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Operator: Good day, and welcome to Integra LifeSciences First Quarter 2026 Financial Results. [Operator Instructions] Also note, this call is being recorded. I would now like to turn the call over to Chris Ward, Senior Director of Investor Relations. Please go ahead. Christopher Ward: Good morning, and thank you for joining the Integra LifeSciences First Quarter 2026 Earnings Conference Call. Joining me on the call are Stuart Essig, Chairman, President and Chief Executive Officer; and Lea Knight, Chief Financial Officer. This morning, we issued 2 press releases, the first announcing the CEO transition and other organizational changes and the second announcing our first quarter 2026 financial results. The releases and earnings presentation that we will reference during the call are available at integralife.com under Investors, Events and Presentations and a file named First Quarter 2026 Earnings Call Presentation. Before we begin, I want to remind you that many statements made during this call may be considered forward-looking. Factors that could cause actual results to differ materially are discussed in the company's Exchange Act reports filed with the SEC. Also in our prepared remarks, we will reference reported and organic revenue growth. Organic revenue growth excludes the effects of foreign currency, acquisitions and divestitures. Unless otherwise stated, all disaggregated and franchise level revenue growth rates are based on organic performance. Lastly, our comments today will include certain non-GAAP financial measures. Reconciliations of non-GAAP financial measures are included in today's press release, which is an exhibit to Integra's current report on Form 8-K filed today with the SEC. And with that, I will now turn the call over to Stuart. Stuart Essig: Thank you, Chris. Before we turn to the quarter, I want to address the leadership change that we announced this morning. As you have seen from our announcement, I have stepped back into the role as President and CEO and will retain my current role as Chairman. I want to thank Mojdeh Poul for her leadership and for the meaningful progress made during her tenure. Under her leadership, the company advanced a number of important initiatives, including enterprise-wide portfolio and program prioritization, risk-based approach to quality remediation work, operations resiliency improvements and the more recent transformation and business process optimization efforts. Those efforts matter, and they are progressing well, and we remain fully committed to them. As I step back into the CEO role, my focus will be on strengthening the culture of the organization while increasing our customer and commercial focus. We want to be more connected to our customers, more aligned with the field, more collaborative across functions and clearer and faster in our execution. We are building on the important work already underway while improving how we work together and how quickly we make things happen. We remain committed to the quality, compliance, capacity and transformation work underway across the company. That work is progressing well and remains central to how we improve performance and build a stronger Integra. As we also announced this morning, Mike McBreen has been appointed Chief Commercial Officer. Some of you already know Mike well. He is exceptionally well suited for this role with more than 30 years of commercial experience in the medical technology industry. This newly created role is an important part of how we move forward, and Mike will help drive the next phase of our commercial organization. This move reflects the importance we place on making sure the commercial organization has a strong voice at the leadership table and that customer and market-facing priorities are fully represented in how we operate and make decisions. This is not about changing direction in the commercial organization. It is about raising its profile, strengthening leadership support around it and better positioning us to succeed. Our commercial teams have many strengths, and Mike's expanded role is intended to help us build on that momentum, sharpen execution and support stronger coordination across the market-facing parts of the business. This appointment also reflects something broader that matters deeply to me as I return to the CEO role. I want to make sure we are developing the next layer of leadership across the company and giving strong leaders the opportunity to take on larger responsibilities. Mike's new role as CCO supports that objective and will allow me to devote more direct time and attention to the areas that still require the greatest focus. This is the kind of leadership model that I want to reinforce across Integra, one that is customer-centered, commercially aware, collaborative, accountable and focused on helping the organization succeed. We want our support functions and leadership teams working in a way that enables the business, supports the field and drives results. That is a cultural tone we intend to reinforce. I also want to be clear that I'm not stepping in as a transitional CEO. I am assuming this role with a long-term commitment and deep familiarity with the company and its operations. I have served Integra in various capacities as CEO, Executive Chairman and Chairman for almost 30 years. Over the past 2 years, I have been actively involved in key initiatives as Executive Chairman, including active oversight of key operational and quality matters. These included the implementation of the Compliance Master Plan, the Integra Skin capacity expansion, the initiation of the Braintree facility program and direct communication with investors about the company's progress and path forward. I know this company deeply. I understand what it takes to run it, and I have a clear view of what I believe it will take to move Integra forward from here. So the message today is straightforward. The important work already underway is continuing. It's going well, and it remains central to building a stronger Integra. At the same time, we are sharpening our focus on culture, customers and commercial execution at the top of the organization. I remain confident in both the progress we've made and the opportunity ahead. It is an honor and a privilege to lead this fine organization once again. With those important announcements in mind, I'd like to now turn to our results on Slide 4. We had a very strong first quarter, and the team demonstrated what it can achieve as we continue to improve product availability. For the first quarter, we delivered total revenue of $392 million and adjusted earnings per share of $0.54, both above the high end of our guidance ranges. Based on our first quarter performance and the strengthening of our foundation, we are maintaining our 2026 revenue guidance of $1.66 billion to $1.7 billion and updating our adjusted earnings per share guidance to a range of $2.40 to $2.50. Lea will now walk through our first quarter results and guidance in more detail. Lea Knight: Thank you, Stuart. Good morning, everyone. I'd like to first thank our team for their contributions to our first quarter results. We delivered strong revenue and adjusted earnings per share in the quarter, reflecting solid product demand, improving supply execution and remediation and the continued positive impact of our transformation. These results were made possible by the foundational work we have implemented over the past year, setting us up for better visibility and execution against our commitments. We are seeing that work translate into more consistent, predictable performance, exactly what we set out to achieve. Turning to Slide 5, I will cover our first quarter financial results. Our first quarter revenues were $392 million, representing an increase of 2.4% on a reported basis and an organic increase of 1.3%, reflecting continued strong demand for our portfolio, improved supply, increased visibility and strong performance in tissue reconstruction. Adjusted EPS for the quarter was $0.54 compared to $0.41 in the prior year, primarily due to revenue growth, favorable product mix and savings driven by our recent transformation activities. We also saw a $0.02 net tariff benefit driven by the anticipated IEPA refund, partially offset by non-IEPA tariffs expensed in the period. Gross margin for the quarter was 64.1%, up 190 basis points from the prior year, reflecting favorable product mix, IEPA tariffs and reductions in remediation costs. Adjusted EBITDA margin was 19.4%, up 280 basis points versus Q1 2025, with the above-name factors impacting gross margins with additional benefits from our recent transformation. Cash flows from operations totaled $9.8 million in the first quarter and capital expenditures were $14.8 million. Before transitioning to our segment performance, you likely noticed in this morning's earnings press release that we are renaming our global business segments. Codman Specialty Surgical will now be called Specialty Surgery, and Tissue Technologies will now be called Tissue Reconstruction. Our product brand names will remain unchanged. Turning to Slide 6. We'll take a deeper dive into our Specialty Surgery revenue highlights for the first quarter. Specialty Surgery revenues was $283 million, up 0.9% on a reported basis, including a 140 basis point benefit from foreign exchange. On an organic basis, revenue was down 0.6% compared to the prior year. Global Neurosurgery delivered 1.9% organic growth, supported by broad demand strength, including Certas Plus, CUSA and BactiSeal, and we expect supply reliability and fulfillment to continue to improve. Sales of capital equipment grew low single digits, benefiting from continued capital funnel strength, including double-digit growth in CUSA and CereLink. Instruments posted a high single-digit decline, primarily due to order timing, which can vary quarter-to-quarter. We do expect growth for the full year. In ENT, revenue declined low single digits, reflecting strong growth in MicroFrance ENT instruments, offset by continued pressure in sinus balloons and commercial disruption impacts in other products. Revenue in our international markets declined low single digits as continued demand was offset by supply timing in the first quarter. Moving to our Tissue Reconstruction segment on Slide 7. Tissue Reconstruction revenues were $109 million, representing 6.7% growth on a reported and 6.4% on an organic basis compared to the prior year. The strong growth was partially offset by the impact of MediHoney, where we recorded sales for MediHoney in the first quarter of 2025 prior to the recall. In the first quarter, sales within our wound reconstruction franchise increased 6.2%. This robust performance was primarily fueled by double-digit growth in Integra Skin, mid-double-digit growth in DuraSorb and the PriMatrix launch. These results include a favorable comparison on Integra Skin, but also underscore the momentum we are seeing in our Wound Reconstruction business, and we remain highly optimistic about the continued growth in this segment. I'd like to now spend a few moments discussing the recent changes in Medicare reimbursement for skin substitutes. I want to provide clarity on what these changes mean and what they don't mean for our business. In the first quarter, CMS implemented several important changes to Medicare reimbursement rates and related billing rules for skin substitutes in the outpatient wound reconstruction market. Currently, approximately 90% of our Wound Reconstruction revenue is generated from the inpatient market. The inpatient market is not impacted by these changes. We remain excited by and confident about the inpatient market and the strength of our portfolio and market position. We do believe over time, the updated reimbursement framework will level the economic playing field and create upside opportunities for us. Our portfolio is priced in line with the new reimbursement rate with multiple size options available and supported by strong clinical evidence. We are already seeing increased demand from physicians for education and clarity on appropriate product selection, sizing and clinical considerations. Our market access and commercial teams are actively engaging customers as they adapt to the new reimbursement landscape, and we are seeing early indicators of incremental volume opportunities. Overall, we remain confident in our differentiated position in wound reconstruction, where we have the optimal portfolio to address a wide range of clinical needs and the economic value to compete effectively in both inpatient and outpatient markets. During the first quarter, private label sales increased 7.1%. This growth was primarily driven by a favorable comparison to the prior year. Finally, international sales in tissue reconstruction declined high single digits, reflecting double-digit growth in Integra Skin, which was offset by MediHoney. If you turn to Slide 8, I will provide a brief update on our balance sheet, capital structure and cash flow. Operating cash flow for the first quarter, which is historically our lowest quarter of the year, was $9.8 million, a $21 million improvement over the first quarter of 2025. This positive trend aligns with our full year expectation of an approximate $150 million increase in operating cash flow compared to 2025, driven by improvements in EBITDA, working capital and significantly reduced expenditures related to EU MDR compliance and the start-up costs for the Braintree facility. Free cash flow for the quarter was negative $5 million with a free cash flow conversion rate of negative 12.1%. As of March 31, net debt was $1.6 billion, and our consolidated total leverage ratio was 4.1x within our current maximum allowable leverage of 5x. We expect to continue reducing our leverage over the course of the year, approaching the upper end of our target leverage range of 2.5 to 3.5x by the end of 2026. The company had total liquidity of approximately $488 million, including approximately $266 million in cash and short-term investments, with the remainder available under our revolving credit facility. Turning to Slide 9. I will provide our consolidated revenue and adjusted earnings per share guidance for the second quarter and full year 2026. For the second quarter, we expect revenues to be in the range of $410 million to $425 million, representing reported growth of minus 1.3% to positive 2.3% and organic growth of a range of minus 1.5% to positive 2.1% -- turning to the full year 2026. We are maintaining our revenue and organic growth guidance of $1.66 billion to $1.7 billion and 0.8% to 3.3%, respectively. We expect reported revenue growth in a range of 1.6% to 4.1%, which continues to reflect an approximate 80 basis point annual foreign exchange tailwind. The first half revenue at the midpoint of our guidance of approximately $809 million gives us confidence in our full year expectations. We anticipate a sequential increase in revenues as we progress through the year with an approximate $26 million step-up in the second quarter, driven by normal seasonality, supply improvement and instrument order timing. We then expect modest sequential growth in the third quarter and a further increase in the fourth quarter. This cadence is consistent with our typical seasonal pattern and underscores the improving stability and predictability of our revenue trends. Turning to adjusted earnings per share guidance for the second quarter and full year. For the second quarter, we expect adjusted earnings per share in the range of $0.44 to $0.52, representing approximately 6% growth at the midpoint. For the full year, we are updating our adjusted earnings per share guidance by $0.10 to a range of $2.40 to $2.50 as a result of favorable tariff outcomes in the first quarter relative to our February guidance. Our operational expectations for the year remain unchanged from our original full year guidance. At the midpoint of our updated guidance range, we now expect gross margins and adjusted EBITDA margins to improve 60 basis points and 100 basis points, respectively, compared to 2025. For your reference, we have included the key assumptions underlying our second quarter and full year guidance as well as the key modeling inputs on Slide 10. With that, I will now turn the call back to Stuart. Stuart Essig: Thank you, Lea. Before moving to Q&A, I would like to highlight our key takeaways from the first quarter. We are pleased with the performance as we saw strong growth for tissue reconstruction and several of our key products within Specialty Surgery. We continue to execute our foundational and systemic transformation plan to drive consistent durable performance over the long term. We are looking forward to starting production at our Braintree facility by the end of June and relaunching SurgiMend by the end of the year, while we continue to advance the PMA strategy for both SurgiMend and DuraSorb for implant-based breast reconstruction. Together, these products will strengthen our position in the large and growing $800 million implant-based breast reconstruction market with a biologic as well as a resorbable synthetic solution, representing a meaningful future growth opportunity. We remain confident in our ability to deliver on our 2026 financial commitments, and are equally excited about the longer-term opportunities ahead for Integra. With a strong position in attractive specialized markets, a more capable and aligned organization and a pipeline of clinical evidence and new products, I am excited about this opportunity to lead Integra again. And I believe the company is well positioned to create significant value for all of our stakeholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] First question comes from Matt Taylor with Jefferies. Matthew Taylor: Stuart, welcome back, and I'd love to hear a little bit more about why this is the right time for this transition. And any differences in your approach versus prior management in terms of how to execute on the significant priorities you have in this compliance plan and the recovery of the products that have been out of the market. Stuart Essig: Thank you, Matt, and I am excited to be back speaking with the analysts again. I think by my count, this is my 57th earnings call. So hopefully, I can do as well as we did a few years ago. Let me first talk about Mojdeh.Mojdeh's decision to step down was mutual between her and the Board. We had differences in certain strategic topics, but the transformation initiatives that we put in place remain the right ones and they're going to continue. All the initiatives taken under Mojdeh's tenure were approved by me as well as the full Board, and they continue unchanged. I really do appreciate Mojdeh's contributions, and I'm confident with the transition and how it will move smoothly. Going forward, my focus is on execution and going on the offense commercially as we're in a stronger position to meet customer needs. I'm also excited about Mike McBreen's role stepping into the Chief Commercial Officer's role, so we can present a consistent face to customers. Do you have a follow-up, Matt? Matthew Taylor: Yes. Maybe just on a different topic. You provided some color on the call for Q2 and the phasing here. I just wanted to better understand key assumptions around the step-up in revenue through the year? And then what's weighing on earnings in Q2 and how that evolves through the second half as well? Lea Knight: Yes. Certainly. Thanks for the question, Matt. So to your point, Q1, we had a very good quarter. We were pleased to see a lot of the foundational work that we've been doing to strengthen our quality management system, improve supply reliability is really translating into more consistent execution. To your point around Q2, right, and how we move through the year, we do expect a sequential step-up as we move from Q1 into Q2. That will be driven by some of the normal seasonality that we see coupled with improving supply reliability as well as some instrument order timing. As we move from Q2, we expect Q3 to be fairly consistent with Q2, which is where we've been in prior years, the exception being a year ago where we did have some unique supply interruptions. But we do expect Q3 to be in line with Q2, and then we'll see a further step-up in Q4, which again is consistent with some of our historical patterns. I think the other part of your question related to kind of profitability in Q2 relative to what we actualized in Q1. And a lot of that is driven by expectations that we have for how gross margins will move throughout the balance of the year. So let me step through that. On a full year basis, we are now expecting gross margins to be about 62.5%. In Q2, we'll see gross margins below that. We'll see a little bit of a step-up in Q3 in gross margins and then Q4 will step up even more meaningfully to be above that full year average. The variability that we see in gross margins are largely driven by evolving assumptions in terms of tariffs as well as manufacturing variances that will have an impact and create that variation quarter-to-quarter. So hopefully, that addresses your profitability question. But if not, let me know. Stuart Essig: Yes, I'll just summarize by saying -- I'm just going to summarize by saying it's steady as she goes on the transformation. We're well on our way and things are improving. And we're confident enough that we can start what I think of as doubling down on our commercial folks being able to go out and speak with customers and be confident that they've got supply in many of our products. Operator: Our next question comes from Jayson Bedford with Raymond James & Associates. Jayson Bedford: Welcome back, Stu. Maybe just to tag on the last question, what is the status of the Compliance Master Plan? And is there a way to kind of level set us on what products are on ship fold and when you'd expect these products to come off? Lea Knight: Yes. So let me start, Jayson, on that. As we've mentioned, right, we've been making very good progress through the Compliance Master Plan. We've completed our site assessments. We've been doing our mediation work, which is well underway. We mentioned that, that remediation work would continue into 2026. And we're pleased with the results that we're seeing to date. As I mentioned, we see improving supply availability, which has allowed us to more consistently meet demand, which is a driver of some of the execution that we saw in Q1, and it will be a driver of how we deliver against our full year outlook. At this point, our full year guide right now doesn't assume a meaningful contribution from returning products back to the market that aren't already on the market. So that does not become a big feature, if you will, or element in terms of driving our full year performance. Jayson Bedford: Okay. That's helpful. Maybe just as a second question here. I appreciate the increased focus on the commercial side of the business. I guess the question is, does this involve expanding the size of the sales team? Stuart Essig: So the answer is no. We, in the last several quarters, had the opportunity with the transformation to ensure that our sales teams were focused, had the right staffing and we're focused on the right customers. It does not imply an increase in sales headcount, and it doesn't imply a decrease in sales headcount. What it really is, is about coordination of how we present ourselves to our customers and having that centralized under one individual to make sure our divisions are presenting themselves consistently. One of the real advantages that Integra has with our neuro business or our Codman business is that it is so present in most hospitals that it gives us access to many hospitals that wound care companies can't always get into. So the opportunity to drive collaboratively our 2 divisions, use the relationships we have on the Codman side to continue to drive our hospital-based wound care business into the sites. And then furthermore, we have GPO relationships with almost every major GPO, again, from our Codman business and particularly with the changes going on with wound care reimbursement, having access to the hospital market and the GPO market is going to be critical. Operator: Our next question comes from Ryan Zimmerman with BTIG. Ryan Zimmerman: Stuart, welcome back. I want to ask about a few different things. Stuart, there's no question, I think you know the company, you have the history to -- given your tenure with the company. But as you think about the composition of Integra today, the segments you're in, the businesses you're in, do you view every single one of them as the right ones? Is there a portfolio optimization that you see that needs to be done, whether that's expanding into certain markets, leaving certain markets? I'm just curious kind of as you sit here today, kind of what your view of the portfolio of the company is. Stuart Essig: All right. Thank you, Ryan. First of all, it's nice to be working with you again. I think you and I are dating ourselves. You may be one of the few analysts on this call who actually covered the company when I was CEO last. And if you go back to when I retired as CEO in 2012, one of the things we did shortly thereafter is a major portfolio review. And at the time, we concluded we couldn't be in the top 1, 2 or 3 spots in orthopedics, and we spun off our spine business to our shareholders, and we sold our Extremity business. Subsequent to that, we've done a number of divestitures, typically smaller ones, one of a commodity wound care line, and we exited all of our dental disposable business. So I want to be clear, Integra is always looking at the portfolio and always trying to make sure that we've got the right products to be able to be competitive. So then to answer your question, at the moment, I like the markets we're in. For the most part, they're niche markets. We have opportunity to be in the top 1, 2 or 3, particularly in neuro, ENT and in surgical wound care. And so I'm not expecting any portfolio movements in the near future. Again, like always, we'll look at individual product lines. And if they're not profitable, we can discontinue them or harvest them. But I like the mix. We're in very defensible markets, and we have an opportunity to grow, particularly as we get our product availability back to where it used to be. Ryan Zimmerman: Understood. Appreciate that. And Lea, very pointed comments on outpatient wound care. I appreciate clarifying the exposure to the outpatient side of things relative to inpatient. When you sit here today and given what we're seeing in the wound care market, particularly on the outpatient side, it sounds as though you're going to kind of let things settle and kind of come to you as it may on the outpatient side, where you see opportunity. But I'm just curious, as you think about what Bob has in his portfolio and the scale you need to bring to compete in outpatient wound, appreciating that you're not going to hire sales forces to focus on that. I guess what is your view of kind of how you capitalize on the outpatient wound opportunity as the market kind of settles out? And what do you need to do to become bigger in that market if that's truly what you guys want to pursue? Lea Knight: Yes. So thanks for the question, Ryan. A couple of things. So to your point around our portfolio and maybe what makes us unique and from our perspective, creates the opportunity for us to drive upside on that part of our business. As you know, across our portfolio, we have a couple of things. We have product price, size and science that work to our advantage. From a product perspective, we have a broad portfolio that offers clinicians choices in terms of how they treat patients. From a price perspective, our product has already been priced at levels that are in line with the new reimbursement rates of $127 per square centimeter. So we haven't had to change our pricing nor have we seen any impact on our margins as it relates to this outpatient space. From a size perspective, we have multiple sizes, including small sizes that allows us to minimize some of the wastage that others have been experiencing in this evolving landscape. And then from a science perspective, our portfolio is backed by strong clinical evidence that lends itself to building confidence in terms of delivering the desired outcomes. And so for us, what that means in short is right now, we're evaluating what's happening in terms of changes in where these where treatment is occurring. To the extent it remains in the outpatient setting, the position of our portfolio allows us to play there, recognizing that there will be other competitors that can no longer play in that space, right? So we remain viable in ways that competition won't. To the extent we see procedures or volumes moving in the inpatient setting, where 90% of our business already is, we believe we're also well positioned to take advantage of that, right? You saw in our results across wound reconstruction, if we just look at the products that are in that space, we delivered low double-digit growth in Q1, right? So we're well positioned to take advantage of demand as it flows into the inpatient setting should that happen. So there's a little bit of a wait and see, Ryan, right? We're going to see kind of how the market evolves. But we do think we're well positioned from a product portfolio perspective, along with kind of the strength that we already have in inpatient. And then again, as that market evolves, if we need to pivot to continue to capture it, we'll make those necessary changes. Operator: Our next question comes from Lawrence Biegelsen with Wells Fargo. Ross Osborn: This is actually Ross Osborn on for Larry. So going back to guidance, you guys had a nice revenue beat in the quarter. How should we view the reiteration of revenue guidance for the year? Is this conservatism? Or are there incremental headwinds we should be thinking about since you established guidance at the beginning of the year? Lea Knight: So no, to your point, we were pleased with how this year started. We saw solid demand across much of the portfolio, along with an improving supply reliability outlook that drove what you saw in terms of our Q1 performance above the high end of our guide. That said, we are still early in the year, and there's still more work to do. If you look through the first half, our guide is exactly where we expected it to be. So at this point, we believe maintaining a balanced and disciplined approach in terms of our full year guidance is both prudent and appropriate. Ross Osborn: Okay. That makes sense. And then how is adoption of CUSA trended for the surgical market? And what types of procedures are you seeing traction since your clearance last year? Lea Knight: I'm sorry, Rob, can you repeat the first half of that question? How is the adoption of what? Ross Osborn: CUSA since the surgical clearance, I think, in November of last year. Stuart Essig: CUSA Okay. Got it. Lea Knight: So how is the adoption of CUSA -- and then the second part of the question was? Ross Osborn: Yes. Just what types of procedures you're seeing initial traction with? Lea Knight: So from a Q1 perspective, overall performance across our business was largely in line, certainly in our tissue reconstruction side of the business, but we did see upside, specifically in the neurosurgery side of the business, and that upside was driven in part by CUSA. So demand for us there continues to remain strong, and we're pleased with kind of how that product is performing along with how we expect it to contribute on a full year basis. Stuart Essig: One thing I'll add, over the last 3 or 4 months, I visited Integra's sales team in Japan and Korea and India. And in those markets, CUSA is very in demand for gynecology, for liver surgery and increasingly for cardiosurgery. And so the opportunity to drive those into the U.S. market where we have clearances now is a big opportunity for our U.S.-based sales force. It's -- there's published papers internationally. There's key opinion leaders internationally. And so we have confidence the product is going to work well when those clinicians in the U.S. have it available to them. Operator: Our next question comes from Robbie Marcus with JPM. K. Gong: This is Alan on for Robbie. I had one question just on the products that you're expecting to bring back to market as we look at the back half of the year and into 2027. I think you've been off the market for a decent amount of time now. So what gives you confidence that you're going to be able to -- or I guess, like what are your expectations for share recapture once you get these products back onto the market and your ability to both recapture share and get back on the offensive? Lea Knight: Yes. So a couple of things. So one, from a full year guide perspective, I do want to be clear on this. Our guide does not require or rely on bringing back to market products that currently are off in a meaningful way, right? So we do have obviously assumed the -- what we've already announced as a return to market assumption around SurgiMend. That will come back in Q4. But again, it's not necessarily a material contributor to our full year guide. To your point, we are being very thoughtful, right, around how we approach that return to market. We're leveraging the learnings from PriMatrix and Durepair. If you recall, we brought them back in Q4 of 2025 after having been off the market for over 2 years. And we're excited about the uptake that we're starting to see for both of those products. We continue to get good positive feedback from physicians as we started to recapture some of our prior users. And so that relaunch in Q4 of 2025 and the continued demand that we're seeing for those products as we move into 2026 is absolutely informing how we're thinking about the SurgiMend relaunch. We understand this is going to be a multi-quarter journey in order to get back our share. But we also know that the market dynamics for both PriMatrix and SurgiMend have changed meaningfully since they were both in the market last, right? And so this isn't just about getting our shelf space back. We believe there's additional upside opportunities that we can take advantage of. For PriMatrix, it's because of what's happening in the evolving outpatient wound setting. And for SurgiMend, it's the opportunity that exists in terms of implant-based breast reconstruction and the work we're doing to secure our PMA. So we're excited about the outlook on both. But again, as it relates to 2026, does not require a meaningful contribution from the return of SurgiMend to the market. K. Gong: Got it. And then I just wanted to follow up a question previously on earnings and the earnings cadence, right? I think relative to expectations, you -- and your own guidance, you came in close to $0.10 above the top end of the range. And it sounds like tariffs should potentially be a tailwind to the balance of the year as well. So when we think about the delta between that proved outlook, the better performance you got in first quarter and the benefit from the tariff rebate and the fact that you only raised the guide by $0.10, should we think of that those manufacturing variances you talked about as being the primary driver of that shortfall? Or is there anything else that you would think that you should call out that we should be aware of? Lea Knight: Yes. Yes, certainly. So let me step through that because you asked a number of questions in there. First, in terms of our EPS performance for Q1, -- we did perform above the high end of our guide. It was driven by a couple of factors. It was driven by stronger-than-expected revenue, along with the $0.10 benefit from tariffs that we talked about. And in addition to that, also some margin improvement that is reflective of the transformation efforts that we have underway. So all 3 contributed to that result. It's worth noting because even ex tariffs, we performed close to the high end of our guide. To your point on tariffs and expectation for the balance of the year, we did adjust our full year EPS outlook by that same $0.10 to reflect the benefits that have been realized as it relates to tariffs. We also outlined our tariff assumptions as part of the earnings deck, so you can see what we're assuming for the balance of the year. It is possible that we'll continue to see additional favorability as it relates to tariffs as we move throughout the year. We have not reflected possible benefits in our full year updated adjusted EPS at this point. It's still very early in the year. There's still a lot we expect to unfold when it comes to tariff policy. And so as that unfolds, we'll update appropriately. Operator: Our next question comes from Ravi Misra with Truist Securities. Ravi Misra: Just on -- 2 questions for me. So first, just on PMA timing in breast recon and just kind of commercialization prospects, assuming you get those, could you provide some more detail? And then I have a follow-up. Stuart Essig: Sure. So first of all, SurgiMend is expected to be ready for pre-approval inspection in the second half of 2026 following our Braintree restart. The actual PMA approval timing depends on the FDA review process, which obviously is not in our control. We do expect SurgiMend's PMA to be approved sometime in 2027, and we expect approval for DuraSorb shortly thereafter in the same year, so also 2027. Our view of implant-based breast reconstruction surgery as a long-term growth opportunity is very impactful, and we expect meaningful contribution beginning in 2027 and beyond. And again, just to reiterate, there's no contribution from the PMAs in our 2026 guidance. Ravi Misra: Great. And then just, I guess, another one on the tissue recon business and wound recon, kind of what you're seeing in the inpatient setting. That growth that you kind of disclosed, is that a function of really market and procedures going into inpatient or more so you capturing more share disproportionately in the quarter? Lea Knight: Yes. Thanks. So overall, across our tissue reconstruction business, we grew kind of high single digits. And then if you look at just the products that are in wound reconstruction, that's where I cited earlier, we were up low double digits. From a year-on-year perspective, we did benefit from a favorable comparison based on supply availability for Integra Skin. So that is a function of the performance that we're seeing. We do continue to see strong underlying demand in terms of procedures in that space that has continued through 2026. Stuart Essig: So I'll just add 2 points in terms of the way in which the selling process works. So first of all, as it relates to Integra Skin, because of our issues with manufacturing over the last few years, it's been tough for our sales team to open new accounts. Their objective is to make sure that the existing accounts are well stocked with our products, so they're available for surgery. As the sales force develops greater confidence in our ability to manufacture, and they should be getting that confidence based on production in the last few quarters, they'll be more comfortable bringing the product to new customers and ensuring that additional customers feel confident using the product. So there is a time frame over which -- we've got to get our sales force comfortable and we've got to get customers comfortable for availability. But that should and will increase over time. Similarly, one of the exciting things about bringing PriMatrix back is -- and this is really anecdotal, but I've heard from a number of our salespeople that bringing PriMatrix back into certain accounts has also driven growth in our other wound care products. The ability to go into a hospital with a "new product" and for some hospitals, it is new because it hasn't been there for a few years. It provides an entree for our sales team to talk about our other products. And again, our strategy over the years has been to have the broadest portfolio of surgical reconstruction products for wound care. that allows our reps to not be in particular, selling one thing. Rather, it's collaborative with the surgeon, it's consultative, and we don't -- we can offer them lots of different choices for the particular wound that they're treating. It gives our reps a lot of credibility with customers. Operator: Our next question comes from Joanne Wuensch with Citi. Joanne Wuensch: Stu, great to have you back. I had a question. The tax rebate -- sorry, tariff rebates, forgive me. I'm going to assume that went into gross margins, but there is still a fair amount of leverage on SG&A and R&D. Was there anything onetime in there? Or is there anything that we can sort of take as a base case and leverage forward? Lea Knight: Yes. So let me step through that. So to your point, gross margins for the quarter were 64.1%. It was up 190 basis points versus a year ago. Tariffs did benefit that performance. But even ex tariffs, our gross margins would have been up 140 basis points year-on-year. And that performance was driven in large part by lower remediation costs as well as lower manufacturing variances versus what we saw a year ago. And that's where, as I gave the cadence earlier about gross margins and performance throughout the year, we will see variability as we move throughout the year from Q1 to Q2 through the back half of the year. That is a function of how manufacturing variances will play out along with tariff impacts. Again, full year basis, we expect gross margins to be 62.5%. Q2 will be below that. We'll see a slight step-up in Q3 and then Q4 will be above the full year average to get us back to 62.5% -- so that should address your profitability question. If not, let me know. I do want to be clear on one part, and this goes back to the tariff question I got before. The adjustment we made in our full year outlook, again, reflects just the tariff benefit we realized in Q1. There's been no change to the underlying operational performance of the business. We're holding to that commitment that we made back in February as it relates to operational dynamics. We're excited about the performance that we saw in Q1. We think that gives us confidence in terms of our ability to perform against the full year guide. So whether it be top line or bottom line operationally, we remain committed to the full year guide that we communicated from earlier this year. Operator: Our next question comes from Travis Steed with Bank of America. Unknown Analyst: I guess to build on Ryan's question previously, Integra has been an acquisitive company over the last 20 or so years and acquisitions were part of your strategy last time as CEO. How are you thinking about continuing to add to the business either in the markets that you're currently in or expanding into other markets when would that make sense? And when it does, what kind of opportunities would you be looking at? Stuart Essig: Okay. A couple of points there. First, in the near term, -- our #1 priority is debt reduction and returning our leverage ratio to the target 2.5 to 3.5x levels. And we'll get there by reducing debt and also driving EBITDA. In the meantime, we're focused on our organic growth drivers, and we're strengthening our R&D processes, and we're increasing program management and execution discipline. I'd mentioned we brought aboard a highly experienced Chief Technology Officer in Q1 to help us accelerate innovation with greater focus, speed and impact. But we will continue to grow through a combination of impactful organic and inorganic levers. As we get our ratio back in order, we will start to look at acquisitions again, but they will always be close to home. We like the markets that we're in, neuro, ENT and then tissue reconstruction, and that's where you'll see any acquisitions that we do. But I want to be clear, while acquisitions have been a great contributor over the years to Integra, our focus at this moment is on debt paydown and frankly, execution. Unknown Analyst: Got it. That makes sense. And then just one follow-up. Regarding order timing in instruments and supply timing and general weakness in international markets, how much of that is related to normal seasonality? And how much is related to more macro events like the Middle East conflict or inflation? And if it was -- if the impact from macro-related things was seen in the quarter, how much of that was seen? And how should we think about the rest of the year? Lea Knight: Yes, there was a lot in that question. So let me throw it. As it relates to kind of some of the macro events that are playing out, we didn't see any material impact to our business in the first quarter as it relates to developments in the Middle East conflict. Our direct revenue exposure in that region is modest. And so based on what we know today, we do not expect to realize a material impact. But obviously, we're going to continue to monitor and see how that unfolds. As it relates specifically to instruments because you asked about that, it's typical for us to see some variability quarter-to-quarter in that part of the business, and that's what I was referencing in my remarks regarding an expectation of a sequential step-up in Q2 due to instrument order timing. So on a full year basis, though, we do expect that business to get back to low single-digit growth. Operator: Thank you. This does conclude the question-and-answer session, and you may now disconnect. Everyone, have a great day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Qualys First Quarter 2026 Investor Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Blair King, Investor Relations. Please go ahead. Blair King: Thanks, Michelle. Good afternoon, and welcome to Qualys' First Quarter 2026 Earnings Call. Joining me today to discuss our results, Sumedh Thakar, our President and CEO; and Joo Mi Kim, our CFO. Before we get started, I would like to remind you that our remarks today will include forward-looking statements that generally relate to product capabilities, future events or future financial or operating performance. Actual results may materially differ from these statements and factors that could result -- and factors that could cause results to differ materially are set forth in today's press release in our filings with the SEC, including our latest Form 10-Q and 10-K. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. And as a reminder, the press release, prepared remarks and investor presentation are all available on the Investor Relations section of our website. So with that, I'd like to now turn the call over to Sumedh. Sumedh Thakar: Thanks, Blair, and welcome to our first quarter earnings call. I'm pleased to report we delivered another quarter of strong revenue growth and profitability. With the accelerated progress of new frontier models, discovering vulnerabilities and writing experts autonomously, the number of detections is going to go up significantly while the exploit window is going to shrink dramatically. The need for organizations to know their true risk to effectively prioritize and auto-remediate riskiest vulnerabilities in less than a day has never been greater. This is why we innovated with the ETM enterprise tourist management platform, which implements an AI rock risk operation center so customers can get the risks remediated instead of relying on dashboard tourism with siloed products that increase their exposure. Given our #1 rating in the GigaOM Patch Management radar with over 150 million patches deployed and over 40 million of these delivered autonomously in the last year with a Six Sigma accuracy organizations are turning to Qualys as the trusted solution to help them move from current broken manual remediation processes to high-impact, low-risk autonomous remediation workflow at scale that go beyond patch management. And that's exactly where we are focused. With exploitable vulnerability volumes surging 6.5x and average time to expect collapsing to under a day as adversaries weaponized vulnerabilities before Patches even exists, security teams focus on theoretical exposure are overwhelmed. Just finding more and more vulnerabilities doesn't equal risk. Real risk is determined by whether an adversity can successfully execute and explore path in an organization's live environment. That's why I'm pleased to report that our most recent addition to our agent AI marketplace agent Vail is now generally available, powered by TruConfirm within our ATM solution agent well delivers closed-loop exploit validation and autonomous remediation directly to the rock. Using autonomous exploit validation at scale, we remove the guest work for customers by running safe exploits over the network to confirm whether attackers will succeed in their breach attempts while enabling security and IT teams to focus on the less than 1% of threats actually exploitable in their production environment. In doing so, we have closed the gap between theoretical and actual exposure and believe set a new adoption standard in the industry, while traditional ETM solutions take days to pull scan telemetry from scanning tools and rely on theoretical risk scores ignoring, mitigating security controls, ETM and its agentic AI workforce takes a fundamental different approach. Inside a continuously functioning loop, it detects vulnerabilities, validates exploit, quantifies real risk, automate remediation and revalidate the exploit, optimize and integrated with leading LLM and SLM this end-to-end approach empowers organizations to be laser-focused on prioritizing only exploitable threats for the next logical step, which is autonomous remediation, leveraging agent era and TruRisk eliminate. Underpinning our risk eliminated solution is our new AI-powered batch reliability score, a model trained our own proprietary data set of hundreds of millions of deployed patches, which predict patch induced outages before they happen, giving customers the confidence to deploy with certainty or positive purpose while setting a new standard for predictive operationally aware patch management. With an umbrella of remediation solutions, including matching and other competing controls, with less than 10% rollback rate. The AI native rock accelerates streamlines and demoralizer security outcomes, so transforming from, we think, to know it's being fixed at machine speed. In the context of the newest frontier AI models giving attackers the ability to soon discover diverse -- zero-day vulnerabilities, generate exploits in near real time and develop autonomous attack agents, unlike anything the industry has seen, the feedback to our get it fixed in our approach from many of the CISOs I met at our decent [ Rocco ] EMEA event in London has been very positive. They shared their excitement about the rapid pace of new capabilities we are delivering their deployment agenda and their ability to now autonomously monitor, measure and confidently remediate actual risk in multi-vendor environment in an era where just generating visibility dashboards is increasingly unacceptable. Our industry-leading capabilities are gaining broader recognition among our customers, partners and third-party analysts. Specifically, our total cloud solution was recognized as a leader in CNAPP in the Q1 2026 Forrester Wave report, and subsequently won the 2026 SC Award for the Best Cloud Security Management solution. Both underscore our capabilities in delivering unified visibility with real-time detection and response at run time across hybrid environments. It was also positioned as a leader in 2026 GigaOM report for cloud and entity and title management and following our dual pan awards late last year, our third research unit has again demonstrated its impact with the discovery of Track Armor uncovering critical app armor vulnerabilities that can lead to root-level compromise and container escape across millions of Linux systems worldwide. This, alongside with our recently released research on the broken physics of remediation further demonstrate Qualys' commitment to fortified security operations and raising the bar on adversaries. The net result is that we have distinctly unified CTM exploit validation cyber risk quantification and remediation into a single AI-driven risk fabric that continuously senses alerts reasons and acts across hybrid environments on with these capabilities and growing rock momentum that will soon autonomously trigger ITSM workflows. We remain laser-focused on accelerating ETM adoption throughout our vulnerability management and detection response customer base and positioning Qualys for larger upsell opportunities over time. Turning to our business update. We have established a long history of converting operational challenges into strong competitive advantages demonstrated by customers spending $500,000 or more growing 9% from a year ago to 2021 -- [ 2020 ] months. That's why one of my favorite wins in Q1 was with an existing global 1,500 customer despite strong foundational visibility that teams struggled to operationalize risk reduction across the growing mix of on-prem multi-cloud environment, silo tools fragmented telemetry, a growing population of LLM and millions of vulnerabilities with limited business contacts. This customer recognized the traditional severity-based prioritizing methods were not long -- are no longer sufficient and launched a strategic initiative to unify risk signals across their environment and operationalize the rock. Leveraging AI for security and security for AI, they expanded the Qualys footprint by adopting ETM and total AI in a mid-6-figure annual upsell. By consolidating disparate signals into the Qualys platform, this customer now has a unified orchestration layer that delivers end-to-end visibility across the attack surface, including deep scans on their assets across binaries, open source libraries and dependencies with centralized risk quantification, prioritize remediation workflows and measurable outcomes aligned with business risk tolerance. This win reflects broader ETM momentum as more and more customers turn to Qualys for evidence-based export validation and remediation while benefiting from the efficiency and scale of AI-native -- automation. Partners remain a key pillar for our growth agenda. In addition to a growing list of nearly 2 dozen certified MRO partners beginning to actively launch new services we are seeing momentum build across all geographic theaters with a strong focus on AI and native rock. For example, one of our largest MRO partners is now in the process of bringing the case-ready AI-native rock to market powered by our ETM and automated remediation solutions. Additionally, to our strategic alliances initiatives, we continue to drive deep technology integrations, co-selling opportunities and demand generation programs. to drive innovation in security research through the latest -- models. We have partnered with open AI in their crystal access for cyber program and anthropic in their cyber verification program to advance our vulnerability and threat intelligence and allow customers to ingest these findings into ETM for further detection and remediation. On the cyber insurance side, we are also pleased to announce a new strategic partnership with Converge Insurance, leveraging the quality team solution to help their customers demonstrate strong security hygiene and qualify for meaningful premium reduction, advancing our vision of tying cybersecurity to business outcome for CECL. Further supporting our growth trajectory in Q1, we continue to expand data testing of Flex designed to help customers accelerate and broaden their adoption of the Qualys TTM platform. Based on strong early engagement and positive feedback we're planning to build on this momentum by proactively identifying opportunities to extend [ Keflex ] to select customers and partners with a go-live date planned for later this year. And finally, as the federal government seeks to garnish greater efficiency and replace outdated and costly on-prem deployments from years past with modern cloud-native risk management solutions we are especially excited to host our third annual [ Pedro ] conference in Washington, D.C. towards the end of this month. We have made good progress growing our federal business and advancing our fed ramp high status with large federal agencies, and we continue to believe this market will fuel a new leg of growth for the company over time. In summary, we are pioneering a new category in pre-breach risk management by bringing autonomous exploit validation, risk quantification and zero-day remediation together within a single AI-driven risk fabric that redefines how enterprises operational as cyber risk. Complementing frontier model discover vulnerabilities. Our platform leverages proprietary domain data, real-time telemetry and deep operational context using sensors and agents behind the firewall to continuously discover assets, validate exposures, quantify risks, remediate threats and enforce company-specific policies, which are unavailable in the public domain. This is driven by our 2 decades of processing petrabytes of structured telemetry, combined with industry-leading threat intelligence in a closed-loop system that compounds across thousands of customer environment every day. printer models are powerful and accelerated back path analysis and triage. However, they need to be paired with a highly reliable control plane to consistently enforce accurate policy and compliance outcomes across live hybrid environments. This is where the unique value proposition for Qualys customers live, and it requires deterministic auditable, repeatable and trusted execution with effectively zero tolerance for error with attacks moving and machine speed and increasingly requiring defenses start to learn and respond in real-time closed-loop agents orchestration, driven policy and harness by flexible model choice act as a force multiplier further enabling precise risk quantification, safe remediation and even faster and more doministic outcomes at scale. For Qualys, this means our massive data context, LLM and SLM integration and trusted execution serve as the system of record for pre-beach cyber risk management and translate AI into a packaged Rock automation platform that delivers customers measurable risk reduction, zero-day remediation, government outcomes and immediate ROI. With that, I will turn the call over to Joo Mi to further discuss our first quarter results and outlook for the second quarter and full year 2026. Joo Mi Kim: Thanks, Ned, and good afternoon. Before I start, I'd like to note that except revenues all financial figures are non-GAAP and growth rates are based on comparisons to the prior year period unless stated otherwise. Turning to first quarter results. Revenues grew 10% to $175.6 million. The channel continued to increase its contribution, making up 52% of total revenue compared to 49% a year ago. Revenues from channel partners grew 17%, outpacing direct, which grew 3%. As a result of our strategic emphasis on leveraging our partner ecosystem to drive growth, we expect this trend to continue. IGO, 15% growth outside the U.S. was ahead of our domestic business, which grew 6%. U.S. and international revenue mix was 55% and 45%, respectively. In Q1, as expected, there was no meaningful movement in our net dollar expansion rate, closing the quarter at 104%, and slightly up from 103% last quarter. More importantly, we'd like to turn to a new metric that we plan to disclose going forward on a quarterly basis. net dollar expansion rate of customers with prior year purchase of ATM or CSAM subscriptions. We believe that this metric is currently the best indicator of success of our ATM strategic initiatives. With ATM innovation having stemmed from strong customer demand. We anticipate ATM adoption to drive higher net dollar expansion rate. However, given that ATM adoption is still in its early stages, we have decided to include CSAM customers in this cohort so that the metric has more wait to it. In addition, as a reminder, ATM is essentially an upgrade from CSAM. So we believe that this is an appropriate baseline to track and measure going forward. In Q1, the net dollar expansion rate of ETM CSAM cohort was 107%. As more customers move into this cohort. We hope to see consistent and meaningful improvement to our overall net dollar expansion rate and thereby driving accelerated revenue growth. Moving on to product mix. Our differentiated new products continue to drive growth. First, ATM, CSAM combined made up 11% of total bookings and 14% of new bookings on an LTM basis in Q1, up from last year's 8% and 9%, respectively. Next, past management made up 8% of total bookings and 15% of new bookings on an LTM basis in Q1. This compares to 7% and 16%, respectively, in Q1 of last year. Lastly, total cloud made up 5% of total LTM bookings in Q1, unchanged from a year ago. We believe that these differentiated products, combined with increased contribution to bookings in 2026 and given our opportunity to increase market share and maximize share of wallet. Reflecting our scalable and sustainable business model, adjusted EBITDA for the first quarter of 2026 was $83.3 million, representing a 47% margin, same as last year. Operating expenses in Q1 increased by 8% to $67.5 million, driven by investments in sales and marketing, which grew 17%. With this strong performance, EPS for the first quarter of 2026 was $1.95 per diluted share and our free cash flow was $93.6 million, representing a 53% margin compared to 67% in the prior year. In Q1, we continued to invest the cash we generated from operations back into Qualys including $1.7 million on capital expenditures and $53.9 million to repurchase $505,000 of our outstanding shares. Please commencing our share repurchase program in February of 2018. We've repurchased 11.2 million shares and returned $1.3 billion in cash to shareholders. As of the end of the quarter, we had $306.6 million remaining in our share repurchase program. With that, let us turn to guidance, starting with revenues. For the full year 2026, we now expect revenues to be in the range of $721 million to $727 million, which represents a growth rate of 8% to 9%. This compares to prior guidance of $717 million to $725 million. For the second quarter of 2026, we expect revenues to be in the range of $177.5 million to $179.5 million, representing a growth rate of 8% to 9%. While we believe our approach to pre-breach, cyber risk management provides some installation and this ongoing macro volatility. This guidance continues to see no material change in our net dollar expansion rate. With moderate growth contribution from new business in 2026. Shifting to profitability guidance. For the full year 2026 we expect EBITDA margin to be in the mid-40s, implying mid-teens increase in operating expenses and free cash flow margin in the low 40s. We expect full year EPS to be in the range of 7.44 to 7.65, up from the prior range of [ 7.97 ] to 7.45. For the second quarter of 2026, we expect EPS to be in the range of $1.73 to $1.80. Our planned capital expenditures in 2026 are expected to be in the range of $8 million to $12 million and for the second quarter of 2026 in the range of $1.2 million to $3.2 million. As the impact of the macro economy is still unfolding, we are closely monitoring the business environment and adjusting our priorities accordingly. That said, considering the long-term growth opportunities ahead of us and our industry-leading margins and plan further room for investment. We intend to continue to responsibly align our product and marketing investments to focus on high-impact initiatives -- driving more pipeline, accelerating our partner program and expanding our federal vertical. As a percentage of revenue, we expect to prioritize an increase in investments in sales and marketing with more modest increases in engineering and G&A. With that -- I would be happy to answer any of your questions. Operator: [Operator Instructions]. The first question will come from Patrick Colville with Scotiabank. Patrick Edwin Colville: In your prepared remarks, I mean, I think you did a really good job of conveying why risk quantification, I guess, testing whether an asset exploitable with run time context the ability to kind of patch and revalidate all make Qualys at low risk of AI disruption in the enterprise. But what I want to ask, though, is there's a lot of hype around anthropic Claude, [ Midos ], OpenAI, GPT 5.4, Cyber. Are they leading to more inbounds? And if so, like how will those inbounds and that kind of surge of interest translate into the financial model in 2026? Sumedh Thakar: Yes, that's a great question. And I think our customers who are in this day in and day out, they understand pretty well that this is going to lead to more disclosures of patches and vulnerabilities from multiple vendors that they use. And I think the challenge is going to be more about -- as -- I mean on the positive side, I think these models are helping companies get better with finding these vulnerabilities themselves versus waiting for a tapers to find them, but it also means that they're going to lead to more catches being announced by our multiple vendors that the customers will have to deploy. And I think the challenge is going to be more that once the patches come out, attackers leveraging AI can reverse engineer those patches and find the exploits. And so it really becomes a game of how quickly can you apply the patch that the vendor is giving in a matter of hours and not wait for days and weeks as it happens right now? And -- that's where a lot of the conversations that we have had with our customers, we're seeing a lot of CISOs and customers reaching out to understand how our patch management capability and the remediation capability and exploit validation capability is really going to be helpful for them because they all need to provide an update to their Board in terms of how they are going to fight against the AI-induced attacks that are coming from these models getting better and the response cannot be we are going to do more manual remediation. They need to have a response that anchors themselves in fighting autonomous AI attacks with autonomous remediation. And they see us as a trusted vendor having deployed 150 million patches already and 40 million of those already fully autonomously deployed. And so a lot of those conversations are positive right now. But of course, it's in early stage, and we need to work through to see how they take out of the conversations, how they go back to their boards to their IT teams partnered with the IT team. So happy with the activity, but a little too early right now to talk about how the impact is going to be on the pipeline and outlook. As Joo Mi said, we're not considering any change from where we are right now in terms of the guidance. But we are happy to see the engagement that we are seeing from the inbounds that we're getting from customers trying to understand how basically can respond to this. Patrick Edwin Colville: Very clear. And can I just -- I mean just to touch on that point. So I mean, Joo Mi, you very kindly last quarter provided us a soft guidance for 7% to 8% current billings growth in 2026 is the point you were trying to make in the prepared remarks that remains the case. No change to that level even with the strong 1Q performance and I guess, the positive vibes that Sumedh was just talking to? Joo Mi Kim: Yes, that's correct. I think that if you take a look at our Q1 performance, it was a solid start to the year. We're very pleased with the Q1 outlook as well as what we anticipate for the rest of the year. However, we don't see any material kind of meaningful change for the full year today. So given that the baseline still remains at 7% to 8% for the current billings for the full year. Operator: And our next question will come from Roger Boyd with UBS. Roger Boyd: Sumedh, it was a strong quarter from a new customer add perspective, and particularly for 1Q, which is typically seasonally a little bit lower. Can you just talk about what's working right from a new logo perspective? And then everything you just kind of mentioned from a patch management remediation standpoint, to what degree is that sort of impacting the new customer conversation, any metrics you can give around attach rate of patch management or TruRisk eliminate would be great. Sumedh Thakar: Yes, great question. And I think we kind of talked about right now where we are with patch management, sort of 8% of LTM overall bookings and 15% of new bookings, right? And I think definitely good execution by the team. Focused execution is key there. If you kind of recall our what we talked about at RSA, and a little bit before that, our focus on agent I agents as we went into last year. I mean, if you look at today, what everybody is talking about is how can we very quickly autonomously remediate things. And this is not accident that we are here right now. We have been delivering capabilities around patching, going beyond patching the exploit validation. And those messages have been resonating with customers. And so I think -- this is leading to better conversations with customers as they look at. We are encouraged with the conversations we are having around ATM. I mean the thing is, look, at the end of the day, risk measurement and risk management is going to be critical because it's the number of patches that you have to deploy, explores as a company cannot just deploy all the patches. And so anchoring it back to risk is very important. So eliminating the right risk and the minimum amount of risk is important and to be able to get there, so you're not matching and fixing everything, creating more risk from an outage then becomes very important because ETM is the one that does the hyper prioritization. And for ETM to be successful, you need high-quality detection capabilities. I think one of the concerns that customers have brought up after these models have come out has been the question of false negatives, right? If you're using Tier 2 scanners, the time it takes to get signatures out and find the findings versus scanner like Qualys, where we are getting signatures of multiple times a day, we are adding capabilities to detect things to reduce the false negative is becoming very important. And I think that -- those conversations are culminating in positive conversations for ETM, which is still early and ETM and eliminate conversations typically they do go hand-in-hand many times. And so I think while it's still early for ETM, we are encouraged by the conversations that we are having at this point. And so again, we have to work to continue the execution. Very happy with how Q1 went. But we're going to continue to work on executing with the opportunity that's in front of us. And like we said, our partners are working with us closely and we look forward to continuing our partners, bringing us additional sort of new logos and working with our existing customers with the MRO services which can get more value for existing customers through our partners to make sure that our upsell also continues to pick up. Patrick Edwin Colville: That's really helpful. And then maybe just a quick 1 for Joo Mi. On Q-Flex, you talked about kind of building out this pipeline and identifying a customer pipeline to extend that procurement model to. Can you just talk about kind of the customers that you see as a good fit for Q-Flex, and any thoughts on when that kind of push could start this year? Joo Mi Kim: Yes. So mostly, Q-Flex is targeted towards our enterprise customers who need that flexibility to potentially cover the forecast that they have anticipated for the full year. So as an example, what they're looking for is -- given that we continuously enhance our products and come out with newer products throughout the year, they want the comfort of having to prepurchase or pre-clinic to a higher amount that they might necessarily think that it's absolutely needed for the year. we've been talking with the select group of customers that have the budget that are willing to pre-commit to a higher credit with Qualys, with the ability to swap out different products and offerings and try out newer solutions throughout the year, we're pleased with the momentum that we have today, and we do plan to go GA with Q-Flex later this year. Sumedh Thakar: And I would quickly activate that this is right now with what is happening is a good example of where a Q-Flex model will be helpful for a customer because we didn't have exploit validation earlier last year. But now that we have that, and we have with us driving more focus on patching Q-Flex customers through the year will have more flexibility in being able to use those credits to suddenly pivot towards patching more because there is a particular event that has come up. and not have to sort of keep going back from a procurement perspective. So like Joo Mi said, exciting early conversations with these large customers, and we look forward to working through with them this year and then kind of getting towards the GA by the end of the year. Operator: And the next question will come from Kingsley Crane with Canaccord. Unknown Analyst: Med, I guess just to start off, I'm kind of curious how important is access to something like Midos preview just for your business at all? And then just in general, talking about the growing marketplace of genetic AI solutions, we've seen a pretty significant jump recently, even with just modeled GPT 4.7. But what is the future of that type of integration with agents for the platform? And like how relevant is inference is a line item for Qualys, if you look like 3 years out? Sumedh Thakar: That's a great question. I think it's less about a particular model and more about the direction that these models are going, right? And so I think for us, it is -- we have been leveraging other open source models as well, and we're excited to now be part of the TAC program from OpenAI, which gives us access to 5.5 cyber, which is an equivalent model for the most parts to Midos as an example and also part of the verification program. And we have -- since we have really been doing a lot of exploit and validity research ourselves, these type of models, whether it be these 2 front end models or other open source models that have been using in my mind, are definitely something that help us do a better job of figuring out exploits that we can safely create for our customer environment. So that the customers can really test the exact scale through the Qualys platform. It also helps us do a much better job at figuring out the right patches or the right mitigations. One of the key things that we have done at Qualys, has really put a lot of research energy into coming up with mitigations that don't need a patch, people whether your patches, but we reverse engineer patches to figure out maybe there are other mitigations that can be leveraged to make sure that these mitigations can help the customer deploy a compensating control on the machine without having to deploy an immediate patch, which is extremely valuable for them. When they only have a few hours to make a decision on mitigating a highly exploitable vulnerability. And that research is definitely what we have been doing, as the models are progressing, these partnerships definitely help us accelerate and cover more and get more options to help our customers go through that. So I see that leveraging these models, either whether it's through research or integrating with them to pull findings from these models, so customers can actually take their core findings and run it through the millions of Qualys agents that they already have installed to find the actual instance of that. or whether it is overall our own Agentic AI solutions, we use different small language models, large language models to optimize the outcomes for whether it's chat, whether it's an AI agent that is taking action, I think that is something that we look forward to continuing to partner with whether it's open source or these frontier models. And I do think that for any solution that is going to be important to make sure that they leverage some form of AI capabilities. It's just that because we uniquely do the exploit validation and patching, we have a very interesting use case for use of these models. Unknown Analyst: That's really helpful. And for Joo Mi, it's great to see the continued efficiency in the business. You've talked about R&D growing a bit more modestly than sales and marketing this year. So a 2% growth year-over-year, is that about what we should expect for the rest of the year? And just like speaking bigger picture in such a dynamic time for the cybersecurity market, I mean what would get you to invest more in that line item? And then I understood that you're already very efficient there operationally. So I can appreciate that. Joo Mi Kim: Yes. Currently, what we're forecasting is OpEx growth in the mid-teens. Sales marketing continued to grow well, up to 15% mark. Last quarter, it grew by 18% year-over-year. This quarter, 17% year-over-year. So with sales and marketing potentially ramping in the second half of the year, rest of it that we've allocated for the R&D for the most part. We do anticipate a significant investment -- we think that could be justified from a return perspective, especially with the AI investments that we continue to make in the business. So given that, we're guiding to mid-40s EBITDA margin, which is implied by mid-teens growth in OpEx. Operator: And the next question will come from Jonathan Ho with William Blair. Jonathan Ho: I just wanted to better understand sort of the breach risk management opportunity, how maybe this changes from prior approaches? And what makes maybe Qualys better positioned than other competitors to offer this solution. Sumedh Thakar: Yes, that's a great question, Jonathan. I think it's not that it changes from the prior approach from a Qualys perspective, we have been building and innovating around the ETM platform and the concept of -- Operations Center, the last couple of years almost in preparation for something like this where we will see significant number of vulnerabilities coming our way, but you cannot fix anything in an operation. And you cannot play a vulnerability -- you're trying to jump from one way over to another. So the idea of creating a risk operation center and elementing that with ETM has been to make sure that we are creating an outcome where things are fixed for the customer in a matter of hours. And I think that's an approach that's different than a CSAM solution, which is waiting for collecting data from different scanners and then creating some reasoning, but then they don't actually do the patching. They pass it off to somebody else to do the patching, which again loses time as an example. And so what I think we are seeing is the opportunity here is having created sort of this end to end. I mean what's interesting is you look at our demo that we did at RSA agent well, Agent well went from finding the vulnerability, validating the exploit, applying a mitigation and then revaluating the exploit that it is fixed in under 15 minutes. I don't know if any CSAM solution can really do that where you get an outcome of something being fixed. And then with ETM, we are focused on the CRQ aspect of it as well, right? Just because the vulnerability and patch count goes up significantly, customers still need to think of this in terms of the business and the budget that they've allocated as how much of a risk to the business do these vulnerabilities carry so that they can make better decisions on prioritization. And that's, again, the other aspect of our ETM solution being integrated now with a cyber insurance company, where if you have a good score on your a good score that demonstrates you are actually doing the right cadence of fixing your vulnerabilities. You can actually get a premium reduction for your cyber insurance, which is a positive thing for your business. And so ETM really has been about taking the businesses modification, the CSAM, the traditional CSAM component but also pairing that with extra validation and remediation giving an end to an outcome. I think what we are seeing now more is the customers who have been interested in this are now feeling like this is the time that they really need to look at this more deeply because of the number of liabilities that are going to come their way. They feel like they're looking at a risk operation center ETM and the ability to maybe some of the resistance that people have had in the past against autonomous remediation or patch management. in the initial conversation that we have had in the last couple of weeks, we're seeing a bit of a change in the way people are thinking about this as given that the threat landscape has changed. So in that sense, it's a positive outcome for us to say that instead of other solutions where somebody else is scanning, somebody else is pulling the data and somebody else is patching the ability to go from detecting, validating, fixing and revalidating under 15 minutes is something that is really desirable. And doing that at -- accuracy is very desirable for our customers. So I think it's more that the platform really was innovated and designed for this. And now we're excited to see sort of these early conversations we are having with customers that are more interested in looking at this now because of the push coming from these front-end models, detecting more vulnerabilities. Jonathan Ho: Excellent. Just 1 quick follow-up. Does Mitas potentially expand the number and types of assets that you would also cover as well as maybe accelerating sort of this adoption of more products on the platform to deal with increased complexity? Sumedh Thakar: Yes. I think these models will be able to find vulnerabilities in any core base, right? And so I think that's where the comprehensive nature of the Qualys sensors, whether it is detecting vulnerabilities on network assets, right, like, let's say, the traditional assets which have agents on laptops and other servers, expanding that into network assets or network-based assets like firewalls and VPN devices or cameras that are on the network or IoT devices. We already covered that. And then of course, we also cover cloud and container security and a lot of these. And so I think what we are going to -- what we are seeing right now is that customer interest in covering as much as possible more natively so that they can get quick scan results and not have to wait for hours to pull these scandals -- if they can do more and more of those natively. So I think given that the threat, whether your server is running on-prem or in a data center or if the server is running as a container in the cloud, the threat from a quick vulnerability exploitation coming your way, is similar the conversations do lead themselves to -- and in a way, the way team is designed, it is designed to pull data from all kinds of different capabilities, whether it's cloud or containers or others. And so there is more willingness from customers to say, today, they are doing dashboard tourism. They have a separate dashboard for cord scanning, a separate dashboard for cloud, a separate dashboard for on-prem separate dashboard for endpoint. If there is a way to operationalize and consolidate all of these different types of assets into more of a unified workflow where agent AI is looking at it and making autonomous decisions by looking at the previous enterprise context and then minimizing and then executing the minimum remediations, that is really where the focus of the customers is. So I think, again, how these conversations proceed will be interesting, but it does lead customers to say I don't have necessarily the time now to go to look at 8 different individual risk management dashboards when it comes to previous bridge management, if there is a way for me to pull different things, normalize all of that and quickly focus on the ones that matter the most and then actually validate with exploits and remediate those. That is the ideal solution. Operator: And our next question is going to come from Rudy Kessinger with D.A. Davidson. Rudy Kessinger: I guess I'm curious just on the ETM sales so far. Are you getting that full $1 uplift on those early sales so far? And then if we think about the 107% net expansion rate with those customers, I feel a little foggy on that you're saying that includes customers who purchased ETM in the past. I guess, does that expansion percentage include the upsell from the purchasing ETM? Or if you could just break down that number a bit further? Joo Mi Kim: Yes. It's a little too early for us to comment on how much of the uplift actually is illustrative dollar uplift is based on more of a list price, the cohort of customers that have subscriptions to ETM is too small today. And so given that, what we decided to do was, the number that we disclosed, 107% that actually includes customers who purchased CSAM or ETM. And so the way that we calculate that number is 1 year ago from today, so Q1 of 2025, which customers had ETM or CSAM subscriptions. We took those customers and then the revenue that they generated in June of 2025. So that would be the denominator, but the same cohort of customers in Q1 of 2026 and looked at the revenue contribution from that group. And so we calculate that percentage, it doesn't just include the ETM or CSAM subscription. It's a total spend spent by those customers. So what we're thinking is our hypothesis is these customers theoretically whether they have CSAM and then eventually later upgrade to ETM because ETM is essentially an upgrade from CSAM or they start to purchase ETM, these Florida customers will help to drive the total net dollar expansion rate eventually because they see the value in it they'll be stickier with us, and then they will -- a higher upsell. So that's part of the reason why we're tracking this metric internally to make sure that. one, we're successfully upgrading CSAM customers to the ETM consumers. And two, is that really generating the type of upsell that we're looking for. Rudy Kessinger: Got it. That's really helpful. I must have misheard it earlier on. And then secondly, how should we what does sales productivity look like? How has that been trending in the last few quarters? And just given the increases in sales and marketing expense outpacing the revenue growth, is there a lot more marketing dollars in there? Or where is that investment going in sales and marketing? Joo Mi Kim: Yes. Majority of the increase in sales and marketing is still driven by headcount. So if you take a look at our headcount growth, it was over 10% for the sales and marketing the ETM side last year. A part of the reason is because we do see a huge upside in the business. And because we are focused on moving the business from direct to indirect, as we work closely with our partners, we have different sales teams, whether it be a sales team focused on direct sales or sales team focused on ETM sales or sales teams that they are really focused on the channel management or relationship there. And so we do anticipate continued growth and continued investment in that team. And so as a result, the productivity is not necessarily the traditional SaaS feel of it, it's not exactly where we think it will be in the future. We're working on it right now. There's room for increase in efficiency. I'm not seeing it there yet, like you pointed out, especially because we do see this is a time for us to invest more versus making sure that we scale that based on the productivity metric that we see today. Operator: And our next question will come from Joseph Gallo with Jefferies. Joseph Gallo: I believe you mentioned that your guidance today reflects NRR kind of stays flat. The ETM NRR is 107% and expected to grow. So how should we think about the potential time line for acceleration of total NRR? And is there any pressures or offsets that we should think through that might keep that number flat over the next couple of quarters? Joo Mi Kim: Yes. Our NRR has been around the 103%, 104% range for the last couple of quarters. And the reason why we're still assuming for the baseline, that to be the case, it's because ETM is still in the early stages. We don't anticipate a significant ramp in terms of the adoption of ETM that will result in the total company and our ROE to be ticking on materially this year. So for this year, our baseline is that taking into consideration the macro factors, geopolitical conditions today, we do see some potential headwinds could be fully offset by the tailwinds that Sumedh had mentioned earlier, with the increase in demand given that our customers are willing to spend more with us increase in cybersecurity risk that we can definitely help to remediate. But with that said, all in all, our guidance assumes baseline case growth more or less in line, definitely from the current billings perspective, revenue, we've increased slightly just because of the beat that we saw in Q1. But overall, nothing has changed from the case that we saw earlier in February. Joseph Gallo: No, that's super helpful. And just as a follow-up. I mean you mentioned kind of geopolitic pensions. I think you made a comment in your opening remarks about closely monitoring the business environment and adjusting priorities accordingly. Is there any way to quantify, I guess, what you're seeing, is that mostly related to the war? Is there anything in terms of customer budgets and they're prioritizing AI spend today and not necessarily cyber. I'm just kind of curious what the actual math was behind some of those comments you made on macro? And if anything has changed over the last 90 days? Joo Mi Kim: Yes. The way we're monitoring the situation is basically stemming from the conversations that we're having from our existing customers as well as new prospects. So when we're discussing potentially coming over to call us as a new customer or increasing their spend with us, whether in quarter cycle or at a quarter cycle. There could be disruptions during that discussion. So as an example, I would say that any announcement from OpenAI or entropic could be a disruption as we're talking through it. It could be a factor. Now that could result in increase in sales from us, but it could increase the sales cycle. And so that's why we're taking a look at the scenario, there will be puts and takes. There will be some gains. There will be some offsetting factors. And that's why we thought that the baseline if you model it , the way we view it today is more or less fall in that range that we had calculated at the beginning of the year. Sumedh Thakar: Yes. So far in terms of budgets, we haven't seen any real changes there from customers or any conversations directly when it comes to cyber, I think it's stayed roughly the same. But as Joo Mi said, just being prudent at sort of what potentially could -- we should look at in the future. Operator: And the next question come from Shrenik Kothari [indiscernible]. Shrenik Kothari: Yes. Thanks -- so in light of the Frontier AI, a cache explosion and now at agent Vail to more broader remediation, you also emphasize the pathways patching which are -- remember, we've been specializing in and talking about in the past. So I know you talked about early customer conversations. Just really appreciate if you would let me point to some anecdote some proof points, how that can -- or it's become a real budgeted sort of operating priorities for customers over and above, typically as the products customers like conceptually, but just what's really changing and anything you can point to and I had a quick follow-up. Sumedh Thakar: Yes. Like I said, I think I gave that example of we had -- we have been having quite a few customer conversations in the last few days, and I had a CEO a very large bank in Canada sort of got on the call and is like to basically look our challenge right now is to get things quickly key scanner right now and how -- who should we partner with for patching. And when I was able to explain to them we already do the eliminate part immediately, he was excited about that so that he would go talk to his board that they're partnering with a solution that is going to help them have the ability as needed to rapidly fix and patch things and not wait for the teams patching solution to take days and weeks to patch things. And so that led to an immediate conversation of starting an immediate POC as an example, right? So again, it's early days. That's an anecdotal example. But we are seeing that pushback or resistance that we had for integrated patching and autonomous patching. In the early conversations is coming with -- like where they are asking, hey, do you have a patchy capability because that's what I need to be able to explain not that I'm finding more and scanning more or I'm taking my scanning and I'm passing it off to some other patching solution, which is taking even longer. So that is an example of a good conversation that we had where our customers quite excited to have the ability to quickly find remediate -- quickly find exploit it verify it, patch it. in a matter of hours and be done so they can show that level of success rather than just finding more things. So that would be an example of just something that happened 2 days ago. Shrenik Kothari: Great. That's super helpful, Sue. And just July, a quick follow-up. Just following up to Joe's question on NRR. And I just wanted to hear your thoughts on what sort of moves the needle for kind of this next leg of growth? I mean it still appears to be guiding off sort of a base case with no real assumed NRR movement, you, of course, have agent Vail and GA, there's better ETM mix, the continued strength in channel, international. So can you help us understand, is it mainly just prudent about the sales cycles as you mentioned, and you still need more proof points on monetization? Or there's also some legacy mix drag, which is playing a role in addition to you accelerating higher value attach or? Joo Mi Kim: Yes. It's based on a historical track record of what we've been able to see. One of the reasons why we thought that this was the best metric that we could share with the investors today is because if you people look at our historical products, whether it be CSAM or otherwise, it does take a bit of time for our newer product to take to our customers. So as an example, CSAM wasn't actually launched in 2021. And if you take a look at the percentage contribution to bookings, ETM plus CSAM, currently make up 11% of bookings on an LTM basis. So you can understand that looking at the CSAM conversion or upgrade to ETF will likely take some time since ETM just went live, and it's been in GA for a little over a year. So given that, we're assuming that this will take time for more of our customers to adopt ETM, and that will translate to increase in spend that's meaningful enough for the total revenue growth. Operator: And the next question will come from Brian Essex with JPMorgan. Brian Essex: I guess maybe one for you, Sumedh, on the back of the increased capabilities of foundation models in the security space, and thinking about where you're seeing vulnerabilities across the spectrum where you have operating systems, infrastructure, both package as well as custom applications and then OT environments. The spectrum of flexibility, if you will, across those different types of areas is -- can be materially -- particularly for hardware, some of it can't be patch it might have to be replaced, custom apps that have to be maybe need to be refactored. From your experience and what you're seeing from the foundation model companies, where is their expertise best placed for vulnerability discovery and potential exploitation? And how does that change the risk profile of your customers and how they may utilize your platform to mitigate those risks? Sumedh Thakar: Yes. Great question. I think helping software developers find more vulnerabilities in their code is definitely one of the key things there that these models bring and which will definitely lead to more disclosure. But in theory, right, you could say that, well, if all software developers are able to find these vulnerabilities using the models, then you kind of don't necessarily have a 0-day problem because all these software developers who find them the code themselves before the attackers do and they will create patches, right? And then customers just have to focus on applying those patches. I think the other capability, the frontier models are doing well is the ability to change low-level vulnerability exploits that maybe have a lower CVSS score and the customer might not have fixed those in the past because their score was low, but being able to chain a few of those to create an exploit. And that's where the advantage of the TruRisk platform is very solid because our true risk scoring, and we have demonstrated this multiple times that we are actually scoring low-level CVS vulnerabilities as very high, about 40 days before they get added into CSAM as an example. So having the customers have that intelligence that we are bringing and to the environment to say, look, this is a low-level vulnerability, but it is prone to be used in an attack and making sure that, that is mitigated becomes important. Now the third piece of what you mentioned is, I think it's perfectly fine to say that I'm not going to patch this because my risk is low. And that's a very individual organization level conversation that needs to happen, which, again, with ETM in the tourist platform, we are helping customers understand the context in their environment, understand the exploitability and make the determination that maybe it's perfectly valid to say we're not going to pass this because we have mitigating controls in place. And that's where we were, again, ahead of the curve when a couple of years ago, we introduced the concept of patch list patching is the ability to deploy mitigations for some of these environments where, yes, you cannot necessarily patch an OT asset immediately like you would normally do, but maybe -- or even the regular assets with operating systems and packages but providing them a way to say, look, I think if you just delete this old DLL, which our agent can do for you. Deleting a DLL or making a change to a registry key or something simple like that can actually prevent exploit from running in that particular environment. And so that is the third piece of it, which is perfectly valid with ETM to say a lot less than 1% of the vulnerabilities that are actually exploitable in your environment. And then these are the ones we don't need to fix because we validate it, they're not exportable, but then to also be able to say we actually have a way to mitigate this with a compensating control without deploying a patch makes it very interesting. In fact, one of the popular ones with our customers is we provide them the ability to see that the package that has the vulnerability is actually not being used on an asset for the last 18 months. So on installed is actually a better option than trying to patch it. So it's -- that's why I call it the eliminated buffet, which gives customers multiple different choices because that's the goal is not a patch. The goal is to remediate and eliminate the risk. That's why the TruRisk eliminate with prioritization validation becomes so important. Brian Essex: Great. That's super helpful. And maybe if I could squeeze one in for Joo Mi on Q-Flex. It sounds like that the program is targeted at large enterprise customers are already spending a meaningful amount on the platform. But are you -- is there any potential for existing customers who may be ripe for migration to ETM where you could actually accelerate that migration by offering them Q-Flex as well? Joo Mi Kim: There is. And so we are working with customers today. So we are working with a solid group of customers to -- so that they have an option of adopting Q-Flex today. And so it's not stopping. It's just that we are planning to go broadly GA with it by the end of the year. So we think that there is definitely a potential where that could help us to drive growth. Sumedh Thakar: And we do have those conversations with customers who are looking to do ATM. We start the conversation with Q-Flex, which is well received, especially given this environment where so many new capabilities are coming, things are changing fast and they need the flexibility, even if you're not the largest enterprise you still need the flexibility to be able to move things around pretty quickly. And in fact, enterprises that don't necessarily have a cyber budget that is the size of the GDP for a small country actually have the most value in many times from being able to do these kind of automations and say like, I don't need to fix all these things because I've validated they're not relevant in my environment, no matter what different your model says. Brian Essex: Right. Makes a lot of sense. Operator: This is all the time that we have for questions. We want to thank you for your participation. This will conclude today's conference call, and have a good evening.
Jennifer K. Beeman: Good morning and welcome to Metallus Inc.'s first quarter 2026 conference call. I am Jennifer K. Beeman, Director of Communications and Investor Relations for Metallus Inc. Joining me today are Michael S. Williams, chief executive officer; Kristopher R. Westbrooks, president and chief operating officer; John M. Zaranec, executive vice president and chief financial officer; and Kevin Rakovich, executive vice president and chief commercial officer. You should have received a copy of our press release, which was issued last night. During today's conference call, we may make forward-looking statements as defined by the SEC. Our actual results may differ materially from those projected or implied due to a variety of factors, which we described in greater detail in yesterday's release. Please refer to our SEC filings, including our most recent Form 10-Q which will be filed later today, as well as the risk factors included in our earnings release, all of which are available on the Metallus Inc. website. Where non-GAAP financial information is referenced, additional details and reconciliations to its GAAP equivalent are included in the earnings release and the earnings presentation available on the Investor page at metallus.com. With that, I would like to turn the call over to Mike. Mike? Michael S. Williams: Good morning, and thank you for joining us today. I am encouraged by our team's continued focus on operational priorities, which strengthened our performance in the first quarter. Demand continues to improve across our end markets and our order book grew year over year supported by overall industrial and defense demand, decreasing distribution inventory levels, and onshoring. Section 232 tariffs continue to support our competitive position in the markets we serve. The April 2026 updates to these tariffs applied only to downstream steel-containing derivative products and do not affect our products, which are classified as primary steel. Most importantly, the 50% tariff on imported primary steel, including all long bar and tube products, remains in place, reinforcing the long-term competitiveness of U.S.-produced steel. The capital investments and operational system improvements we implemented during the planned shutdown period in the fourth quarter contributed to higher melt utilization on both a sequential and year-over-year basis. Our strategic operational advancements achieved critical milestones during the quarter, highlighted by the safe and successful reheating and rolling of the first blooms from our new bloom reheating furnace. This achievement reflects the dedicated efforts of our internal teams and the support of the Department of War. As a reminder, the new bloom reheat and roller furnaces facilitate more consistent reheating, improve product quality, and more efficient throughput. In fact, the bloom reheat furnace has recently demonstrated a run rate of approximately 150 tons per hour compared with approximately 100 tons per hour using our legacy assets, along with significant improvements in temperature uniformity. These modern and efficient assets position us to better serve growing customer demand across all end markets, and we anticipate they will also improve our operating leverage over time. We expect the bloom reheat furnace to be fully operational in early to mid-third quarter and the roller furnace to be fully operational in late third quarter. We also continue to make meaningful progress in strengthening our operating systems, reinforcing consistent, efficient execution across the organization. These institutionalized systems help our teams identify issues faster and drive greater accountability. During the quarter, we expanded this framework into additional areas focused on reliability and throughput. Safety remains a foundational priority for us and a critical factor in our long-term success. As always, we focus on eliminating serious injuries through stronger controls, training, and leadership accountability. Our health and safety management system continues to mature with stronger proactive reporting, increased near-miss identification, and targeted capability building in higher risk activities such as cranes, rigging, lockout/tagout, and machine guarding. This shift towards leading indicators and disciplined risk management reduces variability, lowers long-term cost, and protects our most important asset, our people. Turning to our first quarter performance, shipments increased by 11% sequentially. Adjusted EBITDA for the quarter totaled $24.6 million, reflecting a 39% increase compared to the prior year's first quarter. Again, this strong improvement underscores our disciplined execution against key priorities and operational improvements. Lead times continue to expand, now reaching into the late third quarter for both VARs and seamless mechanical tubing. This reflects strengthening demand for domestic steel and provides a clear signal of the momentum we expect to carry throughout 2026. Turning to performance across our key end markets, we are seeing industrial customers take a more deliberate look at how and where they source steel as they navigate a challenging macro environment. Shifts in trade policy and the reassessing of supply chains are driving increased demand with domestic suppliers. With inventories low across the distribution channels and select products returning from offshore sourcing, we are seeing increased opportunities. We believe these dynamics position us well to strengthen new and existing customer relationships and continue gaining share as industrial markets stabilize. Automotive demand remains steady, with volumes up slightly compared to the prior year. Our automotive order book and key customer relationships remain strong, supported by our continued focus on light truck and SUV transmission programs and our success in winning new and emerging platforms. For example, during the quarter, we won two additional programs with existing customers, reinforcing our confidence in the strength of the automotive markets we serve and the importance of our automotive customers to our base business. The energy markets we serve remain cautious, as producers continue to seek greater confidence in long-term oil prices before materially increasing investment. Ongoing global conflicts and geopolitical uncertainty are contributing to volatility in energy markets. But favorable trade-related tailwinds, reduced imports, and a gradual increase in domestic oil and gas activity are creating incremental opportunities for Metallus Inc. Turning to aerospace and defense, this market continued to be a key source of strength during the quarter. Due to confidentiality, it is always difficult for us to call out new defense programs by name, but what I can say is that we were recently awarded an exciting contract with a new entrant in the defense supply chain to begin producing tubing for new rocket motors related to advanced weapon systems. Demand across defense programs continues to grow, supporting our near-term $250 million run-rate revenue expectation and the longer-term strategic expansion in the market, allowing us to provide our expertise to existing and new customers in these critical applications. While defense shipment timing can vary quarter to quarter based on program needs and downstream supply chains outside of our control, the underlying fundamentals remain strong in the foreseeable future. We continue to advance targeted investments and operational improvements to support higher defense volumes. Metallus Inc. is well positioned to benefit from growing defense spending and the continued focus on developing secure domestic supply chains. Overall, we remain focused on disciplined execution in 2026. During the quarter, we improved operational performance, strengthened our internal systems, and safely advanced strategic investments that support our long-term objectives. Our growing order book, improving operational execution, and U.S.-based manufacturing footprint provide a solid foundation as we move forward. We will continue to prioritize safety, operational discipline, and prudent capital allocation as we work to deliver consistent performance and long-term value for shareholders. With that, I will turn the call over to John to walk through our financial results in more detail. John M. Zaranec: Thanks, Mike. Good morning, and thank you for joining our first quarter 2026 earnings call. During the quarter, our team delivered improvements in shipments, net sales, and profitability on both a sequential and year-over-year basis, consistent with our expectations. As Mike noted, we also safely advanced operational and strategic investments to support near- and long-term business growth while maintaining a strong balance sheet. From a top-line revenue perspective, first quarter net sales totaled $308.3 million, a year-over-year increase of $27.8 million or 10%, primarily driven by higher shipments across most end markets. Net income was $5.4 million in the first quarter, or $0.13 per diluted share. On an adjusted basis, net income was $7.7 million, or $0.18 per diluted share in the quarter. Adjusted EBITDA was $24.6 million in the first quarter, a year-over-year increase of $6.9 million or 39%. The increased profitability was primarily driven by higher shipments across most end markets, better price/mix, higher raw material spread, and better fixed cost leverage on higher production volume, slightly offset by an increase in utility cost and a partial quarter of the cost increase related to the ratified union contract. As a reminder, our previous favorable electricity contract expired in May 2025, so the first quarter of 2025 included a full quarter of lower energy costs. As we noted in February, we expected a usage of free cash flow during the first quarter, which is consistent with historical seasonality as the first quarter normally requires a larger amount of pension funding and working capital build. Additionally, this year, our CapEx spend to complete the government projects is the highest in Q1 and is expected to ramp down throughout 2026. In the first quarter, capital expenditures totaled $24.7 million, including approximately $18.3 million of first quarter CapEx partially funded by the U.S. government. Planned capital expenditures for the full year 2026 are expected to be approximately $70 million, inclusive of approximately $35 million of capital expenditures primarily funded by the U.S. government. At the end of the first quarter, the company's cash and cash equivalents balance was $104 million. As it relates to government funding, during the first quarter the company received $5.9 million of cash funding from the government, with an additional $9.5 million received during the month of April based on our successful completion of key milestones. As a reminder, these funds are part of the previously announced nearly $100 million funding agreement in support of the U.S. Army's mission of increasing munitions production. Additional government funding of approximately $2 million is expected to be received in 2026 to complete the government funding arrangements, contingent on the achievement of the final mutually agreed-upon milestone. As a reminder, this funding substantially paid for both the new bloom reheat furnace at the company's Faircrest facility as well as the new roller furnace at the Gambrinus facility. Now switching to pensions, in the first quarter the company made $19.8 million of required pension contributions, of which the majority related to the U.S. bargaining plan and reflects roughly two-thirds of the expected full year 2026 pension contributions. Subsequent to the first quarter, the company made a required pension contribution of approximately $5 million in April, with an estimated $5 million of required pension contributions expected for the remainder of 2026. Consistent with our expectations in February, total 2026 required pension contributions are expected to decrease by nearly 60% compared to 2025. As part of the USW contract ratified during the first quarter, employees who are currently accruing a pension benefit will have a one-time opportunity between March 30 and May 30 to freeze their pension accrual and begin receiving a market competitive benefit under the 401(k) plan. These actions will allow employees access to their retirement funds earlier while also providing competitive defined contribution benefits and derisking the long-term pension obligation. As we continue to actively manage the pension, we will provide further updates as available. In terms of shareholder return activities, in the first quarter the company repurchased approximately 277 thousand shares of common stock at a cost of $4.3 million. At the end of March, a balance of $85.4 million remained under our existing share repurchase authorization. Since the inception of common share repurchases in early 2022, combined with the convertible note repurchase activities, we have reduced diluted shares outstanding by a significant 26%, or 13.8 million shares. These actions reflect the strength of the company's balance sheet and confidence in through-cycle cash flow generation. As it relates to liquidity, total liquidity remains strong at $375 million as of 03/31/2026. Additionally, as of 03/31/2026, the company had no outstanding borrowings. Moving now to near-term business outlook, commercially, second quarter shipments are sequentially expected to increase modestly in the low single digits on a percentage basis, supported by continued strength in the order book and normal seasonality. Through the first four months of 2026, we announced a series of targeted price actions across our bar and tube portfolios. In bar, we implemented two actions totaling $120 per ton, phased in based on customer promise dates. In tube, pricing actions were differentiated by size and product types, averaging about $100 per ton across the product mix. As a reminder, these pricing actions apply only to business not sold under annual price agreements and to new business, which historically represents approximately 30% of our total annual volume. We expect price realization to be gradual, with greater impact toward the second half of the year, based on lead times and product mix dependent. Second quarter price and mix are expected to be similar to the first quarter, with improvement anticipated in the second half of 2026. From an operational perspective, the company anticipates a sequential increase in its second quarter average melt utilization rate, supported by a strong order book. Manufacturing costs are expected to improve sequentially by approximately $2 million in the second quarter, as a result of higher melt utilization resulting in improved cost absorption, and net of the full-quarter run-rate cost increase related to the ratified union contract. And finally, an adjusted effective income tax rate between 27–30% is expected for the full year 2026. Given these elements, the company expects second quarter 2026 adjusted EBITDA to be modestly higher sequentially and year over year. To wrap up, thank you to all of our employees, customers, and suppliers for their support. We are well positioned as a high-quality, U.S.-based specialty metals producer supporting critical markets. As we continue to move forward in 2026, our focus is on safe execution to meet continued rising customer demand. We remain committed to delivering shareholder value through disciplined capital allocation and sustained profitable growth. As always, thank you for your interest in Metallus Inc. We will now open the call for questions. Operator: To ask a question, simply press 1 on your telephone keypad. Again, that is 1 to ask. Our first question is from the line of John Edward Franzreb with Sidoti. Please go ahead. John Edward Franzreb: Good morning, everyone, and thanks for taking the questions. I would actually like to start with the recent results reported. You touched on it in your prepared remarks about it typically being a working capital outflow quarter, but I was just curious about the sizable rise in inventory. Is that illustrative of any particular end market demand, or are you building inventory for any particular reason? I am just curious about that. Got it. That is good to hear. Sequentially, you are suggesting that revenue is going to be up in the low single-digit range. I am kind of curious, does that suggest maybe one of your key end markets is a little bit slower than you would have thought, say, three months ago, especially considering the visibility you have in A&D? And one last question and I will get back into queue. Regarding the operational improvement of $2 million, I just want to make sure I understand that properly. Is that improvement above the increased cost from the new union contract, or does it net out the increased cost? So it is a net positive of $2 million off the wages. I just want to make sure I understand. Great. Alright. Thank you. I will get back into queue. Michael S. Williams: Yeah, so hey, John, how are you doing? Pretty much, you know, we build inventory in Q1 based on the order book demand going into Q2, and with our lead times out to mid- depending on product, to late Q3, we can see. So we are positioning inventory to service our customers. And we continue to see higher demands. As we mentioned, year over year the order book is over 40% greater, which, if you did a year-over-year comparison, is about 90 thousand more tons in our order book than we had this time last year. So we are positioning the inventory to meet the order demand that we have. I mean, I do not see anything slower. It is just the timing of when the orders are requested and when we need to ship them on time, aligned with our throughput capability. Yeah, it is net of the increased labor cost with the new labor agreement. John M. Zaranec: Yes, that is an all-in increase that is offset, yeah, that is offsetting the wages. Correct. Correct. Operator: Your next question is from Samuel McKinney with KeyBanc Capital Markets. Please go ahead. Samuel McKinney: Hey, good morning. Your first quarter auto shipments were up slightly year on year despite the negative SAR comp. Could you just give us a little more color on your ability to outpace that figure and what you are hearing from the SUV and heavy truck customers moving into the summer? And I just want to turn to A&D and the Army investment. Given other commentary during this earnings cycle, it appears that the Army's munitions partner does not plan to begin production at the facility until sometime during 2027. How does that impact the timing for you to hit your previously stated goal of $250 million in annualized A&D sales this year? Okay. So is there any change to the outlook of hitting $250 million in A&D sales this year? Right. Sure. Alright. Thanks, Mike and John. Michael S. Williams: Yeah, I mean, those are predominantly the platforms that we are on, and those are the platforms that are driving the demand where we have seen year-over-year order increases. So we expect that to be fairly stable at this point throughout the year, with some typical seasonality towards the end of the year. It is all about the platforms that we are on and the pull rate that they are requesting for their build rates of the powertrain and transmission programs that we are on. I mean, it definitely has an overall impact of them getting to the 100 thousand shells per month production, which then, of course, affects us. But what we are seeing is we have seen them ramp up their other facilities, as well as we have seen some non-U.S. demand—most of it is still in North America, just not in the U.S.—and then the offshore inquiries and orders that we are getting. So it affects it, but then we are working diligently to offset that with other weapon system applications. We mentioned the one new program we just got; it will most likely ramp up to its full demand in 2027, but it will ramp up throughout the year this year, and really hit the peak cycles in 2027 and 2028. But we continue to work hard to get other programs to kind of offset the original planning process with the new facility coming online for the particular 155 millimeter munitions. As I said earlier, we are seeing increased demand from existing facilities because they are really trying to ramp it up. If you look at the math, and we kind of calculate it based on what we sell in those particular grades, they are operating around 70 thousand shells a month right now toward their 100 thousand target, but that is up from 50 thousand six months ago. So we do anticipate, as they continue to push these other facilities to improve their throughput capacity, that that will continue to modestly increase throughout the year. And then, depending on timing when that other facility gets up and running, it is a win-win for us. No, we still have that expectation, as we said in our comments. There is some variability that we are working towards in the second half to fill some gaps, because we were anticipating some type of ramp-up out of the one facility that still is being worked on to get it up and operational. But we are still confident that we are going to hit that expectation. At least that we strive for higher, as you can imagine, internally. But right now, we are confident that we will meet that expectation. John M. Zaranec: That is a run-rate expectation. I mean, some of this is a little bit lumpy due to supply chain and order timing, but as we talked about last year, that $250 million is a run rate that we expect to achieve in the year. Operator: Your next question comes from the line of David Joseph Storms with Stonegate. Please go ahead. Dave, your line is open. David Joseph Storms: Is that better? Just wanted to start with getting your thoughts around lead times. I know you mentioned they go to the third quarter. With the ramping of the bloom reheat furnace, could this maybe be the high watermark and maybe lead times might start to come down throughout the year, or does the order book indicate that they might continue to increase? Understood. Appreciate that. And then just also looking at the order book, a lot of strength there. Are you seeing more of the growth coming from price or maybe more from mix, or is it volume that is expected to drive that? Just any commentary on maybe some of the profile of the order book. Understood. Thank you for taking my questions. Michael S. Williams: Right now, everything we can see—here we sit in early May—is the fact that we expect demand to continue to be really good. Now, we do expect that the seasonality that occurs in the fourth quarter is going to be there—our maintenance outage, etc. But right now, what we see, we are halfway through the third quarter, so orders continue to come in at a pretty good rate per week, and we expect that to continue. We just have to focus on our execution and serve our customers. I mean, overall, it is volume, okay? But our team does a pretty good job trying to manage and maximize the highest return value creation in mix as we can. The area we see—automotive continues to be steady. We continue to expect growth in A&D. And we expect energy—we have seen positive improvement in energy because of the trade environment and what we would call reshoring, but it is really domestic sourcing of supply. So we expect that to potentially continue to modestly grow. As you can imagine, there is a lot of volatility with all the uncertainty, the global conflict, etc., affecting the energy market, so we have to watch that very closely and align with our customers the best way we can. I think the biggest area of opportunity we see the remainder of this year is really steady growth in the industrial end markets. Operator: Our next question is from the line of Analyst with Northcoast Research. Please go ahead. Analyst: Thanks for taking my question here. One of the questions I really have is, you mentioned that your old energy contract was expiring and you have a new one. I was wondering if you could give us any more insights into the terms around that, and is that something that is typically paid on spot, or are those longer-term contracts? That is helpful. Thank you. And the other question I had is about the new tariffs that went into place on May 1 for automotive. Do you expect that to have a meaningful impact on automotive demand? I know it is typically not what we are importing from Europe. Is it a real lot of overlap with what you are applying to? I just was not sure in the past how that impacted you, and does that give any insights on what the market might look like here going forward? Super helpful. Thank you. I will turn it back over. Michael S. Williams: Okay. So we did have a long-term contract that expired at the end of last May. The contracts that we currently operate on: 70% of our electrical demand is fixed under a two-year agreement—we actually just began the second six months of year one—that will exist for two years. The other 30% is spot purchased. Well, we are heavily influenced based on build rates and platforms. Predominantly, most of our steel applications go into powertrains, particularly transmissions. Kristopher R. Westbrooks: Crankshafts, etcetera. Michael S. Williams: And we have heavily focused on SUVs and trucks, and those are the vehicles that are selling. That is why we are seeing good steady demand all last year throughout the volatility of the market, regardless of imports. And this year, we see the same thing with incremental improvement. What we are seeing is the move away from the high expected volume of EVs and more hybrid demand, which is good for us because it has a combustion engine and has a transmission, as well as electric motors. So that is the move we have seen. And I think it still plays well for us because we can play in all three of those platforms—ICE, hybrid, or EV. So I think we are in a good spot. Our team has done a pretty decent job of going after the right applications where, typically, the consumer price effect is not as influenced based on price movements, because these tend to all be high-end vehicles. Operator: I will now hand the call back over to Metallus Inc. as we have no further questions in queue. Great. Thank you so much, and that concludes our call for today. Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen. Welcome to Workiva's Q1 2026 Earnings Call. My name is Darcy and I will be your host operator on this call. [Operator Instructions] Please note that this call is being recorded on May 5, 2026 at 5:00 p.m. Eastern Time. I would now like to turn this meeting over to your host for today's call, Katie White, Senior Director of Investor Relations at Workiva. Please go ahead. Katie White: Good afternoon, and thank you for joining Workiva's Q1 2026 Conference Call. During today's call, we will review our first quarter 2026 results and discuss our guidance for the second quarter and full year 2026. Today's call will include comments from our Chief Executive Officer, Julie Iskow, followed by our Chief Financial Officer, Barbara Larson. We will then open up the call for a Q&A session. After market closed today, we issued a press release, which is available on our Investor Relations website, along with our quarterly investor presentation. This conference call is being webcast live, and following the call, an audio replay will be available on our website. During today's call, we will be making forward-looking statements regarding future events and financial performance, including guidance for the second quarter and full fiscal year 2026. These forward-looking statements are based on our assumptions as to the macroeconomic, political and regulatory environment as of today, reflect the management's current expectations and belief based on factors currently known to us and are subject to significant risks and uncertainties. Workiva cautions that these forward-looking statements are not guarantees of future performance. We undertake no obligation to update or revise these statements. If the call is reviewed after today, the information presented during this call may not contain current or accurate information. Please refer to the company's annual report on Form 10-K and subsequent filings with the SEC for factors that may cause our actual results to differ materially from those contained in our forward-looking statements. Also during the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations of GAAP and non-GAAP measures are included in today's press release. With that, we'll begin by turning the call over to Workiva's CEO, Julie Iskow. Julie Iskow: Thank you, Katie, and thank you all for joining us today. Q1 2026 delivered another quarter of continued demand for our trusted platform. Our 2 dozen purpose-built solutions are continuing to resonate with our customers. We beat the high end of our revenue guidance with 21% growth in subscription revenue and 20% growth in total revenue. We also continued to deliver on profitable growth, with Q1 2026 non-GAAP operating margin greater than 18%. This was a 240 basis point beat on the high end of our guide and it was a 1,600 basis point improvement compared to Q1 of last year. Our Q1 momentum reflects broad-based durable demand across our platform. In a market where organizations must navigate evolving regulations and complex data ecosystems, the office of the CFO relies on Workiva as their platform of trust. We provide the accuracy, accountability and assurance that they need, ensuring that every number and every narrative is traceable with full lineage. Customers are increasingly standardizing on the Workiva platform. This is showcased by the continued strength in our large contract cohorts. In Q1, the number of contracts with an annual value of over $300,000 increased 38% and contracts valued over $500,000 increased 39%, all compared to Q1 of 2025. The growth in each of these categories was driven by both additional solution sales within our existing customer base and the landing of larger new logos. Let's look at a few specific examples from Q1 that demonstrate how our platform is winning in the market. We're helping our customers solve their most complex data and reporting challenges with solutions across multiple categories. First, a European networking and communications company landed as a new platform customer with a mid-6-figure deal for 3 solutions. The deal included our ESEF, SEC and sustainability offerings. As a dual-listed company on the NASDAQ in both the U.S. and Europe, this company invested in the Workiva platform to replace their point solutions and manual processes. The investment in the Workiva platform will transform their financial reporting, regulatory filings and collaboration activities, ensuring compliance with ESEF, SEC and sustainability standards. The deal was a co-sell and will be delivered by a Big 4 partner. Second, a large European financial services provider landed as a new customer with a mid-6-figure deal for 4 solutions. The solutions included ESEF reporting, multi-entity reporting and bank regulatory reporting as well as sustainability. The institution is in the process of an ERP transformation and is required to comply with the CSRD. Workiva was the only platform evaluated to address the specifics of financial, sustainability and bank regulatory reporting in a single platform. The deal was sourced and will be delivered by a Big 4 firm. Third, a multinational bank and financial services company signed a mid-6-figure expansion deal for 3 solutions, including multi-entity reporting, policy management and Pillar 3. One of the drivers of this deal was the evolving requirements of Pillar 3 reporting. Pillar 3 is the Basel regulatory framework requiring international banks to publicly disclose detailed information on their risk exposure, their capital adequacy and their risk management practices to enhance market discipline. With the recent changes to Pillar 3, disclosures are no longer static reports. They now need to be delivered as regulatory data sets. This company became a new customer in Q3 of 2025, making a 3-solution purchase on their initial deal. This Q1 expansion was a co-sell and will be delivered by a Big 4 partner. I'll move on now to financial reporting. Demand for these solutions continues to build as companies modernize increasingly complex global operating models and move away from legacy manual workflows. Now as companies transform these processes, they're also keeping a close eye on the evolving regulatory landscape. I want to briefly address a financial reporting topic that received a lot of attention this quarter. It's the SEC's consideration of a proposal that would let companies opt for semiannual rather than quarterly reporting. Any change of this kind would introduce new decisions for both issuers and investors. Most companies we've spoken to expect to continue reporting quarterly, reflecting ongoing investor and stakeholder demand for timely, decision-useful financial information. As far as any potential impact to Workiva, a change in filing cadence would not alter our value proposition. The value of our platform extends well beyond the filing itself. For the office of the CFO, Workiva provides a trusted data foundation that helps teams remain report-ready and audit ready at any point in any quarter. CFOs need continuous access to accurate, traceable and defensible information to serve internal stakeholders, lenders, business partners, regulators and investors. Simply put, Workiva's value is not dictated by how often a company files, it's tied to giving CFOs absolute confidence in their data every day of the quarter. It's this foundation of trust that enables us to win both new logos and account expansion deals across our financial reporting portfolio. Let me highlight a few of our Q1 wins in this area. First, a global delivery and logistics leader purchased a mid-6-figure account expansion deal for multi-entity reporting. The business driver of this platform expansion for this 14-year loyal customer is to transform the processes of reporting across the company's more than 250 legal entities. This was a competitive deal to replace a legacy software provider. The deal was a co-sell and will be delivered by a Big 4 partner. Second, a U.K.-based AI-native cybersecurity company landed as a new customer with a multi 6-figure deal for 3 solutions: private company financial reporting, multi-entity reporting and management reporting. The primary driver for this purchase was enhancing their internal financial reporting processes and displacing legacy manual workflows. The deal underscores our growing traction among the world's most technologically sophisticated software and cybersecurity companies. The deal was sourced and will be delivered by a Big 4 partner. Third, a European-based global health care leader signed a mid-6-figure account expansion deal for multi-entity reporting. This 5-year loyal SEC customer had just invested in a multi 6-figure GRC deal back in Q4 of 2025. The primary driver for this multi-entity reporting investment was a financial transformation driven by a large-scale SAP S/4HANA initiative. As part of this larger project, Workiva will displace a legacy on-prem tax and reporting solution. As the customer transforms processes across the organization, they will deploy Workiva to support the global rollout of their multi-entity reporting. This deal was a co-sell and will be implemented by a Big 4 partner. We also continue to see strong momentum with our governance, risk and compliance solutions as companies seek to replace legacy systems and consolidate risk management on a single unified platform. Let me share a few Q1 GRC deal highlights. First, one of the largest financial services institutions in the U.S. expanded their investment in Workiva with a mid-6-figure deal for controls management. This new investment will support 5 key GRC use cases: internal controls over financial reporting, finance data governance controls, business process controls, sustainability controls and resolution and recovery plan controls. The primary drivers for this engagement were changes to banking regulations and a strategic initiative to better manage risk. This was a competitive win that displaced multiple incumbent solutions. The deal was a co-sell and will be implemented by a regional advisory firm. Second, a regionally prominent community bank in the United States landed as a new customer with a mid-6-figure deal for 5 solutions. The solutions included audit management, policies management, controls management, compliance management and SEC reporting. The primary driver for this engagement was a GRC transformation project to standardize GRC processes on a single platform. This was a highly competitive win over a crowded field of legacy point solutions. The deal was sourced and will be implemented by a regional advisory firm. Third, we closed a multi 6-figure account expansion deal with the U.S. state government. Already a financial reporting customer, this organization expanded its footprint by adding 4 GRC solutions: controls, operational risk, policies and procedures and compliance. The primary driver for this expansion was the need to optimize their current risk and compliance processes. Leveraging Workiva's platform and technology is enabling them to accomplish more with a leaner team. This deal was a co-sell and will be delivered by a regional partner. Moving now to sustainability. We're seeing this market shift from a voluntary practice to a more formal business requirement. Regulations are taking shape across major markets. Deadlines are firming up and companies are building out the necessary processes to meet them. The bar for these disclosures is rising as well. Regulators and investors are increasingly expecting the same level of rigor that's applied to financial data, applied to nonfinancial or sustainability data. And this is pushing accountability into the office of the CFO. To meet these high stakes, customers are increasingly moving away from isolated point solutions and choosing unified platforms. Workiva provides the single system of record that links financial and nonfinancial data together. And this gives CFOs the full lineage, traceability and audit readiness that's required for them to stand behind their disclosures with confidence. Let me highlight a few sustainability deals from Q1. First, one of the world's largest chemical companies signed a multi 6-figure account expansion deal, adding our sustainability advanced and CSRD solutions to their existing platform relationship. Their existing solutions included SEC reporting, audit management and multi-entity reporting. The primary driver for this expansion was the need to comply with the emerging CSRD requirements. This was a competitive win over a point solution and reflects the growing need for integrated sustainability management at multinational organizations as they navigate the evolving European regulatory landscape. The deal was a co-sell and will be implemented by a Big 4 partner. Second, one of the world's leading global biotech companies signed a multi 6-figure account expansion deal, upgrading to sustainability advanced and adding sustainability for multi-entity access and the CSRD. The primary driver of this expansion was the need to comply with emerging CSRD requirements. The customer will leverage Workiva to manage their corporate and entity-level sustainability disclosure across multiple international frameworks, including the Australian Sustainability Reporting Standards. The deal was a co-sell and will be implemented by a global systems integrator. To conclude our solutions section, let's briefly touch on the capital markets landscape. We were encouraged to see the IPO market reaccelerate in Q1. We supported several IPOs in the quarter and saw consistent demand for our capital market solution as more companies prepare to go public. We believe there is a healthy backlog of companies waiting for the right conditions, and we're ready to support them on our platform through their private to public journey and well beyond. A compelling example is one of the most widely watched potential debuts in market history, a company whose valuation, distinct business lines and cultural footprint make it unlike anything the IPO market has ever seen. This company more than doubled its spend with us with a mid-6-figure expansion deal for multiple solutions, including capital markets, SEC advanced, multi-entity reporting and controls management. The company signed on as a new customer more than a year ago with their initial investment in the Workiva platform. As part of this deal, this company plans to replace multiple point solutions as it transforms and standardizes its financial reporting and financial controls processes on the Workiva platform. This deal highlights Workiva's unmatched value proposition for companies on a private to public journey, and it underscores our platform's ability to serve some of the world's most complex organizations. The deal was a co-sell and will be delivered by a Big 4 partner. I'll turn now to product innovation. Workiva is in the midst of a fundamental transformation with AI, transformation of our platform, our solutions and what we deliver to the market. Our AI strategy is outcome-driven and customer-focused, deploy AI natively across mission-critical processes that define the office of the CFO backed by purpose-built solutions and deep domain expertise that turn AI capability into measurable results. Because in the office of the CFO, the tolerance for error is 0. And as reliance on AI increases and there's more unverified data and there are more unverified data sources, trust in data becomes even more critical. And our customers, CFOs, finance leaders and audit and risk teams need to be audit-ready. And they need to be able to explain and defend any number at any point at any time. This is why our platform remains differentiated. This is our core. This is our moat. This is our advantage. To solidify and build on this advantage, we're accelerating our innovation with AI across the platform. Here's what we've recently delivered to turn that advantage into customer value. First, for GRC, we launched the Workiva Flowchart Visualizer and enhanced GRC intelligence agents. The Flowchart Visualizer automatically turns process narratives into audit-ready visual diagrams, mapping risks and controls to each step and surfacing gaps in documentation. The GRC agents enable our customers to spot patterns across issues to uncover systemic risks before they escalate into material events, to surface top themes and trends to inform faster, more confident risk decisions and to track engagement for ongoing assessments and remediation. Second, for sustainability, we released an AI agent for use with the IFRS sustainability disclosure standards. This agent is designed to summarize disclosure requirements in plain language summaries, identify disclosures related to existing data or content and generate first drafts of and iterate on narrative responses based on collected values. And third, an example of the many innovations in financial reporting is the launch of the internal tie-out agents. These are purpose-built for one of the most time-pressured tasks in the office of the CFO. These agents automate data consistency checks across financial documents and associated schedules. They flag inconsistencies and variances instantly before they reach reviewers, management or auditors, and they go beyond notifications. These agents help you review and resolve each issue with full document context, line item links and targeted alerts. This is the foundation of our agentic approach. Every human or agent action logged automatically, every workflow audit-ready by design and at enterprise scale with security built in. As AI reshapes how the office of the CFO operates, Workiva will be the foundation that organizations rely on, not because we're adapted to the moment, but because we were built for it. Our commitment to speed, innovation and transformation doesn't stop with our customers, it extends directly into our own operations. As we noted at the close of last year, we entered 2026 as a stronger, more disciplined and more agile company. We remain deeply committed to our dual focus, both growth and profitability, demonstrating our ability to drive meaningful operating leverage while maintaining durable top line growth. Our Q1 operating margin is a direct reflection of our focus on operational rigor. The 1,600 basis point margin improvement is the direct result of deliberate operational discipline executed across every function of the business. We've made progress on restructuring for efficiency, aligning our teams around our highest leverage market opportunities and embedding AI and automation into workflows that previously required manual effort at scale. Six months ago, Michael Pinto joined Workiva to reshape how we go to market. That work is underway. He's building a leaner, sharper sales organization that's designed to carry us well beyond $1 billion in revenue. This means raising the bar on seller performance and pairing deep industry knowledge with experienced leaders who've scaled businesses like ours. With a tighter focus on our multi-solution platform and more intentional decisions about where we compete and how we partner, we're developing a go-to-market engine built for sustained growth. The result, a disciplined foundation that captures our expanding market opportunity while keeping us on track toward our medium- and long-term margin goals. And yes, more operating margin on the sales and marketing line. In closing, I want to thank our customers for their continued trust and their partnership. I would also like to thank our employees and our partners around the world for their commitment to innovation and to our customers. Their support, their focus and their execution continue to strengthen our business and position us for long-term success. With that, I'll turn the call over to Barbara to walk you through our financial results and our guidance in more detail. Barbara Larson: Thanks, Julie. I'll start with an overview of our financial and key metric highlights for the first quarter 2026, followed by our guidance for the second quarter and updated guidance for the full year 2026. We started the year strong with broad-based demand across our portfolio of solutions. First quarter total revenue was $247 million, up 20% year-over-year and beating the high end of our guidance range by $1 million. Foreign currency fluctuations had an approximately 2 percentage point favorable impact on our reported growth rate. Subscription revenue was $225 million, up 21% year-over-year. Both new customers and account expansions continue to contribute to our revenue growth with new customers added in the last 12 months accounting for approximately 45% of the increase in Q1 subscription revenue, consistent with our expectations. As of quarter end, our current remaining performance obligations were $765 million, up 20% over the prior year. This growth, which reflects the revenue we expect to recognize in the next 12 months, includes an approximately 1 percentage point favorable impact due to foreign currency. Professional services revenue was $22 million, up slightly versus the prior year. In line with our expectations, higher-margin XBRL services continued to grow, while our partners took on more of our lower-margin setup and consulting services. Our non-GAAP operating margin for the quarter was 18.4%. This beat the high end of our guidance by 240 basis points, driven by our continued focus on operational rigor and productivity and the timing of certain headcount-related expenses. Moving on to our performance metrics for the quarter. We had 6,665 customers at the end of Q1 2026, an increase of 280 customers year-over-year. Our gross retention rate was 97%, exceeding our 96% target. And our net retention rate was 112% for the quarter compared to 110% in Q1 2025. Consistent with our reported revenue growth, there was an approximately 2 percentage point favorable impact on NRR due to foreign currency fluctuations. During the quarter, 75% of our subscription revenue was generated from customers with multiple solutions, up from 69% in Q1 2025. Growth in our large contract customer cohorts also reflected strong momentum. As of the end of the first quarter, we had 2,575 contracts valued at over $100,000 per year, up 24% from the prior year. The number of contracts valued at over $300,000 totaled 605, up 38% year-over-year. And the number of contracts valued at over $500,000 totaled 265, up 39% from Q1 2025. Moving on to the balance sheet and cash flows. As of March 31, 2026, cash, cash equivalents and marketable securities were $863 million, a decrease of $28 million from the prior quarter. This was primarily driven by the repurchase of 763,000 shares of our Class A common stock for $50 million. Combined with the $72 million repurchased in 2025, we have repurchased a total of $122 million under our $350 million share repurchase program with $228 million remaining as of quarter end. As we've previously shared, we remain focused on investing in growth and innovation. At the same time, our strong free cash flow profile enables us to return capital to our shareholders while effectively managing dilution through opportunistic share repurchases. Before I move on to our guidance, I'd like to briefly touch on the governance topic. We disclosed today that the Audit Committee has approved the appointment of Grant Thornton as Workiva's independent auditor. This appointment comes as part of the Board's normal governance process, and we look forward to working with the Grant Thornton team in this capacity. Turning now to our outlook for Q2 and the full year 2026. We are focused on Workiva's commitment to delivering both durable top line growth and expanding operating leverage across the business. With that in mind, for the second quarter of 2026, we expect total revenue to range from $250 million to $252 million. We expect services revenue to be relatively flat compared to Q2 2025. And we expect non-GAAP operating margin to be in the range of 14.5% to 15.0%. As a reminder, we stated last quarter that we expected Q2 operating margin to be lower than Q1, driven by headcount-related expenses. For the full year 2026, we now expect total revenue to range from $1.037 billion to $1.041 billion. We continue to expect subscription revenue to grow approximately 19% year-over-year. And similar to 2025, we still expect total services revenue to be relatively flat year-over-year. We are raising our non-GAAP operating margin outlook by 100 basis points and now expect it to range from 16.0% to 16.5%. This 660 basis point year-over-year improvement at the high end reflects our ongoing commitment to drive operating leverage as we scale the business and make meaningful progress toward our medium- and long-term financial targets. We are also raising our 2026 free cash flow margin outlook by 100 basis points to approximately 20%. For additional details on seasonality and other model assumptions, please see our quarterly investor deck available on our IR website. To wrap up, our strong Q1 financial results are a direct reflection of our ongoing commitment to profitable growth at scale. Having now completed my first full quarter with the team, I am more energized than ever by the significant opportunity ahead of us. Our platform continues to clearly resonate with offices of the CFO around the world, and we are executing with the operational rigor needed to deliver both durable top line growth and expanding operating leverage. As we progress through 2026 in our next phase of growth as a $1 billion revenue company, my team and I remain focused on the disciplined execution required to scale the business efficiently and drive durable long-term value for all of our stakeholders. Thank you all for joining the call today. We're now ready to take your questions. Operator, please open the line for Q&A. Operator: [Operator Instructions] Your first question will come from Rob Oliver from Baird. Robert Oliver: I had 2 questions. Julie, first for you. Just I would love to hear from you, obviously, a really good quarter for you guys and really strong metrics upmarket and some nice examples you laid out on the power of the platform. On that topic, I mean, your customers are likely really inundated right now with lots of mandates on AI and AI usage, I think we all are. I'd just be curious to hear from you what you're hearing from your customers about that. I mean you laid out some of the concerns around risk and how every number needs to be verifiable. That said, is any change in sales cycles or anything you've seen within the buying patterns that either give you cause to be excited or to think, hey, there's some additional features or functionality or things that we need to do to prepare for our user conference coming up, I guess, later this year? And then I had a quick follow-up for Barbara. Julie Iskow: Sure, Rob, and thank you for the question. I did mention the transformation we're making given the new era of AI, so to speak, and we are continuing to provide capabilities within our platform around AI, and our customers are very interested. You know the base of customers that we sell into, and they're very enthusiastic about leveraging our AI -- hesitant, but enthusiastic about Workiva's AI because it is in a secure controlled environment. So we are seeing that, and we are seeing increasing use of those who have activated and those who are, yes, actively using it. We continue to look at metrics and ensuring that we are not just relevant, but continuing to increase in relevancy. And you mentioned sales cycles. And I would say for us, because our execution is strengthening that we're actually seeing less length in our sales cycle. So for us, it's a positive, both from just a go-to-market perspective, from the kinds of sellers that we're putting out in the market and bringing into the organization and so forth and the platform and the partnerships that we have with our consulting and advisory. So we're seeing a big push for faster sales cycles, enthusiasm from our customers. Of caution, of course, it's the office of the CFO, but enthusiastic about our offerings, absolutely. Robert Oliver: Great. Okay. Well, on that note, I'll pivot to your CFO. So Barbara, I guess one for you. And just not to nitpick too much, but on the Q2 guide on revenue, maybe a little bit lighter than we would have expected, I think, relative to the strength you guys have called out, obviously, maintaining your targets and guidance on the full year. But just wanted to understand better if there was anything we should be reading into that, conservatism, wanted to have a little bit of extra cushion in your pocket, whatever necessary. Barbara Larson: Rob, thanks so much for the question. So as you said, we're really pleased with our Q1 performance. We beat the high end of our revenue guide by $1 million, and we did flow that through to the full year and increased our full year guide by that $1 million beat. In terms of Q2, if you recall, last quarter, we talked about seasonality and the fact that Q1 is seasonally our smallest bookings quarter of the year. Therefore, we expect that the Q-over-Q sequential revenue growth will be the smallest in Q2, and that's reflected in our guide of $250 million to $252 million for Q2 revenue. But thanks for the question. Operator: Your next question comes from Adam Hotchkiss from Goldman Sachs. Adam Hotchkiss: I guess, Julie, just on that large IPO deal you called out, I think you said they doubled spend with you. Can you just talk a little bit about the dynamics of capital markets deals today? Are you getting involved maybe earlier than you were historically? Or is that something that only happens with the larger deals? And then because GRC and sustainability have gotten a lot of traction in recent years, are you now often selling bigger to these pre-IPO companies in areas like GRC and sustainability? Or would you generally say IPO deals look similar to prior years? Julie Iskow: So I'll start with the large companies as the one I highlighted. And I would say the trend is similar. I mentioned in my prepared remarks that they had become a customer a year prior to their -- purchasing their IPO capabilities, our S-1. And that's a trend that we've continued to see. 12 to 18 months is not unusual for us to see companies purchasing internal controls or private company reporting as they prepare for their IPO. So not much change there. And I will say a lot of it is just private companies. We're just not in the private to public journey with these private companies. Some are staying private a lot longer or staying private indefinitely or pushing IPOs out. You can think of the big ones in the market now that have been IPO-ready likely, but have been waiting for right or better market conditions. So it takes a while. So yes, we may be selling other capabilities or offerings to them as they wait for an IPO or stay indefinitely as a private company. So yes, we are selling more to private companies, whether pre-IPO or others. So those deals are increasing in nature. Very happy with the private company capabilities. And yes, you mentioned they are getting -- you asked about them getting bigger. They are, in fact, getting bigger. Our deal sizes are larger and multi-solution is the way we land increasingly. So IPO market, definitely stronger in the quarter than last and continue to see good deals come through and larger deals. Adam Hotchkiss: Okay. Great. That's really helpful, Julie. And then Barbara, I'd love to just extend on Julie's discussion on the potential change to the earnings calendar and how that might impact your financials. Could you just remind us of what exposure you have from a pricing model perspective to actual financial reporting filing counts, whether that is or isn't a factor? And then how, if at all, your XBRL services revenue could be impacted? Julie Iskow: Are you talking about the semiannual reporting news that came out today? Adam Hotchkiss: Yes, that's correct. Julie Iskow: Okay. Yes, I mentioned that in my prepared remarks, and I'll take that. That SEC communication was very clear. It is a proposal that would provide issuers the option to choose a more -- or less frequent reporting, a move to semiannual reporting. And what was proposed today was not unexpected. And I'll reiterate this again about the proposal. It's providing an option to choose semiannual reporting. It's definitely not a mandate. And if you go back and look at the exact language of that proposal, it enables public companies to choose interim reporting frequency that would best serve their company and its investors. So I'll say that based on our customer conversations, most of those companies we've spoken with expect to continue the rigor of that quarterly reporting just to meet the ongoing investor demand for timely decision-making. So the concept for us is around value and the value of our platform extends, of course, well beyond the filing itself. So we will continue to provide that trusted data foundation that helps our teams remain report-ready and audit-ready really at any point in time in the quarter. So I think the concept again is our value is tied to giving CFOs absolute confidence in their data at any point. Therefore, we don't even price based on the number of reports or the number of users. We don't sell by seats or number of filings. So we feel confident it is a nonevent for Workiva. Operator: Your next question comes from Andrew DeGasperi from BNP Paribas. Andrew DeGasperi: I guess, first, I wanted to touch on a follow-up to Adam's question in regards to your response saying that deal sizes were larger. Should we -- if we take that a step further and just think about it in terms of net retention rate, should we see that net retention rate number become less relevant going forward or at least the balance between existing and new shift to more new customers as those deals land at a substantial size? Barbara Larson: Yes, I'll take that. From an NRR perspective, we can see that metric move around from quarter-to-quarter. But our current internal target in terms of NRR is maintaining that north of 110%. Really pleased with the performance we saw in that metric in Q1 at 112%. Julie Iskow: And we're going to continue to focus both on new logo acquisitions with a multi-solution and multi-category land as well as account expansion of our existing accounts. So we're pushing hard. Our strategy has been account expansion, larger deals, larger deal sizes up in the enterprise, again, multi-solution, multi-category, and that's both with land and expand. Andrew DeGasperi: That's helpful. And then I have to ask this question, but in terms of the strength in Q1, you called out in capital markets. I was just curious, did you -- are you still leaving your expectations for the year unchanged? In other words, are you being more just as conservative as you've been historically? Barbara Larson: Yes. So our expectations, we're really pleased with the performance in Q1, broad-based, but for capital markets as well. And our expectations for the year remain consistent. Operator: Your next question comes from Patrick McIlwee from William Blair. Patrick McIlwee: My first is just on the leadership team. So it's been roughly half a year since you made a handful of changes at Workiva, bringing in a new CRO, Head of Product and obviously, Barbara, CFO. So my question is really how is that team meshing? And how do you feel that this new slate of talent positions Workiva for the next chapter of its story? Julie Iskow: We were very intentional on the hiring of those 3 roles, and I appreciate you asking the question because it does highlight where we're going and our approach. And all 3 of them have been there, seen the scale. They have executed and driven growth well beyond the $1 billion, which is exactly what we were looking for. They've seen successes and failures. So they're very well positioned to help Workiva lead. Our executive team across the board has strength now. They are all bringing expertise and focused on what we are focused on, long durable growth and sustainable growth and profitable growth. Patrick McIlwee: Okay. And on margins, I know you walked through a number of profitability levers that you're focused on during your Investor Day last year. But just given how much productivity technology has advanced since then, I wanted to ask if and how you're leveraging AI to drive efficiency within Workiva, the organization itself? And if that changes anything in terms of how you view your longer-term margin targets or where you're looking for efficiencies? Julie Iskow: Sure. Barbara, you may want to start? Barbara Larson: I'll start on that. That's a great question in terms of how we're leveraging AI for Workiva. On the R&D side, absolutely, we're focused on engineering productivity. That includes leveraging AI and automating across our teams, really making our own teams more efficient and then across the entire organization. We've got ongoing productivity initiatives, and that's a component of the strong operating leverage that we've demonstrated over the past 5 quarters. So continuing to make progress there. Operator: Your next question comes from Alex Sklar from Raymond James. John Messina: This is John Messina on for Alex. Maybe, Julie, I did want to ask on -- I know you were asked earlier on sales cycles, but I wanted to ask about linearity in the quarter. Commentary during the prepared remarks really pointed to strong win and deal expansion environment and cRPO bookings look really strong. But I did want to ask, was there any timing factors you'd call out, any deal linearity or revenue recognition dynamics in the quarter that you think are worth calling out there? Julie Iskow: I don't think anything has changed in any way. I can't think of anything that's different. The deal timing is very similar. When we see the bookings come in, again, the deal cycle is similar. So no, I don't see any difference in cycles and timing. John Messina: Okay. Great. And then I do also want to ask on sustainability. I know you guys have emphasized that it's not only a regulatory story, but I am curious as far as the resiliency that you're seeing there from the nonregulatory side, whether it's supply chain requirements or sort of reaching internal operating goals. Just curious on what's proving to be the most resilient there. And if you're seeing any meaningful changes in the deal sizing when sustainability is being sold not as part of a regulatory requirement? Julie Iskow: Yes. Definitely on the regulatory side, I had talked about that. It really is stakeholder demand still, and you can come up with a lot of examples of why companies are making sustainability commitments, well over 10,000 companies have made net zero commitments with -- aligned with the science-based target initiative. It's stakeholder demand, and they know it's coming, and they want to be thoughtful and organized and the demand for the information being treated as if it were financial data is very strong. That's why we're seeing the trend of sustainability reporting being part of the office of the CFO. But it really is the stakeholder demand and business requirements. I mean, renewable energy, important for running data centers, for example. I mean there are economic reasons. Sustainability is about risk mitigation and economics, it isn't about a regulation always. So definitely seeing that trend in companies. Larger companies, absolutely for business and stakeholder reasons and those with -- in the retail sector and so forth with stakeholder demand being very key. Operator: Your next question comes from Terry Tillman from Truist. Giancarlo Valle: It's Giancarlo on for Terry. I just want to double-click on how our efforts going to drive more products per customers? And where are those actual plays working best to increase platform spend? Julie Iskow: Sure. I mean the world is fast moving to Agentic, and we are well positioned to be part of that world. I mentioned the transformation that we are going in. We are moving toward the data-centric platform. We've been in that transition. We are rolling out capabilities and products leveraging that transformation. We are giving them to customers and putting them in customers' hands. I highlighted a couple of the offerings that we've put out in the market. We are, of course, as Barbara mentioned, going faster in R&D and rolling out the innovation in a more effective and efficient and productive way. So you will see us continue in that path, rolling out agents everywhere, building agents for our customers, enabling our customers to build agents on our platform. That is the direction that we are going in, Agentic world, and we are a part of that. Operator: Your next question comes from Steve Enders from Citi. Steven Enders: I guess maybe just to start, just following up on that last point around leveraging Agentic AI. Just how are you kind of thinking about what that means in terms of further monetization or maybe how it kind of changes some of the value-based pricing model that you've had historically? And I guess kind of dovetailing on top of that, just maybe what have you seen so far from the shift to the good, better, best pricing model and the adoption of those tiers so far? Julie Iskow: Sure. I appreciate you bringing up the pricing conversation and -- you mentioned the value-based pricing, and I'll remind everyone on the call that Workiva is non-seat-based model. We've not operated as a seat-based model for over 7 years now. We are metric-based value-driven pricing models, a number of entities, number of controls, number of integrations for our data connections and so forth. And as you mentioned, we have not long ago introduced a tiered pricing model for our solutions, good, better, best model, and we call them essential standard and advanced versions, an example that we highlight that had the most time in the market is our SEC advanced solution. We've had customers with SEC for more than 15 years. So we offer them premium solutions now, whether at the time of renewal or mid-cycle. And those features are our intelligent finance offering, and we offer design features, or report translation, data collection for SEC disclosures, financial statement automation and so forth. But of course, we add in those premium offerings for AI, those that we don't make available to our entire customer base. And we are seeing strong traction. We are just getting started, however. We will, of course, be a multiyear journey. And again, one of the many vectors we have for growth going forward. So thank you for highlighting that. Steven Enders: Okay. That's great to hear. Just maybe kind of following up on some of the, I guess, kind of like deal dynamics, but I think we've been getting the question on just like billings this quarter and it may be looking a little bit softer versus some of the other kind of forward-leading metrics. Just I guess, anything that we should kind of keep in mind on the timing of billings versus some of the subscription booking strength? And I guess, similarly on kind of the guidance framework, kind of any change in terms of the beat and raise cadence that maybe we should be thinking about for this year and anything to read on the beat magnitude this quarter? Barbara Larson: So why don't I start off in terms of billings? So billings in particular, is a noisy metric. It can be impacted by things like payment terms, invoicing schedules, the timing of renewals. And for Q1, particularly, a clear example of kind of the payment terms is last year, we had a higher mix of multiyear upfront invoicing in Q1 compared to this Q1. And to be clear, this is separate from contract duration. What I'm talking about is the invoicing terms, which is really set by customer preference. So it's the change in that multiyear upfront invoicing that impacts our long-term deferred revenue and therefore, impacted our calculated billings metric in the quarter. So of all the metrics in terms of the forward leading indicator, I would say current RPO is a much better indicator of future revenue because it normalizes for that invoice timing. And then in terms of just the guidance philosophy, there's been no change to our guidance philosophy in terms of the magnitudes of beat. We are looking at the business and just giving you our best view of what we have clear line of sight to right now. And Julie and I and the rest of the management team are all very aligned on that. Operator: Your next question comes from Daniel Jester from BMO Capital Markets. Daniel Jester: Julie, in your prepared remarks, I think you mentioned that this is Michael Pinto's 6-month anniversary. And so maybe it would be great to just get an update in terms of the areas of deep focus on the go-to-market efficiency front and any potential tweaks that you're evaluating as the year progresses? Julie Iskow: Sure. I appreciate the question. And Michael may be listening, I've given him a list of areas to focus on. And certainly, sales efficiency is on there, the pipeline quality, enterprise -- large enterprise ACV growth, ramp capacity productivity, partner sourced influenced ARR, et cetera. So he's got a fun role, and he's moving and making progress. So on the productivity side, I have outlined even prior to his arrival, some of the activities we've been engaged in and some of the initiatives we've been focused on, and he has come in and taken those and moved them forward. So whether it is the structure of our sales organization, whether it's the staffing and the profiles of hires that we have and the enablement and training and so forth or just the strategy that we have in our go-to-market, whether here in U.S. or outside and perhaps EMEA and so forth, he's taking all of that. And essentially, it comes down to building a high-powered go-to-market machine that sets us up for future scale and growth. Daniel Jester: That's great. And then maybe Barbara, on the gross margin side, another really strong gross margin year-over-year expansion performance in the quarter. I think you're kind of approaching the midterm targets ever so slightly now. But as you introduce these AI agents and those ramp over time, I guess, maybe how is your thinking around the gross margin opportunity maybe evolving as maybe those impact your ability to scale margin? Barbara Larson: Yes. Thanks so much for the question. I would just say in the near term, we feel really good about our gross margin and the improvement. We are currently getting our AI compute through our broader infrastructure contracts. So at this point in time, we're not seeing any pressure on our gross margins, and we still expect to make progress towards that 2027 and 2030 gross margin target. So feeling good about where we are and continue to monitor very closely. Operator: Thank you. Unfortunately, this concludes our time for the question-and-answer session. And with that, that concludes our conference for today. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Innovative Industrial Properties, Inc. First Quarter 2026 Earnings Call. [Operator Instructions]. I would now like to turn the call over to Eli Kanter, Director of Finance. Eli, please go ahead. Eli Kanter: Thank you for joining the call. Presenting today are Alan Gold, Executive Chairman; Paul Smithers, President and Chief Executive Officer; David Smith, Chief Financial Officer; and Ben Regin, Chief Investment Officer. Before we begin, I'd like to remind everyone that some of the statements made during today's conference call, including statements regarding our capital raising activities and those regarding potential lease transactions that are subject to letters of intent are forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995 and subject to risks and uncertainties. Actual results may differ materially, and we refer you to our SEC filings, specifically our most recent report on Forms 10-K and 10-Q for a full discussion of risk factors that could cause actual results to differ materially from those contained in forward-looking statements. We are not obligated to update or revise any forward-looking statements, whether due to new information, future events, or otherwise, except as required by law. In addition, on today's call, we will discuss certain non-GAAP financial information such as FFO, normalized FFO and AFFO. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in our earnings release issued yesterday as well as in our 8-K filed with the SEC. I'll now hand the call over to Alan. Alan? Alan Gold: Thanks, Eli. Good morning, everyone, and thank you for joining our first quarter 2026 earnings call. First, I'd like to touch on the rescheduling of cannabis from Schedule 1 to 3, a significant regulatory development impacting the cannabis industry. In our view, the administration's recent action with respect to the medical cannabis market represents a major milestone for the industry and a clear sign of continued progress at the federal level. Although it does not yet extend to the broader adult-use market, it reinforces momentum toward a rational regulatory environment. Against that backdrop, the first quarter represented a strong start to the year, and our team remained focused on disciplined execution across the business. While persistent inflation, elevated interest rates and broader macroeconomic headwinds continue to challenge the operating environment, our team has worked tirelessly to optimize our portfolio, allocate capital thoughtfully and maintain a strong and flexible balance sheet. Now we have been active on the debt and equity capital raising front, raising $128 million of gross proceeds year-to-date. In addition, we are working on several secured and unsecured financing transactions that have not yet closed totaling nearly $130 million. including a $56.5 million financing at a rate of 8.75% that we expect to be funded today. If completed, we expect to use the net proceeds of these financings to address our unsecured bond maturity this month and to provide additional capital to support future growth and the execution of our strategic priorities. This approach reflects our continued focus on disciplined capital management and maintaining balance sheet flexibility. As for the quarter, we generated total revenues of $69 million and AFFO of $53.4 million or $1.88 per share, which was the same as last quarter. Operationally, we made meaningful progress across our portfolio as we continue to execute on our leasing strategy. During the quarter, we signed new leases at 4 properties totaling approximately 331,000 square feet, underscoring the progress we are building across the portfolio and the demand for our high-quality mission-critical facilities. Turning to IQHQ. We continue to view this investment as a compelling strategic opportunity and an important extension of our platform. To date, we have funded $175 million of our $270 million commitment and continue to believe our entry point and timing of this investment will prove attractive over the long term. At the same time, we remain focused on executing across the business, driving performance in our existing portfolio, pursuing attractive opportunities in cannabis and allocating capital where we see the strongest risk-adjusted returns. With a diversified platform spanning cannabis and life science, a strong balance sheet with demonstrated access to capital and an experienced management team, we believe we are well positioned to build on our momentum and progress to deliver long-term value for our shareholders. With that, I'll turn the call over to Paul. Paul Smithers: Thanks, Alan. Last month, the DOJ and acting Attorney General issued a final order moving FDA-approved cannabis products and cannabis produced by state licensed medical operators to Schedule III, a landmark development and in our view, the most significant development affecting our business since our founding in 2016. This action eliminates the burden of 280E for qualifying medical operators, may create opportunity for retrospective tax relief and establishes an expedited DEA registration process for medical operators. Just as importantly, the DEA has now restarted the broader hearing process on whether marijuana as a category should move to Schedule III, with hearing set to begin on June 29 under an expedited time line. Taken together, we believe these developments mark a major step forward for the industry and powerful catalyst for improving operator economics, expanding access to capital and supporting a healthier environment for longer-term growth and investment. At the state level, we are monitoring the expansion of existing medical programs, particularly in Texas. In April, the Texas Compassionate Use Program awarded conditional licenses to our tenant partners, Green Thumb Industries and Cresco Labs, joining Texas Original, Trulieve, Verano and others in the market. We are encouraged by this progress and look forward to the continued expansion of the program and the opportunities it creates for our tenants. Regarding our current portfolio, as we highlighted in our March press release, we reached a resolution with PharmaCann on all pending litigation related to its lease defaults, and we are actively working to retenant the properties being returned to us later this month. Across the portfolio, we have now executed leases for the former Gold Flora assets, made substantial progress on the former PharmaCann assets and reached tentative agreements with prospective new tenants for all 4 former 4Front properties, subject to diligence and licensing approvals. I want to thank our team and all parties involved for their hard work in helping us navigate these challenges. The actions we have taken leave us better positioned to drive portfolio performance going forward. With that, I'd like to now turn the call over to Ben to provide additional details on our leasing activity and discuss our other investment activities. Ben Regin: Thanks, Paul. Year-to-date, we have executed new leases totaling 389,000 square feet across 5 properties located in California, Illinois and Ohio and completed the sale of a dispensary in Arizona. As Paul described, we are pleased with the progress we have made stabilizing our portfolio and bringing Revolution to the former 4Front, PharmaCann and Gold Flora assets. All 3 former Gold Flora properties comprising 330,000 square feet are now leased. We executed lease agreements for our 70,000 square foot Palm Springs property in November 2025, our 204,000 square foot Desert Hot Springs property in January 2026 and our 56,000 square foot Palm Springs property in March 2026. For 4Front, we have reached tentative agreements with prospective new tenants for all 4 properties, representing approximately 488,000 square feet across Illinois, Washington and Massachusetts. These tentative agreements remain subject to customary diligence and licensing approvals and are expected to take effect following the conclusion of the receivership proceedings, which we currently expect later this year. With respect to the former PharmaCann assets, we executed a lease agreement in March for our 66,000 square foot property in Dwight, Illinois with Grown Rogue, a publicly traded multistate operator new to our tenant roster. In April, we executed a lease agreement for our 58,000 square foot property in Ohio with Curaleaf, a public multistate operator and long-time tenant partner of ours. In addition to these executed leases, we executed a nonbinding LOI for our 234,000 square foot facility in New York and are currently in lease negotiations subject to customary due diligence, including licensing and regulatory approvals. We also continue to work through diligence and are in negotiations with a prospective tenant for our 71,000 square foot property in North Adams, Massachusetts. With respect to our 270,000 square foot property in Pennsylvania leased to the cannabis company as of quarter end, we regained possession of that property on April 15 and are in active discussions with a potential new tenant. While there can be no assurance that any of these discussions or negotiations will result in the execution of a definitive lease, we are very pleased with the demand we are seeing for our assets. For our 157,000 square foot property in Columbus, Ohio, remains leased to Battle Green, which defaulted on its lease obligations in March. We are actively enforcing our rights under the lease, including commencing eviction proceedings and pursuing available remedies under applicable guarantees. Turning to our life science portfolio. We have funded $175 million of our $270 million IQHQ commitment to date, with the remaining $95 million expected to be funded over time. The broader life science real estate market continues to show signs of stabilization and improving momentum as we move through 2026. Recent reports from CBRE and Colliers indicate that demand has held near pre-pandemic levels, while stronger equity performance and venture funding are supporting a more constructive backdrop for growth. At the same time, the market is still working through elevated vacancy from the prior supply wave, but new development has fallen sharply and the pipeline is at historically low levels, which should support a healthier supply-demand balance going forward. We also continue to see favorable long-term demand drivers in areas like manufacturing, onshoring and AI-enabled research, which we believe will position the sector for continued improvement over time. With that, I'll turn the call over to David. David Smith: Thank you, Ben. Before diving into our quarterly results, I want to begin with our bond maturity that we have this month, which, as we discussed on prior calls, has been a key focus for the company. During and subsequent to quarter end, we have undertaken a series of capital raising actions to address this maturity. Year-to-date, we have raised $128 million of gross capital comprised of $72 million of preferred equity, $36 million of common equity and $20 million of secured debt through a 3-year secured term loan with a fixed rate of 9% that we recently closed on. As Alan mentioned, we are also currently pursuing multiple secured and unsecured financing transactions totaling nearly $130 million, including a $56.5 million financing that we expect to be funded today. Based on the terms currently under discussion, these financings would carry an attractive blended rate of just over 8%. We are encouraged by the level of interest from multiple new lenders and by the opportunity to access attractively priced capital to address this maturity and provide additional capital to support future growth. These potential financings remain subject to a number of contingencies, and there can be no assurance that they will be completed on the terms currently contemplated or at all. Turning to our results. For the first quarter, we generated total revenues of $69 million, a 3.5% increase compared to the fourth quarter. This increase was primarily driven by payments received from PharmaCann totaling $3.2 million. In addition, as previously disclosed, we received $1.5 million in the first quarter in settlement of all remaining unpaid administrative rents due from the Gold Flora receivership. Adjusted funds from operations, or AFFO, for the quarter totaled $53.4 million or $1.88 per share, which was in line with our results for the fourth quarter of 2025. Turning to the balance sheet. As of March 31, we had total liquidity of approximately $177 million, consisting of $89 million of cash on hand and $87.5 million of availability under our revolving credit facilities. Once again, our balance sheet credit metrics remained excellent this quarter with a debt service coverage ratio exceeding 11x and net debt to adjusted EBITDA of 1.1x. And with our recent capital raising activity, we continue to maintain very strong credit metrics with a balance sheet positioned for growth in 2026. With that, operator, could you please open the call for questions? Operator: [Operator Instructions] Your first question comes from the line of Tom Catherwood with BTIG. William Catherwood: Ben, I just want to start with you. If my math is right, I think you have 8 leases that you've signed that have not yet commenced. And with the agreements for the 4Front assets, that could go to 12 properties. I know each deal is different and you don't control every aspect of commencement. But is there a way to bucket those 12 leases as to how many you expect to contribute in 2026 versus 2027 or even beyond that? Ben Regin: Tom, I guess I think the way I would think about it is just what we see in a typical deal from lease execution there's usually some sort of regulatory approval, license transfer. And after that, once the lease goes into effect, you could have a free rent period. So we've seen that average anywhere from 3 months to 12 to 18 months on the outside. I appreciate you mentioning the leasing activity. We've been very pleased with the demand we're continuing to see really across the portfolio. When you think about some of the previous tenant issues, PharmaCann, 4Fronts, Gold Flora, we've now addressed well north of 90% of those assets through LOIs, executed leases and lease discussions that we're currently having. And I would also add, when we think about the modeling is there can be the free rent period, there can be a license transfer period. But typically, the triple net expenses will be transferred over to the tenants upon lease execution. which is another pickup for our earnings. William Catherwood: And then I think last quarter, you mentioned, obviously, as I said, before each deal being different, but you had a range in execution as far as the rents that you achieved on those. I can't remember the exact numbers that you gave, you gave everything from nearly in line to down 50% in some cases. For those that you've executed this quarter, how have they come in compared to prior rents? Ben Regin: I still think that's the right way to think about it. I think that range applies across the board. And I think the other aspect of that to keep in mind is just the minimal capital outlay that we've seen really across the board. I mean these are I would say, on average, $5 to $10 a foot, sometimes as is deals, which is very unique, I think, in the real estate industry to be able to re-tenant these assets and really the volume of leasing that we've achieved really minimal cost to us. William Catherwood: Got it. Got it. And then this one might kind of seem a bit out there at the moment. But we've seen this increase in M&A activity come across the cannabis space, kind of early stages of it. But like, for example, what's happening with cannabis with -- they announced your tenant Holistic is taking over their operations in Ohio. As we see more resolutions and workouts like that, is there an opportunity for IIPR to get involved and provide the next wave of operators with capital for assets that had previously been owner-occupied? Or are we kind of thinking too far ahead? Ben Regin: No. I mean I don't think that we're thinking too far or anybody is thinking too far ahead. I think that the -- with the first phase of the rescheduling, and I know there's a lot more to go with that, we do see the strengthening of our -- of the tenants in general in the industry. And we do see, I think, an increased interest in the industry and potential growth opportunities in the cannabis industry. Now whether that's 6 months or 12 months or 36 months out there, it's an evolving story. William Catherwood: Got it. And then just last one for me, Paul, on the rescheduling. I know you mentioned the June 29 administrative hearings starting back up again. And what we're wrestling with is there's obviously the legalization on the medical cannabis side with the DOJ's final order. It sounds like there's a potential for the administrative hearings to expand that order. And it's obviously too early to tell, but what are the chances we might end up with kind of a split outcome where medical is exempt from 280E, but adult use still remains subject to more stricter taxation. Paul Smithers: Yes, Tom, I think that's a fair question. I think in the short run, and by short run, I mean the next 30 days, that's somewhat unclear. But what the executive order did state was an expedited hearing, and that means within 30 days. So once the June 29 process starts, they expect to have that wrapped up with 30 days and compare that to what we had under the Biden administration, much different. So I think there will be a clear resolution of how cannabis is treated across the board, including medical and adult use at the conclusion of that hearing. So we are very excited about where this is going, as you can imagine. We've talked in the past about rescheduling what we think this is going to do for the industry and our operators. And I think we are thrilled that it's on this expedited time line. And I think we're going to see certainly more capital to the bottom line for these operators. And we've had discussions, and we do expect that there will be much more interest in growth once the 280E tax situation is resolved and operators have a clear idea of where to go, and we think that's going to happen pretty quick. But we think that, that capital will be used to expand and they'll come to us for that expansion, we believe. We also see, of course, other advantages of rescheduling. We think that there's certain states that have maybe been kind of on the fence for a medical program or converting medical to adult use. We think that this rescheduling will really help those states make the move towards new programs. And lastly, I think rescheduling is wonderful for R&D there's a lot of companies going to be very interested in testing a plant and coming into particularly medical uses for the plant. So we are thrilled as these developments and the expedited time line. Operator: Your next question comes from the line of Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: Just wanted to -- Paul, I just want to continue that same line of questioning. As we look at the -- certainly, the present on this is a bit confusing because there's a war on drugs and yet there's a promotion of medical use. So the -- what exactly happened is that medical use was downgraded to Schedule III, but adult use is still Schedule I. Is that what's happened? Or like what is technically in place right now? We know where ultimately, you can see where this path is sort of ending up. But what does it stand technically as of today? Paul Smithers: As of today, and the acting Attorney General Blanche is very clear, I think, Alex, in where it stands today. Licensed medical use operators have the benefit of Schedule III. And that's 100% medical licenses. And as you know, our operators all hold medical licenses. So that accounts for 100% of our operators in our portfolio. I think it's clear too of the decision they made as far as other use cannabis, they put it on expedited schedule starting June 29 and to have that resolved within 30 days. So we don't expect any extended period like we saw in the past. So I think it's pretty darn clear about the decision to bifurcate, that's fine. But in the interim, where we are today is great because it's 100% covers our medical license holders, and that's in our portfolio. Alexander Goldfarb: Okay. So as far as the 280E exemption goes then, so even though -- so 100% of your tenants are covered because they're medical, which is the way I understood it, so that's good. But as far as the 280E, those same tenants through their operating businesses get the full deduction? Or does the IRS sort of split out their sales? Paul Smithers: So what the DOJ order suggested was retroactive tax relief available for all qualifying medical operators. So that should be 100% for the medical operators. And as mentioned, that's our portfolio. I think what we will see through Treasury and the order does also request Treasury to give an opinion sooner than later as to what the retroactive effect of 280E will be for both medical and adult use. But in the short term, it's clear 280E relief, 100% for medical license holders. Alexander Goldfarb: Okay. So basically, it doesn't matter whether they sell rep or not, they're medical, and then we'll find out how long this retroactive is. In your view, and then as you guys look at your credit, as your tenants who have had credit issues, and this has been a few years from now, I mean, ongoing, is it your view that once the 280E relief comes in, that will basically eliminate any future pending credit issues? Or is your view that we're still going to have potential for credit issues even though there's this 280E relief? I guess that's -- as you know, that's what we've been focused on is just this continued sort of whack-a-mole and it'd be great to move past it and have everyone be in a stronger position. But I'm just curious if the 280E relief on its own and the retroactivity sort of solves that? Or if those credit issues are still going to be there because the tenants just -- the ones who have issues or debt refinancing, whatever, still have that and the 280E isn't really going to help in that front. Paul Smithers: Alex, businesses run all the same. They all have risks. All of them have -- all industries have tenants that -- or companies that grow, shrink, disappear. This 280E allows these businesses to have better operating environments and better operating statistics, but they're still businesses. And they all go through -- they all have good management, okay, management that needs to refocus on their business. So we're going to experience what all industries experience and just like any other real estate company out there that leases space to any business. Alexander Goldfarb: Okay. And then just final question. You mentioned the IQHQ and more doing life science, your deck indicated that. Alan, as you look over the company, let's call it, the next 5 years, do you think it's more like 50-50 or 25-75 as far as life science contribution? Or I'm just trying to think is life science going to be heading towards 50% or will still be a small sliver of the company over the next, call it, 5 years? And I'm not going to hold you to that. It's just trying to understand where you guys see the best investment path forward over the next several years. Alan Gold: I think that that's a very difficult question to answer. But what we can say is that we're now in a situation where we have a strengthening cannabis industry. And if you see the level of activity that's going on in the life science industry, we -- our entry point was, I think, at one of the lowest parts of the industry over a long period of time. And we're seeing a very strong and resurging life science industry. So we have positioned ourselves to be very opportunistic with 2, I think, growing industries that will help us drive growth for our shareholders in the future. Operator: Your next question comes from the line of Aaron Grey with Alliance Global Partners. Aaron Grey: Kind of piggybacking off that last one a bit, more specifically on IQHQ and incremental investments. I know in the filings, you talked about commencing more investments 2Q '26. Just want to -- sure, is that still the case? And maybe just give us some more color in terms of those incremental investments on IQHQ preferred stocks and the timing of it through the near to medium term. Alan Gold: Yes. I mean I think that we have scheduled the investment in the IQHQ organization out through 2027, mid-2027. And we have been able to opportunistically bring forward a couple of those scheduled investments for our benefit because they're a very accretive transaction. If you recall, it's on average, north of 14% and we have a cost of capital with our credit facility associated with making those investments in the 6% range. So extremely accretive investments, and we have been able to bring some of that forward. We continue to believe that the industry, the life science industry, of which IQHQ is involved with is doing really well. And we think that our investments will -- we will continue to look at opportunistically making the investments at the appropriate time. Aaron Grey: Okay. Great. Really appreciate the color there. Second question for me on cannabis. Great to see some of the progress you're making on new leases of the previously defaulted tenants. As we talk about Schedule III creating more opportunities for you, can you talk about maybe some of the near to more medium-term opportunities? You seem to have alluded to your ability to get more aggressive on acquisitions, bringing on more new -- net new tenants. Where would you see those in the near term, would it strictly be medical given the clarity that we have there and maybe markets like Texas, Kentucky or Georgia? Just giving more color and granular in terms of where you might be able to see some opportunities in the near term where we have clarity on just medical only versus more longer opportunities as we wait for the second phase of rescheduling. Alan Gold: I appreciate that question. We do -- we are looking at all acquisition opportunities and for growth in the second half of 2026 and certainly into 2027. But our #1 priority and focus is right now making sure that we complete the refinancing of our unsecured debt, which we have done -- the team has had tremendous success, and we're highly confident. And once we complete that and complete our commitment to IQHQ, I think we can then look at additional opportunities going forward. Operator: Your next question comes from the line of Bill Kirk with ROTH Capital Partners. William Kirk: I wanted to keep going on rescheduling and try to get some perspective on whether you think the possibility of interstate commerce exists out of rescheduling? And if it did, would you consider the cultivation assets you have an opportunity in that environment? Or would there be a risk in that environment? How do you prepare, I guess, for the scenario or the possibility of interstate commerce? Paul Smithers: Bill, it's Paul. So I think there's 2 questions there. And I'll address the first part of the question is the answer is no that rescheduling does not address interstate commerce. It does not address banking. And those are 2 things that some people were looking for some clarity on and that the Attorney General was clear that interstate commerce and banking and uplisting were issues that were not addressed in this piece. But your further question about interstate commerce is really, I think, something we've talked about over the years. And we don't really see that happening until there is a complete legalization of cannabis across the board. And we believe that is many years out. But as we've discussed in the past, even if we do have some type of interstate commerce, we believe that our assets and our operators will do fine because what we have are indoor growth for the most part and medical, highly specialized product. And that's probably not going to be what's going to go rolling across some trucks across the country. So even if we are in interstate commerce situation, we think we're well positioned. But again, we don't see that for many years out. William Kirk: Okay. And then there is a possible demand unlock that would benefit your tenants in November unless something changes intoxicating hemp basis a federal ban. I imagine most of your properties aren't growing much of it. So I wanted to get your perspective here on what intoxicating hemp going away could mean for your tenants and the demand for the products that they are growing. Paul Smithers: Yes. I think that's accurate, Bill, that our tenants do not grow hemp. They are cannabis growers. And we've been watching that the whole litigation issue with the hemp really just kind of by standards in the sense that we don't believe hemp one way or the other is really going to affect our operators' business. But that being said, I think if there is a ban on intoxicating hemp products, that does put some clarity into the issue, and it will take away some of the Delta 8 stores that we see popping up in nonmedical states. So I think it's a good thing for the cannabis industry to get clarity in the intoxicating hemp legislation. Operator: That concludes our question-and-answer session. I will now turn the call back over to Alan Gold for closing remarks. Alan Gold: Thank you, and thank you all for joining today. I'd certainly like to thank the team for all their hard work, great work and our stockholders for their continued support. That ends the call. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon and welcome to the Curaleaf Holdings, Inc. First Quarter 2026 Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions on your touch-tone telephones. To withdraw your questions, you may press star and 2. Please also note today's event is being recorded. At this time, I would like to turn the floor over to Camilo Russi Lyon. Sir, please go ahead. Camilo Russi Lyon: Good afternoon, everyone, and welcome to Curaleaf Holdings, Inc. first quarter 2026 conference call. Today, I am joined by Chairman and Chief Executive Officer, Boris Jordan, President, Unknown Speaker, and Chief Financial Officer, Edward Kremer. Before we begin, I would like to remind everyone that the comments on today's call will include forward-looking statements within the meaning of Canadian and United States securities laws, which by their nature involve estimates, projections, plans, goals, forecasts, and assumptions, including the successful integration of acquisitions, and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on certain material factors or assumptions that were applied in drawing the conclusion or making a forecast in such statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Additional information about the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in the company's filings and press releases on SEDAR and EDGAR. During today's conference call, in order to provide greater transparency regarding Curaleaf Holdings, Inc.'s operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results. Such non-GAAP measures and ratios do not have a standardized meaning under U.S. GAAP. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by U.S. GAAP, should not be considered measures of Curaleaf Holdings, Inc.'s liquidity, and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U.S. GAAP financial measure under the heading Reconciliation of Non-GAAP Financial Measures in our earnings press release issued today and available on our Investor Relations website at ir.curaleaf.com. I will now turn the call over to Chairman and CEO, Boris Jordan. Boris Jordan: Thank you, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our first quarter results. 2026 is off to a strong start across macro, fundamental, and regulatory landscapes, and more importantly, we are seeing a clear shift in the trajectory of our business and the industry. The macro headwinds that constrained growth over the past three years are now beginning to turn into meaningful tailwinds. In the U.S., consumer spending remained healthy in the first quarter; however, we are closely monitoring current inflationary pressures. Stronger income tax refunds versus last year have supported spending power to the benefit of robust cannabis sales, reinforcing the resilience of underlying demand even in the face of higher gas prices. At the same time, we believe the anticipated hemp ban is already benefiting the regulated market. Alcohol retailers have begun destocking hemp-derived products, and we expect that trend to accelerate as we approach the November 11 implementation deadline, driving consumers back into the regulated channel, increasing traffic, and further strengthening the position of scaled operators like Curaleaf Holdings, Inc. From a fundamental standpoint, our strategy is delivering. The investments we have made in the core pillars of our Built for Growth framework—customer centricity, brand building, and operational excellence—are translating directly into tangible P&L performance. First quarter revenue of $324 million grew 6% year-over-year, exceeding both our guidance and internal expectations. Our domestic and international segments grew 2% and 35%, respectively, underscoring the durability of our core business and the strength and scalability of our global platform. Without question, Curaleaf International is a key differentiator and an increasingly important driver of long-term value. Gross margin was 49%, and adjusted EBITDA was $63 million, or a 20% margin, including a 170 basis point drag from our international segment as we continue to invest in driving growth and market share gains abroad. We ended the quarter with $106 million in cash on the balance sheet. Net income from continuing operations was $70 million, or $0.09 per share, compared to a net loss of $50 million, or $0.09 per share last year. We also continued to strengthen our balance sheet. We reduced our acquisition-related debt by $9 million and successfully refinanced our $475 million senior secured note with an oversubscribed $500 million three-year facility backed by strong demand from both new and existing investors. This transaction is a clear signal of investor confidence in our strategy, execution, and credit profile. Additionally, we completed the buyout of the remaining 45% minority interest in our German subsidiary Four 20 Pharma, bringing our ownership of Curaleaf International to 100%. Based on a recent comparable public market transaction, the implied value of Curaleaf International is approximately $1 billion, highlighting the significant embedded value within our global platform that we believe is not yet fully reflected in our current valuation. The U.S. cannabis industry has now entered what we believe is the most important regulatory inflection point in 55 years. Two weeks ago, under the direction of President Trump, Acting Attorney General Todd Blanche rescheduled medical cannabis from Schedule I to Schedule III, while simultaneously restarting the broader rescheduling process, with an ALJ hearing set to commence on June 29 and conclude no later than July 15. This dual-track approach is deliberate, designed to move with urgency while ensuring a durable and legally sound outcome. The practical and financial implications are highly transformative to the industry. First, federal funding for medical research will be allowed. Our U.K. team has been conducting research in concert with Imperial College London on cannabis-derived solutions for neuropathic pain. We plan to share this research with the DEA and FDA while also leveraging our partnership with the University of Pennsylvania, whose cannabis research we also support under our special research license. Access to cannabis research should shed light on the medicinal properties of the plant, and further remove the stigma that cannabis carries. Second, the removal of 280E taxation on medical cannabis, expected to be retroactive to at least January 1, immediately unlocks meaningful balance sheet benefits. 60% of Curaleaf Holdings, Inc.'s business is medical and stands to get substantial 280E relief. When the adult-use process concludes, which we expect later this summer, these benefits should extend across the adult-use portion of our business as well. The remaining open question relates to the IRS look-back period for retroactive 280E relief, and we expect further clarity in due course. Equally important, the DOJ's order opens an unexpected step that reforms medical cannabis beyond Schedule III. The order provides that we can get DEA licenses for our medical cannabis businesses, which would make our business fully legal under the CSA. In fact, today, we filed applications to register with the DEA. Proceeds from CSA-compliant cannabis cannot be deemed money laundering. The practical implications of this are yet to be seen, but we and the industry are racing to explore increased access to banking, financial services, and credit card use for our medical cannabis business. Normalized banking relationships and, critically, the ability to accept major credit cards would remove friction at the point of sale, improve conversion, and lower transaction costs, continuing the normalization of the consumer experience. It would also improve cash management and expand access to credit, representing another meaningful step change in profitability and scalability for Curaleaf Holdings, Inc. Our adult-use business may also benefit from increased access to financial services when the expected adult-use rescheduling happens later this year. Furthermore, after adult-use rescheduling, the probability of uplisting to a major exchange meaningfully increases once guidance from Treasury is provided later this year. With the glass ceiling now broken, we are seeing increased momentum at the state level as non-cannabis states, including North Carolina, South Carolina, Tennessee, and Indiana, are actively exploring medical programs. Importantly, the upside here goes well beyond tax relief and banking access. The DOJ framework introduces a catalyst from which Curaleaf Holdings, Inc. is particularly well positioned to gain. The issuance of DEA licenses to state-legal cannabis operators makes them compliant providers of cannabis under the CSA and in the international treaty framework. This opens the door for us to participate in import and export transactions. The real import-export market will require permits from the DEA, and many states have already indicated that they would support both exports and interstate commerce. For Curaleaf Holdings, Inc., this represents a significant and highly strategic opportunity. We already have built one of the largest and most efficient, sophisticated cultivation and manufacturing footprints in the United States. This established network of facilities positions us to supply our international operations with domestically grown product, dramatically improving margins and strengthening control over our supply chain. Today, we produce approximately 20% of the product we sell internationally. That leaves a substantial opportunity to vertically integrate, expand margins, and unlock incremental profitability at scale, while further leveraging our existing domestic infrastructure. Interestingly, in the U.S., the mix has flipped. We produce approximately 80% of our own products, and buy 20% third-party products. Put simply, we believe we are uniquely positioned not just to benefit from the regulatory shift, but to lead the next phase of industry growth. Curaleaf International delivered a strong start to the year with revenue growing 35% year-over-year, ahead of our internal expectations. Performance was led by continued momentum in Germany and the U.K., with early signs of recovery in Poland. In Germany, after a soft January reflecting accelerated pharmacy stocking late last year, sales rebuilt through the quarter, and March was our strongest month, a positive setup heading into Q2. In the U.K., consistent growth in patients at Curaleaf Clinic more than offset competitive pricing dynamics and patient fees. Margins were pressured this quarter as we worked through transitional dynamics in our international supply chain. Prior to the recent U.S. rescheduling developments, we had been evaluating meaningful CapEx to expand our international cultivation footprint. We are now reassessing that investment in light of a more compelling alternative—leveraging our domestic cultivation assets and award-winning U.S. genetics to supply international markets. We would not only avoid significant CapEx, but also unlock meaningful gross margin expansion as we scale. Looking ahead, we remain optimistic that Spain and France will begin contributing in 2027 as those programs finalize their frameworks. And importantly, U.S. rescheduling could act as a catalyst for other countries to embrace medical cannabis. We are actively monitoring each market, and will share more as visibility increases. With that, I would like to hand the call over to our President to discuss our U.S. strategy and operations. He has been with us for nearly a year, bringing his CPG experience from Pepsi and Albertsons to Curaleaf Holdings, Inc., and has already made an impact on the business. Unknown Speaker: Thank you, Boris. Our domestic business grew 2% year-over-year, and more importantly, we are seeing clear proof points that our strategy is working. The three pillars of our Built for Growth framework—customer centricity, operational excellence, and brand building—are coming together to create a durable and scalable foundation for growth. We saw the clearest early success in Florida, where we implemented the strategy first. By improving flower quality and strain diversity, introducing new products, aligning assortment with demand, and delivering a seamless customer experience, we drove 15% transaction growth year-over-year, more than offsetting price compression. We have now taken this playbook and are deploying it across other key markets, including Utah, Ohio, and Pennsylvania, with similarly encouraging early results. Ultimately, our entire network of states will benefit from these actions. Let us discuss the pillars of our Built for Growth strategy beginning with the first, customer centricity. Our R&D efforts have always started with a deep understanding of our consumer, and that focus continues to drive meaningful insights and innovation. BRIC 2, which launched in March, is a clear example, addressing key consumer pain points like clogging, enhancing the overall experience through flavor protection technology and Meter Mode intelligence, providing a measurable draw each time. Soon, the Flavor Series and Legacy Series of BRIC 2 strains will be complemented by the Live Series consisting of live resin and rosin to round out the portfolio. Similarly, the launch of Dark Heart last month establishes a new benchmark in ultra-premium flower. With best-in-class genetics, limited drops, and disciplined distribution, the brand is driving strong full-price sell-through and reestablishing Curaleaf Holdings, Inc. as a leader in the premium segment. Second is operational excellence, which speaks to delivering consistent improvements across our business, as we have seen in our cultivation facilities and, more recently, our retail store experience. By matching retail assortments with customer demand and optimizing pricing, we are driving steady gains in key metrics such as traffic and units per transaction. These incremental improvements are compounding into meaningful financial performance. Third is brand building, which is critical to long-term staying power as the market evolves. In Select, we have simplified the product architecture to clearly communicate its value proposition, and we are seeing positive consumer reception that will add to its market-leading position. We are also investing in trade marketing and elevated visual merchandising in partner doors, with encouraging results as domestic wholesale grew 19% this quarter. At the same time, we are expanding distribution with a disciplined focus on profitable growth. For example, last month's takeover of The Travel Agency in New York showcased our brands across both physical and digital channels, delivering outstanding results by significantly increasing traffic and AOV, benefiting both Curaleaf Holdings, Inc. and The Travel Agency. As the industry scales, we believe leading brands will capture disproportionate share. Today, according to Headset and BDSA [inaudible], the Curaleaf Holdings, Inc. portfolio holds a top share position, with Select maintaining the number one position in vapes, and we see substantial opportunity to expand on that leadership. When these three strategic pillars come together, they create a powerful flywheel, driving repeatable revenue growth, margin expansion, and increasing returns over time. I will close by recognizing that these results and the opportunity ahead are a direct reflection of the execution, discipline, and commitment of our over 5 thousand-member team across the organization. As we look forward, we believe the three-year down cycle the cannabis industry has navigated is now turning upward. The combination of improving fundamentals, accelerating regulatory momentum, and our scaled global platform positions us exceptionally well for what comes next. We thank President Trump for delivering on his commitments, turning promises into tangible results. Promises made, promises kept. Alongside Acting AG Blanche, he achieved what others had started but were not able to complete. As a result, patients, consumers, Curaleaf Holdings, Inc., and the burgeoning cannabis industry are meaningfully better today. With that, I will turn the call over to our CFO, Edward Kremer. Ed? Edward Kremer: Thank you. Total revenue for the first quarter was $324 million, a 3% sequential decline compared to the fourth quarter due to normal seasonality, and increased 6% compared to the same period last year. Strength in Ohio, Curaleaf International, New York, Utah, and Massachusetts was offset by challenges in Nevada and Illinois. By geography, our domestic segment grew 2% year-over-year, with retail contracting 2%, which was more than offset by 19% year-over-year growth in domestic wholesale. International revenue grew 35% year-over-year, beating our internal plan, driven primarily by Germany and the U.K. By channel, total revenue was [inaudible] Ohio and solid growth in Curaleaf International. Our first quarter gross profit was $157 million, resulting in a 49% gross margin, a decrease of 220 basis points compared to the prior year period. The primary drivers of this contraction were price compression and discounts, partially offset by continued cultivation efficiency gains and disciplined labor expense controls. Our domestic gross margin was 50%, flat with the fourth quarter, underscoring the stabilization we are seeing in our U.S. business. While price compression remained present in most of our markets, we continue to find ways to offset that impact through cultivation efficiencies, product innovation, and selective price increases in states where demand is outstripping supply. Notably, we have recently begun to see the rate of price compression decelerate. International gross margin was 42%, a decrease of 190 basis points sequentially, driven by pricing pressure in our U.K. business and in German flower, and lower service volume sales, which carry a higher margin. SG&A expenses were $113 million in the first quarter, an increase of $7 million from the year-ago period. Core SG&A was $108 million, an increase of $5 million from the prior year. The year-over-year increase in our core SG&A primarily reflects international expansion, additional headcount, and new store openings in Florida and Ohio. Core SG&A was 33% of revenue in the first quarter, a 35 basis point decrease compared to the prior year due to leverage and stronger sales. First quarter adjusted EBITDA was $63 million, a decrease of 4% compared to last year, while adjusted EBITDA margin was 20%, inclusive of a 170 basis point drag from international, a decrease of 200 basis points versus last year. First quarter net income from continuing operations was $70 million, or $0.09 per share, compared to a net loss of $50 million, or negative $0.09 per share in the year-ago period. During the quarter, prior to the rescheduling news, we completed a routine tax review with external counsel. Based on new information that came to light, we determined that certain tax positions in previous years met the more-likely-than-not standard required under ASC 740. This conclusion allowed us to release a significant portion of our previously recorded tax reserves and accrued interest from our balance sheet. These positions will also reduce our uncertain tax position liabilities going forward. Separately, following Treasury and IRS guidance on medical cannabis rescheduling, we expect to recognize additional 280E tax benefit in future periods. Now turning to our balance sheet and cash flow. We ended the quarter with cash and cash equivalents of $106 million. Inventory increased $16 million, or 7%, compared to the fourth quarter due to planned inventory builds in anticipation of our BRIC 2 and Dark Heart launches, coupled with inventory stocking ahead of April. Capital expenditures for 2026 continue to be expected at roughly $80 million. We generated first quarter operating cash flow and free cash flow from continuing operations of $21 million and $4 million, respectively, largely due to the aforementioned inventory investments ahead of the two product launches. We expect operating cash to build as the year progresses consistent with the cadence of our business. Our outstanding debt was $565 million. During the quarter, we reduced our acquisition-related debt by $9 million and completed refinancing of our $475 million note with a three-year $500 million note. Before moving on to guidance, I would like to announce that we are transitioning independent audit partners to BDO. BDO is the fifth-ranked global accounting firm known for its expertise, innovation, and global reach. The move reflects our commitment to strengthening transparency, enhancing financial oversight, and aligning with best-in-class partners who can support our continued growth. Notably, we are the first in the cannabis industry to make this shift, setting a new benchmark for operational excellence and forward-thinking leadership. By partnering with a firm of BDO's caliber, we are positioning ourselves to navigate an increasingly complex business landscape with greater confidence and precision as we get closer to U.S. exchange uplisting. I want to extend my sincere thanks to our accounting team for their exceptional work in making this transition possible. This achievement is a direct result of their dedication, expertise, and tireless efforts, and I would like to thank PKF for their support and partnership over the past seven years. Now on to our outlook. While we are experiencing strong increases in traffic due to the many initiatives we have in place, we are closely watching the impact higher energy prices will have on our consumers' disposable income as inflationary pressures arise. Taking these macroeconomic factors into account, and assuming current market conditions persist, we expect total revenue for the second quarter to increase 2% to 3% sequentially from the first quarter, which at the midpoint implies approximately $333 million. With that, I would like to turn the call over to the operator to open the line for questions. Operator: We will now open the call for questions. Ladies and gentlemen, at this time, we will begin the question-and-answer session. To ask a question, you may press star and then 1 on your touch-tone phones. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To withdraw your questions, you may press star and 2. In the interest of time, we do ask that you please limit yourselves to one question. Again, that is star and then 1 to join the question queue. Our first question today comes from Aaron Thomas Grey from Alliance Global Partners. Please go ahead with your question. Aaron Thomas Grey: Hi. Good evening, and thank you for the question here. Nice to see that growth continue on international. I know it has decelerated a bit from 2025, so first off, I would love to hear your outlook for growth for international for 2026. And then second, in terms of your prepared remarks on potential exports from the U.S. to international, is there any color you could give on timing, and then as we think about whether or not the existing cultivation footprint would suffice, or potentially you would want to acquire, given the climate that your current cultivation is in, and also the potential need for or the need for EU-GMP or GACP? Thank you. Boris Jordan: Thank you for that question. Let me first start with the international supply chain. As everyone knows, the international supply chain has been very difficult for everybody in the sector. A lot of cultivators are not producing the type of flower that passes very strict regulations, and therefore we have been looking, mostly in Canada, for increasing our own production, our own growing of product to ship to the international markets. However, this recent rescheduling—the language in rescheduling—really has given us pause, because we could use our U.S. infrastructure. The timing of that, we do not know. It very explicitly says that we should be able to. Upon my return from Europe—I am in Europe now—I plan to spend some time in Washington meeting with the DEA as well as the DOJ to see what the timing could be. But because once we submit our application, we are deemed rescheduled from Schedule I to Schedule III, in theory we could start very quickly. We do need state cooperation as well. We need export permits from them. There will be some time. So I really expect not to be able to do this probably until the end of the year, and we will see at that point in time. On the outlook for international growth, I think we mentioned in the last call we are looking at around 25% to 30% growth internationally this year, reduced down from over 50% last year due to no new markets. We expect that to accelerate significantly going into 2027. Operator: Our next question comes from William Joseph Kirk from Roth. Please go ahead with your question. William Joseph Kirk: Thank you, everybody. During the prepared remarks, the President gave transaction numbers for the quarter. I think he said plus 15% year-over-year, I believe, was how he said it. What is that on a same-store sales basis, and how has that transaction growth year-over-year been trending the last couple of quarters? Boris Jordan: President? Unknown Speaker: From a same-store sales basis, we are not going to comment on that, but the trends are moving in the right direction in general, and we will be able to talk about that on next cycle. But overall, as we look at transactions, they are moving up, and they are eclipsing right now the price compression that we see in the marketplace. William Joseph Kirk: Okay. And then a separate kind of follow-up question. We have seen some comments today or some reported comments out of Senator Tim Scott about banking. My question would be, how much of what we need to see or want to see from here requires some sort of congressional action versus things that can be done by the administration and the agencies, who appear to be pretty well aligned? Boris Jordan: I will take that. I think that we knew that Senator Scott was going to say this. As a matter of fact, I think last year on several podcasts and things I did, I mentioned that Senator Scott said that once we got rescheduling, as Chairman of the Senate Banking Committee, he would move SAFE Banking. So we do expect him to do that. I think we will probably see that in the third quarter, most likely. I do not think it will fit the agenda for the second quarter, and maybe we could even get a vote before the midterm election. I do not know, but certainly I think we could get a vote before year-end. It is a very popular issue, as you know. It has passed the House many, many times. I suspect that it will pass the Senate now. It seems to be more bipartisan today than it was under the previous Senate. The main person blocking it was Senator McConnell. As we know, Senator McConnell is retiring in 2027. So I do expect that SAFE Banking should be able to make it through. However, there is a chance also that we could get guidance—like the crypto industry did—from FinCEN and from Treasury that would indicate that the banking industry could start to serve the sector. However, I believe that that will be good enough for certain institutions, but I believe other institutions will want to see some level of legislation because, as we all know, one presidential administration to another could change the view, and so ramping up banking operations to then have to shut them down if the next President, for instance, had a different view, or the next Attorney General or Treasury Secretary had a different view—I think that they will want to see legislation. So certainly money-center banks, I believe, will want to see SAFE Banking legislation go through before they get involved. But I do think a lot of other financial institutions, including credit card companies and mid-sized regional banks, as well as working capital facilities and things like that, can open up with simple guidance from FinCEN and Treasury. Operator: Thank you. Our next question comes from Kenric Tyghe from Canaccord Genuity. Please go ahead with your question. Kenric Tyghe: Thank you, and good evening. This is at least the second quarter I can recall where you have highlighted lower price compression and a fairer domestic environment in terms of that price compression actually decreasing. Could you speak to, one, how broad-based that lower promotional intensity is; and two, the extent to which you think that hemp relief you were calling out—with alcohol retailers destocking and increased traffic into the regulated channel—is a factor? Thank you. Boris Jordan: I think there are several factors that are driving our comments on price compression. The first one is Curaleaf Holdings, Inc. has substantially, over the last year and the six months that I have been CEO, increased the quality of our products. We have rationalized our product SKUs. We have increased the quality of our flower substantially. And so we have been able to start to increase prices ourselves because of that, and we are seeing better margins both in our wholesale business and our retail business based on our own product quality. The second thing I would say is there are certain markets in the U.S.—I will bring two as an example, Florida and Massachusetts—that are starting to see stabilization in pricing, and we are not seeing the type of decline, or maybe even any decline, in those markets at this time. There are other markets, however, that are still compressing, but we are starting to see stabilization in certain markets. So overall, I would say that I am getting a slightly better feeling that that is partially maybe because hemp products are starting to disappear. Even though we still have many hemp sellers that have until November, we definitely think that the supply chains are starting to break down. We think there is less product availability. We think certain retailers, as they sell the inventory, are not replenishing it. And so I think we are starting to see the early part of a recurrence. I do not believe that that will really hit until early 2027, when I do expect somewhere between 10% to 15% organic growth in the sector just based on the hemp shutdown. Operator: Our next question comes from Frederico Yokota Gomes from ATB Cormark Markets. Please go ahead with your question. Frederico Yokota Gomes: Hi. Thanks. Good evening. Congrats on the great quarter here, guys. Just a question, more big picture on rescheduling. We got the medical portion, and we are probably going to get the recreational portion in the second half. We know about the 280E impact, but could you talk about the potential impact that rescheduling could have on sales, margins, the overall competitive environment, and M&A? Could it accelerate consolidation? Would it maybe let some companies that are struggling survive for longer? What do you think are some of the puts and takes here in terms of a post-rescheduling world in the industry? Boris Jordan: I think that it is too early to tell whether it will or will not have an impact on pricing. Let us be honest: most companies were not paying but accruing UTPs in their balance sheets. So I do not know yet whether we can talk about pricing changes in the marketplace at this point in time. I do not expect it to have a significant effect there. I do, however, think that it will have a significant effect on consolidation and M&A. We are already seeing a tremendous amount of tuck-in acquisitions across the country. Many companies have not announced them yet, but I can tell you we know of literally probably 10 to 15 transactions that have been done in the last two quarters regionally. Maybe they are waiting for approvals or something. And I do also expect, as I have said earlier, to see larger consolidations between MSOs as well. This is very much a velocity business. A lot of these companies compete literally across the street from each other with stores. We are seeing more transactions and we are seeing transactions increasing. And with the price compression that happened during the hemp period, we are seeing less capacity availability and less product availability in markets and shortages of products in the regulated market. And so by combining grow facilities, you are going to have massive cost savings, and you are also going to have massive synergies to be able to provide the market with product and branding. And so I do think you are going to see it. It is a compelling story to see significant MSOs starting to merge on the back of rescheduling. I think you will see it because now you have certainty on the balance sheet. And so, certainly, after we get the IRS guidance on 280E and we get, hopefully, the rescheduling of adult use in the second quarter, at that point in time, I do think that you are going to start seeing consolidation in the second half. Operator: Our next question comes from Russell Stanley from Beacon. Please go ahead with your question. Russell Stanley: Good afternoon, and thanks for the question. Just around the scheduled hemp ban and efforts that are starting to interfere with the implementation date. I would love to hear your confidence level that it will go into effect as scheduled. Do you see any risk to the date at this point? Thanks. Boris Jordan: I think that, obviously, the hemp industry is doing everything they can. They raised quite a bit of money and they are lobbying very aggressively. And this is politics, and it is Washington—never say never. But at the moment, as we speak right now, I can tell you I believe there is very little appetite within the House and Senate to change the rules that they set last year at this early stage. I do think, however, going forward, maybe a few years from now, you might get some changes, particularly around beverages. But I do not think you are going to get any changes here between now and November. Operator: Our next question comes from Pablo Zuanic from Zuanic & Associates. Please go ahead with your question. Pablo Zuanic: Thank you. Two quick questions. One, in the past, Boris, you have talked about spinning off part of the international business. On the math you are giving—$1 billion—that is about 5x system sales. Your domestic business is trading around 2.5x. Is that still in the cards, especially with stocks—although you have moved up—stocks have not moved up as much as we would have expected given all this good news? So if you can comment on that. And then the second question, which is somewhat related: I know we are all, including myself, very excited about the news flow and about the fact that companies that register with the DEA will become federally legal, supposedly, but the product will remain federally illegal, right? And will that create a problem as we move forward trying to implement a lot of these changes? When I say federally legal—you know, Iowa, Kansas, Indiana—it is still illegal there for medical even. So I am just trying to reconcile one and the other: an illegal product and a legal company. Thank you. Boris Jordan: The medical product in those states where medical product is approved will be legal under federal law, and I believe many of the states will be passing medical cannabis legislation. We already know of at least five states that in the past have not even considered it that are already now looking at passing medical cannabis legislation in those states. Some of the states you mentioned are part of that group that is looking at doing that. And so I do think that you will have that. Under the CSA, medical cannabis is going to be legal. I want to stress that point. Under our plans on international, we always have that option if we want to do it. Right now, we would like to see what happens with the rescheduling of adult use in the second quarter. Our business—if you take a look at Curaleaf Holdings, Inc.—in fact, if you add in our European business, 80% of our business is medical. And so if you combine the U.S. and the European business, 80% of our revenue actually comes from medical. However, the impact of 280E will only impact our U.S. business, which is 60% medical. And so we have a lot of options available to us if we decide. But at the moment, I am assuming and hoping that as this legislation passes in the second quarter, I do think that at that point in time, and as we get banking legislation, you will have significant institutional interest in the sector. I have spoken to many large-scale investors—large long-only funds that manage trillions of dollars. Today, they cannot really look at this sector until they have, one, visibility into adult use; two, visibility into what effect that has on the balance sheet. And at that point in time, they need to start doing their research. They need to go to their compliance committee. So I believe that it will take six to twelve months post final rescheduling for large institutional players to start participating in the market. And if that is the case, I do not see a reason for us to have to split the business up. However, I will never say never, because the European business is growing very aggressively. I do believe our margins, as we start to vertically integrate that business, are going to improve also quite dramatically, obviously helping the overall margin of the business because Europe is starting to become a bigger part of our business. And so we will take a look at things at the time that we feel necessary. Right now, I feel pretty good about keeping the business together. Operator: And with that, we will be concluding today's question-and-answer session. I would like to turn the floor back over to Camilo Russi Lyon for closing remarks. Camilo Russi Lyon: Thank you, everyone, for joining us today. We look forward to speaking with you again in about 90 days. Have a great day. Operator: And with that, ladies and gentlemen, we will be concluding today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Centerspace Q1 2026 Earnings Call. [Operator Instructions] I will now hand the call over to Josh Klaetsch, Director of Investor Relations. Please go ahead. Joshua Klaetsch: Thank you, and good morning, everyone. Centerspace's Form 10-Q for the quarter ended March 31, 2026, was filed with the SEC yesterday after the market closed. Additionally, our earnings release and supplemental disclosure package have been posted to our website at centerspacehomes.com and filed on Form 8-K. It's important to note that today's remarks will include statements about our business outlook and other forward-looking statements that are based on management's current views and assumptions. These statements are subject to risks and uncertainties discussed in our filings under the section titled Risk Factors and in our other filings with the SEC. We cannot guarantee that any forward-looking statements will materialize, and you're cautioned not to place undue reliance on these forward-looking statements. Please refer to our earnings release for reconciliations of any non-GAAP information which may be discussed on today's call. I'll now turn it over to Centerspace's President and CEO, Anne Olson, for the company's prepared remarks. Anne Olson: Thank you, Josh, and good morning, everyone. I'm here with our SVP of Investments and Capital Markets, Grant Campbell; and our CFO, Bhairav Patel. I'll start by addressing the strategic review which we initiated in 2025. This process is ongoing, and we appreciate the feedback we have received from our stakeholders. The Board and its advisers continue to make progress, and we expect to provide shareholders with a more substantive update on the status of the review process before or in connection with our second quarter earnings release. There can be no assurance as to the timing or outcome of our process and no assurance that the review process will result in a transaction or other strategic change or outcome. We do not intend to provide further details in connection with discussion of our first quarter earnings results today. Thank you for your understanding as we keep our comments focused on our results and our outlook. Our revenues for Q1 were in line with our expectations, supported by stable demand and continued execution by our leasing teams. First quarter results reflect the negative impact of recent changes to Colorado regulations, timing of certain expenses and costs related to our strategic review. These were anticipated, and our expectations for full year core FFO and its drivers remain substantially unchanged. We are reiterating our previously released earnings guidance, and Bhairav will discuss this momentarily. Operationally, we are starting to see the expected seasonal pickup in leasing. While blended leasing spreads in the quarter were up 40 basis points over prior leases, each month demonstrated improvement, increasing from negative 90 basis points in January to positive 140 basis points in March. We've seen this trend continue into April with preliminary blended spreads of 1.8%. The Q1 blend was composed of a 2.1% decrease in new lease rents, combined with a 3.1% increase on renewals, while in April, new lease spreads broke into positive territory and renewal spreads increased to 3.3%. Retention of 54.1% in our same-store portfolio was a 2 percentage point improvement from the same quarter last year, and our resident base remains healthy, with rent-to-income levels at 21.2% and bad debt within our historical range. Our Midwest markets continue to see rent growth outpacing national averages, and our largest market of Minneapolis saw blended spreads of 1.3% in Q1. Notably, Minneapolis has shown the best acceleration into April with blended spreads of 3.8% and new lease spreads of 4.3% in the month. In Denver, Q1 blended rates were down 5.1%, and reimbursement revenues are exhibiting the impact of regulatory changes in the market. Concessions are prevalent in the market, and we experienced our highest usage of concessions to date in Q1. That said, we have reason for optimism. Q1 absorption levels were at their highest level since the pandemic rebound in 2021, and retention in our Denver communities was 51.9%, an improvement over Q1 2025. This data, together with the significant drop-off of new construction starts, sets us up for a better leasing profile as the year progresses, with improvement in both concessions and leasing spreads expected as we enter peak leasing season. Expenses in the quarter were higher than our historic trend or 2026 projected run rate. Much of this was related to timing, which Bhairav will elaborate on. Our team excels in expense management, as evidenced by our same-store expense growth of only 1.6% over 2024 and 2025, and we expect that discipline to show again in 2026 as the impacts of onetime expenses normalize. I would be remiss not to recognize our team. Their commitment and execution sets us apart, and we're proud that their efforts have been recognized through several awards, most recently being named a USA Today Top Workplace. I'm very grateful for our amazing team members. With that, I'll turn it over to Grant. Grant Campbell: Thanks, Anne, and good morning, everyone. Nationwide transaction activity continued showing signs of improvement, including a 13% total volume increase in 2025 compared to 2024. At the same time, investors are becoming increasingly selective with their investment decisions. There is a wide variation across individual markets as it pertains to investor conviction and actions. Within our geographic footprint, this dynamic exists. In Minneapolis, 2025 was a record year for transactions at $2.5 billion in total volume. This is driven by supply peaking in 2023, and at the peak, new deliveries representing only 6% of then existing stock, comparing favorably to the profile of high supply markets. Coupling this with stable and persistent renter demand, investors have been drawn to the market, and we expect this to continue throughout 2026, in part due to next 12-month deliveries representing 1.6% of existing inventory and the full construction pipeline at 2.1% of inventory. In our other Midwest markets, we continue seeing strong interest from private capital investors. These markets are anchored by health care, education and government and have muted supply profiles, including next 12-month deliveries ranging from 0% in our North Dakota and Rochester, Minnesota markets to 2.4% of existing inventory in Omaha. While the labor market has slowed nationally, we are seeing healthier relative performance in these locations, including in Grand Forks, North Dakota, where the U.S. Space Force is expanding its presence and a new $450 million food processing facility is underway, along with Rochester, Minnesota, which saw strong job growth in 2025, driven by health care and education. Shifting to Denver. Transaction volume was down 41% in 2025 compared to 2024, and this has carried into 2026 thus far. The market continues working through the influx of deliveries from the past 24 months, flat job growth in 2025 and the recent legislative changes affecting property level other income. This has generally put Denver's transaction market in a wait-and-see environment. Premium assets and locations are still commanding strong pricing, including a few recent trades at sub 5% in-place cap rates, though the divide between premium profile and the rest of the market has widened. We believe this theme will continue until growth indicators translate into hard data, providing investors more conviction in underwriting strengthening fundamentals. Strong Q1 absorption numbers are one building block. Taken together, we think this environment reinforces our historical focus on disciplined capital allocation. We expect household formation in our portfolio to outpace national averages by 50 basis points through the end of next year and employment growth to similarly outpace the U.S. We believe this positioning will allow us to navigate the current environment while creating value over time. I'll now turn it over to Bhairav to discuss our financial results and guidance. Bhairav Patel: Thanks, Grant, and hello, everyone. Last night, we reported first quarter core FFO of $1.12 per diluted share, driven by a 1.1% year-over-year decrease in Q1 same-store NOI. Revenues from same-store communities were flat compared to the same quarter in 2025, with a 1.7% increase to average monthly rental rate in the portfolio offset by a 40 basis point decrease to occupancy and the impact of lower RUBS revenue in our Colorado communities. On the same-store expense side, Q1 numbers were up 1.7% year-over-year, with controllable expenses up 3.5% and noncontrollables down 1.1%. Our G&A expenses increased by $1.3 million over the same quarter last year, with strategic review costs as the main driver of that increase. Turning to full year 2026 expectations. Our guidance is consistent with what we outlined in February with core FFO at $4.93, same-store NOI growth of 75 basis points, same-store revenue growth of 88 basis points and same-store expense growth of 1.5%, each at the midpoint of their guided range. Casualty recoveries in Q1 led us to increase our NAREIT FFO expectations for the year by $0.03 at the midpoint to $4.78 per share. Revenue growth assumes blended gross leasing spreads of approximately 2%, with occupancy in the mid-95% range and retention of about 52%. We continue to expect blended spreads will again be highest in our Midwest communities. That strength will bolster our Denver portfolio, where we expect spreads to be down for the year, though improving as the year progresses. As we have previously stated, regulatory changes are expected to temper revenue growth in our Colorado portfolio, with RUBS expected to be down nearly $1 million, which was already incorporated into our initial guidance. As Anne alluded to earlier, expenses in the first quarter were slightly higher than our expectations. However, part of that increase was driven by timing differences, especially on the noncontrollable side. We recorded approximately $400,000 in real estate tax true-ups during the quarter. True-ups are not uncommon during the first quarter, and we expect these to be offset when we resolve open appeals in the second half of this year. Our nonreimbursable losses during the quarter were also slightly higher than anticipated. This line item tends to be volatile, and our first quarter experience has not altered our expectations for the full year. Controllable expenses were impacted by a low team member open position count and the timing of R&M projects. We expect offsets to both will favorably impact the cost of these for the remainder of the year. Lastly, while G&A during the quarter was higher than the projected run rate for the rest of the year, we now expect full year G&A to be lower than our initial projection. As a result, we still expect to deliver financial performance within the initial guidance ranges we discussed at the beginning of the year. To further aid in modeling, I wanted to highlight our expectations for certain line items and related timing. Costs related to our strategic review are expected to be $1 million to $1.5 million for the year, with those costs expected to occur primarily in the first half of the year. This expense appears in both our G&A costs and has an add-back from FFO to core FFO. Amortization of assumed debt is expected to be $1.3 million for the year, with $490,000 expected in Q2 before quarterly amortization decreases to $215,000 per quarter in Q3 and Q4. Our guidance does not include any acquisitions or dispositions. Turning to our balance sheet. Q1 annualized debt-to-EBITDA was impacted by the higher G&A and taxes in the quarter, leading it to be atypically high. This is not indicative of any meaningful change to our leverage profile, and we expect this number to return to our historical mid-7x range as the year progresses and expenses normalize. Our debt schedule features both a compelling rate and a long tenure with a weighted average rate of 3.6% and weighted average maturity of 6.7 years, while our liquidity remains strong with $267 million of cash and line of credit availability compared to $98 million of debt maturing through 2027. To conclude, this quarter demonstrated the stability and consistency of our portfolio, with our results demonstrating our commitments to both operational excellence and financial discipline and positioning us well for the rest of 2026. Operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Brad Heffern of RBC. Brad Heffern: On Minneapolis, it sounds like you're seeing a strong inflection in spreads there. Do you view that market as being sort of back to normal at this point after we've passed all the supply? And then do you expect to see it overshoot to the upside to some extent? Anne Olson: Yes. I think you're exactly right, how we feel about it. We are certainly past the inflection point where the demand has stayed steady and the supply has been significantly absorbed and the new supply pipeline, as Grant discussed, is tapering to just over 2%. And so we're seeing really good rent increases there, and we think that, that will continue. We have no indicators that demand is softening here in Minneapolis. And the economy -- the regional economy here is healthy. So we do expect some outperformance from Minneapolis this year, particularly relative to our other markets. Brad Heffern: Okay. Got it. And then, Bhairav, on the guidance, 1Q was at the bottom end of the revenue growth guidance range. The expenses in 1Q were close to the top end of the range. Obviously, you didn't change the guidance, but I'm curious if you can just walk through the path to both of those getting to their midpoints? Or do you expect that NOI maybe won't get to the midpoint, just based on where we are so far? Bhairav Patel: Yes, let's go through the components. So revenue was still in line with our expectations. It was flat for the quarter, but we expected it. The increase in scheduled rent was offset by the loss of RUBS revenue in Colorado, and there was amortization and concessions that started in the second half of last year. But overall, revenue came in, in line with expectations, and April is shaping up also in line with expectations. We do expect that remains on track. On controllables, R&M was slightly higher in the first quarter. Some of that was timing, which will correct itself. And the remainder, we expect to offset with savings elsewhere. And we are fully staffed now, so we expect to be able to drive efficiencies as we enter leasing season by better managing overtime spend and third-party vendors. So we do expect that we'll kind of remain on track on controllables as well. With respect to noncontrollables, there were some tax true-ups in the first quarter. It's not unusual for us to see tax true-ups in the first quarter. We do expect some fuel savings to materialize in the second half of the year, so that should offset it. And also, as I said in my prepared remarks, there were some nonreimbursable losses, which again tend to be volatile. So we saw higher losses in the first quarter, which is not really indicative of the run rate going forward. So that should normalize as well. Lastly, there's G&A. That was also higher than the run rate. It was driven by some payroll tax accruals that are typically higher in the first quarter when we grant the equity awards. That should also normalize as we go through the rest of the year, and we actually did identify some additional savings. So overall, then you kind of combine all of these components, we expect to remain in line with the midpoint of our NOI as well as core FFO. Operator: Your next question comes from Ami Probandt of UBS. Ami Probandt: Just to dive in a little bit more on the markets. The other Mountain West markets are a relatively small part of the portfolio, but growth in the quarter was pretty soft. So I was wondering if you could talk through what's going on there? Anne Olson: Yes, sure. So the other Mountain West consists of Rapid City and Billings. And those markets, if you recall, are acting a little bit more like a Denver. So they had enormous rent growth in '21, '22 into '23, but then they did get some supply. And so being smaller markets, they have been impacted a little bit by supply. That is tapering off. And as Grant noted, we see very little supply coming there. But that market really has had some equalization going on there as they work through that supply. And then also a little bit softer job picture there. Immediately post COVID, they had a pretty big influx of people working remotely, particularly in places like Rapid City. And so we've seen that pull back a little bit. The market is still strong, but we're not seeing the growth that we had been there. We've had a little bit of a pullback in those markets. Ami Probandt: Got it. That makes sense. And then just on retention, this has been really strong, remains ahead of historical. I was just wondering if you think that retention might come down at all and to what extent it might come down as you change over to pushing a little bit more on rate as we move into the peak leasing season? Anne Olson: Yes, this is a great question. I think the market has changed the last couple of years across the industry, we've really seen higher retention. So you're hearing that from all the multifamily peers. You're hearing that on the private side. Whether or not that there's some fundamental shift there, I think people are starting to lean into that, right? The renters are staying renters longer. The average age of a renter is increasing. And so I think there's a higher percentage of renters in the market, which is helping retention. Now as we look into this year, the one thing that we're really looking at is with a lot of absorption coming and a lot of absorption happening, there's actually going to be fewer choices for people to move to. And one of the things we noted is while retention was really strong in Q1, it actually jumped up pretty significantly in April. So I guess I'm -- my early leaning is that this is a little bit of a fundamental shift in the industry away from that 50% general retention rate into something a little bit higher. Operator: [Operator Instructions] Your next question comes from the line of Jeffrey Carr of Cantor Fitzgerald. Jeffrey Carr: Just wanted to ask about with the review ongoing and no acquisitions or dispositions in guidance, how are you thinking about capital allocation priorities for the rest of the year? And specifically maybe around the revolver balance and value-add spend? And how much does the review kind of influence those decisions, if at all? Anne Olson: Yes, this is a great question. I think capital allocation is job #1 of an executive team, and particularly when you have hard assets. And we -- while we maintained our guidance on value-add for the year and we do think that, that's an important part of our program here and our operating platform, really, most of the value-add that we're spending is are things that were started or identified last year. So as we think about capital allocation priorities going forward, we're very focused on managing the line of credit debt and keeping our balance sheet strong and flexible. Operator: Your next question comes from the line of Mason Guell of Baird. Mason P. Guell: Has there been any change to the outlook for any of your markets this year? And are any doing better or maybe worse than expected? Anne Olson: Well, as Bhairav said, we really expect revenue is coming in line with expectations, and that's unchanged for the year. I think maybe the components are moving a little bit. We'd like to see Denver picking up a little bit faster, but -- and they had awesome absorption in Q1, as we discussed in the prepared remarks. And if that continues, we're going to be right in line there. Minneapolis is a little bit better than we expected, but these are all very slight offsets. And overall, I think revenue is coming in right where we thought, and we expect that to continue for the year. Mason P. Guell: Great. And then could you provide some color on the real estate investment impairment line item on your income statement? Bhairav Patel: Yes, we can go through the impairment. So overall, from a GAAP standpoint, you typically book impairment when your -- on real assets when your cash flows are going to be less than your book value. Now from real assets, you don't typically tend to see it because they have long holding periods. So you usually see impairments when we have assets that are held for sale. But with the ongoing strategic review, the considerations change a little bit, and we have to kind of tweak the holding period for certain assets, which resulted in the impairment that we booked in the first quarter. It was truly driven by a change in the potential holding period in light of all the other activity that's being reviewed at the strategic level. So that's really what drove the impairment. It was on one asset and was driven by property-specific factors. Operator: Your next question comes from the line of Michael Gorman of BTIG. Michael Gorman: Maybe just a quick one for me on a more strategic level as you're thinking about the portfolio and you're thinking about the business. Obviously, Denver, I think, has been a challenge, and that's not unique to you at all. There was an article in The Wall Street Journal over the weekend talking about the regulatory environment for business in general in the state of Colorado and some increasing concerns about the regulatory burden among the tech ecosystem. And I'm just wondering, have you started to see any of those concerns? Have you started to think about those concerns and what that means for the job market in those kind of core metro areas in Colorado? Or is this just a little bit too far out on the horizon? Anne Olson: Michael, this isn't too far out on the horizon, and it is something that we're thinking about. As we consider -- you may recall when we -- before we bought in Salt Lake City, one of the things that we really look at with respect to markets is the business climate, right, the friendliness, the tax regime, the regulatory environment. In Colorado, you can even see -- and we discussed in our prepared remarks -- you can start seeing the results of some of the regulatory actions that they have taken with respect to real estate, the RUBS, the collection, our ability to get reimbursement for RUBS and utility costs. So we're already starting to see that there. And I do think that some of the other regulatory actions that they're considering or considering taking are impacting their job growth. As Grant noted, it's been flat there after a few years of really, really strong growth. So is this part of the natural kind of maturing of Denver, which went from 1 million people to close to 4 million people in a relatively short span of time? A lot of jobs came there. Did the infrastructure not keep up? Do they feel pressure to put these regulations in place? Will that abate over time? I think that remains to be seen. We're really happy with the portfolio we have there. We're very happy with the basis we have in it, having started to acquire that portfolio back in 2017. And we're optimistic because it's still a place that has a lot of cultural gravitas. People are still wanting to live there for access to the outdoor amenities and things that other cities can't offer. And on a relative basis to places like California, it is still very affordable. So -- but definitely something that we're watching, something we're already starting to feel the impacts of and really keeping a close eye on. Michael Gorman: That's really helpful color. And maybe just a follow-up. I just wanted to make sure I had it clear. It sounds like, to your point, job growth is a little bit slower in Denver, but it sounds like absorption is running at pretty high levels. So I'm just wondering, kind of what could be driving that mismatch and how durable that can -- that absorption level do you think can be with the current level of job growth? Grant Campbell: Yes. Mike, correct. Q1 absorption numbers were very strong, peak data, looking back to the pandemic period. So we continue to see strong inflows of resident and renter demand in the market. I think a big driver there is the high cost of homeownership in that market. And although job growth has been flat in 2025, as we talked about, we do continue to still see folks from out of state relocating to the market, maybe not at the same clip that they were from '21 to '23. We actually looked within our portfolio, '21 to '23, about 1/3 of our applicants within our same-store portfolio were from out of state. And in '24 and '25, that was 25%. So a reduction, but still a meaningful inflow of folks coming from out of state, and it is very expensive to own a home in that market. Operator: Your next question comes from the line of Ami Probandt of UBS. Ami Probandt: Maybe a follow-up to Mike's question that was just asked. There's maybe some bias for some coastal -- at least coastal people about what your Midwest markets might look like. And so I'm just kind of curious, what's the hiring outlook for recent college grads across your market? Do college grads, are they attractive to these markets? Or do they tend to go to some of the bigger Sunbelt markets or coastal markets and then move into the Midwest as they get a little bit older and want to start a family? Anne Olson: Yes. Ami, this is a good question. And there -- as you probably know, there has been some recent publication highlighting where the hot markets for new college grads are. Very few of them are in the Midwest, but we still do see really strong companies in our markets and across the Midwest. And so Minneapolis, we have Target, 3M, huge health care in UnitedHealthcare and all the subsidiaries, Cargill, which is one of the largest private companies in the world. And then on the North Dakota side, Grant mentioned, we're starting to see some growth there. And Grant, maybe you can just comment a little bit on what we're seeing in some of those markets with respect to job growth that would attract some of those new college grads? Grant Campbell: Yes. I think to Anne's comments on Minneapolis, 17 Fortune 500 companies, Cargill, largest private company that there is. We see a lot of folks that -- maybe Chicago used to be the place, if they were Midwest-centric, it was Chicago, or we're going coastal. We see more and more of those folks coming to the Twin Cities. A strong underlying higher education system in the Twin Cities also serves as a feeder for a lot of those organizations and companies in our backyard. In the case of our other Midwest markets that you alluded to, Rochester, the Mayo Clinic is undertaking a very significant expansion phase that is drawing a lot of folks. So that market driven by health care and education, we're seeing it play out on the ground. In our prepared remarks, we alluded to North Dakota, where we're seeing some pretty significant investment, both from folks in state as well as other folks, in this case, a European company desiring to put their first U.S. plant in that market. So I think these things, although maybe they don't register at the same level as some of the coastal updates that we hear about, the wheel is turning in these markets. Anne Olson: And Ami, just one more thought on that is when I look at recent data and recent news articles about it, it does -- there is a big highlight there, which is the new college grads aren't just looking for coastal markets and jobs. They're also balancing that with overall affordability, and that's where the Midwest can be a real draw. And over the past few years, we've seen markets like -- not just Minneapolis, but Milwaukee, Columbus, Kansas City really get an outsized share of those grads given the affordability of living there. Operator: There are are no further questions at this time. Anne Olson: Great. Well, thank you all for joining us today. We look forward to meeting with many of you at the upcoming BMO and NAREIT conferences, and we wish you all a great day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
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