innovative products continuing to get traction in the marketplace. And then as we look at that other, it's a combination of the mix. So as we've had greater fifth-wheel units coming into play, that's benefited us. And then probably proportionately as well are those sales price increases to cover the material costs. And really, those started coming into play, I'd say, last year, call it, into Q2, Q3-ish really around the summertime is when we started to see that. So those impacts will continue to benefit on that content unit as we're moving forward. But the unit mix was also an important part of that increase as well just because we have more content on those larger, better equipped units. Alice Wycklendt: And then just maybe want to take a step back. It sounds like integration of Freedman and Trans/Air is going well. But what does the M&A pipeline look like today? And maybe what are you focused on? Jason Lippert: Yes. As always, we've got a lot of names on the list, Alice. And we're -- at any given point in time, we're talking to 4 or 5 different tuck-in opportunities, and those range anywhere from early discussions to LOIs, and we're -- we'll just keep you posted as we get close to getting these done, but the pipeline and multiples really haven't changed much in the last couple of years since we started looking at M&A again. Operator: We currently have no further questions. I'd like to hand back to Jason for some closing remarks. Jason Lippert: Yes. Well, I think the headlines are -- a lot of the self-help that we've been doing is starting to come into play and have a great impact on the results. And after 10 years of really focusing on diversifying the business in all these different areas, all the acquisitions and organic growth we've done there is really starting to play into our results as well, and we're excited to update you on our Q2 results in a few months. Thanks, everybody, for tuning in. Operator: This concludes today's call. We thank you for joining. You may now disconnect your lines.
Operator: Good evening. My name is Michelle, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the DaVita First Quarter 2026 Earnings Call. [Operator Instructions] Mr. Eliason, you may begin your conference. Nic Eliason: Thank you, and welcome to our first quarter conference call. We appreciate your continued interest in our company. I'm Nic Eliason, Group Vice President of Investor Relations. And joining me today are Javier Rodriguez, our CEO; and Joel Ackerman, our CFO. Please note that during this call, we may make forward-looking statements within the meaning of the federal securities laws. All of these statements are subject to known and unknown risks and uncertainties that could cause the actual results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please refer to our first quarter earnings press release and our SEC filings, including our most recent annual report on Form 10-K, all subsequent quarterly reports on Form 10-Q and other subsequent filings that we make with the SEC. Our forward-looking statements are based on information currently available to us, and we do not intend and undertake no duty to update these statements, except as may be required by law. Additionally, we'd like to remind you that during this call, we will discuss some non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release furnished to the SEC and available on our website. I will now turn the call over to Javier Rodriguez. Javier Rodriguez: Thank you, Nic. Good afternoon, everyone, and thank you for joining the call today. DaVita's foundation is clinical excellence, driven by operating rigor that produces durable results. We have consistently delivered exceptional clinical outcomes and strong financial performance, and this quarter is no exception. To ensure we sustain and build upon this foundation, we're actively investing in our future capabilities. In a rapidly evolving landscape, we're taking a pragmatic approach to expanding our IT systems and digital infrastructure. These targeted technology investments are designed to empower our clinical teams and serve as a backbone for our next chapter of clinical and operational excellence. Today, I'll walk through our first quarter performance, share how technology is enhancing our operations, provide an update on ACA Plans and finish with our outlook for the remainder of the year. But first, I'll start as we always do with a clinical highlight. This quarter, we're highlighting the continued momentum of Integrated Kidney Care, or IKC, our value-based care business. In the latest results from CMS' Comprehensive Kidney Care Contracting program, or CKCC, we delivered year-over-year improvements across all 3 key measurements, which are gross savings rates, total quality score and high-performing status. Clinically, this means our IKC care model, together with our physician partners is improving the health and well-being of our patients. Economically, we generated the highest total aggregate savings of any participant driven by our 4.5% improvement in gross saving rate since the beginning of the program. This is a clear example of how IKC clinical rigor paired with data-driven insights is delivering better outcomes for our patients and a more sustainable model for the future of Kidney Care. Turning to the first quarter. We delivered strong financial results ahead of our expectations with outperformance from each element of our U.S. dialysis trilogy; treatment volume, revenue per treatment and cost per treatment. This balanced outperformance reflects the strength of our team and our focus on consistent execution. I'll touch on a couple of key metrics that contributed to the quarter and will help shape the remainder of the year. Starting with volume. In the first quarter, our treatment volume was slightly ahead of forecast. Quarter-end census was ahead of plan as a result of better-than-forecasted mortality, partially offset by lower-than-forecasted admits. Census also benefited from patient transfers in related to ongoing clinic closures by Fresenius. Although negligible in the first quarter volume, we anticipate that these transfers will contribute to positive treatment growth over the remainder of the year. As a result, we're raising our volume growth expectations for the full year from flat to a range of 25 to 50 basis point increase. Approximately half of the increase is from better underlying performance and half is related to transfer in from Fresenius. Switching to labor. Q1 was ahead of plan, primarily from better productivity, which we expect to sustain over the balance of the year. Let me turn to our technology strategy and the investments we're making to strengthen our operations and ultimately, our clinical outcomes. We're taking a disciplined approach to AI that we've been building towards for years, and we're seeing that groundwork translate into real impact. Our strategy has 2 parts. First, we've modernized our data infrastructure. This means standardizing and integrating high-quality data across the enterprise through systems like our proprietary EMR platform. That work gives us a differentiated foundation to power AI applications at scale. Second, we're actively deploying AI solutions across clinical, operational and business use cases with a focus on supporting our caregivers, improving how we operate and drive measurable impact. One example is [ ScheduleHub ], a new tool that dynamically processes changes in each center's patient census, capacity and teammate availability to recommend optimal patient and staffing schedules in real time. Given the complexity of the center scheduling, we expect this will reduce administrative burden for our facility administrators and enhance teammate experience while supporting patient care. This is one of many examples where our sustained IT investments translate into tangible scale benefits across the enterprise. We're still early in our AI journey, but given the strength of our data foundation, and the pace of our deployment, we are well positioned to outperform both clinically and operationally as technology evolves. Next, on ACA Plan enrollment. Based on what we know today, ACA open enrollment is trending towards a slightly favorable outcome relative to our prior expectations of an approximately $40 million headwind in 2026. This favorability will be partially offset by more patients selecting lower-level bronze plans, which translates to higher out-of-pocket costs and a modest RPT headwind. We will gain greater clarity on the enrollment outcome and mix impact as we get deeper into the year. I will conclude my remarks with our financial outlook for the remainder of the year. With our first quarter results, we're off to a strong start for the year. As a result, we're raising and narrowing our guidance for adjusted operating income to a range of $2.15 billion to $2.25 billion. Similarly, we're raising our adjusted EPS guidance to a range of $14.10 to $15.20 per share. The increased guidance is primarily the result of our higher volume forecast for the year and lower patient care costs. I will now turn the call over to Joel to discuss our financial performance in more detail. Joel Ackerman: Thank you, Javier. Today, I'll provide details on our first quarter results, then give you some more context on the update to 2026 guidance that Javier shared. First quarter adjusted operating income was $482 million, adjusted earnings per share from continuing operations was $2.87 and free cash flow was $140 million. Adjusted operating income came in about $50 million ahead of our forecast. Approximately half was the result of performance ahead of plan and the other half, the result of timing. Starting with detail on the U.S. dialysis segment. Treatments declined about 20 basis points versus the first quarter of 2025 and treatments per normalized day increased 40 basis points versus Q1 of 2025, approximately 20 basis points ahead of our expectations. As Javier mentioned, we are increasing our full year volume forecast to 25 to 50 basis points. As a reminder, this represents our forecast for treatment growth. This translates to 50 to 75 basis points of growth in treatments per normalized day because of the year-over-year treatment per normalized day headwind in 2026 compared to 2025. Revenue per treatment declined approximately $5 sequentially, primarily as a result of the typical first quarter headwind from patient-pay responsibility. Year-over-year RPT growth was approximately 4% in the quarter. We still expect full year RPT growth in the range of 1% to 2%. Patient care cost per treatment were about flat to the fourth quarter. This was primarily the result of a seasonal decline from high health benefit costs in the fourth quarter, offset by typical increases in wages and other cost growth. Patient care costs were lower than expected, largely as a result of better-than-expected productivity improvements. U.S. dialysis G&A costs declined $16 million from the seasonally high fourth quarter, although growth versus the first quarter of 2025 was about $37 million or 13%. This growth is the result of continued investment in technology. Turning to our other segments. In the first quarter, international adjusted operating income was $30 million, and IKC had an adjusted operating loss of $19 million, both in line with our expectations. Regarding capital allocation, we repurchased 3 million shares during the first quarter, and we repurchased an additional 2 million shares since the end of the quarter, which includes the shares bought from Berkshire Hathaway pursuant to our repurchase agreement. At the end of the first quarter, our leverage ratio was 3.34x consolidated EBITDA, well within our target leverage range of 3 to 3.5x. Below the operating income line, other income was $4 million, a sequential increase, primarily as the result of no longer recognizing losses from our investment in Mozarc. Debt expense in the first quarter was $145 million. As an update to our guidance, we now expect quarterly debt expense for the remainder of the year to be similar to Q1 due to higher share repurchases and higher interest rate expectations resulting in full year debt expense about flat to last year. For 2026 guidance, as Javier described, we are raising our adjusted operating income guidance range by $40 million at the midpoint. The largest driver of the increase is our expectations for higher treatment volume. The second factor is an expectation for continued labor efficiencies within patient care costs. Regarding the phasing of our guidance through the balance of the year, we currently expect adjusted operating income to be about evenly split across each of the 3 remaining quarters, which assumes Q4 weighted IKC operating income. Our expectations are that the seasonal pattern we saw in 2025 are not typical, and we expect to see phasing more in line with 2024. Moving to EPS. We are also increasing our adjusted EPS guidance consistent with our updated guidance range for adjusted operating income. That concludes my prepared remarks for today. Operator, please open the call for Q&A. Operator: [Operator Instructions] Our first caller is Kevin Fischbeck with Bank of America. Kevin Fischbeck: I wanted to dig in a little bit to the volume commentary. I guess, is there any way that you can kind of break out whether weather had an impact, how much that was? And then the improved mortality? Is there a way to kind of break that into what was maybe just a light flu season year-over-year versus underlying trends you're trying to think about how durable the better mortality for the rest of this year? Joel Ackerman: Yes. Thanks for the question, Kevin. On weather, weather came in exactly as we expected. As you would imagine, we build weather into our forecast. It can range from year-to-year. It was, as I said, in line with forecast. I'd call it, about 10 bps better than last year. In terms of flu overall, again, came in line with our forecast. What we had said at the beginning of the year was we were building in a flu season that looked like 2 years ago. And while the pattern was a little different quarter-over-quarter, the impact for us was about what we expected. As we think about flu, we focus on cumulative hospitalizations, which you can find on the CDC website as the main driver of volume impact for us, and this year is in line with what we saw 2 years ago. In terms of splitting out the mortality coming in a little better than expected, it was probably not about the flu because flu came in as expected. It was more around the underlying mortality. Kevin Fischbeck: Okay. Great. And then can you just give a little more color on the rate update? Why was the rate so strong in Q1 relative to your guidance for the year? Joel Ackerman: Yes. So rate -- RPT was up a little more than 4%, so call it $17.50. I would say 2/3 of that was normal stuff in terms of rate increases and mix shifts, about, call it, $6, I would attribute to timing. Part of that was negative timing in Q1 of '25 and part of it was positive timing this year. We see timing -- we call it out frequently around RPT. And for the year, we're sticking with our 1% to 2% guide. Kevin Fischbeck: Okay. So nothing unusual there around like drugs or binders or anything like that kind of skewed the number? Joel Ackerman: No, nothing unusual. Kevin Fischbeck: Okay. And then maybe just the last question. Can you talk a little bit more about the ACA impact and how you're thinking about it? It sounds like you're saying it was coming in better, but it sounds like the guidance hasn't changed yet for the year to get that right. And then how are you thinking about the timing? Is it that Q1 came in better? Now you're assuming it's going to ramp? Or did you always assume Q1 was going to be a little bit lighter relative to the year, thoughts there? Javier Rodriguez: Yes, Kevin, it's a great question. And the reality is that it is very early. So just to repeat, Q1 was pretty flattish to Q4. So it has performed better than we expected. That said, the reality is that we haven't seen the effectuation rate and the affordability play out, and so it's too early. We have to see payments and we have to see enrollment over time. And that's why we're thinking it's a little premature to change our numbers. But the reality is that we will need -- the real data point that we want to see is the mix of our future incidents. And that is, of course, too early to tell. So we're holding to that $40 million number. Although right now, we would be trending -- $40 million number, we're trending a little better than that. Operator: Our next caller is Andrew Mok with Barclays. Andrew Mok: Hoping you could provide more color on what you're doing to position yourself to capture market share and the visibility you have into those share gains at this point to raise guidance, specifically to the clinic closures? Javier Rodriguez: Look, at the end of the day, we, of course, are in a very competitive market. The centers that are being closed, you can assume are small centers, and you can also assume that Fresenius and anyone that closes a center would work hard to try to keep those patients in their own network and with their same physicians, et cetera. And so we are, of course, making sure that the market is aware of our share availability and our physician access and all the things that one would do. And then, of course, the patients and the physicians will make their choice. Andrew Mok: Great. And then I just wanted to follow up on the mortality comment. I appreciate that flu wasn't necessarily the driver. But any color on the underlying mortality performance would be helpful considering that's an important metric for building consensus on volumes for the balance of the year? Joel Ackerman: Yes. It is an important metric. You're absolutely right about that, Andrew. I would say the changes are rather small, and we're not ready to call out any significant underlying trend. That said, we did up the volume guidance, and it's captured in there. Andrew Mok: I guess how are you able to isolate that it was mortality versus some of the other dynamics in the market with flu and clinic closures? Joel Ackerman: Clinic closures are a separate issue because they are about admissions, and we've got a lot of visibility on patients coming in and patients leaving. In terms of mortality, as we've said before, it can be a hard variable to know in real time, but we feel pretty good about what we saw from Q1 now that we're sitting here in May. Javier Rodriguez: Andrew, I think let me try and be helpful with this because you're asking the right question. And there are several inputs that go into treatment. As you can imagine, you've got seasonality, you've got mortality, you've got admissions, you've got missed treatments, you've got transfers, but they're all pretty small. And so what we're trying to do is instead of going into a world of small numbers, give you a range that handicaps all of those variables. Operator: Our next caller is Pito Chickering with Deutsche Bank. Pito Chickering: Just a follow-up on the treatment commentary. Can you just talk about the new starts to dialysis in first quarter? And as you think about Fresenius scaling in from their closures, is this an immediate ramp in sort of 1Q, 2Q and then normalize in the back half of the year? Just want to make sure that as you're increasing your treatment growth guidance here that we're also modeling where you guys go from 2Q and then where you guys finished the year in fourth quarter? Joel Ackerman: Yes. So on the admit side, I don't think we've got a lot of color to go in. We're talking about basis points of change and then to go to the next level and bifurcate that among all the inputs that Javier mentioned, I think, gets us to a point of false precision. In terms of timing on the new starts, we saw what I would guess is about half the new starts from Fresenius that we would see by the end of the first quarter, we would guess the other half will come in Q2. So if you're thinking about how to model them, I would say we'll get probably 2/3 of a year worth of those new starts. Pito Chickering: So does -- when we pull together with the new starts, in the mortality and the Fresenius, kind of where should we be ending the fourth quarter from a treatment -- organic treatment growth perspective? Joel Ackerman: Yes. I think the way we're thinking about it is treatments per normalized day, which we think takes out the quarter-to-quarter and year-to-year noise associated with the different number of days in a quarter and the different mix of Monday, Wednesday, Friday, Tuesday, Thursday, Saturday. So what we would expect is the normalized treatment per day count to grow over the course of the year. It's sitting today at about 40 bps positive, and we would expect that to grow over the course of the year. Just to make sure everyone's following how we're thinking about this, our new guide for treatment volume is plus 25 to 50 bps. Because there's a 25-day headwind in the year on normalized treatment days, our guide for the year would be plus 50 bps to 75 bps of normalized treatments per day. So that's 40 bps now getting to that average of 50 bps to 75 bps for the year ending somewhere higher than that. Pito Chickering: Okay. Great. And then a follow-up here on the revenue per treatment. If you pull out the $6 you're talking about from a timing perspective, gets us to $4.11 to $4.12, typically, 2Q ramps, $4 or $5 as you burn through the deductibles and then we see continued ramp in the third quarter and then obviously, fourth quarter, we get the update with the new Medicare rates. I guess, I'm trying to figure out how we're still getting to 1% to 2% revenue per treatment guidance growth, even pulling out at $6 in the fourth quarter -- from the first quarter because of normal seasonality you guys see in the interim treatment? Joel Ackerman: Yes. So I think there are 2 dynamics. One is normal variability. So the quarter was a little higher, and you take that out. The second dynamic is around mix and the enhanced premium tax credits. What we would expect is commercial mix to decline over the course of the year, and that will put pressure on RPT, which would help you bridge from a higher number in Q1 to the 1% to 2% for the year. Pito Chickering: Okay. But at this point, through April, you haven't seen that negative hits that you're guiding to, you're just sort of just assuming it comes until later on in the year? Joel Ackerman: That's correct. Pito Chickering: Great. And then last question. Your G&A per treatment, you talked about was up 13% due to tech investments. Where does it end the year? And kind of -- should we think about this declining linear throughout the year as those investments were made or just any color around how we should be modeling G&A treatments for -- G&A cost per treatment throughout the year as the tech investments begin to decline? Javier Rodriguez: Yes. I appreciate the question on G&A. And I want to reassure you that we are looking at this incredibly diligently. And if one looks at G&A independently, that line is growing at a faster rate than revenue. And so I think it's worthwhile to let you know our philosophy on it, which is we look at G&A as a piece of the total cost. In other words, we're not trying to optimize G&A, but rather not worry about the geography of the expense as long as the sum of the parts add up to a good number. So if you look at the last 5 years CAGR on our total cost, which includes patient care costs, depreciation and amortization and G&A, that CAGR is 2.6%. And so we spend a lot of time trying to make sure that we optimize the cost, and we worry less about the geography on the P&L. So I think that our guide will stand on our cost, which is that 1.25% to 2.25% we gave at the beginning of the year. Pito Chickering: Great quarter, guys. Appreciate it. Operator: [Operator Instructions] Our next caller is Justin Lake with Wolfe Research. Dillon Nissan: This is Dillon on for Justin. Just a couple of quick questions. What did commercial mix do in the quarter? And then also curious on the Medicare Advantage side, can you speak a little bit about what the growth in share was as well? Joel Ackerman: Yes. Thanks, Dillon, for the question. The answer is pretty much the same on both. They were pretty flat relative to last quarter. Operator: Next question is from A.J. Rice from UBS. Albert Rice: Maybe just to ask on a couple of items that are mentioned in the press release, whether there's anything significant to call out. You talk about a decrease year-to-year in health benefit expense, pharmaceutical cost, and then on the G&A line, professional fees, was the -- was that sort of as expected? Or was there anything unusually positive that happened there? Just asking. Joel Ackerman: Yes, A.J., it was as expected. We'll often see the decline sequentially from Q4 to Q1, especially in health benefits. So nothing unusual there. Albert Rice: Okay. And then I appreciate the comments about the technology investments and some of the use cases you're looking at. Is there any way realizing even if you get savings, you may choose to reinvest it in other ways. But is there any way to sort of size some of the opportunities you see? And are those being reflected now in operating results? Or what is your thought about how long it may take for the sum of this to impact operating performance? Javier Rodriguez: Yes. I appreciate the question. I think the way we look at it is the long-term view that we, again, are trying to ensure that we are putting our clinicians in the best position and that we're making the trade-off on efficiency for the long term to make sure that we sustain 3% to 7% OI growth over time. And so as you know, right now, technology is moving at a very quick pace. And some of these will be a lot of user experience, i.e., we're just enhancing the experience. And some of these will be helpful toward the bottom line. And it's a little early, and I don't think we want to get into the timing of it, but rather the sustainability and the outperformance of it. Operator: Our next caller is Ryan Langston with TD Cowen. Ryan Langston: Nice to see the operating income guide up, EPS guide up as well. I noticed the free cash flow guide did not change. I think this was a similar dynamic last year. Just wanted to confirm that's normal course and nothing specific to read into? Joel Ackerman: Yes. Ryan, you're thinking about it the right way. There's just more variability in a wider range with free cash flow, so we didn't move the number despite the increase in OI. Ryan Langston: Okay. And then this administration is really focused on fraud, waste and abuse. It seems to me dialysis might be a little better insulated versus other types of providers. Just any general thoughts on this administration's focus on that FWA and what this could mean potentially for DaVita or maybe not mean for DaVita or even just more broadly for dialysis in general? Javier Rodriguez: Yes. Thanks for the question. It's tough for us to comment on the broader environment. But what I can say is we take compliance incredibly seriously. And number two, what we do have a little help in is that dialysis is not a controversial diagnosis. So there's not like, "Oh, should I go get this treatment or not" controversy, so that makes it easier. And then the fact that it is a bundle in a single DRG, in essence, simplifies some of the compliance issues. But again, we are internally focused on making sure we do right by the government. Operator: At this time, I'm showing no further questions. Speakers, I'll turn the call back over to you for closing comments. Javier Rodriguez: Okay. Thank you, Michelle, and thank you all for joining the call today. I would wrap up with 3 takeaways. First, our most recent clinical initiatives are beginning to gain traction, and we're seeing early signs of the benefits for our patients. Second, our business is performing well as we continue to achieve our clinical goals. This drives our strong financial results. And finally, we maintain a long-term view on our business, and we'll continue to invest in our future. Thank you all for joining this quarter. Be well, and we look forward to seeing you next time. Happy Cinco de Mayo, everyone. Operator: Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.
William Lundin: Okay. So welcome, everybody, to IPC's 2026 First Quarter Results Update Presentation. I'm William Lundin, the President and CEO. I'm joined today by Christophe Nerguararian, our CFO; as well as Rebecca Gordon, our SVP of Corporate Planning and Investor Relations. So I'll start with the highlights and give an operational update, then Christophe will touch on the financial highlights for the quarter. Following the presentation, we'll take questions, which can be submitted through conference call or via the web online. Jumping into the highlights. We're very pleased to report another solid quarter of operational performance. Production for Q1 was at the top end of the quarterly forecast at 43,000 barrels of oil equivalent per day, and we're retaining our full year production guidance range of 44,000 to 47,000 boes per day. We had good cost discipline with Q1 operating expenditure coming in at sub USD 18 per barrel of oil equivalent, and we are maintaining guidance for OpEx at USD 18 to USD 20 per barrel. Entering 2026, we set a lean work program and budget as we were assuming a base case price estimate of $65 per barrel Brent. And in response to the improved pricing environment, we're taking advantage of our operatorship and increasing our capital program from USD 122 million to USD 163 million, predominantly to accommodate short-cycle investments across some of our producing assets. The Q1 capital spend was USD 71 million. Operating cash flow generation for Q1 was $68 million, and we revised our full year OCF guidance to USD 220 million to USD 340 million assuming $70 to $90 per barrel Brent for the remainder of 2026. Free cash flow was minus USD 17 million. And we are entering really an inflection point here for the company and there shouldn't be too many more quarters of negative free cash flow going forward with Blackrod first oil expected in the near horizon. Full year free cash flow is expected to be between 0 to USD 120 million positive between $70 to $90 Brent for the rest of 2026. Net debt stands at $513 million, and we expanded our Canadian credit facility during the quarter to USD 250 million. We also extended the maturity of that to 2028. So that gives us an increased headroom and overall flexibility. Our benchmark hedges for WTI and Brent for approximately 40% of our production exposure rolls off in June, leaving us fully exposed to benchmark oil prices from July onwards. We have some WTI/WCS differential hedges and transport/quality-related hedges tied to our Canadian heavy oil exposure as well at attractive levels and some natural gas hedges in place that are currently in the money as well. No material incidents took place during the quarter, we're very pleased to report on. So on to the following slide. As shown on the production graph on Slide 3 here, IPC delivered flat production, really at the high end of our guidance in the first quarter, with overall strong performance across all the assets in the portfolio. So I'll touch on more detail on each of the assets' performance later on in the presentation. Moving on, we're very strongly positioned to deliver within our CMD production forecast range of 44,000 to 47,000 barrels of oil equivalent per day. Drawing your eyes to the bottom of the production chart on this slide. 2026 is really a story of two tales here with forecast production volumes expected to rise materially at the back end of the year with Blackrod Phase 1 oil production set to come online. In addition to some of the incremental capital adds, fast payback projects we've also added in, this will be contributing more so at the back end of this year for production rates. Our production mix is weighted 60% towards Canadian crude, which is tied to WCS pricing, 10% to Brent-linked production coming from Malaysia and France and the remaining balance of 30% being natural gas from Southern Alberta. And I'd also like to reiterate here that the 44,000 to 47,000 barrels of oil equivalent per day guidance is an annual average, very much an annual average rather than a quarterly average as can be seen on the high and low guidance bands on that bottom left-hand chart. OpEx, so we are maintaining that original Capital Markets Day forecast as we set out in February of $18 to $20 a barrel. First quarter operating cash flow was USD 68 million. The differentials from Brent to WTI, can be seen in the brackets there, was $9 and from WTI to WCS was $14 a barrel. So the Brent to WTI differential was notably high on the back end of the geopolitical conflict in the Middle East, which our Brent-linked production benefits from, of course. Our operating cash flow full year forecast for 2026 is updated to USD 220 million to USD 340 million based on $70 to $90 Brent, and that assumes a $5 differential between Brent and WTI and a $14 differential between WTI and WCS. So a material improvement compared to our CMD forecast and notably more than funding our incremental capital spend program this year with the revised updated operating cash flow generation outlook. Moving on to our CapEx program inclusive of decommissioning, which now stands at a forecast of $163 million. So that's roughly $40 million higher than the original CMD CapEx guidance. The increase is mainly due to accelerated fast payback drilling activity at our Southern Suffield assets in Alberta and in the Paris Basin in France, which I will expand on following asset-specific slides. So we continue to see great progress at Blackrod, and we've updated our 2026 budget outlook for the forecast spend at that asset. Big picture, the multiyear budget for Blackrod Phase 1 growth capital, the first oil is USD 850 million. There has been some minor cost pressure with total costs expected to be approximately USD 857 million, which is less than 1% overall of that original sanction CapEx guidance for the growth capital to first oil. And we're still expecting the project to be delivered in terms of first oil in Q3 of 2026, which is ahead of the original timeline given at the time of sanction back in 2023. Because of this continued acceleration and positive progress, there are some sustaining completion costs as well being pulled forward, which is a positive outcome overall. The free cash flow outlook, we're projecting to generate between 0 to $120 million of positive free cash flow between $70 and $90 Brent for the remainder of 2026. Very exciting to be returning into a positive free cash flow generating position this year with a major boost in free cash flow levels anticipated in 2027 and beyond as Blackrod Phase 1 ramps up and comes onstream. Moving to the share repurchases slide. IPC, of course, has a very strong track record of share repurchases in our brief history as a company. So 77 million shares have been bought back at an average price of SEK 79 or CAD 11 per share, respectively. And that represents around $1.4 billion of value created from the share repurchases when comparing the average share price that those shares were bought back at to our current share price. Notably on the antidilution waterfall, the only time shares were issued in a transaction was for the BlackPearl acquisition back in 2018. All of those shares have been bought back. And our current shares outstanding is just shy of 113 million shares, which is less than the original starting amount of 113.5 million shares. And we've transformed the company to where we are today compared to at inception in 2017. Now we see a 4.5x increase in production levels, 18x increase on our 2P reserves in excess of 20 years, added to our 2P reserve life index in excess of 1 billion barrels of contingent resources, added an overall 4x increase to our NAV compared to that of when the company was formed at the beginning of 2017. So Blackrod. This is a 20-year journey in the making to bring this vision into reality by unlocking a Phase 1 commercial development. I had the privilege of being at site at the end of April. This is a world-class SAGD plant with a best-in-class operational staff. It's a compact site with a small footprint for the CPF and nearby well pad facility tie-ins. This asset is going to propel the company to new levels, and it's been a fantastic journey going from sanction through to development and on to startup now with rotating equipment well in service at this point in time. Original guidance for this project, again, back in 2023 when it was sanctioned, called for first oil in late 2026 and growth capital up into that point of USD 850 million. We achieved first steam ahead of our original forecast, resulting in a schedule improvement which was announced at the beginning of this year, with first oil expected in Q3 2026. So operations continue to progress well, and we're strongly positioned to deliver within this accelerated timeline. Cumulative spend as at the end of Q1 from the beginning of 2023 on the growth capital is USD 842 million with some minor works remaining on the final boiler tie-in as well as well pad facilities as we expect to deliver this project overall in line with the original growth capital guidance to first oil. I really couldn't be more proud of our multidisciplinary IPC teams as well as the vendors utilized in this major undertaking, and we're especially pleased that there has been no material safety incidents under IPC's supervision as prime contractor of the site. Excellent delivery overall and stewardship of this project to date. So Blackrod valuation. Again, this is a true game-changing asset for IPC. We have regulatory approval up to 80,000 barrels of oil per day with over 1.45 billion barrels of recoverable resource. Phase 1 targets 30,000 barrels per day and 311 million barrels of 2P reserves. And the economics as at the beginning of this year, based on our conservative reserve auditor price deck, is USD 1.4 billion of net present value using a 10% discount rate and approximately a $47 WTI breakeven. As you can see on the figure on the right-hand side of the slide, this is a massive uniform sandstone reservoir. It's contiguous and homogeneous, lending to a very much predictable and scalable product potential that's validated through the 15 years that it's been under pilot operation testing. In the lower graph here, the dark wedge on the bar chart reflects what is booked in 2P reserves and carried within our valuation. The light blue component of that bar chart is the contingent resources and represents upside to our business. Moving on to our producing assets. Our current flagship oil-producing asset at Onion Lake Thermal delivered stable production through Q1. We also did some 4D seismic work at the beginning of the year and are reviewing that data to hone in on some additional potential infill targets on existing producing drainage patterns. And also to note on that schematic on the right, H Pad is the next main drainage pattern to be developed in the sequence. Moving on to the Suffield area assets. So very much predictable and low decline production, the Suffield area assets, which delivered around 23,000 barrels of oil equivalent per day through Q1. We're very excited to be redeploying some capital into these assets, where we've sanctioned a 4-well production drilling campaign within the Basal Quartz area, just west of the Suffield block. Production from France and Malaysia for Q1 was in excess of 5,000 barrels of oil per day. We had some incremental activity that's also been sanctioned now in France. We look to drill 3 sidetracks in the FAB field and 1 sidetrack in the Villeperdue field. So very exciting to be drilling again in France. And in Malaysia, we also plan to do an operational activity of workover using a hydraulic workover unit later this year on our A13 well. So with that, I will hand it over to Christophe to go through the financial highlights. Thank you. Christophe Nerguararian: Thank you very much, Will. Good morning, everyone. So indeed, a good quarter with production at the high end of our Q1 guidance at 43,000 barrels of oil equivalent per day. And of course, during this first quarter, when the situation happened between Iran, the U.S. and Israel, the oil prices increased massively from the beginning of March. And so you really have a relatively high average Dated Brent oil price for the whole quarter, in excess of $81 per barrel, but that was really two sides of the story with lower oil prices in January and February and much higher in March. So overall, that really helped generate on that basis strong operating cash flows and EBITDA for the quarter at USD 68 million and USD 64 million. As we guided before and as most of our investors know, the capital expenditure in 2026 was always expected to be much front-loaded, and so you can see a disproportionate portion of the CapEx spent during this quarter translating into a free cash flow of negative USD 17 million. And it depends where oil prices will be on average for Q2, but it's fair to assume that the free cash flow may be negative again in Q2. But from that point onwards, we're expecting to turn the corner and to be again back into free cash flow territory for the second half, depending on where first oil kicks in at Blackrod. So USD 13 million of net profit for this quarter. The net debt increased during this first quarter by USD 30 million. Again, it's fair to assume that this net debt would increase again in the second quarter and from that point on progressively. Depending on where oil prices stand, we should see some deleverage from Q3 or from Q4. But certainly this year, we should start to see some accelerated deleveraging as the Blackrod production ramps up over time. Realized prices, so I mentioned, were strong. And I think it's interesting, a bit sad at the same time, but interesting to see that the physical market is quite dislocated. And so the Dated Brent has been trading at between $5 up to $30 premium on top of the future or the financial Brent, if you wish. And when we lifted our cargo in Malaysia, the last one in March, we had a good premium. And for the future June cargo, which we're going to lift in Malaysia, we can see that the physical market is very tight because the premium we can realize there are very, very high. So you can see we sold in March a cargo in Malaysia at USD 110 per barrel, while on average for the quarter, Dated Brent was USD 81. The Brent-WTI differential widened a bit at $9 and the WTI/WCS differential stood at negative $14 for the quarter. We're continuing in Canada to sell our heavy oil on parity or very close to the WCS. Gas prices were actually okay during this first quarter. But overall, the market again is quite disconnected between the U.S., and the Canadian market has been a new reality for the Canadian gas prices over the last 18 months now for the lack of infrastructure and communicating infrastructure between the Canadian gas pipeline network and the U.S. market. So you can see that we realized CAD 2.5 per Mcf during this first quarter. But the forecast is showing for the summer months lower gas prices, which is still a negative to IPC given that we are producing more gas than we're consuming at Onion Lake or that we will consume in the following quarters at Blackrod. Now the positive in the long run is that because we are consuming gas at Blackrod, it will be a relatively cheap feedstock gas going forward. In terms of financial results, it's interesting to compare '25 and '26. We had during this first quarter '26 similar production and overall revenues between the first quarter '26 and '25. Some of the difference between the 2 quarters in '26 and '25 was coming from the fact that we lost $10 million of hedges -- hedged losses in this first quarter because we had hedged around 40% of our WTI and Brent exposure at between $62 and $68 per barrel. And of course, we've been losing in the month of March mainly. And given that we are still hedged until the end of June at those around 40% level at current prices, we can expect to make a hedging loss of around USD 30 million during the second quarter. But I think it's important to flag as well that beyond the end of June, we no longer have any benchmark hedged. So we are totally exposed to the Brent and the WTI prices going forward into the second half of 2026. Looking at the operating costs. So we were below during this first quarter as a result of strong production level and relatively low electricity and gas prices. We can expect higher operating cost per barrel going into the second quarter with a bit of a slightly lower production in the second quarter. In the third quarter, when we're going to move progressively into commercial production at Blackrod, we're going to register some OpEx which will be a bit higher in the first months of operation. But you can see that as soon as the Blackrod production ramps up in the fourth quarter, the OpEx per barrel will progressively reduce, and we would expect that trend to continue into 2027. You can see the netback on the following graph with gross margin of close to $18 per barrel and operating cash flow at $17.5 and EBITDA at $16.5 per barrel of oil equivalent of netback. Looking at the evolution of our net debt. So we increased our net debt this quarter by USD 30 million given the reasonably high CapEx of $71 million we spent during the year. So we spent more CapEx than the level of operating cash flow. This is going to reverse in Q2 and even more so in the second half of this year. In terms of financial items, it's sort of a steady state now in the second half. Last year when we refinanced our bonds, we had some exceptional and one-off fees that we paid as part of that bond refinancing. From now on, it's going to be much more stable. And just to mention that the foreign exchange loss you can see here of $6.5 million during this quarter is a noncash item. Otherwise, the G&A remains reasonably stable and flat at around USD 4 million per quarter. So looking at the financial results. We generated net revenues of $173 million, netting a cash margin of $68 million and gross profit of USD 37 million, which net of the financial items, tax and tax elements yielded a net profit of USD 13 million for the quarter. The balance sheet has continued to evolve since we sanctioned the Blackrod project. As you expect, our level of cash has reduced and our level of net debt increased over the last 3 years. But again, we are almost touching distance from reversing this trend certainly going into 2027 but as well going into the second half of this year. And I will let Will conclude this presentation. William Lundin: Thank you very much, Christophe. So in summary, very exciting to be ramping up activity really across all regions of operations. Q1 capital came in at USD 71 million and the full year outlook is $163 million now, really leveraging our operatorship and increasing our production exposure to the high commodity pricing environment that we're seeing. We're well positioned to deliver within our production guidance, and our operating costs remain under control. Operating cash flow generation was robust for Q1 at USD 68 million. And the outlook for the full year is $220 million to $340 million. We have in excess of USD 150 million of undrawn liquidity headroom. There are no material environmental or safety incidents that took place in the first quarter. And with that, I'm happy to pass it over to the operator to begin questions, and you can also submit your questions online via the web. Thank you. Operator: [Operator Instructions] We'll now take our first question from Teodor Nilsen of SB1 Markets. Teodor Nilsen: Will and Christophe, first question there is around the small CapEx increase you announced. I just wanted to know what is driven by cost increases and what is driven by higher activity. And second part of that question is related to the activity increase. By how much should we assume that the exit rate production this year increases as a result of the accelerated investments? So that's the first two questions. And third question, that is on share repurchases. You've, of course, been very successful doing that for the past 2 years as you discussed. But you haven't been doing any repurchase. You have not done any material repurchases the past few months. So I just wanted a background for that. Do you think the share price approached a reasonable level? Or are there other reasons for why you have reduced the buybacks? William Lundin: Thanks very much, Teodor, for the questions. I'll head those off. First one being the small CapEx increase. So we had an adjustment of $122 million to $163 million for capital expenditure for 2026. So that $40 million some-odd increase, the lion's share of that is for capital activity in France and Canada. So we're going to be doing 4 sidetracks drilling program in France for approximately $15 million and also in Southern Alberta at our Suffield area assets, more on the more recently acquired in 2023 Core 4 property. We're also going to be drilling 4 wells there. So the total combined amount is around $23 million when you add the France plus the Brooks-related activity that we're undertaking. I also touched on the slight cost increase at Blackrod there as well, which was expanded on throughout the presentation. But really the vast majority of the cost increases are deliberate cost increases here to increase the activity for production contributing projects. And so that production increase for those 2 projects that I had noted, which will be more back-end weighted this year in terms of the production contribution, we expect to see in excess of 1,000 barrels per day on average delivered for 2027 from those 2 programs. So very attractive cost per flowing barrel metrics to undertake those capital activities and really a part of our whole strategy as well over the past couple of years while we've been accommodating the growth capital for Blackrod as well as buying back our shares at very cheap levels. Some of the capital activity that's been ripe and ready to go across our existing producing assets, we've elected to wait until more constructive oil prices present themselves. And here we are now. And that is the reason for why we've kind of prioritized the incremental capital going towards production contributing activity right now as opposed to share buybacks. We do have the flexibility to restart share buybacks, where we have the NCIB activated up until December of this year. We are steadfast on focusing on getting Blackrod on to production here. We continue to monitor market conditions and overall liquidity headroom. Safe to say we are very strongly positioned, and it's something that we're going to continue to monitor as the year progresses here in terms of restarting shareholder returns. Operator: [Operator Instructions] We will now move on to our next question from Mark Wilson of Jefferies. Mark Wilson: Excellent progress as ever and good look with the final steps in Blackrod, obviously. I thought the most interesting area now is the gas side of things in Canada. You mentioned that your hedges are rolling off for WTI. Just remind us where that stands for the gas, particularly as that is looking weaker in terms of infrastructure. And whether you think there's any longer-term impact from the M&A we've seen into Canadian gas, Shell coming in for ARC and further phases of Canada LNG. Just be interested to hear that. Christophe Nerguararian: Yes. Thank you, Mark, and very good questions. So I skipped the table on hedging as Will touched on it already in the opening slide. But you're absolutely right. It was very interesting to see Shell going after ARC, which is a large gas producer, and so this is just speculation at this stage, but probably paves the way or at least increases the chances and the odds that Shell would go and try to expand the LNG facility on the West Coast of Canada, North of Vancouver. And that's a fairly obvious move when you look at the massive arbitrage you can see between local domestic gas prices and international gas prices. So I think the projection in the very short term is to probably still have reasonably low gas prices onshore Western Canada, but the prospects of having more demand from that LNG Canada plant going forward has probably increased over the last few weeks. In terms of hedging, we have 50,000 GJ a day of gas hedged at CAD 2.7 per GJ or CAD 2.8 per McF. So unfortunately, that's probably going to be in the money. And so you know us. We remain very opportunistic. If we see any gas prices hike in the forward curve, you should fairly expect us to seize that kind of opportunities. And so that was your main question, around gas prices. No, you're absolutely right, that in terms of WTI or Brent exposure, the hedges are rolling off at the end of this quarter, at the end of June. And so we'll be fully exposed going forward to what looks to be reasonably constructive oil prices going forward. William Lundin: Sorry, just to add to that in terms of being a great signal in terms of Shell increasing its exposure in Canada just for the upstream overall Canadian landscape there. And now with that acquisition, Shell has secured roughly 3/4 of its feed gas requirements for both Phase 1 and Phase 2 of LNG Canada. So it certainly bodes well and signaling for an FID of Phase 2, but we're still yet to see that for that LNG project on the West Coast of B.C. there. Mark Wilson: Got it. Okay. And is it worth mentioning on the broader Canada side of things, what was it I heard recently, is it a sovereign wealth fund? Or is it an infrastructure fund? And any implications? William Lundin: Yes. That was Mark Carney, and he said a sovereign wealth fund. The extent of the details are yet to be understood in terms of where the funding is going to come from to be able to do that. But that is the headline that Mark Carney announced, was a sovereign wealth fund. Mark Wilson: Okay, okay. And then just one last point. I might have missed it in Teodor's question. But the short cycle in Suffield, that's obviously targeting liquids, I imagine. William Lundin: Yes, oil. Mark Wilson: Okay. Very good. Congratulations again. Looking forward to reading the rest of the news in the year as it ramps up. Christophe Nerguararian: Exactly, thank you. William Lundin: Much appreciate it. Thanks, Mark. Operator: Thank you. We have no further questions in the queue. I'll now hand it over to the company for online questions. Rebecca Gordon: Okay. Thanks, operator. So we've got a couple of questions here. Maybe we can just start with a bit of information on the short cycle, Will. Just a couple of questions on Ferguson and whether we have opportunity there to put some rigs in or maybe look at additional drilling there. William Lundin: Yes, for sure. So Ferguson, there's quite a few opportunities in terms of drilling as well as recompletion, refracking-related activity as well that we are looking into. Some of the activity is likely to be an operating expenditure-related item. So that is something that we do plan to do in terms of a few wells and recompletions on a few wellbores there. So look to see some minor production boost coming from the asset towards the tail end of the year. Rebecca Gordon: Okay. Very good. And then another question here. I mean, obviously, there's a lot of interest on Phase 2. Is there any intention to bring that forward now? Or how are we feeling about the timing given the oil price? William Lundin: Yes. I think the liquidity position as we've stated for quite some time now is going to change quite rapidly as Blackrod Phase 1 sets to come onstream in the back half of this year, and we look to generate significant free cash flow in the year of 2027 even at more modest oil prices. And if these pricing levels are to hold through 2027, it's going to put us in a very, very good place to look to continue pursuing our key capital allocation strategic pillars in terms of organic growth, shareholder returns and also staying opportunistic towards M&A. But for Phase 2 specifically, our future expansion potential at Blackrod behind the scenes is definitely something that's being worked up. But of course, we remain very, very much focused on successfully completing and bringing Phase 1 online from an oil-producing standpoint. Rebecca Gordon: Great. Thanks. And then just a quick question on capital structure, Christophe. Could you explain the increase in the RCF, why you went for that? Christophe Nerguararian: Yes. Well, if you look back at what IPC has been doing as a corporate, we try to raise and improve liquidity when we don't need it. So it's been a constant discussion with our banking partners and banking friends. We enjoy very good support from Canadian banks these days. There was the opportunity to increase the Canadian revolving credit facility from CAD 250 million to USD 250 million, which we just did and extended the maturity up to May 2028 as we do every year. So it's all positive for no other specific purpose than having ample liquidity. Rebecca Gordon: Fantastic. Thanks. Will, just a question on regulatory framework, so in Canada, the U.S. and our other operating jurisdictions. Have we seen any changes post the Iran war in those sort of regulatory frameworks or anticipate anything to come? William Lundin: No, there hasn't been any changes regulatory-wise in the stable jurisdictions where we operate and we have production operations taking place. And specifically in Canada also, they have a sliding framework based on oil prices for the royalties. So no changes expected there or elsewhere within the portfolio at this time. Rebecca Gordon: Okay. Fantastic. And then maybe one final question here. What would be your priority post Blackrod complete in terms of organic growth or shareholder returns or buybacks? William Lundin: Yes. The infamous question, I think. The punch line here is that we have the ability to do it all, and we look to strike the right cadence in terms of pulling forward organic growth and continuing to screen opportunities in the M&A landscape and balancing shareholder returns as well. And so I think we're going to be really strongly positioned to deliver on all three of those fronts. And the main lens, of course, will be to maximize shareholder value in our pursuit of that capital allocation strategy. Rebecca Gordon: Okay. Fantastic. That's what we have time for today. That's all our questions. So I leave it to you to close, Will. William Lundin: Excellent. Thanks very much, Rebecca, and thanks, everyone, for tuning in to our first quarter results update presentation. We're very, very strongly positioned, and It's a super exciting time for the company with the next major catalyst being Blackrod first oil. So that will come in due course very soon here. So thanks, everyone, and take care. Operator: Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to Energy Vault's First Quarter 2026 Earnings Conference Call. . [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Michael Beer, CFO. Thank you, Mr. Beer. You may begin. Michael Beer: Hello, and welcome to Energy Vault's First Quarter 2026 Financial Results Conference Call. As a reminder, Energy Vault's earnings press release and presentation are available now on our investor website, and we will be referring to the presentation during this call. A replay of this call will be available later today on the Investor Relations portion of our website. This call is now being recorded. If you object in any way, please disconnect now. Please note that Energy Vault's earnings release and this call contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are only estimates and may differ materially from the actual future events or results due to a variety of factors. Please refer to our most recent 10-K or 10-Q filing for a list of factors that cause our results to differ from those anticipated in any forward-looking statement. We undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. In addition, please note that we will be presenting and discussing certain non-GAAP financial information. Please refer to the safe harbor disclaimer and non-GAAP financial measures presented in our earnings release for more details, including a reconciliation to comparable GAAP measures. Joining me on this call today is Robert Piconi, our Chairman and Chief Executive Officer. At this time, I'd like to hand the call over to Robert. Robert Piconi: Michael, thank you, and I'd like to welcome everybody. Good afternoon, evening and morning. I want to call out upfront as well the investor presentation that hopefully all of you by standard course, download. It is on the website and it would be great if you are listening in here to download that. I will be referring to some of the charts in that deck, in particular, Pages 4 through 9. Very interestingly, hopefully, as you've noticed, we are providing even more transparency with some of the data, in particular, as we have made this transition now to an integrated storage IPP, and we'll be providing some more details in and around backlog, for example, and even looking at our comparable companies in what we're considering as a new peer set as we've made this transition. If you've seen the results by now, hopefully, you'll agree that this is a very strong validation of our shift into an energy infrastructure platform provider, more than doubling our megawatt capacity under management from last quarter to over 1 gigawatt. The new project acquisitions that make that up as designed will ensure long-term high-margin and recurring revenue streams as reflected in the strong contract backlog growth that as you see, is over $1.3 billion, made up primarily of our own and operate projects now, projects that are prefunded to our existing Asset Vault platform. We also see strong near-term demand growth for our AI compute infrastructure solutions, integrating storage, generation and under our unified software control. That strong historical execution capability, and I know I've talked about that a few times here, in particular in the last year, as we delivered revenue and in particular, in Q4, delivering over $150 million, we have earned this right with our customers, and that's enabling interim revenue upside potential while our larger scale own and operate projects are being constructed and coming online in the coming 12 months, 24 months and 36 months. With the move squarely now into the IPP and digital infrastructure company peer groups as reflected by our current contracted backlog, and you can refer to Page 9 as we look at this, we do believe a re-rating here is going to help the valuation and the related upside to our current trading. Over the past 12 months, we have transitioned from a project-based provider into a fully integrated power and AI infrastructure platform. And as we can see by the results in the execution and scaling of our own and operate model, the quarter demonstrates that acceleration. This is no longer a forward-looking transition. It is now visible across our backlog, our asset base and our financial performance. In particular, it will, as it did last year as we get into the latter half of the year as revenue again scales. We're providing an integrated energy and power infrastructure platform that's bringing together, as a reminder, not only energy storage, but also now generation components and as always, our intelligent software platform that from design, from the inception was designed to handle any generation tech, whether that be gas or renewable as well as any and all storage technologies to solve one of the most pressing challenges in the global economy today, and that's delivering reliable power quickly and at scale. We integrate these capabilities and capital structures to build, own and operate and in particular, as a vertically integrated IPP. What that means is we can be faster, we can be more cost effective as our gross margins are showing and demonstrating at about 2x the market. And that comes from less friction and less friction in terms of cost and time. And at the end, delivers higher quality. We're achieving over 99% uptime across every one of our storage projects that are operating today. And we do this now and are solving what is the primary constraint across global markets, and that is access to power. The most important takeaway perhaps this quarter is we're accelerating that execution now of our own and operate model. You can see that in three areas as well as any other details that we're going to be providing on the call, but our portfolio now exceeds 1 gigawatt of assets under control that's contracted, under construction or already operating. Our backlog has grown to over $1.35 billion and over 80% of that, as you'll see, is tied to owned assets now, which is a shift if we go back just a short 4 quarters to 5 quarters. And we now have visibility to over $180 million in recurring EBITDA run rate, which is ahead of our plan, also reflecting the inclusion now of Powered Land and Powered Shell opportunities where we are owning assets and providing power. This has obviously reflected a shift from a more episodic project revenue to predictable long-term infrastructure cash flows. And importantly, we are executing ahead of that plan, as I've just mentioned, and a lot of that's due to some of the dynamics we're seeing now in the AI infrastructure compute space. If you look at Page 4, which we provided, which looks back from our Q4 2024 actual, looks at our revenue and our backlog and shows what that looked like at the end of 2025. So growing that backlog from about $400 million to $1.3 billion today. As well, it looks at our gross margin, which has improved from 13.5% just 6 quarters ago to almost 24% at the end of '25 and projecting close to 25% for this year. I would say that if you look at the backward-looking view, we have executed now the strategy and are now, if you look at our backlog at 80% owned and operate, we're there. At the same time, as highlighted, therefore, in the press release, we've got some -- and if you turn to Slide 5, we delivered broad-based triple-digit growth across most all key metrics. Revenue up over 150% year-over-year. Backlog more than doubled 108% adjusted gross profit up 25%, cash up 148%, reaching $117 million. And our megawatts, very importantly, under our control, up almost 5x year-over-year and already more than doubled to 140% sequentially. Every core metric, all of these capacity backlog revenue and our liquidity is fulfilling what we've outlined and what we demonstrated with our strategic shift from 2 years ago. If you look at Slide 6, we've added this look at our backlog to take a look at where we've transitioned in just the last six quarters. What you see is a shift from what has historically been our energy storage EPC revenue, looking at our current backlog at $1.35 billion to where it's primarily the long-term own and operate revenue streams. And importantly, the gross margins associated with that backlog will be fundamentally shifting as we build these projects and bring them online over the next 12 months, 24 months and 36 months, those margins shifting from the 20% to 25% range up to the 60% to 80% range for IPP level margins. A lot of the growth that we're seeing both in terms of the initial megawatts we've been adding, but as well as what will be added more in the future is related to the AI data center space as well that's powering a lot of the infrastructure investments, in particular, in the U.S. Power availability is now the gating factor for expansion. We've added 100 megawatts of Powered Land and Powered Shell just this quarter. That alone is going to be expected to generate $65 million in recurring EBITDA in the next 12 months to 18 months that, that comes online. Beyond the primary power capacity, we're addressing resilience needs through energy storage systems that we deliver and operate. And if you go to Page 7, just a reminder of that unit economics growth that I just described from that backlog, you can see how that works relative to our core stand-alone storage there at the bottom of the metric and then moving up to our Powered Land and Powered Shell as well as the geographic expansion. And the addition of the Powered Land and Powered Shell for AI is what's helping drive our acceleration. Very importantly, I think as you move to Page 8 as well, you can see that we're expanding where we're going to be going, not only as we look at this quarter, you see expanded from 440 megawatts to over 1 gigawatt, as I mentioned previously. But looking out over the years, we're also increasing where we're going and what we're going to have under management by 2030, reaching almost 4 gigawatts as we look at today and what we see in our funnels and our development pipeline and what we're executing that's underneath our control already. You can see the EBITDA numbers there in those outer years get very large, and a lot of that work to achieve that is underway now as we're building and constructing these systems, they're going to come online over the next 2 years to 3 years. I want to finish here if you look at Slide 9 and highlights how the market is beginning to reframe Energy Vault, not as a traditional storage company, but as a broader power infrastructure platform. This evolution is critical as we expand into owning and operating integrated energy assets, particularly in support of the AI data center and digital infrastructure. I've mentioned this before, but not all megawatts are valued the same, and hence, our move into the AI digital infrastructure space is accelerating what we're going to be delivering in our initial targets. We're moving into a category that commands structurally higher valuation multiples. The infrastructure platforms with predictable long-duration cash flows and low revenue volatility are valued differently from project-based businesses, and this shift is increasingly reflected in how investors benchmark this sector. Importantly, this repositioning supports a meaningful re-rating opportunity as we execute and continue to execute against our megawatt pipeline and bring assets under ownership control, we unlock the full value of the long-term contracted EBITDA streams. Successful execution of megawatts under control is the bridge to this value realization. I mentioned again that strong historical execution capabilities have earned us this right with our existing customers who want to work with us on new projects, but also enabling this interim revenue upside while our larger scale projects are being constructed and coming online. With this transition, we're firmly into the IPP and digital infrastructure peer groups reflected in our contracted backlog now at about 80%. And we believe this evolution is going to support the re-rating and some meaningful upside to our current trading levels. If you look at that chart, you'll see how we've historically looked at our comp companies in there and looked at the performance, both the year-to-date this year as well as the trailing 12 months. And you can see we've had a very, very strong appreciation of the stock price, if you go back 1 year ago, but also this year now into our current trading. But I think most importantly, if you look at some of the new trading comps in the mid part of the page there and look at the valuation multiples there on the right, you'll see the opportunity that, of course, we've seen and why we made the strategic shift back 2 years ago. To close, before I turn it over to Michael, who's going to get into some of the details of our results for the quarter. We're accelerating the execution of our own and operate strategy. I think this big increase in the uptick in the megawatts under our management is a strong reflection of that. We're also scaling a globally diversified infrastructure platform now over 1 gigawatt. And I think that's important because things regionally can change. We saw that with the tariff environment just 1 year ago. There was a lot of uncertainty, having the exposure to markets like Australia, for example, and our recent acquisition of a large portfolio, 850 megawatts in Japan with 350 megawatts of near-term projects there reflect the fact that we are expanding in the most attractive markets and will give us that global diversity despite the fact that we see tremendous and large opportunity and probably the largest opportunity right here at home in the U.S. Energy Vault today isn't just participating in this transition. We are building the infrastructure backbone that enables it across the energy and power side, AI and the industrial markets. I also want to mention and thank the Energy Vault team for their dedication, their passion, their commitment to executing our strategy here every day. I think the results here are a reflection of this, our reiteration of where we're going to be this year and the guidance we just set 6 weeks ago. We feel very, very good about executing and a lot of upside, we believe, that exists within that guidance range. With that, I'll turn it over to Mike Beer. Michael Beer: Thanks, Rob. As you can see in the financial summary on Slide 18, we delivered Q1 revenue of $21.9 million, representing 156% increase year-over-year, driven by higher energy storage project deliveries and initial contributions from assets within our Asset Vault portfolio. Adjusted gross profit for the quarter was $6.1 million, up 25% year-over-year, with an adjusted gross margin of 27.9%. Adjusted gross profit reflects the removal of Asset Vault operating project-related depreciation and amortization as those projects commenced operations in mid-2025. The prior year gross margin of 57.1% was highly skewed by IP-related revenue. Adjusted EBITDA was negative $13.6 million in the period compared to negative $11.3 million in the prior year period, reflecting continued investments in our own and operate strategy, including development expense and organizational scaling to support long-term growth. Excluding onetime impacts from the extinguishment of debt and stock-based comp, Q1 2026 adjusted net income of negative $20 million compared to negative $11.8 million in the prior year period due to higher D&A and personnel from the new O&O Asset Vault projects and associated project-related financing expense and interest. From a cash position and financing perspective, we ended the quarter with $117.1 million in total cash and cash equivalents, reflecting continued investment in our Asset Vault portfolio alongside strengthening financing activities. As Rob mentioned, during the quarter, we significantly enhanced our balance sheet through the successful completion of $150 million convertible senior notes offering, which was upsized from $125 million. A portion of the proceeds was used to repay $45 million in higher cost debt while also implementing a capped call structure with an implied conversion price of $8.12 per share. In addition, we began monetizing investment tax credits, completing approximately $12 million of net ITC transfers with approximately $40 million in total ITC proceeds expected across all projects placed in service thus far. These actions collectively strengthen our liquidity position and provide the financing flexibility to accelerate execution of our global asset ownership strategy. At the project level, management is in the market for the SOSA and Stoney Creek project financings, which we expect to complete this quarter and in the second half of 2026, respectively. We're also evaluating a number of other financing opportunities, including those in support of our ramp in Japan and surrounding the Powered Land space. Turning to our latest backlog and development pipeline on Slide 17. We exited the quarter with a record backlog of $1.35 billion, representing 108% year-over-year growth with over 80% associated with our own and operate portfolio across the United States and Australia. This backlog provides strong multiyear revenue visibility and reflects continued traction in converting our developed pipeline into contracted projects. From a commercial activity standpoint, we made meaningful progress expanding our global footprint and asset base. One, we advanced our U.S. portfolio with the acquisition of the 175-megawatt 350-megawatt hour McMurtre BESS project in Texas. Two, we announced entry into the Japan market, including the 850-megawatt development portfolio with 350 megawatts in advanced stage projects expected to close this quarter. Three, we have added a number of smaller projects in Switzerland and made headway with the opportunity in the Balkans. And four, we continue scaling our AI power infrastructure platform, including progress on the 75-megawatt Powered Land opportunity where a number of agreements have now been secured. Across our platform, total megawatts under control, in construction or in operation now exceed 1 gigawatt, supporting a growing base of long-term recurring revenue opportunities. From a developed pipeline perspective, which we now view on a megawatt basis versus megawatt hour, we are now actively progressing opportunities valued at $3.5 billion associated with over 3.5 gigawatts. Taken together, our advanced developed pipeline and contracted backlog provides strong visibility into the next phase of growth for the company. As we continue executing our strategy, we are seeing clear validation of our transition towards a vertically integrated build, own and operate model. Our global asset portfolio now exceeds 1 gigawatt and is expected to generate over $180 million in annual recurring EBITDA run rate ahead of prior expectations. And this positions us to deliver increasing levels of predictable, high-quality earnings as assets move into operation. Turning to our business outlook for 2026. We are reaffirming our full year 2026 guidance, including revenue in the range of $225 million to $300 million, with approximately $75 million to $100 million in internal Asset Vault project builds. Gross margin of 15% to 25% and year-end cash in the range of $150 million to $200 million. This outlook reflects continued execution across our backlog, scaling contributions from owned and operated assets and disciplined capital deployment. With that, I'll hand it back over to you, Rob. Robert Piconi: Great, Michael. Thank you. I think with that, we'll turn it over to the operator for any questions. Operator: . [Operator Instructions] The first question comes from the line of Justin Clare with ROTH Capital Partners. Justin Clare: Congrats on the growth in the backlog here. I wanted to just start out on the AI infrastructure here and the 100 megawatts of Powered Shell and Powered Land that you plan to complete over the next 12 months to 18 months. Wondering if you could just share more on the status of those projects. For example, how much of the 100 megawatts is contracted and has offtake versus how much is in negotiation? What's the interconnection status? And then where are you in terms of permitting those projects as well? Robert Piconi: Okay. We have announced 100 megawatts there in Powered Land and Powered Shell. As you know, I think at our last earnings, we mentioned publicly the Southwest utility for the 75 megawatt of Powered Land that also is under a load study for application for 925 additional megawatts for a total of 1 gigawatt. So that's in the phase right now of the first 75 megawatt is already in construction and committed, and it's going to be coming online in January, okay? So as far as the Powered Land goes, from the Powered Shell perspective, we have our already announced agreement with Crusoe that's under now that development, and we have all the sites and all the load ready for that, and that's going to be constructed. And as we said before, that will start to come online in Q4 this year. So that's where we are in as far as the Powered Land and the Powered Shell. And I think most of those and as we look at the opportunities that we're developing is where you're going to expect to see some significant growth. If you look at the -- on -- I think it's Page 8 of the deck, you'll see, in fact, that mix shift. So you'll see the mix of Powered Land and Powered Shell versus our stand-alone storage, you see it increasing significantly there between where we are today in March 2026 up through 2030. So you can see that, that's going to move from roughly about 10% of that megawatt funnel to a little over half of it over the next few years. So I would expect that you'll be seeing and you will -- can expect to be seeing more announcements in that space. Justin Clare: Great. Okay. I appreciate the detail there. And then on the $180 million of recurring EBITDA that is anticipated when you build out the backlog here, wondering what the timing of that is and how that ramps over the next 2 years to 3 years or so? And then wondering on the $180 million, if you could also break down how much of that may be related to BESS projects versus how much is Powered Land and Powered Shell? Michael Beer: Sure. Happy to comment. We previously gave guidance in November of last year around the overall size of the Asset Vault portfolio. And we had initially talked about that being sort of a target of $150 million of recurring EBITDA. We've since announced our entry into Japan. We believe Japan is a 350-megawatt sort of attractive late-stage portfolio. So that would be in addition to that initial guidance. And now we've given more fidelity around what we believe the contribution would be from Powered land and Powered Shell on the order of about $65 million in recurring EBITDA. So if you were to take the $150 million, remove the $65 million from Powered Land and Powered Shell, obviously, the increase beyond that is associated with the Japan portfolio. This is sort of envisioned to be in that sort of, let's call it, circa 2028, early 2029 type time frame. Robert Piconi: Just to add to that, to the -- and there are some good charts we've included in the deck that referenced that, the one on the unit economics. So the reason we're seeing this acceleration as we met almost a year ago, we looked at a lot of the storage, the stand-alone storage IPP. As we've evolved the last 12 months and looked at the AI compute infrastructure space, those deals and those megawatts that we're contracting and owning are delivering anywhere from 5x to 10x the EBITDA contribution per megawatt per year. That's why we're providing some of the breakdown around what that mix shift of these megawatts is going to look like. And as we add more of those, you obviously can expect continual acceleration in terms of hitting and just growing that annualized recurring EBITDA number. And if you look at the chart on Page 8, you'll see where we expect that to go as we've increased that just from the last quarter. Operator: Next question comes from the line of Derek Soderberg with Cantor Fitzgerald. Derek Soderberg: First one on gross margins here. Guidance looks like 15% to 25% for the year. So just kind of thinking about that range, what are some of the variables? Maybe it's battery cell pricing, maybe some project mix. What sort of variables are going to determine where you guys sort of land in that range? And maybe as of today, where do you think you're sort of tracking towards that range, maybe the lower end, the higher end? Maybe talk about that. Michael Beer: Yes. You can see quarter-to-quarter, there can be some different mix components. Even a year ago, we had some significant IP-related contribution. So we had a 57% gross margin. This quarter, on an adjusted basis, it's about 28%. On a GAAP basis, it's about 22% Obviously, we're tracking to be better than the midpoint of guidance. You will have a very back-end loaded sort of revenue year associated with project deliveries, right? So we still are in the EPC business. And so the fourth quarter will be heavily influenced with some of those deliveries. Those deliveries can generally obviously balance out the overall shape of the year and the total gross margin profile. So still we are very confident on the overall range. Obviously, we endeavor to do better than the midpoint, just as we had done last year. Robert Piconi: Derek, the other thing I would just add to that is our new gross margins now and revenue that's going to include the storage IPP is also just from a GAAP perspective, it's going to include the noncash portions of depreciation. That's why we're referring and this will make the comparisons good from last year to this year. our adjusted gross margin, which is really getting at that cash gross margin only without the IPP revenue, so you can really compare apples-to-apples as you look at the EPC revenue. If you do it that way, for example, we're closer to, I think it's 27.8%, 27.9% this quarter. So we intend to focus on execution on managing our supply chain as we've done in the last quarter, we obviously continue to be setting ranges that we know and feel comfortable we can hit and we'll push execution to remain on that upside. Derek Soderberg: Got it. That's helpful. And then as my follow-up, sort of related to the first set of questions. So the first 75 megawatts on the Powered Land piece coming online in January of '27 and then the 25 megs coming online in Q4 of this year. I was wondering if you could sort of maybe provide some detail on how that revenue is going to scale, how the EBITDA is going to scale? Anything around that? And then also just on that opportunity to potentially go up to 1 gig on that sort of higher EBITDA per megawatt opportunity. Can you talk about what sort of milestones you need to hit before that larger opportunity starts to materialize? Robert Piconi: Sure. Let me -- I'll hit both of those, and Michael, you can chime in as well. To the first question on both the 75 megawatt and the 25 -- the 75 megawatt is committed to be online in January, as I mentioned. So that full 75 megawatt will be online. Essentially, the switch is getting put in place. There's some transmission that's being built out. That is already underway. We already have made payments towards that to happen and committed. What you would see on that is an offtake agreement of that 75 megawatt. But once that turns on in January, you can expect that to be fully monetized, meaning we will be in a contract and monetizing that. So we should get almost a full year of EBITDA there of that 75 megawatt, and it's estimated at somewhere in and around $35 million. So that's the $75 million. On the 25, just to be clear, we're going to be starting those deliveries, meaning we're going to start to receive and have those systems come on within Q4. So not all 25 megawatts will be in Q4, but then will -- as we've said, will come in the next 12 months to 18 months. So meaning we'll be beginning to receive and activate the Powered Shells and then be installing those and then the forward quarters from there. So that's helpful. The good news about that is we're going to -- we expect in the next 12 months to 18 months to have that roughly $65 million up and going on an annualized run rate basis. The second part of your question on the 75 going to 1 gigawatt. So there is a study that's already underway that we're engaged with the Southwest utility. that study is looking at the addition of 920 megawatts to that 75. So that would be up to a full gigawatt. Those are large numbers. You can do the math on just what that 75 is, as I said, and scale that. But we do expect somewhere in and around $0.5 million or so per megawatt on that. But that's a study that's going to happen that's happening now. There will be some decisions, I think, made then this year, we expect in the next 3 months to 6 months on also some sizing of what the capacity upgrade will be. And that's essentially going to be all the transmission and high-voltage equipment that will be required to bring that 925 megawatt here to market. And that will be coming in place over the next 24 months, 36 months, 48 months. We are expecting, just to be clear on that, we are expecting to look at doing an interim step with some other generation equipment that we would couple with our storage, for example, to try to bring online something on an interim basis of another 225 megawatts to potentially add to that 75. So this is within this core Powered Land segment. So that would be an interim step to get a solution in place. Obviously, as we've said before, with a hyperscaler that it's in a very attractive location that we'll be sharing more of as we do some formal announcements, namely utility, et cetera, and other things this year. But from a time line perspective, just to summarize, the 75 megawatt in January. Following that within the next 18 months to 24 months, we're looking at another 225 megawatts to bring online on an interim basis until that other 925 megawatt of grid power would come online in the next 36 months plus. Operator: Next question comes from the line of Brian Lee with Goldman Sachs. This is Tyler on for Brian. Tyler Bisset: Just first, I wanted to touch on the margins in terms of the backlog. So what is the time line to reach the 60% to 80% IPP margins as you execute on the backlog? And just to confirm, this would be on an adjusted basis? Michael Beer: Yes. So this is over time, there's obviously two distinct margin profiles for each of the different businesses. The 20% to 25% is akin to the legacy, let's call it, EPC-related business. The transition to the IPP business model, those 60% to 80% IPP margins, you can see that all laid out on, I believe it's Slide 6. Obviously, there's going to be a mix effect that will take place over time, right, as these projects come online. We're not exiting the EPC business. We'll continue to do that, not only for third-party customers, but we self-perform these projects for ourselves, and there's actually a positive working capital function that, that serves. So we'll continue to be in that business. But it will be a blending over time. It won't just be a flip of a switch. Tyler Bisset: Helpful. And then can you provide an update on just your revenue trajectory for the balance of the year? I noticed accounts receivable stepped down in the quarter. So could you see 2Q revenues decreasing quarter-over-quarter? And I guess, how are you thinking about the balance of the year from a revenue standpoint? Michael Beer: We generally don't give sort of quarterly guidance in that respect. But as mentioned, it will be a back-end loaded year. I would use a profile akin to what you had seen last year. Robert Piconi: And as you saw there, just to add to that, we had very strong year-over-year compares just given we are projecting over 30% growth at the midpoint here. So if you look at the trajectory, as Michael said, and look at that framework, we are expecting something similar there. And -- but generally, I think if you look at the year-over-year compares, we're still going to be pretty favorable, I think, as we ramp and scale. Tyler Bisset: Understood. And just one more for me. Can you just provide some more details on the progress on the developed pipeline and backlog? It looks like developed pipeline increased to 3.2 gigawatts from 1.8 gigawatts last quarter, but the value went up to $3.5 billion from three. And then on the backlog, it looks like it remained flat at 3 gigawatt hours, but the value went up slightly. So can you just discuss some of the moving pieces here? Michael Beer: Yes. There's always a bunch of ins and outs, FX, there's a host of things that can sort of move these things at the margin. I think within developed pipeline, interestingly, we're starting to see some real benefits of this integrated model and the fact that sort of one hand washes the other. While we are in both the EPC business and the IPP business, we're now starting to see some opportunities emerge that sort of split the difference or are emerging from both camps. And so the fact that we do have a keen focus on both sides of the business is being very additive in that respect. So we're seeing new projects being added all the time. We also call our developed pipeline to make sure that if things are stale or projects have moved on or for whatever reason. So we try to keep this very current and not make sure it's stale. So I think this does represent the current slate of investments that we have here in the U.S. across multiple sort of industry subsegments. And geographically, we're seeing some other things emerge internationally. Robert Piconi: Then the other perspective I'd share with you here, and this is an important one and it was something that we looked at as we made the decision 2 years ago to focus on owning and operating. So that means we're acquiring megawatts. We're going to be building them, but then the revenue doesn't come during that build, right? So it doesn't come until we actually go COD or we go online with the project. So you would have normally expected if we're really making that shift, you might have expected our revenue, our rev rec actually going down over a period, right, 12 months to 24 months as you make the transition. What we challenged the team with here and what we targeted to do was despite the shift we've made from owning and operating assets where we are not recognizing revenue, even though the activity is much more than even our projected revenue is showing because we have activity that we don't recognize. We are building projects. Energy Vault is building projects for Asset Vault. It is not showing up and recognized revenue. So we have more activity than we've ever had. The challenge was how do we keep revenue growth, meaning recognized revenue going until these new projects come online. And what I feel very good about with the team and the execution is that we were able to still have a year this year in 2026 with strong double-digit revenue growth despite the fact that as you see in the megawatts that are growing to now over 1 gigawatt that we have under our control and management and building out that we are not recognizing revenue on that. Despite that, we're still seeing that revenue growth. And that's -- a lot of that's driven, I think, in the U.S. market, in particular, with what's happening with the AI infrastructure and in particular, these power packages that are getting put together where we're looking at and we are doing and integrating our energy storage with generation, with gas generation, for example, but also with UPS backups that are a part of those and coupled with that gas generation. And then we're integrating that solution across a single pane of glass, meaning a single software platform to bring that all together for a customer. So those are solutions that we actually do sell and turn over. So that is -- allows us to do the revenue recognition in parallel. So this -- the whole AI compute infrastructure and the billions and arguably, you'd say trillions over time that's going to be spent for that, that is enabling us to maintain this revenue growth with that focus on these solutions. And a lot of that has come from customers that know us, they trust us, where we've executed for, they have their systems up and running at 99% plus availability -- so we feel not only good about that in the revenue projections we've done this year for growth, but we do see a lot of upside to the current revenue projections for that growth as well. Operator: Next question comes from the line of Sid Rajeev with Fundamental Research Corp. Siddharth Rajeev: Congratulations on the strong results. How are Calistoga and Cross Trails operations performing given it's been almost 12 months since both started operating? Are revenue and margins there in line with your expectations? Michael Beer: Yes. The Cross Trails project continues to perform well. There hasn't been a change, and we're expecting on the order of circa $10 million in EBITDA on a full year basis. across CRC and Cross Trails. Robert Piconi: Yes. I'd add to that, too, as we all know, I think, in the market, anyone that's in the IPP market, ERCOT obviously is undergoing and has been really the last 12 months, 18 months, really almost the last 2 years, weakness, at least on a cyclical basis versus the prior year. So I think we're seeing that. And the good news about our system there in ERCOT is it's been running at a 99% availability despite that. And obviously, we'll take advantage of opportunities when they come. But it is -- that sort of softness in the ERCOT market has made it a buyer's market when we're looking at acquiring megawatts. So therein lies some opportunity. We've been very, very careful with selecting the best points of interconnect and doing a lot, a lot of diligence there to have the points of interconnect as is the case with McMurtre that we announced that's just north of Dallas there in Texas. So at points where we do believe we can leverage good economics. Siddharth Rajeev: Great. And with the ownership structure of the Japanese initiative, will that be similar to your other assets given you're partnering with the local developer there? Robert Piconi: Yes, we were expecting, and I think we mentioned this in the -- when we made the announcement, the Japanese market is fascinating because if you go back and look at where ERCOT was 4 years to 5 years ago, we see the Japanese market just evolving now in that same type of economic environment and opportunity, therefore, to initially deploy and take advantage of a lot of the frequency and some of the other ancillary services and even the arbitrage opportunity there in Japan. So in terms of structurally, that initial team that we're acquiring that was from an existing large company there. That team is going to be the one that's going to be continuing developing those near-term projects. So of the 850 that are within that portfolio, there's 350 megawatts of near-term projects that, as we said in our announcement, we expect this quarter to close on that 350 megawatt and then get those constructed and get those up and operating. So I think from an overall structure in terms of how we look at debt and equity and financing these, I would say it would be unlike as we're looking at projects in the U.S. and Australia. I think one of the differences there, Michael can comment on this, too, is you have a very favorable interest rate environment, I think, in Japan that is going to be helpful relative to the financing and they're very known project financing models as well. Michael Beer: Yes. It's an existing team that we're effectively acqui-hiring with a very robust portfolio. As we mentioned in some of the prepared remarks, we are going to be going to market from a financing perspective in support of a host of those projects. So -- the fact of the matter is we entered the Australian market just a few short years ago and look at the amount of traction that we've been able to sort of generate there. So we're looking to replicate that in the Japanese market. Siddharth Rajeev: Any comments on the offtake pricing you can get there? Is the ROI, would you say it's comparable to the U.S. or higher? Michael Beer: I don't believe we've given real specifics there. It is an attractive market, but obviously, we feel as if we're early to that market. And obviously, we're putting our money where our mouth is, but we haven't given any of those specifics. Robert Piconi: Or expecting… Michael Beer: I think… Robert Piconi: Yes. Michael Beer: I was just going to add, we're -- I wouldn't think that it's going to be far off from what our expectations are on achieving IRRs sort of low double-digit type of IRRs as we get started there and opportunity for optimization on that. But we're – Robert Piconi: Hence our investment there. It is -- we believe that is today and will continue to be in the coming years, an attractive market. Operator: Next question comes from the line of Noel Parks with Tuohy Brothers. Noel Parks: I had a couple. One thing you were mentioning gas generation a moment ago and sort of in the landscape of potential business out there for your pipeline. I guess I'm wondering maybe what's the main pain point for potential customers? And I guess I'm thinking about whether there's any difference between those where they're looking, say, for new AI-related generation where gas generation is probably going to be at the core of it versus situations more where it's a case of playing catch-up with wind and solar for grid integration. So I guess is one of those a much bigger driver than the other, would you say? Robert Piconi: Yes. No, it's a good question. The reason you're hearing more and more about gas is just two things. Obviously, the power demand is largely outstrips the supply or the ability to deliver it. So that's one. So any of the -- any and all solutions, solar, wind, combined with other types of generation and leveraging, we have obviously abundant natural gas in the U.S. So I think gas is going to play an important component, in particular, over the next 3 years, 5 years plus. But in addition, remember, what's driving this are data centers and the requirements are at five-nines reliability, which is -- if you're thinking about that and thinking what that requires, and it's going to be different regionally. But look at -- if you go back to an event, for example, in Texas, we all remember in the and the cold and the frost and the freeze and that shut down things for a matter of days. With the requirements in SLAs at five-nines reliability and AI compute infrastructure, these are things that, therefore, require not only redundancy, but in some case, there's multiple redundancies. So you can think about having a grid connection, okay, everybody likes that. You can add energy storage to that, which will be good for -- if there's an outage, you can name it for some hours, let's say, and even up to the day. But if you get into a multi-day outage, that's where we're looking at having some type of reciprocating engines or gas, diesel gen, et cetera. So you can actually have a solution that when you put together, for example, grid power plus energy storage plus some gas power backup, you've got something where you can deliver on five-nines. So it's -- hence, that's the numbers. you're seeing in those -- that tremendous amount of CapEx in the data center build-outs. A lot of that CapEx is also essentially guaranteeing that power availability and delivery. Does that make sense? Noel Parks: Yes, absolutely. And you did touch a bit on it already, sort of the comparison of Japan to where ERCOT was a few years ago. But when you announced the Japan acquisition, you sort of stressed the importance of grid stability and load balancing in Japan that they're at that stage now. I just wonder if you could maybe just dig into that a little bit deeper and whether there are similar analogous regions that might be needing to deal with this sooner rather than later? Robert Piconi: Yes. I'd say that the perspectives we've shared from the announcement and what you've just articulated is what we see. And as I mentioned, we're going to see some of the fast frequency response, that load balancing and I think opportunities to capture different types of pricing at different times of day. So I think generally, that dynamic is going to be positive, we believe, for the market. And I think others that have entered there recently are seeing the same thing. As far as other markets that have those same dynamics, there's an important aspect to look at this, and I think Asia-Pac is a great example where there are other markets that may have those same types of environmental factors. But the other thing we look at is scale and priority in terms of the markets we choose and not spreading ourselves too thin. So there would be -- there are, I think, other markets that have those same characteristics and even in some newer European growth markets, for example, that we're seeing. But we're very focused right now, I think, on some of the largest opportunities and focusing our capital investment, our human resource investment in the areas where we see the biggest upside. And a lot of that, by the way, is right here at home in the U.S. Noel Parks: Right. Great. And if I could just run one more by you. I was thinking about the process of project financing over the last couple of years, you've seen this real transition from being able to get it much earlier in the project life cycle. So I'm just wondering, as you're going through your process of negotiating and raising it for your upcoming projects. I'm just wondering, is there considerably less of an education burden that you have to address in terms of your counterparties and their due diligence? Or is it essentially still just everyone needs to go through a pretty similar pattern taking process? Michael Beer: Yes. The market is evolving so quickly, whereas nobody would have even looked at sort of merchant years ago, now that's being sort of incorporated in the models and we were getting very creative in how they structure bridges or construction financing sort of in and around some of the ITCs. The market is evolving very, very quickly. Certainly, here in the U.S., we're also seeing that bleed over into some of the other markets where we're constructing assets such as Australia and what I suspect is likely Japan, but we need to go through that process. The fact of the matter is we've now done this a few times, and we now know what we're looking for as we're evaluating project attractiveness and what can possibly go wrong. So just mitigating risk where possible, bringing partners into the fold earlier in the conversation and trying to build a good, let's call it, feedback loop of existing partners so that we can sort of instant repeat across the entire portfolio and just remove friction where possible. Operator: Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to Robert Piconi for closing comments. Robert Piconi: Great, operator. Thank you. Look, just in closing here, and hopefully, as you've gone through the numbers and go through the charts, again, encourage everyone to download those. We are sharing more and more detail and some transparency on things that tie to the future profitability and growth of this business. I think a lot of the key metrics we share, the growth in the megawatts under management that have more than doubled since just going back since we last spoke, which wasn't that long ago, 6 weeks, 7 weeks ago, getting over that gigawatt -- that first gigawatt that's within our control now to go execute. Those are not small markers. And I think on top of that, then you look at the backlog, which is a different cut, looking at what we've actually contracted -- so just to highlight, 80% now of that backlog that stands today at the $1.3 billion is contracted at much, much higher IPP type of gross margins. Again, that's something that should give investors a lot of comfort relative to the future profitability as we bring those online. But also just operationally, and this, I think, as investors look at teams and companies to invest in and the execution that we've had, if you look at just the last 6 months, 8 months, last year, one of the most challenging years starting off with the tariffs and uncertainty really through the first half of the year into the mid part of the year, yet the team at Energy Vault executed and delivered the only energy storage company to deliver on their original guidance that we set for the year and in a strong way in the quarter, delivering positive adjusted EBITDA even in that last quarter as we delivered. We're expecting to do the same this year and with strong execution, expect to have some continual positive and upside surprises in what we're doing just with the nature of our market penetration, in particular, what's happening here in the U.S. market. So we have a lot underway. As I mentioned in answer to one of the questions here on other regions, other markets, we are staying very, very focused on these three core segments and just the very attractive core markets. And that's the Asia-Pac as far as Australia and Japan go. That's in Europe, we're developing. I think some of the interesting own and operate opportunities there, as we've mentioned before, but in particular, right here at home in the U.S. And it's required us to have a very nimble and diverse and dynamic supply chain given the changes in the rules and FIAC and a lot of the focus on domestic solutions. So that is something our supply chain has been able to be very nimble and deliver as we demonstrated in Q4. But really, as far as where we are at this point with what we have both under contract now and under development that's within our control as well as those opportunities as referenced by one of the questions, we -- our developed pipeline has more than doubled just from the last time we spoke, which was 6 weeks ago. These are really important markers to look at. We've had a very good hit rate in terms of a conversion rate, I'll call it, in terms of taking that developed pipeline and converting that, in particular, those megawatts into things that are within our control, meaning acquiring attractive points of interconnect. These are really the markers that I think investors should be looking at relative to the future with a very proven team that's been able to execute and deliver here for customers at extremely high availability, which is, at the end of the day now, how we're really being judged by our customers is being able to achieve that 99% plus availability that they not only require contractually, but really demand. It is a market requirement now as we look at power solutions. And finally, just again, as I always do, none of this happens by itself or under standard processes and procedures. We have a very nimble and agile and hardworking and do whatever it takes team at Energy Vault. A lot of hours worked to deliver what we deliver day in and day out. I want to thank all the employees that make these results happen that are passionate about delivering for customers, are passionate about maintaining our focus on sustainability as we announced also this past quarter, 2 years in a row now being ranked the #1 energy storage company, #1 energy company in our industry from a sustainability score judged by S&P Global. So true to our mission and the vision we want to achieve as a company, I could not be prouder of the team here at Energy Vault and where we are today. And personally, I have never felt better about where this company is going to go, what we're going to be able to achieve. We do not limit our thinking in terms of where we go, how big the hill is to climb and what it takes to get there. As all of you know, listening in on this call, there's no shortage of capital to put behind strong management teams in a very attractive space with a proven track record of delivery. And I think we hit on all those fronts. With that, operator, I completed the call here. I'll turn it back to you. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Arcus Biosciences, Inc. First Quarter 2026 Business Update and Financial Results. After today's prepared remarks, we will host a question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Holli Kolkey. Holli, please go ahead. Holli Kolkey: Good afternoon, and thank you for joining us on today's conference call to discuss Arcus Biosciences, Inc.'s first quarter 2026 financial results and pipeline update. I would like to remind you that on this call, management will make forward-looking statements, including statements about our development strategies and our expectations regarding the advantages and opportunities afforded by our investigational products, our clinical development milestones and timelines, our projected cash runway, and our financial outlook. All statements other than historical facts reflect the current beliefs and expectations of management and involve risks and uncertainties that may cause our actual results to differ from those expressed. Those risks and uncertainties are described in our most recent quarterly report on Form 10-Q that has been filed with the SEC. For today's call, please refer to our latest corporate presentation posted in the Investors section of our website. This afternoon, you will hear from our CEO, Terry Rosen, Chief Medical Officer, Richard Markus, President, Juan Jaen, and CFO, Robert Goeltz. With that, I would like to turn the call over to Terry. Terry Rosen: Thanks very much, Holli, and thanks, everyone, for joining us this afternoon. We are starting a new era for Arcus Biosciences, Inc., with full ownership of our lead program, casdatafan, our Phase 3 kidney cancer study, PEEK-1, enrolling rapidly, a clear path to win in the frontline, and the next generation of molecules for inflammation and immunology that can be advanced rapidly through development, with strategic optionality imparted by a rich portfolio of wholly owned molecules and programs. We are at an inflection in value creation for patients and shareholders that will continue to accelerate over the next 12 to 18 months. Arcus Biosciences, Inc. has proven to be a highly productive company creating and advancing a steady stream of potential best-in-class molecules for patients with cancer and inflammatory and autoimmune diseases. We believe that discovery is not a commodity, and we have built exceptional small-molecule medicinal chemistry and drug discovery capabilities. Our scientists utilize proven biology to create unmatched medicines designed to raise the standard of care. Since its inception, Arcus Biosciences, Inc. has advanced molecules from program initiation to IND filing in as short as 18 months, and through an accelerated platform and signal-seeking study, moved from proof-of-concept Phase 1 studies to randomized Phase 2 and registrational Phase 3 trials in just a few years. Today, the company is laser focused on cascadifan, which represents a market opportunity of more than $5 billion in kidney cancer alone. I want to stress that cascadifan’s efficacy advantages are underpinned by much better molecular properties and a superior pharmacodynamic profile. This profile reflects the key capabilities in Arcus Biosciences, Inc. that I described earlier. The simple fact is that cascadifan hits its target much harder in a more robust and sustained way than belzutafan, as illustrated on slide 6. This is a point we have emphasized since the data first emerged. These data are clear and they are striking. We believe this fundamental differentiation between cascadifan and belzutafan, and the limitations of belzutafan’s pharmacodynamic profile and durability of effect, are undoubtedly contributors to, if not the principal driver of, the outcome of LITESPARK-012. And the pharmacodynamic advantages of cascadifan will continue to result in improved clinical outcomes across the lines of therapy; I want to emphasize this point. This dramatic difference in profile has been evidenced since late last year. It is not at all opaque. Its manifestations in clinical outcomes are dramatic and are at the core of our differentiation. No results to date are surprising. Our top priorities for 2026 are clear. One, complete enrollment for PEEK-1, our second-line Phase 3 study, and two, initiate a Phase 3 study in the frontline patient population. With the recent outcome of LITESPARK-012, cascadifan has a clear path to consolidate a fragmented frontline setting as the first HIF-2α inhibitor in this setting. Let me spend a moment on why cascadifan is at the center of everything we do. We believe cascadifan can transform the treatment paradigm in clear cell renal cell carcinoma, and our development strategy is designed to generate evidence to secure cascadifan as a backbone therapy so that every patient has the opportunity to benefit from cascadifan across each line of therapy. PEEK-1 represents our fast-to-market strategy. This is designed to build on the clinician enthusiasm we have seen for cascadifan as an investigational agent and to generate the data to support the approval of a foundational treatment for clear cell RCC as rapidly as possible. Enrollment in PEEK-1 is accelerating, and we are on track to complete enrollment by year-end 2026. We are confident that PEEK-1 will establish cascadifan plus cabo as the new standard of care in the IO-experienced setting. The peak sales opportunity for cascadifan in this setting alone is more than $2 billion. At the same time, we are aggressively building a holistic strategy to embed cascadifan across the treatment paradigm. We have been making tremendous progress in the frontline setting with multiple IO combinations now enrolling in ARC-20 and generating data in support of our first-line strategy. These approaches offer the greatest potential for long-term survival for patients. One of our key objectives today is to make very clear our integrated development strategy for cascadifan. It is actually quite straightforward, and here is how we believe things will play out. In the first line, our bedrock therapy will be cascadifan, ipi, and anti-PD-1. We believe that we can drive the approximately 35% share of ipi/nivo to a regimen with greater than 50% of the important first-line market. While the IO regimen of ipi/nivo is the dominant therapy today, there is a segment of physicians that is always going to want to reach for a TKI, particularly for patients with a fast-growing, bulky tumor. Therefore, we will also be developing a cascadifan combination inclusive of a TKI, a TKI with a well-established track record of both efficacy and safety that will allow the patient to have cascadifan plus cabo as a subsequent regimen. Our second-line treatment, now enrolling as the registrational trial PEEK-1, will be cascadifan plus cabo, building on the standard of care in this line, cabozantinib monotherapy. Finally, we will have a third-line-plus regimen, cascadifan with another well-established TKI, and we will be investigating this regimen in both belzutafan-naive and belzutafan-experienced patients. We think this is a very important and, frankly, very cool study. We also plan to explore novel cascadifan combinations in HCC, liver cancer. I would like to emphasize that all of the clinical development plans discussed today are accounted for within our existing budget and have no impact on the guidance and runway that we have provided. We now control, in all respects, our early-stage pipeline, including our CCR6, CD89, and CD40 ligand programs, all of which are expected to report IND candidates in the next 6 to 18 months. So, while we focus our resources—capital, human, and otherwise—on the late-stage development of cascadifan, the follow-on programs in our pipeline are early but also with clear, early, and capital-efficient clinical proof-of-concept opportunity and huge commercial potential. Therefore, we anticipate low spend and short timelines to get to proof of concept that will drive disproportionate value creation. Juan will discuss these programs in more detail later on in this call. If you want to walk away with just one thing from today, it is that Arcus Biosciences, Inc. has complete control of its destiny. The core asset of the company is cascadifan. We have the strategy, data, and resources to transform the treatment of clear cell RCC and create the $5 billion-plus drug. Robert will further elaborate on the enormous commercial opportunity here. We also continue to leverage our demonstrated competitive advantage in small-molecule drug discovery—an increasingly scarce capability—to generate wholly owned and unique development candidates, advancement of which further enhances our strategic optionality. With that, I would like to turn the call over to Richard to discuss our clinical programs. Thanks, Terry. I would like to start with cascadifan. Richard Markus: As Terry described, our development plan is designed to establish cascadifan as a foundational standard of care in clear cell RCC so that all patients have the opportunity to benefit from treatment with a cascadifan-based regimen across multiple lines of therapy. At ASCO GU this year, we presented updated ORR and PFS from our four late-line monotherapy cohorts of ARC-20. As you can see here, the efficacy data continued to improve with longer follow-up at each data presentation. Moving to slide 12, we show the ORRs for the 100 mg QD cohort, which is the dose and formulation being used in our Phase 3 studies; the confirmed ORR increased from 35% at the August data cut to 45%. A 45% ORR in this late-line patient population is rather remarkable. It is twice that observed with belzutafan in LITESPARK-005, or any study in this patient population. Similarly, the confirmed ORR in the pooled analysis improved from 31% to 35%, well above the range of ORRs that have been observed with belzutafan. On slide 13, we show the Kaplan-Meier curve for the 100 mg cohort. As you can see here, the 100 mg cohort shows an impressive median PFS of 15.1 months after 17.9 months of median follow-up. On the next slide, we show the latest Kaplan-Meier curve for the pooled analysis. The median PFS remained at 12.2 months. Overall, we are seeing PFS that is two to three times longer with cascadifan monotherapy than the 5.6 months observed with belzutafan in the same setting. And, as is often discussed, while the median is an important benchmark, it is not the only metric that is important. As you can see here, and perhaps more impressive, is the number of patients still on treatment beyond 18 months and even beyond 24 months. These data clearly support the proposition that cascadifan is the best-in-class HIF-2α inhibitor, and our highest priority now is to maximize the potential of this molecule in ccRCC. Our first registrational trial, which is in the second-line setting, is well underway. Enrollment in the ongoing Phase 3 study, PEEK-1, is accelerating, and we are on track to complete enrollment by year-end. We are confident that PEEK-1 will establish cascadifan plus cabo as the new standard of care in the IO-experienced setting. With a sole primary endpoint of PFS and a 2:1 randomization favoring the experimental arm, and cabo as the control arm, we believe PEEK-1 is optimized for both probability of success and speed to data. I would like to spend some time now on the frontline setting. With the outcome of Merck’s LITESPARK-012 last month, cascadifan has the opportunity to be the first HIF-2α inhibitor option in the frontline setting. Treatment in the frontline is generally bifurcated into IO/IO or a TKI/anti–PD-1 combination. This currently leads to the conceptual trade-off between longer time to response or higher primary progression but with the potential for durable responses and long-term survival with the IO/IO option, or a faster time to response and lower primary progression but with much more treatment-associated toxicity for the TKI/anti–PD-1 options. There is currently no treatment option that has the ability to both rapidly control disease and provide the best chance for long-term survival, while also having a favorable tolerability profile for long-term use. We believe a cascadifan plus IO/IO combination in the frontline setting has the potential to deliver on both of these fronts. We are enrolling several cohorts within the ARC-20 study evaluating cascadifan combinations in the frontline setting. While the data are maturing, primary progressive disease rates have already been shown to be low—just 7%, or 2 out of 30 patients—for the cascadifan plus zimberelimab, our anti–PD-1 cohort. This rate compares favorably to published rates for anti–PD-1 monotherapy or ipi/nivo in the first-line setting, and in fact, it is close to the rate of a TKI-containing regimen but without the need for the TKI. We are also enrolling a cohort evaluating cascadifan plus zimberelimab plus ipi. Emerging data from these cohorts of ARC-20 will inform the first-line registrational strategy, with the goal of finalizing the Phase 3 study protocol and beginning start-up activities by the end of this year. In parallel, we will shortly begin to evaluate additional cascadifan plus TKI–containing regimens in the early- and late-line settings, including in patients with prior belzutafan experience. This effort contemplates the preference and, in fact, the strategic necessity to utilize alternative TKIs as patients advance from one line of therapy to the next. Near-term, we expect to have multiple data readouts for cascadifan in 2026. First, mature ORR data and initial PFS data for approximately 45 patients treated in the ARC-20 cascadifan plus cabo cohort in the IO-experienced setting will be presented at an investor event or at a medical conference, and all patients will have had at least 12 months of follow-up. Second, we will share initial data from the ARC-20 cohorts evaluating cascadifan in early-line settings, including the cohort evaluating cascadifan plus zimberelimab in the first line. We also expect updated data from late-line monotherapy cohorts, including overall survival. Before I hand it over to Juan, I would like to quickly touch on quemliclustat, our small-molecule CD73 inhibitor. CD73 is highly expressed in pancreatic cancer, and high CD73 expression is associated with significantly poor prognosis in several tumor types. In spite of this, as we recently published in Nature Medicine, in our Phase 2 study, patients with higher CD73 or adenosine activity were the ones with longer PFS and OS in response to chemo treatment. Pancreatic cancer is one of the most aggressive cancers, with an average 5-year survival rate of just 13%. In PRISM-1, our Phase 3 study evaluating quemliclustat plus gemcitabine and nab-paclitaxel versus gemcitabine and nab-paclitaxel in the frontline pancreatic setting, we completed enrollment in September 2025. Results from this study are expected in 2027, and if positive, PRISM-1 could represent the first transformative therapy for an all-comer first-line patient population in 30 years. There is no biomarker requirement, and no known resistance mechanism, and data to date have indicated that the regimen was well tolerated. Finally, we recently announced that the Phase 3 STAR-121 study evaluating our anti-TIGIT, domvanalimab, plus zimberelimab and chemotherapy versus pembrolizumab plus chemotherapy as a first-line treatment for metastatic non-small cell lung cancer will be discontinued due to futility. While these are certainly not the results we expected, the study had one important positive outcome. In addition to the assessment of domvanalimab in this trial, STAR-121 also evaluated zimberelimab plus chemo as an exploratory endpoint. Zimberelimab plus chemo performed consistently with respect to overall survival as compared to pembro plus chemo. These data are consistent with what was observed in numerous studies with zimberelimab, and this randomized dataset provides valuable support for the utility of zimberelimab as an anti–PD-1 combination partner for Arcus Biosciences, Inc. and its collaborators. I would now like to turn the call over to Juan to discuss our immunology and inflammation programs. Juan Jaen: Thanks, Richard. Arcus Biosciences, Inc. has an exceptional small-molecule discovery team. That team has demonstrated time and time again the ability to create highly effective drug candidates against difficult targets. We have been utilizing this expertise to create and develop drugs that have the potential to address very large markets in inflammation, allergy, and autoimmune diseases. In-house expertise in immunology has been a core aspect of our discovery group since Arcus Biosciences, Inc.’s founding, having been key to many of our oncology programs. Our team is addressing well understood and validated mechanisms and has implemented a two-pronged strategy in immunology. First, we leverage medicinal chemistry capabilities to design and create small-molecule drugs that regulate key cytokines therapeutically validated by existing biologics. Secondly, we target immune cell types that play key roles in human disease and have been historically understudied, such as mast cells and neutrophils. Our first molecule in the immunology area to enter the clinic will be AB-102, a highly selective, orally bioavailable MRGPRX2 antagonist. In the coming weeks, we will be sharing its preclinical profile in an oral presentation at the Society for Investigative Dermatology. The presentation will highlight the ability of AB-102 to fully block MRGPRX2-dependent activation and degranulation of mast cells. AB-102 inhibits all common human MRGPRX2 variants. We have optimized the potency of AB-102 under physiological conditions, such as in human blood and serum. Due to its potency under these conditions, we believe that AB-102 is a potential best-in-class, once-daily oral treatment for chronic spontaneous urticaria and other atopic conditions such as atopic dermatitis and allergic asthma. It is expected to enter the clinic in 2026, with PK data available shortly thereafter and potential for proof-of-concept data in early 2027. In rapid succession, we have selected an oral, small-molecule TNF inhibitor drug candidate, which is a potential treatment for rheumatoid arthritis, psoriasis, and inflammatory bowel disease, and an orally active, small-molecule CCR6 antagonist candidate as a potential treatment for psoriasis. Both of these molecules are expected to enter the clinic in 2027. We are very excited about the potential for our I&I programs to provide improved options for patients, and we are working to advance these into the clinic as rapidly as possible. I would now like to turn the call over to Robert to discuss the market opportunity for cascadifan and our financial results. Robert Goeltz: Thanks, Juan. Before I get into the quarterly financials, I would like to spend time on the multibillion-dollar market opportunity in RCC for cascadifan. Sales for RCC drugs in just the major markets are anticipated to grow to $13 billion by 2030. Historically, the market has been dominated by two classes of therapy—IO and TKIs. There have been a number of offerings in both classes, which is why the market is fragmented. In contrast, there are only two HIF-2α inhibitors on the horizon, and we believe our data have demonstrated clear advantages over our only competitor. We have a clear path to consolidate the market and entrench cascadifan as the primary backbone therapy. The development plan that Terry and Richard described is designed to accomplish this objective. If we look at the sales for the sole marketed HIF-2α inhibitor, belzutafan, which is currently approved only in late-line clear cell RCC, it is already generating annual run-rate sales of nearly $1 billion—only scratching the surface. With cascadifan, we are also targeting earlier-line settings: the IO-experienced population with PEEK-1 and the IO-naive first-line population with our next pivotal study. These earlier-line settings have larger patient populations and longer durations of therapy, both of which contribute to a much larger market opportunity. Specifically, the PEEK-1 study targets approximately 20 thousand patients in the major markets in the IO-experienced setting. We believe our commercial opportunity here exceeds $2 billion. In the first line, the opportunity is even greater. With the lack of HIF-2α inhibitor competition in the frontline, our goal is to grow the IO/IO share from roughly a third of the market to more than half by adding cascadifan. In fact, our market research indicates that oncologists overwhelmingly prefer the promise of a cascadifan plus IO/IO over a TKI-containing regimen. As Richard mentioned, we also plan to investigate a regimen with IO and TKI in the frontline to address the remainder of the market. We believe the opportunity for cascadifan in the frontline exceeds $4 billion. One point I would really like to emphasize as we think about the commercial opportunity is duration of treatment. We have seen impressive data in late-line monotherapy, with many patients on therapy beyond 18 months. We plan to share updated data later this year. As we think about earlier lines of therapy, we believe there is the potential for meaningful upside resulting from the durability of effect. Conceptually, we think strong HIF-2α inhibition holds the promise of a long-term tail effect. All in, we think cascadifan has a peak sales opportunity of $5 billion to $10 billion. As a reminder, we own all of the commercial rights to cascadifan other than in Japan and certain other Southeast Asian countries held by our partner, Taiho. Now, let us turn to the financials. Arcus Biosciences, Inc. is well positioned to advance its full pipeline with $876 million in cash at the end of the quarter. We have cash runway until at least 2028. We expect to end 2026 with approximately $600 million in cash, indicative of the declining spend we expect over the year. As Terry outlined, Arcus Biosciences, Inc. is entering a new era with more control over our pipeline investments. While we are building a plan to take full advantage of the cascadifan opportunity, we are also sequencing these investments such that any significant growth in overall spend will be largely incurred after a PEEK-1 readout. As a result of the wind-down of domvanalimab, and reduced spend on quemliclustat, together with broader spend management, we expect to significantly reduce our overall R&D spend in 2026 and 2027 compared to 2025. For example, as our late-stage efforts have become focused on cascadifan, we have decreased our headcount by approximately 10%. Let me transition to the financials for the quarter. For our P&L, we recognized GAAP revenue for the first quarter of $17 million. Our revenue continues to be primarily driven by our collaboration agreements. We continue to expect to recognize GAAP revenue of $50 million to $65 million for the full year 2026. Our R&D expenses for the first quarter are stated net of reimbursements and were $122 million and included nonrecurring workforce costs. Our actions to reduce headcount have lowered our ongoing cost structure, which we expect will result in reduced R&D expense in future periods. The discontinuation of STAR-121 and the broader reduction in our domvanalimab-related investment will contribute to a meaningful decrease in R&D expenses as the year goes on. By 2027, we expect more than 80% of our portfolio spend will be directed toward cascadifan development. G&A expenses were $29 million for the first quarter. Total non-cash stock-based compensation was $19 million for the first quarter. For more details regarding our financial results, please refer to our earnings press release from earlier today and our 10-Q. I will now turn it back to Terry. Terry Rosen: Thanks, Robert. That was excellent. Let me close by summarizing the key themes for the remainder of 2026. Cascadifan is our number one priority, and this year will be another transformative year for data and, importantly, development as we advance towards commercialization. We expect multiple data sets—cascadifan plus cabo data, initial first-line data, and overall survival data from late-line monotherapy cohorts—all of which will further reinforce cascadifan’s best-in-class profile and support our registrational strategy. PEEK-1 enrollment continues to accelerate, and we are targeting full enrollment by year-end. All of the clinical development plans for cascadifan that were discussed today are accounted for within our existing budgets and have no impact on our guidance or runway. Beyond cascadifan, our PRISM-1 Phase 3 trial for quemliclustat in pancreatic cancer is fully enrolled and on track for readout in 2027. Juan shared the exciting progress on our I&I portfolio, with AB-102 expected to enter the clinic in the third quarter and our TNF inhibitor and CCR6 antagonist following shortly thereafter. With $876 million in cash and investments, and runway into 2028, we are well positioned to execute on all of these priorities and create significant value for patients and shareholders. We are moving into a new era for Arcus Biosciences, Inc., with full ownership of our lead program, cascadifan, and a clear strategy to win and transform the frontline setting, while rapidly advancing the next generation of wholly owned molecules for inflammation and immunology. We have no doubt that we will be generating disproportionate value for patients and shareholders over the coming 12 to 18 months. Thank you all for joining us. We will now open the call for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Daina Graybosch with Leerink Partners. Daina, your line is now open. Unknown Speaker: David, can you try this today? Daina Graybosch: Specifically on the cascadifan plus TKI frontline combo, we all know Merck failed with that triplet mechanistically with belzutafan/lenvatinib/pembro in LITESPARK-012. We have the press release, but we do not know the detailed data. What could you see in that detailed data that would give you more confidence in cascadifan plus TKI plus IO, and what could you see in the Merck data that would give you less confidence in the TKI combo strategy? Terry Rosen: Thanks, Daina. I think we will see what their data say, but the data that are out there tell us a lot already. If you consider what we discussed at the beginning—that pharmacodynamic difference between cascadifan and belzutafan—not only the depth of response, but particularly the durability, and you think of that as a surrogate for its antitumor activity and a direct measure of its ability to inhibit HIF-2, you can reconcile very easily, even in the absence of the data from the study itself, that if you think about LITESPARK-011 versus LITESPARK-012, the duration of treatment you are talking about—if you think about PFS, roughly for the two different studies—is almost 2x. Belzutafan, as a surrogate for HIF-2 inhibition that directly relates to inhibition of the tumor, is clearly losing that effect with time, and dramatically. On erythropoietin production, on average, you have lost that effect within 9 to 13 weeks. So, in the second-line population, the percentage of time where it is bringing benefit is X, and then in the frontline, it is much less. Then, on top of that, if you think about the regimen, it is a pretty toxic regimen. Even pembro/lenva had about a 37% rate of discontinuation. We know that the triplet was, you know, pretty unfavorable from a patient perspective. So if you think about basically having a diminishing effect of the HIF-2 inhibitor on top of a much longer duration of an arm that has more AEs than the control arm, you are basically paying a price but getting less benefit. It is not surprising that you would end up with a hazard ratio that might not be too favorable. For us, we are going to select a TKI that we think has a very favorable profile relative to the TKIs out there. But the most important feature will be that we have a HIF-2 inhibitor that has its robust effect, and the durability of that effect is essentially the same on day one as it is on day 730. Daina Graybosch: Got it. Thank you very much. Terry Rosen: Thanks, Daina. Operator: Your next question comes from the line of Jonathan Miller with Evercore. Jonathan, your line is now open. Jonathan Miller: Hi, thanks for taking my question, and congrats on all the progress. Looking at a very broad cascadifan development plan with a lot of combinations across first-, second-, and third-line settings, one thing that is notably absent is any approach in the adjuvant setting, which obviously we know Merck is going after. I would love to hear your updated thoughts on adjuvant and why that is missing from the current development plan. And then, related to that, relatively recently you were talking about a more conservative approach to late-stage development for cascadifan—at least with respect to the number of Phase 3 trials you would want to start—and considering partnerships to ameliorate the cost of late-stage development. Obviously, there has been a bit of a shift there. But, Terry and Robert, I heard you say you do not expect to see any impact on runway or the ability to prosecute all these different programs. I would love to get a little bit more granularity on the sequencing that you are talking about and when you would start these TKI-containing and potential novel combo development efforts to enable you to pursue all these different approaches without running up against bandwidth limitations. Thanks. Terry Rosen: Thanks, Jonathan. I will let Robert handle that, and then I may have a few comments to add. Robert Goeltz: In terms of the adjuvant setting, for us, it comes down to two simple things. One is the size of the opportunity, and probably more importantly, the need. When you think about that particular setting, we think that it is around 12 thousand patients or so that get therapy in the adjuvant setting—only the high-risk patients with resection—and their treatment is capped at a year. When you do the math, we think that the opportunity, certainly from a revenue perspective, is smaller than the second line, and probably even smaller than what could be a third-line regimen with an alternate TKI, as we described. The other important part is we have had a chance to talk to physicians after seeing the LITESPARK-012 data, and the bar to add another therapy on top of pembro is considered quite high. In fact, most physicians told us that they would not add belzutafan to the regimen even in light of the LITESPARK-012 data. So we actually think it will be a minority of patients that ultimately will receive belzutafan in that setting. It is prioritization, and frankly, the other settings—first, second, and third line—are higher on the list for us. In terms of the sequencing of the spend, as we highlighted, we have PEEK-1 up and enrolling right now. Our goal is to have the study enrolled by the end of the year. The work towards launching these additional Phase 3 studies would have us in a position to move those studies forward as early as late this year into next year, with, obviously, probably our highest priority being that frontline combination with ipi and anti–PD-1. The other studies will be shortly on the heels. But if you think about the general investment profile for the studies, we will be through the bolus of study start-up for PEEK-1, and the cost profile for PEEK-1 will be starting to decrease as we get into the second half of next year. We think there will be a nice portfolio effect, and when we think about these other studies, the spend really kicks in in late 2027 and into 2028. We see a generally steady spend profile through the PEEK-1 readout as we described. Terry Rosen: And, Jonathan, Robert gave you the line of the spend along with the studies, and I will give you a bit more granularity on how we literally see the trials themselves playing out. The first study, obviously, is PEEK-1—that is enrolling. As Robert said, it will be fully enrolled by the end of this year, and then we will be waiting for readout. We are going full speed ahead and expect that ipi/anti–PD-1/cascadifan, as we have been talking about for some time, will be getting up and going by the end of this year. We will see where the TKI-inclusive regimen comes in. Without getting into all the detail now, we will be sorting through whether there are actually two registrational studies or a three-arm study is also a possibility. Finally, in the later-line study that we talk about, we will start off in ARC-20, and as you know, those are relatively small cohorts that enroll very efficiently. Another important point within those studies—and we will get the answers quickly—is that we will be looking at that combination in the third-line-plus, in belzutafan-naive as well as belzutafan-experienced patients. I think that will establish—something we think we know the answer to—but we will have those data even this year. Jonathan Miller: Excellent. Thank you so much. Terry Rosen: Thanks, Jonathan. Operator: Our next question comes from the line of an analyst. Your line is now open. Operator: Lee? Operator: Line is now open. Analyst: Hey, congrats on the progress. One question on the ARC-20 update, especially from the triplet cohort. It sounds like you are enrolling the combination with zimberelimab plus ipi. Can you clarify if we are going to see the initial data from this cohort this year? And what data points would you want to see to enable a Phase 3 frontline trial? Terry Rosen: Thanks. We do think you will get to see—probably in the fall—the initial data from that ipi/anti–PD-1/cascadifan regimen. We will get a sense of the safety data and the rate of primary progression. While there may be some early ORR data, we do not consider that critical. We are most focused on the safety. We will have an agreement with the FDA as to what safety data package they would want to see to enable us to get that Phase 3 up and going by the end of this year. Because that is the first point, but it is also an important point for that regimen, we will see the rate of primary progression. One thing to recognize about that regimen when we think about triplets, doublets, etc., is we have already talked about the rate of primary progression with cascadifan plus anti–PD-1 alone, and those initial data are quite favorable, where we saw only a 7% rate of primary progression. If you think about what the cascadifan/anti–PD-1/ipi regimen is going to look like, you basically get four cycles of ipi at the outset, of course with cascadifan and anti–PD-1, but then the duration and the bulk of your therapy is going to be anti–PD-1 plus cascadifan. So both the efficacy you are seeing with that as well as the safety of that will certainly impact the bulk of the therapy. We are excited about that regimen. We think we are well on track to be able to start the Phase 3 by the end of this year and have a good safety data package, and we do plan to share that externally this year as well. Analyst: Thank you. Robert Goeltz: Thanks, Lee. Operator: Our next question comes from the line of an analyst with Goldman Sachs. Your line is now open. Analyst: Hey, very helpful to see cascadifan’s development laid out across all the different lines of therapy. A couple of questions from me. Looking at the LITESPARK-012 failure in both triplets and the VOCAF discontinuation by AZ, and then all the frontline therapy—doublets or monotherapy—so far, what is your confidence that a cascadifan triplet of any kind, either with IO/IO or IO/TKI, could be safe enough to succeed in 1L? What do you think is the safety bar for 1L? Do those triplets have to show comparable safety profiles to IO/IO or IO/TKI for them to work? Terry Rosen: We feel very confident, based upon what we already know about our molecules, with triplets—whether it is a triplet inclusive of a TKI or a triplet with ipi and anti–PD-1. Keep in mind, while we have not analyzed in detail—and we will later this year—the zimberelimab (anti–PD-1) plus cascadifan doublet, we have not seen anything untoward with that. We know we can combine with cabo well. We believe that the ipi/nivo regimen has been extraordinarily well worked out in terms of dosing. As I mentioned in my response earlier, you are going to treat with four cycles of ipi; that is well worked out and time-tested. Most importantly, you are only going to be carrying your anti–CTLA-4 dosing for four cycles. We believe we have orthogonal AEs. We have not seen clear combination issues. With cascadifan, you are basically bringing on-target anemia and, more rarely, hypoxia. We are going to pick a good TKI. We know that cascadifan plus anti–PD-1 looks good. We think a reasonable TKI will not bring anything untoward there. Keep in mind, we have not actually seen the Merck data. Their hazard ratio must not have been good. That does not get to an intrinsic inability to have a triplet; it just says when you are bringing belzutafan on top of a pretty rough doublet, and you are treating for a long period of time, and you are undoubtedly introducing some new AEs but not having a robust long-term efficacy effect, you are probably not creating a favorable hazard ratio. We really do not know exactly how that played out, but all the data with our own molecules suggest that cascadifan is a very well tolerated and robust HIF-2 inhibitor with an orthogonal AE profile from anything that we plan to combine it with. We will have those data within the next six months or so. Analyst: Got it. And then a follow-up: Have you seen the efficacy and safety results from that VOLU/cascadifan trial before Astra discontinued it? And would that data be shared with you even if Astra does not plan to share it publicly? Terry Rosen: Thanks. We have not seen anything other than what we said at the outset. Since they did disclose, you can now know that there were nine patients. What we described was that initial safety signal that was very CTLA-4—and more specifically bolurumab—like. When they dosed down bolurumab but kept cascadifan at the same 100 mg dose, we did not see any more of it in those patients, who still continued on. In fact, the interesting thing out of that—as we have commented before—is we did not see any progression. If anything, given that it was nine patients, it is not obvious whether that was even purely bolurumab or not. What is obvious to us, as we were thinking about going forward, is that given the ipi/nivo well worked-out regimen and dose, and the fact that you are only going to be carrying your anti–CTLA-4 dosing for four cycles, it is a clear regimen for us to proceed with, all things considered, rather than running both of those activities for the duration of therapy. Analyst: Got it. Thanks. Terry Rosen: Thanks, Rich, and congrats again. Operator: Our next question comes from the line of Salim Syed with Mizuho. Analyst: This is Mike Linden on for Salim. Thanks for taking our question. Just one from us on cascadifan in frontline again. How are you thinking about patient selection for an ipi/nivo plus cascadifan combination for a Phase 3? Would these be all-comers versus poor, intermediate, favorable risk patients? And has the thinking around patient selection changed post–LITESPARK-012 failure? Thanks. Terry Rosen: Our patient selection strategy has not changed. In fact, we are thinking of all-comers, and we would also be thinking of all-comers insofar as a TKI-inclusive regimen. What we are really trying to address there is that there is clearly—based on our advisory board meetings—a strong preference for a TKI-sparing regimen. That is unequivocal, and that is the bedrock of the frontline. With that said, there is a bit of “tribalism,” as investigators would describe it. Certain investigators are very prone—particularly if there is a bulky, fast-growing tumor, but even otherwise—to want to reach for a TKI. We feel that for that overlap of a particular patient with a particular investigator, there should be a HIF-2 inhibitor–containing regimen. We think we can offer a very good one. We look at both of those to be in all-comer patient populations. The LITESPARK-012 data, for us—until we see something otherwise—simply reflect the durability of effect on HIF-2 inhibition with time, which we know is a dramatic difference between our two molecules. When we look at the choices of what to combine with, keep in mind, we have no commercial predisposition there. Essentially, the world is our oyster. In the frontline, there are a number of TKIs used; there is not one that is particularly dominant. Overall, you have probably 60% of the patients getting a TKI, but they are spread somewhat evenly. We have looked strategically at what is the smartest TKI from a safety standpoint—well used, well tested, approved, understood—that we should combine with in the frontline. We know that we are going to have cabo in the second line. We have done the same thinking about that late-line patient population with what then becomes another TKI that you would use late-line. As I said, the other important thing there is that we are going to look at that combination of cascadifan plus that TKI in belzutafan-experienced patients and establish unequivocally that you get the activity that you want to see in that HIF-2–experienced patient. Analyst: Thank you. Operator: Our next question comes from the line of Jason Zemansky with Bank of America. Jason, your line is now open. Jason Zemansky: Hi, this is Jackie on for Jason. Congrats on the progress, and thanks for taking our question. What do you think is necessary to drive broad uptake of a TKI-free regimen in first-line RCC, given how popular TKIs are overall—especially given their ability to rapidly debulk tumors—or is the goal to compete directly with dual IO therapies? Terry Rosen: We think there is strong receptivity towards this. One of the most important things we have seen to date is that cascadifan as a monotherapy, even in the late line, performs as good or better than a TKI in any line of settings. Even in the late line, cascadifan monotherapy—whether you are looking at ORR or PFS—looks quite good. The thing that is standing out, and the issue identified with belzutafan at the outset, is the rate of primary progression. That raised the question for HIF-2 inhibition: can you compete with TKI in bringing the tumor under control quickly enough that you do not have that high rate of primary progression? We believe that belzutafan was forced in the frontline to combine with a TKI to address a potential high rate of primary progression. We think that despite the fact that HIF-2 inhibition is well tolerated, it can get the tumor under control quite fast. The evidence is in combining with anti–PD-1: in 30 patients, we only saw two primary progressors—7%—very much in line with a TKI. We think there is receptivity to a TKI-sparing regimen, and the key to driving uptake will be to show that our rate of primary progression—and everything that flows from that—looks like a TKI. The last point is that TKIs are a rougher treatment; there is a linkage in people’s minds that associates “rougher” with “bringing the tumor more under control.” Keep in mind that 85% to 90%+ of clear cell RCC has HIF-2 as a key driver. You are hitting the tumor with something that really matters. With a robust inhibitor like cascadifan, you can compete with the efficacy effects of a TKI. Robert Goeltz: Just to add, the reason many clinicians prefer using ipi/nivo is it gives the patient the best chance for long-term survival. The Achilles heel, as Terry described, is the primary progression. If you could blunt that and still give patients the best chance at long-term survival—and we just saw 10-year follow-up data with 40% of patients alive 10 years later—that is a very compelling regimen, we think. Jason Zemansky: Thank you so much for the color. Operator: Our next question comes from the line of Emily Bodnar with H.C. Wainwright. Emily, your line is now open. Emily Bodnar: Hi, thanks for taking the questions. On the LITESPARK-011 data, how are you looking at your upcoming cascadifan plus cabo updated data, and what are you hoping to see to feel confident that you might have a superior profile versus what we saw in the LITESPARK-011 trial? Thank you. Terry Rosen: We already feel that confidence, and we are obviously running the Phase 3 trial. You kind of have to think of things holistically. In the end, what you are going to have is a hazard ratio, and since we are both running versus cabo, those will be directly comparable. While our data, when we share later this year, will still be early, we are going to give Kaplan-Meier curves, landmark PFS, and ORR. People will be able to extrapolate to whatever extent they want, but we will give a very holistic view. Another point we do not want lost is an interesting aspect of the data that will only be emerging as things play out by the time we have some mature data later this year. While from a regulatory standpoint PFS is what matters, we are going to have data from our monotherapy cohorts that are getting mature enough to start to get a sense of whether we bring an OS advantage there—albeit in the late line. The reason that is important is that it may give a good sense that this mechanism can not only drive enhancements in PFS, but also bring enhancements to OS. While that may not be a regulatory requirement, we certainly could see it as an important differentiation that would drive more uptake by a clinician if, in fact, we start to show OS enhancement from HIF-2 inhibition—which we believe there is no reason there should not be. Emily Bodnar: Thank you. Operator: Our last question comes from the line of Yigal Nochomovitz with Citigroup. Yigal, your line is now open. Analyst: Hi, this is Chuan Kim on for Yigal. Congrats on the progress and thanks for taking our question. A question regarding AB-102. While it is still early, is there any color you can provide on the intended proof-of-concept study design—whether you are planning on going into CSU versus AD first? Any color on primary endpoints or level of clinical signals you would need to see to give confidence to advance into a future registrational program? Terry Rosen: Juan, why do you not describe how we see ourselves going from A to B to C in the near term? Juan Jaen: At a very high level, we recognize that while we may have a better molecular profile, we have a little bit of ground to make up relative to the couple of existing clinical players. We have devised a fairly accelerated plan for establishing PK and tolerability in healthy volunteers, followed by a rapid mechanistic confirmation of biological activity, and very quickly progressing into a Phase 2 study in CSU. We think we will, in reasonable time, catch up and hopefully begin to illustrate the better profile of our drug. In parallel, we are thinking about where it might make sense—concurrently with that CSU-type Phase 2 study—to demonstrate the value of an MRGPRX2 inhibitor. Right now, our lead candidate for that additional indication seems to be allergic asthma, but that is still at a very early stage of conceptual framing. Analyst: Thanks. Operator: There are no further questions at this time. This concludes today’s call. Thank you for attending. You may now disconnect. Terry Rosen: Thanks, everybody. Goodbye.
Operator: Good day, ladies and gentlemen, and welcome to the Exelixis, Inc. first quarter 2026 Financial Results Conference Call. My name is Sherry, and I will be your operator for today. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Andrew Peters, Senior Vice President of Strategy and Investor Relations. Please proceed. Andrew Peters: Thank you, Sherry, and thank you all for joining us for the Exelixis, Inc. first quarter 2026 financial results conference call. Joining me on today's call are Michael M. Morrissey, our President and CEO; Christopher J. Senner, our Chief Financial Officer; Dana T. Aftab, our Executive Vice President of Research and Development; and Patrick Joseph Haley, our Executive Vice President, Commercial, who will review our progress for the first quarter 2026 ended 03/31/2026. During the call today, we will refer to financial measures not calculated according to Generally Accepted Accounting Principles; please refer to today's press release, which is posted on our website, for an explanation of our reasons for using such non-GAAP measures as well as tables deriving these measures from our GAAP results. During the course of this presentation, we will be making forward-looking statements regarding future events and the future performance of the company. This includes statements about possible developments regarding discovery, product development, regulatory, commercial, financial, and strategic matters, potential growth opportunities, and government drug pricing policies and initiatives. Actual events or results could, of course, differ materially. We refer you to the documents we file from time to time with the Securities and Exchange Commission which, under the heading Risk Factors, identify important factors that could cause actual results to differ materially from those expressed by the company verbally and in writing today, including, without limitation, risks and uncertainties related to product commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, our dependence on collaboration partners, and the level of costs associated with discovery, product development, business development, and commercialization activities. With that, I will turn the call over to Mike. Michael M. Morrissey: All right. Thank you, Andrew, and thanks everyone for joining us on the call today. Exelixis, Inc. is off to a strong start in 2026, with meaningful progress across our discovery, development, and commercial activities. Our strategy has a singular focus: to build a multi-franchise business in solid tumor oncology focused on GU and GI histologies, based on the depth of the cabozantinib business, the potential breadth of the zanzalintinib opportunity, and the scope of our early-stage pipeline. Key highlights for the quarter include: first, we saw continued strong performance of the cabozantinib business in 2026. CABOMETYX continued to grow in revenue, demand, and market share, as the leading TKI for RCC and the market leader for neuroendocrine tumors in the oral second line plus segment. Importantly, we expedited the buildout of our GI sales team in the first quarter to accelerate the growth of the CABOMETYX NET opportunity before ZANZA could come online for CRC later in 2026. First quarter 2026 U.S. cabo franchise net product revenues grew 8% year-over-year to $555 million compared to the first quarter 2025. Continuing its role as a worldwide leading TKI, global cabo franchise net product revenues generated by Exelixis, Inc. and its partners grew 12.5% year-over-year to $764 million in the first quarter 2026. Chris and PJ will share our financial and commercial highlights in their prepared remarks. Second, ZANZA is in the pole position as our next potential oncology franchise opportunity. The NDA for the ZANZA + atezo combination in third line plus CRC based on the STELLAR-303 data is currently under review and is the top priority for the entire Exelixis, Inc. organization. The ZANZA development program is rapidly advancing with seven ongoing or soon-to-start pivotal trials, along with additional Phase II trials planned in prostate cancer and lung cancer. Dana will review the highlights for ZANZA and our extensive pipeline of early-stage assets in his prepared remarks. Third, the goal of our development effort is to establish ZANZA as the TKI of choice in the 2030s for RCC and other important indications that could surpass the impact of cabo in the 2020s. ZANZA already has a meaningful development footprint in RCC, with three ongoing Phase 3 studies across multiple lines of therapy, underscoring both the breadth of our ambition and the confidence we and others have in this molecule. At the same time, as our experience with COSMIC-313 highlighted, and as was also recently seen with news from competitive trials, navigating the complexities of first-line RCC to improve upon existing regimens is a challenging endeavor at best and requires careful selection of combination partners to improve efficacy parameters while managing tolerability and safety considerations. We remain committed to raising the bar in first-line RCC and continue to prioritize orthogonal MOAs to combine with ZANZA. In parallel, we seek to expand the breadth and depth of our ZANZA pivotal trial efforts, positioning ZANZA for durable leadership in RCC and other important tumor types. Fourth and finally, we remain committed to running the business at the highest level of efficiency as we advance our R&D priorities, and at the same time generate substantial free cash to invest in the pipeline through the right targeted BD at the right price to access external sources of innovation and to continue our share repurchase program, including an additional $750 million that was just authorized by the Exelixis, Inc. Board. See our press release issued an hour ago for our first quarter 2026 financial results and extensive list of key corporate milestones achieved in the quarter. I will now turn the call over to Chris. Christopher J. Senner: Thanks, Mike. For the first quarter 2026, the company reported total revenues of approximately $611 million, which included cabozantinib franchise net product revenues of $555 million. CABOMETYX net product revenues were $552.8 million and included $3.6 million in clinical trial sales. As a continued reminder, clinical trial sales have historically been choppy between quarters and we expect this to continue into the future. Gross-to-net for the cabozantinib franchise in 2026 was 30.2%, which is higher than the gross-to-net we experienced in 2025. This increase in gross-to-net deductions in 2026 is primarily related to higher 340B volume, higher Medicare Part D discounts and rebates, and higher co-pay assistance when compared to the fourth quarter 2025. Our CABOMETYX trade inventory was slightly lower at 2.1 weeks on hand at the end of the first quarter 2026 when compared to the fourth quarter 2025. Total revenues in the first quarter 2026 also include approximately $45.9 million in royalties earned from our partners Ipsen and Takeda on their sales of cabozantinib. Our total operating expenses for the first quarter 2026 were approximately $359 million compared to $363 million in 2025. The sequential decrease in these operating expenses was primarily driven by lower clinical trial costs, offset by higher FTE-related costs and stock-based compensation expense. Provision for income taxes for the first quarter 2026 was approximately $57.2 million compared to a provision for income taxes of approximately $8.2 million for the fourth quarter 2025. This increase in tax provision was related to certain items that were recognized in the fourth quarter 2025. The company reported GAAP net income of approximately $210.5 million, or $0.81 per share basic and $0.79 per share diluted, for the first quarter 2026. The company also reported a non-GAAP net income of approximately $232.8 million, or $0.90 per share basic and $0.87 per share diluted. Non-GAAP net income excludes the impact of approximately $22.3 million in stock-based compensation expense, net of the related income tax effect. Cash and marketable securities for the quarter ended 03/31/2026 were approximately $1.4 billion. During the first quarter 2026, we repurchased approximately $430.8 million of the company's outstanding common stock, resulting in the retirement of approximately 10 million shares of the company's outstanding common stock at an average price per share of $42.99. As of the end of the first quarter 2026, we had $159.4 million remaining under the $750 million stock repurchase plan authorized by the company's board in October 2025. We expect to complete the October 2025 stock repurchase plan this month. Additionally, in May 2026, the company's board authorized a new $50 million stock repurchase plan that expires on 12/31/2027. Finally, we are reiterating our full-year 2026 financial guidance, which is detailed on slide 16 of our earnings presentation. I will now turn the call over to PJ. Patrick Joseph Haley: Thank you, Chris. The CABOMETYX business continued to grow in 2026. The team is executing at an extremely high level, with CABOMETYX continuing to be the number one prescribed TKI in renal cell carcinoma, the number one TKI plus IO combination in first-line RCC, and the number one oral agent in second line plus neuroendocrine tumors. Importantly, Q1 had the highest number of new patient starts in a quarter ever for CABOMETYX, representing strong momentum in the business. At the same time, CABOMETYX plus nivolumab had the highest quarterly first-line RCC market share to date. This is an exciting time for the team with zanzalintinib on the horizon as we prepare to launch our next franchise molecule, which would also expand the Exelixis, Inc. GI franchise. The prescription data in the oral TKI market basket of cabo, lenvatinib, axitinib, sunitinib, and pazopanib convey the strength of cabo relative to the competition. Looking at 2025 to Q1 2026, CABOMETYX grew three share points from 44% to 47%. Additionally, CABOMETYX TRx volume grew 14% in Q1 2026 compared to Q1 2025, outpacing the growth rate of the market basket, which was 7% for the same period. Physicians are responding positively to the broad NET label and the contemporary trial design, and perceive the efficacy and tolerability of cabo as favorable relative to other small molecule therapies in the space. Both academic and community prescribers are using cabo broadly across patient and tumor characteristics, including patients with neuroendocrine tumors arising in the pancreas, GI tract, and lung, across all tumor grades, functional and SSTR status, and those who have received prior treatment with Lutathera. Turning to new patient market share for second line plus neuroendocrine tumors in the first quarter, we are pleased that CABOMETYX remains the market leader in the oral therapy segment. Additionally, our research indicates that there is opportunity to continue to grow market share, particularly in the community. For that reason, we expedited the expansion of our GI sales team in Q1, and the team was in the field providing greater reach into the community in order to continue to grow NET market share for CABOMETYX. Our new representatives joined us with significant oncology sales experience, particularly colorectal cancer and GI oncology. Importantly, the expanded team will be able to gain valuable experience selling cabo before we turn our focus to the potential launch of zanzalintinib in colorectal cancer. If we are thinking about building on and expanding our GI franchise, we are thrilled with the results of STELLAR-303 and the PDUFA date set for later this year. Pending regulatory approval, we believe that these data would provide Exelixis, Inc. with a compelling commercial opportunity in one of the big four tumors. The third line plus CRC setting consists of approximately 23,000 patients in the U.S. and represents an overall market opportunity of approximately $1.5 billion in terms of contemporary pricing. Our market research and advisory boards demonstrate positive feedback and excitement for the STELLAR-303 data. Physicians reiterate the significant unmet medical need for patients in the third line plus CRC setting and are excited for the potential to have an ICI option available for the broader population of CRC patients. In closing, we are pleased with the growth of the cabo business both in RCC and NETs. In neuroendocrine tumors, prescribers see CABOMETYX as a more favorable choice versus other previously approved generic small molecule therapies. Simultaneously, our internal team is in full launch preparation for ZANZA, and the excitement around these efforts is palpable. We look forward to the opportunity to launch the next Exelixis, Inc. franchise later in the year to be able to help appropriate patients with colorectal cancer. Beyond STELLAR-303, we are enthusiastic about the significant development plan for ZANZA, which could position the ZANZA franchise to far exceed cabo in terms of the number of patients that could be impacted across tumor types and settings. With that, I will turn the call over to Dana. Dana T. Aftab: Thanks, PJ. Our strategy in R&D continues to focus on developing ZANZA as a multidimensional solid tumor oncology franchise molecule. As you will hear in my upcoming remarks, we continue to be focused on maximizing our productivity with disciplined investment in high-value opportunities for ZANZA as well as the rest of our portfolio. Today's update provides a little more clarity on the seven ongoing or soon-to-start pivotal studies for ZANZA, so my update today will be focused mostly on those trials, but I will also spend some time on additional exploratory studies that we have designed to investigate ZANZA's potential in certain patients with prostate or lung tumors. Starting with our NDA for ZANZA plus atezo in colorectal cancer, which is based on the results from the STELLAR-303 trial, our team has been highly engaged during the review process, and from our standpoint, the review has been proceeding on schedule toward the PDUFA date in early December. As a quick reminder, the trial has dual primary endpoints designed to assess overall survival both in the broad intention-to-treat, or ITT, population, which includes patients both with and without liver metastases, as well as more specifically in the population of patients without liver metastases, which we refer to as the NLM patients or population. The study met one of its dual primary endpoints, demonstrating a 20% reduction in the risk of death with the combination in the broad ITT population at final analysis, while data pertaining to the other dual primary endpoint of overall survival in the NLM population showed a trend in overall survival favoring the combination. The NLM data were immature at the data cutoff, and the trial has been proceeding to the planned final analysis for this endpoint, and we continue to expect to have those top-line results around the middle of this year depending on event rates. The level of excitement here is really high right now about what a potential approval would mean for this large and underserved patient population. As you heard from PJ, our preparations for launch are in full swing. We will be ready to go the moment we receive a positive decision. But as we have discussed since late last year, we believe there is significant additional franchise potential for ZANZA in colorectal cancer in an earlier stage of the disease. To realize that potential, our team has been highly focused on launching the STELLAR-316 trial, which will investigate ZANZA with and without an immune checkpoint inhibitor in patients with resected stage 2 or 3 colorectal cancer who, following definitive therapy, have tested positive for molecular residual disease, or MRD, and have no radiographic evidence of disease. About 20% of patients are MRD positive following definitive therapy, and these patients typically have a poor prognosis, with median disease-free survival times in the six- to eight-month time frame. Critically, these patients have no therapeutic options that have been shown in a Phase 3 trial to prevent or delay metastatic progression of their disease, so this represents a significant opportunity in the colorectal cancer landscape. As we have communicated in the past, MRD in STELLAR-316 will be determined with the Signatera circulating tumor DNA test, with Natera as our diagnostic partner. Their database, built from testing thousands of patients each year, has been incredibly helpful to us in terms of prioritizing activation of clinical trial sites that are already known to have the highest cadence of testing and the highest numbers of eligible patients. We are quite pleased with the level of enthusiastic feedback on STELLAR-316 that we have gotten from key opinion leaders and other stakeholders, and we are on track for initiating the trial around midyear. Moving on to kidney cancer, ZANZA's target profile, including the TAM kinases, MET, and VEGF receptors, positions ZANZA for success given the known roles played by these kinases in kidney tumors. STELLAR-304 is our first pivotal trial for ZANZA in kidney cancer, evaluating the combination of ZANZA plus nivolumab versus sunitinib in patients with locally advanced or metastatic non–clear cell renal cell carcinoma. The non–clear cell RCC space is underserved, with no positive readouts from a Phase 3 study specifically focused on these patients, despite them representing approximately a quarter of all RCC cases. If positive, 304 could potentially establish the first standard of care based on a randomized controlled Phase 3 trial for these patients. We completed enrollment last year and, given current event rates, we now expect top-line results from the study in 2026, and, if positive, those results could lead to our second NDA filing for ZANZA. In terms of opportunities in the clear cell RCC space, progress continues with regard to the two pivotal studies that Merck is running in clear cell RCC evaluating ZANZA in combination with belzutafan. LightSpark-033, which compares ZANZA plus belzutafan versus cabo as first-line therapy in patients who received anti–PD-1 or anti–PD-L1 therapy in the adjuvant setting, was initiated last year. In addition, Merck recently initiated LightSpark-034, a global Phase 3 pivotal trial evaluating ZANZA plus belzutafan versus belzutafan plus placebo in second- or third-line patients with advanced RCC who have progressed on or after both anti–PD-1/PD-L1 and VEGFR TKI therapies, in sequence or in combination. We are certainly excited to see these Phase 3 studies in clear cell RCC moving forward, and based on our franchise experience in this indication, we believe there are other important opportunities to explore. As we have mentioned previously, we continue to have discussions with potential collaborators to investigate novel combinations pairing ZANZA with other modalities and orthogonal mechanisms when there is strong scientific rationale for the combination. Given the demonstrated clinical differentiation we have seen with ZANZA and its potential to be the TKI of choice for combinations with immunotherapies and other mechanisms of action, we are looking to advance novel combinations in the future that have significant potential to move the needle for clear cell RCC patients. We hope to give further updates on these activities in the future as we get closer to launching the trial. Moving on now to neuroendocrine tumors, STELLAR-311 is our Phase 3 trial evaluating ZANZA compared to everolimus as an initial oral therapy in patients with pancreatic and extrapancreatic neuroendocrine tumors. That study was initiated last year, and we have been quite pleased by the speed of enrollment in the trial. In fact, we are now far ahead of our initial enrollment projections. The sites and investigators are very enthusiastic about the trial, given their growing experience with cabo in later-line disease and the opportunity presented by STELLAR-311 to improve on the current treatment landscape in earlier lines, which has not seen anything new for over a decade. That enthusiasm appears to be driving the very strong momentum we are seeing in the trial. Another opportunity for ZANZA that we have been discussing since late last year is in meningioma, which is the most common primary central nervous system tumor, accounting for approximately 40% of cases. Most meningiomas are benign, slow-growing neoplasms; however, up to 22% will recur after primary therapy, which consists of surgery and radiation. Importantly, there are no approved systemic therapies for meningioma that is refractory to local therapies, so this represents a very high unmet need in neuro-oncology. Today, we announced that we have now initiated STELLAR-201, our Phase II trial evaluating ZANZA in patients with recurrent meningioma who are no longer responsive to or eligible for local therapies. The primary endpoint of the trial is objective response rate, with secondary efficacy endpoints including duration of response, progression-free survival, and overall survival. The trial will enroll up to 100 patients, and given the extremely high level of interest and enthusiasm for the trial among neuro-oncologists, we anticipate enrollment to be brisk. Pending favorable results and given the absence of any approved systemic therapies in this setting, the STELLAR-201 trial represents an important opportunity for ZANZA to become the first systemic therapy that could improve outcomes for these patients. Today, we also announced two additional studies exploring ZANZA combinations in indications where significant unmet need exists. STELLAR-202 is a planned Phase II trial in squamous non–small cell lung cancer that will explore the addition of ZANZA to pembro in the maintenance phase after induction with pembro plus chemotherapy. Part of the rationale for this trial comes from data we obtained from cabo plus atezo in the CONTACT-01 trial, where the subgroup of non–small cell lung cancer patients with squamous histology appeared to derive substantial benefit from the combination compared to chemotherapy. This is an important opportunity given the relatively short PFS in the maintenance setting and the lack of any new approvals in frontline squamous non–small cell lung cancer since KEYNOTE-407 established the current standard of care with pembro plus chemo. We are also planning an additional expansion cohort in the ongoing STELLAR-2 study to evaluate ZANZA in combination with docetaxel in patients with metastatic castration-resistant prostate cancer who have measurable disease. This is also based on initial observations with cabo, where a small Phase II study showed favorable outcomes when combined with docetaxel in metastatic CRPC patients. This cohort in STELLAR-2 is particularly meaningful because, if ZANZA in combination with chemotherapy is shown to be safe and active, that could open up a number of opportunities across a range of solid tumors where chemo or potentially even ADCs carrying chemo payloads are standard of care. Our teams are super focused on launching these new studies soon, and we expect both to be initiated in the second half of this year. Now shifting to our early clinical pipeline, we have four molecules in this space that are currently in clinical development, namely XL309, XB010, XB628, and XB371, and the Phase 1 studies for these early molecules are progressing well. In terms of earlier-stage development candidates, we are continuing to advance exciting new small molecule and ADC programs, and I look forward to sharing more details as these early pipeline programs advance. Our strategy with the early pipeline is focused on identifying the next potential franchise molecules beyond cabo and ZANZA, so we will continue our approach of getting to go/no-go decisions quickly and efficiently, leveraging our expertise to pick the winners and ultimately maximize impact for patients. With that, I will turn the call back over to Mike. Michael M. Morrissey: All right. Thanks, Dana. I will wrap up here by thanking the entire Exelixis, Inc. team for their outstanding efforts in the first months of 2026. We think 2026 could be a potentially transformational year for the company, and everyone at Exelixis, Inc. is working together to move the needle for cancer patients and continue building value for all our stakeholders. We are focused on growing the cabo business, at the same time advancing ZANZA as our second potential franchise opportunity, all while continuing to investigate our early-stage pipeline. As always, I want to thank everyone at Exelixis, Inc. for their individual and collective efforts, great teamwork, and positive energy as we work every day to exceed expectations on our mission to help cancer patients recover stronger and live longer. We look forward to updating you on our progress in the future. Thank you for your continued support and interest in Exelixis, Inc. We will now open the call for questions. Operator: Thank you. To ask a question, you will need to press 11 on your telephone. To withdraw your question, press 11 again. Due to time restraints, we ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. Our first question will come from the line of Paul Choi with Goldman Sachs. Your line is open. Analyst: Thank you. Good afternoon, and thanks for taking the question. My question is for Dana. In light of the recent miss from the LightSpark-012 study, can you comment on your updated thoughts or learnings from that trial for your belzutafan plus ZANZA combination development program, specifically LightSpark-033 and -034? Any learnings or potential trial considerations that you have had in the wake of that data? Thank you very much. Dana T. Aftab: Sure. Thanks for the question, Paul. First of all, our strategy with ZANZA is to really focus on creating the next franchise molecule in RCC and the top TKI combination therapy in clear cell RCC in the 2030s. The results from LightSpark-012, which evaluated the triplet of pembro + lenva + belzutafan versus pembro + lenva, highlight that triplet therapy in clear cell renal cell carcinoma is not an easy game. Our strategy is focused on trying to establish a standard of care that covers multiple possible outcomes based on trials that are going on now. We have multiple shots on goal with LightSpark-033 and -034, and we have the STELLAR-304 data coming in non–clear cell carcinoma. As I mentioned earlier, we are evaluating a number of other potential novel and innovative combinations to further explore the clear cell RCC space, including molecules from our own early pipeline. If XB628, which is our novel and innovative bispecific with multiple IO arms on it, pans out, that could be a very interesting combination to explore in these patients. We have multiple shots on goal to really establish and drive the ZANZA franchise into clear cell RCC in the future, focused on the 2030s. Operator: One moment for our next question. That will come from the line of Yaron Werber with TD Cowen. Your line is open. Analyst: Hi, team. Congrats on the quarter, and thanks so much for the question. Two quick questions: first, could you please provide some color on the contribution in renal cell carcinoma versus NET for cabo? And second, I recall that cabo failed as a monotherapy in advanced unselected non–small cell lung cancer and also on OS in Phase 3 for pancreatic, even though it showed a response and PFS. You touched on some of the combo regimens that are showing early data, but could you expand on the rationale for testing combo therapies in STELLAR-202 and STELLAR-2? Michael M. Morrissey: I think you were talking about prostate cancer as well. Dana, why do you not take that second question first—going into Phase II in non–small cell and then prostate cancer? Dana T. Aftab: Sure. As I mentioned, data that support our hypothesis for testing zanzalintinib in patients with non–small cell lung cancer come from the CONTACT-01 study, the Phase 3 study evaluating cabozantinib plus atezolizumab versus docetaxel in a broad population of non–small cell lung cancer patients. In that study, the subpopulation of patients with squamous histology actually did quite well and appeared to have a favorable benefit compared to the control arm. For that reason, the STELLAR-202 trial is focused 100% on the squamous patient population. The current standard of care is platinum-based chemotherapy plus pembrolizumab during induction, then pembrolizumab maintenance. We are looking to add zanzalintinib onto the maintenance arm of pembrolizumab. We have already shown that ZANZA can sensitize patients to benefit with IO in the STELLAR-303 trial, a population of colorectal cancer patients historically refractory to IO, so we think this is a very rational exploration. In prostate cancer, there was a small Phase 1 study combining cabozantinib with docetaxel that showed favorable outcomes in metastatic CRPC patients. Based on those results, we believe there is rationale to pursue that combination in the Phase 1 STELLAR-2 trial. Once we get data showing safety and potentially activity, that opens up a lot of avenues of exploration, including in castration-resistant prostate cancer, potentially in lung cancer, and potentially in other indications where chemo or chemo-based therapies, including ADCs, are standard of care. Operator: Thank you. One moment for our next question. That will come from the line of Sudan Loganathan with Stephens. Your line is open. Analyst: Hi, thank you for taking my question. First, could you comment on the quantifiable metrics regarding cabo sales in NETs and how the sales team has grown over this time and how it will continue to? Second, on ZANZA ahead of the CRC launch, what are some quantifiable metrics we can keep in mind ahead of the potential launch toward the end of this year? Thanks. Patrick Joseph Haley: Great, thanks. With regards to NET, we are really pleased with how the business is going. As I mentioned, overall in the first quarter we had our highest new patient starts ever for CABOMETYX in a quarter, which is a really strong sign of the health of the business. As those new patient starts translate to refills going forward, it puts us in a really good position. Our business in NET is broad, across all segments, and is viewed very favorably by physicians. Importantly, we are the market leader in the second line plus oral segment, and our research and feedback indicate that we have opportunity to continue to grow, particularly in the community setting. That is why we expedited the buildout of our GI sales force to have deeper reach into the community and drive further business there. We brought in a very strong team with GI and CRC experience in sales, and we are already seeing impact from that team. Importantly, the team gets to know the customers in the GI segment and gains experience selling cabo and a TKI, which is fantastic as we look forward to the potential approval of ZANZA in CRC. Our launch preparation is in full swing, and the team is focused on optimizing that launch and helping patients with CRC. This is a big and exciting opportunity for us in one of the big four tumors. The third line plus CRC setting is approximately 23,000 patients and, at contemporary pricing, a $1.5 billion opportunity. We are thinking about ZANZA as a franchise: the initial launch will be important, but we are focused on expanding the CRC franchise with an earlier study such as STELLAR-316 and building it out in RCC, and potentially in lung, meningioma, etc., with many exciting opportunities. Operator: One moment for our next question. That will come from the line of Sean Laaman with Morgan Stanley. Your line is open. Analyst: Hi, good afternoon. This is Catherine on for Sean. We just had one on the updated STELLAR-304 data readout timing. Could you provide a bit more color on whether the slower event accrual reflects better-than-expected disease control within a mix of the enrolled histologies, or other trial dynamics? As a quick follow-up, given that the population is highly heterogeneous, how are you defining success across histologies, and are there specific subtypes where you believe the rationale is strongest? Dana T. Aftab: Thanks for the question, Catherine. Regarding 304, this is our Phase 3 study comparing zanzalintinib combined with nivolumab versus sunitinib, and it is the first Phase 3 trial to address this high unmet-need patient population. Currently, there is no level one evidence supporting a standard of care in these patients, so we see a huge opportunity for ZANZA plus nivo. Regarding the slight change in timing for events, I do not want to speculate on what is driving that. We are in the late stages of collecting events and expect results in the second half of the year. Operator: One moment for our next question. That will come from the line of Andy with William Blair. Your line is open. Analyst: Thanks for taking our question. Talking about the 316 a little bit: there was an AdCom recently discussing a progression definition based on non-radiographic progression. For the adjuvant CRC study, what was the back-and-forth with the FDA agreeing on MRD positivity as a way to change therapy? How did you conclude this is a regulatory-approvable approach? Dana T. Aftab: Thanks for the question, Andy. We have discussed the STELLAR-316 trial since December. We are super excited because it addresses a high unmet-need population: patients with resected stage 2 or 3 colorectal cancer who have completed definitive therapy and are now in a watch-and-wait game to see if they develop late-stage disease. The Signatera test has shown in a number of studies to, with a high degree of accuracy, predict rapid progression. Patients who are positive for the test typically have a median disease-free survival of around six months, so it is a very high unmet-need population. The trial has been well designed with a large degree of input from key opinion leaders, other stakeholders, as well as the agency. We are very confident in our design and will release more details as we get closer to launch and when it is posted to clinicaltrials.gov. Please stay tuned for more information. Operator: One moment for our next question. That will come from the line of Michael Schmidt with Guggenheim. Your line is open. Analyst: Hey, thanks for taking my question. On RCC, I want to understand the size of the opportunity for LightSpark-033. What percentage of patients would be qualified? Beyond 033 and 034, are there any other studies you are considering for RCC specifically with ZANZA? Patrick Joseph Haley: Thanks for the question. With regards to LightSpark-033, we are thinking about RCC broadly and establishing ZANZA as a franchise in RCC and beyond. In the first-line setting, approximately a quarter of patients may be coming off adjuvant therapy, and that can evolve as more patients receive adjuvant therapy. More importantly, we are doing multiple studies—LightSpark-033, -034, and STELLAR-304—drawing off our experience with cabo, where we did multiple studies in RCC to establish ourselves as the leading TKI in the 2020s. We are building toward our vision of establishing ZANZA as a leading TKI of the 2030s. As Mike and Dana mentioned, we are looking at combinations with orthogonal MOAs and different approaches to continue to raise the bar in the first-line setting and in RCC generally. Operator: One moment for our next question. That will come from the line of Sylvan Tuerkcan with Citizens. Your line is open. Analyst: Good afternoon, and thanks for taking my question. More broadly on your strategy around allocation: you are running one of the broadest development strategies for an unapproved drug and even expanded it now. How do you balance that broad strategy with buybacks and potential M&A, which has not happened yet? Christopher J. Senner: Thanks for the question. From a capital allocation perspective, we look at how we allocate capital across R&D, BD opportunities, and share repurchases. We are a financially strong company with significant cash flows. We are prioritizing our R&D spend on a constant basis so we understand which projects are sticking their heads up and saying, “fund us,” and we will continue to do that. Andrew and Stefan and the team are continuing to look at BD opportunities. We also have access to capital. All of that allows us to execute on R&D investments, BD investments, and share buybacks. From a share buyback perspective, we believe Exelixis, Inc. is a great opportunity, that our opportunity is not being fully appreciated generally, and we think we are undervalued, so we are going to continue to buy back shares. Operator: One moment for our next question. That will come from the line of Jay Gerberry with Bank of America. Your line is open. Analyst: Hey guys, this is Chi on for Jason. On LightSpark-034, can you contextualize the choice of using belzutafan monotherapy as the control arm as opposed to an alternative TKI monotherapy or perhaps even tivozanib plus lenvatinib given the pending sNDA review there? I also noticed that OS is listed as a dual primary endpoint—would PFS alone be sufficient to support approval, or would you need an OS win, based on the recent LightSpark-011 data? Dana T. Aftab: LightSpark-034 is Merck's study evaluating ZANZA plus belzutafan versus belzutafan plus placebo in the second-line-plus setting in patients who have progressed on both an IO-based regimen and a VEGFR TKI regimen, either in sequence or in combination. The dual primary endpoints are two different efficacy endpoints. In clear cell RCC, OS has really become a gold standard. Having two different efficacy endpoints typically requires both to hit, but it depends on the data and timing. Regarding the population and control, this study, as well as many others ongoing now or planned for the future, anticipates multiple potential treatment landscapes. It focuses on patients who are candidates for belzutafan alone or belzutafan in combination with a TKI after having progressed on both a TKI-containing regimen and an IO-containing regimen. That represents an important unmet need when this trial reads out. Operator: One moment for our next question. That will come from the line of Leona Timischev with RBC. Your line is open. Analyst: Thanks for taking my question. Sticking with the franchise approach by 2030 you have been talking about: you mentioned RCC. I wanted to focus on NETs and how you are thinking about the franchise there in the future. You are running 311, but are there any other combinations you are looking at, especially as the treatment landscape evolves with radiopharmaceuticals and ADCs? How are you envisioning building out ZANZA into the 2030s in that setting? Patrick Joseph Haley: Thanks for the question, Leonid. Regarding how we are thinking about 311 in the marketplace, cabo is off to a really strong start in the second line plus setting, and that study is designed to go head-to-head with everolimus as an active comparator, which is a first in the setting. It positions ZANZA in earlier lines of therapy and a larger patient population, with potential to beat an active comparator head-to-head. There is a lot of excitement around the study design, and we are excited about ZANZA’s opportunity. Dana T. Aftab: Beyond that, we are very committed to this patient population. We have seen how much benefit cabo brings and the excitement around STELLAR-311. We are focused on how else we can address this population. As we discussed at R&D Day, we are looking at other opportunities earlier in the discovery pipeline to address neuroendocrine tumor patients who require treatment with an SSTR2 agonist—mainly patients with functional tumors, but also others who express the receptor. We are developing a small molecule that we hope to file an IND on later this year, which could be a novel approach to offer in combination with ZANZA if STELLAR-311 is successful. We are also broadening to other neuroendocrine carcinomas, namely tumors that express DLL3—primarily small cell lung cancer but also a range of other neuroendocrine carcinomas in the GI tract and prostate. We presented data this year for XB773, a DLL3-targeted ADC with a very small, novel format and a topoisomerase inhibitor payload that we think is differentiated. If it shows interesting activity, we can also explore combinations with ZANZA. We have multiple irons in the fire across histologies and patient populations. Operator: One moment for our next question. Our next question will come from the line of Kalpit Patel with Wolfe Research. Your line is open. Analyst: Good afternoon, and thanks for taking the questions. On the LightSpark-012 trial, there was no benefit of the triplet compared to the doublets in the first-line setting. For your and Merck's strategy, would you ever entertain a triplet in that exact same first-line setting, and what would that future study look like in ccRCC? Dana T. Aftab: Thanks for the question, Kalpit. We are collaborating with Merck on LightSpark-033, which is evaluating ZANZA plus belzutafan in the frontline setting versus cabozantinib. This is a different hypothesis; there is no IO in this combination because it assumes or requires prior adjuvant IO. As for other potential combinations, especially triplets, that requires very specific and focused scientific rationale. We are not opposed to doing it; it just has to be the right molecule in the right setting. As mentioned earlier, we have been looking at orthogonal MOAs to pair with ZANZA and will investigate ZANZA plus our novel bispecific IO (XB628) in its Phase 1 study. We will disclose more details as those trials come to fruition. Operator: One moment for our next question. That will come from the line of Esther DeRoot with Barclays. Your line is open. Analyst: Hi, thanks for taking my question. First, how are you planning to leverage the non–liver metastases data from STELLAR-303 given the December PDUFA date? Are you going to update your NDA to include that data? Also, thoughts around the investigator-sponsored trial coming up at ASCO of cabo + nivo in non–clear cell renal cell carcinoma, and how to think about that dataset relative to ZANZA and 304? Dana T. Aftab: Thanks for the question. Regarding STELLAR-303, as mentioned, we are on track to see the results of the non–liver metastasis subgroup primary endpoint around midyear. Regarding sharing data with the FDA, we certainly plan to share those data as well as any other data the agency might ask for as part of the ongoing review, which from our standpoint is progressing on schedule toward the PDUFA date in early December. On the cabo + nivo IST in non–clear cell RCC, we are aware of those data and look forward to seeing them. STELLAR-304 is a randomized Phase 3 designed to establish level one evidence, and we believe it represents a significant opportunity for ZANZA plus nivolumab in this underserved population. Operator: One moment for our next question. That will come from the line of Ash Verma with UBS. Your line is open. Analyst: Hi. I wanted to get your latest thoughts on combo competitiveness in RCC. Given the earlier LightSpark-022 study had a PFS-positive result, do you think it is unlikely to show OS separation because of enough alpha not being attributed to that analysis? Patrick Joseph Haley: Thanks for the question. We are pleased with where we are competitively in RCC. Generally, we would not want to speculate on how other trials will read out. We have built a franchise in RCC with strength across segments. This quarter we saw the highest frontline market share for CABOMETYX plus nivolumab in the first-line setting, and we continue to see strong momentum there given the breadth and depth of the data and the long-standing prescriber experience with this combination. We see potential to continue growing in RCC, particularly in the first-line setting. Operator: At this time, there are no further questions. I will turn the call over to today's host, Andrew Peters. Mr. Peters? Andrew Peters: Thank you, Sherry, and thank you all for joining us today. We welcome your follow-up calls with any additional questions you may have that we were unable to address during today's call. Thank you all again, and have a great rest of your week. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Good day, and welcome to the Solid Power, Inc. Q1 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask a question. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Charlie Van Goetz, Investor Relations. Please go ahead. Charlie Van Goetz: Thank you, operator. Welcome, everyone, and thank you for joining us today. I am joined on today's call by Solid Power, Inc.'s President and Chief Executive Officer, John Van Scoter, and Chief Financial Officer, Linda C. Heller. A copy of today's earnings release is available on the Investor Relations section of Solid Power, Inc.'s website at solidpowerbattery.com. I would like to remind you that parts of our discussion today will include forward-looking statements as defined by U.S. securities laws. These forward-looking statements are based on management's current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. Except as otherwise required by applicable law, Solid Power, Inc. disclaims any duty to update any forward-looking statements to reflect future events or circumstances. For a discussion of the risks and uncertainties that could cause results to differ materially from those expressed in today's forward-looking statements, please see Solid Power, Inc.'s most recent filings with the Securities and Exchange Commission, which can be found on Solid Power, Inc.'s website at solidpowerbattery.com. With that, I will turn it over to John Van Scoter. John Van Scoter: Thank you, Charlie, and thank you all for joining us today. We delivered a productive first quarter, marking steady progress across our key operational and strategic priorities. Starting with our partnership with SK On, we completed site acceptance testing in early April, marking the final milestone of the line installation agreement for SK On. We believe achieving this milestone underscores our commitment to supporting our partners’ ASSB efforts. With this accomplishment, we are very pleased that there are now cell production lines using our technology on three continents: here at our facilities in Colorado, BMW's facility in Germany, and SK On's facility in Korea. We also continue to support our customers and partners in their development efforts through delivery of our electrolyte. We provided Samsung SDI with electrolyte under our three-way joint evaluation agreement with BMW and continued sampling with other customers during the quarter. Turning to our electrolyte development roadmap, we believe installation of our continuous electrolyte manufacturing pilot line will represent a critical inflection point on our path to commercialization and a clear differentiator for Solid Power, Inc. With factory acceptance testing for all key equipment complete and construction underway, we are laying the groundwork for commercial-scale production. Once installed, this line will enable our transition from batch to continuous processing, supporting near-term customer programs and driving expected cost savings relative to today’s processes. The line is designed to allow us to de-risk and optimize processes in advance of full commercialization. Importantly, we believe our wet processing methodology for electrolyte production offers scalability, yield, and capital efficiencies relative to traditional dry process methods. We also continue to explore potential partners with processing, scaling capabilities, and capital to support construction of a 500 metric ton electrolyte production facility. We anticipate additional demand for sulfide electrolyte in Korea and are considering a potential partnership for commercial-scale production in Korea. We are evaluating multiple potential partners and are pleased with our progress to date. With respect to our final development goal, we continue to leverage our Electrolyte Innovation Center, or EIC, and cell capabilities for product and process development during the quarter. Through this development work, we are executing against our objective to continually deliver differentiated electrolyte products and secure long-term customers. I will now turn the call over to Linda C. Heller for the financial results. Linda C. Heller: Thank you, John. I will start with our first quarter results. Beginning with revenue, during the quarter we generated revenue and grant income of $3.1 million, driven primarily by progress toward the site acceptance testing milestone under our line installation agreement with SK On and performance on our assistance agreement with the U.S. Department of Energy. Operating expenses were $29.4 million for the quarter, compared to $30 million in 2025. This decrease was driven by timing of supplier and material shipments relating to our development activities. Operating loss was $26.3 million, and net loss was $13 million, or $0.06 per share. Capital expenditures totaled $1.7 million during the quarter, primarily representing costs for construction of the continuous electrolyte production pilot line. Turning to our balance sheet and liquidity, Solid Power, Inc.'s liquidity position remains strong. We ended the quarter with total liquidity of $435.3 million, due to the net proceeds after fees and expenses of $121.3 million raised through a registered direct offering in January. In addition, contract assets and accounts receivable were $12.7 million, and total current liabilities were $17.1 million. Overall, we remain focused on maintaining financial discipline while continuing to invest appropriately in our technology development and process improvements, and we believe we are well positioned to support our strategic priorities throughout the year. I will now turn the call back to John. John Van Scoter: Thank you, Linda. In closing, I want to thank our employees, partners, and stakeholders for their continued commitment and support. We are executing on our objectives with focus, and I am confident we are well positioned to deliver meaningful progress through 2026. We will now open the call for questions. Operator: We will now open the call for questions. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Colin Rusch with Oppenheimer & Co. Colin Rusch: Thanks so much, guys. Could you talk a little bit about the potential for partnerships in North America that you are starting to see move forward, given the amount of capacity that is underutilized right now for the auto space and substantial legislation and government involvement in terms of tariffs and the NDAA clients for military applications? I am sure you are seeing some level of demand for that at this point, but just curious about the potential for you to look at partnerships and potentially start bringing something forward that we may not be thinking about just yet. John Van Scoter: Afternoon, Colin, and thank you for that deep question. I will be honest with you, the demand that we see right now is really coming off of the peninsula in Korea. We have yet to see, despite all the things that you described, anything really substantial here in the States. If we go back a couple of years, that was very different. We actually planned to do our original DOE plant here in North America, but with the changes in the landscape here in North America, we shifted to just the SP2.5 and then shifted to partnerships in Korea. We certainly are well positioned, should that change, to come back and revisit that. We would very much like to invest here in North America, but right now, we just do not see the demand. Colin Rusch: Okay, perfect. And then can you talk a little bit about the capital efficiency that you are enabling for your customers at this point? I know it is substantial, but would love to get any detail you might be able to share on that. Linda C. Heller: Hi, Colin. The capital efficiency has really a two-pronged approach to it. First and foremost on SP2.5, that is bringing the continuous processing, which is necessary for commercialization down the road, to a commercialization scale. So we are shifting from batch to continuous processing, and we expect that line to be commissioned by the end of the year, and we are on track for that. The second is the actual processing technology that you use for electrolyte, and we use something known as wet process technology. There are a variety of advantages to it, from dry room utilization to size of the equipment, that all lead to a very significant capital expenditure reduction by using that, as well as yield and other improvements. So between that, and with electrolyte production versus cell production, that in itself has tremendous capital efficiencies. Among those three, we feel we are very well positioned to be able to drive costs at the commercial scale. John Van Scoter: The only thing I would add, Colin, is around the wet processing. That is one of the reasons we are getting, I think, such a strong uptake with potential JV partners in Korea. They see the advantage that Linda just described in terms of the capital efficiencies and so forth, so I think that is a leading indicator of the advantage we have with our process. Colin Rusch: Perfect. Thanks so much, guys. Operator: The next question comes from Ahmed Dayal with H.C. Wainwright. Ahmed Dayal: Hi, guys. Good afternoon. Thank you for taking my questions. Linda, sorry if I missed this, but can you maybe walk us through the CapEx for 2026? Linda C. Heller: We actually do not break out in our guidance the CapEx individually. We did for Q1; our CapEx was $1.7 million. That also includes the amount of the reimbursement from DOE that would be considered, so it is actually larger, but the net impact would be $1.7 million. The largest capital expenditure that we are making in 2026 is our SP2.5, which we do have the grant money that goes against that on our financial statements. Ahmed Dayal: Understood. Thanks for that. And then what are the next steps with SK On from here? Post site acceptance, how should we expect things to proceed from this point? John Van Scoter: Good afternoon, Ahmed. It is John here. We view our relationship with SK On as a long-term relationship, like our others with BMW and so forth. It is a multiyear relationship as we go forward, but we will be transitioning to supporting them running the line from this point forward. To this point, prior to SAT completion, we were running the line in their facility. Now they have taken that over, and they are running the line, but we will bring in our experts as we need to support their development efforts—their cell moving through this year and on into next—and then transition to ultimately a electrolyte supplier agreement with them. We do have an R&D electrolyte supply agreement as part of the three-part agreement we did in 2024, but we would expect once that is completed that we would transition to a long-term supply agreement with SK On. Ahmed Dayal: Okay. And then on the electrolyte supply agreement, John, what is the timeline? Is it six to nine months, or a little bit sooner than that? John Van Scoter: It is multiyear. It actually goes out through 2027. It is for a total of 8 metric tons, so however long it takes them to consume that is the way I would encourage you to look at it, as opposed to a set time frame. Ahmed Dayal: Okay. Understood. Thank you for that. Operator: That is all the time we have for questions. This concludes our question-and-answer session. I would like to turn the conference back over to John Van Scoter for any closing remarks. John Van Scoter: Thank you for joining the call today and for your interest in Solid Power, Inc. We look forward to updating you again next quarter. Operator: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good day, and welcome to the DHI Group, Inc. First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Todd Kehrli of PondelWilkinson. Please go ahead. Todd Kehrli: Thank you, operator. Good afternoon, and welcome to DHI Group's first quarter earnings conference call for 2026. Joining me today are DHI's CEO, Art Zeile; and CFO, Greg Schippers. Before I hand the call over to Art, I'd like to address a few quick items. This afternoon, DHI issued a press release announcing its financial results for the first quarter of 2026. The release is available on the company's website at dhigroupinc.com and this call is being broadcast live over the Internet for all interested parties and the webcast will be archived on the Investor Relations page of the company's website. I want to remind everyone that during today's call, management will make forward-looking statements that involve risks and uncertainties. Please note that except for the historical information, statements on today's call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect DHI management's current views concerning future events and financial performance and are subject to risks and uncertainties and actual results may differ materially from the outcomes contained in any forward-looking statements. Factors that could cause these forward-looking statements to differ from actual results include the risks and uncertainties discussed in the company's periodic reports on Form 10-K and 10-Q and other filings with the Securities and Exchange Commission. DHI undertakes no obligation to update or revise any forward-looking statements. Lastly, on today's call, management will reference specific financial measures, including adjusted EBITDA, adjusted EBITDA margin, free cash flow and non-GAAP earnings per share, which are not prepared in accordance with U.S. GAAP. Information regarding those non-GAAP measures and reconciliations to the most directly comparable GAAP measures are available in our earnings press release, which can be found on our website at dhigroupinc.com in the Investor Relations section. With that, I'll now turn the conference over to Art Zeile, CEO of DHI Group. Art Zeile: Thank you, Todd, and good afternoon, everyone. We appreciate you joining us today. At DHI, our mission is simple. We help employers connect with highly skilled technology professionals through 2 platforms, ClearanceJobs and Dice, both of which serve critical roles in the tech hiring ecosystem. Our exclusive focus on tech occupations, combined with ongoing product innovation gives us a durable competitive advantage. Today, approximately 6,000 employers and staffing and recruiting companies subscribe to our platforms and approximately 90% of our revenue is recurring. ClearanceJobs is the leading marketplace for professionals with active U.S. security clearances, serving approximately 1,700 customers, including Lockheed, Booz Allen Hamilton, Leidos, Raytheon and many others. With 2 million candidates on our platform, we have the largest number of profiles of U.S. cleared professionals, giving CJ a significant competitive advantage as a platform for hiring cleared tech talent for the defense sector. Dice is essentially LinkedIn for tech hiring, built over 35 years with 7.8 million profiles in our database, representing the vast majority of technology professionals in the United States. While LinkedIn emphasizes a person's title, we focus on tech skills, of which there are over 100,000 distinct skills in our data model. Tech professionals on Dice actively update their profiles with new skills, making Dice the most relevant platform for recruiters who need to source tech talent. With these 2 platforms, we have become an essential software tool used by employers and recruiters to find top tech talent for their open positions. This quarter reflects a company executing well against a clear strategy with strong momentum in ClearanceJobs and encouragingly early progress across our strategic initiatives. Let me start with ClearanceJobs, which remains the primary growth engine of DHI Group. In the first quarter, we achieved revenue growth of 5% and bookings growth of 7% year-over-year. Additionally, CJ delivered an adjusted EBITDA margin of 40%. This underscores the strength of the underlying business and improving demand trends. We are also seeing a more positive market environment following the passage of the U.S. defense budget in late January. While there is typically a lag between budget approval and hiring activity, customer sentiment has improved significantly and we are beginning to see that reflected in stronger engagement and demand. The $1 trillion U.S. defense budget for fiscal year 2026 represents a substantial 1-year increase over the previous year's budget. Additionally, NATO countries are increasing their defense budgets, aiming to allocate 5% of GDP, which could lead to more than $500 billion in additional spending annually with U.S. contractors likely to receive a substantial share of this expenditure. These dynamics are promising for ClearanceJobs. With over 10,000 employers of cleared tech professionals and more than 100 government agencies in need of them, CJ has a significant growth opportunity as government contractors look to staff new projects. We believe we are in the early stages of this growth cycle. Consistent with CJ's expand the mission strategy, we acquired Point Solutions Group, or PSG, inside the quarter and are encouraged by the early results. In a short period, we have increased the number of contractors deployed and grown the number of active contracts with major prime contractors. We are also seeing strong engagement from those partners as we develop and deepen relationships and pursue additional opportunities. While still early, the initial performance supports our strategy to expand the ClearanceJobs platform into adjacent high-value services and further monetize the relationships we have built over the past 24 years. Our AgileATS business also continues to make steady progress. While still modest in scale, we are consistently adding customers and increasing sales investment to support future growth. We are also seeing early traction with our premium candidate subscription on ClearanceJobs. Since its formal launch in mid-February, adoption has surpassed expectations with quick growth in paid subscribers. Although the immediate revenue impact is modest, this is an important new long-term monetization opportunity. Stepping back, our strategy is clear. We are leveraging the strength of the ClearanceJobs platform and our long-standing relationships with top government contractors to grow into related services and talent acquisition and management. This platform-driven approach positions us for sustained long-term growth. Turning to Dice. We are in the beginning -- we are beginning to see the signs of stabilization in the tech hiring market. As CompTIA stated in its report on the month of March, companies are beginning to move away from the more conservative approaches of the past year and are considering investments in talent to support strategic digital initiatives. Leading indicators, including job postings and customer activity are improving, and we are seeing increased engagement from both staffing firms and commercial customers. There were more than 537,000 job postings for tech positions in March, including 254,000 new postings, an increase of 19% year-over-year. While we are not yet seeing a recovery in Dice bookings, the trend lines are encouraging. AI continues to be the most important long-term driver. As of March 2026, 67% or 2/3 of U.S. tech job postings required AI-related skills, more than double the 29% we saw a year ago. Over that same period, job postings requiring machine learning skills have increased 167%. We view this as a powerful validation of our strategy. Rather than reducing the need for talent, AI is increasing demand for highly skilled technical professionals. Dice is well positioned here with a deep skills-based model that allows employers to identify candidates based on more than 360 distinct AI-related skills. Rather than treating AI as a single generic category, Dice enables employers to identify and match candidates based on specific skill sets, an increasingly critical capability as AI roles become more specialized. We have also made it easier for candidates to access Dice job postings by being the first career platform with a Claude connector. This is only one of many Dice features that implement an AI model solution. As you recall, we enabled 2 self-service options for Dice late last year and we are already seeing a steady progression of transactions as we ramp our marketing campaign spend. While near-term performance will depend on the pace of recovery in the broader tech hiring market, we believe Dice is strategically well positioned, especially as demand for AI-related skills continues to grow. From a financial perspective, DHI continues to generate strong free cash flow, supported by our subscription model and disciplined cost structure. This allows us to take a balanced approach to capital allocation, investing in growth initiatives, pursuing strategic acquisitions and returning capital to shareholders through an active share repurchase program. As a reminder, our Board approved a $10 million share repurchase program in the first quarter, demonstrating our confidence in the company's long-term value. In summary, we believe DHI is uniquely positioned at the intersection of 2 powerful and durable trends; increasing global defense spending and growing demand for highly specialized technology talent, particularly in AI. ClearanceJobs continues to demonstrate strong growth and expanding opportunity as government and contractor demand accelerates, while Dice is well positioned to benefit from an eventual recovery in tech hiring, supported by our differentiated skills-based approach and continued product innovation. At the same time, we are successfully extending our platforms into adjacent services, creating new monetization opportunities and deepening our relationships with customers. Importantly, our highly recurring revenue model and strong free cash flow give us the flexibility to invest for growth while continuing to return capital to shareholders. Taken together, we believe we are building a more durable, high-growth business with multiple levers for value creation. With that, I'll turn the call over to Greg to walk you through the financial results in more detail. Greg Schippers: Thank you, Art, and good afternoon, everyone. I'll start with a brief overview of our first quarter results before walking through each of the segments in more detail. While total revenue and bookings declined year-over-year, our results reflect the continued strength of ClearanceJobs, which delivered both revenue and bookings growth as well as the benefits of the actions we've taken to improve efficiency across the business. Importantly, we delivered solid adjusted EBITDA growth and margin expansion in the quarter, along with strong free cash flow generation. Overall, our performance highlights the durability of our subscription-based model, the growth opportunity in ClearanceJobs and the significantly improved profitability we are seeing in Dice as we position the business for an eventual recovery. With that context, let's turn to our segment performance, starting with ClearanceJobs. ClearanceJobs revenue was $14.0 million, up 5% year-over-year and roughly flat compared to the prior quarter. Bookings for CJ were $18.0 million, up 7% year-over-year. PSG acquired at the end of February, contributed $700,000 of revenue and bookings in the quarter for CJ. We ended the first quarter with 1,741 CJ recruitment package customers, which was down 8% on a year-over-year basis and down 2% on a sequential basis. CJ accounts spending greater than $15,000 in annual recurring revenue increased versus the prior year. Our average annual revenue per CJ recruitment package customer was up 6% year-over-year and roughly flat on a sequential basis to $27,286. Approximately 90% of CJ revenue is recurring and comes from annual or multiyear contracts. For the quarter, CJ's revenue renewal rate was 88% and CJ's retention rate was 105%. The revenue renewal rate was negatively impacted by a customer with annual spend over $500,000 that did not renew in the quarter, but is expected to return later this year. The solid retention rate demonstrates the continued value CJ delivers in the recruitment of cleared professionals. Dice revenue was $15.7 million, which was down 17% year-over-year and down 10% sequentially. Dice bookings were $20.2 million, down 20% year-over-year. We ended the quarter with 3,832 Dice recruitment package customers, which is down 7% from the last quarter and down 15% year-over-year. Dice revenue renewal rate was 71% for the quarter and its retention rate was 100%. The reduction in customer count and Dice's renewal rate from the prior year quarter continues to be attributable to churn with smaller customers spending less than $15,000 per year, representing 80% of the total churn on count and who are more likely to be impacted by the difficult macro environment and uncertainty. We believe the introduction of our new Dice platform, which offers customers the flexibility of monthly subscriptions will offset the churn among smaller accounts by lowering upfront commitment and improving affordability. Our average annual revenue per Dice recruitment package customer was $15,466, down 6% year-over-year and down 1% sequentially. As with CJ, approximately 90% of Dice revenue is recurring and comes from annual or multiyear contracts. Deferred revenue at the end of the quarter was $44.5 million, down 12% from the first quarter of last year. Our total committed contract backlog at the end of the quarter was $99.0 million, which was down 8% from the end of the first quarter last year. Short-term backlog was $77.2 million at the end of the quarter and long-term backlog, that is revenue to be recognized in 13 or more months, was $21.8 million. Both brands onboarded notable clients in the first quarter. For CJ, this includes Akamai Intelligence, SynthBee and Michigan Technological University, while Dice landed Avera Health, Fourth Yuga Tech and Parkland Center for Clinical Innovation as customers in Q1. Now let's move to operating expenses. For the quarter, our operating expenses decreased $15.0 million or 36% to $26.6 million when compared to $41.6 million in the year ago quarter. Improvements to our operating efficiency, including the Dice Employer Experience platform, along with adjusting the business for the difficult market environment over the past few years has significantly reduced our annual operating expenses and capitalized development costs. For the quarter, we had income tax expense of $1.0 million on income before taxes of $2.5 million. Our tax rate for the quarter differed from our approximate statutory rate of 25% due to the tax impacts of stock-based compensation. Although our income subject to tax has grown, the tax law change in 2025, which allows for the immediate deduction of R&D costs will partially offset our 2026 cash outlay for income taxes. Moving on to the bottom line. We reported net income of $1.5 million or $0.04 per diluted share in the quarter. For the prior year quarter, we reported a net loss of $9.8 million or $0.21 per diluted share, which included a $7.8 million Dice goodwill impairment charge and a $2.3 million restructuring charge. Non-GAAP earnings per share for the quarter was $0.08 per share compared to $0.04 per share for the prior year quarter. Diluted shares outstanding for the quarter were 42.4 million shares, down 3.1 million shares or 7% from the prior year quarter as we continue to return cash to shareholders through our share repurchase program. Adjusted EBITDA for the quarter was $8.1 million, a margin of 27% compared to $7.0 million or a margin of 22% a year ago. On a segmented basis, CJ adjusted EBITDA remained strong at $5.7 million in the first quarter, representing a 40% adjusted EBITDA margin as compared to adjusted EBITDA of $5.7 million or a margin of 43% in the prior year period. Dice's adjusted EBITDA increased to $4.3 million, representing a 28% adjusted EBITDA margin compared to $3.4 million and an 18% margin last year. Operating cash flow for the first quarter was $8.4 million compared to $2.2 million in the prior year period. Free cash flow, which is operating cash flows less capital expenditures, was $6.8 million for the first quarter compared to $88,000 in the first quarter of last year. Our capital expenditures, which consist primarily of capitalized development costs were $1.6 million in the first quarter compared to $2.2 million in the first quarter last year, an improvement of 24%. Capitalized development costs in the first quarter for CJ were $577,000 compared to $362,000 a year ago, while capitalized development costs for Dice were $1 million this quarter as compared to $1.7 million a year ago. We are targeting total capital expenditures in 2026 to range between $7 million and $8 million as compared to $7.3 million last year. From a liquidity perspective, at the end of the quarter, we had $3.0 million in cash, and our total debt was $33 million, an increase of $3 million from the last quarter despite cash outlays in the quarter of $5 million for the purchase of PSG and $4.7 million for the purchase of 2 million shares under our stock repurchase programs. Leverage at the end of the quarter was 0.91x our adjusted EBITDA and we continue to target 1x leverage for the business. At the end of the quarter, we had $6.4 million remaining on our $10 million share repurchase program. Moving on to guidance. We continue to expect ClearanceJobs bookings to grow in 2026. However, we do not anticipate Dice bookings growth resuming until tech hiring improves. As a result, we expect DHI revenue of $124 million to $128 million for the full year. And for the second quarter, we expect revenue of $30 million to $32 million. For CJ, with the addition of PSG, we expect revenue of $62 million to $64 million for the full year. And for the second quarter, we expect revenue of $15 million to $16 million. At Dice, we expect revenue of $62 million to $64 million for the full year. And for the second quarter, we expect revenue of $15 million to $16 million. From a profitability standpoint, we continue to target full year adjusted EBITDA margin for DHI of 25% and margins of 40% for CJ and 22% for Dice. Our focus remains on delivering long-term sustainable and profitable revenue growth, along with strong free cash flow generation, averaging at or above 10% of revenues. To wrap up, although the hiring environment over the past few years has impacted our revenue growth, we remain optimistic about the road ahead. We anticipate the record-breaking defense budget will be a growth driver for CJ and that companies across all industries will steadily increase their investments in technology initiatives, creating a strong growth opportunity for both ClearanceJobs and Dice. We remain focused on strengthening our industry-leading solutions, optimizing our go-to-market strategy and executing with efficiency, ensuring we are well positioned to capitalize on the opportunities that lie ahead. And with that, let me turn the call back to Art. Art Zeile: I want to thank all of our team members once again for their outstanding work this quarter. It is a pleasure to be part of such a great team. That said, we are happy to answer your questions. Operator: We'll now begin the question-and-answer session. [Operator Instructions] And today's first question comes from Gary Prestopino with Barrington Research. Gary Prestopino: Greg, what was the -- I'm sorry, I didn't get a chance to write down the capitalized development costs. What were they in the quarter? Greg Schippers: So in the quarter, the capitalized development costs were $1.6 million, Gary. Gary Prestopino: Okay. $1.6 million. And then with the acquisition of PSG, is that really entirely the reason for the revenue -- the increase in the revenue range at CJ? Or are you performing better than you expected from the start of the year? Greg Schippers: Yes. Good question, Gary. And that is purely related to the revenue from PSG at this stage. And we anticipated some improvement within CJ in the budget, but more in the bookings area as opposed to in revenue, which, as you may recall, had some revenue -- or had some bookings challenges in the mid- to latter part of 2025 for CJ. And so that -- as that converts to revenue, that is going to challenge revenue in 2026 minus PSG. Gary Prestopino: And then lastly, and I'll jump off and let somebody else go. Dice retention increased to 100% from 92%, which basically means you're getting good renewals and you're not losing that base business, I suppose, as I'm reading that right. Is that kind of a good leading -- somewhat of a leading indicator for Dice? Or am I just reading that wrong? Art Zeile: So Gary, you're reading that absolutely correctly. I think that we're seeing a stabilization in demand in the environment. And it's consistent with the fact that staffing industry analysts as well as a number of different resources have indicated that we've kind of crossed the line for tech staffing and it's going to be a growth area for 2026. And we're seeing that sentiment improve across our staffing firms. Operator: And our next question today comes from Max Michaelis with Lake Street. Maxwell Michaelis: First one for me. When we look at the CompTIA and the job postings, I think you said 537,000 jobs this month or month of March and then 254,000 new jobs. I know a lot of it's related to AI, but you said you haven't really seen an uptick in bookings from that. I figured you would have. Is there a reason why? Has there always been kind of a laggard effect with CompTIA and the impact on bookings? And then I guess with that, what are some of the things you're hearing from your customers? Is it going to be more of a late 2026 where they see more of their -- or more business coming on to your platform, I guess, lack of a better word? Art Zeile: Yes, that's a great question, Max. And I have to say that the number of new tech job postings is definitely a leading indicator. But you have to understand that the historical pattern of our customers have been to essentially have their contracts start in every month in the year, right? There is kind of a crescendo that takes place in December and January. So they're thinking about how they're going to renew in forward months based on what they're seeing as a leading indicator today in terms of new tech job postings. But it's pretty significant. Like I said, 19% growth of March 2026 over March 2025 is a pretty big signal. As an aside, staffing industry analysts just posted an article yesterday that's entitled IT staffing turning the corner. And Bloomberg, the same day yesterday, posted an article that's entitled companies increasingly favor temps over permanent hires and kind of they're both coupled. We believe that in this kind of environment, it's a less risky move to essentially go to a staffing agency for your tech hiring needs rather than going to permanent hire. So it's all kind of coming together right now. Maxwell Michaelis: So really, the impact of this, you really wouldn't see that towards the end -- until the end of 2026, correct? Art Zeile: I think it's -- that's correct. It's going to be playing out over the course of the year. And again, those folks that are intended to renew in third quarter and fourth quarter are probably now starting to factor this in, seeing that the demand is increasing. And like I said, 254,000 jobs is a significant increase over the roughly 200,000 jobs that we saw most of last year. So it's a pretty good signal. Maxwell Michaelis: Okay. That makes sense. And if we look at some of the acquisitions you've made, the Point Solutions, ATS, you said they were performing better than what you guys had originally expected. I mean is that with just a revenue standpoint? Or can you help me out or is there anything else you can offer that can kind of give me a better understanding of how these are actually outperforming better than what you originally expected? Art Zeile: So that comment in the earnings call was really intended to focus on AgileATS. And I would say that the bookings and revenue figure are performing better than expected, although it was a pretty small base when we bought the company back in July of last year. For PSG, Point Solutions Group, it's a little bit too early to tell. We closed that transaction right at the end of February. And so we're kind of moving into the integration phase. But the good news is we actually have now established 2 new relationships, 2 new subcontracts to primes even within that short period of time. So it feels like we're on our way. Maxwell Michaelis: All right. Last one for me, and then I'll hang up the mic. It seems to be a common thing you guys are acquiring companies kind of in the defense space. I mean is there an active pipeline right now where you guys could see yourself acquiring another one of these companies kind of in that defense adjacent landscape? Art Zeile: Yes. I would say that true to what we described, we view CJ as a platform and that we have these trusted relationships with 1,800 very important military contractors. We want to sell them more and especially sell them more in that talent acquisition and management space. So there is a view to additional tuck-in acquisitions over the course of time. Operator: [Operator Instructions] Our next question comes from Kevin Liu at K. Liu & Company LLC. Kevin Liu: I know on CJ, a lot of the traction there and momentum is going to be tied to kind of this defense funding. But I was curious if you guys had any exposure to DHS and whether you think kind of the recent funding approval there, if that kind of resuscitates any deals you had in the pipeline? Art Zeile: That's actually very insightful. I would have to say that one of our larger customers was the Cybersecurity Infrastructure Services Administration, CISA, which is a division of DHS. And they did not renew last year. I think that's based on 2 different factors. It was based on the fact that their funding was uncertain at the time, but also the fact that there is a hiring freeze across most government institutions. We believe, based on the fact that there was a leak that took place that indicated that they are down in terms of their staffing by 40%, that they will be allowed to kind of hire again and they're going to need a platform to do so. So there are elements of the government that I think that will be kind of freed by this funding of DHS and then the need to essentially plug holes in really critical areas in the government. Kevin Liu: Got it. And just related to that, you guys did reference kind of a large contract that hadn't renewed early in the year, but should come back later in the year. Was that related to this at all? Or is that just kind of a separate deal? Art Zeile: It was unrelated. In this particular case, the customer in a cost-saving move believed that they could move to a competitor of ours called ClearedJobs.Net. This is a platform that is roughly about 120th our size, and they've already admitted that this was probably not in their best interest. So we're still in discussions with them and we hope that they will essentially renew a subscription at their next budget cycle, which is in third quarter. Kevin Liu: All right. Sounds good. And then I was hoping you could put a finer point just on the contribution from Point Solutions Group. What's kind of the expected contribution to the revenue line, both in Q2 and the full year? Greg Schippers: Yes, this is Greg. Kevin, so we -- and you can really kind of see this in the guidance. We uplifted our guidance by approximately $6 million for the full year. And so that's roughly where we're anticipating for this 10-month period to land with PSG. Kevin Liu: All right. That's helpful. And then just lastly for me, as it seems like the environment starts to turn here, just wondering how you're thinking about kind of the timing of maybe investing a bit more on either the sales or marketing side. Art Zeile: That's a great question. I can tell you that we've always been pretty conservative, especially over the last 3 years as we're kind of waiting for this tech hiring recession to resolve itself. I would say that for ClearanceJobs because we see a clear signal associated with the defense budget being put into law this past January and kind of a robust amount of interest, that's where we would essentially hire more people into sales and have more marketing spend at this point in time. But it's early days. I would say that we want to see that play out, and we want to see the firming up and stabilization and increasing of demand before we do. So I would not assume that we're going to change our sales and marketing pattern for either brands for now, but we're assessing it real time for the remainder of the year. Greg Schippers: The one other thing I might just add to that is we do have some additional investment in marketing for Dice, specifically related to the self-service platform, the digital experience platform in the remainder of the year to drive some revenue from that platform. Kevin Liu: Congrats on a [ full expected year ]. Operator: And that does conclude our question-and-answer session. I'd like to turn the conference back over to Art Zeile for any closing remarks. Art Zeile: Well, thank you, Rocco, and thank you all for joining us today. As always, if you have any questions about our company or would like to speak with management, please reach out to Todd Kehrli, and he will assist you in arranging a meeting. Thank you, everyone, for your interest in DHI Group, and have a great Cinco de Mayo. Operator: Thank you, sir. And everyone, that does conclude our conference for today. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.
Operator: Good day, and thank you for standing by. Welcome to the 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Karina Calzadilla, head of investor relations. Please go ahead. Karina Calzadilla: Thank you, Anton, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies Corporation First Quarter 2026 Earnings Conference Call. Earlier today, we issued a press release reporting Adaptive Biotechnologies Corporation financial results for 2026. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and will be referencing a slide presentation that has been posted to the Investors section on our corporate website. During the call, management will make projections and other forward-looking statements within the meaning of federal securities laws regarding future events and the future financial performance of the company. These statements reflect management's current perspective of the business as of today. Actual results may differ materially from today's forward-looking statements depending on a number of factors which are set forth in our public filings with the SEC and listed in this presentation. In addition, non-GAAP financial measures will be discussed during the call, and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad M. Robins, our CEO and Co-Founder, and Kyle Piskel, our Chief Financial Officer. Additional members from management will be available for Q&A. With that, I will turn the call over to Chad. Chad? Chad M. Robins: Thanks, Karina. Good afternoon, and thank you for joining us on our first quarter earnings call. As shown on slide three, we are off to a strong start to the year, with accelerating momentum in MRD and disciplined execution across the company. MRD revenue grew 53% year over year, reflecting broad-based strength across both clinical and pharma. We also recognized our first primary endpoint milestone this quarter, a meaningful proof point for MRD's expanding role in drug development. clonoSEQ clinical volumes increased 41% year over year, demonstrating strong continued adoption. We also delivered meaningful margin expansion, with sequencing gross margin increasing eight percentage points year over year to 70%, driven by scale and operational efficiency. At the same time, we maintained strong financial discipline, reducing cash burn and ending the quarter with approximately $222 million in cash. Given the strength we are seeing in the MRD business, we are raising our full-year MRD revenue guidance to a range of $260 million to $270 million. Kyle is going to provide more detail shortly. Let us now turn to slide four for a deeper look at the MRD business. Our clinical business continues to deliver strong growth, with revenue up 54% year over year. clonoSEQ tests reached another quarterly record of almost 32,600 in Q1, up 9% sequentially. Growth was observed in all reimbursed indications, led by DLBCL at over 19% growth versus the prior quarter. Importantly, we are seeing mounting traction across the key drivers that support durable, long-term adoption. Blood-based testing reached 49% of MRD volume. In multiple myeloma, a traditionally bone marrow–driven indication, the contribution of blood-based MRD increased to 29%, up eight percentage points year over year. This shift is closely linked to expansion of the community setting, where a combination of favorable guideline updates and implementation of standardized testing protocols contributed to growth rates that outpaced the rest of the business. Community volumes grew 67% year over year and now represent 35% of total testing. Growth in the community business was further supported by our EMR-enabled workflows, which are driving repeat utilization. Serial monitoring orders available to Flatiron-integrated accounts are widely being utilized, and strong initial pull-through rates have further improved with 72% of repeat orders due being fulfilled. Physician engagement also continues to expand, with the number of ordering clinicians growing 43% year over year to nearly 5,000 in Q1, underscoring increasingly broad acceptance of MRD as part of routine clinical management. Finally, we continue to see increases in pricing, with U.S. ASP growth of 11% year over year to $1,360 per test. Importantly, I am excited to share that clonoSEQ is now listed in the Texas Medicaid policy manual. clonoSEQ is one of only two specific tests included in the newly developed genetic testing section, and patients may receive up to six tests per year. It is great to be pioneers in bringing advanced molecular testing to some of our most vulnerable patients. Our scale, adoption, and embedded workflows support clonoSEQ's sustained growth and continue to strengthen our leadership position as the market evolves. Let us now turn to slide five to discuss our biopharma business. We delivered one of the strongest quarters to date in MRD Pharma, with revenue growing 53% year over year, or 33% excluding milestones. As mentioned, we also recognized our first milestone in the U.S. tied to MRD as a primary endpoint, the CEPHIUS trial in multiple myeloma. New bookings were strong, driving backlog to approximately $254 million, up 24% year over year. Bookings came primarily from regulated studies, including several registrational trials where MRD will be used as a primary or co-primary endpoint in both multiple myeloma and CLL. We continue to see increasing use of MRD to guide treatment. Today, we have approximately 20 ongoing interventional studies where MRD is used for enrollment, stratification, or to guide therapy decisions. As these trials read out, they directly support our commercial business. For example, data from the PERSEUS trial helped establish sustained MRD negativity as a meaningful measure of deeper response in multiple myeloma, which supports broader adoption of clonoSEQ in clinical practice. The momentum we are seeing in the pharma business is likely to be further supported by evolving regulatory trends. The FDA recently introduced a new clinical trial model that incorporates real-time data submission, with early proof-of-concept studies underway, including the TRAVERSE trial in mantle cell lymphoma, where MRD-negative complete response measured by clonoSEQ is a key endpoint. While early, this emerging model for accelerating data review will reinforce the value of MRD endpoints that are objective, quantitative, and longitudinal. These dynamics are particularly relevant in regulated and registration settings where data quality, reproducibility, and regulatory credibility are critical, and where clonoSEQ is well positioned as a clinically validated MRD assay. Taken together, the trends we are observing support a reinforcing flywheel between biopharma and clinical testing, as adoption of clonoSEQ in drug development generates evidence, strengthens clinical utility, and drives demand in the clinic. To wrap up on MRD, as shown on slide six, we are well on track to deliver against our key priorities for the year. Starting with clinical volumes, we initially guided to over 30% growth for the year. Based on our first quarter performance and continued momentum, we now expect volumes to grow to at least 35% in 2026, with potential for upside. Importantly, the underlying drivers of growth are already nearing our full-year targets. Blood-based testing is rapidly approaching our goal of over 50% contribution, and community contribution is already at 35%, in line with our full-year expectations. EMR integrations continue to advance, with six new Epic accounts added year to date and five more expected to go live in the next month. In April, we went live with Epic at another of our top 10 accounts, bringing us to seven of our top 10 now being fully integrated. On pricing, we remain on track to achieve our target of approximately $1,400 per test in 2026, supported by recent policy expansions in CLL and DLBCL, Medicaid payment traction, and commercial payer negotiations, with 10 signed in the first quarter alone. Finally, strong top-line growth combined with continued operational efficiencies positions us to achieve over 70% sequencing gross margin and expand adjusted EBITDA. Overall, our progress across these MRD priorities is a testament to our continued momentum and strengthens our confidence in our ability to meet or exceed our full-year commitments. Turning now to slide seven, our immune medicine programs are progressing well against our 2026 key priorities. We continue to scale our TCR–antigen data sets and advance our AI/ML modeling work. We now have more than 6 million functional TCR–antigen pairs, with data that currently spans about 50,000 antigens and 50-plus HLA types. This proprietary data set enables us to understand TCR–antigen interactions and their role in cancer, virology, and autoimmunity. We recently confirmed that our digital AI model outperformed the accuracy of existing public benchmarks in predicting TCR–antigen binding. We published this work in Proceedings of Machine Learning Research and presented at the Machine Learning for Health Symposium. Our focus this year is to further improve these models in targeted applications that could be attractive to partners seeking to leverage our data and our digital capabilities. In parallel, we are applying our AI-enabled immune medicine platform to identify the likely disease-causing T-cell receptors and their antigens in select autoimmune conditions. This quarter, we kicked off our RA target discovery partnership with Pfizer. We received over 1,000 patient samples and are on track to deliver the RA data package in 2026. As we continue to make progress on these 2026 priorities, we are advancing discussions on additional data partnerships, maintaining a disciplined approach to capital allocation, and operating within our expected cash burn range of $15 million to $20 million for the year. I will now turn the call over to Kyle, who is going to walk through our financial results and updated full-year guidance. Kyle? Kyle Piskel: Thanks, Chad. Starting on slide eight with our first quarter results, total revenue was $70.9 million, representing 45% growth year over year, driven primarily by continued strength in MRD, which accounted for approximately 95% of total revenue. Of note, amortization from the Genentech payments is excluded from all prior period comparisons. MRD revenue grew 53% versus the prior year to $67.1 million, with clinical and pharma contributions of 65% and 35%, respectively. Immune medicine revenue was $3.8 million, down 26% from a year ago, primarily due to timing of sample receipts and processing. Turning to margins, sequencing gross margin, which excludes MRD milestones, was 70% for the quarter, up from 62% a year ago. This improvement reflects reduced assay costs due to efficiencies from our NovaSeq X launch in 2025, leverage in overhead as we support higher volumes, and favorable pricing trends across both clinical and pharma. Total operating expenses, inclusive of cost of revenue, were $90.1 million, up 10% year over year. This increase was mainly driven by continued investment in commercial and infrastructure, including EMR integrations and reimbursement, as well as higher personnel-related costs. At the segment level, MRD continues to demonstrate strong profitability, with adjusted EBITDA of $12.1 million compared to a loss of $4.1 million in the prior year, reflecting the impact of revenue growth, including milestone revenue, and continued operating leverage. Immune medicine adjusted EBITDA was a loss of $10.4 million. At the total company level, adjusted EBITDA was a loss of $2.5 million. Net loss for the quarter was $20 million, including approximately $2.9 million of interest expense related to our royalty financing agreement with Orbit. I will now turn to our updated full-year guidance on slide nine. We are raising our full-year MRD revenue guidance to a range of $260 million to $270 million, up from our prior range of $255 million to $265 million. This increase reflects stronger-than-expected clinical volume performance in the first quarter and continued momentum across key growth drivers. This range includes $9 million of MRD milestone revenue, which was recognized in the first quarter, and we do not anticipate additional milestone revenue for the remainder of 2026. At the midpoint of the guide, this implies approximately 25% year-over-year growth, or 33% growth excluding milestones. In terms of seasonality, we continue to expect MRD revenue to be weighted approximately 45% in the first half and 55% in the second half. We are reiterating our full-year total operating expense guidance, including cost of revenue, of $350 million to $360 million. This reflects continued investment in MRD growth, with approximately 75% of spend allocated to MRD, approximately 20% to immune medicine, and the remainder to corporate unallocated. Importantly, we remain on track to achieve positive adjusted EBITDA and positive free cash flow for the full company in 2026. Overall, the quarter reflects strong financial execution supported by continued revenue growth, expanding margins, and operating leverage. With that, I will turn the call back over to Chad. Chad M. Robins: Thanks, Kyle. We are executing well across the business, and the strength we are seeing, particularly in MRD, gives us confidence in both our plan and the opportunity ahead. As we move through the year, we expect to build on this performance and drive additional upside over time. With that, I will turn it over to the operator for questions. Operator: We will now open the call for questions. Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while I compile the Q&A roster. Our first question comes from Andrew Brackmann from William Blair. Please go ahead. Andrew Frederick Brackmann: Hey, guys. Good afternoon. Thanks for taking the questions here. Wanted to ask on community testing. You know, Chad, as you sort of outlined here, I think you are already at the full-year target for the mix that you want coming from the community. Can you maybe sort of compare and contrast for us just the nature of the conversations that you are having with those accounts in particular today versus a year or so ago? You have got so much sort of tailwinds from the blood mix increasing and then also the EMR integration. So how have those conversations sort of evolved over the last year or so? Susan Bobulsky: Thanks for the question, Andrew. I can help answer that. I think a year ago, if you had asked me this question, I would have said the conversations had shifted from “What is MRD? Why should I care? Why should I do this?” to “How should I do this? Which patients? Which indications? Which use cases? Help me understand more of the practical applications.” And now, a year later, the conversations are increasingly shifting toward practical implementation. We are increasingly getting traction with conversations around protocols and, in fact, have established testing protocols in a number of large community centers and networks. The goal is: let us standardize testing so that all our patients have access to the best care; let us ensure our clinicians are not forgetting about this for their heme patients, who in the community may not make up the lion’s share of the patients they see every day. That sort of practical, implementation-oriented conversation is more and more the norm, and I think it is a really positive sign for the degree to which MRD is now becoming entrenched as part of the standard of care in the community at large. Andrew Frederick Brackmann: That is perfect. I appreciate all that color. And then just wanted to ask on the reimbursement front. Obviously, there is a lot of noise out there with respect to CMS and the CRUSH initiative. Can you maybe just remind investors how clonoSEQ is positioned from a reimbursed profile? How you see your rate as durable even if there are changes to things like MolDX nationalization or implementation of prior authorizations? Thanks for taking the questions. Unknown Speaker: Yes. It is Dave. Thanks for the question, Andrew. We have looked extensively at this question, and after internal and external evaluation with outside counsel, we determined that we are currently not subject to panel reporting requirements for the cycle. There are very specific and defined requirements for PAMA reporting by statute, and your tests must not only fall under the CLFS, or Clinical Laboratory Fee Schedule, but also have to account for over 50% of your Medicare revenue. CMS publishes a list of CPT codes that fall under the CLFS, and the clonoSEQ episode billing structure is not on it. If we go one level deeper, CMS does not identify the MolDX code that we use for billing under the clonoSEQ episodic rate structure as being on the CLFS list. It is worth noting, as you all know, that the vast majority of our Medicare revenues are generated through the episode rate structure billing under the MolDX program. CMS does consider the PLA code that we use to bill Medicare for MCL recurrence monitoring as being on the CLFS, but our Medicare revenues under the PLA code for recurrence monitoring are well below the 50% revenue threshold set for PAMA for this initial data-reporting period. Separately, as it goes to your durability question, we are pursuing a multipronged strategy that not only includes recurrence monitoring—we are also in productive discussion with MolDX to increase the number of tests per bundle under our episode structure. There are other things that we are looking at. This is of super high importance, and we are all over it. Andrew Frederick Brackmann: Great. Appreciate all the color. Chad M. Robins: Thanks, guys. Susan Bobulsky: Sure. Operator: Thank you. Our next question comes from David Westenberg from Piper Sandler. Please go ahead. David Michael Westenberg: Hi. Thank you for taking the question. Congrats on the great job here. So I want to talk about MRD as a primary endpoint. Congratulations on that. Should we think about different things like CDx or on the label, and how should we think about pharma basically helping to push your product because of it beyond the label? And lastly, I imagine there is a lot of power in being able to find patients that are recurring. Is there any potential reimbursement or strategic monetization of maybe getting these clinical patients into clinical trials that were not able to prior to maybe, you know, clonoSEQ and its incredibly high sensitivity? Susan Bobulsky: Thanks, David. I appreciate those questions, and I think it is an interesting set of topics. First, with regard to primary endpoint, as you heard in Chad’s prepared remarks, we are seeing increasing use of the assay in the pharma setting in terms of regulated studies. And even more beyond that, we are seeing use in interventional studies where MRD is being used to stop or start therapy and to qualify patients that should be enrolled in the study to begin with. That particular trend is extremely favorable for our business because, of course, we are the only FDA-cleared assay in the space. We are extremely well positioned to capture these opportunities. We are also an assay that has extremely deep sensitivity and high specificity, which is really important in the context of interventions where you do not want to be giving patients therapies they do not need, right? So, the question then comes up: is this a companion diagnostic? Should it be incorporated into studies? There are now the beginnings of studies that are exploring that use case for MRD, although up to this point, the FDA has not taken the position that MRD needed to be positioned as a companion diagnostic within the regulatory context. I imagine that will come up as time goes on. There will be some studies for which that may be appropriate and others not. But regardless of whether MRD becomes a companion or remains a complementary diagnostic for these studies and therapies, it is quite clear that pharma companies are very interested in partnering to ensure that MRD uptake supports the adoption of their therapies. We are already having numerous conversations with our biopharma partners who want to better understand MRD adoption dynamics from our point of view and want to think about how we can work together to expand MRD adoption, especially in the community setting. And to your question about the concept of clinical trial matching, that is potentially an application of the data that we generate, and we have done some initial exploration. There is some level of interest in that, but more work needs to be done to determine whether and how we may proceed. David Michael Westenberg: Got it. And if I may, I am going to ask just one more sticking with the clonoSEQ business. DLBCL grew 19% quarter on quarter. That is great, particularly because there is a lot of noise with competition and a competitor having a lot of different presentations. Do you think that you maybe saw benefits from all of the different presentations at ASH and that would be a one-, two-, three-quarter benefit as all these physicians saw that at ASH? Or do you think there is sustainability for something beyond that? Thank you. Susan Bobulsky: I think that the strength we saw in the DLBCL business in Q1 is very pleasing to see, but also we have seen very strong growth quarter over quarter prior to and since the entry of competition in the space. I am quite confident that the growth we are seeing quarter over quarter is driven by the sustainable moats that we have built and the durable advantages that we have—the brand awareness specifically as a heme MRD test, the technology and its advantages relative to other approaches to assessing MRD, and the broad real-world clinical experience that we have built along with the coverage and the customer satisfaction that we have been able to deliver. All those things have contributed to clinician confidence in utilizing clonoSEQ. As the noise around MRD and DLBCL continues to mount, we are disproportionately benefiting from that as the market leader. And— Chad M. Robins: I was just going to say, David, just remember it is really early days for MRD and DLBCL in general. Susan mentioned all the reasons that we are well positioned, but we see durable growth over many quarters ahead. The general sentiment is getting doctors to incorporate MRD into clinical practice as a routine measure. We are benefiting not only from noise across the industry, but also, as Susan mentioned, from the fact that we have what we believe is the most sensitive and specific test out there. Susan Bobulsky: Yes. And, David, we do intend to continue to release additional data in this space, and I think particularly at ASH, we expect that you will have the opportunity to see another round of significant data advance. David Michael Westenberg: Alright. Chad M. Robins: Thank you. Operator: Our next question comes from Mark Massaro from BTIG. Please go ahead. Mark Anthony Massaro: Hey, guys. Thanks for taking the questions, and congrats on another beat and raise. I wanted to start on the pharma backlog, which increased 24% year over year. And like David said, it is great to see the first primary milestone come in. I think in prior quarters, you have broken out the secondary versus primary funnel. So I am just curious if you could speak to, with just one primary milestone in the bank, what does that look like for you guys over the next couple of years? Is this something that you think can continue? And then can you just remind investors of the economics of the primary endpoint compared to a secondary endpoint? Susan Bobulsky: Sure, Mark. To start out, I can give you an overview of how the backlog is broken out. We have about 190 active studies, and of those, 111 are either primary or secondary endpoint studies. Twenty-three are primary, and the remaining 88 are secondary. And, Kyle, maybe you want to speak to the economics. Kyle Piskel: Yes. On the economics front, deal by deal can have its own unique differences, and I will not go into specifics. Generally, primary endpoint milestones are higher than what we have seen historically in the past, which has been the vast majority of secondary endpoint milestones. They will not all be the same dollar amounts, etc., but they are typically a little bit higher. Mark Anthony Massaro: Fantastic. And then maybe at a high level, can you give us a sense—might be for you, Chad—what inning do you think you are in the EMR integration? I am just basically trying to determine what type of upside you have as we think about getting to full maturity across the EMR systems. Chad M. Robins: I think one of the most important things is prioritizing going after our largest accounts. Now we are seven out of 10 of our top largest academic accounts integrated. In the community setting in particular is where we are targeting large network practices on EMR integrations. Flatiron gives you certain advantages that Epic does not in that you can turn on a lot of accounts at one time. We have now roughly 150 in the community on EMR integrations. The real point is once you have your accounts integrated, we have a very defined strategy about targeting those accounts for pull-through and how you optimize the EMR. I would say we are early on those, but in the accounts where we have gone in and put that muscle into it, we are seeing really strong results. That is the focal point right now: once we are integrated, how do we go in and optimize those accounts? So, I would say early, but we have a very strong playbook in place. Mark Anthony Massaro: Fantastic. Thanks, guys. Kyle Piskel: Sure. Operator: Thank you. Our next question comes from Subhalaxmi Nambi from Guggenheim. Please go ahead. Subhalaxmi Nambi: Thank you, guys. Thank you for taking the questions. You have mentioned before having preliminary discussions on increasing the Medicare bundle of tests to over four. Can you give us the latest on the progress in those? Is this a late 2026 or a 2027 opportunity, and what are the steps left in that process? Chad M. Robins: Yes. It is really hard to predict timing of government contractors and agencies, so I am not going to go out on a limb and try to do that on this call. The only thing I can tell you is that we have a very strong relationship, we continue to develop very strong evidence, and we have had very productive discussions. Subhalaxmi Nambi: That is fair, Chad. Then can you talk about your progress so far this year related to the structure of milestone payments versus transitioning pharma to a more direct pay-for-service structure? How has that been received by partners, and is there a percentage of total customer numbers you are looking to have transitioned as we progress throughout the year? Susan Bobulsky: It is a long process. Many of our contracts are multiyear contracts, and the renegotiations come up as those expire. It is going to take some amount of time, some number of years, for us to even get the opportunity to revisit existing contract structures. What I will say is that in the situations where it has come up, it has been a topic of conversation every time, and many of those conversations are still ongoing. Subhalaxmi Nambi: That is fair. And last one for me, for Kyle—maybe for sequencing margin—what is the ceiling this year, and what will the gross margin progression look like this whole year? Should we expect sequential increases each quarter? Will the full benefit of the NovaSeq transition be realized this year, and what other levers do you have for gross margins? Kyle Piskel: I appreciate the question, Subbu. As it relates to ceiling, we have talked about 75% as the north star. I think it is a fair step up into that 75% gross margin throughout the year. The utility of the NovaSeq X, as we continue to drive volume, just compounds value for us, and as we continue to improve our price point, you will see more margin improvement throughout the year. It is probably fair to state that as a linear step up through to about that 75% range. Subhalaxmi Nambi: Perfect. Thank you so much, guys. And sorry to have nitpicky questions because, honestly, the volume numbers are pretty impressive. So thank you, guys. Susan Bobulsky: No worries. Operator: Our next question comes from Sebastian Sandler from JPMorgan. Please go ahead. Sebastian L. Sandler: Great. Thank you for taking the question. My first question is on pharma MRD bookings and conversion expectations. It looks like most of the guide change is on better volume, so I am just wondering if you expect any of the incremental bookings you saw in 1Q to convert to revenues in 2026. I think normally there is a 20% release rate for in-year bookings, so I am just wondering what is baked in there and if there could be any upside to the guidance in that. And then I have a quick follow-up. Kyle Piskel: Great to see the bookings in Q1 and the increased backlog exiting Q1. As it relates to the guide, pharma is lumpy quarter to quarter. It is a great start to the year. I think we just want to be prudent here in managing expectations, so we will keep it at that 11% to 12% year-over-year growth. That being said, as the trajectory continues and the pace of bookings and pull-through of the backlog increases, it could provide some opportunity to lift the guide in the back half of the year or even potentially next quarter. Sebastian L. Sandler: Okay. Thank you. And then just a follow-up. It looks like EBITDA for MRD stepped up around $2 million quarter over quarter despite a $9 million pharma milestone. Were there any one-offs we should be aware of? It seems like it might have just been personnel and EMR costs. And then I know you have the total company adjusted EBITDA guide positive by the end of the year, but can you give us any more color on incremental MRD EBITDA margins for the balance of the year and pacing there? Thank you. Kyle Piskel: Sure. As it relates to the sequential movement from Q4 to Q1, there is a bit of seasonality in our business in Q1 where we have some increased costs that will not recur, and Q4 was also a little bit higher on the pharma revenue versus Q1. That is the majority of the mix. As it relates to EBITDA improvement in the MRD business, if you focus on the base business, it is going to have a continued growth trajectory throughout the rest of the year. I do not want to put anything firm in terms of an EBIT margin at this point, but suffice it to say it is going to continue to grow sequentially each quarter. Sebastian L. Sandler: Great. Thank you. Susan Bobulsky: Thank you. Operator: Our next question comes from Daniel Brennan from TD Cowen. Please go ahead. Daniel Gregory Brennan: Great. Thank you. Thanks for the questions, guys. Congrats. Maybe just starting off with the 35% volume guide—what do you think the puts and takes would be if you come in above that over the back half of the year, given we have been accustomed to these really strong volume numbers and now you just raised the bar again? Susan Bobulsky: Thanks for the question, Dan. We are very pleased with the performance in Q1. It is a strong start to the year, and we feel very confident in the 35% year-over-year growth. Could it be higher? Yes, and there is potential for upside. We are just early in the year, so we want to see how our key growth drivers continue to play out. It is the same things we have been talking about: EMR integrations and whether we can drive increased adoption of serial testing and increased pull-through, particularly on the Flatiron system, which allows us to really standardize the ordering approach. We have seen really good results to date from that. The blood-based testing—you saw 29% of myeloma MRDs coming in this quarter in blood—that is a nice step up, and we will continue to look for that as a potential area for upside because we do see increased testing frequency where we see increased use of blood. Community use—we achieved our goal, as Chad’s prepared remarks indicated, for the full year in Q1; we need to maintain that and continue to see disproportionate growth in that segment. The guidelines we have been promoting and the favorable updates that came last year have been an important component of that. If we can continue to build and implement the pathways I talked about earlier—protocols that dictate how testing will be done in a standardized fashion in large community practices—that is another source of upside. The “takes” are simply that we believe we are in a very strong position, we have the right strategy, we have the right team, and we are the market leader, but we will remain attentive to existing and emerging competition. That is why it is important for us to maintain a rapid pace of growth, invest appropriately, and solidify all the moats we have been talking about. Daniel Gregory Brennan: Maybe just talking about the commercial organization, can you remind us of the plan this year—where you stand now, what the targets are by year-end in terms of commercial adds—and what is the balance you are trying to strike with driving profitability while ensuring you have enough feet on the street to stay ahead of competition and maximize the opportunity? Susan Bobulsky: The short answer is that we think the team we have is the right team to continue to prosecute the opportunity. We have 65 sales reps in the field, split half and half between account managers who focus on academic institutions and diagnostic hematology specialists who focus on community practices. Our reps have manageable index values; they are calling on a reasonable number of accounts and doctors; and they have acceptable amounts of travel time. We always look at individual territory performance and potential, and we may shift or add territories here and there to capitalize on opportunities in specific geographies. Over time, we will continue to look at new deployment strategies that could justify additional hiring, and we are watching the market dynamics carefully in that regard, but we are not expecting to invest in any significant expansions this calendar year. Chad M. Robins: I will add that some of the areas where we are continuing to deploy capital and invest are EMR integrations, reimbursement and revenue cycle management, and continued data generation to demonstrate clinical utility across all of our indications. Daniel Gregory Brennan: Great. Thank you. Operator: Thank you. As a reminder, to ask a question, you need to press 11 on your telephone and wait for your name to be announced. Our next question comes from John Wilkin from Craig Hallum. Please go ahead. John Wilkin: Hi, guys. Thanks for taking the questions. Just one quick one for me. I wanted to dig in a little bit deeper on the sequencing side of the pharma business. I know you have historically talked about that business being more like a high single-digit grower, and now we are in the second straight quarter where it has grown—I think in Q4 it was 24%, and this quarter over 30%. If you could give a little detail on what is driving that acceleration and if you think that acceleration could be sustainable through the balance of the year? Thanks. Kyle Piskel: Yes, John, appreciate the question. I think we are seeing a lot of traction in the pharma MRD space. The bookings and backlog are really the drivers of that, and the pull-through is also starting to happen. Additional pharma partners want to generate data and get readouts on their trials. I think it is an opportunity for us to continue to go after, and we are going to be beneficiaries of it. Again, we will hold the guide here right now; I anticipate it will grow throughout the year, but it can be lumpy quarter to quarter. John Wilkin: Okay. That is helpful. Thank you. Susan Bobulsky: Thank you. Operator: This concludes the question and answer session. Thank you for participating in today's conference. This does conclude the program. You may now disconnect.
Operator: Good afternoon, and welcome to Alight, Inc.'s first quarter 2026 earnings conference call. Following their prepared remarks, we will open the call for questions. Instructions will be provided at that time. There is a presentation accompanying today’s call available on the Alight, Inc. Investor Relations website. I will now read the safe harbor statement. Today’s discussion includes forward-looking statements within the meaning of the federal securities laws. These statements reflect management’s current views and expectations and are subject to risks and uncertainties that could cause actual results to differ materially. Factors that may cause such differences are described in today’s earnings release and in Alight, Inc.’s filings with the Securities and Exchange Commission, including in the Risk Factors section of its most recent Annual Report on Form 10-K. The company undertakes no obligation to update any forward-looking statements except as required by law. In addition, during today’s call, the company may reference certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the earnings release available on the company’s website. I will now turn the call over to Rohit Verma, Chief Executive Officer of Alight, Inc. Please go ahead. Thank you, Sachi. Rohit Verma: Good afternoon, and welcome to Alight, Inc.'s first quarter 2026 earnings call. Joining me today is Gregory Giometti, our interim Chief Financial Officer, and Susan Davies, our Chief Accounting Officer. It has been a busy and productive first few months for me, and I am pleased to have this opportunity to share my thoughts with you. Today, we will cover my perspective on our results, some further transparency into the business, a view of the opportunity ahead, some reflections of what I have heard from clients, including its role in shaping our strategy, a view of the team we are building, and finally, a perspective on AI. Our first quarter financial performance was solid, as we exceeded the guidance shared during the last earnings call, which, as you will recall, took place just over 30 days into my time as CEO. Our outperformance was driven by higher-than-expected project revenue, as well as better-than-expected performance of partner revenue in the quarter. While our Q1 performance was better than expected, we will continue to see a difficult revenue comparison to the prior year due to the commercial execution over the last couple of years. It will take the next several quarters for that revenue pressure to completely work through our P&L. For these reasons, the team and I are intently focused on improving commercial execution by retaining clients and winning new clients. I am pleased to share that we are already seeing improvement in our new sales activity as well as our renewal execution. First quarter revenue of $534 million was comprised of $498 million in recurring revenue and $36 million in project revenue. As you all have observed before, our project revenue has been the major driver of volatility in our results. Project revenue was up 29% compared to Q1 2025, and this comes in succession to Q4, where project revenue was down 27% to Q4 2024, showing the volatility we have discussed before. Our recurring revenue was 4% below last year, resulting in a consolidated revenue decrease of 3%, which was better than expected. Adjusted EBITDA of $104 million benefited from the revenue flow-through and lower-than-expected employee health care expenses in the quarter, which kept the margin decline to only 200 basis points. All in all, we are happy with where we landed compared to expectations and glad to see the progress we are making. We are maintaining strong liquidity and generating significant cash. We exited the first quarter with more than $500 million in total liquidity. This is after our Q1 2026 TRA payment. At the end of Q1, we had $178 million in cash on our balance sheet and $330 million available on our revolver. Additionally, we generated free cash flow of $53 million in the quarter, a 20% increase compared to the same period last year, and we believe we will continue to see solid cash generation through the end of the year. This provides us the foundation to execute our core strategies. Additionally, it gives us the flexibility to invest in our business to accelerate the service and customer excellence initiatives that are critical to enabling industry-leading outcomes for our clients. I, along with our team, have operated with considerable intensity and urgency in the first quarter. I have met 90+ clients to date in 2026, made critical senior hires, and launched initiatives all focused on strengthening our market position and demonstrating our commitment to relentless execution. As I have met with clients over the last quarter, I have been increasingly energized about the strength of our solutions and quality of our customer base. Their feedback has been instructive and insightful. What is evident is that our clients want to work with Alight, Inc., and we believe we are really the only company that can truly service the needs of a diverse client base. On many occasions, the exact quote of our clients was that they want to see Alight, Inc. successful. These interactions have reinforced my confidence in our client retention and ultimately cash generation capabilities. During the quarter, we made key hires across the organization, including the Head of Delivery Transformation, Head of Specialty Sales, Head of Account Management, and Head of Marketing, along with making some critical additions deeper in the organization. Following the close of the quarter, we announced our new Chief Technology Officer, Naveen Bhawaja, who previously led technology at the Consumer Products division of Disney. I cannot think of anyone better to help reimagine customer experience and translate technology leadership into meaningful business and customer outcomes. Additionally, last week, we announced the appointment of Dinesh Solsiani as President of Employer Solutions. Dinesh previously served as Alight, Inc.'s Chief Strategy Officer and played an integral role in the company’s strategic evolution. In his new position, he will collaborate with other key leaders across the business to continue to advance Alight, Inc.'s strategies to deliver outcomes for clients at scale. We also launched multiple initiatives across the organization to maximize operational excellence and drive consumer-level client experience. Notably, we have expanded from our previous strategic coverage of the top 100 accounts to now include our top 400 accounts that represent just over 90% of our ARR in aggregate. Our increased coverage gives us a greater handle on serving those clients even better, building stronger partnerships, improving retention, and building a deeper pipeline. We provide market-leading solutions derived from our full-service integrated approach to managing health, wealth, and leaves on behalf of our clients. Within our Health solution, we provide comprehensive health benefits, including spending accounts, as well as point solutions like health care navigation services. Our primary focus is on ensuring a seamless consumer-level experience, whether the consumer is simply checking their benefits eligibility or scheduling a physical, or contending with a life-changing diagnosis. We also integrate 50+ partners across the ecosystem, which positions Alight, Inc. at the critical nerve center of the benefits ecosystem. Wealth comprises a portfolio of solutions for financial planning, including defined contribution plans, retirement savings, and pension plans to enable employees access to a pathway for financial preparation. We administer pensions both for corporations as well as various carriers who take on pension risk from corporations. The Leaves business handles absences due to short- or long-term disability, military leave, or family and medical leaves, which are not always straightforward or easy to navigate. Our Leap Pro and Absence Connect platform help our clients and their employees develop appropriate solutions to meet the needs of both the individual and the organization when an extended absence is necessary. As we move through 2026, we are focused on leveraging our scale, market recognition, and financial strength to capitalize on attractive industry dynamics and grow our leadership role. Benefits programs are a fundamental, nondiscretionary offering for most organizations, creating a large addressable market for our capabilities. Our ability to provide effective outsourced benefits administration is an attractive alternative to employers who often lack the in-house expertise to manage the demands of compliance, delivery, and technology. Additionally, because benefits programs are fundamental and nondiscretionary, our business tends to be more resilient through economic cycles. We believe our expertise across the benefits administration landscape, coupled with our scale, experience from a diverse client base, and disciplined execution creates a competitive advantage for us to win customers and establish long-term relationships with predictable revenue. We remain energized and committed to expanding our market-leading position and believe that the market opportunity in front of us is substantial. Alight, Inc.'s opportunity in the marketplace is unique. We have established a leadership position as the only company to effectively service our customer base ranging from large Fortune 500 companies to smaller, more Main Street operations as well as organizations in the public sector. These companies and organizations are all unique in their own way and require benefits offerings that match their structures, legacy, and priorities. We have more than 30 million participants on our platform, including corporate executives, field operators, young new employees to retirees, and our products and solutions are designed to deliver the reliability and personalization these employees deserve. We understand the challenges inherent in navigating the benefits ecosystem, and we are well positioned not only to provide solutions but to manage complexity and drive adoption. In addition to human expertise, we are leveraging enterprise AI adoption to capture efficiencies and further improve service excellence and user experience. To that point, we have all heard a lot about AI and its potential impact on a variety of industries. At Alight, Inc., we are uniquely positioned to deploy AI that is personalized, predictive, assistive, and grounded in real-world data while drawing on information from our large user base, participant interactions, and decades of domain expertise. We view AI not as a stand-alone solution, but as a force multiplier across our scale platform. By strategically implementing AI, we can turn data into guidance, turn guidance into action, and action into better outcomes in the moments that define health, wealth, and leave decisions. It is important to understand that we deal with situations of varying complexity that include unions, grandfathered plans, or multiple enrollment dates. We are also embedded in our clients’ workflow as the core system of record for their benefits. Accountability is essential since regulatory compliance and outcomes both matter in our space. Health, wealth, and leaves all have a significant regulatory component. That accountability needs clear definition and ownership that cannot be made by an AI agent alone. AI is not a replacement for what we do; rather, it is a mechanism to unite the data, insights, and human expertise our clients depend on. A meaningful portion of our participants are navigating decisions related to managing a life-changing development, and those decisions cannot be made with the support of AI alone. Some of these are happy life events, and some require the empathy and guidance of the human touch. I expect to share more with you about our AI journey and its impact in coming quarters. As I mentioned on our last call, we are driving the business forward with our commitment to three clear operating principles: deliver service and operational excellence; innovate products that create value and actionable insights; build relationships that result in enduring, trusted partnerships. These operating principles are the compass as we continue to pioneer this space. We are the only company of our size and scale with a singular focus on benefits administration, providing a full range of health, wealth, and leave solutions, and we believe we have a substantial advantage in the industry where most of our competitors take a more singular approach, providing health, or wealth, or leave solutions, or where benefits administration is a small non-core part of their business. Our focus on benefits as a whole allows us to provide deeper engagement, effective solutioning, and targeted investments. I am confident that our team’s commitment to these guiding principles and our leading position in the marketplace will drive favorable results for our clients and for Alight, Inc., and we are already seeing notable progress to enhance execution. I will now turn the call over to Gregory Giometti for the financial results. Gregory Giometti: Thanks, Rohit, and good afternoon, everyone. I will now walk you through our first quarter 2026 results. Echoing Rohit’s comments a moment ago, we delivered stronger-than-expected first quarter revenue, adjusted EBITDA, and free cash flow. Revenue for the first quarter was $534 million, a decrease of approximately 3%. We had anticipated a revenue decline in the high single digits for the quarter, and we were pleased to achieve a more favorable result. As you know, we think about our revenue mix in two distinct categories: revenue from recurring, renewable business and nonrecurring, project-based business. In the first quarter, we recorded recurring revenue of $498 million, which was a decrease of 4% compared with the first quarter of last year, reflecting higher partner network revenue in the quarter that was originally expected later in the year. Project revenue for the quarter was $36 million, up 29% compared with the first quarter last year, exceeding expectations. Adjusted gross profit in the first quarter was $189 million, down $11 million from the prior-year period, reflecting an adjusted gross profit margin decline of 110 basis points. First quarter 2026 adjusted EBITDA was $104 million, or adjusted EBITDA margin of nearly 20%, as compared to $118 million, or adjusted EBITDA margin of nearly 22%, in the prior-year period. The first quarter adjusted EBITDA decrease was less than anticipated due to flow-through from the better-than-expected revenue performance and timing of expenses. Adjusted net income in the first quarter was $35 million, with adjusted EPS of $0.[inaudible], compared to $52 million of adjusted net income and adjusted EPS of $0.10 in 2025. Looking forward, with our visibility today, we expect second quarter 2026 revenue in the range of $490 million to $505 million, adjusted EBITDA between $80 million and $90 million, and free cash flow ranging from $35 million to $45 million. Our guidance reflects the continued impact of prior commercial execution, which is expected to work its way through our P&L over the coming quarters. Turning to capital and liquidity, we closed the quarter with strong liquidity of more than $500 million. At the end of Q1 2026, we maintained significant financial flexibility including $178 million in cash and equivalents, $330 million of availability on a revolving credit facility, and free cash flow of $53 million. With cash flow growth in Q1, we have continued to strengthen our liquidity, providing us flexibility to pursue our capital allocation priorities, which include investing in the long-term growth of the business, deleveraging, and opportunistic share repurchases. With that, I will turn the call back to Rohit. Rohit Verma: Thanks, Greg. My first few months at Alight, Inc. have been educational and productive, allowing me to synthesize the valuable customer feedback we received with what I have learned about the scope of our solutions and the scale of our capabilities. Since January, our team has made excellent progress executing our core operating principles and building on our solid foundation to strengthen our organization. Our success depends on our focus as a client-centric organization, and that starts from the top with me. As I mentioned, I have met with 90+ clients since joining Alight, Inc., and regular engagement with our client base will remain a top priority for me. We are assembling a leadership team that brings significant industry experience and who embrace a commitment to client engagement and service excellence. We are moving quickly and are building a team that can accelerate the pace of play. Key initiatives to decidedly strengthen our market leadership are underway. These are focused on reimagining the user experience and driving AI-based service that will help define the new standards for the industry. Our ability to deliver reliability and personalization in a scaled benefit management solution that provides value to our clients and better outcomes to their employees is a competitive advantage in the marketplace. I am confident that we have the right people and strategies in place to continue building momentum across the business, and I am optimistic about what the future holds for Alight, Inc. Finally, our CFO search is progressing well, and we expect to have some news to share shortly. Susan Davies, Alight, Inc.'s Chief Accounting Officer and Global Controller, will step in as interim Chief Financial Officer as Gregory Giometti leaves Alight, Inc. to pursue a new opportunity. We thank Greg for serving as interim CFO for the past several months and wish him all the best. Sachi, you can now open the call for questions. Thank you. Operator: We will now open the call for questions. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. The first question is from Kyle Peters from Needham & Company. Please go ahead. Ross Cole: Hi. This is Ross on for Kyle Peterson. Thank you for taking my question. I was wondering if you could provide any commentary on how the RFP season looked in the past quarter. In other words, have you won any business here? Thank you. Rohit Verma: Thank you. As I mentioned in my remarks, our execution, both from a renewal perspective and new business, is getting better and better. We had a very good new business as well as renewal activity season in Q1, and it was better than Q1 last year. Ross Cole: Great. Thank you. And if I can ask another question, could you talk a little more on the working capital dynamic and if it should start becoming a source of cash? And also, what percent of the book is up for renewal this year? Gregory Giometti: I can take the first part, Rohit, and then I will let you comment on renewals. We definitely did see some working capital benefits in the first quarter across a variety of areas, including cash taxes and general working capital, that helped drive the free cash flow result. Rohit Verma: And then the second part of the question was the size of renewals for the year. I would say it is definitely less than last year. I would put it somewhere within the 25% to 30% range of the total book, which is in the normal range that we would expect. Operator: Thank you. The next question is from Curtis Nagle from Bank of America. Curtis Nagle: Great, thanks very much. Maybe any help you might be able to give in terms of expectations for cadence of recurring revenue year-over-year growth? Then would you be able to size how much that influx of partner revenue—earlier partner revenue—helped in the Q1 recurring revenue in the quarter? Rohit Verma: Sure. As we have mentioned, we have been giving revenue under contract at the start of the quarter. If you recall, when we started Q1, the recurring revenue under contract was about $1.97 billion. Our recurring revenue for the start of Q1 is just over $2.0 billion, so that effectively sets a floor for where we are in terms of revenue under contract. Just to clarify, that is total revenue under contract, 94% of which is recurring. On the partner revenue side, it was about $4 million to $5 million that we had expected to come over the full year, and that came in pretty much all in the first quarter. It is recurring, but it does not recur every quarter. Curtis Nagle: Okay, great. And then any guidance you might be able to give for free cash flow for the year—expectations? Rohit Verma: We believe that we will continue to see solid free cash flow generation for the year. We saw $53 million this quarter, which was about 20% higher, and Greg shared with you that we are expecting $35 million to $45 million in the second quarter. That is as much guidance as we are prepared to give right now. Thank you. Operator: The next question is from Peter Heckmann from D.A. Davidson. Please go ahead. Peter Heckmann: Good afternoon. Thanks for taking my questions and good to see the stronger-than-expected first quarter results. In terms of your EBITDA range for the second quarter—down significantly more than the first quarter—should we infer that, number one, you do not expect quite as strong a professional services quarter, and number two, some of the timing of expenses, some of those expenses that you plan to make, will kick in? Any other factors playing into the year-over-year decline in EBITDA in the second quarter that were not present in the first quarter? Gregory Giometti: Yes, I think that is right. If you think about the guidance that we gave in terms of expectations around first quarter profitability, the second quarter guide is relatively in line with that. The exceeded expectations in the first quarter—given the high profit margin on project revenue—certainly drove higher margin in the first quarter. We are expecting a more muted project revenue at this point in the second quarter, which drives more consistency with what we had expected for the first quarter from a profitability perspective. And to your point, yes, we do see some of those expenses shifting between quarters. As a follow-up on free cash flow conversion, generally speaking, 44% to 50% is a reasonable range. There can be some variability quarter to quarter, especially with the seasonality of some of the commissions business and things we have in the back half of the year, but as we think about averages, that is a reasonable measure. Peter Heckmann: Okay. I will get back in the queue. Thank you. Operator: The next question is from Sharon House from KeyBanc Capital Markets. Please go ahead. Analyst: Hi. This is Summer on for Scott. I was just wondering if you could talk more about the momentum you are seeing building out the new team and the impacts you have seen so far. Thank you. Rohit Verma: Thank you so much for the question. We are very excited about the team that we are building. It is not just the senior hires that we have made, but also deeper in the organization. The most important piece for us is increasing the coverage of accounts. As you heard me say, we were covering about 100 strategic accounts for us with a true designated account executive. That number is up to 400 and covers 90%+ of our ARR. We believe that kind of coverage really gives us a good view of our clients, a good view of the health of our clients, and helps increase our ability to retain clients and build a pipeline along with them. As I mentioned earlier, we have had a good renewal season in Q1, we have had good commercial execution in Q1, and we are expecting to continue to build on that momentum. We still have a lot of work to do, as the team is new and we are building a newer muscle in the organization, but we feel good about the progress that we have made. Operator: There are no further questions at this time. I would like to turn the floor back over to Rohit Verma for closing comments. Rohit Verma: Thank you, Sachi, and thank you all for joining. I would like to thank our clients for their trust and confidence in us, and importantly, our employees who have been relentless in their efforts. I appreciate your continued interest in Alight, Inc., and I look forward to updating you on our progress in the quarters ahead. Thank you so much, and God bless. Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Marriott Vacations Worldwide First Quarter 2026 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Neal Goldner, Vice President, Investor Relations. Thank you. You may begin. Neal Goldner: Thank you, and welcome to the Marriott Vacations Worldwide First Quarter Earnings Conference Call. I am joined today by Matt Avril, our Chief Executive Officer; Mike Flaskey, our President and Chief Operating Officer; and Jason Marino, our Executive Vice President and Chief Financial Officer. I need to remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, which could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the press release as well as comments on this call are effective only when made and will not be updated as actual events unfold. Throughout the call, we will make references to non-GAAP financial information. You can find a reconciliation of non-GAAP financial measures in the schedules attached to our press release and on our website. With that, it's now my pleasure to turn the call over to Matt. Matthew Avril: Thank you, Neal, and good morning, everyone, and thank you for joining us. Each quarter, I will address our prior commitments, progress made and what lies ahead. Let me start this morning from where we left off on our February earnings call. During that call, we laid out a clear set of priorities and how we expected the year to unfold. Our focus was on improving profitability and cash flow, accelerating growth, taking actions to lower costs and monetizing non-core assets. We also stated that 2026 would be a first half, second half type year. Let me begin by updating you on where we stand against those commitments. We talked about aligning our organizational structure and leadership team, reduce the scale of our Asia business, which we've done, benefiting our current year capital spend and future margins, take actions to lower costs, monetize non-core assets and most significantly, initiate our commitment to revenue growth and operational excellence. In the last 2 months, we've made demonstrable progress. We've made significant changes across the executive team and in key leadership roles to better drive overall performance, grow revenues, EBITDA and cash flow. In particular, the process began with hiring Mike as President and Chief Operating Officer, and in turn, we've added experienced leaders across sales and marketing. We have also successfully added direct frontline talent in our sales galleries. The leadership decisions taken were deliberate and a priority set when I stepped in early in the year, and they are already beginning to show results in the business. I undertook a full assessment of where we needed to build on the best of our company and also the need to infuse it with new experience and talents from outside. These actions are about positioning the business for more consistent performance and stronger growth over time, now and ongoing, including the initiatives Mike will discuss shortly during the call. We also implemented the workforce reductions we committed to on our last call, and we completed those in the middle of March. They will benefit the balance of the year and are contemplated in our guidance. We closed on the sale of the Westin Cancun hotel in January and listed additional non-core assets targeting more than $125 million gross in additional proceeds this year. We remain on track to generate $200 million to $250 million from asset sales by the end of 2027. With that context, let me turn to the first quarter. Our first quarter was a period of significant transition. We stated in February that we expected contract sales and adjusted EBITDA to be down in the first quarter, and our results were consistent with that expectation. Adjusted EBITDA declined 16% to $161 million. Contract sales were down 2% versus last year with VPG increasing 1%. Tours were down 3%. Owner sales increased 3% compared to the prior year, driven by a 4% lift in VPG. Marketing and sales costs increased 300 basis points year-over-year as a percentage of contract sales, reflecting the in-flight operating strategies from late 2025. Product costs increased 110 basis points on the same basis and was in line with our expectations. Finally, we generated $114 million of adjusted free cash flow, resulting from our deliberate actions to improve our cash generation and capital discipline. Our focus remains unchanged, consistent execution, improving profitability, strong cash flow generation, disciplined capital allocation and a clear emphasis on near-term and sustainable growth in contract sales, EBITDA and cash flow. Our financing and management businesses continue to generate stable, recurring high-margin revenue and cash flow, underscoring the durability of our business model. Importantly, given the nature of our product, our owners have already purchased their future vacations. This provides a high level of visibility for our future tours that fuels our direct-to-consumer sales model and allows us to drive demand on site. Our forward-looking indicators remain healthy. Resort occupancy is expected to be 88% to 90% in Q2 and for the full-year. 96% of our expected owner utilization for the second quarter is already on the books. We expect owner occupancy to increase as our new initiatives we are implementing begin to drive higher owner arrivals. These compelling occupancy levels reflect our strong commitment to delivering outstanding hospitality services and overall memorable vacation experiences to our owners. Lastly, the nature of our preview packages provides a highly predictable source of future tours totaling approximately 110,000 for 2026 arrivals. We are confident in what is ahead. We have executed on capital discipline initiatives, taken steps on our cost and operating structure and more recently, implemented a series of hires in sales and marketing that are already driving results. During today's call, Mike and Jason will detail these initiatives and how they are reflected in our expectations and our April contract sales results. In accepting the appointment to CEO in February of this year, it was important that I identify clear priorities and actions to be taken with respect to them. Principal among those have been the ongoing evaluation of our operating structure and personnel that started day 1 when I stepped in last November. I very much believe the best companies are able to benefit from continuity and experience in their organization and at the same time, being able to attract talent with different experiences and additive expertise to the business. I have also been committed to driving improvements in our operating culture. Being able to act with speed and commitment and decisiveness is an imperative for our organization. We have dramatically improved the cadence of our decision-making. We have added talent. We are generating improved results as you will hear more of today. It was also clear that there would be a period of transition, and that was evident in our first quarter earnings. Looking forward, we are very pleased by the significant traction we are seeing in April, during which our contract sales were up 8% year-over-year. We are increasing our contract sales guidance based on our recent trends and the impact of new initiatives underway. As we work through the first half of the year, there are certain expenses being incurred as we transition to our new operating priorities, principally in sales and marketing. Accordingly, we believe it is prudent to reaffirm our existing EBITDA guidance. With respect to our future, I'm incredibly excited about what lies ahead for the company. Game-changing initiatives are underway. They are returning us to a path of revenue growth, product enhancement, energy and optimism that now exists inside our company. Momentum is an incredibly powerful force in either direction. I will say unequivocally, there is a tremendous positive momentum inside our company. People are energized and committed. It is being built both with the infusion of new talent as well as the reinvigoration of our many associates in the workforce at Marriott Vacations Worldwide. We have long had the opportunity to represent the best brands in vacation ownership and unbelievably loyal and broad-based customer profile. The company has long enjoyed a premier position in the industry, and we look forward to reasserting that position. With that context, I'll turn the call over to Mike. Michael Flaskey: Thanks, Matt, and good morning, everyone. I joined Marriott Vacations about 3 months ago. Since then, I have spent my time diving into the business, the team and the opportunity in front of us. I've been in the field with our associates and in many of our sales centers. I've also spent time speaking with investors. What's clear to me is that we have a strong team, tremendous brands with very meaningful upside. What's encouraged me most is how much of the opportunity ahead of us is within our control, and we have already implemented several initiatives that are driving improvement. At a high level, our new operating framework is centered on improving contract sales by growing the right tour flow and strengthening our operating discipline. Expanding demand from new sources and driving incremental tours from our existing infrastructure, all while increasing average sales price. As we look at the opportunities in front of us, we bifurcated them into both near term and long term. In the near term, we have a clear focus on improving our core operations, which are already impacting our results. First, we are building a high-performance organization designed to drive revenue growth by strengthening our sales processes and talent. To achieve that, we hired a new Chief Sales and Marketing Officer with a demonstrated track record of success that I've also worked with for years, and we have several other powerful sales and marketing leaders that we have added to the team. We are also seeing a resurgence of top sales talent returning to the organization alongside exceptional new talent desiring to join us. Our transformation has the company excited, and we are seeing it across the organization. Second, we reorganized our sales and our field marketing organization, positioning us to move faster and more effectively as we execute our growth initiatives. On May 1, we restructured our sales and marketing leadership compensation packages, aligning their incentives to revenue growth and net operating income, which better aligns their compensation with the company's revenue and adjusted EBITDA performance. Third, we launched a new data-driven tour logistics initiative designed to better align tour flow with the right salesperson, improve conversion and enhance the overall selling experience through more effective use of sales center technology. We are already seeing results from this initiative. I am very happy to report that global contract sales were up 8% in April on a year-over-year basis, as Matt mentioned, powered by North America, where we were up 11%. This is very encouraging on many levels, in particular, North America, which is offsetting our planned reductions in Asia. This is a significant indicator that our strategy has taken hold. We also have several initiatives that will enable long-term sustainable growth that will meaningfully impact EBITDA in the second half of the year. For example, on May 1, we announced changes to our owner loyalty levels, adding 2 new tiers at the high end of the Marriott program. By the end of May, we will also be introducing a new buyer incentive called Dream Vacation Packages. Through these initiatives, we expect to drive a higher close rate and more predictable and quantifiable pipeline of future tours and higher VPGs company-wide. On June 22, we plan to launch our experiential event marketing program to be called Inner Circle. In my experience, this type of event platform has proven to drive higher quality incremental tour flow and VPG, while strengthening engagement across the owner's life cycle and the team that we now have introduced this concept to our industry. We feel very confident in our ability to execute on it. Importantly, Inner Circle supports our broader lifetime value strategy by enhancing the customer journey, extending owner longevity and creating opportunities for increased wallet share over time. Let me pause on this for just a moment and explain what this means. The totality of these 3 programs incentivizes our owners to return to our properties and our sales galleries in a more predictable and managed way, driving higher tours and VPGs through increased average transaction size, thereby driving higher and more profitable contract sales. Finally, we are building a national and local partnership marketing capability to expand our reach beyond our existing databases to drive incremental tour flow. This will also allow us to grow tours through affiliations with the proven Marriott Bonvoy and World of Hyatt loyalty programs. Some of these initiatives are more transformational and will take time to ramp up with meaningful benefits expected to begin later this year and into 2027. Through the launch of these new initiatives, we are focused on growing our average transaction size and VPGs. We also have a unique opportunity with our points product to create multi-week vacation packages supported by our transformed owner benefit levels and powered by our world-class brands. To support these initiatives, we are applying data-driven tour logistics to better match the right guests with the right sales executive and upgrading our programs to create more compelling reasons for owner engagement while on vacation. Particularly through initiatives like the Dream Vacation Packages and Inner Circle. To wrap up, to say I'm very encouraged by what I've seen so far is an understatement. We have a clear pathway to significantly improve our commercial performance in both the near term and the long term. The power of the talent that we've added to the company and the reenergized disposition of the existing team has improved operational execution across the board. Along with our new owner loyalty levels, the Dream Vacation incentive and our Inner Circle event platform, they have us set up nicely for a predictable and sustained growth trajectory. With that, I'll turn it over to Jason to walk through the financials and provide more detail on the quarter. Jason Marino: Thank you, Mike. This morning, I'll walk through our first quarter results, then touch on the balance sheet, cash flow and our outlook for the year. First quarter contract sales declined 2% year-over-year to $411 million. Owner sales increased 3%, offset by lower sales to first-time buyers. Tours declined by 3%, driven primarily by our planned actions in Asia, which was restructured at the end of January to improve profitability and cash flow as well as our decision to reduce tours to consumers with FICO scores below 640 starting last year. Excluding Asia Pacific, contract sales declined 1%. Development profit declined $24 million year-over-year to $55 million due to lower contract sales, lower reportability and higher product costs, all of which were in line with our expectations. In addition, marketing and sales costs increased year-over-year, primarily due to increased training costs and higher salaries, which are being addressed with the initiatives Mike mentioned. Sales reserve was 12.3% of contract sales in the quarter, lower than Q4. 120-day delinquencies were up 17 basis points compared to the prior year and were down 45 basis points compared to 2024 levels. Defaults were unchanged from prior year, and our rigorous reserve process continues to indicate that we are adequately reserved given our overall loan performance. Importantly, our more recent 2025 receivable originations are performing in line with our expectations, giving us further confidence in our reserve. As expected, rental profit declined $10 million year-over-year due to higher inventory levels and associated unsold maintenance fees. Management and exchange profit declined $2 million, largely attributable to lower profit at Aqua-Aston. Finally, excluding the change in the presentation of interest expense in our warehouse credit facility, financing profit increased $2 million. As a result, adjusted EBITDA declined 16% year-over-year to $161 million and adjusted EBITDA margin declined 370 basis points to 19%. Turning to the balance sheet. We finished the quarter with $3.3 billion of net corporate debt and leverage of approximately 4.2x. From a maturity perspective, we are well positioned with no corporate debt maturities until December 2027, providing us with meaningful financial flexibility. Our adjusted free cash flow was $114 million in the quarter, an increase of $74 million over last year, driven by lower inventory and capital spending as well as the $50 million of proceeds we received from the sale of the Westin Cancun. In April, in the midst of market volatility and increasing uncertainty, we completed our first securitization of the year, raising $460 million at a blended interest rate of 4.86% and an advance rate of 98%, further strengthening our liquidity and demonstrating continued access to the ABS market. Before turning to guidance, I want to briefly address capital allocation. We remain focused on reducing leverage over time while continuing to return capital to shareholders. As cash flow from operations and disposition proceeds materialize, we will balance debt reduction, dividends and opportunistic share repurchases within a framework to reach leverage levels below 4x. Turning to guidance. We now expect contract sales to increase 3% to 7%, which is above our original guidance, driven by the new revenue initiatives Mike discussed. We expect tours to decline in the 1% to 3% range this year, driven by the intentional reduction in Asia and for VPG to increase in the mid- to high single digits. As we highlighted in our press release this morning, we are reaffirming our EBITDA guidance for the year, reflecting our higher contract sales and higher operating expenses over the short term to support these new initiatives. We expect our operating expenses as a percent of revenue to decline sequentially over the balance of the year as we leverage growth in our revenues. In terms of quarterly cadence, contract sales and adjusted EBITDA growth remains weighted toward the second half of the year as new revenue initiatives ramp with our first Inner Circle events targeted for later this quarter. For the second quarter, we expect contract sales to be up 4% to 8% year-over-year as our new revenue initiatives start to work through the system and adjusted EBITDA to be $197 million to $202 million. Finally, our expectations for management and exchange profit, rental profit and G&A are largely unchanged from our previous guidance. From a cash flow perspective, we continue to expect adjusted free cash flow for the full-year to be between $375 million and $425 million compared to $145 million last year, and we expect free cash flow conversion this year to be in the mid-50% range. We continue to make good progress on our non-core asset dispositions, listing multiple assets that we expect to generate more than $125 million of proceeds this year on our way to disposing $200 million to $250 million in total by the end of 2027. Any proceeds from these sales will be excluded from our adjusted free cash flow. As I wrap up our prepared remarks, I couldn't be more optimistic about MVW's long-term future. The organization is energized by our new leadership team, our April sales results, the launch of new programs and culture of accountability. The transition to EBITDA and profitability growth is beginning. Our momentum is increasing, and we look forward to the second half. With that, we will be happy to answer your questions. Operator? Operator: [Operator Instructions]. Our first question comes from David Katz with Jefferies. David Katz: I feel like, quite frankly, I have about 10 questions. What I'd like to just get from the team is really just a big picture perspective on how confident are you versus where you were a few months ago when we first started talking about this in the long-term earnings power? I think that's been made clear by the incentives that you've laid out, not just near term, but longer term. What has to go right for you to achieve that long-term big picture earnings power? Matthew Avril: David, it's Matt. Thanks for the question and for joining us. I think the simple direct answer is we have to continue to enhance the experiential value proposition to our owners, drive their engagement rooted in our guidance for the rest of the year and things we're already seeing is lifting our tour flow opportunities with our owners at our properties. We have tremendous occupancy levels, and there is a lot of runway for us to do that. Secondly, as I said at the beginning of my remarks today, in any situation from my perspective, like the one when I stepped in, is you assess who and then you go assess what. I will tell you that we are, from my personal perspective, well ahead of where I could have hoped we would be a little over 2 months ago, stepping in and taking on the role in a more permanent way. We needed to have an infusion of talent, expertise and blending that into a terrific in-place workforce in order to accelerate how we put things into play in the field in our business. As we've alluded to, to see that take place in the way that it already has in April has been really gratifying and probably faster than I could have expected during that period of time. Then in terms of how you sustain that over time, there is sort of that inherent flywheel, which is as we build and create more value experientially in particular, for our owners, give them more reason for us to have more share of wallet for their travel and their vacation. It's the nature of the product that our best customers do travel and travel more, and we're committed to earning more of that share of wallet. Then over time, we'll continue to add new owners to the top of the funnel as well. The team has been assembled and is being assembled each and every day. We've been in very good shape on the team, the initiatives to add attractiveness to owning the product and experiencing it. That's the big picture that I would provide. David Katz: Appreciate it. One just a very quick follow-up. Since the Street is hyper-focused on this, and it's -- we always need something to worry about. Is there anything noteworthy with respect to loan loss or delinquencies and it may be difficult to tell at this stage in the turnaround, but just checking in. Jason Marino: Yes, David, this is Jason. Thanks for the question. Yes, at this point, we feel really good about where the portfolio is. We ran through a bunch of metrics on the call in our prepared remarks, and we feel really good with our process and what we're seeing, especially as it relates to the near-term delinquencies, which are the majority of the book in terms of the nearer-term vintages, sorry, and so we feel good. Operator: The next question comes from Patrick Scholes with Truist Securities. Charles Scholes: Question for you regarding expectations for development profit. I believe on the prior earnings call, you had expected development profit for the year to be up. It was down quite a bit in Q1. Is your -- in light of that, do you still expect it to be up for the full-year? Jason Marino: Yes, Patrick, this is Jason. That's right. As we move through the year, we expect our development profit will grow as we -- based on the implied guidance that we've given, that is the big growth driver in our business. That's what Mike is driving throughout with the higher contract sales. We expect product costs similar to the guidance we gave on the last call, we'll be up a bit year-over-year, but consistent with where we were in Q1. Then as we go through the year, we'll continue to leverage our marketing and sales costs and drive higher development profit as we move through the year, so that is our expectation. Operator: The next question comes from Ben Chaiken with Mizuho. Benjamin Chaiken: I would love to hear about some of the changes in sales and marketing, specifically on the event side. I think, Mike, you kind of suggested it actually doesn't start -- doesn't launch until later this summer. Is that correct? Then anything you can share here would be helpful. Then is it fair to say that the contract sales acceleration you've seen has not even kind of like touched that event/Inner Circle side? I guess the implication being that it's all related to changes in sales personnel. I guess I'm kind of alluding to the success in April. Then one follow-up. Michael Flaskey: Yes. Thanks, Ben. Look, from April standpoint, if you think about it, we need to be great at what we're supposed to be great at. What you saw and what Matt alluded to and I alluded to in the prepared remarks about our contract sales growth in April was from doing just that, fundamentally going in and being better at operating the business. To use an analogy like a sports team, we had to eliminate the penalties. We had to get in shape to play the fourth quarter. We had to do the basic fundamentals to win a few more games, which is what you saw. Now as we start introducing the things that we talked about like the new loyalty levels May 1, the Dream Vacation incentives towards the end of the month and then specifically your question, Inner Circle coming in June, we should really see that just turbocharge the momentum that we've already built. As you know and as you've written about, we're -- we know the event business, and we know it very well. The team that's here created the event business for the entire industry. We've never had brands like this to power it, so it's incredibly exciting, not only to our first customer, which is our sales and marketing executives, but it's also going to be a big hit with the owners. Benjamin Chaiken: Then I guess on the contract sales guidance, this is maybe a multiparter, but I guess, a, how much did you -- and I guess we can all -- we have some implication or some inference could you give us April, but how much did you bake in for these for Inner Circle specifically in broad strokes without getting like too hyper specific? Then question 2 would be, how did you think about the change in contract sales guide and no change in EBITDA? Could you maybe just help us out a little bit on that? Was there something on the cost side that you're assuming that's different than prior? Or is it just some conservatism? I know in the prepared remarks, you mentioned some sales -- some higher sales and marketing expense. If we could just open that up a little bit, I think it would be very helpful. Matthew Avril: Ben, this is Matt. Thanks again for the questions. I'll sort of do it in reverse order. From a guidance perspective, you're right in my prepared comments, I talked about sort of the word prudent. We clearly have terrific momentum, and we've got great traction raising the guidance level. I acknowledge both some of the transition costs that we're already absorbing relative to the first quarter's performance, some transition costs as we have brought on the new teams and launching the events platform, the Dream Vacations and the owner benefit levels. There's a lot of internal work that has gotten done at an accelerated rate to support those rollouts. I think our guidance being in the range simply reflects that dynamic to the degree it ultimately may turn out to be conservative. I'll tell you, we're very focused on delivering actual. The decision on guidance was simply balancing the -- what we would acknowledge is the more recent trend, but the enthusiasm and optimism and the visibility we have to what's coming on the revenue side, and we're going to work really hard on the cost side to maximize that flow-through. It was a bit of balancing those 2 competing forces, if you will. Your other question, Ben, on the front end, please remind me. Benjamin Chaiken: Yes. It was basically just how did you think about -- obviously, there's been some acceleration in contract sales from the start of the year. Then how did you balance that versus layering in the Inner Circle dynamic? I don't know to the extent how much that actually contributes to '26. Maybe it's maybe the back half. Matthew Avril: Yes, fair question, Ben. We feel like we've got a number of factors and certainly events is platform and the attractiveness of that is part of it. They all combine to drive one of our underlying metrics that are contributing to that contract sales acceleration is our increased tour flow from our owners on property and increasing the experiential aspect, those events are geared towards our best customers and our owners on site. It is embedded in that acceleration. I wouldn't do an attribution waterfall chart, if you will, this much of the increase is this, this, this. It is the totality of all of the things that we're rolling out simultaneously. Operator: The next question comes from Brandt Montour with Barclays. Brandt Montour: I apologize for my connection here. Can you just maybe break out that April metric and give us a sense of how much of that was close rate, how much of that was expanding purchase price, if there's mix benefit in terms of repeat versus new owner? Just trying to get a sense for how much of that is blocking and tackling and how much of that is mix? Michael Flaskey: Brandon, it's Mike here. Our VPGs in April were up $450, just over $450 or about 12.7% versus prior year. Our tour flow was exactly as planned with our reduction in Asia. North America tour flow was right on par. Asia was down as planned. That's kind of the mix and average transaction size is a key focus point for us going forward. In the month of April, it was actually a balance of close and average transaction size. Brandt Montour: Then maybe another one for you, Mike. You spoke about getting the right tours Take us back a little bit, when you got there, what kind of tours were you guys getting before? What kind of tours are you getting now? Why do you think it's going to be low-hanging fruit that you can use your assets to hone in on those higher hit rate tours? Michael Flaskey: Right. Well, it's a combination of things. First, by far, in my career, this is the most robust data pool that we've had to generate leads with the Marriott Bonvoy and the World of Hyatt, and we have significant runway left for first-time buyers in those databases. Let's start there. What I observed when I got here was that this company significantly underperformed versus the industry on owner arrival to tour rates, and so we have a serious opportunity to enhance that and the flow-through on those for every 1 percentage point is significant. We're very, very excited about that and that comment about the right tours was tied to that. Subsequently, when I talk about tour logistics, one of the things that we have worked diligently on in the past and that we're implementing here is kind of our proprietary model where we make sure we understand the VPG by guest type of every tour that's coming into our sales galleries and then also knowing our individual sales executives VPGs by guest type and then using logistics to match that up so that we give ourselves the highest propensity for close. That is something that really was just starting to take hold in the month of April and has significant runway for the business. Operator: The next question comes from Lizzie Dove with Goldman Sachs. Elizabeth Dove: I just wanted to see if you could expand on the new owner side of things, what you're seeing there in terms of new owner VPG versus existing and what you're kind of baking in for contract sales in terms of any mix shift in terms of new owners for the rest of the year? Michael Flaskey: I'll take the first part, Lizzie, it's Mike, and then I'll let Jason talk about the guidance. As a volume, we were at 28% in the first quarter of first-time buyers as our mix. On a contract basis, it would be higher than that. We believe that we have significant opportunity within the business to increase first-time buyer tour flow and first-time buyer sales. We're going to be very prudent about how we do that. As I just mentioned in answering Brandt's question, we have significant runway in front of us on our owner arrival to tour. It's really going to be a yield management exercise of being smart about how we grow our tour flow and balancing it as we go forward. Jason? Jason Marino: Yes, Lizzie, we ran, as Mike said, about 70% existing owner sales in Q1. We've been in that range for a bit, and so I think that's a good range, plus or minus for the rest of the year, depending on some of the things that Mike talked about with trying to drive that owner VPG and the owner capture and driving contract sales. Over the long term, we do expect to grow our first-time buyer tours, and that's something for the long term, but this year, I think that 70-30 mix is probably where we'll wind up. Elizabeth Dove: Then I just wanted to touch on Hawaii. I know there's been some inclement weather there over the last couple of months, and I think you have a reasonable amount of exposure there. Anything that you're seeing there or that we should be noting going forward on that? Matthew Avril: Lizzie, this is Matt. Thanks for the question. Certainly, the adverse weather there in the last 3.5 weeks of March was disruptive. We do have a significant presence on Maui. Candidly, just from a call perspective and how we talk about things internally, the benefit of our business model is our direct marketing and being able to bring people in. We're going to not lean on weather or disruptions or other things like that. When we talk about our results, we certainly prefer better weather. Hawaii is a tremendously important market to us, and we think there is for the reasons that Mike has outlined in our system overall are very applicable to Hawaii. We're excited about what's ahead of us in Maui and all the islands where we operate out there, and bad weather or those kinds of events are going to happen from time to time, and we get paid to work through them. Operator: The next question comes from Trey Bowers with Wells Fargo. Raymond Bowers: A couple of questions. First one, just a point of clarity. I think you guys said in the prepared remarks that the asset dispositions would not be included in the adjusted free cash flow calcs. Then there was -- it looks like there was $50 million of add-back in the adjusted free cash flow in the press release. I just wanted to make sure I understand the build of that line item. Jason Marino: Yes, Trey, that's right. Going forward, any future dispositions would not be included. When we gave the guidance for this year, we did say that we would include the sale of the Westin Cancun because that was slated as inventory in the future. That is the way that we did it for that first quarter. In connection with that sale, we also entered into a purchase commitment for future inventory in Puerto Vallarta, and that was another reason that we put in adjusted free cash flow because that inventory spend in the future will obviously hit free cash flow down the road. Raymond Bowers: Then just any update on the modernization efforts? Any change to the expectation for the dollar value there? Then maybe just if you guys could just dig in a little bit on what about those modernization efforts are transitory in nature as an operating expense? Matthew Avril: This is Matt. A couple of comments on that. As we chatted last quarter, we are incorporating benefits from modernization as well as management waking up every day how to improve the business in our guidance and in our actual results. I would say the other way to also look at modernization, there was a lot of what I would call design and architecture and trying to identify things in last year's work. This year's work is really in the implementation of those that we have identified, and that work is underway. We identify it from both an expense and capital spend perspective. We're not going to call out separately those dollars as they're showing up in our P&L, but they are benefiting our business today, and we expect them to benefit going forward. There will be other initiatives that we're layering into just call it, our project management and improve the business daily mantra. Those are a couple of brief comments I would add. There's been a big shift from assessment and evaluation to implementation on those initiatives we have emphasized and prioritized. For those that we have deferred, the benefits of that is reducing the cash flow associated with the deferred items. Operator: [Operator Instructions]. Our next question comes from Stephen Grambling with Morgan Stanley. Stephen Grambling: Actually, 2 follow-ups. First, peers have culled their management base recently in terms of their -- the properties they're managing. Do you have a similar opportunity that you're looking at? Are there any properties where you still have low occupancy or even pent-up maintenance CapEx that you could look to potentially optimize? Matthew Avril: Stephen, this is Matt. Fundamentally, that is not an area of focus or need from our perspective. In our portfolio of resorts, we're excited about all of them. We've got 1 or 2 that we'll look at from time to time, but from a systemic, we've got a clear demonstrable batch of resorts, if you will, and respecting each of us have arrived in our portfolios through different mechanisms, whether how much has been purpose-built how much people may have acquired over time, I can understand why it was a priority elsewhere. I would tell you, no, that is not a high-priority opportunity for us. Our opportunity is with the quality of our resorts that we have, the high GSS scores and the high levels of occupancy that we experienced throughout our portfolio. Stephen Grambling: Then as you're thinking about ramping up sales and trying to incentivize owners, I guess, are you changing the way that you underwrite or even as you think about the percentage that you allow people to put down, is there any change in that requirement as you look at either existing owners who maybe have built up equity or new? Jason Marino: Yes, Stephen, this is Jason. We're not changing any of our financing programs in terms of down payments. We've had the minimum debt 10% down payment now for a while, consistent with the industry, and so we're not changing anything in that regard. Owners can use their existing upgrade, again, common within the industry to use their existing equity and their existing ownership to use that as partial down payments or full down payments if they have enough in new deals, so that's not a change though. Operator: At this time, I would like to turn the floor back to Matt Avril for closing remarks. Matthew Avril: Thank you for joining us on our call this morning. It's been 6 months since I joined, and we've made significant progress executing our plans. During the first quarter, we implemented a series of actions to improve our performance. As we move forward with our plans, we will begin to see stronger contract sales, profitability, cash flow and EBITDA growth. I want to specifically thank our Marriott Vacations associates throughout the company. It has been a period of rapid and substantial change, and our teams are rallying to the vision and priorities we have. On behalf of all of our associates, owners, members and customers around the world, I want to thank you for your continued interest and support of the company. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Please standby, your meeting is about to begin. Hello and welcome everyone joining today's Neurocrine Biosciences, Inc. Q1 2026 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. To register to ask a question at any time, please press 1 on your telephone keypad. Please note, this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Todd Tushla, Vice President of Investor Relations. Please go ahead. Todd Tushla: Thank you, and happy Cinco de Mayo to everyone. Welcome to Neurocrine Biosciences, Inc. first quarter 2026 earnings call. Joining me today are Kyle Gano, Chief Executive Officer; Matthew C. Abernethy, Chief Financial Officer; Eric S. Benevich, Chief Commercial Officer; Sanjay Keswani, Chief Medical Officer; and Sameer Sadanti, Vice President of Strategy and Corporate Development. During today's call, we will be making forward-looking statements, including statements containing projections regarding future events, such as the anticipated closing of our acquisition of Solano Therapeutics. These statements are subject to certain risks and uncertainties and our actual results may differ materially. I encourage you to review the risk factors discussed in our latest SEC filings. In addition, some of the information discussed today includes non-GAAP financial measures that have not been calculated in accordance with U.S. GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the Investor Relations page of Neurocrine Biosciences, Inc.’s website. Following prepared remarks, we will address your questions. With that, I will hand the call off to Kyle. Kyle Gano: Thanks, Todd. Good afternoon, everyone. Over the past several years, we have articulated a clear vision to become a leading biopharmaceutical company driven by growing and diversifying our revenue base while advancing and expanding our pipeline. Our first quarter performance reflects meaningful progress along that path. For the first time in Neurocrine Biosciences, Inc.’s history, quarterly net product sales exceeded $800 million, representing 44% year-over-year growth. These outstanding results were primarily driven by INGREZZA, now in its ninth year since launch and continuing to grow at a double-digit rate. With INGREZZA guidance reaffirmed at $2.7 to $2.8 billion, Cranesini now annualizing at over $600 million per year, and the pending addition of iCAT XR to our commercial portfolio, we are well positioned to deliver record net product sales in 2026. Regarding VICAT XR and the pending acquisition of Soleno Therapeutics, we will be limited in our ability to address questions today given the ongoing tender offer. The acquisition remains on track to close in the second quarter. That said, we have been impressed by the Solano team's accomplishments in delivering strong clinical results in a complex disease, enabling broad utilization with a simple label, and overseeing a strong launch of iCAD XR. We look forward to formally welcoming them to the Neurocrine Biosciences, Inc. team shortly. Together, we will remain focused on ensuring a seamless integration with a singular goal of serving patients with Prader-Willi syndrome in the United States. Beyond strengthening our commercial portfolio, we continue to invest in our R&D engine across neurology, psychiatry, endocrinology, and immunology. Our pipeline progress is evident by our plan for six new phase 1 and four new phase 2 programs this year alone. In 2027, we will report key data readouts for rosuvampodoro in major depressive disorder, dereclidine in schizophrenia, and MBIP 2118 in obesity, just to name a few. When you combine the durability and remaining growth opportunity for our commercial assets, our innovative R&D engine, and our strengthening financial profile, Neurocrine Biosciences, Inc. is uniquely positioned to deliver sustained value for both patients and shareholders. Enterprise-wide momentum has never been stronger, and we are just getting started. With that, I will turn the call over to Matt. Matthew C. Abernethy: Thank you, Kyle, and good afternoon, everyone. First, congratulations to our commercial and medical teams on an outstanding quarter. We delivered more than $800 million in total revenue, with over 40% year-over-year growth. Importantly, for both INGREZZA and Carnicity, this performance reflects strong underlying demand and the meaningful impact we are having on patients' lives. Starting with INGREZZA, first quarter 2026 sales were $657 million, up 20% year-over-year, driven by double-digit volume growth in new patient additions. When adjusting for one less order week in Q1 2025, growth was approximately 11%. We are encouraged by the strength of the business exiting Q1 and are reaffirming our 2026 INGREZZA guidance of $2.7 to $2.8 billion. Consistent with our historical approach, we will revisit guidance following the first half of the year. Turning to Cranesity, first quarter 2026 sales were $153 million, driven by strong persistency and consistent new patient enrollment forms compared to Q4. We continue to see broad prescriber adoption and favorable reimbursement dynamics. As anticipated, we saw some slight gross-to-net pressure in Q1 due to commercial copay resets. As we look ahead, we remain very encouraged by what we are seeing and continue to believe Princeton is well positioned to become a blockbuster medicine. Our revenue performance continues to support R&D investment while expanding profitability. During the first quarter, we generated around $200 million of net income on a GAAP and non-GAAP basis, respectively, reflecting strong operating execution. On a GAAP basis, these results included gains related to equity investments and the sale of the Diurnal business. On a non-GAAP basis, these results include $44 million in milestone expense and IPR&D. As you model operating expenses for the rest of the year, the full impact of the commercial expansion will be seen starting in the second quarter. So stepping back, INGREZZA and crenicity together provide a growing commercial foundation generating durable cash flows that enable continued investment in innovation and strategic business development opportunities. This aligns directly with our capital allocation priorities to, number one, drive revenue growth; number two, advance our pipeline; and three, invest in business development. Regarding the announced acquisition of Solenno and Bicat XR, we are excited to add this asset to our portfolio and strengthen our long-term growth profile. We are not providing financial guidance related to the transaction at this time and will limit commentary during Q&A. Assuming a second quarter close, we expect to provide additional financial details on our Q2 earnings call. Overall, the first quarter reflects strong momentum across both our commercial portfolio and pipeline, with multiple key data readouts expected over the next 18 months, including osavampitur, dereclidine, and our CRF2 obesity program. With that, I will hand the call over to Eric S. Benevich, our Chief Commercial Officer. Eric S. Benevich: Thanks, Matt. May 1 marked the nine-year anniversary of the INGREZZA launch. It is remarkable that, now nine years post FDA approval and launch, we continue to deliver record new patient starts. This is a testament to both our commercial execution and the high unmet need of the tardive dyskinesia community. Our ongoing investments in the sales force, marketing initiatives including DTC, and improved formulary access are clearly driving strong results. I want to acknowledge our commercial and medical teams who continue to make a meaningful difference for patients to relieve the burden of tardive dyskinesia or chorea associated with Huntington's disease. While proud of these achievements, we are even more encouraged by the significant opportunity that remains. Approximately 90% of the estimated 800,000 TD patients in the U.S. are currently not receiving standard-of-care first-line treatment with a VMAT2 inhibitor like INGREZZA. With continued rapid growth in antipsychotic utilization, the prevalence of tardive dyskinesia is expected to rise over time at a rate exceeding U.S. population growth. With an increased base of psychiatric health care providers to call on for our recently expanded sales force, we anticipate these tailwinds to support strong demand and sales through the back half of the year. Before I wrap up my comments on INGREZZA, I would like to remind everyone that May is Mental Health Awareness Month and this week in particular is TD Awareness Week, what we affectionately refer to as TDAW. This is an important week we circle on our calendar each year where we partner with key patient advocacy organizations in mental health along with state and local governments across the country to raise awareness and to deliver hope to the many thousands of people needlessly suffering from TD. Now returning to Crinesity, the strong momentum from 2025, the first year of our commercial launch, carried over into our Q1 2026 performance. The Crinesity launch continues to progress extremely well, with steady new patient starts, high persistency and compliance rates, and favorable reimbursement, consistent with the trends we observed in 2025. Importantly, we are seeing growing trial and adoption across all prescriber segments including CAH centers of excellence, pediatric endocrinologists, and community adult endocrinologists. Through Q1, we have seen over 1,200 health care providers prescribe Cranesiti. Adoption remains balanced across both pediatric and adult populations, as well as between female and male patients, with a modest ongoing skew toward pediatrics and females consistent with prior trends. As Sanjay will discuss in more detail, we continue to generate compelling long-term efficacy, safety, and tolerability data that further reinforce the value proposition and chronicity's emerging position as a standard-of-care treatment together with low-dose GCs for patients with classic CAH. With sales now annualizing at greater than $600 million, Cranesity is well on its way to achieving blockbuster status. With that, I will turn the call over to Sanjay Keswani, our Chief Medical Officer, to discuss progress with our exciting clinical pipeline. Sanjay Keswani: Thanks, Eric, and good afternoon, everyone. I would like to begin with highlights from two recent scientific conferences. Firstly, the American Association for Clinical Endocrinology 2026 annual meeting in Las Vegas. At this meeting, we presented new two-year KRONASTI data from the phase 3 CATALYST adult study demonstrating sustained and substantial reductions in glucocorticoid doses in adults with classic congenital adrenal hyperplasia. Approximately 70% of patients achieved glucocorticoid doses within the physiological range without compromising androgen control. Indeed, a similar proportion of patients, i.e., 70%, sustainably achieved normal levels of androgens. These two-year findings demonstrated that Cranespi provided durable androgen control while enabling meaningful reductions in glucocorticoid exposure, resulting in positive impacts on bone health, bone aging, hirsutism, acne, weight, and insulin resistance. Importantly, these benefits were sustained over time with greater than 80% study retention and no new safety or tolerability signals were observed. Collectively, these findings support chronicity as a long-term treatment that meaningfully advances the standard of care for people living with classic CAH. We look forward to providing additional two-year data across a broader set of clinical endpoints and outcomes at upcoming medical meetings, including ENDO 2026 in June. Also in April, at the Academy of Managed Care Pharmacy 2026 annual meeting, we presented the first real-world head-to-head claims data comparing INGREZZA to deuterated tetrabenazine. These data demonstrated greater treatment persistence with INGREZZA capsules, including higher rates of long-term treatment continuation and lower rates of switching between medications among adults with tardive dyskinesia. Importantly, this higher persistence with INGREZZA was observed early in treatment and sustained over a six-month follow-up period. As a first real-world comparison of its kind, these findings provide meaningful evidence to inform decisions in clinical practice and further reinforce INGREZZA's differentiated profile. Turning to our clinical portfolio, our focus this year is on building and advancing the pipeline. We have initiated three phase 2 studies, all of which are currently enrolling. These include NBI 890, our next-generation VMAT2 follow-on in tardive dyskinesia; dereclidine, our selective M4 muscarinic agonist in bipolar mania; and NBI 570, our selective dual M1 and M4 muscarinic agonist in schizophrenia. Our fourth phase 2 study will be for crinecerfont in patients under four years of age with classic CAH. This study is on track for initiation in the coming months. In addition, we currently have a total of nine phase 1 programs underway, including NBIP 2118, a corticotropin-releasing factor type 2 receptor peptide agonist for obesity, with top-line data expected in 2027. We plan to initiate four additional phase 1 studies in 2026, including NBIP 1968, our proprietary triple G agonist in combination with NBIP 218 for obesity; NBIB 223, our gene therapy program for Friedreich's ataxia; and NBI 188, our CRF1 antagonist for an indication in women's health. This strong pipeline momentum in 2026 positions Neurocrine Biosciences, Inc. for multiple significant data catalysts in 2027, including top-line phase 3 readouts for osavapitor in major depressive disorder and the first phase 3 study of direct renal schizophrenia, with a second phase 3 study readout anticipated the following year. In summary, our execution in 2026 is focused on advancing a broad and diversified pipeline, setting the foundation for significant clinical and commercial value creation beginning in 2027. And as we highlighted at our 2025 R&D Day last December, this is just the beginning. With that, I will hand the call back to Kyle. Kyle Gano: Thanks, Sanjay. Nikki, I think we are ready for questions now. Operator: Thank you. If you would like to ask a question, please press 1 on your keypad. To leave the queue at any time, press 2. And once again, that is star and 1 to ask a question. We will take our first question from Tazeen Ahmad with Bank of America. Please go ahead. Your line is open. Tazeen Ahmad: Hi, guys. Thanks for taking my question. Congratulations on a strong quarter. I wanted to ask about KRONESTEDY growth relative to where you thought it would be at this stage. How is that launch progressing, and can you talk to us about what the physician activation efforts have been? Are they reactivating older patients, and where are most of their scripts currently coming from? Thanks. Kyle Gano: Thanks, Tazeen. I will let Eric take that question. Eric S. Benevich: Tazeen, hi. I would say overall that we are ahead of where we expected to be at this point, approximately five quarters into the launch. Certainly, we are very pleased with the continued adoption that we saw in Q1. I would describe the new patient starts as very steady and consistent with the trend that we saw in Q4, along with continued strong persistency, compliance, and favorable reimbursement. As a result, the prescriptions and the sales are really accumulating nicely. I will point out, though, that most physicians that have prescribed Cranesiti have only treated one patient thus far. And even though we have made great progress in the first year of the launch, the majority of patients have yet to be treated. So we see substantial opportunity ahead. Operator: Thank you. We will move next to Paul Andrew Matteis with Stifel. Please go ahead. Your line is open. Paul Andrew Matteis: Great. Thanks very much, and let me add my congrats on a great quarter. For INGREZZA and KRONESITI, can you confirm that there were not any material changes in inventory build or other one-offs that would have temporarily boosted the results for this 1Q? And then as a second part, for INGREZZA, in prior years there has been some nuanced seasonality considerations and headwinds in 1Q that have been problematic for you temporarily in January and February, but then ultimately lead to some tailwinds into 2Q. I was wondering if you can speak to what that seasonality dynamic might have been this quarter. Has it gotten better now that you have contracted, and what could the cadence look like sequentially this year versus prior years? Thank you. Matthew C. Abernethy: Yes, so on the inventory, there was nothing material, nothing to note. A really clean quarter reflecting very strong underlying demand. The team did a really good job managing through seasonality this quarter. We would expect it to be somewhat similar to what you have seen historically, so well done to the team, and we are set up for a nice growth year the rest of 2026. Operator: Thank you. Our next question comes from Brian Corey Abrahams with RBC Capital Markets. Please go ahead. Your line is open. Brian Corey Abrahams: Hey. Good afternoon. Thanks for taking my question, and my congrats on the strong quarter as well. On KRONESTENESITI, it sounds like the new patient start forms have been steady and consistent. I was wondering if you could elaborate a little bit more on that, and maybe what is the right way we should be thinking about the expected cadence going forward just based on the trends that you have been observing of late? Thanks. Kyle Gano: Thanks, Brian. I think Eric did a nice job articulating what we have seen in terms of new patient starts for Q1. As we mentioned previously, we are moving away from sharing specific numbers and focusing more on top-line net sales moving forward, which would be consistent with other companies that sell orphan medicines. But leaning into that and providing color where we think it is relevant, in terms of Q1 we did see good steady new patient starts going from Q4 to Q1, and that extended to persistency and compliance as well, and then continued good reimbursement rate of dispensed scripts. With that, there has been broad accumulation of patients over time since launch, and that is what has given rise to our strong performance in Q1. We look forward to building on that with our expanded sales team for the remainder of the year. Operator: We will move next to Cory William Kasimov with Evercore ISI. Please go ahead. Your line is open. Cory William Kasimov: Great. Thanks. I appreciate you taking the question, and yeah, it was a great quarter, but I do want to switch gears a little bit and ask about the pipeline. I am curious if there is anything you can say as to the accrual of your ongoing phase 3 neuropsych assets in both MDD and schizophrenia, and when do you think you might be in a better position to provide more granular or narrow guidance on timing of these top-line readouts that might attract a little bit more attention there? Thank you. Sanjay Keswani: Thanks. I appreciate the question. With respect to our current phase 3 programs, specifically osafampitur for MDD and dereclidine in schizophrenia, they are all enrolling really well. We are very happy with the current enrollment rate, and indeed they should be reading out next year for losobambital, all three phase 3 studies. As for dereclidine, we are expecting the first phase 3 next year, with the second phase 3 the following year. So everything is on track as originally envisaged. Operator: Thank you. Our next question comes from Corinne Johnson with Goldman Sachs. Please go ahead. Your line is open. Corinne Johnson: Thanks, good afternoon, guys. I was just curious if you could talk a little bit about the reauthorization processes you saw for KRONESITI in 1Q and if you could provide any kind of commentary on reimbursement trends you are seeing in that population. Thanks. Eric S. Benevich: Hi. As a reminder, the patient population with classic CAH that are starting chronicity are quite different from a payer perspective than what we see with tardive dyskinesia. The CAH population is primarily commercially insured, and secondarily Medicaid is the second biggest segment. So we do not see a surge in reauthorizations at the beginning of the calendar year like we do with INGREZZA because of the low Medicare exposure. Typically, when a patient gets authorization for their first prescription, it is normally either six or 12 months, and then those reauthorizations happen as that initial set of prescriptions runs out of authorized fills. Overall, we have seen a really high rate of reauthorization approvals, just like we saw with initial approvals for crinesidine. It is going very well. Operator: Our next question comes from Philip M. Nadeau with TD Cowen. Please go ahead. Your line is open. Philip M. Nadeau: Good afternoon. Let me add my congratulations on a good quarter. I want to follow up on the answer that you gave to Tazeen’s question. I think in answer to her question, you said that the vast majority of physicians have only written for Clinicity once. We are curious to have a little bit more detail on where the patients starting are coming from, whether it is community or expert centers. Our own checks suggest there have been a decent proportion of patients coming from expert centers. Is that likely to continue? Do you feel like you have begun to saturate that part of the market and are moving more on community, or is there still a lot more room to go at the expert centers? Thanks. Eric S. Benevich: In a nutshell, we have not saturated any part of this market yet. It is still early days with the commercial ramp for Crinesity. As a reminder, thinking about the three segments of prescribers out there—the centers of excellence, the pediatric endocrinologists, and the adult and community endocrinologists—what we estimated was about roughly 15% of the patients are currently under the care of one of those centers of excellence. In general, the distribution of the business so far has been proportional in terms of sources of business. Ultimately, we recognize that probably the biggest rate limiter for getting patients started is the flow of patients through these practices. Most of these patients only see their physician once a year if they are an adult patient, and if it is a pediatric patient, it could be two or three times a year. I think that contributes to this very steady rate of new patient adds. Being early in the launch, some of these physicians are getting their initial experience and they have additional patients; they are just waiting for them to come through. I think the sales force expansion is really going to allow us to increase not only the depth of prescribing, but also the breadth of the prescriber base. Operator: Thank you. We will move next to Brian Peter Skorney with Baird. Please go ahead. Your line is open. Brian Peter Skorney: Hey, good afternoon, everyone. Thanks for taking the question. Great quarter. It seems like we have become pretty adept at modeling the first quarter headwind that INGREZZA faces. You have spoken about much of an impairment for Carnassity, but I am just wondering if you could give any color or even quantification of any sort of seasonality you are seeing there. Should we look at this as a step-up here on out that would be somewhere in the $20 million per quarter range? Matthew C. Abernethy: On the gross-to-net front, maybe a couple points of improvement coming off of Q1. But overall, we are still pretty early in this launch cycle, so to be able to tag a normal seasonality would be hard for us to say. Eric S. Benevich: We do know, as I was mentioning earlier, the flow of patients is pretty consistent quarter in, quarter out, just because of how constrained the prescriber universe is. I would not necessarily point to massive levels of seasonality like you see with INGREZZA. We do not have the bolus of reauthorization in Q1 like we do for INGREZZA, and it is still early in the commercial ramp for crinicity. We are learning a lot about the patient dynamics and the ebbs and flows, but the overarching theme has been really consistent adoption across the community. With the sales force expansion, we will be able to get deeper with the existing base and also expand that base over time. Operator: Our next question comes from Anupam Rama with JPMorgan. Please go ahead. Your line is open. Anupam Rama: Hey, guys. Thanks so much for taking the question. Just a quick question about the upcoming ENDO meeting. What are some of the key market or physician outreach initiatives that you are going to have at the conference, as well as any reminders of any data updates we could be expecting for Kinesseti at the meeting? Thanks so much. Eric S. Benevich: Anupam, I will handle the first part of your question. We are looking forward to ENDO coming up in June as an opportunity to engage with the broader endocrinology community. In fact, we were just at a couple of important endocrinology meetings these past few weeks. This past weekend, the Pediatric Endocrine Society meeting was in San Francisco, and I was there and was really impressed with the energy and enthusiasm that we were seeing from the pediatric endocrinologists that had experience with Crinesity. There were two different seminars on CAH at that meeting, and both of them were packed rooms, which I think is indicative of the level of interest. We had a bunch of KOL engagements at that meeting, and we certainly came away with a lot of momentum. We expect to have similar momentum coming out of the ENDO meeting in June. Sanjay Keswani: I will answer the second part of the question, Anupam. The community continues to be enthused by our two-year open-label data showing the impact of decreased doses of glucocorticoid and also decreased androgen levels. That relates to better weight control, decreased insulin resistance, as well as decreased issues of virilization like decreased acne, and also decreased advancement of bone age, which is incredibly important in terms of attainment of adult height for children. This is all in the context of really good safety and tolerability. We have now had 35,000 patient-week exposures. All in all, we are really excited about the reception we are getting from the community, both at recent ENDO conferences and at future ones this year. Operator: Our next question comes from Jay Olson with Oppenheimer. Please go ahead. Your line is open. Jay Olson: Hey. Congrats on all the progress, and thank you for providing this update. Since you are planning to move your Friedreich's ataxia gene therapy program to the clinic this year, can you talk about the phase 1 study design and what sort of initial data we should expect in 2027? And then separately, for your NLRP3 program that you recently licensed, if you could maybe talk about the timeline for moving that into the clinic and where that model fits into your core therapeutic areas. Thank you. Kyle Gano: Jay, thanks for the question. I will focus on the Friedreich's ataxia program, and we can catch up offline on the other programs in the portfolio. We are looking at starting the FA program here shortly. Once we have all the details ironed out, you will see that up on clinicaltrials.gov. We will talk in more detail, but we are planning on sharing patient-level data toward the end of next year. Consider this a phase 1b trial. We will be starting initially in the patient population. We are excited to potentially offer curative therapy for patients and look forward to talking more about this later this year, in particular at R&D Day, when we can go over the program in more detail. Operator: We will move next with Myles Robert Minter with William Blair. Please go ahead. Your line is open. Myles Robert Minter: Thanks, everyone, for taking the question. Congrats on the quarter. Just wanted to get your updated thoughts on your GGG agonist here. We have Lilly’s type 2 diabetes data, which is pretty impressive but did show pretty high rates of vomiting, diarrhea, and nausea. Considering you are still proposing to put this in a combo with a CRF2 agonist, what are your updated thoughts on the therapeutic window here as you put that into phase 1 development this year? Thanks. Sanjay Keswani: Thanks for your question, Myles. It is still early days for us. We are very excited about the readout for our CRF2 agonist for obesity next year, and we are assuming that will be a core constituent of a number of different combinations, including one with the triple G program. The GGG program we are targeting for first-in-human this year, and we will have the potential to look iteratively at clinical data for both programs to understand the ideal combination as it affects the risk-benefit profile. Operator: We will move next with Ashwani Verma with UBS. Please go ahead. Your line is open. Julian: This is Julian on for Ash. Thanks for taking our question. For INGREZZA payer coverage standpoint, we saw that a state of XR has lost preferred coverage with a few key plans recently. We wanted to understand the implications of that for INGREZZA for the rest of the year and next year. Do you think it is possible that PBMs are switching commercial coverage in front of the IRA or to defend their rebates? Thank you. Kyle Gano: I will take this question. Our coverage as it relates to 2026 is very similar to where we exited 2025. We have about 70% of all TD and HD Medicare beneficiary lives covered for INGREZZA, and that puts us in a good spot. In terms of the loss of deuterated tetrabenazine on certain plans, I think on a relative basis, things are approved for INGREZZA, but we would not expect any wide changes out there in terms of reimbursement for INGREZZA. Operator: We will move next with Analyst from Leerink. Please go ahead. Your line is open. Basma: Good afternoon. This is Basma on for Mark. Thank you for taking our question. To follow up on the 24-month data: can you remind us again of the prevalence of insulin resistance and obesity in pediatric CAH patients and also in adults? How was this data received by physicians and how clinically meaningful did they find it? Regarding persistency, it has also been very strong to date. Can you remind us what are the main reasons for patients discontinuing Chronicity? Thank you. Sanjay Keswani: With respect to the first part of the question, unfortunately weight gain as well as issues with insulin resistance and other cardiometabolic issues are quite common in the pediatric CAH population, and this largely relates to the high doses of glucocorticoids that they receive. It is also thought that the elevated androgen levels can contribute to this cardiometabolic morbidity. The impacts we have seen with Cranesity in our two-year data have been really well received by the community as clinically meaningful. Eric S. Benevich: I would emphasize that we have seen very strong persistency and compliance with Crinesiti in the real-world setting, consistent with what we saw in our phase 3 trials. As a reminder, in the adult and pediatric studies, around 95% of patients completed and rolled over. In the two-year open-label data we have been presenting recently, over 80% of patients completed two years. It has been very favorable in terms of patients continuing to stay on treatment, and that is a big contributor to the accumulation of prescriptions and sales we are seeing this early in the launch. Operator: We will move next with Analyst from Wells Fargo Securities. Please go ahead. Your line is open. Susan: Hi. This is Susan on for Mohit. Congrats on the solid quarter. Two questions. One on Carnestine: did you quantify new patient starts versus persistent patients? If you cannot give a specific answer, just high level, what does that look like? And then on pipeline, for schizophrenia and MDD, how do you envision positioning the drugs? Eric S. Benevich: I will handle the first part of your question. No, we did not give a specific number of new patient starts. What we did say is that the rate of new patient adds in Q1 was very steady, and the trend was very consistent with what we saw in Q4 of last year. Sanjay Keswani: For the second part, our current phase 3 MDD patient population includes patients who have not done well on an antidepressant. Typically, they are on an antidepressant that has not achieved a good response, and we are essentially adding on to that antidepressant to achieve a superior response. This is potentially the niche we could occupy in the marketplace as well. Clearly, we are also looking at other life-cycle opportunities with respect to this molecule. Operator: We will move next with Analyst from Needham. Please go ahead. Your line is open. Puna: Hi. This is Puna on for Ami. Thank you for taking our question, and congrats on a great quarter. For Chronicity, you have previously noted that you have penetrated approximately 10% of the addressable market, with higher demand in pediatric, followed by other females and other males. How do you see those trends evolving this year? And for NBIP 2118, what would you need to see in the phase 1 data that would support further development? Thank you. Eric S. Benevich: We are not at the point yet where we are giving guidance on KRONESITY. We are still early in the commercial ramp and are learning a lot about this patient population and this prescriber base. We saw a very steady and consistent rate of new patient adds in Q1. With the sales force expansion, we expect we will be able to build depth in the prescriber base and continue to add new prescribers. There are also many patients not under the care of an endocrinologist. With our patient-finding efforts, we expect to reach and activate some of those patients this year as well. We feel very good about where we are with the launch of Crinesity, and there is a lot of room for organic growth going forward. Kyle Gano: On NBIP 2118, we are just getting that study up and running, and we will have data on that in 2027. Operator: We will move next with David A. Amsellem with Piper Sandler. Please go ahead. Your line is open. David A. Amsellem: Thanks. Wondering if you could talk more about 1435 given that you are going to have phase 2 data in CAH next year. Can you talk about relative potency versus crinesity at the CRF1 receptor, and what do you need to see in terms of differentiation versus crinessity in terms of clinical outcomes and biomarker outcomes in order to justify further advancement? Sanjay Keswani: We are really excited about our 1435 program. For context, this is an injectable peptide. The nice thing is we could administer this infrequently to individuals. We have some nice preclinical data with respect to durable efficacy that relates to both the length and the depth of efficacy as well. One of the nice things from a drug development point of view is that we have good biomarkers in CAH. We can directly compare the biomarker readouts, including androgen reduction, for this phase 2 program compared to our prior results with Crinesity. Kyle Gano: To add more here, recall at our R&D Day, we outlined a tiered strategy for our endocrine franchise as it relates to diseases of HPA axis dysregulation. Quineste is going to be the foundational therapy that is part of this for many years into the future, so you can consider that first line. NBIP 1435 offers patients an alternative route of administration and potential other types of differentiation as we identify them in the clinical program. You can think of that as second line, and it is part of a whole series of programs that can target different patient populations for CAH moving forward. Operator: We will take our next question from Yigal Nochomovitz with Citi. Please go ahead. Your line is open. Yigal Nochomovitz: Hi. Thanks, and congrats on the strong quarter as well. I was curious with regards to the 90% of TD patients that are not currently on a VMAT2 inhibitor. With the recent consensus recommendations on TD screening in the long-term care setting, to what extent might that help advance gains in market share in that 90% segment? Eric S. Benevich: Certainly, it is going to help. Over time, in part due to our educational efforts, we have raised awareness of tardive dyskinesia, and we more commonly see routine screening for tardive dyskinesia across different care settings, including long-term care more recently. Having consensus around the need for screening and how to screen, especially for residents in long-term care, raises that index of suspicion in nursing homes, and we can get more people helped. I will also reinforce that the month of May is Mental Health Awareness Month, and this week in particular is TD Awareness Week. Our sales and medical teams are leveraging TD Awareness Week to really raise the energy and excitement around TD screening across all care settings, including long-term care. Matthew C. Abernethy: Yigal, I will follow up with you after the call. Thanks. Operator: We will move next with Sumant Satchidanand Kulkarni with Canaccord. Please go ahead. Sumant Satchidanand Kulkarni: Thanks. It is a two-parter. What are your thoughts on developing CRF antagonists in cognition and working memory–related indications? And you have a lot of pipeline programs now that target several therapeutic areas. Are there some that are already earmarked for external partnering depending on how they progress? Kyle Gano: I will take the partnering piece. Our goal right now is to move forward programs across our key therapeutic areas—neurology, psychiatry, endocrinology, and immunology. Right now, our pipeline is more weighted to psychiatry, but as our R&D engine moves more programs into the clinic, you will see that evolve into other modalities—small molecules, proteins, peptides—as well as therapies across disease modification and symptomatic treatment. We will follow the science into these different therapeutic areas as we have expertise across them. Right now, we do not have anything slated for partnering, but as time moves along and we see how these programs progress, we would certainly consider those types of relationships. It is not foreign to us; Neurocrine Biosciences, Inc. was built on partnerships, both in- and out-licensing. Sanjay Keswani: With respect to the first question, it is a really interesting concept. Anecdotally, in our CAH patients, we have reported improvements in executive functioning, suggesting there may be a link to CRF and cognition. That is an area of study for us, and we expect to produce data on that down the road. Operator: We will move next with Yatin Suneja with Guggenheim. Please go ahead. Your line is open. Yatin Suneja: A really quick one for Matt. Can you help me understand the tax rate? I think last year was about 30% for the year. How should we model this year and maybe in the long term? Thanks. Matthew C. Abernethy: I always love tax questions. I would expect our non-GAAP effective tax rate to be between 22% and 24% this year and within the low 20s going forward. I think that is the appropriate way to model. Operator: Thank you. We will move next with Danielle Brill Bongero with Truist Securities. Please go ahead. Danielle Brill Bongero: Hi, guys. Good afternoon. Thanks so much for the question, and congrats on the strong quarter. You mentioned with KRONESITY that you have slightly more traction with females and pediatrics as expected, but what additional clinical or real-world evidence would help drive broader buy-in from male and adult CAH patients? And was there any rationale behind the Diurnal sale—anything to read into on that? Thank you. Kyle Gano: I will start with the Diurnal piece. Looking at the opportunity in Europe, which is primarily where the medicine is currently available, we felt it was better suited in an organization that had other products in the commercial landscape. We will consider looking at our own medicines as they evolve through the pipeline, but we felt that was the right move earlier this year. Eric, on the other question? Eric S. Benevich: Thinking about different patient segments, it is clear there is high motivation to treat pediatric patients. At the Pediatric Endocrine Society meeting this past week, the theme was that with younger patients you need to protect bone age, protect the growth trajectory, and prevent early-onset puberty. For older patients, depending on gender, the rationale for treatment is a little different. For adult patients, there is concern about bone mineral density, potential for increased cardiovascular risk, mood disorders, etc. Depending on one’s gender and stage of life, there is benefit from treatment with chronicity. For males in particular, as an adult male myself, we are not the best at seeing our doctors frequently and we are not very compliant. Our expectation from pre-approval work was that it would probably take a little bit longer to onboard adult male patients relative to female and pediatric patients. Operator: We will move next with Laura Kathryn Chico with Wedbush Securities. Please go ahead. Laura Kathryn Chico: Hey. Thanks very much for taking the question. I have one on Trinicity. I will not ask about the pace of new patient adds the remainder of 2026 versus 2025, but I might ask about your expectations for maintaining compliance and persistence this year versus last year. You mentioned the expanded field force and gains on the reimbursement side. How should we think about the persistency and compliance rates in 2026? Thank you. Eric S. Benevich: Thanks, Laura. We have been looking at compliance and persistency throughout the first year of the launch, and it has been very consistent regardless of when patients started on treatment—early last year, mid last year, or the latter part of last year. I think it is really a function of two things: one is the really great tolerability profile of crinesity that emerged in the clinical trials and the open-label extension; and two, the fact that we have a single pharmacy distributor, Panther, that does a great job of reaching out to patients and following up with them. They have had a lot of success in terms of contacting patients when it is time to get a refill and getting it authorized. Operator: We will move next with Analyst from Deutsche Bank. Please go ahead. Your line is open. Sam: Hi. This is Sam on for David. Thanks for taking my question. Just a quick one on crinecerfont in CAH patients under the age of four: the impending phase 2 study—how should we be thinking about the opportunity for this patient subset, perhaps in terms of patient numbers or unmet need, or potential contribution to the existing CAH franchise down the line? And is there anything else you can share in terms of the regulatory or commercial timeline for this development? Thanks. Eric S. Benevich: I will tackle the unmet-need part. For these younger patients, the earlier you can intervene, the better, in terms of protecting the growth trajectory and bone age, and so on. Right now, the labeling is limited to patients age four and above. We have gotten a fair number of inquiries from parents with children under four asking about the availability of treatment, and certainly from their pediatric endocrinologists. We recognize that there is an unmet need there, and we would like to be able to address it. Sanjay Keswani: With respect to the regulatory path, we clearly need data in patients less than four years of age. That is the main rationale for starting this U.S.-based study. With respect to timelines, assuming things proceed as planned, in the next couple of years we will have the data to potentially expand the label. Operator: We will move next with Analyst from Wolfe Research. Please go ahead. Your line is open. Analyst: Thanks for taking my question. Congrats again on the strong quarter. I have a follow-up on INGREZZA. We touched on seasonality already. Can you provide more color on the pattern for the remaining three quarters, especially given the relatively stronger 1Q versus prior years? And did you notice any changes in the market dynamics following the IRA negotiation? Eric S. Benevich: In general, we expect 2026 to be similar to prior years, where we experience seasonal payer disruption in Q1 primarily related to Medicare patients needing to get reauthorized and commercial patients having a reset of their out-of-pocket copay. Thankfully, we have moved through that phase already. This year, we were also in the midst of a sales force expansion, and our team did an incredibly great job of continuing to keep the momentum going with our business. The expansion became effective in early Q2. Generally after Q1 payer seasonality, we see a strong focus on execution and driving new patient starts through screening initiatives over the balance of the year. With an expanded field sales team, as I mentioned in my prepared remarks, we expect to see tangible lift and benefit as we get into the latter part of the year. Operator: We will move next with Evan David Seigerman with BMO Capital Markets. Please go ahead. Malcolm Hoffman: Hello. Malcolm Hoffman on for Evan. Thanks for taking our question, and congrats on your quarter. Doubling back on the persistence and compliance rates for Pranesti: you noted these have been really strong and consistent since the launch. For the few discontinuations that do occur, are those mostly due to insurance-related issues or product profile? Have those changed over the course of the first year at all? Thanks. Eric S. Benevich: It is hard to comment on what has turned out to be a very low rate of patients discontinuing. In general, we have not seen people discontinuing due to insurance reasons. In fact, out-of-pocket costs are really low—less than $10 per patient per month—and many patients pay nothing at all. Affordability has not been an issue or a reason to discontinue. There have been instances where patients have moved or have been lost to follow-up, but those are very few and far between. We have been very pleased with the persistency we have seen about five quarters into this launch. Operator: At this time, there are no further questions in the queue. We will now turn the call back over to Kyle Gano for closing comments. Kyle Gano: Thanks, Nikki, and thanks, everyone, for joining the call today and for your continued interest and support in Neurocrine Biosciences, Inc. We are very encouraged by the strong start to the year that gives us a lot of momentum when we think about the remaining quarters, and likewise our continued momentum across our commercial portfolio, the progress to advance our clinical pipeline, and we are very much looking forward to connecting with you all at upcoming investor conferences and events. Thanks again, and talk to you soon. Operator: Thank you. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.
Operator: Greetings and welcome to the Bright Horizons Family Solutions Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer will follow the formal presentation. Should you require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Michael Flanagan, Group Vice President, Strategic Finance. Please go ahead. Michael Flanagan: Thank you, Stacy, and welcome to Bright Horizons Family Solutions Inc.'s first quarter earnings call. Before we begin, please note that today's call is being webcast and a recording will be available on the Investor Relations section of our website, investors.brighthorizons.com. As a reminder to participants, any forward-looking statements made on this call, including those regarding future business, financial performance, and outlook, are subject to the Safe Harbor statement included in our earnings release. Forward-looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially and should be considered in conjunction with the cautionary statements that are disclosed in detail in our earnings release, our 2025 Form 10-K, and other SEC filings. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statements. Today, we will also refer to non-GAAP financial measures, which are detailed and reconciled to their GAAP counterparts in our earnings release, which is available on the IR section of our website at investors.brighthorizons.com. Along with today's earnings release, we have posted an updated investor presentation to our website, which we will reference during tonight's call. Joining me on the call are our Chief Executive Officer, Stephen Kramer, and our Chief Financial Officer, Elizabeth J. Boland. Stephen will start by reviewing our results and provide an update on the business, and Elizabeth will follow with a more detailed review of the numbers before we open up to your questions. With that, let me turn the call over to Stephen. Stephen Kramer: Thanks, Mike, and good evening, everyone. 2026 is off to a positive start. Revenue grew 7% in the first quarter, in line with our expectations, and earnings came in slightly ahead, reflecting continued execution across our business segments. In Q1, we delivered double-digit revenue growth in Backup, expanded operating margins in Full Service, and made progress on transforming our Education Advisory business. Taken together, these results reflect the diversity and strength of our model and the enduring demand from working families and learners for the services that we provide, along with the employers who support them. Before I get into the segment results for the quarter, I want to take a different approach tonight and start by addressing the thoughtful questions we have received from analysts and investors in recent quarters. Specifically, I want to take a few minutes to highlight how our strategy post-COVID is focused on delivering long-term growth and earnings performance, while increasing our impact on those we serve. Bright Horizons Family Solutions Inc.'s unique business model centers around working with employers to deliver high-quality solutions that support client employees across critical life and career stages, while delivering a compelling ROI for our employer clients. Over time, we have expanded our education and care offerings and more recently have sharpened our focus on the integration of our full suite of services for the benefit of our clients and their employees. To that end, we have taken steps to unify our go-to-market strategy, executed by a singular salesforce and integrated account management team, and underpinned by new resources and tools. In parallel, we are developing a fully connected continuum of service delivered through both our owned assets and trusted partners. To make that work at scale, we are strengthening our foundational capabilities—specifically, a common client-employee credit model across our offerings, an integrated CRM and consumer data platform, and ultimately a more consistent and seamless customer experience. As Mike mentioned, alongside tonight's earnings release, we have included an updated investor deck that outlines our client-centric business model, our competitive advantages, and illustrates the scope of the growth opportunity. As one example, I will use Backup Care, our largest segment by earnings contribution. Using slides 12 through 15 in our new investor presentation, I will walk through the growth framework: penetration within existing clients, expansion of our care and education ecosystem, and winning new logos. Starting with penetration on slide 12, user penetration is less than 5% across our client base, which highlights a significant opportunity ahead. The latent demand is substantial—more than four in five working U.S. adults have at least one care need that our Backup Care offering addresses. Over the last several years, we have thoughtfully listened to clients and broadened our capabilities to include an even wider range of care types, increasing relevance across employee populations. This in turn enables our employer partners to meet their strategic objectives of fewer vendors delivering broader and deeper value, directly aligned with our approach. We also break down penetration by industry and illustrate the dispersion within each sector on slide 13. The takeaway is clear: penetration is low across all industries, and even within the same sector there is wide variation, demonstrating that the opportunity is less about maturity and more about how the benefit is deployed within each client. To highlight one example, healthcare—the median client penetration is below 2%, which increases to more than 7% at the 95th percentile, and exceeds 10% among our most highly utilized healthcare clients. Next, on slide 14, we illustrate that a key driver of growing utilization is the breadth of our care network. We have built an ecosystem that spans traditional child care centers, in-home care providers, school-age programs, academic tutoring, pet care, and elder care, through a mix of owned assets and a vetted network of partners. Expanding that network helps us to meet more employee needs, which supports adoption and retention among both new and existing users. Finally, turning to slide 15, new logos are another meaningful growth channel in Backup. We estimate that 90%+ of the SMB market remains unvended today, and roughly half of the Fortune 500 does not have a Backup Care solution in place. What positions us exceptionally well to capitalize on this opportunity is our ability to deliver high-quality care across care types, geographies, and employee needs, with flexibility, scale, and trust that are difficult to replicate. We believe this advantage becomes even more important as employer adoption continues to grow. I highlighted Backup Care as the example because it reflects the broader playbook across Bright Horizons Family Solutions Inc.: drive deeper client and user adoption, expand the range of needs we can serve, and deliver a more connected experience for families. By way of a real-time example, we put this strategy into action this past week at our On the Horizon Summit. We hosted more than 100 clients, including HR and benefits leaders from Bank of America, Comcast, and Cone Health, to name a few. The discussion encompassed the future of employer-sponsored education and care and modern ways to deliver a unified experience for employees and their families. We received tremendous feedback from clients about the event and the innovations that we introduced. We look forward to sharing more over time. At this point, I would like to turn back to our first quarter segment results. In Backup Care, revenue increased 12.5% to $145 million in the quarter, and adjusted operating margins were 18%, both in line with our expectations. Growth was driven by continued expansion in unique users, with solid use across all care types. Looking ahead to the summer months and peak utilization for school-age programs, we are encouraged by continued user growth and the visibility of use through early reservations for the second and third quarters. Turning to Full Service, revenue grew 6% to $541 million, in line with our expectations. Growth was driven by a combination of tuition increases and a tailwind from foreign exchange, partially offset by center closures as we continue to rationalize the portfolio. We opened two centers in the first quarter, one in the Netherlands and our third location for Toyota here in the United States. Occupancy averaged in the mid-60% range in Q1, improving sequentially from the fourth quarter and the prior year. Enrollment growth in centers opened for the last year was modestly positive in the first quarter. This included approximately 100 basis points of headwind from our Australia operations, where we experienced an elevated enrollment decline in this group of 78 centers. In contrast to our other geographies, our Australia portfolio's occupancy has drifted lower in the years following the pandemic, and this quarter the enrollment contraction was much more significant than prior years' school-year transition cycle. With the broader Australian ECE industry also experiencing meaningful weakness in 2026, we expect a more challenged enrollment picture and overall performance profile as we look to the rest of the year. More broadly, we remain encouraged by the sequential improvement in occupancy across our network of centers, the continued recovery across our middle and lower cohorts, and the improved operating margin we drove this quarter, despite a headwind from Australia. Our focus remains on expanding our enrollment with improved consumer experience and quality value, achieving improved operating leverage and operating efficiency, and rationalizing the center portfolio where appropriate. As previewed on our call in February, we closed 24 centers this quarter as we continue to position our portfolio to serve employees of our client partners and working parents where they live and work. Our Education Advisory business delivered revenue of $27 million in the quarter, an increase of 2% over the prior year. Notable new client launches in the quarter included NXP Semiconductors, Visa, and Huntington Bank. We continue to be focused on driving participant growth and use across our College Coach and EdAssist services. To close, our Q1 results demonstrate solid demand and execution across the business. We remain encouraged by the progress we are making in our core operations while maintaining financial and operational discipline. As such, we are reaffirming our 2026 full-year revenue guidance range of $3.075 billion to $3.125 billion and our adjusted EPS guidance range of $4.90 to $5.10 per share. With that, I will turn the call over to Elizabeth, who will dive into the quarterly numbers and share more details around our outlook. Elizabeth J. Boland: Thanks, Stephen, and hello to everyone who has joined the call. I will start with our financial highlights. Revenue in the first quarter was $712 million, representing 7% growth year over year and in line with our expectations. Adjusted operating income of $65 million increased 4% over the prior-year quarter and represented 9.1% of revenue. Adjusted EBITDA of $96 million also grew 4% and came in at 13.4% of revenue. Adjusted EPS of $0.82 per share rose 6% over the prior-year quarter and finished slightly ahead of our guidance set at $0.75 to $0.80. Taking a closer look at each of our three business lines, Backup revenue grew 12.5% in the first quarter to $145 million. Increased users and expanded use within existing clients continues to drive the majority of the growth, and Q1 marked the 16th consecutive quarter of double-digit top-line growth. Adjusted operating margins were 18% in the quarter, which we expect at this time of year when use is seasonally lower. As we move into the higher-use quarters over the rest of the year, we gain operating leverage, and we continue to expect to see margins achieve our full-year target of 28% to 30%. Turning to Full Service, revenue of $541 million expanded 6% over the prior-year quarter, driven primarily by tuition increases, enrollment gains, and a tailwind from foreign exchange, which were all partially offset by an approximately 250 basis point headwind from the impact of closed centers over the past year and, to a lesser extent, enrollment declines in Australia. During the quarter, we had net closures of 22, resulting in a center count at quarter end of 988 centers. As Stephen mentioned, enrollment in centers open for the last year was modestly positive in the first quarter, although it would have increased roughly 100 basis points without the enrollment contraction we experienced in Australia. Occupancy averaged in the mid-60% range, increasing from both the fourth quarter of 2025 and the prior-year period. With respect to center cohorts we have discussed on prior calls, we also continue to see improvement over the prior year. Our top-performing cohort—that is, centers that are above 70% occupancy—improved from 47% of these centers in 2025 to 48% in 2026. More notably, our bottom cohort—centers below 40% occupancy—has now fallen below 10% of these centers, improving from 13% in the prior year to 8% this quarter, reflecting both enrollment progress and the results of our focus on closing underperforming centers. Adjusted operating income of $37 million in Full Service increased $4 million over the prior year and represented 6.8% of revenue, an expansion of 30 basis points. Tuition increases ahead of average wage costs and continued progress in our UK operations drove the margin expansion. That said, reported margin improvement was meaningfully constrained by the enrollment and operating challenges in Australia. Excluding the effect of Australia, margin expansion would have been more than 50 basis points over the prior year. Given the current operating performance and outlook for the rest of this year, we expect Australia to remain a larger headwind to reported margin performance than we had originally expected. Our Education Advisory segment had revenue of $27 million, an increase of 2% from the prior-year quarter, with adjusted operating margins of 9%, which were broadly consistent with the prior-year quarter. Interest expense rose to $12 million in Q1, up from $10 million in the prior-year quarter due to higher average interest rates as well as higher average borrowings on elevated share repurchases in the quarter. The structural effective tax rate on adjusted net income was 27.5%, consistent with 2025. Turning to the cash flow statement, we generated $108 million in cash from operations and made fixed asset investments of $20 million, resulting in free cash flow of $88 million. Over the last 12 months, free cash flow was $276 million, representing a 106% conversion relative to adjusted net income. As mentioned, in Q1 we opportunistically repurchased $225 million of stock, funding the buybacks with free cash flow and incremental revolver borrowings. As of the end of the quarter, $577 million remains on the new repurchase authorization that we announced in March. Lastly, we ended Q1 with $133 million of cash and a leverage ratio of 1.9x net debt to adjusted EBITDA. Now moving on to our 2026 outlook. We are reaffirming our full-year guidance for revenue in the range of $3.075 billion to $3.125 billion and adjusted EPS to be in the range of $4.90 to $5.10. Our guidance does not include the effects of any additional share repurchases on either interest expense or on the share count. If we look at a segment level, in Full Service, we expect reported revenue to grow in the range of 2.5% to 3.5% on enrollment gains and tuition increases, offset by approximately 200 basis points of headwind from net center closings and approximately 100 basis points from reduced expected performance in our Australia operations. In Backup Care, we now expect reported revenue to increase 12% to 14%, driven by the continued expansion of use. Lastly, in Education Advisory, we expect to grow in the mid-single digits. On the full-year guidance, we are now estimating full-year interest expense of $50 million to $52 million and an adjusted effective tax rate of 28% to 28.5%, up approximately 100 basis points from our prior guide. As we look specifically to Q2, our outlook is for total top-line growth in the range of 5.25% to 6.5%. Breaking that down by segments, that would be Full Service reported revenue growth of 2.5% to 3.5%, Backup growth of 15% to 17%, and Education Advisory in the low single digits. In terms of earnings for Q2, we are expecting adjusted EPS in the range of $1.17 to $1.22. So with that, Stacy, we are ready to go to Q&A. Operator: Thank you. We will now be conducting a question and answer session. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be... Your first question comes from Jeffrey P. Meuler with Baird. Please go ahead. Analyst: Yes, thank you. I think you raised the Backup Care annual revenue guidance. Correct me if I am wrong, but was that driven by the early Backup Care reservations for Q2 or Q3, and how much visibility at this point do you have into summer usage? Stephen Kramer: Sure. Thank you for the question, Jeff. We did raise the guidance—the previous guidance was 11% to 13% for the year and now we are at 12% to 14% for the year. It is really based on our conviction around the momentum that we have around active users as well as their use patterns. As you rightly noted, we have a large swath of our clients that have extended window reservations going into the summer, and so we do have good visibility around those reservations. Based on our historical trends, we believed that it was prudent to increase the guidance. Analyst: Got it. And then help us understand the fundamental issue in Australia—if it is supply-demand or immigration or affordability and alternatives. What is the issue, and is there any reason to think it is cyclical versus the front end of a more structural headwind? Stephen Kramer: Sure. I am happy to talk a little bit about Australia. We entered that market back in 2022, and we were attracted to it given the third-party funding support that existed; in the case of Australia, that support was government-related. At the time, we had the opportunity to acquire a high-quality leader in Only About Children. At that time, they enjoyed, and we enjoyed, high occupancy rates, and in fact the sector in general enjoyed high occupancy rates. The challenge we were looking to ameliorate at that time was really around the workforce and labor—specifically around quantity of labor as well as costs. We expected that would ameliorate over time. That has not ameliorated as well as expected, and enrollment since 2022 has been on a slow degradation path over that period. Different from other geographies, we saw pretty steady increases in supply in the post-COVID period. In that market there was an acceleration of supply that came into the market, and saturation rates of childcare got higher, especially in the key markets in which we operate. Then turning to Q1, the enrollment degradation was sharper than we would have expected. It is certainly a time of year in Australia where families typically transition to school and new enrollments backfill, but we did not see the level of new starters. We really do see these dynamics as different from other geographies in which we operate. Operator: Next question, Andrew Steinerman with J.P. Morgan. Please go ahead. Analyst: Hi. You are keeping the guide for the year, but Australia was worse. Backup was bumped up. Is there any other part of your non-Australia business that is performing better than expected, which overall as a portfolio is keeping you in line with your targeted range? And if you could just mention how big Australia is. Elizabeth J. Boland: Sure. We had a pretty significant share repurchase cadence in Q1, and so that is adding a tailwind to the earnings results. Although with the offset, we do have a bit higher interest expense because of the financing of it in the near term, but it will continue to be accretive over time. This year, it would be contributing in the high single digits—call it about $0.08—net of the interest expense that we have incurred. Another factor is that because the position in Australia is loss-making, we have a non-deductibility of those losses, so it has a more amplified effect in the year. Compared to our previous guide, it is close to $0.20 of an impact just from Australia between the operations and the tax impact. Analyst: And besides Backup being bumped up in the guided range, is there anything else outside of Australia that is coming in better than anticipated now that you are a quarter into the year? Elizabeth J. Boland: The share repurchase is adding about $0.08 or so. Operator: Next question, Jeffrey Marc Silber with BMO Capital Markets. Please go ahead. Analyst: Thank you so much. You mentioned the Backup Care margins tend to be a little bit softer in the first quarter, but they were still down on a year-over-year basis. Is there something specific that happened this quarter relative to last year? Elizabeth J. Boland: No, not really. It is somewhat mix dependent, Jeff. It is a relatively low-use quarter, and so it is dependent on more days out and school vacation weeks rather than the intensity of school-age care that we see over the summer. Depending on the center versus in-home mix, different care types, and the mix of the provider network, it comes down to that mix. Analyst: If I could shift over to Full Service, I know it is a bit early, but can we get any color on how sign-ups are for the fall enrollment period? Stephen Kramer: It is fair to say that we are seeing a similar cadence to how we closed out last year. As we look through this year, we see the opportunity to enroll at a similar rate as we saw in the second half of last year. We see that in terms of completed tours, which for us is a really important indicator, and in terms of forward bookings. We feel good about that outlook. Operator: Next question, Toni Michele Kaplan with Morgan Stanley. Please proceed. Analyst: Thanks so much. You were expecting a bunch of closures in the beginning of the year, and we did see that in the numbers. Are you still expecting that 25 to 30 net to be the decrease in centers for the full year? And when you are opening new centers, when is the best time to open them, just trying to understand the seasonality? Elizabeth J. Boland: If we could control the timetable of the opening, we would certainly be opening early or mid-year to be ready for the fall season. Opening in July or August so you can enroll for the fall is probably the optimal time, but it ends up being center construction cycles governing more of that opening cadence. The next best time would be opening right before the New Year turns over because that is often when families are enrolling. We do think that we will be in that neighborhood of 25 to 30 net reduction of centers for the full year, despite the outsized first quarter, because we do have some openings already done this quarter and more in the pipeline. We have the closures pretty well circled up; that is the quantity we are looking at. Analyst: Got it. And on Backup, you showed user penetration under 5%. Do you attribute that to employees not being aware of the programs? What are the ways you can drive that higher? Stephen Kramer: The employee benefit space is noisy. Employers offer a lot, and employees' ability to understand all that they have on offer is challenged in that environment. To stand out, we have repositioned our account management team against our client base to build deeper partnerships, create more opportunities for us to drive awareness within the client base, and have our account management team partner more closely with our marketing apparatus to ensure we are getting good communication and messaging out so that people receive the information at times when they might naturally need the service. A lot of what we have talked about is personalization—really trying to get messaging that is personalized to the individual, highlighting needs they may have and how we can help solve those needs. Operator: Next question, George Tong with Goldman Sachs. Please go ahead. Analyst: Hi, thanks. You are focused on a unified approach to client engagement and service adoption. Are there additional steps with the salesforce or sales process you still have to implement to fully realize this vision? Stephen Kramer: We have taken several recent actions that are being deployed now and will start to have impact over the coming quarters and years. First, we separated our enterprise approach from our geographic approach. We now have individuals squarely focused on the largest and most complex sales opportunities—both new logos and within our existing client base—and another group focused on the best opportunities outside of enterprise within geographic territories. Second, we have deployed new sales training and tools to enable effectiveness against a unified message. We used to have individuals selling individual products; now our singular unified sales team will go out and talk about the full set of Bright Horizons Family Solutions Inc. offerings and then tailor the solution to the needs of individual clients. We are also unifying at the user level—helping employees at clients that offer more than one service to understand and value services across what were silos within Bright Horizons Family Solutions Inc. For example, cross-pollinating College Coach users to leverage tutoring, and tutoring users to take advantage of College Coach. Analyst: On Backup Care, you have seen 16 consecutive quarters of double-digit growth. Are you ready to update your longer-term target for Backup Care growth? Stephen Kramer: Yes. Please see slide 28, where we update the Backup Care building block within our growth algorithm. We are calling for a longer-term growth algorithm of 11% to 13%, which is an upgrade from what you will have seen historically. Operator: Your next question comes from Joshua K. Chan with UBS. Please proceed. Analyst: On the Backup Care penetration slide, what in your mind causes the difference in penetration? The slide suggests industry is a factor, but is tenure or geographic location also a driver—what causes some employers to have higher versus lower penetration? Stephen Kramer: Between industries, part of the differential comes down to employee demographics and work style. In financial services and professional services, where we tend to have the strongest penetration, when there is a breakdown in care arrangements, employees really need and value replacement care, which leads to higher utilization. In industrials, such as manufacturing plants or other traditionally male-dominated industries, we have seen less take-up. More interesting is the variation within industries. There is significant disparity between the least and most penetrated clients in sectors with otherwise similar traits. We are studying our most highly utilized clients and our least utilized clients, and through changes in account management and alignment with marketing, we believe we can help less penetrated clients look more like the highly penetrated ones and continue to extend growth among the leaders. Analyst: On the Full Service side, you outlined 4.5% to 6.5% growth over the long term. What underpins that—tuition, center openings, enrollment? Elizabeth J. Boland: Over time, the building blocks are price increases, enrollment, and unit growth. As we return to at least neutral net openings—hopefully next year—and then positive, the ramp-up of new centers and modest enrollment gains would contribute, along with roughly 3% to 4% price increases. Operator: Next question, Faiza Alwy with Deutsche Bank. Please go ahead. Analyst: On Full Service margins, could you help frame the impact from Australia to margin specifically? Do you still expect to see 25 to 50 basis points this year, and are there any offsets to the impact from Australia? Relatedly, on the long-term building blocks, you have a 9% to 10% target—when do you expect to get there? Elizabeth J. Boland: We had guided to 25 to 50 basis points of margin expansion for the year. Given the headwind of revenue degradation—around 100 basis points of enrollment impact, roughly $20 million—the margin degradation is even more than that. We now have an element of flat margin growth or so this year, but it would be 25 to 50 basis points without the effect of Australia. Standing alone, Australia has a full-year revenue profile around $140 million, with losses in the $20 million to $25 million range in total. It is about a 150 basis point overall headwind to the Full Service business. Including the tax impact, Australia is close to $0.40 of overall headwind to earnings performance. On the long-term 9% to 10% target, we ended last year at 5.5%. With a 150 basis point headwind from Australia and our ability to gain 25 to 50 basis points a year as we continue to gain enrollment, we would be at about 7% all else equal. We also have a number of centers we have closed that carry some tail costs as we work to exit leases—call it another 50 basis points—that will taper in the next couple of years. With continued improvement, operating leverage, and efficiency from enrollment gains, and further portfolio rationalization, we are within striking distance. We see this in our best-performing centers, though some outliers are currently a severe headwind on the reported margin. Analyst: Understood. Quick follow-up: Are you seeing any benefits in client conversations from the 45F EoBDA impact that increased the annual cap for tax credits? Stephen Kramer: 45F has not had much of an impact in terms of the conversation or adoption by our client base. It can be an interesting talking point and a way into new client conversations, but it is not moving the needle in getting clients over the line or being adopted by current clients. Operator: Next question, Stephanie Benjamin Moore with Jefferies. Please go ahead. Analyst: Circling back to Backup Care, can you talk about how many of your clients use more than one service within Backup Care and how adoption varies across the services? Stephen Kramer: Historically, Backup Care was defined around providing care in-center and then extended to in-home. Over time, we have extended to include school-age programs, elder care, academic tutoring, and pet care. Almost universally, our clients offer in-center and in-home for both children and aging adults. We have a strong majority take-up for academic tutoring. The lowest adopted offering is pet care, although from a user perspective it is quite popular. So, broadly, all offer in-center and in-home for adult and child, most offer tutoring, and to a lesser extent pet care. Analyst: And on the UK business, a lot of progress has been made over the last year. How should we think about improvement in operating income and general performance there? Elizabeth J. Boland: The UK business has been on a journey and we are pleased to see both sequential and year-over-year progress. As a reminder, last year the UK turned the corner and was positive from an operating income contribution standpoint, though still a headwind to overall Full Service margins in the low single digits versus the 5.5% overall. This year, with enrollment gains and continued operating execution, performance continues to improve. It is still a little bit of a headwind relative to the overall average, but it is a big contributor to the turnaround, just at a slightly lower pace than in 2025. Stephen Kramer: Wonderful. Well, thank you all very much for joining us on the call, and wishing you a great night. Michael Flanagan: Thanks, everyone. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Hiroshi Hosotani: I am Hiroshi Hosotani, CFO. I will now provide an overview of the business results for the fiscal year 2025. Page 4 shows the highlights of business results for fiscal '25. Foreign exchange rates were JPY 150.5 to the U.S. dollar, JPY 173.8 to the euro and JPY 99.2 to the Australian dollar. Compared to the previous fiscal year, the Japanese yen appreciated against the U.S. dollar and Australian dollar, but depreciated against the euro. Net sales increased by 0.7% to JPY 4,132.8 billion. Operating income decreased by 13.7% to JPY 567.3 billion. The operating income ratio was 13.7%, down 2.3 points. Net income attributable to Komatsu decreased by 14.4% to JPY 376.4 billion. Net sales reached a record high for the fifth consecutive year. ROE was 11.3%, down 2.9 points from the previous year. We plan to pay an annual cash dividend of JPY 190 per share, the same as the previous year, resulting in a consolidated payout ratio of 45.9%. Page 5 shows segment sales and profits for fiscal '25. Net sales in the Construction, Mining & Utility Equipment segment increased by 0.2% to JPY 3,806 billion. Sales exceeded the projection announced in October, as demand was higher than expected. Segment profit decreased by 18% to JPY 491.1 billion. The segment profit ratio was 12.9%, down 2.9 points. Retail finance sales increased by 2.4% to JPY 126.1 billion. Segment profit increased by 24.4% to JPY 36.6 billion. Industrial Machinery and Others sales increased by 6.8% to JPY 238.8 billion. Segment profit increased by 38.5% to JPY 37.9 billion. I will explain the factors behind the changes in each segment later. Page 6 shows the sales by region for the Construction, Mining & Utility Equipment segment for fiscal '25. Sales to outside customers for the segment increased by 0.2% to JPY 3,796.1 billion. Details of regional changes will be explained by Mining and Construction Equipment, respectively, on the following pages. Page 7 shows the sales by region for mining equipment within the segment for fiscal '25. Mining equipment sales decreased by 0.6% to JPY 1,904.4 billion. In Asia, sales decreased due to a decline in demand following low coal prices in Indonesia and demand decline. However, sales increased in Africa and Latin America, where demand for copper mines remained strong, keeping overall sales flat. Page 8 shows the sales by region for Construction Equipment within the segment for fiscal '25. Construction Equipment sales increased by 1.1% to JPY 1,891.7 billion. In real terms, excluding FX impact, sales increased by 0.2%. In Asia, sales decreased as it took time to adjust distributor inventories in Indonesia. Sales increased in North America, driven by demand for infrastructure, rental and energy and in Europe, where infrastructure investment is on a recovery trend. Page 9 shows the causes of difference in sales and segment profit for the Construction, Mining and Utility Equipment segment for fiscal '25. Sales increased by JPY 7.8 billion as price improvement effects outweighed the negative impact of decreased volume. Although we focused on improving selling prices, segment profit decreased. The negative effects of decreased volume, product mix and higher costs due to U.S. tariffs and production costs outweighed the price improvements, resulting in a JPY 107.8 billion decrease in profits. The segment profit ratio was 12.9%, down 2.9 points from the previous year. The impact of tariffs in fiscal '25 amounted to JPY 64.2 billion. Page 10 shows the performance of the Retail Finance segment for fiscal '25. Assets increased by JPY 238.3 billion from the previous fiscal year-end due to an increase in new contracts and the depreciation of the yen. New contracts increased by JPY 75.8 billion, mainly due to higher finance penetration in North America and Europe. Revenues increased by JPY 2.9 billion, mainly due to an increase in outstanding receivables. Segment profit increased by JPY 7.2 billion, mainly due to lower funding costs. Page 11 shows the sales and segment profit for the Industrial Machinery & Others segment for fiscal '25. Sales increased by 6.8% to JPY 238.8 billion. Segment profit increased by 38.5% to JPY 37.9 billion. The segment profit ratio was 15.9%, up 3.6 points. For the automotive industry, sales of large presses increased. For the semiconductor industry, sales and profits increased due to higher maintenance sales of excimer lasers with high profit margins. Page 12 shows the consolidated balance sheet and free cash flow. Total assets reached JPY 6,423.9 billion, an increase of JPY 650.4 billion, primarily due to the impact of the yen's depreciation. Inventories increased by JPY 195.2 billion to JPY 1,601.9 billion, affected by both the weak yen and U.S. tariffs. The shareholders' equity ratio was 54.7%, down 0.3 points and the net D/E ratio was 0.26x. Free cash flow for fiscal '25 was an inflow of JPY 249.7 billion, a decrease of JPY 56.8 billion from the previous year. From Page 13, I will explain the progress of the strategic growth plan. The current strategic growth plan, driving value with ambition, which started in fiscal ' 25, set 3 pillars of growth strategy, create customer value through innovation, drive growth and profitability and transform our business foundation. Under create customer value through innovation, we began operating a power agnostics truck at a copper mine in Sweden as part of our efforts to address various power sources. We also conducted a POC test of a hydrogen fuel cell powered hydraulic excavator at a highway construction site in Japan. As part of our efforts for advanced automation and remote control, we are advancing the development of SPVs for next-generation mining equipment in collaboration with applied intuition. We are also promoting the practical use of autonomous driving technology for Construction Equipment through collaboration with Tier 4. Next, under drive growth and profitability, we received the first major mining equipment order in the Middle East for the Reko Diq Copper Gold Project in Pakistan. We began deploying AHS in the U.S. and delivered the 1,000th unit globally. We will also strengthen our remanufacturing business through the acquisition of SRC of Lexington in the U.S. We have initiated the establishment of a training center in Côte d'Ivoire, and we'll work to strengthen our marketing and service capabilities in the Africa region. Lastly, regarding transformer business foundation, in addition to embedding risk management through ERM and strengthening our supply chain through cross-sourcing and multi-sourcing, we accelerated human resource development for innovation and business transformation through the utilization of AI and digital transformation. We succeeded in improving scores in our employee engagement survey. Also, our global brand campaign led to high recognition at international creative awards. Page 14 shows achievement of management targets in the strategic growth plan. Net sales for fiscal '25 increased by 0.7% year-on-year as improvement in selling prices offset the decline in sales volume. On the other hand, profit decreased year-on-year as the negative impacts of volume reduction and cost increases outweighed the effects of price improvements. Regarding management targets, in terms of profitability, the operating income ratio for fiscal '25 was 13.7%, a 2.3 point decrease from the previous year. Despite efforts to improve selling prices, the results were significantly impacted by volume decline, inflation-related cost increases and higher costs due to U.S. tariffs. In terms of efficiency, ROE was 11.3%, achieving our target of 10% or higher. For the retail finance business, we achieved our targets for both ROA as well as the net D/E ratio. Regarding shareholder returns, we expect to maintain a consolidated payout ratio of 40% or higher. Also, we executed the repurchase of JPY 100 billion of our own shares. Regarding the resolution of social issues, we have set 30 KPIs, and progress in fiscal '25 has been broadly in line. Among these, for the reduction of environmental impact, we achieved our target for CO2 reduction from production ahead of schedule. Reduction of CO2 emissions during product operation and the renewable energy usage ratio are also progressing largely as planned. That concludes my presentation. Operator: With that, fiscal year 2026 forecast of the business, and that will be explained by Mr. Hishinuma. Kiyoshi Hishinuma: This is Hishinuma, the GM from Business Coordination Department. I'd like to walk you through our forecast for fiscal year '26 in our primary markets. Page 16 summarizes the impact of the situation in the Middle East and the U.S. tariffs as well as the underlying assumptions that have been factored into the fiscal year 2026 earnings forecast. And then the fiscal 2026 forecast incorporates items for which estimates can be made based on information available at this time. Regarding the situation in the Middle East, assuming the turmoil in the Middle Eastern countries and soaring oil prices and supply chain disruptions will continue throughout the year. We have factored in a decrease in sales of JPY 90.1 billion and an increase in cost of JPY 18.8 billion. However, regarding the impact on production due to shortages of crude-oil-derived materials, while there is a risk, the situation is unclear at this time. Therefore, it has not been factored into the fiscal 2026 outlook. Now on to U.S. tariffs. Based on assumptions of Section 122, additional tariffs will apply throughout the year and the revised steel and aluminum tariffs will apply from April 6 throughout the year. We have factored in additional costs of JPY 67.8 billion. However, we have also factored in JPY 30 billion in refunds, resulting in a net cost increase of JPY 37.8 billion. Page 17 provides an overview of the outlook for fiscal year 2026. We anticipate exchange rates of JPY 150 to the U.S. dollar, JPY 170 to the euro and JPY 106 to the Australian dollar. We project net sales of the JPY 4,118 billion, a 0.4% year-on-year decrease and operating income of the JPY 508 billion, a 10.5% year-on-year decrease. Net income is projected to be JPY 318 billion, a decrease of 15.5% year-on-year. Furthermore, at the Board of Directors meeting held today, a resolution was passed to repurchase treasury stock up to a maximum of JPY 100 billion or 25 million shares and to cancel all repurchase shares during fiscal year 2026. ROE for fiscal '26 is projected to be 9.1%. The dividend per share is planned to be JPY 190, the same as previous year, and consolidated dividend payout ratio is projected to be 53.8%. In addition, when the JPY 100 billion share buyback announced today is included, the total payout ratio is projected to be 85.4%. Page 18 presents the revenue and profit forecast for each segment. Revenue for the Construction Machinery and Mining Equipment and Utilities segment is expected to decrease by 0.4% year-on-year to JPY 3.79 trillion, while segment profit is expected to decrease by 10.4% to JPY 440 billion. Revenue for Retail Finance is expected to increase by 1.1% year-on-year to JPY 127.5 billion, while segment profit is expected to decrease by 1.6% to JPY 36 billion. Revenue for Industrial Machinery and Others is expected to increase by 0.1% year-on-year to JPY 239 billion, while segment profit is expected to decrease by 2.5% to JPY 37 billion. We'll explain the factors behind the change in each segment later. Page 19 presents the regional sales forecast for the Construction Equipment and Utilities sector for fiscal '26. Sales of this segment are projected to decline by 0.5% year-on-year to JPY 3,778.2 billion. Details of the year changes by region are provided on the following pages, broken down by Mining Machinery and General Construction Machinery. Page 20 presents the regional sales forecast for Mining Machinery within the Construction Equipment and Utilities segment for fiscal '26. Sales of mining equipment are expected to decline by 2.4% year-on-year to JPY 1,858.5 billion. Sales are expected to decline in Asia and Middle East due to sluggish demand for coal and impact of situation in the Middle East. In North America and Oceania, demand is expected to decrease as mining companies complete their equipment renewal cycles, leading to a decline in sales. Page 21 shows regional sales forecast for general Construction Equipment within the Construction Equipment and Mining Equipment Utilities segment for fiscal '26. Sales of general Construction Equipment are forecast to increase by 1.5% year-on-year to JPY 1,919.7 billion, while sales expected to decline in Middle East and Asia due to regional situation. Overall sales of general Construction Equipment are projected to increase year-over-year, driven by growth in North America, where demand for infrastructure energy project remains strong and in Latin America, where public investment is robust. This page outlines the factors contributing to the projected changes in sales and segment profit for this segment. Although we are striving to improve selling prices, sales are expected to decrease by JPY 16 billion year-on-year due to negative impact of lower sales volume caused by situation in the Middle East. Segment profit is expected to decrease by JPY 51.1 billion year-on-year, although we will strive to improve selling prices. This is due to the negative impact of lower sales volume, the expanding impact of tariffs and rising procurement cost. The segment profit margin is expected to decline by 1.3 percentage points year-on-year to 11.6%. Page 23 presents the outlook for retail finance. Assets are expected to increase by JPY 23.6 billion compared to the end of the previous fiscal year as new lending exceeds collections. New lending volume is expected to increase by JPY 5 billion year-on-year as we anticipate a high utilization rate continuing from the previous year. Revenue is expected to increase by JPY 1.4 billion year-on-year, primarily due to an expansion in outstanding loan balance. Segment profit is expected to decrease by JPY 0.6 billion year-on-year, primarily due to higher costs. ROA is expected to decline by 0.1 percentage points year-on-year to 2.3%. Page 24 presents the sales and segment profit outlook for Industrial Machinery and Others. Sales are projected to increase by 0.1% year-on-year to JPY 239 billion, while segment profit is expected to decrease by 2.5% year-on-year to JPY 37 billion. In the Semiconductor Industry segment, sales are expected to increase due to customers ramping up production amid the market recovery. However, for the automotive industry application, revenue is expected to rise, while segment profit is expected to decline due to factors, such as decreased sales of large presses and automotive battery manufacturing equipment as well as rising procurement costs resulting from the situation in the Middle East. The segment profit margin is expected to decline by 0.4 percentage points year-on-year to 15.5%. Starting on Page 25, we will explain the demand trends and outlook for the 7 major Construction Equipment categories. The demand figures for the 7 major Construction Equipment categories include the mining equipment. The figures for the fiscal year '25 are preliminary estimates based on our projections. Demand for fiscal '25 appears to have increased by 5% year-on-year. For fiscal year '26, we anticipate a year-on-year decline in demand ranging from 0% to negative 5%. In addition to decline in demand in Indonesia, we expect a decrease in demand in Middle East and neighboring countries due to the deteriorating situation in the region. Page 26 outlines the demand trends and forecast for the North American markets. Demand for the 2025 fiscal year appears to have increased by 3% year-over-year. Demand remains strong in sectors, such as data centers and other infrastructure, rentals and energy. The demand forecast for '26 fiscal year is expected to remain on par with the previous year. We anticipate the infrastructure and energy sectors will continue to drive demand as we go forward. Page 27 shows the demand outlook and demand for European markets. The demand units for 2025 fiscal year is expected -- was expected to increase by 4% previous year. And the demand outlook for '26 is expected to be 0% to positive plus percent -- positive 5%. And Germany and the U.K. public investment demand is expected to lead overall demand, and we are expecting to see the robust demand. Page 28 covers demand trends and outlook for the Asia market. Demand for '25 fiscal year appears to have increased by 5% year-on-year. In Indonesia, although the demand for mining machinery declined due to sluggish coal prices, overall demand increased due to rising demand for general construction machinery, such as food estate projects. In India as well, demand increased driven by aggressive infrastructure investment. The demand outlook for fiscal '26 is projected to be a decrease of 5% to 10%. While demand in India is expected to remain robust, demand in Indonesia is forecast to decline significantly due to the government's policy to reduce coal production and the impact of the introduction of the B50, which is biodiesel fuel regulations. Page 29 outlines the trends and outlook for demand in the Japanese market. It appears that demand for the 2025 fiscal year declined by 13% compared to the previous year. We expect demand for '26 to remain at the same level as the previous year. Although nominal construction investment is increasing due to inflation, real-time growth -- real-term growth is stagnant due to soaring material and labor costs, and there are currently no signs of recovery in demand. Page 30 presents trends and outlooks for the prices of key minerals related to demand for mining machinery. We expect copper and gold prices to remain at high levels going forward. While both low grade and high-grade thermal coal are currently trending upward, we will continue to monitor future developments closely. Page 31 shows the trend in demand for mining machinery. It appears that the number of units in demand for fiscal '25 decreased by 10% year-on-year. Overall demand declined due to a significant drop in demand for coal-related machinery in Indonesia. The demand forecast for fiscal '26 is expected to be a 10% to 15% decline. Although demand for copper and gold mining equipment is expected to remain at a high level, overall demand is projected to decline due to weak coal-related demand and the completion of the replacement cycle in North America and Oceania and the impact of the situation in the Middle East. Page 32 presents the sales outlook for the construction machinery, mining equipment and Utilities segment, including equipment, parts and services. In fiscal '25, parts sales increased by 0.4% year-on-year to JPY 1,055.2 billion. The aftermarket segment as a whole, including services accounted for 52% of total sales. Excluding the impact of ForEx, total aftermarket sales increased by 1% year-on-year. For fiscal '26, parts sales are projected to increase by 2.2% year-on-year to JPY 1,078.5 billion. The aftermarket overall sales ratio, including services, is projected to be 53% and aftermarket sales, excluding ForEx effects are projected to increase by 3.1% year-on-year. The Page 33 presents outlook for capital expenditures and other investments for fiscal year '26. Excluding investments in rental assets on the left, capital expenditures are expected to increase year-on-year due to investments in production and sales facilities as well as the reconstruction of the head office. Research and development centers shown in the center are expected to increase year-over-year due to focused investment in adapting diverse power sources and automation. Fixed costs shown on the right incorporate the effects of the structural reforms. However, they are expected to increase year-over-year due to wage increases and higher R&D expenses. Next, I'll explain the main topics. Page 51 now. Komatsu has acquired a remanufacturing business for construction and mining machinery components and parts from SRC of Lexington through its wholly owned subsidiary, Komatsu North America, Komatsu America Corp. In 2009, Komatsu transferred its North American remanufacturing business to SRC Lexington, and since then, has continued to do business with the company as one of its most important suppliers for Komatsu's North American remanufacturing operations. With this acquisition of SRC of Lexington's remanufacturing business, Komatsu will further expand this operation by establishing a new dedicated manufacturing facility in North America, one of the largest markets for construction and mining equipment. Page 52. In December 2025, Obayashi Corporation, Iwatani Corporation and Komatsu conducted demonstration test of hydrogen fuel cell power hydraulic excavator during rockfall prevention work on the Joshin-Etsu Expressway. The test confirmed several benefits, including operational performance equivalent to that of conventional diesel-powered models and reduced operator fatigue due to the absence of vibration. At the same time, we reaffirm the challenges facing practical implementation, such as the need for higher capacity and the faster hydrogen supply and refueling systems. The three companies will continue to conduct the studies and verification tests aimed at practical implementation. Page 53. Komatsu exhibited at CONEXPO International Construction Machinery Trade Show held in Las Vegas, U.S.A. from March 3 to 7. The company showcased a new generation of vehicles, including bulldozers and hydraulic excavators equipped with the latest features, such as intelligent machine control as well as articulated dump trucks designed to further improve operational efficiency. Komatsu highlighted its initiatives to leverage data from vehicles and digital solutions to enhance customer productivity and safety while reducing total cost of ownership. Page 54. Komatsu has acquired Malwa Forest, a forestry machinery manufacturer through its wholly owned subsidiary, Komatsu Forest. By acquiring technological capabilities and product lineup for lightweight compact cut-to-length forestry machinery, specifically designed for thinning operations, a segment in which Komatsu previously had no presence, the company will contribute to value creation across the entire circular forestry process. Page 55. We have reached a cumulative total of the 1,000 units for our ultra-large autonomous dumb truck equipped with autonomous haul system, AHS, for mining operations. Since introducing AHS for the first time in the world in 2008, the cumulative total haulage volume has exceeded 11.5 billion tons. That concludes my presentation. Operator: Now we would like to move on to the Q&A session. So first, we would like to take any questions from the people here. Maekawa-san from Nomura, please. Kentaro Maekawa: This is Maekawa from Nomura. I have 2 questions. First, regarding tariff impact and price increases. Hosotani-san, you mentioned this in your presentation, but last fiscal year, JPY 64.2 billion was the cost impact. I think originally, you were expecting JPY 55 billion and about JPY 120 billion, which is 4 quarters -- a quarter multiplied by 4, what's going to be your expectation for fiscal '26? So what kind of changes did you experience in reaching your results for fiscal '25? Can you confirm that first? And what have you accounted for, for this fiscal year? Kiyoshi Hishinuma: This is Hishinuma speaking. Regarding U.S. tariffs, there are no major changes on a dollar basis. While we were converting it at JPY 140 before, but now it's at JPY 150 against the dollar or to be more exact, JPY 150.5 against the dollar. Therefore, on a U.S. dollar basis, it's not different. It hasn't changed. It's just because of the FX impact. For fiscal '26, the impact will materialize on a full year basis. So it was about around JPY 600 million before, but it should reach around JPY 900 million. Other than that, we have accounted for refunds as well, which is equivalent to the reciprocal tariffs that are likely to be refunded. So that's what we have accounted for. Kentaro Maekawa: So if it's $900 million, it's about JPY 135 billion. For steel and aluminum, how much of an increase? How much of a decrease are you expecting from reciprocal? And the JPY 30 billion refunds are also included in the JPY 135 billion. So when you look out at March '28, is it going to become JPY 165 billion? So can you break down the JPY 135 billion? What has been going up, what has been coming down? Or can you talk about how it's going to rise from the JPY 64.2 billion? Kiyoshi Hishinuma: Well, regarding the period, before, it was from the middle of the year. So at the beginning of the year, we did have inventory from the previous year. So we started paying the tariffs at a later timing from a payment point of view. From a P&L impact, we had year-end inventories. So it was relatively low. But in fiscal '26, from the beginning of the fiscal year, we are making payments. So there is a period difference. And regarding the details, reciprocal tariffs may be gone. But for steel and aluminum, we used to calculate the content in order to reduce the level of tariffs paid. But now it's at 25%. So the impact is greater. So that is one reason why it's greater than before. From that point of view, for the refunds, that's about last fiscal year's portion. So for fiscal '27, we won't have deferrals from the previous fiscal year. Therefore, we will see full impact. So if nothing changes, it's likely to be JPY 165 billion. Next year, of course, that 10% or Article 122, when that's going to end is a question mark. But well, if we're working off the assumption that the same thing is going to materialize for the next year, that's what we're accounting for, but we are not sure. In that case, it's JPY 135 billion, for next year, the following year, if sales and production is not going to change, it should be about JPY 130 billion for fiscal '27 as well. And this year, it's JPY 30 billion less, or excuse me, for the results for fiscal '25, we already said that it was JPY 64.2 billion. And for fiscal '26, originally, we were guiding JPY 130.7 billion or JPY 130.8 billion. But because of the refunds that we were explaining, which is worth USD 200 million, which we view as JPY 30 billion in terms. So when you account for that, it should be a little bit over JPY 100 billion of an impact on our P&L. Kentaro Maekawa: Got it. For price increases, and on Page 22, when you look at the projections for selling prices, it's plus JPY 68.9 billion. So hypothetically, even if you don't get the refunds at JPY 130 billion, you should be able to make up for it through price increases. Are you making progress? And have you gained visibility already? Can you also speak to that? Kiyoshi Hishinuma: This is Hishinuma speaking. Regarding pricing, we did a bottom-up approach looking at the business plans of our subsidiaries, but price increases are also accounted for, for the U.S. But Caterpillar is not raising prices, and those are the circumstances. So there may be a risk. However, for the tariff increases in the U.S., we won't be able to absorb it completely just with the U.S. So global price increases need to happen. So that's what we're accounting for. Kentaro Maekawa: Understood. My second question is for this fiscal year and your view on volume. Also going back to Page 16, in light of the Middle Eastern conflict, you have reduced sales by JPY 90.1 billion. And last year, when there were some tentative assumptions for GDP as much as you can see, what can you see, what can you not see? So what are the assumptions that led you to JPY 90.1 billion? Because in mining, when energy prices are high, I think that may also serve as a positive. So I was wondering how you view this situation. Kiyoshi Hishinuma: This is Hishinuma. First, regarding demand for the Middle East, a 60% decline is expected. So that has been accounted for, 6-0 percent. And also due to the impact from the Strait of Hormuz, we believe that costs are likely to increase and especially negative impact on countries in Asia. So we are expecting sales to decline. But when it comes to higher coal prices, there is a chance that they may stimulate demand. But when you look at countries like Indonesia, it's true that what originally used to be $40, $50 a ton are now reaching $60 a ton. But even so, we are seeing a higher idle standby rate of equipment, and we're not sure if this is going to continue or not in the future. So demand has not really picked up. So currently, people are still on the sidelines waiting and seeing. There may be an opportunity, but so far, we have not accounted for that in our expectations. Takuya Imayoshi: Just to add a comment to that. Last year, U.S. tariffs just started. So it was hard to account for it in our guidance. But based off IMF predictions and so forth, we have viewed how much GDP is likely to decline and what's going to happen to demand. And that is why we accounted for JPY 50 billion decline in sales. But the global economies have not yet fallen, but we try to account for risk as much as possible to the extent that we can calculate. And also the Middle Eastern crisis, we don't really know its impact clearly yet, but our way of thinking is the impact from the Strait of Hormuz is likely to continue. That's the assumption we have. But then because we are dependent on crude oil as well as LPG, like -- in regions like Africa as well as Asia are likely to be affected. So like Hishinuma-san explained, we are expecting a demand decline in Asia as well as in the Middle East, leading to a sales decline in turn. And also accounting for our gut feeling that we have experienced from the past, we have accounted for a JPY 90 billion impact. And also due to higher crude oil prices, we are already seeing material prices increase that are crude-oil-derived, and that impact is JPY 18.8 billion. So this is purely looked at as a cost increase. So JPY 90 billion of volume decline and JPY 18.8 billion of a cost increase SVM-wise is what we've assumed due to what I've just explained. On the other hand, of course, the impact may be greater than our assumptions or the crude-oil-derived goods may fall to a shortage, which may affect our production, but that is still not known. So we have not accounted for that negative impact. Operator: I would like to move on to the next one, Sasaki-san from UBS. Tsubasa Sasaki: This is Sasaki from UBS Securities. I've got several ones, but the first question is the figures I always ask you. Page 22, this waterfall chart and volume product mix and also the cost variance. Looking at the Page 9 and Page 22, the plan and actual performance, and there have been some figures related to tariffs, but could you please give us the details around those factors? And this volume mix has been negatively contributed to your performance. So the negative JPY 32.2 billion, that's in your plan, but what gets you to that number? Hiroshi Hosotani: This is Hosotani speaking. First, Page 9. Page 24 and Page 25 variance. First in segment profit, JPY 72.6 billion of the volume mix and product mix difference, just hold on a moment. I'm sorry on this one. First, JPY 25.8 billion for the volume difference, and that was a negative. And also product mix, JPY 25.1 billion, that's included. Now factors for this, is that as we explained, electric dump truck, as we explained those up until the last fiscal year, and it's not that they were able to enjoy the higher profitability, but the mix increased for this electrical dump truck. And also Chile contract business margin declined slightly. And also regional mix had negatives here. And among the region, the highest profitability comes from Indonesia. And sales volume significantly decreased in Indonesia market. And that's why regional mix has seen the impact from that and JPY 19.6 billion approximately. Now moving on to the right and production cost, JPY 81.6 billion negative. Let me give you the breakdown for that, which includes the U.S. tariff cost increase, JPY 64.2 billion. This is only applicable to the Construction Equipment of the JPY 64.2 billion and other ones, like the variance coming from industry others, Industrial Machinery and Others. And also cost variance, let me give you the breakdown for that. From third party, we purchased components, the major components, and those costs started to inflate. So that's why there is the major variance of cost of goods. And fixed cost variance, fiscal '24 to '25, the labor cost significantly increased. Apology, you talked about the volume variance, apology, hold on a moment. For fixed cost, JPY 20 billion comes from the labor cost and the SGP projects were underway. And also the variance in comparison between '25 and '26, JPY 31.8 billion of the volume that's been included here, and of which the volume mix amounts to JPY 40 billion. JPY 40 billion, the big chunk comes from Indonesia. Hold on a moment. Other than volume mix, the regional mix and product mix are written here. Fiscal '25, the losses we have to make were all gone for '26. So JPY 31.8 billion included volume mix and that amount to JPY 40 billion. That's all from me. Tsubasa Sasaki: What about the variance of cost of goods? Because I guess the cost increases comes from the conflict in the Middle East. Hiroshi Hosotani: Yes. Fiscal '25 and '26, JPY 49.6 billion for production. The U.S. tariff's impact is included here in this number. About JPY 67 billion is included here, but at the same time, the JPY 30 billion of the refund is included. So the net it all out, the JPY 37 billion of cost increase is included here. And also other cost of goods variance, JPY 10 billion-some is also included. Tsubasa Sasaki: My second question, let me take this opportunity to ask this question of Hosotani-san. You took office as CFO. Give us your commitment as a CFO as we look ahead. For example, as a Komatsu, the capital efficiency improvement and the better margin, I mean, there could be a number of the lists that you want to attain, but you're succeeding Horikoshi-san and took office as CFO. And as one of the members of the top management team, what are the things would you like to achieve? I mean this is your first time to be here in a financial briefing. Do you have any commitment would you like to make? That's my second question. Hiroshi Hosotani: Well, you set the high bar for me actually, but let me try to answer. My predecessor, Horikoshi-san, mentioned this too. But basically, we always have to be mindful of the shareholders in running the business. And I would like to be contributing to the way we run the business. So shareholder returns and balance sheet and ROE, those indicators are the things I always look. For example, in comparison '25 to '26, the net income -- I mean, volume declined because of the conflicts in the Middle East. So net income declined. Business size and the revenue size need to expand from our perspective. And to that end, we are engaged in various activities. As we expand the business size, I would like to be of a support for the better decision on the management level so that we are able to have a better top line. I'd like to engage in those activities as CFO. Tsubasa Sasaki: Is it more like a better top line? Is it one of the things, which you like to commit? That's what I get from your message. What made you think that way? Hiroshi Hosotani: Well, for example, as we look at the current status, the conflicts in the Middle East and there are impacts from that. It takes time until the situation will go back to where it has been. So in the longer term, this is the one-off factor. But the U.S. tariff is concerned, some say this is a one-off factor, but at the end of the day, this is about the balance of the export-import of the United States and other countries and try to correct this imbalance. So these costs are permanently are subjected to occur. So that's why we need to continue to contribute to the cost, but net profit size need to be secured to an extent, which means that we are able to -- we need to have a better top line. Operator: Let's take the next question from SMBC Nikko, Taninaka-san. Satoshi Taninaka: This is Taninaka from SMBC Nikko. Regarding mining equipment, mainly, I have 2 questions. For metal prices, including coal prices, they are rising lately. And in the new fiscal year, when you add up the after services, you're only accounting for about 3% growth year-over-year. I think you're being conservative when you think about the underlying trends. And when you look at the underground mining equipment manufacturers' results, their growth rates look stronger. So can you talk about the backdrop to how you derive these assumptions? Kiyoshi Hishinuma: This is Hishinuma speaking. For mining equipment, as you rightly said, prices have been going up for, obviously, copper and gold and so forth. But on the other hand, for equipment and the way we look at demand, the replacement cycle is pretty long. So there's ups and downs. And also when you look at it by region, there are regions where we're expecting higher demand and other regions where we're expecting lower demand. That's for equipment. And the growth we're expecting for the aftermarket business may look small. However, we did see drop-offs that were quite significant in Indonesia and also in the Middle East, including reman, we have been growing the business, but all in all, the numbers may not look as dynamic as you were expecting. Satoshi Taninaka: My second question is with respect to the replacement cycle and you talked that it has run its course. From 2011 through 2013, demand for mining equipment grew quite substantially. And then you have a replacement cycle. And are you trying to say that the message was that the replacement cycle is over? Or are you saying that over the short term, there are ups and downs and replacements are at a standstill at this moment? So for March '28, are you trying to imply that demand is going to go down even more? Kiyoshi Hishinuma: Well, the cycle we're referring to is not about the 2011 cycle. It's more about whether we have big deals or not in recent years. For example, in North America, in '24, '25, in North America, there were some big deals. And we have been explaining that some big deals have been absent in 2025 because there were more in 2024. So they were less in 2025. And in 2026, we are expecting at this moment less of large deals. But regarding the share volume of general deals, we are actually seeing an increase. So it's just a matter of whether or not we are carrying large deals or not. For example, in the case of Australia, in fiscal '26, we're not expecting that much of big deals, so to say. That's what we were referring to. But for super large dump trucks that we manufacture in North America, when you look at our production plans and compare '25 with '26, production volume is not going to change that substantially. Even if the sales may not be recognized in 2026, there is a possibility that it's going to go into 2027 sales. And rope shovels are being produced at 100% capacity. And we are also working on fiscal '27 already. And because copper is doing well, we're not really expecting that much a decline. However, we need to monitor closely the trends in Indonesia. Operator: I would like to take a question from Adachi-san from Goldman Sachs. Takeru Adachi: This is Adachi from Goldman Sachs. I have 2 questions, too. The first one, the mining equipment. As Hishinuma-san shared, Asian market, usually coal prices are on the rise, which is positive, but diesel prices and operating costs have been boosted, which is negative and negative outweighed the positive and the dormant that populated the vehicles is increasing. And what are the changes that you have seen for dormant and idle vehicles? And I think up until Q1 last fiscal year, there was a last minute demand was very strong and that sub demand in Q2. But as you look ahead, Q1, you see the sales can drop from the fiscal year, but do you think that, that will be flattish after Q2? Or do you think that Q2 and beyond, do you think the moderate decline continues, especially for the Indonesia mining equipment market? Kiyoshi Hishinuma: For Indonesia, as you raised a number of the points, the idle vehicles ratio and what are the historical trends? For example, 2024, the end, 5%, they used to be 5%. Then fiscal '25 in June, 8.5%. And then that was up to 9.6% in January and 10% afterwards and 17% in January. So the coal prices goes up and even the workload increases, and they are able to handle the increase in volume with the coal prices with the current volume. So B40 and now start in July, it starts B50 and production volume, 800 million tonnes, 600 tonnes -- 600 million tonnes. And there are some talks of increasing the volume. Throughout the year, we are not 100% confident that there are bound to increase. So fiscal '26, I believe that we are seeing this as a cautious note. Takeru Adachi: As Tanigawa-san and yourself discussed a bit, Indonesian coal and precious metal have been pretty strong in prices and the production plan is at full, as you said. In order to accelerate it, would you like to accelerate further on that point? Kiyoshi Hishinuma: In North America production capacity ramp-up, rope shovel might be at full. The electric dump truck production plan for fiscal '26 and '25 will be equivalent, I said. But versus what it has been in the past, there are some time where we produce more. So at the full capacity, if we produce them, and there could be some more availability. So in North American market, we are not -- we haven't gone to the point where we are dealing CapEx. Takeru Adachi: Okay. Next one is cash flow and the buyback is announced. And the previous year and two years ago, like those 2 years, you have announced JPY 100 billion. What are the decision-making process like? And behind that, free cash flow assumption were -- would have been calculated. How much free cash flow you're expecting, JPY 160 billion is expecting, I guess. So how much of the operating cash flow and the working capital level? And what are the production assumption to the working capital? Maybe you can have a breakdown approximately. Do you have any up and down of your planning for production? Hiroshi Hosotani: This is Hosotani speaking. For free cash flow, fiscal '24, free cash flow, JPY 300 billion-or-some. That's fiscal '24. And it's been a few years, the JPY 250 billion to JPY 300 billion of the free cash flow. That's our track record of the free cash flow. Now with this amount, dividend and buyback of the JPY 100 billion, we have enough excess capacity to do that with this amount because it amounts to JPY 300 billion. Now for fiscal '26, free cash flow or as planned of the JPY 250 billion plus and deposits and others, I mean, sales were not growing and profits declined, but the working capital is expected to improve. So as a result, so we are able to generate equivalent level. JPY 300 billion plus of the free cash flow are our commitment. So that will continue for 3 years. And M&A portion excluded, then JPY 1 trillion. And that's a commitment and goal we set ourselves. Operator: There are people raising their hands on Zoom. So we would like to take that question from [ Otake-san ], please. Unknown Analyst: Can you hear me? This is Otake speaking. Operator: Yes, we can. Unknown Analyst: Just wanted to confirm again. First question is regarding the impact from U.S. tariffs, please let me sort it out. For the year ended in March 2026, the impact was JPY 64.2 billion on your P&L. Is that correct? Hiroshi Hosotani: That is correct. JPY 64.2 billion for Construction Equipment. That's for Construction Equipment. But for Industrial Machinery, there are -- there is a bit of tariff's impact as well that has been incurred. Unknown Analyst: Up until the previous results, according to the materials, you were saying JPY 55 billion of impact from tariffs. So does this include Industrial Machinery as well on top of Construction Equipment? Kiyoshi Hishinuma: It's only several hundreds of millions of yen attributed to Industrial Machinery. So the level doesn't really change. There was about JPY 400 million of an impact from Industrial Machineries and Others. Unknown Analyst: Got it. And for -- from the assumption of JPY 55 billion, the reason why it increased to JPY 64.2 billion is due to FX impact, right? Kiyoshi Hishinuma: Yes, exactly. Unknown Analyst: No differences on the U.S. dollar basis, broadly speaking. It's just due to the differences in conversion FX rates. So for this fiscal year, for the year ending March '27, excluding refunds, you're expecting JPY 130.8 billion. Is that correct? Hiroshi Hosotani: That is correct. Unknown Analyst: Got it. And the impact amount, the reason why it's higher, you were saying that the content calculation has been abolished and that has had an impact. Can you walk me through what that means and entails? Kiyoshi Hishinuma: Regarding content, for steel and aluminum content, you calculate how much is included for -- as part of your product prices or cost. And that is subject to steel and aluminum tariffs and the rest to reciprocal tariffs. So by calculating the content, we have been able to reduce its cost. And even for derivatives, it is 25% now. So when we were calculating the content, it was less than 25% basically. Unknown Analyst: Or by doing a precise calculation of content, you have been explaining from before that you are able to reduce the cost. But I guess that is not possible anymore. Then in order to reduce tariff impact going forward, such as reviewing our supply chain or logistics, I think that will be key, but with respect to these measures, in order to reduce the negative impact, what are you focusing on? Or what would you like to focus on going forward? Takuya Imayoshi: Well, last year, in April, we shared with you various types of countermeasures we were planning for. For the products that used to go through North America that went to ultimately Canada or Latin America, by shifting to direct shipments instead and shipping out to Canada directly, we will be able to alleviate the impact, and that is fully contributing already. And there are some parts that are going through the U.S. as well. But by directly shipping and also creating warehouses in Panama, we are trying as much as possible to reduce the impact. And for countermeasures, for steel and aluminum tariffs, not by simply just paying for it, but by calculating the content, we had been trying to minimize the tariff impact. However, now it's going to be 25% across the board. So that countermeasure is no longer viable. However, reciprocal tariffs are now gone. So on a net-net basis, the actual amount of payments are slightly up. You referred to the P&L, but the impact on '25 and the impact on '26 because of more inventory impact, it's going to become a greater impact. And the difference in tariff rates have also been impact -- are expected to impact us as well. Unknown Analyst: I see. So you are working on various initiatives. But in order to mitigate tariff impact even more, one kinds of feels that it may be challenging. But what would you like to do additionally? Or do you feel that you will be able to reduce its impact? Takuya Imayoshi: Of course, increasing production in the U.S. is something we are considering. But from a cost point of view, it is also challenging, which is preventing us from doing so. So I think it's more of a buildup of various improvements. And hopefully, we could raise prices to make up for it globally or reduce costs globally as well so that we can ensure that we are profitable. And sorry for going on, but for price increases, you were talking about Caterpillar and that they are not raising prices recently, but currently, in the U.S. as well as in other regions. Unknown Analyst: When you look across the competitive landscape, how are the price increase trends from your point of view? How do you view the market? Takuya Imayoshi: Well, we have been communicating this from before. But from several years ago, in accordance with higher steel prices, we have been increasing prices, but our competitors have been more bullish in raising prices. So we were a little bit behind. But in order to catch up, we have continued to steadily raise prices. But now steel prices have calmed down and price increases just limited to higher tariffs is not really happening, and that is why we are seeing difficulty here. Unknown Analyst: My final question is about the Middle East and its impact. JPY 18.8 billion of a cost increase is what you're expecting. Can you break it down? How would it look like? Can you share it with us as much as possible the breakdown? Kiyoshi Hishinuma: It's -- costs are rising and parts are rising due to oil-derived products and also logistics, transportation costs because of higher fuel costs, that has been accounted for as well. The majority is because of higher parts prices and cost increases. Takuya Imayoshi: Meaning fuel, oils, paint, gas that are oil-derived, material prices have already been going up quite a lot. So that has been accounted for as a cost increase. Unknown Analyst: I see. So procurement cost increases is about maybe 80% of the cost increase and maybe 20% to 30% associated with seaborne transportation. Takuya Imayoshi: Maybe it's like a 70-30 split. Operator: I would like to take questions from anyone joining us online. BofA, Hotta-san. Kenjin Hotta: This is Hotta from Bank of America. I have 2 questions, too. First, with the conflicts of the Middle East and that has impacts on volume and other mix. On the production front, you have uncertainties, so you haven't incorporated them into the guidance, as you said. But if possible, on production front, how much impact do you think that there is? You said there is nothing for now, but given the current situation, how much potential impacts you might have to suffer from? Or are you saying that you have enough inventory, so you are able to have the muted impacts from that on the production front? Give us the details around production areas, if there's anything you can share with us. Kiyoshi Hishinuma: Well, first on production area or production front. First, we try to sustain production work, and we try to work with suppliers. We try to secure enough works and components. And how far we are able to secure them? It's not to say that we are able to secure them for 6 months and 1 year ahead. So we always have to cement where we are, and we try to secure production. To the worst-case scenario, naphtha and other materials could have issues in the future. And if and when, if we can secure some of the materials from plants for any of the one single supplier and the production itself could be impacted. But when would that happen? We're still not sure. That's why we haven't incorporated the potential factors into the guidance this time. Kenjin Hotta: Okay. My second question is the mining equipment. You said replacement cycle. And you said that there is a completed replacement cycle now, but fuel is on the rise. So a little bit outdated equipments. Needs to have -- needs to be a newer ones so that, that uses less oil or less fuel. Is that kind of the replacement demand that you're seeing? Kiyoshi Hishinuma: Well, it's not going to be a replacement cycle you're going to see in the passenger cars. Kenjin Hotta: Okay. But to stay on the same topic of the fuel prices, if you look at the Australian market, diesel shortages is very dire and SMEs mining companies started decide the shortage of diesel and they need to compromise the utilization ratio recently. And BHP has no issue whatsoever because they are big enough. But Australian market is primarily a market where the utilization ratio for the machine is declining. Is that something you're saying? Or isn't there any impact on your operation whatsoever in terms of the diesel shortage? Takuya Imayoshi: Well, we haven't witnessed any of the specifics, be it suspension of the operation itself, but there are risks, yes. Operator: There's another question from online, McDonald-san from Citigroup Securities. Graeme McDonald: Can you hear me? Operator: Yes, we can. Graeme McDonald: This is McDonald speaking. I have a question about Page 26 in North America. Looking at the right-hand side for Q4, for the 7PLs, it was plus 7%. And going back, I think for the first time in several occasions, it was a good number, maybe several years, where you're seeing an uptrend even so for this fiscal year. For volume, you're expecting flattish demand compared to fiscal '25. The non-housing space, when you look at the segments like mining, energy, road construction and data centers and so forth, for this fiscal year, I kind of think that you're conservative in your projections for North America this year. Of course, I'm sure you have a lot of concerns in your heads. But why are you guiding flattish demand? Shouldn't you be guiding having an assumption that is more positive? That's my first question. Kiyoshi Hishinuma: Thank you for the question. For North America, as you said, what we show in the material for Page 26, at the bottom right, we show the breakdown of demand by segment, divided into rental, energy, infrastructure that are performing positively across the board. It was only housing as well as government-related that was negatively contributing. So all in all, the trends are positive. And after completing fiscal '25, we saw plus 3% growth in demand. So when you listen to what customers are saying even, they have about order backlog of 6 months to 2.5 years. Therefore, we do believe the market is quite strong. So our assumptions are flattish, but we're not really anticipating any major negatives. Therefore, yes, you can say that we are being conservative. Graeme McDonald: Well, from a regional point of view, Indonesia apparently had the highest profitability in the past, but if you're so bearish about Indonesia, the highest profitability as a market, I guess, is coming from North America in the non-housing segments. Do you think that's true that it has the highest margins? Kiyoshi Hishinuma: If you just look at SVM, excluding fixed costs, the procurement cost inclusive of tariffs is quite big. So no, the margins are not the highest in North America. Graeme McDonald: Okay. So it will continue to be challenging. So I just wanted to confirm another thing about Page 9, I think. In your comments, Hosotani-san, for last fiscal year and the negatives from product mix was EDTs. Is this one-off? Or for electric dump trucks and its profitability, is it relatively low? I just wanted to confirm that point you made. Hiroshi Hosotani: This is Hosotani speaking. Our dump trucks is because of our dump truck mix. Globally, we sell -- the regions where dump truck margins were high was Indonesia. For Indonesia, we have been selling rigid dump trucks mainly. And for electric dump trucks are being made in the U.S. on the other hand, compared to rigid dump trucks, the costs are greater due to its structure. And sales in Indonesia, especially for mining has been dropping off. So product mix-wise, rigid went down, whilst EDT composition has increased. So from a product mix point of view, because of more electric dump trucks, average margins have come down slightly. Graeme McDonald: I see. So we shouldn't be that concerned, I guess. Hiroshi Hosotani: Correct. Graeme McDonald: Finally, I have a quick question on topics on Page 50, you talked about AHSs and reaching 1,000 units in volume. I think that's great. Going forward, do you have any numerical targets as to how to grow the business even more? That's my final question. Kiyoshi Hishinuma: Well, in the strategic growth plan and our targets, it was 1,000 units in fiscal '27. That was our original target, but we have been able to reach it beforehand. So we have been -- we are thinking about raising the target up to 1,200 units instead. So compared to the pace we saw back in fiscal '25, it looks like it's going to decelerate. However, new customer implementation is likely to increase. And in that case, the rate of increases is going to look like it's decelerating, but we will continue to work on its implementation. Graeme McDonald: How about margins? Compared to rigid dump trucks, is it lower? Kiyoshi Hishinuma: Well, we talked about electric dump trucks earlier. So that in itself is not that high, but this is an AHS system, and we receive income from subscriptions as well. So that is a positive. Operator: We are counting down some time. Anyone who has questions here? Okay. I'd like to take a final question from the floor. Issei Narita: Narita from Mizuho Securities. Sorry, I'm repeating myself, but Page 28, here in Indonesia, mining equipment demand doesn't look like it's declining so much. And yes, I do understand that there is a declining market, but the Chinese manufacturers try to make inroads into mining equipment more and more. And against the hard work in Latin America, the Indonesia and those smaller kinds of smaller dumps were utilized in those Indonesia. So other than the market, there have been anything that you can share other than the competitive landscape? And also, you said Indonesia, it has the highest margin, whereas coal prices will give you the headwind. And that might be changing in the future, but with your self-effort, do you see any capacity to increase further overall performance in Indonesia? Takuya Imayoshi: Well, as you see the bottom right, Page 28, you see the demand trend, and that might be misleading, but you see by sector here. So in terms of the size, the smaller equipment for mining are included here. And then fiscal year '25, we are shipping a lot of those smaller ones and 100 tons demand is on a decline. So that sounds like that doesn't add up. But the demand for 100 tons, the customer try to hold back the purchase. That's why we are struggling. And fiscal year '26, the coal production volume is going to be struggling, but we work with the distributors to secure enough volume here. Operator: So finally, Tai-san from Daiwa Securities, we would like to take your question remotely. Hirosuke Tai: Yes, I'll keep my question brief. I have a question for Imayoshi-san. With respect to the Middle East and tariffs, that was the main topic for today's call. Even if you add back those numbers into your guidance, profitability is expected to be about the same as last year or a little bit down, whether it be on a company-wide basis or for the C&ME segment. And I think it all comes down to inflation, maybe. But how about striving to raise profitability by making up for it? Do you have that intention? Or are you fine with this kind of margin? And would you like to instead raise top line? Because you have just started a new fiscal year. So Imayoshi-san, of course, can you talk about some themes that you're considering as a company? Of course, countermeasures for the Middle Eastern conflict may be one, but I was hoping that you could share 1 or 2 things on your mind. Takuya Imayoshi: Well, as stated in the strategic growth plan, we want to have profitability and growth rates that exceed industry levels. So it's not just about growing top line, but also profitability as well. Overall, demand-wise, we are at a juncture where it's broadly flat. It's not just tariffs impact, but Indonesia's drop-off is also a negative when it comes to profitability, but we will steadily implement the measures that we're stating in the strategic growth plan. We will work on product development as well as we'll think about ways to grow the aftermarket business. So we would like to ensure that we're able to generate results so that we can also enhance profitability. Operator: Thank you very much. This concludes the Q&A session.
Operator: Thank you for standing by. Welcome to Schrödinger, Inc.'s conference call to review first quarter 2026 financial results. My name is Rob, and I will be your operator for today's call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. Please be advised that this call is being recorded at the company's request. Now I would like to introduce your host for today's conference, Ms. Jaren Madden, Chief Corporate Affairs Officer and Head of Investor Relations. Please go ahead. Jaren Madden: Thank you, and good afternoon, everyone. Welcome to today's call during which we will provide an update on the company and review our first quarter 2026 financial results. Earlier today, we issued a press release summarizing these results and progress across the company, which is available on our website at schrodinger.com. During today's call, management will make statements that are forward looking and may relate to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including without limitation, statements related to our outlook for the full year 2026, our plans to accelerate the growth of our software business and advance our therapeutics portfolio, the clinical potential and properties of our and our collaborators' compounds, use of our cash resources, as well as our future expenses. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies, and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially due to a number of important factors, including the considerations described in the Risk Factors and elsewhere in the filings we make with the SEC, including our Form 10-Q for the quarter ended 03/31/2026. These forward-looking statements represent our views only as of today. We caution you that, except as required by law, we may not update them in the future whether as a result of new information, future events, or otherwise. Also included in today's call are certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and should be considered only in addition to and not as a substitute for or superior to GAAP measures. Please refer to the tables at the end of our press release, which is available on our website, for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. This afternoon, Ramy Farid, our CEO, will review our recent progress. Then Richie Jain, Chief Financial Officer, will discuss our financial results and 2026 guidance. Karen Akinsanya, President, Head of Therapeutics R&D and Chief Strategy Officer, Partnerships, will review our therapeutics portfolio. Pat Lorton, our Chief Technology and Chief Operating Officer, will join us for the Q&A. With that, I will turn the call over to Ramy. Ramy Farid: Thanks, Jaren, and thank you, everyone, for joining us today. We are off to a strong start this year, delivering $28.4 million in ACV, a 12% increase compared to Q1 last year. Our growth was broad based, reflecting usage scale-ups, new customers, and growth from new products. Drug discovery revenue of $23 million was also a significant contributor in the quarter. Lilly's announced $2.3 billion acquisition of Ajax Therapeutics, a company we co-founded and in which we have an approximately 6% equity stake, is the latest example of a multibillion-dollar deal for a Schrödinger, Inc. co-developed molecule and speaks to the power of our platform. We are pleased with our momentum transitioning customers to hosted licensing. We are seeing positive conversion dynamics upon contract renewals and with new products that are hosted. In limited cases, we are also seeing the early conversion of multiyear on-premise deals to hosted ahead of the scheduled renewal date. We are encouraged by the improving biopharmaceutical funding environment. While macroeconomic uncertainty remains, it is clear to us that there is a growing recognition of the critical importance of our computational platform as R&D organizations embrace the predict-first computational paradigm that offers a demonstrated path toward improving probability of success and reducing the time and cost of molecular discovery. We remain poised to benefit from the evolving regulatory environment, with our predictive toxicology initiatives set to address a key element of the FDA's focus on reducing animal testing and broadening the use of computational methods. Our market-leading position is built on the inherent accuracy and scalability of our physics-based approach and is further reinforced by our unmatched track record. While standard AI models are limited by the scarcity of training data, our platform generates the ground-truth simulations, accuracy, and scale required for AI to precisely navigate the vastness of chemical space. By combining the accuracy of physics with the speed and scalability of AI, we are able to evaluate key properties of billions, even approaching trillions, of molecules with a level of accuracy impossible to achieve through models trained solely on experimental data. This capability enables our customers to integrate computation more deeply into their workflows, driving the consistent demand that underpins our long-term growth trajectory. We are committed to technology leadership and evolving our platform to meet customer needs. We are very excited about the upcoming release this summer of an early access version of Bunsen, our new agentic AI co-scientist. Designed to autonomously execute complex molecular discovery workflows, Bunsen enhances productivity and accelerates the design–predict–make–test–analyze cycle that drives modern molecular discovery. Our material science and therapeutics teams have been successfully using Bunsen internally, and we are excited to offer this capability to our customers. Our throughput-based licensing model is well positioned to capture the value of this expanding utilization. The repeated success of our co-invented molecules and the continued progress of our therapeutics portfolio place us at the forefront of a digital transformation moving material science and life science industries toward a more efficient predict-first, computationally driven model of discovery. We continue to deliver the technology that transforms the way molecules are discovered, and we look forward to updating you on our progress throughout the year. I will now turn the call over to Richie. Richie Jain: Thank you, Ramy, and good afternoon. ACV in the first quarter was $28.4 million, which represents 12% growth compared to $25.4 million in Q1 2025. On a trailing [inaudible] basis, ACV reached [inaudible]. As a reminder, we believe ACV provides important visibility into the performance of our business during a period where we expect recognized revenue to be highly variable due to the accelerated transition to hosted. ACV growth was primarily driven by our top 20 pharma customers, as these customers broaden their platform access, onboard new products, and integrate our platform more deeply into their R&D organizations. Starting this quarter, we are breaking out contribution revenue as a separate line item to provide better visibility into our software and drug discovery performance. To facilitate year-over-year comparisons, we have reclassified our historical results to reflect this change as contribution was previously included in software and drug discovery revenue. Total revenue for the quarter was $58.6 million. Software revenue was $35.6 million, of which hosted revenue contributed $12.1 million, or 34% of the software total, compared to 24% in 2025. On a trailing four-quarter basis, hosted revenue increased to 27% of the software total. As we have discussed, the year-over-year software revenue comparison reflects our planned accelerated transition to hosted licenses, for which revenue is recognized ratably over the life of the contract rather than upfront. While this dynamic creates a near-term headwind on recognized revenue, over the long term it will better align revenue with operational growth, resulting in a more predictable financial profile. Software gross margin was 69% for the quarter, compared to 80% in Q1 2025, reflecting our planned accelerated transition to hosted software licensing. Contribution revenue was $0.1 million for the period, compared to $4.3 million in Q1 2025. The decline is driven by completion of the initial funding by the Gates Foundation in support of our predictive toxicology initiative. Drug discovery revenue was $22.9 million, compared to $10.2 million in the same period last year. The increase is due to the accelerated recognition of deferred revenue associated with the continued progress of the company's collaboration portfolio and the discontinuation of one collaboration program. Total operating expenses for Q1 were $78 million, a decrease of 4% compared to $82 million in Q1 2025. This reflects the impact of our efficiency measures and disciplined expense management across R&D and G&A; we continue to invest in sales and marketing to drive long-term growth. Total other expenses were $11 million, primarily due to changes in fair value of equity investments and interest income/expense. Net loss for the quarter and for 2025 was $60 million. We ended the quarter with a strong balance sheet of $[inaudible] in cash and marketable securities. We anticipate receiving our portion of the upfront cash payment from the Ajax–Lilly transaction when the deal closes. The fully diluted share count was 74 million. Today, we are maintaining our full-year 2026 guidance. For the full year, we continue to expect ACV to be in the range of $218 million to $228 million, representing 10% to 15% growth. We anticipate drug discovery revenue between $55 million and $65 million for the year. As a reminder, drug discovery revenue has quarterly variability due to the collaboration- and milestone-driven nature of the business. Our operating expenses are expected to be less than 2025, as we maintain overall expense discipline and make select investments in sales and marketing to support growth and the release of new products. We anticipate our clinical activities will be largely complete by 2026, and to incur approximately $10 million to $15 million of R&D for full year 2026 as we wind down these activities and seek partners for mid- and late-stage clinical programs. Our $19 million to $23 million guidance range for Q2 2026 ACV excludes contribution ACV, compared to $23.3 million from Q2 2025 that included $5 million of contribution ACV. Now I would like to hand the call over to Karen. Karen Akinsanya: Thank you, Richie. Our therapeutics business continues to create significant value, most recently highlighted by Lilly's planned acquisition of Ajax Therapeutics for $2.3 billion. By combining Ajax's deep expertise in blood cancer and JAK family structural biology with our industry-leading track record in computational drug design, we discovered AJ1-1095, a first-in-class type 2 JAK inhibitor which is the primary driver of the announced deal. Over a ten-year span, Schrödinger, Inc. has co-founded multiple companies including Ajax. There have been seven major transactions and liquidity events related to molecules we co-discovered across our biotech collaboration portfolio, including Lilly's acquisitions of Morphic, Petra, and Ajax, the sale of Nimbus' ACC and TYK2 inhibitors, and the successful IPOs of Relay and Structure. The success of these companies and multibillion-dollar exits establishes unquestionable validation of the impact of computation-based design and our biotech and pharma collaboration business model. The emerging results from our maturing therapeutic portfolio span internal discovery programs licensed to pharma through to co-invented molecules with late-stage clinical readouts like Takeda's Zasacitinib, which completed Phase III trials earlier this year. To date, our equity and business development activities have resulted in close to $700 million of cash as well as potential future preclinical, clinical, and commercial milestones of up to $5 billion and royalties on 15 programs. Our wholly owned programs also represent future value capture opportunities. As Ramy mentioned, the therapeutics team has integrated our new agentic solution Bunsen across the combined portfolio. Bunsen's ability to execute our powerful predictive models and orchestrate multi-step, multi-scale drug discovery workflows enables us to accelerate the design–predict–make–test–analyze cycle. This is an exciting development that we expect to have a major impact on the productivity of our team and teams across biopharma once they get access. Turning to our wholly owned portfolio, in April we presented initial clinical data for SGR3515, our WE1 inhibitor, at the AACR Annual Meeting. As a reminder, this is an ongoing Phase 1 dose-escalation study with primary objectives of safety, tolerability, and pharmacokinetics. The data presented demonstrate that SGR3515 was generally well tolerated on an intermittent dosing schedule of three days on and eleven days off. Importantly, the initial clinical biomarker data validated our hypothesis that dual inhibition can overcome compensatory resistance mechanisms. We observed encouraging early anti-tumor activity with a 65% disease control rate among evaluable patients treated at doses of 100 mg or higher. We also remain encouraged by the progress of SGR1505, our MORT1 inhibitor. We continue to see a 100% response rate and durable responses in patients with Waldenstrom's macroglobulinemia, where the drug has both FDA Fast Track and Orphan Drug Designations. As we complete these Phase 1 studies, we are actively exploring partnership opportunities to continue the mid- and late-stage development of SGR1505 and SGR3515. Our track record of generating differentiated discovery-stage breakthroughs, clinic-ready molecules, and valuable data packages is well established. We believe our drug discovery expertise, coupled with the use of our computational platform at scale, will enable us to continue unlocking high-potential target product profiles and drive the next wave of successful collaborations and transactions. I will now turn the call back to Ramy. Ramy Farid: Thank you, Karen. As you have heard, we are off to a strong start in 2026. I want to thank our employees for their hard work and commitment to our mission. We are pleased with the momentum across the company and look forward to updating you on our progress throughout the year. At this time, we are happy to take your questions. Operator: We will now open the call for questions. Your first question comes from the line of Scott Schoenhaus from KeyBanc Capital Markets. Your line is open. Analyst: Hey, guys. This is Steve on for Scott. Could you talk more about how agentic AI is driving higher utilization of high-compute calculations and how this is impacting your business? What is the upside potential as adoption increases? And then how would this show up in your customer contracts? Thanks. Ramy Farid: Absolutely. I assume you are referring to the announcement we just made about the release this summer of Bunsen, an agentic AI system for automating complex workflows. We have already been using Bunsen internally for a number of months. The impact that it has had on productivity of both our expert modelers and computational chemists, as well as non-experts, has been extraordinary. We are very excited about it. What it is doing is eliminating barriers to large-scale deployment of the technology. It is very much, as we describe it, a co-scientist, a companion that improves efficiency and productivity for both experts and non-experts. The impact of this improved efficiency and our ability to actually use the technology on a larger scale and in a more effective way is significant. As we said, we will be releasing it this summer. Feedback that we have been getting as we start to talk about the imminent release of Bunsen has been very positive. I think there is a lot of excitement about the potential. The last thing I will say is, and we mentioned this again today, that our throughput-based licensing, that is not seat-based licensing but throughput-based licensing, of course benefits from solutions like this where an agentic AI has the potential to increase the demand for the technology and the need for our customers to license that technology on a larger scale. Pat, is there anything you wanted to add? Did I cover it? Pat Lorton: I think you pretty much covered it. The one thing I would add is that we are seeing customers using more general agentic AI, and they are already having access to higher throughput of our technology using other LLM providers. That said, the reason we have built Bunsen is because our tools are such expert tools that we feel that the LLM has to be trained specifically on how to use our tools to optimize it and to run in the most efficient way. We think the solution we are putting together will be best for that. Ramy Farid: Yeah. Analyst: Great. And then just one follow-up. You mentioned you are working with them for a bit last quarter. Just any update on that partnership or collaboration, however you refer to it? Ramy Farid: Sure. Pat, do you want to give an update? Pat Lorton: Sure. Yeah. We regularly work with and talk with Anthropic as we are building out Bunsen. It is one of the top LLM providers. We are not tied to a single LLM. We are open to using whatever our customers prefer or whatever we think would work best. We are building an agentic layer on top of LLMs, but Anthropic is obviously a fantastic provider in the space, and we have learned a lot from them. We are really excited to continue to work with them. Operator: Great. Thank you. Your next question comes from the line of Mani Foroohar from Leerink Partners. Your line is open. Mani Foroohar: Hey, guys. A quick question. When you think about the percentage of customers or percentage of contract value that were previously on-prem that are renewing in 1Q, recognizing that we are off and we are recycled for many, can you give us a sense of what percentage you were able to convert over to hosted? So you can give us a little bit of real-time quantitative feedback on how that transition is going. Ramy Farid: Yeah. Richie? Richie Jain: Thanks, Mani, for the question. For the quarter, we were pleased with the progress. Hosted revenue was 34% of the software revenue in the quarter, and 27% on a trailing four-quarter basis. That compares to 23% just a quarter ago. So we are pleased with the early progress. Anecdotally, we are aiming to transition from on-prem to hosted upon the contract renewal date. That is what we achieved in the quarter, as well as all new customers were deploying hosted in the first instance. So overall, we are pleased with the first quarter, and we still have our same expectations for the year and the three-year outlook getting to 75% by the three-year period. Ramy Farid: I think it is also worth mentioning that in a few cases, which I think is quite encouraging, we were able to transition some customers to hosted before their renewal dates. Richie, do you want to add? Richie Jain: Yes. While the primary emphasis has been on transitioning at renewal, in a few instances for larger multiyear contracts that were on-premise, we were able to work with those customers and transition over to hosted well in advance of the renewal date. There was a modest impact of that in Q1, but you will start to see more impact from that in Q2 onwards. Mani Foroohar: Great. And a quick follow-up. We are seeing a substantial pickup in M&A activity in private biotech markets—Ajax is actually one example. How much velocity would you have to see in that space to start tinkering with how you think about guidance for drug discovery revenue, given the broad portfolio of co-founded, partnered companies, and your equity exposure there? Ramy Farid: First of all, on the software side, we are also quite encouraged. Things look a lot better this quarter so far compared to last year, where we saw lots of biotech companies shutting down or very significantly reducing their discovery budgets. We are not seeing that. We are even seeing a pickup in new customers. So that is very encouraging, and the dynamic that you mentioned is certainly impacting the software business. As far as the drug discovery business, Karen? Karen Akinsanya: Sure. Happy to share. As you know, we have always had a lot of interest in partnerships, both with the companies we have co-founded—you mentioned Ajax—and prior companies we have co-founded. Your comment about the private market and companies who are still in stealth, as well as public companies, are still reaching out very actively to Schrödinger, Inc. with respect to collaboration on programs that are in their pipelines, but also on new programs. We remain very enthusiastic about the potential for new collaborations. Obviously, we are not guiding to any specific BD event, but the momentum and the interactions remain very robust both with biotech and with pharma. Operator: Your next question comes from the line of Brendan Smith from TD Cowen. Your line is open. Brendan Smith: Great. Thanks for taking the questions, and congrats on all the progress here. First, I wanted to quickly ask about the predictive tox launch. If you can maybe just give us a sense—if not relative revenue breakdown between the legacy business and predictive tox—at least how new customer adds there are tracking. And then quickly on the upcoming Bunsen launch: should we think about the go-to-market strategy for the agent as an add-in with existing customers, or is there a whole separate base you could potentially reach with this? Any color on go-to-market strategy would be helpful. Ramy Farid: We can cover both of those. Thanks for the questions. With regard to predictive tox, feedback continues to be very positive for the results of evaluations now being kicked off. It is very clear that there is significant interest in the technology, and prospective testing of it in our customers' hands is validating the kind of results that we were seeing when we were developing the technology and using it prospectively internally. That is gratifying to see, and it continues to go well. With regard to Bunsen and the go-to-market strategy, that is a really good question because this, in some sense, democratizes access to very sophisticated technology. You can appreciate what kind of impact that can have on the business. Previously, systems like this may have been inaccessible and would take years of training. You might use the technology but not quite right and not get very good results. That is not good for anybody. This directly addresses that. This is similar to image processing that used to be available only to expert users. Now you just circle the area and say remove the background, and it is done. It is the same basic idea. Very sophisticated capabilities are available to non-experts in research. Pat Lorton: I think that sums it up well. The other thing I would highlight, on top of adding additional customers, is one limiting factor we have discussed in the past: the amount of computational chemists we have per project at Schrödinger, Inc. is a lot higher than the industry average, which is part of the reason behind our very high success rate. One thing that is very limiting for our customers is they simply do not have enough people who can run this, even if they have experts. Getting this in the hands of those experts and allowing them to get a multiple of their work done—similar to how agentic coding tools have allowed developers to work much faster—means even those experts will be able to run much faster and consume a lot more of our throughput-based licensing before we even broaden to a wider user base. Ramy Farid: Exactly. Brendan Smith: Got it. Sounds good. Thank you. Operator: Your next question comes from the line of Michael Ryskin from Bank of America. Your line is open. Michael Ryskin: Hey. Thanks for taking the question. First, I want to dig into the new way you are guiding ACV. On the contribution ACV, you called out for the second quarter your guide is $19 million to $23 million, and that is excluding any contribution. Is that just your way of saying you do not know what the contribution ACV will be, or are you actually expecting it to be zero because it was relatively modest in the first quarter? And the same question for the full year—anything you could tell us in terms of how much of the full-year ACV is made up of that, or how much there was in all of 2025? Ramy Farid: Richie? Richie Jain: The guidance for Q2 is $19 million to $23 million, as you noted. The reason we explicitly called out the comparison to last year—2025 was $23.3 million, of which $5 million was contribution ACV related to our grant with the Gates Foundation—was to highlight that, on a commercial business basis (excluding contribution), we are still projecting growth for this quarter. For the full-year range of $218 million to $228 million of ACV, we do expect potentially some contribution ACV in there. That is a component of the full-year number. Michael Ryskin: But you do not want to break that out or quantify that? Richie Jain: Correct. Michael Ryskin: Okay. Fair enough. And then in terms of Ajax, how should we think about that flowing through the P&L and in terms of use of proceeds? Is that in your guide for the year? I do not believe it is. Just timing and pacing of that. Ramy Farid: Just to remind everyone, our equity stake is around 6%. Richie Jain: The Ajax sale was not contemplated in our guidance framework. Obviously, it is a private company sale that we could not have included, but its impact for our financials will mostly be to cash. Our cash position at the end of the quarter was $406 million. As Ramy noted, we own about a 6% equity stake in Ajax. When the upfront portion is received by Ajax, we will receive our approximately 6% of that. So the impact to us will be cash. The upfront amount was not disclosed in the Ajax–Lilly announcement, but as we receive the cash flow, we will reflect it in our balance sheet. There are also milestones—near-term and downstream—in which we would continue to have that 6% participation. Michael Ryskin: Does that change how you think about investment priorities in the second half, given the balance sheet will be a little bit stronger? Any early thoughts on that, or just wait and see? Richie Jain: I would say more of the latter. Our path to profitability—between growth in software and drug discovery as well as expense management over the three-year window—was based on our cash position at the time. This is just upside to that. Once we receive the cash, we will revisit if anything changes, but I would expect our three-year outlook to be unchanged. Ramy Farid: Thanks. Operator: Your next question comes from the line of Michael Yee from UBS Securities. Your line is open. Michael Yee: Great, thanks. We had two questions. First, maybe for Ramy: thinking about your overall P&L, you have attractive 70% gross margins, but overall, as an entity, you are EBITDA-negative and running operating losses. Given the general shift to reduce focus on moving things to later preclinical or clinical and looking to partner things, how would we expect the overall operating expense structure to potentially change? In other words, what percent of your R&D do you estimate is going toward those types of programs, and if I back that out, could we think about a more appropriate run rate of where you think your R&D could be? I think you have guided to be EBITDA-profitable in 2028, so that is helpful—wanted to know what percent of R&D is related to drugs. And second, I estimate that Ajax could be a roughly $1 billion upfront. So is the 6%—I think you said it is not in your current cash—something we should apply as upside to the cash? And does that book in the income statement and flow through as well? Thank you. Ramy Farid: Richie, do you want to cover the second? Richie Jain: We cannot comment on the size of the upfront, but the 6% equity stake we have is not in our cash guidance. I would expect it to run through our P&L as a nonoperating gain. Ramy Farid: With regard to the question about R&D and drug discovery, the drug discovery part of our business, which has been in existence for a long time—since around the founding of Nimbus over fifteen years ago—has been an incredibly important part of our business and is highly synergistic with our software business. We have shown that the extraordinary success of these drug discovery partnerships—Nimbus, Morphic, Relay, Structure, Ajax—has had a huge impact on validating our platform. They have also had a huge impact on helping us understand what we should be working on and how we should be advancing to have the maximum impact on projects. That will continue. There is still a huge amount of work to be done in advancing the field. We are incredibly excited about our accomplishments, which have been transformative. Our mission was to transform the way molecules are discovered, and I think we have been accomplishing that. Through initiatives like predictive tox and many others, there is more work to be done and we can continue to improve the way molecules are discovered in both material science and life science. These businesses are highly synergistic and will continue to be an incredibly important part of our overall business model. Karen, anything to add? Karen Akinsanya: Yes. As we have shared in the past, the vast majority of our portfolio—the combined portfolio of collaborations with our co-founded companies, with biotechs, and with large pharma—are an important part of the business, as Ramy described, both from a scientific point of view and, as you saw this quarter, in generating revenue. The vast majority of our activities in the R&D space are those collaborations. It is a small portion of the overall effort that is allocated to wholly owned research. As you have heard previously, we will not be taking programs into the clinic, and we are partnering programs earlier—as you saw with the Novartis deal, partnering a program that had not even reached lead optimization yet. Our investment in R&D is partly on the science side, but it is also to create value. We have 15 programs with royalties on sales and revenue coming from these programs, and across the whole portfolio we have generated close to $700 million from our collaborative R&D and drug discovery efforts. Michael Yee: That is helpful on positive EBITDA guidance for 2028. Thank you. Operator: Next question comes from the line of Evan Seigerman from BMO Capital Markets. Your line is open. Conor MacKay: Hi there. This is Conor on for Evan. Thanks for taking our question. Just a follow-up on how we should think about the rollout of Bunsen—maybe the phasing over the next couple of years. You have the upcoming early access launch this summer. Which types of accounts will you be sharing access with in the early launch? And longer term, given the throughput-based licensing, will Bunsen be a premium add-on or come included as part of your standard software? Ramy Farid: We are still working out the details, as we typically do with early versions of our technology. We work with our close partners, and we will do the same here—working together on integrating it into their workflows and, importantly, checking on the science. Everyone has had mixed experiences with LLMs—sometimes extraordinary, sometimes pretty crazy. There is a lot of work to optimize and maximize the former and minimize the latter. That requires working with close partners, of which we have a large number. As far as the future, our expectation is that this will be ubiquitous, and this technology will be available to all of our customers. Exactly how we price it is still to be worked out and will depend on the feedback we get as we roll out this early access version. Pat Lorton: That covered it. Ramy Farid: Thanks. Operator: Your next question comes from the line of Matthew Hewitt from Craig-Hallum. Your line is open. Matthew Hewitt: First, given that Q4 is such a big renewal period for you and you noted earlier that you are starting to see some earlier conversions, is it your hope that you can get through some of that before you get to Q4 just to ease the rush at year-end? How should we think about the conversion over the next couple of quarters before you get to Q4? Richie Jain: Thanks for the question. The examples we gave were more anecdotal and not the base case, but they were large contracts and we had a dedicated effort to convert those in advance. More broadly, the natural time for us to address a transition is on the contract renewal date. I still expect Q4 to be our largest quarter of the year for ACV. That said, where there are opportunities, we will pull them forward ahead of the renewal date—sometimes related to a new product, sometimes a new offering. On the margin, you may see us pull forward ahead of Q4, but I would still expect Q4 to be our largest quarter of the year. Ramy Farid: Yeah. Matthew Hewitt: Got it. And then separately, with the strategic shift where you are not going to be taking internally discovered molecules into the clinic besides the ones already there, will you provide an update on how that is progressing? How will we monitor progress on the internal molecule discovery side? Karen Akinsanya: We have, in the past, kept our pre-LO pipeline relatively quiet for a number of reasons. You want to be progressing the program before you start announcing the identity or the progress. What we have been announcing are the deals we have been doing. We do not plan to expand and expand the size of this portfolio without transacting some of these programs as they move through discovery. As you saw with Novartis, we felt those programs were well positioned to partner with that particular company because of their capabilities and synergy with those programs. You will see us do more of that. I do not think you should expect an ever-growing early-stage portfolio, but you should expect updates as we identify partners for them. Operator: I am showing no further questions at this time. That concludes today's call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to KKR's First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the call over to Craig Larson, Partner and Head of Investor Relations for KKR. Craig, please go ahead. Craig Larson: Thank you, operator. Good morning, everyone. Welcome to our first quarter 2026 earnings call. This morning, as usual, I'm joined by Rob Lewin, our Chief Financial Officer; and Scott Nuttall, our Co-Chief Executive Officer. We would like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. And as a reminder, we report our segment numbers on an adjusted share basis. This call will contain forward-looking statements, which do not guarantee future events or performance. Please refer to our earnings release as well as our SEC filings for cautionary factors about these statements. So first, beginning with our results for the quarter. Fee-related earnings per share came in at $1.13. That's up 23% year-over-year. Total operating earnings of $1.47 are up 18% year-over-year and adjusted net income of $1.39 per share is up 20% compared to 1 year ago. All of these figures are among the highest we've reported in our firm's history. Now going into a little more detail. Management fees in the quarter were $1.2 billion. That's up 30% on a year-over-year basis. driven both by continued fundraising momentum alongside deployment activity really across the platform. Excluding catch-up fees in both periods, management fee growth was strong at a touch north of 20%. And as we've highlighted previously, our fee base continues to be diversified with private equity, real assets and credit each contributing approximately 1/3 of total fees over the trailing 12 months. Total transaction and monitoring fees were $253 million in the quarter. Capital markets fees were in line with last quarter at $224 million, driven by activity across PE, infrastructure and credit. And fee-related performance revenues in the quarter were $24 million. Turning to expenses. Q1 fee-related compensation was again right at the midpoint of our guided range or 17.5% and other operating expenses were $195 million. So in total, fee-related earnings were over $1 billion or the $1.13 per share figure that I mentioned a few moments ago, up 23% year-over-year. And our FRE margin increased slightly quarter-over-quarter to approximately 69% at March 31. Insurance segment operating earnings were $260 million. Now as a reminder, we report the insurance investment portfolio largely based on cash outcomes. So to give you a sense of the embedded profitability as we've done in the last couple of quarters. Our insurance operating earnings would have been slightly north of $300 million in Q1 if we included the impact of marks on investments where a significant portion of the return relates to appreciation rather than cash yield. And as a reminder, Insurance segment operating earnings alone do not capture the full economics of GA to KKR. Page 22 of our earnings release details the management fees under our investment management agreement, fees from IV-related vehicles, where we have over $60 billion of AUM that wouldn't exist without GA. Alongside GA related capital markets fees. When you take all of that together, total insurance economics over the LTM were $1.9 billion. That's net of compensation, up 14% versus the prior period. Strategic Holdings operating earnings were $48 million in the quarter, and we continue to track nicely towards our expected $350-plus million of operating for 2026 with earnings here expected to be more back-end weighted over the course of the year. So altogether, total operating earnings, which, as a reminder, represents the more recurring components of our earnings streams, were $1.47 per share, up nearly 20%. And over the last 12 months, 85% of total pretax segment earnings were driven by these more recurring earnings streams demonstrating in our view, the durability that you're seeing across our business model. Moving to investing earnings within the Asset Management segment. realized performance income was over $750 million and realized investment income was approximately $120 million, bringing total monetization activity to around $880 million, up over 50% versus Q1 of 2025. This activity was driven by a combination of public secondary sales and strategic transactions alongside of dividends and interest income. After interest expense and taxes, adjusted net income was $1.2 billion for the quarter, or $1.39 per share. Turning to investment performance. Page 10 of the earnings release details performance we're seeing across asset classes, both this quarter and over the last 12 months. Broadly, you're seeing healthy investment performance on behalf of our clients across asset classes, including through this recent period of heightened volatility. And given investment performance, importantly, total embedded gains that's comprised of gross carry together with the gains that sit on our balance sheet across asset management and strategic holdings were $18.3 billion at $331 billion. That's up 11% compared to 1 year ago and remains elevated even as we've been generating healthy monetization activity. Now as you can imagine, we've been filling a lot of questions on direct lending, so we've added a couple of pages to our earnings release. First, just to level set, if you turn to Page 20, you see the size of our direct lending platform. In total, direct lending is $39 billion or 5% of our AUM. It's an important business for us, but in the framework of KKR, it's of modest size. And with a lot of focus on redemption activity in the wealth space, we note the size of our private BDC footprint in the second bar from the right. It's even smaller, around $3 billion of AUM or 0.4% of our AUM in total. In terms of our public BDC, FSK is a little less than 2% of our AUM. FSK reports its Q1 earnings next week. We're not going to get ahead of that. It's important, though, not to conflate FSK's portfolio with other pools of capital. So looking at Page 21, you see investment performance across our institutional strategies as well as our private BDC, all vintages since 2017. You see very consistent outperformance versus benchmark. We thought the more granular framing of investment performance here across the direct lending platform would be helpful context for everyone. And then finally, consistent with historical practice, we increased our dividend to $0.78 per share on an annualized basis beginning with this quarter. This is now the seventh consecutive year we've increased our dividend since we changed our corporate structure increasing our annualized dividend over this time frame from $0.50 per share to $0.78. And with that, I'm pleased to turn the call over to Rob. Robert Lewin: Thanks a lot, Craig, and thank you, everyone, for joining our call this morning. I'm going to cover 4 topics today. First, our continued momentum around capital raising; second, our monetization activity, which has been increasing at a healthy pace in spite of the recent market volatility. Third, we have been making some important decisions around capital allocation. And finally, I'm going to go through how we think about the earnings power of our business. So let me start with capital raising. We raised $28 billion of new capital in the quarter with demand really widespread across asset classes and geographies. A real bright spot for us this quarter was in credit where we raised $15 billion across our platform. That momentum was driven by our asset-based finance business, which represents over $90 billion of AUM today. Given the current sentiment around private credit, it may be surprising that when you look at new capital raised, so this is excluding GA, this was one of our larger credit fundraising quarters. Inflows here more than doubled quarter-over-quarter, and our capital raising pipelines remain strong. Most recently, over the last few weeks, we've received meaningful inbound interest from institutions around our direct lending business with several viewing the current dislocation as an interesting entry point, given the redemption activity that exists today in the private BDC space. Another milestone for us this quarter was the final closing of our North America 14 fund at $23 billion, eclipsing the prior $19 billion fund. Across the most recent vintages of KKR's flagship regional funds, so that's Americas, plus Europe, plus Asia, we have $46 billion of total capital to invest across this vintage. We are the clear market leader in private equity. And finally, in wealth, across all of our asset classes, our K-Series suite brought in $4 billion of capital in Q1. Redemptions totaled around $250 million and AUM now stands at over $38 billion. Our performance, deployment and capital raising continue to be in line or ahead of our expectations. Given all the market noise, we were candidly surprised by the strength of flows in Q1. But we also do expect a slowdown in Q2, consistent with what we saw after the tariff announcements last year. We're still operating off of a relatively low base of AUM. And we continue to believe that this channel will be a long-term source of meaningful growth for our industry and us. Turning now to monetizations. As we have explained on prior calls, we are very pleased with the performance of our portfolio, and we are seeing the benefits of our focus on linear deployment and portfolio construction. You can see our continued monetization activity in our financial results. As Craig noted, we generated around $880 million of monetization revenue in the quarter. Realized carried interest was $720 million. That is up 120% year-on-year, and we have a healthy pipeline of realizations across strategies and regions. Over the past month or so, we have announced several encouraging transactions including the closing of the sale of OneStream Software for 4.5x our cost and the sale of CoolIT Systems, a global leader in liquid data center cooling for almost 15x our cost. We have also agreed to sell 2 of our 2021 investments despite the more challenging vintage year, 1 in infrastructure, which would generate approximately 2x multiple of money and 1 in traditional private equity at nearly 3x our cost. And most recently, we completed a secondary of our remaining shares in Hyundai Marine Solution in Korea, resulting in a 7-plus x multiple of capital for the full life of that investment. I'd like to next shift to capital allocation. It is an area of critical importance to our long-term performance and we have been making some important and deliberate decisions. As a reminder, we have focused on 4 key tools available to us to allocate our cash flow. Strategic M&A, insurance, share buybacks and strategic holdings. Each of these tools takes full advantage of the KKR ecosystem, and as a result, have the potential for high ROEs. Importantly, we do not have a framework that assigns a specific amount of capital spend into any one of these areas. Our approach here is all about how we take our marginal dollar of cash flows and drive the most amount of recurring durable and growing earnings on a per share basis. That is the mindset we have consistently taken to capital allocation, and it is one that is highly aligned with our shareholders given employees here own roughly 30% of our stock. We believe that we have delivered a lot of value to our shareholders through strategic capital allocation, and we are very confident in our ability to continue to do so in the future. So starting here with strategic M&A. This morning, we announced the closing of our acquisition of Arctos. As a reminder, Arctos is the leading investor in professional sports franchise stakes and a leader in GP solutions with approximately $16 billion of AUM and $10 billion of fee-paying AUM. If we are able to achieve our objectives in partnership with the Arctos management team, and we are confident that we will, it is hard to find a better allocation of capital. Next, in insurance. In the first quarter, we continued to see increased levels of competition here, particularly in the retail channel. Given that backdrop, alongside tight spreads on the asset side, we were disciplined around pricing and a lot more selective in that channel. That said, as spreads have widened a bit more recently, we are starting to see a more attractive entry point. On the other hand, an area where we leaned in this quarter was share repurchases where we saw attractive risk-adjusted returns given the volatility across our sector. We repurchased or retired $317 million of stock this year through May 1 at an average price of approximately $91. And our Board recently authorized an increase to our share repurchase program by an additional $500 million. Taking a step back, there is clearly a lot of noise in some of the markets where we operate. But from our seats, there is a big disconnect between perception and our long-term prospects across our diversified business model. That's why we have been leaning into buying back our stock. And you would have also seen our co-CEOs and a number of our directors buying stock personally in the quarter. Whether it's our performance in Q1 or the long-term earnings power of our franchise, our positioning stands in contrast to some of that market noise. Looking at Q1 in particular, we've grown our headline profitability metrics FRE, total operating earnings and ANI, all on a per share basis, each around 20% year-on-year. It's actually the second highest quarter we have reported in our history for FRE and OE and the third highest for ANI. And we continue to feel great about the durability of our model and the earnings power that we continue to create, which provides us with significant visibility into future earnings growth. Over 90% of our capital is perpetual or committed for 8 years or more. Today, we have $125 billion of committed but uncalled capital, nearly as much as we've had at any point in our history. Looking at our management fees and fee-related earnings over the LTM, we've grown at a high teens CAGR over the last 3 years. Alongside this growth, the quality of these fees has significantly improved as we've diversified by strategy, and geography. And finally, our embedded gains, which Craig mentioned, stand at over $18 billion, one of the highest levels in our history, and they provide a lens into the strength of our portfolio, and our ability to create meaningful outcomes in the future. So we benefit from real stability and durability of our earnings and increased visibility on how they will grow. Finally, before I'm going to hand it over to Scott, I did want to provide an update on our 2026 guidance. First, based on the underlying momentum that we are seeing across the business, we continue to feel very confident in our ability to exceed our targets for fundraising, strategic holdings operating earnings and FRE on a per share basis. Turning to ANI. As we said last quarter, following our bottoms-up budgeting process, we entered the year expecting 2026 ANI to reach $7-plus per share, assuming a constructive and more normalized monetization environment. At that level, earnings growth would be approximately 45% year-over-year. So it's clearly an ambitious target, but one that we did have line of sight to achieving. That said, the operating environment 4 months into the year has, of course, bit more challenging than what was embedded in our plan. Importantly, we are still seeing healthy monetization activity. Gross monetization revenues in Q1 were up more than 50% year-on-year. And when we look at exit since March 31 as well as signed transactions expected to close in the coming quarters, that represents over $1.2 billion of gross monetization revenue for KKR. Notably, that is the largest forward monetization figure we've discussed on a call in our history. So while we continue to generate very strong outcomes, we do have modestly less visibility today than what our budget would have suggested at this point in the year. As a result, if you were handicapping our ability to reach $7 per share, we do think it is more likely that we land below that level. Importantly, if that were to happen, any delayed monetizations that impact 2026 would not be lost as we would expect them to shift to 2027 and beyond. And stepping back, the broader portfolio remains in very good shape. Embedded gains are at or near record levels. The earnings power of the firm continues to grow at an attractive rate, and we feel extremely well positioned for the future. With that, I'm going to hand the call off to Scott. Scott Nuttall: Thank you, Rob, and thank you, everybody, for joining our call today. The first thing I want to do is welcome the Arctos team to KKR. Our new partners highly creative and entrepreneurial, and we could not be more excited to work together to build a $100 billion-plus AUM business. KKR had its 50th birthday last Friday. We are very proud of this milestone. As a firm, we are not very good at celebrating. We are, however, good at gratitude. So it was nice to be able to thank all our clients for their partnership and trust and all our people for their dedication and hard work. We would also like to thank you, our shareholders, for your partnership. We have been a public company for about 1/3 of our 50 years, a period of time that has seen significant evolution and growth in our firm, all of which happened with your support. Thank you for helping us get to where we are. So let's talk about how we see things. We asked our team to pull together some slides recently to help frame the current volatility in our stock relative to our results. simple. Just multiple years of AUM, fee paying AUM, FRE, total operating earnings and ANI on 5 pages. All of which metrics are steadily up and to the right with growth rates generally between 10% and 25% per year for the last several years. We then overlaid our stock price on those same charts, picture worth a thousand words approach. What do you see when you do that? Our operating metrics are very steady with consistent growth over a long period of time. The fact is perception of the volatility of our business and industry, is disconnected from the lived experience. And that's okay. We are focused on what we can control and executing our plan. And as we do that, we'll continue to prove out the durability of our business model, and we're confident that the volatility in our stock will come down over time. If you step back, the first quarter was no exception to our long-term trend. All of our key metrics grew about 20% in the quarter relative to Q1 last year. We raised a lot of capital, deployed a lot of capital and monetized multiple investments. And as you heard, the volatility in our stock gave us an opportunity to adjust our capital allocation priorities and buy our shares back at what we believe is a significant discount to intrinsic value which is why Joe and I had bought more stock as did multiple members of our Board. So our suggestion is don't trust the headlines. Stay focused on the fundamentals and how we are executing. That's what ultimately matters and how we are spending our time. This approach has served us well for the last 50 years, and we expect will continue to for the next 50. With that, we're happy to take your questions. Operator: [Operator Instructions] Our first question today will come from Craig Siegenthaler with Bank of America. Craig Siegenthaler: My question is on General Atlantic. So one of the big public annuity competitors pulled back in that business in 1Q and actually cited increased competition. And we know the [ alt ] models, including GA, have gained a lot of share versus the legacy players in the U.S. fixed index and fixed indexed annuity markets. So I was curious if you could update us on competition, underlying ROE potential and how we should think about the growth trajectory, especially with the institutional funding market potentially a little softer near term? Robert Lewin: Craig, it's Rob. Thanks a lot for the question. We are seeing that competition. Competition on the liability side is very high. And we know on the asset side, spreads are as tight as they've been in a very long time. And so the combination of those 2 things is putting some increased competitive pressure on ROEs. That's why you saw us also pull back on the origination front in Q1 as well. Now with that said, we think it's best to look at insurance businesses through the cycle. And where we're spending a ton of time at both Global Atlantic and KKR is making sure when there is increased levels of volatility. And by the way, when that happens, 2 things will happen simultaneously. We believe liabilities will become cheaper. And definitionally, you're going to see spreads come out on the asset side and so the ROE potential is outsized. And so what we're spending our time is how do we make sure we are best positioned for that environment. And one of the real competitive advantages that we have on our platform relative to the broader insurance space is the fact that we sit on $6 billion of dry powder equity that we can draw down to invest into that dislocation, much like you would in a private equity fund. And as a reminder, that $6 billion of equity, we think translates into $60-plus billion of buying power on the liability side. So a lot of effort here making sure we're ready to go when that volatility does come. But today, we are seeing those increased levels of competition. We also know that that's not going to last forever. Scott Nuttall: Yes. The only thing -- Craig, it's Scott. Hope you are well. The only thing I would add, I think that the narrative is exactly right in the U.S., call it, retail market, where there has been significant competition I think the recent move we've seen in spreads and kind of some of the volatility is maybe dissipating some of that a bit. So opportunities are looking a bit more interesting, as Rob mentioned in the prepared remarks. But two things I'd mention. Remember, our business has a good balance to it. We have a retail business and an institutional business. This block does flow some PRT. Not all of those markets are seeing that same level of competition that we're seeing in the retail side. So it's nice to have that diversification across the platform. And then the other thing we've talked about in prior calls, one thing that makes us a bit different is by virtue of being able to marry our origination franchise with the -- on the investment side with the origination franchise and liabilities we are emphasizing a more longer duration liabilities. And I think it's harder for other people necessarily to be able to generate the returns we think we can with those longer-duration liabilities matched with assets that we can originate. So I wouldn't pay everything with the same brush, but I think your overall comment is well placed. Robert Lewin: Yes. I'm going to jump in with one last point on the -- on gating our liabilities because I think it's an important one to get across. If you look at our Q1 originations across the franchise, approximately 80% of those originations had 7 years of duration or more. Just to contrast that relative to full year 2024. So that's the year where we made the pivot around elongating our liabilities for that full year, we were 37% 7-plus year duration. So we've almost doubled or we have doubled rather our exposure to those longer duration liabilities. Operator: And next, we'll move to Glenn Schorr with Evercore. Glenn Schorr: So I'm curious that the -- you've had better DPI and better monetization than most. You mentioned the over $18 billion of embedded gains in the markets at all-time highs. So I'm curious on the attribution of what changed and what holds back the timing and the ability to get to the ANI targets now. Is it as simple as there's a war there and it delayed things? I don't know if you can give us any attribution of parts of the portfolio that despite having these huge embedded gains, the market is just not ready to accept. Robert Lewin: Yes. Thanks, Glenn. It's Rob. I think it's all a matter of degree is the reality. And so there's a lot of really good things going on across our business today as we went through on the prepared remarks. Our monetization guidance of $1.2-plus billion is higher than it's ever been at any point in our history. But at the same time, 3 months ago, we were on this call, we said we would be very transparent on our quarterly calls around where we stood on the $7. And if we were handicapping it now, and when you look at some of the volatility that we have experienced over the first 4 months of the year, we tell you on balance that we're going to be on the other side of $7, and we wanted to share that as we noted we would and keep you all updated on our progress. Scott Nuttall: Glenn, it's Scott. The only thing I'd add, overall, as you heard, the portfolio is in great shape. I think we're seeing real benefits of our focus on portfolio construction and linear deployment diversification, all the things we've talked about on this call for the last several years. And that discipline is really coming through in the results. And so the value is there. To your point about the embedded carrying in gains, this is really a question of when do you want to monetize it. And so the IPO market feels good. We've got several companies in the pipeline. But obviously, an IPO isn't necessarily an exit per se. It can be a partial exit in the beginning of one. But another way that we exit is obviously through strategic sales. And so the one thing to your comment if you've got an asset that you've built value in for 5, 7 years. And if the backdrop in terms of war energy prices, et cetera, is a bit uncertain or uncomfortable I'm not sure you'd want to necessarily sell that wonderful asset into that environment if it's a strategic buyer and give them a little bit more time for the world to write itself. And so that's really what's happening on the margin. You heard from Rob, it didn't really impact anything in the first quarter. This is more of an expectation that if things go on for a longer period of time, there may be some things that we delay the launch of a sales process because we want that clarity in the market for the buyer on the other side. That's all we're talking about. But this is just timing. This is in magnitude. Operator: Our next question, we'll hear it from Alex Blostein with Goldman Sachs. Alexander Blostein: So really nice momentum on fundraising, obviously, despite what's been a tough backdrop and management fee growth north of 20% normalizing for catch-up fees is all good. As you think on the forward, it might be helpful just to get a mark-to-market on your expectations for fundraising for the rest of the year given the bulk of the larger flagships are now in the run rate. particular how you're thinking about Asia, I think that one is about to start. But I guess, more broadly, your confidence in maintaining this type of fundraising outlook for the rest of the year, which I think is what embedded in your FRE growth assumptions. Craig Larson: Alex, it's Craig. Why don't I start on that. And thanks for the question. I think it's probably worth beginning on the breadth and diversification of fundraising. So if you look over the last 12 months, as Rob noted, we raised $127 billion in total. So $35 billion of that roughly is from GA within our credit platform, around $35 billion in real assets, around $35 billion is the non-GA portion within credit and the balance of $20 billion, a little over that in private equity. So you're seeing a very healthy balance and diversified result in terms of our fundraising. Rob talked about that in terms of our management fee growth, where, again, you're seeing real breadth and diversification in management fees as a result of that. And I think the other point that kind of highlights this relates to flagships. So flagships were around 15% of new capital raised in the quarter, 12% over the trailing 12 months. Again, that number was very different at KKR 5-plus years ago, as I know you'll remember. And then I think on the go-forward, look, there's lots of opportunities for our fundraising team across strategies, across geographies. I think if we look in the strategies where we expect to be active in the next 12 to 18 months. In private equity, that includes Asia private equity, our private equity, tech growth, health care growth. We've got our K-Series. And then we have Capital Group as well. Within Real Assets, Global and for core infra, we have a climate strategy, Asia Infra as well as K-Series infrastructure, opportunistic real estate credit. Again, just big -- a wide group of opportunities in real assets, credit, across direct lending, leverage credit, asset-based finance. Again, you heard Rob note in our prepared remarks some of the momentum that we're feeling and seeing last quarter as it relates to high-grade ABF in particular, Asia private credit, Asia leverage credit, crack capital solutions, CLOs, K-Series as well. And then insurance, again, reinsurance co-investment opportunity. So I think that breadth of opportunity that we have is what you're hearing in the confidence when we talk about the go forward from a fundraising standpoint, what that then can mean in terms of management figure out. And again, what ultimately that can mean in terms of FRE growth. Scott Nuttall: Alex, it's Scott. I would say -- I mean, if you can't tell from Craig's list there, the fundraising feels really good. I'd say we had a lot of momentum on a number of fronts. It's global including the Middle East, which I would very much put in the business as usual category, pensions, sovereign wealth funds, insurance companies, high net worth, wealth. So it all feels really strong right now. And some of the things we've talked about on prior calls, for example, this consolidation theme that we see more and more clients wanting to do more with fewer partners is absolutely playing out, especially as they see more dispersion of results. We're heading towards more of a K-shaped industry. And so we think there's opportunity for us to continue to take share and we think the addition of Arctos to the family only adds to that as another set of asset classes, which are able to generate differentiated kind of returns. So bigger relationships and partnerships would be another theme I would point to on the back of that consolidation. But hopefully, that gives you a bit of color. Operator: And next, I'll move on to Bart Dziarski with RBC Capital Markets. Bart Dziarski: Congrats on the CoolIT realization. And I noticed you implemented a employee ownership program at acquisition. So could you maybe speak to how that program contributed to the successful outcome of that deal? And then maybe more broadly on KKR's ownership program at the portfolio company level? Robert Lewin: Bart, it's Rob. Thanks for bringing that one up. CoolIT was obviously an awesome outcome for our investors. It is not often that we exit a business at almost a 15x multiple of money. And as you noted, CoolIT is one of 85 KKR portfolio companies globally now that are part of our broad-based employee ownership programs where every employee, so it's not just senior management our equity owners. And in the case of CoolIT, most tenured employees there are going to receive roughly 8x their annual base salary at exit. So a really meaningful outcome. And deservingly given the progress and the returns that we were able to generate at CoolIT. So more broadly, if you look at those 85 businesses that I referenced, we now have approximately 200,000 nonmanagement equity owners in those businesses. And we're really proud of this initiative. We know for sure that it drives better outcomes at our portfolio companies. We see it in the numbers. You've got higher engagement scores. You've got higher retention rates, working capital efficiency is up, margins are up, and ultimately, profitability is up. And so we have developed this program in a way where we've got the full employee base at these companies feeling like owners in the business, and they're delivering better results. And because of that, they're able to share in those results. So we think it's great, and we're really proud of that across our firm. And then maybe finally, while we're on this point, I do think it's worth mentioning that we are also a founding member of ownership works. This is a nonprofit that our partner, Pete Stavros, who co-runs our global Private Equity business founded a number of years ago. And we now have greater than 100 partners alongside of us in this effort. And that's really what it's all about. We want this to become a movement beyond what we're doing at KKR. And so a big focus of what we're doing across the portfolio. And then one that we're excited to be able to hopefully share results like this with you all in the future. Operator: And next, we'll move on to Steven Chubak with Wolfe Research. Steven Chubak: So wanted to ask on strategic holdings and AI risk more broadly. Certainly encouraging to hear the operating earnings target for strategic holdings get reaffirmed. Digging into the sector exposures, about 1/3 of the last 12-month EBITDA is concentrated in the business services sector. It's an area that's viewed as being more at risk of AI disintermediation. I was hoping you could speak to just how you've underwritten AI risk in the strategic holdings portfolio and even across the border universe of KKR portfolio companies? And is there any KPIs you can speak to, to help folks better handicap that risk? Craig Larson: Steve, it's Craig, why don't I start? So just look to level set, software represents around 7% of our AUM. In private equity, it's a higher percentage. It's around 15% across our credit platform in total, it's 5%. And in Global Atlantic, that number is about 2.5% of our AUM. Now I think first, why don't we -- and in terms of that percentage of EBITDA in strategic holdings, that percentage is about the same. It's -- you're correct. It's a low double-digit percentage of EBITDA in the quarter. And then why don't I first talk about Mark's and then from the one we talk about AI and from both an underwriting standpoint and then opportunities for us. But I think in terms of the quarter, probably 2 things to note. First, software companies broadly are performing. So looking at revenue and EBITDA growth, we're still seeing healthy year-over-year revenue EBITDA growth, I think high single digits. But at the same time, obviously, in the quarter, we saw weakness across equity markets in the software space. So given the way that our valuations work, this dynamic from a public market standpoint, had a negative impact on the markets, right? So when you put those 2 pieces together, really, despite the operating and financial performance marks across the software names largely declined in the quarter. Now in terms of AI and how we're approaching AI as a firm, I think from a couple of things. One, look, the implications won't be a surprise to anybody on this call from AI are really far reaching, right? Like the barriers to adoption are low gains are real. AI can be very helpful at parts of workflows. And there will be businesses where the fundamental strategic positioning is either materially enhanced or in some cases, on the flip side could be replaced. Now from an investing standpoint, AI, we look at both from a diligence lens as well as from a value creation perspective. So from an underwriting standpoint, kind of the part of the question that you focused on. Look, we're focused on AI, how it affects margins, pricing power, workflow relevance and cash flow resilience. And so the focus is not just on AI exposure, it's really on the durability of unit and business economics, and that's through trailing lines as well as on the go forward. And how does AI impact those dynamics for us. And then I think perhaps even more importantly, in terms of value creation, look, we think we're really well positioned. Like AI at this point is deployed across 150-plus companies to automate workflows, enhanced products, drive new growth. And I'm sure we have multiple AI initiatives across every one of those companies. And so as a firm, how we're focused on this is ensuring that our operational team at Capstone, we talk about Capstone a lot is helping ensure that lessons travel across our teams and our companies. What works, what doesn't work? What's easy, what's hard. And again, as I know you know, we work in a very collaborative firm. So it's very much within the framework of our culture to help each other. I don't think that's necessarily to the same degree at every firm because a really siloed firm is not going to benefit in the same way. And then on the flip side of all of this relates to the opportunity on the investment front. So digital infrastructure remains a massive theme for us. We've deployed over $40 billion of capital KKR plus our partners across a variety of digital infrastructure themes have over a 20% gross IRR return to date in terms of that activity for us. And again, obviously, we already touched on the CoolIT example. Again, an example of an investment that, again, when everything comes together, kind of shows you the art of the possible. So hopefully, that's helpful. Operator: And next, we'll hear from Bill Katz with TD Cowen. William Katz: Thank you very much for two things, the extra disclosure and Finding Your Own Data report earnings. Very helpful. Just coming back to insurance for a moment. So doing the back-of-the-envelope math, if I take your slide, you are slightly north of $300 million sort of pro forma first quarter you get just below 11% ROE for the business, if I did the math right, a, let me know if that's right. So as you think forward, just given all the puts and takes of the business, I think you mentioned spreads widening out a little bit into 2Q. What do you think is a normalized level of ROE and maybe the time line to get to that? Robert Lewin: Yes. Bill, it's Rob. Why don't I start and maybe 3 or 4 points. as it relates to profitability and ROE of the insurance business. Point one, you hit on it was the mark-to-market benefit relative to the accrued income that's a little north of $300 million. But in the quarter, given some of the volatility we actually didn't hit our targeted return from a market perspective. So our target return is low double digits. If we had achieved that targeted return in the quarter, our run rate was probably closer to $330 million, just to give you a sense of the magnitude. Point three, I hit on this a little bit but it is a competitive market today as it relates to the asset and liability side, and we know for certain that it won't always be this way. And so how do we make sure that we really capitalize on that environment where there is volatility. And we talked earlier on how we think we're incredibly well positioned to do that. And honestly, it's a big reason why we bought 100% of GA because last time this happened, we felt like we missed it. And then finally, I would point you, as always, to Page 22 of our press release of our earnings release where you could see the all-in ROE figures that we have, but I think always instructive to take a look at that page as you're thinking about the performance of our broad-based insurance business. Operator: Next, we'll move to Mike Brown with UBS. Michael Brown: So I wanted to ask on Arctos. So $10 billion of fee paying AUM, can you just talk about the current fee rate profile there? And then any fundraising expectations over the, call it, next 12 to 24 months? And then strategically, how do you view the long-term opportunity in the wealth channel with Arctos. Is that something that could kind of feed origination into [ PayPac ]? Or over time, do you think you could even have like a dedicated sports fund or a dedicated secondaries product? Robert Lewin: Great. Thanks for the question. Let me start, and I know Craig and Scott might jump in. But just as it relates to the financials, we're not planning to disclose given the size of the Arcus business relative to KKR specific Arctos' related financial information. I think we can tell you that the profile of the business is generally pretty consistent with the profile of KKR's business. You've got, we think, best-in-class teams raising third-party capital they've done in a pretty lean way on the employee front. And with fee terms that generally look like fee terms that you would expect to see across some of the private closed-end funds here at KKR. As Arctos and what we're building in broader solutions business gets bigger, it becomes a much more material part of the firm, I can certainly see a world in the future where we're disclosing that solution-specific P&L information. But for the foreseeable future, I suspect you'll see it embedded in our private equity business line in coming quarters. Craig Larson: And Mike, it's Craig. Just on the fundraising piece. First, thanks for asking about Arctos. Scott Rob and I had a head fun this morning in our internal firm call welcoming the Arctos team to the family post-close, obviously. And look, on fundraising, it's a really exciting opportunity for us. And I think our fundraising team we know is excited both to support the distribution of existing Arctos strategies. And I think in particular, if you think of the footprint that we have and the boots on the ground that we have on a global basis, we think there's the opportunity for us to be really helpful right out of the gates. And then secondly, to your question on wealth, nothing to announce specifically this morning, but certainly lots of ideas, and we're excited to develop and think through potential new wealth solutions together with the Arctos team. This could include things like an evergreen vehicle that would include sports as well as some type of secondary/GP solutions vehicles as well. So more to come over time, but just a really exciting long-term opportunity for us. We're excited to get after it. Operator: And next, we'll move on to Michael Cyprus with Morgan Stanley. Michael Cyprys: Just wanted to ask about AI deployment across portfolio companies. Curious where specifically you're seeing AI-driven revenue uplift versus AI-driven cost savings in the portfolio? And how might you quantify that so far? And curious any expectations as you look out from here, and I was also hoping you can elaborate a little bit to your earlier point on what's been easy so far? What's been hard and any sort of lessons learned from adoption? Craig Larson: Mike, it's Craig. Why don't I start? Look, we're very early in broadly what we think the opportunity set is, I think we're seeing broad adoption of AI and the next step of that is really understanding the execution and bringing the power of AI to life, both from a revenue standpoint as well as an EBITDA standpoint. I'm sure there'll be points in time or a point in time when it will make sense for us to both talk about specific progress as well as guideposts for us. To be clear, we are seeing an EBITDA uplift broadly across the portfolio. And we think there's a lot more to do. It has been interesting to see the evolution of AI to date and how it's almost started in ways that are interesting, like I think on various language applications. It's just interesting to see really begin to disrupt that part of the landscape most broadly first. But as we think about things like broad efficiencies whether that's sales force or operating efficiencies across the platforms and workers. And there's going to be even broad businesses and opportunities in things like robotics or you think of what AI can do in terms of in terms of the health care space. There's just really long-term broad opportunities for us across the spectrum of the business, and there will be more to come from us over time. Operator: And we'll move on to our next question from Brian McKenna with Citizens. Brian Mckenna: So within our private equity business, what's the typical markup on an investment when it's realized versus the prior unrealized mark? And then is there a way to think about the incremental carry that's created in this markup. And I'm just trying to figure out at the $2.6 billion of net unrealized performance income is understated in any meaningful way. Craig Larson: Brian, it's Craig. Why don't I start. Look, in our experience, when you look at the final mark of those private equity investments that we monetize, you see a healthy markup relative to the prior quarter. And that's been our experience over time. I think it does speak to the rigor of the valuation process. Again, this is an exercise that has been very similar for us for well over a decade at this point in time. We work with third-party firms as part of all of this exercise. And so I think it speaks to the rigor and if anything, mild conservative that we have as it relates to marks as we go through this process. Robert Lewin: Yes. I think that covers most of it. I think really the only things from my seat to add on here is we've been doing these types of valuations really close to 20 years now with the advent of our vehicle that was listed on the Euronext back in 2006. There is a high degree of rigor. We feel really good with how we value Level 3s across the firm, not just in private equity, but everywhere. The vast majority of our holdings, anything of any size and scale is going to be either validated or the valuation will be created and performed by a third-party valuation agent. And then as it relates to whether our accrued carry numbers understated. I wouldn't say that. I mean we feel like our valuations are very appropriate at quarter end, given all of the information that we know. Operator: And our next question, we'll hear from Brennan Hawken with BMO Capital Markets. Brennan Hawken: Wanted to follow up on Glenn Schorr's question. So -- couldn't resist, [indiscernible] sorry. So look, the struggle with the $7 is, I think, probably not that surprising, like the environment, given where it is, you can look at consensus and saw the basically it was anticipated. But the one part that I'm sort of curious about is on the realizations and the timing. I know you guys have been a lot stronger on DPI. But how is the potential for further delays in monetization and realizations going across with the LP community. This has been an ongoing delay across the industry. And so is that leading to some frustrations and how are you managing that? Robert Lewin: Yes, sure, Brennan. I mean there's obviously a lot of nuance in that question. And -- but what I'd tell you is as we entered the year, and we talked about this last quarter, we have put together really a bottoms-up budget for how we thought the year would play out based on normalized and constructive monetization environment. And as we're 4 months into the year, I think it's fair to say that through that 4-month period of time, it's been anything but a normalized environment. And so as we thought about what needed to get sold in order to achieve our target for the year and our budget for the year, we -- today, as we're mark-to-marketing it, some things have potentially been delayed. And that's all we're trying to convey because we did really want to be transparent for how we're tracking at this point of the year. That said, I think it's also important to really understand that our DPIs remain, we think, industry-leading, certainly relative to our larger competitors. And if anything, that's accelerating. You look at our realized carry in Q1, it was up 120%. I think most importantly is our forward monetization guide of $1.4 billion plus as it relates to monetization related revenue, that is the highest we've ever had in our history. And so things feel really good on that side of the ledger. But at the same time, we're also cognizant of the environment. What that can mean as Scott noted in processes. What that could mean maybe as it relates to delayed deployment and pushing back some processes that could happen and the impact across our platform. And we're trying to give you a mark-to-market balance view on where we are at May 5 of '26. Scott Nuttall: Brandon, it's Scott. Just to add a couple of things, one, thanks for the question. I wouldn't confuse the message around we may delay some strategic exits with kind of what we're hearing from the LPs. We have, I think, in the deck, the IR deck on the website, a slide somewhere that talks about how we've given cash back from our private equity fund in the U.S. or that business, we've given more back than we called 9 out of the last 10 years. So what we're hearing from the LPs is we're like best-in-class in terms of DPI and cash back, and they know that there's more coming. So the LPs are happy with us. That's why you see a record fundraise in private equity, the $23 billion that Rob mentioned, which is just the U.S. component of our private equity business. But overall, fundraising is up, and we're finding investors want to do even more with us. And I mentioned this dispersion we're seeing across our sector. There is extreme bifurcation, and we're getting a lot of very positive feedback on how we're performing and sending so much cash back relative to others. So I wouldn't confuse the 2 topics. This is helping us grow the firm faster by virtue of the performance. Operator: And next, we'll hear from Dan Fannon with Jefferies. Daniel Fannon: I was hoping you could discuss the broader kind of private wealth backdrop given the challenges in certain private credit vehicles. How do you see that impacting the lineup for the rest of your retail or private wealth products or even the road map with your partnership with Capital Group going forward? Craig Larson: It's Craig. Why don't I start? We thought we'd get a question on this topic. We think it's important just to begin to level set, and I touched on this earlier, but really the size and breadth of fundraising, right? So over the trailing 12 months, we've raised $127 billion, in K-Series it was 12% of that. So it is an important piece, certainly, but we benefit from all the strategies and geographies where we're raising capital. We're wonderfully diversified from a fundraising standpoint. And then we think it's important to take a step back and think about K-Series and the growth in that platform. So AUM across K- series at 3/31 was $38 billion. A year ago, that was $21 billion. So think of all the volatility that we've all experienced over the last 12 months, Liberation Day, all that's unfolded with the ramp. And K-Series AUM is up 80% year-over-year, actually a little north of that. It's pretty good. So I think as we look about the backdrop for wealth and what that means for us, no change in our view of the path we're on, the long-term opportunities that we see and just feel, a, very excited about how we're positioned against this opportunity. And again, recognizing that this is just one of the pieces of the puzzle that we have given the breadth and the diversification we have across the firm. Scott Nuttall: Yes. The only thing I'd add, Dan, is this is a multi-decade build for us, and it is all about performance. If we can generate performance and keep earning the trust of the advisers and the clients, we think this can be a meaningful part of the firm. And as you know, it's early products are relatively early in the development. And I think people are learning as we go here. But in terms of your question on the other -- impact on other things we're doing, I think Rob mentioned it, we were surprised by how strong and resilient flows were in the first quarter. If history is any guide, all of the media attention will likely slow things down for a bit. I don't know what a bit is yet because it's so early. But to Craig's point, this is a relatively small percentage of how we're accessing capital today. and we're working hard to earn the right for it to be a larger and more meaningful part of the firm. In terms of your question about Capital Group, also even earlier there with respect to our partnership, which is developed extraordinarily well. And overall in terms of kind of how we think about it ahead of our expectations, but we're still very much in the product development mode and just starting to deploy different products across credit and private equity, as we've discussed before. Operator: And our next question will hear from Arnaud Giblat with BNP. Arnaud Giblat: Yes I've got a question on data centers. You mentioned earlier that you're investing actively there. I was just wondering if you could flesh out a bit more. In particular, I think you've signed a $50 billion JV with Energy Capital Partners. So how far down the pipeline of investments are you? what you -- how far process coming on board. I understand there's quite a bit of capital in the space. So I'm just wondering what the prospective returns are shaping up to look like in this space. Craig Larson: Sure. Why don't I begin. Look, it remains a massive theme for us. And I think, one, there remains a lot of interest and focus on data center, no question. And look, this focus is for good reason. Like the CapEx we're seeing out of the hyperscalers continues to be massive, if anything, it feels like it continues to accelerate. And all of that builds on what's already a pretty powerful backdrop given tailwinds in cloud. So the digital impa opportunity is massive, but it's more than just data centers, as I mentioned, because again, you're going to need massive investment alongside of data centers and alongside of all of these aspects. From data standpoint, in terms of fixed line opportunities, mobile infrastructure, at the same time, again, to support the growth in data in all the consumption. And I think when we look at our firm and how we're positioned for the past 15-plus years, we've been incredibly active across all of these themes. So we've invested over $40 billion across the digital infrastructure space broadly on data center, specifically, we've got 6 global data center platforms. In terms of your question on frothiness, look, we're going to be thoughtful in how we invest. And I think you've seen lots of capital put against this opportunity. And so you should expect to continue to see us be very disciplined as we look at opportunities. We're going to care about who our counterparties are. We're going to care about location. We're going to look to continue to be thoughtful around terms. And then I think finally, part of this also gets back to one of the reasons we think we're well positioned gets back to connectivity and culture because we do invest across these themes across a number of pools across KKR depending on geography and risk return. So that would encompass global infrastructure, Asia infrastructure, our diversified core infrastructure strategy, real estate, core private equity, wealth as well as within global landing. So we've got a number of different pools, different risk return across geographies. So lots of progress and exciting for us more to come. Operator: And our next question will hear from Crispin Love with Piper Sandler. Crispin Love: The elevated redemptions wells have been highly publicized, but curious if you can detail further what you're seeing from institutions given the noise in wealth. Rob, your comments seem positive there. So I'm curious if you can dig in that a little bit deeper, how aggressively are institutions leaning into direct lending today in other areas like ABF? And then how has that evolved in recent months, just given the sentiment shifts? Was there a pause and then started to dip in further? Just curious on that trajectory and thought process from the institutions. Scott Nuttall: Great. Thanks for the question, Crispin. Very different dialogue with institutions. If anything, I would say, 12, 24 months ago, as it pertains to direct lending institutions, we're frankly spending less time. little bit of a question of the retail flows a bit ahead of deal flow. Are spreads compressing and turns a bit less attractive. And a number of them, I think, pivoted a bit to asset-based finance as another component of private credit. And as you heard from Craig and Rob, that part of our credit business is more than 2x the size of our direct lending effort. And so we definitely saw that movement. The shift we're seeing in the last several weeks has been the institution is kind of coming back to direct lending a bit and saying, okay, I see all these headlines about wealth, that should mean that risk/reward is getting better. on new deals. And therefore, I'm going to take a fresh look at it again. So we continue to have all the ABF dialogues we've been having and the pipeline is really robust there. But the shift has been the institution is actually coming back a bit to direct lending and thinking about, well, spreads are up. Fees are up, terms are better and leverage is down. And that's what we've seen in terms of our pipeline in the last several weeks. And so on the back of that, they are more intrigued. So very, very different dialogue relative to all these headlines that you're reading about in the wealth space, which are very small dollars in the grand scheme of things. Operator: And next, we'll hear from Patrick Davitt with Autonomous Research. Patrick Davitt: Follow-up to Steven's question, been a lot of focus on software actually, but we are starting to get more incoming around the potential for AI to be a problem for Indian positions in both private equity and real assets. I think India has been a big part of your Asian investment strategy. So could you update us on the exposure there? And more specifically, have you done a scrub to identify how exposed those positions are to potential AI disintermediation of things like India outsourcing? Craig Larson: Patrick, it's Craig. I'll start. Look, I think when we go through the exercise and look across the portfolios, like again, that's obviously done on a global basis. That's both with a focus on whether that's revenue or EBITDA growth, whether that's AI exposure, whether that is the investment teams and the approach to AI from a defensive and an offensive standpoint. So I don't think of that differently based on geography. We haven't disclosed any specific portions of India. I would note that I think as we think about Asia and our footprint broadly, I think we think of Asia split broadly between the developed part and then the growing part. So India is certainly an important part of our franchise as we think about our positioning going forward. Scott Nuttall: Yes. I think -- Patrick, it's Scott. The answer to your question is yes, we have scrubbed our India portfolio. No don't have any elevated level of concern there. you're right. One thing you watch is what does this mean for employment in India, given the amount of that economy that historically has been driven by what's happened with outsourcing to that part of the world, and we have seen hiring across that part of the Indian business sector come down meaningfully, dramatically. We are not exposed to that. If anything, I think right now as we sit here today, given our focus on infrastructure, electricity grids and otherwise in India. We've been getting ready for what we see as AI deployment and the opportunity set across digitalization in that market, where as you know, we have a lot of history and expertise. Operator: There are no further questions at this time. I would like to turn the floor back to Craig Larson for closing remarks. Craig Larson: Rachel, just thank you for your help this morning, and thank you, everybody, for your interest in KKR. We look forward to following up in 90 days or in the interim, if you have any questions, of course, please feel free to reach out directly to the IR team. Thanks so much. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.